NAFCU Compliance Blog

As Tomorrow is Veterans Day...

Posted by Anthony Demangone

Tomorrow is Veterans Day.  NAFCU's offices will be closed tomorrow, and there will be no blog update.  In honor of the holiday, I wanted to share some resources that help explain the laws and regulations that apply to financial institutions when we serve men and women who are in the armed forces. 

As you know, the protections for those who serve in the military are largely grouped into two areas:

1. The Servicemembers Civil Relief Act, and
2. The recently enacted Department of Defense regulations that implemented provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007.  I'll refer to these as the DoD regulations.

Here are some resources that will help you navigate these requirements.

• The FFIEC issued detailed examiner procedures regarding the DoD regulations.
• NCUA issued Letter to Credit Union 09-CU-12, which contains not only the DoD procedures from the first link, but also procedures regarding the SCRA.
• Here's a 146-page overview of the SCRA. (Courtesy of the American Bar Association.)  This loads very, very slowly.
• Here's an SCRA guide published by a retired Army Reserve JAG colonel.  (Courtesy of the American Bar Association.) It is very detailed, and very handy.

• And here's a free SCRA brochure developed by NAFCU. (Member log-in needed.)

Finally, here are a few thoughts.  I tend to be a conservative fellow when it comes to compliance.  While the SCRA gives creditors the right to challenge those who assert rights under the law, I would tread very carefully in this area.  In addition, I wouldn't get too caught up in tracking exactly when rights spring to life, and whether the servicemember has all the proper paperwork to you before you take action, for example, to lower rates on covered loans. Here's why.

• Remember the purpose.The purpose behind the SCRA is to protect those who are in harm's way, protecting us.  Sure, the servicemember has to meet certain procedural hurdles, but I'd always keep this in mind: Those in need remember those who help them. 
• How much are you talking about, anyway?  So you have to lower an interest rate from 11.9 percent to 6 percent. How much money is that costing your credit union on an annual basis?  Or on used car loan that currently has a 7.9 rate? 
• Remember your reputation.  Keeping in mind the last bullet point, is it worth it to be a real stickler on the SCRA?  Or does it make sense to be lenient?  You can always create a policy that is more beneficial than the SCRA requires.  One of my mentors had a good saying when people asked her whether the SCRA really protected a particular servicemember.  She would reply with this question: Would you want your SCRA decision regarding a particular member of the armed forces on the front page of your local newspaper? 

To all of you, enjoy the holiday.  And to by brother-in-law Rob, and my cousins Mark, Thomas, Patrick, Kyle, Devin, Matt and Corrie, many, many thanks for your service.

Section 104; NCUA Letter to Credit Unions

Posted by Anthony Demangone

I hope everyone had a nice weekend.  Now, back to the Credit CARD Act daily grind.

Section 104 of the Credit CARD Act does a number of things.

5 p.m. Cutoff.  Section 104 amends Section 164 of the Truth in Lending Act to mandate that if a member makes a payment by 5 p.m. on their due date, you'd need to credit the payment as of that date.  To clarify: There's no requirement to post payments on the day they are received, but payments received by 5 p.m. on the due date must be credited on the due date.  Here's what Section 164 will look like after February 22, 2010:

 164. Prompt and fair crediting of payments.(a) IN GENERAL - Payments received from an obligor under an open end consumer credit plan by the creditor shall be posted promptly to the obligor's account as specified in regulations of the Board. Such regulations shall prevent a finance charge from being imposed on any obligor if the creditor has received the obligor's payment in readily identifiable form by 5:00 p.m. on the date on which such payment is due in the amount, manner, and location indicated by the creditor to avoid the imposition thereof.

This section seem to simply create a 5 p.m. cut-off, although arguably only for the due date. What if you close before 5?  Perhaps the Federal Reserve will clarify expectations when they issue regulations to implement the Act. 

Payment allocation.  Section 104 of the Credit CARD Act also requires that credit unions allocate any payment above the minimum periodic payment to the balance with the highest APR. Note: This is a stronger requirement than UDAP will require on July 1, 2010.  (UDAP would have given the credit union the option of pro rata application of payments.) To illustrate: if a member has a minimum payment of $50 and makes a $300 payment – the $250, in excess of the minimum, must be applied to the balance on the card with the highest APR. There are also other restrictions for certain deferred interest arrangements.

So, scrap what UDAP required.  Make sure your system (and the folks that program it) is ready for this requirement.  If they were shooting for July 1, 2010, using UDAP's requirements as a framework, they'll be late and off the mark. 

Changes to mailing address.  Additionally, if the credit union changes its mailing address or method of handling a member’s payments, it may not charge a late fee for 60 days – if the mailing address change causes a material delay in the crediting of a member’s payment. If a credit union provides two options for payments (such as an old mailing address and a new mailing address) during a transition period, the change would most likely not cause a material delay. The section is intended to prevent card issuers from switching their method of accepting payments to force consumer payments into being late (and, thereby, collecting the fee income).

These provisions go into effect on February 22, 2010.

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NCUA has release NCUA Letter to Credit Union 09-CU-12 to share interagency exam procedures on credit issued to military personnel and their dependents.  You can access it here.  The letter has a number of attachments, which should give you valuable information about the DoD rule, as well as the SCRA. 

DoD Regulation Examination Guidance

Posted by Steve Van Beek

Last Tuesday, I had the opportunity to give a presentation on Lending to Servicemembers at NAFCU's Regulatory Compliance School.  The Lending to Servicemembers topic covers protections under the Servicemember Civil Relief Act of 2003 (SCRA) and the Department of Defense's (DoD) regulation: Limitations on Terms of Consumer Credit Extended to Service Members and Dependents.

The Federal Financial Institutions Examination Council (FFIEC) issued examination procedures for the DoD rule.  Sometimes when regulations affecting credit unions are not issued directly by NCUA, the information can be difficult to find and track.  This is the case with the DoD rule - so you might want to bookmark this guidance for later reference.  The Federal Reserve circulated the examination procedures at the end of July 2008. 

One of the key things to remember about the DoD rule is that it only applies to three specific products:  payday loans, vehicle title loans, and tax refund anticipation loans.  As a first step, check to see if your credit union offers either of those products as defined in the rule.  That is going to be examiner's first step as well:

"Examination Procedures

Determine Applicability of DoD Regulations and Evaluate Policies and Procedures
1. Determine if the creditor offers or purchases any consumer credit products covered by 32 C.F.R. Part 232 (payday loans, motor vehicle title loans, and tax refund anticipation loans as defined in § 232.3(b)(1)).

• If the creditor does not offer or purchase consumer credit products as described above, the regulation does not apply and no further review is necessary."  (page 4 - emphasis added).

That last sentence is music to any compliance officer's ears.

Frequently Asked Questions; delicious

Anthony has mentioned the value of Frequently-Asked-Questions documents in past blog postings here and here.  These documents can help compliance officers weave through convoluted regulations and find answers to common issues.  Here are a few that I've found useful in the past: 

Bank Secrecy Act

Anti-Money Laundering Compliance FAQs

FinCEN Answers to FAQs on BSA

FAQs on Final CIP Rule - February 2004

FAQs on Final CIP Rule - May 2005

FAQs Relating to BSA and Hurricane Katrina

OFAC

OFAC Q&As Prepared by Treasury

Privacy

FAQs on the Privacy Regulation

Share Insurance

FAQs from NCUA's October 7, 2008 Webinar on Share Insurance Changes

NCUA's FAQs on NCUSIF and Share Insurance

HMDA

FAQs on Regulation C (HMDA Reporting)

RESPA

FAQs on RESPA for Industry

Appraisals

FAQs on Appraisal Regulation and Interagency Statement*

*Note:  The Agencies recently announced a proposal to replace this interagency statement.

Third Party Due Diligence

FAQs from NCUA's January 29, 2008 Webinar on Third-Party Relationships

Flood Insurance

2008 Proposal on Interagency Q&As on Flood Insurance (would replace 1997 Q&As)

1997 Interagency Q&As on Flood Insurance

Servicemembers Civil Relief Act (SCRA)

HUD's Q&As for Lenders Regarding SCRA

Judge's Guide to SCRA - including Q&As

Health Savings Accounts

Q&As on Health Savings Accounts - IRS Notice 2004-50

Q&As on Health Savings Accounts - IRS Notice 2008-59

Check 21 Act

Consumers FAQs on Check 21

FAQs for Financial Institutions on Check 21

Check 21 FAQs on Financial Institutions Requirements - from ABA

Accounting for Loan and Lease Losses (ALLL)

Questions and Answers on Accounting for Loan and Lease Losses

Online Banking

FFIEC Guidance on Authentication in an Internet Banking Environment

Savings Bonds

FAQs on Savings Bonds

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You never know when these FAQ's will come in handy.  That is why I have mine bookmarked on my delicious page.

If you are wondering what delicious is, take a look at the user guide and slides I prepared for a talk on Organizing the Compliance Information Flow at NAFCU's 2008 Regulatory Seminar.

If you know of other valuable FAQ documents, please let us know by adding a comment to this post. 

Veterans Day

NAFCU's offices are closed today.  But I thought that in honor of Veterans Day, I'd remind you of this blog's Servicemembers Civil Relief Act category.  If you go to that link, you'll be able to read a few posts that will help you comply with the SCRA, which was created to protect those who protect us.

Enjoy the holiday, everyone.

Attorney-Client Privilege; Great SCRA Resource

NCUA recently release NCUA Legal Opinion Letter 08-1032.   The letter notes that NCUA examiners will have access to credit union records that are protected by an attorney-client privilege. 

Our position regarding access to credit union records has not changed. Pursuant to the FCUA and NCUA’s Rules and Regulations, NCUA examiners are permitted complete access to the books and records of a credit union. See 12 U.S.C. §1756; 1784; 12 C.F.R. §741.1. Our opinion letter points out that NCUA previously permitted credit unions to withhold records covered by the attorney-client privilege because we recognized that courts might treat release of such privileged information to NCUA as a waiver of the privilege as to a third party. That possibility has been eliminated because of the addition of Section 205(j) to the FCUA. Accordingly, NCUA will no longer permit credit unions to withhold privileged documents because of an assertion that producing them will waive a privilege as to a third party.

This does not mean that it is no longer possible for a credit union to assert the attorney-client privilege against NCUA. However, our experience has been that the waiver of privilege as to a third party was almost always the reason for asserting privilege in the past. That possibility has been eliminated by Section 205(j).

As always, we suggest that you read the entire letter to get a complete picture of the opinion letter.

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On Friday, the OCC released OCC Bulletin 2008-30.  It is a fantastic, concise SCRA resource.    Here are some other SCRA-related blog posts.

Good Things Come in Threes: Resources for the SCRA

I don't know how this happens, but things often do come in threes.  The last two days I've shared some good research tips.   Well, yesterday I came across two great resources for the Servicemember's Civil Relief Act.  I've always been looking for good resources for this, as there are no implementing regulations for this Act.

Here's the "Judge's Guide" to the SCRA.

And here's the SCRA Guide.  All 146 pages!

Enjoy, enjoy!

Serving Those who Serve Us

As we observe Veteran's Day today, I thought I'd share some resources that describe credit union responsibilities relating to products and services used by members of the armed services.  There are two major areas to remember.  First, there is the Servicemembers Civil Relief Act (SCRA).  Second, there's the new Department of Defense (DoD) Anti-Predatory Lending Regulation.

The SCRA provides a number of protections for covered servicemembers and their dependants.  Here's a great resource page on the SCRA from the U.S. Coast Guard.  Here's a SCRA brochure that NAFCU members can download for free. (Member log in needed.)

The second major area that governs lending to servicemembers is the recently finalized DoD regulation.   Here is NAFCU's Final Regulation that provides a great overview of credit union requirements.  (NAFCU members only.)  Here is NCUA's Regulatory Alert that provides another overview of the new requirements.

Make sure the folks that design and implement your credit union's lending program are up to snuff on this stuff.  The men and women in our armed forces deserve no less! And for those who are serving now or have served in the past, the Compliance Guy says thank you!