NAFCU Compliance Blog

NCUA Finalizes Technical Amendments on Privacy; SAFE Act & Share Insurance

2013-05-24T04:30:00-05:00

Written by Steve Van Beek

Last Thursday, NCUA issued a final rule which made numerous technical corrections to NCUA's regulations. Of note are three that had caused continued confusion for compliance officers of credit unions:

NCUA's Privacy Regulation - 12 CFR 716

NCUA's SAFE Act Regulation - 12 CFR 761

Share Insurance Coverage of Noninterest-bearing Transaction Accounts - 12 CFR 745.14

Privacy & SAFE Act. NCUA lost authority for both privacy and the SAFE Act on July 21, 2011 when regulatory authority transferred to the CFPB and the technical amendments add cross-references to the CFPB's regulations which credit unions must follow. Here is from the final rule:

"In 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act substantially changed the federal legal framework with respect to consumer financial protection regulation. Among the many changes, title X of the Dodd-Frank Act transferred to the CFPB NCUA’s rulemaking authority under the Gramm-Leach-Bliley Act and the Secure and Fair Enforcement for Mortgage Licensing Act of 2008.

…

To assist federally insured credit unions, the rescinded parts of NCUA’s regulations will retain their original heading and be amended to include a cross citation to the CFPB’s republished version of the regulation."

NCUA's regulations will be updated with the cross-reference after the final rule is published in the Federal Register. The CFPB’s privacy regulation is 12 CFR 1016 and the SAFE Act regulation is 12 CFR 1007.

Share Insurance. The third amendment I wanted to highlight - the amendment to NCUA's Share Insurance regulation - was one that NAFCU had asked for numerous times since December 31, 2012 (including our "Update the Regulations, Please!" blog post). Here is NCUA's summary of their amendment:

"Section 343 of the Dodd-Frank Act provided that, on a temporary basis, NCUA would fully insure the net amount that any member or depositor at an insured credit union maintained in a noninterest-bearing transaction account. NCUA amended part 745 of its regulations to implement these temporary statutory changes through a final rule that became effective on June 24, 2011. Consistent with the sunset provisions in Dodd-Frank Act section 343(b)(3) and §745.14 of NCUA’s regulations, NCUA is rescinding its regulations implementing the temporary expanded insurance coverage granted under Dodd-Frank Act section 343(b)(1). In particular, the rule removes the definition of “noninterest-bearing transaction account” in §745.1(f), and removes §745.14 governing noninterest-bearing transaction accounts. The Board notes, however, that these accounts continue to be insured under other provisions of part 745."

The unlimited share insurance coverage for noninterest-bearing transactions accounts expired on midnight on December 31, 2012. This change should also be reflected in the Electronic Code of Federal Regulations after the final rule is published in the Federal Register.

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Programming Note: NAFCU's offices will be closing early today and we'll also be closed on Monday for the holiday.

We'll be back blogging on Tuesday - have a great weekend!

NAFCU Urges Regulatory Coordination; FSOC Annual Report

2013-05-23T02:30:00-05:00

Written by Michael Coleman, Regulatory Compliance Counsel

There is no denying the fact that regulatory burden is a major issue faced by the credit union industry. Even so, I still sometimes feel like the boy who cried wolf when I am constantly talking about regulatory burden and compliance issues faced by credit unions. But then I remind myself that there actually are wolves out there, and they have really big teeth. As I mentioned in this blog post a while back, I tend to speak in quaint colloquialisms from time to time, and I have been known to make up a word or two as well. If you have ever spoken with me in person or on the phone, you might have heard me refer to the current regulatory environment as "The Reg-pocalypse."

With this in mind, NAFCU is constantly advocating on behalf of our members to try and reduce regulatory burden and provide regulatory relief for credit unions. For example, NAFCU's Five-Point Plan for Regulatory Relief calls on Congress to provide comprehensive broad-based regulatory relief for credit unions. However, in addition to legislative measures, there are other steps which can be taken to help provide regulatory relief to the credit union industry.

As we mentioned in this blog post, the Financial Stability Oversight Council (FSOC) recently issued their 2013 Annual Report detailing the activities of the Council, significant market and regulatory developments, and potential emerging threats to the financial stability of the United States. However, notably absent is any discussion of regulatory burden on financial institutions. This is incredibly unfortunate as the FSOC has a statutory mandate from Dodd-Frank to facilitate coordination between federal regulators.

On May 20th, Fred Becker, NAFCU's President and CEO, sent a letter on the FSOC and regulatory coodination to Sen. Tim Johnson, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, and Sen. Michael Crapo, ranking member of the Senate Committee on Banking, expounding the need for the FSOC to take seriously its duty to facilitate regulatory coordination, here is an excerpt:

"As the tide of regulation rises, there has never been a more critical time for the FSOC, led by Secretary Lew, to facilitate regulatory coordination among its member regulators. This duty includes facilitating information sharing and coordination among the member agencies of domestic financial services policy development, rulemaking, examinations, reporting requirements and enforcement actions. As outlined in the attached letter to then Treasury Secretary Timothy Geithner in June of 2012, under the Dodd-Frank Act the FSOC is effectively charged with ameliorating weaknesses within the regulatory structure therein providing a safe and more stable system as a whole. NAFCU appreciates the committee’s focus on the activities of the FSOC and looks forwarding to learning more about the steps that have been taken to avoid duplicative and over burdensome regulation of our nation’s credit unions."

A similar letter was also sent on May 21st to Rep. Jeb Hensarling, the Chairman of the House Financial Services Committee, and Rep. Maxine Waters, the ranking member of the House Financial Services Committee. Here's hoping we see some relief!

Clarifications to the 2013 Escrows Final Rule

2013-05-22T03:00:00-05:00

Written By JiJi Bahhur, Regulatory Compliance Counsel

Last week, the Consumer Financial Protection Bureau (CFPB) issued a final rule clarifying and making technical amendments to the 2013 Escrows final rule. Besides providing additional guidance, the final rule has two primary purposes (we also blogged about this not too long ago when the rule was in proposal stage):

1. Maintaining Consumer Protections

2013 Escrows Final Rule

final rule

2. “Rural” and “Underserved” Definitions

2013 Escrows Final Rule

final rule

2013 Escrows Final Rule

The CFPB has also published a final list (see box to the right of screen for download options) of rural and underserved counties for 2013. For purposes of applying the exemption in the 2013 Escrows Final Rule, creditors may rely on this list as a safe harbor to determine whether a county is “rural” or “underserved” for loans made from June 1, 2013, through December 31, 2013.

CFPB YouTube Videos on the Mortgage Rules; Small Entity Compliance Guides; NAFCU Resources

2013-05-21T04:30:00-05:00

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB posted seven video presentations on the new mortgage rules. The purpose of these videos is to provide a plain language overview of the rules. We thought it might be handy to have the links to these videos, along with links to the CFPB’s Small Entity Guides in one place.

CFPB videos:

Overview of the 2013 New Mortgage Rules

Ability-to-Repay and Qualified Mortgage Rule

2013HOEPA Rule

ECOA Valuations and TILA Higher-Priced Mortgage Loan Appraisal Rules

Loan Originator Compensation Rule

Mortgage Servicing Rules

TILA Escrow Rule

CFPB Small Entity Compliance Guides:

Ability-to-Repay and Qualified Mortgage Rule

2013 HOEPA Rule

ECOA Valuations Rule

TILA Higher-Priced Mortgage Loans Appraisal Rule

TILA Escrow Rule

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NAFCU Mortgage Rules Compliance Resources. Remember that NAFCU has a webpage to help organize compliance resources related to the CFPB’s new mortgage rules. The webpage includes links to the individual rules, scope-and-applicability charts, webcasts, compliance blog posts and more.

NCUA to Cease Paper Mailings - Sign-Up for NCUA Express; Google Reader Ending Service on July 1st

2013-05-20T04:30:00-05:00

Written by Steve Van Beek

Last week Bernadette highlighted the May 2013 NCUA Report. On the very last page was this notice:

"NCUA will stop mailing Letters to Credit Unions and other regulatory alerts as part of its ongoing efforts to reduce operating costs and become more efficient.

NCUA CU Express recipients automatically get the latest regulatory guidance and letters. All credit unions CEOs and Board Chairmen with emails provided in the CU Profile system are automatically subscribed to NCUA CU Express, and should currently be getting all regulatory letters or alerts.

NCUA CU Express emails are mandatory for credit union CEOs and Board Chairmen, while the separate, but similar NCUA Express is open to the public and subscriber-driven. In addition to regulatory alerts, you can sign up and receive NCUA’s monthly newsletter, The NCUA Report, legal opinions, press releases and more, using the NCUA Express system.

For more information about NCUA Express and to subscribe, free of charge, visit http://go.usa.gov/TDsC."

If you haven't already, consider signing up for the NCUA Express. At a minimum, be sure to pass this along to your colleagues in case they rely on the paper mailings. And, while you are at it - make sure your CEO and Board Chairmen's emails are current so they are getting all the information from the NCUA CU Express.

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Google Reader. Many blog readers use an RSS aggregator such as Google Reader. On July 1st, Google will no longer be supporting Google Reader - so it makes sense to begin the migration to a new RSS aggregator soon. Personally, I've switched over to Feedly (and since wondered multiple times why I didn't earlier). And, best of all - you can connect your existing feeds from Google Reader over to Feedly. Of course, there are additional alternatives as well.

If you're wondering what RSS is, Wikipedia has some good information. In short, RSS feeds (and an RSS aggregator) allow you to receive updates to a particular blog (or other website) when they occur. If your email inbox is overflowing with blog posts and other resources, having an RSS aggregator can help you stay on top of the news you need without it cluttering up your inbox.

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Asheville, North Carolina. Last week, Erin and I had the chance to head down to Asheville for NAFCU's Board of Directors Conference. Asheville is a special city for us as we got engaged there over Labor Day weekend in 2010.

Biltmore Gardens

Chimney Rock State Park, Chimney Rock, NC. And, that is Lake Lure in the background. Erin informed me numerous times (plus or minus 20) that Lake Lure was where "Dirty Dancing" was filmed.

NCUA's Derivatives Proposal; Can't Help Myself

2013-05-17T03:00:00-05:00

Written By JiJi Bahhur, Regulatory Compliance Counsel

Today, the NCUA Board issued a proposed rule to provide qualified credit unions limited authority to engage in derivatives activities for purposes of mitigating against interest rate risk (IRR). But, the proposal establishes a “pay-to-play” regulatory scheme for credit unions that are permitted to engage in derivatives activities. I’ll get into that in a moment.

First, I should probably give some background on what derivatives are and what NCUA is proposing. NCUA has created a Q&A document addressing this, among other things. From the Q&A document:

“Q.1: What are derivatives? What kinds of derivatives is NCUA proposing to allow for credit unions?

The Commodities Futures Trading Commission (CFTC) broadly defines a derivative as: “A financial instrument, traded on or off an exchange, the price of which is directly dependent upon (i.e., “derived from”) the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement (e.g., the movement over time of the Consumer Price Index or freight rates). They can be used to hedge risk or to exchange a floating rate of return for fixed rate of return. Derivatives include futures, options, and swaps.”

While the term “derivatives” covers a broad spectrum of financial instruments in today’s market, NCUA is only recommending authorizing the use of plain-vanilla, US Dollar-denominated (USD) interest rate swaps and purchased-only interest rate caps. These instruments are widely transacted in today’s capital markets, have deep and transparent pricing and afford end users with strong liquidity and execution. The Bank for International Settlements reports that interest rate swaps are the largest component of the global over-the-counter (OTC) derivatives market.

With regard to interest rate swaps, the NCUA Board is proposing to authorize only standard “pay-fixed/receive-floating” and “pay-floating/receive-fixed” interest rate swaps. It is currently anticipated that most interest rate swaps users would enter into “pay-fixed/receive-floating” transactions to hedge against rising interest rates. This “plain vanilla” interest rate swap affords some protection against the most common interest rate exposure experienced by credit unions with material interest-rate risk (IRR) sensitivity—namely, a balance sheet with an asset portfolio that does not reset to external rate changes as quickly as its liabilities. Most credit unions use non-maturity and other short-term shares to fund longer duration assets, creating an inherent re-pricing mismatch for which pay-fixed/receive-floating interest rate swaps can provide some effective mitigation.”

Eligible credit unions seeking derivatives authority must submit an application for one of two levels of authority. Level I authority contains more stringent limits, including limits to the notional value of interest rate swaps, aggregate book value of interest rate caps, combined limit of interest rate swaps and caps, and the maximum weighted average life of all derivatives transactions cannot exceed 5 years. Level II authority has fewer limits, but credit unions that seek Level II authority must show why the Level I limits are not adequate to meet their IRR mitigation needs.

So what’s the catch? You have to “pay-to-play.” The proposed rule calls for application fees and pretty hefty ones at that. Level I application processing costs would range from $25,000 to $50,000 and Level II applications would range from $75,000 to $125,000. If that’s not bad enough, there is an associated fee for every year after that.

NAFCU has long advocated for expanded investment authorities for credit unions, but the "pay-to-play" proposal raises concerns as this would be the first time “pay-to-play” will be required in the credit union industry.

The proposal can be accessed here. NCUA’s Q&A document – which provides an understanding of the rule’s intent and the main contents – can be accessed here. Also, NAFCU’s Regulatory Affairs team is in the process of drafting a Regulatory Alert (NAFCU Member Log-In required) on this proposal so keep your eyes peeled for that.

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I just had to share these pictures with you all. Have a great weekend.

Remittance Transfer Final Rule; NAFCU Final Regulation

2013-05-16T02:30:00-05:00

Written by Michael Coleman, Regulatory Compliance Counsel

On April 30th, the CFPB issued its latest final rule on remittance transfers. Most importantly, this final rule set the effective date of the remittance transfer final rule(s) as October 28th, 2013. Meaning, the entirety of the remittance transfer rule, including all of the previous final rules, are effective October 28th, 2013.

This latest final rule also amended several other disclosure requirements and error resolution requirements from the previous remittance transfer final rule(s), here is an excerpt from the preamble:

"The amendments address three specific issues. First, the 2013 Final Rule 
modifies the 2012 Final Rule to make optional, in certain circumstances, the requirement to 
disclose fees imposed by a designated recipient’s institution. Second and relatedly, the 2013 
Final Rule also makes optional the requirement to disclose taxes collected by a person other than 
the remittance transfer provider. In place of these two former requirements, the 2013 Final Rule 
requires disclaimers to be added to the rule’s disclosures indicating that the recipient may receive 
less than the disclosed total due to the fees and taxes for which disclosure is now optional. 
Finally, the 2013 Final Rule revises the error resolution provisions that apply when a remittance 
transfer is not delivered to a designated recipient because the sender provided incorrect or 
insufficient information, and, in particular, when a sender provides an incorrect account number
or recipient institution identifier that results in the transferred funds being deposited in the wrong 
account."

As always, the best place to look for the nitty gritty details of these amendments is going to be the regulation itself, you can find the amended regulatory text here, and the amended official commentary here. This final rule has not been posted in the Federal Register yet, but when it has you should be able to find it as published in the Federal Register on the CFPB's webpage for the remittance transfer rule. Also, don't forget the categories listed on the right side of the blog, you can click "Remittances" to see all our recent posts on the topic, including this post which provides a nice list of resources on the remittance transfer final rules.

NAFCU's Final Regulation on 2013 Remittances Final Rule. Confused yet? Don't worry, you are not alone, this rule has been an extremely difficult rulemaking process to follow. NAFCU’s Regulatory Affairs Team has prepared a Final Regulation, 13-EF-07, on the 2013 Remittances final rule. It is available for download here (NAFCU login required). Also, the Regulatory Affairs team is working on a comprehensive guide for all the remittance transfer final rules. Stay tuned.

NCUA Report: Electronic Banking Threats and Security

2013-05-15T04:30:00-05:00

Written by Bernadette Clair, Regulatory Compliance Counsel

One of the articles in NCUA's May 2013 Report, takes a look at Electronic Banking Threats and Security. The article reminds credit unions to be diligent in safeguarding member information and ensuring proper security and controls when offering E-banking services, such as internet banking, phone banking, mobile banking, etc. (Exam Tip: According to the article, NCUA examiners have received updated training on E-banking security and have been instructed to review these areas in more detail during exams.)

The article highlights guidance from the regulators related to E-banking. From the article:

"In October 2005, the Federal Financial Institution Examination Council (FFIEC) issued guidance entitled Authentication in an Internet Banking Environment. The guidance provided minimum supervisory expectations for effective authentication controls related to high-risk online transactions involving access to customer information or the movement of funds to other parties.

In 2006, NCUA issued a Letter to Credit Unions, No. 06-CU-13, to aid in the implementation of the authentication guidance and provided answers to frequently asked questions. The letter reinforced the risk-management framework specified in the FFIEC’s earlier letter and updated supervisory expectations for effective member authentication mechanisms, layered security and other controls to combat identity theft, cyber attacks and online transaction fraud.

A 2011 Letter to Credit Unions, No. 11-CU-09, reflects a more layered approach to risk-management, and includes annual risk assessments for E-banking services. It discusses minimum monitoring requirements at initial login and for funds transfers, as well as additional guidance on challenge question authentication techniques. The letter also has valuable information about new expectations for customer awareness programs, as well as, recommendations for increased scrutiny of commercial accounts.

In February 2013, NCUA issued additional guidance in the form of a Risk Alert, 13-Risk-0[1]. The Alert encourages risk mitigation strategies, against DDoS attacks such as:

performing risk assessments aimed at identifying risks associated with DDoS attacks;

ensuring incident response programs include DDoS attack scenarios during testing; and

performing ongoing third-party due diligence of Internet and web-hosting service providers to identify risks and implement appropriate traffic management policies and controls."

Here are links to the guidance documents referenced in the excerpt above:

FFIEC’s Authentication in an Internet Banking Environment

NCUA Letter to Credit Unions, No. 06- CU-13

NCUA Letter to Credit Unions, No. 11-CU-09

NCUA Risk Alert, 13-Risk-01

See the article for additional details and guidance resources.

NCUA Report; FinCEN SAR Activity Review

2013-05-14T04:55:00-05:00

Written by Bernadette Clair, Regulatory Compliance Counsel

The May issue of the NCUA Report is now available. This issue includes the following:

Office of Examination and Insurance Report: Demystifying Capital Requirements for Credit Unions – Part 2

Cha irman’s Corner: Secure Liquidity Sources While the Sun is Shining

Board Actions: Share Insurance And Stabilization Funds Remain on Sound Footing

Board Perspective: Everyone Comes Out a Winner

Electronic Banking Threats and Security

Mobile Banking Offers Credit Unions New Ways to Attract Members, Offer Value

Deadline for Consulting Service Nominations is May 31

FFIEC Appraisal Complaint Hotline Opens

NCUA Discontinues Mailing Regulatory Letters to Credit Unions; Will Send by Email Instead

There are a few good reads in this issue, and we’ll take a closer look at Electronic Banking Threats and Security tomorrow.

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FinCEN SAR Activity Review. FinCEN has released its 23^rd Issue of the SAR Activity Review – Trends, Tips & Issues, as well as the 18^thIssue of the SAR Activity Review – By the Numbers. These two reports are an excellent source of information on the latest trends and numbers in suspicious activity reporting.

CFPB Proposes to Push Back Compliance Date for Credit Insurance; FSOC Report

2013-05-13T06:53:11-05:00

Written by Steve Van Beek

Last week, the CFPB proposed to push back the compliance date for the prohibition on single-premium credit insurance. The prohibition - located in the loan originator final rule - is slated to become effective June 1, 2013. The proposed rule would provide a temporary delay to the new rule. In short, there has been quite a bit of confusion since the final rule was issued - mostly due to CFPB's inclusion of examples in the preamble to the final rule.

In addition to the delay, the CFPB has indicated they will be issuing another proposed rule on this issue to gain additional feedback in hopes of clarifying the requirements:

"In light of the interpretive questions that have arisen since publication of the Final Rule, the Bureau intends to publish a new proposal to seek further notice and comment on the provision in June 2013. In that proposal, among other things, the Bureau plans to (1) seek public comment, including from industry stakeholders and consumers, regarding the applicability of the prohibition to transactions in which credit insurance premiums are charged periodically; and (2) propose a new effective date for § 1026.36(i), under which the provision would take effect some time after finalization of that proposal."

Until that future proposed rule, the CFPB is issuing this proposal to temporarily delay the June 1, 2013 deadline. Are we having fun yet?

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FSOC Annual Report. The Financial Stability Oversight Council (FSOC) recently issued their 2013 Annual Report detailing the activities of the Council, significant market and regulatory developments, and potential emerging threats to the financial stability of the United States. The report includes seven themes; however, notably absent is any discussion of regulatory burden on financial institutions. This is incredibly unfortunate as the FSOC has a statutory mandate from Dodd-Frank to facilitate coordination between federal regulators.