NAFCU Compliance Blog

August 2014 NCUA Report; Top 10 Cyber Security Areas that Examiners Look At; Interagency Guidance Regarding Unfair or Deceptive Credit Practices; Programming Note

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

Last week, NCUA released its August 2014 Report. Featured articles include:

• Proposed Rule Gives More Flexibility in Managing Fixed Assets
• Chairman’s Corner: We’re Still Listening
• Board Actions: July 2014 Mid-Year Budget Adjustments Save Credit Unions $1.1 Million
• Top 10 Cyber Security Areas that Examiners Look At
• Office of the Chief Economist Report: Opportunities, Risks in the Improving Economy
• Are You Prepared for Changes in Interest Rates?
• Office of Small Credit Union Initiatives Report: Updates Make FAQ+ a More Valuable Tool
• Office of Public and Congressional Affairs Report: Reporter on Deadline: Understanding the Basics of Media Relations
• Office of Small Credit Union Initiatives Report: NCUA Releases Videos on Preventing Employee Dishonesty and Fraud

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Top 10 Cyber Security Areas that Examiners Look At. One of the articles in this month’s NCUA Report that caught my eye lists the top cyber security areas NCUA examiners look at, which include:

“Information Security Policies — Does the credit union have a board-approved Information Security Policy commensurate with the credit union’s size and complexity and that meets the requirements of NCUA Rules and Regulations Part 748?

Risk Assessments— Has management recently performed and documented an information-security risk assessment to identify and assess potential threats, their probability, potential effects, and the existing controls and risk remediation plans the credit union has in place?

IT Audit— Has management developed an audit plan that addresses all IT-related areas appropriate to the size and complexity of the credit union? This audit plan should also include ongoing assessments of internal and external vulnerabilities.

Virus and Malware — Is the network and all critical components like servers, desktops, laptops and other systems running updated virus and malware protection software?

Passwords — Does the credit union enforce a strong password policy based on the credit union’s risk assessments that meets or exceeds industry standards? At a minimum, passwords should be at least eight characters with alphanumeric and special characters required for added strength and complexity.

Business Continuity Planning and Disaster Recovery Test— Is the plan sufficient, up-to-date and recently tested?

Patch Management — Does credit union IT personnel manage the installation of all software security patches and updates, and ensure all systems nearing or at the end of their service life are replaced?

Vendor Management— Is there a vendor management policy and program that meets the requirements of NCUA Rules and Regulations Part 748?

Information Security Training — Does the credit union have an ongoing information security awareness program?

Incident Response and Crisis Management — Is there an updated incident response plan that complies with NCUA Rules and Regulations Part 748, Appendix B? Incident response and crisis management plans are essential to an institution’s cyber security program. A credit union’s efficient response and containment of damages can potentially reduce the cost of a breach.”

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Interagency Guidance Regarding Unfair or Deceptive Credit Practices. NCUA, along with other federal regulators, recently released interagency guidance on the credit practices rules for banks, savings associations and Federal credit unions.  The Dodd-Frank Act repealed the rulemaking authority of the NCUA (and others) under the FTC Act, and as a result, the various agencies plan to repeal their versions of the credit practices rule.  Note that the FTC’s credit practices rule remains in effect for creditors within the FTC’s jurisdiction.

Despite the repeal of these regulations, the guidance points out that the agencies have supervisory and enforcement authority regarding unfair or deceptive acts or practices, and these could include practices previously addressed in the credit practices rules. From the guidance:

 “The Agencies are issuing this statement to clarify that the repeal of credit practices rules applicable to banks, savings associations, and Federal credit unions should not be construed as a determination by the Agencies that the credit practices described in these former regulations are permissible. The regulations were issued on the basis of extensive findings that identified the unfair or deceptive practices prohibited in the rules.¹⁰ The Agencies believe that, depending on the facts and circumstances, if banks, savings associations, and Federal credit unions engage in the unfair or deceptive practices described in these former credit practices rules, such conduct may violate the prohibition against unfair or deceptive practices in Section 5 of the FTC Act and Sections 1031 and 1036 of the Dodd-Frank Act.¹¹ The Agencies may determine that statutory violations exist even in the absence of a specific regulation governing the conduct.” (Footnotes omitted).

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Programming Note. NAFCU's office will close at noon today and will also be closed on Monday for the long holiday weekend. We will be back to blogging on Wednesday. Have a great long weekend!

CFPB Revises The Remittance Rule

By Eliott C. Ponte, Law Clerk

The Dodd-Frank Act added new requirements for remittance transfers under the Electronic Fund Transfer Act by directing the CFPB to issue regulations amending Regulation E.  Under this mandate, the CFPB released a series of regulations (the Remittance Rules) corresponding with Congress’ intent.  These regulations became effective on October 28, 2013.  NAFCU issued a summary of the final regulation on July 21, 2012, which can be found by clicking this link (you must be a NAFCU Member to access this summary).

Of the many Remittance Rules promulgated by the CFPB, the Dodd-Frank Act required that consumers be provided with exact pricing disclosures before paying for a remittance transfer.  Foreseeing problems with such requirements, Congress included a provision that allowed insured financial institutions to provide estimated disclosures where exact information could not be determined for reasons beyond a financial institution’s control.  Congress sought this exemption to be temporary, and thus included a sunset provision that retired this exemption on July 21, 2015.  Hedging against their own expectations, Congress also empowered the CFPB to extend the exemption for an additional five years if the CFPB determined that the expiration of the exemption would negatively affect the ability of insured financial institutions to send remittances to locations in foreign countries. 

In April of this year, the CFPB announced that it sought to amend the Remittance Rules by, among other things, extending the exemption for an additional five years (ten years in total, which is the maximum length as allowed by the Dodd-Frank Act).  Last week, the CFPB announced that it finalized its proposed regulations, thereby extending the exemption period until July 21, 2020.  In prepared remarks, CFPB Director Richard Cordray said, “today’s final rule will help ensure these changes are implemented smoothly and that consumers will be well-protected during that process.”

In addition to extending the exemption, the CFPB also adopted several clarifications and technical corrections to the Remittance Rule.  First, the CFPB clarified that U.S. military installations abroad are considered to be located in a “State” for purposes of the Remittance Rule.  Prior to this clarification, the Remittance Rule was unclear as whether a United States military base in a foreign nation was considered a “State” for the purposes of the regulation.  Under the final rule, transfers that will be received at a location on a United States military base that is physically located abroad are considered to be received in a “State.”  Similarly, transfers that are sent to a recipient’s account that is also located on a United States military base abroad is considered to be located in a “State.” 

Second, the CFPB clarified that whether a remittance transfer from an account is for personal, family, or household purposes (and thus, whether the transfer could be a remittance transfer) may be determined by ascertaining the primary purpose of the account.  Next, the CFPB clarified that faxes are considered writings for purposes of satisfying certain provisions of the Remittance Rule that require remittance transfer providers to provide written disclosures. 

Fourth, the clarified regulation permits providers to include the CFPB’s new remittance-specific consumer website (the Spanish speaking version of the website can be found here, although it is not currently functioning) as the website that providers must disclose on remittance transfer receipts.  Finally, the CFPB released a revised version of its compliance guide to reflect the changes finalized in the updated regulation.  The Final Regulation is available here.

CFPB Releases Mortgage Servicing Transfer Bulletin; Free Kick; Webcast

Written by Ricardo Piñeres, Regulatory Compliance Counsel

CFPB Releases Mortgage Servicing Transfer Bulletin.  Last week, the CFPB released Bulletin 2014-01 that is billed as a compliance bulletin and policy guidance with regards to mortgage servicing transfers.  This bulletin replaces CFPB Bulletin 2013-01, and provides guidance for mortgage servicers.  It states that “the CFPB will be carefully reviewing servicers’ compliance with Federal consumer financial laws applicable to servicing transfers.”  Furthermore, the bulletin is the first one regarding mortgage servicing transfers released since the changes to Regulation X and Regulation Z went into place back in January.

In a press release touting the bulletin’s release, the CFPB noted that the “bulletin gives examples of some things CFPB examiners will look for when loans are transferred. In particular, CFPB examiners will carefully scrutinize transfers of loans with pending loss mitigation applications or approved trial and permanent modification plans. Examples of good practices by servicers include flagging those loans and taking special care to ensure that all relevant documents are transferred in a timely manner.”

The bulletin is divided into four main sections: (A) General Transfer-Related Policies and Procedures; (B) Applicability of Other Parts of the New Servicing Rule to Transfers; (C) Protections under Federal Consumer Financial Law; and (D) Plans for Handling Servicing Transfers.

Section A provides examples of general transfer-related policies and procedures that CFPB examiners may consider in their evaluation of servicers with regards to maintaining policies and procedures that are “reasonably designed to achieve the objectives of facilitating the transfer of information during mortgage servicing transfers and of properly evaluating loss mitigation applications.”  The bulletin states that the examples in Section A are not intended to be an exhaustive list of policies and procedures, and that “in future examinations CFPB examiners will consider a servicer’s transfer-related policies and procedures as a whole in determining whether they are reasonably designed to achieve these objectives.”

Section B discusses how transfers interact with other portions of the servicing rule.  Its discussion includes portions regarding:

• Error resolution procedures;
• Requests for information;
• Force-placed insurance;
• Early intervention;
• Continuity of contact; and
• Loss mitigation.

Section C gives a brief listing of other federal consumer financial laws applicable to servicing transfers and explains potential consequences if servicers are not fulfilling their obligations under the law.  Lastly, Section D discusses how, in certain circumstances, the CFPB may “require servicers engaged in significant servicing transfers to prepare and submit written plans to the CFPB detailing how they will manage the associated consumer risks.”

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Free Kick.  My in-laws were visiting this past weekend, and in order to spend quality time with them, I drafted this blog post before leaving the office on Friday.  Therefore, while I would have loved to have given my take on the EPL games from this past weekend, I will instead have to focus on the big news from Friday – the Mario Balotelli move to Liverpool.

Having lost Luis Suarez this summer, I understand the reflexive need to try and fill the void with a “superstar” goal scorer.  Rickie Lambert certainly is an inadequate signing that did little to make up for the loss of Suarez.  But Balotelli, really?  Sure, he has raw talent, but he is also temperamental, inconsistent diva that has shown a penchant for disappearing for long stretches of games and seasons.  If they can control Balotelli’s self-imploding impulses, then this will be a brilliant coup for Brendan Rodgers and the Liverpool brass.  That being said, neither Manchester City nor AC Milan could effectively do that.  Therefore, while Balotelli may pay early dividends for Liverpool, I have no doubt that that he will devolve into a clubhouse cancer and inconsistent performer on the pitch by the end of the season.

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Webcast.  Your Credit Union’s Website: Keys to a Successful Compliance Review.  Your credit union website is subject to the same compliance requirements as printed material—but the parameters don’t always seem clear.  In NAFCU’s informative webcast, Steven Van Beek will help ensure you can pass a website compliance review by discussing the key disclosures that must appear on your website, and when.  You’ll also receive best practices, learn to utilize the One Click Rule for disclosures, and more.

TILA-RESPA Integrated Mortgage Disclosures Rule: The Closing Disclosure – Imposition of Average Charge Instead of Actual Amount Received for Particular Settlement Service; Great Training Opportunities Available to You

Written by JiJi Bahhur, Director of Regulatory Compliance

Recently, we discussed the Closing Disclosure’s timing and delivery requirements in this blog post.  Today, I’d like to take a look at when, for purposes of the Closing Disclosure, the credit union (creditor) may impose average charges on consumers instead of the actual amount received for particular settlement service(s).

General Rule

The general rule, located at 12 C.F.R. § 1026.19(f)(3)(i),  is that a consumer cannot be charged more than the service provider actually received for any settlement service.  However, under certain conditions, credit unions can impose an average charge instead of the actual amount a provider received for a particular service. 

Exception

Section 1026.19(f)(3)(ii) of Regulation Z provides the conditions where a credit union may impose an average charge rather than the actual amount received by the settlement service provider for that service.  A credit union may charge a consumer the average charge for a settlement service is the following conditions are satisfied:

1. The average charge is no more than the average amount paid for that service by or on behalf of all consumers and sellers for a class of transactions;
2. The credit union or settlement service provider defines the class of transactions based on an appropriate period of time, geographic area, and type of loan;
3. The credit union or settlement service provider uses the same average charge for every transaction within the defined class; and
4. The credit union or settlement service provider does not use an average charge:

•  a. For any type of insurance;
•  b. For any charge based on the loan amount or property value, such as transfer taxes; or
•  c. If doing so is otherwise prohibited by law, including state and local law as well.

The staff commentary in Regulation Z goes on to explain that if these conditions – above –  are met, a credit union may develop representative samples of specific settlement costs for a particular class of transactions. This would allow the credit union to charge the average cost for that settlement service instead of the actual cost for such transactions. However, a credit union cannot use an average-charge program in a way that inflates the overall cost of settlement services.

For further information on average-charge pricing and the conditions above, the staff commentary is worth reviewing since it includes helpful clarifying information such as the definition of “class of transactions” and guidance and examples on the other conditions as well.  Also, the staff commentary includes record retention requirements – “at least three years after any settlement for which that average charge was used” – for all documentation used to calculate the average charge for a particular class of transactions.

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NAFCU Regulatory Compliance Seminar.  Plunge into the hottest credit union compliance topics, including detailed analyses of new and future regulations. Led by industry-leading experts, you'll get the scoop on what's hot now and what's coming up in credit union regulatory compliance.

Plus, it's the best way for existing NAFCU Certified Compliance Officers (NCCOs) to obtain recertification — with no exams!

This popular event sold out early last year.  If you enroll by today, you’ll receive $100 off the registration price.

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NAFCU Credit Union Compliance GPS.  Do you have your copy of NAFCU's 2014 Credit Union Compliance GPS yet?  This comprehensive, electronic resource translates complex regulatory language that credit union professionals use on a day-to-day basis into plain English. The latest edition includes extensive substantive additions and  improved user-friendly search functions, including more hyperlinks, bookmarks and much more. You can purchase your copy here!

CFPB Adjusts CARD Act, HOEPA, and TILA Thresholds for Inflation

Written by Brandy Bruyere, Regulatory Compliance Counsel

The CFPB is required to annually adjust certain threshold amounts within various rules based on inflation. Last week, the bureau published a final rule implementing a few of these adjustments under the CARD Act, HOEPA and TILA. The rule modifies the credit card penalty fee safe harbor, the HOEPA total loan amount and fee trigger thresholds, and the loan amounts for specific points and fees limits under Regulation Z’s qualified mortgage rule.

CARD Act Penalty Fees Safe Harbor. Under Section 1026.52(b) of Regulation Z, fees on credit card accounts must generally be based on costs, but the rule contains safe harbor amounts that are considered compliant. Effective January 1, 2015, the safe harbor penalty fees will increase by one dollar. The new safe harbor for a member’s first late payment will be $27 and $38 for subsequent late payments within the same six month period.

HOEPA Annual Threshold and Fee Trigger Adjustments. Under Section 1026.32, whether a mortgage is considered high-cost depends on the annual percentage rate, with different thresholds for different loan amounts. Effective January 1, 2015, a loan that is $20,391 or above will be a high-cost mortgage if the loan’s points and fees exceed 5% of the total loan amount. A loan will also be high-cost if its points and fees exceed the lesser of 8% of the loan amount or $1,020 for loans for less than $20,391. Here is an excerpt from the final rule:

 

“Effective January 1, 2015, for purposes of determining the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent is $20,391. Comment 32(a)(1)(ii)-3, which lists the adjustments for each year, is amended to reflect the new dollar threshold amount for 2015.

Effective January 1, 2015, for purposes of determining whether a consumer credit transaction that is secured by a consumer’s principal dwelling and is not otherwise exempt is covered by § 1026.32 (based on the total points and fees payable by the consumer at consummation), a loan is covered if the points and fees exceed $1,020 or 8 percent of the total loan amount, whichever is lower. Comment 32(a)(1)(ii)-1, which lists the adjustments for each year, is amended to reflect the new dollar threshold amount for 2015.”

Ability to Repay and Qualified Mortgage (QM) Annual Threshold Adjustments. Finally, the bureau’s rule also changes the loan amounts subject to the various points and fees limits to meet the requirements of a QM. Here is the excerpt from the rule:

“Effective January 1, 2015, for purposes of determining whether a covered transaction is a qualified mortgage, a covered transaction is not a qualified mortgage unless the transaction’s total points and fees do not exceed 3 percent of the total loan amount for a loan amount greater than or equal to $101,953; $3,059 for a loan amount greater than or equal to $61,172 but less than $101,953; 5 percent of the total loan amount for loans greater than or equal to $20,391 but less than $61,172 ; $1,020 for a loan amount greater than or equal to $12,744 but less than $20,391 , and 8 percent of the total loan amount for loans less than $12,744. Comment 43(e)(3)(ii)-1, which lists the adjustments for each year, is amended to reflect the new dollar threshold amounts for 2015.” (Emphasis added.)

Remember, none of these changes go into effect until January 1, 2015 but it is good to make a note of it now.

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NAFCU's 2014 Credit Union Compliance GPS is still available. This comprehensive, electronic resource translates complex regulatory language into plain English. The latest edition includes improved user-friendly search functions, including more hyperlinks and bookmarks and much more. You can purchase a copy for your credit union here!

 

FinCEN's Proposed Rule on Customer Due Diligence

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

FinCEN recently issued a proposed rule that would amend its existing rules to include explicit customer due diligence (CDD) requirements, including a requirement to identify beneficial owners of legal entity customers. This proposal has been in the works for some time – back in March 2012 FinCEN issued an advance notice of proposed rulemaking (ANPR) and held roundtable discussions seeking input from interested parties. For additional background information, see our previous blogs on this topic here, here, and here.

The proposed rule is intended to clarify and strengthen CDD within the Bank Secrecy Act (BSA) regime, with an aim towards enhancing financial transparency and safeguarding the financial system from illicit use by making sure “financial institutions perform effective CDD so that they know their customers – both who they are and what transactions they conduct.”

In the preamble to the proposed rule, FinCEN discusses what it believes are the minimum key elements of CDD. These include:

“(i) Identifying and verifying the identity of customers;

(ii) identifying and verifying the identity of beneficial owners of legal entity customers (i.e., the natural persons who own or control legal entities);

(iii) understanding the nature and purpose of customer relationships; and

(iv) conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.”

FinCEN notes that the requirement to identify and verify the identity of customers (the first element above) is already included in the existing regulatory requirement to have a customer identification program (CIP). As a result, the proposed rule adds explicit requirements addressing the remaining three elements.

Under proposed section 1010.230, financial institutions would have to identify and verify the identity of the natural persons who are beneficial owners, as defined in the rule, for their legal entity customers, with some exceptions.  The proposal contains a Certification of Beneficial Owner(s) form in Appendix A that would be used for this purpose.  

Another highlight that caught my eye is that FinCEN is proposing to add an explicit reference to CDD requirements for understanding the nature and purpose of customer relationships and conducting ongoing monitoring in proposed changes to section 1020.210, which as amended would read:

Ҥ 1020.210 Anti-money laundering program requirements for financial institutions regulated only by a Federal functional regulator, including banks, savings associations, and credit unions.

A financial institution regulated by a Federal functional regulator that is not subject to the regulations of a self-regulatory organization shall be deemed to satisfy the requirements of 31 U.S.C. 5318(h)(1) if the financial institution implements and maintains an anti-money laundering program that:

(a) Complies with the requirements of §§ 1010.610 and 1010.620 of this chapter;

(b) Includes, at a minimum:

(1) A system of internal controls to assure ongoing compliance;

(2) Independent testing for compliance to be conducted by bank personnel or by an outside party;

(3) Designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance;

(4) Training for appropriate personnel; and

(5) Appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to:

(i) Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and

(ii) Conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions; and

(c) Complies with the regulation of its Federal functional regulator governing such programs.”

(My emphasis.)

FinCEN indicates that this explicit reference to CDD requirements is not intended to change existing practices but rather to clarify existing practices.  However, this is one area that generated a lot of comments when the ANPR was issued because of concerns that this might necessitate asking targeted questions at account opening for every new customer about the nature and purpose of the account.

FinCEN discusses some of these concerns in the preamble, stating in part that it “believes that in some circumstances an understanding of the nature and purpose of a customer relationship can also be developed by inherent or self-evident information about the product or customer type, or basic information about the customer. FinCEN recognizes that inherent information about a customer relationship, such as the type of customer, the type of account opened, or the service or product offered, may be sufficient to understand the nature and purpose of the relationship. Obtaining basic information about the customer, such as annual income, net worth, domicile, or principal occupation or business, may similarly be relevant depending on the facts and circumstances.”

These are just a couple of highlights from the proposed rule – for complete details, it may be found in its entirety here. Comments on the proposal are due to the agency on or before October 3, 2014.  NAFCU’s Regulatory Affairs team is preparing a Regulatory Alert for NAFCU members, which will be available here.

NCUA Webinar and CFPB Issues Consumer Advisory On Virtual Currency

Written by Eliott C. Ponte, Law Clerk

NCUA Hosting Free Webinar on Business Continuity Planning and Disaster Recovery

NCUA will be hosting a webinar on business continuity planning and disaster recovery on Wednesday, August 20, 2014, at 2 P.M. eastern standard time.  Speakers will outline effective continuity planning and practices for credit unions, including (1) communicating with members, regulators, and vendors; (2) establishing back-up and recovery sites in separate locations; (3) restoring IT services; and (4) returning to normal operations.  Participants will hear from NCUA Staff and CEOs of credit unions who will recount their experiences and lessons learned while recovering from Superstorm Sandy and Hurricane Katrina.

Interested credit unions can register for the webinar by clicking this link.  Participants may submit questions in advance at [email protected].  The NCUA has requested that the subject line of the email include the phrase “Business Continuity Planning Webinar.”  

 

CFPB Now Accepting Complaints on Virtual Currency Products and Services, and Issues Consumer Advisory On Virtual Currencies

Earlier this week the CFPB announced that as of August 11, 2014, the CFPB would be accepting consumer complaints on virtual currency like Bitcoin.  At the same time, Director Richard Cordray warned consumers “virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”  While Cordray did acknowledge that virtual currencies do have potential benefits, he warned consumers that they “need to be asking the right questions” before buying virtual currency.”   

In addition to warning consumers, the CFPB also released a Consumer Advisory on virtual currencies.  The Advisory states that virtual currency users are susceptible to a great deal of risks that include hackers and fraudsters.  Furthermore, the CFPB warned that virtual currencies offer few protections for consumers if something bad happens, and that virtual currencies can cost consumers much more to use than credit cards or good ole American greenbacks.

This statement and advisory notices comes almost one month after Benjamin Lawsky, superintendent for New York’s Department of Financial Services, proposed new rules for virtual currency businesses in order to protect consumers, reduce money laundering, and combat cyber fraud.  Lawsky stated that the proposed rules were aimed at regulating virtual currency firms, but according to the text of proposed rules, any holder of virtual currency, including credit unions, would be subject to the new virtual currency rules.  While I am not aware of a credit union in New York currently accepting virtual currency for deposit, regulations like the ones proposed by New York would almost certainly put the brakes on any virtual coin deposit systems due to the compliance burden of the rule.  Readers of the proposed rule will agree that the proposed regulations are more burdensome than those imposed on traditional money service businesses, which is the designation FinCEN gives to virtual currency firms.  While the rules appear to create safeguard for consumers, the rigidness of the rules and capital requirements provides several disincentives for financial institutions, including credit unions, doing business with virtual currency companies. 

If credit unions are considering a business relationship with a virtual currency system, compliance officers should take notice that federal regulations might be on their way.  After all, when the CFPB begins collecting data (whether though complaints or doing research on the negative effects on consumers) and given the tone of Director Corday’s remarks on virtual currency, it is likely that the CFPB will be promulgating regulations on virtual currency.  Furthermore, if regulations are promulgated, it is likely the compliance burden will be high given how the CFPB perceives the state of virtual currency market.  After all, if the CFPB is going to regulate the Wild West, it will need strong regulations to do so.

 

A Consolidated Guide to TILA/RESPA Integration Resources; Mortgage Servicing Webcast

Written by Angela Meyster, Regulatory Affairs Counsel

As the deadline (August 1, 2015 to be exact) looms for the Truth in Lending Act and Real Estate Settlement Procedures Act integration, compliance folks should be aware of the many tools out there to help them with implementation.  Both the CFPB and NAFCU have developed an array of resources to assist in answering common questions and both entities are looking for ideas of what else could be helpful.

From the CFPB:

Implementation Resources on the CFPB’s Website:

• First and foremost, anyone involved in TILA/RESPA integration should sign up for the CFPB’s TILA/RESPA implementation updates email list by going to this website. An email should come through this listserv every time the CFPB makes a change to the rule or offers new guidance, resources, or programs related to the rule.
• The second CFPB resource credit unions should check for everything and anything TILA/RESPA is the TILA-RESPA Integrated Disclosure rule implementation webpage. On it, you will find:
• A link to the TILA/RESPA rule in full;
• The small entity compliance guide, a plain-language guide to the new rules; and
• Guide to Forms, which provides instructions on completing the Loan Estimate and Closing Disclosure;
• Integrated loan disclosure forms and samples, which include the Loan Estimate and Closing Disclosure forms (available in both English and Spanish) and samples for a few different loan types.
• If you have outstanding questions about application or interpretation and want to speak with a CFPB staff attorney directly, you can email [email protected] or call its hotline at (202) 435-7700.  Note that the CFPB will not respond in writing and any guidance it provides may not be authoritative.

Fannie Mae and Freddie Mac Data Standards:

Fannie Mae and Freddie Mac have released a common industry dataset, “the Uniform Closing Dataset.”  It is calibrated to the Mortgage Industry Standards Maintenance Organization’s (MISMO) data standards so that credit unions may use it in implementing the TILA/RESPA Closing Disclosure Form.  MISMO is also developing in the near future a dataset for use with the Loan Estimate.

CFPB TILA/RESPA Webinar Series:

The Federal Reserve Board of Governors (the Fed) will host a webinar on frequently asked questions about the TILA/RESPA rule on August 26, 2014 at 2 p.m. Eastern.  Those interested in attending may register here.

The webinar is the second in a series on the rule and will feature speakers from the CFPB who will address specific questions about rule interpretation and implementation.  Future webinars will continue to address specific questions related to the rule. CFPB also plans to continue these webinars past the rule’s implementation deadline.

The Fed held an earlier webinar on June 17, 2014, and provided an overview of the rule, the new disclosures, and answered a few compliance questions.  A recording is available on the CFPB’s website.

NAFCU members can submit questions to me, Regulatory Affairs Counsel Angela Meyster, at [email protected], to pass on to the CFPB to consider addressing through the webinar series. 

Industry Meetings

The CFPB is currently conducting meetings with industry trade groups to learn what issues credit unions, as well as other financial institutions and industry stakeholders, are struggling with as they begin implementation efforts and what resources the CFPB can release to assist entities in this effort.

From NAFCU:

NAFCU’s awesome compliance team has also put out an abundance of resources, with more to come in the near future. Highlights include:

• All the blog posts written to date on TILA/RESPA integration, with a special focus on breaking down the rule and dissecting its particularly troublesome parts.
• For NAFCU members, three thorough articles on the rule: “Delving into the Closing Disclosure: Requirements, Timing, Delivery and More”, “A Deep Dive into the Loan Estimate Disclosure: Requirements, Timing, and Tolerances”, “TILA/RESPA Integrated Mortgage Disclosure Rule: Overview”.  NAFCU’s compliance team has plans to publish several other articles in the near future.
• NAFCU has also hosted two webcasts: The 7th Rule: Unintended Consequences of the New, “Simplified” Mortgage Disclosures and TILA/RESPA Series: Part 1 – An Overview. NAFCU will host additional webcasts in the coming months.
• Finally, for NAFCU members, a Final Rule Summary of the Rule, and Scope & Applicability Chart: TILA/RESPA Disclosures.

NAFCU continues to seek input from members and nonmembers as to additional resources that would be helpful in implementation or addressing problem areas.

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Webcast: New Mortgage Servicing Requirement: Error Resolution and Information Request Procedures

Talk about a huge change—the new mortgage servicing requirement governing qualified written requests (QWRs) cut the timeframe for responding to QWRs extremely short, AND doubled the allowable statutory damages. Register for our important webcast to understand the new requirements and avoid negative exposure for your credit union. Register by September 3 to save $100.

FinCen Releases AML/CFT Deficiencies Advisory; Free Kick

Written by Ricardo Piñeres, Regulatory Compliance Counsel

FinCen Releases AML/CFT Deficiencies Advisory.  On August 5, the Financial Crimes Enforcement Network (FinCen) released FinCen Advisory FIN-2014-A006.  The release of this advisory comes as a response to the Financial Action Task Force (FATF) having updated its lists of jurisdictions with strategic Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) deficiencies.  Back in late-June, FATF updated its lists of jurisdictions that appear in two different documents:

• FATF Public Statement, which consists of  jurisdictions that are subject to FATF’s call for countermeasures or are subject to Enhanced Due Diligence due to their AML/CFT deficiencies; and
• Improving Global AML/CFT Compliance: On-going Process, which consists of jurisdictions identified by FATF to have AML/CFT deficiencies.

Based on the recent changes to FATF Public Statement, FinCen is advising that institutions apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and North Korea.  Furthermore, FinCen is advising institutions to apply enhanced due diligence for following countries:

• Algeria;
• Ecuador;
• Indonesia; and
• Myanmar.

FATF recognized that Ethiopia, Pakistan, Syria, Turkey, and Yemen “have made progress in substantially or largely addressing their FATF action plan.”  Therefore, those countries were taken off the FATF Public Statement and have been placed on Improving Global AML/CFT Compliance: On-going Process.  Kenya, Kyrgyzstan, Mongolia, Nepal, and Tanzania were all deemed to have made “significant progress in addressing all or nearly all of their strategic AML/CFT deficiencies.”  Therefore, they were removed from Improving Global AML/CFT Compliance: On-going Process.  The list of countries now on Improving Global AML/CFT Compliance: On-going Process is as follows:

• Afghanistan;
• Albania;
• Angola;
• Argentina;
• Cambodia;
• Cuba;
• Ethiopia;
• Iraq;
• Kuwait;
• Lao PDR;
• Namibia;
• Nicaragua;
• Pakistan;
• Panama;
• Papua New Guinea;
• Sudan;
• Syria;
• Tajikistan;
• Turkey;
• Uganda;
• Yemen; and
• Zimbabwe.

See FinCen’s Advisory for further information on the changes to the lists and guidance regarding U.S. financial institutions’ responsibilities and restrictions with regards to the countries on the lists.

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Free Kick.  The dawn of a new season is upon us.  Yet, the transfer window will remain open for another 20 days.  While many of the Europe’s top clubs have tried to conduct the majority of their business on the front end of the transfer window, there will likely be a few more moves that will strengthen some teams and weaken some others.  Therefore, I refuse to make any predictions regarding the upcoming season until the window closes and we have some stability amongst the rosters of Europe’s elite squads.

All of that being said, I am still excited for what the season ahead brings for an Arsenal fan such as myself.  With the 3-0 victory over Manchester City in yesterday’s Community Shield, an offseason full of promise and activity has come to a close.  The additions of Alexis Sanchez, Callum Chambers, Mathieu Debuchy, and David Ospina have addressed needs and added some much-needed depth to the squad.  Hopefully, the team can remain relatively healthy this season because when the new additions are added to the likes of Theo Walcott, Aaron Ramsey, Santi Cazorla, Mesut Ozil, and Olivier Giroud, Arsenal should have one of the most exciting attacking squads in the EPL.  Go Gunners!!!

TILA-RESPA Integrated Mortgage Disclosures Rule: The Closing Disclosure – Timing and Delivery

Written by JiJi Bahhur, Director of Regulatory Compliance

In last week’s TILA-RESPA blog post, the general requirements for the new Closing Disclosure were highlighted.  Today, I’d like to highlight the general timing and delivery requirements applicable to the Closing Disclosure. 

General Timing and Delivery Requirements

The creditor is responsible for ensuring that the Closing Disclosure is received by the consumer no later than three business days before consummation of the loan. To ensure the consumer receives the Closing Disclosure on time, Regulation Z’s new section 1026.19(f)(1)(ii) provides ways in which the creditor must arrange delivery. If the creditor delivers the Closing Disclosure to the consumer in person, it is considered received by the consumer on the day that it is provided. If the creditor mails or delivers the Closing Disclosure electronically, and in compliance with the Electronic Signatures in Global and National Commerce Act, it is considered received by the consumer three business days after it is delivered or placed in the mail.

In instances where a settlement agent is used to provide the Closing Disclosure to the consumer on the creditor’s behalf, the creditor is still responsible for satisfaction of the delivery requirements and remains legally responsible for any errors or defects. This is true even where the settlement agent assumes responsibility for completing some or all of the Closing Disclosure.

More Than One Consumer

When a transaction applicable to the TILA-RESPA rule involves more than one consumer, who must receive the Closing Disclosure is dependent on whether the transaction is rescindable or not. In transactions that are not rescindable, the Closing Disclosure may be provided to any consumer with primary liability on the obligation. In rescindable transactions, however, the Closing Disclosure must be given to each consumer who has the right to rescind, although the disclosures required for adjustable rate mortgages need only be provided to the consumer who expresses an interest in a variable-rate loan program. 

Consumer’s Waiver of Waiting Period

After receiving the Closing Disclosure, the consumer has the ability to waive or modify the three-business day waiting period if he or she determines that the extension of credit is needed to meet a bona fide personal financial emergency.  Whether a bona fide personal financial emergency exists is determined by the facts surrounding individual situations. The Commentary to section 1026.19(f)(1)(iv) provides that the “imminent sale of the consumer's home at foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period,” as an example of a bona fide personal financial emergency.

To modify or waive the waiting period, the consumer must also give the creditor a dated, written statement that describes the emergency, specifically modifies or waives the waiting period and bears the signature of all consumers who are primarily liable on the legal obligation. A pre-printed waiver form provided by the creditor is prohibited.   

Applicable Definitions

Business Day.  It is important to note that the term “business day” is defined differently for purposes of providing the Closing Disclosure than it is for purposes of providing the Loan Estimate (which we addressed here in this blog). Business day, for purposes of providing the Closing Disclosure no later than three business days before consummation, is defined to include all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s Day, Martin Luther King, Jr.’s Birthday, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.

Consummation.  Even though consummation commonly occurs at the same time as closing or settlement, it is a legally distinct event. Consummation refers to when the consumer becomes contractually obligated to the creditor on the credit transaction, not when the consumer becomes contractually obligated to the seller on a real estate transaction.

Determining when consummation occurs, i.e., when a consumer becomes contractually obligated to the creditor, is a matter of state law. To ensure delivery of the Closing Disclosure at least three business days before consummation, creditors and settlement agents should consult with local counsel to determine when consummation occurs in the applicable state.

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Happy Friday, all! I’ve been slacking on my picture-taking of the kiddos lately but their 2-year birthday is coming up in two weeks so I’m certain I’ll  have something cute to share soon! 

CFPB Issues Data Report on Overdraft Programs

Written by Brandy Bruyere, Regulatory Compliance Counsel

Last week, in CFPB’s ongoing consideration of rulemaking in the area of overdraft programs, the bureau released a report on overdraft services. This report is based on consumer experiences with about 2 million accounts held at large banks under the bureau’s supervisory authority, meaning those financial institutions with over $10 billion in assets. The report concluded, among other things, that “the majority of debit card overdraft fees are incurred on transactions of $24 or less.” Other key findings include:

• Overdraft and other non-sufficient funds fees constitute the majority of checking fees that consumers incur;
• 8% of consumers account for almost 75% of all overdraft fees;
• The median amount of a transaction leading to an overdraft fee for all types of debits is $50;
• The propensity to overdraft an account is correlated with age, as 10.7% of consumers age 18-25 have over 10 overdrafts a year while only 2.8% of consumers over age 62 incur such frequent overdrafts; and
• Over half of consumers who overdraft return their accounts to a positive balance within three days, and 76% become positive again within a week.

The bureau indicated in its press release that it “plans further studies on how overdraft works and how it is affecting consumers” and “is also weighing what consumer protections are necessary for overdraft and related services.” In a press call regarding the release of the report, CFPB Director Richard Cordray’s prepared comments may provide some insight as to what kind of rulemaking we may see in this area:

“…Overdraft fees should not be ‘gotchas’ when people use their debit cards. But unfortunately, the wider use of debit cards means those who opt in for overdraft are likely to get charged more fees. Our study shows that more often than not, consumers who incur overdraft fees for using their debit card are doing so for small purchases of $24 or less.

Moreover, our study found that the majority of consumers put money back into their bank accounts within three days of their overdraft transactions – maybe their paychecks got posted or a deposit finally cleared. In fact, more than 75 percent have positive account balances within a week.

The result is that some consumers are essentially paying $34 – which is the typical overdraft fee – to have the bank spot them less than $24 for just a few days. If a consumer were to get a loan on those terms, that would equate to an annual percentage rate of over 17,000 percent…

I want to take pains to note that nothing in this report implies that banks and credit unions should be precluded from offering overdraft coverage. But we need to determine whether current overdraft practices are causing the kind of consumer harm that the federal consumer protection laws are designed to prevent.” (Emphasis added.)

The bureau plans additional studies and meanwhile the prerule stage of rulemaking on overdrafts is scheduled to be ongoing until February, 2015 so it is unlikely that we will see a proposed rule soon. However, the bureau continues to signal a willingness to further regulate in the area of overdrafts. 

Personal Space. My attempts to make Lemmy understand the concepts of personal space have been in vain. These days, he requires reminders that the baby "brother" is not a pillow!

TILA-RESPA Integrated Mortgage Disclosures Rule: The Closing Disclosure – General Requirements

Co-Written by JiJi Bahhur, Director of Regulatory Compliance, and Sarah Frank, Regulatory Intern

In past blog posts, the compliance team has spent a good amount of time covering general information pertaining to the Loan Estimate form, the document that will integrate and replace the existing initial disclosures required under the current Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) rules.  As part of the TILA-RESPA blog series, we’d like to skip forward to the Closing Disclosure.  Like the blogs on the Loan Estimate form, there will be more than one blog on the Closing Disclosure, so today’s focus will be solely a highlight of the Closing Disclosure’s general requirements.

The Closing Disclosure form, generally a five-page document, integrates and replaces the existing HUD-1 and the final TIL disclosures for transactions where the loan requires a Loan Estimate and proceeds to closing. The purpose of this consolidation is to better explain loan repayment, as well as to improve consumer understanding of mortgage transactions.

The creditor is responsible for ensuring that the Closing Disclosure is received by the consumer no later than three business days before consummation of the loan (we will cover the timing and delivery requirements in more depth in a future blog).  The general requirements for the Closing Disclosure are located in new sections 1026.19(f) and 1026.38 of Regulation Z, and are summarized in the CFPB’s TILA-RESPA Small Entity Guide as follows:

• “The Closing Disclosure generally must contain the actual terms and costs of the transaction. (§      1026.19(f)(1)(i)) Creditors may estimate disclosures using the best information available when the actual term or cost is not reasonably available to the creditor at the time the disclosure is made. However, creditors must act in good faith and use due diligence in obtaining the information. The creditor normally may rely on the representations of other parties in obtaining the information, including, for example, the settlement agent.  The creditor is required to provide corrected disclosures containing the actual terms of the transaction at or before consummation. (Comments 19(f)(1)(i)-2, -2.i, and -2.ii).

 

• The Closing Disclosure must be in writing and contain the information prescribed in § 1026.38.      The creditor must disclose only the specific information set forth in § 1026.38(a) through (s), as shown in the Bureau’s form in appendix H-25.  (§ 1026.38(t))

 

• If the actual terms or costs of the transaction change prior to consummation, the creditor must provide a corrected disclosure that contains the actual terms of the transaction and complies with the other requirements of § 1026.19(f), including the timing requirements, and requirements for providing corrected disclosures due to subsequent changes. (Comment 19(f)(1)(i)-1)

 

• New three-day waiting period. If the creditor provides a corrected disclosure, it may also be required to provide the consumer with an additional three-business-day waiting period prior to consummation. (§ 1026.19(f)(2))”

Like the Loan Estimate form, the new Appendix H to Part 1026 contains model forms, including multiple variations of the Closing Disclosure. The standard form, H-25, must be utilized for all loans subject to the TILA-RESPA rule that are federally related mortgage loans. For loans that are not federally related mortgage loans but that are subject to the TILA-RESPA rule, creditors are not strictly required to use the H-25 form; however, the disclosure used by the creditor must contain the exact same information and be made with headings, content and format substantially similar to that form.

For a page-by-page overview of the Closing Disclosure, the CFPB has provided its TILA-RESPA Small Entity Guide and its TILA-RESPA Guide to Forms, which provide visuals of the form and detailed, illustrated instruction on how to complete the individual fields and calculations required for the Closing Disclosure.

NCUA July Board Meeting – Proposed Fixed Assets Rule; NAFCU Compliance Monitor; Regulatory Compliance Seminar; He's Back...

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

Yesterday, the NCUA Board held its July meeting, approving the following three items:

• A proposed rule to provide federal credit unions with regulatory relief and greater flexibility managing fixed assets by removing the waiver requirement for credit unions to exceed the 5-percent aggregate limit on fixed-asset investments.
• Reprogramming NCUA’s 2014 operating budget with a net reduction in overall expenditures of $1.1 million for the remainder of the year.
• Expanding the community charter of Call Federal Credit Union to serve the entire Richmond, Virginia, Metropolitan Statistical Area.

The Board also indicated that no future assessments for the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) are currently expected. Check out NCUA’s Board Action Bulletin for more details on the full meeting results.

Proposed Fixed Assets Rule. The proposed rule approved by the Board during yesterday’s meeting is intended to provide federal credit unions greater flexibility in their management of fixed assets. The proposal would remove the current requirement that federal credit unions seek NCUA approval before exceeding the 5 percent aggregate limit on investments in fixed assets.  Instead, FCUs that wish to exceed the five percent aggregate limit would be able to do so, without prior NCUA approval, if they implement a fixed assets management (FAM) program. The FAM program would have to include a written board policy, board oversight and ongoing internal controls. The proposal would also simplify the occupancy requirement applied to premises acquired for future expansion. The proposal has a 60-day comment period and NAFCU’s Regulatory Affairs team will be preparing a Regulatory Alert for NAFCU members.

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NAFCU Compliance Monitor. The August 2014 NAFCU Compliance Monitor is now available for download by NAFCU members. This month's feature article is on Delving into the Closing Disclosure: Requirements, Timing, Delivery and More. The “Did You Know?” section also provides a quick glance at the topics on tap for NAFCU’s upcoming Regulatory Compliance Seminar.

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Regulatory Compliance Seminar. Speaking of Seminar, don’t miss your chance to meet other compliance professionals from around the country and get the most up-to-date information on regulatory compliance, plus learn what’s coming up next.  $100 savings end soon! Enroll by August 22 to secure your spot for our 2014 Regulatory Compliance Seminar this October in Baltimore’s beautiful Inner Harbor.

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He’s back...The former compliance guy (Anthony Demangone) has teamed with NAFCU President and CEO Dan Berger to write “Managing and Leading Well.”  The book provides a blueprint for today’s credit union leaders to hone their leadership and management skills.  Anthony and Dan will also be on-hand at our Compliance Seminar in Baltimore this fall.

Have a great weekend everyone!