NAFCU Compliance Blog

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.  

A Different Look at the Republished Regulations

Written by Steve Van Beek

With all the discussion of the CFPB's republishing of the consumer regulations, I thought it would be a good idea to also highlight some of the regulations that did not transfer to the CFPB.  

In December, we discussed how NCUA would retain Truth in Savings - Part 707 for credit unions.

There are also quite a few Federal Reserve regulations that did not transfer to the CFPB.  The rationale being that these regulations do not implement the "enumerated consumer laws" and, thus, didn't fall under the CFPB's authority.  

Here is a list with links to some of the Federal Reserve regulations that did not transfer to the CFPB:

• Regulation D - Reserve Requirements of Depository Institutions - 12 CFR 204
• Regulation CC - Availability of Funds and Collection of Checks - 12 CFR 229
• Regulation GG - Unlawful Internet Gambling Enforcement Act (UIGEA) - 12 CFR 233
• Regulation II - Debit Card Interchange - 12 CFR 235 

Keep in mind that the Federal Reserve retains control over these regulations.  Thus, if there is a rule change to Regulation CC, for example, it would come from the Federal Reserve.

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One of the gifts that Dodd-Frank gave to all credit unions is the need to look to another regulator for regulatory changes.  Which means we have another regulator that, unfortunately, does not have the ability to view the comprehensive regulatory burden put on credit unions by the various regulators.

Regulation CC & Dodd-Frank; The Bay State

Written by Steve Van Beek

The Federal Reserve issued a Consumer Affairs Letter that discusses Reg CC and the $200 change from Dodd-Frank. 

"Section 1086 of the Dodd-Frank Act amended the Expedited Funds Availability Act to require depository institutions to make the first $200 of funds deposited into an account by certain checks available for withdrawal on the business day after the banking day the deposit is received. Previously, depository institutions were required to make the first $100 available on the business day after such a deposit.

The Federal Reserve Board (Board) recently proposed revisions to Regulation CC, including the changes described above. See 76 Fed. Reg. 16862 (Mar. 25, 2011). While Regulation CC has not yet been finalized, supervised institutions will nevertheless be expected to comply with applicable statutory requirements."

The letter is dated August 15.  Which is interesting because the change to $200 became effective July 21, 2011.  

Dodd-Frank was signed on July 21, 2010.  The Reg CC proposal was released March 3, 2011.  I'm still puzzled why the Fed did not propose two separate rules - with one proposal solely implementing the $200 change.

These are the types of headaches that do not get captured in any data on regulatory burden.

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A familiar name has formed an Exploratory Committee for a Senate run in Massachusetts.  (WSJ.com)

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Have a great weekend!  Only two more weeks until football season!   

Upcoming Compliance Dates

Written by Steve Van Beek

Thursday marks the one-year anniversary of the signing of Dodd-Frank Act.  Of course, that day, July 21, 2011, also marks the day that current federal regulators - including NCUA - transfer authority of consumer regulations to the CFPB.

Dodd-Frank also provided credit unions some wonderful anniversary gifts (isn't it supposed to the other way around?)  A number of provisions of Dodd-Frank become effective on July 21, 2011.  Including:

Regulation CC.  A change in Regulation CC from $100 to $200 for next-day availability.  The Federal Reserve has proposed changes to Reg CC that have not been finalized.  This change to $200 becomes effective though the Federal Reserve has not changed the language of Reg CC.  

This change requires credit unions to review their policies and make sure they are updated.  This present from Dodd-Frank also triggers 229.18(e) of Reg CC which requires credit unions to provide notice of the change to their policy.  This notice is required even though the change is beneficial to members.

Reality Check: Why didn't the Fed propose two different rules?  Rather than confuse the entire financial industry, the Fed could have easily issued one rule to implement the Dodd-Frank change and a separate rule to propose its other changes to Reg CC.

Exemptions to Reg Z & Reg M.  Dodd-Frank also increased the exemptions in Regulation Z and Regulation M from $25,000 to $50,000.  These exemptions were also tied to inflation and will increase to $51,800 after January 1, 2012.

Credit Score Information.  Section 1100F of Dodd-Frank - which requires credit score information to be disclosed on adverse action and risk-based pricing notices - becomes effective July 21, 2011.  The Federal Reserve has issued model forms for credit unions to use and obtain a safe harbor.  

If you are looking for a recap of past blog posts on these changes, see our FCRA category.

NAFCU Members:  The Regulatory Finals on both the adverse action and risk-based pricing notices are available here.

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Outside of the Dodd-Frank requirements, there are other compliance dates impacting credit unions.

Financial Literacy Requirement for Directors.  The financial literacy requirement for credit union directors becomes effective July 27, 2011.  Anthony did a great post  in February which stresses the importance of having a policy in place to document the credit union's efforts.  

Remember that this rule applies to new directors going forward as well.  Within six months of election, directors will need to have the financial skills expected by NCUA.  This means if your election occurs in August - new directors have six months to get up to speed.  Your policy should cover these situations as well as how the CU will address situations where a new director comes aboard between elections.

SAFE Act.  The initial registration for the SAFE Act ends July 29, 2011.  Credit unions need to have their mortgage loan originators registered and ready to go by that date.  Only registered MLOs can originate mortgage loans after July 29, 2011.  NCUA implemented the SAFE Act requirements in Part 761 of NCUA's Regulations.  

Clarifications to the Credit CARD Act.  It has been amazing how many pages of regulations came out of the 33-page Credit CARD Act.  In March, the Federal Reserve issued "clarifications" to its previous three final rules of Regulation Z.  These changes become effective October 1, 2011.  

NAFCU webcast:  Sarah and I will be doing a webcast on August 10, 2011 discussing these new clarifications and potential changes credit unions will need to make prior to October 1.       

Changes to NCUA's Advertising Rules.  In May, NCUA finalized a rule to amend its requirements for the display of the "official advertising logo" on advertisements.  This blog post from May 20 highlights the changes which become effective January 1, 2012.  Importantly, there is no "grandfathering" so existing advertisements are not exempt from these requirements.  Any advertisement used after January 1, 2012 would need to comply with these new requirements.      

The Blog Must Go On; Reg CC Notices

Written by Steve Van Beek

Fear not, the blog will go on.  Sarah and I will do our best to keep everyone up-to-date on the latest compliance issues. 

You will notice a few changes in the daily blog posts.  There will be less Penn State, Steelers, Pirates and Nationals references.  But, there will be an uptick in Michigan, Detroit Tigers, Lions and Red Wings mentions as well as Sarah's Ohio State Buckeyes and Cincinnati Reds and Bengals.

In case you were wondering, Anthony's shoes have indeed been sent to Seattle for display.  

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We have been getting quite a few questions about the upcoming change to $200 under Reg CC.  A while back, Anthony hit on the underlying requirement in Section 229.18(e) to provide notice within 30 days of the change (since the change is beneficial to members).  But how detailed does the notice need to be and what format does it need to be in?

The staff commentary to 229.18(e) provides some insight:

"E. 229.18(e)  Changes in Policy

1. This paragraph requires banks to send notices to their customers when the banks change their availability policies with regard to consumer accounts. A notice may be given in any form as long as it is clear and conspicuous. If the bank gives notice of a change by sending the customer a complete new availability disclosure, the bank must direct the customer to the changed terms in the disclosure by use of a letter or insert, or by highlighting the changed terms in the disclosure.

2. Generally, a bank must send a notice at least 30 calendar days before implementing any change in its availability policy. If the change results in faster availability of deposits—for example, if the bank changes its availability for nonlocal checks from the fifth business day after deposit to the fourth business day after deposit—the bank need not send advance notice. The bank must, however, send notice of the change no later than 30 calendar days after the change is implemented. A bank is not required to give a notice when there is a change in appendix B (reduction of schedules for certain nonlocal checks)."

Credit unions have flexibility when providing the notice - provided the disclosure is clear and provided within 30 days of the change (i.e. by August 21, 2011).  The Fed does not require special language to be used in the notice.  Rather, the notice should simply describe the change in the credit union's policy.  

As for format, a message on a periodic statement would suffice.  Similarly, a notice in the credit union's newsletter should work, provided it is sent to all impacted members.  A website message alone would be insufficient as it would not be provided to all members (only those who went to the CU's website would see the notice).  Of course, a credit union could provide a notice on its website in addition to a notice sent to all members. 

CFPB; Bernanke on Regulations; Regulation CC

Posted by Anthony Demangone

Happy Monday, folks.  Hopefully, everyone was nice to their favorite "mommies" yesterday.  

To the 3 percent of you now swearing out loud because you missed Mother's Day, money, flowers and chocolates can cure many, many things. 

CFPB.  Forty-four senators told President Obama that they will not consider a CFPB appointment until the structure of the CFPB has changed. (ABA Dodd-Frank tracker.)   It seems to me, and plenty of others, that this move improves the odds that President Obama will nominate Elizabeth Warren as a recess appointment. 

Bernanke.  Recently, Fed Chairman Ben Bernanke said that as the government works to implement Dodd-Frank, regulators must ensure that they issue effective rules that do not needlessly increase costs and regulatory burdens.  Really?  Mr. Bernanke, you are in charge of the Fed, one of the biggest offenders when it comes to hard-to-follow rulemakings that bury requirements and massively increase costs. 

Exhibit one.  Two. Three.  Four.  Five.  Six.  Seven.  Eight.  Nine. Ten.   You get the point.  

Regulation CC.  So, the Dodd-Frank change to Regulation CC - the one that bumps the $100 next day availability amount to $200 - when does it become effective?  July 21, 2011.  Some of you are thinking that you can wait, however, until the Fed finalizes its current Regulation CC rulemaking to comply.  Wrong.  Surprise, surprise, but the Fed buried this detail into its Reg CC proposal. 

Section 1086(e) of the Dodd-Frank Act increases from $100 to $200 the minimum amount of funds deposited by check or checks on a given business day that a bank must make available by opening of business on the next business day pursuant to § 603(a)(2)(D) of the EFA Act. That provision of the EFA Act is implemented in § 229.10(c)(1)(vii) of Regulation CC, and the increase is expected to take effect on July 21, 2011, regardless of whether the Board and the Bureau have amended Regulation CC. See, 76 Fed. Reg. 16,869.

In addition, the Fed included this footnote to its proposal that clearly indicates that the change to $200 must take place by July 21, 2011:

 Per § 229.18(e), a bank must provide a change-in-terms notice to existing consumer customers by August 21, 2011.

Remember that under Regulation CC, even if a change is beneficial, such as the upcoming $200 amount, you still have to send out a change in terms notice. You just have to do so within 30 days of the change when it is beneficial.

Mr. Bernanke, I agree - regulators could do a better job of being clear with their regulations.  Perhaps this could be exhibit 11.

Upcoming webcast.  NAFCU has an upcoming webcast on ways credit unions can prepare for possible losses to their debit interchange income. 

Regulation CC Proposal Released; Call Report Modifications

Posted by Anthony Demangone

Yesterday, Das Fed released a proposal to amend Regulation CC.  Dodd-Frank seemingly mandated a proposal, because the law changed the $100 "immediate availability" to $200.  In addition, with the death of non-local checks, many parts of Regulation were out of date.  The only question was this: Would the Fed tweak other parts of the Regulation.

Dumb question.  Of course they did. Sigh.

To encourage electronic collection and return of checks between banks, the proposal provides that a depositary bank would be entitled to the expeditious return of a check only if it agrees to receive returned checks electronically. In addition, the proposal would permit the bank responsible for paying a check to require that checks presented to it for same-day settlement be presented electronically. More generally, the proposal would apply Regulation CC's collection and return provisions, including warranties, to electronic check images that meet certain requirements.

Additionally, due to the faster collection and return timeframes that result from electronic collection and return, the proposal would shorten the safe-harbor period for an exception hold to four business days, which should enable the depositary bank to learn of the return of virtually all unpaid checks before being required to make these deposits available for withdrawal. The proposal also eliminates the references in Regulation CC to "nonlocal" checks. The distinction between local and nonlocal checks is tied to Federal Reserve Bank check processing regions. As of February 2010, the Reserve Banks have ceased operations in all but one of their check processing offices, such that there is now only one check processing region, and all checks are local to each other. Local checks are generally subject to a two-business-day hold period.

As I read this proposal, regulatory burdens would increase, and your ability to hold funds would decrease. 

Comments are due June 3, 2011. The rule was released late on Thursday afternoon, so I haven't had a ton of time to digest it. That being said, here are my initial thoughts:

• I wish they had issued an ANPR, which allows them to canvass the crowd to see if folks had other ideas on how to improve Regulation CC.
• Even though they didn't ask for it, I'd think about looking at your check losses over the past few years.  Are credit unions getting pounded with fake cashier's checks, for example?  I'd look at that data, organize, and somehow weave it into your comments.  You may want to have someone at your credit union start pulling data related losses from bad checks. 

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NCUA has issued Letter to Credit Unions11-CU-02 and its attachment  regarding changes to the March 31, 2011 call report.  You know, I wish NCUA would put these two documents together, or at least link to the attachment from the letter. Well, as the saying goes, if you want a job done right, do it yourself.  I'd send their letter and its attachment, or my impressive "combined" document, to the person responsible for completing your call report.

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Have a great weekend everyone. Mandy is heading out of town to visit her college roommates, leaving me in charge of the dynamic duo.  Wish me luck, and wish Mandy a speedy return.  Actually, you should probably wish Kate and Briggs luck, and Mandy a very speedy return. 

Recordkeeping; This and That

Posted by Anthony Demangone

I really like NCUA's Records Preservation Program rule.  You'll find it at Part 749 of NCUA's rules and regulations.  I don't know who drafted it, but I agree with their view of why and how people keep records.  Here are two sections from Appendix A that I always admire:

Credit unions often look to NCUA for guidance on the appropriate length of time to retain various types operational records. NCUA does not regulate in this area, but as an aid to credit unions it is publishing this appendix of suggested guidelines for record retention. NCUA recognizes that credit unions must strike a balance between the competing demands of space, resource allocation and the desire to retain all the records that they may need to conduct their business successfully. Efficiency requires that all records that are no longer useful be discarded, just as both efficiency and safety require that useful records be preserved and kept readily available. (Emphasis added.)

And this...

D. What Are the Recommended Minimum Retention Times?

Record destruction may impact the credit union’s legal standing to collect on loans or defend itself in court. Since each state can impose its own rules, it is prudent for a credit union to consider consulting with local counsel when setting minimum retention periods. A record pertaining to a member’s account that is not considered a vital record may be destroyed once it is verified by the supervisory committee. Individual Share and Loan Ledgers should be retained permanently. Records, for a particular period, should not be destroyed until both a comprehensive annual audit by the supervisory committee and a supervisory examination by the NCUA have been made for that period. (Emphasis added.)

When it comes to recordkeeping, few records have clear-cut requirements.  Outside of those documents, credit unions have to make a business decision regarding what to keep and how long.  It isn't an easy process, but it is an important one.

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And in other news...

Regulation CC.  NCUA has released Regulatory Alert 10-RA-11to note that due to Federal Reserve restructuring, there are no longer any non-local checks. 

Seminar.  You need to register for NAFCU's Regulatory Compliance Seminar by this Friday to take advantage of the early-bird discount of $200.  Hey, it's no skin off my nose if you don't decide to attend.  We'd love to have you, but I understand that training dollars are not unlimited and that we aren't the only cowboys at this rodeo.  But by all means, if you know you will attend, please register by this Friday to save some money.  A penny saved is a penny earned, and all that jazz.

August and NCUA.  Remember, there is no monthly NCUA board meeting scheduled in August. (The board can call special meetings, though.)

NCUA and transparency.  NCUA will now create videos of board meetings, complete with a word-for-word transcript of what was said.

Regulation CC; This and That

Posted by Anthony Demangone

Oh, that Reg Reform Law is going to be the end of me.  

Buried within the 2,000+page reg reform bill was a simple change.  The reg reform law amended the Expedited Funds Availability Act regarding the "first $100" availability provision.  That amount has been bumped to $200.  And the change is effective as we speak.  But Regulation CC has not changed, and it continues to contain the $100 language. 

I say it was a "simple" change with a great deal of sarcasm, because such a change likely will require changes to core processor programming, disclosures, websites, and policies.  There is no mention of the need for the Fed or CFPB to write regulations to implement the change.  

Ugh.

NAFCU contacted the Fed, and this is roughly what we heard.  

The Fed will issue new regulations regarding the change to the Expedited Funds Availability Act.  The effective date for that provision is whatever date the CFPB officially becomes effective, so the Fed doesn't know exactly when that will be.  The Fed is trying to get a better feel for when that date will be before they move forward on Regulation CC, but right now they are looking at two different options.  

1. First, the Fed may wait until they know when the CFPB will go into effect and then update the regulation with an effective date that matches the CFPB.  If they just update those changes required by the Act, the Fed indicated that the regulation will have a very short comment period or possibly, none at all.
2. The second option would be for the Fed to look at some other changes to Reg CC and do a more comprehensive proposed rule encompassing the changes required by the Act as well as other issues the Fed has been looking at.  What those issues are were unclear from our conversation. 

Keep in mind that this was an informal conversation, and that "things are fluid" in Washington, D.C.  For now, though, it does appear the Fed will issue regulations to update Regulation CC based on the reg reform law.  So, what to do?  It seems reasonable for credit unions to wait until a final regulation is issued that mandates changes to policies, disclosures, etc. That being said, the reg reform law is already effective, including the $200 language. Perhaps the Fed will issue some clarification in the near future to clear things up.

And in other news...

Interchange.  Last week, I wrote how another threat to interchange income surfaced during the appropriates process.  Well, that threat has ended. 

Mortgage fraud. FinCEN has released a report regarding mortgage fraud activity in 2009. 

Corporate credit unions.  NCUA announced plans to release a three-part series to address the current situation facing corporate credit unions.  The complete set is now available. 

Reg CC: Reasonable Cause to Doubt Collectibility; Reg Reform Bill

Editorial warning: Long blog post ahead.  Take several sips of coffee now.

Posted by Anthony Demangone

Regulation CC was created to place limitations on how long financial institutions can hold deposits.  The regulation, however, does provide some flexibility for financial institutions to extend holds in a limited number of situations.  One of those holds is the "reasonable cause to doubt collectibility" exception.  Let's take a look at this hold, shall we?

From the staff commentary, here's a nice overview of the exception:

In the case of certain check deposits, if the bank has reasonable cause to believe the check is uncollectible, it may extend the time funds must be made available for withdrawal. This exception applies to local and nonlocal checks, as well as to checks that would otherwise be made available on the next (or second) business day after the day of deposit under §229.10(c). When a bank places or extends a hold under this exception, it need not make the first $100 of a deposit available for withdrawal on the next business day, as otherwise would be required by §229.10(c)(1)(vii). If the reasonable cause exception is invoked, the bank must include in the notice to its customer, required by §229.13(g), the reason that the bank believes that the check is uncollectible.

That sounds great, right?  If your tummy tells you the check might be problematic, you can slap an extended hold on it, right?  Not so fast.

The regulation provides that the determination that a check is uncollectible shall not be based on a class of checks or persons. For example, a depositary bank cannot invoke this exception simply because the check is drawn on a paying bank in a rural area and the depositary bank knows it will not have the opportunity to learn of nonpayment of that check before funds must be made available under the availability schedules. Similarly, a depositary bank cannot invoke the reasonable cause exception based on the race or national origin of the depositor.

Some credit may have been hit hard by bogus cashier's checks.  It might be tempting to institute a longer hold on all cashier's checks until you can get a handle on the problem.  But this guidance prohibits you from doing so. And what exactly is "reasonable doubt?"  The Fed gives several examples.  And if you look at these examples, a trend becomes clear.  There is some information about that specific check that raises the reasonable doubt.

If a bank received a notice from the paying bank that a check was not paid and is being returned to the depositary bank, the depositary bank could place a hold on the check or extend a hold previously placed on that check, and notify the customer that the bank had received notice that the check is being returned...

The depositary bank may have received information from the paying bank, prior to the presentment of the check, that gives the bank reasonable cause to believe that the check is uncollectible. For example, the paying bank may have indicated that payment has been stopped on the check, or that the drawer's account does not currently have sufficient funds to honor the check...

The fact that a check is deposited more than six months after the date on the check ( i.e. a stale check) is a reasonable indication that the check may be uncollectible, because under U.C.C. 4–404 a bank has no duty to its customer to pay a check that is more than six months old. Similarly, if a check being deposited is postdated (future dated), the bank may have a reasonable cause to believe the check is uncollectible, because the check may not be properly payable under U.C.C. 4–401...

There are reasons that may cause a bank to believe that a check is uncollectible that are based on confidential information. For example, a bank could conclude that a check being deposited is uncollectible based on its reasonable belief that the depositor is engaging in kiting activity. Reasonable belief as to the insolvency or pending insolvency of the drawer of the check or the drawee bank and that the checks will not be paid also may justify invoking this exception...

As always, it is a good idea dive into the Regulation and Staff Commentary for additional details.

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Yesterday, Senator Dodd unveiled his 1,336 page reg reform bill.  Here's an 11-page summary from the Senate Banking Committee.  President Obama was supportive.  Senator Shelby (R-Ala.) was less so, urging the Senate to slow down and take time to review the massive bill.  Read the NAFCU Today article about it here.  Here are our initial thoughts:

NAFCU continues to oppose any independent consumer protection entity with authority over credit unions, as credit unions did not cause this crisis and should not be subject to the additional burden imposed by another regulator. While the bill as proposed has some improvements from the House-passed language, all credit unions would still be subject to rules written by the new consumer financial protection bureau, and credit unions holding over $10 billion in assets would also be subject to the examination and enforcement powers of the new regulator. As the bill is currently written, this $10 billion line is not indexed for inflation. This means that this arbitrary threshold will continue to capture more credit unions as they grow over time.

NAFCU is seeking to increase the $10 billion threshold for examination and enforcement to $50 billion in assets. The $10 billion line arbitrarily splits the credit union industry and leaves some credit unions subject to the examination and enforcement burdens of a new regulator. NAFCU fought against this division when the House Financial Services Committee took up its financial regulatory reform legislation last November, and was successful in its efforts to pass an amendment that increased the $10 billion threshold to $50 billion for paying into the Systemic Resolution Fund used to wind down large financial companies. NAFCU will be seeking to establish $50 billion as the line for consumer protection provisions also, with an adjustment to account for inflation. With the threshold at this level, no credit union will be subject to the additional burden of another regulator's examination and enforcement powers.