NAFCU Compliance Blog

Grab Bag

Posted by Anthony Demangone

Please let me pause our Regulation Z discussion to touch upon some things that have been bouncing around my in-box.  I understand how important Reg Z is, but other things continue to happen.

• HUD has updated its RESPA FAQs again.
• The FTC settled charges against an apparel company for alleged violations of COPPA.  You don't see these very often, so the settlement serves as a nice reminder that COPPA is alive and well.  And yes, it applies to credit unions.  The announcement also provides background information on COPPA.
• Earlier this month, the Fed announced its annual adjustments to the Regulation D reserve tranches.  I like this update each year, because it is the only time get to use the word tranche.
• NCUA issued Letter to Credit Unions 09-CU-21to remind credit unions about how to properly use the NCUA official sign.  This would be a good piece of guidance to share with marketing.

• HOEPA's higher-priced mortgage loans will affect HMDA reporting.  The OTS has updated its exam procedures, and they do a great job of highlighting these changes.

• The free go-to-webinar that will discuss our on-line training program will take place next Tuesday from 1 until 2 p.m. EST.  I had the wrong time in yesterday's blog posting.  Register here.

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The Saturday after our Regulatory Compliance Seminar, I had the pleasure of watching Penn State play Michigan with my colleague, Steve.  Steve is a big Michigan fan, and I went to Penn State.  I didn't watch all of it, as I was distracted by a couple of brand new Penn State fans who joined us to watch the game.  Kate was so excited to wear her Penn State shirt that she couldn't sit still for the photo.

Credit CARD Act - Section 109; Reg D Changes

Posted by Steve Van Beek

No, we have not forgot about Section 106 and the 21-day requirement.  We will be discussing Section 106 in detail in a future blog posting.

Section 109 - Consideration of Ability to Repay

Section 109 adds a new Section 150 to the Truth in Lending Act (TILA).  This new section requires that credit unions consider the member's ability to repay before opening a credit card account or increasing the credit limit on an existing account.  Section 150 reads as follows:

Sec. 150. Consideration of Ability to Repay.
"A card issuer may not open any credit card account for any consumer under an open end consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the ability of the consumer to make the required payments under the terms of such account."

Section 109 does not require the Federal Reserve to issue regulations.  However, it is likely the Fed will amend Regulation Z to provide further information and guidance to card issuers on the standards to use when considering a consumer's ability to repay.  This new section, Section 150 of TILA, has an effective date of February 22, 2010.  

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Regulation D.  Effective tomorrow - July 2, 2009 - credit unions can allow members to make up to six transfers out of their savings accounts regardless of the type of transaction.  In late May, the Federal Reserve amended Regulation D - removing the three/six distinction for withdrawals from savings accounts.  In the words of the press release:

"The Board has revised Regulation D's restrictions on the types and number of transfers and withdrawals that may be made from savings deposits. The final amendments increase from three to six the permissible monthly number of transfers or withdrawals from savings deposits by check, debit card, or similar order payable to third parties. Technological advancements have eliminated any rational basis for the distinction between transfers by these means and other types of pre-authorized or automatic transfers subject to the six-per-month limitation."

NAFCU has received quite a few inquiries from credit unions on this issue.  Let's cover a few of the issues.

No Change Required.  Credit unions are not required to amend their policies.  The credit union could continue to retain the three/six distinction for its share accounts.  However, this would be a business decision for the credit union.  When explaining the restrictions to its members, a credit union retaining the three/six distinction would no longer be able to state the "restrictions are required by Federal law" because Reg D allows six transactions regardless of type.  

Notification?  If the credit union makes a change to it policy, it does not appear that notification is necessary.  Even if not necessary - notification to the membership might be useful.  Notification could help prevent confusion and, since the change is beneficial to members, you may want to include the change in the periodic statement message.

Disclosures/System.  The credit union would want to make sure it's system can handle the changes before it notifies members of the changes or updates its disclosures.  Once your system can handle the changes, you could proceed to give members the additional flexibility in transactions allowed by the Fed under Regulation D.

NAFCU Statement Insert. NAFCU has created a statement insert on Regulation D that may be useful in explaining Regulation D issues to your members.  The insert "What You Need to Know About Transaction Limitations" explains Regulation D to members and why certain transactions are limited.

The statement insert may be useful in notifying members of the Reg D changes.  Additionally, if your credit union has a policy of notifying members when they exceed the allowed transaction threshold - including this insert with the notification could reduce member confusion as well as reducing the number of calls to the credit union's call center.  An order form is available here.  

Please forgive me, but I need to include this disclaimer:  "These Inserts are property of NAFCU and may not be reproduced without authorization."

 

Stabilization Bill Becomes Law; Stabilization Calculator; Reg D

I've never seen an idea turn into law this quickly.  When NCUA originally announced its corporate stabilization plan, the costs for individual credit unions were massive.  NAFCU quickly looked into other possibilities in order to lessen the impact on the industry.  Yesterday, a lot of lobbying and hard work paid off.

Yesterday, President Obama signed a law that does a number of things for the credit union industry. The law, among other things, does the following:

• Extends $250,000 credit union share insurance protection to 2013;
• Enables credit unions to spread the cost of corporate stabilization over 7 years;
• Extends replenishing the National Credit Union Share Insurance Fund through premiums to 8 years;
• Increases NCUA borrowing authority to $6 billion; and
• Establishes $30 billion NCUA emergency borrowing authority. 

How  much relief will this law give your credit union in 2009?  NAFCU has created this calculator to show you.  We've also prepared this chart to show the relief for different peer groups.  Download Stabilization Plan_Estimated Costs by Asset Peer Group. 

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In the spirit of regulatory relief, here's some good news regarding Reg D.  The Fed has approved a final rule to loosen requirements concerning the dreaded Reg D tranfer limitations.

The Board has revised Regulation D's restrictions on the types and number of transfers and withdrawals that may be made from savings deposits. The final amendments increase from three to six the permissible monthly number of transfers or withdrawals from savings deposits by check, debit card, or similar order payable to third parties. Technological advancements have eliminated any rational basis for the distinction between transfers by these means and other types of pre-authorized or automatic transfers subject to the six-per-month limitation.

This becomes effective 30 days after publication in the Federal Register.  Read the Federal Reserve notice here. Here are some thoughts:

• Your online banking transaction limits may need to be updated.
• Alert your marketing folks.  Brochures will need to be updated.  And your website as well.
• Look for disclosures that talk about the limitations.  Reg E, for example. Or perhaps your membership disclosure booklet.

• Your core processor may need to be updated if it flags transfers from savings accounts.

President-Elect Obama and Privacy; Reg D Indexes Updated

When a new President is elected, many wonder how the new Commander-in-Chief will change the compliance culture.  What will he emphasize?  Here's a great post from Brendon Tavelli at Proskauer Rose LLP that analyzes what may be on the horizon in the area of privacy.  It is a very good read.  According to Mr. Tavelli, we could see changes in the following areas:

1. A national privacy law
2. Data breach notifications
3. A beefed up FTC

We'll have to stay tuned.  Changes of these sorts take time and a whole lot of cat-herding on the Hill. 

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Note that NCUA issued Regulatory Alert 08-RA-04 to notify credit unions that Reg D's reserving requirement indexes have been updated for 2009.  Read all about it here. 

Interest Rate for Reserves Changed...Again

Yesterday, the Federal Reserve announced that it will change the formulas used to pay interest on required and excess reserves.  Again.

Previously, the rate on required reserve balances had been set at the average target federal funds rate established by the Federal Open Market Committee (FOMC) over a reserves maintenance period minus 10 basis points. The rate on excess balances had been set as the lowest federal funds rate target in effect during a reserve maintenance period minus 35 basis points. Under the new formulas, the rate on required reserve balances will be set equal to the average target federal funds rate over the reserve maintenance period. The rate on excess balances will be set equal to the lowest FOMC target rate in effect during the reserve maintenance period. These changes will become effective for the maintenance periods beginning Thursday, November 6.

Read the official press release here.  Here's my take on this.  This is the second change to the formula since the Fed announced that it would begin paying interest on reserves.  I'm sure many of you estimated how the Fed's decision would affect your balance sheet and whether it made sense to alter how you reserve funds.  But if you haven't estimated the effect of the amendments, you no longer have an accurate picture.  In addition, since this is the second amendment this year, this is something you'll want to keep an eye on.  Or at least let your CFO know.

Interest on Reserves; Share Insurance Questions Remain

On Monday, the Federal Reserve announced that it will begin paying interest on financial institution required and excess reserve balances. 

In the Fed's words:

The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008. 

Employing the accelerated authority, the Board has approved a rule to amend its Regulation D (Reserve Requirements of Depository Institutions) to direct the Federal Reserve Banks to pay interest on required reserve balances (that is, balances held to satisfy depository institutions’ reserve requirements) and on excess balances (balances held in excess of required reserve balances and clearing balances). 

The interest rate paid on required reserve balances will be the average targeted federal funds rate established by the Federal Open Market Committee over each reserve maintenance period less 10 basis points. Paying interest on required reserve balances should essentially eliminate the opportunity cost of holding required reserves, promoting efficiency in the banking sector. 

The rate paid on excess balances will be set initially as the lowest targeted federal funds rate for each reserve maintenance period less 75 basis points. Paying interest on excess balances should help to establish a lower bound on the federal funds rate. The formula for the interest rate on excess balances may be adjusted subsequently in light of experience and evolving market conditions. The payment of interest on excess reserves will permit the Federal Reserve to expand its balance sheet as necessary to provide the liquidity necessary to support financial stability while implementing the monetary policy that is appropriate in light of the System’s macroeconomic objectives of maximum employment and price stability.

Here's a Fed FAQ regarding the change.

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NCUA will hold a share insurance webinar today.  There may still be time to sign up here.  There are a few questions that I hope NCUA will clear up soon.

• Do credit unions have to replace all their share insurance signs at teller windows? What about the share insurance advertising statement?

• The interim final rule for revocable trust accounts created different insurance rules for accounts at or below $500,000 and for those above.  Did the legislation that recently increased insurance amounts also increase that rule threshold?  The FDIC has indicated that it did for banks and thrifts.  There's no word yet from NCUA on this issue.

As I've stated before, stay tuned.

More Insurance Info; Flood and Reg D

It seems I have an FDIC insurance update each day.  Well, here's another.  Press reports indicate that the FDIC will ask Congress to bump up FDIC amounts from $100,000 to $250,000.  If this were to go through, I would bet that the NCUSIF would be given parity.  However, the last time I checked, I am not the FDIC.  Nor am I Congress.  So stay tuned!

NCUA Chairman Michael E. Fryzel wasted no time in voicing his support and urging that any changes include the NCUSIF.  Here's what a press release issued by NCUA last evening stated:

September 30, 2008 – National Credit Union Administration (NCUA) Chairman Michael E. Fryzel today voiced support for an increase in insurance limits for accounts backed by both the National Credit Union Share Insurance Fund (NCUSIF) and the Federal Deposit Insurance Corporation (FDIC).

 “Increasing federal insurance coverage for credit union members would send an important signal of reassurance at a time when confidence in depository institutions generally has been compromised by market events,” Chairman Michael Fryzel said.  

“The NCUA has been in constant contact with our fellow regulators as well as congressional leaders.  I commend FDIC Chairwoman Sheila Bair for her leadership on this issue, and I cannot overstate how important it is that the protections offered by our two insurance funds remain parallel. The funds of working Americans are equally important, whether those accounts belong to credit union members or bank customers.”

The National Credit Union Administration charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, also operates and manages the National Credit Union Share Insurance Fund (NCUSIF), insuring the deposits of over 89 million account holders in all federal credit unions and the majority of state-chartered credit unions. NCUA is funded by credit unions, not federal tax dollars.

Here'sa NAFCU Today article on the subject.  And here's another NAFCUToday article detailing NCUA plans for a national share insurance awareness campaign. (Be sure to check it out;  the poster they designed sure grabs your attention.)

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Here's a few other things that have taken place:

• The National Flood Insurance Program has been extended until March 2009.  Read all about it here.  (USA Today.)

• The Fed has amended (increased) the Reg D reserve requirement exemption and low reserve tranche for 2009.  Read all about it here.

Regulation D Gold Mine

Someone had a question for me last week on Regulation D.  After a few minutes of research, I found the following resources.  I almost shed tears of joy upon their discovery.

Questions and Answers Regarding Reg D.  This document comes from the Philadelphia Fed, and it contains a ton of information on Reg D.  There are questions and answers.  There are legal interpretations.  There are staff opinion letters. 

Reg D Official Interpretation Letters.  This 4-page document (also from the Phily Fed) lists major legal letters from the Fed that clarify Reg D issues.  Good stuff.

Fed Proposes Changes to Reg D

The Federal Reserve is seeking comments on a proposal that would, among other things, end the three/six distinction for regulated transfers under Regulation D. 

Here's a NAFCU Today article about the proposal.
Here's a link to the Fed proposal.

In the words of the Fed:

The second of the proposed substantive amendments would eliminate the provision in the “savings deposit” definition of Regulation D limiting certain kinds of transfers from savings deposits to not more than three per month. As a result, all kinds of transfers and withdrawals from a savings deposit that must be limited in number per month would be subject to the same numeric limitation of not more than six per month.

Food for thought: In my humble opinion, this would be a move in the right direction.  Although for years NAFCU has advocated the entire elimination of the six-limit transfer limitation in favor of a more reasonable, and hopefully higher, number of allowable transfers, erasing the three/six distinction should make transfers easier to track for credit unions.  But should this be approved, you'll need to review your disclosures where you address Reg D's limitations to ensure their accuracy. 

NAFCU is preparing comments regarding this rule.  Please feel free to email Pamela Yu at pyu@nafcu.org with your feedback.

Reg D; NAFCU Book of Answers has been updated; HMDA Asset Size Exemption up to $37 Million

Hey NAFCU members: the NAFCU Book of Answers has been updated and is available here.   (NAFCU member log-in needed.)

For you non-NAFCU people, here's a snippet from the Book of Answers.

Question: If a member has a direct deposit into a share account and funds are then automatically dispersed into other of his/her accounts, do these dispersals count as part of the allowable monthly transactions under Regulation D?

Answer: No. According to the Federal Reserve, “(w)here a deposit is made directly to one account but within a very short time routine disbursements of a portion of a payroll deposit are made to family member accounts or other accounts of the depositor, such disbursements are an element of the deposit transaction and are not to be regarded as transfers.” Where credit unions and members have made agreements for these allocations of a direct deposit, such transfers do not make the account in which the payroll funds have been initially deposited a transaction account. 2-302.8, Q15, Federal Reserve Regulatory Service Volume I, Regulation D (Questions and Answers).

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The Federal Reserve has bumped up the asset size exemption for HMDA reporting.  It is now $37 million, effective January 1, 2008.

"As a result, depository institutions with assets of $37 million or less as of December 31, 2007, are exempt from collecting data in 2008.  An institution’s exemption from collecting data in 2008 does not affect its responsibility to report the data it was required to collect in 2007."