NAFCU Compliance Blog

Regulatory Compliance School Kicks Off; March 2015 NCUA Report; NCUA Tidbits

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

Regulatory Compliance School Kicks Off. NAFCU’s Regulatory Compliance School begins today!  During this intensive week, attendees will obtain a solid understanding of the various regulations and laws affecting credit unions’ regulatory compliance responsibilities. Many of these brave souls will also be studying hard to obtain their NAFCU Certified Compliance Officer (NCCO) designation. Wish them luck!

As a reminder, NAFCU’s Compliance Team will be in and out of the office giving presentations, so our response times may be a little longer than normal.

***

March 2015 NCUA Report. NCUA recently released its March 2015 Report. Featured articles include:

Office of National Examinations and Supervision Report: Funnel Accounts: A Funny Name, but a Serious Concern

Chairman’s Corner: Volunteers: Inspire and Question Management

Office of Examination and Insurance Report: Loan Growth at a Nine-Year High

Board Perspectives: Charter Choice and the Law of Natural Selection; True Transparency and Real Regulatory Relief

Board Actions February 2015: NCUA Board Proposes $100 Million Threshold for Regulatory Relief; Share Insurance Fund Trends Positive, Taunton Charter Expansion Approved

Region I Report: A Quick Guide for New Supervisory Committee Members

Office of National Examinations and Supervision Report: Cyber Vulnerabilities and the Real Exposures

Funnel Accounts. Two articles caught my eye. First, an article on funnel accounts discusses the growth of funnel accounts, warning signs of funnel accounts, and BSA reporting requirements related to these types of money laundering schemes.  For additional background, my colleague Shari Pogach blogged about funnel accounts and trade-based money laundering here.

Quick Guide for New Supervisory Committee Members. The second article takes a look at some of the responsibilities of the supervisory committee beyond the audit and verification roles.  Topics covered include strengthening internal controls, reviewing management’s corrective actions, and the authority to call special meetings and remove officials.

***

NCUA Spoofing Scam Warning.  Last week, NCUA warned that scammers are “spoofing” an agency telephone number and sending texts to consumers in an attempt to obtain personal information. More details are available here. This follows on the heels of a warning about an online phishing scam using a logo and design similar to the agency’s own. For more details, see our March 25th blog post.  

***

NCUA Video Series for Credit Unions Seeking CDFI Certification. NCUA has released a five-part video series for credit unions interested in becoming certified as Community Development Financial Institutions.  The videos, less than 10 minutes each, are available on NCUA’s YouTube channel and cover topics such as the criteria for certification as well as the benefits.

***

NCUA Grant Initiatives Webinar. NCUA will be hosting a webinar entitled “NCUA 2015 Grant and Loan Opportunities” for credit unions interested in applying for the next round of grants from the agency. Topics to be discussed include the grant application process and the four grant initiatives that NCUA will fund: cybersecurity, building capacity branching, digital growth and new products and services. The presentation will be followed by a 30-minute question-and-answer session. The webinar is scheduled for Wednesday, April 15, beginning at 2 p.m. Eastern. Online registration is available here. Participants may submit questions in advance at [email protected]. The subject line of the email should read, “NCUA 2015 Grant and Loan Webinar.”

NCUA to Consider Good Faith Efforts with TILA/RESPA; CFPB’s TILA/RESPA Implementation Materials Updated; Programming Note

Written by JiJi Bahhur, Director of Regulatory Compliance

NCUA to Consider Good Faith Efforts with TILA/RESPA. In response to NAFCU’s request, National Credit Union Administration (NCUA) Chairman Matz responded, recently, that it will take the same examination approach as it did with prior Consumer Financial Protection Bureau (CFPB) mortgage rules.  More specifically, NCUA will consider good faith efforts by credit unions to comply with the CFPB’s Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) integrated mortgage disclosure rule.  The TILA/RESPA rule is set to become effective on August 1. 

From Chairman Matz’s response to NAFCU:

“With this new rule, NCUA intends to take the same examination approach used with the implementation of the CFPB’s Qualified Mortgage and Ability-to-Repay rules in 2014.

NCUA examiners will be looking for reasonable and good faith efforts by credit unions toward substantial compliance with the new rule as of the effective date.  NCUA recognizes that some credit unions may need time to perform conclusive system testing and work with their technology vendors to resolve any remaining issues that may occur from extensive testing and use, once their new TILA/RESPA mortgage disclosure systems become fully operational on August 1.”

NAFCU, with 15 other trades, has made a similar request to the CFPB for a restrained examination period.

If you weren’t already having a fabulous Friday, I hope that helped a bit! 

***

CFPB’s TILA/RESPA Implementation Materials Updated.  The CFPB has updated its TILA/RESPA regulatory implementation materials to bring them into alignment with the most recent amendments that finalized in February.  We blogged about the finalized amendments here. 

***

Programming Note.  With NAFCU’s 2015 Regulatory Compliance School in session from March 30-April 3, please note that NAFCU’s Compliance Team will be heavily involved as faculty and therefore there may be a delay in responses to member questions.  Rest-assured, we’ll get back to you as soon as possible. 

FFIEC Focus on Cybersecurity; NCUA Lookalike Phishing Scam; NAFCU Webcast

Written by Shari R. Pogach, Regulatory Paralegal

The Federal Financial Institutions Examination Council (FFIEC) announced its cybersecurity priorities for 2015.  Work is under way in the development of seven areas resulting from the FFIEC’s pilot assessment in 2014 of cybersecurity readiness at more than 500 financial institutions. 

Work is underway on the following:

• Cybersecurity Self-Assessment Tool – a self-assessment tool planned for 2015 to assist institutions in evaluating inherent cybersecurity risk and risk management capabilities.
• Incident Analysis – enhanced processes for gathering, analyzing and sharing information with FFIEC members during cyber incidents.
• Crisis Management – aligned, updated and tested emergency protocols to respond to system-wide cyber incidents in coordination with public-private partnerships.
• Training - training programs on evolving cyber threats and vulnerabilities.
• Policy Development – an updated/supplemented FFIEC Information Technology Examination Handbook to reflect rapidly evolving cyber threats and vulnerabilities with a focus on risk management and oversight, threat intelligence and collaboration, cybersecurity controls, external dependency management, and incident management and resilience.
• Technology Service Provider Strategy – expanded focus on technology service providers’ ability to respond to growing cyber threats and vulnerabilities.
• Collaboration with Law Enforcement and Intelligence Agencies – building on existing relationships with law enforcement and intelligence agencies to share information on the growing cybersecurity threats and response techniques. 

The FFIEC will also continue to communicate the importance of cybersecurity awareness and best practices among financial industry participants and regulators. In addition the FFIEC has a number of resources to help financial institutions improve their cybersecurity, which are available here.

*** 

“National Credit Union” Phishing Scam. The National Credit Union Administration (NCUA) has issued a warning to consumers with a statement that it has received reports of an online phishing scam using a website with a logo and a design similar to the agency’s own trying to convince unwary customers to provide information or send money. 

Apparently originating in Australia, consumers have received emails from the National Credit Union website attempting to persuade individuals to provide personal information, such as Social Security numbers, account numbers and login information, or transfer large amounts of money. The site claims to offer services in the U.S., Europe and the commonwealth of Independent States.  

Neither this website nor the emails sent from it are in any way related to NCUA, as the agency would not request personal or financial information in this manner. Consumers receiving such emails are advised to call NCUA’s Fraud Hotline toll-free at 800-827-9650 or 703-518-6550 in the Washington, DC, area. Consumers should also contact the Internet Crime Complaint Center.   NCUA also offers information about avoiding frauds and scams on its MyCreditUnion.gov website.  

***

NAFCU Webcast.  5 Things Your Credit Union Must Know About Wire Fraud  on Wednesday, April 8, 2:00-3:30 pm ET.  Credit unions are losing hundreds of thousands of dollars due to fraudulent wire activity—but the risk can be minimized. Learn how to implement best practices while balancing the risks against quality member service. Webcast takeaways include how to ensure the credit union’s fidelity bond covers any wire fraud loss, an understanding of the difference between single- and multi-factor authentication and more. Register by April 1 to save $100!

NCUA March Board Meeting: Proposed Fixed-Assets Rule

Written by Victoria Daka, Regulatory Compliance Specialist

In the NCUA’s most recent Board meeting, the NCUA Board approved a proposal providing regulatory relief to thousands of federal credit unions by eliminating certain provisions in the agency’s fixed-assets rule. This proposal, if adopted, as is, would make three changes.

First, the proposal would eliminate the five-percent cap on investments in fixed assets. Thus, the proposal would relieve federal credit unions from the requirement to obtain a waiver to exceed the current five-percent aggregate limit on investments in fixed assets. The rule defines fixed assets as “premises, furniture, fixtures, and equipment, including any office, branch office, sub office, service center, parking lot, facility, real estate where a credit union transacts or will transact business, office furnishings, office machines, computer hardware and software, automated terminals, and heating and cooling equipment.” However, the proposal indicates that examiners would reserve the right to supervise federal credit unions investment levels in fixed assets, as opposed to the regulatory limitation under the current rule.

Second, the proposal would establish a single six year time period for partial occupancy of any premises acquired for future expansion, starting from the date of acquisition.  Under the current rule, a federal credit union must show that it will fully occupy the premises within a reasonable time by requiring the federal credit union’s partial occupancy of the premises within a time period set by the rule.  The rule sets a distinction in the requirements between improved and unimproved property. Specifically, for improved premises acquired for future expansion, a federal credit union is currently permitted up to three years from the date it obtains the property to meet the partial occupancy requirement, unless NCUA grants a waiver.  And for unimproved land or unimproved real property, a federal credit union has six years from the date of acquisition. The proposal would permit federal credit unions up to six years from the date of acquisition to meet the partial occupancy requirement, regardless of whether the premises are improved or unimproved property.

Third, the proposal would eliminate the requirement that a federal credit union apply for a waiver from the partial occupancy rules within thirty months of acquisition. Instead, the proposal would allow federal credit unions to apply for a waiver at any time, as appropriate.

The proposal has a 30-day comment period.

Delivering Revised Loan Estimates under TILA/RESPA

Written by Brandy Bruyere, Regulatory Compliance Counsel

As credit unions work towards complying with the TILA/RESPA Integrated Disclosures Rule by the August 1, 2015 deadline, we frequently receive questions relating to changes in timing and delivery requirements. Generally, the current TILA provision contains a waiting period, requiring credit unions to deliver early disclosures at least seven days before the loan is consummated. If the credit union must correct an early Truth in Lending disclosure because the APR changes, a correction must be provided three days before consummation. See, 12 C.F.R. 1026.19(a)(2).

Meanwhile, RESPA requires the Good Faith Estimate (GFE) to be provided no later than three days after the credit union receives the member’s application. RESPA also allows credit unions to provide a revised GFE in certain “changed circumstances” or borrower-requested changes, and requires a revised GFE when the interest rate locks. Generally, revised GFEs must also be provided within three days of the event that triggered the revision. So how does TILA/RESPA address these kinds of situations?

Timing & Delivery of Revised Loan Estimates

Much like the current GFE, the Loan Estimate can only be redisclosed under particular circumstances. [We blogged about the particulars of using revised Loan Estimates in this post.] Under the TILA/RESPA rule, a revised Loan Estimate can serve the purpose of providing estimates in good faith. In other words, the revised Loan Estimate figures would apply when calculating the tolerance limits of particular costs. However, the credit union must provide the revised disclosure within three business days of “receiving information sufficient to establish” that a revised Loan Estimate is permitted. See, revised 12 C.F.R. § 1026.19(e)(4)(i). [Side note—under TILA/RESPA, a “business day” means all calendar days except Sundays and federal holidays]

Additionally, if the credit union issues a revised Loan Estimate, the member must receive the revised Loan Estimate four business days before the loan can be consummated. Further complicating this, if the credit union does not provide the revised Loan Estimate in person, the disclosure is not considered received until three business days after the date the credit union placed the revised Loan Estimate in the mail. Here is the excerpt from the rule:

“The consumer must receive a revised version of the [Loan Estimate] not later than four business days prior to consummation. If the revised version of the [Loan Estimate] is not provided to the consumer in person, the consumer is considered to have received such version three business days after the creditor delivers or places such version in the mail.”

See, revised 12 C.F.R. § 1026.19(e)(4)(ii). In other words, a revised Loan Estimate that is delivered by mail must be placed in the mail at least seven business days prior to consummation. The commentary clarifies how this same timing rule applies when the revised disclosure is sent electronically:

“2. Electronic delivery. The three-business-day period…applies to methods of electronic delivery, such as email. For example, if a creditor sends the [Loan Estimate] via email on Monday…the consumer is considered to have received the disclosures on Thursday, three business days later. The creditor may, alternatively, rely on evidence that the consumer received the emailed disclosures earlier. For example, if the creditor emails the disclosures at 1 p.m. on Tuesday, the consumer emails the creditor with an acknowledgement of receipt of the disclosures at 5 p.m. on the same day, the creditor could demonstrate that the disclosures were received on the same day…”

The commentary goes on to clarify that in order to provide the Loan Estimate electronically, the credit union must comply with the E-SIGN Act.

Using the Closing Disclosure in lieu of a Revised Loan Estimate

If this was not complex enough, a revised Loan Estimate cannot be provided after the credit union has provided the Closing Disclosure. If a “changed circumstance” occurs less than four business days before consummation, the credit union can utilize the Closing Disclosure instead to reflect the changes. If the “changed circumstance” occurs after the credit union already provided a Closing Disclosure, the credit union may use the Closing Disclosure provided at consummation to reflect the changes. For more details on how this  section of the rule works, check out revised section 1026.19(e)(4)(ii), comment 19(e)(4)(ii), and page 50 of the CFPB’s TILA/RESPA Integrated Disclosure Small Entity Compliance Guide. For information on the particular timing and delivery requirements for using revised Closing Disclosures, check out this blog.

 

2015 NAFCU Compliance GPS. The 2015 edition of our popular Credit Union Compliance GPS electronic manual is now available. It includes over 30 new pages dedicated to the TILA/RESPA Integrated Mortgage Disclosure rule as well as updates on major regulatory changes over the past year. Plus, one purchase allows you to share it with your entire credit union. Learn more.

 

Palate Cleanser—Goofy Lemmy. Lemmy's adjusted to not being the neediest living being in our house. He adores Nolan, and still likes to hang out on the couch though, and is more creative in his methods for demanding attention. 

 

NAFCU Provides Talking Points for RBC2

Written by Alicia Nealon, Director of Regulatory Affairs

With just over a month before the April 27^th comment deadline for NCUA’s second risk based capital proposal (RBC2), NAFCU has put together Talking Points - a very helpful tool for our members to assist as you begin putting your comment letters together.

While NCUA addressed several key concerns raised by NAFCU, credit unions and lawmakers in this second proposal, including the risk weighting and implementation period, NAFCU still strongly believes this proposed rulemaking is unnecessary. The costs associated with it are shocking given how extremely well-capitalized the industry is today.

Simply put, the credit union industry does not need this rulemaking.  NAFCU believes RBC2 is an inappropriate use of credit union resources to address concerns about a few credit union outliers. The few-dozen credit unions NCUA says would be downgraded under the proposal would need to hold $53.6 million in capital — funds that might be used elsewhere for loans and services — to remain well-capitalized. We believe risk in credit union operations should be addressed on a case-by-case basis, and not with a broad-brush regulation.

As NCUA continues to evaluate RBC2, it is pivotal that the entire credit union industry weigh-in.  Your insight is valuable to the agency.  The thoughts and concerns you express will ultimately lead to better capital requirements for credit unions.

With that in mind, I encourage you to write a comment letter to NCUA explaining how RBC2 will affect your credit union, and the industry as a whole. To help, NAFCU has put together Talking Points for our members based on our analysis of the proposed rule.  While the Talking Points should be colored with the views and opinions of your credit union, NAFCU has listed a number of helpful arguments broken down by topic.  For example, the Talking Points detail NAFCU’s disagreement with NCUA’s interpretation of the Federal Credit Union Act to support RBC2’s two-tier RBC standard, as well as review many of RBC2’s proposed risk-weights.

NCUA needs to hear what credit unions are saying and keep capital in the marketplace instead of parked on your a balance sheets.  For our part, NAFCU is committed to doing whatever it takes — at NCUA and on the Hill — to ensure that a fair system of risk-based capital is established for credit unions.  For your part, I ask that you make your voices heard and submit a comment letter to the agency by the April 27, 2015, deadline letting NCUA know how this rulemaking is completely unnecessary. 

As you consider RBC2’s impact on your credit union, 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. 

Regulators Issue FAQs for Youth Share Accounts; NAFCU Offers BSA/AML Examination Manual Webinar

Written by Eliott C. Ponte, Regulatory Compliance Counsel

The NCUA and other banking regulators recently issued interagency guidance to encourage financial institutions to develop and implement programs to expand youth savings programs.  While this guidance does not create any federal regulator policy or establish new industry expectations, it does provide answers to frequently asked questions related to the establishment of these programs.  In total, there are 10 frequently asked questions and a section that provides a host of other hyperlinked resources. Below are highlights from the interagency guidance:

Minors Savings Accounts

The guidance reaffirms that there is no federal law prohibiting minors from opening share accounts, and the issue of having such an account is governed by state contract law.  While some states have laws specific to minors opening share accounts, credit unions in states without these laws will need to rely on state contact law.  The guidance further states that minors generally do not have legal capacity to enter into a contract, which includes any account agreement with a credit union.  Thus, such an agreement with a minor may be “voidable.”  Whether it is legally permissible for a credit union to open an account for a minor without requiring a responsible adult to be the custodian or co-owner is a determination that a credit union should make in consultation with local counsel

Minors with a Custodial Account Receiving ATM or Debit Card

The guidance clarifies that each state's Uniform Transfers to Minors Act or Uniform Gifts to Minors Act govern the rules concerning the issuance of ATM and debit cards.  The guidance states that because a custodian manages the funds in an account on behalf of the minor, a minor with a custodial account should not be provided with an ATM or debit card that permits withdrawals.

Customer Identification Program (CIP)

The guidance provides answers to various CIP issues that arise when a minor or their custodian opens an account.  Specifically, the guidance states that when a minor opens a savings account without the involvement of a custodian (e.g., mother, guardian, etc.), the minor is considered the customer for CIP purposes.  However, when a custodian opens an account for the minor, the custodian is considered the customer.  The guidance reiterates requirements under CIP are the same as for an adult: the credit union must obtain a name, date of birth, address, and identification number. 

 

***

Risks & Revisions: Changes to the BSA/AML Examination Manual

Live Webcast: Wednesday, March 18  |  2:00 p.m. – 3:30 p.m. ET

Revisions to the FFIEC BSA/AML Examination Manual have been much-anticipated, but here’s what wasn’t: hidden operational hurdles.  In this strategic webcast, you’ll join popular credit union attorney and former BSA officer David Reed as he highlights the most significant changes to the manual, along with the compliance and operational implications.  From SAR reporting to Bulk Cash shipments, David will help you prepare your credit union to be compliant.  For more information on this webcast, click here.

Department of Justice Takes Action Against Lender for SCRA Violations

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

The Department of Justice recently announced a proposed consent order to resolve allegations against Santander Consumer USA Inc. (Santander) for violating the Servicemembers Civil Relief Act (SCRA).  Santander allegedly initiated and completed 760 repossessions, without court orders, of motor vehicles owned by covered servicemembers, and allegedly attempted to collect fees arising from an additional 352 improper repossessions in connection with acquired loans. Santander has agreed to pay at least $9.35 million to resolve the lawsuit and must also repair the credit of all affected servicemembers.

The lawsuit is based on alleged violations of Section 532(a)(1) of the SCRA. Absent a waiver of rights by written agreement in accordance with Section 517, the SCRA requires a court order before vehicle repossession can occur if the servicemember took out the loan, and made a payment, before entering military service. From the statute:

Ҥ 532. Protection under installment contracts for purchase or lease

(a) Protection upon breach of contract 

(1) Protection after entering military service After a servicemember enters military service, a contract by the servicemember for—

(A) the purchase of real or personal property (including a motor vehicle); or

(B) the lease or bailment of such property, may not be rescinded or terminated for a breach of terms of the contract occurring before or during that person’s military service, nor may the property be repossessed for such breach without a court order.

(2) Applicability

This section applies only to a contract for which a deposit or installment has been paid by the servicemember before the servicemember enters military service.” 50 U.S.C. App. § 532(a). (Emphasis added)

In addition to making compensation payments, the proposed consent order requires Santander to develop, and submit for approval, SCRA compliant policies and procedures for motor vehicle repossessions, policies and procedures for processing SCRA relief requests, and staff training materials. Refer to the complaint and consent order for complete details.

SCRA Resource Tip.  The Department of Defense maintains a Defense Manpower Data Center database, designed to help verify if an individual is eligible for SCRA protections.  The database is accessible here.

Have a great weekend everyone! 

NAFCU Continues to Provide Compliance Assistance on CFPB’s TILA-RESPA Integrated Disclosure Rule; Twin Sighting

Written by JiJi Bahhur, Director of Regulatory Compliance

With less than 5 months before the fast approaching deadline (August 1, 2015), it is imperative that credit unions are making appropriate strides to comply with the CFPB’s Truth-in-Lending/Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Mortgage Disclosure rule.

Of no surprise is that implementation of and compliance with the TILA-RESPA rule is one of NCUA's Top Supervisory Priorities for 2015.

“TILA-RESPA Integrated Disclosure Rule

On August 1, 2015, credit unions that originate residential mortgages will be required to comply with the Consumer Financial Protection Bureau’s (CFPB’s) TILA-RESPA Integrated Disclosure Rule. The rule requires loan originators to provide consumers with:

• A Loan Estimate form, which combines the initial Truth in Lending Act (TILA) disclosure and the Good Faith Estimate. The Loan Estimate form must be delivered or placed in the mail no later than the third business day after receiving a consumer’s mortgage application.
• A Closing Disclosure form, which combines the final TILA disclosure and the HUD-1 Settlement Statement. The Closing Disclosure form must be provided to the consumer at least three business days prior to consummation of the mortgage.

The new rule also imposes record retention requirements and restricts mortgage originators from imposing certain fees, providing estimates, or requiring consumers to verify information before providing consumers with a Loan Estimate form.

After the rule goes into effect, NCUA field staff will assess credit unions’ compliance with relevant provisions.”

If you or someone at your credit union has been charged with a role in compliance or implementation of TILA-RESPA, I would like to take a moment to say that you are not alone.  NAFCU’s Compliance Team has put an enormous amount of time and effort in to help prepare (NAFCU member and nonmember) credit unions for the compliance and implementation of the CFPB’s TILA-RESPA rule.  TILA-RESPA resources we have already made available include:

 

• TILA-RESPA Article Series, featured in NAFCU’s Compliance Monitor (NAFCU member log-in required):

TILA-RESPA Rule Overview

A Deep Dive into the Loan Estimate Disclosure: Requirements, Timing and Tolerances

Delving into the Closing Disclosure: Requirements, Timing, Delivery and More

Using Average Charges Over Actual Amount Received on the TILA-RESPA Closing Disclosure

Loan Estimates: Revisions and Corrections Under the TILA-RESPA Rule

Requirements for Providing Corrected Closing Disclosures under the TILA-RESPA Rule

Post-Consummation Notices under the TILA-RESPA Rule

 

• TILA-RESPA Blog Series, featured in NAFCU’s Compliance Blog (available to members and nonmembers)

 

• NAFCU-Hosted Webcasts on TILA-RESPA (available to members and nonmembers):          

TILA-RESPA Series: Part 1 – An Overview

TILA-RESPA: Difficult Issues and their Solutions

The 7^th Rule: Unintended Consequences of the New, “Simplified” Mortgage Disclosures

 

• New TILA-RESPA Appendix, featured in NAFCU’s 2015 Compliance GPS (available to members and nonmembers)

 

• NAFCU’s CFPB Mortgage Rules page, including a section dedicated solely to the TILA-RESPA Rule.  Resources include all resources mentioned above and (NAFCU member log-in required):                     

A summary of the final rule

A chart on the scope and applicability of the final rule

And more! 

 

And we’re not done!  NAFCU’s Compliance Team will continue to break down parts of the rule in its TILA-RESPA blog series and Compliance Monitor.  Also, coming soon, keep a look-out for a series of recorded modules dedicated solely to breaking down the TILA-RESPA rule (available to members and nonmembers).  And last, if you’d like to see a particular resource on TILA-RESPA, feel free to reach out with your ideas – we’re open to suggestions.

***

Twin Sighting. This past weekend, my husband so kindly took the kids out on a lunch date so I could wrap some work up.  A couple hours after being out of the house, I received a call from my husband.  He said that a woman came up to him and said something along the lines of "Excuse me, are you JiJi's husband?" He responded that he was and asked the woman how she knew.  She stated, "I've never met your kids before, but I knew it was them because I see pictures of them on the compliance blog all the time!"  It turned out to be a local member who reads the blog and recognized the twins out in public.  Now only if my husband would have thought to snap a picture of the kids with her! 

Tax Filing Season Prime Time for Tax-Related Identity Theft; RBC Webcast

Written by Shari R. Pogach, Regulatory Paralegal

Tax time is open season for identity thieves.  The most common form of identity theft complaint reported to the Federal Trade Commission in 2014 was tax-related identity theft.  According to FTC statistics, the FTC received 2,545 complaints about Internal Revenue Service (IRS) about IRS imposter scams but the number of complaints jumped to 54,690 in 2014.  Of the 332,646 overall complaints about identity theft received by the FTC in 2014, 109,063 or 32.8 percent were about tax identity theft. 

Tax identity theft usually occurs when a scammer files a fraudulent tax return using a consumer’s Social Security number in order to get a refund.  In IRS impersonation scams, a person will generally contact a consumer by phone, claiming they are an IRS agent and the consumer owes the agency money.  The callers then suggest the consumers pay by wiring money or loading money on a pre-paid debit card.  The calls may seem to be from Washington, DC, numbers and such callers will often threaten arrest or legal action. In addition, the scammers may even know a consumer’s full or partial Social Security number.  Complaints related to IRS impersonation indicate this technique is being used across the country against consumers. 

Fake emails or websites are also used to “phish” for valuable personal information. Phishing scams are typically carried out with the use of unsolicited email or a fake website posing as a legitimate site to lure potential victims to give out personal and financial information.  This is then used to commit identity or financial theft.  The IRS continues to include phishing on its annual list of “Dirty Dozen” tax scams for the 2015 filing season.  

Such scams prey on consumers’ lack of knowledge about how the IRS contacts taxpayers.  Consumers should be aware that the IRS will never call about unpaid taxes or penalties.  The IRS also generally does not initiate contact with a taxpayer by email to request personal or financial information, including any type of electronic communication, such as text messages and social media channels. 

The National Credit Union Administration (NCUA) notes that identity theft is a large and growing problem with more than 16 million Americans victimized in 2012.  The IRS has estimated it paid more than $5 billion in fraudulent tax refunds in 2013.  

To help educate consumers, protect themselves and take action if they believe they have been victimized, the FTC, IRS and NCUA offer the following resources:

 IRS

Warning about Phone Scam

Report Phishing and Online Scams

YouTube Videos – Identity Theft

FTC

Identity Theft

Tax-Related Identity Theft

NCUA

mycreditunion.gov - Prevent Identity Theft

mycreditunion.gov - Frauds and Scams

NCUA YouTube Channel Frauds and Scams

***

NAFCU Webcast.  The Revised Risk-Based Capital Rule's Impact: A Closer Look, Wednesday, March 11, 2:00-3:30pm ET. The biggest modifications to the second proposed risk-based capital rule include the number of credit unions impacted, implementation period and proposed risk weights. Attend this comprehensive webcast to deep dive into exactly what these changes are and how they will affect your credit union.  You will learn how to calculate the  new proposed risk-based capital ratio, the level of prompt corrective action to which a credit union would be subject and more.

TILA/RESPA: Restriction on Imposition of Fees before Receipt of Loan Estimate and Indicating Intent to Proceed

By Victoria Daka, Regulatory Compliance Specialist

Under the CFPB’s TILA/RESPA integrated mortgage disclosure final rule, there are certain restrictions that go into effect on August 1, 2015, regardless of when the application was received.  If you recall, TILA/RESPA applies to covered applications received on or after August 1, 2015. However, there are certain restrictions that apply starting August 1^st , even if the application was received prior to August 1^st.

Today, as part of NAFCU’s continued blog series on TILA/RESPA, I will focus on the restriction on imposing fees on a consumer before the consumer has received the Loan Estimate and indicated an intent to proceed with the transaction, with a limited exception. 

Section 1026.19(e)(2)(i)(A)  prohibits imposing any fee on a consumer – application, appraisal, underwriting, or otherwise –in connection with the consumer’s application for a mortgage transaction until the consumer has received the Loan Estimate and has indicated an intent to proceed with the transaction.  There is only one exception to this rule, found in section 1026.19(e)(2)(i)(B), which allows a creditor or other person to charge a bona fide and reasonable fee for obtaining the consumer’s credit report before the consumer has received the Loan Estimate. For example, the staff commentary indicates that a creditor may collect a fee for obtaining a credit report if it is in the creditor's ordinary course of business to obtain a credit report.

In general, a fee is considered “imposed” if the consumer is required to provide a method of payment, even if the payment will actually be made later.  For example, the staff commentary to section 1026.19(e)(2)(i)(A) indicates that if a creditor requires the consumer to provide a check to cover a $500 “processing fee” before the consumer has received the Loan Estimate, the creditor has not complied with the rule – even if the creditor said it would not cash the check until the consumer received the Loan Estimate, and the creditor did not cash the check until the disclosure was provided and the consumer indicated his or her intent to proceed with the transaction.

Similarly, a creditor does not comply with the rule if it requires the consumer to provide a credit card number for a processing fee before the consumer receives the Loan Estimate, even if the credit card will not be charged until after the Loan Estimate is received and the consumer has indicated his or her intent to proceed with the transaction.  A creditor could, however, obtain a consumer’s credit card number and charge the consumer’s credit card for a credit report fee, after the disclosures required by section 1026.19(e)(1)(i) are received, if separate authorizations are requested and received for the credit report fee and any other fees that may subsequently be imposed.

Under section 1026.19(e)(2)(i)(A), a consumer can express the intent to proceed with a mortgage transaction in any manner, unless the creditor has required a specific manner of communication.  For example, oral communication in person immediately upon delivery of the Loan Estimate would comply with the rule.  Similarly, oral communication over the phone, written communication via email, or signing a preprinted form after receipt of the Loan Estimate would also be permissible. However, silence is not indicative of the consumer’s intent to proceed with the transaction because it cannot be documented to satisfy the requirements of section 1026.25. To satisfy the recordkeeping requirements of section 1026.25, a creditor must document the consumer’s communication of intent to proceed with the transaction.

Be on the lookout – NAFCU’s Compliance team will continue to break down pieces of the rule as part of our TILA/RESPA blog series.

 

CFPB Proposes to Temporarily Suspend Submissions of Quarterly Credit Card Agreements; NCUA to Host FOM Webinar

Written by Brandy Bruyere, Regulatory Compliance Counsel

Proposed Suspension of Credit Card Agreement Submissions. On February 24^th, the Consumer Financial Protection Bureau (CFPB) issued a proposal to temporarily suspend the Truth in Lending Act’s (TILA) requirement that credit unions submit credit card agreements to the CFPB on a quarterly basis. See 12 C.F.R. 1026.58(c). Under this rule, credit unions must provide the CFPB with their credit card agreements every quarter unless the card agreement continues to be offered and has not been amended. Keep in mind that the rule contains exceptions for certain private label cards and those credit unions with fewer than 10,000 open credit card accounts, and the proposal would not impact these exceptions.

The CFPB’s current process for enforcing this rule requires credit unions to submit card agreements to the CFPB by email, which can be “cumbersome” and make it difficult for a credit union to track its prior submissions. CFPB staff then “manually review, catalog, and upload new or revised agreements” to the bureau’s website which can take several months. The proposal would suspend the reporting requirements under section 1026.58(c) until April 30, 2016, when credit unions would have to submit agreements from the first quarter of 2016. During the suspension, the CFPB plans to work on “develop[ing] a more streamlined and automated electronic submission system.”

The CFPB intends to create and test a new platform that would be faster and easier for credit unions to use for submissions as well as improve the bureau staff’s own management of the sizeable workload that is created by this rule. The CFPB expects an improved process would improve the bureau’s ability to keep its database updated and accurate. In the interim, the CFPB would collect card agreements from large financial institutions’ public disclosures made in accordance with 12 C.F.R. 1026.58(d) and upload these agreements to its own public database.

However, this proposal would not impact the rule’s requirements for a credit union to post its credit card agreements publically on the credit union’s website. NAFCU plans to submit comments supporting the suspension of this rule, and would like to hear from our members regarding any issues or concerns with the current submission process. Comments are due to the CFPB by March 13^th, so please share your experiences by contacting Alicia Nealon, NAFCU Director of Regulatory Affairs, at [email protected].

NCUA Field of Membership (FOM) Webinar. On Wednesday, March 25^th at 2 PM, NCUA will host a free webinar on “Successful Strategies for Field-of-Membership Expansion.”  Topics will include using data to maximize membership growth, business plan templates to assist with applying for FOM expansion, and a review of NCUA’s FOM internet application. A federal credit union will also participate and share its experiences with FOM expansion. To participate in this webinar, register here.

Learning from NewDay: Referral Fees and Deceptive Practices

Written by Eliott C. Ponte, Regulatory Compliance Counsel

On February 10, 2015, the CFPB announced a consent order with NewDay Financial, LLC (NewDay) regarding two violations resulting from its marketing practices. First, the order states that NewDay’s marketing constituted unfair and deceptive acts and practices (UDAAP) in violation of Dodd-Frank. Second, NewDay engaged in referral arrangements with a veteran’s group that violate the Real Estate Settlement Procedures Act’s (RESPA) prohibition against kickbacks for referrals of federally related mortgage loans.  The CFPB assessed a $2 million civil money penalty under the consent order.  The facts as described in the consent order do not involve typical marketing service agreements; however, the consent order makes clear that endorsements of a company in advertisements are considered referrals by the CFPB, and failing to disclose material information to consumers regarding a marketing relationship is deceptive under UDAAP. 

UDAAP Violation. The marketing agreement listed NewDay as the exclusive lender and “lender-of-choice” of a not-for-profit Veterans’ Organization (the organization was not named in the consent order).  Under the marketing agreement, NewDay sent direct advertisements under the Veterans’ Organization’s name, which promoted the relationship between the two companies and recommended the use of NewDay’s mortgage products.  One advertisement also stated the Veterans’ Organization endorsed NewDay after spending significant time with NewDay’s management and loan professionals.  Another advertisement indicated that NewDay had become the “exclusive provider” of mortgages based on NewDay’s “high standards for service and the excellent value of their programs.”  Veterans’ Organization members were not made aware of the agreement between NewDay and the Veteran Organization and this information was not made public.   Based on these facts, the CFPB found that NewDay’s failure to disclose its arrangements with the Veterans’ Organization would likely be material to consumers choosing a lender and likely be misleading to “reasonable” consumers.  Accordingly, the CFPB concluded that NewDay engaged in deceptive acts or practices in violation of UDAAP. 

RESPA Violation. Recall that under RESPA, “[n]o person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person.” RESPA also broadly defines the terms “referral” and “thing of value.” See 12 C.F.R. § 1024.14. 

NewDay's marketing agreement with a not-for-profit Veterans’ Organization was arranged and coordinated by a Broker Company (unnamed in the Order), which contracted directly with NewDay on behalf of the Veterans’ Organization.  Under the agreement, NewDay paid a monthly “licensing fee” of $15,000 to the Broker Company.  In addition, NewDay paid “lead generation fees” to both the Broker Company and the Veterans’ Organization for members who contacted NewDay to inquire about loan products.  The Broker Company also paid the Veterans’ Organization a portion of the fees the Broker received from NewDay. The CFPB found that the payments made by NewDay to the Veterans’ Organization and the Broker constituted payments for referrals in violation of Section 8 of RESPA. 

The key takeaway form this consent order is that marketing agreements involving third-parties can carry risks relating to both UDAAP and RESPA.  Referrals exist in many forms and fees cannot be paid for those referrals. Meanwhile, to the extent that the content of an advertisement contains a particular endorsement, credit unions should note that in the CFPB’s eyes, that conduct may be deemed as a misleading representation in violation of UDAAP.  This enforcement action highlights the importance of ensuring that members are informed about marketing agreements and lenders avoid referrals for federally-related mortgage loans. Credit unions considering omitting material information should proceed with caution, and when appropriate, seek advice from local counsel familiar with UDAAP. For more information on RESPA kickbacks, NAFCU members can check out this month’s Compliance Monitor (log in required).