Banking Regulatory Compliance 5 — Questions and Answers
Question 1: What is the purpose of stress testing under Dodd-Frank's DFAST (Dodd-Frank Act Stress Testing) requirements?
- To evaluate employee performance under high-pressure conditions
- To assess whether banks have sufficient capital to absorb losses during adverse economic scenarios (Correct answer)
- To test the bank's cybersecurity infrastructure
- To evaluate customer satisfaction under poor service conditions
Correct answer: To assess whether banks have sufficient capital to absorb losses during adverse economic scenarios
DFAST requires covered banks to conduct annual stress tests using hypothetical adverse and severely adverse economic scenarios to assess capital adequacy and resilience.
Question 2: Under the Military Lending Act (MLA), what is the maximum Military Annual Percentage Rate (MAPR) that can be charged to active-duty service members?
- 18%
- 21%
- 28%
- 36% (Correct answer)
Correct answer: 36%
The MLA caps the MAPR at 36% for consumer credit products extended to active-duty service members and their dependents, and prohibits certain other terms.
Question 3: Which regulation requires banks to make deposited funds available within specific timeframes and governs availability policies?
- Regulation D
- Regulation CC (Correct answer)
- Regulation E
- Regulation Z
Correct answer: Regulation CC
Regulation CC implements the Expedited Funds Availability Act (EFAA) and sets maximum hold periods that banks can place on deposited checks before making funds available.
Question 4: What is the 'beneficial ownership' rule under FinCEN regulations?
- A rule requiring banks to disclose their largest shareholders
- A requirement for banks to identify the natural persons who own or control legal entity customers (Correct answer)
- A rule governing how banks report beneficial interest in trust accounts
- A requirement for banks to track stock ownership of their clients
Correct answer: A requirement for banks to identify the natural persons who own or control legal entity customers
The beneficial ownership rule requires covered financial institutions to identify and verify the identity of natural persons who own 25% or more of a legal entity customer and one individual who controls it.
Question 5: Under the Real Estate Settlement Procedures Act (RESPA), what is a 'kickback' prohibition?
- Prohibition on banks charging prepayment penalties on mortgages
- Ban on giving or receiving fees, kickbacks, or things of value for referring settlement service business (Correct answer)
- Restriction on lenders increasing closing costs after a loan estimate is issued
- Prohibition on lenders requiring escrow accounts for property taxes
Correct answer: Ban on giving or receiving fees, kickbacks, or things of value for referring settlement service business
RESPA Section 8 prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referring settlement service business in a federally related mortgage transaction.
Question 6: A bank's compliance management system (CMS) typically includes which of the following components?
- Marketing strategy, product development, and HR policies
- Board and management oversight, compliance program, compliance audit, and consumer complaint response (Correct answer)
- Only written compliance policies and procedures
- External legal counsel reviews and annual regulatory filings
Correct answer: Board and management oversight, compliance program, compliance audit, and consumer complaint response
An effective CMS has four core elements: board and management oversight, a compliance program (policies, training, monitoring), compliance audit, and a consumer complaint management process.
Question 7: What is 'disparate impact' in the context of fair lending?
- When a lender intentionally discriminates against a protected class
- When a neutral lending policy disproportionately harms a protected class even without discriminatory intent (Correct answer)
- When two borrowers with identical profiles receive different loan terms
- When a bank offers fewer products in minority neighborhoods
Correct answer: When a neutral lending policy disproportionately harms a protected class even without discriminatory intent
Disparate impact occurs when a facially neutral policy or practice has a disproportionately negative effect on a protected class, even without any discriminatory intent.
Banking Regulatory Compliance 5
What is the purpose of stress testing under Dodd-Frank's DFAST (Dodd-Frank Act Stress Testing) requirements?