NAFCU Compliance Blog

NAFCU Offices Closed; Monday Morning Grab Bag; CULookup.com on CBS

2009-12-21T02:30:00-05:00

Editors's note:

Due to the blizzard of 2009, the Federal Government has closed its agencies in the Washington, D.C. area. NAFCU follows the Fed's lead in this area, so our offices are closed today. And that's just as well, as I'm unable to lift my arms after shoveling out two cars. We'll hopefully get back at it on Tuesday.

A view from my front window Sunday morning.

Posted by Anthony Demangone

Here are a few things worth sharing.

The FDIC has issued its most recent "Supervisory Insights" publication. Of note in this issue: interest risk management. The FDIC sees that bank asset maturities are lengthening. And in this rate environment, that comes with added risk.
The FFIEC has issued proposed guidance to address compliance and reputation risks when offering reverse mortgages. The proposed guidance appears to be a nice primer on reverse mortgages if you need one.
If you missed the Fed's recent teleconference on Reg E, they archived the presentation.
NCUA has issued a legal opinion letter that clarifies how share insurance protection can cover "529 accounts."
FinCEN has released its 2009 fiscal year annual report. It provides a decent 20,000 foot analysis of what the agency was up to during the past fiscal year.

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Last week, NAFCU's credit union locator website CULookup.com was featured on the CBS Early Show. You can follow this linkto an article as well as the video that was shown last Thursday. Financial contributor Vera Gibbons spent a good amount of time with Harry Smith discussing the great benefits of credit unions and why many people are switching over to credit unions from banks right now. She mentions NCUA insurance, the fact that credit unions have money to lend, and that credit unions are member-owned and member-operated.

Now, just how did she find out all of this information? Well, our PR department put her in contact with our CEO Fred Becker, who met with her and provided her with some great credit union information. Trade associations are known for their lobbying and regulatory work but they are working hard for you in many many ways, including PR and marketing.

In the piece, she points viewers to a great tool - CULookup.com- as a place to find a credit union they could join. CULookup.com was developed and is maintained by NAFCU's subsidiary, NAFCU Services Corporation. For NAFCU members, listing your credit union on this website is free - go check it out and make sure your credit union is listed and the information is accurate.

NCUA Board Meeting Recap

2009-12-18T02:30:00-05:00

Posted by Anthony Demangone

Yesterday, NCUA held its monthly Board meeting. Here's what they covered in the open portion of the meeting.

First, NCUA issued a proposal rule to amend its chartering and field of membership manual to update its community chartering policies.The amendments would include using objective and quantifiable criteria to determine the existence of a local community and defining the term "rural district." The amendments clarify NCUA‟s marketing plan requirements for credit unions converting to or expanding their community charters and define the term "in danger of insolvency" for emergency merger purposes.

Second, NCUA issued a final rule to amend its lending rules to create a limited exception to the 20-year maturity limit on second mortgage loans. The amendment will permit federal credit unions participating in the Department of the Treasury’s Making Home Affordable Program to modify a second mortgage loan, beyond 20 years, to match the term of a modified first mortgage loan. This had originally been an interim final rule that became effective June 24, 2009.

Finally, NCUA issued its regular insurance fund report.

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I know many of you may be out of the office the next few weeks. Have a wonderful holiday season!

Truth in Savings: Disclosing ODP Balances; RESPA Settlement Booklet...Finally

2009-12-17T02:30:00-05:00

Posted by Anthony Demangone

When working to comply with NCUA's Truth in Savings regulation regarding overdraft protection programs, don't forget about the changes concerning how you disclose balances. In short, if you disclose balances to a member through an "automated system," the balance cannot include any additional ODP-related balance that could be used to clear the item. You "may," if you wish, disclose such additional ODP-related balance if you prominently state that any such amount includes such additional ODP amounts, and, if applicable, that such amounts are not available for all transactions.

So, what are "automated systems?" They would include any automated system through which a member can request an account balance, such as online banking, telephone-based systems, and ATMs.

Want some homework? I'd check to see where you disclose automated balances to see if you need to make any changes.

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HUD really took this one to the wire. They finally updated their RESPA settlement cost booklet roughly 2 weeks before it's use becomes mandatory. Happy printing.

Truth in Savings and ODP: The Periodic Statement; Odds and Ends; Shameless Plug

2009-12-16T02:30:00-05:00

Posted by Anthony Demangone

Let's discuss NCUA's recent changes to its Truth in Savings rule that affect overdraft protection programs, shall we? Today, let's focus on the changes to the periodic statement.

Here's a link to the final rule.
Remember, it takes effect January 1, 2010.

With the changes, all credit unions with an overdraft protection program must disclose on their periodic statement all ODP fees and NSF fees. Before, only those credit unions that marketed their ODP programs had to make such disclosures. The fees must be totaled for the current month and year-to-date. NCUA provides a model form, B-12, which you can find on p. 3 of the final rule.

Here are some questions we've received.

Does our disclosure have to look just like the model form? The requirement is that your disclosure must be substantially similar to their model disclosure. 707.11(a)(3). Is "substantially similar" defined? Nope. During their recent teleconference, the Fed indicated that for their Reg DD, they expect to see some sort of chart or table. But that's the Fed speaking on their reg. NCUA has not issued any formal clarifying guidance on this issue concerning its Truth in Savings reg. My two cents? I understand that many statement vendors indicate that creation of a chart is difficult. But the further away you get from the model form, the higher your compliance risk on this point. Do the best you can, and if you can't provide a chart, I'd document why it isn't possible.

The model form shows totals for ODP and NSF fees. We don't have an overdraft protection program. But we do charge NSF fees. Do we need to provide the chart and give monthly totals for NSF fees, even without an ODP program? That's a good question, which the reg does not really address. I think it is reasonable to reach the conclusion that you don't need to provide monthly and year-to-date totals for NSF fees if you do not have an ODP program. Remember - these new requirements are found in section 707.11 of the Truth in Savings regulation. That section is titled: "Additional requirements for overdraft services." That being said, let me just throw this out there. Many credit unions that do not offer overdraft protection programs may, in fact, offer such programs in the eyes of NCUA and the Fed. If a debit card transaction overdraws the account because the gas station only sent through an authorization for $1, credit unions must clear that transaction. Do you charge a fee in that situation? The Fed clearly thinks that is an overdraft fee. (See Reg E's changes.) So, I bet the Fed would expect you to show those fees in the ODP portion of the disclosures, even though you probably don't think you have an ODP program. NCUA has not opined on this issue. So, take it for what it is worth: food for thought.

We have a sort of overdraft service where we transfer funds from another share account owned by the member to cover an overdraft. Or they can apply for a line of credit. We do charge fees for those transfers. Are those covered by this regulation? No. The reg clearly excludes these types of overdraft programs from its scope.

We use "combined statements" that group all share accounts owned by the member. There could be one checking account and 5 other savings/money market accounts on one periodic statement. Our overdraft program covers all of these accounts. Can we combine all fees into 1 chart or table? Or does each account get its own? Good question. I wish I had the answer to that one. The regulation talks about disclosing fees that take place on an account, but it doesn't clearly address what to do when more than one account or subaccount is on each periodic statement.

Editor's note. The Fed indicated that it will provide updated guidance to address unanswered questions from its most recent tele-conference on concerning ODP. The tele-conference did address issues regarding Reg DD, so the Fed may weigh in on some of these issues early in 2010 in its Consumer Compliance Outlook newsletter.

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NAFCU members, the Book of Answers has been updated.
NCUA has issue legal opinion letter 09-1067 to clarify share insurance protection for 529 accounts. Here's a snippet from the letter:

You requested clarification regarding share insurance coverage of qualified tuition savings program accounts (529 accounts). Specifically, you asked whether 529 accounts are insured as public units or as member accounts. Under NCUA share insurance rules, 529 accounts may be insured as public units or, on a pass-through basis, so long as membership and traceability requirements are met.

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Now for the shameless plug. NAFCU is offering a special holiday savings opportunity for its 2010 conferences and volunteer/new staff online training program. If you use the promo code PREHOL when you sign up by 12/31/09, you'll save 10 percent.

Here's my two cents. If you know that you or someone else at your credit union is going to attend one of our conferences next year, this will save you money. The same goes if you were going to purchase our volunteer/new employee online training. If you are going to spend the money, why not take advantage of the discount? You may want to pass this along to your training coordinator or others who might sign up for conferences. You can see our conference lineup here.

Editor's note: You don't have to be a NAFCU member to attend or use the promo code.

ODP - A History Lesson; OTS CEO Letter on Credit CARD Act Fix

2009-12-15T02:30:00-05:00

Posted by Anthony Demangone

This week, I want to focus on the upcoming changes to NCUA's Truth in Savings regulation. Those changes require additional disclosure requirements for periodic statements and automated systems. But today, I want to deliver a brief history lesson and the current state of affairs for overdraft protection programs.

The regulation. First, there is a regulatory foundation to our ability to offer overdraft protection programs. You'll find it buried within NCUA's general lending regulation, at 12 C.F.R. 701.21(c)(3). I haven't researched exactly when that got on the books, but it predates my arrival at NAFCU.

Please, pretty please. Roughly 5 years ago, consumer groups started grumbling about overdraft protection programs. In 2005, NCUA and others issued guidance and some regulatory changes. First, NCUA issued Letter to Credit Unions 05-CU-03, which provides some guidance and best practices. They also issued 05-CU-21 later in the year to share an AIRES questionnaire with credit unions concerning ODP programs. Access both here. That year, NCUA also amended its Truth in Savings regulation. It added 707.11, which address ODP programs, and it added some guidance in other areas as well. Those changes only affected credit unions that advertised their ODP programs. All of these changes really didn't affect how you structured your ODP programs. They simply affected or suggested how you were to market them. Bills were drafted that would greatly limit our ability to charge fees for ODP programs, but these bills never made it into law.

Enough, already. In 2009, things changed. With Democrats firmly in control of the White House, Senate and House of Representatives, consumer group arguments against ODP programs found receptive ears. A number of bills were drafted that would curtail the number of ODP fees we could charge or the amount of such fees. To date, those bills are still percolating. Regulators also kicked into high gear, amending two regulations to address ODP concerns. NCUA and others amended their "Truth in Savings" regulations that mandates increased ODP disclosures for all institutions. And Regulation E was amended to prevent certain overdraft fees without an affirmative "opt in" from affected consumers. Will the regulatory changes blunt the legislative momentum of the various ODP bills on the Hill? It is hard to say for sure.

What are the lessons here? I'm not sure there are any clear ones. But here's a possibility. When consumer groups complain about perceived unfair practices, whether they involve credit cards, ODP, or mortgages, there will be those on the Hill that will listen. If you derive income from any practice that consumer groups consider to be unfair - even if you do it above board and with a fair price - that income is at risk. When Congress moves to reform, they do not use scalpels. They use saws and axes. We often get caught up in Congressional reforms, even as legislators admit that we are not part of the problem.

Tomorrow, we'll start looking at the NCUA changes in detail.

***

Last week, the OTS released a CEO Letter that appears to be the first guidance issued by a regulator about the Credit CARD Act fix to the 21-day dilemma. Of note:

As originally enacted, § 163(a) of TILA applied not only to credit cards, but to all open end credit, including home equity lines of credit (HELOCs). Because HELOCs are home-secured, savings associations that offer them must also comply with an OTS rule that prohibits assessing a late fee if the borrower’s payment is received within 15 days after it is due.2 To accommodate this rule, many thrifts have drafted their HELOC agreements to require payment by the 15th of the month, but defer charging a late fee until the 30th day. Since contract terms are not easily changed, it has been difficult for associations to adjust their practices to comply with the requirement that consumers be given 21 days to remit payment. The correction discussed above means that this requirement will only apply to credit card accounts.

However, thrifts should note that TILA § 163(b) remains unchanged. Pursuant to § 163(b), when an open end creditor provides a grace period permitting consumers to repay without incurring a finance charge for a period of time after payment is due, the grace period must last at least 21 days. Moreover, the creditor must transmit periodic statements to consumers at least 21 days before their payment is due. Although HELOCs are not typically structured to include a grace period, thrifts should be aware that if they provide one, the requirements of TILA § 163(b) will apply. (Emphasis added.)

NCUA Board Meeting Agenda Released

2009-12-14T02:30:00-05:00

Posted by Anthony Demangone

NCUA hosts its monthly Board meeting this Thursday. Access the agenda here. Remember that draft items become available Thursday morning via the same link. Here's what is on tap, from a compliance point of view.

Proposed Rule - Part 701 of NCUA's Rules and Regulations, Interpretive Ruling and Policy Statement (IRPS) 09-1, NCUA's Chartering and Field of Membership Policies.
Final Rule - Section 701.21(f) of NCUA's Rules and Regulations, Exception to the Maturity Limit on Second Mortgages.
Insurance Fund Report.

There is also a closed portion to the meeting which is described in the agenda as well.

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NAFCU members, we've released our Regulatory Alert on NCUA's recent proposal concerning corporate credit unions. Members may access it here.

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Stay tuned. Tomorrow, I'll start a short series on NCUA's Truth in Savings regulation changes that affect overdraft protection programs.

Regulation E and Overdrafts: Unintended Consequences?

2009-12-11T02:30:00-05:00

Posted by Anthony Demangone

Editor's apology: This is a long post. Especially for a Friday. But I think it is important enough to merit the length.

Yesterday, the Federal Reserve held a tele-conference to offer guidance about recent amendments to Regulation E that affect overdraft protection programs. You can access the presentation materials here.

The teleconference revealed a very important, and potentially costly, clarification. But first, let me give a wee bit of background.

In short, the changes to Regulation E will mean that after July 1, 2010, you may not charge a fee when a non-recurring debit card or ATM transaction overdraws an account unless you have given that member disclosures describing your overdraft program - and the member opts in. Again - unless the member opts in, you will not be able to charge a fee for such debit card and ATM transactions that overdraw an account.

There is an exception, though. If your credit union has a policy that it only pays those non-recurring debit card or ATM transactions when funds are available when the authorization comes in, you will not need to comply with the opt-in requirements. But does that exception allow you to charge fees as well, or just it just relieve you from the notification and opt-in requirements? And that's a bid deal.

Even for credit unions that do not have overdraft programs and fit within that exception, some non-recurring debit card and ATM transactions will sneak through. Examples? Your ATM network goes offline and the member makes a withdrawal that exceeds the account balance. Or the gas station only sends an authorization through for $1, before the member pumps $100 of gas into his Hummer. Collectively, I'll call these "gas station" transactions. But, the exception still stands. You don't have to comply with the opt-in requirements in order to process them. If you can charge fees for those, that's a good deal of revenue. If not, you might have a big revenue hole to fill.

Here's the clarification that caught everyone's attention. You'll find it on pages 14 and 15 of the Fed's presentation via the link above. The exception is only for the opt-in disclosure. The exception does not allow you to charge a fee. The presentation clarifies that there is no exception that allows a credit union to charge a fee for any non-recurring debit card or ATM transaction that overdraws an account. You to have the opt-in. So, for the "offline ATM" transaction, or the "gas station" transaction that takes the account negative, you cannot charge a fee without that opt-in.

Enter Troy. I don't know who Troy is, but his question summed up everyone's frustration. You could practically hear his teeth grind as he spoke.

His bank does not have an overdraft program. They do not pay any transaction unless funds are available when the check, ATM transaction or debit card authorization comes in. So he fits within the exception. His bank does not have to send the "opt-in" form to its customers.

But his bank has charged, and wishes to continue charging, a fee when those "gas station" transactions hit accounts. Those transactions take accounts negative, and he wants to charge a fee to mitigate the risk of the negative account. How does he go about charging that fee after July 1.

One of the Fed speakers said to use the opt-in form. But Troy correctly pointed out that an opt-in form won't really work, because what would the member be opting into? His bank has no choice but to clear the "gas station" transaction, even if the member does not opt in. The member is really only opting into the fee!

The other Fed speaker paused, and said that they just never considered that a financial institution would want to charge fees for "gas station" transactions. (As my colleague Steve said during the training session, perhaps the Fed should spend a little less time on consumer testing, and spend a little bit more on learning how our industry does business.)

Troy followed up and said that this whole debacle has created an unintended consequence. Credit unions or banks that want to charge fees for "gas station" transactions may have to consider creating a full-blown overdraft protection program for debit and ATM cards. Something Troy does not want to do.

We're sending a letter to the Fed to underscore our concerns on the subject.

Happy Friday, everyone.

Editors's Note: Reportedly, the Fed will issue some clarifying guidance on this issue in January.

Google; Adverse Actions and Loan Mods

2009-12-10T02:30:00-05:00

Posted by Anthony Demangone

Oh, Google. How I love thee. Seriously.

Every compliance officer should remember how powerful Google is when doing compliance research. And Google is more than you think. Here are two examples.

Google Scholar. "We're enabling people everywhere to find and read full text legal opinions from U.S. federal and state district, appellate and supreme courts using Google Scholar. You can find these opinions by searching for cases (like Planned Parenthood v. Casey), or by topics (like desegregation) or other queries that you are interested in. For example, go to Google Scholar, click on the "Legal opinions and journals" radio button, and try the query separate but equal. Your search results will include links to cases familiar to many of us in the U.S. such as Plessy v. Ferguson and Brown v. Board of Education, which explore the acceptablity of "separate but equal" facilities for citizens at two different points in the history of the U.S. But your results will also include opinions from cases that you might be less familiar with, but which have played an important role." Wow. Is is good? Yes. I googled my name in this search engine and found this.
Google U.S. Government Search. This search engine only looks at Federal, State and local government web pages. Nice.

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Recently, the Federal Reserve released a Consumer Affairs letter that touches upon whether you need to send an adverse action notice when a member requests a loan modification but does not get it. The letter is highly detailed and really walks you through the thought process of whether a Reg B adverse action notice is needed in a given situation. This is a very good read.

Here's a link to all the CA letters. They are a nice resource.

Mortgage Loan Sale/Transfer Notifications; Reg Reform

2009-12-09T02:30:00-05:00

Posted by Anthony Demangone

In November, the Federal Reserve Board issued an interim final rule to require that consumers receive notification when their mortgage loan has been sold or transferred. The notification comes from the institution that receives the loan - not the one who sells or transfers it. The new requirement will apply to both open and closed-end loans.

Compliance deadline: January 19, 2010.

The Fed issued its rule in response a new requirement mandated within the Helping Families Save Their Homes Act, which was enacted back in May. Why this new requirement? Currently, RESPA requires a notification when the servicer of a mortgage changes. Congress wanted to make sure consumers know when the ownership of the mortgage changed as well. Here's a snippet:

Consistent with the legislative intent, this interim final rule implements Section 404(a) of the 2009 Act by applying the new disclosure requirements to any person or entity that acquires ownership of an existing consumer mortgage loan, whether the acquisition occurs as a result of a purchase or other transfer or assignment. A person is covered by the rule only if the person acquires legal title to the debt obligation....However, the interim final rule applies only to persons that acquire more than one mortgage loan in any 12-month period.

To comply with the interim rule, a covered person must mail or deliver the required disclosures on or before the 30th day following the date that the covered person acquired the loan. The disclosure need not be given, however, if the covered person transfers or assigns the loan to another party on or before that date.

NAFCU has prepared a Regulatory Finalthat provides a great overview of the new requirement. (Member log-in needed.) Again, you can view the final rule via the link at the top of this post. NAFCU members: we'd need any comments that you have by December 16th. While the scope of this rule should not be too cumbersome (it only affects those who receive the loan, not those who transfer or sell it), there are some compliance issues that could be cleaned up. For example, what about loan participations? Does every credit union that gets a piece of the mortgage need to send the notification? Inquiring minds want to know.

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There soon could be a "midnight oil" shortage. As you know, the House is attempting to finalize its regulatory reform legislation. This legislation, if made into law, will affect every aspect of the American financial system. As part of the process, there was a deadline for amendments to be submitted. Well, nearly 300 such amendments are now in play. Rest assured that NAFCU Compliance, Reg Affairs and lobbying staff worked late into the evening on Monday and all day yesterday to review each amendment. We've already begun voicing our concerns or support to Congress on many of these proposed amendments. Stay tuned.

Tuesday Leftovers

2009-12-08T02:30:00-05:00

Posted by Anthony Demangone

Here's a little of "this and that" to help you through your Tuesday.

FinCEN announces an important update for E-Filers. FinCEN has implemented the second phase of the BSA E-Filing SAR Acknowledgements and Validation process. Phase I was implemented in September 2009 and provided BSA E-Filers with an acknowledgement of receipt for a submitted Suspicious Activity Report (SAR). Phase II applies data quality checks and will provide financial institution filers with information on the quality of their submissions for electronically filed SARs.
NAFCU members: We've released a Final Regulation on Regulation E's recent final rule on opt-ins for overdraft protection services. Access it here. (Member log-in needed.) We've also released a Regulatory Alert on the Regulation E proposal that affects gift cards.
HUD announces a new RESPA outreach program to help all of us comply with the new RESPA rules that take affect next month. HUD will make earlier versions available in an archived format. (I don't see any of those posted yet, but it does look like the December 3 PowerPoint is available here. And I don't see the scheduled sessions on their "schedule page." Be sure to check back. Don't forget, we're offering a RESPA and FHA related webcast this Thursday.
NCUA has released its semi-annual regulatory agenda. These documents are great as they give you an idea of what NCUA has done and what is in the hopper. The Fed also issued its agenda.