NAFCU Compliance Blog

Garnishment Fees and Negative Balances

Written by JiJi Bahhur, Regulatory Compliance Counsel

Today, I’d like to share a real question we’ve seen a number of times and then provide an answer. The question stems from the final rule on Garnishment of Accounts Containing Federal Benefit Payments (final rule). 

Question:  In a garnishment situation where a protected amount exists, is it prohibited to assess a garnishment fee if it takes the account into a negative balance?

Answer:    Although you may assess a garnishment fee where non-benefit deposited funds exist, it is prohibited to assess such a fee if it takes the account into a negative balance.

Section 212.6(h) states that a financial institution may not charge or collect a garnishment fee against a protected amount.  The financial institution may charge or collect a garnishment fee up to five business days after the account review if funds other than a benefit payment are deposited to the account within this period, provided that the fee may not exceed the amount of the non-benefit deposited funds. 

The same question was presented to the Agencies during the comment period.  From the Preamble of the Final Rule: 

“The commenter also asked if a financial institution could collect a garnishment fee from an account that is not subject to the regulation after the account review by taking that account balance negative.” (Emphasis added.)

In response, the Agencies provide language in the Preamble that implies that taking the account into a negative balance does not support the imposition of a garnishment fee.  The Agencies state that the fee can be collected from the additional unprotected funds that are already there or deposited within that 5-day window. 

“In light of the comments received from financial institutions, the Agencies have decided to establish a procedure that financial institutions may follow, if they choose, for a limited time following the account review to determine whether nonprotected funds are available to support the imposition of a garnishment fee. If funds other than a benefit payment are deposited to an account during the 5 business days following the date of the account review, the financial institution may charge or collect a fee from the additional funds. In order to impose such a fee, a financial institution could choose to check the account at any time during the 5 days after the account review to determine if funds other than benefit payments were deposited.” (Emphasis added.)

Also, the Department of Treasury provides further clarification in its FAQs:

“After establishing a protected amount, can a financial institution deduct a garnishment fee from nonprotected funds?

Yes. The Agencies amended section 212.6(h) of the Final Rule to provide financial institutions with an opportunity for up to five business days after the account review is performed to impose a garnishment fee if non-benefit funds are deposited. Before charging a garnishment fee, financial institutions are required to determine that the garnishment fee does not exceed the amount of the non-benefit deposited funds.

The Agencies believe that financial institutions should not be permitted to collect a fee from the protected amount and, therefore, have not amended that provision of the Final Rule.” (Emphasis added.)

And last, NCUA’s Regulatory Alert (13-RA-04) provides even further clarification:

“Garnishment Fee. You may not charge or collect a garnishment fee from the protected amount. You may charge or collect a garnishment fee up to five business days after the account review, in the event that non-benefit funds become available. The fee may not exceed the amount of non-benefit deposited funds.” (Emphasis added).

In conclusion, the Agencies do not support the taking of an account into a negative balance to collect a garnishment fee.  Therefore, a financial institution may only assess a garnishment fee up to the non-benefit deposited funds that exist within that 5-day window.   

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There is additional information and guidance in NCUA’s Regulatory Alert so be sure to take a look. 

 

NCUA Regulatory Alerts

Written by Bernadette Clair, Regulatory Compliance Counsel

NCUA recently released the following Regulatory Alerts:

• Regulatory Alert 13-RA-04, Garnishment of Accounts Containing Federal Benefit Payments

• Regulatory Alert 13-RA-05, New Escrow Requirements under the Truth in Lending Act

• Regulatory Alert 13-RA-06, CFPB’s Amended Remittance Transfer Rule

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Today, I want to highlight guidance contained in Regulatory Alert 13-RA-06 regarding the CFPB’s Amended Remittance Transfer Rule.  The alert addresses recent changes to the CFPB’s remittance transfer rule and reminds credit unions of the October 28, 2013 compliance deadline.  The guidance also provides an overview of the types of remittances covered by the rule, eligibility for the safe harbor exemption, and general disclosure requirements under the final rule.

In particular, the following guidance may be helpful for credit unions determining whether they are eligible for the safe harbor exemption:

 “Which Credit Unions Are Exempt?

Credit unions that do not provide international wire/ACH transfers in the normal course of business are exempt from the remittance transfer rule. For purposes of the rule, “normal course of business” is defined as providing more than 100 remittance transfers in the previous calendar year and in the current calendar year. Credit unions that facilitate lower volumes (100 or fewer remittance transfers per year) are eligible for the safe harbor exemption.

The safe harbor exemption is not related to your credit union’s asset size or complexity, number of members, or number of accounts engaged in money transfer services. Instead, you must count the actual number of international transactions you provide to determine whether the safe harbor exemption applies. For example, if one member routinely sends money outside the United States twice a month beginning in January, you will have provided 24 remittance transfers by the end of December for that calendar year.

You are expected to track the number of remittance transfers conducted annually to confirm eligibility for the safe harbor exemption. When your credit union is no longer eligible for the exemption, you will have up to six months to begin complying with the regulatory requirements. 

If you currently exceed the safe harbor threshold, you must begin complying with the regulatory requirements on October 28, 2013.”

 For complete details, the alert is available in its entirety here.

CFPB Files Mortgage Steering Case; A Few Useful Resources

Written by Steve Van Beek

Last Tuesday, the CFPB filed suit against Utah-based Castle & Cooke Mortgage LLC alleging the payment of bonuses to loan officers who steered consumers into mortgages with higher interest rates. Here is from the CFPB's press release:

"The CFPB alleges that the company violated the rule with its quarterly bonus program, which paid more than 150 Castle & Cooke loan officers greater bonus compensation when they persuaded consumers to take on more expensive loans. The average quarterly bonus ranged from $6,100 to $8,700. By contrast, those loan officers who did not charge consumers higher interest rates did not receive quarterly bonuses. The CFPB estimates that more than 1,100 illegal quarterly bonuses were paid and that tens of thousands of customers may have been upsold since April 2011. By tying bonuses to the interest rate of the loans in this manner, the CFPB alleges that Castle & Cooke was in direct violation of the law."

For additional information, check out the full press release and the CFPB's complaint.

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Below are a few resources you might find useful.

Delinquency FAQs. NCUA posted FAQs on 2013 Loan Delinquency Reporting Changes in the call report section of their website.

Kaufman & Canoles. A recent creditunions.com by attorneys at Kaufman & Canoles discusses Recent Court Rulings that May Impact Credit Unions. Additional information can be found in Kaufman & Canoles' Summer 2013 Credit Union Legal Update.

Note: Andy Keeney of Kaufman & Canoles will be presenting on Fair Lending and the Mortgage Ability-to-Repay Requirements at NAFCU's Regulatory Compliance Seminar in October.

Weltman, Weinberg & Reis. Rob Rutkowski has started a video series on the CFPB's mortgage regulations over at That Credit Union Blog. You can find the first three videos here: Part 1; Part 2; and Part 3.

Note: Rob Rutkowski will also be at Seminar - speaking on Legal Aspects of Social Media as well as leading the Live Credit Union Podcast for the 3rd straight year.

NB Hotlist. If you haven't seen the NB Hotlist, check it out. NeighborBench aggregates compliance information from various credit union and bank blogs in one location.   

Can a FCU use the term CD or Certificate of Deposit?; Oh No; Oh Yeah

Written by Steve Van Beek

Quite a few eagle-eyed compliance professionals wrote in about the July NCUA Report and, in particular, the article from the Office of Examination and Insurance entitled Credit Unions Shouldn't Overlook Early Withdrawals of CDs:

"One commonly overlooked area in interest-rate and liquidity risk analysis is the modeling of early withdrawals of certificates of deposit (CDs). While many credit unions will have nonmaturity share decay rate assumptions incorporated into their analysis, they rarely factor in the risk associated with early CD withdrawals because many believe that the early withdrawal penalties associated with their CDs will discourage members from cashing in their CDs prior to maturity. This line of thinking may have been reasonable and defensible prior to 2007 when interest rates—even on short-term CDs—were near 5 percent. However, it probably would not pass muster in today’s extremely low interest-rate environment." (emphasis added).

NCUA's usage of certificate of deposit and CD brought up the question of whether federal credit unions are still prohibited from using those terms. The answer is found in the Official Staff Commentary to 12 CFR 707.2(a):

"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 1030.2(u)) and “time deposit” (used in Federal Reserve Board's Regulation D, 12 CFR 204.2(c)) may not be used to describe term share accounts." (emphasis added).

Why is certificate of deposit or CD prohibited for FCUs? The Official Staff Commentary to 12 CFR 707.2(i) helps explain:

"(i) Dividend and Dividends

1. General. Member savings placed in share accounts are equity investments, and the returns earned on these accounts are dividends. Federal credit unions may only offer dividend-bearing and non-dividend-bearing share accounts. State-chartered credit unions may offer both share and deposit accounts if permitted by state law. State law, including without limitation regulations and official interpretations, will determine if returns earned in accounts in state-chartered credit unions are dividends." 

Hopefully that helps clear things up a bit for everyone! 

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Nationals Win! Yesterday was NAFCU's summer staff outing - the Washington Nationals versus the Pittsburgh Pirates. Everyone had a great time and I wanted to share my two favorite photos (featuring the former Compliance Guy) from yesterday which accurately sum up the game.

Below is the reaction when the Nationals blow a 4-run lead in the top of the ninth:

But, luckily, Bryce Harper came through with a 2-run walk-off home run in the bottom of the ninth - leading to this reaction!

Excellent use of the rally cap! Have a great weekend!

CFPB Bulletin on Debt Collection Practices: Part 2

Written by Michael Coleman, Regulatory Compliance Counsel

On July 10^th, the Consumer Financial Protection Bureau (CFPB) released two bulletins on debt collection practices, we blogged about their release here. Today we would like to take a closer look at CFPB Bulletin 2013-08, which concerns representations from creditors and third party debt collectors about the effects of debt payments on credit reports and scores.

The Bulletin explains the CFPB’s concern that these representations could amount to violations of provisions of the Fair Debt Collection Practices Act (FDCPA) and the Dodd-Frank Act, which when taken together “prohibit covered persons or service providers, including debt collectors, from engaging in deception while collecting or attempting to collect on consumer debts.”

The CFPB notes that creditors and third party debt collectors often make material representations to consumers when communicating with them regarding the payment of their debts in collection. The CFPB gives several examples of these representations (which it notes is not an exclusive list) such as the relationship between:  

• Paying debts in collection and improvements in a consumer’s credit report;
• Paying debts in collection and improvements in a consumer’s credit score;
• Paying debts in collection and improvements in a consumer’s creditworthiness; or
• Paying debts in collection and the increased likelihood of a consumer receiving credit or more favorable credit terms from a lender.

The Bulletin gives examples of how the payment of a debt in collection might not actually improve a consumer’s credit report, credit score, or creditworthiness.

So what should credit unions take away from this? Be careful what you are telling your members when attempting to collect debts. Here is an excerpt from the Bulletin outlining the CFPB’s expectations from creditors and third party debt collectors:

“C. CFPB Expectations

The examples of potentially deceptive claims concerning the effect of paying debts in collection on credit reports, credit scores, and creditworthiness set forth in this bulletin are illustrative and nonexhaustive. The prevalence of these types of potentially deceptive claims is a matter of significant concern to the CFPB.

Debt owners and third-party debt collectors should take steps to ensure that any claims that they make about the effect of paying debts in collection on consumers’ credit reports, credit scores, and creditworthiness are not deceptive. In the course of supervision activities or enforcement investigations, the CFPB may review communication materials, scripts, and training manuals and related documentation to assess whether owners of debts and third-party debt collectors are making these types of claims and the factual basis for them. In addition, the CFPB will assess whether additional supervisory, enforcement, or other actions may be necessary to ensure that the debt collection market functions in a fair, transparent, and competitive manner.” (Emphasis added.)

Even if your credit union is not under the CFPB’s direct supervisory authority (those credit unions with less than $10B in assets), this is something that you will want to train your staff on to avoid making any material misrepresentations during your collection efforts.  

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Take me out to the ball game. NAFCU offices are closing early this afternoon at 12pm. The NAFCU staff will be heading out to Nationals Park watch the Washington Nationals take on the Pittsburgh Pirates. The Nats might be in a bit of a slump right now (to put it mildly compared with preseason expectations), but you can bet this compliance guy will be rooting for the home team! 

Release of NCUA Report for July 2013

Written by JiJi Bahhur, Regulatory Compliance Counsel

Yesterday, the NCUA released its July 2013 NCUA Report.  Featured articles include the following:

• Office of the Chief Economist Report: Foreclosure Timelines Across the Nation Rise
• Chairman's Corner: A Win-Win for Credit Unions
• Board Actions: Loan Participation Rule Provides Flexibility for Credit Unions, Security for Industry

• Board Perspective: Pen, Paper, Stamp and a Little Time
• Office of Examination and Insurance Report: Credit Unions Shouldn't Overlook Early Withdrawal of CDs

• Region I Report: Credit Opportunity Management Analytics; Can We Generate Loans And If So, Where?

• NCUA Creates One-Stop Shop for Web-Ready Graphics for Credit Unions

If you have a chance, you can view the full report here.  I just wanted to point out two items that kind of caught my attention.  First, besides a summary of the changes under the new rule, the loan participation article provides some interesting statistics:

“Nearly half of all federally insured credit unions with assets of more than $50 million hold or sell loan participations. Over the last five years, the number of credit unions purchasing loan participations increased 15 percent, and the dollar value of loan participations on credit unions’ balance sheets grew by more than 40 percent. During that same period, loan participation charge-offs increased by more than 160 percent.”

The second item was the one-stop shop announcement on the last page of the report.  NCUA’s website now provides high-resolution graphics and downloadable items – such as NCUA labels, logos, insurance brochures and signs – that credit unions may use on their own websites and social media channels. 

“All of these graphics are available at no cost and can provide new and engaging content for your members.”

Is Your Credit Union Tracking Member Complaints?

Written by Steve Van Beek

We've written tons about member complaints and the increased reputation risk for credit unions - especially in this viral media environment. The risk from member complaints was one of my messages to attendees at NAFCU's Annual Conference two weeks ago in Boston:

The CFPB's recent Dodd-Frank Mortgage Rules Readiness Guide also included some questions for financial institutions about how they track and analyze member complaints:

Regardless of whether the complaint was a formal complaint through NCUA or an angry tweet or Facebook message - tracking and analyzing that information can help manage the credit union's reputation and compliance risks.

Below is the closing paragraph from an article on Enhancing the Compliance Management Program with Complaint Data that highlights this point:

"CONCLUSION

Analyzing consumer complaint data and appropriately addressing issues noted in complaints will enhance and strengthen a financial institution's compliance management program. A wealth of information can be found in consumer complaint data, and one complaint could be the catalyst for an examination or further review. By analyzing complaint data, a financial institution can use the findings to regularly assess its compliance risk, validate its compliance controls, and provide a comprehensive compliance assessment to its board. A financial institution can also leverage its complaints to proactively prepare for regulatory examinations and to anticipate potential areas of congressional focus for future regulation."

I'd encourage you to review the full article. 

News from NCUA: Metsger Nomination; Regional Offices; July Board Meeting

Written by Steve Van Beek

Metsger Nomination. Last Thursday, the Senate Banking Committee approved Rick Metsger's nomination to join the NCUA Board. Next up is the nomination going to the full Senate for confirmation (which could be as early as the end of July).

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NCUA Regional Offices. NCUA also released its plans to reorganize its Regional Offices - effective January 1, 2014. The realignment impacts nine states:

 A map of NCUA's new Regional Offices structure - after January 1, 2014 - is below:

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NCUA's July Board Meeting. NCUA also announced their agenda for their July Board Meeting:

1. Proposed Interpretive Ruling and Policy Statement 13-1, Minority Credit Union Preservation Program.
2. Board Briefing – Interagency Proposal, Joint Diversity Standards for Regulated Entities.
3. Proposed Rule – Parts 741 and 748 of NCUA’s Rules and Regulations, Electronic Filing of Financial Reports.
4. Request from San Francisco FCU to Expand its Community Charter.
5. Quarterly Insurance Fund Report.
6. 2013 Temporary Corporate Credit Union Stabilization Fund Assessment.
7. Reprogramming of NCUA’s Operating Budget for 2013.

The meeting takes place at 10 a.m. on Thursday, July 25th.

CFPB Amends Ability-to-Repay and Mortgage Servicing Rules; Provides Clarification on Implementation Dates for ARM Disclosures

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB finalized amendments to its ability-to-repay and mortgage servicing rules. These amendments clarify, correct, or amend provisions on:

• The relation to State law of Regulation X’s servicing provisions;

• Implementation transition requirements for adjustable-rate mortgage disclosures;

• The small servicer exemption from certain of the new servicing rules;

• Exclusions from the repayment ability and prepayment penalty requirements for higher-priced mortgage loans (HPMLs);

• The use of government sponsored enterprise (GSE) and Federal agency purchase, guarantee or insurance eligibility for determining qualified mortgage (QM) status; and

• The determination of debt and income for purposes of originating QMs.

The CFPB's press release highlights some of the changes, and the final rule may be found here.

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Implementation Dates for ARM Notices. One particular item that I want to bring to your attention – which is not a revision to the rule itself or the official commentary – is clarification that the CFPB has included in the section-by-section analysis regarding implementation dates for ARM Notices.

When the CFPB issued its final mortgage servicing rules amending Regulation Z back in February, it did not provide guidance regarding its expectations for providing ARM disclosure notices required by amended sections 1026.20(c) and 1026.20(d) for ARMs that would be adjusting shortly after the January 10, 2014 effective date (and for which the timing requirements could not be complied with unless institutions sent out notices before the effective date of the rule).

Well, the CFPB must have received quite a few requests for clarification on the issue, and includes this clarification:

"Implementation Date. In its proposal, the Bureau did not seek to revise or clarify § 1026.20(c) and (d), the adjustable-rate mortgage (ARM) servicing regulations issued by the Bureau in the 2013 TILA Servicing Final Rule. Nevertheless, the Bureau received unsolicited queries regarding the implementation dates for these rules. Despite the unsolicited nature of these comments, the Bureau believes it would be helpful to clarify the ARM implementation dates.

ARM regulations § 1026.20(c) and (d) generally apply to ARMs originated both prior to and after the January 10, 2014, effective date. However, no servicer is required to comply with the rule until the effective date.

Implementation Date for § 1026.20(d). Because the notice required by § 1026.20(d) must be provided to the consumer between 210 and 240 days before the first payment is due after the initial interest rate adjustment, servicers will not be required to provide the § 1026.20(d) notice when such payment is due 209 or fewer days from the effective date. However, payments due 210 or more days from the effective date are subject to the rule.

Implementation Date for § 1026.20(c). Because the notice required by § 1026.20(c) must be provided to the  consumer between 60 and 120 days before the first payment is due after an interest rate adjustment causing a corresponding change in payment, servicers will not be required to provide the § 1026.20(c) notice when such payment is due 25 to 59 days from the effective date. Note that, under the time frame of current § 1026.20(c), notices are required 25 to 120 days before the first payment is due after the interest rate adjustment. Thus, servicers already will have provided the § 1026.20(c) notices required by the current rule when such payment is due 24 or fewer days from the January 10, 2014, effective date.” (Emphasis added)

Upcoming Webinars & Webcasts; NAFCU's Regulatory Compliance Seminar - Nashville

Written by Steve Van Beek

Today, I wanted to highlight a few upcoming webinars and webcasts:

• Today - NCUA Town Hall Webinar- 3 p.m. Register here.

• Wednesday, July 24 - NAFCU Webcast - Advertising Risks and Compliance

• Monday, July 29 - Free NAFCU Webcast - Defense Credit Union Update featuring Holly Petraeus (CFPB) - free to all credit unions regardless of NAFCU membership

• Wednesday, July 31 - NAFCU Webcast - Annual BSA Compliance Update for Boards & Supervisory Committees (as with all NAFCU webcasts, this webcast will also be available on-demand allowing you to view at your CU's next board meeting or training session).

• Tuesday, August 6 - Consumer Compliance Outlook Webinar - Indirect Auto Lending - Fair Lending Considerations

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NAFCU's Regulatory Compliance Seminar. If you are looking for comprehensive compliance training - and the best way to recertify your NCCO - be sure to check out NAFCU's upcoming Seminar in Nashville, Tennessee (October 22-25).  

We have a great agenda, including:

• What Does a Culture of Compliance Mean for Your Credit Union?

• Vendor Management from a Vendor's Perspective

• Vendor Management from an Attorney's Perspective

• Regulation E - Error Resolution Procedures

• Due Diligence for Mergers

• Fair Lending

• The Legal Aspects of Social Media

And, there are many more great sessions that will be presented by an outstanding group of experienced credit union professionals.

Hope to see you in Nashville - October 22-25!  Early-bird pricing ends August 23rd - so register soon to save!

Cordray Confirmed by Senate for 5-Year Term; Final List of Rural and Underserved Counties for Use in 2014

Written by JiJi Bahhur, Regulatory Compliance Counsel

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Update - 7:45 a.m. - Yesterday evening, the Senate confirmed Richard Cordray for a full five-year term as the Director of the Consumer Financial Protection Bureau. 

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Recently, the Consumer Financial Protection Bureau (CFPB) posted a list of counties determined to be “rural” or “underserved” during 2013 for use in 2014.  Don’t mistake this list with the list posted on May 16, 2013, which was for use in 2013. 

If you aren’t familiar with the purpose of these lists, they exist because the CFPB has several rules with provisions related to mortgage loans made by creditors that during the preceding year operated predominantly in “rural” or “underserved” counties.  For instance, the TILA Escrow Rule, which took effect on June 1, 2013, requires certain creditors to create escrow accounts for a minimum of 5 years for higher-priced mortgage loans.  However, certain small creditors that operate predominantly in rural or underserved counties are exempt from this requirement.  For other examples of provisions that have a “rural” or “underserved” component, see the CFPB’s blog from July 2, 2013.

For purposes of these provisions, both “rural” and “underserved” counties are defined on an annual basis, using the USDA Economic Research Service’s urban influence codes for rural counties and data collected under the Home Mortgage Disclosure Act (HMDA) for underserved counties. Because the counties are defined on an annual basis, some counties’ status as rural or underserved may have changed between the list for use in 2013 and the recently posted list for use in 2014.  Although the CFPB has taken some steps to address this concern (also discussed in the CFPB’s blog from July 2, 2013), this may result in some small creditors losing eligibility for the exemptions they may have received the year prior. 

You can find the final list of rural and underserved counties for use in 2014 here, and the final list for use in 2013 here. 

FinCEN Shake-Up; July 2013 BSA Blast and Best of Staff Quiz

Written by Shari R. Pogach, Regulatory Paralegal 

FinCEN Shake-Up. The Financial Crimes Enforcement Network (FinCEN) has gone through a major reorganization under Director Jennifer Shasky Calvery.  The agency reorganization is meant to create more opportunities for cross training and greater staff interaction. Now, FinCEN’s employees are organized by job function:  financial intelligence analysts in the Intelligence Division, policy specialists in the Policy Division; liaison, outreach and call center personnel in the Liaison Division; and staff members responsible for exercising the agency’s regulatory enforcement authorities in the Enforcement Division.  According to Shasky Calvery, FinCEN’s new structure will allow information developed by an analyst in the Intelligence Division to be more easily provided to law enforcement, regulators, foreign partners and industry so all can better carry out their responsibilities.

FinCEN Administrative Announcements. Here are some additional FinCEN administrative announcements of interest: 

• The “Forms” webpage has been re-titled because almost all of FinCEN’s reports must now be e-filed.  The updated “Filing Information” page includes links to filing instructions, FAQs and the money services businesses (MSB) registrant search.  And, to avoid mistaken filings of sample forms, the agency has relocated them to its BSA E-Filing Test System.

• FinCEN acknowledged that credit unions may have administrative difficulties submitting Bank Secrecy Act (BSA) reports electronically within required timeframes due to natural disasters, emergency situations or other systemic issues in FIN-2013-G002.    On such occasions, credit unions should contact FinCEN’s Regulatory Helpline at 1/800-949-2732, or outside the U.S. at 1-703-905-3975, to inform the agency and determine possible alternatives for timely BSA reporting.  The agency will then work with credit unions to develop necessary alternatives.

• Individuals claiming to be employees of FinCEN and the U.S. Department of the Treasury have attempted to solicit funds from unsuspecting victims in ongoing financial scams.  FinCEN has issued an alert reminding the public to be wary of fraudulent correspondence and phone calls.  

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BSA Blast. And now, for a “shameless plug.” NAFCU’s July 2013 BSA Blast is available for NAFCU members.  For your reading pleasure this issue includes:

• The Liberty Reserve alleged money laundering case;
• FinCEN’s FAQ Resource on electronic filing; and
• A review of trends in Suspicious Activity Report filings
  concerning accountants and depository institution insider abuse.

And, naturally, the issue also includes the “Best of NAFCU’s BSA Blast Quizzes #3.”  You now have an additional twenty-five questions and answers at your disposal to stump train your staff on the BSA.

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Congressional Caucus. FinCEN Director Jennifer Shasky Calvery is speaking at NAFCU’s Congressional Caucus this September. The deadline for early-bird registration savings is this Friday, July 19. NAFCU members and nonmembers can save $100 on their registration fee by registering before the deadline. Caucus runs Sunday, September 8–Wednesday, September 11 at the Mayflower Renaissance Hotel in Washington, DC.

Understanding the CFPB’s Civil Investigative Demand Powers

Written by John A. Howes, Jr., Regulatory Affairs Intern

In the July issue of NAFCU’s Compliance Monitor, I wrote about the Consumer Financial Protection Bureau’s (CFPB) new tool for enforcing the country’s consumer financial protection laws, the Civil Investigative Demand (CID).  I wanted to take a moment to tell you a little bit more about this unique device that will test credit unions’ compliance and record-keeping.

A CID is an administrative subpoena for documents, testimony, electronically stored information, and answers to written questions related to an investigation that the CFPB has the authority to conduct.  CIDs impose significant requests for information and short, definite timetables for responses, so credit unions must be prepared and quickly decide a course of action if one crosses their desks.  

Last year, the CFPB clarified these new powers in its Final Rules Relating to Investigations, located in the CFPB’s regulation 12 C.F.R. Part 1080. The CFPB can issue a CID to any institution – even credit unions with less than $10 billion in assets who are not under its primary supervisory authority.  The CFPB is only required to disclose CIDs when recipients have petitioned to modify or set them aside.  So far, we only know of three that have been made publicly available.

A CID recipient must quickly contact his or her attorney and assemble a response team that can ensure compliance with legal obligations, determine the scope and timing of the CID, and assess the feasibility of document collection.  The team must decide whether to petition to modify or set aside the CID or fully comply with it and produce the requested information based on the tight deadlines set in the rule. 

Within 10 calendar days of receipt, a CID recipient must decide whether to meet and confer with the CFPB’s enforcement attorneys to discuss appropriate limitations on the scope of the request, issues related to privileged and confidential information, and a reasonable timeframe for compliance.  This is crucial to any response plan because, if there is no meeting within 10 days, the CFPB will not allow a recipient to petition to modify or to quash the CID.  Moreover, if a recipient petitions to modify or set aside, he can only raise issues that were discussed during the meeting with CFPB attorneys.  Within 20 calendar days after service of the CID, a recipient must decide whether to fully comply with the CID or to petition the agency’s director to modify or set it aside.  

The petition must be as specific as possible regarding the burdens of complying with the CID.  It should offer specific alternatives and suggestions for responding to the requests instead of simply saying that it is “overly burdensome.”  Showing specific figures from a third party detailing the CID’s burdens and compliance costs would also be a good idea.  In addition, a recipient could try narrowing the dates or refining the searches for the requested information.

Be prepared if you receive a CID.  Promptly contact your attorney(s) and try to negotiate the CID’s potentially vast requests for information and short, definite timetables for responses.

CFPB Releases Bulletins on Debt Collection Practices

Written by Michael Coleman, Regulatory Compliance Counsel

On Wednesday July 10^th, the Consumer Financial Protection Bureau (CFPB) conducted a field hearing in Portland, Maine, on debt collection. In conjunction with the field hearing the CFPB released two bulletins on debt collection practices. Here is an excerpt from the CFPB’s press release on the bulletin quoting Director Cordray:  

“These bulletins make clear that it doesn’t matter who is collecting the debt — unfair, deceptive, or abusive practices are illegal,” said CFPB Director Richard Cordray at a field hearing in Portland, Maine. “Consumers need options to help them secure fair and respectful treatment from those debt collectors that fail to abide by the law. They can protect themselves by using our action letters to communicate with debt collectors and by submitting a complaint to us if they believe they are harmed by illegal conduct.”

We will blog about the bulletins in more detail in upcoming posts, but in the meantime here are links to the bulletins and related notices:

• CFPB Bulletin 2013-07: Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts
• CFPB Bulletin 2013-08: Representations Regarding Effect of Debt Payments on Credit Reports and Scores
• CFPB Press Release on debt collection bulletins
• CFPB Blog Post on debt collection practices
• CFPB Field Hearing Video (posted on the CFPB blog)

Both the press release and the blog post provide “Action Letters” for consumers, which are templates consumers can use when corresponding with debt collectors. And last but not least, the CFPB is now accepting complaints about debt collection. And the hits just keep on coming. 

Have a great weekend everyone!

CFPB Procedural Rule for Supervision of Nonbanks that Pose Risks to Consumers

Written by Michael Coleman, Regulatory Compliance Counsel

On June 26^th, 2013, the Consumer Financial Protection Bureau (CFPB) issued a final rule establishing the procedures which the CFPB will use to bring under its supervisory authority certain nonbanks whose activities it has reasonable cause to determine pose risks to consumers. The effective date of the rule is August 2, 2013.

Here is an excerpt from the CFPB’s press release summarizing the nature of the final rule:

“This rule outlines procedures to notify a nonbank that it is being considered for supervision because the CFPB may have reasonable cause to determine that it poses a risk to consumers. The rule also sets out the procedures that the CFPB will follow to give the nonbank in question a reasonable opportunity to respond to such notice. For example, the rule dictates what the CFPB requires in both the notice and the response. And, the rule creates a mechanism for nonbanks to file a petition to terminate the CFPB’s supervisory authority after two years.”

Once effective the procedures will be located in The CFPB’s Regulations 12 C.F.R. Part 1091.

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Keep in mind that there are other Dodd-Frank provisions which give the CFPB supervisory authority over nonbank institutions, here is another excerpt from the press release on the procedural rule:

“In addition to the authority to bring nonbanks under the CFPB’s supervisory authority based on risk determinations, the Bureau also has authority under the Dodd-Frank Act to supervise nonbanks, regardless of size, in certain specific markets: mortgage companies (originators, brokers, and servicers including loan modification or foreclosure relief services); payday lenders; and private education lenders. The CFPB can also supervise the “larger participants” in other nonbank markets as the Bureau defines by rule. The Bureau has issued two rules defining larger participants: one rule for the consumer reporting market that went into effect in September 2012, and the other for the debt collection market that went into effect in January 2013. A proposed larger-participant rule for the student loan servicing market was issued in March 2013.”  (Emphasis added.)

As the press release notes, the CFPB has taken several actions related to its supervisory authority over nonbanks. Below are some links to the final and proposed rules:

• Final rule defining “larger participants” for the consumer reporting market
• Final rule defining “larger participants” for the debt collection market, and technical corrections to the final rule.
• Proposed rule defining “larger participants” for the student loan servicing market

We can expect that the CFPB will remain active in this area, keep your eyes peeled for future developments. 

CFPB Releases 2013 Dodd-Frank Mortgage Rules Readiness Guide

Written by JiJi Bahhur, Regulatory Compliance Counsel

On Monday, the Consumer Financial Protection Bureau (CFPB) released its first version of the 2013 Dodd-Frank Mortgage Rules Readiness Guide.  The Guide is made for use by financial institutions of all sizes to evaluate their readiness and to help them come into and maintain compliance with the upcoming mortgage rule changes. 

According to the CFPB, the Guide serves the following purposes:

• Assists regulated entities in achieving compliance with the mortgage rules
• Highlights key issue areas that may be closely examined during a review
• Focuses the industry and examiners on key elements of a compliance management system that may warrant review, modification, or other enhancement.

It should be noted that the Readiness Guide should not be used as a substitute for reading the mortgage rules, as it is not comprehensive of all the requirements.  Rather, the Guide consists of:

• Part I, Summary of the Rules
• Part II, Readiness Questionnaire
• Part III, Frequently Asked Questions
• Part IV, Tools

I especially like the Readiness Questionnaire, as it is a great tool for a self-assessment in determining the credit union’s progress towards compliance with the new mortgage rules.  Why do I like it?  I’m a checklist person and the questionnaire is laid out in way where you can focus in on one particular item at a time and go down the list of questions under that item to see if you have covered key areas.  Here’s an example from the Questionnaire:

“Policies and Procedures

1. Do your policies and procedures reflect the appropriate provisions in the following rules? (Note: The below list does not encompass all possible provisions that may apply to your institutions. For a more detailed list of all provisions, requirements, and exemptions please visit http://www.consumerfinance.gov/regulatory implementation/)

•  Ability-to-Repay and Qualified Mortgage Standards (Reg Z 1026.43)

 Ability-to-Repay

To the extent you seek to preserve your ability to make loans that are not Qualified Mortgages, do your policies and procedures address the key components of the ability-to-repay provisions, including:

 - Obtaining and verifying certain financial information related to the consumer(s)?

- Ensuring that borrowers have sufficient assets or income to pay back the mortgage?

- For adjustable-rate mortgages, that the monthly payment is calculated using either a fully indexed rate or an introductory rate, whichever is higher?

- Any exemptions that apply and a full description of when the exemptions apply and conditions for exemptions (e.g., for a customer trying to refinance certain risky loans only after specific conditions are met)?"

The Guide will be updated periodically as rule clarifications and amendments are finalized or available. 

CFPB Releases Semiannual Regulatory Agenda – Spring 2013

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB posted its Semiannual Regulatory Agenda for Spring 2013. Below is a listing of the various future regulations - organized by rulemaking stage. Keep in mind the agenda is current as of May 10, 2013 and the CFPB has taken actions since putting this agenda together.

Prerule Stage:

• Home Mortgage Disclosure Act (Regulation C)

• Annual Privacy Notice

• Payday Loans and Deposit Advance Products

• Debt Collection Rule

Proposed Stage:

• Amendments to TILA and FIRREA Concerning Appraisals

• Requirements for Prepaid Cards (Regulation E)

• Supervision of Certain Nonbank Covered Persons--Defining Larger Participants in Certain Consumer Financial Product and Service Markets

• Amendments to 2013 Mortgage Rules (Regulations B, X, and Z)

• Consumer Financial Civil Penalty Fund

Final Rule Stage:

• Restatement of Federal Consumer Financial Law Regulations

• Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)

• Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination

• Equal Access to Justice Act Implementation Rule

• Rules of Practice for Issuance of Temporary Cease-and-Desist Orders

• The Expedited Funds Availability Act (Regulation CC)

• Disclosures For Remittance Transactions (Regulation E)

• Defining Larger Participants of the Student Loan Servicing Market

Coming Soon. In its blog on the updated agenda, the CFPB highlighted a few pending rulemakings – including the anticipated final rule on integrated mortgage disclosures, expected sometime this Fall. Not surprisingly, the CFPB also highlighted its consumer outreach and research on debt collection issues and payday and deposit advance products, and noted that it expects to develop a proposed rule strengthening federal consumer protections for prepaid cards.

Privacy Notices & Regulatory Relief. On the plus side, the CFPB is also looking at ways to streamline its inherited regulations, and expects to develop a proposed rule seeking comments on potential revisions to Regulation P, which implements provisions of the Gramm-Leach Bliley Act. This is in response to comments the CFPB received about eliminating the requirement to provide annual privacy notices where there has been no change in underlying policies to reduce regulatory burden, at least where a financial institution limits the sharing of information with third-parties.

NAFCU has also been pushing for elimination of the requirement to mail redundant and unnecessary privacy notices on an annual basis, if the policy has not changed and new sharing has not begun since the last distribution of the notice, as part of NAFCU's Five-Point Plan for Regulatory Relief. Steve previously blogged on NAFCU’s Five-Point Plan here, and legislative efforts regarding the annual privacy notice here. Also, check out this page of NAFCU’s website for the latest on NAFCU’s regulatory relief efforts.

Consumer Compliance Outlook – Fair Lending; NCUA Fair Lending Resources

Written by Michael Coleman, Regulatory Compliance Counsel

Consumer Compliance Outlook. One more time. Last week my colleagues Bernadette and JiJi blogged about the Second Quarter 2013 issue of the Philadelphia Federal Reserve’s Consumer Compliance Outlook. I’d like to highlight another article from the publication featuring Fair Lending Webinar Questions and Answers stemming from the Federal Reserve Board’s webinar “Fair Lending Hot Topics,” held October 17, 2012.

There are a number of interesting Q&A’s in the article, here is one on the review of loan pricing during an examination:

“PRICING

5. What factors does the Federal Reserve consider in a pricing review?

Consistent with the Procedures, the Federal Reserve considers several risk factors in a pricing review for mortgage and nonmortgage products, including:

• Pricing Criteria:
  • Pricing policies that treat applicants differently on a prohibited basis or are likely to have a disparate impact
  •  Presence of broad discretion in loan pricing (e.g., interest rates, fees, and points), including discretion in granting exceptions to pricing policies
  •  Use of risk-based pricing that is not based on objective criteria or applied consistently
• Loan Originator Compensation: Financial incentives for loan originators to charge higher prices
• Documentation: Lack of clear documentation of the reasons for pricing decisions, including exceptions
• Complaints: Complaints by consumers or community advocates alleging discrimination in loan pricing

Since 2009, the DOJ has settled four pricing cases based on referrals from the Federal Reserve: United States v. Nara Bank; United States v. PrimeLending; United States v. SunTrust Mortgage, Inc.; and United States v. Countrywide Financial Corp. These cases are available at: www.justice.gov/crt/about/hce/caselist.php#lending.”

In addition to the Consumer Compliance Outlook, you also might want to check out the Federal Reserve’s Outlook Live, which contains the Federal Reserve webinars on consumer compliance topics.

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NCUA Fair Lending Resources. The Q&A above references the Federal Financial Institutions Examination Council (FFIEC) 2009 Interagency Fair Lending Examination Procedures and the associated Appendix. NCUA conducts its fair lending compliance program in accordance with the Procedures (which it adopted in 1999), and provided the 2009 Procedures to credit unions in Regulatory Alert 09-RA-09.

NCUA released Letter to Federal Credit Unions 13-FCU-02, which outlines NCUA's Fair Lending Examination Program. The letter also included a new Fair Lending Guide for federal credit unions. NCUA also issued a best practices document and a frequently asked questions (FAQ) document on NCUA's fair lending compliance program.

NAFCU Members. NAFCU’s  June 2013 Compliance Monitor featured an article on NCUA’s Focus on Fair Lending (log-in required) which summarizes the recent guidance from NCUA.

Adverse Action Notices: Requirements under the ECOA and the FCRA

Written by JiJi Bahhur, Regulatory Compliance Counsel

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Quick Update - The deadline for NCUA's Loan Participation final rule has been extended to September 23, 2013. NAFCU's Compliance Calendar has already been updated to reflect the new date.

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In Wednesday’s blog post, Bernadette mentioned the release of the Second Quarter 2013 issue of the Philadelphia Federal Reserve’s Consumer Compliance Outlook.  Today, I’ll take a closer look at one of the articles – Adverse Action Notice Requirements Under the ECOA and the FCRA.  The article provides astonishing clarity – as to what requirements apply to the ECOA and what requirements apply to the FCRA – by providing numerous tables breaking down these categories:

• Table 1: When Adverse Action Notices are Required
• Table 2: Who Must Receive Adverse Action Notices
• Table 3: Timing Requirements for Adverse Action Notices
• Table 4: Content Requirements for Adverse Action Notices

I’ve provided a screen shot of the first table – When Adverse Action Notices are Required – but if you have a few spare moments, take a look at the rest of them (or pass the article on to the person at your credit union who is responsible for adverse action notices):

Why is this so important? As the article explains, “To ensure compliance, it is important to understand how the requirements of Regulation B [ECOA] and the FCRA relate to and differ from one another.”  And that’s exactly what this article does: it explains that there are two laws that require adverse action notices; it reviews the adverse action requirements of both the ECOA and the FCRA; and it provides tables to further illustrate the requirements. 

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If your weekend hasn’t already started, have a great one!  I’m not sure what my weekend will consist of yet, but one thing’s for sure: I can’t wait to spend it with these bundles of joy!

Consumer Compliance Outlook; NCUA Economic Videos

Written by Bernadette Clair, Regulatory Compliance Counsel

Consumer Compliance Outlook. The Second Quarter 2013 issue of the Philadelphia Federal Reserve’s Consumer Compliance Outlook is now available.  Articles in this issue include:

• Perspectives on Consumer Protection: A Conversation with Governor Duke
• Fair Lending Webinar: Questions and Answers
• Adverse Action Notice Requirements Under the ECOA and the FCRA

You can also download the full PDF here.

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NCUA Economic Videos. NCUA recently released a couple of new videos, available on YouTube. The first video, NCUA Economic Update – June 2013 Part I, provides an update on the economy and includes a discussion on the housing market, labor market, consumer confidence statistics, and the recent rise in interest rates and potential challenges to credit unions.

The second video, NCUA Economic Update – June 2013 Part II, focuses on NCUA’s proposed derivatives rule.  This proposed rule would provide qualified credit unions limited authority to engage in derivatives activities for purposes of mitigating interest rate risk, but would also establish a “pay to play” requirement.  See our May 17th blog post for more details on the proposed rule.

Have a great 4th of July!  We'll be back blogging on Friday.

July/August TFCU; July Compliance Monitor; Upcoming Webcasts

Written by Steve Van Beek

A couple of small items for your Tuesday.

The Federal Credit Union. The July/August issue of The Federal Credit Union is now available. The following articles may be of interest:

• Members Come First: Berger to Succeed Becker as CEO

• Fred Becker - A Lasting Impression

• Dan Berger - Moves to CEO

• Compliance Central - NCUA's Focus on Fair Lending

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July Compliance Monitor. The latest NAFCU Compliance Monitor is also available. As is an update Compliance Calendar. Note: The Compliance Monitor is limited to NAFCU members; however, the Calendar is open to everyone.

The Monitor includes the following in-depth articles:

• Understanding the Qualified Mortgage Quagmire

• Civil Investigative Demands from the CFPB

If you are interested in signing up to receive the Compliance Monitor each month, you can do so here. Credit union not a NAFCU member? Consider taking a 6-month free trial membership. 

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Upcoming Webcasts. Be sure to take a look at NAFCU's upcoming webcasts:

• July 16 Webcast – Complying with the CFPB’s International Remittances Rules
  

• July 24 Webcast – Advertising Risks and Compliance for Credit Unions
  

• July 31 Webcast – Annual BSA Compliance Update for Boards of Directors
  

• August 14 Webcast – Enterprise Risk Management: Roadmap and Expectations
  

• August 21 Webcast – CFPB’s Qualified Mortgage and Ability-to-Repay Update
  

And, don't forget about our Regulatory Compliance Seminar - October 22-25 in Nashville, Tennessee.

Representative Miller Introduces H.R. 2572: Regulatory Relief for Credit Unions Act of 2013

Written by Steve Van Beek

On Friday, Representative Gary Miller (R-CA) introduced H.R. 2572 - the Regulatory Relief for Credit Unions Act of 2013. NAFCU's legislative and regulatory teams have worked extremely hard with Representative Miller's staff to introduce this bill and will continue to push for additional support in the House. 

The provisions in the Miller bill, as reflected in NAFCU’s five-point plan, would:

• allow NCUA to grant federal credit unions a waiver to follow a state rule instead of a federal one in certain situations;

• authorize NCUA to step in where appropriate to modify a CFPB rule affecting credit unions;

• establish a risk-based capital system for credit unions;

• require that NCUA and CFPB revisit cost/benefit analyses of rules after three years so they have a true sense of the compliance costs for credit unions;

• require NCUA to conduct a study of the Central Liquidity Facility and make legislative recommendations for its modernization;

• give credit unions better control over their investment decisions and portfolio risk; and

• provide credit unions parity with FDIC-insured institutions when it comes to deposit insurance coverage on Interest on Lawyers Trust Accounts (IOLTAs).

For additional information on the Miller bill and NAFCU's Five-Point plan, head to NAFCU's Regulatory Relief webpage.

And, be sure to view a special video from NAFCU's President and CEO Fred Becker:

If the video above does not work - click here to view.