NAFCU Compliance Blog

Credit CARD Act - Section 103; NAFCU Softball

Posted by Steve Van Beek

Today, we are going to turn to Section 103 of the Credit CARD Act.

A quick reminder - all previous posts on the Credit CARD Act can be found under the category "CreditCardReform" on the right hand side of the blog's mainpage.  Or by clicking this link.

Section 103 - Use of Terms Clarified

Section 103 adds subsection (m) to Section 127 of the Truth in Lending Act (TILA).  This subsection places limitations on using the term "fixed" to describe a credit card account.  A credit union may only use the term "fixed" to refer to an APR that will will not change or vary for any reason over the period clearly disclosed in the terms of the account.  This means if a credit union offers a "Fixed 9.99% APR" credit card and does not specify a time period for the 9.99% APR to expire - the credit union will not be able to change the APR on the account.  Never.  

The credit union could use the term "fixed" if it specifies the time period the APR will not change - for any reason.  Thus, you could offer a credit card that was "Fixed 11.99%" for the first two years after which it would be a variable account at the prevailing APR (based on a disclosed margin and index) at the end of the two years.  Remember, Section 172(b) of TILA - added by Section 101 of the Credit CARD Act - requires promotional periods to be at least 6 months long.   

The Federal Reserve's consumer testing indicated that consumers believed the word "fixed" meant that it could never change.  Here is the explanation from the Fed's open-end amendments to Regulation Z (see page 11 of the 255 page PDF for more information - caution large document):

"Advertising ‘‘fixed’’ rates. Creditors sometimes advertise the APR for open end accounts as a ‘‘fixed’’ rate even though the creditor reserves the right to change the rate at any time for any reason. Consumer testing indicated that many consumers believe that a ‘‘fixed rate’’ will not change, and do not understand that creditors may use the term ‘‘fixed’’ as a shorthand reference for rates that do not vary based on changes in an index or formula. Under the final rule, an advertisement may refer to a rate as ‘‘fixed’’ if the advertisement specifies a time period the rate will be fixed and the rate will not increase during that period. If a time period is not specified, the advertisement may refer to a rate as ‘‘fixed’’ only if the rate will not increase while the plan is open."

As a result, the Federal Reserve had included this language in its upcoming amendments to Regulation Z:

"(f)  Misleading terms. An advertisement may not refer to an annual percentage rate as "fixed," or use a similar term, unless the advertisement also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open."  12 C.F.R. § 226.16(f).  This section will be effective July 1, 2010 for all open end (not home-secured) consumer credit plans.  This link will take you to the language of Section 226.16 of Reg Z as it will read after July 1, 2010.

Thus, you may want to gather your marketing staff and do a review of your current and planned open end advertisements.  How are you currently using the word "fixed"?  Do you specify a time period that the account will be "fixed"?  

***

After 4 straight weeks of being canceled due to inclement weather, the NAFCU Nationals softball team hit the field last night.  It wasn't the ideal situation as the NAFCU Nationals emerged from their month-long hiatus to face the league-leading Diamond Cutters - who were 7-1 coming into last night's games.

The first game - could have been better.  NAFCU struggled to get the bats going early and ended up losing the first game 15-3.  The second game was a much better game and the Diamond Cutters were given a run for their money.  NAFCU got behind 2-7 early but chipped away with 2 runs in the top of the 4th inning making it 4-7.  After three straight outs, the NAFCU bats caught fire in the top of the 5th with every batter hitting in the inning - the end result being an 8 run inning and a 12-7 NAFCU lead.  However, the Diamond Cutters proved why they were leading the league and came through with 6 runs in the bottom of the 5th for a 12-13 victory.  Despite the loss, the 2nd game was the best the NAFCU Nationals have played as a team and bodes well for the rest of the season.

The current record is 3-7 with a late season push needed to make the playoffs.  We can do it. 

FHA Violations; Shameless Plug

Posted by Steve Van Beek

HUD has been busy and not just getting RESPA finalized.  Last week, HUD issued violations against 120 lenders for FHA violations.  The recently signed Helping Families Save Their Homes Act gives additional enforcement tools to battle FHA-related fraud. 

Wondering who enforces FHA loans for credit unions?  The answer is here.  When I first started at NAFCU, this is one of the first documents the Compliance Guy gave me.  I'm just glad I had a fresh cup of coffee when I tried to wrap my head around that document.

***

Next Wednesday, June 3, NAFCU will be hosting a webcast on Maximizing Recovery on Delinquent Loans which will also focus in on foreclosure and bankruptcy issues.  The early-bird registration has been extended to Monday, June 1, so you still have time to get the discounted rate. 

If you haven't seen NAFCU's new "Online Learning Solutions" webpage, you might want to give it a look as it highlights NAFCU's live webcasts, archived webcasts, new online volunteer training program, webinars and podcasts. 

***

The weather won the softball games last night.  The NAFCU Nationals will have to wait until next week to attempt to reach the magical .500 mark.

Have a great weekend!  And go Red Wings! 

(Anthony is out of town for NAFCU's Volunteer's Conference so I'm comfortable hijacking the blog with my Red Wings propoganda...)

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

Posted by Anthony Demangone

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

***

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

***

NCUA held its monthly board meeting yesterday. 

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

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

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

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

The final direct dispute regulations: 

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

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

***

Updated by Steve Van Beek

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

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

***

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

Affiliate Marketing; NAFCU Softball

Posted by Sarah Loats

The NCUA, along with the federal banking agencies, issued technical amendments to the Affiliate Marketing rule. According to the summary, the technical amendments correct minor errors and omissions but do not change any substantive requirements:

"The technical corrections included in this Federal Register document revise one of the affiliate marketing model forms and the instructions to the model forms to correct inadvertent omissions and conform the model forms and the instructions to the affiliate marketing rules, and correct minor errors in the identity theft red flags and address discrepancy rules and guidelines. The substantive requirements of the affiliate marketing and the identity theft red flags and address discrepancy rules are unchanged."

***

NAFCU softball found itself in familiar territory last night - a split of a doubleheader.  The first game was a 13-2 NAFCU victory spurred on by a nine run 3rd inning.  However, the second game result in a 8-5 defeat despite a late rally from NAFCU.  The current record stands at 2-4. 

Game ball goes to Corey Davis of Member Services - two big hits in the first game to seal the victory. 

The Hill; Prohibition Orders; Softball

Posted by Anthony Demangone

Wow, was yesterday a big day on Capitol Hill.

First, a movement to give bankruptcy judges the ability to "cram-down" mortgages in certain situations was unsuccessful yesterday.  As you may recall, NAFCU opposed the proposed legislation.  The movement, which was pushed as an amendment to major housing legislation before the U.S. Senate needed 60 votes.  It fell short of 50.  Kudos to NAFCU's team of lobbyists, who worked around the clock the last few weeks. 

The Senate is also looking at giving NCUA additional borrowing authority to deal with the corporate credit union situation, as extending the share insurance increase to $250,000.

Finally, the House passed legislation to provide additional legislative protections to consumers in the area of credit cards.  Much of the legislation is already going to take affect as part of UDAP.  But the legislation would codify those changes, making them much more difficult to roll back.  That now moves to the Senate. 

Rather than hash out all the details, NAFCU Today has done a good job of providing great overviews of what took place.  Read all about it here.

***

NCUA issued prohibition orders on Wednesday.  Read all about them here.  The orders are good wake-up calls for two groups of people:

1. Those who refuse to believe that there are people simply looking to rob your credit union blind; and
2. Those people who think no one is looking for insider abuse.

***

Have a great weekend, everyone!  Mandy and I have a babysitter for Saturday! My goal is to have an adult beverage or two, have a nice dinner, and then fall asleep by 9 p.m.

***

Added by Steve Van Beek

NAFCU Softball Update: The NAFCU Nationals split their games on Thursday night.  The first game was a nail biter with NAFCU losing 11-10.  We rallied in the bottom of the last inning and had the tying run on third base but their centerfielder made a diving catch to end the game.

Game Two was a whole new game with the NAFCU bats catching fire.  The game started with a inside-the-park homerun by Quincy, one of NAFCU's lobbyists, and we never looked back.  Final Score: 23-3 (the good way). 

Environmental Risk in Real Estate Lending; NAFCU Softball

NCUA recently issued Letter to Credit Union 08-CU-13, which warns federally-insured credit unions about the environmental risk that exists in real estate lending.  In NCUA's words:

The purpose of this letter is to inform all federally insured credit unions of potential liability to your members, and possibly to the credit union, when environmental contamination is discovered on real property financed by the credit union. While environmental liability can occur with any real estate secured loan, it is generally more likely to occur with non-residential real estate (i.e., commercial use properties). All credit unions granting real estate secured loans need to be aware of this issue and credit unions granting member  business loans secured by real estate should establish policies and procedures to help ensure liability in this regard is minimized.

The letter has two nice attachments that provide detailed guidance.  And here's a thought: if your credit union is thinking about a merger, it might make sense to measure the "environmental risk" of the new properties you'll be acquiring.

***

All good things come to an end.  Mediocre things may even end sooner.  Case in point: the 2008 NAFCU Softball Team.  We entered the playoffs with high hopes, but left quickly after being swept.  We ended the season with a 6-14 record.  Obviously, we were a much better team than our record. 

Obviously.

Marketing Opt-Out?; NAFCU Swept

NCUA's privacy regulation and the ever-approaching affiliate marketing rules raise an interesting issue for credit unions.  I call it the consumer opt out confusion issue.  Under both regulatory structures, credit unions might have to offer members the right to opt out of certain information sharing practices. 

Where does the confusion come in?  The opt-outs noted above are very limited in scope.  One limits the ability of a credit union to share information with third parties, and the other limits the ability of credit unions to share/use information with affiliates for marketing purposes.  There are a number of exceptions to these opt-outs; some are large enough to drive a truck through.  For credit unions that do or will offer opt-outs, I wonder whether members understand what they are really opting out from. (Yes, I know that sentence ended in a preposition.  What was I thinking of?)  My guess is that many members do not.  They may view these opt outs as a way to "unsubscribe" from marketing campaigns.  At the very least, members that select an opt-out are raising their hand to let you know how much they value their personal information and privacy. 

With that in mind, I spoke with a credit union today that gives their members the right to a "marketing opt-out."  These members have the right to exclude themselves from all credit union marketing campaigns.  (Interestingly, this credit union currently does not need to offer their members an opt-out under the privacy rules and does not plan on offering an affiliate information opt-out.)  I asked how it worked, and the compliance officer said that it seemed to keep a very specific segment of their membership happy.  "And happy members deposit more," she added.

The affiliate marketing rule contains a model disclosure (in Appendix C) along these lines.  Here's what it says:

C–5—Model Form for Voluntary ‘‘No  Marketing’’ Notice—Your Choice To Stop Marketing
• [Name of Affiliate] is providing this notice.
• You may choose to stop all marketing from us and our affiliates. To stop all marketing, contact us [include
all that apply]:
• By telephone: 1–877–###–####
• On the Web: www.---.com
• By mail: Check the box and complete the form below, and send the form to:
[Company name]
[Company address]
____ Do not market to me.

While there's no requirement to offer such an opt out, I think it is a good way to manage member expectations and manage your reputation risk.  Do any of you offer this marketing opt-out?  How is it working?  (To add a comment if you received this posting via email, you'll need to click on the title above, scroll to the bottom of the posting, and then...well, follow directions.)

***

Last Thursday, NAFCU's softball squad (4-8) was pummelled by the undefeated Llamas.  I'm not even going to share the scores.  Let's put it this way, one at bat by our opponents lasted 45 minutes.  No joke.  If it weren't for the fence, some of their hits would still be rolling.  Now, I'm not saying that the Llamas were using ringers, but 4 of their women hit from the left side and looked like they were employed as college softball hitting coaches.  Not that I'm bitter about it.

FinCEN has a New Look; You Win Some, You Lose Some; Where's My Check?

FinCEN has updated its web page.  I normally get queasy when agencies update their web pages, because I have to spend the next two weeks wandering around the "new and improved" website to find what I need.  But this change makes sense.  You can visit it here.  FinCEN now organizes information by industry.  Along the top, you'll see an icon for "financial institutions."  When you click on that, you'll go to an area that gathers all the information that pertains to us.  Nice.

***

NAFCU (4-6) split another double-header.  Somehow, we have to win two in a row to get back to .500.  I'd like to say that we're a much better team than our record reflects.  But doesn't every team with a losing record say that?  That being said, we are a much better team than our record reflects.  Really.

***

Here's a link to an old post that tells you when you can expect your IRS stimulus check. Or, as my friend Larry puts it, when he can expect to buy a big screen TV.  Based on the IRS schedule, many of the checks are about to delivered or are on their way very soon.  For credit unions, this could lead to increased deposits or loan payments. 

NCUA Agenda Set; NAFCU Splits Another Double Dip

Mandy always accuses me of having an agenda.  While I don't have one, NCUA does indeed.  NCUA has announced the agenda for this week's NCUA Board Meeting.  You can access it here.  The agenda is fairly packed.  Read a NAFCU Today article about the agenda here. Read a CU Times article about it here. Here's what they are looking at:

1. NCUA’s Outreach Task Force:  Data Collection.
2. Board Briefing:  Proposed Rule - Part 706 of NCUA’s Rules and Regulations, Unfair or Deceptive Acts or Practices.            
3. Proposed Rule:  Part 701 of NCUA’s Rules and Regulations, Interpretive Ruling and Policy   Statement (IRPS) 08-2, Criteria to approve service to underserved areas.                                             
4. Proposed Rule:  Part 721 of NCUA’s Rules and Regulations, Incidental Powers

***

NAFCU split another doubleheader last Thursday.  This brings the season record to 3-5. If you speak with Steve Van Beek in Compliance this week, be respectful.  He hit 4 home runs during the two game stretch and made two spectacular catches in the field.  Erin "Jazz Hands" Plant played a flawless second base.  I dated myself by comparing her to Jose Lind, an outstanding second basemen for the Pirates back in the early 90's.   

NCUA issues Lending/ODP Proposal; NAFCU Softball Splits

On Friday, NCUA approved a proposed regulation that would prohibit federal credit unions from engaging in certain acts or practices in connection with consumer credit cards accounts and overdraft services for deposit or share accounts.  You can access the proposal here. (It is the top link.  Note: the proposal in .pdf format is 269 pages in length as several agencies regs are included in one document.)

The proposal would amend Part 706 of NCUA's rules and regs.  Here is a link to an NCUA press release that provides a general overview of the proposal.    Below, I'll briefly discuss a number of issues that caught my eye.  Please remember that this proposal is large in scope!  I really suggest that you read NCUA's release and then dig into the proposal if you need more details. Of note:

Credit Card Programs.  When different interest rates apply to a credit card account balance, the proposal would require FCUs to reasonably allocate payments in excess of the required minimum payment among each item in a manner no less beneficial to three specified manners. The proposal would prohibit assessing an over-the-credit limit fee against a member who exceeded the credit limit solely because a hold is placed on the account.  The proposal also would prohibit applying an increased interest rate retroactively to pre-existing balances, except for cases involving a variable rate, the expiration of a promotional rate, or where the member is more than 30 days late in making the minimum payment.

Overdraft Programs.  The proposal would prohibit an FCU from imposing a charge for payment of an overdraft, unless it has provided the member with an opportunity to opt out of the overdraft protection program, and the member has elected not to opt out. Members may elect to do a partial opt-out to prevent overdrafts caused by ATM withdrawals and point of sale transactions.  Also, the proposal would prohibit overdraft charges if the overdraft is caused solely by a hold placed on funds that exceed the actual purchase amount of the transaction, unless the actual purchase amount would have caused the overdraft.

NAFCU is working on a Regulatory Alert which will detail the proposal.

***

NAFCU (2-4) split another double-header last week, losing game one 14-8 before bouncing back  9-3 in the nightcap.  Standout efforts:

Leann Raney played a great third base and score a few key runs to get the offense going.
Corey "Big Hurt" Davis overcame a tight jersey to provide a couple of big hits and play outstanding defense.
Javier Sanchez had lots of timely hits (on both sides of the plate!) and great catches in left center.
Andrea Ansell played great at catcher.
Larry Palmer fell two more times, as well as having a game winning, 2 RBI single in game two.  Larry has a talent for entertaining falls.  He has totaled 4 this season.  But who's counting?