NAFCU Compliance Blog

More on Advertising; BSA Advisory Group

Written by Steve Van Beek

Yesterday's blog post mentioned the difference between the requirements for the "official sign" and the requirements for the "official advertising statement."  

Thanks to a helpful commenter, we were informed of our inaccurate discussion of when the "official sign" is required.  It is required at teller windows and:

"Each insured credit union must also display the official sign on its Internet page, if any, where it accepts deposits or open accounts, but it may vary the font sizes from that depicted in paragraph (b) of this section to ensure its legibility."  

Yesterday's post (which has been updated) indicated the official sign was required on the CU's main Internet page.  However, 12 CFR 740.5(a) indicates that credit unions need to use the official advertising statement on their main Internet page:

"§ 740.5   Requirements for the official advertising statement.

(a) Each insured credit union must include the official advertising statement, prescribed in paragraph (b) of this section, in all of its advertisements including, but not limited to, annual reports and statements of condition required to be published by law, and on its main Internet page, except as provided in paragraph (c) of this section. For annual reports and statements of condition required to be published by law, an insured credit union must place the official advertising statement in a prominent position on the cover page of such documents or on the first page a reader sees if there is no cover page."

Thus, for pages where the credit union accepts deposits or opens accounts the official sign would be required.  However, if the credit union does not accept deposits or open accounts on its main Internet page - the credit union could use any of the three versions of the official advertising statement discussed yesterday.

That being said, I think it makes a lot of sense to include the official sign on your main Internet page.

• The official sign (NCUA logo) is one that members are accustomed to seeing on credit union main pages.
• Non-members searching your website would be informed of your insured status upfront via the official sign - which catches the eye more than "Federally insured by NCUA."
• The use or non-use of the official sign is an easy item for examiners or auditors to catch.  Even if the official sign is not a requirement on your main Internet page, the credit union might need to defend its decision to use the official advertising statement rather than the official sign. 

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The Financial Crimes Enforcement Network (FinCEN) requested nominations to fill 14 seats on its Bank Secrecy Act Advisory Group (BSAAG).  One seat is designated for a representative of a credit union trade group.  NAFCU is seeking individuals who are interested in serving on the BSAAG and wish to be nominated.  The term runs for three years. 

The group is tasked with providing policy recommendations to the Treasury regarding the BSA.  The BSAAG is comprised of representatives from federal regulatory and law enforcement agencies, financial institutions and trade groups, whose members are subject to the BSA. 

The nomination notice can be found here.

If you are interested in being nominated, please contact Dillon Shea, NAFCU’s regulatory affairs counsel at dshea@nafcu.org or at 703-842-2212.

NCUA Official Sign; Official Advertising Statement; NAFCU Services Video Ads

Written by Steve Van Beek

As the January 1, 2012 compliance date approachs, we've seen a steady influx of questions related to the changes in NCUA's advertising regulations.  

Part of the confusion stems from the terminology used in the regulation.  Part 740 of NCUA's regulation discusses the "Official Sign" as well as the "Official Advertising Statement."  

For example, Section 740.4(a) requires that the official sign be used at teller windows and on the credit union's main Internet page on Internet pages where the credit union accepts deposits or opens accounts (edited: Nov. 29 at 12:45 p.m.):

"§ 740.4   Requirements for the official sign.

(a) Each insured credit union must continuously display the official sign described in paragraph (b) of this section at each station or window where insured account funds or deposits are normally received in its principal place of business and in all its branches, 30 days after its first day of operation as an insured credit union. Each insured credit union must also display the official sign on its Internet page, if any, where it accepts deposits or open accounts, but it may vary the font sizes from that depicted in paragraph (b) of this section to ensure its legibility."

To meet this requirement, credit unions need to use the official sign itself.

***

For advertisements, credit unions have flexibility in disclosing the official advertising statement.  Credit unions can use any of the following:

1. The Official Sign
2. The long version - "This credit union is Federally insured by the National Credit Union Administration"
3. The short version - "Federally insured by NCUA"  

That flexibility comes from 12 CFR 740.5(b).  The credit union only needs to include one of these disclosures on its advertisements.

***

NAFCU Services Corporation, a subsidiary of NAFCU, has video ads for NAFCU-members.  These ads can be customized for credit unions for $150.

Importantly, the ads have been updated to reflect the new advertising rule changes.  

If you haven't seen the ads before, take a look and see if one or more might be of use for your credit union.  For example, there are ads on the benefits of credit unions as well as ads describing the federally-insured status of credit unions.  These might be useful for attracting new members and educating those new members of their insurance coverage.   

Confusion Surrounding Free Checking

Written by Steve Van Beek

There continues to be an increased focus on checking accounts - especially with the implementation of the Durbin Amendment and the responses of the larger banks.  

One of the side issues is the increased focus is the use of the term "free" to describe a checking account product.  Banks and credit unions are reviewing their existing products to determine if they can still be properly called "free" even though there are some fees that apply.

This review has usually ended up with confusion and internal discussions at the financial institution on whether an account can be called "free" or not.  

Here is 12 CFR 707.8(a) of Truth in Savings which contains the general prohibition:

"§ 707.8   Advertising.

(a) Misleading or inaccurate advertisements. An advertisement must not:

(1) Be misleading or inaccurate or misrepresent a credit union's account agreement; or

(2) Refer to or describe an account as “free” or “no cost” or contain a similar term if any maintenance or activity fee may be imposed on the account. The word “profit” must not be used in referring to dividends or interest paid on an account."

Unfortunately, the rule just gives us a general prohibition without any specifics.  The specifics are buried in the Official Staff Commentary of Truth in Savings - Appendix C.  See specifically the commentary to 12 CFR 707.8(a) as well as the cross-reference to the commentary under 12 CFR 707.4(b)(4).  

***

Now, why would the regulators use a general prohibition and then put all the details in the commentary?  I think part of it was so the regulators would be able to adjust the commentary if new fees or new uses of an account began to pop up.  However, the accounts changed drastically over the years and the staff commentary has not been updated to reflect the current environment.   

The Consumer Financial Protection Bureau now has power over Truth in Savings (both Reg DD for the banks and Part 707 for credit unions).  Will they clarify the requirements?  The CFPB has discussed clarifying regulations and removing unnecessary burdens in multiple speeches in the past.  If the CFPB does clarify which fees can be charged on a "free checking" account - they will probably come up with a much more consumer-friendly determination.

For now, we wait to see if the CFPB steps into Truth in Savings.  And, we continue to crawl through the official staff commentary searching for clues as to which fees can and cannot be charged on a "free checking" account. 

Thank You - Happy Thanksgiving

Written by Steve Van Beek

I can't believe Thanksgiving is tomorrow.  I'm not sure where 2011 has gone - but I wanted to make sure to thank all of the blog readers for letting us land in your inboxes or RSS readers each morning.

With the current pace of compliance issues it is easy to get lost in details of Reg Z trigger terms and advertising disclosure requirements.  Hopefully we can all take a step back this weekend and remember to give thanks to the more important things in life (including the Michigan - Ohio State game).  

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NAFCU's offices will be closed tomorrow and Friday in observance of the Thanksgiving holiday.  We'll be back blogging on Monday morning.

We hope you all have a wonderful weekend with family and friends.  Please travel safely and thanks again!  

***

And just a few photos before the weekend.  

I'm extremely thankful to have found such a wonderful wife (I was the one who remembered that yesterday was our one-month anniversary!)  

And, my new family - Miss P. and Lucas.  Our unusually large cats.  

They each weigh in over 18 pounds.  I'm sure you can imagine the food bills.   

Have a wonderful holiday weekend!  And Go Blue!

Joint Select Committee; Unlimited Webcast Subscription

Written by Steve Van Beek

Yesterday, the Joint Select Committee on Deficit Reduction issued a statement on their inability to reach an agreement by their deadline.  Here is part of the statement:

"After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.  

Despite our inability to bridge the committee's significant differences, we end this process united in our belief that the nation's fiscal crisis must be addressed and that we cannot leave it for the next generation to solve.  We remain hopeful that Congress can build on this committee’s work and can find a way to tackle this issue in a way that works for the American people and our economy."

 There is additional information in the NAFCU Today.  

***

Shameless Plug.  NAFCU is offering an Unlimited Webcast Subscription for 2012.  The subscription gives your entire credit union access to all of NAFCU's webcasts in 2012 - including our compliance webcasts.  Each webcast will be archived for one-year to allow you and your colleagues the ability to fit training into your busy schedules.

So far, we have over 20 webcasts planned for 2012 (we will have conducted 24 in 2011) with the majority being compliance-related webcasts to help you keep up with the pace of regulatory changes.  We will continue to add topics and webcasts as new issues arise.

As usual, each compliance-related webcast will offer 1.5 continuing education credits for those looking to recertify as NAFCU Certified Compliance Officers (NCCOs).

There is a Frequently Asked Questions document here.  If you have any additional questions, please do not hesitate to shoot us an email or give us a call.      

NCUA's New Website; Compliance Hot Topics Webinar

Written by Steve Van Beek

It is amazing how a website change can extend the time it takes to research a compliance issue.  NCUA's website change not only changed the links to existing pages - such as Opinion Letters and Letters to Credit Unions - but it also seems to have impacted an already rough search process.

It is especially frustrating when you know a legal opinion letter exists and you can't find it.  However, there is a way to bypass NCUA's search engine (or any website's) and use Google instead.

Try searching for "site:ncua.gov foreclosed property" and you will find NCUA's 2008 Letter to Credit Unions on Holding Foreclosed Properties.

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On December 15, 2011, the Philadelphia Federal Reserve's Consumer Compliance Outlook will host a free webinar on Consumer Compliance Hot Topics.  While there is not a listing of topics, these webinars are pretty good (and the price is right!)    

Agencies Issue Joint Guidance on Supervision & Examination Authority

Written by Steve Van Beek

Yesterday, the federal financial agencies - including NCUA and the CFPB - jointly issued a Supervisory Statement on the subject of supervisory and enforcement authority over insured banks and credit unions.  As most are aware, the CFPB has primary examination authority over credit unions above $10 billion in assets while the NCUA retains primary authority over credit unions below this threshold.  

This Supervisory Statement details how the agencies will calculate the $10 billion dollar threshold as well as transition periods when an institution is either growing above $10 billion in assets or declining below $10 billion in assets.  The discussion also gets into merger situations where both institutions were less than $10 billion before the merger.

The agencies realized that frequent regulator changes for institutions hovering around the $10 billion asse threshold would not be productive.  Here is from the statement:

"Consistent with these objectives, including regulatory burden reduction, the Agencies also believe that frequent periodic assessments for determining asset size are not optimal going forward.  For purposes of assessing whether an Institution is large or not, point-intime measures that are made on a frequent basis would lead to uncertainty about the   ‐ 2 ‐identity of the principal supervisor with respect to Federal consumer financial law in the case of Institutions with assets close to the $10 billion threshold, since such Institutions’ asset sizes will likely change over time.  Moreover, frequent periodic assessments could result in a sudden shift in an Institution’s principal supervisor with respect to Federal consumer financial law, thereby imposing potential increased regulatory burden on the Institution and potentially interfering with the orderly implementation of the Agencies’ responsibilities with respect to Federal consumer financial law."

The agencies decided to follow a FDIC practice and use four quarters of call reports to make the asset threshold.  Thus, a credit union going over the $10 billion asset threshold in the future would not fall under the CFPB's authority until four consecutive quarters above $10 billion:

"The June 30, 2011 Call Report data represent uniformly reported data for Institutions on the reporting date closest to the date that authority for the Federal consumer protection laws was transferred to the CFPB. Consequently, the Agencies will look to June 30, 2011, Call Report data to determine an Institution’s asset size for purposes of sections 1025 and 1026 of Dodd-Frank initially. Thereafter, an Institution will not become a Large Institution for purposes of sections 1025 and 1026 unless it has reported total assets of greater than $10 billion in its quarterly Call Report for four consecutive quarters – and, similarly, an Institution will not cease to be a Large Institution for such purposes unless it has reported total assets of $10 billion or less in its quarterly Call Report for four consecutive quarters."

The Statement then gives very good examples of transition situations.   

***

Keep in mind that the $10 billion threshold is not indexed for inflation - meaning that more and more credit unions could be nearing the $10 billion threshold in the next few years and definitely within the next decade.   

***

Have a great weekend everyone!  I'll be busy looking through wedding and honeymoon photos - picking a few good ones out for future blog posts.  I have a feeling I might be able to also squeeze in the Michigan - Nebraska game as well.  Go Blue!  

CFPB on Student Loans; Webcast on FFIEC Guidance

Written by Steve Van Beek

It feels good to be back!  I hope you've enjoyed the guest posts from my NAFCU colleagues over the past couple of weeks.  I've got a long way to get caught back up - but you have to start somewhere....

***

The CFPB has continued to make moves in the student loan area.  

First, there is the "Know Before You Owe: Student Loans" form that was released by the CFPB seeking input on their student loan shopping sheet.  

Then, yesterday the CFPB issued a Notice and Request for Information Regarding Private Student Loans and Private Educational Lenders.  The full notice is here.  There is a 60-day comment period.  The press release includes this information:

"The CFPB is asking the public, students, families, the higher education community, and the student loan industry – both lenders and servicers – to provide information on this financial product voluntarily. The CFPB is interested in a complete picture of private student lending, so it is seeking a broad swath of information, including:

• Information available to shop for private student loans
• The role of schools in the marketplace
• Underwriting criteria
• Repayment terms and behavior
• Impact on choice of field of study and career choice
• Servicing and loan modification
• Financial education and default avoidance

The CFPB will use the collected input to assist with preparation of a report to Congress on private student lending. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB and the Department of Education to produce this report by July 21, 2012. The CFPB will also use the information it gathers to prioritize its own regulatory and education work."

***

NAFCU will be hosting a December 14, 2011 webcast on the latest updates to the FFIEC Guidance on Authentication in an Internet Banking Environment presented by Randy Romes of LarsonAllen, LLP.  

The presentation will include information on the recent update, case studies on fraud events as well as a discussion of the evolution of threats, including interactions with members through Internet banking, telephone and e-mail.

The full information is available here.  Save $100 by signing up by December 7, 2011.  

NCUA's Response to Executive Order 13579

Written by Carrie Hunt, General Counsel and VP of Regulatory Affairs

NCUA’s Chairman Debbie Matz wrote President Obama yesterday in response to his Executive Order to ensure that agencies design cost-effective regulations to promote economic growth and job creation.  In the statement Chairman Matz put out she said the following:

“I am pleased to report that NCUA already meets or exceeds the key principles of the Executive Order,” Chairman Matz wrote in response to Executive Order 13579: Regulation and Independent Regulatory Agencies. “NCUA has an exemplary record of balancing prudent safety and soundness rules with responsible regulatory relief. NCUA remains committed to ensuring regulations are reasonable, innovative, and cost-effective, and to encouraging robust public participation in the rulemaking process.”

Most of the reading audience can hazard a guess as to whether I agree with that self-assessment on the part of NCUA. 

The statement Chairman Matz put out goes on further to state that the agency furthers these goals by:

• Conducting regular reviews of all rules in a publicly disclosed three-year rotation;
• Inviting public participation through pre-decisional meetings, town halls, webinars, videos, and written communications;
• Facilitating coordination with other federal financial regulators and state credit union supervisors to ensure best practices in rulemaking;
• Modernizing existing rules and targeting new rules to minimize compliance costs; and
• Integrating publicly available financial data to support rule changes.

Targeting new rules to minimize compliance costs?  How?  When is this happening? What does this even mean?  Every new rule has an additional compliance burden.  But I digress.

Instead of a fourteen page PR piece about what NCUA does so well now, I would have liked to have seen some more soul searching on the part of our regulator and a response that focused more on what the agency could do better.  If you make it to the end of the long missive to the President, you will see that NCUA has attached its IRPS 87-2 that outlines its policy on regulation.  The IRPS was amended in 2003 to some extent, but  I swear I can still see streaks from a mimeograph if I squint hard enough.  Every time NCUA promulgates a rule it does a Regulatory Flexibility analysis if the rule would have a significant economic impact on small entities.  This is the real problem here- this is the analysis on the part of rulemaking that needs to be changed- that and the Paperwork Reduction Act requirements.  Under the existing regime, NCUA (and other regulators) do some sort of analysis on burden and then the rule is put out for comments.  At the outset , the commenter is put on the defense and is in the position of having to try to counteract or support that analysis without any benefit of real world experience.  After a rule is finalized there is never an opportunity to reopen that analysis and have a real discussion about burden.  In my opinion,  better cost-benefit analysis needs to be implemented across the board in any regulatory  regime. And the impact of regulations need to considered overall as a package, instead of looking at individual rules in a vacuum.

Chairman Matz has stated some very positive goals for NCUA rulemaking.  Measuring success however, is a much more difficult proposition, and this is where I think NCUA still has to improve.

The full 14-page letter can be found here.  

 ***

For the first time in five years I am not travelling up to Boston for Thanksgiving.  I cannot contain my excitement at not having to sit in traffic.  Two years ago I left Arlington at 3 pm and at 10 pm, I WAS JUST NORTH OF BALTIMORE.  For those of you who are unfamiliar, that portion of the trip usually takes about an hour.  But again, I am getting off topic.  Regardless of whether I am at home for Thanksgiving or not, every year I make cranberry sauce to mark the season.  After a few days, I tire of eating it so I end up seeing how long the leftover sauce lasts in the fridge before it gets moldy.  This year it made it through Halloween.   Still tasted fine. 

 

 

 

 

FASB Accounting Updates

Written by Tessema Tefferi, Regulatory Affairs Counsel

While the pace of change in accounting rules appears to have slowed down, the Financial Accounting Standards Board (FASB) is still active, especially with projects geared towards converging U.S. Generally Accepted Accounting Principles (GAAP) with international accounting standards.  While there are many FASB- and GAAP-related issues that affect credit unions, I thought it would be helpful to provide an update on three, each of which NAFCU members have inquired about in recent months.

Fair Value for Loans

Earlier this year, FASB tentatively dropped a proposal to require fair value accounting for all loans, including those credit unions hold to maturity (HTM loans).  No action is expected on this front until the 1^st quarter of 2012, at the earliest.  Under the tentative decision, the value of loans is measured as follows:

• Financial assets being held for sale and are actively traded, entities to measure them at fair value and record any changes through net income.
• Financial assets that are considered investments with a focus on minimizing risk and maximizing return are measured at fair value, with any changes recorded through “other comprehensive income.”  The effect is that the investments affect equity on the balance sheet rather than net income on the income statement.
• Financial assets are held to maturity are measured at amortized cost.  So, they are booked at cost and written down each period as the loan is settled over time.

More information about this project can be found here.

Lease Accounting

In August 2010, FASB issued an Exposure Draft to make significant changes to its rules relative to lease accounting.  The proposal is part of FASB’s work with the International Accounting Standards Board (IASB) to converge US GAAP with international standards.

An important part of the lease accounting proposal was to require leases (with terms longer than 1 year) to be recognized as fixed assets in credit unions’ balance sheets.   Lease payments would be recognized in balance sheets as follows: (1) initially recognize a liability to make lease payments and a right-of-use asset, both measured at the present value of the lease payments; (2) subsequently measure the liability to make lease payments using the effective interest method; and (3) amortize the right-of-use asset on a systematic basis that reflects the pattern of consumption of the expected future economic benefits.

The impact of the proposal is potentially critical for some credit unions because  recognizing leases as assets could impact credit unions’ net worth ratio, specifically as to the calculation of “total assets’ in the denominator of the ratio.  Some impacted credit unions may also incur additional costs, including costs associated from hiring outside experts and/or additional staff time.

Fortunately, FASB is re-considering the proposal.  In fact, the proposal will be re-exposed (FASB lingo for re-proposed) for comments, likely in the first quarter of 2012.

To stay current on this project, follow FASB’s updates here.

Financing Receivables and the Allowance for Credit Losses

An accounting standard issued in 2010 will soon be effective for non-public entities, including credit unions.  Accounting Standards Update 2010-20 applies to financing receivables, which is generally defined as a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset on the entity’s balance sheet.  These include loans, trade accounts receivable, notes receivable, credit cards, and receivables relating to leases that are other than operating leases. For such assets, the standard would require reporting on disaggregated basis.

The standard applies to credit unions, but the significant exclusions from the scope of the standard likely mitigate the effect of the standard on most credit unions.  Notably, certain receivables are NOT within the scope of the standard, including: receivables measured at fair value, or the lower of cost or fair value; trade accounts receivable with contractual maturities of less than one year, and debt securities.

The standard is effective for the first reporting period after December 15, 2011 (note: for public entities, it became effective for reporting periods after 12/15/10).