prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.



Report 2: Over the last 3 decades employers have shifted away from sponsoring defined benefit (DB) plans and toward DC plans  This shift also transfers certain types of risk—such as investment risk—from employers to employee participants  DB plans generally offer a fixed level of monthly annuitized retirement income based upon a formula specified in the plan, which usually takes into account factors such as a participant’s salary, years of service, and age at retirement, regardless of how the plan’s investments perform  In contrast, benefit levels in DC plans—such as 401(k) plans—depend on the contributions made to the plan and the performance of the investments in individual accounts, which may fluctuate in value  As we have previously reported, some experts have suggested that the portability of DC plans make them better-suited for a mobile workforce, and that such portability may lead to early withdrawals of retirement savings  DOL reported there were 656,241 DC and 46,300 DB plans in the United States in 2016  Tax incentives are in place to encourage employers to sponsor retirement plans and employees to participate in plans  Under the Employee Retirement Income Security Act of 1974 (ERISA), employers may sponsor DC retirement plans, including 401(k) plans—the predominant type of DC plan, in which benefits are based on contributions to and the performance of the investments in participants’ individual accounts  To save in 401(k) plans, participants contribute a portion of their income into an investment account, and in traditional 401(k) plans taxes are deferred on these contributions and associated earnings, which can be withdrawn without penalty after age 59½ (if permitted by plan terms)  As plan sponsors, employers may decide the amount of employer contributions (if any) and how long participants must work before having a non-forfeitable (i e , vested) interest in their plan benefit, within limits established by federal law  Plan sponsors often contract with service providers to administer their plans and provide services such as record keeping (e g , tracking and reporting individual account contributions); investment management (i e , selecting and managing the securities included in a mutual fund); and custodial or trustee services for plan assets (e g , holding the plan assets in a bank)  Individuals also receive tax incentives to save for retirement outside of an employer-sponsored plan  For example, traditional IRAs provide certain individuals with a way to save pre-tax money for retirement, with withdrawals made in retirement taxed as income  In addition, Roth IRAs allow certain individuals to save after-tax money for retirement with withdrawals in retirement generally tax-free  IRAs were established under ERISA, in part, to (1) provide a way for individuals not covered by a pension plan to save for retirement; and (2) give retiring workers or individuals changing jobs a way to preserve assets from 401(k) plans by transferring their plan balances into IRAs  The Investment Company Institute (ICI) reported that 34 8 percent of households in the United States owned an IRA in 2017, a percentage that has generally remained stable since 2000  In 2017, IRA assets accounted for almost 33 percent (estimated at $9 2 trillion) of total U S  retirement assets, followed by DC plans, which accounted for 27 percent ($7 7 trillion)  Further, according to ICI, over 94 percent of funds flowing into traditional IRAs from 2000 to 2015 came from rollovers—primarily from 401(k) plans  IRS, within the Department of the Treasury, is responsible for enforcing IRA tax laws, while IRS and DOL share responsibility for overseeing prohibited transactions relating to IRAs  IRS also works with DOL’s Employee Benefits Security Administration (EBSA) to enforce laws governing 401(k) plans  IRS is primarily responsible for interpreting and enforcing provisions of the Internal Revenue Code (IRC) that apply to tax- preferred retirement savings  EBSA enforces ERISA’s reporting and disclosure and fiduciary responsibility provisions, which, among other things, include requirements related to the type and extent of information that a plan sponsor must provide to plan participants  Employers sponsoring employee benefit plans subject to ERISA, such as a 401(k) plans, generally must file detailed information about their plan each year  The Form 5500 serves as the primary source of information collected by the federal government regarding the operation, funding, expenses, and investments of employee benefit plans  The Form 5500 includes information about the financial condition and operation of their plans, among other things  EBSA uses the Form 5500 to monitor and enforce plan administrators and other fiduciaries, and service providers’ responsibilities under Title I of ERISA  IRS uses the form to enforce standards that relate to, among other things, how employees become eligible to participate in benefit plans, and how they become eligible to earn rights to benefits  In certain instances, sponsors of 401(k) plans may allow participants to access their tax-preferred retirement savings prior to retirement  Plan sponsors have flexibility under federal law and regulations to choose whether to allow plan participants access to their retirement savings prior to retirement and what forms of access to allow  Typically, plans allow participants to access their savings in one or more of the following forms: Loans: Plans may allow participants to take loans and limit the number of loans allowed  If the plan provides for loans, the maximum amount that the plan can permit as a loan generally cannot exceed the lesser of (1) the greater of 50 percent of the vested account balance, or $10,000 or (2) $50,000 less the excess of the highest outstanding balance of loans during the 1-year period ending on the day before the day on which a new loan is made over the outstanding balance of loans on the day the new loan is made  Plan loans are generally not treated as early withdrawals unless they are not repaid within the terms specified under the plan  Hardship withdrawals: Plans may allow participants facing a hardship to take a withdrawal on account of an immediate and heavy financial need, and if the withdrawal is necessary to satisfy the financial need  Though plan sponsors can decide whether to offer hardship withdrawals and approve applications for hardship withdrawals, IRS regulations provide “safe harbor” criteria regarding circumstances when a withdrawal is deemed to be on account of an immediate heavy financial need  IRS regulations allow certain expenses to qualify under the safe harbor including: (1) certain medical expenses; (2) costs directly relating to the purchase of a principal residence; (3) tuition and related educational fees and expenses for the participant, and their spouse, children, dependents or beneficiary; (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence; (5) certain burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee’s principal residence  Plans that provide for hardship withdrawals generally specify what information participants must provide to the plan sponsor to demonstrate a hardship meets the definition of an immediate and heavy financial need  Early withdrawals of retirement savings may have short-term and long- term impacts on participants’ ability to accumulate retirement savings  In the short term, IRA owners and participants in 401(k) plans who received a withdrawal before reaching age 59½ generally pay an additional 10 percent tax for early distributions in addition to income taxes on the taxable portion of the distribution amount  The IRC exempts certain distributions from the additional tax, but the exceptions vary among 401(k) plans and IRAs  Early withdrawals of any type can result in the permanent removal of assets from retirement accounts thereby reducing the amounts participants can accumulate before retirement, including the loss of compounded interest or other earnings on the amounts over the participant’s career  According to DOL’s Bureau of Labor Statistics (BLS), U S  workers are likely to have multiple jobs in their careers as average employee tenure has decreased  In 2017, BLS reported that from 1978 to 2014, workers held an average of 12 jobs between the ages of 18 and 50  BLS also reported in 2016 that the median job tenure for a worker was just over 4 years  Employees who separate from a job bear responsibility for deciding what to do with their accumulated assets in their former employer’s plan  Recent research estimated that 10 million people with a retirement plan change jobs each year, many of whom faced a decision on how to treat their account balance at job separation  Plan administrators must provide a tax notice detailing participants’ options for handling the balance of their accounts  When plan participants separate from their employers, they generally have one of three options: 1  They may leave the balance in the plan, 2  They may ask their employer to roll the money directly into a new qualified employer plan or IRA (known as a direct rollover), or 3  They may request a distribution  Once the participant receives the distribution he or she can (1) within 60 days, roll the distribution into a new qualified employer plan or IRA (in which case the money would remain tax-preferred); or (2) keep the distributed amount, and pay any income taxes or additional taxes associated with the distribution (known as a cashout)  Sponsors of 401(k) plans may cash out or transfer separating participant accounts if an account balance falls below a certain threshold  The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) amended the IRC to provide certain protections for separating participants with account balances between $1,000 and $5,000 by requiring, in the absence of participant direction, plan sponsors to either keep the account in the plan or to transfer the account balance to an IRA to preserve its tax-preferred status  Plan sponsors may not distribute accounts with balances of more than $5,000 without participant direction, but have discretion to distribute account balances of $1,000 or less  The IRC imposes an additional 10 percent tax (in addition to ordinary income tax) on certain early withdrawals from qualified retirement plans, which includes IRAs and 401(k) plans in an effort to discourage the use of plan funds for purposes other than retirement and ensure the favorable tax treatment for plan funds is used to provide retirement income  Employers are required to withhold 20 percent of the amount cashed out to cover anticipated income taxes unless the participant pursues a direct rollover into another qualified plan or IRA  Research has found that many employees are concerned about their level of savings and ability to manage their retirement accounts, and some employers provide educational services to improve employees’ financial wellness and financial literacy and encourage them to save for retirement  A 2017 survey on employee financial wellness in the workplace found more than one-half of workers experienced financial stress and that insufficient emergency savings was a top concern for employees  Research has also found that limited financial literacy is widespread among Americans over age 50, and those who lack financial knowledge are less likely to successfully plan for retirement  In 2018, the Federal Reserve reported that three-fifths of non-retirees with participant-directed retirement accounts had little to no comfort managing their own investments  As we have previously reported, some employers have developed comprehensive programs aimed at overall improvement in employees’ financial health  These programs, often called financial wellness programs, may help employees with budgeting, emergency savings, and credit management, in addition to the traditional information and assistance provided for retirement and health benefits  In 2013, individuals ages 25 to 55 withdrew at least $68 7 billion early from their retirement accounts  Of this amount, IRA owners in this age group withdrew the largest share (about 57 percent) and 401(k) plan participants in this age group withdrew the rest (about 43 percent) However, a total amount withdrawn from 401(k) plans cannot be determined due to data limitations  IRA withdrawals were the largest source of early withdrawals of retirement savings, accounting for an estimated $39 5 billion of the total $68 7 billion in early withdrawals made by individuals ages 25 to 55 in 2013  According to IRS estimates, 12 percent of IRA owners in this age group withdrew money early that year from their IRAs in 2013  The amount they withdrew early comprised a small percentage of their total IRA assets  Specifically, in 2013, the amount of early withdrawals was equivalent to 3 percent of the cohort’s total IRA assets and, according to IRS estimates, the total amount withdrawn by this cohort exceeded their total contributions to IRAs in that year  At least $29 2 billion left 401(k) plans in 2013 in the form of hardship withdrawals, cashouts at job separation, and unrepaid plan loans, according to our analysis of 2013 SIPP data and data from DOL’s Form 5500  Specifically, we found that: Hardship withdrawals were the largest source of early withdrawals from 401(k) plans with an estimated 4 percent (+/- 0 25) of plan participants ages 25 to 55 withdrawing an aggregate $18 5 billion in 2013  The amount of hardship withdrawals was equivalent to 0 5 percent (+/- 0 06) of the cohort’s total plan assets and 8 percent (+/- 0 9) of the cohort’s plan contributions made in 2013  Cashouts of account balances of $1,000 or more at job separation were the second largest source of early withdrawals from 401(k) plans  In 2013, an estimated 1 1 percent (+/- 0 11) of plan participants ages 25 to 55 withdrew an aggregate $9 8 billion from their plans that they did not roll into another qualified plan or IRA  Additionally, 86 percent (+/- 2 9) of these participants taking a cashout of $1,000 or more did not roll over the amount in 2013  The amounts cashed out and not rolled over were equivalent to 0 3 percent (+/- 0 05) of the cohort’s total plan assets and 4 percent (+/- 0 75) of the cohort’s total contributions made in 2013  Loan defaults accounted for at least $800 million withdrawn from 401(k) plans in 2013; however, the amount of distributions of unpaid plan loans is likely larger as DOL data cannot be used to quantify plan loan offsets that are deducted from participants’ account balances after they leave a plan  As a result, the amount of loan offsets among terminating participants ages 25 to 55 cannot be determined with certainty  Specifically, DOL’s Form 5500 instructions require plan sponsors to report unpaid loan balances in two separate places on the Form 5500, depending on whether the loan holder is an active or a terminated participant  For active participants, plan sponsors report loan defaults as a single line item on the Form 5500 (i e , the $800 million in 2013 listed above)  For terminated participants, plan sponsors report unrepaid plan loan balances as benefits paid directly to participants—a category that also includes rollovers to employer plans and IRAs  According to a DOL official, as a result of this commingling of benefits on this line item, isolating the amount of loan offsets for terminated participants using the Form 5500 data is not possible  Without better data of the amount of unrepaid plan loans, the amount of loan offsets and the characteristics of plan participants who did not repay their plan loans at job separation cannot be determined  IRA owners and plan participants taking early withdrawals paid $6 2 billion as a result of the additional 10 percent tax for early distributions in 2013, according to IRS estimates  Although the taxes are generally treated separately from the amounts withdrawn, IRA owners and plan participants are expected to pay any applicable taxes resulting from the additional 10 percent tax when filing their income taxes for the tax year in which the withdrawal occurred  Individuals with certain demographic and economic characteristics that we analyzed had higher incidence of early withdrawals of retirement savings, according to our analysis of SIPP data  The characteristics described below reflect statistically significant differences between comparison groups (a full listing of all demographic groups can be found in appendix III)  Age  The incidence of IRA withdrawals was higher among individuals ages 45 to 54 (8 percent) than individuals ages 25 to 34 and 35 to 44  Education  Individuals with a high school education or less had higher incidence of cashouts (97 percent) and hardship withdrawals (7 percent) than individuals with some college or some graduate school education  Family size  Individuals in families of seven or more (8 percent) or in families of five to six (7 percent) had higher incidence of hardship withdrawals than individuals in smaller family groups we analyzed  Individuals living alone had higher incidence of IRA withdrawals than individuals living in the larger family groups  Marital status  Widowed, divorced, or separated individuals had higher incidence of IRA withdrawals (11 percent) and hardship withdrawals (7 percent) than married or never married individuals  Race  The incidence of hardship withdrawals among African American (10 percent) and Hispanic individuals (6 percent) was higher than among individuals who were White, Asian, or Other  Residence  The incidence of IRA withdrawals and hardship withdrawals was higher among individuals living in nonmetropolitan areas (7 percent and 6 percent, respectively) than among individuals living in metropolitan areas  Similarly, individuals with certain economic characteristics that we analyzed had higher incidence of early withdrawals of retirement savings, according to our analysis of SIPP data  The characteristics described below reflect statistically significant differences between comparison groups (a full listing of all demographic groups can be found in appendix III)  Employer size  Individuals working for employers with fewer than 25 employees had higher incidence of IRA withdrawals (9 percent) than individuals working for employers with higher number of employees  Employment  Individuals working fewer than 35 hours per week had higher incidence of IRA withdrawals (7 percent) than employees working 35 hours or more  Household debt  Individuals with household debt of $5,000 up to $20,000 had higher incidence of IRA withdrawals (14 percent) than individuals with other debt amounts  Household income  Individuals with household income of less than $25,000 or $25,000 up to $50,000 had higher incidence of IRA withdrawals (12 percent and 9 percent, respectively) and hardship withdrawals (9 percent and 7 percent, respectively) than individuals with higher income amounts  Personal cash reserves  Individuals with personal cash reserves of less than $1,000 had higher incidence of IRA withdrawals (10 percent) and hardship withdrawals (6 percent) than individuals with larger reserves  Retirement assets  Individuals with combined IRA and 401(k) plan assets valued at less than $5,000 had higher incidence of hardship withdrawals (7 percent) than individuals with higher valued assets  Tenure in retirement plan  Individuals with fewer than 3 years in their retirement plan had higher incidence of hardship withdrawals (6 percent) than individuals with longer tenures  Stakeholders we interviewed said that plan rules related to the disposition of account balances at job separation can lead participants to remove more than they need, up to and including their entire balance  We previously reported U S  workers are likely to change jobs multiple times in a career  Plan sponsors may cash out balances of $1,000 or less at job separation, although they are not required to do so  As a result, plan participants with such balances, including younger employees and others with short job tenures, risk having their account balances distributed in full each time they change jobs  As shown in table 1, a separating employee must take multiple steps to ensure that an account balance remains tax-preferred  Participants who take a distribution from a plan with the intent of rolling it into another qualified plan or IRA must acquire additional funds to complete the rollover and avoid adverse tax consequences  Plan sponsors are required to withhold 20 percent of the account balance to pay anticipated taxes on the distribution  As a result, the sponsor then sends 80 percent of the account balance to the participant, who must acquire outside funds to compensate for the 20 percent withheld or forgo the preferential tax treatment of that portion of their account balance  For example, a participant seeking to roll over a retirement account with a $10,000 balance would receive an $8,000 distribution after tax withholding, requiring them to locate an additional $2,000 to complete the rollover within the 60-day period to avoid a taxable distribution of the withheld amount  If participants can replace the 20 percent withheld and complete the rollover within the 60-day period, they do not owe taxes on the distribution  Stakeholders said that the complexity of rolling a 401(k) account balance from one employer to another may encourage participants to take the relatively simpler route of rolling their balance into an IRA or cashing out altogether  They noted that separating participants had many questions when evaluating their options and had difficulty understanding the notice provided  For example, participants may not fully understand how the decisions made at job separation can have a significant impact on their current tax situation and eventual retirement security  One plan sponsor, describing concerns about giving investment advice, said she watched participants make what she judged to be poor choices with their account balances and felt helpless to intervene  Stakeholders also noted that the lack of a standardized rollover process sometimes bred mistrust among employers and complicated separating participants’ ability to successfully facilitate a rollover between plans  For example, one stakeholder told us that some plans were hesitant to accept funds from other employer plans fearing that the funds might come from plans that have failed to comply with plan qualification requirements and could create problems for the receiving plan later on  Another stakeholder suggested that the requirement for plan sponsors to provide a notice to separating participants likely caused more participants to take the distribution  Stakeholders described loans as a useful source of funds in times of need and a way to avoid more expensive options, such as high-interest credit cards  They also noted that certain plan loan policies could lead to early withdrawals of retirement savings  (See fig  1 ) Loan repayment at job separation: Stakeholders said loan repayment policies can increase the incidence of defaults on outstanding loans  When participants do not repay their loan after separating from a job, the outstanding balance is treated as a distribution, which may subject it to income tax liability and, possibly, an additional 10 percent tax for early distributions  According to stakeholders, the process of changing jobs can inadvertently lead to a distribution of a participant’s outstanding loan balance, when the participant could have otherwise repaid the loan  Extended loan repayment periods: Some plan sponsors allow participants to take loans to purchase a home  Stakeholders told us that the amounts of these home loans tended to be larger than general purpose loans and had longer repayment periods that these extended from 15 to 30 years  A stakeholder further noted that these loans could make it more likely that participants would have larger balances to repay if they lost or changed jobs  Multiple loans: While some plan sponsors noted that their plans limited the number of loans participants can take from their retirement plan, others do not  Some plan sponsors limited participants to between one and three simultaneous loans, and one plan administrator indicated that 92 percent of their plan-sponsor clients allowed no more than two simultaneous loans  Other plan sponsors placed no limit on the number of participant loans or limited loans to one or two per calendar year, in which case a participant could take out a new loan at the start of a calendar year regardless of whether or not outstanding loans had been repaid  Stakeholders described some participants as “serial” borrowers, who take out multiple loans and have less disposable income as a result of ongoing loan payments  One plan administrator stated that repeat borrowing from 401(k) plans was common, and some participants took out new loans to pay off old loans  Other loan restrictions: Allowing no loans or one total outstanding loan can cause participants facing economic shocks to take a hardship withdrawal, resulting in the permanent removal of their savings and subjecting them to income tax liability and, possibly, an additional 10 percent tax for early distributions and a suspension on contributions  Minimum loan amounts: Minimum loan amounts may result in participants borrowing more than they need to cover planned expenses  For example, a participant may have a $500 expense for which they seek a loan, but may have to borrow $1,000 due to plan loan minimums  Stakeholders said that plan participants take plan loans and hardship withdrawals for pressing financial needs  Many plan sponsors we interviewed said they used the IRS safe harbor exclusively as criteria when reviewing a participant’s application for a hardship withdrawal  Stakeholders said the top two reasons participants took hardship withdrawals were to prevent imminent eviction or foreclosure and to cover out-of-pocket medical costs not covered by health insurance  Participants generally took loans to reduce debt, for emergencies, or to purchase a primary residence  Stakeholders also said that participants who experienced economic shocks stemming from job loss made early withdrawals  They said retirement plans often served as a form of insurance for those between jobs or facing a sudden economic shock and participants accessed their retirement accounts because, for many, they were the only source of savings  They cited personal debt, health care costs, and education as significant factors that affected employees across all income levels  Stakeholders said some participants also used their retirement savings to pay for anticipated expenses  Two plan administrators said education expenses were one of the reasons participants took hardship withdrawals  They said that participants accessed their retirement savings to address the cost of higher education, including paying off their own student loan debt or financing the college costs for family members  For example, plan administrators told us that some participants saved with the expectation of taking a hardship withdrawal to pay for college tuition  Other participants utilized hardship withdrawals to purchase a primary residence  IRA owners generally may take withdrawals at any time and IRS does not analyze the limited information it receives on the reasons for IRA withdrawals  IRA owners can withdraw any amount up to their entire account balance at any time  In addition, IRAs have certain exceptions from the additional 10 percent tax for early distributions  For example, IRA withdrawals taken for qualified higher education expenses, certain health insurance premiums, and qualified “first-time” home purchases (up to $10,000) are excepted from the additional 10 percent tax  IRA owners who make an IRA distribution receive a Form1099-R or similar statement from their provider  On the Form 1099-R, IRA providers generally identify whether the withdrawal, among other things, can be categorized as a normal distribution, an early distribution, or a direct distribution to a qualified plan or IRA  For an early distribution, the IRA provider may identify whether a known exception to the additional 10 percent tax applies  For their part, IRA owners are required to report early withdrawals on their income tax returns, as well as the reason for any exception from the additional 10 percent tax for a limited number of items  In written responses to questions, an IRS official indicated that IRS collected data on the exemption reason codes, but did not use them  Some plan sponsors we interviewed had policies in place that may reduce the long-term impact of early withdrawals of retirement savings taken at job separation  Policies suggested by plan sponsors included: Providing a periodic installment distribution option: Although some plan sponsors may require participants wanting a distribution to take their full account balance at job separation, other plan sponsors provided participants with an option of receiving their account balance in periodic installments  For example, one plan sponsor gives separating participants an option to receive periodic installment distributions at intervals determined by the participants  This plan sponsor said separating participants could select distributions on a monthly, quarterly, semi-annual or annual basis  These participants could also elect to stop distributions at any time, preserving the remaining balance in the employer’s plan  The plan sponsor said the plan adopted this option to help separating participants address any current financial needs, while preserving some of the account balance for retirement  Another plan sponsor adopted a similar policy to address the cyclical nature of the employer’s business, which can result in participants being terminated and rehired within one year  Offering partial distributions: One plan sponsor provided separated participants with the option of receiving a one-time, partial distribution  If a participant opted for partial distribution, the plan sponsor issued the distribution for the requested sum and preserved the remainder of the account balance in the plan  The plan sponsor adopted the partial distribution policy to provide separating participants with choices for preserving account balances, while simultaneously providing access to address any immediate financial needs  Providing plan loan repayment options for separated participants: Some plan sponsors allowed former participants to continue making loan repayments after job separation  Loan repayments after job separation reduce the loan default risk and associated tax implications for participants  Some plan sponsors said that separating participants who have the option to continue repaying an outstanding loan balance generally have three options: (1) to continue repaying the outstanding loan, (2) to repay the entire balance of the loan at separation within a set repayment period, or (3) not to repay the loan  Those participants who continue repaying their loans after separation generally have the option to set up automatic debit payments to facilitate the repayment  Those separated participants who do not set up loan repayment terms within established timeframes, or do not make a payment after the loan repayment plan has been established, default on their loan and face the associated tax consequences, including, possibly, an additional 10 percent tax for early distributions  Some plan sponsors we spoke with placed certain limits on participant loan activity, which may reduce the incidence of loan defaults (see fig  2)  Limiting loan amounts to participant contributions: Some plan sponsors said they limited plan loans to participant contributions and any investment earnings from those contributions to reduce early withdrawals of retirement savings  For example, one plan sponsor’s policy limited the amount a participant could borrow from their plan to 50 percent of participant contributions and earnings, compared to 50 percent of the total account balance  Implementing a waiting period after loan repayment before a participant can access a new loan: Some plan sponsors said they had implemented a waiting period between plan loans, in which a participant, having fully paid off the previous loan, was temporarily ineligible to apply for another  Among plan sponsors who implemented a waiting period, the length varied from 21 days to 30 days  Reducing the number of outstanding loans: Some plan sponsors we spoke with limited the number of outstanding plan loans to either one or two loans  One plan sponsor had previously allowed one new loan each calendar year, but subsequently revised plan policy to allow participants to have a total of two outstanding loans  The plan sponsor said the rationale was to balance limiting participant loan behavior with the ability of participants to access their account balance  Some plan sponsors said they had expanded the definition of immediate and heavy financial need beyond the IRS safe harbor to better align with the economic needs of their participants  For example, one plan sponsor approved a hardship withdrawal to help a participant pay expenses related to a divorce settlement  Another plan sponsor developed an expanded list of qualifying hardships, including past-due car, mortgage, or rent payments; and payday loan obligations  Some plan sponsors implemented loan programs outside their plan, contracting with third-party vendors to provide short-term loans to employees  For example, one plan sponsor instituted a loan program that allowed employees to borrow up to $5,000 from a third-party vendor that would be repaid through payroll deduction  This plan sponsor said the loan program featured an 8 to 12 percent interest rate, and approval was not based on a participant’s credit history  The plan sponsor also observed that they had fewer 401(k) loan applications since the third- party loan program was implemented  A second plan sponsor instituted a similar loan program that allowed employees to borrow up to $500 interest free from a third-party vendor  According to this sponsor, to qualify for a loan, an employee must demonstrate financial hardship and have no outstanding plan loans, and is required to attend a financial counseling course if their loans are approved  Some plan sponsors said they have provided workplace-based financial wellness resources for their participants to improve their financial literacy  Some implemented optional financial wellness programs that covered topics such as investment education, how plan loans work, and the importance of saving for emergencies  These plan sponsors told us they offered on-site financial counseling with representatives of the plan administrator to help provide guidance on financial decision-making; however, other plan sponsors said that—despite their investment in participant-specific financial education—participation in these programs was low  Stakeholders suggested strategies that they believed could help mitigate the long-term effects of early withdrawals of retirement savings on IRA owners and plan participants  They noted that any of these proposed strategies, if implemented, could (1) increase the costs of administering IRAs and plans, (2) require changes to federal law or regulations, and (3) involve tradeoffs between providing access to retirement savings and preserving savings for retirement  Stakeholders suggested several strategies that, if implemented, could help reduce early withdrawals from IRAs  These strategies centered on modifying existing rules to reduce early withdrawals from IRAs (and subsequently the amount paid as a result of the additional 10 percent tax for early distributions)  Specifically, stakeholders suggested: Raising the age at which the additional 10 percent tax applies: Some stakeholders noted that raising the age at which the additional 10 percent tax for early distributions applies from 59½ to 62 would align it with the earliest age of eligibility to claim Social Security and may encourage individuals to consider a more comprehensive retirement distribution strategy  However, other stakeholders cautioned that it could have drawbacks for employees in certain situations  For example, individuals who lose a job late in their careers could face additional tax consequences for accessing an IRA before reaching the age 62  In addition, one stakeholder said some individuals may shift to a part-time work schedule later in their careers as they transition to retirement and plan on taking IRA withdrawals to compensate for their lower wages  Allowing individuals to roll existing plan loans into an IRA: Some stakeholders said that allowing individuals to include an existing plan loan as part of a rollover into an IRA, although currently not allowed, would likely reduce plan loan defaults by giving individuals a way to continue repaying the loan balance  One stakeholder suggested that rolling an existing plan loan into an IRA could be administratively challenging for IRA providers, but doing so to repay the loan may ultimately preserve retirement savings  Allowing IRA loans: While currently a prohibited transaction that could lead to the cessation of an IRA, some stakeholders suggested that IRA loans could theoretically reduce the amounts being permanently removed from the retirement system through early IRA withdrawals  One stakeholder said an IRA loan would present a good alternative to an early withdrawal from an IRA account because it would give the account holder access to the balance, defer any tax implications, and improve the likelihood the loaned amount would ultimately be repaid  However, another stakeholder said that allowing IRA loans could increase early withdrawals, given the limited oversight of IRAs, as well as additional administrative costs and challenges for IRA providers  Stakeholders suggested several strategies that, if implemented, could reduce the effect of cashouts at job separation from 401(k) plans  Simplifying the rollover process: Stakeholders proposed two modifications to the current rollover process that they believe could make the process more seamless and reduce the incidence of cashouts  First, stakeholders suggested that a third-party entity tasked with facilitating rollovers between employer plans for a separating participant would likely reduce the incidence of cashouts at job separation  Such an entity could automatically route a participant’s account balance from the former plan to a new one  One stakeholder said having a third-party entity facilitate the rollover would eliminate the need for a plan participant to negotiate the process  Such a service, however, would likely come at cost that may likely be passed onto participants  Stakeholders also suggested direct rollovers of account balances between plans could further reduce the incidence of cashouts  One stakeholder, however, cautioned that direct rollovers could have downsides for some participants  For example, participants who prefer to keep their balance in their former employer’s plan but provide no direction to the plan sponsor may inadvertently find their account balance rolled into a new employer’s plan  Restricting cashouts to participant contributions only: Some stakeholders suggested limiting the assets a participant may access at job separation  For example, some stakeholders said that participants should not be allowed to cash out vested plan sponsor contributions, thus preserving those contributions and their earnings for retirement  However, this strategy could result in participants overseeing and monitoring several retirement accounts  Stakeholders suggested several strategies that, if implemented, could limit the adverse effect of hardship withdrawals on retirement savings  Narrowing the IRS safe harbor: Although some plan sponsors are expanding the reasons for a hardship to align with perceived employee needs, some stakeholders said narrowing the IRS safe harbor would likely reduce the incidence of early withdrawals  For example, some stakeholders suggested narrowing the definition of a hardship to exclude the purchase of a primary residence or for postsecondary education costs  In addition, one stakeholder said alternatives exist to finance home purchases (mortgages) and postsecondary education (student loans)  Stakeholders noted that eliminating the purchase of a primary residence and postsecondary education costs from the IRS safe harbor would make hardship withdrawals a tool more strictly used to avoid sudden and unforeseen economic shocks  In combination with the two exclusions, one stakeholder suggested consideration be given to either reducing or eliminating the additional 10 percent tax for early distributions that may apply to hardship withdrawals  Replacing hardship withdrawals with hardship loans: Stakeholders said replacing a hardship withdrawal, which permanently removes money from the retirement system, with a no-interest hardship loan, which would be repaid to the account, would reduce early withdrawals  Under this suggestion, if the loan were not repaid within this predetermined time frame, the remaining loan balance could be considered a deemed distribution and treated as income (similar to the way a hardship withdrawal is treated now)  Incorporating emergency savings features into 401(k) plans: Stakeholders said incorporating an emergency savings account into the 401(k) plan structure may help participants absorb economic shocks and better prepare for both short-term financial needs and long-term retirement planning  (See fig  3 ) In addition, stakeholders said participants with emergency savings accounts could be better prepared to avoid high interest rate credit options, such as credit cards or payday loans, in the event of an economic shock  Stakeholders had several ideas for implementing emergency savings accounts  For example, one stakeholder suggested that, were it allowed, plan sponsors could revise automatic account features to include automatic contributions to an emergency savings account  Some stakeholders also said emergency savings accounts could be funded with after-tax participant contributions to eliminate the tax implications when withdrawing money from the account  However, another stakeholder said emergency savings contributions could reduce contributions to a 401(k) plan  In the United States, the amount of aggregate savings in retirement accounts continues to grow, with nearly $17 trillion invested in 401(k) plans and IRAs  Early access to retirement savings in these plans may incentivize plan participation, increase participant contributions, and provide participants with a way to address their financial needs  However, billions of dollars continue to leave the retirement system early  Although these withdrawals represent a small percentage of overall assets in these accounts, they can erode or even deplete an individual’s retirement savings, especially if the retirement account represents their sole source of savings  Employers have implemented plan policies that seek to balance the short- term benefits of providing participants early access to their accounts with the long-term need to build retirement savings  However, the way plan sponsors treat outstanding loans after a participant separates from employment has the potential to adversely affect retirement savings  In the event of unexpected job loss or separation, plan loans can leave participants liable for additional taxes  Currently, the incidence and amount of loan offsets in 401(k) plans cannot be determined due to the way DOL collects data from plan sponsors  Additional information on loan offsets would provide insight into how plan loan features might affect long-term retirement savings  Without clear data on the incidence of these loan offsets, which plan sponsors are generally required to include, (but not itemize) on the Form 5500, the overall extent of unrepaid plan loans in 401(k) plans cannot be known  To better identify the incidence and amount of loan offsets in 401(k) plans nationwide, we recommend that the Secretary of Labor direct the Assistant Secretary for EBSA, in coordination with IRS, to revise the Form 5500 to require plan sponsors to report qualified plan loan offsets as a separate line item distinct from other types of distributions  (Recommendation 1) We provided a draft of this product to the Department of Labor, the Department of the Treasury, and the Internal Revenue Service for review and comment  In its written comments, reproduced in appendixes IV and V, respectively, DOL and IRS generally agreed with our findings, but neither agreed nor disagreed with our recommendation  DOL said it would consider our recommendation as part of its overall evaluation of the Form 5500, and IRS said it would work with DOL as it responds to our recommendation  The Department of Treasury provided no formal written comments  In addition, DOL, IRS, Treasury and two third-party subject matter experts provided technical comments, which we incorporated in the report, as appropriate As agreed with your staff, 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 the Secretary of Labor, Secretary of the Treasury, Commissioner of Internal Revenue, and other interested parties  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 about this report, please contact me at (202) 512-7215 or jeszeckc@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 making key contributions to this report are listed in appendix VI  The objectives of this study were to determine: (1) what are the incidence and amount of retirement savings being withdrawn early; (2) what is known about the factors that might lead individuals to access their retirement savings early; and (3) what strategies or policies, if any, might reduce the incidence and amount of early withdrawals of retirement savings  To examine the incidence and amount of early withdrawals from individual retirement accounts (IRA) and 401(k) plans, we analyzed the most recent nationally representative data available in three relevant federal data sources, focusing our analysis on individuals in their prime working years (ages 25 to 55), when possible  For consistency, we analyzed data from 2013 from each data source because it was the most recent year that data were available for all types of early withdrawals we examined  We adjusted all dollar-value estimates derived from each data source for inflation and reported them in constant 2017 dollars  We determined that the data from these sources were sufficiently reliable for the purposes of our report  First, to examine recent incidence and amount of early withdrawals from IRAs and the associated tax consequences for individuals ages 25 to 55, we analyzed IRS estimates based on tax returns as filed by taxpayers before enforcement activity published by the Internal Revenue Service’s (IRS) Statistics of Income Division for tax year 2013  Specifically, we analyzed the number of taxpayers reporting early withdrawals from their IRAs in 2013 and the aggregate amount of these withdrawals  To provide additional context on the scope of these early withdrawals, we analyzed the age cohort’s total IRA contributions and the end-of-year fair market value of the IRAs, and compared these amounts to the aggregate amount withdrawn  To examine the incidence and amount of taxes paid as a result of the additional 10 percent tax for early distributions, we analyzed estimates on the additional 10 percent tax paid on qualified retirement plans in 2013  Although IRS did not delineate these data by age, we used these data as proxy because IRS assesses the additional 10 percent tax on distributions to taxpayers who have not reached age 59½  Given the delay between a withdrawal date and the date of the tax filing, it is possible that some of the taxes were paid in the year following the withdrawal  We reviewed technical documentation and developed the 95 percent confidence intervals that correspond to these estimates  Second, to examine the incidence and amount of early withdrawals from 401(k) plans, we analyzed data included in the 2014 panel of the U S  Census Bureau’s Survey of Income and Program Participation (SIPP)—a nationally representative survey of household income, finances, and use of federal social safety net programs—along with retirement account contribution and withdrawal data included in the SIPP’s Social Security Administration (SSA) Supplement on Retirement, Pensions, and Related Content  Specifically, we developed percentage and dollar-value estimates of the incidence and amount of lump sum payments received and hardship withdrawals taken by participants in 401(k) plans in 2013  Because the SIPP is based upon a complex probability sample, we used Balanced Repeated Replication methods with a Fay adjustment to derive all percentage, dollar-total, and dollar-ratio estimates and their 95 percent confidence intervals  To better understand the characteristics of individuals who received a lump sum and/or took a hardship withdrawal in 2013, we analyzed a range of selected individual and household demographic variables and identified characteristics associated with a higher incidence of withdrawals  We applied domain estimation methods to make estimates for these subpopulations  (For a list of variables used and the results of our analysis, please see appendix III ) We attempted to develop a multiple regression model to estimate the unique association between each characteristic and withdrawals, but determined that the SIPP did not measure key variables in enough detail to develop persuasive causal explanations  The sample size of respondents receiving lump sums was too small to precisely estimate the partial correlations of many demographic variables at once  Even with adequate sample sizes, associations between broad demographic variables, such as age and income, likely reflected underlying causes, such as retirement and financial planning strategies, which SIPP did not measure in detail  Third, to examine the incidence and amount of unrepaid plan loans from 401(k) plans, we analyzed the latest filing of annual plan data that plan sponsors reported on the Form 5500 to the Department of Labor (DOL) for the 2013 plan year  We looked at unrepaid plan loans reported by sponsors of large plans (Schedule H) and small plans (Schedule I)  For each schedule, we analyzed two variables related to unrepaid plan loans: (1) deemed distributions of participant loans (which captures the amount of loan defaults by active participants) and (2) benefits distributed directly to participants (which includes plan loan offsets for a variety of reasons, including plan loans that remain unpaid after a participant separates from a plan)  Because plan sponsors report data in aggregate and do not differentiate by participant age, we calculated and reported the aggregate of loan defaults identified as deemed distributions in both schedules  We could not determine the amount of plan loan offsets based on the way that plan sponsors are required to report them  Specifically, plan sponsors are required to treat unrepaid loans occurring after a participant separates from a plan as reductions or offsets in plan assets, and are required to report them as part of a larger commingled category of offsets that also includes large-dollar items like rollovers of account balances to another qualified plan or IRA  As a result, we were unable to isolate and report the amount of this category of unrepaid plan loans  To identify what is known about the factors that might lead individuals to access their 401(k) plans and IRAs and what strategies or policies might reduce the early withdrawal of retirement savings, we performed a literature search using multiple databases to locate documents regarding early withdrawals of retirement savings published since 2008 and to identify experts for interviews  The search yielded a wide variety of scholarly articles, published articles from various think tank organizations, congressional testimonies, and news reports  We reviewed these studies and identified factors that lead individuals to withdraw retirement savings early, as well as potential strategies or policies that might reduce this behavior  The search also helped us identify additional potential interviewees  To answer our second and third objectives, we visited four metropolitan areas and conducted 51 interviews with a wide range of stakeholders that we identified in the literature  In some cases, to accommodate stakeholder schedules, we conducted phone interviews or accepted written responses  Specifically, we interviewed human resource professionals from 22 private-sector companies (including 4 written responses), representatives from 8 plan administrators, 13 retirement research experts (including 1 written response), representatives from 4 industry associations, representatives from 2 participant advocacy organizations, and representatives from 2 financial technology companies  We conducted in-person interviews at four sites to collect information from three different groups: (1) human resource officials in private-sector companies, (2) top 20 plan administrators or recordkeepers, and (3) retirement research experts  We selected site visit locations in four metropolitan locations that were home to representatives of each group  To select companies for potential interviews, we reached out to a broad sample of Fortune 500 companies that offered a 401(k) plan to employees and varied by geographic location, industry, and number of employees  We selected plan administrators based on Pensions and Investments rankings for assets under management and number of individual accounts  We selected retirement research experts who had published research on early withdrawals from retirement savings, as well as experts that we had interviewed in our prior work  Based on these criteria, we conducted site visits in Boston, Massachusetts; Chicago, Illinois; the San Francisco Bay Area, California; and Seattle, Washington  We held interviews with parties in each category who responded affirmatively to our request  In each interview, we solicited names of additional stakeholders to interview  We also interviewed representatives of organizations, such as financial technology companies, participant advocacy organizations, industry associations, and plan administrators focused on small businesses, whose work we deemed relevant to our study  We developed a common question set for each stakeholder category that we interviewed  We based our interview questions on our literature review, research objectives, and the kind of information we were soliciting from each stakeholder category  In each interview, we asked follow-up questions based on the specific responses provided by interviewees  In our company interviews, we asked how companies administered retirement benefits for employees; company policies and procedures regarding separating employees and the disposition of their retirement accounts; company policies regarding plan loans, hardship withdrawals, and rollovers from other 401(k) plans; and company strategies to reduce early withdrawals from retirement savings  In our interviews with plan administrators, we asked about factors that led individuals to access their retirement savings early, how plan providers interacted with companies and separating employees, available data on loans and hardship withdrawals from client retirement plans, and potential strategies to reduce the incidence and amount of early withdrawals  In our interviews with retirement research experts, financial technology companies, participant advocacy organizations, and industry associations we asked about factors that led individuals to make early withdrawals from their retirement savings and any potential strategies that may reduce the incidence and amount of early withdrawals  In our interviews with plan administrators and retirement research experts, we also provided a supplementary table outlining 37 potential strategies to reduce early withdrawals from retirement savings  We asked interviewees to comment on the strengths and weaknesses of each strategy in terms of its potential to reduce early withdrawals, and gave them opportunity to provide other potential strategies not listed in the tables  We developed the list of strategies based on the results of our literature review  Some interviewees also provided us with additional data and documents to assist our research  For example, some companies and plan administrators we interviewed provided quantitative data on the number of plan participants, the average cashout or rollover amounts, the percentage of participants who took loans or hardship withdrawals from their retirement accounts, and known reasons for these withdrawals  Some research experts also provided us with documentation, including published articles and white papers that supplemented our interviews and literature review  All data collected through these methods are nongeneralizable and reflect the views and experiences of the respondents and not the entire population of their respective constituent groups  To answer our second and third objectives, we analyzed the content of our stakeholder interview responses and corroborated our analysis with information obtained from our literature review and quantitative information provided by our interviewees  To examine what is known about the factors leading individuals to access retirement savings early, we catalogued common factors that stakeholders identified as contributing to early withdrawals from retirement savings  We also collected information on plan rules governing early participant withdrawals of retirement savings  To identify potential strategies or policies that might reduce the incidence and amount of early withdrawals, we analyzed interview responses and catalogued (1) company practices that employers identified as having an effect in reducing early withdrawals and (2) strategies that stakeholders suggested that could achieve a similar outcome  GAO is not endorsing or recommending any strategy in this report, and has not evaluated these strategies for their behavioral or other effects on retirement savings or on tax revenues  Appendix II: Selected Provisions Related to Early Withdrawals from 401(k) Plans and Individual Retirement Accounts (IRAs) Requirements Provides an exception for distributions for qualified higher education expenses and for qualified “first-time” home purchases made before age 59½ from the additional 10 percent tax for early distributions Defines “qualified first-time homebuyer distribution” and “first-time homebuyer,” and prescribes the lifetime dollar limit on such distributions, among other things  Allows eligible individuals to make tax-deductible contributions to individual retirement accounts, subject to limits based, for example, on income and pension coverage  Provides for the loss of exemption for an IRA if the IRA owner engages in a prohibited transaction, which results in the IRA being treated as distributing all of its assets to the IRA owner at the fair market value on the first day of the year in which the transaction occurred  Defines a prohibited transaction to include the lending of money or other extension of credit between a plan and a disqualified person  Requirements Allows eligible individuals to make contributions to a Roth IRA that are not tax- deductible  Distributions from the account can generally be treated as a qualified distribution if a distribution is made on or after the Roth IRA owner reaches age 59½ and the distributions is made after the 5-taxable year period beginning when the account was initially opened  Defines a prohibited transaction to include the lending of money or other extension of credit between a plan and a disqualified person  Appendix III: Estimated Incidence of Certain Early Withdrawals of Retirement Savings 401(k) plans 401(k) plans ($1000 or more) 401(k) plans 401(k) plans ($1000 or more) 401(k) plans 401(k) plans ($1000 or more) Legend: * Sampling error was too large to report an estimate  In addition to the contact named above, Dave Lehrer (Assistant Director); Jonathan S  McMurray (Analyst-in-Charge); Gustavo O  Fernandez; Sean Miskell; Jeff Tessin; and Adam Wendel made key contributions to this report  James Bennett, Holly Dye, Sara Edmondson, Sarah Gilliland, Sheila R  McCoy, Ed Nannenhorn, Katya Rodriguez, MaryLynn Sergent, Linda Siegel, Rachel Stoiko, Frank Todisco, and Sonya Vartivarian also provided support  The Nation’s Fiscal Health: Action Is Needed to Address the Federal Government’s Future  GAO-18-299SP  Washington, D C : June 21, 2018  The Nation’s Retirement System: A Comprehensive Re-evaluation is Needed to Better Promote Future Retirement Security  GAO-18-111SP  Washington, D C : October 18, 2017  Retirement Security: Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets  GAO-17-102  Washington, D C : December 8, 2016  401K Plans: Effects of Eligibility and Vesting Policies on Workers’ Retirement Savings  GAO-17-69  Washington, D C : October 21, 2016  Retirement Security: Low Defined Contribution Savings May Pose Challenges  GAO-16-408  Washington, D C : May 5, 2016  Retirement Security: Shorter Life Expectancy Reduces Projected Lifetime Benefits for Lower Earners  GAO-16-354  Washington, D C : March 25, 2016  Social Security’s Future: Answers to Key Questions  GAO-16-75SP  Washington, D C : October 27, 2015  Retirement Security: Federal Action Could Help State Efforts to Expand Private Sector Coverage  GAO-15-556  Washington, D C : September 10, 2015  Highlights of a Forum: Financial Literacy: The Role of the Workplace  GAO-15-639SP  Washington, D C : July 7, 2015  401(K) Plans: Greater Protections Needed for Forced Transfers and Inactive Accounts  GAO-15-73  Washington, D C : November 21, 2014  Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Retirees  GAO-14-866T  Washington, D C : September 10, 2014  Financial Literacy: Overview of Federal Activities, Programs, and Challenges  GAO-14-556T  Washington, D C : April 30, 2014  Retirement Security: Trends in Marriage and Work Patterns May Increase Economic Vulnerability for Some Retirees  GAO-14-33  Washington, D C : January 15, 2014  401(K) Plans: Labor and IRS Could Improve the Rollover Process for Participants  GAO-13-30  Washington, D C : March 7, 2013  Retirement Security: Women Still Face Challenges  GAO-12-699  Washington, D C : July 19, 2012  401(K) Plans: Policy Changes Could Reduce the Long-term Effects of Leakage on Workers’ Retirement Savings  GAO-09-715  Washington, D C: August 28, 2009 
Report 2:  For example, helpful factors to consider when developing a proposed reward amount may include (1) the number of hours the source dedicated to the case, (2) the risk the source took in providing the information, (3) the significance of the information provided by the source, and (4) the amount of fines or other penalties collected as a result of the information  Two stakeholders expressed concern that some of FWS’s reward payments were insufficient, especially when comparing the amount of time and effort or the risk a source faced in providing the information  A couple of stakeholders also said that without a policy that specifies factors for agents to consider, reward amounts may be subjective and could vary depending on which agent develops the reward proposal  Another stakeholder said that it was important to specify factors for agents to consider when developing proposed reward amounts so that the agency has a reasonable and defensible basis for the reward amounts it pays across cases  According to federal standards for internal control, management should internally communicate the necessary quality information to achieve an agency’s objectives  For example, management communicates quality information down and across reporting lines to enable personnel to make key decisions  FWS officials said they believe that their reward policy is sound, indicating they believe that law enforcement agents have the information they need to develop proposals for reward amounts in cases where rewards are warranted  However, they also agreed that it may be helpful to review their policy but did not commit to doing so  By augmenting its policy to specify factors for agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals  Based on our review of the agencies’ websites and other communications, we found that FWS and NOAA communicate little information to the public on financial rewards for reporting information on wildlife trafficking, such as the potential availability of rewards and eligibility criteria  Specifically, some FWS and NOAA law enforcement websites provided information to the public on ways to report violations of the laws that the agencies are responsible for enforcing, such as via tip lines  Some of the websites also provided examples of the types of information the public can report, such as photos or other documentation of illegal activities  However, most of the agencies’ websites did not indicate that providing information on illegal activities could result in a reward  In contrast, the FWS Alaska regional office’s website provided information on the potential availability of rewards and ways the public may submit information for a potential reward  For example, this website provided phone numbers and an e-mail address for the public to use when submitting information  Figure 1 shows the information available on FWS’s and NOAA’s national and regional websites relevant to reporting violations of the laws the agencies enforce in general and on receiving rewards in particular  In addition, FWS and NOAA headquarters officials said their field agents have used other means to communicate the potential availability of rewards in specific cases when the agents had no other information that could help solve those cases  For example, a FWS field official said that the agency advertised a reward offer for information on a case of bald eagle killings by distributing reward posters and posting news releases in the vicinity where the killings occurred  Similarly, NOAA officials said they have advertised reward offers through various means, including circulating reward posters in specific geographic areas after an illegal activity has occurred  Figure 2 shows a reward poster that NOAA distributed in Guam in 2017 advertising a $1,000 reward for information leading to the arrest and conviction of sea turtle poachers  Instead of having a plan for communicating general information to the public on rewards, FWS and NOAA grant discretion to their regional offices and law enforcement agents to determine the type and level of communication to provide, according to FWS and NOAA policies  FWS officials explained that because they typically use financial rewards to thank individuals who come forward on their own accord—rather than using rewards to incentivize individuals with information to come forward—they have not seen the need to communicate more information to the public on the potential availability of rewards  NOAA officials said they have targeted their communications on rewards by publicizing reward offers for specific cases where they do not have leads  They added that they want to receive quality information and already receive a substantial amount of information from sources who reach out to them proactively, so NOAA has not seen the need to communicate more information to the public on the potential availability of rewards  Sixteen of the 20 stakeholders we interviewed said that it would be useful for FWS and NOAA to advertise the potential availability of financial rewards  Several stakeholders said that if the public does not know about the possibility for rewards, then some people with information may not be incentivized to come forward  Two stakeholders added that agencies should carefully consider how and which reward information to communicate to the public so that people who are most likely to have information on illegal wildlife trafficking learn about the potential for rewards  For example, one stakeholder suggested advertising rewards at ports where international shipments are offloaded or placing advertisements at wildlife trafficking nodes, such as entrances to African wildlife refuges  This stakeholder suggested advertising rewards along with wildlife trafficking awareness-raising posters that nongovernment organizations place in some airports  In addition, 14 stakeholders suggested that it would be useful for FWS and NOAA to provide information to the public on the process for submitting information to potentially receive rewards  Several other stakeholders said that it is important for the public to understand whether they may be eligible for a reward, how to submit information, and whether or to what extent their confidentiality will be protected  Another stakeholder provided examples of how other agencies provide information about their reward programs on their websites  SEC and IRS, for instance, use their websites to communicate information to the public on the process for reporting illegal activity for financial rewards  This information includes the types of information to report, confidentiality rules, eligibility criteria, and the process for submitting information to obtain a reward  In addition, the Department of State posts instructions on its websites on how to submit information on an illegal activity and potentially receive a reward  Federal internal control standards say that management should externally communicate the necessary quality information to achieve an agency’s objectives  For example, using appropriate methods to communicate, management communicates quality information so that external parties, such as the public, can help the agency achieve its objectives  This could include communicating information to the public on the types of information and eligibility requirements for potentially receiving rewards for reporting information on wildlife trafficking  FWS officials said that making more reward information available could lead to a significant increase in the amount of information the agency receives, which, in turn, could strain FWS’s resources in following up on that information  However, FWS officials also agreed that it was reasonable to consider making more reward information available to relevant members of the public, particularly in targeted circumstances, but did not commit to doing so  Similarly, NOAA officials said they had some concerns about the additional resources it might take to investigate potentially unreliable or false tips that may result if they make reward information broadly available to the public, but they agreed that it would be reasonable for the agency to consider doing so  NOAA officials also said they may consider making more reward information publicly available at the conclusion of our audit but provided no plans for doing so  By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website on the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive  FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a tool for combating wildlife trafficking  FWS officials said their agency has not reviewed or considered changes to its use of rewards because the agency has not prioritized the use of rewards  NOAA officials said their agency has not focused on using rewards or identified the need to review its use of this tool, particularly in light of other, higher mission priorities  Nine of the 20 stakeholders we interviewed said that FWS and NOAA should review the effectiveness of their use of rewards and consider potential improvements  Several stakeholders said that it would be useful for FWS and NOAA to compare their respective approaches to those of federal agencies that use rewards in contexts outside of wildlife trafficking to identify best practices or lessons learned that might be applicable in the context of combating wildlife trafficking  For example, one stakeholder said that SEC has an effective whistleblower program and may have lessons learned that are relevant for FWS and NOAA to consider  Another stakeholder we interviewed separately indicated that in 2010, before SEC had a whistleblower program that publicized rewards and provided detailed instructions on how members of the public could report information on illegal activities, SEC received few tips  Once SEC implemented a whistleblower program that publicized rewards and provided detailed instructions on its public website, the agency’s use of the program grew substantially, according to the stakeholder  Other stakeholders said it would be useful for the agencies to consider potential improvements to their use of rewards, such as making a standing reward offer for information on wildlife trafficking targeted at high-priority endangered species or particular criminal networks  Two of these stakeholders said such an offer might improve FWS’s and NOAA’s use of rewards by generating more tips than reward offers focused on individual cases  At the same time, they said such an offer would likely filter out some of the false or unproductive tips that the agencies might receive if they made an untargeted standing reward offer  Federal internal control standards state that management should design control activities to achieve objectives and respond to risks by, for example, conducting reviews at the functional or activity level by comparing actual performance to planned or expected results and analyzing significant differences  Further, under the standards, management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving an agency’s objectives or addressing related risks  FWS and NOAA officials agreed that reviewing the effectiveness of their use of rewards would be worthwhile  Specifically, FWS officials said that it would be useful to compare their approach to those of other federal agencies that use rewards in investigating crimes that involve interstate and foreign smuggling of goods  Similarly, NOAA officials said that reviewing the agency’s use of financial rewards would be worthwhile but cautioned that such a review would need to be balanced against the agency’s constrained resources and many mission requirements  FWS and NOAA officials said they may consider conducting such a review at the conclusion of our audit but provided no plans for doing so  By reviewing the effectiveness of their use of rewards, FWS and NOAA can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking  Wildlife trafficking is a large and growing transnational criminal activity, with global environmental, security, and economic consequences  The federal government has emphasized strengthening law enforcement efforts to combat wildlife trafficking, and using financial rewards to obtain information on illegal activities is one tool that some federal agencies have used  However, to date, FWS and NOAA have not prioritized the use of rewards and were unable to provide sufficient assurance that the 27 rewards they paid during fiscal years 2007 through 2017 represented all of the rewards they provided during that period  By tracking reward information so that it is clearly documented and readily available for examination, FWS and NOAA can better ensure that they have complete information on the rewards they have paid to help manage their use of rewards as a law enforcement tool  Additionally, FWS and NOAA have policies outlining the processes their law enforcement agents are to use in making reward payments, and NOAA’s policy specifies factors for its agents to consider in developing proposed reward amounts, such as the risk the individual took in collecting the information  FWS’s policy does not specify such factors that could inform agents in achieving the agency’s objectives, which is not consistent with federal internal control standards  By augmenting its policy to specify factors for its agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals  Both agencies have also advertised the potential for rewards in specific cases when agents had no other information, but FWS and NOAA have otherwise communicated little information to the public on the potential availability of rewards  If the public does not know about the possibility of rewards, then some people with information may not be incentivized to come forward  By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website about the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive  Finally, FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a law enforcement tool  By undertaking such reviews, the agencies can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking  We are making a total of seven recommendations, including four to FWS and three to NOAA  Specifically: The Assistant Director of the FWS Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination  (Recommendation 1) The Director of the NOAA Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination  (Recommendation 2) The Assistant Director of the FWS Office of Law Enforcement should augment FWS’s financial reward policy to specify factors law enforcement agents are to consider when developing proposed reward amounts  (Recommendation 3) The Assistant Director of the FWS Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information  (Recommendation 4) The Director of the NOAA Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information  (Recommendation 5) The Assistant Director of the FWS Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool  (Recommendation 6) The Director of the NOAA Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool  (Recommendation 7) We provided a draft of this report for review and comment to the Departments of Commerce and the Interior  The departments transmitted written comments, which are reproduced in appendixes IV and V of this report  The Department of Commerce concurred with the three recommendations directed to NOAA and stated that NOAA is developing procedures to ensure that its rewards are closely tracked, clearly documented, and better communicated  In written comments from NOAA, NOAA stated the report fairly and thoroughly reviews NOAA’s use of financial rewards  NOAA outlined the steps it plans to take in response to our recommendations, including developing a procedure to track financial reward information, reviewing information currently disseminated to the public and evaluating whether additional information may be useful, and reviewing the agency’s reward policy to determine whether changes are needed to enhance reward effectiveness  In its written comments, the Department of the Interior concurred with the four recommendations directed to FWS  Interior stated that it appreciated our review of the challenges faced by FWS’s Office of Law Enforcement in combating wildlife trafficking and identifying areas where FWS and NOAA can improve the use of financial rewards as a tool for combating wildlife trafficking  Interior also provided technical comments, which we incorporated as appropriate  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 the appropriate congressional committees, the Secretaries of Commerce and the Interior, and other interested parties  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 about this report, please contact me at (202) 512-3841 or fennella@gao gov  Contact points for our Offices of Congressional Relations and of 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 VI  The objectives of our review were to (1) identify laws that authorize the U S  Fish and Wildlife Service (FWS) and the National Oceanic and Atmospheric Administration (NOAA) to pay financial rewards for information on wildlife trafficking and the extent to which these agencies paid such rewards from fiscal years 2007 through 2017, (2) evaluate FWS’s and NOAA’s policies on financial rewards, (3) evaluate the information available to the public on financial rewards, and (4) determine the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking  To address these objectives, we reviewed academic literature on the use of financial rewards to combat illegal activities and United Nations Environment Programme reports on the scope and scale of wildlife trafficking  We also interviewed officials from federal agencies that play a role in combating wildlife trafficking or manage programs that pay financial rewards for information on illegal activities  Specifically, we interviewed officials from the Departments of Agriculture, Commerce, Homeland Security, the Interior, Justice, and State, as well as officials from the Internal Revenue Service, the U S  Securities and Exchange Commission, and the U S  Agency for International Development  In addition, we reviewed documentation that the Department of the Treasury provided on its role in paying financial rewards  We did not compare FWS’s and NOAA’s use of financial rewards in combating wildlife trafficking to federal agencies’ use of financial rewards in other contexts because the different contexts are not directly comparable  However, we reviewed information on other federal agencies’ use of financial rewards as examples of how financial rewards are used in contexts outside of wildlife trafficking  In addition, we interviewed representatives of six nongovernmental organizations that we selected based on those organizations’ knowledge or experience in combating wildlife trafficking  Specifically, we interviewed representatives from the Elephant Action League, the Environmental Investigation Agency, the National Association of Conservation Law Enforcement Chiefs, the National Whistleblower Center, TRAFFIC, and the World Wildlife Fund  To identify laws that authorize FWS and NOAA to pay financial rewards for information on wildlife trafficking, we asked FWS and NOAA attorneys to compile a list of laws that each of their agencies implements or enforces that prohibit wildlife trafficking and authorize the agency to pay rewards for providing information about trafficking  We then compared that list to the results of our search of the United States Code for such laws  We also reviewed FWS and NOAA documentation for accounts where the fines, penalties, and proceeds from forfeited property that are used to pay rewards are deposited as well as the accounts where appropriations available to pay rewards were deposited  To identify the extent to which FWS and NOAA have paid financial rewards for information on wildlife trafficking, we analyzed FWS and NOAA data on financial rewards the agencies reported paying from fiscal years 2007 through 2017  The data included information on, among other things, the fiscal years in which rewards were paid, laws under which rewards were paid, types of wildlife involved in those cases, the amounts of civil penalties or criminal fines imposed in those cases, the numbers of arrests and convictions as a result of those cases, and whether reward recipients were individuals or groups and U S  or foreign citizens  To assess the reliability of the data FWS and NOAA provided on financial rewards, we interviewed agency officials knowledgeable about the data and compared the data to case records the agencies provided  Specifically, FWS and NOAA officials said they track all expenditures, including reward payments, in their financial databases, but they are not able to readily identify reward payments because their financial systems do not include a unique identifier for such payments and their reward information is located in multiple databases and formats  As a result, FWS and NOAA officials said they identified the rewards that they reported to us by manually reviewing their financial and law enforcement records, and officials said the information was complete to the best of their knowledge  Based on these steps, we found the data that the agencies provided to us to be sufficiently reliable for reporting information on the rewards the agencies reported paying  However, as we discuss in the report, FWS and NOAA officials could not provide sufficient assurance that the data included all the financial rewards that they had paid from fiscal years 2007 through 2017  To obtain additional detail about cases where financial rewards were paid, we reviewed a nongeneralizable sample of 10 wildlife trafficking cases  We selected these cases based on the agency that investigated the case (to include both FWS and NOAA cases), the amount of the reward paid in the case (to reflect both low and high amounts), the year in which the reward was paid (to include rewards paid more recently), and the type of wildlife trafficked in the case (to include both fish and wildlife cases—there were no plant trafficking cases to select)  While the findings from our review cannot be generalized to cases we did not select and review, they illustrate how FWS and NOAA have used financial rewards in wildlife trafficking cases  To evaluate FWS and NOAA policies on financial rewards, we reviewed relevant FWS and NOAA policies and compared them to each other; interviewed FWS and NOAA officials about those policies; and compared the information in the policies with federal internal control standards on information and communication  To evaluate information available to the public on rewards, we reviewed relevant FWS and NOAA publications and examples of communications to the public on the availability of rewards in specific cases and interviewed FWS and NOAA officials  We also reviewed information available on FWS’s and NOAA’s national and regional websites as of December 2017 and January 2018, respectively, relevant to reporting violations of the laws that the agencies enforce in general and on receiving rewards in particular  We compared the agencies’ public communications on rewards with federal internal control standards on information and communication  To evaluate the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking, we interviewed FWS and NOAA officials and requested any reviews the agencies had conducted regarding their use of financial rewards to compare with federal internal control standards on control activities  FWS and NOAA did not have any such reviews to provide  In addition, for all four objectives, we interviewed a nongeneralizable sample of 20 stakeholders who had experience investigating wildlife trafficking or expertise in the use of financial rewards as a law enforcement tool  To select stakeholders to interview, we first identified a list of stakeholders by reviewing (1) FWS and NOAA data on law enforcement agents with at least 5 years of experience who had investigated wildlife trafficking cases and used financial rewards, (2) Department of Justice data on federal prosecutors who had prosecuted wildlife trafficking cases since fiscal year 2014, (3) literature search results identifying academics with expertise in the use of financial rewards as a law enforcement tool and federal programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking, (4) the biographies of members of the federal Advisory Council on Wildlife Trafficking, and (5) recommendations from stakeholders we interviewed  From this list, we then used a multistep process to select the 20 stakeholders to interview  To ensure coverage and a range of perspectives, we selected stakeholders from the following groups: FWS and NOAA law enforcement agents, including field and federal prosecutors responsible for prosecuting wildlife trafficking cases; federal officials responsible for programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking; academics with expertise in the use of financial rewards as a law members of the federal Advisory Council on Wildlife Trafficking; and representatives of nongovernmental organizations that investigate wildlife trafficking  We conducted semistructured interviews with the 20 selected stakeholders using a standard set of questions  We asked questions about stakeholder views on the usefulness of financial rewards in combating wildlife trafficking; the strength and weaknesses of the statutory provisions that authorize federal agencies to pay financial rewards for information on wildlife trafficking; FWS’s and NOAA’s use of financial rewards to combat wildlife trafficking; and how, if at all, the two agencies could improve their use of financial rewards to combat wildlife trafficking  We analyzed the stakeholders’ responses to our questions, grouping the responses into overall themes  We summarized the results of our analysis and then shared the summary with relevant FWS and NOAA officials to obtain their views  Views from these stakeholders cannot be generalized to those whom we did not select and interview  We conducted this performance audit from February 2017 to April 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  The Department of the Interior’s U S  Fish and Wildlife Service (FWS) and the Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) implement or enforce multiple laws that specifically authorize the payment, under specified circumstances, of financial rewards to persons for information about violations of laws that prohibit wildlife trafficking  The laws that FWS officials identified are listed and summarized in table 3, and the laws that NOAA officials identified are listed and summarized in table 4  In addition, as noted above, the reward provisions in the Magnuson- Stevens Fishery Conservation and Management Act as amended and the Fish and Wildlife Improvement Act as amended authorize the payment of rewards for information about violations of multiple laws  Specifically, the Magnuson-Stevens Fishery Conservation and Management Act as amended authorizes the payment of rewards for information about violations of the act as well as any other marine resource law that the Secretary of Commerce enforces  Further, the Fish and Wildlife Improvement Act as amended authorizes the payment of rewards for information about violations of any law administered by NOAA’s National Marine Fisheries Service relating to plants, fish, or wildlife  NOAA officials identified 14 such laws that prohibit wildlife trafficking (see table 5)  If a violation of the laws listed in table 5 occurs, NOAA officials said they could use the Magnuson-Stevens Fishery Conservation and Management Act or Fish and Wildlife Improvement Act reward provision to pay a reward for information on the violation  None of the laws listed in table 5 specifically authorize the payment of financial rewards  Table 6 provides information on U S  Fish and Wildlife Service and National Oceanic and Atmospheric Administration cases where these agencies reported paying rewards for information on wildlife trafficking from fiscal years 2007 through 2017  In addition to the contact named above, Alyssa M  Hundrup (Assistant Director), David Marroni (Analyst-in-Charge), Cindy Gilbert, Keesha Luebke, Jeanette Soares, Sheryl Stein, Sara Sullivan, and Judith Williams made key contributions to this report 

ground_truth: 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.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: 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  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  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  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  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  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  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  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  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  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  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  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  Our analysis of the EGRPRA review found three limitations to the current process  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  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  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  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  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 


Report 2:  For example, helpful factors to consider when developing a proposed reward amount may include (1) the number of hours the source dedicated to the case, (2) the risk the source took in providing the information, (3) the significance of the information provided by the source, and (4) the amount of fines or other penalties collected as a result of the information  Two stakeholders expressed concern that some of FWS’s reward payments were insufficient, especially when comparing the amount of time and effort or the risk a source faced in providing the information  A couple of stakeholders also said that without a policy that specifies factors for agents to consider, reward amounts may be subjective and could vary depending on which agent develops the reward proposal  Another stakeholder said that it was important to specify factors for agents to consider when developing proposed reward amounts so that the agency has a reasonable and defensible basis for the reward amounts it pays across cases  According to federal standards for internal control, management should internally communicate the necessary quality information to achieve an agency’s objectives  For example, management communicates quality information down and across reporting lines to enable personnel to make key decisions  FWS officials said they believe that their reward policy is sound, indicating they believe that law enforcement agents have the information they need to develop proposals for reward amounts in cases where rewards are warranted  However, they also agreed that it may be helpful to review their policy but did not commit to doing so  By augmenting its policy to specify factors for agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals  Based on our review of the agencies’ websites and other communications, we found that FWS and NOAA communicate little information to the public on financial rewards for reporting information on wildlife trafficking, such as the potential availability of rewards and eligibility criteria  Specifically, some FWS and NOAA law enforcement websites provided information to the public on ways to report violations of the laws that the agencies are responsible for enforcing, such as via tip lines  Some of the websites also provided examples of the types of information the public can report, such as photos or other documentation of illegal activities  However, most of the agencies’ websites did not indicate that providing information on illegal activities could result in a reward  In contrast, the FWS Alaska regional office’s website provided information on the potential availability of rewards and ways the public may submit information for a potential reward  For example, this website provided phone numbers and an e-mail address for the public to use when submitting information  Figure 1 shows the information available on FWS’s and NOAA’s national and regional websites relevant to reporting violations of the laws the agencies enforce in general and on receiving rewards in particular  In addition, FWS and NOAA headquarters officials said their field agents have used other means to communicate the potential availability of rewards in specific cases when the agents had no other information that could help solve those cases  For example, a FWS field official said that the agency advertised a reward offer for information on a case of bald eagle killings by distributing reward posters and posting news releases in the vicinity where the killings occurred  Similarly, NOAA officials said they have advertised reward offers through various means, including circulating reward posters in specific geographic areas after an illegal activity has occurred  Figure 2 shows a reward poster that NOAA distributed in Guam in 2017 advertising a $1,000 reward for information leading to the arrest and conviction of sea turtle poachers  Instead of having a plan for communicating general information to the public on rewards, FWS and NOAA grant discretion to their regional offices and law enforcement agents to determine the type and level of communication to provide, according to FWS and NOAA policies  FWS officials explained that because they typically use financial rewards to thank individuals who come forward on their own accord—rather than using rewards to incentivize individuals with information to come forward—they have not seen the need to communicate more information to the public on the potential availability of rewards  NOAA officials said they have targeted their communications on rewards by publicizing reward offers for specific cases where they do not have leads  They added that they want to receive quality information and already receive a substantial amount of information from sources who reach out to them proactively, so NOAA has not seen the need to communicate more information to the public on the potential availability of rewards  Sixteen of the 20 stakeholders we interviewed said that it would be useful for FWS and NOAA to advertise the potential availability of financial rewards  Several stakeholders said that if the public does not know about the possibility for rewards, then some people with information may not be incentivized to come forward  Two stakeholders added that agencies should carefully consider how and which reward information to communicate to the public so that people who are most likely to have information on illegal wildlife trafficking learn about the potential for rewards  For example, one stakeholder suggested advertising rewards at ports where international shipments are offloaded or placing advertisements at wildlife trafficking nodes, such as entrances to African wildlife refuges  This stakeholder suggested advertising rewards along with wildlife trafficking awareness-raising posters that nongovernment organizations place in some airports  In addition, 14 stakeholders suggested that it would be useful for FWS and NOAA to provide information to the public on the process for submitting information to potentially receive rewards  Several other stakeholders said that it is important for the public to understand whether they may be eligible for a reward, how to submit information, and whether or to what extent their confidentiality will be protected  Another stakeholder provided examples of how other agencies provide information about their reward programs on their websites  SEC and IRS, for instance, use their websites to communicate information to the public on the process for reporting illegal activity for financial rewards  This information includes the types of information to report, confidentiality rules, eligibility criteria, and the process for submitting information to obtain a reward  In addition, the Department of State posts instructions on its websites on how to submit information on an illegal activity and potentially receive a reward  Federal internal control standards say that management should externally communicate the necessary quality information to achieve an agency’s objectives  For example, using appropriate methods to communicate, management communicates quality information so that external parties, such as the public, can help the agency achieve its objectives  This could include communicating information to the public on the types of information and eligibility requirements for potentially receiving rewards for reporting information on wildlife trafficking  FWS officials said that making more reward information available could lead to a significant increase in the amount of information the agency receives, which, in turn, could strain FWS’s resources in following up on that information  However, FWS officials also agreed that it was reasonable to consider making more reward information available to relevant members of the public, particularly in targeted circumstances, but did not commit to doing so  Similarly, NOAA officials said they had some concerns about the additional resources it might take to investigate potentially unreliable or false tips that may result if they make reward information broadly available to the public, but they agreed that it would be reasonable for the agency to consider doing so  NOAA officials also said they may consider making more reward information publicly available at the conclusion of our audit but provided no plans for doing so  By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website on the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive  FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a tool for combating wildlife trafficking  FWS officials said their agency has not reviewed or considered changes to its use of rewards because the agency has not prioritized the use of rewards  NOAA officials said their agency has not focused on using rewards or identified the need to review its use of this tool, particularly in light of other, higher mission priorities  Nine of the 20 stakeholders we interviewed said that FWS and NOAA should review the effectiveness of their use of rewards and consider potential improvements  Several stakeholders said that it would be useful for FWS and NOAA to compare their respective approaches to those of federal agencies that use rewards in contexts outside of wildlife trafficking to identify best practices or lessons learned that might be applicable in the context of combating wildlife trafficking  For example, one stakeholder said that SEC has an effective whistleblower program and may have lessons learned that are relevant for FWS and NOAA to consider  Another stakeholder we interviewed separately indicated that in 2010, before SEC had a whistleblower program that publicized rewards and provided detailed instructions on how members of the public could report information on illegal activities, SEC received few tips  Once SEC implemented a whistleblower program that publicized rewards and provided detailed instructions on its public website, the agency’s use of the program grew substantially, according to the stakeholder  Other stakeholders said it would be useful for the agencies to consider potential improvements to their use of rewards, such as making a standing reward offer for information on wildlife trafficking targeted at high-priority endangered species or particular criminal networks  Two of these stakeholders said such an offer might improve FWS’s and NOAA’s use of rewards by generating more tips than reward offers focused on individual cases  At the same time, they said such an offer would likely filter out some of the false or unproductive tips that the agencies might receive if they made an untargeted standing reward offer  Federal internal control standards state that management should design control activities to achieve objectives and respond to risks by, for example, conducting reviews at the functional or activity level by comparing actual performance to planned or expected results and analyzing significant differences  Further, under the standards, management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving an agency’s objectives or addressing related risks  FWS and NOAA officials agreed that reviewing the effectiveness of their use of rewards would be worthwhile  Specifically, FWS officials said that it would be useful to compare their approach to those of other federal agencies that use rewards in investigating crimes that involve interstate and foreign smuggling of goods  Similarly, NOAA officials said that reviewing the agency’s use of financial rewards would be worthwhile but cautioned that such a review would need to be balanced against the agency’s constrained resources and many mission requirements  FWS and NOAA officials said they may consider conducting such a review at the conclusion of our audit but provided no plans for doing so  By reviewing the effectiveness of their use of rewards, FWS and NOAA can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking  Wildlife trafficking is a large and growing transnational criminal activity, with global environmental, security, and economic consequences  The federal government has emphasized strengthening law enforcement efforts to combat wildlife trafficking, and using financial rewards to obtain information on illegal activities is one tool that some federal agencies have used  However, to date, FWS and NOAA have not prioritized the use of rewards and were unable to provide sufficient assurance that the 27 rewards they paid during fiscal years 2007 through 2017 represented all of the rewards they provided during that period  By tracking reward information so that it is clearly documented and readily available for examination, FWS and NOAA can better ensure that they have complete information on the rewards they have paid to help manage their use of rewards as a law enforcement tool  Additionally, FWS and NOAA have policies outlining the processes their law enforcement agents are to use in making reward payments, and NOAA’s policy specifies factors for its agents to consider in developing proposed reward amounts, such as the risk the individual took in collecting the information  FWS’s policy does not specify such factors that could inform agents in achieving the agency’s objectives, which is not consistent with federal internal control standards  By augmenting its policy to specify factors for its agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals  Both agencies have also advertised the potential for rewards in specific cases when agents had no other information, but FWS and NOAA have otherwise communicated little information to the public on the potential availability of rewards  If the public does not know about the possibility of rewards, then some people with information may not be incentivized to come forward  By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website about the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive  Finally, FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a law enforcement tool  By undertaking such reviews, the agencies can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking  We are making a total of seven recommendations, including four to FWS and three to NOAA  Specifically: The Assistant Director of the FWS Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination  (Recommendation 1) The Director of the NOAA Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination  (Recommendation 2) The Assistant Director of the FWS Office of Law Enforcement should augment FWS’s financial reward policy to specify factors law enforcement agents are to consider when developing proposed reward amounts  (Recommendation 3) The Assistant Director of the FWS Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information  (Recommendation 4) The Director of the NOAA Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information  (Recommendation 5) The Assistant Director of the FWS Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool  (Recommendation 6) The Director of the NOAA Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool  (Recommendation 7) We provided a draft of this report for review and comment to the Departments of Commerce and the Interior  The departments transmitted written comments, which are reproduced in appendixes IV and V of this report  The Department of Commerce concurred with the three recommendations directed to NOAA and stated that NOAA is developing procedures to ensure that its rewards are closely tracked, clearly documented, and better communicated  In written comments from NOAA, NOAA stated the report fairly and thoroughly reviews NOAA’s use of financial rewards  NOAA outlined the steps it plans to take in response to our recommendations, including developing a procedure to track financial reward information, reviewing information currently disseminated to the public and evaluating whether additional information may be useful, and reviewing the agency’s reward policy to determine whether changes are needed to enhance reward effectiveness  In its written comments, the Department of the Interior concurred with the four recommendations directed to FWS  Interior stated that it appreciated our review of the challenges faced by FWS’s Office of Law Enforcement in combating wildlife trafficking and identifying areas where FWS and NOAA can improve the use of financial rewards as a tool for combating wildlife trafficking  Interior also provided technical comments, which we incorporated as appropriate  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 the appropriate congressional committees, the Secretaries of Commerce and the Interior, and other interested parties  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 about this report, please contact me at (202) 512-3841 or fennella@gao gov  Contact points for our Offices of Congressional Relations and of 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 VI  The objectives of our review were to (1) identify laws that authorize the U S  Fish and Wildlife Service (FWS) and the National Oceanic and Atmospheric Administration (NOAA) to pay financial rewards for information on wildlife trafficking and the extent to which these agencies paid such rewards from fiscal years 2007 through 2017, (2) evaluate FWS’s and NOAA’s policies on financial rewards, (3) evaluate the information available to the public on financial rewards, and (4) determine the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking  To address these objectives, we reviewed academic literature on the use of financial rewards to combat illegal activities and United Nations Environment Programme reports on the scope and scale of wildlife trafficking  We also interviewed officials from federal agencies that play a role in combating wildlife trafficking or manage programs that pay financial rewards for information on illegal activities  Specifically, we interviewed officials from the Departments of Agriculture, Commerce, Homeland Security, the Interior, Justice, and State, as well as officials from the Internal Revenue Service, the U S  Securities and Exchange Commission, and the U S  Agency for International Development  In addition, we reviewed documentation that the Department of the Treasury provided on its role in paying financial rewards  We did not compare FWS’s and NOAA’s use of financial rewards in combating wildlife trafficking to federal agencies’ use of financial rewards in other contexts because the different contexts are not directly comparable  However, we reviewed information on other federal agencies’ use of financial rewards as examples of how financial rewards are used in contexts outside of wildlife trafficking  In addition, we interviewed representatives of six nongovernmental organizations that we selected based on those organizations’ knowledge or experience in combating wildlife trafficking  Specifically, we interviewed representatives from the Elephant Action League, the Environmental Investigation Agency, the National Association of Conservation Law Enforcement Chiefs, the National Whistleblower Center, TRAFFIC, and the World Wildlife Fund  To identify laws that authorize FWS and NOAA to pay financial rewards for information on wildlife trafficking, we asked FWS and NOAA attorneys to compile a list of laws that each of their agencies implements or enforces that prohibit wildlife trafficking and authorize the agency to pay rewards for providing information about trafficking  We then compared that list to the results of our search of the United States Code for such laws  We also reviewed FWS and NOAA documentation for accounts where the fines, penalties, and proceeds from forfeited property that are used to pay rewards are deposited as well as the accounts where appropriations available to pay rewards were deposited  To identify the extent to which FWS and NOAA have paid financial rewards for information on wildlife trafficking, we analyzed FWS and NOAA data on financial rewards the agencies reported paying from fiscal years 2007 through 2017  The data included information on, among other things, the fiscal years in which rewards were paid, laws under which rewards were paid, types of wildlife involved in those cases, the amounts of civil penalties or criminal fines imposed in those cases, the numbers of arrests and convictions as a result of those cases, and whether reward recipients were individuals or groups and U S  or foreign citizens  To assess the reliability of the data FWS and NOAA provided on financial rewards, we interviewed agency officials knowledgeable about the data and compared the data to case records the agencies provided  Specifically, FWS and NOAA officials said they track all expenditures, including reward payments, in their financial databases, but they are not able to readily identify reward payments because their financial systems do not include a unique identifier for such payments and their reward information is located in multiple databases and formats  As a result, FWS and NOAA officials said they identified the rewards that they reported to us by manually reviewing their financial and law enforcement records, and officials said the information was complete to the best of their knowledge  Based on these steps, we found the data that the agencies provided to us to be sufficiently reliable for reporting information on the rewards the agencies reported paying  However, as we discuss in the report, FWS and NOAA officials could not provide sufficient assurance that the data included all the financial rewards that they had paid from fiscal years 2007 through 2017  To obtain additional detail about cases where financial rewards were paid, we reviewed a nongeneralizable sample of 10 wildlife trafficking cases  We selected these cases based on the agency that investigated the case (to include both FWS and NOAA cases), the amount of the reward paid in the case (to reflect both low and high amounts), the year in which the reward was paid (to include rewards paid more recently), and the type of wildlife trafficked in the case (to include both fish and wildlife cases—there were no plant trafficking cases to select)  While the findings from our review cannot be generalized to cases we did not select and review, they illustrate how FWS and NOAA have used financial rewards in wildlife trafficking cases  To evaluate FWS and NOAA policies on financial rewards, we reviewed relevant FWS and NOAA policies and compared them to each other; interviewed FWS and NOAA officials about those policies; and compared the information in the policies with federal internal control standards on information and communication  To evaluate information available to the public on rewards, we reviewed relevant FWS and NOAA publications and examples of communications to the public on the availability of rewards in specific cases and interviewed FWS and NOAA officials  We also reviewed information available on FWS’s and NOAA’s national and regional websites as of December 2017 and January 2018, respectively, relevant to reporting violations of the laws that the agencies enforce in general and on receiving rewards in particular  We compared the agencies’ public communications on rewards with federal internal control standards on information and communication  To evaluate the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking, we interviewed FWS and NOAA officials and requested any reviews the agencies had conducted regarding their use of financial rewards to compare with federal internal control standards on control activities  FWS and NOAA did not have any such reviews to provide  In addition, for all four objectives, we interviewed a nongeneralizable sample of 20 stakeholders who had experience investigating wildlife trafficking or expertise in the use of financial rewards as a law enforcement tool  To select stakeholders to interview, we first identified a list of stakeholders by reviewing (1) FWS and NOAA data on law enforcement agents with at least 5 years of experience who had investigated wildlife trafficking cases and used financial rewards, (2) Department of Justice data on federal prosecutors who had prosecuted wildlife trafficking cases since fiscal year 2014, (3) literature search results identifying academics with expertise in the use of financial rewards as a law enforcement tool and federal programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking, (4) the biographies of members of the federal Advisory Council on Wildlife Trafficking, and (5) recommendations from stakeholders we interviewed  From this list, we then used a multistep process to select the 20 stakeholders to interview  To ensure coverage and a range of perspectives, we selected stakeholders from the following groups: FWS and NOAA law enforcement agents, including field and federal prosecutors responsible for prosecuting wildlife trafficking cases; federal officials responsible for programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking; academics with expertise in the use of financial rewards as a law members of the federal Advisory Council on Wildlife Trafficking; and representatives of nongovernmental organizations that investigate wildlife trafficking  We conducted semistructured interviews with the 20 selected stakeholders using a standard set of questions  We asked questions about stakeholder views on the usefulness of financial rewards in combating wildlife trafficking; the strength and weaknesses of the statutory provisions that authorize federal agencies to pay financial rewards for information on wildlife trafficking; FWS’s and NOAA’s use of financial rewards to combat wildlife trafficking; and how, if at all, the two agencies could improve their use of financial rewards to combat wildlife trafficking  We analyzed the stakeholders’ responses to our questions, grouping the responses into overall themes  We summarized the results of our analysis and then shared the summary with relevant FWS and NOAA officials to obtain their views  Views from these stakeholders cannot be generalized to those whom we did not select and interview  We conducted this performance audit from February 2017 to April 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  The Department of the Interior’s U S  Fish and Wildlife Service (FWS) and the Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) implement or enforce multiple laws that specifically authorize the payment, under specified circumstances, of financial rewards to persons for information about violations of laws that prohibit wildlife trafficking  The laws that FWS officials identified are listed and summarized in table 3, and the laws that NOAA officials identified are listed and summarized in table 4  In addition, as noted above, the reward provisions in the Magnuson- Stevens Fishery Conservation and Management Act as amended and the Fish and Wildlife Improvement Act as amended authorize the payment of rewards for information about violations of multiple laws  Specifically, the Magnuson-Stevens Fishery Conservation and Management Act as amended authorizes the payment of rewards for information about violations of the act as well as any other marine resource law that the Secretary of Commerce enforces  Further, the Fish and Wildlife Improvement Act as amended authorizes the payment of rewards for information about violations of any law administered by NOAA’s National Marine Fisheries Service relating to plants, fish, or wildlife  NOAA officials identified 14 such laws that prohibit wildlife trafficking (see table 5)  If a violation of the laws listed in table 5 occurs, NOAA officials said they could use the Magnuson-Stevens Fishery Conservation and Management Act or Fish and Wildlife Improvement Act reward provision to pay a reward for information on the violation  None of the laws listed in table 5 specifically authorize the payment of financial rewards  Table 6 provides information on U S  Fish and Wildlife Service and National Oceanic and Atmospheric Administration cases where these agencies reported paying rewards for information on wildlife trafficking from fiscal years 2007 through 2017  In addition to the contact named above, Alyssa M  Hundrup (Assistant Director), David Marroni (Analyst-in-Charge), Cindy Gilbert, Keesha Luebke, Jeanette Soares, Sheryl Stein, Sara Sullivan, and Judith Williams made key contributions to this report 

ground_truth: Federal law encourages individuals to save for retirement through tax incentives for 401(k) plans and IRAs—the predominant forms of retirement savings in the United States. In 2017, U.S. plans and IRAs reportedly held investments worth nearly $17 trillion dollars. Federal law also allows individuals to withdraw assets from these accounts under certain circumstances. DOL and IRS oversee 401(k) plans, and collect annual plan data—including financial information—on the Form 5500. For both IRAs and 401(k) plans, GAO was asked to examine: (1) the incidence and amount of early withdrawals; (2) factors that might lead individuals to access retirement savings early; and (3) policies and strategies that might reduce the incidence and amounts of early withdrawals. To answer these questions, GAO analyzed data from IRS, the Census Bureau, and DOL from 2013 (the most recent complete data available); and interviewed a diverse range of stakeholders identified in the literature, including representatives of companies sponsoring 401(k) plans, plan administrators, subject matter experts, industry representatives, and participant advocates. In 2013 individuals in their prime working years (ages 25 to 55) removed at least $69 billion (+/- $3.5 billion) of their retirement savings early, according to GAO's analysis of 2013 Internal Revenue Service (IRS) and Department of Labor (DOL) data. Withdrawals from individual retirement accounts (IRA)—$39.5 billion (+/- $2.1 billion)—accounted for much of the money removed early, were equivalent to 3 percent (+/- 0.15 percent) of the age group's total IRA assets, and exceeded their IRA contributions in 2013. Participants in employer-sponsored plans, like 401(k) plans, withdrew at least $29.2 billion (+/- $2.8 billion) early as hardship withdrawals, lump sum payments made at job separation (known as cashouts), and loan balances that borrowers did not repay. Hardship withdrawals in 2013 were equivalent to about 0.5 percent (+/-0.06 percent) of the age group's total plan assets and about 8 percent (+/- 0.9 percent) of their contributions. However, the incidence and amount of certain unrepaid plan loans cannot be determined because the Form 5500—the federal government's primary source of information on employee benefit plans—does not capture these data. Stakeholders GAO interviewed identified flexibilities in plan rules and individuals' pressing financial needs, such as out-of-pocket medical costs, as factors affecting early withdrawals of retirement savings. Stakeholders said that certain plan rules, such as setting high minimum loan thresholds, may cause individuals to take out more of their savings than they need. Stakeholders also identified several elements of the job separation process affecting early withdrawals, such as difficulties transferring account balances to a new plan and plans requiring the immediate repayment of outstanding loans, as relevant factors. Stakeholders GAO interviewed suggested strategies they believed could balance early access to accounts with the need to build long-term retirement savings. For example, plan sponsors said allowing individuals to continue to repay plan loans after job separation, restricting participant access to plan sponsor contributions, allowing partial distributions at job separation, and building emergency savings features into plan designs, could help preserve retirement savings (see figure). However, they noted, each strategy involves tradeoffs, and the strategies' broader implications require further study. GAO recommends that, as part of revising the Form 5500, DOL and IRS require plan sponsors to report the incidence and amount of all 401(k) plan loans that are not repaid. DOL and IRS neither agreed nor disagreed with our recommendation.