NAFCU Compliance Blog

Director Cordray Lays Out the “Four D’s” that Plague Consumers

Written by Bernadette Clair, Regulatory Compliance Counsel

CFPB Director Cordray recently spoke at the American Banker Regulatory Symposium. In his remarks, Director Cordray described what the CFPB is now calling the "Four D's" that plague consumers. That sounds ominous. So what are these "Four D's?"  In a nutshell, they are:

• Deceptive marketing

• Debt traps

• Dead ends

• Discrimination

The “Four D’s” may be a nifty new catchphrase, but there aren't really any surprises here. Unfair, deceptive, or abusive acts or practices (UDAAPs), debt collection practices, fair lending, and payday loans, are just some of the issues that have been on the CFPB’s radar for some time and which we have blogged about numerous times, for example here, here, and here.

Here’s a snippet from Director Cordray’s remarks on deception and discrimination, two of the “Four D’s.” On deception:

“The first problem is deception. Consumers cannot make sound financial choices if they are given false or  misleading information. Yet this happens surprisingly often in the financial marketplace. In the lead-up to the financial crisis, for example, some lenders marketed mortgages with misleading teaser rates that misrepresented the full cost of the loan. One result was that too many homebuyers ended up with complicated mortgage products they did not understand and could not afford, which were doomed to failure – products they may well have avoided if they had known better.

Sometimes the problem that consumers face is not necessarily deception, but confusion about crucial product information. This also happens in a variety of markets. Information may be buried in pages of fine print or written in language that requires an advanced degree to decipher. Various providers may describe the same fee very differently, making comparisons numbingly difficult. Consumers need to have key terms highlighted so the most important risks will stand out and can be easily comprehended.”

 And here are his remarks on discrimination:

“The fourth “D” that is a clear focus for us is combating discrimination. We have seen too many instances of consumers getting unequal treatment based on characteristics such as race or gender. When consumers sit down at the table to discuss their prospects for a loan, they are often unaware of the options available to them. In many instances, hidden incentives for brokers or loan officers to negotiate higher rates have resulted in African-American and Hispanic borrowers paying more than they should have for mortgages and auto loans. Nobody believes that is right.

We made it clear last year that – like the other banking regulators and the Justice Department – we will pursue discrimination in consumer financial markets based on disparate impact as well as disparate treatment. From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate. We also have made it clear that lenders are responsible for the operation of their lending programs, even if they are structured to work with some sort of middleman who stands between them and the borrower. The bottom line is that every consumer should have equal access to credit, as required by law. We also will be revising the process by which the financial institutions provide information about the mortgage market under HMDA, the Home Mortgage Disclosure Act – both to improve the categories of information that are gathered and to ease the operational and technological burdens on industry to comply with this law.”

For more details, you can read Director Cordray's full remarks here.

 

CFPB Releases Guidelines for Protecting Servicemembers from Payday Lenders

Written by JiJi Bahhur, Regulatory Compliance Counsel

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) specifically tasked the Consumer Financial Protection Bureau (CFPB) with supervisory authority over payday lenders.  And after the Department of Defense concluded that predatory lending practices by payday lenders were a threat to military personnel and their families, Congress passed the Military Lending Act (MLA) – which provides greater protections for military families – and gave the CFPB the authority to enforce it as well.  As part of its efforts, the CFPB, earlier this month, issued guidelines to its examiners on how to identify consumer harm and risks related to MLA violations when supervising payday lenders. 

The new guidelines (updated examination procedures) apply to the short-term, small-dollar credit market, known as payday lending.   More specifically, the special protections offered by the MLA apply to closed-end payday loans of $2,000 or less with terms of 91 days or fewer.  Quoted from the CFPB’s news release, the requirements that payday lenders must follow include:

• “Annual percentage rate capped at 36 percent: Because most payday loans are for several hundred dollars and have finance charges of $15 or $20 for each $100 borrowed, a typical two-week term can equate to an annual percentage rate (APR) ranging from 391 percent to 521 percent. Payday lenders must cap the APR – which incorporates all fees and costs associated with the loan – at 36 percent when lending to servicemembers.

• No rolling over of loans: When consumers cannot pay back the loan at the time it is due, borrowers can often pay only the finance charges and renew the loan. This fee does not reduce the amount owed. If a payday loan is rolled over multiple times, it’s possible to pay several hundred dollars in fees and still owe the original amount borrowed. Payday lenders are banned from rolling over loans for servicemembers, unless the new transaction results in more favorable terms for the servicemember.

• No signing away of servicemember rights: The MLA prohibits lenders from making servicemembers waive their rights under the Servicemembers Civil Relief Act or other state or federal laws that provide critical consumer protections. The MLA also prohibits lenders from requiring servicemembers to waive their right to seek resolution of any legal claims in court.

• No requiring allotments to repay: Under the military allotment system, military personnel can repay their loans by having payments directly deducted from their paycheck before their salary is deposited in their account. When servicemembers pay by allotment, they lose certain consumer protections as well as their flexibility to adjust their budget if a financial emergency comes up. The MLA bans lenders from requiring military members to pay by the allotment system and gives servicemembers control over how their income is spent.”

Through its enforcement and supervisory work, the CFPB will be scrutinizing lenders to make sure that they are following the MLA requirements when they make short-term, small-dollar loans to servicemembers and their dependents.

A Different Kind of Suspicious Activity Report…..

Written by Shari R. Pogach, Regulatory Paralegal

I was listening to the news on NPR last week when a story came on about suspicious activity reports. Hearing that term, well, that naturally peaked my interest so I started listening more closely.  Imagine my perplexity when the story went on to discuss a freelance photographer in Los Angeles who likes to take pictures of industrial scenes, bridges, ports and refineries.  Huh?

Yes, apparently this photographer raises the suspicions of security guards and local law enforcement so his picture taking activities often get reported to the feds.  As a result, the photographer has had several visits from FBI agents with questions about why he’s taking such pictures.

The Nationwide Suspicious Activity Reporting Initiative is led by the Justice Department and 53 federal agencies now participate.  Under this program, suspicious activity reports include information sometimes received from community members, private security guards and via anonymous tips – everyone is encouraged to help. As a  result, many of the reports filed are problematic or useless.

A former FBI agent, Mike German, now senior policy counsel at the ACLU in Washington, DC, considers all of this to be not helpful and a waste of time.  His organization filed public records requests and was able to get 1,800 such suspicious activity reports originating from central California.  Many, if not most, examples of the suspicious activity in the copies of these reports are of people taking pictures of dams and other public structures.

Unlike financial institution suspicious activity reporting, the suspicious activity reports filed under the Nationwide Suspicious Activity Reporting Initiative appear to be publically available upon request.  So, this odd NPR story gives me the perfect opportunity to leave you with a reminder of the confidentiality of Suspicious Activity Report (SAR) filings by credit unions.  31 C.F.R. § 1020.320(e) states:  

        “(e) Confidentiality of SARs. A SAR, and any information that would reveal the existence of a SAR, are confidential and shall not be disclosed except as authorized in this paragraph (e). For purposes of this paragraph (e) only, a SAR shall include any suspicious activity report filed with FinCEN pursuant to any regulation in this
chapter.

            (1) Prohibition on disclosures by banks —(i) General rule. No bank, and no director, officer, employee, or agent of any bank, shall disclose a SAR or any information that would reveal the existence of a SAR. Any bank, and any director, officer, employee, or agent of any bank that is subpoenaed or otherwise requested to disclose a SAR or any information that would reveal the existence of a SAR, shall decline to produce the SAR or such information, citing this section and 31 U.S.C. 5318(g)(2)(A)(i), and shall notify FinCEN of any such request and the response thereto.

           (ii) Rules of Construction.Provided that no person involved in any reported suspicious transaction is notified that the transaction has been reported, this paragraph (e)(1) shall not be construed as prohibiting:

            (A) The disclosure by a bank, or any director, officer, employee, or agent of a bank, of:

            ( 1 ) A SAR, or any information that would reveal the existence of a SAR, to FinCEN or any Federal, State, or local law enforcement agency, or any Federal regulatory authority that examines the bank for compliance with the Bank Secrecy Act, or any State regulatory authority administering a State law that requires the bank to comply with the Bank Secrecy Act or otherwise authorizes the State authority to ensure that the bank complies with the Bank Secrecy Act; or

            ( 2 ) The underlying facts, transactions, and documents upon which a SAR is based, including but not limited to, disclosures:

            ( i ) To another financial institution, or any director, officer, employee, or agent of a financial institution, for the preparation of a joint SAR; or

            ( ii ) In connection with certain employment references or termination notices, to the full extent authorized in 31 U.S.C. 5318(g)(2)(B); or

            (B) The sharing by a bank, or any director, officer, employee, or agent of the bank, of a SAR, or any information that would reveal the existence of a SAR, within the bank's corporate organizational structure for purposes consistent with Title II of the Bank Secrecy Act as determined by regulation or in guidance.

            (2) Prohibition on disclosures by government authorities. A Federal, State, local, territorial, or Tribal government authority, or any director, officer, employee, or agent of any of the foregoing, shall not disclose a SAR, or any information that would reveal the existence of a SAR, except as necessary to fulfill official duties consistent with Title II of the Bank Secrecy Act. For purposes of this section, “official duties” shall not include the disclosure of a SAR, or any information that would reveal the existence of a SAR, in response to a request for disclosure of non-public information or a request for use in a private legal proceeding, including a request pursuant to 31 CFR 1.11.” 

NCUA Releases Supervisory Guidance on Loan Participation Waivers

Written by JiJi Bahhur, Regulatory Compliance Counsel

With the effective date of the final loan participation rule right around the corner (September 23, 2013), the National Credit Union Administration (NCUA) released, just last week, supervisory guidance to assist with the loan participation waiver process.  The Supervisory Letter, which is the enclosure to NCUA Letter to Credit Unions 13-CU-07, provides the process by which credit unions may obtain waivers, expectations for examiner review of waivers, and overall compliance with Part 701.22 of the NCUA Rules and Regulations.   

If your credit union buys participation interest in loans made by third parties, you are going to want to take a look at this Supervisory Letter.  It is very detailed and includes, among other items, the types of waivers available; what information is required on the waiver applications; the considerations NCUA looks at when evaluating a waiver request; the timing of waiver responses and appeals; what loan participations are permissible for credit unions; loan participation policy requirements; and master agreement requirements. 

NCUA’s loan participation rule is designed to protect buyers of loan participations.  If your credit union is in the business of buying participation interests, the rule applies to you and the Supervisory Guidance will be able to provide you with additional, explanatory information for the parts of the rule you may have been unsure about. 

To view the final loan participation rule, click here.  To view Letter to Credit Unions 13-CU-07 and the Supervisory Letter, click here and here.  Also, if you haven’t already, check out the September 2013 NAFCU Compliance Monitor – it features an article on NCUA’s final loan participation rule (NAFCU log-in required).

NCUA Online Supervisory Committee Training Modules

Written by Bernadette Clair, Regulatory Compliance Counsel

Earlier this week, NCUA released a series of six training videos designed to help new supervisory committee  members at small and low-income credit unions understand their roles and responsibilities.

The video series is available on YouTube here and includes the following modules:

• Supervisory Committee Training – Overview

• Supervisory Committee Training - Monitoring Management Activities

• Supervisory Committee Training - Annual Audit

• Supervisory Committee Training - Verification of Member Accounts

• Supervisory Committee Training - Handling Member Complaints

• Supervisory Committee Training – Resources

NCUA Board Chairman Debbie Matz commented on the release of the videos:

“NCUA is committed to providing training and support to small and low-income designated credit unions so they are able to continue to meet the needs of their members,” said NCUA Board Chairman Debbie Matz. “We chose the supervisory committee as our target audience because of the critical role these committee members play in ensuring the safety and soundness of the credit union. Our intent is that by providing free, accessible training it will be easier to recruit volunteers and increase the effectiveness of committee members.”

Each video is a short 10 minutes or less, and provides a quick overview of supervisory committee responsibilities. Other helpful resources for supervisory committee members referenced in the videos include NCUA's Supervisory Committee Guide for Federal Credit Unions and Chapter 5 of NCUA's Examiner Guide.  NCUA also indicated that it plans to release additional operational and regulatory training modules in 2014 so stay tuned on that front. 

Have a great weekend everyone!

Pure Michigan

Written by Steve Van Beek

Tim Allen convinced us. Long-time readers of the blog know my family roots are in Michigan and my wife, Erin, is from Ohio. After more than six years, we've made the difficult decision to leave NAFCU and move to Michigan in order to be closer to our families.

First off, while I'm leaving NAFCU - I'm not leaving credit unions. The way I see it, my new position (at the law firm Howard & Howard) will have the same goal: helping credit unions understand and comply with the ever-changing regulatory environment. 

I'm incredibly thankful to NAFCU for the opportunities over the past six-plus years. I couldn't have asked for a better executive team or better colleagues. Learning from and working with Fred, Dan, Anthony and Carrie has been truly an honor. And, don't forget you are in great hands with an outstanding NAFCU Compliance team. I'm extremely confident that JiJi, Bernadette, Mike and Shari will continue to deliver the information you need in order to stay compliant and serve your members. 

And, I won't be a stranger. I'm looking forward to working with NAFCU in the future - including webcasts and conferences (if you are heading to Seminar in Nashville - I'll see you there!)

And, thank you! I've been extremely blessed to work with you over the years. Whether we've talked on the phone, emailed back-and-forth or met at a conference - I've enjoyed working with each and every one of you. The cooperative nature of the credit union movement is seen every day in the interactions between compliance professionals and I look forward to continuing those relationships in the future.

My last day at NAFCU will be this Friday – thanks again for everything.  

CFPB Bulletin Puts CUs on Notice About Duty to Investigate Consumer Credit Report Disputes; NAFCU’s Online Training Updated; Ballapalooza Fun

Written by JiJi Bahhur, Regulatory Compliance Counsel

CFPB Bulletin 2013-09.  Earlier this month, the CFPB released CFPB Bulletin 2013-09 (Bulletin), putting on notice companies that supply information to consumer reporting companies. The Bulletin stresses that compliance with the Fair Credit Reporting Act (FCRA) requires furnishers of such information to investigate consumer disputes forwarded by the consumer reporting companies, and to review all relevant information provided with the disputes, including documents submitted by consumers.

Subject to its supervisory and enforcement authorities, the CFPB intends to evaluate compliance with the requirements set forth within the Bulletin and expects each furnisher, in summary, to comply with the FCRA by receiving information and investigating disputes, providing investigation results, and correcting inaccurate information.

The Bulletin notes that “[a]ny furnisher not currently maintaining a process that meets these requirements should take immediate steps to comply with the requirements of the law.” 

For more details on what the CFPB expects, view the press release here and the Bulletin here.

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NAFCU’s Online Training Updated.  Are you looking for essential trainings for your Board and new employees?  NAFCU’s recently updated Online Training program covers important education for board members and new staff, without requiring a travel budget.   New and updated courses include Bank Secrecy Act, member data security, financial literacy and fiduciary duties, how credit unions are regulated and examined and more!  For a full listing of training modules available under NAFCU’s Online Training program, visit here. 

And wait!  It gets even better!  If your credit union is interested in NAFCU’s Unlimited Webcast Subscription and Online Training program, we now offer the Virtual Learning Package, combining both the Webcast Subscription and Online Training at a great savings! Credit unions that buy now will have access through the end of 2014!

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Ballapalooza Fun.  I was planning on sharing some of the pictures from Kyse and Ava’s first birthday party, but to my dismay, they either came out blurry or they were crying in them (teething)!  On a good note, I have some great pictures of them playing with one of their birthday gifts – the Ballapalooza!

September 2013 NCUA Report; NAFCU Member Resources - Consolidated Regulatory Text and Commentary for the CFPB’s Mortgage Rules

Written by Michael Coleman, Regulatory Compliance Counsel

NCUA Report. The September 2013 NCUA Report is now available, you can find it here. This month's issue covers: 

• Office of Consumer Protection Report: Overview of New Mortgage Rules
• Chairman's Corner: The Financial Crisis, Five Years Later: Lessons Learned
• Office of Consumer Protection Report: Low-Income Credit Union Initiative Boosts Community Investment
• Board Perspective - Michael E. Fryzel: A Year to Remember
• Board Perspective - Rick Metsger: May You Live in Interesting Times
• Region III Report: Understanding Enterprise Risk Management
• Office of Examinations and Insurance: Credit Union Membership, Loans Grow in Second Quarter
• Office of Small Credit Union Initiatives Report: Introducing FAQ+, A New Search Engine for Credit Unions

As always, the report includes some interesting articles and information, it is worth a read. This edition features NCUA Board Member Metsger’s first Board Perspective, here is an excerpt I thought was interesting and shows a great attitude as these are most certainly “interesting times” in credit union land:

“While preparing to leave Oregon for my new assignment in Washington, D.C., a long-time friend noted the many dynamic changes and challenges in today’s financial services marketplace, wished me well and parted with the observation: “May you live in interesting times.”

We have all heard the phrase before. It is purported to be an old Chinese proverb, seemingly positive in nature. Dig deeper into its origins, however, and evidence advances the theory it was actually one of three ancient curses, each imparting increased severity upon the designated target.

As the newest member of the National Credit Union Administration Board, I am mindful that how we decide to interpret a message goes a long in way in determining the direction and the outcome of our actions. Like my friend, I choose to observe these “interesting times” as an opportunity, not a curse, and a chance to make a difference in advancing the vital role credit unions play in the lives of so many Americans.

[…]

In the months ahead, I will use this column to discuss my perspective on issues as they come before the Board. I look forward to an open and robust dialogue on each of these issues and value your insights, observations and opinions. Together we have an opportunity to make these “interesting times” one of the best times for the American financial services consumer.”

The NCUA report also contains an overview of the CFPB’s mortgage rules which the article notes will be the first in a series of articles to help credit unions comply with the impending mortgage rules.

NAFCU Member Resource - Consolidated Regulatory Text and Commentary for the CFPB’s Mortgage Rules.

And speaking of helping credit unions to comply with the CFPB’s mortgage rules, NAFCU’s compliance division has put together a great member resource (login required) which will hopefully save you quite a few headaches.

The CFPB's mortgage rules amended several federal regulations (Regulation Z, Regulation X, Regulation B), and many of the individual regulatory sections were amended by different final rules. As a result, it is difficult to determine the complete picture of the requirements when the rules become effective.

To solve this problem, NAFCU has consolidated the regulatory text and commentary for each amended (and added) regulatory section from each of the CFPB's final mortgage rules. The consolidated regulatory text and commentary show how the regulatory sections will look when the final rule(s) are effective in January 2014.

Check out our new webpage where you can download the consolidated regulatory text of each individual amended section or you can download the entire consolidated final rule as amended! You can also link to the consolidated text from the NAFCU Mortgage Rules webpage. Hopefully you will never have to use this stress reduction kit again! 

 

NCUA September Board Meeting; September/October TFCU – Compliance Central Article

Written by Bernadette Clair, Regulatory Compliance Counsel

NCUA September Board Meeting. NCUA’s September Board meeting includes the following agenda items:

1. Final Rule, Section 701.36 of NCUA’s Rules and Regulations, Federal Credit Union Ownership of Fixed Assets.
2. Request from Peoples Advantage Federal Credit Union to Expand its Community Charter.
3. Proposed Rule, Parts 703 and 721 of NCUA’s Rules and Regulations, Authorizing Charitable Donation Accounts.

The meeting takes place tomorrow, September 12th, at 10 a.m.

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The Federal Credit Union. For the September/October issue of The Federal Credit Union, I wrote the Compliance Central article on Managing Member Complaints: An Effective Tool for Managing Reputation Risk. Putting a process in place to manage member complaints can be an effective tool for establishing and maintaining your credit  union’s reputation as an institution that complies with consumer protection laws and is responsive to its members’ needs. Here’s a snippet from my article on how credit unions can use complaint management to their benefit:

 “Benefits of Comprehensive Complaint Management

Expanding complaint management beyond the bare minimum can be an effective risk management tool. Deter­mining the channels through which the credit union receives complaints, the types of complaints received, and the products or services involved can be invaluable in determining whether there are weaknesses in a credit union’s con­sumer compliance program and provides insight into how the membership may perceive certain products and services. Benefits of a comprehensive program include member service that is respon­sive to the membership’s concerns, and the  opportunity to fine-tune the credit union’s compliance program and correct potential issues before an examination.”

Establishing a comprehensive member complaint process sooner rather than later could also save your credit union some headaches down the road. Regulators’ expectations for handling consumer complaints have been steadily increasing, and that trend shows no signs of slowing down. For example, the CFPB noted in its Summer 2013 Supervisory Highlights Report that an effective compliance management system (CMS) includes a consumer complaint management response program.

The report describes key elements of a consumer complaint management program:

“CONSUMER COMPLAINT MANAGEMENT PROGRAM

Financial service providers should be responsive to complaints and inquiries received from consumers. In addition, entities should monitor and analyze complaints to understand and correct weaknesses in their programs that could lead to consumer risks and violations of law.

Key elements of a consumer complaint management program include:

• The establishment of channels through which the entity can receive consumer complaints and inquiries. Such channels may include telephone numbers or email addresses dedicated to receiving consumer complaints or  inquiries.

• The proper and timely resolution of all complaints;

• The recordation, categorization, and analysis of complaints and inquiries; and

• Reviews for possible violations of Federal consumer financial laws.

Entities should organize, retain, and analyze complaint data to identify trends, isolate areas of risk, and identify program weaknesses in their lines of business and overall CMS.”

Member complaint management is a topic we’ve blogged about many times, so be sure to check out some of our other blog posts on the topic.

Congressional Caucus - NAFCU Issue Briefs; Annual Privacy Disclosures

Written by Steve Van Beek

Today is the start of NAFCU's Congressional Caucus in Washington D.C. Credit union leaders from throughout the country will be hearing from (and talking to) their representatives and key players from the Obama Administration and the regulatory agencies.

What will they be talking about?

• Credit Union Tax Exemption

• Regulatory Relief - NAFCU's Five-Point Plan

• Interchange Fees

• Housing Finance Reform

• Annual Privacy Disclosure Notices*

The links above are to NAFCU's Issue Briefs on these legislative issues. One suggestion is to pass these along to your credit union's senior managers as they are great summaries of the current issues being discussed on Capitol Hill. For additional legislative issues - be sure to check out NAFCU's Legislative page and monitor the NAFCU Today.

Bonus Idea: Include the Issue Briefs in your next "Board pack" and give a brief update at your credit union's next Board meeting. 

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*Privacy Notices. Just a quick note on the Annual Privacy Disclosure Notices. While H.R. 749 was passed by the House in March 2013, it still needs to pass the Senate and be signed by the President before it would take effect. 

In short, until the Senate and President act - credit unions need to continue sending their annual privacy disclosures to members.

NCUA Letter to Federal Credit Unions on Potential Violations of Common Bond Advertising Requirements

Written by Michael Coleman, Regulatory Compliance Counsel

NCUA recently released Letter to Federal Credit Unions 13-FCU-03 which concerns potential violations of common bond advertising requirements. The letter expresses strong concern over some advertising practices which imply that the field of membership in federal credit unions is “open to anyone” without any limitations. Specifically, the letter is directed at what it considers “overly aggressive marketing campaigns” advertising membership in FCUs through associational groups that NCUA feels is “providing consumers with misleading information about single and multiple common bond membership requirements.”

The letter warns FCUs that if they are advertising that membership is open to anyone without limitations they may be in violation of the common bond requirements of the Federal Credit Union Act (FCUA) and NCUA regulations, NCUA’s accuracy in advertising rules (See, 12 C.F.R. 740.2) and the consequences of non-compliance with these requirements.  

What should federal credit unions take away from this letter? I think the most important take away is that FCUs should review their advertising practices concerning field of membership (FOM). The letter states that advertisements which include language to the effect that “anyone can join” or “membership is open to everyone” that do not contain qualifying language on the FOM restrictions would violate the prohibition on inaccurate or deceptive advertisements contained in 12 C.F.R. 740.2. If you have been advertising membership in your FCU through an associational group, make sure the ads conform to these directives from the NCUA.

Another thing to keep in mind is the requirements for associational common bonds, which are explained in NCUA’s Chartering and Field of Membership Manual (Chapter 2, Section III.A.1). Here is an excerpt from the letter:  

“NCUA determines whether a group satisfies the associational common bond requirements based on a “totality of the circumstances” test, which has the following seven factors:⁴

 1) Whether members pay dues;

 2) Whether members participate in the furtherance of the goals of the association;

 3) Whether the members have voting rights;

 4) Whether the association maintains a membership list;

 5) Whether the association sponsors other activities;

 6) The association’s membership eligibility requirements; and

 7) The frequency of meetings.

 NCUA’s Office of Consumer Protection has begun conducting quality control reviews of federal credit unions that may be improperly using associations to sign up members without a common bond.”

This letter is a must read, be sure to take a look at the full letter and pass it along to your marketing department.

Leadership; QRM; Interchange Update; September Compliance Monitor

Written by Steve Van Beek

Last week, I wrote an article for CUinsight.com that asked How Can Credit Unions Create a Culture of Compliance? Here is a snippet:

"So, how can we change our culture into a culture of compliance – an environment where we can stop compliance snafus before they begin, by building risk management into product development from the start?

In the past, a compliance officer would be brought into a discussion at the tail end of a project’s development, to give approval or disapproval. In today’s world, a compliance officer needs a seat at the table to help evaluate the various risks of a new product or service. The Consumer Financial Protection Bureau is not just rule- and requirement-focused – it is principle-focused. Their offices want to know not only if a credit union’s product or service is compliant with rules and guidance, but if that product or service provides a real benefit to members." (Emphasis added).

As compliance plays a larger and larger role at credit unions, compliance officers need to expand their skill sets. Rather than sitting back, they need to take charge and demonstrate how an effective compliance program at the credit union can reduce compliance, strategic and reputation risks. 

While compliance professionals usually attend NAFCU's two compliance conferences (School & Seminar), I'd recommend taking a look at NAFCU's Management & Leadership Institute - October 7-11 in Philadelphia, PA. To successfully create a culture of compliance, compliance officers need to expand their leadership skills and this conference provides those tools - including:

• Tools to effectively build relationships with board members;

• Successful communication techniques to help move projects forward;

• Tactics for leading a successful credit union— from operations to marketing; and

• Clarity on board vs. management roles.

More information on the "institute experience" can be found here and the overall conference details are here.

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Qualified Residential Mortgage Proposal. Last week, the FDIC, OCC, FHFA, SEC and the Federal Reserve released a joint proposed rule (replacing the prior proposal) that would define a "qualified residential mortgage." Importantly, this proposed rule would not directly impact credit unions; however, it will impact the secondary mortgage market. 

One important improvement is that the proposed definition of "qualified residential mortgage" would be aligned with the CFPB's definition of "qualified mortgage." However, the devil is always in the details and the proposed definition of "qualified residential mortgage" would only be aligned with the CFPB's "general definition of qualified mortgage." According to the proposal, the definition of "qualified residential mortgage" would not include a mortgage that attains “qualified  mortgage” status on the basis of being eligible for purchase by Fannie Mae or Freddie Mac, issued by a “small creditor” (as defined in the CFPB’s rule), or is a “qualified mortgage" balloon loan.

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Latest Interchange Video. Looking for the latest on interchange? Check out NAFCU's Interchange Fee issue page - including the latest video update from NAFCU's Carrie Hunt.

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September Compliance Monitor. The September 2013 NAFCU Compliance Monitor is now available for download by NAFCU members. This month's articles are on NCUA's Loan Participation Rule and the CFPB's Remittance Transfer Rule. And, of course, the latest Compliance Calendar is also available.