NAFCU Compliance Blog

“Other” Situations that May Trigger the Need for a Corrected Closing Disclosure; Join Us for NAFCU’s Member Call-In

Written by JiJi Bahhur, Director of Regulatory Compliance

In a recent blog post, I discussed pre-consummation changes that would require the credit union to issue a corrected Closing Disclosure to the consumer.  Today, as part of our continued TILA/RESPA blog series, I’d like to now focus on the “other” situations that can trigger the need for a corrected Closing Disclosure. 

Post-Consummation Events

During the 30-day period following consummation, if an event in connection with the settlement of the transaction occurs that causes the disclosures to become inaccurate and results in a change to an amount paid by the consumer, the creditor will be required to provide a corrected Closing Disclosure. In this situation, the creditor must deliver or place in the mail a corrected Closing Disclosure not later than 30 days after receiving information sufficient to establish that such an event has occurred.

Clerical Errors

Clerical errors are also subject to re-disclosure under section 1026.19(f)(2)(iv). Comment 1 to section 1026.19(f)(2)(iv) clarifies that an error is considered clerical "if it does not affect a numeric disclosure and does not affect requirements imposed by § 1026.19(e) or (f)." The commentary also provides a couple of illustrative examples:

"For example, if the disclosure identifies the incorrect settlement service provider as the recipient of a payment, then §1026.19(f)(2)(iv) requires the creditor to deliver or place in the mail corrected disclosures reflecting the corrected non-numeric disclosure no later than 60 days after consummation. However, if, for example, the disclosure lists the wrong property address, which affects the delivery requirement imposed by §1026.19(e) or (f), the error would not be considered clerical."

To correct non-numeric clerical errors, a creditor must deliver or place in the mail a corrected Closing Disclosure no later than 60 days after consummation.

Refunds to Cure Tolerance Violations

Finally, if a creditor provides a consumer with a refund to cure a tolerance violation in connection with the good faith analysis of the estimated closing costs, the creditor must deliver or place in the mail a corrected Closing Disclosure that reflects the refund no later than 60 days after consummation.

Stay tuned!  NAFCU’s TILA/RESPA blog series will continue to break-down sections of the rule over the next several months.

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Join Us for NAFCU’s Member-Only Call.

Please join NAFCU’s CEO Dan Berger, Senior Vice President of Government Affairs and General Counsel Carrie Hunt, and other Senior Staff, on Wednesday, March 18, at 4:00 p.m. Eastern for our first legislative and regulatory briefing of 2015. We'll discuss what’s ahead in the credit union industry and provide an outlook for the economy and more.

Participation is free for all members, but you must register to attend. If you need assistance registering for the call, please contact NAFCU’s Member Service Center at 800-344-5580 or [email protected].

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Happy Friday!

TGIF.  I thought I'd close out the week with a picture of my smiling twins!  They turned two-and-a-half this week.  Wow, how time flies!

 

NCUA Board Meeting; NCUA-SBA Partnership; February NCUA Report

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

NCUA Board Meeting. Last week, the NCUA Board held its February open meeting. The following two agenda items were approved 3-0:

1. ​Proposed IRPS 15-1 and Proposed Rule, Part 791.8(a) of NCUA’s Rules and Regulations, Regulatory Flexibility Act Definition of Small Entity for Consideration of Regulatory Relief.
2. Taunton Federal Credit Union (Taunton, MA), Request to Expand Community Charter.

With regard to the first item, The NCUA Board approved a proposed rule that would revise the “small entity” designation under the Regulatory Flexibility Act by increasing the defining threshold to include federally insured credit unions with less than $100 million in assets. The current rule imposes a $50 million threshold. Comments on NCUA’s proposed rule and IRPS 15-1 will be due to the agency 60 days after publication in the Federal Register. NAFCU is preparing a Regulatory Alert for members, which will be available here.

The NCUA Board was also briefed on the agency’s ongoing field-of-membership working group. NCUA staff advised that the working group, which is comprised of internal NCUA staff, has inventoried the issues that need to be addressed as: (1) procedural; (2) regulatory; and (3) legislative. The procedural and regulatory issues will be presented to the NCUA Board for its action. NCUA staff also explained that the working group will begin reaching out to credit union stakeholders next month for their input. NAFCU has been working closely with the agency to include our members on the working group.

Finally, the NCUA Board was briefed about the state of the National Credit Union Share Insurance Fund (NCUSIF).

NCUA’s Board Action Bulletin is available here.

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NCUA-SBA Partnership. Earlier this month, NCUA announced a partnership with the Small Business Administration (SBA) for a series of educational initiatives during the next three years aimed at helping small businesses connect with their local credit unions for better access to capital.

The first initiative of the new partnership will be a joint webinar entitled “Balancing Member Business Loan Portfolios with SBA Guarantees,” on March 4, 2015, at 2 p.m. Eastern.  Registration is available here.  Participants can submit questions in advance via email at [email protected], and should include the subject line “SBA Guarantees Webinar.”

Last week, NCUA also announced a new “Small Business Lending Resource Center” webpage designed to provide information about NCUA’s member business lending rules, supervisory guidance, links to the SBA’s loan programs, and other resources.

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February NCUA Report. NCUA also recently released its February 2014 Report. One article in particular caught my eye – the Region V Report: Consider an Asset-Liability Management Committee to Help with Interest Rate Risk. The article discusses some of the reasons NCUA thinks credit unions should consider using an Asset Liability Management (ALM) Committee to review interest rate exposure. From the article:

“While not required in NCUA’s regulations, our experience has shown that a committee like this can be a useful best practice for credit unions with a concentration of mortgage-related investments and loans.

An Asset-Liability Management Committee oversees the board-approved asset and liability management policy for the credit union. These committees are staffed by members of the credit union’s board and staff from across a credit union’s business lines. The committee evaluates and monitors all of the variables that could affect a credit union’s interest rate risk position, such as its internal controls, cash flows, maturity schedules, and how it implements its risk-management policies.”

The article includes links to various guidance documents on managing interest rate risk (IRR), and is available in its entirety here.  Speaking of IRR, my colleague JiJi recently blogged about NCUA’s IRR rule, currently available guidance, and what may be coming down the pike.

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NAFCU Webcast. Regulation Z: Five Challenges and Their Solutions – The Truth in Lending Act (TILA), as implemented by Regulation Z, is the oldest federal consumer credit law. While it's important to stay up-to-date on the latest changes, it's just as important not to overlook some of its fundamental principles.  Register here for this NAFCU webcast for a refresher on five core issues that arise across product types and how to address them. You'll gain a greater understanding of: what is and is not a finance charge, Regulation Z's rules for calculating annual percentage rates, how to satisfy Regulation Z's advertising requirements, the difficulties that can arise when disclosing variable rates, and how to meet the operational challenge of ensuring that Regulation Z disclosures are correctly completed.

RBC2: A Penny for Your Thoughts, pt 3.

Written by Alicia Nealon, Director of Regulatory Affairs

Welcome back to the third installment of our series of posts where NAFCU’s Compliance Blog will break down different portions of RBC2 and highlight the key issues that we are looking for your feedback on.  Today’s topic is the treatment of CUSO activity.

One key change between this proposal and the original involves the risk-weighting of investments in CUSOs and loans to CUSOs.  Under the original proposal, investments in CUSOs were assigned a risk-weight of 250 percent and loans to CUSOs were assigned a risk-weight of 100 percent. RBC2, however, would lower the risk-weight to 150 percent for equity investments in CUSO, and retain the 100 percent risk-weight for outstanding loan balances to CUSOs.  Also, RBC2 will exclude loans and investments in CUSOs if those assets were already consolidated into the credit union’s statement of financial condition under generally accepted accounting principles (GAAP) - a move sought by NAFCU during the original proposal.   

While RBC2 reduces the investment risk-weighting and accounts for the CUSOs consolidated into a credit union’s books, it continues to assign different risk-weights to investments in CUSOs and loans to CUSOs.  Despite many commenters, including NAFCU, arguing that there should be only one risk-weight for CUSO activity and that it should not exceed 100 percent, NCUA retained different treatments for investments in CUSOs and loans to CUSOs.  The agency explains that they are risk-weighted differently because they are treated differently in the event of liquidation or bankruptcy. 

While NCUA lowered the risk-weight for investments in CUSOs, the proposed 150 percent risk weight still fails to consider the different types of services provided by a given CUSO.  For example, an investment in a CUSO engaged in low-risk activities like providing compliance assistance would be assigned the same risk-weight as an investment in a CUSO engaged in mortgage or commercial loan underwriting.  Despite being lowered, the proposed 150 percent risk-weight could still be improved to assess a more meaningful risk distinction between the risks various types of CUSOs pose…..at least that is my humble opinion, but I’d love to hear yours….

It is also worth mentioning that under FDIC's rules, equity investments that are less than 10 percent of a bank’s capital are risk-weighted at 100 percent. FDIC characterizes such investments as "insignificant." Because NCUA already restricts federal credit unions to only investing up to 1% of their assets in CUSOs in the aggregate, an argument could be made that credit union’s investments in CUSOs should be considered “insignificant” for the sake of the agency’s capital rules and be weighted at 100 percent as in the FDIC system. Again, my opinion...whats yours?

What does everyone think? Does your credit union believe the revised risk-weights reflect the real risks associated with investments in CUSOs and loans to CUSOs? Would the proposed 150 risk-weight force your credit union to reconsider current and future investments in CUSOs? Should investments in CUSOs be risk-weighted at 100 percent like FDIC equity investments? 

As you consider these questions, be sure to take a look at NAFCU’s Regulatory Alert 15-EA-02, our Capital Reform Issue Page, or reach out to me directly ([email protected], 703-842-2266) with your thoughts. 

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NAFCU Webcast. A Deep Dive into the Final Privacy Rule -You may be able to reduce your regulatory burden! Now, if your credit union meets the CFPB’s eligibility requirements, you can save money by posting your annual privacy notice online. Find out if your credit union meets the eligibility requirements, examine the posting requirements, and get detailed instruction on how to use the required model form with this good-news NAFCU webcast.

FFIEC Updates Business Continuity Planning Guidance; BSA Stats

Written by Shari R. Pogach, Regulatory Paralegal

The Federal Financial Institutions Examination Council (FFIEC) has revised its Business Continuity Planning Booklet with a new appendix entitled, Appendix J: Strengthening the Resilience of Outsourced Technology Services.  In addition to providing guidance for examiners in evaluating financial institution and service provider risk management processes, the booklet was also designed to help financial institutions with business continuity process implementation. 

The FFIEC recognizes that many financial institutions depend on third-party service providers to perform or support critical operations but warns that this does not relieve the institution from its responsibility to ensure that outsourced technology activities are conducted in a safe and sound manner.  Oversight of these outsourced relationships is the responsibility of the institution’s board of directors and senior managements. To be effective, a third-party management program will provide the framework for management to identify, measure, monitor and mitigate the risks associated with outsourcing. 

In its release the FFIEC states, “Specifically, a financial institution should ensure that its third-party service providers do not negatively affect its ability to appropriately recover IT systems and return critical functions to normal operations in a timely manner.”

The appendix discusses four key elements of business continuity planning that should be addressed to ensure that an institution is contracting with technology service providers that are strengthening the resilience of technology services.  The appendix covers: 

• Third-Party Management - addresses management’s responsibility to control the business continuity risks associated with its technology service providers and their subcontractors.
• Third-Party Capacity - addresses the potential impact of a significant disruption on a third-party servicer’s ability to restore services to multiple clients.
• Testing with Third-Party Technology Service Providers - addresses the importance of validating business continuity plans with technology service providers and considerations for a robust third-party testing program. 
• Cyber Resilience - covers aspects of business continuity planning unique to disruptions caused by cyber events.

The booklet is part of the larger FFIEC Information Technology Examination Handbook.  The IT Handbook is available here.

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314(a) Fact Sheet. The Financial Crimes Enforcement Network (FinCEN) most recent 314(a) Fact Sheet indicates the agency’s 314 Program Office has processed 2,391 law enforcement requests as of February 3, 2015.  FinCEN’s regulations under Section 314(a) allow federal, state, local and European Union law enforcement agencies to contact and work with more than 22,000 financial institutions to locate financial assets and transactions of subjects of criminal investigations.   As a result, the program has afforded productive leads for both terrorist financing (464 cases) and money laundering (1,927 cases) investigations.  According to current feedback from law enforcement to the agency, 95 percent of 314(a)
requests have contributed to arrests or indictments.

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SAR Stats.  FinCEN’s January 15 quarterly update of suspicious activity report (SAR) filings by depository institutions indicates credit unions filed 77,972 SARs in 2014, up 24 percent from a total of 62, 877 the previous year. FinCEN’s statistics track filings from March 1, 2012 through December 31, 2014.  The top five types of suspicious activity reported covered:  multiple transactions below the currency transaction reporting threshold; suspicions regarding the source of funds; transaction with no apparent economic business or lawful purpose; transaction not in customer’s normal pattern and suspicious usage of multiple locations.  The top five states for overall filings:  California, New York, Ohio, Texas and Florida. 

Regulatory Relief: Your chance to weigh in

Written by Brad Thaler, Vice President of Legislative Affairs

I know that the compliance community is well aware of the ever-increasing regulatory burden credit unions face in a post Dodd-Frank world.  Last week, NAFCU told the Senate Banking Committee about this burden and our ideas for regulatory relief when NAFCU’s Board Chairman and SRP FCU President/CEO Ed Templeton testified Thursday before the committee at one of two hearings examining “Regulatory Relief for Community Banks and Credit Unions.”  Last Tuesday, the Committee also heard from financial regulators, including NCUA.

Now the Senate Banking Committee wants to hear from you.  They have asked NAFCU to gather stories and letters from individual credit unions about the regulatory burdens you face and ideas for where and how your credit union needs relief.  It is with this in mind that I am asking for your input.

Are there particular statutes or regulations that are especially burdensome on your institution and your ability to serve your members?  Are there some that just seem out of date? How should they be changed?  What has the impact been on your institution?  Are there examples of regulatory cost/time estimates that your institution finds are off-kilter?  (You can view NAFCU’s Top Ten Regulations to Eliminate or Amend and our new Five-Point Plan for Credit Union Regulatory Relief if you need some ideas.)

If your credit union is interested in sharing your regulatory burden stories or regulatory relief ideas with Senate Banking Committee Chairman Richard Shelby, please reach out to me at [email protected], and I will walk you through the submission steps.

The Committee’s ultimate goal is to take your suggestions and craft a common-sense regulatory relief package, which they hope to bring to the Senate floor this spring.  The Committee hopes to get comments as soon as possible, so I ask that you try to get us any letters by Thursday, February 26^th.  Please reach out to me, directly with any questions ([email protected] or 703-842-2204).   

Staying on the topic of providing feedback on regulatory review, the hearings last week also had a lot of discussion about the EGRPRA process.  The Committee noted that EGRPRA provides a lot of important insight on areas that regulators need to act and can also give Congress reform ideas.  It is with this in mind that I also want to encourage everyone to submit your comments on NAFCU’s Regulatory Alert 15-EA-03 on NCUA’s second EGRPRA review. Comments are also due to NAFCU on February 26^th.  You can complete our Regulatory Survey, or reach out to Alicia Nealon, NAFCU’s Director of Regulatory Affairs, directly ([email protected], 703-842-2266) with your thoughts. 

Thanks in advance for your participation in this process.

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NAFCU Webcast. Regulation Z: Five Challenges and Their Solutions - Regulation Z of the Truth in Lending Act (TILA) may be the oldest federal consumer credit law, but it can still be challenging to heed. Make sure you’re not overlooking its fundamental principles with a NAFCU webcast that dives into TILA’s five core issues, and examines how best to address them.  This important knowledge is just as important as staying up-to-date on the Act’s latest changes.

 

RBC2: A Penny for Your Thoughts - Part 2; Privacy Webcast; Programming Note

Written by Alicia Nealon, Director of Regulatory Affairs

Welcome back to the second installment of our series of posts where NAFCU’s Compliance Blog will break down different portions of RBC2 and highlight the key issues that we are looking for your feedback on.  Today’s topic is the treatment, or lack thereof, of Member Business Loans (MBLs).

A key change between this proposal and the original involves the treatment of Member Business Loans (MBLs).  The original RBC proposal would have assigned risk-weights based on a loan’s status as an MBL under Part 723’s general definition regardless of other underlying risk factors such as the type of collateral used to secure the loan. RBC2, however, would assign risk weights to “commercial loans” rather than “MBLs.”  Specifically, risk-weights for commercial loans under RBC2 would generally be determined by three factors: (1) the purpose of the loan; (2) the use of the proceeds of the loan; and (3) the type of underlying collateral. In other words, the revised proposal recognizes the reality that some business loans are riskier than others -- a move sought by NAFCU during the original proposal.

Under RBC2, the definition of “commercial loans” includes all commercial purpose loans regardless of dollar amount other than business purposes loans that meet the proposal’s definition of “residential real estate loan.” Generally this would exclude business loans:

• Secured by a first-lien on a one-to-four-family non-owner occupied dwelling (i.e. rental properties), and
• Secured by a vehicle generally manufactured for personal use, except for those used for fare paying or fleet purposes.

RBC2 would also assign a lower risk-weight to the portion of a commercial loan that is insured or guaranteed by the U.S. Government, U.S. Government agency or another public sector. Additionally, these loans would not count toward the proposal’s 50 percent asset concentration threshold. RBC2 would also assign a lower risk-weight to any amount of a contractual compensating balance (i.e. shares secured by the loan) associated with a commercial loan and on deposit in the credit union. These commercial loans also would not count such amounts toward the 50 percent asset concentration threshold.

Is your head spinning yet? As someone who has an aversion for numbers, I find charts exceptionally helpful.  Below is a chart illustrating RBC2’s treatment of commercial loans by risk-weight.

20% Risk Weight	100% Risk Weight	150% Risk Weight
The exposure amount of commercial loans secured with contractual compensating balances	The outstanding balance  (minus the portion if any with a government guarantee) of current commercial loans, minus contractual compensating balances that comprise less than 50% of   assets	Current commercial loans (minus contractual compensating balances) comprising over 50% of assets
		Non-current commercial loans (minus contractual compensating balances)

Under RBC2, business loans secured by a first-lien on a one-to-four-family non-owner occupied dwelling, which are treated as MBLs under Part 723, would be categorized and risk weighted as a residential real estate loan rather than a commercial loan. NCUA estimates that a significant amount of MBLs are business loans secured by a first-lien on a one-to-four-family non-owner, and thus would receive the lower, applicable residential real estate risk-weight. 

It is important to note that RBC2 would not change Part 723’s definition of MBLs for purposes of complying with the statutory cap.  Instead, RBC2 seeks to utilize a more relevant definition of commercial loans for purposes of risk weighting to better reflect underlying risk factors. Credit unions must still comply with the statutory limitation on MBLs and all applicable sections of Part 723.

What does everyone think? Does your credit union believe the revised definition of commercial loan better captures the loans made for a commercial purpose that have similar risk characteristics? Does your credit union think the risk-weights are appropriately weighted for the risk involved for assets outlined in the chart above?

As you consider these questions, be sure to take a look at NAFCU’s Regulatory Alert 15-EA-02, our Capital Reform Issue Page, or reach out to me directly ([email protected], 703-842-2266) with your thoughts. 

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NAFCU Webcast. A Deep Dive into the Final Privacy Rule -You may be able to reduce your regulatory burden! Now, if your credit union meets the CFPB’s eligibility requirements, you can save money by posting your annual privacy notice online. Find out if your credit union meets the eligibility requirements, examine the posting requirements, and get detailed instruction on how to use the required model form with this good-news NAFCU webcast.

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

A Deeper Dive into the CFPB’s Proposed Amendments on Small Creditors

Written by Brandy Bruyere, Regulatory Compliance Counsel

Monday’s blog provided a brief overview of the Consumer Financial Protection Bureau’s (CFPB’s) recently proposed amendments to its exemptions for small creditors including adjusting the definition of rural areas. We did not want to bog everyone down on a Monday, so today we will go a little more in depth on this proposal.

First, recall that three mortgage rules have exemptions or other carve-outs for small creditors:

• the rule pertaining to high-cost mortgages has a prohibition against balloon payment features on some of these mortgages but contains an exemption for small creditors;
• the ability-to-repay/qualified mortgage (ATR/QM) rule allows small creditors to make certain portfolio and balloon payment QMs; and
• the higher-priced mortgage loan (HPML) escrow account rule which also has an exemption for small creditors.

Currently, the HPML escrow requirement, located at section 1026.35(b), sets forth the small creditor thresholds that are cross-referenced by the high-cost mortgage and ATR/QM rules.  Under the HPML rule, certain small creditors operating in rural or underserved areas that do not have a forward commitment to sell their loans are not required to establish an escrow account for HPMLs. Specifically, the rule contains a four-part test:

1. The Credit Union Operates Predominately in Rural or Underserved Areas: A credit union – in the preceding three years – must have originated more than 50% of its first lien mortgages in counties that are determined to be “rural” or “underserved.” Currently, the CFPB makes “rural” designations for entire counties. A county is “rural” if it is not in a metropolitan statistical area (MSA) or in a micropolitan statistical area that is adjacent to an MSA. See, 12 C.F.R. 1026.35(b)(2)(iv)(A).
2. Total Annual Mortgage Originations: A credit union – together with its affiliates (e.g., credit union service organizations (CUSOs)) – must have originated 500 or fewer first lien mortgage loans in the preceding calendar year.
3. Asset Size Threshold: The credit union must have an asset size that is less than $2.060 billion at the end of the preceding calendar year.
4. Do Not Currently Escrow for Mortgage Loans: Even if a credit union meets these three requirements, the credit union (or its CUSO) will not qualify for the HPML escrow rule’s small creditor exemption where the credit union regularly establishes escrow accounts for its mortgage loans.

The proposal would make substantive amendments to the first three parts of this test.

Expanded Definition of “Rural” Areas. Under the proposal, a county will be considered rural if it meets the rule’s current definition, or is in a census block that is not in an urban area as defined by the U.S. Census Bureau. The proposal would change the word “counties” to “areas” in order to be less limiting in which locations will be considered rural. This would allow for loans made in rural sections of counties that are not in their totality considered rural to count towards a credit union’s number of loans made in rural areas.

Total Annual Mortgage Originations Amendment. As we noted on Monday, the proposed rule would increase the total annual mortgage loan originations threshold from 500 to 2,000, and exclude portfolio loans from this total. The proposal would also add a grace period from calendar year to calendar year allowing a credit union that exceeds the origination limit in the preceding calendar year to temporarily continue to operate as a small creditor. This would allow the credit union to operate as though it had not exceeded the origination limit for applications received prior to April 1 of the current calendar year, with certain special provisions and exemptions.

Asset Size Threshold Amendment. While the current rule does not include affiliates’ assets in the threshold calculation, the proposed rule would require the credit union to include the assets of its affiliates that originate mortgage loans. Unfortunately, it is unclear precisely how this proposal would impact credit unions with CUSOs. For example, the proposal does not address how to address situations where multiple credit unions hold equity interest in a single CUSO.

Impact on Qualified Mortgages. These changes also impact the ATR/QM rule because the rule utilizes the asset size and total mortgage origination thresholds from section 1026.35. Specifically, these thresholds determine which credit unions are “small creditors” for the purposes of the ATR/QM rule. Specifically, certain portfolio and balloon-payment loans by small creditors can still receive treatment as QMs even without meeting some of the rule’s other requirements such as the 43% debt-to-income ratio requirement. The proposal would also extend the temporary timeframe for small creditors to make balloon payment QMs from January 10, 2016 until April 1, 2016.

Palate Cleanser. Sometimes Nolan seems like he just does not know what to make of Lemmy. Of course, who can blame him, Lemmy’s head is about as big as Nolan!

CFPB Proposes to Modify Small Creditor and Rural or Underserved Areas Definitions

Written by Eliott C. Ponte, Regulatory Compliance Counsel

On January 29, the Consumer Financial Protection Bureau (CFPB) proposed amendments to the portions of Regulation Z governing mortgages made by small creditors.  This proposal follows two other CFPB announcements: a May 2013 announcement regarding potential adjustments to the terms “rural” and “underserved,” and a May 2014 request for comment regarding the small creditor loan origination threshold. 

The CFPB proposal contains a number of amendments.  First, the CFPB is proposing to raise the loan origination limit for determining eligibility for small-creditor status from 500 originations of covered transactions secured by a first lien, to 2,000.  In addition, the proposed amendment would exclude originated loans held in portfolio by the creditor and its affiliates.  That is, under the proposal, the origination limit would only apply to loans that were sold, assigned, or otherwise transferred by the creditor or its affiliates to another person, or subject at the time of consummation to a commitment to be acquired by another person.

Second, the CFPB proposes to add a “grace period” to allow an otherwise eligible creditor that exceeded the origination limit in the preceding calendar year or as a creditor operating predominately in a rural or underserved area to operate as a small creditor with respect to applications received before April 1 of the following year.  Thus, a creditor who exceeded the origination limit in year 1 could continue to act as a small creditor for applications it receives until April 1 of year 2. 

Third, the CFPB is proposing a modification of the definition of “rural” to include either: (1) a county that meets the current definition of rural county, or (2) a census block that is not in an urban area as defined by the U.S. Census Bureau.

Fourth, the proposed rule would add two new safe harbor provisions related to the definition of “rural” or “underserved” for certain automated tools that: (1) may be provided on the CFPB’s website to allow creditors to determine whether properties are located in rural or underserved areas, or (2) may be provided on the U.S. Census Bureau’s website to assess whether a particular property is located in an urban area according to the U.S. Census Bureau’s definition. 

Last, the proposed rule would extend the temporary two-year transition period allowing certain small creditors to make balloon-payment qualified mortgages and balloon-payment high cost mortgages to certain covered transactions for which the application was received before April 1, 2016, regardless of whether they operate predominantly in rural or underserved areas.  Currently, section 1026.43(e)(6) applies only to covered transactions consummated on or before January 10, 2016.  Thus, this change would extend the sunset provision in section 1026.43(e)(6) by three months.

Comments on the proposed amendments are due on or before March 30, 2015.  NAFCU will be issuing a regulatory alert, which will include a detailed section-by-section analysis, on the proposed amendments shortly. 

RBC2: A Penny for Your Thoughts

 Written by Alicia Nealon, Director of Regulatory Affairs

In case you didn’t see, RBC2 was published in Federal Register last week, and the comment deadline has been set for April 27^th.  With that in mind, we are launching a series of posts where NAFCU’s Compliance Blog will break down different portions of the proposal and highlight the key issues that we are looking for your feedback on.  Today’s topic is the proposed definition of “complex credit union.”

RBC2 would, among other things, change the definition of “complex credit union,” for the purposes of NCUA’s capital requirements.  The Federal Credit Union Act directs NCUA to base its definition of ‘‘complex’’ credit unions ‘‘on the portfolios of assets and liabilities of credit unions.’’  Under the current rule, credit unions are ‘‘complex’’ and subject to the risk-based net worth requirement only if they have quarter-end total assets over $50 million and they have a risk based net worth requirement exceeding 6%.  RBC2, however, would define the term ‘‘complex’’ credit union using a single asset size threshold of $100 million as a proxy for a credit union’s complexity.  In other words, RBC2 would establish a bright-line $100 million asset threshold to determine whether a credit union is complex for the purposes of NCUA’s capital requirements.

What does everyone think? Does your credit union agree that a bright line asset threshold of $100 million is an appropriate method of defining “complex credit union?” Or does your credit union believe the definition of “complex” should actually consider a credit union’s portfolios of assets and liabilities? In others words, would your credit union rather a bright-line asset threshold, or a review of the products and activities that your engaged in?

As you consider these questions, be sure to take a look at NAFCU’s Regulatory Alert 15-EA-02, our Capital Reform Issue Page, or reach out to me directly ([email protected], 703-842-2266) with your thoughts. 

Interest Rate Risk Now and a Look Ahead

Written by JiJi Bahhur, Director of Regulatory Compliance

Although there hasn’t been any new guidance or final ruling on interest rate risk (IRR) as of late, it has been one of the National Credit Union Administration’s (NCUA’s) focuses for the past two years.  Because it is on NCUA’s radar, I’d like to highlight the following today:

• NCUA’s 2015 Supervisory Focus on IRR;
• NCUA’s IRR Rule and Guidance that is currently available;
• What may come in the near future on IRR; and
• A call to you to share your credit union’s recent experiences with IRR.

Supervisory Focus

Like 2014, interest rate risk (IRR) remains high on NCUA’s list of supervisory priorities for 2015.  While most credit unions have managed through interest rate hikes in the past, according to NCUA some credit unions "may not be as well positioned this year due to higher concentrations of net long-term assets and unrealized losses."  Thus, in 2015, NCUA examiners will continue to use existing guidance to assess credit unions' interest rate risk exposure. NCUA Letter to Credit Unions 15-CU-01 also mentions that the agency is in the process of updating this guidance to ensure that IRR is assessed accurately and that the appropriate supervisory steps are taken in response to excessive IRR exposure. 

In addition, compliance with NCUA’s Interest Rate Risk Rule (12 C.F.R. § 741.3(b)(5)) will be assessed by examiners as well. 

Current Rule(s) and Guidance on IRR

Section 741.3(b)(5) of NCUA’s regulation requires credit unions with assets over $50 million, as measured by the most recent Call Report filing, to draft and implement a written IRR policy and develop a program to identify, measure, monitor and control IRR.  Appendix B to Part 741 provides detailed guidance on how to develop an IRR policy and an effective IRR program, including best practices for managing IRR.  Given the differences among credit unions (e.g., operations, complexity, risk exposure, size), each credit union should use the guidance in Appendix B to formulate a policy that embodies its own practices, metrics and benchmarks appropriate to its operations. Further, the credit union's board of directors is responsible for ensuring the IRR policy is adequate, which includes a periodic review of the credit union's IRR exposure and compliance with the policy and risk limits.

Some additional NCUA guidance is listed below:

• NCUA Letter to Credit Unions 12-CU-05, "Interest Rate Risk Policy and Program Requirements;"
• NCUA Letter to Credit Unions 12-CU-11, "Interest Rate Risk Policy and Program Frequently Asked Questions;" and
• NCUA Letter to Credit Unions 10-CU-06, "Interagency Advisory on Interest Rate Risk Management."

NCUA’s IRR guidance and rule requirements are also posted on its Interest Rate Risk Resources webpage.

The Future of IRR

With the release of the second risk-based capital proposal (RBC2), the revised proposal made a number of changes from the original 2014 RBC proposal, including the removal of interest rate risk.  Therefore, in addition to updating existing guidance on IRR, NCUA has also stated that it intends to promulgate a separate rulemaking on IRR in the future.  The agency indicated, however, that it does not intend to issue an IRR proposal until sometime after the RBC2 comment period closes.

For more information on the RBC2 proposal, follow our RBC blog series here.  Also, NAFCU’s Regulatory Affairs team has provided a Regulatory Alert to further assist with the proposed requirements of RBC2.

Call to Share Experiences

NAFCU would like to hear from you.  Given that IRR has been one of NCUA’s top supervisory focuses for the past two years, I’m sure many of you have experiences with IRR.  The agency’s attention to IRR has also been one of NAFCU’s top priorities as well, but to be true advocates for our members, we need your feedback and perspectives.  Please send your input to NAFCU’s Director of Regulatory Affairs, Alicia Nealon, at [email protected]. 

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Weekend Fun.  On a lighter note, I just had to share the newest pictures of the kids on a playdate with their cousin.  Nothing like some chicken nuggets, cartoons, and toys!

Monday Morning Tidbits

Written by Victoria Daka, Regulatory Compliance Specialist

NCUA Hosting Webinar on New TILA-RESPA Disclosure Rules (with the CFPB)

Do you have lingering questions about the new TILA-RESPA Integrated Disclosures requirements scheduled to take effect August 1^st? Do you want to get a head start on compliance? Well, you are in luck. The NCUA, with the CFPB, will host a free webinar, “Preparing for the New TILA-RESPA Integrated Disclosures,” on Wednesday, Feb. 11, 2015, starting at 2 p.m. This webinar will outline the significant changes to the disclosures and forms required and detail: 1) the new loan estimate and closing disclosure forms; 2) what types of mortgage transactions are covered by the new rules; and 3) the new timing requirements for the disclosures. You will find the registration for the webinar here. Credit unions may also submit questions in advance to [email protected].

NCUA February 10^th Town Hall Webinar Will Feature CFPB’s Cordray

For the upcoming NCUA Town Hall Webinar, set for Tuesday, February 10, 2015, starting at 3 p.m., NCUA’s Board Chairman Debbie Matz says that the webinar will feature CFPB’s Director Richard Cordray. This is a great opportunity for credit unions to discuss their issues and concerns directly with federal regulators. In this webinar, attendees can submit questions regarding the broad credit union industry and the work of the CFPB. You will find the registration for the webinar here. Credit unions may also submit questions in advance to [email protected].

CFPB Compliance Bulletin

The CFPB recently issued a Compliance Bulletin reminding CFPB supervised institutions that, among other things, non-disclosure agreements institutions may have, with third parties, do not alter or limit the CFPB’s access to information under their supervisory authority. Pursuant to Dodd-Frank, the CFPB has the authority to request reports to conduct supervisory duties, from its supervised institutions, and supervised institutions may not use non-disclosure disagreements to transact out of this request.  It should be noted that a failure to provide information required by the CFPB is a violation of federal law.

To view the Compliance Bulletin in its entirety, see here.