NAFCU Compliance Blog

Overdrafts: Linked Accounts and Regulation D - Part 1

Written by Steve Van Beek

I must confess - I haven't made it through all of the CFPB's Overdraft information from last week.  I did want to discuss one issue that jumped out at me when I first glanced at the material and heard the CFPB roundtable on overdrafts.  

Linked Accounts.  One of the alternatives the CFPB (and others at the roundtable) mentioned was the option of members being able to "link" their checking and savings accounts.  By doing this, if a member overdrew their checking account the funds would automatically transfer from the member's savings account.  

Of course, this is by no means a silver bullet.  In order for this to work, the member would need to have enough funds in their savings account to cover the overdrawn amount.  While this is sometimes the case, it isn't always the case.  

Assuming a member has enough funds in their savings account to cover the overdrawn transactions from the checking account, there is another issue that seems to float under the radar whenever overdrafts and linked accounts are discussed.

Regulation D.  I guess I spoiled the surprise in the title of the blog post, but this is something the CFPB - and everyone involved with looking at overdraft issues - needs to be aware of.

Regulation D limits the number of withdrawals from a savings account to six per month.  This includes any withdrawals/transfers to cover overdrafts in a checking account.  And, this is a combined six per month.  So, if a member were to make two other "Reg D" withdrawals in a given month, the member would only have four left for transfers to the checking account to cover overdrafts.

A Question for the CFPB:  What happens when a member has linked accounts and overdraws 8 times in a month?

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The Quandary.  Regulation D did not transfer to the CFPB as it is not a consumer regulation.  The Federal Reserve retained authority over Regulation D and has been resistant to numerous calls to expand the six-transaction limitation on savings accounts (although they did remove the antiquated 3/6 distinction a few years ago).  Sidenote: A portion of NAFCU's latest letter to the Fed on Reg D can be found in this January 17 blog post.  

Here are a couple of questions that I have for the CFPB:

• Will you be talking to the Federal Reserve about the Regulation D transaction limitations?
• Assuming you are unsuccessful in your discussions with the Fed, will the CFPB work to inform consumers of the Regulation D limitation when it promotes overdraft coverage via "linked accounts"?

To me, these are incredibly important questions to ask.  First, credit unions and other financial institutions do not operate in a "one regulation" environment.  It seems that every potential action a credit union makes is impacted by one regulation or another (or multiple).  

This overdraft issue is a perfect example - the CFPB wants consumers to link their accounts but have they thought about Regulation D?  I sure hope so but I'm afraid that sometimes regulators get "tunnel vision" and only focus on their regulations.  

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I wanted to add a bit more but this post has gotten a bit lengthy so we'll have Part 2 tomorrow.  Stay tuned.  

Streamlining Tool; Maturity Limits & Regulatory Review; March Madness

Written by Steve Van Beek

The CFPB's overdraft inquiry (more on this tomorrow) pushed back a couple of items I wanted to discuss.

CFPB's Streamlining Tool.  A couple of weeks ago, the CFPB announced their web-based streamlining tool.  If your credit union has one or two issues you'd like to raise - this is a good format as you wouldn't need to send a formal comment letter.  The web-based streamlining tool is here.

NCUA Opinion Letter.  In mid-February, NCUA made public an Opinion Letter on maturity limits for modified mortgage loans.  The letter is very detailed and includes examples.  The letter is also hard to summarize.  The best approach is to review the complete letter - 11-0903.

NCUA's Reg Review.  The letter interprets 12 C.F.R. 701.21(g) which is one of the sections under NCUA's current regulatory review.  This looks like a perfect place for NCUA to provide clarity in the regulation rather than requiring credit unions to:

• Know the existence of this legal opinion letter;
• Be able to find this opinion letter;
• Properly understand the complicated letter; and 
• Ensure the legal opinion letter has not been superseded by another interpretation by NCUA.

By incorporating this letter into NCUA's regulations, NCUA would help credit unions and those working with credit unions find NCUA's interpretation for the maturity limits for modified mortgage loans.  It may seem counterintuitive, but incorporating the letter into the regulation eases the regulatory burden on credit unions.  

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The language of the letter indicates NCUA has received multiple requests on the same issue.  There are undoubtedly numerous other credit unions who have had the same questions and concerns who may not have taken the formal approach of reaching out to NCUA.  

One of the things about guidance is that it exists somewhere on the internet.  With NCUA's recent approach to look at rules that are "outmoded, ineffective, insufficient or excessively burdensome", this opportunity is served up on a silver platter as NCUA could ensure its opinion was clear and easy for credit unions to find and understand by amending 12 C.F.R. 701.21(g) to reflect their interpretation on maturity limits for loan modifications.  

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March Madness - D3 Edition.  March Madness usually starts a bit early in the Van Beek household as both my wife and I went to Division 3 schools.  She went to the College of Wooster in Ohio and I went to Hope College in Michigan.  Well, the Division 3 brackets were just announced and there is a possibility our alma maters could be facing off next Friday.  Each team would need to win two games but both teams are hosting their games this weekend.  And, both teams have a pretty good pedigree as Wooster finished runner-up for the championship last year and Hope is currently ranked #1 (you can find Wooster way down at #15).

Blog Readers:  If your teams are in - let's hear about your rooting interests in the blog comments (click the title of the blog post to go to the blog itself).  The full bracket can be found here.      

Upcoming Compliance Deadlines - Spring 2012

Written by Steve Van Beek

There are a few upcoming deadlines to make sure your credit union is making progress on.  

HMDA Reporting.  The deadline for HMDA submissions is March 1, 2012.  NCUA issued a Regulatory Alert earlier this month - 12-RA-01 - that highlights the reporting deadline.  

ADA & ATMs.  The March 15, 2012 deadline for compliance with the ADA requirements for ATMs is quickly approaching.  Remember, document your process and your communications with your vendors as it could be useful if there are delays and the CU faces a lawsuit.   

The speech output requirements apply to all ATMs and need to be in place by March 15, 2012.  The physical access requirements apply to ATMs that are altered after March 15, 2012.  The physical access requirements also apply to any new ATMs added after March 15, 2012.  Existing ATMs that comply with the 1991 ADA standards for physical access and are not altered would not need to be modified.  Additional information is available in last month's blog post.

Durbin - Unaffiliated Networks.  The requirement for unaffiliated networks goes into place on April 1, 2012.  This requirement means credit unions need to have two unaffiliated networks - such as one PIN network and one signature network - for processing transactions.  Additional information and details on this requirement can be found in our January 30th blog post.   

NLRB Notice.  Credit unions should be posting the National Labor Relations Board (NLRB) Employee Rights poster by April 30, 2012.  A couple past NAFCU blog posts discussed this issue in more detail:  January 4, 2012 and December 2, 2011.  

The CFPB and NonBanks; Upcoming NAFCU Webcasts

Written by Steve Van Beek

Last week, the CFPB issued a proposed rule to define "larger participants" in two consumer financial services markets.  The proposal targets the debt collection and consumer reporting markets.  Earlier this year, the CFPB issued a Notice and Request for Comment on how best to define "larger participants" and on which markets to focus on.

The Notice and Request for Comment was issued when the CFPB did not have a Director.  Without a Director, the CFPB had been unable to regulate nonbank institutions - including defining "larger participants."  Now that the CFPB has a Director, it can move forward with its NonBank Supervision Program.  

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Dodd-Frank gave the CFPB authority to supervise any nonbank entity in three markets: (1) mortgage origination and servicing; (2) payday lending; and (3) private education lending.  The CFPB has the ability to supervise entities operating in these markets regardless of their size.

For other consumer markets, the CFPB must define "larger participants" and their recent proposed rule for the debt collection and credit reporting markets was their first steps in that direction.

The CFPB's Notice and Request for Comment indicating the CFPB was also going to be looking at the following consumer financial services markets:

• Consumer Credit and Related Activities;
• Money Transmitting, Check Cashing, and Related Activities;
• Prepaid Cards; and
• Debt Relief Services.

The CFPB still has the ability to define "larger participants" in these markets in the future.  The CFPB would need to propose a separate proposed rule to cover these markets (or add new markets) in the nonbank supervision process.

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March NAFCU Webcasts.  NAFCU has a pair of webcasts coming up in March that might be of interest.  Remember, NAFCU's webcasts are open to everyone.  They are also available for viewing for a year after the original live webcast.  Thus, if you and your colleagues can't make the live webcast - you can still view the content at a later date.  This "on-demand" feature also works great for sharing the webcast with others at your credit union who could benefit from the information.

• Wednesday, March 7, 2012:  Preparing for the Heightened Scrutiny of CUSOs featuring Katherine Weber of The Weber Law Firm.
• Thursday, March 15, 2012:  Powers of Attorney and Subpoenas - The Risks, Abuses and Potential Liabilities of Credit Unions featuring Andy Keeney of Kaufman & Canoles. 

The full listing of NAFCU's live and on-demand webcasts can be found here.  Additionally, we are always looking for webcast ideas that would be useful to credit unions.  If you have ideas or suggestions, please email us at compliance@nafcu.org.   

CFPB to Inquire About Overdraft and Courtesy Pay Programs

Written by Steve Van Beek

There was no shortage of information yesterday regarding the CFPB's first steps toward reviewing overdraft programs.  I was just mentioning a few weeks ago how the CFPB has the ability "to drop" a new issue without advanced notice to the industry.  This could be labeled as Exhibit A.  

I'm sure quite a few other folks where enjoying a quiet Wednesday (yeah right) until they saw the news "CFPB to Review Overdraft Programs" come across their email inboxes.  And, while we are at it - what do the regulators have against February 22nd?  I know a lot of folks still get heartburn thinking about the February 22, 2010 deadlines from the Credit CARD Act.    

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A couple of quick points on the CFPB's inquiry:

• There is currently no proposed rule.
• The "Penalty Fee Box" information would require a large change to periodic statements.  Don't forget to scroll down to the second page for additional potential changes.
• The CFPB will be looking at more than just ATM and one-time debit card transactions.
• The CFPB has no trouble getting its message out to thousands of news sources.
• The $25 Big Mac is an endangered species.  I wouldn't be surprised to see a "reasonable and proportional" discussion take place which would limit the fee to the amount of the overdraft.  
• Credit unions can expect numerous calls and comments from their members.  Your members will be reading the news stories mentioned above.  Now might be a good time for additional training on your credit union's current policies.

This is just the first stages of the CFPB's inquiry as the CFPB is collecting data, comments and input from all interested parties.  This information will be the basis for the CFPB's decisions on which steps to take next - including future rule changes.

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Here is the information released yesterday from the CFPB:

• CFPB's Press Release
• Director Cordray's Prepared Remarks
• CFPB's Blog Post asking Consumers "What's Your Status?"
• CFPB's Notice and Request for Information
• The "Penalty Fee Box" Model
• Video: Cordray's Remarks and a Panel Discussion with Consumer Groups and Financial Institutions

Note: There was also a Town Hall Meeting in New York City.  If the recorded video is posted by the CFPB, I'll add a link to that as well.

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As you can see, the CFPB is not dipping a toe in the water.  They are climbing the diving board and preparing to make a cannonball.

ATM Fee Disclosures; CFPB & Privilege; Footnotes

Written by Steve Van Beek

Just a quick update on a few issues you might have seen in the news.

ATM Fee Disclosures.  NAFCU, CUNA, the ABA and other trade associations have joined together to call for an amendment to the Electronic Funds Transfer Act to end the "ATM Fee Disclosure" class action lawsuits.  You can read more on this issue in the NAFCU Today.  The letter sent to the Hill is available here.  

CFPB and Privileged Information.  NAFCU also sent a letter to the Hill urging support of a bill that would change the law to ensure information shared with the CFPB would remain confidential.  The law currently provides this protection for information shared with NCUA.  More from the NAFCU Today here and here.

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Footnotes.  The NAFCU Compliance Team is currently updating NAFCU's Credit Union Compliance GPS with new information, updated links and citations.  I felt a duty to share with the blog readers this footnote from the Regulation Z chapter.

Here is the text:

"Disclosures included in a footnote⁶ are not considered 'in a prominent location.'"

The footnote material is here....and very true:

"6 You read this footnote because you are a compliance officer and required to follow very detailed laws and regulations. Regulators are starting to disallow disclosures in footnotes through the increased use of “clear and conspicuous” requirements. This trend will most likely continue under the CFPB."

The "prominent location" reference in this situation comes from the promotional rate and fee disclosures from Reg Z's open-end advertising requirements in 12 C.F.R. 1026.16(g).  Of course, the restriction on using footnotes to provide the required disclosures is included in the official staff commentary!! 

What is the saying?  Do as I say……

Finding the CFPB's Regulations

Written by Steve Van Beek

Dodd-Frank transferred authority for the "enumerated consumer laws" to the CFPB on July 21, 2011.  In late December, the CFPB officially republished the regulations that implemented these "enumerated consumer laws" in its own section of the Electronic Code of Federal Regulations.

For credit unions, this means we need to use the CFPB's regulations for our research and our citations.  For example, the correct citation for Regulation Z is now 12 C.F.R. 1026 and not 12 C.F.R. 226.  

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Why does this matter?  When the CFPB issues changes to these regulations - such as the remittances final rule - these regulations will only update the CFPB's Regulation E.  The prior version of Regulation E - under the Federal Reserve - will not be updated.  In order to research the latest and most accurate information, look to and cite the CFPB's regulations.  Note:  The remittances final rule can be found in Subpart B to Regulation E.    

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CFPB Regulations.  Below are links to the CFPB's regulations with the updated citations.  This should be the starting point for your research.  

• 12 C.F.R. 1002 - Regulation B:  Equal Credit Opportunity Act
• 12 C.F.R. 1003 - Regulation C:  Home Mortgage Disclosure Act
• 12 C.F.R. 1005 - Regulation E:  Electronic Funds Transfers
• 12 C.F.R. 1006 - Regulation F:  Fair Debt Collection Practices Act
• 12 C.F.R. 1007 - Regulation G:  SAFE Act Mortgage Licensing - Federal System
• 12 C.F.R. 1016 - Regulation P:  Privacy of Consumer Financial Information
• 12 C.F.R. 1022 - Regulation V:  Fair Credit Reporting Act
• 12 C.F.R. 1024 - Regulation X (RESPA):  Real Estate Settlement Procedures Act
• 12 C.F.R. 1026 - Regulation Z - Truth in Lending Act

Above is not a complete list, but they are the ones with the biggest impact on credit unions.  The full listing of the CFPB's regulations is in Section 1000-1099 of Title 12 of the Electronic Code of Federal Regulations.

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A couple of other items to keep in mind:

• Truth in Savings.  Credit Unions need to follow Part 707 for Truth in Savings rather than Regulation DD.  This blog post has more information.
• Federal Reserve.  The Federal Reserve lost authority for quite a few regulations.  However, they retain control over regulations that were not deemed to be "consumer" regulations.  This blog post has additional information on which regulations stayed with the Federal Reserve.  

Dodd-Frank Mandates Statements for Mortgages - Part 2

Written by Steve Van Beek

Yesterday, we blogged on the Dodd-Frank requirement for mortgage statements.  A natural follow-up question is:  which mortgage loans will be covered?

Residential Mortgage Loans.  Section 1420 of Dodd-Frank indicates the requirement applies to "residential mortgage loans."  That isn't so bad.  We'll just need to go to Regulation Z and look up the definition of "residential mortgage loan."  Except, there isn't a current definition.  Instead, Dodd-Frank added a definition of "residential mortgage loan."    

Dodd-Frank.  Section 1401 of Dodd-Frank adds new definitions to Section 103 of the Truth in Lending Act - including Subsection (cc)(5) defining "residential mortgage loan":

‘‘(5) RESIDENTIAL MORTGAGE LOAN.—The term ‘residential mortgage loan’ means any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling, other than a consumer credit transaction under an open end credit plan or, for purposes of sections 129B and 129C and section 128(a) (16), (17),(18), and (19), and sections 128(f) and 130(k), and any regulations promulgated thereunder, an extension of credit relating to a plan described in section 101(53D) of title 11, United States Code."

Of course, we'll have regulations that implement this wonderful piece of legislative text.  A couple things are "clear" from the statutory definition of "residential mortgage loan:"

• Open-end loans are excluded - such as home-equity lines of credit (HELOCs).
• Timeshare plans are excluded - the cross-reference to plans under 11 U.S.C. 101(53D).
• This definition is very broad.

Ultimately, the CFPB will need to interpret all the wonderful cross-references and provide a concrete definition in Regulation Z.  

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Guidance from the Ability-to-Repay Proposed Rule.  The Federal Reserve's May 2011 proposed rule did not directly define "residential mortgage loan" but it did tie the term to other Reg Z definitions.  The Fed did interpret Subsection 103(cc)(5) of Truth in Lending and included this discussion:

"Section 1401 of the Act adds a new TILA Section 103(cc) that defines ‘‘residential mortgage loan’’ to mean, with some exceptions, any consumer credit transaction secured by a mortgage, deed of trust, or other equivalent consensual security interest on ‘‘a dwelling or on residential real property that includes a dwelling.’’ TILA Section 103(v) defines ‘‘dwelling’’ to mean a residential structure or mobile home which contains one- to four-family housing units, or individual units of condominiums or cooperatives.

Thus, a ‘‘residential mortgage loan’’ is a dwelling-secured consumer credit transaction, which can include: (1) A home purchase, refinancing, or home equity loan; (2) a loan secured by a first lien or a subordinate lien on a dwelling; (3) a loan secured by a dwelling that is a principal residence, second home, or vacation home (other than a timeshare residence); or (4) a loan secured by a one-to-four unit residence, condominium, cooperative, mobile home, or manufactured home.

However, the term ‘‘residential mortgage loan’’ does not include an open-end credit plan or an extension of credit relating to a timeshare plan[.]"  76 Fed. Reg. 27407. 

Of course, the CFPB will have the ultimate say when it finalizes the ability-to-repay rule (expected this spring) and when it proposes the coverage for the periodic statement requirement.  

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In short, credit unions should be prepared for the definition of "residential mortgage loan" to be very broad.

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Programming Note:  NAFCU's offices will be closed on Monday for the Federal Holiday.  We'll be back blogging on Tuesday.  Have a great long weekend!

Dodd-Frank Mandates Statements for Mortgages - Part 1

Written by Steve Van Beek

Quite a threatening headline, right?  I'm sure quite a few of you have heard the rumblings in the last few days.  

CFPB Prototype.  On Tuesday, the CFPB released a prototype mortgage statement.  Similar to the CFPB's Know Before You Owe campaign, there is no proposed rule yet.  This means credit unions need to look to the language of Dodd-Frank itself to get a feel for what is coming.

The CFPB also wrote a blog post, press release and op-ed which discuss the prototype statement.

Dodd-Frank.  Section 1420 of Dodd-Frank includes the Mortage Statement requirement.  More specifically, Section 1420 creates Subsection (f) to Section 128 of the Truth in Lending Act.  The full section is not long and will take implementing by the CFPB before we'll know the full details of the requirements.  

For now, take a look at the language of Section 1420 along with the prototype statement as they are the best resources until we have a proposed rule (which will be part of Regulation Z).

Agency Rule List.  This rulemaking is listed in the CFPB's Agency Rule List.  It is included as being in the "proposed rule stage" under Mortgage Servicing.  The indication is that we'll see a proposed rule sometime this summer.  Which is the same timeframe given in the CFPB's blog post.  

Timing. The specific information on Mortgage Servicing also indicates the CFPB is required to have a final rule in place by January 21, 2013.  Director Cordray has mentioned a couple of times that the CFPB intends to meet all the CFPB's statutory deadlines from Dodd-Frank.  

Of course, this doesn't mean the mortgage statement requirement will become effective in early 2013.  There will still be an implementation period after the proposed and final rules - however, it does indicate the CFPB's hands are tied with regard to timing.  

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Coupon Books.  There is a specific exception for creditors - including credit unions - who provide coupon books to borrowers.  The exception is located in subsection (f)(3):

‘‘(3) EXCEPTION.—Paragraph (1) shall not apply to any fixed rate residential mortgage loan where the creditor, assignee, or servicer provides the obligor with a coupon book that provides the obligor with substantially the same information as required in paragraph (1).’’

Keep in mind that this is a limited exception.  

• It would only apply to fixed-rate mortgages.
• It would only apply to coupon books that contained substantially the same information as required to be on the monthly statement.  

As is usually the case, the devil will be in the details of the "coupon book" exception when the CFPB proposes a regulation to implement the statement requirement.  We won't know how the CFPB interprets "substantially the same information" until they issue a proposed rule.  

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Tomorrow we'll take a look at which types of mortgage loans would be covered by this requirement.  Stay tuned.

HMDA; HMDA; HMDA

Written by Steve Van Beek

A couple of HMDA items for your Wednesday.

HMDA Asset Threshold.  Today, the CFPB published the HMDA asset threshold in the Federal Register.  Institutions below $41 million in assets - as of December 31, 2011 - are exempt from HMDA reporting for 2012.  The CFPB was quite a bit tardy on disclosing the HMDA asset threshold.  As I blogged about in early January, the Federal Reserve (who had authority for Regulation C prior to Dodd-Frank) had historically notified institutions in December of the reporting threshold for the upcoming year.

The uncertainty that institutions hovering near the asset threshold have felt over the past 6 weeks of 2012 - where they were in regulatory limbo - won't show up in any calculations of "regulatory burden" - but it was real.  That is for sure.

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CRA-HMDA Reporter.  One of the interesting aspects of HMDA is that Regulation C passed to the CFPB but the actual HMDA reporting and submission process has stayed with the Federal Reserve (at least for now).  The Fed has a new CRA-HMDA Reporter that was just released.  This report is published every two years and contains very detailed information on the technical aspects of HMDA reporting - such as recreates, census tract changes and changes from Dodd-Frank.

Be sure to pass this newsletter on to the folks at your credit union who work with HMDA.

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NCUA's Office of Consumer Protection.  The NCUA Report contains articles from various offices at NCUA - including the Office of Consumer Protection.  The February article from the OCP discusses Fair Lending Examinations and how the NCUA uses HMDA data during the process.  The article also mentions common areas of confusion that it sees as credit unions.  Give this article a read as it might be an area of focus in the future.