NAFCU Compliance Blog

Member Complaints; NAFCU's 2012 Regulatory Compliance Seminar

Written by Steve Van Beek

Consumer and member complaints are at the forefront of quite a few conversations right now (including quite a few news articles).  The CFPB's promotion of their complaint process is one reason for this uptick in discussion as is the centralized complaint process for financial products.  

The CFPB issued their 2011 Annual Report on Consumer Complaints and it is full of useful information to review.  Here is a snapshot of the results:

"Between July 21 and December 31, 2011 the CFPB received 13,210 consumer complaints, including 9,307 credit card complaints and 2,326 mortgage complaints.

Forty-four percent of all complaints were submitted through the CFPB's website and 14.7 percent via telephone calls.  Referrals from other regulators accounted for 34.9 percent of all complaints received.  The rest were submitted by mail, email, and fax."

Future reports will include even more details - including complaints in new areas such as private student loans, auto loans and checking accounts.  Be sure to review the full report or pass it along to the appropriate person at your credit union.   

NCUA.  The March 2012 edition of the NCUA Report also included an article on Trends in Member Complaints and Consumer Inquiries.  Of note, the article indicates that of the complaints received in 2011 less than 1 percent involved a consumer compliance violation.  Of that 1 percent, half of those were related to timing issues related to the error resolution process under Regulation E.  

***

NAFCU Regulatory Compliance Seminar.  October seems like a long way off but it will be here before you know it.  We are in the process of putting together the content and agenda - so please feel free to send in any comments, ideas or suggestions.  We love your input and this conference is really about you all so let us know what you need.

Here is what we are tentatively looking at so far (topics are subject to change, of course):

• TILA/RESPA Mortgage Disclosures
• Upcoming Mortgage Servicing Requirements
• The Latest on Overdraft Protection
• Remittance Transfers under Regulation E
• CUSOs
• Loan Participations
• Bank Secrecy Act Changes
• Social Media
• NCUA Update
• CFPB Update

I think that is a pretty good start - but let us know what you are looking for and how we can make NAFCU's 2012 Regulatory Compliance Seminar even better than the past.  

Recertification for NCCOs.  Remember, attending Regulatory Compliance Seminar is the best way to recertify your NAFCU Certified Compliance Officer (NCCO) designation.  Seminar offers 24 CEUs which is enough to fully recertify for two years.

Seattle, Washington.  Did I mention Seminar was in Seattle?  Right Downtown?  Well, now I have.  Hope to see you October 23-26, 2012!    

Overdrafts: CFPB’s “Penalty Fee Box” Disclosure; Call for Comments; NAFCU's CFPB Page

Written by Bernadette Clair, Regulatory Compliance Counsel

We’ve previously blogged about the CFPB’s inquiry into overdraft services, but today I thought we’d take a closer look at the model disclosure form the CFPB is testing in conjunction with its inquiry – aptly named the “penalty fee box.”

This draft disclosure, designed to highlight the amount overdrawn and total overdraft fees charged, would require the following three disclosures at the top of each periodic statement: 

• A disclosure of the amount of overdraft fees paid during the billing cycle; 

• A disclosure of the amount the account was overdrawn; and 

• A disclosure that “You can lower these fees. See the three tips at the end of this statement to learn how.”

The end of the periodic statement would include an additional disclosure, spanning approximately half of one page. This disclosure provides additional details regarding the overdraft fees the member paid during the statement period and the calendar year and includes three tips for lowering overdraft fees: 

• Tracking balances and deposits carefully and signing up for text message alerts to warn when the balance is low; 

• Linking a savings account to your checking account; and 

• Consider opting out of overdraft coverage on debit or ATM transactions.

If you thought the last round of periodic statement changes to disclose overdraft fees was bad, the potential formatting requirements on this one could really drive you nuts!

******

Make Your Voice Heard – Call for Comments

Speaking of the CFPB’s inquiry into overdrafts, there are a few comment deadlines coming up over the next several weeks.  NAFCU is seeking its members’ input on the following:

• CFPB’s Proposed Rule on the Confidential Treatment of Privileged Information, designed to assure financial institutions that, in providing the CFPB information in the course of a supervisory or regulatory process, they do not waive any privilege they may claim regarding that information. Comments are due to NAFCU April 4.  Comments are due to the CFPB on April 16.  (Regulatory Alert 12-EA-08) 

• CFPB’s Inquiry on Overdraft Protection Programs, seeking information on how overdraft programs are set up, how they are marketed and who uses them. The bureau is also testing the model “Penalty Fee Box” discussed above. Comments are due to NAFCU April 6.  Comments are due to the CFPB April 30.  (Regulatory Alert 12-EA-07)

• FinCEN’s Advance Notice of Proposed Rulemaking on Customer Due Diligence (CDD).  FinCEN is considering whether to expand its rules on CDD. It is looking, for example, at whether to require identity of the beneficial owners in all transactions and verifying that identity in risk-based fashion. Comments are due to NAFCU April 17.  Comments are due to FinCEN May 4. (Regulatory Alert 12-EA-09)

 ******

NAFCU Members.  Our Regulatory Affairs team has updated NAFCU’s webpage on the CFPB.  This webpage is a great resource for keeping up-to-date on the CFPB’s activities and NAFCU’s efforts to mitigate new regulatory burdens for credit unions.  Here, you’ll find:

• Regulatory Alerts on CFPB proposed rules
• Comment letters
• Member Resources
• News
• Links to resources on the CFPB’s website

CFPB to Inquire About Overdraft and Courtesy Pay Programs

Written by Steve Van Beek

There was no shortage of information yesterday regarding the CFPB's first steps toward reviewing overdraft programs.  I was just mentioning a few weeks ago how the CFPB has the ability "to drop" a new issue without advanced notice to the industry.  This could be labeled as Exhibit A.  

I'm sure quite a few other folks where enjoying a quiet Wednesday (yeah right) until they saw the news "CFPB to Review Overdraft Programs" come across their email inboxes.  And, while we are at it - what do the regulators have against February 22nd?  I know a lot of folks still get heartburn thinking about the February 22, 2010 deadlines from the Credit CARD Act.    

***

A couple of quick points on the CFPB's inquiry:

• There is currently no proposed rule.
• The "Penalty Fee Box" information would require a large change to periodic statements.  Don't forget to scroll down to the second page for additional potential changes.
• The CFPB will be looking at more than just ATM and one-time debit card transactions.
• The CFPB has no trouble getting its message out to thousands of news sources.
• The $25 Big Mac is an endangered species.  I wouldn't be surprised to see a "reasonable and proportional" discussion take place which would limit the fee to the amount of the overdraft.  
• Credit unions can expect numerous calls and comments from their members.  Your members will be reading the news stories mentioned above.  Now might be a good time for additional training on your credit union's current policies.

This is just the first stages of the CFPB's inquiry as the CFPB is collecting data, comments and input from all interested parties.  This information will be the basis for the CFPB's decisions on which steps to take next - including future rule changes.

***

Here is the information released yesterday from the CFPB:

• CFPB's Press Release
• Director Cordray's Prepared Remarks
• CFPB's Blog Post asking Consumers "What's Your Status?"
• CFPB's Notice and Request for Information
• The "Penalty Fee Box" Model
• Video: Cordray's Remarks and a Panel Discussion with Consumer Groups and Financial Institutions

Note: There was also a Town Hall Meeting in New York City.  If the recorded video is posted by the CFPB, I'll add a link to that as well.

***

As you can see, the CFPB is not dipping a toe in the water.  They are climbing the diving board and preparing to make a cannonball.

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.  

***

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.    

***

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.

***

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.  

More Republishing; Part 707 - Truth in Savings; Wish Granted

Written by Steve Van Beek

A Quick Note:  NAFCU's offices will be closed Friday, December 23rd and Monday, December 26th for the Christmas holiday.  We will be back blogging on Tuesday.  We hope you all have a wonderful holiday weekend!

***

We've tracked the CFPB's republishing in Monday and Tuesday's blog posts.  The CFPB hasn't slowed down.  

• Published in the Federal Register on Wednesday, December 21:
  • Equal Credit Opportunity (Regulation B)
  • Fair Credit Reporting (Regulation V)
  • Interstate Land Sales Registration Program (Regulations J, K, and L)
  • Privacy of Consumer Financial Information (Regulation P)
  • Truth in Savings (Regulation DD)

• Published in the Federal Register on Thursday, December 22:
  • Truth in Lending (Regulation Z)

***

On December 7th, we blogged on the possibility of the CFPB combining consumer regulations when it conducted its republishing.  Now that the CFPB has made progress on their republishing, we know additional information.  

NCUA will retain authority over Part 707 - implementing the Truth in Savings Act for credit unions.  Footnote 2 of the Proposed Rule contains this information:

"2. Dodd-Frank section 1029 generally excludes from this transfer of authority, subject to certain exceptions, any rulemaking authority over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both. Further, Dodd-Frank section 1100B did not grant the Bureau TISA rulemaking authority over credit unions or repeal the NCUA's TISA rulemaking authority over credit unions under 12 U.S.C. 4311."  (emphasis added)

The proposed regulation (12 CFR 1030) mirrors the current Regulation DD (12 CFR 230) and includes this language in Part 1030.1(c):

"(c) Coverage. This part applies to depository institutions except for credit unions. In addition, the advertising rules in § 1030.8 of this part apply to any person who advertises an account offered by a depository institution, including deposit brokers."

What this means is that NCUA will need to follow the CFPB's lead on Truth in Savings issues just as they did in the past following the Federal Reserve.  The U.S. Code section cited by the CFPB - 12 U.S.C. 4311 - still requires NCUA to adopt a "substantially similar" regulation within 90 days.  NCUA's regulation, which will still be located in 12 C.F.R. 707, will continue to reflect the unique nature of credit unions.  

***

This year - my Christmas gift came early.  Two months ago, in fact.       

Michigan's victory over Ohio State wasn't too bad either.  I was able to enjoy The Game with my father-in-law (as he is from Ohio, he didn't enjoy it as much).  Luckily, we were able to get a photo before the game where we both were happy.  

Have a wonderful holiday weekend!

Confusion Surrounding Free Checking

Written by Steve Van Beek

There continues to be an increased focus on checking accounts - especially with the implementation of the Durbin Amendment and the responses of the larger banks.  

One of the side issues is the increased focus is the use of the term "free" to describe a checking account product.  Banks and credit unions are reviewing their existing products to determine if they can still be properly called "free" even though there are some fees that apply.

This review has usually ended up with confusion and internal discussions at the financial institution on whether an account can be called "free" or not.  

Here is 12 CFR 707.8(a) of Truth in Savings which contains the general prohibition:

"§ 707.8   Advertising.

(a) Misleading or inaccurate advertisements. An advertisement must not:

(1) Be misleading or inaccurate or misrepresent a credit union's account agreement; or

(2) Refer to or describe an account as “free” or “no cost” or contain a similar term if any maintenance or activity fee may be imposed on the account. The word “profit” must not be used in referring to dividends or interest paid on an account."

Unfortunately, the rule just gives us a general prohibition without any specifics.  The specifics are buried in the Official Staff Commentary of Truth in Savings - Appendix C.  See specifically the commentary to 12 CFR 707.8(a) as well as the cross-reference to the commentary under 12 CFR 707.4(b)(4).  

***

Now, why would the regulators use a general prohibition and then put all the details in the commentary?  I think part of it was so the regulators would be able to adjust the commentary if new fees or new uses of an account began to pop up.  However, the accounts changed drastically over the years and the staff commentary has not been updated to reflect the current environment.   

The Consumer Financial Protection Bureau now has power over Truth in Savings (both Reg DD for the banks and Part 707 for credit unions).  Will they clarify the requirements?  The CFPB has discussed clarifying regulations and removing unnecessary burdens in multiple speeches in the past.  If the CFPB does clarify which fees can be charged on a "free checking" account - they will probably come up with a much more consumer-friendly determination.

For now, we wait to see if the CFPB steps into Truth in Savings.  And, we continue to crawl through the official staff commentary searching for clues as to which fees can and cannot be charged on a "free checking" account. 

More on Checking Account Disclosures

Written by Steve Van Beek

On Thursday, we blogged on the push toward more transparent and consumer-friendly disclosures for checking accounts.  

I wanted to focus in on one of the links we included - which shows a proposed "one-page" disclosure from a consumer group.

I've included a picture of the Pew Trust's idea of a account opening disclosure for checking accounts.

 While there is no proposed changes to Truth in Savings, these are the kinds of proposals that consumer groups are speaking to the CFPB about on a daily basis.  Stay tuned.

Reading the Tea Leaves - Checking Accounts

Written by Steve Van Beek

The CFPB released a press release yesterday extolling the importance of transparency for checking accounts:

"This isn't about any one fee from any one bank.  The problem is that checking accounts often come with a wide variety of unexpected costs that can quickly add up for consumers.  Different banks charge different fees. Different fees are applied under different terms and conditions. Different banks give different names to the very same fee.  So it is no surprise that a recent survey by Pew Charitable Trusts found that nearly three-fourths of Americans with checking accounts support greater clarity and disclosure.  

“Ideally, consumers would have a simple way to evaluate checking account costs. The CFPB has the ability to simplify checking account disclosures – an idea that some consumer groups and some banks have already been developing. Making the costs transparent is good for consumers and good for competition. It allows consumers to compare the checking account options from large banks, community banks, and credit unions and pick the one that works best for them."  (emphasis added).

Regardless of how the politics of Bank of America's $5 fee for debit card use plays out, one thing is clear - there will be changes to checking accounts in the near future.  As Mr. Date stated, the CFPB already has the regulatory authority to amend Truth in Savings disclosures.

The statement is not long - but there are some hints as to what the CFPB might do.  For example:

"Different banks give different names to the same fees."   

To me, this looks like the CFPB is getting ready to require an industry standard for "overdraft fees."  The days of referring to these fees as "courtesy pay" fees might be limited.  

We won't know for sure until the CFPB acts - but these are not the first inklings of a renewed focus on Truth in Savings disclosures.

***

Back in May, we blogged on the possibility of a "Schumer Box" for checking accounts.  Senator Schumer introduced legislation that would mandate upfront disclosure - similar to credit cards (TheHill.com):

"Sen. Charles Schumer (D-N.Y.) is introducing legislation that would require banks to clearly display all possible fees on checking account applications.

Schumer, who introduced the legislation on Monday, said a report last week by the Pew Charitable Trusts showed that half of all checking fee disclosure statements provided to new customers from the 10 largest banks are more than 100 pages long.

............................................

The Pew report found that, for example, there are seven different terms used by the 10 largest banks to describe overdraft fees, making it difficult for consumers to compare overdraft policies."  

There is that same Pew Charitable Trust study - and Senator Schumer also focused on the different terminology used throughout the financial services industry to describe overdraft fees.  

***

In April, we discussed a report by the Public Interest Research Group (PIRG).  The PIRG Report provided direct recommendations to the CFPB:

"The new Consumer Financial Protection Bureau has an important opportunity to make markets work better for consumers and good actors in the marketplace; it should make bank account fee disclosures more transparent by enforcing the current law and improving the law’s disclosure requirements.

- The CFPB should extend the requirements of the Truth In Savings Act to the Internet. It should require that banks post fees in a searchable web format (e.g., xml or similar), to encourage the establishment of local online shopping guides by community groups.
- The CFPB should require that the most important savings and checking disclosures required by the Act be provided prominently in a tabular format, such as the “Schumer Box” required for credit card disclosures."

***

If you are having trouble sleeping, below are additional links with ideas that some consumer groups have been suggesting to the CFPB regarding checking accounts.

The full PIRG Study can be found here.   

The full Pew Charitable Trust study on Safe and Transparent Checking Accounts is here.  

One example of the kind of Schumer Box being suggested can be found here.

Here is a letter sent by Pew (and other groups) to the CFPB a couple of weeks back asking the CFPB to prioritize checking account disclosures.  

***

At this point - it is pretty clear the question is not whether there will be changes to Truth in Savings disclosures.  Rather, the question is now when we will see changes.    

Credit Union Terminology - Staff Commentary to Part 707

Written by Steve Van Beek

Credit unions have unique terminology.  We talk about shares, share drafts and share certificates.  A common question is whether credit unions are allowed to use other terminology - such as checking, savings or certificates of deposits.

Comment 5 to Section 707.2(a) in Appendix C has the answer:

"5. Use of synonyms. Generally, it is not the purpose of part 707 to prohibit specific descriptive terms for accounts. For example, credit unions can use adjectives and trade names to describe accounts such as “Best Share Draft Account,” or “Ultra Money Market Share Account.” Synonyms for share, share draft, money market share, and term share accounts may be used to describe various types of credit union share and deposit accounts as long as the synonym is accurate and not misleading and, for account disclosures, is used in conjunction with the correct legal term. For example, the following synonyms may be used:

i. The term “checking account” may be used to describe share draft accounts.

ii. The term “money market account” may be used to describe money market share accounts.

iii. The term “savings account” may be used to describe regular share and share accounts.

iv. The terms “share certificate,” “certificate account,” or “certificate” may be used to describe share certificates and other dividend-bearing term share accounts.

v. However, under no circumstances may a credit union describe a share account as a deposit account, or vice versa. For example, the term “certificate of deposit” or “CD” may not be used to describe share certificates and other dividend-bearing term share accounts. Similarly, the terms “time account” (used in Regulation DD, 12 CFR 230.2(u)) and “time deposit” (used in Regulation D, 12 CFR 204.2(c)) may not be used to describe term share accounts."

Remember, banks follow Regulation DD (12 C.F.R. 230) but credit unions are subject to 12 C.F.R 707.  Both of these regulations transferred to the CFPB on July 21, 2011.  Going forward, it will be interesting - to say the least - to see how the CFPB handles the differences between Reg DD and Part 707.       

Warren Nomination Gaining Steam?; Schumer Box, 2.0; NCUA LOL on Conflicts

Posted by Anthony Demangone

Here are a few interesting tid-bits for your Wednesday. 

Warren  I've been hearing some very interesting chatter on Elizabeth Warren. On the heels of taking out Osama Bin Laden, President Obama has gained some serious political momentum.  Enough, perhaps, to push Elizabeth Warren through the CFPB senate nomination process. 

Schumer Box for Checking Accounts?  Perhaps I should bet the horses  The other day I was talking about how I think regulators will focus a bit more on share accounts, and now there's this.  Senator Schumer would love a new disclosure that clearly shows all checking account fees.  This could require legislators to amend the Truth In Savings Act.  And who knows what else might happen when that is cracked open. 

NCUA Opinion Letter on Conflicts.  Not too long ago, NCUA released Legal Opinion 11-0255.   Here's the "holding," if you will.

You have asked whether an FCU employee, who serves as the Director of Lending, has a conflict of interest when she disapproves member loans and then refers them to a mortgage banker that also compensates her. Yes, it is an impermissible conflict of interest for the FCU employee whether she receives a referral fee or a salary from the mortgage banker.

The legal opinion does a nice job of walking you through the conflict/compensation provisions of NCUA's lending regulation.  At the end of the day, NCUA's lending regulation simply does not permit someone who makes lending decisions to earn compensation from an outside party related to a credit union lending decision when that payment is based on a referral from the credit union. 

(Soapbox warning...soapbox warning.)

But one should take a step back and think about this for a moment.  Even if there were no clear NCUA rule on this matter, the situation still presents a conflict.  When an employee can make money by turning down a loan and referring it to a third party, you should hear the noise of red flags popping up.  Incentive-based compensation has the propensity to, well... incentivize people.  If I'm paid when I refer a loan to a third party, economists would tell you that, at the margin, some loans that should be made by the credit union may very well be turned down and referred.  I wonder how many credit unions ever lay out all of their incentive-based compensation practices on the table and look at them.  And I mean all of them.  Are you paying a loan executive based on loan growth and also paying a collections manager based on the level of delinquencies?  You might as well put a humidifier and dehumidifier in a room to see which wins.

The electric company wins, that's who.