NAFCU Compliance Blog

Member Complaints; NAFCU's 2012 Regulatory Compliance Seminar

Written by Steve Van Beek

Consumer and member complaints are at the forefront of quite a few conversations right now (including quite a few news articles).  The CFPB's promotion of their complaint process is one reason for this uptick in discussion as is the centralized complaint process for financial products.  

The CFPB issued their 2011 Annual Report on Consumer Complaints and it is full of useful information to review.  Here is a snapshot of the results:

"Between July 21 and December 31, 2011 the CFPB received 13,210 consumer complaints, including 9,307 credit card complaints and 2,326 mortgage complaints.

Forty-four percent of all complaints were submitted through the CFPB's website and 14.7 percent via telephone calls.  Referrals from other regulators accounted for 34.9 percent of all complaints received.  The rest were submitted by mail, email, and fax."

Future reports will include even more details - including complaints in new areas such as private student loans, auto loans and checking accounts.  Be sure to review the full report or pass it along to the appropriate person at your credit union.   

NCUA.  The March 2012 edition of the NCUA Report also included an article on Trends in Member Complaints and Consumer Inquiries.  Of note, the article indicates that of the complaints received in 2011 less than 1 percent involved a consumer compliance violation.  Of that 1 percent, half of those were related to timing issues related to the error resolution process under Regulation E.  

***

NAFCU Regulatory Compliance Seminar.  October seems like a long way off but it will be here before you know it.  We are in the process of putting together the content and agenda - so please feel free to send in any comments, ideas or suggestions.  We love your input and this conference is really about you all so let us know what you need.

Here is what we are tentatively looking at so far (topics are subject to change, of course):

• TILA/RESPA Mortgage Disclosures
• Upcoming Mortgage Servicing Requirements
• The Latest on Overdraft Protection
• Remittance Transfers under Regulation E
• CUSOs
• Loan Participations
• Bank Secrecy Act Changes
• Social Media
• NCUA Update
• CFPB Update

I think that is a pretty good start - but let us know what you are looking for and how we can make NAFCU's 2012 Regulatory Compliance Seminar even better than the past.  

Recertification for NCCOs.  Remember, attending Regulatory Compliance Seminar is the best way to recertify your NAFCU Certified Compliance Officer (NCCO) designation.  Seminar offers 24 CEUs which is enough to fully recertify for two years.

Seattle, Washington.  Did I mention Seminar was in Seattle?  Right Downtown?  Well, now I have.  Hope to see you October 23-26, 2012!    

The CFPB and NonBanks; Upcoming NAFCU Webcasts

Written by Steve Van Beek

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

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

***

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

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

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

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

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

***

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

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

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

NCUA Legal Opinion Letters - CUSOs; MBLs

Written by Steve Van Beek

NCUA recently published two legal opinion letters.  One discusses a credit union service organization's (CUSO) ability to lease property to credit unions and the members of affiliated credit unions.  The letter, NCUA Legal Opinion Letter 11-0642, is very detailed and fact specific so be sure to view the full letter.   

The second letter, NCUA Legal Opinion Letter 11-0734, discusses loans to professional musicians to purchase musical instruments.  From the letter:

"We do not consider IRS treatment of an expense to be determinative of whether a loan qualifies for MBL treatment under NCUA Part 723. Similarly, the fact that an item may be purchased for a non-business purpose is not controlling.  For example, a $50,000 loan to purchase an automobile for use as a taxicab or package delivery truck is an MBL and not a personal loan.  It is the loan’s actual purpose and amount, absent any applicable exemptions, that determine whether the loan is an MBL.

It is our view the instrument loan provides a means for your professional musician members to purchase a musical instrument for use in their trade as paid musicians.  The musical instrument is a tool of the musician’s trade and is acquired for use in a business capacity.  Therefore, where a loan to a member for this purpose totals $50,000 or more when aggregated with other such loans to the member,  the loan is an MBL and subject to Part 723."  (emphasis added).

 ***

Michigan Alert:  Perhaps not the most scientific poll - but Good Morning America viewers did name Sleeping Bear Dunes on Lake Michigan the "Most Beautiful Place in America."  

If you get a chance to visit northern Michigan, you will not be disappointed.   

Uncertainty; Reg Alerts and Finals; College Football

Written by Steve Van Beek

The CFPB now has authority for the consumer laws and regulations.  This means they are the agency with authority to interpret Regulation Z; the Fair Credit Reporting Act; the SAFE Act regulations; Regulation B; Regulation E; Truth in Savings regulations and the list goes on.  

Unfortunately, this is leaving financial institutions with a lot of uncertainty.  Let's use a concrete example - the recent clarifications to the Credit CARD Act - implemented in Regulation Z. 

• The clarifications were proposed and finalized by the Federal Reserve;
• The CFPB took over authority for Regulation Z on July 21, 2011;
• The clarifications become effective October 1, 2011; and
• Credit unions below $10 billion in assets will be examined by NCUA.

So, we have one agency finalizing a regulation but authority transfers to a new agency soon after and a third agency examines institutions.  

I know the paint isn't even dry on the CFPB - but I guess I was hoping the CFPB would be providing some guidance to the industry.  Currently, their webpage is completely consumer focused with three guidance documents (none clarifying existing requirements) tucked on the very bottom of the page.   

***

NAFCU's issued Regulatory Alerts on the CFPB's Disclosure of Records and Information proposal as well as NCUA's Credit Union Service Organization (CUSO) proposal.  Both can be found here.

We've also issued our Regulatory Final on NCUA's interim final rule for Remittances under 12 C.F.R. 701.30.   

***

I may have missed the 100 day countdown to the wedding - but I didn't miss the 30 day countdown to college football - specifically Michigan football (YouTube) - yesterday.  This doesn't reflect my priorities, however.  I will continue to argue it is extremely difficult to track 100 days when months have different number of days.  

My brothers and I at the 2006 Michigan-Wisconsin game.

If you are not a Michigan fan - you are still welcome at the Big House.  You just might not have as good of seats (and you will be a bit outnumbered).

CUSOs; CFPB Reform?; Hot Dog

Proposed CUSO Rule. At last Thursday's Board meeting, NCUA introduced a proposed rule regarding CUSO's. If your credit union works with a CUSO (or CUSOs), this is an issue to follow. The proposed rule would require CUSOs to file financial reports directly with the NCUA and the appropriate state supervisory authority and it would require any CUSO subsidiaries to follow rules and regulations applicable to CUSOs. Additionally, it would implement investment limits for federally-insured state-chartered credit unions that are "less than adequately capitalized." The proposed rule can be found here.

CFPB Reform? The House passed HR 1315, The Consumer Financial Protection Safety And Soundness Improvement Act of 2011, late last Thursday. It would replace the CFPB director with a 5-person commission and allow the Financial Stability Oversight Council to challenge the CFPB with a majority vote rather than the 2/3 vote currently required. The bill would of course have to pass the Senate and be signed by the President. You can find more on this in this NAFCU News item.

 ***

Hot Dog.  So, the members we've talked to this past week have been asking us just how hot is it in DC? Well, the picture below should give you a good idea (I cannot take credit for the picture - that came to us from our fearless leader Fred Becker, or rather, his better half). Some of you have been experiencing temperatures just as hot, if not hotter, so stay cool everyone.

CUSO LOL; FRB annual dollar adjustments

Written by Sarah Loats Zimmermann

NCUA LOL. NCUA has issued a legal opinion letter that discusses the CUSO customer base issue. For a credit union to be able to invest in a CUSO, that CUSO must primarily serve credit union members. As NCUA points out in the letter there is no bright line test for this  "primarily serves" requirement. The letter notes some of the factors to be considered and expresses NCUA's stance that the requirement is ongoing throughout the credit union's investment.

 

FRB. Yesterday, the Federal Reserve released two press releases regarding annual dollar amount adjustments. The first is in relation to HOEPA loans (also known as high-cost loans or section 32 loans). The Fed is required on an annual basis to adjust the dollar amount of the fee-based trigger. For 2012 that dollar amount will be $611. As the press release notes, this does not affect higher-priced mortgage loans, which are determined using a different rate-based trigger.

Second, the Federal Reserve has announced the exemption threshold for Regulations M and Z. For 2012, the threshold will be $51,800, meaning that leases/loans at or below $51,800 will be subject to Regs M/Z (note that private education loans and mortgage loans are subject to Reg Z regardless of amount).

 

***

Maybe it's all of that compliance training, but our blog readers sure do notice the small details. A couple of weeks ago I quietly changed my name, but it didn't get past you guys. Yes I did get married and I truly thank you all for your well wishes! We were actully married this past October in my home state of Ohio. We took a chance on the weather for an outdoor ceremony and got lucky with a gorgeous sunny weekend. I've had many requests for pictures over the last few months so here we go - I had a hard time picking just a couple to capture the day but here's my best shot.

 

From pretty lace shawl...

 

...to feather boa.

 
 

ATM Lawsuits; No Closing Costs? Really?; CUSOs

Posted by Anthony Demangone

I think Spring is finally here in Washington, D.C.  I know that for two reasons:

• Each morning, there is a green coating of pollen on my car.
• It is very hard to find nasal decongestant at the local pharmacy.

Now, on to the compliance stuff.

ATM Lawsuits. There have been a rash of news stories about ATM lawsuits. Here's one example. (Dayton Business Journal.).  It seems the lawsuits are claiming that ATM disclosures, which are governed by Regulation E, are inadequate. With that in mind, I would like to point out the following:

1. A 2009 FDIC financial institution letter that outlines exactly what should be on the ATM. 
2. This BankersOnline.com discussion contains some pretty wicked good ideas on how to manage this risk. Wicked good.  Their wicked good ideas are based on this paragraph from the Electronic Funds Transfer Act:

(d) Exception for damaged notices. If the notice required to be posted pursuant to section 1693b(d)(3)(B)(i) of this title by an automated teller machine operator has been posted by such operator in compliance with such section and the  notice is subsequently removed, damaged, or altered by any person other than the operator of the automated teller machine, the operator shall have no liability under this section for failure to comply with section 1693b(d)(3)(B)(i) of this title.

No closing costs. Really?  You might remember that we wrote a bit about the use of "free" when writing ad copy for share accounts.  Are there similar restrictions for claims of "no closing costs" for open end home equity loans?  Yep. The following comes from the Staff Commentary to Part 16(d) of Regulation Z: 

4. Misleading terms prohibited. Under §226.16(d)(5), advertisements may not refer to home-equity plans as free money or use other misleading terms. For example, an advertisement could not state “no closing costs” or “we waive closing costs” if consumers may be required to pay any closing costs, such as recordation fees. In the case of property insurance, however, a creditor may state, for example, “no closing costs” even if property insurance may be required, as long as the creditor also provides a statement that such insurance may be required. (See the commentary to this section regarding fees to open a plan.)

I always forget about that one.  Hat tip to Bill, for reminding me of that restriction. Mahalo, Bill.

CUSOs.  There's been a good deal of compliance "internet chatter" about NCUA examinations and CUSOs.  If your credit union has a CUSO, does that CUSO have its own business plan?  Its own BSA risk assessment and anti-money laundering program? Does your credit union's board have a clear picture of the various risks involved with the CUSO's activities? These questions appear to be popping up during exams.  To be honest, the questions don't appear to be all that unreasonable.

CUSOs and Separate Corporate Identities; NAFCU Opens 2 Hours Later Today

Editor's Note: NAFCU follows the Federal Government's operating schedule.  Due to an ice storm, Los Federales are under a "2 hours delay." NAFCU will do the same, opening at 11 a.m. (EST) today.

Posted by Anthony Demangone

Many credit unions are rethinking how they do their business and who they do their business with.  Many credit unions have found out that a credit union service organization, or CUSO, might be just the thing.  CUSOs can be a great way to better serve a credit union's membership, either as a business partner or the credit union's affiliate.

We've had so many questions about CUSOs recently that I wanted to highlight NCUA expectations regarding CUSOs and the need for a separate corporate identity. In short, when a credit union establishes a CUSO, it must be done in a way that ensures the CUSO is a legally separate entity.  NCUA's CUSO rule discusses this issue at 12 C.F.R. Part 712.4.  Here are a few snippets:

• The credit union and CUSO must be held out to the public as a separate enterprise.
• The federal credit union may not dominate the CUSO to the extent that the CUSO is no more than a department of the credit union.
• In addition, before a credit union may invest in a CUSO, the federal credit union must obtain written legal advice as to whether the CUSO is structured in a way that preserves legal separateness. 

The section isn't that long, so if your credit union is interested in establishing or investing in a CUSO, it is well worth a read.

 

A Busy Year

Posted by Anthony Demangone

Not too long ago, I shared my general outlook for 2011.   That post dealt more with general trends.  But we do expect some specific things.  Regarding NCUA, look out for the following in 2011.

• Regulations on interest rate and concentration risks.  If you've been keeping up with the Material Loss Reviews issued by NCUA's Office of Inspector General, you already know that concentration risk has played a huge role in credit union failures.  And that risk affects more than just credit unions.  I was at a meeting recently where an OTS and OCC official both agreed that concentration risks played a role in every major bank failure as well.
• Member business lending. Rather than a major overhaul, look for NCUA to incorporate guidance documents into the regulation.
• CUSOs.  NCUA will ramp up its focus on CUSOs, and they may seek examination authority.
• Examinations.  NCUA will overhaul its examiner's manual.  This is one process to track closely.  In my view, the examiner's manual is a massive guidance document that can affect your operations and NCUA examinations.  For that reason, it is very important to see how they change it. 
• This and That.  NCUA may also overhaul its investment rule (Part 703) and it may direct examiners to review new credit union products/services at each exam. 

Keep in mind that we can't say for certain that NCUA will act on any one of these issues.  But based on our conversations with NCUA officials, these are some of the areas of interest.  Stay tuned!

Fed Proposal; Other Stuff

Posted by Anthony Demangone

Earlier this week, the Federal Reserve issued a proposed rule designed to (in my own words) shut down a few loopholes found within Regulation Z's rules for credit cards. The rule does three main things.

1. If you waive interest charges, such a practice is deemed to be a promotion and will need to follow promotion requirements.  Some credit card issuers were planning to manage credit risk by charging a member, for example, a 16 percent APR. But as long as the member would pay on time, the issuer would waive 3 percent of the APR.  So, the member would have, in effect, a 13 percent APR credit card. If the member slips up, the issuer would revoke the benefit. This proposal says that such a practice is a promotion, so you have to give them a firm time, not less than six months, for how long the "interest waiver" will be in place, and what the rate will be after that.  You won't be able to end promotions simply because a card holder makes one late payment, for example. In addition, the proposal clarifies that existing balances earned under a waiver promotional program are protected at the lower balance, unless the borrower becomes more than 60 days delinquent.
2. Under the proposal, application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same limitations as fees charged during the first year after the account is opened. The Fed gives a good example: "Because the total amount of these fees cannot exceed 25 percent of the account's initial credit limit, a card issuer that, for example, charges a $75 fee to apply for a credit card with a $400 credit limit generally would not be permitted to charge more than $25 in additional fees during the first year after account opening." I don't think that this is necessarily bad for credit unions.  This clarification makes it much harder for credit card "sharks" to offer these fee-heavy credit cards.  That makes our credit cards more attractive.
3. Finally, if the proposal goes final in its current form, when you evaluate a consumer's ability to make the required payments before opening a new credit card account or increase the credit limit on an existing account, you'll have to consider information regarding the member's independent, individual income, rather than his or her household income. That shouldn't be a big deal, but it could trigger a change to your policy and procedures.

Finally, here are some other things of note:

• This is a proposal, so these proposals may be tweaked when the Fed issues a final rule.  
• While the proposal tackles the three main issues noted above, it addresses quite a few other issues as well. It clarifies what would be considered a credit card and charge card, and it addresses employee preferential rates.  If your shop offers credit cards, you'll need to work through the whole rule.  NAFCU is preparing a Regulatory Alert on the Fed's proposal, so stay tuned. 

***

Here are some other items of note:

• NCUA holds its NCUA Board Meeting today.  They're addressing their RegFlex regulation and its Merger Partner Registry, among other things.  The draft board items will be available this morning here.
• The Fed's Outlook Live seminar series will be offering a free webinar on HMDA and CRA reporting, to be held November 17th. Hopefully, they'll hit the HMDA stuff first.
• NCUA has issued Legal Opinion Letter 10-0856 to clarify that, for purposes of NCUA's rules and regulations, a CUSO may serve as a loan broker for loans used to finance the purchase of New York City tax cab medallions.  NCUA stresses, though, that other laws and regulations may apply.