NAFCU Compliance Blog

NCUA Board Meeting

Posted by Sarah Loats

NCUA conducted a busy Board meeting yesterday. The items on the agenda were:

1. NCUA's 2010/2011 Operating Budget

2. NCUA's Overhead Transfer Rate

3. NCUA's Operating Fee Schedule

4. Proposed rule for the Corporate system

5. Final rule for the NCUSIF premium and one percent deposit

6. Insurance Fund report.

The major proposed revisions to the corporate credit union rule involve 5 areas: 1) corporate credit union capital; 2) investments; 3) asset-liability management; 4) governance; and 5) CUSO activities.

NCUA Board Member Hyland hosted a free member business lending webinar on Wednesday November 18 where she stated she expects NCUA's 2010 budget to include funding to ensure that each region has appropriate expertise to ensure effective MBL examinations. See NAFCU Today's article for more on the webcast. The budget does propose $5,778,000 to implement the Annual Examination Program. The program calls for, among other things, the addition of 57 positions to the regions including 4 lending specialsts. For those of you that missed the webinar but would like to watch it, NCUA should have an archived version available soon.

Another item from the budget that caught my attention was the proposal to create the Office of Consumer Protection within the agency. The office will include 2 divisons, the Division of Consumer Protection and the Division of Consumer Access. The office will: a) provide consumer services, including consumer education and complaint resolution; b) establish, consolidate, and coordinate consumer protection functions within the agency; c) act as the central liaison on consumer protection with other federal agencies; d) nationalize field of membership (FOM) processing; e) absorb centralized chartering activities; and f) assume the activities of the agency’s ombudsman. The ombudsman investigates complaints and recommends solutions on regulatory issues that cannot be resolved at the regional level.

Odds and Ends

Posted by Anthony Demangone

The regulators do not seem to grasp the idea that some of us have Holiday shopping to do.  The pace of news has been furious, and it doesn't seem to be slowing down a bit.  Here's some recent items of interest.

Gift cards.  Yesterday, the Fed released proposed changes to Regulation E that would restrict fees and expiration dates that would apply to gift cards.   This proposal flows from the Credit CARD Act, which required the Fed to issue rules in this area.  The proposal would prohibit dormancy, inactivity, and service fees on gift cards unless: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees.   Under the proposal, expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.  We'll have 30 days to comment once this is published in the Federal Register.

120 Days of Love.  Not quite, but close enough. Last Friday, HUD announced that it will "exercise restraint" for the first 4 months of 2010 in its enforcement of RESPA. And it urges federal regulators to follow suit. As you would expect, HUD will give lenience to those who made "good faith" efforts to comply.

RESPA procedures.  Speaking of RESPA, the FFIEC interagency RESPA exam procedures have been released.  These procedures will be used by examiners.  The procedures also provide a very good overview of all the changes taking place to the RESPA requirements. 

NCUA.  The agenda for this Thursday's board meeting is available.  The item that caught my eye? NCUA will release its proposal regarding corporate credit unions.   Last week, Chairman Debbie Matz indicated that NCUA examiners will take a close look at fixed-rate mortgage loan concentrations, and increased delinquencies in indirect lending, member business lending and loan participations.  She also said that if credit unions do not address NCUA recommendations that were in a private Document of Resolution, expect a public Letter of Understanding and Agreement or Cease and Desist Order. 

SAFE Act.  Last week, the FDIC issued a final rule to implement the SAFE Act requirements.   Of note: the document, which is labeled a draft, has NCUA's name on it, along with other regulators.  Therefore, I would expect NCUA to follow suit shortly.  Remember, you'll have 180 days to register folks covered by the regulations once the registration system is open and ready to take registrations.

Tuesday Grab Bag; Group Photo from Seminar

Posted by Anthony Demangone

Here's some compliance-related odds and ends.

• The FTC has delayed the effective date of its Red Flags rule again, this time until June 1, 2010.  Remember, the FTC's version of this rule does not cover federal credit unions.  So the extension does not benefit you FCUs.  I mention this news because the FTC announcement may confuse some within our industry.  (Now, if only the FTC would talk to HUD about extending the RESPA deadline...)
• NCUA has announced that we can expect its proposed rule that will address corporate credit unions in its November 19th board meeting.
• I'm guessing it was not fun working at this Ohio bank recently.  (Link to www.bankinfosecurity.com).  Someone walked in and took three storage bins that contained paper that was to be shredded.  Oh, and each bin weighed 500 pounds.  This would be a nice story to use to reinforce your security procedures.  Along those lines, don't forget that Appendix B to Part 748 contains NCUA's guidance on response programs.  If the incident noted above happened at your credit union, how long would it take you to respond as outlined in that guidance? 
• NCUA, along with other regulators, adopts "Prudent Commercial Real Estate Loan Workouts" guidance.  If your credit union does commercial real estate lending, this is a must read.
• Relatedly, NCUA issued Letter to Credit Union 09-CU-19 in September, to share a Supervisory Letter given to examination staff to help them evaluate residential real estate modification programs.   If your credit union is doing workouts, your examiner will likely scan this guidance before visiting your shop.  Ergo, you should review it as well.

I guess that's enough.  Enjoy your Tuesday!

***

Here's a group photo of our Compliance Seminar attendees from Charleston.  A full week of compliance, and they are still all smiling.  Incredible! To all the attendees, thanks so much for attending.  I hope you had as much fun as I. *

 

* (I always waffle on how to end that sentence.  As much fun as I?  Or as I had?  Is the had implied?  It sounds fancier to leave it out.  But what do I know?  Ugh.)

Section 102 of the Credit CARD Act, Part 1 of 2; Corporate Stabilization

Posted by Anthony Demangone

Section 102 of the Credit CARD Act is a doozy, so we're going to split it in half. 

Double cycle billing.  This section adds a new subsection (j) to Section 127 of the Truth in Lending Act to prohibit double-cycle billing.  This section should not cause weeping and gnashing of teeth within the credit union industry.  Placing this requirement on credit unions is akin to banning unicorns from running in the Belmont.  The practice was not used much, if at all, within our industry. In any event, NCUA's UDAP rule already would have banned double-cycle billing for federal credit unions on July 1, 2010. 

If you are curious how double-cycle billing works, check out this pretty nifty blog posting.  And you may recall that big credit card lenders were taken behind the woodshed by Congress not too long ago on this issue, forcing many to end the practice.

What this section does, though, is move up the compliance deadline from July 1, 2010 to February 22, 2010.

***

Opt-in for over the limit fees.  Section 102 does blaze new trails, though.  This section also adds subsection (k) to Section 127 of TILA – which requires an opt-in for over-the-limit transactions if a fee is assessed.  There was no such requirement under UDAP or the final amendments to Reg Z's open-end rules.  But first, let me vent.

If a fee is assessed?  Does anyone NOT charge an over the limit fee?

Effective on February 22, 2010, a credit union will not be able to charge an over-the-limit fee unless the member has “opted-in” to allowing over-the-limit transactions to be processed rather than rejected.  If a member opts-in, the credit union is only allowed to charge one over-the-limit fee per billing cycle and, in general, would only be allowed to charge an over-the-limit fee for the next two billing cycles if the member’s balance still exceeds their credit limit.   In addition, if the member opts-in, lenders will have to allow them to revoke the opt-in election whenever they wish.  

Oh, in case you forgot.  Each time you charge an over the limit fee (assuming Joe Member gives you his blessing), you have to remind the affected member of his right to revoke their opt-in.   For those members who opt-in (agree to over-the-limit* fees), you will be required to remind them (via new disclosures on the periodic statement) about their right to revoke their opt-in election each time an over the limit fee is charged.  In other words, I'd look at your credit card over the limit fee income, and I would expect it to drop considerably. 

All these requirements kick in on February 22, 2010.

There is some good news.  The Federal Reserve is required to issue regulations relating to the disclosure, form, and timing of the opt-in notice to credit cardholders.  Will they grandfather existing accounts? Don't hold your breath.  The Credit CARD Act doesn't appear to discuss that possibility.  Nevertheless, the Fed has indicated to us that they will issue regulations before August 20, 2009 to implement and clarify requirements under the Credit CARD Act.  If there is any room for comment on these rules, we need to act quickly and decisively. 

*Editor's Note: The original post accidently used "late fee" rather than "over-the-limit" fee.

***

NCUA has released Letter to Credit Union 09-CU-14.  The guidance details NCUA's actions and plans on how it will implement corporate stabilization efforts under its new powers as authorized by Congress.

Capital Guidance; 44, on Preemption

NCUA has released Letter to Credit Union 09-CU-10.  You can access it here.

Following the conservatorships of WesCorp and U.S. Central, many credit unions asked about the status of their paid-in-capital and their membership capital.  This letter was designed to answer the numerous questions posed to NCUA. Rather than rehash it, I urge you to review the guidance - especially if your credit union is a member of either institution.

***

If anyone wondered what President Obama's administration thinks about federal preemption of state laws, one only has to review this memo from the White House.  It will remain to be seen what effect it has.  But it clearly is not a "hooray for preemption" sort of document.

To ensure that executive departments and agencies include statements of preemption in regulations only when such statements have a sufficient legal basis:

1. Heads of departments and agencies should not include in regulatory preambles statements that the department or agency intends to preempt State law through the regulation except where preemption provisions are also included in the codified regulation.
2. Heads of departments and agencies should not include preemption provisions in codified regulations except where such provisions would be justified under legal principles governing preemption, including the principles outlined in Executive Order 13132.
3. Heads of departments and agencies should review regulations issued within the past 10 years that contain statements in regulatory preambles or codified provisions intended by the department or agency to preempt State law, in order to decide whether such statements or provisions are justified under applicable legal principles governing preemption. Where the head of a department or agency determines that a regulatory statement of preemption or codified regulatory provision cannot be so justified, the head of that department or agency should initiate appropriate action, which may include amendment of the relevant regulation.
   

Credit Cards Bill and UDAP; Corporates; NCUA Board Meeting; Softball

Posted by Anthony Demangone

Here's one interesting angle of the credit card bill that I overlooked.  While the provisions within the bill are very similar to UDAP, the reach of the bill is effectively larger.  Remember, NCUA's UDAP rule only applies to federal credit unions.  The FTC could write UDAP rules, but their rule-making process is much, much slower than NCUA's or the Federal Reserve's.  The credit card bill, on the other hand,  will apply to all issuers of credit cards once signed.  And NCUA will have enforcement authority for both state and federal credit unions for its requirements.

***

Each corporate credit union is required to provide a summary of its annual audit reports to its members at its annual meeting.  NCUA has loosened that requirement in light of the current situation.  NCUA has indicated that it will not take exception to a corporate credit union not providing that summary if the audit has not been completed before the meeting.  Corporates should indicate the reason for the delay and and inform members that a copy will be provided when available.  Since members of corporates are natural person members - this will affect you.

***

NCUA held its monthly board meeting yesterday. 

• Here's a link to the results, which include the items considered by the board.
• Here's NCUA's presser on the meeting.

In the meeting, NCUA approved one of the remaining FACT Act regulations still in limbo.  (Can you believe that regulators have been issuing regs on these for 5 years now?). 

NCUA Board approved a final rule implementing the accuracy and integrity and the direct dispute provisions of the FACT Act.  The final rule requires furnishers, including credit unions, to establish reasonable policies and procedures for implementing the guidelines found within the new reg.  It also states when a furnisher must reinvestigate disputes about the accuracy of information contained in a consumer report based on a direct request from a consumer (the direct dispute regulations).

The accuracy and integrity regulations also contain definitions of key terms such as “accuracy,” “integrity,” “direct dispute” and “furnisher” and require furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information provided to a CRA.   Also included are guidelines concerning the accuracy and integrity of information furnished to CRAs that furnishers must consider in developing their policies and procedures. 

The final direct dispute regulations: 

• set forth the circumstances under which a furnisher must reinvestigate a consumer’s direct disputes
• provide exceptions to those requirements
• detail the direct dispute address and dispute notice content requirements
• specify furnishers’ duties after receiving a direct dispute; and
• establish when a furnisher may deem a direct dispute to be frivolous or irrelevant.

Effective date: July 1, 2010.  NCUA looked at other issues during the meeting, so I'd check out their presser, which is linked above.

***

Updated by Steve Van Beek

Head, shoulders, knees and toes - knees and toes.  No, not the song - those are just the body parts that hurt this morning.  NAFCU softball had another split doubleheader last night.  The NAFCU Nationals won the first game with a score of 7-4 which included a defensive stand to preserve the game.  In the second game, NAFCU got down 11-3 early but clawed its way back to have the tying run on first base before falling in defeat 14-11.  After an 0-2 start to the season, NAFCU has split games the past three weeks putting our record at 3-5.  Stay tuned as we hunt down that .500 mark...

Another great team effort, including the Compliance Guy's first appearance (which include two line drive singles and an amazing play at first base to preserve the lead).  Thanks for letting him play Mandy!  Can you tell Anthony is my boss?

***

Have a great long weekend, everyone.  Until Tuesday, stay compliant.

Stabilization Bill Becomes Law; Stabilization Calculator; Reg D

I've never seen an idea turn into law this quickly.  When NCUA originally announced its corporate stabilization plan, the costs for individual credit unions were massive.  NAFCU quickly looked into other possibilities in order to lessen the impact on the industry.  Yesterday, a lot of lobbying and hard work paid off.

Yesterday, President Obama signed a law that does a number of things for the credit union industry. The law, among other things, does the following:

• Extends $250,000 credit union share insurance protection to 2013;
• Enables credit unions to spread the cost of corporate stabilization over 7 years;
• Extends replenishing the National Credit Union Share Insurance Fund through premiums to 8 years;
• Increases NCUA borrowing authority to $6 billion; and
• Establishes $30 billion NCUA emergency borrowing authority. 

How  much relief will this law give your credit union in 2009?  NAFCU has created this calculator to show you.  We've also prepared this chart to show the relief for different peer groups.  Download Stabilization Plan_Estimated Costs by Asset Peer Group. 

***

In the spirit of regulatory relief, here's some good news regarding Reg D.  The Fed has approved a final rule to loosen requirements concerning the dreaded Reg D tranfer limitations.

The Board has revised Regulation D's restrictions on the types and number of transfers and withdrawals that may be made from savings deposits. The final amendments increase from three to six the permissible monthly number of transfers or withdrawals from savings deposits by check, debit card, or similar order payable to third parties. Technological advancements have eliminated any rational basis for the distinction between transfers by these means and other types of pre-authorized or automatic transfers subject to the six-per-month limitation.

This becomes effective 30 days after publication in the Federal Register.  Read the Federal Reserve notice here. Here are some thoughts:

• Your online banking transaction limits may need to be updated.
• Alert your marketing folks.  Brochures will need to be updated.  And your website as well.
• Look for disclosures that talk about the limitations.  Reg E, for example. Or perhaps your membership disclosure booklet.

• Your core processor may need to be updated if it flags transfers from savings accounts.

Stabilization Fund; BOA Updated

Representative Paul Kanjorski, a well-known champion of credit unions (and a fellow Keystone Stater, to boot!) has introduced legislation designed to help credit unions spread out payments to recapitalize the NCUSIF over a number of years.   The legislation does a number of other things as well.  I'd say this is a must read.  Access his press release here.  NAFCU Today has a good article on the development here.

Spreading out payments doesn't lessen the amount that a credit unions would ultimately pay.  But it would help credit unions that might facePCA problems due to a one-time "whopper" NCUSIF recapitalization payment. 

Yes.  I said Whopper. 

***

Hey NAFCUers: We've updated our Book of Answers.  Download it here.

For you non-NAFCUers, here's a taste:

Question: We are redesigning our account application. We see some credit unions that require two signatures – one for the credit union application, and a separate signature for the substitute W-9. Other credit unions require one signature. Which is correct?

Answer: Either method is permissible. As you stated, the IRS allows credit unions to incorporate a substitute W-9 within their membership application. AW-9 is an IRS form used to request the taxpayer identification number of a U.S. person, including a resident alien. The form also asks for certain certifications and claims for exemptions. Credit unions that incorporate a substitute W-9 into their application must clearly state certain things. The IRS has indicated that substitute W-9s that require a separate signature line for the certifications satisfy the requirement that the required disclosures be “clearly stated.” If your credit union decides to use a single signature line for the required certifications and other provisions, “the certifications must be highlighted, boxed, printed in bold-face type, or presented in some other manner that causes the language to stand out from all other information contained on the substitute form.” In addition, the IRS requires the following statement to appear immediately above the single signature line: “The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding.” See Instructions for the Request of Form W-9 (Rev. September 2007), available at www.irs.gov.
May 2009

Are We Worthy?; Corporate Stabilization; Share Insurance

As compliance officers, we work to make sure our credit unions stay out of hot water to the best of our ability.  But we don't make money for our credit unions.  We don't generate revenue.  Basically, we eat up payroll, and we kill a lot of trees when we print out regulatory proposals.

How much are we worth?  It is hard to answer that question with a hard number.  But I did read something very interesting the other day in an issue of the Corporate Counsel.  Access the article here.  In short, the author tries to determine whether compliance departments failed during the current market turmoil.  Here's a paragraph:

Is there a new appreciation for this (compliance, ethics and risk management) these days? A reality check comes from Vincent Kaminski, who hopes it's true but isn't so sure. Kaminski, who was a risk analyst at Enron Corp. and now teaches at Rice University, says that traders tell him risk management has been "elevated" since the crash. But many risk management departments are "Potemkin villages," he says. "They were set up to fail." The problems he perceives apply to compliance and ethics as well. Companies often marginalize them, and the departments are given responsibility but no authority. And sometimes they go begging for resources. At Enron, Kaminski's group didn't control its own budget so they had to find a corporate sponsor. And that permitted executives to limit their inquiries.

The article gives some "lessons" for compliance/ethics departments based on what has happened in the past few years.   I consider this to be good stuff.  Very, very good stuff.

***

Our lobbyists are pretty good. 

Yesterday, the U.S. Senate passed S. 896, the Helping Families Save Their Homes Act of 2009, by a vote of 91-5.  The legislation does a few pretty major things. 

• It would allow up to eight years to repay National Credit Union Share Insurance Fund (NCUSIF) premiums.
• It would increase the National Credit Union Administration’s (NCUA’s) borrowing authority to $6 billion (with emergency authority to $30 billion)
• It would create a temporary corporate credit union stabilization fund and provide credit unions seven years to pay off the fund. 
• In addition, it would remove the December 31, 2009 sunset for increased deposit insurance coverage of $250,000 and extend it to the end of 2013.

(Whew - did you get all that?) The action now heads to the House.  If you want to read more, NAFCU put together a very nice news story here.

More Corporate Stuff

Posted by Sarah Loats

NCUA released a summaryof the PIMCO analysis with its Weekly Corporate Credit Union Update on Friday. Of note the summary states:

"In its assessment of possible courses of action, PIMCO views were that the most attractive option, in the intermediate term, is for NCUA to continue to hold the portfolio. The greatest risk will be aggressive servicer modification of loan terms and/or principal forgiveness. They were also of the view that NCUA should monitor the options of whether or not to buy loss protection and to possibly repackage some of the senior RMBS securities to enhance portfolio liquidity. These strategies are influenced by capital reserve and accounting treatments."

The update indicates that Clayton Fixed Income Services, Inc. is conducting a review of the private label mortgage backed securities of US Central and WesCorp. The purpose of the review is to determine the level of OTTI charges the two corporates will record, and to finalize the outstanding CPA audits.

In additiona, NCUA notes that it will provide guidance on "any extinguishment of paid-in-capital and membership capital accounts at corporate credit unions when the March 31, 2009, financial statements for WesCorp and U.S. Central are released."