NAFCU Compliance Blog

CFPB Issues Final CARD Act Rule: Stay-at-Home Spouses and Partners

Written By JiJi Bahhur, Regulatory Compliance Counsel

Recently, the Consumer Financial Protection Bureau (CFPB) finalized amendments to the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), making it easier for spouses and partners who do not work outside of the home to qualify for credit cards.  In the existing regulation, card issuers were limited to consideration of only a card applicant’s independent income or assets, thus resulting in numerous creditworthy applicants – such as stay-at-home spouses and partners – being declined credit card access even though they had the means to pay the debt. 

The final amendments to the CARD Act now allow credit card issuers to consider income that a stay-at-home applicant, who is 21 or older, shares with a spouse or partner when evaluating the applicant for a new account or increased credit limit. From the summary of the final rule:

“The final rule has four main elements. First, the final rule generally removes references to an “independent” ability-to-pay standard from § 1026.51(a)(1) and associated commentary.  As a result, card issuers are no longer required to consider whether consumers age 21 or older have an independent ability to pay; instead, card issuers are now required by Regulation Z to consider the consumer’s ability to pay. Second, in determining a consumer’s ability to pay, the final rule permits issuers to consider income or assets to which an applicant or accountholder who is 21 or older – and thus subject to § 1026.51(a) rather than § 1026.51(b) ‒ has a reasonable expectation of access. The final rule clarifies by examples in the commentary those circumstances in which the expectation of access is deemed to be reasonable or unreasonable. Third, the final rule continues to require in §1026.51(b)(1)(i) that consumers under the age of 21 without a cosigner or similar party who is 21 years or older have an independent ability to pay, consistent with TILA section 127(c)(8). Finally, the final rule clarifies that application of the independent ability-to-pay standard to consumers under 21, consistent with Regulation Z, does not violate the Regulation B prohibition against age-based discrimination.”

The final rule can be found here.  The final rule took effect on May 3, 2013 and requires mandatory compliance by no later than November 4, 2013, although card issuers may, at their option, come into compliance before that date.

30 Minutes to Report Credit Card Plans?; Consumer Compliance Outlook; HELOC Webcast

Written by Steve Van Beek

Information Collection on Report for Credit Card Plans. Remember back on February 1 where I got all bent out of shape regarding the CFPB's expansion of their Credit Card Survey to certain credit unions with 10 days notice? 

Yesterday, the CFPB issued an Information Collection Request which asks whether the 30 minutes it estimates for financial institutions - including approximately 20 of the largest credit unions - is accurate. 

"Request for Comments: Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information shall have practical utility; (b) The accuracy of the Bureau's estimate of the burden of the collection of information, including the validity of the methods and the assumptions used; (c) Ways to enhance the quality, utility, and clarity of the information to be collected; and (d) Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget (OMB) approval. All comments will become a matter of public record."  (Emphasis added).

The reporting form is FR 2572. And, you can also review the instructions and form (opens as an Excel document) for responding to the report. After reading the instructions, would you say that completing the task would take 30 minutes?  Me neither.  

For the 20 or so credit unions who were recently added to the Report - did it take your credit union 30 minutes?  For those credit unions who weren't covered - how long did it take you to determine you weren't covered?  

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Consumer Compliance Outlook. The First Quarter issue of the Philadelphia Federal Reserve's Consumer Compliance Outlook is now available. The articles this issue include:

• Servicemember Financial Protection Webinar: Questions and Answers
• 2012 Year in Review Webinar: Questions and Answers
• Credit CARD Act Requirements for Gift Certificates, Store Gift Cards, and General-Use Prepaid Cards

You can also download the full PDF here.

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HELOC Webcast. Don't miss NAFCU's webcast tomorrow on Which New Requirements Apply to HELOCs? - where I'll be walking through the new mortgage requirements that apply to HELOCs.   

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Wow - you couldn't ask for a better game last night (a different outcome, sure!).  Hats off to Louisville on a great season and an outstanding game. For Michigan - what a run and well done. 

I'll leave you with my favorite image from the game (Getty Images):

Oh, yeah - that was called a foul. One thing is for sure, the blog has definitely upped its basketball coverage since the days of Anthony's Penn State Nittany Lions. Fred also mentioned the coverage was a little too skewed to Michigan - so here is a link to Navy's season as well (does David Robinson have any eligibility left?).   

CFPB Issues New Credit Card Requirement for Certain CUs - Only Gives 10 Business Days to Comply

Written by Steve Van Beek

Hopefully that headline got your attention!  Unfortunately, this seems to be a real requirement for certain credit unions and it shows how out of touch the Consumer Financial Protection Bureau (CFPB) is with how credit unions operate.  It also shows how the CFPB says one thing - we understand the regulatory burden on credit unions - but then does another.

The Surprise from the CFPB.  On Wednesday evening (January 30th), the CFPB sent an email to 160 credit card issuers requesting information for their credit card survey under Section 136 of the Truth in Lending Act (which was added by the Fair Credit and Charge Card Disclosure Act of 1988).  The email indicated that responses needed to be returned 10 business days after January 31, 2013 (no firm date was included - institutions will have to count for themselves). 

Where do Credit Unions Fit In?  The CFPB took over responsibilities for Section 136 of TILA after the transfer of authority in July 21, 2011.  Historically, this credit card survey was performed by the Federal Reserve and credit unions were not part of the survey.  This all changed on Wednesday evening, when the CFPB sent the email to the 160 credit card issuers - including approximately 20 credit unions (the CFPB has not provided the list of the 160 institutions).    

The CFPB's Confusing Language.  The CFPB's email did not make clear that responding to the survey - for those lucky card issuers - was a legal requirement.  The CFPB stated: "Your institution was selected to participate a [sic] semiannual survey on the terms of credit card plans as mandated by the Fair Credit and Charge Card Disclosure Act of 1988."  Ok, we have the terms "selected" and "mandated."  That naturally causes confusion.  Credit unions aren't used to having regulatory requirements apply on a "selective" basis.  So, it would make sense to go to the link included in the email, right?

The credit card survey information is on the right hand side of the page - including this language:

"Survey of credit card plans

The CFPB began to survey semi-annually the terms of credit card plans (FR 2572) offered by financial institutions on January 31, 2012, and publishes a report of the findings. The report includes information from the largest credit card issuers in the country, as well as other financial institutions that wish to participate in the survey."

Read that line again - "other financial institutions that wish to participate in the survey."   Seems like a voluntary issue, right?  That clears up the "selected" versus "mandated" issue, doesn't it?  

Well, a good compliance officer is sure to check additional sources - such as the Form 2572 - which the CFPB hyperlinks.  That page includes this information:

"Background: The Fair Credit and Charge Card Disclosure Act of 1988 required the Federal Reserve Board to develop a credit card survey. The Board published the first report in March 1990, outlining credit card plans available on January 31, 1990.

Respondent Panel: The panel consists of the 25 largest issuers of bank credit cards and 125 additional institutions, based upon the outstanding amount of revolving credit reported on the Call Report. Respondents include commercial banks, savings and loans, savings banks, and finance companies that issue credit cards through a bank or thrift. Participation is required of the 25 largest issuers; other financial institutions participate voluntarily."  (emphasis added).

Case closed - right?  There can't possibly be more.  This is so clear - on its face - that this is an optional, voluntary, selective survey, right?  

Wrong. Wrong. Wrong.  The language of Section 136 of TILA includes:

"§ 136.  Dissemination of annual percentage rates; implementation, etc.

(a)  ANNUAL PERCENTAGE RATES.--The Bureau shall collect, publish, and disseminate to the public, on a demonstration basis in a number of standard metropolitan statistical areas to be determined by the Bureau, the annual percentage rates charged for representative types of nonsale credit by creditors in such areas. For the purpose of this section, the Bureau is authorized to require creditors in such areas to furnish information necessary for the Bureau to collect, publish, and disseminate such information.

(b)  CREDIT CARD PRICE AND AVAILABILITY INFORMATION.--

(1)  COLLECTION REQUIRED.--The Bureau shall collect, on a semiannual basis, credit card price and availability information, including the information required to be disclosed under section 127(c) of this chapter, from a broad sample of financial institutions which offer credit card services.

(2)  SAMPLE REQUIREMENTS.--The broad sample of financial institutions required under paragraph (1) shall include--

(A)  the 25 largest issuers of credit cards; and

(B)  not less than 125 additional financial institutions selected by the Bureau in a manner that ensures--

(i)  an equitable geographical distribution within the sample; and

(ii)  the representation of a wide spectrum of institutions within the sample.

(3)  REPORT OF INFORMATION FROM SAMPLE.--Each financial institution in the broad sample established pursuant to paragraph (2) shall report the information to the Bureau in accordance with such regulations or orders as the Bureau may prescribe.

...."

Notice the highlighted text in Section 136 of TILA.  I'm not an English major but I'm pretty sure "shall" and "required" are not synonyms for "wish to participate" and "voluntary."  Shame on the CFPB.

Voluntary or Required?  The statutory language and NAFCU's discussion with CFPB staff point toward a requirement, but the clear language on both the CFPB and the Federal Reserve websites indicate this is voluntary for all but the largest 25 credit card issuers.  Chalk another one up to regulatory uncertainty.

The End Result.  Those 20+ credit unions who received the CFPB's credit card survey have 10 business days after January 31, 2013 to respond to the survey.  Ultimately, the uncertainty regarding the required/voluntary nature of the way the CFPB communicated this issue means that credit unions receiving the survey will need to make a business decision regarding how to proceed (including, perhaps, calling the CFPB for additional clarification). 

Those lucky credit unions who did not receive the survey (by the way, what if the point person the CFPB sent the survey to was on a 2-week vacation, or mandatory leave, or just left the CU?) would not be required to submit the survey.  But, this should be a wake-up call to all credit unions that the CFPB may be talking the talk when it comes to regulatory burden - but it is more important that they walk the walk.   

What Should the CFPB have Done?  The rationale behind including credit unions in the survey is not the issue.  It probably makes sense to include credit union card issuers in the survey to get a better sense of the overall credit card market.  But, 10 business days to comply - come on!  A much more appropriate roll-out of this survey requirement would have been to send the survey to the 20+ credit unions and inform them that their participation in this first survey (due 10 business days after January 31st) was truly voluntary to help them get familiar with the process. After that, the CFPB could include those credit unions in the required portion of the survey in the future.  But, right off the bat - out of the blue - a new regulatory requirement with 10 business days to comply.  That is simply shocking in this regulatory environment and it speaks to a lack of coordination and communication inside the CFPB.  

As an alternative - the CFPB could have (but didn't) provide a "30-day notice" to these selected credit unions letting them know they would be included in the upcoming survey and to contact the CFPB if they had any questions on the process.  

But, the CFPB didn't take that approach.  Instead, the CFPB seems to have imposed a new regulatory requirement on 20+ credit unions with only 10 business days to comply.  I'm at a loss of words (not really, as I wrote about 1300 words on the issue) - but you get my point.  

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Note:  The above is a separate requirement from the Credit Card Agreement Submission required by 12 CFR 1026.58 of Regulation Z - which we blogged on January 22nd.  

We've also heard from many credit unions that the CFPB has been unresponsive to their efforts to submit their credit card agreements by yesterday's deadline.  At this point, the CFPB still hasn't provided clear instructions for the process and the best course of action is to document, document, document your efforts to comply.  If the CFPB isn't responsive and you can show a good faith effort to comply, you'd have a pretty good argument against an auditor or examiner.  

***

Also, I included this blog post under the blog's UDAP category as the CFPB's action here is pretty unfair.  

Potential Credit Card Surcharges; Legal Hurdles in 2013; NAFCU Member Call-In; Save $100 on NAFCU Conferences; NCCO Exam Info

Written by Steve Van Beek

I'm sure everyone has plenty of reading to do with the mortgage regulations (I sure do!), so here are a few small items that should be on your radar.

Potential Credit Card Surcharges.  As part of a recent settlement, merchants gained the ability to surcharge for credit card purchases on January 27, 2013.  While this won’t directly impact your credit union, it has the potential to impact your members.  It is unknown how prevalent merchant credit card surcharging will be, but it might be a good idea to put an article in your credit union newsletter or some information on your website.  For more information, visit VISA’s website – which includes a list of state laws that still prohibit surcharges.  

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Legal Hurdles in 2013.  The Credit Union Times ran a great article from Andy Keeney of Kaufman & Canoles on Legal Hurdles Facing Credit Unions in 2013.  Be sure to take a look and pass along to your colleagues.

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NAFCU Members:  Don’t miss NAFCU’s first Member Call-In of 2013 – February 12 at 3:30 p.m. EST.  NAFCU’s President and CEO Fred Becker and NAFCU’s Government Affairs team will provide updates on the legislative, regulatory and compliance landscapes.  The call is free, but you must register.  New to 2013: You can submit questions in advance using the form here.  Of course, if you have a specific compliance question you can always email NAFCU’s Compliance team directly.   

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Extra Savings for School & Seminar end on Thursday.  NAFCU is offering $100 off any conference through Thursday, January 31st.  This includes NAFCU's Regulatory Compliance School (March 18-23 at National Harbor, MD) and NAFCU's Regulatory Compliance Seminar (October 22-25 in Nashville, TN).  

Use the promo code NEWYEAR when your register to get the $100 off. 

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School & NCCO Exams.  For those of you registered for School (or considering it), we've put together some FAQs on the process for taking the NAFCU Certified Compliance Officer (NCCO) exams.  We'll also have a NCCO Exam orientation on Sunday, March 17th (optional) as well as quick NCCO Study Sessions at the end of each day to help you keen in on which issues to study for the Exams.  

IRS Issues - Box 4 of 1098 & Truncated TINs Proposal; Credit Card Agreements to CFPB

Written by Steve Van Beek

Whenever I get a chance to talk to regulators directly, I make a point of explaining to them that credit unions are not able to focus solely on their regulations, even if they wanted to.  This morning's blog post is an example of that.  We've all been trying to keep up with the CFPB's final mortgage regulations, but there are plenty of other issues out there to stay on top of.  Plenty.  

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MLO Compensation (and more) Final Rule.  Oh, and by the way, the CFPB's MLO compensation rule is finally out.  Cordray's remarks are here, the press release here, the summary is here, special regulation page here and the full rule is available here (541 pages).

Effective Date:  The majority of the rule is effective on January 10, 2014.  However, the prohibitions on mandatory arbitration and financing of credit insurance premiums are effective June 1, 2013.

*** 

Now, on to a few other items.

Mortgage Insurance Premiums & 1098s.  Throughout 2012, it was known that mortgage insurance premiums would not be deductible for tax year 2012.  But then the fiscal cliff legislation happened, and mortgage insurance premiums were made retroactively tax deductible and credit unions (and their vendors) scrambled to correct Box 4 of their 1098s.  The IRS issued Internal Revenue Bulletin 2013-3 which indicates that Box 4 - for mortgage insurance premiums - has been reinstated.  Additional information is available in the NAFCU Today.

IRS Proposal for Truncated TINs.  The IRS has been operating a pilot program since 2009 that allows certain filers to truncate Social Security Numbers and TINs on IRS information returns (more on the pilot program is available here).  On January 7th, the IRS proposed a regulation that would allow filers of certain information returns - including credit unions - to use a "truncated taxpayer identification number" (TTIN).  While this is only a proposal at this time, the feedback from the prior pilot program was overwhelming positive and it is likely that credit unions will have the option to use TTINs for next year's IRS information returns.  

Note: The proposal would not require credit unions to use TTINs.  But, you'd have the option.  

I wish other regulators took this approach.  In this situation, the IRS had been getting feedback from filers, consumers and organizations that TTINs would help protect nonpersonal public information and, potentially, reduce identity theft.  Not only did they listen to concerns, but they also proposed a rule that would make this change optional which would allow credit unions to make the transition when the time is right for their credit union (and their vendor).  

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Credit Card Agreements Due January 31st.  Speaking of other regulators, credit card agreements are due to the CFPB by January 31st.  The underlying requirement comes from 12 CFR 1026.58(c).  These agreements need to be sent quarterly:  January 31st, April 30th, July 31st and October 31st.  I'd put those dates on your calendar if your credit union has over 10,000 credit card accounts.  For those under 10,000 credit card accounts, Section 1026.58(c)(5) includes a de minimus exception and you wouldn't need to send your agreements to the CFPB (there are still other requirements in 12 CFR 1026.58 that do apply).

The CFPB's Credit Card Agreement database is available here.  

Improvements Needed.  I'll note that the CFPB hasn't exactly made this quarterly submission process easy.  There isn't any information on their website regarding the process.  The emails the CFPB sends to institutions are sometimes late and the information is usually only sent to one person at the credit union (what happens if they left, are on extended leave or just on vacation?)  And, what happens when a credit union reaches the 10,000 threshold?  How do they learn the CFPB's process?  How do they get on the super secret "update your credit card agreement" email list?  

These are all issues that NAFCU has raised with the CFPB.  Hopefully we'll see changes in their process in the future to make it more transparent and easy to follow.  With all the other issues going on, this is one the CFPB should streamline to reduce the burden and confusion for card issuers.    

One Improvement:  One thing we have heard is that you should be able to include additional employees onto the CFPB's emails regarding the card agreement submissions.  Send them an email request asking them to add the additional email(s) whenever they send your credit union information on your credit card agreements.   

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.

Reminder: CFPB Website Reference for Credit Card Application & Account Opening Disclosures; NAFCU Closed for the Holidays

Written by Michael Coleman, Regulatory Compliance Counsel

The end of 2012 is fast approaching, and so are compliance deadlines (although if you are reading this we have successfully avoided the end of the world according to the “interpretation” of the Mayan calendar, so we have that going for us). Yesterday we blogged about required updates for adverse action notices and risk based pricing notices. Today we would like to focus on credit cards updates required by January 1, 2013.

Regulation Z - Credit Card Application & Account Opening Disclosures

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.  

After January 1, 2013, your credit card disclosures would need to reference the CFPB (in the past they mentioned the Federal Reserve).  You can see the small change by viewing the Fed's prior G-10(B) model form with the CFPB's current G-10(B) model form.    

Here is the language from the application and solicitations disclosure regulation - 12 CFR 1026.60(b)(15):

"(15) Web site reference. A reference to the Web site established by the Bureau and a statement that consumers may obtain on the Web site information about shopping for and using credit cards. Until January 1, 2013, issuers may substitute for this reference a reference to the Web site established by the Board of Governors of the Federal Reserve System."

Similar language is included in 12 CFR 1026.6(b)(2)(xiv) for account opening disclosures. 

Note:  This disclosure is only required for credit card accounts.  Thus, the change would only need to be made on your credit card application and solicitation disclosures and your credit card account opening disclosures.

Additional details and discussion available in this January 10, 2012 blog post.  

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NAFCU’s Offices Closed for the Holidays – Just a reminder that NAFCU’s offices will be closed all next week and through the beginning of the new year. The blog will also be on hiatus during this period. NAFCU’s offices will re-open on Wednesday January 2, 2013, and we will be back to blogging as well to start off the new year. From all of us here at NAFCU, we wish you and yours a safe, happy, and hopefully restful holiday season!  

Change in Terms Required for Change to CFPB Website on Credit Card Disclosures?

Written by Steve Van Beek

Over the past weeks and months many credit unions, their vendors, their attorneys, their trade associations and many others have been struggling with trying to determine whether a 45-day change-in-terms notices is required solely due to a technical change to Regulation Z.  This blog post will try to provide an overview of this situation and where things stand.  Unfortunately, there is not a perfect answer as the CFPB will not provide formal guidance on this situation.  

Devil is in the Details.  The Dodd-Frank Act transferred authority for Regulation Z from the Federal Reserve to the Consumer Financial Protection Bureau.  This meant that the CFPB has authority for interpreting Regulation Z as well as providing information to consumers regarding credit cards.  To implement its authority under Reg Z, the CFPB republished Reg Z under 12 CFR 1026.  During this republishing, the CFPB indicated it was making solely technical changes and there would be no substantive changes.  However, as we all know - the devil is in the details.  

CFPB Website.  One of the changes during the republishing is that the CFPB website needs to be used by credit unions in their credit card disclosures after January 1, 2013.  This requirement comes from 12 CFR 1026.6(b)(2)(xiv) of Reg Z:

"(xiv) Web site reference. For issuers of credit cards that are not charge cards, a reference to the Web site established by the Bureau and a statement that consumers may obtain on the Web site information about shopping for and using credit cards. Until January 1, 2013, issuers may substitute for this reference a reference to the Web site established by the Board of Governors of the Federal Reserve System."

Ok, this seems simple.  In fact, we blogged on this as early as January 10th of 2012.  Credit unions have been making these updates throughout the year and most are ready to go on their disclosures for new credit card disclosures.    

Complicated, Interconnected Regulations.  However, this simple change also potentially triggered a change-in-terms notice - to existing credit cardholders - because of the complexity of Regulation Z.  Here is the requirement for when a change-in-terms notice is triggered - from 12 CFR 1026.9(c)(2):

"(2) Rules affecting open-end (not home-secured) plans. (i) Changes where written advance notice is required. (A)General. For plans other than home-equity plans subject to the requirements of § 1026.40, except as provided in paragraphs (c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v) of this section, when a significant change in account terms as described in paragraph (c)(2)(ii) of this section is made, a creditor must provide a written notice of the change at least 45 days prior to the effective date of the change to each consumer who may be affected." (Emphasis added).

Thus, the analysis needs to jump to 1026.9(c)(2)(ii) to determine which changes are "significant changes in account terms":

"(ii) Significant changes in account terms. For purposes of this section, a “significant change in account terms” means a change to a term required to be disclosed under § 1026.6(b)(1) and (b)(2), an increase in the required minimum periodic payment, a change to a term required to be disclosed under § 1026.6(b)(4), or the acquisition of a security interest."  (Emphasis added).

So - this is where things get weird.  The disclosure of the CFPB's website is required by 1026.6(b)(2)(xiv) which would bring it under the definition of a "significant change in account terms."  This is even though the credit union did not make the change and the disclosure of the CFPB website is not actually a "term" of the account that impacts members (rather, it is a mandated disclosure).  

Is There an Applicable Exception?  Thus, a strict reading of Regulation Z indicates that this switch to the CFPB's website would be a "significant change in account terms."  But, does this trigger the change-in-terms notice?  It doesn't seem like it would as the credit union didn't make this change.  Congress did.  Dodd-Frank transferred authority to the CFPB and this required the CFPB to change Regulation Z and include their website - rather than the Federal Reserve's - under 1026.6(b)(2)(xiv).  Why should credit unions have to send notices to their existing cardholders of this change?  Further, this disclosure of the CFPB's website is only required in the application/solicitation and account opening disclosures - why would it need to be disclosed to existing members when it is changed?

Well, there is an exception in the official staff commentary that has been pointed out by quite a few credit unions, vendors, attorneys, and others as indicating the change-in-terms notice would not be required.  It comes from the staff commentary of 1026.9(c)(2)(v):

"9(c)(2)(v) Notice not Required

1. Changes not requiring notice. The following are examples of changes that do not require a change-in-terms notice:

i. A change in the consumer's credit limit except as otherwise required by § 1026.9(c)(2)(vi).

ii. A change in the name of the credit card or credit card plan.

iii. The substitution of one insurer for another.

iv. A termination or suspension of credit privileges.

v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car."  (Emphasis added).

This sounds great.  The argument is that the change to the CFPB's website is a "change arising merely by operation of law."  Dodd-Frank transferred authority to the CFPB and that is the only reason why this technical change occurred.  Done deal, right?

Informal Agreement.  I've talked with CFPB staff on this issue (as have many others) and CFPB staff agrees that this "operation of law" exception applies and credit unions do not need to send the change-in-terms notice in this situation.  Unfortunately, the CFPB staff is unwilling to put their opinions in a formal writing.  This means that credit unions are left with an informal agreement that a change-in-terms notice is not required.

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Documentation is Key.  Because the CFPB will not put their opinion in writing, it is important that credit unions document their decision-making as to why they did not send the change-in-terms notice in this situation.  Remember, the CFPB staff is not examining and auditing your credit union - so be sure to have documentation of your decision not to send the notice in case this issue comes up.    

Notice Already Sent.  Of course, if your credit union has already decided to send the notice - you are in a great position as you can move on to many other compliance issues facing your credit union.  Additionally, if you have the wheels in motion to get the notice out to your members in the near future - there is nothing wrong with sending the notice.  

Risk-Averse.  If your credit union decides it doesn't feel comfortable relying on an informal (2nd-hand) agreement from the CFPB staff - by all means send the notice.  And, then document why you sent the notice and the burden caused by the CFPB's unwillingness to put their opinion in writing.     

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Legal Disclaimer.  Now is a very good time to remind blog readers of the blog's legal disclaimer:

"LEGAL DISCLAIMER

This website is intended to provide general compliance information in regard to the subject(s) covered. It is provided with the intent and understanding that the publisher is not engaged in the act of rendering legal, accounting or any other professional advice. The information provided in this website is not intended nor should be used as a substitute for legal advice or other expert opinions and services in specific situations. NAFCU is not responsible for the content of comments and reserves the right to delete or block comments that it finds inappropriate."

CFPB Proposes Changes to Credit CARD Act: Ability-to-Repay for Stay-At-Home Spouses

Written by Steve Van Beek

Yesterday, the CFPB followed a NAFCU recommendation (see page 3) and proposed a rule to change 12 CFR 1026.51 of Regulation Z.  The CFPB's press release provides an explanation on how the changes would help stay-at-home spouses and partners:

"The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) became law in 2009.  The CARD Act requires that card issuers evaluate a consumer’s ability to make the necessary payments before opening a new credit card account. Under current CARD Act regulations issued by the Federal Reserve, a card issuer generally may only consider the individual card applicant’s income or assets.

Data made available to the Bureau suggest that some otherwise credit-worthy individuals have been declined for credit card accounts under the current regulation, even though they have the ability to make the required payments.  Discussions with industry sources indicate that a significant number of these individuals may be stay-at-home spouses or partners with access to income from an employed spouse or partner.

The Bureau’s proposed revision would allow credit card applicants who are 21 or older to rely on third-party income to which they have a reasonable expectation of access.  Although the proposal applies to all applicants regardless of marital status, the Bureau expects that it will ease access to credit particularly for stay-at-home spouses or partners who have access to a working spouse or partner’s income."

The proposed rule can be found here.  The summary in the proposed rule is also a useful overview:

"SUMMARY:  The Bureau of Consumer Financial Protection (Bureau) is proposing to amend Regulation Z, which implements the Truth in Lending Act (TILA), and the official interpretation to the regulation, which interprets the requirements of Regulation Z.  Regulation Z generally prohibits a card issuer from opening a credit card account for a consumer, or increasing the credit limit applicable to a credit card account, unless the card issuer considers the consumer’s ability to make the required payments under the terms of such account.  Regulation Z currently requires that issuers consider the consumer’s independent ability to pay, regardless of the consumer’s age; in contrast, TILA expressly requires consideration of an independent ability to pay only for applicants who are under the age of 21.  The Bureau requests comment on proposed amendments that would remove the independent ability-to-pay requirement for consumers who are 21 and older, and permit issuers to consider income to which such consumers have a reasonable expectation of access."  (Emphasis added).

The comment period will extend for 60 days after the proposal is published in the Federal Register.  NAFCU's Regulatory Affairs team will be providing a Regulatory Alert for NAFCU members and soliciting comments on the proposal.  

CFPB Releases Semiannual Regulatory Agenda - Spring 2012; Seminar in Seattle

Written by Steve Van Beek

CFPB Regulatory Agenda.  Yesterday, the CFPB posted its Semiannual Regulatory Agenda - for spring 2012.  The previous Semiannual Regulatory Agenda was released in February 2012.  The latest release follows the same format and includes a listing of regulations in the various rulemaking stages: prerule stage, proposed rule stage, final rule stage, long-term actions and completed actions.  

Below is a listing of the various future regulations - organized by rulemaking stage.  Keep in mind the agenda is current as of April 13, 2012 and the CFPB has taken numerous actions since putting this agenda together.    

Prerule Stage:

• Registration of Certain Nonbank Covered Persons
• Supervision of Larger Depository Institutions and Affiliates
• Home Mortgage Disclosure Act (Regulation C)
• Requirements for Prepaid Cards (Regulation E) 

Proposed Stage:

• Amendments to TILA and FIRREA Concerning Appraisals
• Disclosure Rules and Substantive Protection for Certain High Cost Mortgage Loans (Regulation Z)** (proposed on July 9th)
• Mortgage Originator Standards (Regulation Z)
• Mortgage Servicing (Regulation X; Regulation Z)
• TILA/RESPA Mortgage Disclosure Integration (Regulation X; Regulation Z)** (proposed on July 9th)
• Credit Card Pre-Opening Account Fees (Regulation Z)
• Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination
• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 2) 
• Copies of Appraisals or Other Valuations To Be Furnished by Creditor (Regulation B)

Final Rule Stage:

• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 1)** (finalized on July 16th)
• Disclosure of Records and Information
• State Official Notification Rule
• Rules Relating to Investigations
• Rules of Practice for Adjudication Proceedings
• Restatement of Federal Consumer Financial Law Regulations
• Requirements for Escrow Accounts (Regulation Z)
• TILA Ability to Repay (Regulation Z)
• Confidential Treatment of Privileged Information
• Disclosure Rules for Remittance Transactions (Regulation E)

Long-Term Actions:

• Alternative Mortgage Transaction Parity (Regulation D)
• Business Lending Data (Regulation B)
• TILA Mortgage Amendments (Regulation Z) 

Completed Actions: 

• Disclosure Rules for Remittance Transactions (Regulation E)

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Only 27 potential rulemakings!!  The Regulatory Agenda also includes a short summary of each rulemaking that is useful for providing a quick overview of what will be covered by the rulemaking.  However, as last Monday's proposed rules show - a short summary doesn't do much when the proposals are 1099 pages and 293 pages.  

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NAFCU's 2012 Regulatory Compliance Seminar.  Luckily, you don't have to read and understand all 27 potential rulemakings on your own.  We'll be covering quite a few of them at our 2012 Regulatory Compliance Seminar in Seattle, Washington - October 23-26.

The program-at-a-glance is available here (and we'll be including additional sessions as the proposals continue to flow).  We already have a session on the TILA/RESPA mortgage disclosures, the upcoming mortgage servicing proposal (including the periodic statement requirement) as well as a session on the remittances final rule.  Detailed session descriptions can be found here.

Remember - you do not need to be a NAFCU member to attend.  And, Save $100 if you Register by August 31st!