NAFCU Compliance Blog

CFPB’s Office of Servicemember Affairs Releases Third Complaint Report and Suggestions to Reduce Burdens on Servicemembers

Written by Eliott C. Ponte, Regulatory Compliance Counsel

The Office of Servicemember Affairs at the Consumer Financial Protection Bureau (CFPB) recently released its third complaint report detailing the data and trends surrounding complaints submitted to the CFPB by servicemembers, veterans, and their families.  As a caveat to this blog post, it is important to note that this report only addresses complaints against those institutions under the CFPB’s direct examination and supervision authority (i.e. $10 billion and above), and does not name any credit union as a recipient of these complaints. However, as we all know too well, the CFPB’s supervisory actions today tend to be a crystal ball into their actions tomorrow….so this report may be helpful for all credit unions to keep in mind.

According to the report, in 2014 the CFPB received numerous complaints from servicemembers and their families regarding account opening, closing and management. For example, these complaints address account maintenance fees, legal processing fees for judgments and levies, changes in account terms and other general operational circumstances. 

To address these complaints, the CFPB suggests that institutions servicing servicemembers do the following:

“Prior to altering military-specific account conditions of use, companies should seek to obtain an updated mailing address from their military consumers."

The CFPB suggests that financial institutions should provide clear instructions on how a person designated by a servicemember may gain access to an account, and what things that person can and cannot do with the account. If different levels of access exist, the report advises this should be clearly explained, along with instructions on how the servicemember account holder can authorize each level. 

The CFPB also suggests that financial instituions should proactively notify military consumers about any Power of Attorney (POA) policies. The report recommends that this should whether or not POAs are accepted, and, if so, which type is required based on the consumer’s needs. If a company requires a specific format or language for a POA, that should be provided on its website. Legal Assistance offices within the military routinely prepare both General and Specific POAs, and can generally include whatever specific language a client needs within the Specific POAs. Companies should provide clear guidance to their military consumers about the language or format they require so that the servicemember can be sure to create a sufficient POA.

The report further advises that financial insitutions should ensure they have feasible methods of communication for all their consumers. For military consumers, limiting communication to telephone or fax to resolve issues greatly impacts the ability of deployed servicemembers to conduct bank business, especially if that communication is only available during US business hours.

The report states the above recommendations are merely suggestions; nevertheless, these suggestions may still serve as helpful guidance for providing services to servicemembers and their families. 

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NAFCU Webcast.  FedGlobal® ACH: Solving a Complex Regulatory Issue, Wednesday, May 6, 2-3:30pm ET. In 2014, the CFPB threw credit unions a curve ball when it established new requirements for remittance transfer providers. Thanks to the insight of the Federal Reserve Bank, a highly efficient solution to this complex regulatory issue was established: FedGlobal. You will not want to miss this fascinating webcast to learn how FedGlobal came into being, explore its dynamics and discover how it allows credit unions to easily meet the Section 1073 regulations. Register by April 29 to save $100!

NCUA’s Upcoming Board Meeting’s Agenda; Fazio’s Testimony on Associational Common Bond Rule; NAFCU Webcast

Written by Victoria Daka, Regulatory Compliance Specialist

In the NCUA’s Board meeting later this week, the Board will consider the following matters: 1) the final rule on associational common bonds; 2) the final rule on corporate credit unions, technical amendments; 3) the proposed rule on aggregate lending limits for corporate credit unions; 4) the proposed rule on adding share insurance coverage under IOLTA; 5) an exemption request by the State of Connecticut Department of Banking; 6) the final interagency rule on minimum requirements for appraisal management companies; and 7) the Share Insurance Fund Quarterly Report.

Last week, Larry Fazio, Director of NCUA’s Office of Examination and Insurance, testified about the Associational Common Bond rule at the House Financial Services Subcommittee on Financial Institutions and Consumer Credit hearing on regulatory burden.  According to statements made by Fazio, the final rule will add twelve groups that would qualify for automatic inclusion in a federal credit union’s field of membership, as opposed to seven the original proposal suggested.  NAFCU’s Compliance Team will provide a more detailed explanation of the Associational Common Bond Rule once it becomes final next week.

NAFCU’s compliance team will be sure to more thoroughly blog about these issues in the near future. NCUA’s agenda can be found here.

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NAFCU Webcast.  FedGlobal® ACH: Solving a Complex Regulatory Issue, Wednesday, May 6, 2-3:30pm ET. In 2014, the CFPB threw credit unions a curve ball when it established new requirements for remittance transfer providers. Thanks to the insight of the Federal Reserve Bank, a highly efficient solution to this complex regulatory issue was established: FedGlobal. You will not want to miss this fascinating webcast to learn how FedGlobal came into being, explore its dynamics and discover how it allows credit unions to easily meet the Section 1073 regulations. Register by April 29 to save $100!

 

Friday Treat: Unofficial Transcripts of CFPB’s TILA/RESPA Webinars; Bubbles

Written by JiJi Bahhur, Director of Regulatory Compliance

As credit unions dig further into the TILA/RESPA Integrated Mortgage Disclosures rule, it is becoming more apparent that the rule itself and other CFPB-issued guidance does not address, clearly, some of the more nitty gritty issues that are surfacing.  In fact, NAFCU has been receiving a number of these questions – and I tell you – they are not easy to research and the answers are not all clear. 

Today, I won’t bog you down with difficult-to-comprehend information – after all, it is Friday!  Instead, I’d like to make you aware of another great TILA/RESPA resource that I recently stumbled upon.  As some of you know, over the last year, the CFPB and Federal Reserve Board have been co-hosting webinars that address questions about the TILA/RESPA Integrated Mortgage Disclosures rule.  Currently, four (4) of these co-hosted webinars exist and provide another avenue of guidance – oral guidance – from the CFPB on the TILA/RESPA rule.  Ideally, it would be nice if the CFPB transcribed these webinars, thus providing easily accessible, written guidance, but the CFPB has no plans of doing so (at least that I know of). 

But don’t fret!  During one of my recent TILA/RESPA searches online, I found a treasure!  BuckleySandler LLP, a leading consulting and law firm serving the financial services industry, has transcribed and made available publicly, the last three co-hosted webinars.  From BuckleySandler’s TRID Resource Page:

Webinars and Transcripts

• November 18, 2014: During this session, the Bureau addressed frequently asked questions relating to the Closing Disclosure. Our unofficial transcript is available here, and the recording is available here.

• October 1, 2014: During this session, the Bureau addressed frequently asked questions relating to the Loan Estimate. Our unofficial transcript is available here, and the recording is available here.

• August 26, 2014: During this session, the Bureau addressed frequently asked questions regarding the operational      requirements of the rule. Our unofficial transcript is available here, and the recording is available here.

• June 17, 2014: During this session, the CFPB provided a high-level overview of the rule. BuckleySandler did      not transcribe this webinar, but the recording is available here.

 ***

Bubbles.  Kyse and Ava love bubbles.  I’m pretty sure I love bubbles even more because it keeps my kids entertained on the weekend.  Last weekend, we spent Saturday and Sunday blowing bubbles, riding bikes/cars, and playing with the neighbor kids. 

I look forward to this weekend’s adventures!  Have a great weekend, all! 

TILA/RESPA Integrated Disclosures—Refunds

Written by Brandy Bruyere, Regulatory Compliance Counsel

JiJi recently blogged about the inclusion of “no-cost loans” under the TILA/RESPA Integrated Disclosures rule. A somewhat related question came up recently--when does the credit union have to issue a refund to the member? Refunds are a way to “cure” situations where the Loan Estimate was not made in good faith, meaning the amounts charged exceeded the tolerance limits (for more information, check out this blog). New section 1026.19(f)(2)(v) addresses refunds related to the “good faith analysis” requirement:

"(v) Refunds related to the good faith analysis. If amounts paid by the consumer exceed the amounts specified under paragraph (e)(3)(i) or (ii) [Loan Estimate’s good faith estimate of closing costs]…the creditor complies with paragraph (e)(1)(i) of this section if the creditor refunds the excess to the consumer no later than 60 days after consummation, and the creditor complies with paragraph (f)(1)(i) of this section if the creditor delivers or places in the mail corrected disclosures that reflect such refund no later than 60 days after consummation."

In other words, when the member pays for settlement costs in excess of the tolerances, the credit union can cure this violation by refunding the difference. Here is clarification from the CFPB staff commentary:

“19(f)(2)(v) Refunds related to the good faith analysis.

…For example, assume that at consummation the consumer must pay four itemized charges that are subject to the good faith determination under §1026.19(e)(3)(i). If the actual amounts paid by the consumer for the four itemized charges…exceeded their respective estimates on the [Loan Estimate] by $30, $25, $25, and $10, then there would be a $90 excess amount above the limitations prescribed by §1026.19(e)(3)(i). If, further, the amounts paid by the consumer for services that are subject to the good faith determination under §1026.19(e)(3)(ii) totaled $1,190, but the respective estimates on the disclosures required under §1026.19(e)(1)(i) totaled only $1,000, then there would be a $90 excess amount above the [applicable tolerance limitations]...”

So what happens if the credit union discloses more in fees on the Loan Estimate than the member actually ends up paying, meaning the member actually pays less than the costs provided in the Loan Estimate? New section 1026.19(e)(3)(iii) generally requires that, outside exceptions such as permitted tolerances, the credit union estimate closing costs “in good faith” meaning “the charge paid by…the [member] does not exceed the amount originally disclosed.” The rule does not specifically discuss situations where the amount paid by the member is actually less than the amount disclosed, but the CFPB Small Entity Compliance Guide says the following on p. 35:

“Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate it is not in good faith, regardless of whether the creditor later discovers a technical error, miscalculation, or underestimation of a charge."

However, a Loan Estimate is considered to be in good faith if the creditor charges the consumer less than the amount disclosed on the Loan Estimate, without regard to any tolerance limitations.”

(Emphasis added.)

Keep in mind though that the Loan Estimate is still subject to general accuracy requirements as set forth in section 1026.17 which requires that when “information necessary for an accurate disclosure is unknown to the [credit union], the [credit union] shall make the disclosure based on the best information reasonably available at the time the disclosure is provided…”

***

San Francisco. Last week, NAFCU sent me to the American Bar Association Business Law Section’s spring meeting in San Francisco. I spent most of my time meeting with other attorneys, including some great credit union attorneys. However, I did manage to leave the hotel in the financial district for a walk, and saw a few tourist attractions:

CFPB Issues Interpretive Rule on Homeownership Counseling Requirements, and Finalizes One-Year Suspension of TILA Requirement for Quarterly Submission of Credit Card Agreements

Written by Eliott C. Ponte

CFPB Issues Interpretive Rule on Homeownership Counseling Requirements.  The CFPB issued a final interpretive rule, amending its 2013 guidelines, to assist lender compliance with RESPA and TILA homeownership counseling requirements. 

Under RESPA, credit unions must provide applicants for a federally related mortgage loan with a clear and conspicuous written list of certified homeownership counselors.  12 C.F.R. 1024.20(a)(1).  RESPA states a credit union may use one of two methods for generating the required list.  First, a credit union can use a tool developed and maintained by the CFPB.  Second, a credit union can use data made available by the CFPB or HUD, provided the data are used in accordance with instructions provided with the data.  12 C.F.R. 1024.20(a)(1)(ii).  The interpretive rule describes instructions for credit unions to use in complying with the second method for generating a list.  The interpretive rule addresses the number of counselors that must appear on a list of counselors (according to the CFPB, listing ten housing counseling agencies ensures fairness among housing counseling agencies), the use of zip codes to generate a list of counselors, counselor contact information, and combining the list of counselors with other discourses. 

TILA prohibits a credit union from making a high-cost mortgage loan (as defined by HOEPA) unless it receives written certification that the member has obtained mortgage counseling from an approved counselor.  The interpretive rule clarifies the qualifications necessary to provide high-cost mortgage counseling, and provides guidance on the issue of credit union participation in counseling. 

With regard to the credit union’s participation in counseling, it is the CFPB’s position that “counselor independence and impartiality, which the anti-steering provision seeks to preserve, may be adversely affected by a concern that another counselor may be selected or the content of the counseling influenced if the counselor requests that the [credit union] not listen to the counseling and the [credit union] does not agree.”  See final interpretive rule page 12.  Therefore, the interpretive rule states that credit unions will “comply with the anti-steering provision if a counselor is allowed to request that the creditor not participate or listen on the call.”  Id.  However, the CFPB is not enacting a prohibition on credit union’s participation, as the CFPB states that a “counselor ... is allowed to request that a [credit union] participate in a call or a portion of a call.”  Id. 

CFPB Finalizes One-Year Suspension of TILA Requirement for Quarterly Submission of Credit Card Agreements.  Last week the CFPB issued a final rule adopting a one-year suspension of its own regulation that requires certain credit card issuers to send their credit card agreements to the CFPB each quarter. Under the final rule, credit card issuers will not be required to submit agreements that would otherwise have been due to the CFPB by the first business day on or after April 30, July 31, and October 31 of 2015, and January 31, 2016.  The suspension does not affect the requirement for issuers to post their credit card agreements on their own publicly available websites.  12 C.F.R. 1026.58(d).

The rationale behind the suspension of quarterly submissions is so the CFPB can develop a more streamlined and automated electronic submission system. In its statement, the CFPB said the new system should enable faster posting of new and revised agreements on its website.

Credit card issuers must resume submitting credit card agreements on a quarterly basis to the CFPB starting on April 30, 2016.  In lieu of providing new and amended agreements and notice of withdrawn agreements for the April 30, 2016 submission, issuers are permitted to submit to the CFPB a complete, updated set of agreements offered to the public as of the calendar quarter ending March 31, 2016.  See comment 58(c)(1)-3.

HSBC Not Moving Fast Enough on AML Compliance Corrections; April 2015 BSA Blast

Written by Shari R. Pogach, Regulatory Paralegal

In December 2012, a combined federal, local and international government action accused global British bank, HSBC, of laundering money for drug cartels and transferring funds for terrorist regimes.  HSBC avoided criminal prosecution by paying a record settlement totaling $1.9 billion in forfeitures and penalties, and agreeing to court-appointed monitoring while the bank cleaned up its act.  But according to federal prosecutors in a court filing on April 1, 2015, HSBC’s clean-up progress is too slow.  As part of a quarterly update on the bank’s progress after the 2012 deferred prosecution agreement, the court filing summarizes the independent monitor's findings.  After monitoring HSBC’s operations for more than a year,  the monitor states the bank's weaknesses involve HSBC’s corporate culture and compliance technology: 

            “Overall, the Monitor believes that HSBC Group has made progress in developing an effective AML and sanctions compliance program and is better protected from and positioned to detect financial crime than when it entered into the DPA in December 2012. Specifically, the Monitor found that HSBC Group has made progress in the areas of risk assessment, “Know Your Customer” information and customer due diligence processes, compliance monitoring and testing, transaction monitoring alert adjudication and suspicious activity reporting, distribution of information to management, responses to potential financial crime violations, and incentivizing AML and sanctions compliance through compensation adjustment. However, in certain instances, the Monitor believes that HSBC Group’s progress has been too slow. The Monitor does not believe this is the result of bad faith or lack of commitment by HSBC Group’s senior leadership, but does believe that HSBC Group can – and must – do more.”  

[…] 

            “While adopting strong written policies is a significant step, it is only part of the equation. At present, the Monitor believes HSBC Group has a substantial amount of work left to do to implement its written policies. In the Monitor’s view, two of the greatest impediments to HSBC Group’s implementation of a sustainable compliance program are its corporate culture and its compliance technology. A strong corporate culture is one where senior executives, mid-level managers, and employees across business lines accept and believe in the importance of rigorous AML and sanctions compliance controls. The Monitor recognizes that a true cultural transformation in an institution as large and geographically diverse as HSBC Group and in an industry as challenged as the financial services industry is a massive undertaking. In the last year, the Monitor has seen a number of positive shifts in HSBC Group’s internal emphasis on AML and sanctions compliance.” 

[…] 

            “While this acceptance of responsibility by senior executives and the resulting tone from the top is important, it is not sufficient for a cultural transformation. Notwithstanding the attitude of HSBC Group’s senior executives, the Monitor observed other indicators that some of HSBC Group’s historical cultural deficiencies continue to pervade its operations today. For example, during the United States country review, the Monitor found that senior managers of HSBC Bank USA’s Global Banking and Markets (“GBM”) business line inappropriately pushed back against adverse findings by the HSBC Global Internal Audit team and HSBC Bank USA’s Compliance Testing and Control (“CTAC”) team arising from separate reviews in early 2014 of GBM’s “Know Your Customer” practices.”  

[…]  

            “Aside from corporate culture, one of the other biggest impediments to HSBC Group’s development of a sustainable compliance program, in the Monitor’s view, is its compliance technology. The Monitor believes, despite progress in improving its compliance technology, this remains an area of material weakness in which a great deal of work remains to be done. Specifically, HSBC Group’s compliance technology systems continue to suffer from fragmentation and lack of connectivity. The lack of connectivity between systems prevents the Bank’s investigators from easily reviewing a customer’s banking history when evaluating potentially suspicious activity and inhibits the adequate collection and analysis of customer due diligence information. The Monitor believes HSBC Group’s future compliance technology plans are reasonably calculated to produce an effective compliance program – if the plans can be successfully executed. Execution of these plans will be difficult, expensive, and time consuming.”  

HSBC’s Swiss subsidiary was recently found to have helped thousands of clients launder criminal proceeds and evade taxes. The Department of Justice (DOJ) has hinted at its willingness to revoke settlement agreements with banks where more wrongdoing is found.  The head of DOJ’s criminal division, Leslie Caldwell, outlined policy concerning repeat offenders.  In a March speech Caldwell stated:  

“…we have often entered into deferred prosecution agreements or non-prosecution agreements – known as DPAs and NPAs – with the banks.  

DPAs and NPAs are useful enforcement tools in criminal cases.  Through those agreements, we can often accomplish as much as, and sometimes even more than, we could from a criminal conviction.”

[…]  

“Make no mistake: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach. 

DPAs and NPAs are powerful tools.  They can’t be ignored once they’re signed, and they can’t be followed partially but not completely.  We will take action to ensure that banks are held accountable for DPA or NPA violations.  And where a bank that violates a DPA or NPA is a repeat offender with a history of misconduct, or where a violating bank fails to cooperate with an investigation or drags its feet, that bank will face criminal consequences for its breach of the agreement.”  

Time will tell how much patience DOJ has for HSBC.

***

BSA Blast.   The April 2015 quarterly issue of the BSA Blast is now available for NAFCU members (member login needed).   This edition reviews the elements of an effective compliance program according to the Department of Justice’s (DOJ’s) Criminal Division and highlights two recent enforcement actions.  The issue also includes a new BSA quiz with a focus on OFAC compliance.

TILA-RESPA: Disclosing “No Cost” Loan Transaction on Loan Estimate and Closing Disclosure; Sibling Love?

Written by JiJi Bahhur, Director of Regulatory Compliance

With the effective date soon approaching, NAFCU continues to receive a number of questions from its members on the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Mortgage Disclosure rule.  Today, I’d like to tackle the treatment of “no cost” loan disclosures under the TILA-RESPA rule.  Let’s take a look at it from the Loan Estimate standpoint and then the Closing Disclosure.

[Note: hyperlinked references to “final rule” will direct you to Federal Register /Vol. 78, No. 251 /Tuesday, December 31, 2013 /Rules and Regulations 79825].

Question: Are credit unions required to disclose “no cost” loan transactions on the Loan Estimate form?

Answer: Yes. Credit unions are required to disclose “no cost” loan transactions on the Loan Estimate form.

According to the Preamble of the TILA-RESPA final rule, the CFPB “does not believe that it would be appropriate to exempt “no cost” loans from § 1026.19(e)(3)(i); therefore, “no cost” loans must still comply with the current limitations on settlement charge increases in Regulation X.  See, Final Rule, Page 350.  Section 1026.19(e)(3)(i) applies to all costs “imposed on the consumer,” even ones that may not be paid by the consumer.  The closing costs in “no cost” loan transactions qualify as costs imposed on the consumer – under § 1026.19(e)(3)(i) – even though the costs are not paid by the member or financed by the creditor. See, Final Rule, Page 350. The costs paid by creditors on a member’s behalf in “no cost” loan transactions must, therefore, be disclosed under the “Closing Cost Details,” “Loan Costs,” or “Other Costs” sections of the Loan Estimate form as applicable.

This standard applies to all loans for which closing costs are offset by credit or rebate provided by the creditor, regardless of whether all or just a portion of the closing costs are being offset. See, Final Rule, Page 1803. Under such circumstances, the creditor must disclose the credit or rebate as lender credit, using a negative number, with the label “Lender Credits” under the subheading “Total Closing Costs.” See, 12 CFR § 1026.37(g)(6)(i)-(ii). However, “any credit disclosed should be sufficient to cover the total amount of closing costs” that the credit union represented to the member is covered by the Lender Credit under the loan terms. See, Final Rule, Page 864.

 

Question: Are credit unions required to disclose “no cost” loan transactions on the Closing Disclosure form?

Answer: Yes. Credit unions are required to disclose “no cost” loan transactions on the Closing Disclosure form.

Both generalized and specific credits that a credit union provides for closing costs must be disclosed. Generalized credit provided for closing costs must be disclosed as a negative number under “Lender Credits” and designated as borrower-paid at closing. See, 12 CFR § 1026.38(h)(3). Specific credits attributable to a particular loan cost or other cost, such as the fees that the credit union currently pays, must be listed in the “Paid by Others” column in the “Closing Cost Details” table under § 1026.38(f) or (g). See, Final Rule, Page 1843.

For a description of lender credits from the creditor, see comment 17(c)(1)-19. For a discussion of general lender credits and lender credits for specific charges, see comment 19(e)(3)(i)-5.

Like much of the TILA-RESPA Integrated Mortgage Disclosure rule, how to address “no cost” loans is highly technical, but there is helpful clarification in the commentary. Where even the commentary is difficult to apply, sometimes the explanations in the Preamble to the rule, while not binding, can provide further explanation—but the Preamble is long, so searching key terms helps.

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Sibling Love? It's Wednesday - that time of the week when some people can use a funny story or a bit of fresh air to get them to Friday.  So today, I share this with you. 

These twins appear to be loving and easy-going but I assure you that Kyse and Ava are like any other brother and sister - they love to annoy each other!  Don't let the photo fool you!  Ava is actually crying her eyes out because Kyse invited himself as a passenger and the last thing she wanted to do was share! 

Happy Wednesday! 

TILA/RESPA Loan Estimate: Projected Payments

Written by Victoria Daka, Regulatory Compliance Specialist

As the CFPB’s Truth-in-Lending/Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Mortgage Disclosure rule’s effective date of August 1, 2015 quickly approaches, we continue to receive questions relating to the Loan Estimate Disclosure – particularly, the “Projected Payments” table. This table includes an Estimated Total Monthly Payment line item and an Estimated Taxes, Insurance, and Assessments line item. The Total Monthly Payment – not to be misconstrued with the colloquial definition – includes only the Principal & Interest, Mortgage Insurance, and Estimated Escrow amounts. The Taxes, Insurance, and Assessments line, which is the more complicated item in this table, is what this blog will focus on.

 

 

                       

 

The Taxes, Insurance, and Assessments line item in this chart has led to some confusion because the rule contains multiple cross-references. The rule contains cross-references to the Ability-to-Repay/Qualified Mortgage rule and the definition of “finance charge:”

 

“(4) Taxes, insurance, and assessments. Under the information required by paragraphs (c)(1) through (3) of this section:

(i) The label “Taxes, Insurance & Assessments”;

(ii) The sum of the charges identified in §1026.43(b)(8) [defining “mortgage related obligations”], other than amounts identified in §1026.4(b)(5) [credit loss insurance protecting the creditor], expressed as a monthly amount, even if no escrow account for the payment of some or any of such charges will be established...”

This definition does not tell us much, other than that you need to check two other rules to determine what needs to be included in the "Estimated Taxes, Insurance, & Assessments" line. Section 1026.43(b)(8) says the following, and in and of itself cross-references the definition of “finance charge:”

 

“(8) Mortgage-related obligations mean property taxes; premiums and similar charges identified in §1026.4(b)(5), (7), (8), and (10) that are required by the creditor; fees and special assessments imposed by a condominium, cooperative, or homeowners association; ground rent; and leasehold payments.”

 

Thus, anything listed in sections 1026.4(b)(7), (8), and (10) must be included in the “Taxes, Insurance, & Assessments” section, as well as property taxes, fees and assessments imposed by condo or homeowners associations and things like ground rent and leasehold payments. Also note that while section 1026.4(b)(5) is included in the above mortgage-related obligation definition, it is specifically excluded from the definition of “Taxes, Insurance, & Assessments” under section 1026.37(c)(4). It’s no wonder that this item is a struggle! Here are the relevant sections of 1026.4(b) cross-referenced in section 1026.43(b)(8):

 

“(b) Examples of finance charges. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:

 

[…]

 

(7) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.

(8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.

[…]

(10) Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law.”

Thus, any of these three items are included in the “estimated taxes, insurance, and assessments” if it is “written in connection with a credit transaction,” and if it is “required by the creditor” as set forth in 1026.43(b)(8).

Keep in mind, for those that are still working through this rule the CFPB created the sample forms, the Guide to Forms, and a Small Entity Compliance Guide for the TILA/RESPA integrated disclosures rule that may be a helpful resource for your staff. In addition, for our members, NAFCU has a mortgage page that would also be of assistance to your staff. 

Disclosure of Consumer Complaint Narratives; 2015 Regulatory Compliance School Group Photo

Written by JiJi Bahhur, Director of Regulatory Compliance

It has been a full week since the conclusion of NAFCU’s 2015 Regulatory Compliance School.  For those of you who were in attendance, I want to thank you and also commend you for the hard work and effort you put into this very long, but rewarding week.  I also want to congratulate the many of you who earned your NAFCU Certified Compliance Officer (NCCO) designation on site or who will do so in the near future. 

If you were in attendance at School, you may recall that during the Consumer Financial Protection Bureau (CFPB) Update session, I spoke briefly on the CFPB’s Final Policy Statement regarding disclosure of consumer complaint narrative data.  For those of you that did not attend, I’ll brief you now. 

Before I jump into the details of this final policy statement, I’d like to start by saying that regulators’ expectations for handling consumer complaints have been increasing, and that trend shows no sign of slowing down.  Even though the CFPB only has supervisory authority over credit unions with assets over $10 billion, and therefore the ability to make public only those complaints made on select credit unions, the NCUA could adopt a similar practice down the road. Also, many CFPB enforcement actions and potential rulemakings are generated from consumer complaints.

Under the current practice, when a consumer submits a complaint to the CFPB, neither the consumer’s nor the company’s complaint narrative are made public.  Under the final policy statement, disclosure of the consumer’s unstructured complaint narrative data is allowed if the consumer opts-in to having it disclosed publicly.  Prior to publishing the narrative, the CFPB will take reasonable steps, according to the final policy statement, to scrub the narrative of information that would make the consumer identifiable.   

While investigation and resolution of consumer complaints is ideal, it seems that potential effects from this final policy statement can cause more harm than good.  For instance, disclosing narrative data raises safety and soundness concerns and unduly places financial institutions’ reputation at risk.  Also, disclosing narrative fields increases the likelihood that personal information will be inadvertently released.  Even with the CFPB employing methods to scrub the fields of personally identifiable information, these processes can be imperfect. 

For more information on the final policy statement, see NAFCU’s final summary here (NAFCU log-in required).  The final rule is effective no earlier than June 24, 2015.  In other words, the CFPB will not make public any narratives on the Consumer Complaint Database until at least June 24, 2015.

2015 Regulatory Compliance School Group Photo

The CFPB Incorporates TRID into its Supervision and Examination Manual, and the NCUA Changes Supervision Policy Manual on Secondary Capital for Low-Income-Designated Credit Unions

Written by Eliott C. Ponte, Regulatory Compliance Counsel

CFPB updates its Supervision and Examination Manual by adding TILA-RESPA Intergraded Mortgage Disclosures

 Last week the CFPB updated the RESPA and TILA chapters of its Supervision and Examination Manual by incorporating the TILA/RESPA Integrated Disclosure (TRID) rule.  By updating the manual, the CFPB added over 100 pages of TRID supervisory information.  While the updated TILA and RESPA chapters provide a good high-level summary of the rule, much of the manual restates previously available information.  Thus, credit union officers tasked with helping their credit union transition to the new TRID rules will not find this guidance too helpful.  However, after comparing the updated RESPA and TILA chapters to the other CFPB TRID resources, I find the Supervision and Examination Manual better organized and easier to read.  Thus, credit union employees might find reading the updated chapters helpful (the updated RESPA chapter begins on page 5, and the updated TILA chapter begins on page 35).

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NCUA Changes its Supervision Policy Manual Section on Secondary Capital for Low-Income-Designated Credit Unions

Yesterday, the NCUA issued a press release stating it had issued National Supervision Policy Manual changes that affect procedures for low-income-designated credit unions seeking or receiving secondary capital authority from the agency.  According to the NCUA, “the supervisory changes related to supplemental capital make it easier for low-income credit unions to obtain, and give investors greater clarity and confidence.”  Moreover, the NCUA states these changes “allow more flexibility and transparency.”  The revised procedures can be found in the updated section of the agency’s National Supervision Policy Manual, which is available online.

CFPB Kicks Off Payday Lending Rulemaking Process

Written by Brandy Bruyere, Regulatory Compliance Counsel

Happy Monday, today’s blog is a high-level overview of recent developments in the area of payday lending. On March 26^th, 2015 the Consumer Financial Protection Bureau (CFPB) formally announced that it is considering rules that would impact payday loans and certain vehicle title loans. Note—this was not a proposed rule, but rather an indication of where the CFPB may go with future rulemaking.

Generally, the bureau is looking at regulating two kinds of “covered loans”—those with a maturity of 45 days or less as well as longer-term loans that have an “all-in” APR that exceeds 36%. These longer-term loans would be “covered loans” if the lender is either repaid via some kind of authorization to access the borrower’s deposit accounts, or the loan is structured as a vehicle title loan.

For both types of covered loans, the CFPB is considering requiring lenders to follow one of two basic sets of rules. First, “debt trap prevention requirements” that would focus on things like determining the borrower’s ability to repay the loan. Alternatively, the bureau is considering proposals focused on “debt trap protection requirements” which would aim to prevent borrowers from ending up in an “unaffordable, long-term cycle of debt” by limiting rollovers during set timeframes (i.e. six or twelve months) and structuring loans so they amortize. The CFPB is also looking at including 60 day “cooling off” periods between loans. These requirements differ for short term versus longer-term loans, for more details on the specifics, check out this CFPB press release and fact sheet.

So the question is how will this process potentially impact credit unions?

NCUA “PAL” Program

NCUA has its “Payday Alterative Loans” or “PAL loans” (formerly called “short term small dollar amount” or “STS” loans). Under section 701.21(c)(7)(iii), federal credit unions [FCUs] may offer loans with interest rates 10% above NCUA’s usury cap, meaning up to 28%, for loans of at least $200 but no more than $1000 so long as the loan meets several requirements:

• The loan term is at least one month but no more than six months;
• The FCU makes no more than three PAL loans in any rolling six month period to a member;
• The FCU only makes one PAL loan to a member at a time;
• The loan is fully amortized;
• The member has been a member for a least one month;
• Applicants are charged an application fee reflecting processing costs at a maximum of $20; and
• The credit union develops underwriting guidelines to minimize risk and limit this kind of loan to no more than 20% of the credit union’s net worth.

Thus, some PAL loans could fall under the proposals the CFPB is considering. The bureau actually discussed impact on FCUs specifically in its outline.

Impact on Federal Credit Unions According to the CFPB

As one possible option for regulating loans with terms above 45 days, the CFPB indicated that loans may be acceptable if they somewhat follow NCUA’s PAL program. However, unlike the other covered loans, PAL loans may be limited to one rollover instead of two. Here is an excerpt from the outline on p. 48:

“Specific impacts on small entities making longer-term loans

[…]

The proposals under consideration would impose several requirements on [FCUs] that currently offer [PALs]. [FCUs] would be required to access commercially available reporting systems and report covered loans to those systems…Lenders would also not be able to make these loans to consumers who have a covered loan outstanding. The Bureau seeks information on how often this would limit [FCUs’] ability to make these loans. The NCUA [PAL] program allows [FCUs] to make up to three loans in a six-month period and allows loans that are at least 30 days in length. The proposals under consideration would limit lenders to two loans in a six-month period and require that loans be at least 45 days in length…The restriction on the number of loans in a six-month period could have an impact on the revenue of [FCUs] that make these loans; the Bureau believes these impacts would not be substantial.” (Emphasis added).

This seems to indicate that FCUs would not be able to utilize the “short term loan” options for loans with terms under 45 days, but rather the CFPB would seek changes to the existing PAL program. It is not clear why PAL loans, with their lower 28% usury cap, would be targeted for having one rollover less than what the CFPB may permit for other loans, but frankly this outline is not the model of clarity.

In addition to regulating the loan products themselves, the CFPB is also considering regulations relating to certain automatic payment features, credit unions would be required to provide three business days’ notice before drafting a payment from a member’s account or prepaid product.  NAFCU will monitor the CFPB’s activity in this area as the bureau moves forward in its rulemaking process.

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Palate Cleanser. This was rather long for a Monday, so here’s a photo of a very little boy and his very giant dog!

 

The CFPB’s Supervisory Highlights from Winter 2015; NAFCU Webcast

Written by Talia Rosenberg, Regulatory Intern

As part of the Consumer Financial Protection Bureau’s (CFPB’s) supervisory authority, it has recently released another issue of Supervisory Highlights, this time taking a look at supervisory actions found between July 2014 and December 2014. The CFPB’s Supervisory Highlights serve as a way for the bureau to communicate to the public and the financial services industry information about its examination process and the types of problems its examiners have discovered.

This report can be a useful tool for credit unions, as it points to items that the CFPB carefully scrutinized during its supervisory process. Credit unions are also able to see the seriousness of noncompliance for those particular problem areas as well as the remedies other financial institutions took to correct their deficiencies. In this issue, the CFPB focused on non-public supervisory actions involving debt collection, consumer reporting, deposit overdraft practices, mortgage origination, and fair lending. Let’s briefly look at these select deficiencies here:

Consumer Reporting (2.1): CFPB examiners found that some consumer reporting agencies fail to forward to furnishers relevant documents submitted by consumers, including cancelled checks, invoices, and correspondence. They also found deficiencies in the updating of public record information, leading to errors in the reporting of dispute results to consumers.

Debt Collection (2.2): CFPB examiners came across debt collectors employing false and misleading representation in collection communications, including misrepresenting collection calls, scripts and letters as well as practices involving ACH payments that created a serious risk of deception to consumers.

Deposits (2.3): CFPB examiners discovered that multiple financial institutions recently switched from a ledger-balance method to an available-balance method without properly disclosing this change, resulting in consumers being misled as to the circumstances under which overdraft fees were assessed.

Mortgage Origination (2.4): CFPB examiners identified multiple areas in which institutions demonstrate deficiencies in compliance with Title XIV on mortgage origination activities. These deficiencies include those in loan originator compensation, use of lender credits, responses to applications, advertisement and adverse action notices. See below for a more detailed examination of these deficiencies.

Fair Lending (2.5): CFPB examiners found multiple violations of both Regulation B and ECOA treatment of protected forms of income. They found that institutions, among other improper practices, sometimes automatically decline applications that rely on income from a non-employment source or discourage applicants who receive public assistance.

Supervision Program Developments (3.1, 3.2, 3.3): The CFPB highlights recent developments in the efficiency of its operations. These include examination procedures for credit card accounts, a guidance bulletin with information on social security disability income and compliance with the Equal Credit Opportunity Act and Regulation B, and the start of the Examiner Commission Program (ECP).

Now let’s dive into Section 2.4 on Mortgage Origination:

Mortgage Origination (2.4)

            Improper Loan Originator Compensation (2.4.1): Despite the fact that Regulation Z strictly prohibits loan originators from receiving compensation based on the terms of a consumer credit transaction secured by a dwelling, CFPB examiners found that branch managers, acting as loan originators, have received compensation based on these terms. Examiners concluded that these improperly allocated expenses resulted in marketing services entities receiving income based on the profitability of retail loans, and that supervision subsequently directed this income to loan originators.

            Improper Use of Lender Credit (2.4.2): CFPB examiners discovered that, because Regulation X requires a loan originator be bound to the settlement charges listed on Good Faith Estimates (GFEs), multiple institutions have employed the practice of reducing lender credits on an HUD-1 when the amounts that should have been disclosed on the HUD-1 were found to be in excess of those disclosed on the GFE. This consequence of inadequate training and compliance procedures, while aiming to prevent the borrower from receiving excess cash-back at closing, ultimately results in an impermissible increase in the final adjusted origination charge, a violation of Regulation X.

            Improper Failure to Provide Estimates (2.4.3): Regulations X and Z both provide three-day time limits for responses to certain types of consumer applications (Regulation X pertaining to GFEs provided by lenders and Regulation Z pertaining to good faith estimates of the Truth in Lending disclosures provided by creditors respectively). However, CFPB examiners identified policies and procedures that led to unspecific reporting of when applications were received, resulting in delays past these three-day time limits and consequent violations of both Regulations X and Z.

            Improper Use of Advertisements (2.4.4): CFPB examiners found that institutions have violated the Regulation Z rule against using triggering terms in advertisements without disclosures. These institutions advertise the length of payments, amount of payments, numbers of payments and finance charges, all without providing the requisite disclosures under Regulation Z.

            Improper Action Notices (2.4.5): CFPB examiners discovered that entities have been failing to meet the requisite provisions set forth by Regulation B with regard to adverse action notices. Examiners found that these entities not only failed to consistently notify applicants of action taken within 30 days of receiving the completed application (as is required by Regulation B), but also failed to provide the necessary information within such notifications (including the name and address of the creditor, a statement describing the provision of the Equal Credit Opportunity Act, the name and address of the agency administering creditor compliance and information regarding the specific reasons for the action taken).

            Improper Compliance Management Systems (2.4.6): CFPB examiners came across many institutions that lacked effective and proper compliance management systems. While an effective compliance management system should include board and management oversight, a compliance program, a consumer complaint program and a compliance audit program, examiners found deficiencies in the comprehensiveness and content of training, the scope of compliance audits and numerous other violations of Regulations B, X and Z.

These deficiencies have reportedly resulted in approximately $19.4 million in remedial costs for more than 92,000 consumers. Even though the CFPB only retains official supervisory authority over institutions and credit unions with total assets of more than $10 billion, a credit union with less than $10 billion in assets can still use this report to ensure that it is compliant with federal consumer financial laws.  

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NAFCU Webcast - The Currency Transaction Report: Avoiding The Many Danger Zones  on Tuesday, April 14, 2-3:30 pm ET. The Financial Crimes Enforcement Network’s (FinCEN’s) Currency Transaction Report (CTR) contains more than a few intricacies that can easily cause confusion. Make it a nonissue and attend this comprehensive webcast. We’ll review the CTR line-by-line, ensuring your ability to work with all types of accounts and potential challenges that can arise. Attendees also receive a handbook with over 20 examples of how to complete the CTR for trusts, businesses, aggregated transactions, sole proprietors and more. Register by April 1 to save $100!           

Happenings on the Hill

Written by Jillian Pevo, Director, Legislative Affairs

Good morning faithful Compliance Blog readers! As many of you know, NAFCU’s regulatory compliance team is heading up Regulatory Compliance School here in our nation’s capital this week. For those of you attending, I hope it has been filled with valuable information you can use to stay current on the constant and complex changes on the compliance front.

As a member of NAFCU’s legislative affairs division, my colleagues and I are working hard on Capitol Hill to bring additional Congressional oversight to the regulatory agencies and effectuate change via the legislative process. In recent weeks, NAFCU members have testified before the House Financial Services and Senate Banking Committees on regulatory relief priorities for credit unions including the impact of NCUA’s second risk-based capital proposal, field of membership changes and a plethora of other issues outlined in NAFCU’s 5 Point Plan for Regulatory Relief. Last week the Financial Services Committee moved a package of bills, several of which positively impacted credit unions, and we expect the Senate will follow suit with their early ideas when Congress comes back from the current recess period.  

Our efforts in gaining momentum for much needed relief from the agencies and lawmakers are membership driven and we would love to hear from you about what regulations are especially burdensome and what changes you have made at your credit union post financial crisis to deal with all the bureaucratic red tape. The more data and specific examples we have to back up the changes we are seeking, the more effective our overall lobbying efforts will be. While it can be difficult at times to weigh the true cost-benefit of many regulations across the entire industry, the anecdotal evidence many of you can provide is a force to be reckoned with.  

If you have any questions about the representation NAFCU provides for you and your credit union on the Hill, please don’t hesitate to contact me. I worked in the U.S. House of Representatives for a member of Congress from Virginia before coming to NAFCU over 5 years ago, and it’s a pleasure representing an industry that has bipartisan appeal and is truly making an impact on communities across the country. Thank you for making my job enjoyable!

 I’d love to hear from you and learn more about your experiences. To provide additional information on the regulatory burden you and your credit union face, or talk more about what’s going on in Congress, drop me a line – [email protected].

Enjoy Regulatory Compliance School!