United States: Mississippi Regulatory Compliance Group Quarterly Report, Vol. 27 No. 1


As we reported in November, the CFPB issued a final rule on October 15, 2015 amending Regulation C to implement changes to HMDA made by the Dodd-Frank Act requiring financial institutions to collect and report additional home loan information. While required collection of the new loan data points will not begin until January 1, 2018, it is not too early to begin thinking about it and planning for the changes. This article will provide an overview of the final rule including the changes in covered institutions and covered loans, key compliance dates, and reporting requirements.

Compliance Dates. The good news is that no new Reg. C requirements go into effect in 2016. HMDA reporters will report 2015 loan data and collect 2016 data for reporting in early 2017 under the existing rule. Effective January 1, 2017, a new exemption from HMDA reporting for certain low volume depository institutions will be added, but except for that one change, HMDA reporters will submit 2016 data and collect 2017 data for reporting in 2018 under the existing rule. The big changes take place beginning January 1, 2018, when the rules concerning covered institutions, covered transactions, and required collection of new and modified data points will begin for 2018 loan data to be reported in early 2019. Additional changes affecting reporting and enforcement provisions become effective January 1, 2019, and quarterly reporting begins for large reporters effective January 1, 2020.

Covered Institutions. The final rule adds a new exemption for certain low volume depository institutions. Effective January 1, 2017, a bank, savings association or credit union that would otherwise be covered under the current rule will be exempt if the institution originated fewer than 25 home purchase or refinance of purchase loans in each of 2015 and 2016.

The coverage rules for federally insured depository institutions will change effective January 1, 2018. A depository institution will be covered by Reg. C if it meets the following tests:

  • Asset size threshold – the institution's total assets as of December 31 of the preceding year exceed the threshold set in the rule ($44 Million for 2016, adjusted annually for inflation).
  • Location test – the institution has a home or branch office in a MSA.
  • Loan activity test – the institution originated at least one first lien home purchase or refinance loan secured by a one to four family dwelling during the preceding year.
  • Loan volume threshold – the institution originated at least 25 closed-end mortgages or at least 100 open-end lines of credit secured by a dwelling in each of the two preceding calendar years.

Coverage for non-depository institutions will change as well. Effective January 1, 2018, for-profit, non-depository financial institutions are covered if they meet the following tests:

  • Location test – the institution has a home or branch office in a MSA or it took applications for, originated, or purchased at least five home purchase, refinancing, or home improvement loans on property in the same MSA or Metropolitan Division (MD) in the preceding calendar year.
  • Loan volume threshold – the institution originated at least 25 closed-end mortgages or at least 100 open-end lines of credit secured by a dwelling in each of the two preceding calendar years.

Covered Loans. Effective January 1, 2018, all closed-end mortgage loans and all open-end lines of credit secured by a lien on a dwelling will be reportable, including some business purpose loans secured by a dwelling. The term "dwelling" includes a principal residence, second or vacation home, investment property, condo, manufactured home, or single or multi-family dwellings, but excludes RVs (including campers, trailers and motor homes), houseboats and other floating residences, transitory residences (such as hotels and college dorms), and structures originally built as a dwelling but used exclusively for commercial purposes (such as a house converted to professional office space). Excluded from coverage are loans originated or purchased in a fiduciary capacity (such as a loan made by a trust where the bank is trustee), a loan secured by vacant or unimproved land, and temporary financing (such as a construction or bridge loan) which is intended to be replaced by permanent financing later. Also excluded are partial interests in a pool of loans, the purchase of mortgage servicing rights, loans acquired in a merger or acquisition, loans for less than $500, a participation or partial interest in a loan, and loans secured by property used primarily for agricultural purposes which includes a dwelling. Business purpose loans are excluded only if the loan is not a home purchase, refinancing, or home improvement loan.

Reportable Activity. Similar to the existing rule, applications which are denied, approved but not accepted, or withdrawn will be reported along with originations and purchases of covered loans. Also similar to the existing rule, pre-qualifications will not be reportable but pre-approvals under a formal pre-approval program will be reported if the request is denied or approved but not accepted. A pre-approval which results in a closed loan will be reported as an originated loan as in other cases. The purchase of a covered loan includes a repurchase of a loan originated by the lender such as a repurchase required by a secondary market investor.

Data Collection and Reporting. A covered institution must collect, record and report all of the new and modified data points beginning with applications for covered loans on which final action is taken on or after the effective date of January 1, 2018. As a result, the new requirements may apply to a loan application taken in 2017 but decided in 2018. There are 48 different data points under the new rule including 12 which are modified from the existing rule and 25 which are entirely new. The CFPB has not yet released the coding of the various data points, so it may be premature to start planning on exactly how the information will reported in the LAR. However, a list and description of the various data points can be found on the CFPB website at http://files.consumerfinance.gov/f/201510_CFPB_HMDA-summary-of-reportable-data.pdf.

Data will be required to be collected and recorded in the institution's LAR within 30 calendar days after the end of each calendar quarter and be made available to examiners if requested. An institution may maintain multiple LARs for different markets or locations or for different types of loans during the year and compile the data into a single LAR for reporting purposes at year-end. Annual reporting in electronic format by March 1 of each year will be required. Beginning January 1, 2020, large covered institutions that report at least 60,000 covered loans and applications for the preceding calendar year will be required to report data quarterly within 60 days after the end of the first three calendar quarters followed by reporting of full year data after year-end.

Data Disclosure. Beginning January 1, 2018, HMDA disclosure statement requirements will also change, and the changes will apply to data collected in 2017 and later years. Each year when the FFIEC provides the institution with notice that the financial institution's disclosure statement is available, the institution must, no later than three business days after receiving the FFIEC notice, make available to the public, upon request, a written notice stating that the institution's disclosure statement may be obtained on the CFPB's website. A model form is provided for that notice. At its discretion, the institution may also provide its disclosure statement directly to the person making the request and impose a reasonable fee for costs incurred in reproducing or providing the statement, but, in any event, the institution must comply with the notice requirement.

A financial institution's obligations with respect to disclosing its modified LAR will also change effective January 1, 2018. The new requirements will apply to data collected in 2017 and later years. Beginning in 2018, the institution must provide upon request from a member of the public a written notice regarding the availability of its modified LAR. The written notice must state that the LAR, as modified by the CFPB to protect applicant privacy, may be obtained on the Bureau's website. A model form is provided for that notice. At its discretion, a financial institution may also provide its modified LAR and impose a reasonable fee for any costs incurred to reproduce or provide the data, but, in any event, the institution must comply with the notice requirement. So, an institution will be able to direct inquirers to the CFPB website rather than having to provide the disclosure statement or modified LAR directly.

Also beginning January 1, 2018, the form of the lobby notice will change. An institution must post in the lobby of its home office and in each branch office that is physically located in a MSA or MD, a general notice about the availability of its HMDA data on the bureau's website. A sample notice is provided for that in the rule as well.

Compliance Considerations. Fortunately, institutions should have plenty of time to consider and plan for these changes. For many banks and other mortgage lenders, the best place to start is consideration of whether or not your institution will be covered by the revised rule. Note that very low volume depository institutions will be exempt beginning in 2017 even if they meet the other coverage tests. Also, the coverage criteria for all institutions changes effective January 1, 2018.

If your institution is covered, or is likely to be, the next step may be consideration of what loan products, lending areas and staff will be affected by the changes. Note that not all reporting institutions will necessarily be required to report open-end lines of credit. The loan volume threshold tests are separate, and an institution is not required to report open-end lines of credit if it originated fewer than 100 dwelling secured, open-end lines of credit in each of the preceding two calendar years. So, it is possible that an institution might be required to report either closed-end mortgage loans, or open-end lines of credit, or both, under the revised rule.

Once an institution determines which of its products may be reportable, then the institution can begin to assess what information must be reported and how the institution will collect all of the applicable data points required under the rule. Data to be collected and reported will vary some with different types of products. For example, the institution may not be required to collect and report the same information for a purchased covered loan as for an originated covered loan. The data elements might also vary for a business purpose loan as compared to a consumer purpose loan. The CFPB has published a list of data elements that will be reported as "not applicable" in certain instances on its website at: http://files.consumerfinance.gov/f/201511_cfpb_hmda-reporting-not-applicable.pdf.

The rule will also require changes to each reporting institution's procedures, processes, policies, and, possibly, loan origination systems and software. Working with third party providers to be sure systems are compliant will be critical. One thing to keep in mind is that beginning in 2018, institutions will no longer be able to use paper based submissions of HMDA data. Submission in electronic form will be required, and the Bureau is creating a web-based tool to be used for that purpose.

The final and, perhaps, most important element of implementation will be training of affected staff. It may be wise to consider beginning a written implementation plan. That plan might start with identifying those products, lending areas, staff, policies, procedures and systems that will be affected, and list the stakeholders in each area to be involved in the process. The plan can then be enhanced and updated as particular implementation steps and compliance activities are identified.

There are still a couple of things that are not final such as the codes for the various data elements. Also, the Bureau is seeking comment on establishing error rates that would trigger the need to scrub and resubmit loan data, so we will save discussion of those items and the enforcement provisions for a later date. No doubt, we will be talking a great deal more about the changes in future quarterly meetings as the compliance dates draw nearer.

J. Clifford Harrison


Who thinks that bank regulatory relief and federal highway funding have anything in common? Apparently, the U.S. Congress does. In addition to highway funding and transportation measures, the Fixing America's Surface Transportation (FAST) Act, which was signed into law December 4, 2015, contains provisions providing limited, but welcome, regulatory relief for banks along with other miscellaneous measures, such as restoring cuts to the federal crop insurance program and changing dividends paid on Federal Reserve stock to larger Fed member banks. A summary of the banking related provisions follows, but it should be noted that further rule making by the CFPB will be needed before most of the changes can be finally implemented.

Privacy Notices. Financial institutions will no longer be required to send annual privacy notices provided two conditions are met: (1) the institution has not changed its privacy policies or practices since the last privacy notice was sent to customers, and (2) the institution only shares nonpublic personal information with non-affiliates under one of the statutory or regulatory exceptions that do not require an opt out, such as sharing with third parties that provide services to the bank and sharing with third parties under joint marketing arrangements for financial products and services. Currently, the privacy regulations still require annual notices with the one conditional exception for posting the notice on the institution's website. It is not clear whether those rules still apply in light of the statutory change, but hopefully, the CFPB will act quickly to revise the privacy rules.

18-Month Exam Cycle. The Act increases from $500 Million to $1 Billion the asset size threshold for depository institutions subject to an extended 18-month exam cycle. Insured depository institutions with total assets of less than $1 Billion with a CAMELS composite rating of 1 or 2 that are also considered to be well-managed and well-capitalized will be subject to a full scope, on-site exam once every 18 months rather than annually.

Small Creditors Serving Rural and Underserved Areas. The Act amends the Truth in Lending Act by removing the word "predominantly" from the section in TILA that creates an exception to certain of the CFPB mortgage rules for small creditors serving "predominantly" rural and underserved areas. Under current CFPB rules, as amended effective January 1, 2016, a small creditor serving predominantly rural and underserved areas is exempt from compliance with certain provisions of the 2013 mortgage rules. For example, a qualifying small creditor:

  • May originate portfolio loans with Qualified Mortgage (QM) status without complying with Appendix Q or the 43% debt to income ratio cap;
  • May originate QM loans with a balloon payment;
  • May originate high cost mortgages with a balloon payment;
  • Is exempt from escrow requirements for first lien higher priced mortgage loans;
  • May originate higher priced QM loans that qualify for a safe harbor compliance standard under the ATR/QM rules rather than a rebuttable presumption of compliance.

Under the revised CFPB rules, a lender meets the definition of a small creditor if: (1) it and all of its affiliates have total assets below $2 Billion, adjusted annually for inflation ($2.052 Billion for 2016), and (2) the lender and its affiliates originate fewer than 2,000 first lien mortgage loans, not including loans held in the lender's portfolio. A small creditor is deemed to be operating predominately in rural and underserved areas if more than 50% of its first lien covered mortgage loans originated in the preceding calendar year are secured by properties located in areas classified by the CFPB as either rural or underserved. The Bureau publishes annual lists of counties that qualify as rural or underserved, and the revised CFPB rules also allow census blocks not designated by the U.S. Census Bureau as "urban" to also be considered as rural.

The FAST Act removed the word "predominantly" from the relevant section of TILA. The change cannot be implemented until the CFPB issues revised rules, and it is not clear how the agency is going to interpret the change to the statutory language. Ideally, the Bureau will remove any rural or underserved area lending test, but that remains to be seen. The Act requires the Bureau to issue regulations within ninety days after passage which gives the Bureau until sometime in the first week in March at the latest.

This change will be particularly important to those lenders who are relying upon the temporary exception to the ATR/QM rules which allow a small creditor to originate balloon payment loans with QM status whether or not the small creditor serves rural or underserved areas. That temporary exception expires April 1, 2016. Hopefully, the Bureau will act in a timely fashion so as to not disrupt lending by small creditors.

The Act also requires the Bureau to establish an application process allowing a person who lives or does business in a state to petition the agency for designation of an area within that state as a "rural" area with respect to the mortgage rules. It sets forth the evaluation criteria to be used by the Bureau in making that determination and a timeline for publication of applications, a public comment period, and Bureau decisions on the applications. This process might allow areas to be designated as rural in addition to counties designated by the Bureau as rural and underserved and census blocks not designated as "urban" by the U.S. Census Bureau.

Federal Reserve Stock Dividends. National banks and state chartered Federal Reserve member banks with assets of more than $10 Billion will receive dividends on their Federal Reserve stock at a rate tied to the yield on the ten year treasury note and capped at 6%. The $10 Billion exemption threshold will be adjusted annually for inflation. Fed member banks with assets of less than $10 Billion are exempt from this change and will continue to be paid a dividend on their Federal Reserve stock at a rate of 6% annually. This change applies to dividends paid on or after January 1, 2016.

J. Clifford Harrison


A number of compliance-related regulations have threshold amounts below which institutions are exempt from compliance requirements. The applicable regulatory agency is often required to adjust the threshold levels annually by the percentage increase in the Consumer Price Index.

HMDA/Reg. C. The CFPB did not adjust the asset-size exemption threshold in 2016 for banks, savings associations and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The asset-size exemption will remain at $44 million. Institutions with assets of $44 million or less as of December 31, 2015 are exempt from collecting HMDA data in 2016.

TILA/Reg. Z. Effective January 1, 2016, the CFPB adjusted the asset-size exemption threshold under Regulation Z, which implements the Truth in Lending Act. The asset-size threshold for certain creditors to qualify for an exemption to the requirements to establish an escrow account for a higher-priced mortgage loan is adjusted to decrease from $2.060 billion or less to $2.052 billion. Small creditors with assets of $2.052 billion or less as of December 31, 2015, are exempt from establishing escrow accounts for first lien higher-priced mortgage loans in 2016, assuming other requirements for the exemption under Regulation Z are also met. The adjustment to this asset-size threshold will also decrease a similar threshold applicable to small-creditor portfolio and balloon-payment qualified mortgages and the temporary balloon payment QM exception during the grace period with respect to applications received before April 1, 2017. Balloon-payment qualified mortgages that satisfy all applicable criteria, including being made by creditors that do not exceed the asset-size threshold, are also excepted from the prohibition against balloon payments for high-cost mortgages.

On November 25, 2015, the CFPB, the Federal Reserve and the OCC announced that the threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans during 2016 will not be adjusted and remain at $25,500 effective January 1, 2016. Creditors are required to obtain a written appraisal based on a physical visit of a home's interior before making a higher-priced mortgage loan.

Also, on November 25, 2015, the Fed and CFPB announced that the exemption threshold for coverage of consumer credit under Reg. Z will not change and will remain at $54,600 through the end of 2016. Consumer credit in excess of $54,600 is exempt from Reg. Z unless it is a private education loan or the credit is secured by any real property or by personal property used as the consumer's principal dwelling.

On September 22, the CFPB announced the total loan amount threshold for determining whether a transaction is a high cost mortgage when the points and fees payable by the consumer at or before consummation or account opening are 5% or 8% of that amount. The thresholds decreased from $20,391 to $20,350 and $1,020 and $1,017 effective January 1, 2016.

The CFPB also announced annual adjustments to provisions of the CARD Act effective January 1, 2016. The threshold triggering disclosures of the minimum interest charge in credit card applications, solicitations and account opening disclosures remains at $1.00. The current penalty fee safe harbor amount for the first late payment remained unchanged at $27; however, the safe harbor for a subsequent violation within the following six months was decreased from $38 to $37.

Effective January 1, 2016, the points and fees limits that must be met for a covered transaction to be deemed a qualified mortgage are as follows:

  • For a loan amount greater than or equal to $101,749: 3% of the total loan amount;
  • For a loan amount greater than or equal to $61,050, but less than $101,749: $3,052;
  • For a loan amount greater than or equal to $20,350, but less than $61,050: 5% of the total loan amount;
  • For a loan amount greater than or equal to $12,719, but less than $20,350: $1,017;
  • For a loan amount less than $12,719: 8% of the total loan amount.

CRA. On December 22, 2015, the Federal Reserve, the FDIC and the OCC announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank, and intermediate small savings association under the CRA. Financial institutions are evaluated under different CRA examination procedures based upon their asset-size classification. Those meeting the small and intermediate asset size threshold are not subject to the reporting requirements applicable to large banks and savings associations. An institution is considered a small bank or small savings association if, as of December 31 of either of the prior two calendar years, it had assets of less than $1.216 billion. Intermediate small banks or intermediate small savings associations are institutions with assets of at least $30 million as of December 31 of both of the prior two calendar years and less than $1.216 billion as of December 31 of either of the two prior calendar years. The asset-size threshold adjustments were effective January 1, 2016.

Consumer Leasing Act/Reg. M). On November 25, 2015, the Fed and the CFPB announced that the threshold under Regulation M used for determining exempt consumer lease transactions will not change and the protections provided will apply to leases in amounts of $54,600 or less in 2016.

Memrie M. Fortenberry


For over 15 years now many banks have included arbitration agreements in their contracts with customers, both consumer and business, loans and deposit accounts.

Arbitration became popular as a result of a U.S. Supreme Court decision which held that any transaction that had an affect on interstate commerce was subject to the Federal Arbitration Act. Arbitration was seen as effective response to abusive trends in litigation that were prevalent at the time.

Arbitration is a way to resolve disputes outside the court system. In recent years, many contracts for consumer financial products and services have included a "pre-dispute arbitration clause" stating that either party can require that disputes that may arise about that product or service be resolved through arbitration instead of the court system. Where such a clause exists, either side can generally block lawsuits, including class actions, from proceeding in court.

Today, a number of developments have had an impact on the use of arbitration – some favorable, but most not.

The Dodd-Frank Act specifically prohibited the use of arbitration clauses in mortgage transactions. That same Act charged the CFPB with studying the use of arbitration agreements in the broader market for consumer financial service products.

In the CFPB's recently announced study, the agency seems poised to limit or eliminate all together the use of class action waiver provisions that are usually a part of an arbitration agreement. Doing so would greatly reduce the benefit of arbitration to a provider of financial services.

The use of class action waivers in arbitration agreements becomes even more confusing in light of a December, 2015 U.S. Supreme Court decision that specifically upheld such a provision and required the enforcement of the arbitration agreement in question as written.

To further compound the confusion, you have the recent changes to Regulation Z which prohibits the use of mandatory arbitration agreements in connections with dwelling-secured consumer credit transactions, and recent changes to the Military Lending Act which makes it unlawful for a creditor to extend "consumer credit" to a covered borrower through a contract that requires the covered borrower to submit all claims to arbitration.

It is very likely that your bank's arbitration agreement, assuming you have one, does not take any of these recent developments into account. Under certain circumstances, your arbitration agreement might be rendered unenforceable, or you might find yourself with a Truth in Lending Act violation on a consumer-purpose loan secured by a dwelling.

Arbitration is still a very beneficial process in a business or non-consumer context. Every bank would be well advised to revisit their arbitration agreements and have them modified to address these recent developments while preserving, as best you can, the many benefits of arbitration.

Edward A. Wilmesherr


At our February meeting in Jackson and in Memphis, we will be fortunate to have Everett Fields, Fair Lending Specialists with the FDIC, as our guest speaker.
Everett is longtime friend of the MRCG and MSRCG and a timely source for the latest trends and best practices for Fair Lending.

We anticipate that he will focus heavily on the issue of Redlining, a topic that is rapidly gaining momentum in the Fair Lending arena. Everett has already given us a heads up regarding use of HMDA data to scope Fair Lending examinations and the creation of a "peer group" of HMDA reporters against which your bank's performance will be measured.

Redlining is growing in importance for all banks, and we can always count on Everett to be well-prepared and timely with his presentation.

Edward A. Wilmesherr


At our recent Steering Committee meeting several members suggested that the group would benefit from a discussion of TRID implementation issues at the February Quarterly Meeting.

Our experience over the past three months tells us that there are still a number problems with TRID compliance. Some are vendor issues, some involve outside attorneys closing loans, some are operational issues, and other problems may relate to training of staff or similar topics.

You know your own issues. Take this opportunity to share your experience with the other members. List your topics and questions and send them to Patsy B. Parkin* by February 5, 2016.

We will compile all of the questions and do our best to provide you with answers.

Edward A. Wilmesherr


The MRCG will hold its February Quarterly Meeting on February 18, 2016, at the Mississippi Sports Hall of Fame & Museum Conference Center, 1152 Lakeland Drive, Jackson, Mississippi. Registration will begin at 9:00 a.m. with the meeting to begin at 9:30 a.m..

During the February meeting, we will devote the entire morning session to the topic of Fair Lending and Redlining in particular. Our guest speaker will be Everett Fields, Fair Lending Specialist with the FDIC. In the afternoon there will be presentations on recent MLA changes, the recently finalized HMDA reporting requirements and TRID compliance issues.

As always, the dress code for this occasion is casual, and lunch will be provided. We ask that you fax or e-mail your registration to Liz Crabtree no later than Friday, February 12, 2016, so that arrangements for lunch can be finalized. We look forward to seeing you there.

Edward A. Wilmesherr


The MSRCG will hold its February Quarterly Meeting on February 23, 2016, at The Racquet Club of Memphis in the Large Ballroom located at 5111 Sanderlin Avenue, Memphis, Tennessee. Registration will begin at 9:00 a.m. with the meeting to begin at 9:30 a.m.

During the February meeting, we will devote the entire morning session to the topic of Fair Lending and Redlining in particular. Our guest speaker will be Everett Fields, Fair Lending Specialist with the FDIC. In the afternoon there will be presentations on recent MLA changes, the recently finalized HMDA reporting requirements and TRID compliance issues.

As always, the dress code for this occasion is casual, and lunch will be provided. We ask that you fax or e-mail your registration to Liz Crabtree no later than Thursday, February 18, 2016, so that arrangements for lunch can be finalized. We look forward to seeing you there.

Edward A. Wilmesherr

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Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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