NAFCU Compliance Blog

October 2013 NCUA Report; NAFCU Webcast on UDAAP

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the NCUA released its October 2013 NCUA Report. Featured articles include the following:

• Chairman’s Corner: Mitigating Risks on the Horizon

• CAMEL Ratings for Corporate Credit Unions

• Board Perspectives: A Little Bit of This, a Little Bit of That; Maximizing Partnerships to Minimize Risk

• Charitable Donations Rule Proposed

• Considerations for Certain Employee Benefits

• Protecting Members from Holiday Fraudsters

• Credit Unions Receive More than $25 Million

• Reminder of Membership Eligibility and Enrollment

• NCUA, VA Team Up to Increase Veteran Hiring

You can view the full report here.

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NAFCU Webcast on UDAAP: Managing Compliance and Mitigating Risk. Today, from 2:00 p.m. - 3:30 p.m. EDT, NAFCU is hosting a webcast on Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) compliance with speaker Jane Pannier, senior vice president and in-house counsel for NeighborBench, LLC.  Webcast key takeaways include:

• An understanding of the scope and requirements of UDAAP

• Examples that highlight where credit unions have neglected UDAAP requirements

• Best practices for conducting a UDAAP risk assessment

• Recommendations for mitigating your UDAAP risk

Registration is still open - Sign Up Today! Remember, NAFCU's webcasts are available to anyone and everyone. On-demand webcasts are archived and available for up to 12 months after the live broadcast.

 

Thank You; NCUA’s October 2013 Board Action Bulletin – Two Finals and a Proposal; Remittance Transfer Effective Date Alert

Written by JiJi Bahhur, Director of Regulatory Compliance

Thank You.  I wanted to extend a thank you to all attendees and presenters that joined us during last week’s sold-out Regulatory Compliance Seminar. As the compliance challenges continue, the ability to learn from each other and discuss common issues and concerns will continue to be an invaluable resource in the credit union industry and help everyone stay up-to-date on the latest requirements and interpretations.

Thanks again for making this year's Compliance Seminar a success.  When the group photo is available, I'll be sure to share.

NCUA’s October 2013 Board Action Bulletin.  Last Thursday, the National Credit Union Administration (NCUA) Board (Board) held its October 2013 Board meeting.  Three items were unanimously approved during the Board’s open session:

• A final rule requiring all federally insured credit unions to plan for liquidity events. Credit unions with assets exceeding $250 million need to have access to NCUA’s Central Liquidity Facility, the Federal Reserve’s Discount Window, or both.

• A final rule requiring all federally insured credit unions to electronically file Call Report information with NCUA. The rule will reduce operating costs and result in more accurate and timely credit union data.

• A proposed rule to protect the National Credit Union Share Insurance Fund by requiring annual stress tests at federally insured credit unions with assets exceeding $10 billion.

Other items on the open meeting agenda included:

• Board Briefing, Proposed Interagency Policy Statement, Joint Diversity Standards for Regulated Entities.

• Board Briefing, Proposed Interagency Rule, Part 760, Loans in Areas Having Special Flood Hazards.

• Quarterly National Credit Union Share Insurance Fund Report.

For a deeper look into the items discussed, ruled and briefed on during this meeting, take a look at NCUA’s Board Action Bulletin here, but I’d like to focus on the final Liquidity and Contingency Funding Rule.  The final rule – affecting section 741.12 of NCUA’s rules and regulations – requires all federally insured credit unions to take specific steps to ensure appropriate risk management and access to liquidity. 

In its Board Action Bulletin, the NCUA provides a helpful table summarizing the general requirements based on credit union size.

 

Credit Union Asset Size	Liquidity Rule Requirement
Under $50 million	Federally insured credit unions in this group must maintain a basic written liquidity policy. Approved by a credit union’s board, the policy must provide a framework for managing liquidity and a list of contingent liquidity sources that can be employed in emergency situations.
$50 million or more	In addition to a written liquidity policy, federally insured credit unions in this group must have a contingency funding plan that clearly sets out strategies for meeting emergency liquidity needs.
$250 million or more	In addition to a written liquidity policy and contingency funding plan, federally insured credit unions in this group must establish access to at least one contingent federal liquidity source: either NCUA’s Central Liquidity Facility, the Federal Reserve’s Discount Window, or both.

 

It should be noted that the final rule raises the highest asset threshold, which requires access to a federal liquidity provider, to $250 million from the $100 million in the proposed rule.

Effective March 31, 2014, the final rule is available online here. The NCUA published a Letter to Credit Unions (LCU) that provides guidance on how credit unions can comply with this regulation, including a timeline to ensure credit unions are in compliance by the effective date.  Also, NAFCU will issue a Final Regulation (NAFCU log-in required), which will be available here. 

Remittance Transfer Effective Date Alert.  Just a friendly reminder: today – October 28, 2013 – is the effective date for the final remittance transfer rule. 

The 12%: The Ballad of the 113th Congress

Written by Katie Marisic, VP of Political Affairs

With all the new regulations about to go in effect in the coming months we thought we’d give you a little break from the normal updates and let you sit back, relax and enjoy what Congress has to offer. But first here is a corgi doing an impression of Congress  trying to pass legislation.

It’s been week after the government shutdown ended and Washington, D.C. is quickly returning to its “normal state.”  Federal employees have returned to work, acrimonious congressional hearings   are being held and the panda cam is back in action.

Next week the budget conference committee tasked with finding a compromise on the Continuing Resolution and Extension of the Debt Ceiling will meet. There was a lot of talk going around that a compromise would involve major tax reform, but yesterday both Senate Majority Leader Harry Reid (D-NV) and House Budget Committee Chairman Paul Ryan (R-WI) appeared to rule out the idea of a grand bargain.

With an approval rating of 12%, and a record of passing legislation that has them on track to be the least effective Congress in American history, the idea to scale back the grandiose rhetoric and focus on something that is achievable seems like a pretty good plan. Here's that corgi again.

But just because tax reform might not be in this compromise doesn’t mean that the issue is going away. Both Sen. Max Baucus (D-MT) and Rep. Dave Camp (R-MI), chairmen of the committees that deal with tax reform have repeatedly expressed their desire to pass legislation this Congress. Sen. Baucus is retiring and Camp’s tenure as Chairman is term limited so both of them have significant interest in making something happen before 2015.

If Congress does a 180, and starts working together anything could happen. It’s important that we keep encouraging them to focus on legislation that is beneficial to credit unions. S. 635, the Privacy Notice Modernization Act of 2013, is one bill that we want to make sure stays on their radar. Similar legislation has already passed in the House and a presidential signature on this bill would be a boon to credit unions.

All of this is assuming they come to a compromise, if the conference committee can’t come to a bargain by December 15 be prepared for round two of shutdowns. But just because Congress might not be able to meet their deadlines doesn’t mean you can miss yours. Make sure your credit union is prepared for all the compliance deadlines by visiting the NAFCU Compliance Calendar.

Before you return to your regularly scheduled program here is one more video to get you through your day.

Have a great weekend!

The Mortgage Choice Act (H.R. 3211); Congress Must Address the Points & Fees Issue

Written by Jillian Pevo, NAFCU’s Director of Legislative Affairs

For over two weeks it felt like Groundhog Day here in Washington –each day it seemed like additional federal employees were furloughed, Congress did a whole bunch of arguing, and not a lot got done. Congressional staffers deemed “non-essential” were instructed to stay home, and the agendas of various committee chairmen temporarily fell by the wayside as negotiating relative to the government shutdown and national debt ceiling took center stage. 

It’s worth noting that credit unions really showed their true colors during this difficult time – numerous lawmakers took note of the special incentives and programs many of your credit unions offered to your members affected by the shutdown. We aren’t surprised, but our staff here at NAFCU can’t thank you enough for all you do. 

When the logjam in Congress finally broke last week, with an agreement on government funding until January 15 and on the debt ceiling through February 7, elected officials scrambled to fill the Congressional agenda with previously postponed hearings and a host of other activity related to the issues they care about most.  

One issue that seems to be percolating in both the House Financial Services and Senate Banking Committee’s is the CFPB’s qualified mortgage (QM) definition in satisfying “ability to repay” requirements under the Dodd-Frank Act. As currently defined, QMs cannot have points and fees in excess of 3 percent of the loan amount (for loans $100,000 or greater). This will make meeting the QM test problematic for lenders and non-QM loans would be less likely to be made or would only be available at higher rates due to heightened liability risks.

Representative Bill Huizenga (R-MI) has been out front on this issue and recently, in the spirit of compromise, introduced a scaled down version of a more board piece of legislation to modify the definition of “points and fees.”  The Mortgage Choice Act (H.R. 3211) would exclude title charges from the “points and fees” definition, and clarify that escrow charges should also be excluded. Representative Huizenga’s bill is bipartisan, and there is also a bipartisan Senate bill (S.949) that would also address this issue. 

With the ability-to-repay provisions set to take effect in January of 2014, time is of the essence for stakeholders to make their case to Congress. NAFCU’s government affairs team is committed to pursuing this issue in hopes of seeing changes before the effective date. As Congress came back into session yesterday, NAFCU brought H.R. 3211 to the attention of House Speaker Boehner and Minority Leader Nancy Pelosi. We are also working with other industry groups to help educate members of Congress about how burdensome the points and fees definition will be for lenders, and ultimately consumers. We recognize the importance of this issue to credit unions.  However, it should be noted, as the recent government funding fight so keenly demonstrated, getting almost anything passed in the current environment is an uphill battle.  Nonetheless, NAFCU will be here fighting for you.

As always, if you have questions about what’s happening in Congress, or additional insight that may be helpful to NAFCU’s lobbying team, please reach out to us. 

CFPB’s Modifications to Loss Mitigation Procedures and Pre-Foreclosure Review Period

Written by Angela Meyster, Regulatory Affairs Counsel

By now you’ve probably begun looking at the CFPB’s January 2013 mortgage rules and started thinking about how to comply.  The CFPB understands there have been some hiccups with implementing certain provisions of the rules and, accordingly, has been rolling out modifications as part of its implementation plan. On September 13, 2013, the CFPB released amendments to the 2013 Mortgage Rules under the Equal Credit Opportunity Act (Regulation B), Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act (Regulation Z).  

Of particular interest to credit unions are the provisions relating to loss mitigation procedures and the pre-foreclosure review period.  The newly amended rule, found in § 1024.41(f), reads:

"(1) Pre-foreclosure review period. A servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless:

(i) A borrower’s mortgage loan obligation is more than 120 days delinquent;

(ii) The foreclosure is based on a borrower’s violation of a due-on-sale clause; or

(iii) The servicer is joining the foreclosure action of a subordinate lienholder." 

Thus, the rule does not generally allow servicers to make the first notice or filing that is required under state law within 120 days of delinquency.

The September 2013 Amendments specifically address what constitutes the “first notice or filing required by applicable law.”  NAFCU had sought clarification that certain state-required notices that are meant to notify borrowers about counseling or other loss mitigation resources are not prohibited under this rule. The CFPB has provided some clarity as to what a credit union can do to comply with state law foreclosure requirements within the 120-day period without running afoul of the CFPB’s prohibition against making the first notice or filing.

In its new commentary, the CFPB clarifies whether a credit union has made “the first notice or filing required by applicable law” prohibited by the 120-day rule. The commentary specifies that, where State foreclosure law requires a court action or proceeding, a document is a first notice or filing if it is the earliest document State law requires a credit union to file with a court or other judicial body to commence the action or proceeding.  This could be a complaint, a petition, an order to docket, or a notice of a hearing.

The commentary also explains that if applicable State law does not require an action or proceeding in court, and instead allows the use of a power of sale or the publishing or recording of a similar document, a document is the first notice or filing if it is the earliest document that State law requires that a credit union record or publish to begin the foreclosure process.  Where applicable State law requires neither a court action nor the recording or publishing of a particular document, a document is the first notice or filing if it is the earliest document to establish or schedule a particular date for a foreclosure sale.

Finally, the CFPB’s new commentary points out that a credit union doesn't violate this provision if it gives a borrower a document that applicable State law doesn't initially require to be filed, recorded, or published simply because the credit union would have to include that document as an attachment to other documents necessary to initiate a foreclosure.

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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, don’t forget to use this valuable member resource (login required) when researching the rules!

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.

The consolidated regulatory text has been updated with the recent final rule issued by the CFPB on September 13, 2013 (published in the Federal Register on October 1). The final rule discussed above will be incorporated into the consolidated regulatory text when they are published in the Federal Register.

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 NAFCU’s Mortgage Rules webpage. 

 

 

CFPB Releases New Mortgage Servicing Guidance; NCUA’s October 2013 Board Agenda Available; Programming Note

Written by JiJi Bahhur, Director of Regulatory Compliance

Mortgage Servicing Guidance.  Earlier this week, the CFPB issued additional guidance on the CFPB’s mortgage servicing rules.  Specifically, the CFPB released a bulletin and an interim final rule to provide greater clarity to the 2013 TILA and RESPA mortgage servicing rules that take effect in January, 2014.  According to the CFPB’s press release, the new guidance provides clarifications on three servicing issues, among other things. 

The three servicing issues that are clarified are home retention efforts after a borrower dies, early intervention requirement to contact delinquent borrowers, and the interplay between the servicing rules, bankruptcy code, and the Fair Debt Collection Practices Act (FDCPA).

For further detail, the press release can be located here.  The bulletin – only 7 pages in length – can be located here.  And the interim final rule is located here.

NAFCU will issue a Regulatory Alert seeking comments on the amendments within the interim rule.  Once available, it will be located here (NAFCU log-in required).

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NCUA’s October 2013 Board Agenda.  NCUA’s next board meeting takes place on October 24, 2013 with the open session starting at 10:00am.  Matters that will be considered during the open session include:

• Proposed Interagency Rule, Part 760, Loans in Areas Having Special Flood Hazards;
• Quarterly National Credit Union Share Insurance Fund Report;
• Final Rule, Parts 741 and 748, Electronic Filing of Financial Reports;
• Final Rule, Part 741, Liquidity and Contingency Funding Plans; and
• Proposed Rule, Part 702, Credit Union Capital Planning and Stress Testing.

The board agenda, available as of yesterday, is available here.

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Programming Note.  Next week is NAFCU’s Regulatory Compliance Seminar, which will be held at the Gaylord Opryland Resort & Convention Center in Nashville, Tennessee.  NAFCU’s Regulatory Affairs, Political Affairs, and Legislative departments have volunteered to hold down the blog fort during this busy time, so keep your eyes peeled for these exciting guest blog posts next week. 

Staff BSA Training Resources; NAFCU's October 2013 BSA Blast and Best of Staff Quiz

Written by Shari R. Pogach, Regulatory Paralegal

Using real world examples of criminal activity can be helpful when it comes to training your front line staff.  Real world examples are relatable and can be used to get folks talking and more importantly, perhaps thinking about what to look for when interacting with members on the front line.  Here are some resources that you might want to refer to for case examples.

The IRS has a section on its site with write-ups on money laundering investigations, Examples of Money Laundering Investigations - Fiscal Year 2013, here’s a sample:

 “Ohio Business Owner Sentenced for Tax Evasion and Structuring Currency Deposits

On August 22, 2013, in Columbus, Ohio, Jon Scott Diamond, of Westerville, Ohio, was sentenced to 12 months and one day in prison, three years of supervised release and ordered to pay $177,183 in restitution to the IRS. Prior to sentencing, Diamond paid $57,873 to the IRS.  In addition, Diamond agreed to forfeit his interest in a 2005 BMW 645ci. Diamond pleaded guilty on March 22, 2013, to income tax evasion and to knowingly engaging in a structured currency transaction. According to court documents, Diamond owned and operated Gem Ventures, LLC, dba Gem Skill Games, which was established in December 2005. During the years 2006 through 2008, Gem Ventures distributed computerized gaming machines in various bars and clubs in or around Columbus, Ohio. In order to play the gaming machines, bar patron’s had to insert cash into them. Diamond and/or his assistant visited each establishment weekly to collect the funds and print off the weekly receipt tickets on each gaming machine. They counted the cash at the bar, compared it to the receipt printout, and reimbursed the bars for the Jack Pot prize awards. Diamond split the remaining funds with the bar owners on a 60/40 basis.  They gave the bar owners receipts for their share of the split, and left the bars with the cash. Generally, Diamond deposited the cash collections each week into a business account in the name of Gem Ventures, LLC. Between 2006 and 2008, Diamond structured the cash deposits exceeding $1 million by making numerous cash deposits in amounts just under $10,000. Diamond knew that financial institutions were legally required to report transactions exceeding $10,000 and he knowingly structured the currency transactions. In addition, for the 2006 tax year, Diamond willfully attempted to evade and defeat approximately $97,044 of income taxes due and owing to the IRS by concealing income and failing to file a federal income tax return.” 

The FBI’s website also has write-ups moneylaundering and structuring, here’s a snippet from a case:

“In April 2013, Chavez pleaded guilty to a currency structuring charge and admitted that between July 2011 and August 2011, he structured currency transactions for the purpose of avoiding federal reporting requirements for deposits and withdrawals involving more than $10,000. According to his plea  agreement, Chavez committed this crime by making 37 cash deposits and withdrawals over a 55-day period as part of a pattern of illegal activity. In his plea agreement, Chavez admitted that the purpose of his structured deposits and withdrawals was to avoid reporting requirements and thus conceal his association with Varela and his support of the Varela DTO. Chavez also admitted brokering cocaine transactions for the Varela DTO and “cleaning” its drug money by structuring financial transactions. According to the plea agreement, in November 2011, Chavez attempted to broker a 20-kilogram cocaine transaction for the Varela DTO. Chavez has been in federal custody since April 2013.”

Of course there’s always the FinCEN publication, SAR Activity Reviews:By the Numbers, and Trends, Tips & Issues , Volumes 1-23.  FinCEN puts examples of law enforcement cases in the publication and their index lists the types of criminal activity covered. 

Lest we forget, if you’re a NAFCU member you also have the “Best of NAFCU’s BSA Blast Quizzes” as a training resource.  Each of the “best of” quizzes contains twenty-five questions and answer  scenarios on BSA issues.   

So now it’s time for my “shameless plug.”

BSA Blast. NAFCU’s October 2013 BSA Blastis now available for NAFCU members.  For your reading pleasure, this issue includes:

•  A New Jersey community bank’s downfall for ignoring money exchange house business risks; and
• TD Bank’s failure to detect and adequately and timely report suspicious activities in connection with a massive Ponzi scheme. 

And, naturally, the issue also includes the “Best of NAFCU’s BSA Blast Quizzes #4.”  Happy training! 

CFPB Bulletin on HMDA Compliance Issues; CFPB Consent Orders for HMDA Violations

Written by Michael Coleman, Regulatory Compliance Counsel

The Consumer Financial Protection Bureau recently released CFPB Bulletin 2013-11, which concerns: HMDA Compliance Management; the CFPB’s HMDA Resubmission Schedule and Guidelines; and the CFPB’s HMDA Enforcement. The Bulletin comes in the wake of two Consent Orders issued by the CFPB for HMDA reporting violations (see the CFPB press release for more details).

As the result of the HMDA violations found in a CFPB Exam, the CFPB issued a Consent Order against Mortgage Master, Inc. (a nonbank headquartered in Walpole, MA) requiring it to pay a civil penalty of $425,000, correct and resubmit its 2011 HMDA data, and develop and implement an effective HMDA compliance management system to prevent future violations.

The CFPB also issued a Consent Order against Washington Federal (a bank headquartered in Seattle, WA) as a result of a CFPB exam, the order requires it to pay a civil penalty of $34,000, correct and resubmit its 2011 HMDA data, and develop and implement an effective HMDA compliance management system to prevent future violations.

So what does this mean for credit unions? Even if your credit union is not under the CFPB’s direct supervisory authority (those credit unions with less than $10B in assets), this CFPB Bulletin provides a clear sign that HMDA reporting is on the CFPB’s radar. And keeping your finger on the pulse of the CFPB’s hit list is never a bad thing. The Bulletin provides a breakdown of what the CFPB expects in relation to HMDA compliance management systems, here is an excerpt:

“HMDA Compliance Management

Given the importance of accurate HMDA data to fulfilling the statute’s purposes, the CFPB is committed to ensuring that Bureau-supervised mortgage lenders, whether depository or non-depository institutions, develop and/or maintain appropriate HMDA compliance management systems designed to ensure the accuracy of HMDA data. The scope, complexity, and size of each CFPB supervised institution’s lending operations vary, and we expect that compliance management systems will be calibrated accordingly. Based on the CFPB’s supervisory experience, effective HMDA compliance management systems frequently include:

• Comprehensive policies, procedures, and internal controls to ensure ongoing compliance with the collection and reporting requirements set forth in HMDA and Regulation C;
• As appropriate to the size and complexity of the institution, comprehensiveand regular internal, pre-submission HMDA audits, to test and evaluate dataaccuracy, and that include a reasonable amount of transactional analysis,written reports detailing findings, and recommendations for correctiveactions;
• Reviews of any regulatory changes that may have occurred since the prior examination and/or data collection and reporting cycle;
• Reporting systems that are appropriate given the volume of the institution’s lending operations;
• One or more individuals assigned responsibility for oversight, data entry, and data updates, including the timely and accurate reporting of the institution’s data;
• Appropriate, sufficient, and periodic employee training to ensure that responsible personnel understand HMDA and Regulation C standards and reporting requirements; 
• Effective corrective action in response to previously identified deficiencies; and
• As appropriate, board and management oversight.

Each institution should ensure that its HMDA compliance management system is tailored appropriately to its operations. The CFPB also encourages institutions to apply the Bureau’s HMDA Resubmission Schedule and Guidelines, which are discussed below, to manage HMDA compliance and facilitate effective corrective action on self-identified errors.”

The CFPB also released their HMDA resubmission guidelines in addition to the Bulletin, both are worth a closer look.

And don’t forget, the Federal Financial Institution Examination Council (FFIEC) issued the 2013 HMDA Getting it Right! Guide back in April, it is a great resource for HMDA compliance. You can find the full PDF of the 2013 Guide here. 

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Programming Note.  NAFCU’s offices will close today at noon and remain closed Monday for the long holiday weekend.  We’ll be back to blogging next Wednesday!  Have a great weekend!

Consumer Compliance Outlook – HELOC Plans: Compliance and Fair Lending Risks When Property Values Change

Written by Bernadette Clair, Regulatory Compliance Counsel

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

• HELOC Plans: Compliance and Fair Lending Risks When Property Values Change

• The Importance of the Consumer Compliance Internal Audit Function

• New Compliance Requirements Under the Garnishment Rule for Accounts Receiving Certain Federal Benefits

Today, I want to highlight the article HELOC Plans: Compliance and Fair Lending Risks When Property Values Change. This article provides an excellent overview of the compliance requirements and issues that can arise when taking action on a HELOC because of a change in property value. In addition to providing an overview of Regulation Z requirements and potential adverse action notice requirements, the article highlights potential fair lending considerations.  From the article:

“The ECOA, as implemented by Regulation B, and the Fair Housing Act (FHA), as implemented by 24 C.F.R. Part 100, apply during all stages of credit transactions within their scope — not simply at origination. Thus, a lender’s decision to review consumer HELOC accounts because of declining property values or to restore a HELOC account when real estate prices rise has fair lending implications. In particular, the manner in which HELOC accounts are selected for review could increase the risk of disparate treatment or disparate impact on a prohibited basis. Disparate impact occurs when a creditor implements a facially neutral policy that disproportionately harms borrowers on a prohibited basis.¹⁸  Disparate treatment occurs when a creditor treats borrowers differently on a prohibited basis, such as on the basis of race or gender.¹⁹ For example, assume a lender originated HELOCs in two counties that both had significant declines in property values. County A is majority-Hispanic while County B is majority-non-Hispanic white. If the creditor only undertook HELOC reviews in County A, it would have increased the risk of disparate treatment.

Discrimination risk may also be present when different methods are used to value properties to determine whether a significant decline occurred. Using the example described above, if a lender used AVMs in County A while conducting full appraisals in County B, the fair lending risk would be elevated. Finally, a creditor’s discretion in any aspect of the credit transaction, including collection activity, increases fair lending risks. For example, if a lender has the ability to override a decision to suspend a HELOC, the manner in which that discretion is exercised could raise fair lending concerns.

To manage fair lending risks, lenders should ensure that policies are uniformly applied to all affected borrowers. In addition, lender discretion to override a decision to take action on a HELOC plan should be documented and closely monitored to ensure that similarly situated borrowers are treated consistently. To manage disparate impact risk, lenders can analyze whether a proposed policy or action will negatively and disproportionally impact borrowers on a prohibited basis and, if so, whether the lender has a business justification. The Interagency Fair Lending Examination Procedures are available to creditors to assist in analyzing fair lending risks.²⁰

Strong control systems can also help manage risks. Examples of risk controls include policies and procedures approved by the institution’s board that comply with applicable regulations and staff training on the regulatory requirements. Regularly monitoring compliance can confirm that board-approved procedures are implemented, followed, and work as intended. Exceptions to policies and procedures should be appropriately approved, documented, and monitored to help ensure consistency among borrowers. Finally, monitoring customer complaints and providing metrics on consumer HELOC actions can help senior management oversee the process more effectively.”
(Footnotes omitted)

Check out the full article here.

CFPB’s Findings on the CARD Act; NCUA’s 2014 Board Meeting Schedule; Extra! Extra! Buy NAFCU’s 2013 Credit Union Compliance GPS and Get the 2014 Manual Free!

Written by JiJi Bahhur, Regulatory Compliance Counsel

CFPB’s Findings on the CARD Act.  The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) was signed into law in May 2009 with the intent of establishing fair and transparent practices in the credit card market.  Last week, the CFPB released a report detailing how the CARD Act has, as intended, increased consumer protections and fairness, including reducing penalty fees and making the cost of credit cards clearer to consumers. 

In preparing its report, the CFPB used data covering most of the credit card marketplace.  Based on this data, several findings were made.  As summarized by the press release, the report found that:

• “Total cost of credit declined: The CFPB found that the total cost of credit declined by two percentage points between 2008 and 2012. The total cost of credit includes all fees, interest, and finance charges paid by the consumer to the card issuer. The decline in the total cost of credit has occurred even as annual fees and interest rates have increased, indicating a shift from back-end pricing toward more transparent front-end pricing that consumers can understand and evaluate more easily.

• Overlimit fees have been effectively eliminated: Before the CARD Act took effect, card issuers could charge an overlimit fee for transactions that put cardholders over their credit limit. Each overlimit transaction could result in an additional overlimit fee. With the law’s requirement that consumers opt-in to fees before they are allowed to exceed their credit limit, the CARD Act essentially eliminated overlimit fees as a source of cost to consumers and revenue to issuers. The report found that consumers paid about $2.5 billion less in overlimit fees than they paid in 2008.

• Size of late fees declined: The CARD Act required that penalty fees, such as late fees, be “reasonable and proportional” to the relevant violation of account terms. As a result, the report found that the average size of late fees diminished. The CFPB estimates that the average late fee went down by $6 after the CARD Act took effect. Based on the data used to prepare the report, that reduction resulted in a $1.5 billion decrease in late fees paid by consumers in 2012.

• Responsible access to credit remains available: As the financial crisis hit, creditors faced losses and as a result, implemented more restrictive credit standards. While the amount of available credit card credit has generally decreased since the financial crisis began, there is still $2 trillion of unused credit for consumers with credit cards in the marketplace. One factor affecting credit availability is a notable drop in the number of consumers who receive unsolicited credit limit increases on their accounts. Now that consumers have to ask for their credit limit to be raised rather than having it happen automatically, these increases are happening less frequently.

• Young consumers are better protected from credit cards they cannot afford: Before the CARD Act, it was often too easy for young consumers to rack up unmanageable credit card debt and damage their credit rating. Now, consumers under the age of 21 cannot get a credit card unless they can demonstrate an independent ability to repay the debt or unless they have a cosigner over 21. The report found that the percent of young adults ages 18-20 that have at least one credit card account has dropped by half.”

Although the overall findings included a two-percentage point decline in the total cost of credit between 2008 and 2012, there are still areas of concern in the credit card market.  Some of the areas of concern include add-on products, fee harvester cards, deferred interest products, and disclosures – all of which are discussed in more detail in the report.  The CFPB will continue to monitor these areas of concern and take action where appropriate.

To view the report in its entirety, click here.  Also, you can view NAFCU’s comment letter on the subject matter here.

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NCUA’s 2014 Board Meeting Schedule. Last Friday, the NCUA Board released its monthly meeting schedule for 2014.  The schedule, subject to change, is available here. 

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NAFCU’s Credit Union Compliance GPS.  Regulatory burden got you down? Well, help is here by way of NAFCU’s 2013 Credit Union Compliance GPS! Newly updated and written by NAFCU’s compliance team, this is an essential resource for all credit union compliance officers and staff. The electronic manual explains complex regulatory language in plain English and includes user-friendly bookmarks, hyperlinks and pagination for easy navigation.  With updated resources and guidance to help your compliance research efforts, this is a must-have reference tool!

With one purchase, you can share the manual with your entire credit union staff for one affordable price - $399 for NAFCU member credit unions and $499 for nonmember credit unions. And, if you purchase the 2013 Credit Union Compliance GPS today, you will get the 2014 Credit Union Compliance GPS when it’s available in March – at no extra cost!  Also, if you register for NAFCU’s Compliance School before the 2014 version is available, you’ll get the benefits of the 2013 version until the 2014 version is available!

What are you waiting for? Get your copy today!

NAFCU’s 2013 Regulatory Compliance Seminar – Watch it LIVE!

Written by Michael Coleman, Regulatory Compliance Counsel

It’s that time of year again, summer is over and we’re moving into the fall, the Redskins are floundering, and NAFCU’s 2013 Regulatory Compliance Seminar is right around the corner.

The current regulatory environment has placed an immense burden on the credit union industry (I’ve been trying to kick-start the term “Reg-pocalypse” with limited success) and the need to stay informed and up to date on compliance issues is greater than ever. I don’t know about you, but I try to avail myself of every opportunity to learn something, read something, watch something, or participate in something that will help me understand current compliance issues faced by credit unions. Which brings me to my shameless plug.

This year’s Regulatory Compliance Seminar has sold out. If you were unable to register and won’t be able to join us in Nashville, Tennessee, fear not! To accommodate the growing demand for the important information and education provided at Regulatory Compliance Seminar, we're launching a Live Video Streaming option as a pilot program which will allow you (and anyone from your credit union) to attend virtually.

How will Live Video Streaming of Regulatory Compliance Seminar work?

• Register for the 2013 Regulatory Compliance Seminar Live Video Streaming.
• Receive an email confirming your registration and providing login information to access the live video stream during the seminar.
• Test your systems to access live streaming before the start of the seminar.
• Visit the Live Video Streaming link each day during the time of the courses (note: all times are in Central Time), using your login information to view the live stream. A link to course handouts is available after login.
• The sessions/courses will be available on-demand starting October 31, revisit the material with your same login information. (Link to on-demand course recordings to be provided after the live event).
• Anyone attending the seminar in-person in Nashville will get access to the on-demand recordings of the courses after the seminar.
• NCCOs earn the same 24 CEUs for watching all of the live streaming courses as they do for attending all courses in-person.

How much does the Live Streaming Cost? The registration fees for the streaming option are:

• NAFCU Member: $1,575
• Nonmember NCCO: $2,075 – Note: Nonmember NCCOs must call NAFCU’s Member Service Center at 800-344-5580 to register and get the discounted pricing.
• Nonmember:$2,575

Don’t miss this great opportunity to participate in NAFCU’s 2013 Regulatory Compliance Seminar, visit our website for more details and sign up today!

Have a great weekend!

Cybersecurity: An Essential Function

Written by Tessema Tefferi, Senior Regulatory Affairs Counsel

The headline-grabbing news yesterday, and rightfully so, was that the Federal government is shut down.  However, the Administration and many in Congress have been clear that essential personnel will continue to work and the government’s essential functions will not be discontinued or disrupted.  Thankfully, one of these essential functions is to defend against cyber-attacks!  And thank goodness the government has determined that this function is essential.

Credit unions should also consider cybersecurity as an essential function, if they have not already done so. Whether the threat emanates from any or all corners of the world, in a credit union’s own operating system (for lack of adequate safety guards), or a garage or basement in any of our towns, it is no longer a threat that can be taken lightly.

Credit unions have heard for years about the ongoing cybersecurity threat.  Many have implemented sophisticated and effective safeguards and offer members tips to minimize risk against being hacked, but with October being Cybersecurity Awareness Month, I thought it would be good to point to some helpful resources that might help your credit union bolster the measures it has already taken (note: some of the government websites are ironically not functional during the shutdown!).   

• Internet Crime Complaint Center (IC3)
• FS-ISAC
• FTC - Privacy and Security
• National Cyber Security Alliance Stay Safe Online
• OnGuardOnline.gov
• U.S. Computer Emergency Readiness Team
• Stay Safe Online
• STOP.THINK. CONNECT.™
• Small Biz Cyber Planner (FCC)
• 10 Cybersecurity Strategies for Small Business tip sheet (FCC)

NCUA’s cybersecurity guidance, 13-Risk-01, is also helpful and lists a number of mitigation practices that credit unions should implement, including:

• Maintaining strong information security awareness programs for employees and members.
• Utilizing transaction monitoring, verification procedures, and appropriate limits commensurate with the risk of applicable funds transfers.
• Implementing strong controls over computers used to process commercial payments, including but not limited to:
  • Multifactor authentication.
  • Removal of hardware tokens upon session completion.
  • Prohibited or highly filtered use of Internet browsing.
  • Dedicated, corporate-owned systems without administrator privileges.
• Following network and application security best practices with regard to configuring systems, patch management, and security testing.

NAFCU's 2014 Technology and Security Conference. NAFCU’s work to provide you with pertinent information on cybersecurity is ongoing, but I’d be remiss to not remind you that NAFCU’s 2014 Technology and Security Conference will be heavy on cybersecurity.  Check out more information about the conference and how to register here.

Have a great day!