NAFCU Compliance Blog

Interagency Flood Insurance Proposal; Programming Notes

Written by Victoria Daka, Regulatory Compliance Specialist

In late October, the National Credit Union Administration, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit Administration, and Office of the Comptroller of the Currency issued a joint notice of proposed rulemaking which proposes to amend regulations pertaining to loans secured by property located in special flood hazard areas. These regulations implement the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).

More specifically, the proposed rule, if finalized as is, will establish requirements for financial institutions with assets of more than $1 billion or servicers acting on their behalf, with respect to the escrow of flood insurance payments, consistent with changes in the HFIAA.  Also, if finalized as is, the proposal will include a new exemption no longer requiring separate flood insurance for certain detached structures. Below, you’ll find highlights from the proposal: 

§ 760.4 Exemptions – First of all, this section exempts from the requirements of this rule any structure that is a part of residential property even if it is detached from the primary residential structure of that property and does not serve as a residence. However, although not required, lenders may require flood insurance on these detached structures for the benefit of the borrower.

§ 760.5 Escrow Requirement –

760.5(a)(1) – Applicability. This section requires that regulated lending institutions escrow premiums and fees for flood insurance for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after Jan. 1, 2016, unless the regulated lending institution or a loan qualifies for a statutory exception.

760.5(a)(2) – Exceptions. This section provides the following exceptions to the requirements:

• The loan is primarily for business, commercial or agricultural purposes;
• The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage.
• The flood insurance coverage is provided by a policy that meets the requirements of 760.3(a) and is provided by a condominium association, cooperative, homeowners association, or other applicable group as a common expense;
• The loan is a home equity line of credit;
• The loan is a nonperforming loan that is 90 or more days past due; or
• The loan is a term of less than 12 months.

760.5(b) – Notice. This section requires the credit union or servicer to mail or deliver written notice to the borrower using language substantially similar to the model clauses. This writing is intended to put borrowers on notice that the credit union or servicer is required to escrow all the premiums and fees for the required flood insurance.

760.5(c)(2) – Change In Status.This section points out that if a credit union previously qualified under the small lender exception (under 760.5(c) of the proposal, credit unions with assets of less than $1 billion as of December 31^st of either of the two previous calendar years) but now has assets that exceed this threshold for two consecutive years, the credit union would have to comply with this rule’s requirements on or after July 1^st of the following year.

760.5(d) – Option to Escrow. This section informs credit unions that are not exempt from this rule to offer, make available and provide notice to borrowers about the option to escrow all premiums and fees for any flood insurance required for any loan secured by residential improved real estate or a mobile home that is outstanding on January 1, 2016. 

§ 760.6 Required Use of Standard Flood Hazard Determination Form – This section requires credit unions to use the standard flood hazard determination form when determining whether the property used as collateral is located in a flood hazard area.

Remember, this is just a proposal at this time.  Also, note that the HFIAA does not affect the other provisions of the Biggert-Waters Act relating to private flood insurance and force-placed flood insurance.  Those issues are expected to be addressed in a different rule at a later date. 

***

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

CFPB releases 500 Page Mortgage Servicing Proposal

Written by Alicia Nealon, Regulatory Affairs Counsel

CFPB releases 500 Page Mortgage Servicing Proposal

Last week, the CFPB announced a proposed rule that the Bureau claims will“ensure that homeowners and struggling borrowers are treated fairly.” Given its 500 page length, it’s no surprise that the proposal would make several amendments to Regulation Z’s and Regulation X’s mortgage servicing requirements.  Most notably, the proposal would require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan.  Currently, a mortgage servicer must give the borrower certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure, only once during the life of the loan. The proposal, however, would require that servicers give these protections again for borrowers who have brought their loans current at any time since the last loss mitigation application.

Here are some other highlights from the proposal:

1. Successors in interest. The Bureau is proposing expand consumer protections to surviving family members and other homeowners. For example, the CFPB is proposing to apply all of Regulation Z’s and X’s mortgage servicing requirements to successors in interest once a servicer confirms the successor in interest’s identity and ownership interest in the property.
2. Definition of delinquency. The CFPB is proposing to add a general definition of delinquency that would apply to all of the servicing provisions of Regulation X and the provisions regarding periodic statements for mortgage loans in Regulation Z. Under the proposed definition, a borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a payment sufficient to cover principal, interest, and, if applicable, escrow, becomes due and unpaid.
3. Force-placed insurance. The Bureau is also proposing to amend the required disclosures to account for when a servicer wishes to force-place insurance when the borrower has insufficient, rather than expiring or expired, hazard insurance coverage on the property.
4. Early intervention. The Bureau is proposing to require servicers to provide written early intervention notices to certain borrowers who are in bankruptcy or who have invoked their cease communication rights under the Fair Debt Collections Practices Act.
5. Loss Mitigation. As noted above, the proposal would make several amendments to the Loss Mitigation Rule.  It is also worth mentioning that the proposal would require a servicer to provide a written notice to a borrower promptly upon receiving the borrower’s complete loss mitigation application.
6. Prompt payment crediting. The CFPB is further proposing to clarify how servicers must treat periodic payments made by consumers who are performing under either temporary loss mitigation programs or permanent loan modifications. Under the Bureau’s proposal, periodic payments made pursuant to temporary loss mitigation programs would continue to be credited according to the loan contract and could, if appropriate, be credited as partial payments, while periodic payments made pursuant to a permanent loan modification would be credited under the terms of the permanent loan agreement
7. Periodic Statements. The Bureau is also proposing to, among other things, modify the periodic statement and coupon book requirements for certain consumers who are in bankruptcy or have discharged personal liability for a mortgage loan through bankruptcy. The proposal would also provide an exemption from the servicing rule’s periodic statement requirement for loans that have been charged off so long as the servicer will not charge any additional fees or interest on the account

Again, this is a 500 page proposal so this blog is just a very broad overview. However, NAFCU’s Regulatory Affairs team will work on a Regulatory Alert for our members that provides further details.

Why the DoD Rule Affects All Credit Unions; Mike Coleman Says Goodbye to NAFCU

By Michael Coleman, Director of Regulatory Affairs, and Quincy Enoch, Military Liaison

In talking to credit unions about the impact of a recently proposed rule from the Department of Defense (DoD) regarding the Military Lending Act (MLA), many credit unions have noted that they have very few servicemembers in their membership or they don’t have any products that are over the 36% lending cap. Unfortunately, neither of those facts have a major impact on the compliance burden caused by the proposed MLA rule.

The real question credit unions should be asking is, “Do we offer credit cards, signature loans, traditional lines of credit, overdraft lines of credit or essentially any unsecured credit of any kind?” If so, then the MLA rule most definitely impacts your credit union.

The rule requires not only that covered products (which the rule defines as “consumer credit”) remain under a 36% “military annual percentage rate” but also that servicemembers receive special disclosures when consumer credit is extended to them. Under the proposed rule consumer credit is defined as all credit extended to servicemembers and dependents except mortgages, loans secured by personal property or loans for vehicle purchase. The definition includes essentially all unsecured lending. This is a significant expansion of the definition of consumer credit, which currently has a targeted focus on payday loans, vehicle title loans, and tax refund anticipation loans.

The true compliance burden stems from the fact that the rule places the responsibility of identifying servicemembers on the lender. That means  anytime a member comes in to obtain consumer credit it is the responsibility of the credit union to have a method in place to determine if that member is a servicemember or not. The rule allows flexibility regarding methods to determine the status of an applicant, but the lender is only granted a safe harbor if the lender checks the Defense Manpower Data Center (DMDC) database. This means that credit unions will need to integrate checking the DMDC into their systems before issuing any consumer credit to ensure compliance and obtain the safe harbor. Another significant problem with using the DMDC for a safe harbor is that the DMDC has not functioned properly recently, and the proposed rule would exponentially increase the number of searches the DMDC would need to handle. So the question then is, what do you do to obtain the safe harbor if the DMDC is down? Right now, it’s not clear.

Unfortunately, this  only gets you  half way to complying with the rule because there is an actual knowledge provision as well. The provision states that if the lender has actual knowledge of the status of the servicemember or dependent, the safe harbor will no longer be in effect. This mean that credit unions will also need to setup an internal database or procedures to check what the credit union actually knows as well, because if a servicemember presents you with a military ID when opening a joint account for himself and his spouse, the credit union then has actual knowledge that both the servicemember and spouse are covered borrowers for the purpose of the MLA rule.

The bottom line is that even if you do not have servicemembers in your credit union’s field of membership, this rule will have a significant impact on your credit union. It might affect the types of credit products that you are able to offer members of the military, and it definitely will increase compliance costs and operational burdens. Credit unions have a strong history of providing excellent service to servicemembers and safe credit products that meet their needs, which makes getting this rule right essential. NAFCU has issued a regulatory alert, and will submit comments to the DoD. We sent a letter to the NCUA on the proposal to express some initial credit union specific concerns, and called on the DoD to extend the comment period for the proposed rule. We’ve also joined other industry efforts related to the DoD proposal. Check out the Chairman’s Corner article in the most recent NCUA Report where Chairman Matz noted that NCUA will provide comments formal to the DoD on the rule.

***

Thank you Credit Union-Land! This is just Mike talking now. Today is my last day with NAFCU, and I can’t say it loud or often enough, I am incredibly thankful to NAFCU for all the opportunities over the past several years, and for the best group of colleagues around. From my days in Compliance with Steve, JiJi, Bernadette, and Shari, to my current role as Director of Regulatory Affairs with Alicia, Angela, Megan, and PJ, and my time with all of NAFCU's government affairs team, I couldn’t have asked for a better group of people to work with to help NAFCU members and the credit union industry. And working for and learning from Dan, Fred, Carrie, and Anthony has been an incredible experience.

And of course, many thanks to the best members around. It’s impossible for me to describe how many devoted credit union people I have met along the way. I’ve talked to many of you directly, whether in person at conferences, or over the phone, via email, you name it. And the most common theme I have seen is that credit union people care. They care about their credit unions and they care about the credit union movement. It’s been an honor working with you, and I promise I won’t be a stranger! Thanks again for everything.

TILA/RESPA – Revised Loan Estimates; NAFCU Compliance Monitor; Updated Small Entity Compliance Guides

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

TILA/RESPA – Revised Loan Estimates. Continuing our blog series on the TILA/RESPA Integrated Mortgage Disclosure Rule which goes into effect on August 1, 2015, today we’re going to take a closer look at the general rule on issuing revised Loan Estimates and highlight the situations under which a revised Loan Estimate may be used. A creditor's ability to use a revised Loan Estimate is limited, but could be critical to making sure the disclosure has been provided in accordance with the rule’s good faith standard set forth in section 1026.19(e)(3).

Section 1026.19(e)(3)(iv) governs when a revised Loan Estimate may be used for determining good faith. Under the rule, a creditor can only use a revised estimate of a charge in specific situations, such as when the revision is due to a changed circumstance or a borrower-requested change. Technical errors, miscalculations or underestimated charges alone are not permissible reasons for issuing revised disclosures. Redisclosure is not permitted if the amounts decrease or if the amounts increase but do not exceed the applicable tolerance - in these circumstances the original Loan Estimate is still deemed to be in good faith. Additionally, when a revised disclosure is permitted, a charge can only increase to the extent that the reason for the revision actually increased that particular charge.

Situations permitting the use of a revised Loan Estimate generally include the following:

• Changed circumstances affecting settlement charges or consumer eligibility.
• When consumer requested revisions to the credit terms or the settlement cause an estimated charge to increase.
• If a consumer indicates his or her intent to proceed with the transaction more than 10 business days after the Loan Estimate was provided.
• When a rate is locked after the initial Loan Estimate is provided, and points or lender credits change because the rate was not locked when the initial disclosure was made – in this case, the creditor must issue a revised Loan Estimate on the date the interest rate is locked. (Note that on October 10, 2014, the CFPB announced a proposal that would relax this particular redisclosure timeframe, giving creditors until the next business day to provide the revised disclosures. We blogged about that proposal here.)
• In connection with a new construction loan where the creditor reasonably expects settlement will occur more than 60 days after the initial Loan Estimate is required to be provided and the creditor reserved the right to issue revised disclosures.

Note that there are specific timing requirements for issuing revised Loan Estimates. In addition, each of the situations permitting the use of a revised Loan Estimate has its own applicable requirements, which may be found in section 1026.19(e)(3)(iv).

***

NAFCU Compliance Monitor. NAFCU members can read more about the use of revised Loan Estimates in this month’s NAFCU Compliance Monitor article, Loan Estimates - Revisions and Corrections Under TILA/RESPA Integrated Mortgage Disclosure Rule, available for download here (login required). This month’s edition also includes links to NAFCU resources that are available for NAFCU member credit unions to assist in complying with the rule.

***

Updated Small Entity Compliance Guides. The CFPB also recently revised its Small Entity Compliance Guides for the Ability-to-Repay and Qualified Mortgage Rule and the RESPA and TILA Mortgage Servicing Rules to incorporate adjustments to the rules that became effective on November 3, 2014 – including  the limited cure mechanism for the points and fees limit that applies to qualified mortgages that we blogged about here.

The Prepaid Proposed Rule

By Eliott C. Ponte, Regulatory Compliance Counsel

It was no secret that the CFPB wanted to crack down on prepaid debit cards.  After conducting studies, issuing advance notices of proposed rulemaking, and testing various disclosures regimes, at midnight last Thursday, the CFPB dropped a bomb on the prepaid community:  a nine hundred page proposed rule on prepaid cards.  In this blog post, I hope to capture the high points of the prepaid rule issued by the CFPB on November 13, 2014.  

As I type this blog post, know that NAFCU’s Regulatory Affairs attorneys are working on summarizing the prepaid rule in a NAFCU Regulatory Alert.  Once the Regulatory Alert is completed, NAFCU will publish it on our website (unfortunately, this is a member’s only publication).

The Highpoints

Prepaid Expanded:  The proposed rule defines “prepaid account” as a card, code, or other device that is capable of being loaded with funds, which is not otherwise an account under 12 C.F.R. 1005.2(b)(1), established primarily for personal, family, or household purposes, and is redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or useable at either ATMs or for P2P transfers.  The definition would specifically exclude gift certificate as defined in § 1005.20(a)(1) and (b); a store gift card as defined in § 1005.20(a)(2) and (b); a loyalty, award, or promotional gift card as defined in § 1005.20(a)(4) and (b); and a general-use prepaid card as defined in § 1005.20(a)(3) and (b) that is both marketed and labeled as a gift card or gift certificate.

Prepaid is the New Credit Card:  The proposed rule imposes many credit card protections on to prepaid cards that allow users to spend more money than is deposited on the prepaid account. These protections include ascertaining the consumer’s ability to repay before credit is extended, monthly periodic statements (including the requirement to give users at least 21 days to repay their debt before charging interest or a late fee), limits on first-year total fees, late fee limits, and 45-day advance notice for interest rate increases.  In addition to the protections listed above, the rule prohibits the extension of credit within the first 30-days of the consumer registering the prepaid card, and prevents lenders from offsetting a person’s account to pay their prepaid account.  Even if consumers affirmatively opted-in to allow such a repayment, lenders are still subject to additional requirements:  For instance, the lender cannot take funds more frequently than once per calendar month, and must wait 21 days after the mailing of the periodic statement. 

Know Before You Owe:  The proposed rule requires prepaid issuers to provide standard easy-to-understand disclosures.  The CFPB envisions purchasers will first receive the short form (prior to purchase) and then the long form (after purchase).  The proposed rule includes two model forms (safe harbor) that prepaid issuers can use, which discloses information like the monthly fee, fee per purchase, ATM withdrawal cost, and fee to reload cash onto the account.  Too boot, the CFPB will be requiring that prepaid issuers post the long form on its website, and give the CFPB a copy of the long form so that the disclosures can be posted on the bureau’s website.

In addition, the proposed rule expands the existing Regulation E account opening disclosures for prepaid accounts by proposing that the new disclosures includes the listing of all fees (not just electronic fund transfer fees).

Liability and Error Resolution:  Under the proposed rule, Regulation E liability and error resolution requirements are extended to prepaid accounts registered with the issue.  The proposed rule does not apply to unregistered prepaid accounts if the risk of non-registration has been disclosed.  

***

For those of you who are brave enough to read the entire prepaid proposed rule, you can be taken to all 900 pages of the proposed rule by clicking here.  In addition to publishing the proposed rule, the CFPB issued a press release, which can be found here, and published comments by Director Cordray, which can be found here. Comments to the proposed rule are due 90 days from the date of publication in the Federal Register.

FinCEN on Providing Financial Services to Money Services Businesses

Written by Shari R. Pogach, Regulatory Paralegal

The Financial Crimes Enforcement Network (FinCEN) has released not guidance, not an advisory but…….a “statement’ on offering banking services to Money Services Businesses (MSBs). The agency issued the document, FinCEN Statement on Providing Banking Services to Money Services Businesses, to reiterate FinCEN’s expectations for financial institutions’ obligations under the Bank Secrecy Act (BSA) for MSBs. 

FinCEN is concerned that MSBs, an important part of the financial system, are losing access to banking services possibly because of increased regulatory scrutiny, the perceived risks presented by MSB accounts, and the costs and burdens associated with maintaining such accounts.  Apparently MSB accounts are being indiscriminately terminated or not being opened as an entire category rather than being risk assessed on a case-by-case basis.  However, as MSBs provide financial services to people less likely to use traditional banking services and because MSBs play a prominent role in providing global remittance services, FinCEN wants to remind financial institutions that the industry can be served while still meeting BSA obligations. FinCEN’s concern is, “Refusing financial services to an entire segment of the industry can lead to an overall reduction in financial sector transparency that is critical to making the sector resistant to the efforts of illicit actors.  This is particularly important with MSB remittance operations.” FinCEN, the Internal Revenue Service and state regulators have all taken steps to increase and strengthen the effectiveness of oversight of MSB BSA compliance with supervision, guidance and examination materials.  

The agency does not support the wholesale termination of MSB accounts without regard to the risks presented or the financial institution’s ability to manage the risk as MSBs present varying degrees of risk and not all are high-risk.  FinCEN does not expect financial institutions to serve as a regulator of the MSB industry and recognizes it is not possible for an institution to detect and report all potentially illicit transactions that may flow through an institution. FinCEN does expect financial institutions that open and maintain accounts for MSBs to:

• Apply the requirements of the BSA, as with all accountholders, based on risk;
• Have appropriately designed policies and procedures to assess an MSB’s money laundering and terrorist financing risk; and
• Treat each MSB on a case-by-case basis, as with any accountholder.

Financial institution’s that can properly manage relationships and effectively mitigate risks are neither discouraged nor prohibited from providing services to MSBs, regardless of its specific business model.

NCUA 2015 Operating Budget Expected; Free Upcoming Digital Commerce Webcast

Written by Angela Meyster, Senior Regulatory Affairs Counsel

As the end of the year draws near and we look forward to 2015, budgets are a top concern for both credit unions and their regulators alike. NAFCU expects the NCUA to announce its 2015 Operating Budget at NCUA’s November 20^th Board Meeting (agenda  released tomorrow).

The NCUA’s Operating Budget is especially important for credit unions to monitor. NCUA is an independent federal agency and does not receive an allocation from the federal budget; instead, the credit unions NCUA insures and regulates are its exclusive source of funds. Accordingly, every dollar the NCUA demands for its budget is one less dollar that your credit union can use to cover its compliance costs, operational costs, data security costs… and the list goes on and on. In short: the NCUA’s budget directly impacts your budget.

In the past, NCUA has released and approved its budget subject to a formal hearing.  This is the fifth year in a row that NCUA has not done this, which deprives credit unions an important vehicle for which to comment formally on the agency’s budget and the associated costs for credit unions.

Because NAFCU is focused on ensuring that NCUA, as the steward of credit unions’ dollars, is using its resources in the most efficient way possible, NAFCU has written to NCUA in advance of its 2015 budget announcement to highlight a list of important actions for NCUA to consider taking when setting this year’s budget, including:

• Examining each line item of the budget with a goal of achieving cost savings wherever possible;
• Reviewing successful agency programs and initiatives and re-allocating resources to provide support wherever most efficient;
• Refraining from spending credit union resources on expanding NCUA’s examination authority into non-credit union third parties; and
• Improving public disclosures of NCUA’s management of credit union funds, including through non-aggregated breakdowns of fund expenditures; a list of rules for which the NCUSIF provides funding for implementation and examination; and a list of rules for which NCUA’s operating budget provides funding for implementation and examination.

NAFCU will continue to press NCUA to minimize the cost its budget poses to credit unions and NAFCU will report on the budget once NCUA releases it next week.

***

Free Webcast. Digital Commerce: The Future is Here!

Emerging payments technologies such as Apple Pay can level the playing field with your biggest competitors. Stay relevant in the face of dynamic change; attend this webcast to learn how different payments options work and how to best implement them in your credit union. MasterCard’s Vice President of Emerging Payment Solutions, Rita Ramirez will provide you with the information you need to begin taking advantage of the exciting new changes in payments technologies. Free for NAFCU members and nonmembers!

 

New NCUA Database; NCUA YouTube Video Series; Free NAFCU Compliance Seminar UDAAP Presentation PowerPoint

 Written by Eliott C. Ponte, Law Clerk

NEW NCUA Database for Financial Service Providers

Last week, the NCUA announced a new online tool to assist credit unions in finding financial service providers.  Created by the NCUA’s Office of Small Credit Union Initiatives, the database will give credit unions the ability to research credit union service providers at no charge.

According to William Myers, Director of the Office of Small Credit Union Initiatives, “credit unions are often looking for companies to provide products and services to help them meet members’ needs, comply with regulations, or just handle day-to-day operational requirements.”  Director Myers believes that “NCUA’s new program can help [credit unions] find the right supplier.”

While I agree with Director Myers that such a database will benefit credit unions, after looking at the database, it does not appear that the database was ready to be released to the public.  Several categories listed in the database, like “Member Business Loan CUSO,” “Cost Benefit Analysis,” and “Credit Reporting Services” are completely empty.  Yes, the database is blank in several areas; but once vendors register, credit unions will be able to use this database as it was intended to be used... to find third party servicers. 

***

NCUA Goes to YouTube to Fight Fraud

Regular NAFCU Compliance Blog readers will remember that we blogged about a NCUA video series on Fraud Prevention back in July of 2014.  In our July blog post, we noted that the NCUA had only released half of their eight-part series.  The first half of the series provided an overview of the series, and outlined the importance of maintaining a policy on employee fraud and conducting surprise cash counts.  The second half of the series includes videos on:

• Employee family accounts
• Vault cash
• File maintenance transaction reports

In addition to the three videos listed above, there is also a conclusion video that highlights the main points of the entire video series, and discusses several helpful resources available to credit unions.  After watching the latest four parts, I can attest that this video series is both well done and informative.  I encourage credit unions to take advantage of this free resource. 

The complete eight-part series, “Deterring, Preventing and Detecting Employee Dishonesty,” is available on NCUA’s YouTube channel.

 ***

NAFCU Compliance Seminar Slides on UDAAP Available: See What You Missed

Last month, former colleague Steve Van Beek presented on UDAAP at NAFCU’s regulatory compliance seminar.  If you were not one of the lucky compliance officers that got to here Steve’s excellent presentation on UDAAP, but you are interested in all the information that you missed:  well, you’re in luck!  Steve has made available his power point presentation to at no cost.  Click on this link to access his presentation and see what you missed by not attending.

 

 ***

NAFCU Closed on Veterans Day; Thank You!

In honor of Veteran’s day, NAFCU will be closed on Tuesday, November 11, 2014.  NAFCU will reopen at 9:00 AM on Wednesday, November 12, 2014. 

The NAFCU compliance team would like to thank all veterans for their service and sacrifice.   We appreciate all that you have done to make sure that freedom still comes free.  Thank you.

This and That on the BSA and Virtual Currency

Written by Shari R. Pogach, Regulatory Paralegal 

The Financial Crimes Enforcement Network (FinCEN) recently released two administrative rulings, FIN-2014-R011 and FIN-2014-R012 on virtual currency transactions.  FinCEN’s rulings find that all virtual currency payment systems and trading platforms are money transmitters so must comply with Bank Secrecy Act (BSA) rules and regulations.  As money transmitters or money services businesses, companies providing virtual currency payment systems and trading platforms are required to “comply with all risk management, risk mitigation, recordkeeping, reporting and transaction monitoring requirements corresponding to such status.”

***

The U.S. Immigration and Customs Enforcement’s (ICE) Office of Public Affairs announced that ICE, Homeland Security Investigations (HSI) and the FBI have arrested the operator and owner of a black market Silk Road 2.0 website designed to buy and sell illegal drugs and other unlawful goods over the Internet.  Since about December 2013, Blake Benthall, 26, aka “Defcon” has operated the underground website used to distribute hundreds of kilograms of illegal drugs and other illicit goods and services to buyers throughout the world, as well as to launder millions of dollars generated by these unlawful transactions. As of September 2014, Silk Road 2.0 was generating sales of at least approximately $8 million per month.

Silk Road 2.0 was created approximately five weeks after the government’s October 2013 seizure of the website known as “Silk Road” and the arrest of its alleged owner and operator, Ross William Ulbricht aka “Dread Pirate Roberts.”  Silk Road 2.0 was virtually identical to the original Silk Road website in the way it appeared and functioned. Like its predecessor, Silk Road 2.0 operated exclusively on the Tor network and required all transactions to be paid for in bitcoins in order to preserve its users’ anonymity and evade detection by law enforcement. 

***

Have you heard about the new digital currency, Murraycoin, which borrows the face of comedian and actor, Bill Murray?  Launched in January, the Murraycoin website states that Murraycoin is a decentralized peer-to-peer currency enabling worldwide instant payments and is six times faster than Bitcoin.   The intent is to raise money for charity, educate the population on the use and advantages of cryptocurrency, and to have fun. It was thought using his likeness would raise awareness of digital currency since most people know of Bill Murray and like him. Although Mr. Murray has not specifically objected to the use of his name or likeness, he also has not endorsed the digital currency.   Although Bitcoin’s price has dipped to below $350, it’s still worth more than one Murraycoin, one is worth less than five cents.

***

According to multiple news sources, U.S. prosecutors have opened a money laundering investigation into a member of Russian President Vladimir Putin’s inner circle. The U.S. Attorney’s Office for the Eastern District of New York is probing whether billionaire Russian gas trader Gennady Timchenko transferred funds related to allegedly corrupt deals in Russia through the U.S. financial system.  Timchenko was among the first Russians to face sanctions imposed following Russia's annexation of Crimea from Ukraine in March and later over Moscow's wider role in the crisis in Ukraine. Prosecutors are probing transactions in which the Geneva-based commodities firm Timchenko co-founded, Gunvor Group, purchased oil from Russia’s OAO Rosneft and later sold it to third parties.  Although the transactions predate the financial sanctions, transfers of funds related to the transactions could constitute illegal money laundering if the funds were found to have originated from illicit activity such as, for example, irregular sales of state assets like oil.

FFIEC Releases Cybersecurity Best Practices; Free Webcast on Emerging Payments Technologies; Thing 1 and Thing 2

Written by JiJi Bahhur, Director of Regulatory Compliance

FFIEC Cybersecurity Best Practices. Earlier this week, the Federal Financial Institutions Examination Council (FFIEC) released observations from a recent cybersecurity assessment.  The “FFIEC Cybersecurity Assessment General Observations” suggests best practices to consider when assessing institutions’ cybersecurity preparedness. 

Divided into two main categories, the first part of the assessment discusses cybersecurity inherent risk, defining it as “the amount of risk posed by a financial institution’s activities and connections, notwithstanding risk-mitigating controls in place.”  Some questions to consider when assessing the level of cybersecurity inherent risk within the institution include:

• What types of connections (e.g., virtual private networks, wireless networks, telnet, etc.) does my financial institution have?
• How are we managing these connections in light of the rapidly evolving threat and vulnerability landscape?
• Do we need all of our connections?  Would reducing the types and frequency of connections improve our risk management?
• How do we evaluate evolving cyber threats and vulnerabilities in our risk assessment process for the technologies we use and the products and services we offer?
• How do our connections, products and services offered, and technologies used collectively affect our financial institution’s overall inherent cybersecurity risk?

The second part of the assessment reviews financial institutions’ current practices and overall preparedness, focusing on:

• Risk management and oversight;
• Threat intelligence and collaboration;
• Cybersecurity controls;
• External dependency management; and
• Cyber incident management and resilience.

As part of the assessment, the FFIEC also recommended that regulated financial institutions, including credit unions, participate in the Financial Services Information Sharing and Analysis Center (FS-ISAC) as part of their process to identify, respond to, and mitigate cybersecurity threats and vulnerabilities.  The FS-ISAC is a non-profit, information-sharing forum established by financial services industry participants to facilitate the public and private sectors’ sharing of physical and cybersecurity threat and vulnerability information.    

And last, as a result of the assessment, the FFIEC mentions in its assessment that it is reviewing and updating current guidance to align with changing cybersecurity risk.  To see the assessment in its entirety, including other questions to consider when managing cybersecurity at your credit union, click here. 

***

Free Webcast. Digital Commerce: The Future is Here!

Emerging payments technologies such as Apple Pay can level the playing field with your biggest competitors. Stay relevant in the face of dynamic change; attend this webcast to learn how different payments options work and how to best implement them in your credit union. MasterCard’s Vice President of Emerging Payment Solutions, Rita Ramirez will provide you with the information you need to begin taking advantage of the exciting new changes in payments technologies. Free for NAFCU members and nonmembers!

***

Thing 1 and Thing 2.  This year for Halloween, I decided to be creative and make my kids’ wigs from scratch for their Halloween costumes.  I’d say I did pretty darn well!  Toot, toot! 

 

No-Action Letters; 2015 Rural and Rural or Underserved Counties; NCUA Loan Portfolio Webinar

By Eliott C. Ponte, Law Clerk

No-Action Letters

Last month, the CFPB announced that it was proposing a policy for issuing no-action letters to institutions that want to be innovators.  Under the proposed regulation/policy, the CFPB staff, in its discretion, “would issue no-action letters to specific applicants in instances involving innovative financial products or services that promise ‘substantial’ consumer benefit where there is ‘substantial’ uncertainty whether or how specific provisions of statues or regulations implemented by the CFPB would be applied.”

The no-action letter issued by the CFPB would advise the recipient that, subject to its stated limitations, the CFPB has “no present intention to recommend initiation of an enforcement or supervisory action against the requester with respect to a specified matter.”  Thus, the no-action letter will give the institution the CFPB’s blessing to test their innovation as the institution saw fit.  

If you are interested in reading the Press Release from the CFPB, or the notice of the proposed rule in the Federal Register, click the links above. The CFPB is accepting comments until December 15, 2014.

***

Final Lists of Rural and Rural or Underserved Counties For Use In 2015

Last week, the CFPB announced its final list of rural and rural or undeserved counties that credit unions and other lenders can use in 2015.  The lists are relevant to exemptions in several CFPB mortgage rules, including the CFPB’s rule requiring creditors to establish escrow accounts for certain first-lien higher-priced mortgage loans.  The list of the unserved and rural counties can be found on the right hand side of the CFPB’s website.

***

NCUA Hosts Loan Portfolio Webinar

On November 19, 2014, at 2 P.M. est., the NCUA’s Office of Small Credit Union Initiatives will be hosting a webinar titled “Building a Loan Portfolio: Four Keys to Lending.”  The webinar will cover topics including: business planning, field of membership expansion and product mix; opportunities and challenges of serving the Hispanic market; growth through participation lending; and tips on vendor due diligence and NCUA compliance.

Registration for this webinar is available online here.  The NUCA has asked that credit unions submit questions in advance to [email protected], with the subject line of the email as “Building a Loan Portfolio.”