Community Banks and Credit Unions: Regulators Could Take Additional Steps to Address Compliance Burdens

In recent decades, many new regulations intended to strengthen financial soundness, improve consumer protections, and aid anti-money laundering efforts were implemented for financial institutions. Smaller community banks and credit unions must comply with some of the regulations, but compliance can be more challenging and costly for these institutions. GAO examined (1) the regulations community banks and credit unions viewed as most burdensome and why, and (2) efforts by depository institution regulators to reduce any regulatory burden. GAO analyzed regulations and interviewed more than 60 community banks and credit unions (selected based on asset size and financial activities), regulators, and industry associations and consumer groups. GAO also analyzed letters and transcripts commenting on regulatory burden that regulators prepared responding to the comments.

Interviews and focus groups GAO conducted with representatives of over 60 community banks and credit unions indicated regulations for reporting mortgage characteristics, reviewing transactions for potentially illicit activity, and disclosing mortgage terms and costs to consumers were the most burdensome. Institution representatives said these regulations were time-consuming and costly to comply with, in part because the requirements were complex, required individual reports that had to be reviewed for accuracy, or mandated actions within specific timeframes. However, regulators and others noted that the regulations were essential to preventing lending discrimination and use of the banking system for illicit activity, and they were acting to reduce compliance burdens. Institution representatives also said that the new mortgage disclosure regulations increased compliance costs, added significant time to loan closings, and resulted in institutions absorbing costs when others, such as appraisers and inspectors, changed disclosed fees. The Consumer Financial Protection Bureau (CFPB) issued guidance and conducted other outreach to educate institutions after issuing these regulations in 2013. But GAO found that some compliance burdens arose from misunderstanding the disclosure regulations—which in turn may have led institutions to take actions not actually required. Assessing the effectiveness of the guidance for the disclosure regulations could help mitigate the misunderstandings and thus also reduce compliance burdens.

Regulators of community banks and credit unions—the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration—conduct decennial reviews to obtain industry comments on regulatory burden. But the reviews, conducted under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), had the following limitations:

CFPB and the consumer financial regulations for which it is responsible were not included.

Unlike executive branch agencies, the depository institution regulators are not required to analyze and report quantitative-based rationales for their responses to comments.

Regulators do not assess the cumulative burden of the regulations they administer.

CFPB has formed an internal group that will be tasked with reviewing regulations it administers, but the agency has not publicly announced the scope of regulations included, the timing and frequency of the reviews, and the extent to which they will be coordinated with the other federal banking and credit union regulators as part of their periodic EGRPRA reviews. Congressional intent in mandating that these regulators review their regulations was that the cumulative effect of all federal financial regulations be considered. In addition, sound practices required of other federal agencies require them to analyze and report their assessments when reviewing regulations. Documenting in plans how the depository institution regulators would address these EGRPRA limitations would better ensure that all regulations relevant to community banks and credit unions were reviewed, likely improve the analyses the regulators perform, and potentially result in additional burden reduction.

GAO makes a total of 10 recommendations to CFPB and the depository institution regulators. CFPB should assess the effectiveness of guidance on mortgage disclosure regulations and publicly issue its plans for the scope and timing of its regulation reviews and coordinate these with the other regulators' review process. As part of their burden reviews, the depository institution regulators should develop plans to report quantitative rationales for their actions and addressing the cumulative burden of regulations. In written comments, CFPB and the four depository institution regulators generally agreed with the recommendations.

Within the past two decades, financial regulators have implemented many  new regulations in the aftermath of events such as the September 2001  terrorist attacks and the financial crisis in 2007–2009, These regulations  were intended to address the risks and problematic practices that  contributed or led to the events, and included provisions that ranged from  strengthening financial institutions’ anti-money laundering (AML)  programs to prevent terrorism financing to creating additional protections  for mortgage lending. For example, in 2010 Congress passed the Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank  Act), which includes numerous reforms to strengthen oversight of  financial institutions. As a result of this act and other actions taken by  financial regulators, additional regulatory requirements were placed on  financial institutions, including community banks and credit unions. These  institutions historically have played an important role in serving their local  customers, including providing credit to small businesses.

We previously reported that representatives of community banks and  credit unions expressed concerns about the burden that additional  regulations create for them. For example, some credit union, community  bank, and industry association representatives told us in 2015 that  several mortgage-related rules increased their overall compliance burden.  In turn, some said this had begun to adversely affect some lending activities, such as mortgage lending to customers not typically served by  larger financial institutions, although the regulations provided exemptions  or other provisions to reduce such impacts. But surveys conducted by  regulators, industry associations, and academics on the impact of the  Dodd-Frank Act on small banks suggested that credit availability had  been reduced by moderate to minimal amounts among those responding  to the various surveys, and regulatory data up to that point had not  confirmed a negative impact on mortgage lending.

You asked us to examine the impact of regulation on community banks  and credit unions. This report examines (1) what regulations institutions  regarded as most burdensome and why, and (2) what actions the  regulators of these institutions have taken to address any burdens  associated with financial regulations. In addition to this report, we will  provide a separate report that addresses the effect of regulatory burden  on lending activities by community banks and credit unions, the rate of  formation of new institutions, and potential impacts of regulations that we  expect to issue to you in spring 2018.

To identify regulations that community banks and credit unions viewed as  most burdensome, we obtained opinions from a non-probability selection  of selected community banks and credit unions. We drew our sample  from institutions whose characteristics (such as asset size and activities)  were typical of traditional community banking activities. The asset  thresholds we used for our sample were $1.2 billion for banks (which  represented 90 percent of banks as of March 2016) and $860 million for  credit unions (which represented 95 percent of credit unions as of March  2016). We excluded institutions that were primarily conducting activities  that were not typical of community banking, including institutions  functioning primarily as credit card banks or institutions with headquarters  outside the United States. From this group, we used additional criteria to  select institutions that were located in various regions of the country and  whose lending asset levels indicated they would have experience with  complying with relevant regulations. The sample also included institutions  overseen by each of the depository institution regulators—the Board of  Governors of the Federal Reserve (Federal Reserve), the Federal  Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the  Currency (OCC), and the National Credit Union Administration (NCUA).

Using this sample, we obtained opinions from representatives 64  institutions during individual interviews, focus groups, and a site visit.

More specifically, we interviewed 10 community banks and 7 credit  unions.

After the interviews demonstrated considerable consensus existed  among institutions about the most burdensome regulations, we held  six focus groups with an additional 46 banks and credit unions to  identify the characteristics of the regulations that made them  burdensome.

We also reviewed 28 reports of examinations conducted by the  regulators of banks and credit unions we selected for our interviews to  identify the extent to which these examinations addressed regulations  from which the banks were exempted.

To determine what actions regulators took to address regulatory burden,  we reviewed the reports the depository institution regulators issued for the  2007 and 2017 Economic Growth and Regulatory Paperwork Reduction  Act of 1996 (EGRPRA) reviews. We analyzed over 200 comment letters  that the regulators received from community banks, credit unions, their  trade associations, and others; and reviewed transcripts of all six public  forums regulators held as part the 2017 EGRPRA regulatory review they  conducted. We analyzed the extent to which they addressed the issues  raised in comments received for the reviews. We also interviewed the  depository institution regulators and the Consumer Financial Protection  Bureau (CFPB) about their actions to address burden when creating rules  and thereafter. We discussed issues that banks and credit unions  identified with specific regulations with the depository institution  regulators, CFPB, and the Financial Crimes Enforcement Network  (FinCEN), which has delegated authority from the Secretary of the  Treasury to implement, administer, and enforce compliance with anti- money laundering and terrorist financing regulations. We also interviewed  associations representing consumers with knowledge of relevant activities  to understand the benefits of these regulations and the Small Business  Administration’s Office of Advocacy, which reviews and comments on  burdens of regulations, including those issued by banking regulators.

For more information on our scope and methodology, see appendix I. We  conducted this performance audit from March 2016 to February 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

While no commonly accepted definition of a community bank exists, they  are generally smaller banks that provide banking services to the local  community and have management and board members who reside in the  local community. In some of our past reports, we often defined community  banks as those with under $10 billion in total assets. However, many  banks have assets well below $10 billion as data from the financial  condition reports that institutions submit to regulators (Call Reports)  indicated that of the more than 6,100 banks in the United States, about 90  percent had assets below about $1.2 billion as of March 2016.

Based on our prior interviews and reviews of documents, regulators and  others have observed that small banks tend to differ from larger banks in  their relationships with customers. Large banks are more likely to  engage in transactional banking, which focuses on the provision of highly  standardized products that require little human input to manage and are  underwritten using statistical information. Small banks are more likely to  engage in what is known as relationship banking in which banks consider  not only data models but also information acquired by working with the  banking customer over time. Using this banking model, small banks may  be able to extend credit to customers such as small business owners who  might not receive a loan from a larger bank.

Small business lending appears to be an important activity for community  banks. As of June 2017, community banks had almost $300 billion  outstanding in loans with an original principal balance of under $1 million  (which banking regulators define as small business lending), or about 20  percent of these institutions’ total lending. In that same month, non- community banks had about $390 billion outstanding in business loans  under $1 million representing 5 percent of their total lending.

Credit unions are nonprofit member-owned institutions that take deposits  and make loans. Unlike banks, credit unions are subject to limits on their  membership because members must have a “common bond”—for  example, working for the same employer or living in the same community.  Financial reports submitted to NCUA (the regulator that oversees  federally-insured credit unions) indicated that of the more than 6,000  credit unions in the United States, 90 percent had assets below about  $393 million as of March 2016.

In addition to providing consumer products to their members, credit  unions are also allowed to make loans for business activities subject to  certain restrictions. These member business loans are defined as a loan,  line of credit, or letter of credit that a credit union extends to a borrower  for a commercial, industrial, agricultural, or professional purpose, subject  to certain exclusions. In accordance with rules effective January 2017,  the total amount of business lending credit unions can do is not to  generally exceed 1.75 times the actual net worth of the credit union.

Overview of Federal Financial Regulators for Community Banks and Credit Unions

Federal banking and credit union regulators have responsibility for  ensuring the safety and soundness of the institutions they oversee,  protecting federal deposit insurance funds, promoting stability in financial  markets, and enforcing compliance with applicable consumer protection  laws. All depository institutions that have federal deposit insurance have a  federal prudential regulator. The regulator responsible for overseeing a  community bank or credit union varies depending on how the institution is  chartered, whether it is federally insured, and whether it is a Federal  Reserve member (see table 1).

Other federal agencies also impose regulatory requirements on banks  and credit unions. These include rules issued by CFPB, which has  supervision and enforcement authority for various federal consumer  protection laws for depository institutions with more than $10 billion in  assets and their affiliates. The Federal Reserve, OCC, FDIC, and NCUA  continue to supervise for consumer protection compliance at institutions  that have $10 billion or less in assets. Although community banks and  credit unions with less than $10 billion in assets typically would not be  subject to CFPB examinations, they generally are required to comply with  CFPB rules related to consumer protection.

In addition, FinCEN also issues requirements that financial institutions,  including banks and credit unions, must follow. FinCEN is a component of  Treasury’s Office of Terrorism and Financial Intelligence that supports  government agencies by collecting, analyzing, and disseminating financial  intelligence information to combat money laundering. It is responsible for  administering the Bank Secrecy Act, which, with its implementing  regulations, generally requires banks, credit unions, and other financial  institutions, to collect and retain various records of customer transactions,  verify customers’ identities in certain situations, maintain AML programs,  and report suspicious and large cash transactions. FinCEN relies on  financial regulators and others to examine U.S. financial institutions to  determine compliance with these requirements. In addition, financial  institutions also have to comply with requirements by Treasury’s Office of  Foreign Asset Control to review transactions to ensure that business is  not being done with sanctioned countries or individuals.

In response to the 2007-2009 financial crisis, Congress passed the Dodd- Frank Act, which became law on July 21, 2010. The act includes  numerous reforms to strengthen oversight of financial services firms,  including consolidating consumer protection responsibilities within CFPB.  Under the Dodd-Frank Act, federal financial regulatory agencies were  directed to or granted authority to issue hundreds of regulations to  implement the act’s reforms. Many of the provisions in the Dodd-Frank  Act target the largest and most complex financial institutions, and  regulators have noted that much of the act is not meant to apply to  community banks.

Although the Dodd-Frank Act exempts small institutions, such as  community banks and credit unions, from several of its provisions, and  authorizes federal regulators to provide small institutions with relief from  certain regulations, it also contains provisions that impose additional  restrictions and compliance costs on these institutions. As we reported in  2012, federal regulators, state regulatory associations, and industry  associations collectively identified provisions within 7 of the act’s 16 titles  that they expected to affect community banks and credit unions. The  provisions they identified as likely to affect these institutions included  some of the act’s mortgage reforms, such as those requiring institutions  to ensure that a consumer obtaining a residential mortgage loan has the  reasonable ability to repay the loan at the time the loan is  consummated;  comply with a new CFPB rule that combines two different mortgage  loan disclosures that had been required by the Truth-in-Lending Act  and the Real Estate Settlement Procedures Act of 1974; and ensure that property appraisers are sufficiently independent.

In addition to the regulations that have arisen from provisions in the  Dodd-Frank Act, we reported that other regulations have created potential  burdens for community banks. For example, the depository institution  regulators also issued changes to the capital requirements applicable to  these institutions. Many of these changes were consistent with the  Basel III framework, which is a comprehensive set of reforms to  strengthen global capital and liquidity standards issued by an international  body consisting of representatives of many nations’ central banks and  regulators. These new requirements significantly changed the risk-based  capital standards for banks and bank holding companies. As we reported  in November 2014, officials interviewed from community banks did not  anticipate any difficulties in meeting the U.S. Basel III capital  requirements but expected to incur additional compliance costs.

In addition to regulatory changes that could increase burden or costs on  community banks, some of the Dodd-Frank Act provisions have likely  resulted in reduced costs for these institutions. For example, revisions to  the way that deposit insurance premiums are calculated reduced the  amount paid by banks with less than $10 billion in assets by $342 million  or 33 percent from the first to second quarter of 2011 after the change  became effective. Another change reduced the audit-related costs that  some banks were incurring in complying with provisions of the Sarbanes- Oxley Act.

Prior Studies on Regulatory Burden Generally Focused on Costs

A literature search indicated that prior studies by other entities, including  regulators, trade associations or others, which examined how to measure  regulatory burden generally focused on direct costs resulting from  compliance with regulations, and our analysis of them identified various  limitations that restrict their usefulness in assessing regulatory burden.  For example, researchers commissioned by the Credit Union National  Association, which advocates for credit unions, found costs attributable to  regulations totaled a median of 0.54 percent of assets in 2014 for a non- random sample of the 53 small, medium, and large credit unions  responding to a nationwide survey. However, one of the study’s  limitations was its use of a small, non-random sample of credit unions. In  addition, the research was not designed to conclusively link changes in  regulatory costs for the sampled credit unions to any one regulation or set  of regulations.

CFPB also conducted a study of regulatory costs associated with specific  regulations applicable to checking accounts, traditional savings accounts,  debit cards, and overdraft programs. Through case studies involving  200 interviews with staff at seven commercial banks with assets over $1  billion, the agency’s staff determined that the banks’ costs related to  ongoing regulatory compliance were concentrated in operations,  information technology, human resources, and compliance and retail  functions, with operations and information technology contributing the  highest costs. While providing detailed information about the case study  institutions, reliance on a small sample of mostly large commercial banks  limits the conclusions that can be drawn about banks’ regulatory costs  generally. In addition, the study notes several challenges to quantifying  compliance costs that made their cost estimates subject to some  measurement error, and the study’s design limits the extent to which a  causal relationship between financial regulations and costs could be fully  established. Researchers from the Mercatus Center at George Mason  University used a nongeneralizable survey of banks to find that  respondents believed they were spending more money and staff time on  compliance than before due to Dodd-Frank regulations. From a universe  of banks with less than $10 billion of assets, the center’s researchers  used a non-random sample to collect 200 responses to a survey sent to  500 banks with assets less than $10 billion about the burden of complying  with regulations arising from the Dodd-Frank Act. The survey sought  information on the respondents’ characteristics, products, and services  and the effects various regulatory and compliance activities had on  operations and decisions, including those related to bank profitability,  staffing, and products. About 83 percent of the respondents reported  increased compliance costs of greater than or equal to 5 percent due to  regulatory requirements stemming from the Dodd-Frank Act. The study’s  limitations include use of a non-random sample selection, small response  rate, and use of questions that asked about the Dodd-Frank Act in  general. In addition, the self-reported survey items used to capture  regulatory burden—compliance costs and profitability—have an increased  risk of measurement error and the causal relationship between Dodd- Frank Act requirements and changes in these indicators is not well- established.

Institutions Cited Mortgage and Anti- Money Laundering Regulations as Most Burdensome, although Others Noted Their Significant Public Benefits

Community bank and credit union representatives that we interviewed  identified three sets of regulations as most burdensome to their  institutions: (1) data reporting requirements related to loan applicants and  loan terms under the Home Mortgage Disclosure Act of 1975 (HMDA); (2)  transaction reporting and customer due diligence requirements as part of  the Bank Secrecy Act and related anti-money laundering laws and  regulations (collectively, BSA/AML); and (3) disclosures of mortgage loan  fees and terms to consumers under the TILA-RESPA Integrated  Disclosure (TRID) regulations. In focus groups and interviews, many of  the institution representatives said these regulations were time- consuming and costly to comply with, in part because the requirements  were complex, required preparation of individual reports that had to be  reviewed for accuracy, or mandated actions within specific timeframes.  However, federal regulators and consumer advocacy groups said that  benefits from these regulations were significant.

HMDA Requirements Deemed Time Consuming by Institutions but Critical to Others

Representatives of community banks and credit unions in all our focus  groups and in most of our interviews told us that HMDA’s data collection  and reporting requirements were burdensome. Under HMDA and its  implementing Regulation C, banks and credit unions with more than $45  million in assets that do not meet regulatory exemptions must collect,  record, and report to the appropriate federal regulator, data about  applicable mortgage lending activity. For every covered mortgage  application, origination, or purchase of a covered loan, lenders must  collect information such as the loan’s principal amount, the property  location, the income relied on in making the credit decision, and the  applicants’ race, ethnicity, and sex. Institutions record this on a form  called the loan/application register, compile these data each calendar  year, and submit them to CFPB. Institutions have also been required to  make these data available to the public upon request, after modifying  them to protect the privacy of applicants and borrowers.

Representatives of many community banks and credit unions with whom  we spoke said that complying with HMDA regulations was time  consuming. For example, representatives from one community bank we  interviewed said it completed about 1,100 transactions that required  HMDA reporting in 2016, and that its staff spent about 16 hours per week  complying with Regulation C. In one focus group, participants discussed  how HMDA compliance was time consuming because the regulations  were complex, which made determining whether a loan was covered and  should be reported difficult. As a part of that discussion, one bank  representative told us that it was not always clear whether a residence  that was used as collateral for a commercial loan was a reportable  mortgage under HMDA. In addition, representatives in all of our focus  groups in which HMDA was discussed and in some interviews said that  they had to provide additional staff training for HMDA compliance. Among  the 28 community banks and credit unions whose representatives  commented on HMDA in our focus groups, 61 percent noted having to  conduct additional HMDA-related training.

In most of our focus groups and three of our interviews, representatives of  community banks and credit unions also expressed concerns about how  federal bank examiners review HMDA data for errors. When regulatory  examiners conducting compliance examinations determine that an  institution’s HMDA data has errors above prescribed thresholds, the  institution has to correct and resubmit its data, further adding to the time  required for compliance. While regulators have revised their procedures  for assessing errors as discussed later, prior to 2018, if 10 percent or  more of the loan/application registers that examiners reviewed had errors,  an institution was required to review all of their data, correct any errors,  and resubmit them. If 5 percent or more of the reviewed loan/application  registers had errors in a single data field, an institution had to review all  other registers and correct the data in that field. Participants in one  focus group discussed how HMDA’s requirements left them little room for  error and that they were concerned that examiners weigh all HMDA fields  equally when assessing errors. For example, representatives of one  institution noted that for purposes of fair lending enforcement, errors in  fields such as race and ethnicity can be more important than errors in the  action taken date (the field for the date when a loan was originated or  when an application not resulting in an origination was received).  Representatives of one institution also noted that they no longer have  access to data submission software that allowed them to verify the  accuracy of some HMDA data, and this has led to more errors in their  submissions. Representatives of another institution told us that they had  to have staff conduct multiple checks of HMDA data to ensure the data  met accuracy standards, which added to the time needed for compliance.

Representatives of many community banks and credit unions with whom  we spoke also expressed concerns that compliance requirements for  HMDA were increasing. The Dodd-Frank Act included provisions to  expand the information institutions must collect and submit under HMDA,  and CFPB issued rules implementing these new requirements that mostly  became effective January 2018. In addition to certain new data  requirements specified in the act, such as age and the total points and  fees payable at origination, CFPB’s amendments to the HMDA reporting  requirements also added additional data points, including some intended  to collect more information about borrowers such as credit scores, as well  as more information about the features of loans, such as fees and  terms. In the final rule implementing the new requirements, CFPB also  expanded the types of loans on which some institutions must report  HMDA data to include open-ended lines of credit and reverse mortgages.  Participants in two of our focus groups with credit unions said reporting  this expanded information will require more staff time and training and  cause them to purchase new or upgraded computer software.

In most of our focus groups, participants said that changes should be  made to reduce the burdens associated with reporting HMDA data. For  example, in some focus groups, participants suggested raising the  threshold for institutions that have to file HMDA reports above the then  current $44 million in assets, which would reduce the number of small  banks and credit unions that are required to comply. Representatives of  two institutions noted that because small institutions make very few loans  compared to large ones, their contribution to the overall HMDA data was  of limited value in contrast to the significant costs to the institutions to  collect and report the data. Another participant said their institution  sometimes make as few as three loans per month. In most of our focus  groups, participants also suggested that regulators could collect mortgage  data in other ways. For example, one participant discussed how it would  be less burdensome for lenders if federal examiners collected data on  loan characteristics during compliance examinations.

However, staff of federal regulators and consumer groups said that  HMDA data are essential for enforcement of fair lending laws and  regulations. Representatives of CFPB, FDIC, NCUA, and OCC and  groups that advocate for consumer protection issues said that HMDA  data has helped address discriminatory practices. For example, some  representatives noted a decrease in “redlining” (refusing to make loans to  certain neighborhoods or communities). CFPB staff noted that HMDA  data provides transparency about lending markets, and that HMDA data  from community banks and credit unions is critical for this purpose,  especially in some rural parts of the country where they make the majority  of mortgage loans. While any individual institution’s HMDA reporting  might not make up a large portion of HMDA data for an area, CFPB staff  told us that if all smaller institutions were exempted from HMDA  requirements, regulators would have little or no data on the types of  mortgages or on lending patterns in some areas.

Agency officials also told us that few good alternatives to HMDA data  exist and that the current collection regime is the most effective available  option for collecting the data. NCUA officials noted that collecting  mortgage data directly from credit unions during examinations to enforce  fair lending rules likely would be more burdensome for the institutions.  CFPB staff and consumer advocates we spoke with also said that HMDA  provides a low-cost data source for researchers and local policy makers,  which leads to other benefits that cannot be directly measured but are  included in HMDA’s statutory goals—such as allowing local policymakers  to target community investments to areas with housing needs.

While representatives of some community banks and credit unions  argued that HMDA data were no longer necessary because practices  such as redlining have been reduced and they receive few requests for  HMDA data from the public, representatives of some consumer advocate  groups responded that eliminating the transparency that HMDA data  creates could allow discriminatory practices to become more common.  CFPB staff and representatives of one of these consumer groups also  said that before the financial crisis of 2007–2009, some groups were not  being denied credit outright but instead were given mortgages with terms,  such as high interest rates, which made them more likely to default. The  expanded HMDA data will allow regulators to detect such problematic  lending practices for mortgage terms. CFPB and FDIC staff also told us  that while lenders will have to collect and report more information, the  new fields will add context to lending practices and should reduce the  likelihood of incorrectly flagging institutions for potential discrimination.  For example, with current data, a lender may appear to be denying  mortgage applications to a particular racial or ethnic group, but with  expanded data that includes applicant credit scores, regulators may  determine that the denials were appropriate based on credit score  underwriting.

CFPB staff acknowledged that HMDA data collection and reporting may  be time consuming, and said they have taken steps to reduce the  associated burdens for community banks and credit unions.

First, in its final rule implementing the Dodd-Frank Act’s expanded  HMDA data requirements, CFPB added exclusions for banks and  credit unions that make very few mortgage loans. Effective January  2018, an institution will be subject to HMDA requirements only if it has  originated at least 25 closed-end mortgage loans or at least 100  covered open-end lines of credit in each of the 2 preceding calendar  years and also has met other applicable requirements. In response to  concerns about the burden associated with the new requirement for  reporting open-end lines of credit, in 2017. CFPB temporarily  increased the threshold for collecting and reporting data for open-end  lines of credit from 100 to 500 for the 2018 and 2019 calendar  years. CFPB estimated that roughly 25 percent of covered  depository institutions will no longer be subject to HMDA as a result of  these exclusions.

Second, the Federal Financial Institutions Examination Council  (FFIEC), which includes CFPB, announced the new FFIEC HMDA  Examiner Transaction Testing Guidelines that specify when agency  examiners should direct an institution to correct and resubmit its  HMDA data due to errors found during supervisory examinations.  CFPB said these revisions should greatly reduce the burden  associated with resubmissions. Under the revised standards,  institutions will no longer be directed to resubmit all their HMDA data if  they exceeded the threshold for HMDA files with errors, but will still be  directed to correct specific data fields that have errors exceeding the  specified threshold. The revised guidelines also include new  tolerances for some data fields, such as application date and loan  amount.

Third, CFPB also introduced a new online system for submitting  HMDA data in November 2017. CFPB staff said that the new system,  the HMDA Platform, will reduce errors by including features to allow  institutions to validate the accuracy and correct the formatting of their  data before submitting. They also noted that this platform will reduce  burdens associated with the previous system for submitting HMDA  data. For example, institutions no longer will have to regularly  download software, and multiple users within an institution will be able  to access the platform. NCUA officials added that some credit unions  had tested the system and reported that it reduced their reporting  burden.

Finally, on December 21, 2017, CFPB issued a public statement  announcing that, for HMDA data collected in 2018, CFPB does not  intend to require resubmission of HMDA data unless errors are  material, and does not intend to assess penalties for errors in  submitted data. CFPB also announced that it intends to open a rule  making to reconsider various aspects of the 2015 HMDA rule, such as  the thresholds for compliance and data points that are not required by  statute.

Institutions Found BSA/AML Regulations Burdensome and Regulators Have Been Considering Steps to Reduce Burden

In all our focus groups and many of our interviews, participants said they  found BSA/AML requirements to be burdensome due to the staff time and  other costs associated with their compliance efforts.  To provide  regulators and law enforcement with information that can aid in pursuing  criminal, tax, and regulatory investigations, BSA/AML statutes and  regulations require covered financial institutions to  file Currency Transaction Reports (CTR) for cash transactions  conducted by a customer for aggregate amounts of more than  $10,000 per day and Suspicious Activity Reports (SAR) for activity  that might signal criminal activity (such as money laundering or tax  evasion); and establish BSA/AML compliance programs that include efforts to  identify and verify customers’ identities and monitor transactions to  report, for example, transactions that appear to violate federal law.

Participants in all of our focus groups discussed how BSA/AML  compliance was time-consuming, and in most focus groups participants  said this took time away from serving customers. For example,  representatives of one institution we interviewed told us that completing a  single SAR could take 4 hours, and that they might complete 2 to 5 SARs  per month. However, representatives of another institution said that at  some times of the year it has filed more than 300 SARs per month. In a  few cases, representatives of institutions saw BSA/AML compliance as  burdensome because they had to take actions that seemed unnecessary  based on the nature of the transactions. For example, one institution’s  representatives said that filing a CTR because a high school band  deposited more than $10,000 after a fundraising activity seemed  unnecessary, while another’s said that it did not see the need to file SARs  for charitable organizations that are well known in their community.  Representatives of institutions in most of our focus groups also noted that  BSA/AML regulations required additional staff training. Some of these  representatives noted that the requirements are complex and the  activities, such as identifying transactions potentially associated with  terrorism, are outside of their frontline staff’s core competencies.

Representatives in all focus groups and a majority of interviews said BSA  imposes financial costs on community banks and credit unions that must  be absorbed by those institutions or passed along to customers. In most  of our focus groups, representatives said that they had to purchase or  upgrade software systems to comply with BSA/AML requirements, which  can be expensive. Some representatives also said they had to hire third  parties to comply with BSA/AML regulations. Representatives of some  institutions also noted that the compliance requirements do not produce  any material benefits for their institutions.

In most of our focus groups, participants were particularly concerned that  the compliance burden associated with BSA/AML regulations was  increasing. In 2016, FinCEN—the bureau in the Department of the  Treasury that administers BSA/AML rules—issued a final rule that  expanded due-diligence requirements for customer identification. The  final rule was intended to strengthen customer identification programs by  requiring institutions to obtain information about the identities of the  beneficial owners of businesses opening accounts at their institutions.  The institutions covered by the rule are expected to be in compliance by  May 11, 2018. Some representatives of community banks and credit  unions that we spoke with said that this new requirement will be  burdensome. For example, one community bank’s representatives said  the new due-diligence requirements will require more staff time and  training and cause them to purchase new or upgraded computer systems.  Representatives of some institutions also noted that accessing beneficial  ownership information about companies can be difficult, and that entities  that issue business licenses or tax identification numbers could perform  this task more easily than financial institutions.

In some of our focus groups, and in some comment letters that we  reviewed that community banks and credit unions submitted to bank  regulators and NCUA as part of the EGRPRA process, representatives of  community banks and credit unions said regulators should take steps to  reduce the burdens associated with BSA/AML. Participants in two of our  focus groups and representatives of two institutions we interviewed said  that the $10,000 CTR threshold, which was established in 1972, should  be increased, noting it had not been adjusted for inflation. One participant  told us that if this threshold had been adjusted for inflation over time, it  likely would be filing about half of the number of CTRs that it currently  files. In several focus groups, participants also indicated that transactions  that must be checked against the Office of Foreign Assets Control list  also should be subject to a threshold amount. Representatives of one  institution noted that they have to complete time-consuming compliance  work for even very small transactions (such as less than $1).  Representatives of some institutions suggested that the BSA/AML  requirements be streamlined to make it easier for community banks and  credit unions to comply. For example, representatives of one institution  that participated in the EGRPRA review suggested that institutions could  provide regulators with data on all cash transactions in the format in  which they keep these records rather than filing CTRs. Finally,  participants in one focus group said that regulators should better  communicate how the information that institutions submit contributes to  law enforcement successes in preventing or prosecuting crimes.

Staff from FinCEN told us that the reports and due-diligence programs  required in BSA/AML rules are critical to safeguarding the U.S. financial  sector from illicit activity, including illegal narcotics and terrorist financing  activities. They said they rely on CTRs and SARs that financial institutions  file for the financial intelligence they disseminate to law enforcement  agencies, and noted that they saw all BSA/AML requirements as  essential because activities are designed to complement each other.  Officials also pointed out that entities conducting terrorism, human  trafficking, or fraud all rely heavily on cash, and reporting frequently made  deposits makes tracking criminals easier. They said that significant  reductions in BSA/AML reporting requirements would hinder law  enforcement, especially because depositing cash through ATMs has  become very easy.

FinCEN staff said they utilize a continuous evaluation process to look for  ways to reduce burden associated with BSA/AML requirements, and  noted actions taken as a result. They said that FinCEN has several  means of soliciting feedback about potential burdens, including through  its Bank Secrecy Act Advisory Group that consists of industry, regulatory,  and law enforcement representatives who meet twice a year, and also  through public reporting and comments received through FinCEN’s  regulatory process. FinCEN officials said that based on this advisory  group’s recommendations, the agency provided SAR filing relief by  reducing the frequency of submission for written SAR summaries on  ongoing activity from 90 days to 120 days. FinCEN also has recognized  that financial institutions do not generally see the beneficial impacts of  their BSA/AML efforts, and officials said they have begun several different  feedback programs to address this issue.

FinCEN staff said they have been discussing ways to improve the CTR  filing process, but in response to comments obtained as part of a recent  review of regulatory burden they noted that the staff of law enforcement  agencies do not support changing the $10,000 threshold for CTR  reporting. FinCEN officials said that they have taken some steps to  reduce the burden related to CTR reporting, such as by expanding the  ability of institutions to seek CTR filing exemptions, especially for low-risk  customers. FinCEN is also utilizing its advisory group to examine aspects  of the CTR reporting obligations to assess ways to reduce reporting  burden, but officials said it is too early to know the outcomes of the effort.  However, FinCEN officials said that while evaluation of certain reporting  thresholds may be appropriate, any changes to them or other CTR  requirements to reduce burden on financial institutions, must still meet the  needs of regulators and law enforcement, and prevent misuse of the  financial system.

FinCEN staff also said that some of the concerns raised about the  upcoming requirements on beneficial ownership may be based on  misunderstandings of the rule. FinCEN officials told us that under the final  rule, financial institutions can rely on the beneficial ownership information  provided to them by the entity seeking to open the account. Under the  final rule, the party opening an account on behalf of the legal entity  customer is responsible for providing beneficial ownership information,  and the financial institution may rely on the representations of the  customer unless it has information that calls into question the accuracy of  those representations. The financial institution does not have to confirm  ownership; rather, it has to verify the identity of the beneficial owners as  reported by the individual seeking to open the account, which can be  done with photocopies of identifying documents such as a driver’s  license. FinCEN issued guidance explaining this aspect of the final rule in  2016.

Institutions Found New Mortgage Term Disclosure Rules Burdensome, but Some May Be Misinterpreting Requirements

In all of our focus groups and many of our interviews, representatives of  community banks and credit unions said that new requirements  mandating consolidated disclosures to consumers for mortgage terms  and fees have increased the time their staff spend on compliance,  increased the cost of providing mortgage lending services, and delayed  the completion of mortgages for customers. The Dodd Frank Act directed  CFPB to issue new requirements to integrate mortgage loan disclosures  that previously had been separately required by the Truth-in-Lending Act  (TILA) and the Real Estate Settlement Procedures Act (RESPA), and  their implementing regulations, Regulation Z and X, respectively.  Effective in October 2015, the combined TILA-RESPA Integrated  Disclosure (known as TRID) requires mortgage lenders to disclose certain  mortgage terms, conditions, and fees to loan applicants during the  origination process for certain mortgage loans and prescribe how the  disclosures should be made. The disclosure provisions also require lenders, in the absence of specified exceptions, to reimburse or refund to  borrowers portions of certain fees that exceed the estimates previously  provided in order to comply with the revised regulations.

Under TRID, lenders generally must provide residential mortgage loan  applicants with two forms, and deliver these documents within specified  time frames (as shown in fig. 1).

Within 3 business days of an application and at least 7 business days  before a loan is consummated, lenders must provide the applicant  with the loan estimate, which includes estimates for all financing costs  and fees and other terms and conditions associated with the potential  loan. If circumstances change after the loan estimate has been  provided (for example, if a borrower needs to change the loan  amount), a new loan estimate may be required.

At least 3 days before a loan is consummated, lenders must provide  the applicant with the closing disclosure, which has the loan’s actual  terms, conditions, and associated fees. If the closing disclosure is  mailed to an applicant, lenders must wait an additional 3 days for the  applicant to receive it before they can execute the loan, unless they  can demonstrate that the applicant has received the closing  disclosure.

If the annual percentage rate or the type of loan change after the  closing disclosure is provided, or if a prepayment penalty is added, a  new closing disclosure must be provided and a new 3-day waiting  period is required. Other changes made to the closing disclosure  require the provision of a revised closing disclosure, but a new 3-day  waiting period is not required.

If the fees in the closing disclosure are more than the fees in the loan  estimate (subject to some exceptions and tolerances discussed later in  this section), the lender must reimburse the applicant for the amount of  the increase in order to comply with the applicable regulations.

In all of our focus groups and most of our interviews, representatives of  community banks and credit unions said that TRID has increased the time  required to comply with mortgage disclosure requirements and increased  the cost of mortgage lending. In half of our focus groups, participants  discussed how they have had to spend additional time ensuring the  accuracy of their initial estimates of mortgage costs, including fees  charged by third parties, in part because they are now financially  responsible for changes in fees during the closing process. Some  participants also discussed how they have had to hire additional staff to  meet TRID’s requirements. In one focus group of community banks,  participants described how mortgage loans frequently involve the use of  multiple third parties, such as appraisers and inspectors, and obtaining  accurate estimates of the amounts these parties will charge for their  services within the 3-day period prescribed by TRID can be difficult. The  community banks we spoke with also discussed how fees from these  parties often change at closing, and ensuring an accurate estimate at the  beginning of the process was not always possible. As a result, some  representatives said that community banks and credit unions have had to  pay to cure or correct the difference in changed third-party fees that are  outside their control. In most of our focus groups and some of our  interviews, representatives told us that this TRID requirement has made  originating a mortgage more costly for community banks and credit  unions.

Community banks and credit unions in half of our focus groups and some  of our interviews also told us that TRID’s requirements are complex and  difficult to understand, which adds to their compliance burden.  Participants in one focus group noted that CFPB’s final rule implementing  TRID was very long—the rule available on CFPB’s website is more than  1,800 pages including the rule’s preamble—and has many scenarios that  require different actions by mortgage lenders or trigger different  responsibilities as the following examples illustrate.

Some fees in the loan estimate, such as prepaid interest, may be  subsequently changed provided that the estimates were in good faith.

Other fees, such as for third-party services where the charge is not  paid to the lender or the lender’s affiliate, may be changed by as  much as 10 percent in aggregate before the lender becomes liable for  the difference.

However, for some charges the lender must reimburse or refund to  the borrower portions of subsequent increases, such as fees paid to  the creditor, mortgage broker, or a lender affiliate, without any  percentage tolerance.

Based on a poll we conducted in all six focus groups, 40 of 43  participants said that they had to provide additional training to staff to  ensure that TRID’s requirements were understood, which takes additional  time from serving customers.

In all of our focus groups and most of our interviews, community banks  and credit unions also said that TRID’s mandatory waiting periods and  disclosure schedules increased the time required to close mortgage  loans, which created burdens for the institutions and their customers.  Several representatives we interviewed told us that TRID’s waiting  periods led to delays in closings of about 15 days. The regulation  mandates that mortgage loans generally cannot be consummated sooner  than 7 business days after the loan estimate is provided to an applicant,  and no sooner than 3 business days after the closing disclosure is  received by the applicant. If the closing disclosure is mailed, the lender  must add another 3 business days to the closing period to allow for  delivery. Representatives in some of our focus groups said that when  changes needed to be made to a loan during the closing period, TRID  requires them to restart the waiting periods, which can increase delays.  For example, if the closing disclosure had been provided, and the loan  product needed to be changed, a new closing disclosure would have to  be provided and the applicant given at least 3 days to review it. Some  representatives we interviewed said that their customers are frustrated by  these delays and would like to close their mortgages sooner than TRID  allows. Others said that TRID’s waiting periods decreased flexibility in  scheduling the closing date, which caused problems for homebuyers and  sellers (for instance, because transactions frequently have to occur on the  same day).

However, CFPB officials and staff of a consumer group said that TRID  has streamlined previous disclosure requirements and is important for  ensuring that consumers obtaining mortgages are protected. CFPB  reported that for more than 30 years lenders have been required by law to  provide mortgage disclosures to borrowers, and CFPB staff noted that  prior time frames were similar to those required by TRID and Regulation  Z. CFPB also noted that information on the disclosure forms that TRID  replaced was sometimes overlapping, used inconsistent terminology, and  could confuse consumers. In addition, CFPB staff and staff of a consumer  group said that the previous disclosures allowed some mortgage-related  fees to be combined, which prevented borrowers from knowing what  charges for specific services were. They said that TRID disclosures better  highlight important items for home buyers, allowing them to more readily  compare loan options. Furthermore, CFPB staff told us that before TRID,  lenders and other parties commonly increased a mortgage loan’s fees  during the closing process, and then gave borrowers a “take it or leave it”  choice just before closing. As a result, borrowers often just accepted the  increased costs. CFPB representatives said that TRID protects  consumers from this practice by shifting the responsibility for most fee  increases to lenders, and increases transparency in the lending process.

CFPB staff told us that it is too early to definitively identify what impact  TRID has had on borrowers’ understanding of mortgage terms, but told us  that some information they have seen indicated that it has been helpful.  For example, CFPB staff said that preliminary results from the National  Survey of Mortgage Originations conducted in 2017 found that consumer  confidence in mortgage lending increased. While CFPB staff said that  this may indicate that TRID, which became effective in October 2015, has  helped consumers better understand mortgage terms, they noted that the  complete survey results are not expected to be released until 2018. CFPB  staff said that these results should provide valuable information on how  well consumers generally understood mortgage terms and whether  borrowers were comparison shopping for loans that could be used to  analyze TRID’s effects on consumer understanding of mortgage products.

CFPB staff also told us that complying with TRID should not result in  significant time being added to the mortgage closing process. Based on  the final rule, they noted that TRID’s waiting periods should not lead to  delays of more than 3 days. CFPB staff also pointed out that the overall  7-day waiting period and the 3-day waiting period can be modified or  waived if the consumer has a bona fide personal financial emergency,  and thus should not be creating delays for those consumers. To waive the  waiting period, consumers have to provide the lender with a written  statement that describes the emergency. CFPB staff also said that  closing times are affected by a variety of factors and can vary  substantially, and that the delays that community banks and credit unions  we spoke with reported may not be representative of the experiences of  other lenders. A preliminary CFPB analysis of industry-published  mortgage closing data found that closing times increased after it first  implemented TRID, but that the delays subsequently declined. CFPB staff  also said that they plan to analyze closing times using HMDA data now  that they are collecting these data, and that they expect that delays that  community banks and credit unions may have experienced so far would  decrease as institutions adjusted to the new requirements.

Based on our review of TRID’s requirements and discussions with  community banks and credit unions, some of the burden related to TRID  that community banks and credit unions described appeared to result  from institutions taking actions not required by regulations, and  community banks and credit unions told us they still were confused about  TRID requirements. For example, representatives of some institutions we  interviewed said that they believed TRID requires the entire closing  disclosure process to be restarted any time any changes were made to a  loan’s amount. CFPB staff told us that this is not the case, and that  revised loan estimates can be made in such cases without additional  waiting periods. Representatives of several other community banks and  credit unions cited 5- and 10-day waiting periods not in TRID  requirements, or believed that the 7-day waiting period begins after the  closing disclosure is received by the applicant, rather than when the loan  estimate is provided. Participants in one focus group discussed that they  were confused about when to provide disclosures and what needs to be  provided. Representatives of one credit union said that if they did not  understand a requirement, it was in their best interest to delay closing to  ensure they were in compliance.

CFPB staff said that they have taken several steps to help lenders  understand TRID requirements. CFPB has published a Small Entity  Compliance Guide and a Guide to the Loan Estimate and Closing  Disclosure Forms. As of December 2017, these guides were accessible  on a TRID implementation website that has links to other information  about the rule, as well as blank forms and completed samples. CFPB  staff told us that the bureau conducted several well-attended, in-depth  webinars to explain different aspects of TRID, including one with more  than 20,000 participants, and that recordings of the presentations  remained available on the bureau’s TRID website. CFPB also encourages  institutions to submit questions about TRID through the website, and the  staff said that they review submitted questions for any patterns that may  indicate that an aspect of the regulation is overly burdensome.

However, the Mortgage Bankers Association reported that CFPB’s  guidance for TRID had not met the needs of mortgage lenders. In a  2017 report on reforming CFPB, this association stated that timely and  accessible answers to frequently asked questions about TRID were still  needed, noting that while CFPB had assigned staff to answer questions,  these answers were not widely circulated. The association also reported  that it had made repeated requests for additional guidance related to  TRID, but the agency largely did not respond with additional materials in  response to these requests.

Although we found that misunderstandings of TRID requirements could  be creating unnecessary compliance burdens for some small institutions,  CFPB had not assessed the effectiveness of the guidance it provided to  community banks and credit unions. Under the Dodd-Frank Act, CFPB  has a general responsibility to ensure its regulations are not unduly  burdensome, and internal control standards direct federal agencies to  analyze and respond to risks related to achieving their defined objectives.  However, CFPB staff said that they have not directly assessed how well  community banks and credit unions have understood TRID requirements  and acknowledged that some of these institutions may be applying the  regulations improperly. They said that CFPB intends to review the  effectiveness of its guidance, but did not indicate when this review would  be completed. Until the agency assesses how well community banks and  credit unions understand TRID requirements, CFPB may not be able to  effectively respond to the risk that some smaller institutions have  implemented TRID incorrectly, unnecessarily burdening their staff and  delaying consumers’ home purchases.

Community Banks and Credit Unions Appeared to Be Receiving Applicable Regulatory Exemptions, but Expressed Concerns about Examiner Expectations

We did not find that regulators directed institutions to comply with  regulations from which they were exempt, although institutions were  concerned about the appropriateness of examiner expectations. To  provide regulatory relief to community banks and credit unions, Congress  and regulators have sometimes exempted smaller institutions from the  need to comply with all or part of some regulations. Such exemptions are  often based on the size of the financial institution or the level of particular  activities. For example, CFPB exempted institutions with less than $45  million in assets and fewer than 25 closed-end mortgage loans or 500  open-end lines of credit from the expanded HMDA reporting  requirements. In January 2013, CFPB also included exemptions for some  institutions in a rule related to originating loans that meet certain  characteristics—known as qualified mortgages—in order for the  institutions to receive certain liability protections if the loans later go into  default. To qualify for this treatment, the lenders must make a good faith  effort to determine a borrower’s ability to repay a loan and the loan must  not include certain risky features (such as interest-only or balloon  payments). In its final rule, CFPB included exemptions that allow small  creditors to originate loans with certain otherwise restricted features (such  as balloon payments) and still be considered qualified mortgage loans.

Concerns expressed to legislators about exemptions not being applied  appeared to be based on misunderstandings of certain regulations. For  example, in June 2016, a bank official testified that he thought his bank  would be exempt from all of CFPB’s requirements. However, CFPB’s  rules applicable to banks apply generally to all depository institutions,  although CFPB only conducts compliance examinations for institutions  with assets exceeding $10 billion. The depository institution regulators  continue to examine institutions with assets below this amount (the  overwhelming majority of banks and credit unions) for compliance with  regulations enacted by CFPB.

Although not generalizable, our analysis of select examinations did not  find that regulators directed institutions to comply with requirements from  which they were exempt. In our interviews with representatives from 17  community banks and credit unions, none of the institutions’  representatives identified any cases in which regulators required their  institution to comply with a regulatory requirement from which they should  have been exempt. We also randomly selected and reviewed examination  reports and supporting material for 28 examinations conducted by the  regulators to identify any instances in which the regulators had not  applied exemptions. From our review of the 28 examinations, we found  no instances in the examination reports or the scoping memorandums  indicating that examiners had required these institutions to comply with  the regulations covered by the eight selected exemptions. Because of the  limited number of the examinations we reviewed, we cannot generalize  our findings to the regulatory treatment of all institutions qualifying for  exemptions.

Although not identifying issues relating to exemptions, representatives of  community banks and credit unions in about half of our interviews and  focus groups expressed concerns that their regulators expected them to  follow practices they did not feel corresponded to the size or risks posed  by their institutions. For example, representatives from one institution we  interviewed said that examiners directed them to increase BSA/AML  activities or staff, whereas they did not see such expectations as  appropriate for institutions of their size. Similarly, in public forums held by  regulators as part of their EGRPRA reviews (discussed in the next  section) a few bank representatives stated that regulators sometimes  considered compliance activities by large banks to be best practices, and  then expected smaller banks to follow such practices. However, institution  representatives in the public forums and in our interviews and focus  groups that said sometimes regulators’ expectations for their institutions  were not appropriate, but did not identify specific regulations or practices  they had been asked to consider following when citing these concerns.

To help ensure that applicable exemptions and regulatory expectations  are appropriately applied, federal depository institution regulators told us  they train their staff in applicable requirements and conduct senior-level  reviews of examinations to help ensure that examiners only apply  appropriate requirements and expectations on banks and credit unions.  Regulators said that they do not conduct examinations in a one-size-fits- all manner, and aim to ensure that community banks and credit unions  are held to standards appropriate to their size and business model. To  achieve this, they said that examiners undergo rigorous training. For  example, FDIC staff said that its examiners have to complete four core  trainings and then receive ongoing on-the-job instruction. Each of the four  regulators also said they have established quality assurance programs to  review and assess their examination programs periodically. For example,  each Federal Reserve Bank reviews its programs for examination  inconsistency and the Federal Reserve Board staff conducts continuous  and point-in-time oversight reviews of Reserve Banks’ examination  programs to identify issues or problems, such as examination  inconsistency.

The depository institution regulators also said that they have processes  for depository institutions to appeal examination findings if they feel they  were held to inappropriate standards. In addition to less formal steps,  such as contacting a regional office, each of the four regulators have an  ombudsman office to which institutions can submit complaints or  concerns about examination findings. Staffs of the various offices are  independent from the regulators’ management and work with the  depository institutions to resolve examination issues and concerns. If the  ombudsman is unable to resolve the complaints, then the institutions can  further appeal their complaints through established processes.

Reviews of Regulations Resulted in Some Reduction in Burden, but the Reviews Have Limitations

Federal depository institution regulators address regulatory burden of  their regulated institutions through the rulemaking process and also  through retrospective reviews that may provide some regulatory relief to  community banks. However, the retrospective review process has some  limitations that limit its effectiveness in assessing and addressing  regulatory burden on community banks and credit unions.

Mechanisms for Regulators to Address Regulatory Burden Include Mandated Decennial Reviews

Federal depository institution regulators can address the regulatory  burden of their regulated institutions throughout the rulemaking process  and through mandated, retrospective or “look back” reviews. According to  the regulators, attempts to reduce regulatory burden start during the initial  rulemaking process. Staff from FDIC, Federal Reserve, NCUA, and OCC  all noted that when promulgating rules, their staff seek input from  institutions and others throughout the process to design requirements that  achieve the goals of the regulation at the most reasonable cost and effort  for regulated entities. Once a rule has been drafted, the regulators  publish it in the Federal Register for public comment. The staff noted that  regulators often make revisions in response to the comments received to  try to reduce compliance burdens in the final regulation.

After regulations are implemented, banking regulators also address  regulatory burdens by periodically conducting mandated reviews of their  regulations. The Economic Growth and Regulatory Paperwork Reduction  Act of 1996 (EGRPRA) directs three regulators (Federal Reserve, FDIC,  and OCC, as agencies represented on the Federal Financial Institutions  Examination Council) to review at least every 10 years all of their  regulations and through public comment identify areas of the regulations  that are outdated, unnecessary or unduly burdensome on insured  depository institutions. Under the act, the regulators are to categorize  their regulations and provide notice and solicit public comment on all the  regulations for which they have regulatory authority. The act also includes  a number of requirements on how the regulators should conduct the review, including reporting results to Congress. The first EGRPRA review  was completed in 2007. The second EGRPRA review began in 2014 and  the report summarizing its results was submitted to Congress in March  2017.

While NCUA is not required to participate in the EGRPRA review  (because EGRPRA did not include the agency in the list of agencies that  must conduct the reviews), NCUA has been participating voluntarily.  NCUA’s assessment of its regulations appears in separate sections of the  reports provided to Congress for each of the 2007 and 2017 reviews.

Bank Regulators’ 2017 EGRPRA Review Process and Results

Regulators began the most recent EGRPRA review by providing notice  and soliciting comments in 2014–2016. The Federal Reserve, FDIC, and  OCC issued four public notices in the Federal Register seeking  comments from regulated institutions and interested parties on 12  categories of regulations they promulgated. The regulators published a  list of all the regulations they administer in the notices and asked for  comments, including comments on the extent to which regulations were  burdensome. Although not specifically required under EGRPRA, the  regulators also held six public meetings across the country with several  panels of banks and community groups. At each public meeting, at least  three panels of bank officials represented banks with assets of generally  less than $5 billion and a large number of the panels included banks with  less than $2 billion in assets. Panels were dedicated to specific  regulations or sets of regulations. For example, one panel covered  capital-related rules, consumer protection, and director-related rules, and  another addressed BSA/AML requirements. Although panels were  dedicated to specific regulations or sets of regulations, the regulators  invited comment on all of their regulations at all public meetings.

The regulators then assessed the public comments they received and  described actions they intended to take in response. EGRPRA requires  that the regulators identify the significant issues raised by the comments.  The regulators generally deemed the issues that received the most public  comments as significant. For the 2017 report, representatives at the  Federal Reserve, FDIC, and OCC reviewed, evaluated, and summarized  more than 200 comment letters and numerous oral comments they  received. For interagency regulations that received numerous  comments, such as those relating to capital and BSA/AML requirements,  the comment letters for each were provided to staff of one of the three  regulators or to previously established interagency working groups to  conduct the initial assessments.

The regulators’ comment assessments also included reviews by each  agency’s subject-matter experts, who prepared draft summaries of the  concerns and proposed agency responses for each of the rules that  received comments. According to one bank regulator, the subject-matter  experts assessed the comments across three aspects: (1) whether a  suggested change to the regulation would reduce bank burdens; (2) how  the change to the regulation would affect the safety and soundness of the  banking system; and (3) whether a statutory change would be required to  address the comment. The summaries drafted by the subject-matter  experts then were shared with staff representing all three regulators and  further revised. The staff of the three regulators said they then met jointly  to analyze the merits of the comments and finalize the comment  responses and the proposed actions for approval by senior management  at all three regulators.

In the 2017 report summarizing their assessment of the comments  received, the regulators identified six significant areas in which  commenters raised concerns: (1) capital rules, (2) financial condition  reporting (Call Reports), (3) appraisal requirements, (4) examination  frequency, (5) Community Reinvestment Act, and (6) BSA/AML. Based  on our analysis of the 2017 report, the Federal Reserve, FDIC, and OCC  had taken or pledged to take actions to address 11 of the 28 specific  concerns commenters had raised across these six areas. We focused our  analysis on issues within the six significant issues that affected the  smaller institution and defined an action taken by the regulators as a  change or revision to a regulation or the issuance of guidance.

Capital rules. The regulators noted in the 2017 EGRPRA report that they  received comment letters from more than 30 commenters on the recently  revised capital requirements. Although some of the concerns commenters  expressed related to issues affecting large institutions, some commenters  sought to have regulators completely exempt smaller institutions from the  requirements. Others objected to the amounts of capital that had to be  held for loans made involving more volatile commercial real estate.

In response, the regulators stated that the more than 500 failures of  banks in the recent crisis, most of which were community banks, justified  requiring all banks to meet the new capital requirements. However, they  pledged in the report to make some changes, and have recently proposed  rules that would alter some of the requirements. For example, on  September 27, 2017, the regulators proposed several revisions to the  capital requirements that would apply to banks not subject to the  advanced approach requirements under the capital rules (generally,  banks with less than $250 billion in assets and less than $10 billion in  total foreign exposure). For example, the proposed rule simplifies the  capital treatment for certain commercial acquisition, development, and  construction loans, and would change the treatment of mortgage  servicing assets.

Call Reports. The regulators also received more than 30 comments  relating to the reports—known as Call Reports—that banks file with the  regulators outlining their financial condition and performance. Generally,  the commenters requested relief (reducing the number of items required  to be reported) for smaller banks and also asked that the frequency of  reporting for some items be reduced.

In response to these concerns, the regulators described a review of the  Call Report requirements intended to reduce the number of items to be  reported to the regulators. The regulators had started this effort to  address Call Report issues soon after the most recent EGRPRA process  had begun in June 2014. In the 2017 EGRPRA report, the regulators  noted that they developed a new Call Report form for banks with assets  of less than $1 billion and domestic offices only. For instance, according  to the regulators, the new form reduced the number of items such banks  had to report by 40 percent. Staff from the regulators told us that about  3,500 banks used the new small-bank reporting form in March 2017,  which represented about 68 percent of the banks eligible to use the new  form. OCC officials told us that an additional 100 federally chartered  banks submitted the form for the 2017 second quarter reporting period.  After the issuance of the 2017 EGRPRA report, in June 2017 the  regulators issued additional proposed revisions to the three Call Report  forms that banks are required to complete. These proposed changes are  to become effective in June 2018. For example, one of the proposed  changes to the new community bank Call Report form would change the  frequency of reporting certain data on non-accrual assets— nonperforming loans that are not generating their stated interest rate— from quarterly to semi-annually. In November 2017, the agencies issued  further proposed revision to the community bank Call Report that would  delete or consolidate a number of items and add a new, or raise certain  existing, reporting thresholds. The proposed revision would take effect as  of June 2018.

Appraisals. The three bank regulators and NCUA received more than  160 comments during the 2017 EGRPRA process related to appraisal  requirements. The commenters included banks and others that sought to  raise the size of the loans that require appraisals, and a large number of  appraisers that objected to any changes in the requirements According to  the EGRPRA report, several professional appraiser associations argued  that raising the threshold could undermine the safety and soundness of  lenders and diminish consumer protection for mortgage financing. These  commenters argued that increasing the thresholds could encourage  banks to neglect collateral risk-management responsibilities.

In response, in July 2017, the regulators proposed raising the threshold  for when an appraisal is required from $250,000 to $400,000 for  commercial real estate loans. The regulators indicated that the appraisal  requirements for 1-4 family residential mortgage loans above the current  $250,000 would not be appropriate at the this time because they believed  having such appraisals for loans above that level increased the safety of  those loans and better protected consumers and because other  participants in the housing market, such as the Department of Housing  and Urban Development and the government-sponsored enterprises, also  required appraisals for loans above that amount. However, the depository  institution regulators included in the proposal a request for comment  about the appraisal requirements for residential real estate and what  banks think are other factors that should be included when considering  the threshold for these loans. As part of the 2017 EGRPRA process, the  regulators also received comments indicating that banks in rural areas  were having difficulty securing appraisers. In the EGRPRA report, the  regulators acknowledged this difficulty and in May 2017, the bank  regulators and NCUA issued agency guidance on how institutions could  obtain temporary waivers and use other means to expand the pool of  persons eligible to prepare appraisals in cases in which suitable appraiser  staff were unavailable. The agencies also responded to commenters who  found the evaluation process confusing by issuing an interagency  advisory on the process in March 2016. Evaluations may be used  instead of an appraisal for certain transactions including those under the  threshold.

Frequency of safety and soundness examinations. As part of the  2017 EGRPRA process, the agencies also received comments  requesting that they raise the total asset threshold for an insured  depository institution to qualify for the extended 18-month examination  cycle from $1 billion to $2 billion and to further extend the examinations  cycle from 18 months to 36 months.

During the EGRPRA process, Congress took legislative action to reduce  examination frequency for smaller, well-capitalized banks. In 2015, the  FAST Act raised the threshold for the 18-month examination cycle from  less than $500 million to less than $1 billion for certain well-capitalized  and well-managed depository institutions with an “outstanding” composite  rating and gave the agencies discretion to similarly raise this threshold for  certain depository institutions with an “outstanding” or “good” composite  rating. The agencies exercised this discretion and issued a final rule in  2016 making qualifying depository institutions with less than $1 billion in  total assets eligible for an 18-month (rather than a 12-month) examination  cycle. According to the EGRPRA report, agency staff estimated that the  final rules allowed approximately 600 more institutions to qualify for an  extended 18-month examination cycle, bringing the total number of  qualifying institutions to 4,793.

Community Reinvestment Act. The commenters in the 2017 EGRPRA  process also raised various issues relating to the Community  Reinvestment Act, including the geographic areas in which institutions  were expected to provide loans to low- and moderate-income borrowers  and whether credit unions should be required to comply with the act’s  requirements.

The regulators noted that they were not intending to take any actions to  revise regulations relating to this act because many of the revisions the  commenters suggested would require changes to the statute (that is,  legislative action). The regulators also noted that they had addressed  some of the concerns by revising the Interagency Questions and Answers  relating to this act in 2016. Furthermore, the agencies noted that they  have been reviewing their existing examination procedures and practices  to identify policy and process improvements.

BSA/AML. The regulators also received a number of comments as part of  the 2017 EGRPRA process on the burden institutions encounter in  complying with BSA/AML requirements. These included the threshold for  reporting currency transactions and suspicious activities. The regulators  also received comments on both BSA/AML examination frequency and  the frequency of safety and soundness examinations generally.

Agencies typically review BSA/AML compliance programs during safety  and soundness examinations. As discussed previously, regulators  allowed more institutions of outstanding or good composite condition to  be examined every 18 months instead of every 12 months. Institutions  that qualify for less frequent safety-and-soundness examinations also will  be eligible for less frequent BSA/AML examinations. For the remainder of  the issues raised by commenters, the regulators noted they do not have  the regulatory authority to revise the requirements but provided the  comments to FinCEN, which has authority for these regulations. A letter  with FinCEN’s response to the comments was included as an appendix of  the EGRPRA report. In the letter, the FinCEN Acting Director stated that  FinCEN would work through the issues raised by the comments with its  advisory group consisting of regulators, law enforcement staff, and  representatives of financial institutions.

Additional Burden Reduction Actions. In addition to describing some  changes in response to the comments deemed significant, the regulators’  2017 report also includes descriptions of additional actions the individual  agencies have taken or planned to take to reduce the regulatory burden  for banks, including community banks.

The Federal Reserve Board noted that it changed its Small Bank  Holding Company Policy Statement that allows small bank holding  companies to hold more debt than permitted for larger bank holding  companies. In addition, the Federal Reserve noted that it had made  changes to certain supervisory policies, such as issuing guidance on  assessing risk management for banks with less than $50 billion in  assets and launching an electronic application filing system for banks  and bank holding companies.

OCC noted that it had issued two final rules amending its regulations  for licensing/chartering and securities-related filings, among other  things. According to OCC staff, the agency conducted an internal  review of its agency-specific regulations and many of the changes to  these regulations came from the internal review. The agency also  noted that it integrated its rules for national banks and federal savings  associations where possible. In addition, OCC noted that it removed  redundant and unnecessary information requests from those made to  banks before examinations.

FDIC noted that it had rescinded enhanced supervisory procedures  for newly insured banks and reduced the consumer examination  frequency for small and newly insured banks. Similarly to OCC, FDIC  is integrating its rules for both non-state member banks and state- chartered savings and loans associations. In addition, FDIC noted it  had issued new guidance on banks’ deposit insurance filings and  reduced paperwork for new bank applications.

The 2017 report also presents the results of NCUA’s concurrent efforts to  obtain and respond to comments as part of the EGRPRA process. NCUA  conducts its review separately from the bank regulators’ review. In four  Federal Register notices in 2015, NCUA sought comments on 76  regulations that it administers. NCUA received about 25 comments  raising concerns about 29 of its regulations, most of which were  submitted by credit union associations. NCUA received no comments on  47 regulations.

NCUA’s methodology for its regulatory review was similar to the bank  regulators’ methodology. According to NCUA, all comment letters  responding to a particular notice were collected and reviewed by NCUA’s  Special Counsel to the General Counsel, an experienced, senior-level  attorney with overall responsibility for EGRPRA compliance. NCUA staff  told us that criteria applied by the Special Counsel in his review included  relevance, depth of understanding and analysis exhibited by the  comment, and degree to which multiple commenters expressed the same  or similar views on an issue. The Special Counsel prepared a report  summarizing the substance of each comment. The comment summary  was reviewed by the General Counsel and circulated to the NCUA Board  and reviewed by the Board members and staff.

NCUA identified in its report the following as significant issues relating to  credit union regulation: (1) field of membership and chartering; (2)  member business lending; (3) federal credit union ownership of fixed  assets; (4) expansion of national credit union share insurance coverage;  and (5) expanded powers for credit unions. For these, NCUA took various  actions to address the issues raised in the comments. For example,  NCUA modified and updated its field of credit union membership by  revising the definition of a local community, rural district and underserved  area, which provided greater flexibility to federal credit unions seeking to  add a rural district to their field of membership. NCUA also lessened  some of the restrictions on member lending to small business; and raised  some of the asset thresholds for what would be defined as a small credit  union so that fewer requirements would apply to these credit unions. Also,  in April 2016, the NCUA Board issued a proposed rule that would  eliminate the requirement that federal credit unions must have a plan by  which they will achieve full occupancy of premises within an explicit time  frame. The proposal would allow for federal credit unions to plan for and  manage their use of office space and related premises in accordance with  their own strategic plans and risk-management policies.

Bank Regulators and NCUA 2007 EGRPRA Review Process and Results

The bank and credit union regulators’ process for the 2007 EGRPRA  review also began with Federal Register notices that requested  comments on regulations. The regulators then reviewed and assessed  the comments and issued a report in 2007 to Congress in which they  noted actions they took in some of the areas raised by commenters.

Our analysis of the regulators’ responses indicated that the regulators  took responsive actions in a few areas. The regulators noted they already  had taken action in some cases (including after completion of a pending  study and as a result of efforts to work with Congress to obtain statutory  changes). However, for the remaining specific concerns, the four  regulators indicated that they would not be taking actions.

Similar to its response in 2017, NCUA discussed its responses to the  significant issues raised about regulations in a separate section of the  2007 report. Our analysis indicated that NCUA took responsive actions in  about half of the areas. For example, NCUA adjusted regulations in one  case and in another case noted previously taken actions. For comments  related to three other areas, NCUA took actions not reflected in the 2007  report because the actions were taken over a longer time frame (in some  cases, after 8 years). In the remaining areas, NCUA deemed actions as  not being desirable in four cases and outside of its authority in two other  cases.

The bank regulators do not conduct other retrospective reviews of  regulations outside of the EGRPRA process. We requested information  from the Federal Reserve, FDIC, and OCC about any discretionary  regulatory retrospective reviews that they performed in addition to the  EGRPRA review during 2012–2016. All three regulators reported to us  they have not conducted any retrospective regulatory reviews outside of  EGRPRA since 2012. However, under the Regulatory Flexibility Act  (RFA), federal agencies are required to conduct what are referred to as  section 610 reviews. The purpose of these reviews is to determine  whether certain rules should be continued without change, amended, or  rescinded consistent with the objectives of applicable statutes, to  minimize any significant economic impact of the rules upon a substantial  number of small entities. Section 610 reviews are to be conducted  within 10 years of an applicable rule’s publication. As part of other work,  we assessed the bank regulators’ section 610 reviews and found that the  Federal Reserve, FDIC, and OCC conducted retrospective reviews that  did not fully align with the Regulatory Flexibility Act’s requirements.  Officials at each of the agencies stated that they satisfy the requirements  to perform section 610 reviews through the EGRPRA review process.  However, we found that the requirements of the EGRPRA reviews differ  from those of the RFA-required section 610 reviews, and we made  recommendations to these regulators to help ensure their compliance  with this act in a separate report issued in January 2018.

In addition to participating in the EGRPRA review, NCUA also reviews  one-third of its regulations every year (each regulation is reviewed every  3 years). NCUA’s “one-third” review employs a public notice and  comment process similar to the EGRPRA review. If a specific regulation  does not receive any comments, NCUA does not review the regulation.  For the 2016 one-third review, NCUA did not receive comments on 5 of  16 regulations and thus these regulations were not reviewed. NCUA  made technical changes to 4 of the 11 regulations that received  comments.

In August 2017, NCUA staff announced they developed a task force for  conducting additional regulatory reviews, including developing a 4-year  agenda for reviewing and revising NCUA’s regulations. The primary  factors they said they intend to use to evaluate their regulations will be  the magnitude of the benefit and the degree of effort that credit unions  must expend to comply with the regulations. Because the 4-year reviews  will be conducted on all of NCUA’s regulations, staff noted that the annual  one-third regulatory review process will not be conducted again until  2020.

Limitations of Reviews of Burden Include CFPB Exclusion and Lack of Quantitative Analysis

Our analysis of the EGRPRA review found three limitations to the current  process.

CFPB Not Included and Significant Mortgage Regulations Not Assessed

First, the EGRPRA statute does not include CFPB and thus the significant  mortgage-related regulations and other regulations that it administers— regulations that banks and credit unions must follow—were not included  in the EGRPRA review. Under the Dodd-Frank Act, CFPB was given  financial regulatory authority, including for regulations implementing the  Home Mortgage Disclosure Act (Regulation C); the Truth-in-Lending Act  (Regulation Z); and the Truth-in-Savings Act (Regulation DD). These  regulations apply to many of the activities that banks and credit unions  conduct; the four depository institution regulators conduct the large  majority of examinations of these institutions’ compliance with these  CFPB-administered regulations. However, EGRPRA was not amended  after the Dodd-Frank Act to include CFPB as one of the agencies that  must conduct the EGRPRA review.

During the 2017 EGRPRA review, the bank regulators only requested  public comments on consumer protection regulations for which they have  regulatory authority. But the banking regulators still received some  comments on the key mortgage regulations and the other regulations that  CFPB now administers. Our review of 2017 forum transcripts identified  almost 60 comments on mortgage regulations, such as HMDA and  TRID.

The bank regulators could not address these mortgage regulation-related  comments because they no longer had regulatory authority over these  regulations; instead, they forwarded these comment letters to CFPB staff.  According to CFPB staff, their role in the most recent EGRPRA process  was very limited. CFPB staff told us they had no role in assessing the  public comments received for purposes of the final 2017 EGRPRA report.  According to one bank regulator, the bank regulators did not share non- mortgage regulation-related letters with CFPB staff because those  comment letters did not involve CFPB regulations. Another bank regulator  told us that CFPB was offered the opportunity to participate in the  outreach meetings and were kept informed of the EGRPRA review during  the quarterly FFIEC meetings that occurred during the review. Before the  report was sent to Congress, CFPB staff said that they reviewed several  late-stage drafts, but generally limited their review to ensuring that  references to CFPB’s authority and regulations and its role in the  EGRPRA process were properly characterized and explained. As a  member of FFIEC, which issued the final report, CFPB’s Director was  given an opportunity to review the report again just prior to its approval by  FFIEC.

CFPB must conduct its own reviews of regulations after they are  implemented. Section 1022(d) of the Dodd-Frank Act requires CFPB to  conduct an assessment of each significant rule or order adopted by the  bureau under federal consumer financial law. CFPB must publish a  report of the assessment not later than 5 years after the effective date of  such rule or order. The assessment must address, among other relevant  factors, the rule’s effectiveness in meeting the purposes and objectives of  title X of the Dodd-Frank Act and specific goals stated by CFPB. The  assessment also must reflect available evidence and any data that CFPB  reasonably may collect. Before publishing a report of its assessment,  CFPB must invite public comment on recommendations for modifying,  expanding, or eliminating the significant rule or order.

CFPB announced in Federal Register notices in spring 2017 that it was  commencing assessments of rules related to Qualified Mortgage/Ability- to-Repay requirements, remittances, and mortgage servicing  regulations. The notices described how CFPB planned to assess the  regulations. In each notice, CFPB requested comment from the public on  the feasibility and effectiveness of the assessment plan, data, and other  factual information that may be useful for executing the plan;  recommendations to improve the plan and relevant data; and data and  other factual information about the benefits, costs, impacts, and  effectiveness of the significant rule. Reports of these assessments are  due in late 2018 and early 2019. According to CFPB staff, the requests  for data and other factual information are consistent with the statutory  requirement that the assessment must reflect available evidence and any  data that CFPB reasonably may collect. The Federal Register notices  also describe other data sources that CFPB has in-house or has been  collecting pursuant to this requirement.

CFPB staff told us that they have not yet determined whether certain  other regulations that apply to banks and credit unions, such as the  revisions to TRID and HMDA requirements, will be designated as  significant and thus subjected to the one-time assessments. CFPB staff  also told us they anticipate that within approximately 3 years after the  effective date of a rule, it generally will have determined whether the rule  is a significant rule for section 1022(d) assessment purposes.

In tasking the bank regulators with conducting the EGRPRA reviews,  Congress indicated its intent was to require these regulators to review all  regulations that could be creating undue burden on regulated institutions.

According to a Senate committee report relating to EGRPRA, the purpose  of the legislation was to minimize unnecessary regulatory impediments for  lenders, in a manner consistent with safety and soundness, consumer  protection, and other public policy goals, so as to produce greater  operational efficiency. Some in Congress have recognized that the  omission of CFPB in the EGRPRA process is problematic, and in 2015  legislation was introduced to require that CFPB—and NCUA—formally  participate in the EGRPRA review.

Currently, without CFPB’s participation, key regulations that affect banks  and credit unions may not be subject to the review process. In addition,  these regulations may not be reviewed if CFPB does not deem them  significant. Further, if reviewed, CFPB’s mandate is for a one-time, not  recurring, review. CFPB staff told us that they have two additional  initiatives designed to review its regulations, both of which have been  announced in CFPB’s spring and fall 2017 Semiannual Regulatory  Agendas. First, CFPB launched a program to periodically review  individual existing regulations—or portions of large regulations—to  identify opportunities to clarify ambiguities, address developments in the  marketplace, or modernize or streamline provisions. Second, CFPB  launched an internal task force to coordinate and bolster their continuing  efforts to identify and relieve regulatory burdens, including with regard to  small businesses such as community banks that potentially will address  any regulation the agency has under its jurisdiction. Staff told us the  agency has been considering suggestions it received from community  banks and others on ways to reduce regulatory burden. However, CFPB  has not provided public information specifically on the extent to which it  intends to review regulations applicable to community banks and credit  unions and other institutions or provided information on the timing and  frequency of the reviews. In addition, it has not indicated the extent to  which it will coordinate the reviews with the federal depository institution  regulators as part of the EGRPRA reviews. Until CFPB publicly provides  additional information indicating its commitment to periodically review the  burden of all its regulations, community banks, credit unions, and other  depository institutions may face diminished opportunities for relief from  regulatory burden.

Regulators Have Not Conducted or Reported Quantitative Analyses

Second, the federal depository institution regulators have not conducted  or reported on quantitative analyses during the EGRPRA process to help  them determine if changes to regulations would be warranted. Our  analysis of the 2017 report indicated that in responses to comments in  which the regulators did not take any actions, the regulators generally  only provided their arguments against taking actions and did not cite  analysis or data to support their narrative. In contrast, other federal  agencies that are similarly tasked with conducting retrospective regulatory  reviews are required to follow certain practices for such reviews that could  serve as best practices for the depository institution regulators. For  example, the Office of Management and Budget’s Circular A-4 guidance  on regulatory analysis notes that a good analysis is transparent and  should allow qualified third parties reviewing such analyses to clearly see  how estimates and conclusions were determined. In addition, executive  branch agencies that are tasked under executive orders to conduct  retrospective reviews of regulations they issue generally are required  under these orders to collect and analyze quantitative data as part of  assessing the costs and benefits of changing existing regulations.

However, EGRPRA does not require the regulators to collect and report  on any quantitative data they collected or analyzed as part of assessing  the potential burden of regulations. Conducting and reporting on how they  analyzed the impact of potential regulatory changes to address burden  could assist the depository institution regulators in conducting their  EGRPRA reviews. For example, as discussed previously, Community  Reinvestment Act regulations were deemed a significant issue, with  commenters questioning the relevance of requiring small banks to make  community development loans and suggesting that the asset threshold for  this requirement be raised from $1 billion to $5 billion. The regulators told  us that if the thresholds were raised, then community development loans  would decline, particularly in underserved communities. However,  regulators did not collect and analyze data for the EGRPRA review to  determine the amount of community development loans provided by  banks with assets of less than $1 billion; including a discussion of  quantitative analysis might have helped show that community  development loans from smaller community banks provided additional  credit in communities—and thus helped to demonstrate the benefits of not  changing the requirement as commenters requested.

By not performing and reporting quantitative analyses where appropriate  in the EGRPRA review, the regulators may be missing opportunities to  better assess regulatory impacts after a regulation has been  implemented, including identifying the need for any changes or benefits  from the regulations and making their analyses more transparent to  stakeholders. As the Office of Management and Budget’s Circular A-4  guidance on the development of regulatory analysis noted, sound  quantitative estimates of costs and benefits, where feasible, are  preferable to qualitative descriptions of benefits and costs because they  help decision makers understand the magnitudes of the effects of  alternative actions. By not fully describing their rationale for the  analyses that supported their decisions, regulators may be missing  opportunities to better communicate their decisions to stakeholders and  the public.

Reviews Have Not Considered Cumulative Effects of Regulations

Lastly, in the EGRPRA process, the federal depository institution  regulators have not assessed the ways that the cumulative burden of the  regulations they administer may have created overlapping or duplicative  requirements. Under the current process, the regulators have responded  to issues raised about individual regulations based on comments they  have received, not on bodies of regulations. However, congressional  intent in tasking the depository institution regulators with the EGRPRA  reviews was to ensure that they considered the cumulative effect of  financial regulations. A 1995 Senate Committee on Banking, Housing,  and Urban Affairs report stated while no one regulation can be singled out  as being the most burdensome, and most have meritorious goals, the  aggregate burden of banking regulations ultimately affects a bank’s  operations, its profitability, and the cost of credit to customers. For  example, financial regulations may have created overlapping or  duplicative regulations in the areas of safety and soundness. One primary  concern noted in the EGRPRA 2017 report was the amount of information  or data banks are required to provide to regulators. For example, the  cumulative burden of information collection was raised by commenters in  relation to Call Reports, Community Reinvestment Act, and BSA/AML  requirements. But in the EGRPRA report, the regulators did not examine  how the various reporting requirements might relate to each other or how  they might collectively affect institutions.

In contrast, the executive branch agencies that conduct retrospective  regulatory reviews must consider the cumulative effects of their own  regulations, including cumulative burdens. For example, Executive  Order 13563 directs agencies, to the extent practicable, to consider the  costs of cumulative regulations. Executive Order 13563 does not apply  to independent regulatory agencies such as the Federal Reserve, FDIC,  OCC, NCUA, or CFPB. A memorandum from the Office of Management  and Budget provided guidance to the agencies required to follow this  order for assessing the cumulative burden and costs of regulations. The  actions suggested for careful consideration include conducting early  consultations with affected stakeholders to discuss potential interactions  between rulemaking under consideration and existing regulations as well  as other anticipated regulatory requirements. The executive order also  directs agencies to consider regulations that appear to be attempting to  achieve the same goal. However, other researchers often acknowledge  that cumulative assessments of burden are difficult. Nevertheless, until  the Federal Reserve, FDIC, OCC, and NCUA identify ways to consider  the cumulative burden of regulations, they may miss opportunities to  streamline bodies of regulations to reduce the overall compliance burden  among financial institutions, including community banks and credit  unions. For example, regulations applicable to specific activities of banks, such as lending or capital, could be assessed to determine if they have  overlapping or duplicative requirements that could be revised without  materially reducing the benefits sought by the regulations.

New regulations for financial institutions enacted in recent years have  helped protect mortgage borrowers, increase the safety and soundness of  the financial system, and facilitate anti-terrorism and anti-money  laundering efforts. But the regulations also entail compliance burdens,  particularly for smaller institutions such as community banks and credit  unions, and the cumulative burden on these institutions can be significant.  Representatives from the institutions with which we spoke cited three sets  of regulations—HMDA, BSA/AML, and TRID—as most burdensome for  reasons that included their complexity. In particular, the complexity of  TRID regulations appears to have contributed to misunderstandings that  in turn caused institutions to take unnecessary actions. While regulators  have acted to reduce burdens associated with the regulations, CFPB has  not assessed the effectiveness of its TRID guidance. Federal internal  control standards require agencies to analyze and respond to risks to  achieving their objectives, and CFPB’s objectives include addressing  regulations that are unduly burdensome. Assessing the effectiveness of  TRID guidance represents an opportunity to reduce misunderstandings  that create additional burden for institutions and also affect individual  consumers (for instance, by delaying mortgage closings).

The federal depository institution regulators (FDIC, Federal Reserve,  OCC, as well as NCUA) also have opportunities to enhance the activities  they undertake during EGRPRA reviews. Congress intended that the  burden of all regulations applicable to depository institutions would be  periodically assessed and reduced through the EGRPRA process. But  because CFPB has not been included in this process, the regulations for  which it is responsible were not assessed, and CFPB has not yet  provided public information about what regulations it will review, and  when, and whether it will coordinate with other regulators during EGPRA  reviews. Until such information is publicly available, the extent to which  the regulatory burden of CFPB regulation will be periodically addressed  remains unclear. The effectiveness of the EGRPRA process also has  been hampered by other limitations, including not conducting and  reporting on depository institution regulators’ analysis of quantitative data  and assessing the cumulative effect of regulations on institutions.  Addressing these limitations in their EGRPRA processes likely would  make the analyses the regulators perform more transparent, and  potentially result in additional burden reduction.

We make a total of 10 recommendations, which consist of 2  recommendations to CFPB, 2 to FDIC, 2 to the Federal Reserve, 2 to  OCC, and 2 to NCUA.

The Director of CFPB should assess the effectiveness of TRID  guidance to determine the extent to which TRID’s requirements are  accurately understood and take steps to address any issues as  necessary. (Recommendation 1)

The Director of CFPB should issue public information on its plans for  reviewing regulations applicable to banks and credit unions, including  information describing the scope of regulations the timing and  frequency of the reviews, and the extent to which the reviews will be  coordinated with the federal depository institution regulators as part of  their periodic EGRPRA reviews. (Recommendation 2)

The Chairman, FDIC, should, as part of the EGRPRA process,  develop plans for their regulatory analyses describing how they will  conduct and report on quantitative analysis whenever feasible to  strengthen the rigor and transparency of the EGRPRA process.  (Recommendation 3)

The Chairman, FDIC, should, as part of the EGRPRA process,  develop plans for conducting evaluations that would identify  opportunities for streamlining bodies of regulation. (Recommendation  4)

The Chair, Board of Governors of the Federal Reserve System,  should, as part of the EGRPRA process develop plans for their  regulatory analyses describing how they will conduct and report on  quantitative analysis whenever feasible to strengthen the rigor and  transparency of the EGRPRA process. (Recommendation 5)

The Chair, Board of Governors of the Federal Reserve System,  should, as part of the EGRPRA process, develop plans for conducting  evaluations that would identify opportunities to streamline bodies of  regulation. (Recommendation 6)

The Comptroller of the Currency should, as part of the EGRPRA  process, develop plans for their regulatory analyses describing how  they will conduct and report on quantitative analysis whenever  feasible to strengthen the rigor and transparency of the EGRPRA  process. (Recommendation 7)

The Comptroller of the Currency should, as part of the EGRPRA  process, develop plans for conducting evaluations that would identify  opportunities to streamline bodies of regulation. (Recommendation 8)

The Chair of NCUA should, as part of the EGRPRA process, develop  plans for their regulatory analyses describing how they will conduct  and report on quantitative analysis whenever feasible to strengthen  the rigor and transparency of the EGRPRA process.  (Recommendation 9)

The Chair of NCUA should, as part of the EGRPRA process, develop  plans for conducting evaluations that would identify opportunities to  streamline bodies of regulation. (Recommendation 10)

We provided a draft of this report to CFPB, FDIC, FinCEN, the Federal  Reserve, NCUA, and OCC. We received written comments from CFPB,  FDIC, the Federal Reserve, NCUA, and OCC that we have reprinted in  appendixes II through VI, respectively. CFPB, FDIC, FinCEN, the Federal  Reserve, NCUA, and OCC also provided technical comments, which we  incorporated as appropriate.

In its written comments, CFPB agreed with the recommendation to  assess its TRID guidance to determine the extent to which it is  understood. CFPB stated it intends to solicit public input on how it can  improve its regulatory guidance and implementation support. In addition,  CFPB agreed with the recommendation on issuing public information on  its plan for reviewing regulations. CFPB committed to developing  additional plans with respect to their reviews of key regulations and to  publicly releasing such information and in the interim, CFPB stated it  intends to solicit public input on how it should approach reviewing  regulations.

FDIC stated that it appreciated the two recommendations and stated that  it would work with the Federal Reserve and OCC to find the most  appropriate ways to ensure that the three regulators continue to enhance  their rulemaking analyses as part of the EGRPRA process. In addition,  FDIC stated that as part of the EGRPRA review process, it would  continue to monitor the cumulative effects of regulation through for  example, a review of the community and quarterly banking studies and  community bank Call Report data.

The Federal Reserve agreed with the two recommendations pertaining to  the EGRPRA process. Regarding the need conduct and report on  quantitative analysis whenever feasible to strengthen and to increase the  transparency of the EGRPRA process, the Federal Reserve plans to  coordinate with FDIC and OCC to identify opportunities to conduct  quantitative analyses where feasible during future EGRPRA reviews. With  respect to the second recommendation, the Federal Reserve agreed that  the cumulative impact of regulations on depository institutions is important  and plans to coordinate with FDIC and OCC to identify further  opportunities to seek comment on bodies of regulations and how they  could be streamlined.

NCUA acknowledged the report’s conclusions as part of their voluntary  compliance with the EGRPRA process; NCUA should improve its  qualitative analysis and develop plans for continued reductions to  regulatory burden within the credit union industry. In its letter, NCUA  noted it has appointed a regulatory review task force charged with  reviewing and developing a four-year plan for revising their regulations  and the review will consider the benefits of NCUA’s regulations as well as  the burden they have on credit unions.

In its written comments, OCC stated that it understood the importance of  GAO’s recommendations. They stated they OCC will consult and  coordinate with the Federal Reserve and FDIC to develop plans for  regulatory analysis, including how the regulators should conduct and  report on quantitative analysis and also, will work with these regulators to  increase the transparency of the EGRPRA process. OCC also stated it  will consult with these regulators to develop plans, as part of the  EGRPRA process, to conduct evaluations that identify ways to decrease  the regulatory burden created by bodies of regulations.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to CFPB, FDIC, FinCEN, the  Federal Reserve, NCUA, and OCC. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions concerning this report, please  contact me at (202) 512-8678 or evansl@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix VII.

Appendix I: Objectives, Scope, and Methodology

This report examines the burdens that regulatory compliance places on  community banks and credit unions and actions that federal regulators  have taken to reduce these burdens; specifically:   (1) the financial  regulations that community banks and credit unions reported viewing as  the most burdensome, the characteristics of those regulations that make  them burdensome, and the benefits are associated with those regulations  and (2) federal financial regulators’ efforts to reduce any existing  regulatory burden on community banks and credit unions.

To identify the regulations that community banks and credit unions  viewed as the most burdensome, we first constructed a sample frame of  financial institutions that met certain criteria for being classified as  community banks or community-focused credit unions for the purposes of  this review. These sample frames were then used as the basis for  drawing our non-probability samples of institutions for purposes of  interviews, focus group participation, and document review. Defining a  community bank is important because, as we have reported, regulatory  compliance may be more burdensome for community banks and credit  unions than for larger banks because they are not as able to benefit from  economies of scale in compliance resources. While there is no single  consensus definition for what constitutes a community bank, we reviewed  criteria for defining community banks developed by the Federal Deposit  Insurance Corporation (FDIC), officials from the Independent Community  Bankers Association, the Office of the Comptroller of the Currency  (OCC). Based on this review, we determined that institutions that had the  following characteristics would be the most appropriate to include in our  universe of institutions, (1) fewer total assets, (2) engage in traditional  lending and deposit taking activities, have limited geographic scope, and  (3) did not have complex operating structures.

To identify banks that met these characteristics, we began with all banks  that filed a Consolidated Reports of Condition and Income (Call Report)  for the first quarter of 2016 (March 31, 2016) and are not themselves  subsidiaries of another bank that filed a Call Report. We then excluded banks using an asset-size threshold, to ensure we are including only  small institutions. Based on interviews with regulators and our review of  the FDIC’s community bank study, we targeted institutions around the $1  billion in assets as the group that could be relatively representative of the  experiences of many community banks in complying with regulations.  Upon review of the Call Reports data, we found that the banks in the 90th  percentile by asset size were had about $1.2 billion, and we selected this  to be an appropriate cutoff for our sample frame. In addition we excluded  institutions with characteristics suggesting they do not engage in typical  community banking activities like such as deposit-taking and lending; and  those with characteristics suggesting they conduct more specialized  operations not typical of community banking, such as credit card banks.  In addition to ensure that we excluded banks whose views of regulatory  compliance might be influenced by being part of a large and/or complex  organization, we also excluded banks with foreign offices and banks that  are subsidiaries of either foreign banks or of holding companies with $50  billion or more in consolidated assets. Finally, as a practical matter, we  excluded banks for which we could not obtain data on one or more of the  characteristics listed below.

We also relied on a similar framework to construct a sample frame for  credit unions. We sought to identify credit unions that were relatively  small, engaged in traditional lending and deposit taking activities, and had  limited geographic scope. To do this, we began with all insured credit  unions that filed a Call Report for the first quarter of 2016 (March 31,  2016). We then excluded credit unions using an asset-size threshold of  $860 million, which is the 95th percentile of credit unions, to ensure we  are including only smaller institutions. The percentile of credit unions was  higher than the percentile of banks because there are more large banks  than there are credit unions. We then excluded credit unions that did not  engage in activities that are typical of community lending, such as taking  deposits, making loans and leases, and providing consumer checking  accounts, as well as those credit unions with headquarters outside of the  United States.

We assessed the reliability of data from FFIEC, FDIC, the Federal  Reserve Bank of Chicago, and NCUA by reviewing relevant  documentation and electronically testing the data for missing values or  obvious errors, and we found the data from these sources to be  sufficiently reliable for the purpose of creating sample frames of  community banks and credit unions. The sample frames were then used  as the basis for drawing our nonprobability samples of institutions for  purposes of interviews and focus groups.

To identify regulations that community banks and credit unions viewed as  among the most burdensome, we conducted structured interviews and  focus groups with a sample of a total of 64 community banks and credit  unions. To reduce the possibility of bias, we selected the institutions to  ensure that banks and credit unions with different asset sizes and from  different regions of the country were included. We also included at least  one bank overseen by each of the three primary federal depository  institution regulators, Federal Reserve, FDIC, NCUA, and OCC in the  sample. We interviewed 17 institutions (10 banks and 7 credit unions)  about which regulations their institutions experienced the most  compliance burden. On the basis of the results of these interviews, we  determined that considerable consensus existed among these institutions  as to which regulations were seen as most burdensome, including those  relating to mortgage fees and terms disclosures to consumers, mortgage  borrower and loan characteristics reporting, and anti-money laundering  activities. As a result, we determined to conduct focus groups with  institutions to identify the characteristics of the regulations identified in our  interviews that made these regulations burdensome. To identify the  burdensome characteristics of the regulations identified in our preliminary  interviews, we selected institutions to participate in three focus groups of  community banks and three focus groups of credit unions.

For the first focus group of community banks, we randomly selected  20 banks among 647 banks between $500 million and $1 billion  located in nine U.S. census geographical areas using the sample  frame of community banks we developed, and contacted them asking  for their participation. Seven of the 20 banks agreed to participate in  the first focus group. However, mortgages represented a low  percentage of the assets of two participants in the first focus group, so  we revised our selection criteria because two of the regulations  identified as burdensome were related to mortgages.

For the remaining two focus groups with community banks, we  randomly selected institutions with more than $45 million and no more  than $1.2 billion in assets to ensure that they would be required to  comply with the mortgage characteristics reporting and with at least a  10 percent mortgage to asset ratio to better ensure that they would be  sufficiently experienced with mortgage regulations. After identifying  the large percentage of FDIC regulated banks in the first 20 banks we  contacted, we decided to prioritize contact with banks regulated by  OCC and the Federal Reserve for the institutions on our list. When  banks declined or when we determined an institution merged or was  acquired, we selected a new institution from that state and  preferenced institutions regulated by OCC and the Federal Reserve.

The three focus groups totaled 23 community banks with a range of  assets. We used a similar selection process for three focus groups of  credit unions consisting of 23 credit unions. We selected credit unions  with at least $45 million in assets so that they would be required to  comply with the mortgage regulations and with at least a 10 percent  mortgage-to-asset ratio.

During each of the focus groups, we asked the representatives from  participating institutions what characteristics of the relevant regulations  made them burdensome with which to comply. We also polled them about  the extent to which they had to take various actions to comply with  regulations, including hiring or expanding staff resources, investing in  additional information technology resources, or conducting staff training.  During the focus groups, we also confirmed with the participants that the  three sets of regulations (on mortgage fee and other disclosures to  consumers, reporting of mortgage borrower and loan characteristics, and  anti-money laundering activities) were generally the ones they found most  burdensome.

To identify in more detail the steps a community bank or credit union may  take to comply with the regulations identified as among the most  burdensome, we also conducted an in-depth on-site interview with one  community bank. We selected this institution by limiting the community  bank sample to only those banks in the middle 80 percent of the  distribution in terms of assets, mortgage lending, small business lending,  and lending in general that were no more than 70 miles from Washington,  D.C. We limited the sample in this way to ensure that the institution was  not an outlier in terms of activities or size, and to limit the travel resources  needed to conduct the site visit.

We also interviewed associations representing consumers to understand  the benefits of these regulations. These groups were selected using  professional judgement of their knowledge of relevant banking  regulations. We interviewed associations representing banks and credit  unions.

To identify the requirements of the regulations identified as among the  most burdensome, we reviewed the Home Mortgage Disclosure Act  (HMDA) and its implementing regulation, Regulation C; Bank Secrecy Act  and anti-money laundering (BSA/AML) regulations, including those  deriving from the Currency and Foreign Transactions Reporting Act,  commonly known as the Bank Secrecy Act (BSA), and the 2001 USA  PATRIOT Act; and the Integrated Mortgage Disclosure Rule Under the  Real Estate Settlement Procedures Act (RESPA) with the implementing  Regulation X; and the Truth-in-Lending Act (TILA) with implementing  Regulation Z. We reviewed the Consumer Financial Protection Bureau’s  (CFPB) small entity guidance and supporting materials on the TILA- RESPA Integrated Disclosure (TRID) regulation and HMDA to clarify the  specific requirements of each rule and to analyze the information included  in the CFPB guidance.

We interviewed staff from each of the federal regulators responsible for  implementing the regulations, as well as from the federal regulators  responsible for examining community banks and credit unions. To identify  the potential benefits of the regulations that were considered burdensome  by community banks and credit unions, we interviewed representatives  from four community groups to document their perspectives on the  benefits provided by the identified regulations.

To determine whether the bank regulators had required banks to comply  with certain provisions from which the institutions might be exempt, we  identified eight exemptions from the Dodd-Frank Wall Street Reform and  Consumer Protection Act of 2010 from which community banks and credit  unions should be exempt and reviewed a small group of the most recent  examinations to identify instances in which a regulator may not have  applied an exemption for which a bank was eligible. We reviewed 20  safety and soundness and consumer compliance examination reports of  community banks and eight safety and soundness examination reports of  credit unions. The bank examination reports we reviewed were for the  first 20 community banks we contacted requesting participation in the first  focus group. The bank examination reports included examinations from  all three bank regulators (FDIC, Federal Reserve, and OCC). The NCUA  examination reports we reviewed were for the eight credit unions that  participated in the second focus group of credit unions. Because of the  limited number of the examinations we reviewed, we cannot generalize  whether regulators extended the exemptions to all qualifying institutions.

To assess the federal financial regulators’ efforts to reduce the existing  regulatory burden on community banks and credit unions, we identified  the mechanisms the regulators used to identify burdensome regulations  and actions to reduce potential burden. We reviewed laws and  congressional and agency documentation. More specifically, we reviewed  the Economic Growth and Regulatory Paperwork Reduction Act of 1996  (EGRPRA) that requires the Federal Reserve, FDIC, and OCC to review  all their regulations every 10 years and identify areas of the regulations  that are outdated, unnecessary, or unduly burdensome and reviewed the  1995 Senate Banking Committee report, which described the intent of the  legislation. We reviewed the Federal Register notices that bank regulators and NCUA published requesting comments on their  regulations. We also reviewed over 200 comment letters that the  regulators had received through the EGRPRA process from community  banks, credit unions, their trade associations, and others, as well as the  transcripts of all six public forums regulators held as part the 2017  EGRPRA regulatory review efforts they conducted. We analyzed the  extent to which the depository institutions regulators addressed the issues  raised in comments received for the review. In assessing the 2017 and  2007 EGRPRA reports sent to Congress, we reviewed the significant  issues identified by the regulators and determined the extent to which the  regulators proposed or took actions in response to the comments relating  to burden on small entities.

We compared the requirements of Executive Orders 12866, 13563, and  13610 issued by Office of Management and Budget with the actions taken  by the regulators in implementing their 10-year regulatory retrospective  review. The executive orders included requirements on how executive  branch agencies should conduct retrospective reviews of their  regulations.

For both objectives, we interviewed representatives from CFPB, FDIC,  Federal Reserve, Financial Crimes Enforcement Network, NCUA, and  OCC to identify any steps that regulators took to reduce the compliance  burden associated with each of the identified regulations and to  understand how they conduct retrospective reviews. We also interviewed  representatives of the Small Business Administration’s Office of  Advocacy, which reviews and comments on the burdens of regulations  affecting small businesses, including community banks.

We conducted this performance audit from March 2016 to February 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Comments from the Consumer Financial Protection Bureau

Appendix III: Comments from the Board of Governors of the Federal Reserve System

Appendix IV: Comments from the Federal Deposit Insurance Corporation

Appendix V: Comments from the National Credit Union Administration

Appendix VI: Comments from the Office of the Comptroller of the Currency

Appendix VII: GAO Contact and Staff Acknowledgments

In addition to the contact name above, Cody J. Goebel (Assistant  Director); Nancy Eibeck (Analyst in Charge); Bethany Benitez; Kathleen  Boggs; Jeremy A. Conley; Pamela R. Davidson; Courtney L. LaFountain;  William V. Lamping; Barbara M. Roesmann; and Jena Y. Sinkfield made  key contributions to this report.