NAFCU Compliance Blog

Recent Fair Housing Act Enforcement

Written by Brandy Bruyere, Regulatory Compliance Counsel

While it is easy to get caught up tracking new regulations like next year’s TILA/RESPA integrated disclosures deadline, sometimes we are reminded that the “oldies but goodies” still need to be on our radar. Earlier this month, New York’s Attorney General filed an action against Evans Bankcorp “for unlawful discrimination on the basis of race in violation of the Fair Housing Act.” The suit claims that since 2009, Evans Bank limited its branching, lending activities, and marketing of credit products to a particular geographic “trade area” in the highly-segregated Buffalo, New York metropolitan area. This was documented by a map that Evans Bank made public as part of its compliance with the Community Reinvestment Act. Here is the map the Attorney General submitted in its suit, which includes Census Data regarding demographics:

This trade area allegedly eliminated approximately 75% of Buffalo’s African-American population from Evans Bank’s lending offerings leading to a disparate impact on African-Americans. The suit also claims that even the bank’s marketing practices excluded the trade area through its advertising campaigns. For example, the suit also alleges that Evans Bank advertised in “ethnic” media sources, but that these were in publications aimed at largely white ethnic communities such as the local Polish community. Meanwhile, the bank performed no advertising in media aimed at the African-American community.

The disparate impact claim relies in large part on data reported by the bank under the Home Mortgage Disclosure Act (HMDA), which showed that out of 1,144 mortgage applications received by Evans Bank between 2009 and 2012, only four applications, or 0.36%, were from African-Americans, and only eight applications were made on properties outside of the bank’s trade area. Compared to other area banks’ HMDA data, Evans Bank’s generated significantly less business from African-American borrowers and borrowers outside the trade area generally.

In response to the lawsuit, Evans Bank issued a statement by email from its CEO to media outlets refuting the attorney general’s claims in the law suit. Rather, the bank stated that it “continue[s] to believe these allegations are without any merit and we intend to vigorously challenge them… We remain confident that our residential lending practices meet all applicable laws and regulations.”

Also in September, the Department of Housing and Urban Development (HUD) settled a complaint against U.S. Bank National Association which alleged that the bank discriminated against a Native American couple in denying a loan refinance. The couple claimed that despite holding full title to their property, the bank denied a loan due because the home was in a Native American reservation. The bank denied any intentional discrimination, but agreed to settle the case. Under the terms of the agreement, the bank will fund the couple’s loan as applied for in May 2013 with no closing costs. The bank and its subsidiary will also as review their policies and procedures for compliance with the Fair Housing Act (FHA) and train employees regarding the Act’s requirements.

Finally, we could see new developments on the FHA and disparate impact cases. The Supreme Court is considering hearing a case out of Texas challenging the FHA disparate impact standard. Should the Court take this appeal, it could lead to big changes in this area of the law. The Court is set to decide today at this term’s opening conference whether to place the case on its docket.

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NAFCU Credit Union Compliance GPS. 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!

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Caught Napping! Apparently, I toss and turn a lot in my sleep these days which has left my poor husband exhausted. It’s no wonder I caught him napping the other day—and of course, Lemmy was only too happy to get comfortable and join him! 

TILA-RESPA: Implementation Between Now and Then

Written by JiJi Bahhur, Director of Regulatory Compliance

With 10 months left to get compliant with the Truth-in-Lending Act/Real Estate Settlement Procedures Act (TILA-RESPA) integrated mortgage disclosures final rule, you may be wondering where the urgency is coming from to get started with implementation.  I mean it’s not like you have the ability to comply early with the rule.  In fact, the TILA-RESPA final rule goes into effect on August 1, 2015, and there is no provision within the rule that allows a credit union to comply early without violating the current TILA and RESPA rules.  So what’s the rush? 

Well, there is PLENTY the credit union can be and should consider doing between now and then to ensure full implementation by August 1, 2015.  Today, I’d like to share some slides that I created that run down some of the things you can be doing between now and then to get prepared. 

It should be noted that, depending on your credit union’s size and complexity, there could be more items the credit union should be addressing prior to the implementation date.  This is something the credit union will have to consider and map out in its compliance plan.

For more detail on what happens or what should be considered under each of the action steps on the slides above, take a look at section 16 – Practical Implementation and Compliance Issues – of the CFPB’s Small Entity Guide.

Before concluding, I thought I’d also share two timelines I found online that do a great job laying out a plan of attack for both a medium-sized and a large-sized lender.  I did not make these timelines; credit goes to TILARESPA.com, an industry knowledge center powered by Pavoso.

The idea here is to get started so you don’t run out of time.  TILA-RESPA is a time-sensitive regulation and the consequences for noncompliance or inaccuracies can be crippling to your credit union. 

For more on TILA-RESPA, click here.

HMDA Data Available; NCUA Removes Its Unfair or Deceptive Credit Practices; 2015 Conference Lineup; Nuptial

Written by Eliott C. Ponte, Law Clerk

2013 HMDA Data Available

On Monday, FFIEC announced the availability of the 2013 Home Mortgage Discourse Act (HMDA) data.  The HMDA data released includes information on lending activity, disclosure statements for each financial institution, aggregate data for each metropolitan statistical area, nationwide statistics, and lending patterns.  The raw data can be found on FFIEC’s HMDA website.

In commenting on the data, FFIEC made several observations, which include noting that the share of home purchase loans for 1-4 family properties made to black and Hispanic white borrowers declined from 2012, and that black and Hispanic white borrowers also experienced higher denial rates than non-Hispanic white applicants.  In contrast, the share of refinance loans to black and Hispanic white borrowers rose in 2013.

Also included in its observations was comments about the increase of higher-priced loans in 2013, which has increased from about 3% of loans in 2012 to about 5% of loans in 2013.  Higher-priced loans are defined as loans with APRs that exceed the average prime offer rates by at least 1.5 percentage points for first-lien loans and at least 3.5 percentage points for subordinate lien loans.  FFIEC stated that one reason for this increase is due to FHA increasing the annual mortgage insurance premium in April of 2013:

“One factor contributing to the overall increase in higher-priced lending was a sharp rise in the share of FHA-insured first-lien home purchase loans with APRs above the reporting threshold, from 4.6 percent in 2012 to 22 percent in    2013.  FHA raised its annual mortgage insurance premium (MIP) slightly in April 2013, and extended the period over which MIP is required to be paid by borrowers in June 2013.  All else equal, these changes, particularly the latter, would push up APRs for FHA loans.  About 75 percent of FHA purchase loans that met the higher-priced definition had APRs that were less than 0.5 percentage points above the higher-priced threshold.”

Additional observations about the 2013 data may be found in the FFIEC HMDA Data press release, or by reviewing the data listed on the HMDA website.

 

NCUA Removes Its Version of Regulations on Unfair or Deceptive Credit Practices

At the September 2014 NCUA Board meeting, the NCUA Board repealed NCUA’s regulations on unfair or deceptive credit practices.  The NCUA Board repealed its regulation in response to Dodd-Frank Act, which removed NCUA’s rulemaking authority under the Federal Trade Commission Act (FTC Act).  Credit unions are still required to comply with the FTC Act, which prohibits certain unfair and deceptive acts and practices.  While  NCUA no longer has rulemaking authority, it retains supervisory and enforcement authority.  Therefore, NCUA cautioned credit unions in the preamble for the repeal of Part 706 that the agency will still examine for compliance with the FTC Act.  NCUA continues to urge federal credit unions to review the Interagency Guidance Regarding Unfair or Deceptive Credit Practices (first issued to credit unions in 14-FCU-03).

 

NAFCU’s 2015 conference and online training lineup is here!

Start planning how you’ll get stronger in 2015 by adding trusted NAFCU training into next year’s annual budget.  Whether it’s online or in-person, the NAFCU training lineup is jam-packed with ideas and concepts to make both you and your credit union stronger.  We’ll help you cut compliance headaches, build revenue, streamline costs, and better strategize.  It’s beyond what you need; it’s what’ll help you exceed.

View NAFCU’s 2015 training lineup now.

 

Nuptial

This Saturday, I am getting married to my best friend and the love of my life.  I am so excited that this day has finally come.  On our first date, I thought I was the luckiest guy in the world because I had the pleasure of escorting a very intelligent and well-spoken women to dinner and a show.  Now, I know I am the luckiest guy in the world because she said yes!  These last five and ¾ years together have been a blast, and I am so excited to see what the next 50 plus years bring.

Because of my wedding, I will be out of the office for the next two weeks.  When I return, I promise to share some of my wedding/honeymoon pictures/stories with the blog.  Just for fun, I have included two pictures of me and my soon to be wife below.  Enjoy, and I will write you during/after NAFCU Seminar!

This is at my brother’s police academy graduation in 2010.  My hair is much shorter now.

 

This picture is from our law school graduation this past May.  We are still smiling.

 

September 2014 NCUA Report; Indirect Auto Lending; CFPB Releases Supervisory Highlights Report

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

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

Office of Examination and Insurance Report: Beware of the Dangers of Indirect Auto Lending

Chairman’s Corner: Credit Unions Help Students Go Back to School

Region V Report: Want to Reduce Risk at Your Credit Union? Start with Internal Controls

Office of Consumer Protection Report: School Partnerships Can Benefit Students and Credit Unions

Office of Continuity and Security Management Report: Be Prepared: Develop a Strong Business Continuity Plan

Office of Examination and Insurance Report: Loans Grow in All Categories, Highest Year-over-Year Growth Since 2006

McWatters Takes Oath, Joins NCUA Board

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Indirect Auto Lending. One of the articles in this month’s NCUA Report discusses indirect auto lending at federally insured credit unions, and includes some of the red flags examiners should look for when reviewing credit unions’ indirect lending programs. The article also lists these red flags from recent exams as "items that can increase a credit union’s unintended risk exposure:

• Allowing a dealer to use a rebate on a new vehicle purchase to finance the negative equity on the trade-in vehicle.
• Having no loan-to-value ratio limit or dollar limit when financing negative equity on trade-in vehicles.
• Financing high-mileage automobiles, those with 100,000 miles or more, for 60 to 72 months, which exceeds the collateral’s useful operating life.
• Loosening underwriting standards by increasing advance rates, lengthening terms, and originating loans to borrowers with lower credit scores.
• Having no portfolio limits for borrowers with lower credit scores.
• Paying commissions for grade D and E credit-quality loans.
• Pricing riskier loans inadequately with an interest rate not commensurate with the credit risk associated with these loans.
• Failing to adjust allowance for loan- and lease-losses methodologies or maintain adequate reserve levels to cover the increased risk exposure from C, D and E quality loans.
• Changing the management of a credit union’s indirect lending program.
• Allowing loan officers or lending managers to approve exceptions to policy.
• Granting indirect automobile loans to non-credit union members."

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CFPB Releases Supervisory Highlights Report. The CFPB was also busy last week in the indirect auto lending space.  In addition to announcing a proposed rule to oversee larger nonbank auto finance companies, the CFPB released a “Supervisory Highlights” report detailing its supervisory activities related to fair lending and the indirect auto lending market.  The report follows a March 2013 CFPB Bulletin (2013-02) to indirect auto lenders about compliance with the Equal Credit Opportunity Act (ECOA), and is offered as further guidance to indirect auto lenders.

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NAFCU Credit Union Compliance GPS. 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 Technical SARs Data Bulletin Also Offers Form Guidance; TILA/RESPA Webcast

Written by Shari R. Pogach, Regulatory Paralegal

Have you had a chance to take a look at the Financial Crimes Enforcement Network’s (FinCEN’s) new publication called SAR Stats?  The successor publication to The SAR Activity Review: By the Numbers, FinCEN released the first issue of this technical bulletin in July.  

FinCEN’s SAR Stats gives suspicious activity report (SAR) data for depository institutions and other industries for SARs filed between March 1, 2012 and December 31, 2013, inclusive.  SAR Stats provides statistical analyses by geography and activity type.   In addition to the technical data, there are new sections that dive deeper into how the data is being analyzed more effectively to identify new and emerging patterns, as well as compare trends across industries.

This first issue also includes a section on best practices for completing the (z)Other field on the electronic FinCEN SAR form.  Also included are illustrations of free-text entries that did not meet FinCEN’s guidance to describe the type of suspicious activity in the (z)Other field:

1. “Many (thousands) of entries lacked critical specifics by omitting the type of product or instrument used in the suspicious activity. For example, there were thousands of entries containing only the single term Kiting. This one-word subject needed vital specific descriptors that would have made it useful (e.g., Check Kiting). Specific descriptors will reveal activity trends more clearly and are more useful to law enf orcement tracking the extent of the products/instruments frequently associated with the activity, in this case, checks and credit cards.
2. Undefined entries that do nothing to describe the suspicious activity, including Excessive or Excessive Activity, Unusual or Unusual Activity, and Suspicious or Suspicious Activity, should not be used. 
3. Use of broad all-inclusive themes also should not be used as they do nothing to further put the entry into perspective: e.g., BSA/Structuring/Money Laundering or, simply, BSA, Structuring, or Money Laundering.
4. Prohibited words and phrase: None, Not Applicable, Other, Same, Same as Above, See Above, See Narrative, Unknown and XX, should not be used. Such entries are of no value.
5. Entries using dollar amounts, dates, or series of numbers are of no value. 
6. Free text entries should not be in quotes. Quotation marks comprise a difficulty in synthesizing entries. The (z)Other boxes should not be checked when the associated text field is left blank. 
7. Filers should avoid using the (z)Other field when an option already exists for that violation. For example, filers entered Elder Financial Exploitation16 in the zOther field within the Fraud category instead of checking box 35(d) (Elder Financial Exploitation) within the Other Suspicious Activities category. 
8. Text should not merely repeat the category without providing any specifics: Category: Terrorist Financing, (z)Other text entry: Terrorist Financing or Category: Fraud, zOther text entry: Fraud. The text entry in (z)Other is intended to provide more information to streamline searching.”

FinCEN reminds filers that if care isn’t used to complete the form, incorrect entries will lead to inaccurate reporting that is of no use to anyone.

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NAFCU Webcast - Prepare now for the changes in your credit union’s policies, procedures and general practices for the implementation of the Truth in Lending (TILA) and Real Estate Settlement Act (RESPA) Integrated Disclosure Rule on August 1, 2015, with this webcast Wednesday, October 1 from 2:00–3:30pm ET.  The early bird registration deadline for TILA/RESPA: Difficult Issues and Their Solution is September 24.

NAFCU Tells Senate Banking Committee “Enough is Enough;” NCUA Announces Agenda for September Meeting; NCUA Videos on Financial Abuse of Seniors

Written by Brandy Bruyere, Regulatory Compliance Counsel

NAFCU Testifies Before Senate Banking Committee.

Yesterday, XCEL Federal Credit Union President and CEO Linda McFadden testified on behalf of NAFCU before a Senate Banking Hearing regarding regulatory relief. McFadden told the Committee that “enough is enough” with regard to overregulating credit unions. In addition to addressing problems with NCUA’s “one size fits all” risk-based capital proposal, McFadden also urged support for multiple regulatory relief bills addressing issues such as annual privacy notices, points and fees requirements for qualified mortgages, and the member business lending cap. McFadden’s prepared testimony also covered additional regulatory burdens outlined in NAFCU’s Dirty Dozen in greater detail such as Regulation D’s current six-transaction limit for savings deposits.

Agenda for Tomorrow’s NCUA Board Meeting. NCUA seems to have a light agenda for this month’s Board meeting. The following matters will be considered:

• Final Rule, Parts 701, 706 and 790 of NCUA’s Rules and Regulations, Technical Amendments;
• First Service Federal Credit Union (Groveport, Ohio), Request to Expand Community Charter;
• Corporate Stabilization Fund Quarterly Report.

NAFCU will keep members posted on Thursday regarding the outcome of this meeting.

NCUA Videos on Protecting Seniors from Financial Abuse. On Monday, NCUA announced the release of two videos designed to help credit unions recognize and prevent exploitation of and fraud against senior citizens. The first video aims to show how a consumer could be victimized by a typical “lottery” scam where a member receives a check for their “winnings,” with a request to pay taxes and fees by wire transfer. The second video is a Consumer Protection Update that reviews how to report elder financial abuse and exploitation, as discussed in further detail in this 2013 Letter to Credit Unions.

NAFCU's New Website Improves Search Functions. NAFCU members can check out the new Compliance Resources Search on our completely revamped website. It’s an easy way to find helpful information in a variety of formats. Search and filter by resource type to find articles, charts, common questions and answers, final regulation summaries, regulatory alerts and more. 

Getting Ready for Baby. The nursery, or as I’m calling it, the “Seuss-ery,” is coming together nicely. However, I hope Lemmy learns that the “baby brother” isn’t a pillow because it won’t be as cute when he’s crying in Lemmy’s face! But from the looks of it, both Lemmy and nursery are ready for baby.

FinCEN Advisory on Human Smuggling and Human Trafficking Financial Red Flags; Increased Regulations Z and M Threshold Levels for 2015

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

FinCEN Advisory on Human Smuggling and Human Trafficking Financial Red Flags. FinCEN has issued Advisory FIN-2014-A008 to provide guidance to financial institutions on how to detect and report suspicious activity that may be related to human smuggling and/or human trafficking.  The guidance includes financial “red flags” that may indicate financial activity related to human smuggling or human trafficking in Appendices A and B, and also provides key terms that financial institutions can use when reporting this type of suspicious activity.  FinCEN request that financial include the key term(s) “ADVISORY HUMAN SMUGGLING” and/or “ADVISORY HUMAN TRAFFICKING” in the Narrative and the Suspicious Activity Information, to the extent they are able to distinguish between the two.

Here’s an excerpt from FinCEN’s guidance to financial institutions, starting on page 4:

“Due to some similarities with legitimate financial activities, financial institutions may consider evaluating indicators of potential human smuggling or trafficking activity in combination with other red flags and factors, such as expected transaction activity, before making determinations of suspiciousness. No one transaction or red flag by itself is a clear indicator of human smuggling or trafficking. Additionally, in making a determination of suspiciousness, financial institutions are encouraged to use previous FinCEN advisories and guidance as a reference when evaluating potential suspicious activity. For instance, in May 2014 FinCEN published an advisory on the use and structure of funnel accounts,⁴ one of the red flags identified in Appendices Aand B of this advisory. Financial institutions may consider incorporating the guidance outlined in this advisory in a manner that is commensurate with their risk profile and business model.

 

In evaluating whether certain transactions are suspicious and/or related to human smuggling or trafficking, financial institutions are encouraged to share information with one another, as appropriate, under Section 314(b) of the USA P ATRIOT Act.⁵ Section 314(b) establishes a voluntary information sharing mechanism allowing financial institutions to share information with one another regarding possible terrorist activity or money laundering and provides financial institutions with the benefit of a safe harbor from liability that might not otherwise exist with respect to the sharing of such information. ⁶ Thus, suspected money laundering involving the proceeds of human smuggling or human trafficking activity could be shared amongst financial institutions under Section 314(b).” (Footnotes omitted)

 

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Increased Regulations Z and M Threshold Levels for 2015. Last week, the Fed and CFPB announced final rules implementing increased Regulation Z and Regulation M dollar thresholds for exempt consumer credit and lease transactions. Effective January 1, 2015, the dollar threshold for both regulations will be $54,600 (an increase of $1,100). These thresholds are adjusted annually to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable.

CFPB Updates and Adds to its TILA-RESPA Resources; Must-See TILA-RESPA Webcast; It’s Been a While

Written by JiJi Bahhur, Director of Regulatory Compliance

There’s nothing better than a quick, but solid burst of information on a lovely Friday (okay, that’s a stretch . . . but hopefully an attention-grabber for those of you who are eagerly awaiting the weekend to begin). 

Earlier this week, the Consumer Financial Protection Bureau (CFPB) updated both its Small Entity Guide for the Truth-in-Lending Act / Real Estate Settlement Procedures ACT (TILA-RESPA) Integrated Disclosure Rule and its Guide to Forms.  Prior to this September 2014 update, the last editions were published in March 2014 and April 2014, respectively. 

New to its available resources, the CFPB also released a timeline to assist with understanding the time requirements under the TILA-RESPA rule.  If you’ve been following NAFCU’s TILA-RESPA blog series, you’ve seen that there are a number of different timeframes that creditors, such as credit unions, need to be aware of.  The CFPB’s timeline shows how to apply the process and timing requirements under the TILA-RESPA rule for a specific real estate purchase transaction.

Just a friendly reminder, the TILA-RESPA rule goes into effect on August 1, 2015.  It seems like a ways away, but there is plenty that credit unions can be doing right now towards implementation (sounds like an opener for a near future blog)! 

For past blogs on this rule, take a look here.

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Webcast: TILA-RESPA: Difficult Issues and Their Solutions

Don’t wait until the last second. At almost 2,000 pages long, start preparing now to meet the requirements of the new TILA-RESPA Integrated Disclosure Rule. This vital webcast will give you a better understanding of the new rule and how your credit union will need to respond to it. This is one of the most important issues your credit union may face in the coming months — but we’ll offer solutions to help you and your colleagues sleep at night.

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It's Been a While.  Okay, it’s been a while but I’ve finally been able to glance through some recent photos of the kiddies.  Now two years old, here are a couple recent photos of my twins, Kyse and Ava.

 



Happy Friday to you all, and have a great weekend!

CFPB Warns Credit Card Companies Against Deceptively Marketing Promotional Offers; Free Kick; Farewell

Written by Ricardo Piñeres, Regulatory Compliance Counsel

CFPB Warns Credit Card Companies Against Deceptively Marketing Promotional Offers.  In a bulletin released last week, the Consumer Financial Protection Bureau (CFPB) warned credit unions, and other credit card issuers, against deceptively marketing interest-rate promotions.  The CFPB issued the bulletin because of the Bureau’s concerns regarding the marketing practices of some card issuers, especially with regards to promotional rates and balance transfer offers.

According to a press release that accompanied the bulletin’s release, “[t]he Bureau believes some companies’ marketing materials do not clearly disclose that consumers must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on routine purchases for which they were not charged interest previously. For some consumers, these surprise charges can make the cost of transferring a balance more expensive than revolving the same balance on their existing card.”

After a brief discussion regarding the CFPB’s reasons for releasing the bulletin, the bulletin discusses: the risks of deceptive advertising practices; the risks of abusive practices; and Regulation Z’s disclosure requirements.  Furthermore, the bulletin has a final section that states the Bureau’s expectations for credit card issuers, as follows:

“The Bureau expects credit card issuers to incorporate into their compliance management systems adequate measures to prevent violation of Federal consumer financial laws, including the Dodd-Frank Act’s prohibitions on unfair, deceptive, or abusive acts or practices.  Consequently, credit card issuers are expected to implement internal controls sufficient to ensure that they market promotional APR offers in a manner that limits the risk of statutory or regulatory violations and related consumer harm.  These steps should include, but are not limited to, ensuring that:

• All solicitations, applications, account-opening materials, and convenience checks comply with the requirements in Regulation Z;
• All marketing materials clearly, prominently, and accurately describe the material costs, conditions, and limitations associated with the offers; and
• All marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.”

In addition to the bulletin and the press release, the CFPB also hammered home their perspective with a consumer-facing post on the Bureau’s blog.  The blog post warned consumers to be on the lookout for deceptive advertisements regarding promotional rates, and also warned consumers on the implications of losing the protections of the grace period.

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Free Kick.  My wife and I just got back from a great week on vacation in the city of my birth – Cartagena, Colombia.  While there, we were lucky to get to watch Colombia’s friendly against Brasil on television.  Sadly, Neymar found enough magic on a free kick to give Brasil a 1-0 victory.  That being said, watching the match at a restaurant in Cartagena reminded me of why I fell in love with football.  It may have only been a friendly, but it seemed like every other person was wearing a national team jersey and the city came to stop for those two hours while people were glued to the game cheering on their Seleccion Colombia.  It was an absolutely wonderful way to cap off a summer that brought me so much joy after having not seen Mi Seleccion in a World Cup since 1998.  I can’t wait to see wait the next four years under Jose Pekerman bring to Colombia.  In the meantime, here are two videos from Colombia’s World Cup opener that still give me goose bumps: Colombian National Anthem and Caracol Highlights.

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Farewell.  This will be my final blog post here at the NAFCU Compliance Blog.  While I have decided to leave the NAFCU Compliance team in order to head back to the government relations field, I have thoroughly enjoyed these past eight months of covering compliance hot topics and providing my take on the wonderful world of football.  It has also been a pleasure providing compliance advice to the many of you that have called or emailed with compliance questions.  I leave behind some great colleagues here at NAFCU Compliance, and I thank them for sharing their knowledge, thus making me a better attorney.  Lastly, I also want to thank all of the readers of this blog.  It has been so much fun interacting with you and trading perspectives on the beautiful game and sharing in the excitement of a truly incredible World Cup.

Obama Highlights the SCRA and the NCUA is Hosting a Merger Best Practices Webinar Next Week

Written By Eliott C. Ponte, Law Clerk

Obama Higlights the SCRA

Last month President Obama announced a partnership with lenders across the country that will help deliver important financial protections to our military community.  The partnership voluntarily commits certain lending institutions to check the Defense Manpower Database Center on a regular basis to determine if any servicemember who has not invoked their Servicemenber Civil Relief Act (SCRA) rights is entitle to a lower interest rate because they have entered active military duty.  Essentially, instead of waiting for a service member to identify themselves as entering active military duty (a reactive approach), some lenders will identify members using the DOD database who have not requested SCRA relief and automatically give them the relief they are entitled to receive under the SCRA (a proactive approach).  Such a partnership will likely help any servicemember who is entitled to relief under the SCRA, but has not formally requested SCRA relief. 

While the SCRA has protected servicemembers for many years, because of President Obama’s announcement, I thought I would blog about the some of the most frequently asked compliance questions regarding the SCRA, in case your credit union starts to receive questions about the SCRA.  Two frequent questions NAFCU receives about the SCRA are (1) when does the SCRA require the credit union to lower the servicemeber’s interest rate, and (2) does the SCRA relief include fees that are associated with the loans (e.g., late fees). 

When does the SCRA require the credit union to lower the servicemeber’s interest rate?

The language from the SCRA places a 6% interest rate cap on an obligation incurred “before the servicemember enters military service.”  See 50 U.S.C. § 527(a).  The key phrase from the SCRA is “enters military service.”  This term does not distinguish between a new enlistee and an existing reserve member that is called into active military duty.  Thus, a credit union is required to lower the servicemember’s interest rate when the service member is placed into active military service.

When dealing with this type of question, it is best to remember the logic behind the SCRA: If the servicemember was on active duty when the loan was made, the servicemember should have known his/her budget and planned accordingly.  Thus, relief is not mandatory when a servicemember enters into a loan during his/her active duty.  On the other hand, if the loan was made before entering into active duty, then the service member could not have properly budgeted to make his/her loan payments (you must presume a loss of income to the member when they enter active duty).  Therefore, in the latter hypothetical, the SCRA grants him/her relief by lowering their interest rate to 6%.

 

Does the SCRA relief include fees that are associated with the loan?

The SCRA has defined the term “interest” broadly, which includes fees and service charges.  According to 50 U.S.C. § 527(d), “the term "interest" includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.”  (emphasis added).

 

NCUA Hosting Merger Best Practices Webinar

The NCUA announced that it would be hosting a Merger Best Practices Webinar on Wednesday, September 17, 2014.  The webinar will include discussions on (1) when to consider merging, (2) merger structure and negotiations, (3) cardinal characteristics of a credit union heading towards merger, and (4) how to maximize benefits for credit union members and staff.

Credit unions who are interested can register for the free webinar at the following NCUA website.  Participants have been asked to submit questions in advance to [email protected].  The NCUA has requested that teh subject line of the email read, “Merger Best Practices.”

FinCEN on Promoting a Culture of Compliance; NAFCU Member Call-In

Written by Shari R. Pogach, Regulatory Paralegal

I recently attended the 2014 Mid-Atlantic Anti-Money Laundering Conference held here in Washington, DC, and heard Financial Crimes Enforcement Network (FinCEN) Director Jennifer Shasky Calvery speak on the fundamental importance of a culture of compliance to strengthen any Bank Secrecy Act/Anti-Money Laundering (BSA/AML) program.  One of the things Shasky Calvery noted was that it is not always easy to convey the need for a strong culture of BSA/AML compliance to a financial institution’s board of directors, leadership or senior management.  To assist with this, FinCEN has issued an advisory, FIN-2014-A007.  FinCEN’s advisory explains how a financial institution and its leadership can improve and strengthen organizational compliance with BSA obligations by ensuring that:

1. Leadership is actively supporting, understanding and engaged with compliance efforts;
2. Any efforts to manage and mitigate BSA/AML deficiencies and risks are not compromised by an institution’s interest in revenue;
3. Any relevant information throughout the organization is shared with compliance staff to advance BSA/AML efforts;
4. Leadership provides adequate human and technological resources;
5. The compliance program is effective and tested by an independent and competent party; and
6. The organization’s leadership and staff understand the purpose of its BSA/AML efforts and how the reports are used. 

FinCEN’s advisory is intended to be another tool to be used to influence an organization’s leadership, “to make it easier for them to live and breathe BSA/AML the same way that you do…….Because once you have a strong culture in place, including the support of your institution’s leadership, you have a firm foundation on which to build an effective program.” 

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A Credit Union Industry Update – You shouldn't miss NAFCU’s member call-in on Tuesday, September 23, 2014, from 4:00-5:00 pm ET, as NAFCU President and CEO Dan Berger and other NAFCU senior staff will brief member credit unions on the latest legislative, regulatory, compliance and economic issues affecting credit unions.  Participation is free for all NAFCU members, but you must register to attend.

NACHA Approves New Rules Aimed at Improving ACH Network Quality

Written by Brandy Bruyere, Regulatory Compliance Counsel

Last week, the National Automated Clearing House Association (NACHA) announced the approval of two new amendments to the NACHA Operating Rules (registration & log in required). These changes aim to improve network quality “by reducing the incidence of ACH transactions that result in exceptions and returns.” The first rule adds a new section to Article One and establishes “Unauthorized Entry Fees.” The second rule is more complicated and largely makes changes to various subsections of Article Two relating to Unauthorized Entry Return Rate Thresholds, Overall Return Rate Levels, Reinitiation of Entries, and Third Party Senders. Here are brief summaries of these amendments.

“ACH Network Quality” Rule—Unauthorized Entry Fees.

This rule will require Originating Depositary Financial Institutions (ODFIs) to pay a fee to Receiving Depository Financial Institutions (RDFIs) for returning unauthorized transactions. The goal is to “encourage many ODFIs to perform enhanced risk management and monitoring of Originators with high volumes or rates of Entries that result in unauthorized returns.” NACHA estimates that these fees will range from $3.50 to $5.50 per unauthorized Entry and will benefit RDFIs by offsetting the costs of handling unauthorized transactions while also reducing customer service contacts.

This rule will go into effect for entries with a Settlement of October 3, 2016 or later. This means the fees could apply to transactions initiated as early as August 1, 2016. For more details, NACHA included a helpful FAQ section to a webpage dedicated to the rule that is worth reviewing.

“ACH Network Risk and Enforcement” Rule.

Generally, these rule changes aim to “reduce the incidence of returned Entries and the associated costs, both financial and reputational, that such returned Entries impose…” The amendments cover five topics:

• Topic One—Reducing the Unauthorized Return Rate Threshold (effective September 18, 2015). These provisions amend Article Two, Subsections 2.17.1.1 through 2.17.2.3 addressing unauthorized Entry return rates. This change also updates the definition of “Unauthorized Entry Return Rate Threshold” in Article 8, Section 8.105.
• Topic Two—Establishing Inquiry Process for Administrative and Overall Return Rate Levels (effective September 18, 2015). These changes impact Article Two, Subsections 2.17.2.4 through 2.17.2.6 relating to ODFI responses to NACHA requests for information and the timeframes in which ODFIs must lower return rates. The changes also create a new definition for “Return Rate Level” in Article 8, Section 8.89 and amend parts of Appendix 10 relating to NACHA requests for information and inquiries.
• Topic Three—Reinitiation of Entries (effective date September 18, 2015). Reinitiation allows a Returned Entry to be resubmitted. Under the current version of the rules, reinitiation is “implicitly” prohibited outside of set circumstances under Subsection 2.12.4 such as insufficient or uncollected funds or a stop payment order. The rule will now make this prohibition explicit, consistent with ACH Operations Bulletin #3-2-13.
• Topic Four—Third-Party Senders (effective date January 1, 2015). This rule “makes explicit a Third-Party Sender’s existing obligation to monitor, assess and enforce limitations on their customer’s origination and return activities in the same manner the Rules require of ODFIs. The Rule also requires that a Third-Party Service Provider or Third-Party Sender provide proof of completion of its Rules compliance audit to its Participating DFI in order to fulfill a request from NACHA.”
• Topic Five—NACHA’s Enforcement Authority (effective date January 1, 2015). Finally, the amendments allow NACHA increased flexibility for initiating an investigation of a rule violation and allows RDFIs to voluntarily provide NACHA with information that may indicate a rule violation by other network participants.

Again, a FAQs section for this rule can be found here and is worth reviewing in full along with a summary of the expected impact of these rules and the technical changes.

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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!

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Lazy Labor Day. While some of the holiday weekend was spent working on the nursery, I also spent some quality time with Lemmy. As you can see, he really enjoyed himself!