NAFCU Compliance Blog

SCRA Notice Updated; NAFCU's Beltway Buzz!

Written By JiJi Bahhur, Regulatory Compliance Counsel

It’s Friday – and I don’t know about you all – but I think we’ve had enough complicated compliance issues to deal with over the past few weeks.  Consider it a belated Valentines gift from me to you – I’m keeping it short and sweet today!  

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HUD has updated the Service Members Civil Relief Act (SCRA) Notice (form HUD-92070), the form that provides notice of the legal rights and protections under the SCRA.  The update is effective through December 31, 2014, and stems from the amendment to Section 533(b) of the SCRA which changes the timeframe for foreclosure protection from “9 months” to “one year.”   

These changes were effective as of February 2, 2013.  If you're looking for a copy of the form with the updates already made, you can find it on bankersonline.  If HUD gets around to updating the form on its website, we'll provide that link at a later time. 

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NAFCU Members - Be sure to catch the Beltway Buzz!  Sign-up for our new monthly e-newsletter and get a fun look at the latest developments in CU legislation. Written by NAFCU’s Vice President of Legislative Affairs Brad Thaler, you’ll get an inside look at what’s happening in Washington, but with humor and insight not typically delivered in other industry news publications (except of course, this blog!). Click here to sign up.

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Have a great weekend everyone! 

Updated 2012 NAFCU Credit Union Compliance GPS is Now Available!

Written by Steve Van Beek

Shameless Plug Alert!

We are very pleased to announce the availability of the Updated 2012 NAFCU Credit Union Compliance GPS.  Over the course of the last year, there have been many small tweaks and changes that have made life difficult for credit unions and, specifically, compliance officers (and many others as well).  These included technical changes to regulations as well as substantive changes to regulations and regulators.  

The Updated 2012 GPS has been thoroughly updated and edited to reflect these changes and provide those researching credit union issues a useful, electronic guide. 

For example, the Updated GPS includes:

• A New Section on the Consumer Financial Protection Bureau;
• Updated Links after NCUA's Website Change;
• Updated Regulatory Citations Reflecting the CFPB's Ownership of the Consumer Regulations;
• Links to the CFPB's Version of the Electronic Code of Federal Regulations;
• An Expanded Bank Secrecy Act Section;
• A Separate Section on Vendor Management; and
• Many more additional updates and edits to ensure accuracy.   

In non-bullet format, the Updated 2012 GPS contains all new links to the updated NCUA website (including Legal Opinion Letters and Letters to Credit Unions).  The GPS also contains the new, correct citation to the CFPB's regulations (i.e., 12 C.F.R. 1026 rather than 12 C.F.R. 226 for Regulation Z) as well as links to the CFPB's regulations to help you find the most up-to-date version of the consumer regulations.       

Pricing.  The Updated 2012 GPS is $399 for NAFCU members and $499 for anyone else.  The GPS is not limited to credit unions and can be purchased by anyone interested in learning more about credit union laws and regulations. 

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Table of Contents.  To get a feel for the Updated 2012 GPS, take a look at the following Tables of Contents which list the Sections that are included in each Chapter (plus the Appendix).

• Main Table of Content - 1-Page Snapshot of the 2012 GPS
• Chapter Specific Cover Pages - Listing of the Sections by Chapter
• Complete Table of Content - Listing the Contents of Each Section
• The Consumer Financial Protection Bureau Section Table of Contents 

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Below are a couple of additional items about the Updated GPS.  

Electronic Manual.  The GPS is designed to be a an electronic manual as it contains numerous links to regulations and guidance documents.  Of course, you can print off your own copy of the GPS and use the hardcopy as a quick resource guide.  But, the best bang for your buck is being able to use the electronic links and be taken directly to the NCUA Legal Opinion Letter being described or NCUA's Statutory Lien regulation in 12 C.F.R. 701.39.

Available to Everyone.  The GPS is available for purchase by anyone and everyone.  We've had law firms and audit firms purchase the GPS in the past in addition to numerous credit unions.  Additionally, your credit union does not need to be a NAFCU member to purchase.  We hope the GPS serves as a valuable resource for anyone seeking to learn more about credit unions and the regulations that impact their daily operations.

One GPS Per Credit Union.  Remember - the purchase of the GPS provides access to your entire credit union or organization!  Please feel free to share the GPS with your colleagues at your credit union.  However, we put a lot of time and effort into creating and editing the GPS and we ask that you not share your GPS with other credit unions or third-parties.  

Regulatory Compliance School.  If your credit union sent someone to NAFCU's 2012 Regulatory Compliance School last week, that person should already have an electronic copy of the Updated GPS.  Be sure to track that copy down and share throughout your credit union.  No additional purchase would be required.  

Compliance Officer Skills & 7 Compliance Rules for Non-Compliance Managers

Written by Steve Van Beek

Today is Compliance Officer Skills day at NAFCU's Regulatory Compliance School.  We'll be talking about:

• The Role of the Compliance Officer; 
• How to Conduct Research; 
• Dealing with Outside Counsel;
• How to Write Effectively;
• Policies and Procedures Writing; and 
• Vendor Management.

But, not everyone is a compliance officer or has responsibilities in all of these areas.  

Well, Anthony Demangone had an outstanding blog post at the Musings from the CU Suite blog which highlights his "7 Compliance Rules for Non-Compliance Managers."  I couldn't dream of writing as well as Anthony, so I'll just give you the 7 rules plus an 8th added by a commenter and pass you along to Anthony's post.

1. You are regulated.
2. NCUA writes most of this stuff down.
3. NCUA wears two hats.
4. NCUA isn't always right.
5. It's not just regulations.
6. Ask for help.
7. Read.
8. Bonus: Regulations flow from laws (written by Congress - enough said).

If you are interested, anyone can subscribe to the Musings from the CU Suite blog (which is published a couple of times a week).   

New NAFCU Blog, Same Approach

Written by Anthony Demangone 

When my father dropped me off at McKean Hall for my freshman year at Penn State, I knew I wanted to be a journalist.  I quickly joined the college newspaper and started writing.  I never found stories about intrigue and politics interesting to write.  Rather, I focused on things that interested me.  

I somehow got sidetracked on my road to the Pulitzer Prize. Life happens.  But my love of writing never wore off.  That’s one of the reasons I started the NAFCU Compliance Blog back in 2007.  

But life happened…again.   When I took on the role of NAFCU COO, I handed off this blog to Steve’s capable hands.  

Well, the addiction has overtaken me yet again.  As Steve mentioned a few weeks ago, I’ve started a new blog – Musings from the CU Suite.  What’s the new angle?  Work and management are tough.  But there’s a ton of good information out there about how to be better at both.  My new blog will attempt to bring the best of all of that to you.  

I hope you consider wandering over to sign up for the blog.  It would be great to have you join the conversation.

Now, I did write along those lines a wee bit back in the day.  Here are some of those old posts, which I hope you find useful.  

• Just how did my view of compliance change now that I’m NAFCU’s COO?
• A good compliance officer should try to read the tea leaves.
• In an age of Google, Facebook, Twitter, and iPads, don’t forget the research power of picking up the phone. 
• The art of making decisions when you are “off the grid.”
• My ode to compliance officers.  

Have a great week, guys.  

Insert "Here"; This and That

Posted by Anthony Demangone

For years, I've argued that credit unions should insert "compliance" into their product development process.  Rather than being a drag, I believe inserting compliance will improve efficiency.  With that in mind, read the sage advice of Bruce Collins, Corporate Vice President and General Counsel of C-SPAN.  He pens a regular column for Inside Counsel.  And his most recent column drives this point home.  While legal and compliance may not be one in the same, I think you can take his advice and apply it to compliance officers with a positive impact.

"I know I’ve failed as in-house counsel when I hear by accident about a new project or transaction of my non-profit organization. If that happens I haven’t done my job. One of the primary reasons for having and paying for inside counsel is to keep the organization on the legal straight and narrow as efficiently as possible. If the in-house lawyer is finding out about new projects only as they are about to launch, much of the advantage of being in-house is lost. You might as well be outside counsel. It’s not a good position to be in either for the lawyer or the organization..."

But Collins warns against becoming a passive "no" man or woman. 

"No in-house lawyer wants the reputation of being the Abominable No Man on new initiatives. If he gets that reputation, it is probably because he has not integrated himself fully into the operations of his only client. He is passively waiting for issues to come to him rather than actively monitoring what’s going on. That approach greatly increases the chances of having to say "no." That answer may be legally correct and thereby protect the organization, but a more engaged lawyer could have been a partner at the outset who worked to get to "yes."

The passive lawyer creates not only wasted time, money and irritated staff (including bosses), but he is also shirking his legal duties by sitting in his office. No doubt he drafted the organization’s board-approved antitrust policy requiring legal review of all new projects at their inception. He should look again at the organization’s insurance policies that almost certainly require the same kind of legal attention. And if he is lax about those obligations created long ago, he should certainly want to avoid being tagged in the regular internal or external audits his organization is subjected to. The lesson: Being a professional in-house lawyer means getting away from the desk, walking down the hall and getting engaged."

Sage advice, indeed.

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Here are a few other items of interest.

• RESPA.  HUD's most recent edition of the RESPA Roundup is now available. Be sure to forward this to your resident RESPA person.
• FinCEN.  They've released the most recent quarterly mortgage fraud report.  SARs involving mortgage fraud are up more than 7% in the period covered by the report. That could mean more fraud, or that we're getting better about finding it and reporting.  In any event, fraud seems to be a very common theme.  NCUA's Inspector General points to it, FinCEN points to it, and the SEC points to it. It seems to me that we could see some fraud-related guidance at some point in the not-too-distant future.
• Speaking of NCUA's OIG, here's their 2011 annual performance plan.  What caught my eye?  

"We anticipate at least 8 to 12 additional material loss reviews in 2011 will require a significant portion of our OIG resources."

• NCUA has released Letter to Federal Credit Unions 10-FCU-03.  The letter replaces Letter to Credit Union 150 regarding the sale of non-deposit investment products.  I'll address this in greater detail in the very near future. 

This and That...

Posted by Anthony Demangone

Here are some items of interest.

• You may have caught on to the fact that I enjoy reading the works of Felix Salmon.  In this post, Mr. Salmon dissects a disclosure he received from his bank.  As you'll read, the disclosure is nearly impossible to understand.  The post is a nice reminder of this fact: we write or disclose words to communicate. What are you trying to say?  Once you know that, say it as clearly as possible.  There are times when we must use precise words or "legal terms of art."  Outside of those times, though, writing or disclosures should be clear and easy to understand.  Don't use 50-cent words when a nickel buys you exactly what you need. Don't force readers to choose between confusion and reaching for a dictionary.  And you should hire a monkey to slap you whenever you use any of the following terms in a document meant for general consumption: heretofore, whereas, or any Latin phrase.  
• The Fed has updated its Consumer Compliance Handbook.  Here's how I use these handbooks.  Someone may ask you for an overview of Regulation E.  You know all about Regulation E, but you are swamped.  Why not refer them to the Reg E portion of the handbook? Or use the handbook when building a training program to make sure you don't forget something important.  In an age of increasing work demands, always lean on trusted resources whenever possible. 
• I'll say this, Elizabeth Warren certainly isn't shy when speaking about her plans for the CFPB. In her cross-hairs? Credit cards and mortgages.   (Kiplinger.com) (Hat tip to Mr. Harrigan.)

Consumer Compliance Outlook; This and That

Posted by Anthony Demangone

The Fed has released the latest issue of its Consumer Compliance Outlook publication.  I always find the articles to be well-written, and very useful.  Of note in this issue:

• An article on changes to the HUD-1.
• Furnisher requirements under the FACT Act.
• MDIA explanations and examples.
• An index of all of their articles.
• A super useful calendar of upcoming requirements.

Sign up to receive email notifications when new issues are available here. 

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In other news:

• NCUA charters 2 "bridge" corporate credit unions. 
• NAFCU members: We've issued a "Final Regulation" for NCUA's recent Short Term/Small Amount Loan Regulation.
• The FDIC has issued guidance on the security risks involved with digital images stored on copiers, fax machines, and printers.  You may recall that we wrote about this issue back in August. In short, these machines store digital images of the faxes, copies or items that you print.  When you get rid of the machines, the images go with them unless you have policies and procedures in place to strip the potentially sensitive data.  The security risk increases compliance risks related to Part 748 of NCUA's rules and regulations, not to mention Red Flags. 

 

Escrow Accounts for Manufactured Homes; This and That

Posted by Anthony Demangone

I'm sure many of you are aware that, beginning on October 1, 2010, credit unions will need to escrow for loans secured by a first lien to purchase manufactured loans that will be the principal residence of the borrower - if the loan qualifies as a higher-priced mortgage loan. The requirement applies to loans for which the credit union received an application on or after October 1, 2010.

I hate having to write sentences like that, but with all of the qualifications inside of regulations, you really have to sometimes.

So, what escrow rules would apply?  The Official Staff Interpretations point you to RESPA.  But let me highlight some additional language.

35(b)(3) Escrows.

Paragraph 35(b)(3)(i). 

1. Section 226.35(b)(3) applies to principal 

dwellings, including structures that are 

classified as personal property under state 

law. For example, an escrow account must be 

established on a higher-priced mortgage loan 

secured by a first-lien on a mobile home, boat 

or a trailer used as the consumer’s principal 

dwelling. See the commentary under 

§§ 226.2(a)(19), 226.2(a)(24), 226.15 and 

226.23. Section 226.35(b)(3) also applies to 

higher-priced mortgage loans secured by a 

first lien on a condominium or a cooperative 

unit if it is in fact used as principal 

residence.

2. Administration of escrow accounts. Section 226.35(b)(3) requires creditors to 

establish before the consummation of a loan 

secured by a first lien on a principal dwelling 

an escrow account for payment of property 

taxes and premiums for mortgage-related 

insurance required by creditor. Section 6 of 

RESPA, 12 U.S.C. 2605, and Regulation X 

address how escrow accounts must be 

administered.

A member noticed a possible disconnect here.  Not all loans for manufactured homes are subject to RESPA.  Note, Regulation Z indicates that you have to escrow for structures that are classified as personal property, but let's say that personal property is simply parked in someone's back yard?  If the credit union doesn't have a lien on the real property, the loan for the structure isn't subject to RESPA. 

So, do you still have to comply with RESPA's escrow rules, even though the loan itself may not be subject to RESPA? 

We spoke with one of the attorneys who drafted the rule.  She indicated that the rule clearly mandates escrow accounts as we highlighted above. But if the manufactured loan isn't subject to RESPA, credit unions that follow RESPA's escrow rules will enjoy a safe harbor.  The Fed simply didn't want to create a brand new escrow system out of whole cloth when one already exists.

Mind you, there's no mention of the escrow safe harbor in the rule itself, but the Fed's position made sense. 

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NAFCU Members: The September issue of the NAFCU Compliance Monitor is now available.

TCCUSGP.  NCUA has extended the expiration date of NCUA’s Temporary Corporate Credit Union Share Guarantee Program from September 30, 2012, to December 31, 2012.

Credit Card Musings

Posted by Anthony Demangone

Someone forwarded this interesting article to me from the Wall Street Journal.  I take exception with the headline, "New Credit-Card Tricks."  Anytime someone from the financial industry adapts to a new set of rules, such as the Credit CARD Act, they are playing "tricks."  I guess that's life.  In any event, here's something that caught my eye:

The Card Act also stipulates that issuers can't jack up rates on existing balances unless a cardholder is at least 60 days late. But there is a creative maneuver around that: the so-called rebate card.

Citibank rolled out rebate-card offers to some of its customers last fall, offering to refund up to 70% of finance charges when customers pay on time. The problem: Rebate offers aren't governed by the Card Act, and an issuer can revoke them suddenly and hit cardholders with high charges.

The net result is the same as raising rates—and because it is perfectly legal, customers have little recourse. "Rebates on finance payments may seem like a good deal, but you could end up with a very high interest rate suddenly," says Mr. Frank, of the Center for Responsible Lending.

"The rebate offer is clear, transparent, and we believe fully within the spirit of the Card Act," says Citigroup spokesman Samuel Wang.

So, while the Credit CARD Act and resulting Reg Z changes make it difficult to increase rates on purchases and existing balances, there is an argument that it does not cover such "rebate" features.  Food for thought.

The WSJ article also serves as a good reminder.

1. Major newspapers have financial journalists.  They give advice and/or write articles that point at perceived abuses by financial institutions.  This article notes how consumers with credit cards can improve their lot by calling in to "fight back" and "raise hell."  That's why it is wise to read local newspapers.  Your members will read them, and they'll react accordingly.
2. Journalists love a good story.  This article talks about a gentlemen with a Discover card who had his interest rate increased in a way that he thought violated the Credit CARD Act.  At the end of the day, the bank didn't violate the Act. But he's still in the article, and the WSJ contacted the bank directly.  They ended up reversing the fees and interest rate increase.  Consumers who feel wronged will sometimes reach out.  There's not much you can do to prevent that, but you should always remember that it is a possibility.

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On a semi-related note, here is a wonderful blog post written by Professor Don Boudreaux of the George Mason University.  Professor Boudreaux writes numerous "letters to the editor" that challenge statements and statistics that fly in the face of reason or sound economic theory.  This one was a beauty, and it was written to the Wall Street Journal.

You’re correct that the Credit Card Accountability, Responsibility and Disclosure Act of 2009 will discourage lenders from extending credit to households most in need of it by arbitrarily reducing the penalties that lenders may assess against dead-beat and delinquent debtors  (“The Politics of Plastic,” August 24).  Our Leaders, though, cling to their peculiar faith that regulations never create incentives for people to do what Our Leaders would prefer people not to do.

Let’s put this faith to a real test: Ask Congress and the White House to regulate more strictly the penalties assessed by the IRS against dead-beat and delinquent taxpayers – for example, let’s reduce fees and interest charges for late payment of taxes, and eliminate jail time as a punishment for tax evasion.  If Our Leaders’ faith is sound, there will be no increase in tax evasion and delinquencies.  Revenue collected by the IRS will be unaffected.  The IRS’s stiff penalties will be seen to have been unjustified because (if Our Leaders’ faith is true) these penalties do nothing to encourage timely and full payment of taxes.

Sincerely,

Donald J. Boudreaux

Things I Think that I Think

Posted by Anthony Demangone

Here are seven things that I think that I think.  But I'm not completely sure yet...

1. I think the days of lazy summers for compliance officers are over, if they ever existed.  People like to hold on to myths, and I think this is one of them.  
2. I think we should all be nice to anyone responsible for mortgage compliance issues. 
3. I think we should impose a page limitation on proposed regulations. If you can't get it done in 200 pages, perhaps the document is a wee bit complicated for general consumption.
4. I think that regulators expect a lot when they issue five rule-makings in one day.  It is hard to comply with things when there isn't enough time in the day to read proposals, let alone analyze them. 
5. Now that I think about it, I think there should be an issue limit on top of the "page limit" for regulators.  It is impossible for organizations to comply with scores of new laws, regulations and guidance documents when they are issued on top of each other.  I wonder what our world would be like if each regulator was only allowed to issue five major rule-makings or guidance documents each year? 
6. I think regulators should point to existing guidance documents first whenever possible, rather than creating new documents.  If existing guidance is adequate, enforce it. 
7. I think that's enough thinking for today.

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Here are a few items of interest.

Regulation and the cost of credit.  We warned folks that added layers of consumer protection and regulatory restrictions would drive up the cost of credit.  It looks like we may be right.  Your honor, I'd like to enter into evidence Exhibits One (CNN.com) and Two (WSJ.com).

OFAC.  A bank has paid roughly $92,000 to settle claims of OFAC violations. The original fine was more than $200,000, but the bank self-reported the violation.  I'm seeing an up-tick of OFAC violations.  It is hard to know whether this is a general trend or whether the issues were specific to the affected financial institutions.  In any event, it is something to track.

Reg Z.  The Fed issued Consumer Affairs letter CA 10-10 to announce bank examiner procedures for the August 22, 2010 Reg Z changes.