NAFCU Compliance Blog

A Few Housekeeping Reminders to Start off the Year

Written by Bernadette Clair, Regulatory Compliance Counsel

Welcome back! We hope everyone enjoyed the holidays and good times with family and friends.

Before delving into the New Year, we thought it might be useful to consolidate some of our recent blog posts highlighting compliance deadlines that have come and gone over the last week, so they don’t get lost in the shuffle.

SAFE Act Housekeeping Reminders.  The SAFE Act renewal period expired on December 31, 2012.  Credit unions and their MLOs must renew their registration during the annual renewal period each year.  Independent testing for compliance with the SAFE Act and its implementing regulations is also required annually, and may be conducted by credit union staff or an outside party.

TAG/NIBTA – Expiration of Unlimited Share Insurance Coverage.  Congress did not extend the unlimited share insurance coverage for noninterest-bearing transaction accounts, so this temporary coverage expired on December 31, 2012.  NCUA Letter to Credit Unions 12-CU-14 details steps for credit unions to take, such as communicating the change in insurance coverage to your membership and making sure account disclosures properly disclose the level of insurance coverage.

Reporting Nonresident Alien Interest.  IRS final regulations that went into effect April 19, 2012, require credit unions to report interest of $10 or more in the aggregate, paid to certain nonresident aliens on or after January 1, 2013.  The first filing will be required in 2014, for the tax year 2013.

CFPB Website Reference for Credit Card Application & Account Opening Disclosures.  As of January 1, 2013, your credit card disclosures need to reference the CFPB (in the past they mentioned the Federal Reserve). When the CFPB republished Regulation Z , sections 12 CFR 1026.60 (applications and solicitations) and 12 CFR 1026.6 (account opening disclosures) were changed to reflect the CFPB's authority over Regulation Z and credit cards.

Updates to Adverse Action Notices and Risk Based Pricing Notices.  Also as of January 1, 2013, credit unions must ensure their risk-based pricing notices refer to the CFPB as the appropriate federal regulatory authority.  Adverse action notices must also be updated to reflect either NCUA’s Office of Consumer Protection (OCP) for federal credit unions with assets under $10 billion or the CFPB for those with assets of $10 billion or more.

Reporting Nonresident Alien Interest in 2013; Meet my Twins

Written By JiJi Bahhur, Regulatory Compliance Counsel

With the New Year right around the corner, I thought it would be fitting to remind you all of the IRS’s Nonresident Alien Interest requirements.  Although the final regulations were effective as of April 19, 2012, the rule applies to payments of interest made on or after January 1, 2013. 

The final regulations require credit unions to report interest of $10 or more in the aggregate, paid to certain nonresident aliens, for that particular year.  That means at the end of 2013, credit unions will be required to report interest paid on or after January 1, 2013.  Credit unions are only required by the regulations to report payments made to residents of countries listed in IRS Revenue Procedures 2012-24, which was published contemporaneously with the final regulations.  However, to alleviate potential burden, credit unions may choose in the alternative to report interest paid to all nonresident aliens rather than just those that are residents of countries found on the list.   

The regulations require that reporting is conducted using the same form that is currently used to report interest payments made to nonresident aliens who reside in Canada.  IRS Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding,” can be located here.   

As mentioned before, the IRS published a list of countries that require reporting to the IRS where the interest meets the $10 or more criteria.  A credit union may rely on the permanent residence address provided on a valid Form W-8BEN to determine the country of residence, unless the credit union knows or has reason to know that the documentation is unreliable.  

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While I was out on leave, I received several emails asking about the birth of my twins – a boy and a girl.  Well, I’d like to introduce them to you all:  meet Kyse (rhymes with rice) and Ava, born August 20, 2012. 

Remittances Webinar; Fair Lending Webinar; Archived Nonaccrual/TDR Webinar

Written by Steve Van Beek

Remittances.  The CFPB recently opened their Remittances Webinar to everyone - without the need to register (the webinar is free).  The webinar will be available on this page beginning at 2:30 p.m. Eastern.  The webinar will last 90 minutes.

That is TODAY at 2:30 p.m. Eastern.  Be sure to tune in.    

NOTE - The CFPB issued their small entity compliance guide yesterday.  

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Fair Lending.  The Philadelphia Federal Reserve's Consumer Compliance Outlook will be hosting a Fair Lending Webinar tomorrow - October 17th from 2:00 - 3:30 p.m. Eastern.  You can register here.   

The presentation slides are already available here.  Topics to be discussed are:

• Recent Fair Lending Enforcement Actions
• Risk Assessments
• Fair Lending Compliance Management
• Data Reporting and Analysis
• FHA LGBT Rule, Disability Discrimination, Maternity Leave Discrimination
• Loss Mitigation and Loan Modification
• Redlining

Remember - TOMORROW at 2:00 p.m. Eastern.  Register here.   

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Nonaccrual and TDR Webinar.  NCUA's webinar on Workouts, Nonaccrual and TDRs is now archived and available.  The webinar can be watched here.  A transcript is also available inside the webinar (or at this link).       

NCUA Webinars; NAFCU Compliance Monitor

Written by Bernadette Clair

We have been blogging a lot recently on the CFPB’s mortgage proposals. Going into the holiday weekend we thought we would keep it light and highlight a few resources:

NCUA Economic Videos.  Last week, NCUA released its August economic update on YouTube.  There are three separate segments.  In the first, NCUA Chief Economist John Worth reviews current economic trends and their impact on the national economy. The second segment discusses the recently released 2012 Annual Report of the Financial Stability Oversight Committee (FSOC). The final segment features an analysis of how anticipated future Stabilization Fund assessments for credit unions compare to anticipated Deposit Insurance Fund assessments by the Federal Deposit Insurance Corporation.

NCUA Central Liquidity Facility and LICU Webinars.  NCUA also posted its recent webinars reviewing changes in the Central Liquidity Facility (CLF), the proposed rule on emergency liquidity, and the Low-Income Credit Union (LICU) eligibility initiative.

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September Compliance Monitor.  The September 2012 Compliance Monitor is now available for NAFCU members.  This month's three feature articles discuss: NCUA’s guidance on multi-featured open-end lending, the CFPB’s public enforcement action against Capital One Bank’s marketing of credit card “add-on products” and NCUA’s Interest Rate Risk Policy and Program FAQs.

NAFCU Members: If you'd like to receive an email each month when the Compliance Monitor is available, simply email us at compliance@nafcu.org and we'll get you added to the email subscription list.   

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!

CFPB Launches Consumer Complaint Database; Final Regulation; Comment Letters

Written By JiJi Bahhur, Regulatory Compliance Counsel

Consumer Complaint Database.  The Consumer Financial Protection Bureau (CFPB) has launched a Consumer Complaint Database on credit cards.  The database is available to the public and can be accessed here. 

The idea behind the Consumer Complaint Database is to allow the public access to information such as what is being complained about, when it was complained about, why it was complained about, and the company that the complaint concerns.  Also, if action has been taken on the complaint, the database will hold information as to whether the company’s response was timely, how the company responded, and whether the consumer disputed the company’s response.  The consumer’s identity will be withheld. 

The database will include only those credit card complaints received by the CFPB on or after June 1, 2012.  The complaints will be uploaded only after the company verifies that it has been correctly identified by the complainant, but the company will only have 15 days to make the verification. 

It should be noted that the database will only contain information of credit unions directly supervised by the CFPB - those with over $10 billion in assets. 

As of now, the database’s focus is on credit cards, but this will eventually be expanded to other consumer issues as well.  As a head start, the CFPB has also released a snapshot of the complaints it has received on credit cards, mortgages, private student loans, and bank products through June 1, including six stories of success. These can be located here. 

Final Regulation.  NAFCU’s Regulatory Affairs Team has issued its Final Regulation on Loan Workouts and TDR Reporting.  It can be located here (12-EF-05) and is available to NAFCU members only.

Comment Letters.  Yesterday, NAFCU submitted two comment letters, one on Overdraft Protection Programs and the other on Information Collections.  NAFCU’s Comment Letters are available to the public. 

Upcoming NCUA Board Meeting; IRR Webcast; Top of the Mountain

Written by Steve Van Beek

Good morning - it feels good to be back.  I had the pleasure of talking to a large group of wonderful and energetic Directors and Supervisory Committee members last week in Palm Springs, California.  

NCUA Board Meeting.  NCUA has released its agenda for their May Board meeting on Thursday.  Included are the following items:

1. Final Rule – Parts 701, 703 and 7742 of NCUA’s Rules and Regulations, Reg Flex Relief.
2. Final Interpretive Ruling and Policy Statement (IRPS) – 12-1, Supervisory Review Committee.
3. Final Rule – Part 741 of NCUA’s Rules and Regulations, Troubled Debt Restructuring.
4. Quarterly Insurance Fund Report.

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NAFCU Interest Rate Risk Webcast.  Also on Thursday is a NAFCU webcast on NCUA's new Interest Rate Risk regulation.  The webcast will be broadcast live from NAFCU's headquarters from 2:00 to 3:30 p.m. EDT on Thursday, May 24th.  

Remember, the compliance deadline is September 30, 2012.  If you can't make the live webcast, you can always purchase and view the on-demand webcast at a later date.  

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And, of course - a picture from Grubb's View at the top of the Palm Springs Aerial Tramway.

NCUA Cancels Board Meeting; CFPB Rulemaking Without A Board; NCUA Report

Written by Steve Van Beek

Late last week, NCUA announced it was cancelling its February Board meeting.  Given the pace of regulatory issues in January, this was a welcomed move by NCUA.  This also got me thinking about the predicability of NCUA's issuance of regulations.  NCUA issues their proposed or final regulations at a formal, monthly Board meeting.  NCUA usually announces their Board agenda in advance which helps everyone involved be prepared.

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Flip to the CFPB - which does not have a Board - and we have a different dynamic.  The CFPB has the ability to "drop" a proposed rule or a final rule without warning (such as the lengthy remittances rule).  When credit union's are facing a mountain of compliance challenges, one of the last things they need as the fear that - at any moment - the mountain can have another regulation stacked on top.

The FDIC also holds public Board meetings that are recorded.  Similar to NCUA's meetings, staff present proposed and final regulations and the Board inquires and there is a public vote.       

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The February 2012 NCUA Report is available.  This version includes a brief summary of NCUA's actions during its January Board meeting.  Of particular importance is NCUA's recent proposal on loan workout policies and troubled-debt restructuring (TDR) reporting.  

NCUA's existing policy on TDRs was inconsistent and resulted in many unintended consequeneces.  NCUA has indicated their intent to "fast-track" this proposal - so I'd encourage you and your colleagues to review the proposal rule to hopefully prevent additional regulatory issues from cropping up in the future.

NAFCU Members.  Our Regulatory Alert on Loan Workouts, Nonaccrual Policies and TDRs is available here (12-EA-04).    

When It Rains, It Pours............Regulations

Written by Steve Van Beek

The DC area has had some unseasonably warm weather the past couple of weeks - but the flood of regulations coming from the regulators make it seem like we need to have our galoshes with us at all times.  The past couple of weeks have been a good example of regulatory onslaught from multiple angles - making the lives of compliance officers everywhere very difficult.

Given the fast-paced nature of the recent proposals and finalized regulations, I thought a quick blog post highlighting where to find the new rules was a good start up this mountain I like to call "regulatory change."  As an aside, I'm very interested to see Chairman Matz discuss NCUA's efforts to ease the regulatory burden on credit unions during NCUA's February 8th webinar (which also features CFPB Director Richard Cordray).

Interest Rate Risk Policy - Final Rule.  Recently NCUA issued a final rule on interest rate risk policies.  That rule will be published in the Federal Register this morning.  This final rule becomes effective September 30, 2012.    

Loan Workouts, Nonaccrual Policy & TDRs - Proposed Rule.  At its January Board meeting, NCUA also proposed a new rule that would require all federally-insured credit unions to have a written loan workout/modification policy.  The proposal also contains an Interpretive Ruling & Policy Statement discussing nonaccrual status and troubled debt restructuring reporting.  This proposal was published in the Federal Register yesterday and includes a short, 30-day comment period.

Derivatives - Advanced Notice of Proposed Rulemaking (ANPR).  NCUA also issued a ANPR on derivatives that would provide opportunities for credit unions to use derivatives to manage interest rate risk.  This proposal has not been published yet, but it will have a 60-day comment period (from the date it is published in the Federal Register).

Regulation E (Remittances) - Final Rule.  We discussed this final rule yesterday and I'm fairly certain we'll all become good friends with this rule over the next year.  The final rule will become effective February 7, 2013.

Regulation E (Remittances) - Proposed Rule.  Quite possibly a new record - proposing a rule to amend a final rule that was published on the same day.  Bravo!  The CFPB issue a proposed rule that would tweak the recent final rule.  Rest assured (warning - you may need to adjust your snark meter), the CFPB has indicated they will finalize this proposed rule before the finalized rule that it amends becomes effective.

Junior Lien Loan Loss Allowances - Guidance.  On Tuesday, NCUA along with the other regulators who make up the Federal Financial Institutions Examination Council (FFIEC) announced new guidance for junior lien loan loss allowances.  The Interagency Guidance is here and NCUA also issued Accounting Bulletin 12-1.

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On a happier note, all this talk about raining, pouring and galoshes got me thinking about a wonderful trip with my (now) wife in Seattle.  Good times!  

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).

NonInterest Disclosure Deadline; NCUA Webinars; Consumer Compliance Outlook

Written by Steve Van Beek

On Tuesday, I blogged about the new regulation on noninterest-bearing transaction accounts.  Yesterday, the final rule was published in the Federal Register which starts the clock on the "30-day window" before the rule becomes effective.  Compliance with the new rule is required by June 24, 2011 (30 days after notice in the Federal Register). 

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NCUA Webinars.  In addition to NCUA's webinar today (May 26) on Voluntary Prepaid Assessments, NCUA will be hosting a separate webinar on Allowance for Loan and Lease Losses (ALLL).  The ALLL webinar begins today (May 26) at 2 p.m. EST and will be followed at 4 p.m. by the Voluntary Prepaid Assessment's webinar.

NCUA does archive their webcasts, so if you are looking for additional Troubled Debt Restructing (TDR) information you may want to review NCUA's January 6, 2011 webinar on TDRs.      

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Consumer Compliance Outlook.  Today is also the day of the Philadelphia Federal Reserve's free webinar on the Fed's Regulation Z Proposal on Ability to Repay for Mortgages.  The webinar starts at 2 p.m EST.  These webinars are usually archived so you can still catch the webinar at a later date.  The slide deck for today's webinar is here.

The Consumer Compliance Outlook also provides a quarterly newsletter that focuses on issues related to Federal Reserve regulations.  The First Quarter 2011 Newsletter is here and includes a Regulatory Calendar of proposed and finalized rules by the Federal Reserve.  They also have a handy "Index by Topic" which lists past articles they have written.    

NAFCU Members:  Our Regulatory Alert on the Ability to Repay proposed rule is now available.