Compliance Blog

Written by Brandy Bruyere, Vice President of Regulatory Compliance

Somehow, it's already March so we are hearing from credit unions who are working on Home Mortgage Disclosure Act (HMDA) compliance from various angles. Of course, some folks have been focused on the deadline to report last year's data by today but others are tackling the impending changes to HMDA reporting that will impact loans with final action taken on or after January 1, 2018. One new data point for the new HMDA rule is to provide a universal loan identifier or ULI for covered loans and applications. The ULI has several components:

(1)(i) A universal loan identifier (ULI) for the covered loan or application that can be used to identify and retrieve the covered loan or application file. Except for a purchased covered loan or application described in paragraphs (a)(1)(i)(D) and (E) of this section, the financial institution shall assign and report a ULI that:

(A) Begins with the financial institution's Legal Entity Identifier (LEI) that is issued by:

(1) A utility endorsed by the LEI Regulatory Oversight Committee; or

(2) A utility endorsed or otherwise governed by the Global LEI Foundation (GLEIF) (or any successor of the GLEIF) after the GLEIF assumes operational governance of the global LEI system.

(B) Follows the LEI with up to 23 additional characters to identify the covered loan or application, which:

(1) May be letters, numerals, or a combination of letters and numerals;

(2) Must be unique within the financial institution; and

(3) Must not include any information that could be used to directly identify the applicant or borrower; and

(C) Ends with a two-character check digit, as prescribed in appendix C to this part.

(Emphasis added.)

Some credit unions have asked us about obtaining a Legal Entity Identifier, “ I must have jumped the gun a bit on that one, here's a blog on that topic from June of last year. Today I want to focus on the two-character check digit.

First, what is a check digit? Generally, it is a method for verifying the accuracy of the multi-digit ULI. Here's a summary from the preamble to the new HMDA rule:

A check digit is used to validate or verify that a sequence of numbers or characters, or numbers and characters, are correct. A mathematical function is applied to the sequence of numbers or characters, or numbers and characters, to generate the check digit. This mathematical methodology could then be performed at a point in the HMDA process to ensure that the check digit resulting from performing the mathematical methodology on the sequence of letters or numerals, or letters and numerals, matches the check digit in the ULI. Implementation of a check digit can help ensure that the sequence of characters assigned to identify the covered loan or application are persistent throughout the HMDA process. For example, at the application stage, a financial institution assigns the ULI, which consists of the financial institution's LEI, a 23-character unique sequence of letters and numerals that identify the application, and a 2-character check digit. Once the application is complete, the file is transferred to another division of the financial institution where it will be handled by other staff. To ensure that the ULI was transferred correctly, the mathematical function could be performed to obtain the check digit and ensure that it matches the check digit in the ULI. This would ensure that the ULI does not contain an error due to typos or transposition of characters as a result of manual entry or file transfer errors. If the check digit resulting from the performed mathematical function does not match the check digit in the ULI, then it would be an indication to staff that an error in the ULI exists.

(Emphasis added.)

As you can see, this is rather technical, which is part of why the CFPB added Appendix C to the HMDA rule with examples of this. However, in the preamble, the CFPB also promised to create a tool to help in this area:

The Bureau is publishing in this final rule new appendix C that includes the methodology for generating a check digit and instructions on how to validate a ULI using the check digit. The methodology is adapted from Mod 97-10 in the international standard ISO/IEC 7064, which is published by the International Organization for Standardization (ISO). The Bureau believes that the identification of these types of errors will enhance data quality and reduce burden in the long run for institutions because the errors can be identified early in the process. To reduce burden, the Bureau plans to develop a tool that financial institutions may use, at their option, to assist with check digit generation.

(Emphasis added).

The CFPB did not provide a timeline or estimate for when this tool might be available for credit unions to use. When we reached out to the bureau, we were informed that they are actively working on this tool, but it is not yet complete. So, stay tuned.

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Five Years of Lemmy. This past month marked 5 years since we adopted a 50 pound puppy. He added 70 pounds in that first year, and still has no concept of personal space.