NAFCU Compliance Blog

Internet Gambling Rule Compliance Date Extended 6 Months

Posted by Anthony Demangone

Treasury and the Fed last Friday issued a joint final rule that delays the compliance deadline of the internet gambling rule (Reg GG) until June 1, 2010.  So, take a deep breath.   Your day just  became a wee bit easier. 

And the news gets better.  Financial Services Committee Chair Barney Frank (D-MA) said the delay will give Congress more time to kill the law that requires the regulation. 

“The Department of the Treasury and the Federal Reserve Board of Governor’s deserve a great deal of credit for suspending these midnight regulations promulgated by the Bush administration which would curtail the freedom of Americans to use the internet as they choose and which would pose unrealistic burdens on the entire financial community,” said Congressman Frank.  “This will give us a chance to act in an unhurried manner on my legislation to undo this regulatory excess by the Bush administration and to undo this ill-advised law.”

Whatever the Fed and Treasury is drinking, I hope it is shared with HUD.  A delay of the RESPA rule makes even more sense.

Thanks, Everyone

Posted by Anthony Demangone

I just want to take a moment to thank all of you - the faithful readers of the NAFCU Compliance Blog.  When we started this in October of 2007, never did we think the blog would someday have roughly 1,500 daily subscribers.   We hope that this daily labor of love continues to be helpful to you, and that you forgive my occasional ramblings and rants.

I also want to thank NAFCU's members.  Without you, there'd be no blog.  End of story.   Please do not hesitate to contact us whenever you need us.   And make sure you are taking advantage of all of NAFCU's compliance-related benefits. These are times to stretch dollars, whenever possible.

Here are a few other things that make me feel thankful.

1. I'm thankful for Regulations M and U.  Why?  Because these two regs never change.  And this year, that really means a lot.
   

2. For "frequently asked questions" guidance documents.  But only when the agency in question actually announces when they update them.  Yes, HUD...that was meant for you.

3. For the FTC continuously deciding to delay the compliance deadline for its Red Flags rule.  Sure, this doesn't help federal credit unions.  But when a regulator makes a decision like that, it does raise one's hope that other regulators may follow suit in other areas.

4. For the Federal Reserve and Rep. Barney Frank.  Why?  Job security for compliance officers.

5. For my bosses, who let me run with this blog with few questions asked.

6. For spell-check.  Little buddy,  I know you are not perfect.  But you have saved me from countless mistakes.

7. For Google, the best research assistant a compliance officer can have.

8. Speaking of Google, I'm thankful that NCUA added the Google-powered search engine to its redesigned website.  That's about all I'm thankful for concerning NCUA's redesigned website.

9. For Steve, Sarah and Shari.  Anything that runs well in NAFCU Complianceland is usually due to their efforts.  When things break down, you'll usually see me sheepishly walking away from the crisis, trying not to attract attention.

10. For Briggs, Kate and Mandy. 

11. And for each of you still reading this post.  Have a great Thanksgiving!  We're off the rest of the week, returning on Monday.

A Little of This, A Little of That

Posted by Anthony Demangone

Here are a few things that have been rattling around my in-box recently.

• A criminal BSA prosecution against a bank. You don't see this very often.  Someone asks me every so often what has to happen for the government to use this power under the Bank Secrecy Act.  This is a good example. This could be a good item to share in a training session to underscore that criminal prosecution is a real possibility.  However, it is usually used against an organization or official who uses their position to inentially evade the Bank Secrecy Act's requirements.  Here's a taste of what the bank allegedly did:

It was further part of the conspiracy that (the bank) opened multiple accounts held in the names of nominees or other business entities so that the cash deposits, on any one day in excess of $10,000, could be deposited into the various accounts, in order to conceal the relationship between the transactions and the depositors and to avoid the filing of any reports. Emphasis added.

• The IRS is starting a pilot program to allow those who file IRS information returns to truncate the individual's 9-digit identifying number on paper payee statements.    It looks like the pilot program is limited to 1098s, 1099s and 5498s.

• NCUA issues Regulatory Alert 09-RA-14 to highlight recent changes to Reg CC and how those changes might affect your funds availability policy.

• NCUA issues Regulatory Alert 09-RA-13 to highlight changes to the annual fee threshold for HOEPA loans under 12 C.F.R. Part 226.32.  The dollar threshold will drop from $583 to $579, effective January 1, 2010.

HUD Updates FAQ Document...Again

Posted by Anthony Demangone

Last Thursday, HUD updated its "New RESPA Rule FAQs" guidance document.  Again.  With virtually no public announcement that I am aware of.  Again.  You can access it here. 

HUD notes new questions and answers within the 51-page document by bolding them.  I went through and looked for all the new questions and answers, and here they are.  (You can thank me later.)  (And interestingly, HUD chooses to spell acknowledgment with the e - acknowledgement.  The choice is not an error, but it is more of a British way of spelling the word.  But I digress.  Perhaps because the Kansas City game today has me a bit off my game.)  Here are the aforementioned questions and answers.

28) Q: May a loan originator alter the GFE by adding signature lines to the GFE?

A: No. However, loan originators may develop practices and procedures to document the consumer’s acknowledgement of receipt of the GFE. Loan originators may not refuse to provide a GFE based upon a consumer’s refusal to acknowledge receipt of the GFE. Acknowledgement of receipt of a GFE, by itself, does not constitute an expression of an intention to proceed with the loan covered by the GFE.

***

9) Q: May a loan originator include an affiliated business on the “written list” of settlement service providers that must be provided with the GFE?

A: Yes. A loan originator may identify an affiliated business on the “written list”. The “affiliated business arrangement disclosure” must be provided at the time the GFE is provided to the borrower or at the time of referral, whichever is earlier.

***

10) Q: Does the requirement for a “written list” apply to Block 4, “Title services and lender’s title insurance” on the GFE?

A: Yes. The loan originator must provide a “written list” of settlement service providers, including providers of “Title services and lender’s title insurance” if the loan originator permits the borrower to shop for that settlement service.

***

4) Q: The regulation states that while the borrower’s interest rate is locked, the credit or charge for the interest rate chosen and the adjusted origination charge may not increase from the amount shown on the GFE. On a “no-cost” loan that covers third-party costs where the rate has been locked, the GFE should show a credit for the interest rate chosen, in an amount sufficient to cover the estimated loan originator and third party fees. If the actual third party fees at closing are lower than stated on the GFE, may the loan originator reduce the amount of the credit to match what is needed to pay the actual third party and loan originator fees?

A: No, the amount of the credit may not be reduced. The loan originator may choose to: 1) have the amount of the credit remain the same as stated on the GFE to cover additional closing costs previously not anticipated to be included in the “no-cost” loan; 2) apply a principal reduction to the principal balance; 3) reduce the interest rate and the credit accordingly; or 4) have the credit remain the same, resulting in cash to the borrower.

***

5) Q: A loan level price adjustment is a risk-based adjustment that is derived from specific attributes of the particular loan (LTV, FICO score, occupancy, etc.). How should a loan level price adjustment charged by the lender be disclosed on the GFE?

A: For transactions involving a mortgage broker, the credit or charge for the specific interest rate chosen is the net payment from the lender for the loan. If the net payment from the lender is positive, there is a credit to the borrower and it is entered as a negative amount in Block 2 of the GFE. If the net payment from the lender is negative, there is a charge to the borrower and it is entered as a positive amount in Block 2 of the GFE. The loan level price adjustment is included in the computation in Block 2, “Your credit or charge for the specific interest rate chosen.”

***

6) Q: If the lender funds a transaction involving a mortgage broker and there is a credit to be given in Block 2 of the GFE, how does a loan originator calculate the amount of the credit?

A: For transactions involving a mortgage broker, the credit for Block 2 of the GFE is calculated as the net payment from the lender above the principal amount of the loan. The net payment from the lender includes any payments made from the lender to the broker. The resulting computation is stated as a dollar amount. The calculation of Block 2 is the same, whether or not the transaction is table funded.

***

3) Q: If a governmental loan program chooses a service provider such as the appraiser on a VA loan, should the settlement service be disclosed in Block 3 or Block 6 on the GFE?

A: If a governmental loan program chooses a settlement service provider, such as the appraiser on a VA loan, the settlement service should be disclosed in Block 3 on the GFE.

***

15) Q: If an adjustable rate mortgage (ARM) has a different periodic interest rate adjustment limit applicable to the first rate adjustment than the limit used for subsequent rate adjustments, how should the subsequent rate adjustment limits be disclosed in the Loan Terms section on page 3 of the HUD-1?

A: To disclose limits on periodic interest rate adjustments, where different limits apply at different times in the life of the loan (such as for an ARM with a special adjustment limit applicable to the first adjustment), the settlement agent may either insert the maximum interest rate or the range of the change limits, such as 2-5%.

NCUA Board Meeting

Posted by Sarah Loats

NCUA conducted a busy Board meeting yesterday. The items on the agenda were:

1. NCUA's 2010/2011 Operating Budget

2. NCUA's Overhead Transfer Rate

3. NCUA's Operating Fee Schedule

4. Proposed rule for the Corporate system

5. Final rule for the NCUSIF premium and one percent deposit

6. Insurance Fund report.

The major proposed revisions to the corporate credit union rule involve 5 areas: 1) corporate credit union capital; 2) investments; 3) asset-liability management; 4) governance; and 5) CUSO activities.

NCUA Board Member Hyland hosted a free member business lending webinar on Wednesday November 18 where she stated she expects NCUA's 2010 budget to include funding to ensure that each region has appropriate expertise to ensure effective MBL examinations. See NAFCU Today's article for more on the webcast. The budget does propose $5,778,000 to implement the Annual Examination Program. The program calls for, among other things, the addition of 57 positions to the regions including 4 lending specialsts. For those of you that missed the webinar but would like to watch it, NCUA should have an archived version available soon.

Another item from the budget that caught my attention was the proposal to create the Office of Consumer Protection within the agency. The office will include 2 divisons, the Division of Consumer Protection and the Division of Consumer Access. The office will: a) provide consumer services, including consumer education and complaint resolution; b) establish, consolidate, and coordinate consumer protection functions within the agency; c) act as the central liaison on consumer protection with other federal agencies; d) nationalize field of membership (FOM) processing; e) absorb centralized chartering activities; and f) assume the activities of the agency’s ombudsman. The ombudsman investigates complaints and recommends solutions on regulatory issues that cannot be resolved at the regional level.

Nonmember deposits? You bet!

Posted by Anthony Demangone

Recently, NCUA issued Legal Opinion Letter 09-1022, which discusses whether funds invested through a placement service would gain pass-through insurance from the NCUSIF.  NCUA responds with a simple yes, but clarifying that such a service would likely only work for non-member municipal government deposits.  That's right, non-member deposits.  Here's what NCUA said, in part:

FICUs could participate in a share placement service similar to CDARS but it would most likely be feasible only for funds from "public units," which includes states, municipalities, and political subdivisions. 12 C.F.R. §745.1(c). Although, generally, NCUSIF coverage only extends to member accounts, federal credit unions, and we believe most state-chartered credit unions, may accept funds from public units or government depositors without regard to membership. 12 U.S.C. §§1752(5), 1757(6).For purposes of NCUSIF coverage, nonmember public unit accounts are insured as member accounts. 12 C.F.R. §745.1(b).  Emphasis added.

That's a part of the FCU Act and NCUA regulations that some in our industry forget.  Each and every "public unit" is eligible, which includes states, municipalities and political subdivisions.  So, if you are every looking for deposits, this might be fertile ground to investigate.  Note that there are limits, which are spelled out in the regulation that governs such deposits.

Model Privacy Form

Posted by Anthony Demangone

Yesterday, a number of government agencies indicated that regulators, including NCUA, have released the model privacy form.  There's no word from NCUA yet, but I bet they make their own announcement very soon.  Here's some information from the Fed.

Eight federal regulatory agencies today released a final model privacy notice form that will make it easier for consumers to understand how financial institutions collect and share information about consumers. Under the Gramm-Leach-Bliley Act (GLB Act), institutions must notify consumers of their information-sharing practices and inform consumers of their right to opt out of certain sharing practices. The model form issued today can be used by financial institutions to comply with these requirements.

... The final rule provides that a financial institution that chooses to use the model form obtains a "safe harbor" and will satisfy the disclosure requirements for notices.  The rule also removes, after a transition period, the sample clauses now included in the appendices of the agencies’ privacy rules.

Here's basically what the rule does. 

• The regulation, and the model form, becomes effective 30 days after publication in the Federal Register.  But don't panic.
• You can use the new model form, and you have a "safe harbor" once the rule is effective. What is a "safe harbor?"  If you use the model form, you pretty much are bullet-proof when it comes to this issue on exams, as long as you use the form as outlined in the regulation.
• In addition, the rule eliminates the safe harbor permitted for notices based on sample clauses contained in the current rule for privacy notices provided after December 31, 2010.   I'm guessing many of you created privacy notices using those sample clauses.  So, your notices will be OK - they will enjoy a safe harbor - through the end of next year.  On January 1, 2011, the safe harbor for those sample clauses disappears.  Clearly, regulators are hoping that everyone transitions to the model form.
• On January 1, 2012, the sample clauses will be removed from privacy regulations, including NCUA's.  Like they never existed.  I wonder if we'll be able to even speak about them?
• You don't have to use the model form, but you're on your own if you create your own language.  In other words, you won't enjoy the safe harbor protection.

Odds and Ends

Posted by Anthony Demangone

The regulators do not seem to grasp the idea that some of us have Holiday shopping to do.  The pace of news has been furious, and it doesn't seem to be slowing down a bit.  Here's some recent items of interest.

Gift cards.  Yesterday, the Fed released proposed changes to Regulation E that would restrict fees and expiration dates that would apply to gift cards.   This proposal flows from the Credit CARD Act, which required the Fed to issue rules in this area.  The proposal would prohibit dormancy, inactivity, and service fees on gift cards unless: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees.   Under the proposal, expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.  We'll have 30 days to comment once this is published in the Federal Register.

120 Days of Love.  Not quite, but close enough. Last Friday, HUD announced that it will "exercise restraint" for the first 4 months of 2010 in its enforcement of RESPA. And it urges federal regulators to follow suit. As you would expect, HUD will give lenience to those who made "good faith" efforts to comply.

RESPA procedures.  Speaking of RESPA, the FFIEC interagency RESPA exam procedures have been released.  These procedures will be used by examiners.  The procedures also provide a very good overview of all the changes taking place to the RESPA requirements. 

NCUA.  The agenda for this Thursday's board meeting is available.  The item that caught my eye? NCUA will release its proposal regarding corporate credit unions.   Last week, Chairman Debbie Matz indicated that NCUA examiners will take a close look at fixed-rate mortgage loan concentrations, and increased delinquencies in indirect lending, member business lending and loan participations.  She also said that if credit unions do not address NCUA recommendations that were in a private Document of Resolution, expect a public Letter of Understanding and Agreement or Cease and Desist Order. 

SAFE Act.  Last week, the FDIC issued a final rule to implement the SAFE Act requirements.   Of note: the document, which is labeled a draft, has NCUA's name on it, along with other regulators.  Therefore, I would expect NCUA to follow suit shortly.  Remember, you'll have 180 days to register folks covered by the regulations once the registration system is open and ready to take registrations.

Reg E Rule: Possible Exception Overview

Posted by Anthony Demangone

On Friday, I wrote about the recently issued final rule that amends Regulation E to provide new consumer protections concerning overdraft protection.  My phone and email box starting to overheat, and generally it was in reference to this question: What about those transactions where we have to pay a point of sale debit card transaction that overdrafts the account because the gas station only authorized $1, but the transaction posts for $60?

Please allow me to give you the 50-cent answer, because I think it is important to see how this new final rule will work. Here's a link to the final rule.  Please print it out or save it to your computer.  I'll reference certain pages of the final rule, so having a copy would be beneficial.

The general rule:  Outside of applicable exceptions, a financial institution holding a consumer's account, shall not assess a fee or charge on a consumer's account for paying an ATM or one-time debit card transaction pursuant to the institution's overdraft program, unless you comply with the notice and opt-in requirements. Section 205.17(b), pp. 79-80

Let's stop and think about that.

1. First, this only applies to consumer accounts. Commercial accounts need not be included.
2. Overdraft program.  Is it defined?  You bet.   At section 205.17(a).  It defines it as "a service under which a financial institution assesses a fee or charge on a consumer’s account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account."  It does not include a line of credit subject to Reg Z, transfers from savings accounts, or a line of credit or other transaction exempt from Regulation Z.  You'll find this on pp. 78-79.  This definition limits the new rule's scope.
3. Finally, there's an exception.  Let's explore that.

The exception.  Here it is, word for word.

The requirements of § 205.17(b)(1) do not apply to an institution that has a policy and practice of declining to authorize and pay any ATM or one-time debit card transactions when the institution has a reasonable belief at the time of the authorization request that the consumer does not have sufficient funds available to cover the transaction. Financial institutions may apply this exception on an account-by-account basis. Section 205.17(b)(4).  p. 80.

So, if your credit union has a policy and practice of declining to authorize and pay ATM or one-time debit card transactions when you have a reasonable belief at the time of the authorizationrequest that the consumer does not have sufficient funds available to cover the transaction - you do not have to send out the opt-in notification.

But why would you?  If you have a policy and procedure of only paying these transactions when funds are available, then you technically have a policy of not allowing members to overdraft their accounts using these transactions.  There'd be nothing for the member to opt-in to.  As we read the final rule, there's nothing that appears to prevent credit unions from charging fees in this situation.

If, on the other hand, you do have a policy and practice of paying such transactions when funds are not available pursuant to an overdraft program as defined by Reg E, then you do have to send an opt-in notice as required by the regulation.

So, what about those gas station transactions that we discussed earlier?

This is where it gets very hazy.  The following discussion comes from pp. 52-53.

...The Board believes that consumers who make the choice not to opt in may reasonably expect an ATM or one-time debit card transaction to be declined if there are insufficient funds in their account, and that they will not be charged overdraft fees. Adopting exceptions to the prohibition on fees would undermine the consumer’s ability to understand the institution’s overdraft practices and make an informed choice.

    The Board recognizes that financial institutions and consumers have imperfect information as to the balance in the account at the time of the transaction. Financial institutions face operational limitations in processing transactions, and in tracking the consumer’s actual balance, because transactions may not be processed in real-time. Similarly, even if a consumer checked his or her balance prior to a transaction, the balance may not be updated, so the consumer may inadvertently overdraw his or her account on the belief funds are available. On balance, the Board believes financial institutions are in a better position to mitigate the information gap by developing improved processing and updating systems, as they have in recent years, and as the Board expects they will continue to do over time.

    The rule does not, however, prohibit financial institutions from paying overdrafts for ATM and one-time debit card transactions even if a consumer has not affirmatively consented or opted in to the institution’s overdraft service, so long as a fee is not imposed. For example, under network rules, financial institutions must pay authorized debit card transactions, even if at settlement intervening transactions by the consumer have reduced the consumer’s available balance below the authorized amount of the transaction. To address any safety and soundness concerns, and as discussed above, institutions may debit the consumer’s account for the amount of the overdraft, provided that the institution is permitted to do so by applicable law.

So, where does that leave us?

Those without an overdraft program, who are eligible for the exception. If you look at the regulation itself and not the guidance, the regulation only says that an institution cannot charge a fee to a consumer's account pursuant to an overdraft protection program unless the consumer has opted in as outlined in the regulation.  Credit unions without an overdraft protection program as outlined by the rule (those who have a policy not to pay POS and ATM overdrafts when they reasonably determine that funds are not available) are not subject to the notice and opt-in requirement.  So it appears they have an argument that they can pay those gas station transactions and nothing appears to prohibit them from charging a fee.

Those with an overdraft program, who are ineligible for the exception.  They have to give the notice and opt-in. And the guidance above appears to show the Fed's thoughts that if a member chooses not to opt-in, these institutions can pay the "gas station" transaction - but cannot charge a fee.

The strange aspect of this is that there appears to be a disconnect between the guidance and the actual Reg.  The reg creates a clean exception, but that exception gets muddy when you read the explanatory language that comes with the regulation.  I wish this were an easy, clear issue - but it isn't. This rule is a big deal for many of you, so I urge you to do your own research.  We're digging through this as quickly as we can, but nothing compares to a legal opinion provided by competent legal counsel.

And remember that this analysis doesn't take into account the various legislative fixes that might address the number of possible overdrafts in a day or month and the amount of overdraft fees.

Regulation E Final Regulation Released: Worst Case Scenario Realized

Posted by Anthony Demangone

Yesterday, the Federal Reserve issued a final rule to amend Regulation E to limit the ability of financial institutions to charge overdraft fees for one-time POS and ATM transactions.  Under the final rule, consumers must give their affirmative "opt-in" to the overdraft program before such fees can be charged.  The compliance effective date is July 1, 2010.  Here's a nice, depressing one-page summary.

• The "opt-in" must be given for all accounts.  New and  existing accounts.
• Anyone who opts in has a continuous right to opt-out.
• You cannot bundle the opt-in for POS and ATMs with overdraft services for checks and other transactions.  In other words, ATM and POS transactions get their own, independent opt-in.
• Here's the model opt-in form.

• Again, while the rule takes affect 60 days after the final rule is published in the Federal Register, the compliance effective date is July 1, 2010.

My general thoughts?

1. This will affect budgeted revenues for credit unions that charge overdraft fees for these types of transactions.  Insert this information into your budgeting process as soon as possible.
2. It seems that Congress and regulators do not want us to earn non-interest income.  Overdraft fees. Over-the-limit fees on credit cards.  Interchange.  What would your credit union look like if it lost 80 percent of its non-interest income?  What would you have to do to survive?  Those questions are seeming more and more relevant as time passes.
3. I wonder if you'll start seeing a resurgence of monthly maintenance fees on share accounts in the not-to-distant future.

Oh, and have a nice weekend everyone.

Fed Guidance on HPMLs, "Balloons" and Ability to Repay

Posted by Anthony Demangone

Earlier this week, the Fed issued a nice guidance document to clear some confusion on higher priced mortgage loans that centered on balloon loans and verifying the borrower's ability to repay. Access the guidance here.  Before the guidance, many concluded that HPMLs with short-term balloons (less than 7 years) were a no-no.  The Fed clarifies that this isn't the case.

I'd keep an eye out for this type of guidance moving forward.  With virtually every aspect of Reg Z being amended, the Fed will have to clarify issues that pop up.  And many will.  I'd bet on it.

Here's the Q and A portion of the guidance:

Frequently Asked Questions and Answers

1. Question: Does the rule prohibit short-term balloon loans that are higher-priced mortgage loans?

Answer: No. However, the creditor must use prudent underwriting standards and, after considering consumers’ income, employment, obligations and assets other than the collateral, the creditor should determine that the value of the collateral (the home) is not the basis for repaying the obligation (including the balloon payment).

2. Question: Does that mean the creditor must verify that the consumer has assets and/or income at the time of consummation that would be sufficient to pay the balloon payment when it comes due?

Answer: No, such a requirement would effectively ban short-term balloon loans. If the Board had intended to ban these products it would have done so explicitly.

3. Question: What must the creditor do, then, to verify the borrower’s ability to repay a short-term balloon loan?

Answer: In addition to verifying the consumer’s ability to make regular monthly payments, a creditor should verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral.

4. Question: How does the creditor verify, when it originates a short-term balloon loan, whether the consumer could qualify for a refinancing before the balloon payment is due?

Answer: The creditor has an affirmative duty to engage in prudent underwriting. Thus, the creditor should consider factors such as the loan-to-value ratio and the borrower’s debt-to-income ratio or residual income—all as of the time of consummation. A borrower with a high debt-to-income ratio, and/or with little or no equity in the property, will be less likely to be able to refinance the loan before the balloon payment comes due than a borrower with lower debt-to-income and loan-to-value ratios. The creditor is not required to predict the consumer’s future financial circumstances, interest rate environment, and home value.

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.

Grab Bag

Posted by Anthony Demangone

Here are a few items of interest.

• HUD has issued a number of civil money penalties against financial institutions.  In addition, HUD has settled allegations of non-compliance with several others.   The number of items in this notice makes me wonder whether HUD's enforcement office has been pressed to kick it up a notch.
• Speaking of HUD, NAFCU is hosting a webcast this Thursday.  Barton Shapiro, Deputy Director for RESPA and Interstate Land Sales from HUD will be one of the speakers. If you have concerns with the looming compliance deadline, this might be right up your alley.  Sign up here.
• NAFCU Members: Don't forget about our "Year-End Review," a NAFCU member-only conference call on Thursday, Nov. 19, from 4-5 p.m. EST. NAFCU President Fred Becker and the association's senior staff will report on the latest developments in Washington affecting credit unions. Our Call-In is free, but you must register to participate. Call our Member Service Center at (800) 344-5580 or (703) 522-4770; or you may register online at http://www.nafcu-training.org/callin.
• NCUA has issued Regulatory Alert 09-RA-12 to highlight recent changes to Regulation D regarding reserve requirements.
• NCUA has issued Regulatory Alert 09-RA-11 to remind us about recent changes to Reg Z closed end lending brought about by MDIA.  Old news, right?  Not quite. The Reg Alert also contains the new questionnaire that NCUA examiners will use to measure your compliance.   
• Finally, this caught my eye when reviewing the Reg Z open end proposal.  File this one under: paternalism.

As you may recall, credit card lenders will have to make disclosures regarding the cost if consumers only make the minimum payment on their balance.  If the estimated payoff time is less than two years, it can be disclosed in months.  If it is more than two years it must be disclosed in years AND rounded to the nearest year.  But, here is what caught my eye.

“The Board believes that disclosing the estimated minimum payment repayment period in years (if the estimated payoff period is 2 years or more) allows consumers to better comprehend longer repayment periods without having to convert the repayment periods themselves from months to years.”

There are so many things I want to type right now.  But I won't. (Sigh.)

President Signs H.R. 3606 into Law

Posted by Anthony Demangone

Earlier today, President Obama signed H.R. 3606 into law, which provides a technical fix for the 21-day issue by limiting its affects to credit card accounts.  Let me know when you're done clapping.

OK.  Here's what that did.  With a stroke of the pen, the Truth in Lending Act has been amended.  The Fed will need to update regs and guidance to implement this, and we can expect that information when the Fed issues the final rule to implement the portions of the Credit CARD Act due to go into affect on February 22, 2010.  Those rules should come by year's end.  But no matter how long the Fed takes, the law was changed the moment President Obama's signature graced the document.

I cannot say with 100 percent certainty how the Fed will address this issue.  There always is a bit of haziness until you see what the final regs say.  Can credit unions that moved due dates simply move them back without some sort of notice?  I wouldn't think so.  But again, we'll have to wait for the final rule to know what the Fed really thinks about all of this. In any event, this sure is wonderful news. 

And with the news, it signals the end of one of the strangest chapters in my life as a compliance professional.

Regulation Z Proposal: Online Disclosures of Credit Card Account Agreements

Posted by Anthony Demangone

First, please accept my apology for such a post on a Friday. 

As you ready your credit union to comply with the massive changes to Regulation Z's open-end rules, do not put off today's topic too long.  While the online disclosure of credit card account agreements sounds like it could be simple...it simply is not.  In short, you'll need to post your credit card agreement on your website. And you'll have to submit them to the Fed as well.  The Fed will create a website where people can go to view all the credit card agreements that exist in American. 

Yee-haw.  Pop me some popcorn.  I can't wait.

In today's post, I wanted to give you a taste of what is involved.  For painful, excruciating detail, please refer to this document. 

• First, note that the Fed created a "small issuer" exemption.  If your credit union has less than 10,000 credit card accounts open (including dormant accounts), you are not subject to the requirement to submit agreements to the Fed. 
• The new requirements will be housed at 12 C.F.R. Part 226.58.
• Even if your agreements do not include pricing (i.e., APRs), you'll need to provide this information to the Fed, along with applicable fees.
• You only need to upload agreements to the Fed that you currently offer to the public.
• You'll need to register with the Fed, and upload agreements electronically to them 4 times a year.  The Fed indicates that it will provide specific details on how to do this in the near future. 
• While the quarterly submissions are generally due no later than the first business day after January 31, April 30, July 31, and October 31, there is special timing for the first two submissions.  The first submission would be due February 22, 2010, and the next one would be due August 2, 2010.
• Here's the rub.  Or one of them, anyway.  If you change your agreement, including pricing or provisions) you need to update the agreement on the next quarterly submission.  And if an agreement no longer is offered, you'll need to notify the Fed about that as well.
• Much of the specifics are outlined in Appendix N of Regulation Z.

As I said, I apologize for sending this to you on a Friday.

***

We are reworking our regulatory compliance newsletter.  After we began the process, we realized that we had a terrible name.  What happens when you let attorneys name a newsletter?  Well, we called ours...The NAFCU Regulatory Compliance Newsletter.  Pretty creative, huh?

Well, what should we call it?  We're asking you, NAFCU members, to come up with a new name for the new newsletter.  I'll give some sort of award for two entries: 1) one for the name we end up using; and 2) one for the name that makes me laugh the hardest.

Send ideas to [email protected].

***

Have a great weekend, everyone!  (Even you Buckeye fans.)

Organizing the Compliance Information Flow; Webcasts

Posted by Steve Van Beek

Wow.  It has been a whirlwind of a year.  The speed and complexity of the regulatory changes has been maddening.   

I utilize a few unique tools to help obtain and organize compliance information to make my life easier and less stressful.  At last year's Compliance Seminar in San Francisco, I presented on "Organizing the Compliance Information Flow" and I believe these tools could be very useful to compliance officers looking to sift through information during compressed implementation periods.  I created a powerpoint slideshow as well as a user's guide to detail some of the tools I use to stay organized.  Hopefully some of these resources are useful and can help save you time.  

***

On Thursday, November 12, NAFCU will host a webcast on Essential Updates on FHA Lending Programs and RESPA.  Assistant Secretary of Housing - FHA Commissioner, David H. Stevens will discuss updates and changes to FHA Lending Programs.  The webcast will also address implementation of RESPA - scheduled to be effective January 1, 2010.  This webcast is a great opportunity to hear directly from FHA Commissioner Stevens on FHA lending and RESPA.  NAFCU's President and CEO, Fred Becker, will moderate the webcast.  Please note: Due to Veteran's Day, this webcast will be on Thursday rather the customary Wednesday timeslot.  

Additionally, NAFCU will be offering a unlimited webcast subscription for 2010.  This is your opportunity to sign-up for all of NAFCU's webcast at one price for the year.  There are a minimum of 18 webcasts planned for 2010.  Given the rapidly changing regulatory environment, this subscription allows you to ensure you are able to attend and view all of NAFCU's webcasts.  Remember, even if you are unable to attend the live webcast - all of NAFCU's webcasts are archived for 6 months for later viewing.   

Reg Z Proposal: Late Payment Disclosures

Posted by Sarah Loats

Today we'll continue through the Regulation Z proposal and focus on late payment disclosures for periodic statements. For those of you familiar with the Federal Reserve's January 2009 rule, effective July 1, 2010, the proposed rule is revising that final rule in order to implement the new Credit CARD Act amendments to TILA. Here is the language from the proposed rule that relates to this provision.

Here are some items of note from the proposal:

- The requirements apply only to credit cards.

-The due date is required on the statement regardless of whether a late fee or penalty rate would be assessed.

-The due date disclosed must be the same date each month. A proposed comment clarifies that this means the same numerical day each month (i.e., the 25th of each month). Another comment provides that the credit union would be able to change the due date from time to time, such as in response to a member request, provided the new due date will be same date each month.

- Proposed staff comments explain that the date to be disclosed is the due date according to the "legal obligation between the parties" and that a courtesy period should not be taken into account.

-If the due date falls on a day the credit union does not accept payments, it must still reflect that day as the due date. An example provided in the proposed rule - the member's due date is on the 4th of each month, and the credit union does not accept payments by mail on July 4th. Under another portion of the proposal, the credit union would have to accept a payment received by mail on July 5th as timely, but it must still disclose the 4th as the due date.

The portion of the proposed rule relating to the formatting of the late payment (and repayment) disclosures can be found here.

An excerpt from the proposal summarizes the format requirements nicely:

Consistent with TILA Section 127(b)(12), as revised by the Credit Card Act, the Board proposes to retain the requirement in § 226.7(b)(13) that credit card issuers disclose the payment due date on the front side of the first page of the periodic statement. In addition, credit card issuers would be required to disclose the amount of any late payment fee and penalty APR that could be triggered by a late payment in close proximity to the due date. Also, the due date, late payment fee, penalty APR, ending balance, minimum payment due, and the repayment disclosures required by proposed § 226.7(b)(12) must be grouped together. See § 226.7(b)(13). The Board believes that these format requirements fulfill Congress’ intent that the due date and late payment disclosures be grouped together and be disclosed in a conspicuous location on the periodic statement.

Tuesday Grab Bag; Group Photo from Seminar

Posted by Anthony Demangone

Here's some compliance-related odds and ends.

• The FTC has delayed the effective date of its Red Flags rule again, this time until June 1, 2010.  Remember, the FTC's version of this rule does not cover federal credit unions.  So the extension does not benefit you FCUs.  I mention this news because the FTC announcement may confuse some within our industry.  (Now, if only the FTC would talk to HUD about extending the RESPA deadline...)
• NCUA has announced that we can expect its proposed rule that will address corporate credit unions in its November 19th board meeting.
• I'm guessing it was not fun working at this Ohio bank recently.  (Link to www.bankinfosecurity.com).  Someone walked in and took three storage bins that contained paper that was to be shredded.  Oh, and each bin weighed 500 pounds.  This would be a nice story to use to reinforce your security procedures.  Along those lines, don't forget that Appendix B to Part 748 contains NCUA's guidance on response programs.  If the incident noted above happened at your credit union, how long would it take you to respond as outlined in that guidance? 
• NCUA, along with other regulators, adopts "Prudent Commercial Real Estate Loan Workouts" guidance.  If your credit union does commercial real estate lending, this is a must read.
• Relatedly, NCUA issued Letter to Credit Union 09-CU-19 in September, to share a Supervisory Letter given to examination staff to help them evaluate residential real estate modification programs.   If your credit union is doing workouts, your examiner will likely scan this guidance before visiting your shop.  Ergo, you should review it as well.

I guess that's enough.  Enjoy your Tuesday!

***

Here's a group photo of our Compliance Seminar attendees from Charleston.  A full week of compliance, and they are still all smiling.  Incredible! To all the attendees, thanks so much for attending.  I hope you had as much fun as I. *

 

* (I always waffle on how to end that sentence.  As much fun as I?  Or as I had?  Is the had implied?  It sounds fancier to leave it out.  But what do I know?  Ugh.)

Regulation Z Proposal: Substitute or Replacement Card Disclosures

Posted by Anthony Demangone

The Regulation Z proposal tackles a number of sticky issues.  The issue of substitute and replacement cards is one of them.  A member may request additional features to a credit card account that will require a change in the disclosures.  So, must you send a change in terms or a set of brand new initial disclosures?  Here's what the Fed is thinking.

    The Board understands that, when an existing cardholder requests new features or benefits, disclosure of the new terms pursuant to § 226.6(b) may be preferable because the cardholder generally will not want to wait 45 days for the new terms to take effect (as would be the case if notice were provided pursuant to § 226.9(c)(2)). Thus, this comment is intended to provide card issuers with some flexibility regarding whether to treat the substitution or replacement as the opening of a new account (subject to § 226.6(b)) or a change in the terms of an existing account (subject to § 226.9(c)(2)).
    However, the Board does not intend to permit card issuers to circumvent the disclosure requirements in § 226.9(c)(2) by treating a change in terms as the opening of a new account. Accordingly, the comment would further state that whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in §§ 226.6(b) and 226.9(c)(2) is determined in light of all the relevant facts and circumstances.  74 Fed. Reg. 54131.

The Fed proposes that creditors look at the following factors:

1. Does the member get a new credit card?
2. A new account number?
3. New features?
4. Does the card work at a greater or lesser number of locations after the change?
5. Was it done on an individual basis?
6. Does the card become a different type of card (does a charge card become credit card, for example)

When most of these facts are present, the substitution or replacement is really the opening of a new account, for which new account disclosures are required.  Note: the Fed is looking for comments on this issue.

If you want to read more about this issue, here's the part of the proposal that deals with this issue.

***

I just realized that is is November.  Where did this year go?