FDIC Supervisory Insights Summer 2009

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Remote Deposit Capture continued from pg. 23 advantages comes the responsibility of bank management and examiners to be aware of the risks associated with providing RDC services and how those risks should be mitigated. The primary risks are operational, specifically the risk of fraud, and these risks can be mitigated by using effective risk management techniques, such as those outlined in the FFIEC guidance. These techniques are not costly or complex, and they can easily be implemented by both large and small banks. All risk management strategies described in this article should be considered; however, customer screening is the first step financial institutions should take when deciding to provide RDC services to a particular customer. Future Prospects When considering what lies ahead for the use of RDC technology in the longer term, institutions should note that the number of checks being written in this country has declined steadily since 1995. Conversely, the number of electronic payments has grown, and as of 2003, exceeded the number of checks for the first time. These statistics suggest that RDC may be a “gap” technology that perhaps will exist only for the next five to ten years. In the very near future, financial institutions may apply RDC technology in other ways to reduce deposit-processing costs and expand their deposit base. The first way is making RDC available to retail customers in their homes. Consumers would not need to visit a branch or ATM to deposit checks, but rather would simply run the check through a scanner connected to a personal computer with Internet access. 22 The second is offering RDC to mobile professionals who travel to client sites and are paid in person by check. The technology exists to enable these individuals to deposit checks at a client’s location or in their car using a cell phone camera. 23 Although neither of these applications is now in widespread use, both suggest intriguing opportunities for the future of RDC for banks and customers alike. Jeffrey Kopchik Senior Policy Analyst Division of Supervision and Consumer Protection jkopchik@fdic.gov 22 CheckFree, Remote Deposit Capture for Consumers, http://www.checkfreesoftware.com/cda/software/L5.jsp?layoutId=51629&contentId=51624&menuId=51633&pId=60524. (Note: CheckFree is now Fiserv.) 23 J&B Software, Using Your Mobile Phone for Remote Capture, http://www.jbsoftware.com/webinars.php?id=13. 24 Supervisory Insights Summer 2009
This regular feature focuses on developments that affect the bank examination function. We welcome ideas for future columns. Readers are encouraged to e-mail suggestions to Supervisoryjournal@fdic.gov. The Home Ownership and Equity Protection Act of 1994 (HOEPA) targets certain deceptive and unfair mortgage lending practices by amending the Truth in Lending Act (TILA) to require special disclosures and impose prohibitions for mortgage loans with high rates or fees. However, the protections afforded consumers under the 1994 TILA amendments extended only to homeowners who already owned their homes (i.e., home equity mortgages). Furthermore, in promulgating implementing regulations under Regulation Z, the Board of Governors of the Federal Reserve System (Federal Reserve), exercising its discretion under TILA and HOEPA, further restricted the reach of these protections to home equity mortgages that met or exceeded specific cost parameters (i.e., “high-cost” mortgages). 1 In 2008 and 2009, pursuant to its continuing authority under TILA and HOEPA, the Federal Reserve further amended Regulation Z. 2 The 2008/2009 Regulation Z amendments extend specific protections to consumers of a newly created category of mortgage loans called “higher-priced” home mortgages. In addition, the 2008/2009 Regulation Z amendments enhance existing protections for consumers of high-cost mort- From the Examiner’s Desk: Changes to Regulation Z Afford Increased Consumer Protections gages to match more closely many of the newly created protections for higherpriced mortgage loans. 3 The amendments also add protections for consumer mortgages other than higher-priced or highcost mortgages and expand and enhance the early disclosure requirements of Regulation Z. New and Enhanced Protections for Consumers of Higher-Priced and High-Cost Mortgage Loans Although TILA and Regulation Z attempt to protect consumers primarily through requirements to provide sufficient information (i.e., disclosures) with which to make an informed credit decision, Congress, through its broad grant of authority to the Federal Reserve to explicitly prohibit unfair or deceptive mortgage lending practices, recognized that disclosures alone cannot always protect consumers from the significant harm (e.g., high costs and unsustainable loans) caused by certain mortgage terms and lending practices. Many have attributed the rising number of home mortgage delinquencies, defaults, and foreclosures, as well as declining home values—and even, to some degree, the general decline of entire communities—to the relatively recent practice of “flipping” (i.e., repeated refinancing by the same lender) unsustainable home mortgage loans. With each flip, a homeowner’s equity is 1 Regulation Z requires disclosures of terms of closed-end and open-end consumer credit. It also contains several limitations and prohibitions pertaining to certain categories of mortgage loans. See 12 CFR 226.32, 226.34, and 226.35. http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&tpl=/ecfrbrowse/Title12/12cfr226_main_02.tpl. 2 For the 2008 amendments, see http://www.fdic.gov/news/news/financial/2008/fil08134a.html. For the 2009 amendments, pursuant to the Mortgage Disclosure Improvement Act of 2008, see http://www.fdic.gov/news/news/financial/2009/fil09026.html. 3 Unlike higher-priced mortgage loans, high-cost home mortgage loans are, by definition, limited to home equity mortgage loans and refinancings. Supervisory Insights Summer 2009 25
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FDIC Supervisory Insights Summer 2009

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