NAFCU Compliance Blog

NCUA Meeting; Vendor Risk Management; Current Issues in Credit Unions

Written by Steve Van Beek

Just a couple of quick items for your Tuesday.

NCUA Cancels Board Meeting.  Last week, NCUA announced it would cancel its April Board meeting.  This is the second canceled meeting in 2012 for NCUA.  Hopefully, it means NCUA is putting extra effort and attention on reducing the regulatory burden on credit unions.  

Consumer Compliance "Outlook Live."  Yesterday we mentioned the resource Consumer Compliance Outlook from the Philadelphia Federal Reserve.  This group also provides free webinars and recently announced a May 2nd webinar on Vendor Risk Management.    

There are also archived webinars available for viewing:

• Consumer Compliance Hot Topics (December 15, 2011)
• Fair Lending Issues and Hot Topics (November 2, 2011)
• Real Estate Owned (REO) Disposition Risks and CRA Opportunities (October 4, 2011)
• Proposed Ability to Repay Standards for Mortgage Loans (May 26, 2011)
• Loan Originator Compensation (March 17, 2011)
• Risk Based Pricing Notices (February 17, 2011)
• Tips for Reporting Accurate HMDA and CRA Data  (November 17, 2010)
• Consumer Compliance “Top Ten” Lists  (May 20, 2010)
  

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Current Issues in Credit Unions.  The latest Current Issues in Credit Unions podcast (Episode #69) is now available for download and listening.  You can find the agenda as well as past episodes here.    

Rob Rutkowski of Weltman, Weinberg & Reis does a great job with organizing and conducting these podcasts (including the live taping at our 2011 Compliance Seminar - Episode 64).

Rob will also be presenting at two upcoming NAFCU webcasts in April:

• April 11, 2012 (Tomorrow!):  Complying with Regulation B under the CFPB: Protecting Your Credit Union from Unlawful Lending
• April 25, 2012:  Managing Risks for Online Deposit Accounts (Early Bird Pricing ends April 18th)

Upcoming Compliance Deadlines - Spring 2012

Written by Steve Van Beek

There are a few upcoming deadlines to make sure your credit union is making progress on.  

HMDA Reporting.  The deadline for HMDA submissions is March 1, 2012.  NCUA issued a Regulatory Alert earlier this month - 12-RA-01 - that highlights the reporting deadline.  

ADA & ATMs.  The March 15, 2012 deadline for compliance with the ADA requirements for ATMs is quickly approaching.  Remember, document your process and your communications with your vendors as it could be useful if there are delays and the CU faces a lawsuit.   

The speech output requirements apply to all ATMs and need to be in place by March 15, 2012.  The physical access requirements apply to ATMs that are altered after March 15, 2012.  The physical access requirements also apply to any new ATMs added after March 15, 2012.  Existing ATMs that comply with the 1991 ADA standards for physical access and are not altered would not need to be modified.  Additional information is available in last month's blog post.

Durbin - Unaffiliated Networks.  The requirement for unaffiliated networks goes into place on April 1, 2012.  This requirement means credit unions need to have two unaffiliated networks - such as one PIN network and one signature network - for processing transactions.  Additional information and details on this requirement can be found in our January 30th blog post.   

NLRB Notice.  Credit unions should be posting the National Labor Relations Board (NLRB) Employee Rights poster by April 30, 2012.  A couple past NAFCU blog posts discussed this issue in more detail:  January 4, 2012 and December 2, 2011.  

Finding the CFPB's Regulations

Written by Steve Van Beek

Dodd-Frank transferred authority for the "enumerated consumer laws" to the CFPB on July 21, 2011.  In late December, the CFPB officially republished the regulations that implemented these "enumerated consumer laws" in its own section of the Electronic Code of Federal Regulations.

For credit unions, this means we need to use the CFPB's regulations for our research and our citations.  For example, the correct citation for Regulation Z is now 12 C.F.R. 1026 and not 12 C.F.R. 226.  

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Why does this matter?  When the CFPB issues changes to these regulations - such as the remittances final rule - these regulations will only update the CFPB's Regulation E.  The prior version of Regulation E - under the Federal Reserve - will not be updated.  In order to research the latest and most accurate information, look to and cite the CFPB's regulations.  Note:  The remittances final rule can be found in Subpart B to Regulation E.    

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CFPB Regulations.  Below are links to the CFPB's regulations with the updated citations.  This should be the starting point for your research.  

• 12 C.F.R. 1002 - Regulation B:  Equal Credit Opportunity Act
• 12 C.F.R. 1003 - Regulation C:  Home Mortgage Disclosure Act
• 12 C.F.R. 1005 - Regulation E:  Electronic Funds Transfers
• 12 C.F.R. 1006 - Regulation F:  Fair Debt Collection Practices Act
• 12 C.F.R. 1007 - Regulation G:  SAFE Act Mortgage Licensing - Federal System
• 12 C.F.R. 1016 - Regulation P:  Privacy of Consumer Financial Information
• 12 C.F.R. 1022 - Regulation V:  Fair Credit Reporting Act
• 12 C.F.R. 1024 - Regulation X (RESPA):  Real Estate Settlement Procedures Act
• 12 C.F.R. 1026 - Regulation Z - Truth in Lending Act

Above is not a complete list, but they are the ones with the biggest impact on credit unions.  The full listing of the CFPB's regulations is in Section 1000-1099 of Title 12 of the Electronic Code of Federal Regulations.

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A couple of other items to keep in mind:

• Truth in Savings.  Credit Unions need to follow Part 707 for Truth in Savings rather than Regulation DD.  This blog post has more information.
• Federal Reserve.  The Federal Reserve lost authority for quite a few regulations.  However, they retain control over regulations that were not deemed to be "consumer" regulations.  This blog post has additional information on which regulations stayed with the Federal Reserve.  

HMDA; HMDA; HMDA

Written by Steve Van Beek

A couple of HMDA items for your Wednesday.

HMDA Asset Threshold.  Today, the CFPB published the HMDA asset threshold in the Federal Register.  Institutions below $41 million in assets - as of December 31, 2011 - are exempt from HMDA reporting for 2012.  The CFPB was quite a bit tardy on disclosing the HMDA asset threshold.  As I blogged about in early January, the Federal Reserve (who had authority for Regulation C prior to Dodd-Frank) had historically notified institutions in December of the reporting threshold for the upcoming year.

The uncertainty that institutions hovering near the asset threshold have felt over the past 6 weeks of 2012 - where they were in regulatory limbo - won't show up in any calculations of "regulatory burden" - but it was real.  That is for sure.

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CRA-HMDA Reporter.  One of the interesting aspects of HMDA is that Regulation C passed to the CFPB but the actual HMDA reporting and submission process has stayed with the Federal Reserve (at least for now).  The Fed has a new CRA-HMDA Reporter that was just released.  This report is published every two years and contains very detailed information on the technical aspects of HMDA reporting - such as recreates, census tract changes and changes from Dodd-Frank.

Be sure to pass this newsletter on to the folks at your credit union who work with HMDA.

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NCUA's Office of Consumer Protection.  The NCUA Report contains articles from various offices at NCUA - including the Office of Consumer Protection.  The February article from the OCP discusses Fair Lending Examinations and how the NCUA uses HMDA data during the process.  The article also mentions common areas of confusion that it sees as credit unions.  Give this article a read as it might be an area of focus in the future.  

Updated Threshold Levels for 2012; Musings from the CU Suite

Written by Steve Van Beek

A new year usually brings with it updated thresholds for various regulations.  Below are a couple of updated thresholds and, unfortunately, one unknown.  

Reg Z - Section 32 Threshold

Each year, the "points and fees" dollar amount threshold for Section 32 (high-cost mortgage loans) is adjusted.  The underlying requirement comes from 12 CFR 1026.32(a)(1)(ii):

"(ii) The total points and fees payable by the consumer at or before loan closing will exceed the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1."

Here are the last few years - including 2012 - from Comment 2 in the Official Staff Commentary to Section 1026.32(a)(1)(ii):

"xiv. For 2009, $583, reflecting a 3.94 percent increase in the CPI–U from June 2007 to June 2008, rounded to the nearest whole dollar.

xv. For 2010, $579, reflecting a 0.74 percent decrease in the CPI–U from June 2008 to June 2009, rounded to the nearest whole dollar.

xvi. For 2011, $592, reflecting a 2.2 percent increase in the CPI–U from June 2009 to June 2010, rounded to the nearest whole dollar.

xvii. For 2012, $611, reflecting a 3.2 percent increase in the CPI–U from June 2010 to June 2011, rounded to the nearest whole dollar."

The 2012 threshold was published in the Federal Register by the Federal Reserve on June 20, 2011 (the Fed had authority over Reg Z until July 21, 2011).

Thresholds for Regulation Z and Regulation M

Dodd-Frank increased the exemptions in Regulation Z and Regulation M from $25,000 to $50,000 on July 21, 2011.  These exemptions were also tied to inflation and increased to $51,800 on January 1, 2012.

• Regulation Z Federal Register from June 20, 2011.
• Regulation M Federal Register from June 20, 2011.

Comment 1 to the Official Staff Commentary to Regulation Z includes background on these exemption levels:

"i. Prior to July 21, 2011, the threshold amount is $25,000.

ii. From July 21, 2011 through December 31, 2011, the threshold amount is $50,000.

iii. From January 1, 2012 through December 31, 2012, the threshold amount is $51,800."

HMDA Reporting Asset Threshold

I wish I knew what to tell you.  This seems to be the perfect example of growing pains with a new regulator.

In the past, the Federal Reserve published the HMDA asset threshold each December informing institutions who would need to collect HMDA data during the following year.  Below are the announcements from the Federal Reserve for past years:

• For the 2011 reporting year, a $40 million asset threshold.
• For the 2010 reporting year, a $39 million asset threshold.
• For the 2009 reporting year, a $39 million asset threshold.  

So, what is the threshold for 2012?  Unfortunately, no one seems to know - the CFPB hasn't provided any information on the 2012 threshold.  When the CFPB republished the consumer regulations, including Regulation C (HMDA), it did not update the asset threshold.  

Here is how the Official Staff Commentary currently reads for Regulation C:

"2. Adjustment of exemption threshold for depository institutions. For data collection in 2011, the asset-size exemption threshold is $40 million. Depository institutions with assets at or below $40 million as of December 31, 2010 are exempt from collecting data for 2011."  (emphasis added).

We'll be sure to update everyone as soon as we hear from the CFPB on the asset level for 2012 reporting.  In the meantime, chalk this one up as an example of unnecessary regulatory burdens.  

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New NAFCU Blog.  The new year also brings exciting news on the blog front.  Everyone knew blogging runs through his veins and it was only a matter of time before Anthony Demangone was blogging again.  Well, he's back - this time sharing his experiences as an executive.  

What is the new blog about?  The blog's subtitle says it all: Great Links. Big Ideas. A splash of Random Commentary.

Take a peek at NAFCU's new blog - Musings from the CU Suite.  Stop by, say hi, leave a comment and consider signing up for the email feed.   

FAQs

Posted by Anthony Demangone

Here's an old post, which references a few other posts as well.  All of them touch upon "frequently asked questions" documents.  Regulators issue these guidance documents to answer, well, frequenly asked questions.  These documents can be very useful for a number of reasons.

1. They generally are written in something akin to English. 
2. They can be a quick way to provide an authoritative answer to a colleague.  For example, is a modular home a manufactured home for purposes of Regulation C? Here's what the FFIECsays in a HMDA FAQ.

Modular homes. Is a modular home a manufactured home for purposes of Regulation C?

Answer: For Regulation C reporting, a manufactured home is one that meets the HUD code, 12 CFR 203.2(i). The official staff commentary indicates that modular homes that are ready for occupancy when they leave the factory and meet all of the HUD code standards are included in the definition of "manufactured home".203.2(i)-1. The comment, and a prior FAQ on this site, have raised questions about whether a modular home should be reported as a manufactured home or as a one- to four-family dwelling. Until the Board provides further guidance regarding modular homes, lenders may, at their option, report a modular home as either a one- to four-family dwelling or as a manufactured home.

So, take a look at the blog post below and see if any of the FAQs are useful.  We probably should update the post at some point, as new FAQs are being produced all the time. 

Here is one of my favorites from the FFIEC website on HMDA FAQs - which covers both regulatory and technical questions.  Also, this blog has a category of "FAQs" that you can look through.  Also, this post has numerous FAQ documents organized by topic.  Sometimes the first place to look is if the regulators have specifically addressed your question before.  

Happy hunting, everyone!

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Be sure to include the NAFCU11 promo code at checkout to save 10% on the price.  

This and That

Posted by Anthony Demangone

Here are a few items to kick off your week.

Garnishments.  Federal agencies have issued an interim final rule on garnishments.  Read the NAFCU Today article on the rule, which provides a nice overview.  

The rule establishes procedures that financial institutions must follow when they receive a garnishment order against an account holder who receives certain types of Federal benefit payments by direct deposit. The rule requires financial institutions that receive such a garnishment order to determine the sum of such Federal benefit payments deposited to the account during a two month period, and to ensure that the account holder has access to an amount equal to that sum or to the current balance of the account, whichever is lower.

The rule is effective May 1, 2011.  NAFCU is preparing a "Final Regulation" to provide a detailed overview of the new requirement.

Escrow.  The Fed recently issued a final rule  regarding escrow requirements for certain "jumbo" mortgage loans.

The final rule implements a provision of the Dodd-Frank Act that increases the annual percentage rate (APR) threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien, "jumbo" mortgage loans. Jumbo loans are loans exceeding the conforming loan-size limit for purchase by Freddie Mac, as specified by the legislation.

In July 2008, the Board issued final rules requiring creditors to establish escrow accounts for first-lien higher-priced mortgage loans. A first-lien mortgage is considered a higher-priced mortgage loan if its APR is 1.5 percentage points or more above the current average prime offer rate. Under the final rule being issued today, the escrow requirement will apply to first-lien jumbo loans only if the loan's APR is 2.5 percentage points or more above the average prime offer rate. The APR threshold for non-jumbo loans remains unchanged. The final rule is effective for covered loans for which the creditor receives an application on or after April 1, 2011. (Emphasis added.)

BSA. The Fed has published a Spanish version of the 2010 FFIEC BSA Manual. 

HMDA.  NCUA has issued Regulatory Alert 10-RA-02 to highlight data collection requirements related to HMDA and Regulation C for 2011.  

 

This and That...

Posted by Anthony Demangone

Here are a few items of interest.

The Fed.  You may have heard that the Federal Reserve has announced that it doesn't expect to complete three Regulation Z rulemaking initiatives before the CFPB assumes rulemaking authority for Regulation Z.  The rulemakings would have addressed mortgage disclosures (including HELOCs), the right of rescission, credit protection products (such as disability insurance), and reverse mortgages and modifications. You can read more about their decision via the link above.  Is the news good or bad?  Yes.  On one hand, this calms things down on the Reg Z front - at least for a little bit.  The CFPB takes hold of Reg Z in July, so these rules aren't going to be finalized before then.  But on the other hand, these issues can be picked up by the CFPB.  So the story isn't over.  How the CFPB will choose to proceed is a major unknown.  Stay tuned. 

Healthcare.  You may recall that we wrote about a certain provision of heath care reform that affected 1099s - greatly expanding their reach and increasing burdens for American businesses.  President Obama alluded to this provision in his State of the Union address, noting it was one provision that could change.  Yesterday, the U.S. Senate overwhelmingly voted to add language to an existing bill that, if enacted, would repeal that 1099 provision.  (Washingtonpost.com).  In other health care reform news, you may have seen that a judge struck down  (Washington Post) the entire health care reform law.  What does that mean? Ezra Klein provides a nice analysis.  (Washington Post.)

HMDA.  Bankersonline.com does a nice job of gathering civil money penalty information.  A number of FDIC-regulated entities have been hit with civil money penalties for HMDA violations.  A large number.   This underscores the importance of understanding HMDA, which is why I love the FFIEC's HMDA compliance guide. 

Regulation Z.  The FFIEC has announced (via the Fed) that the interagency Regulation Z examination guidelines have been updated.   This, folks, is a useful compliance resource. 

Sales of Nondeposit Investments; Reg C Adjustments - Yay!

Posted by Anthony Demangone

Earlier this month, NCUA issue Letter to Federal Credit Union 10-FCU-03 to provide guidance and its expectations concerning the sale of nondeposit investments by federal credit unions.  As you'll see when you read the guidance, that last sentence is a bit misleading, as FCUs really cannot sell these nondeposit investments.  They need to work with a third party, such as a CUSO, use a shared employee who somehow magically works for two employers - the credit union and the third party brokerage firm - depending on what the employee is doing, or by simply acting as a "finder" to point the member to a third party brokerage firm when necessary. 

This letter zaps and replaces an older piece of guidance - Letter to Credit Unions 150.  I'm not going to link to it, as that guidance was, well, zapped and replaced.  Forget about it.  Do not even mention its name.  If your credit union offers the sale of nondeposit investments, the guidance NCUA issued this month is what you must reference. 

Much of the guidance discusses due diligence efforts and the importance of internal controls.  They even talk about some contract issues if you sign a contract with a third party.  The guidance gets into advertising and disclosure issues as well, as these products are not backed by NCUSIF share insurance protection.  

If your credit union offers nondeposit investments, you need to read and understand this guidance.  It is only 8 pages in length, and it is written in English, not Legalese.  

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Regulation C Asset Exemption.  The Fed has issued its annual Regulation C/HMDA asset threshold exemption adjustment.  It will be $40 million, effective January 1, 2011.  I always like this announcement, because it means Old Saint Nick is not far away. 

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. 

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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.