NAFCU Compliance Blog

More on the CFPB’s Study of Overdraft Programs

Written by Michael Coleman, Regulatory Compliance Counsel

Last week we blogged about the CFPB’s Study of Overdraft Programs, focusing on a couple of interesting points from CFPB Director Cordray’s prepared remarks. Today we’d like to take a closer look at the contents of the study itself and highlight some areas of particular interest. The study contains 6 sections:

1. Introduction
2. Market and Regulatory Context of Overdraft Programs
3. Consumer Overdraft Incidence, Fees, and Related Account Closure
4. Overdraft Use Following the 2010 Opt-In Requirement Under Regulation E
5. Overdraft Policies and Practices across Institution
6. Conclusion, Open Questions, and Further Research Steps

The study is an interesting read. Section 2 gives a re-cap of the development of overdraft programs and past regulatory actions relating to overdrafts, including the 2005 Joint Guidance on Overdraft Protection Programs. Section 4 takes a look at consumers’ usage of overdraft programs in the wake of the amendments to Regulation E which prevents a credit union from charging a member an overdraft fee – on an ATM or one-time debit card transaction – unless the member has opted-in for coverage. This section provides facts, figures and charts which are worth a look (with a grain of salt).

However, I found Section 5 on the overdraft policies and procedures of the “study banks” to be the most interesting. Particularly the section 5.5 on linked account overdraft protection. The CFPB’s overdraft study gives some general background on both linked checking accounts as well as linked lines of credit.

Linking checking accounts to savings accounts is certainly a viable overdraft protection option, however, there are some issues to consider if you are doing so. Last year we blogged (cough, ranted, cough) a few times on the issue of linking checking accounts to savings accounts and the Regulation D issues associated with it, check out these posts here, here, and here.

What were the CFPB’s conclusions you might ask? They were not too surprising. Here is an excerpt from section 6:

“Nothing in this report implies that banks and credit unions should be precluded from offering overdraft coverage. Additionally, our study notes progress in some areas in recent years in protecting consumers from harm. Nonetheless, our findings with respect to the number of consumers who are incurring heavy overdraft fees or account closures and the wide variations across institutions indicate that certain practices and procedures merit further analysis to determine whether they are causing the kind of consumer harm that the federal consumer protections laws are designed to prevent. The CFPB will continue its study of overdraft programs, including through analysis of account-level data, to examine the extent to which particular policies magnify risks to consumers. This analysis will help the CFPB assess whether further action is warranted to implement and enforce federal consumer protection law consistently so as to ensure that the market for consumer financial products and services is fair, transparent, and competitive and that consumers are empowered to take more control over their economic lives.” (Emphasis added.)

Keep a weather eye to the horizon, we East-Coasters may have escaped the derecho relatively unscathed last week, but the overdraft storm is still brewing on the radar. 

 

 

CFPB's Efforts on Protecting Older Americans

Written by Steve Van Beek

Section 1013(g) of Dodd-Frank required the CFPB to create an Office of Older Americans:

"(g) OFFICE OF FINANCIAL PROTECTION FOR OLDER AMERICANS.—

(1) ESTABLISHMENT.—Before the end of the 180-day period beginning on the designated transfer date, the Director shall establish the Office of Financial Protection for Older Americans, the functions of which shall include activities designed to facilitate the financial literacy of individuals who have attained the age of 62 years or more (in this subsection, referred to as ‘‘seniors’’) on protection from unfair, deceptive, and abusive practices and on current and future financial choices, including through the dissemination of materials to seniors on such topics."

In mid-May, the CFPB testified before the House Committee on Energy and Commerce and discussed the issue of elder abuse.

"Problem: Older Americans, their caregivers, and others in the community don’t know how to spot and avoid frauds and scams.

• CFPB initiative: The Office is developing an awareness program called Money Smart for Older Adults, in collaboration with the FDIC. This community education program uses the FDIC’s well established Money Smart training approach. The Bureau and the FDIC worked together to prepare content on common issues facing seniors, including how to identify a potential scam or fraud, and that module will be released jointly by the FDIC and the CFPB later in 2013. These training materials focus on preventing, recognizing, and reporting elder financial exploitation, and will serve as training for older consumers and other key audiences. (Emphasis added).

***

Yesterday, the CFPB and the FDIC announced their Money Smart for Older Adults program. There are seven segments:

• Common Types of Elder Financial Exploitation
• Scams Targeting Veterans
• Identity Theft
• Medical Identity Theft
• Scams that Target Homeowners
• Planning for Unexpected Life Events
• How to Be Financially Prepared for Disasters

You can download the instructor led curriculum here. And, you can find the Participant/Resource guide here. As your credit union works to protect your members (and train your staff on identifying and addressing elder abuse), be sure to review these resources as well as the Office of Older American's main webpage and additional resources.

Today's Reports are Tomorrow's Regulations: Overdraft Edition

Written by Steve Van Beek

On Tuesday the CFPB issued a Study of Overdraft Programs which outlines their findings of studying the overdraft market.

The Study was supplemented by the following materials:

• Press Release: CFPB report raises concerns about impact of overdraft practices on consumers

• Prepared Remarks: Director Richard Cordray on overdraft report press call

• 3-Page Fact Sheet: CFPB report raises concerns about impact of overdraft practices on consumers

For compliance officers and risk managers, I'd start with the Fact Sheet and then dive into Cordray's speech and then the Study to get an idea of where the CFPB is heading next on overdrafts.

***

Here are a couple of items that stood out to me from Cordray's remarks:

"Our report today examined overdraft practices at some of the country’s larger financial institutions and found wide variations across them when it comes to overdraft opt-in rates and costs. At some institutions, more than 40 percent of new customers were opting in for overdraft coverage; at others, it was less than 10 percent. The gap may reflect differences in the substance of overdraft programs, or differences in customer base, or differences in marketing approaches. On this point, we are interested to dig in and learn more about the reasons why." (Emphasis added).

What is your credit union's opt-in rate? How are you marketing your overdraft programs?

"A second takeaway is that financial institutions have very different policies, procedures, and practices that can be highly complex and difficult for consumers to understand, yet greatly affect whether and how often they will incur overdraft fees...Some charge no overdraft fees on items under a certain amount (say, for example, a transaction of $5 or less); others do not charge if the total amount of the net overdraft at the end of the day is under a certain amount. At still other institutions, if you miss by as little as a penny, you may incur a hefty overdraft fee. Predicting or planning around these results can be highly complex." (Emphasis added).

Does your credit union have a de minimis exception for overdrafts?

According to the recent Pew Trusts report, 22 of the largest 36 banks had minimums before an overdraft would be charged:

One change suggested in the Pew Report was to add a "reasonable and proportional" limit on overdraft fees. In other words, if a member overdraws by $5 - you'd be limited to a $5 overdraft fee. Similar to the existing restrictions on penalty fees for credit cards under 12 CFR 1026.52(b)(2).

Ding! Ding! Ding! Round One in Effect

Written by JiJi Bahhur, Regulatory Compliance Counsel

In case it slipped your mind, I thought I’d throw it out there that a few requirements from the Consumer Financial Protection Bureau’s (CFPB) mortgage rules – what I like to call Round One – became effective as of June 1, 2013.  Of note are the final TILA Escrow Rule and its recent amendments/clarifications – located at 12 C.F.R. 1026.35(b) – and the final Prohibition on Mandatory Arbitration – located at 12 C.F.R. 1026.36(h).

Escrow Requirements for HPMLs. The final TILA Escrow Rule lengthens from one year to at least five years the required minimum period most creditors must maintain an escrow account for first-lien higher-priced mortgage loans (HPMLs) secured by a consumer’s principal dwelling.  A creditor or servicer must either maintain the escrow account until the underlying debt obligation is terminated, or after the five-year period the consumer requests that the escrow account be cancelled.  If the consumer requests cancellation, the creditor or servicer is only permitted to cancel the escrow account if the loan’s unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation and the consumer is not currently delinquent or in default on the underlying obligation. The new escrow requirements for HPMLs took effect as of June 1, 2013, and apply to applications received on or after June 1, 2013. 

Arbitration Clauses. The prohibitions on mandatory arbitration for mortgage loans – also effective as of June 1, 2013 – prohibits credit unions from including contractual or agreement terms that require mandatory arbitration or any other non-judicial procedure to resolve disputes arising out of consumer credit transactions secured by a dwelling.  This prohibition also applies to home equity lines of credit (HELOCs) secured by a consumer’s principal dwelling.  Although such a practice was never too prominent in the credit union industry – since Fannie Mae and Freddie Mac already prohibited it – loan agreements should be reviewed to ensure that a mandatory arbitration clause does not exist. 

Financing Credit Insurance. And the last CFPB mortgage requirement I wanted to mention was the prohibition on financing single-premium credit insurance.  I won’t get into details, but just wanted to mention that the original June 1, 2013 effective date has been delayed until January, 2014.  The delay will give the CFPB the ability to clarify, before the provision takes effect, its applicability to transactions other than those in which a lump-sum premium is added to the loan amount at closing.  We’ll have more on that at a later date. 

In the meantime, credit unions should prepare themselves for Round Two, which includes heftier players such as Ability to Repay and Qualified Mortgages, Regulation Z’s High-Cost Mortgage and Homeownership Counseling Amendments, Regulation X’s Homeownership Counseling Amendments, the Mortgage Servicing rules, Appraisal rules, etc. To see the list of regulations and their effective dates, view NAFCU’s Compliance Calendar, open to all.   

Which Regulatory Changes Are Coming Next?; Seminar in Nashville

Written by Steve Van Beek

Pew Charitable Trusts Report. If you haven't seen the recent Pew Report - Checks and Balances: Measuring checking accounts' safety and transparency - be sure to take a look. Pew has numerous recommendations to the CFPB, including:

Disclosure Policies

• Require depository institutions to provide information about checking account terms, conditions, and fees in a uniform, concise, easy-to-read format that would be available online and in financial institutions' branches.
• Require depository institutions to provide accountholders with clear, comprehensive terms and pricing information for all available overdraft options when a customer is considering opting in to a plan.

Overdraft Policies

• Require that overdraft penalty fees be reasonable and proportional to the institution's costs in providing the overdraft loan or to the size of the violation.
• Require depository institutions to post deposits and withdrawals in a fully disclosed, objective and neutral manner, such as in chronological order, that does not maximize overdraft fees. 

While these are recommendations at this point, there is a definite possibility the CFPB moves on amending checking account disclosures in the next year. At a minimum, be sure to pass this report along to others at your credit union - paying special attention to the suggested Model Disclosure Box on page 9 of the PDF (page 7 of the report). Would your forms provider be able to recreate that disclosure? How long would it take? At what cost? 

While Pew's Report looks at 36 of the 50 largest banks, the recommended changes are meant for all depository institutions - including credit unions. 

***

Nashville, Tennessee. NAFCU's 2013 Regulatory Compliance Seminar will be held October 22-25 in Nashville, Tennessee. Details are now available, including:

• Program-at-a-Glance

• Featured Presentation - What Does Having a Culture of Compliance Mean to Your Credit Union?

We hear again and again about the importance of fostering a culture of compliance. What exactly does that mean? Why should you invest the time and effort into creating such a culture? Join experts David A. Reed and Rusty Vellek to learn how to know if you have achieved a culture of compliance at your credit union. Also explore how to gain buy-in from all departments to support the notion of a culture of compliance.

• Detailed Session Descriptions

• Experienced Speakers

We hope to see you there! Be sure to sign-up by August 23 to Save $100!

CFPB Releases Exam Procedures for Mortgage Rules; Remittance Transfer Resources

Written by Michael Coleman, Regulatory Compliance Counsel

Yesterday, the Consumer Financial Protection Bureau (CFPB) released updated exam procedures for some of the recent mortgage rules issued by the CFPB. Specifically, the CFPB updated the exam procedures for the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA). The updated TILA exam procedures incorporate the requirements of the recent mortgage rules on escrow accounts and loan originator compensation and qualification. The updated ECOA exam procedures incorporate the requirements of the Regulation B final rule on appraisals. 

What about the ability-to-repay and mortgage servicing final rules? The CFPB issued a press release on the updated exam procedures, indicating that "within the next several months, the CFPB will publish its first round of exam procedures for the Ability-to-Repay and mortgage servicing rules."

The updated exam procedures will eventually be incorporated into the CFPB's Supervision and Examination Manual, but for the time being you can find the TILA and ECOA exam procedures on the CFPB's website here. 

***

Remittance Transfer Rule - Putting it All Together. The remittances rulemaking process has had numerous ups and downs and it can be very hard to just find and analyze the complete final rule. Well, the good folks at BankersOnline have compiled the regulatory text and commentary from the various final rules as they will eventually appear in the CFR on their "alphabet soup" page for Regulation E (scroll down to Subpart B for the remittance transfer sections). Here are the links to the individual sections of the remittance transfer rule as listed by BankersOnline:

12 CFR 1005.30 Remittance transfer definitions.

12 CFR 1005.31 Disclosures.

12 CFR 1005.32 Estimates.

12 CFR 1005.33 Procedures for resolving errors.

12 CFR 1005.34 Procedures for cancellation and refund of remittance transfers.

12 CFR 1005.35 Acts of agents.

12 CFR 1005.36 Transfers scheduled before the date of transfer.

Note that the official commentary associated with each individual section is listed directly below the regulatory text. Pretty neat. Keep in mind that these links are not to the Electronic Code of Federal Regulations, but still, hopefully this will help you avoid a couple compliance related headaches! 

CFPB Finalizes Delay to Single-Premium Credit Insurance Deadline

Written by Steve Van Beek

On Wednesday the CFPB issued a final rule to delay the effective date of the prohibition on financing single-premium credit insurance. As we've blogged about in the past, there were numerous comments to the CFPB about the lack of clarity and certainty in their final rule. To their credit, the CFPB listened and proposed - and now finalized - a delay of the effective date.

The prohibition was originally scheduled for June 1, 2013 but has been extended to January 10, 2014.

Additionally, the CFPB reiterated their intent to issue another proposal to analyze (and hopefully clarify) this issue and will also be analyzing the most appropriate effective date:

"In light of the interpretive questions that have arisen since publication of the Final Rule, the Bureau intends to publish a proposal to seek further comment on the provision shortly. In that proposal, the Bureau intends, among other things to seek public comment, including from  industry stakeholders and consumers, on (1) the applicability of the prohibition to transactions in which credit insurance premiums are charged periodically; and (2) given these proposed clarifications to § 1026.36(i), what effective date would be appropriate."

In other words, write January 10, 2014 down in pencil and keep an eye out for the future proposal.

Have a great weekend! 

Clarifications to the 2013 Escrows Final Rule

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.  The 2013 Escrows Final Rule can be read to cut off the old protections regarding assessments of consumers’ ability to repay and prepayment penalties on certain higher-priced mortgage loans (HPMLs) before the new expanded protections take effect. This would create a six-month period when those consumer protections would not apply. The final rule establishes a temporary provision to ensure existing protections remain in place for HPMLs until the expanded provisions take effect in January 2014. 

2. “Rural” and “Underserved” Definitions.  The 2013 Escrows Final Rule exempts HPMLs made by certain small creditors that operate predominantly in rural or underserved counties from the requirement to create escrow accounts for a minimum of 5 years for HPMLs.  The final rule discussed in this blog clarifies how to determine whether or not a county is considered “rural” or “underserved” for purposes of applying an exemption in the 2013 Escrows Final Rule (and three other provisions of mortgage regulations issued this past January).  The determination is made based on currently applicable Urban Influence Codes or UICs, which are established by the USDA’s Economic Research Service (for“rural”), or based on HMDA data (for “underserved”).

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

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.

Remittance Transfer Final Rule; NAFCU Final Regulation

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.