Regulatory compliance

Banks spend a lot of their time and resources in ensuring compliance with the US Federal regulations. Many of these regulations are not incorporated in the loan origination system and are managed as an operational process. This can pose a huge operational and compliance risk.

The Q2 Originate is enhanced to automatically ensure compliance to the US Federal regulations, such as Regulation B, Military Lending Act, Regulation O, and E-sign Act, in the loan origination process. So the banks can maintain compliance with requirements and guidelines mandated by the US Federal regulators for their customers.

In Q2 Origination, the Military Lending Act (MLA) is designed for the US-specific market. The other regulations apply to all the geographies.

Military Lending Act

The Military Lending Act (MLA) applies to all active duty service members and their dependents. This regulation enforces a check on the loan APRs to not exceed 36% for the loan applications covered under MLA.

MLA in Q2 Origination

The banks can enforce MLA using Q2 Origination in the following ways:

• Put a cap on interest rates.

• Ban mandatory arbitration.

• Impose the required restrictions for active duty service members for most consumer products.

• Automatically determine if the loan application is covered under MLA.

• Configure application rules to put a check on the loan APRs to not exceed 36%.

To enable MLA on a loan application with Q2 Origination:

1. At the product level, select the Covered under MLA checkbox.

   

2. On the Parties tab, in the Military Relationship list, select Service Member or Service Member Dependent, and in the Service Member Military Status list, select Active Duty.

   

Regulation O

Regulation O regulates the credit extensions that member banks can offer to individuals who are insiders with respect to the bank. While bank insiders are not barred from taking out loans from a bank with which they are professionally associated, federal law carefully regulates how that bank treats the insider as a customer.

Regulation O in Q2 Origination

With Q2 Origination, users can identify borrowing entities as Employees, Insiders, or a Related Interest of an Insider. The loan application is flagged as an Employee Loan or a Loan for an Insider. Bank or the financial institution can configure workflows, different loan offer document templates, and different terms and conditions for such applications.

To enforce Regulation O in Q2 Origination:

• If the borrowing entity is an employee, on the applications page, select the Employee checkbox.

• If the borrowing entity is an insider or related interest of an insider, in the Insider Relationship list, select the appropriate option.
  

  

Regulation B/FCRA

Regulation B stipulates that whenever a loan application is declined, an adverse action notice must be sent to the borrower within 30 days of a submitted application, within 30 days of an unsubmitted application, and within 90 days after a counter offer.

Regulation B/FCRA in Q2 Origination

There are some default reasons for the denial of credit available with Q2 Origination. You can use those or create your own and assign those to adverse action.

To enforce Regulation B/FCRA with Q2 Origination, do the following:

1. Create a reason from Origination Configuration > Credit Setup > Reason Code Definition.
   

2. A reason is by default treated as a primary reason.
   

   Assign a parent reason to make it a secondary reason.
   

3. On the loan dashboard, select Adverse Action.
   

   All the default and the created primary and the secondary reasons are listed.
   

4. Select the reasons for the rejection of the loan application.
   

   In the following example, an adverse notice is sent to the borrower if the borrower's income cannot be verified. The attempts made to obtain the income documents from the borrower are recorded.
   

   

5. An adverse action notice can be triggered to save the reasons for the decline of the loan application.

E-Sign Act

E-sign outlines the rules and regulations pertaining to electronic signatures, as well as the procedures required to deliver electronic disclosures and gain verifiable consent from the borrower to receive electronic disclosures. In practice, financial institutions must display an Electronic Consent disclosure to borrowers during the loan application process. If the borrower opts out of receiving disclosures and documents electronically, all documents and disclosures must be delivered in paper copy.

E-Sign Act with Q2 Origination

With Q2 Origination, you can enforce e-sign compliance in the following ways:

• Define the electronic consent disclosure.

• Record consent to receive documents electronically from each borrower in the loan application.

• Configure workflows based on opt-in or opt-out of the electronic consent.

To enforce e-sign act in Q2 Origination:

1. On the loan dashboard, in the Parties section, select the Add Party icon.
   

2. After adding a party, navigate to the Consents section, and select the Electronic Consent checkbox.