NAFCU Compliance Blog

NACHA Adopts Same Day ACH; CFPB Spring Rulemaking Agenda

Written by Brandy Bruyere, Regulatory Compliance Counsel

On May 19, NACHA announced the approval of Same Day ACH which would amend NACHA rules allow some Entries to be processed the same day, promoting faster payments. According to NACHA, the new provisions would “build upon existing, next-day ACH Network capabilities and establish a new option for same-day clearing and settlement via ACH.”

Currently, most ACH transactions are settled on the next business day after origination. The new rules, which will be implemented in phases, would ultimately allow Same Day ACH for most transactions. While Same Day ACH will be optional for Originating Depository Financial Institutions (ODFIs), receipt of such transactions will be mandatory for Receiving Depository Financial Institutions (RDFIs). The changes also add new Part 11.1 Determination of Same Day Entry Fee, requiring ODFIs processing Same Day ACH transactions to pay the RDFI a Same Day Entry Fee of 5.2 cents per transaction.  Also, Same Day ACH would not be available for any International ACH Transaction (IAT) Entry or large transactions exceeding $25,000. The rule also amends sections relating to the determination and revision of Same Day Entry Fees.

This blog is a very high-level summary of some of the key components regarding the phased implementation of the changes. For more detailed information including full text of the new rules and Frequently Asked Questions, check out this NACHA webpage.

Phase 1—Credit Entries and Non-monetary Entries—Effective September 23, 2016

In part, the first phase of rule changes would add a new Section 8.84 Same Day Entry which permits same day processing for most credit Entries transmitted by an ODFI to its ACH Operator. Phase 1 explicitly excludes debit Entries from Same Day ACH. During Phase 1, for Same Day credit Entries, Subsection 3.3.1.1 General Rule for Availability of Credits will require RDFIs to make funds available in the account “no later than the RDFI’s processing for that for that settlement date.” However, during Phase 1, the RDFI is not required to make funds available for withdrawal on the Settlement Date. The rule also amends sections such as Subpart 3.2.2 Glossary of Data Elements and Subpart 10.4.6.2 Responsibilities of Enforcement Panel.

Phase 2—Addition of Debit Entries for Same Day ACH—Effective September 15, 2017

In Phase 2, Section 8.84 Same Day Entry would change so that debit Entries will also be eligible for Same Day ACH. Phase 2 also includes various amendments relating to Reversing Entries, Reclamation Entries, and Data Elements. For example, Subsection 2.8.3 Time Limitations on Initiation of Reversing Files will include a new technical requirement relating to debit Reversing Entries. Debit Reversing Entries must not contain an Effective Entry Date that is earlier than the Effective Entry Date of the related credit Entry.

Phase 3—RDFIs Must Make Funds Available by 5:00 PM Local Time—Effective March 16, 2018

Subsection 3.3.1.1 General Rule for Availability of Credits would be amended to require RDFIs to make credit Same Day Entries available no later than 5:00 PM local time, subject to the RDFI’s right to return an Entry. However, the RDFI will generally be exempt from this requirement if it “reasonably suspects that a credit Entry is unauthorized.”

NACHA issued scenarios that provide illustrations of how the current rules function and how the different phases of implementation will function. This document may be helpful in understanding the rules and how they may impact your credit union. NACHA’s Executive Summary may also be useful as a basic starting point. NAFCU’s Regulatory Affairs team will soon release a Final Regulation which goes into further detail on NACHA’s Same Day ACH rules for our members.

In a related note, on May 21 and in response to the NACHA announcement, the Federal Reserve issued a request for comment for adopting same-day ACH service for the Reserve Banks’ ACH service. Comments are due by July 2, 2015. NAFCU members can send comments regarding the Fed proposal to NAFCU Regulatory Affairs Counsel Kavitha Subramanian, [email protected].

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CFPB Issues Spring Rulemaking Agenda. On May 22, the CFPB published its Spring 2015 rulemaking agenda. For more information, here is the bureau’s blog and the agenda.

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Palate Cleanser. NACHA is a lot for a Friday, so here are a couple of photos that might take the edge off. Nolan is not crawling, but he will roll to where he wants to go—which sometimes includes heading in Lemmy’s direction. Also, now that summer is here, we are glad that Nolan enjoys hats so much that he’ll even pull them down further over his face. At least it keeps the sun off?

$2 Million in Second Round of NCUA Grants

Written by Eliott C. Ponte, Regulatory Compliance Counsel

Last week, NCUA announced it would make up to $2 million available to credit unions in the second round of Community Development Revolving Loan Fund grants.  NCUA will accept applications from June 1^st through June 30^th.  To apply, a credit union must have a “Low-Income Credit Union” designation or an equivalent in the case of a Qualifying State-chartered Credit Union.  In the second round, NCUA is offering four separate initiatives:

Fraud Prevention and Cybersecurity.  NCUA will provide up to $7,500 to assist in developing its fraud prevention and cybersecurity efforts.  Credit unions may use awarded funds for a variety of projects including compliance risk assessment, encrypting and/or protecting sensitive data, developing or implementing a data classification policy, cybersecurity training, and monitoring cyber security risk.  For a full list of all the projects covered by the grant, see NCUA’s OSCUI Grant Guideline, page 4.

New Product and Service Development.  NCUA plans to award individual grants of up to $10,000 to credit unions that want to offer select new products or services to its members.  NUCA has put together a list of approved products or services that include the installation of a new ATM to member business loans.  For a complete list of all the products and services covered, see NCUA’s OSCUI Grant Guideline, page 5.

Digital Growth.  Up to $10,000 will be available for each eligible credit union to offer digital products to members.  Under the Digital Growth initiative, a credit union can receive a grant to upgrade or enhance an existing product or service currently offered to members.  For more information, see NCUA’s OSCUI Grant Guideline, page 6.

Building Capacity and Growth.  NCUA plans to award grants up to $24,000 to credit unions interested in opening a new branch in underserved areas or relocating from a home-based to a non-residential location.  For more information, see NCUA’s OSCUI Grant Guideline, page 7.

 Each credit union may apply to any of the four grant initiatives, but the award maximum is $24,000.  Credit unions interested in applying for a grant may do so here.

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Data Breaches: Your Credit Union’s Role When Things Go Wrong

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

 Hundreds of millions of personal accounts have been affected by merchant data breaches.  The Home Depot breach alone cost credit unions over $54.2 million.  In the wake of these massive breaches, what has really been done?  Join us for an in-depth exploration of the fallout, your compliance obligations outlined by NCUA and FFIEC, and how you can contribute to the solution.  You will also take away a step-by-step approach to handling data security breaches at your credit union.  For more information, click this link.

 

NCUA’s May 2015 Report; Programming Note

Written by Victoria Daka, Regulatory Compliance Specialist

NCUA recently released its May 2015 Report. This report includes articles on:

• Membership Requirements Eased with Associational Common-Bond Final Rule
• Chairman’s Corner: Beauty Is in the Eye of the Beholder
• Consulting Nominations Now Open
• Vice Chairman Metsger’s Perspective: Wizards, Angels and Crystal Balls, Oh My!
• Board Member McWatters’ Perspective: Room for Improvement
• Board Actions: New Share Insurance Coverage Proposed for Certain Escrow Accounts
• NCUA-SBA Partnership Builds Credit Union Small Business Lending
• NCUA Loans Build Credit Union Capacity to Serve Communities
• NCUA Resources Support Credit Union Efforts to Protect Older Members

While the May issue contains a number of articles that may be of interest to you, the Membership Requirements Eased with Associational Common-Bond Final Rule article, in particular, caught my eye. Under the final rule, three broad changes are made to the NCUA’s common bond requirements, which this article discusses. Of note from the article:

“The final rule grants automatic qualification under NCUA’s rules to certain categories of associations the agency has routinely approved for federal credit union membership. At the suggestion of commenters, the Board added five categories to the seven originally proposed.  In all, 12 new types of associational groups will receive pre-approval…

 The final rule also establishes a threshold common-bond test that an association not be formed primarily for the purpose of expanding credit union membership. More than 99 percent of associational applications reviewed over the past three years have met this new requirement. Additionally, the rule expands the criteria for the agency’s totality-of-circumstances test, used to determine whether an association that is not automatically approved satisfies the common-bond requirements to qualify for manual inclusion in a federal credit union’s field of membership.” 

For the entire article, you can access it here.  Also, for more information on the final rule, take a look at NAFCU’s Final Regulation here and blog here. 

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

Usage of Integrated Disclosures for Transactions Not Covered by TILA/RESPA Rule; Cookie Break

Written by JiJi Bahhur, Director of Regulatory Compliance

NAFCU continues to receive TILA/RESPA Integrated Mortgage Disclosures questions from its members.  As someone who has been digging through this rule for over a year, I must say these questions are not easy, especially since the questions become even more nitty gritty as the effective date, August 1, becomes nearer.  Recently, a TILA/RESPA question was posed at a compliance roundtable that NAFCU attended.  When the question was posed, I said to myself that it sounded awfully familiar . . . maybe something I recently read . . . and I was right. 

The question was as follows: Is it permissible to use the TILA/RESPA disclosures instead of the currently-required Good Faith Estimate (GFE) and HUD-1 disclosures for those loans that are not under the scope of the TILA/RESPA rule?  If so, this would prevent some credit unions from having to utilize two parallel systems.

The Short:  No.  Creditors originating transactions that are not covered under the TILA/RESPA rule must continue to use, as applicable, the GFE, HUD-1, and TIL disclosures required under current law.

The Long: While the TILA/RESPA rule applies to most mortgage loan transactions, there are certain categories of loans that are excluded from the rule. The TILA/RESPA rule does not apply to:

• Home-equity lines of credit (HELOCs);
• Reverse mortgages;
• Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling that is not attached to real property; and
• Mortgage loans made by a person or entity that is not a “creditor” under Regulation Z. 

For transactions not covered under the TILA/RESPA rule, as listed above, creditors originating these types of mortgages must continue to use, as applicable, the GFE, HUD-1, and TIL disclosures required under current law.  In other words, creditors cannot use the new integrated disclosure forms instead of the GFE, HUD-1, and TIL forms for non-covered transactions, thus requiring the use of two systems/platforms to generate applicable forms. 

Now, the bigger question (at least for me): Why did the original question sound familiar?  That’s right, the CFPB’s Small Entity Compliance Guide briefly makes mention of it.  From the Compliance Guide:

“4.2 What are the disclosure obligations for transactions not covered by the TILA-RESPA rule, like HELOCs and reverse mortgages?

The new Integrated Disclosures will not be used to disclose information about reverse mortgages, HELOCs, chattel-dwelling loans, or other transactions not covered by the TILA-RESPA rule. Creditors originating these types of mortgages must continue to use, as applicable, the GFE, HUD-1, and Truth-in-Lending disclosures required under current law.”

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Cookie Break.  Imagine this – a family with over a dozen sets of twins, three sets of which are 8 to 10 months apart in age and live within a 2-block radius of each other.  Yep, no imagination needed here – that’s my family.  And this is what a cookie break looks like on a warm Saturday afternoon after tons of running around the yard! 

If you don’t normally follow my blogs, my twins – Ava and Kyse – are, from left to right, third and fifth on the bench.

 

CFPB Bulletin on Non-Discriminatory Access to Credit for Mortgage Applicants Who Receive Public Housing Assistance; Updated Mortgage Origination Examination Procedures; Public Inquiry into Student Loan Servicing Practices

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

CFPB Bulletin on Non-Discriminatory Access to Credit for Mortgage Applicants Who Receive Public Housing Assistance. The CFPB recently released Bulletin 2015-02, Section 8 Housing Choice Voucher Homeownership Program. The bulletin is intended to remind creditors “of their obligations under the Equal Credit Opportunity Act (ECOA)¹ and its implementing regulation, Regulation B,² to provide non-discriminatory access to credit for mortgage applicants using income from the Section 8 Housing Choice Voucher (HCV) Homeownership Program.³” (Footnotes omitted). The Section 8 Housing Choice Voucher Homeownership Program (Program), created to assist low-income, first-time homebuyers in purchasing homes, is funded by the Department of Housing and Urban Development and administered by participating local public housing authorities.

The Bulletin was issued in response to certain lending practices that have come to the attention of the CFPB – namely that some financial institutions have been excluding or refusing to consider income from the Program during the loan application and underwriting process, or only permitting Program vouchers to be used for certain mortgage loan products or delivery channels. The Bulletin reminds institutions of their fair lending obligations under ECOA and Regulation B regarding the treatment of income derived from any public assistance program. From the Bulletin:

“ECOA and Regulation B prohibit creditors from discriminating in any aspect of a credit transaction against an applicant “because all or part of the applicant’s income derives from any public assistance program.”⁶ “Any Federal, state, or local governmental assistance program that provides a continuing, periodic income supplement, whether premised on entitlement or need, is ‘public assistance’ for purposes of the regulation. The term includes (but is not limited to) . . . mortgage supplement or assistance programs . . . .”⁷ As such, mortgage assistance provided under the Section 8 HCV Homeownership Program is income derived from a public assistance program under ECOA and Regulation B.

Regulation B further provides that “[i]n a judgmental system of evaluating creditworthiness, a creditor may consider . . . whether an applicant’s income derives from any public assistance program only for the purpose of determining a pertinent element of creditworthiness.”⁸ However, “[i]n considering the separate components of an applicant's income, the creditor may not automatically discount or exclude from consideration any protected income. Any discounting or exclusion must be based on the applicant's actual circumstances.”⁹” (Footnotes omitted).

The Bulletin goes on to provide guidance on managing fair lending risk in this area, such as making sure underwriting policies are clearly articulated; training underwriters, mortgage loan originators and others involved in mortgage loan origination; and monitoring for compliance with underwriting policies. For complete details, the CFPB’s press release is available here and the Bulletin is available here.

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Updated Mortgage Origination Examination Procedures. Earlier this month, the CFPB also released updated mortgage origination examination procedures, which include guidance on how the agency will conduct examinations for compliance with the TILA-RESPA Integrated Disclosure Rule (TILA-RESPA). This document can be a handy tool for those working to implement TILA-RESPA requirements in advance of the August 1, 2015, effective date. For a complete run-down of NAFCU resources to assist those working to implement the rule, check out this blog by my colleague JiJi.

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Public Inquiry into Student Loan Servicing Practices. The CFPB has issued a request for information seeking comments from the public about industry student loan servicing practices; practices related to loan repayment, including practices related to student loan repayment for borrowers in distress; the applicability of consumer protections from other consumer financial product markets (such as consumer mortgages and credit cards) to student loan servicing; and input about the availability of data on student loan performance and on borrower characteristics during repayment. Comments are due to the CFPB on or before July 13, 2015.

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NAFCU Webcast: UCC Provisions Affecting Your Credit Union. The Uniform Commercial Code (UCC) impacts many of your credit union’s lending and payment processing activities—but the connection usually isn’t obvious until there’s a problem. Avoid this issue by being well-informed. Attend this detailed webcast to learn how various sections of the UCC affects the different operations of your credit union, from lending to dishonored checks. The webcast will be held on Thursday, May 21, from 2:00 p.m. – 3:30 p.m. ET. Register here.

FinCEN Update

Written by Shari R. Pogach, Regulatory Paralegal  

Enforcement Action. Earlier this month, the Financial Crimes Enforcement Network (FinCEN) announced its first civil enforcement action against a virtual currency exchanger.  Ripple Labs Inc. (Ripple) and its wholly- owned subsidiary, XRP II, LLC (formerly known as XRP Fund II, LLC) was assessed a $700,000 civil money penalty for acting as a money services business (MSB) and selling its virtual currency, known as XRP, without registering with FinCEN as well as not having an adequate anti-money laundering (AML) program in place.  Headquartered in San Francisco, CA, Ripple facilitated transfers and provided virtual currency exchange transaction services.  By market capitalization, Ripple cryptocurrency is second only to Bitcoin as of 2015. 

As part of an agreement for corrective action and to ensure future BSA compliance, Ripple must: 1) only transact XRP and “Ripple Trade” activity through a registered MSB; 2) implement and maintain an effective AML program; 3) comply with the Funds Transfer and Funds Travel Rules; 4) conduct a three-year “look-back” to require suspicious activity reporting for prior suspicious transactions; and 5)  retain external independent auditors to review compliance with the BSA every two years up to and including 2020. These reports will be provided to FinCEN and the U.S. Attorney's Office. Ripple is also required to take steps to appropriately monitor all future transactions. 

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Speech Tidbits.  In a recent speech, FinCEN Director Jennifer Shasky Calvery discussed the agencies reliance on reports filed by financial institutions.  Some highlights:

“Thanks to the reports filed by financial institutions, FinCEN has a wealth of data that we are able to analyze and disseminate in the form of financial intelligence to our Treasury colleagues; and to law enforcement and intelligence community partners. The information you provide allows us to  connect the dots between seemingly unrelated individuals and entities. These capabilities are critical in supporting the U.S. Government’s efforts to disrupt ISIL sources of revenue, to restrict  their access to the international financial system, and to impose sanctions on ISIL facilitators.”

         […]

“Thanks to the reports filed by financial institutions, FinCEN has a wealth of data that we are able   to analyze and disseminate in the form of financial intelligence to our Treasury colleagues; and to law enforcement and intelligence community partners. The information you provide allows us to connect the dots between seemingly unrelated individuals and entities. These capabilities are critical in supporting the U.S. Government’s efforts to disrupt ISIL sources of revenue, to restrict their access to the international financial system, and to impose sanctions on ISIL facilitators.”

         […]

“…At FinCEN, we are working on multiple fronts to optimize the collection, analysis, and dissemination of your reporting to achieve these ends.”

         […]

 “We process about 50,000 new filings each day. To manage a data collection of this size, FinCEN   uses automated “business rules” to search the reporting daily for key terms, entities, or typologies specific interest. The rules are designed to screen daily filings and identify reports that merit   further review by analysts. For example, rules related to ISIL, alone, generate over 800 matches each month for further review and exploitation. “

         […]

“Domestically, FinCEN grants more than 10,000 agents, analysts, and investigative personnel from over 350 unique agencies across the U.S. Government with direct access to your reporting so that it gets the broadest possible use”

         […]

“To support follow-on action by others, FinCEN works closely with our Treasury colleagues within the Office of Foreign Assets Control (OFAC) to support their efforts to target sanctions on ISIL facilitators and deter a wide range of threats.”

In another speech, Shasky Calvery gave an update on the status of the agency’s enhanced customer due diligence proposal.

 “…Beneficial ownership information is so important to our efforts to enhance financial transparency, particularly as it relates to the issues we have discussed this morning surrounding money laundering through real estate and third party money launderers.”

         […]

“As far back as 10 years ago when I was working as a prosecutor, so many of my very own investigations were stalled by an inability to follow the money. And inevitably shell companies were involved. So when people ask “why beneficial ownership” and “why now?” what I really want to say is “why not 10 years ago?”

We all benefit from a level-playing field that requires all financial institutions to employ reasonable efforts to enhance the integrity of their institutions and the financial system as a whole. As most of you know, in July 2014, FinCEN working closely with its partners in Treasury issued an NPRM to amend existing BSA regulations to help prevent the use of shell and shelf companies to engage in or launder the proceeds of illegal activity in the U.S. financial sector.

As proposed, the rule would clarify and strengthen customer due diligence obligations of banks and other financial institutions, including brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities. The proposed amendments would add a new requirement that these entities know and verify the identities of the real people who own, control, and profit from the companies they service.

So where are we now? The comment period on the CDD NPRM closed in October 2014. We received 126 comments, illustrating the high level of interest in the proposal. Commenters included trade associations, law firms, consulting firms, research institutes, banks, other financial institutions within the scope of the rule and otherwise substantially impacted, federal regulatory agencies, and several concerned individuals.

Some commenters requested greater clarification on questions of scope and key definitions, while  others proposed more significant revisions to the rule. Many commenters nonetheless expressed broad thematic support for the rulemaking’s underlying purposes. We are now in the process of thoughtfully reviewing, discussing, and considering the issues that were raised by those that  commented. This is why there is an NPRM process, so we can gather feedback and consider change. We want to get this right.”

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Law Enforcement Awards.    FinCEN announced the presentation of its first-ever Law Enforcement Awards at a ceremony at the Treasury Department on May 12.  The program is intended to: 1) recognize law enforcement agencies usage of BSA data to obtain a successful prosecution; and 2) to provide concrete evidence of the value of the BSA data to the financial industry.  The program includes six award categories and summaries of the cases are provided in the announcement.

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SAR Stats.  FinCEN has issued the SAR Stats quarterly update, which provides information on Suspicious Activity Reports (SARs) filed through March 31, 2015.  The updated statistics can be viewed here. Credit Unions filed 20, 345 of the 213,280 SARs filed during first quarter 2015.             

Mortgage Broker Delivery of the TILA/RESPA Loan Estimate

Written by Brandy Bruyere, Regulatory Compliance Counsel

August 1^st is eighty days away—that’s just two months and 19 days. Somehow, that TILA/RESPA deadline that seemed so far off is now right around the corner. As credit unions continue the implementation process, some are reviewing procedures for having outside mortgage brokers provide the Loan Estimate on the credit union’s behalf. How does this work?

Under section 1026.19(e)(1)(ii), if a mortgage broker receives a consumer’s application, either the mortgage broker or the credit union must provide the consumer with the Loan Estimate. However, where the mortgage broker provides the Loan Estimate, “[t]he creditor shall ensure that such disclosures are provided in accordance with [1026.19(e)].” Here is the rule and its relevant CFPB staff commentary:

“(e) Mortgage loans secured by real property—early disclosures. 

[…]

(ii) Mortgage broker. 

(A) If a mortgage broker receives a consumer's application, either the creditor or the mortgage broker shall provide a consumer with the disclosures required under paragraph (e)(1)(i) of this section in accordance with paragraph (e)(1)(iii) of this section. If the mortgage broker provides the required disclosures, the mortgage broker shall comply with all relevant requirements of this paragraph (e). The creditor shall ensure that such disclosures are provided in accordance with all requirements of this paragraph (e). Disclosures provided by a mortgage broker in accordance with the requirements of this paragraph (e) satisfy the creditor's obligation under this paragraph (e).

 […]

19(e)(1)(ii) Mortgage broker.

[…]

2. Creditor responsibilities. If a mortgage broker issues any disclosure required under §1026.19(e) in the creditor's place, the creditor remains responsible under §1026.19(e) for ensuring that the requirements of §1026.19(e) have been satisfied. For example, if a mortgage broker receives a consumer's application and provides the consumer with the disclosures required under §1026.19(e)(1)(i), the creditor does not satisfy the requirements of §1026.19(e)(1)(i) if it provides duplicative disclosures to the consumer. In the same example, even if the broker provides an erroneous disclosure, the creditor is responsible and may not issue a revised disclosure correcting the error. The creditor is expected to maintain communication with the broker to ensure that the broker is acting in place of the creditor.”

(Emphasis added)

In other words, the credit union is responsible for any errors in the Loan Estimate that is provided by the broker on the credit union’s behalf, which includes being bound by the tolerances for fees. The credit union would not be able to issue a revised Loan Estimate to correct any errors made by the mortgage broker. Rather, revised Loan Estimates are limited to the existence of a “changed circumstance” and the rule’s limitations of such changes in making any adjustments.

Also, because the special information booklet required by section 1026.19(g) must be delivered or placed in the mail “not later than three business days after the consumer’s application is received,” then “if the consumer uses a mortgage broker, the mortgage broker shall provide the special information booklet.” See, 12 C.F.R. 1026.19(g)(1)(i).

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CFPB to Host Fifth and Final TILA/RESPA Webinar. On Tuesday, May 26, at 2 PM EDT, the Federal Reserve will host the CFPB’s fifth and final webinar clarifying questions relating to the interpretation and implementation of TILA/RESPA. You can register for the free webcast here. 

If you missed any of the previous CFPB webinars and would like to watch them, they are available here.

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Sleepy Baby. Apparently Nolan did take after me in some respects—when he needs to sleep, he is down for the count!

Consulting, Tweeting, Livestreaming, and Holding Webinars . . . Four Things Offered By the NCUA in May

Written by Eliott C. Ponte, Regulatory Compliance Counsel

Free Consulting Services from the NCUA

Credit unions that have either (1) total assets of less than $50 million, (2) a new charter (fewer than 10 years), (3) a designation as a minority depository institution, or (4) a designation as a low-income credit union can nominate themselves to receive free consulting services from the National Credit Union Administration’s Office of Small Credit Union Initiatives.  

NCUA’s consulting services are provided by experienced economic development specialists who offer assistance to credit unions in the areas of budgeting, marketing, policy development, strategic planning, and operational or regulatory areas.  Selected credit unions receive assistance for a six-month period.  Credit unions must nominate themselves by May 31, 2015.  The application is available online here. 

For additional information, please visit the consulting page of the Office of Small Credit Union Initiatives or email the Office of Small Credit Union Initiatives at [email protected].

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NCUA Hosting Cybersecurity Webinar

The NCUA Office of Small Credit Union Initiatives is hosting a cybersecurity webinar on Wednesday, May 20, 2015, at 2:00 P.M. EST.  The webinar will include information about credit union losses due to cybercrime, precautionary measures to protect member information, and the consequences of failing to protect information.  The webinar will also include information about cybersecurity grants that will be available to qualified low-income credit unions. 

To register for this webinar, click on this link.  Participants may submit questions in advance at [email protected].  The NCUA has requested that any questions submitted contain the phrase “Cybersecurity Basics” in the subject line. 

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NCUA and AARP are Hosting a Twitter Party on Wednesday, May 13, 2015

Yes, you read that correctly.  The NCUA and AARP are hosting a Twitter Party (also known as a Twitter Chat) on detecting and addressing elderly abuse on Wednesday, May 13, 2015.  NCUA will begin tweeting at 11:00 A.M. EST.  Credit union employees are encouraged to follow the conversation and contribute using the #NCUAChat hashtag on Twitter.  Credit union employees who do not know how to use twitter or would like to submit a question in advance can do so by emailing [email protected].

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Registration For NCUA Open Board Meetings No Longer Necessary

Beginning with the NCUA’s May 21, 2015 open Board meeting, registration for the livestream online real-time video will no longer be necessary.  Anyone interested in watching an open Board meeting will be able to connect to the livestream through a link on the NCUA’s home page 15 minutes before the meeting starts.

Consumer Compliance Outlook – Consumer Compliance Requirements for Commercial Products and Services; NAFCU Webcast

Written by Shari R. Pogach, Regulatory Paralegal 

Consumer Compliance Outlook. The First Quarter 2015 issue of the Federal Reserve’s Consumer Compliance Outlook is now available. Articles of interest in this issue include: 

• Consumer Compliance Requirements for Commercial Products and Services
• The Expanded Scope of High-Cost Mortgages Under the Dodd-Frank Wall Street Reform and Consumer Protection Act
• Agencies Issue Guidance on Youth Savings Program
• Compliance Spotlight: Waiting Period for MPPP Lender Force-Placed Flood Insurance

Though referred to as “federal consumer protection laws,” it is important to remember that some of the federal consumer protection laws and corresponding implementing regulations are not limited to consumer products and services. For example, the Equal Credit Opportunity Act/Regulation B, the Flood Disaster Protection Act and the Servicemembers Civil Relief Act, among others, also apply to commercial products and services.  And, although generally limited in scope to consumer products and services, other consumer protection laws have certain provisions that also apply to commercial products and services.  For example, Regulation Z has certain requirements for business-purpose credit cards. 

The compliance requirements of these federal consumer protection laws should be reviewed and integrated into a credit union’s applicable policies and procedures to ensure compliance when offering commercial products and services.  A good starting point is this general overview provided in the First Quarter 2015 issue. 

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NAFCU Webcast.   Be sure to join us for NAFCU’s Regulatory Compliance Update with JiJi Bahhur and the Compliance Team on Thursday, May 14, from 2:00 -3:30pm ET.  Our highly-anticipated Compliance Update is back! NAFCU’s Regulatory Compliance team will explore recent Consumer Financial Protection Bureau (CFPB) and National Credit Union Administration (NCUA) rules, regulations and guidance, plus discuss how the upcoming changes and proposals could affect your credit union. Definitely plan on attending this enlightening webcast to help ensure your credit union’s compliance efforts are up-to-date.

NCUA: Adding Share Insurance Coverage under IOLTA Proposed Rule

Written by Victoria Daka, Regulatory Compliance Specialist

On April 30, 2015, the NCUA Board proposed a rule to enhance pass-through share insurance for interest on lawyers trust accounts (IOLTAs) and “other similar accounts.” This proposed rule seeks to amend NCUA’s share insurance regulations to implement statutory amendments to the Federal Credit Union Act resulting from the recent enactment of the Credit Union Share Insurance Fund Parity Act (Insurance Parity Act). The Insurance Parity Act, enacted on December 18, 2014, ensures that NCUA and Federal Deposit Insurance Corporation (FDIC) insure those IOLTAs and “other similar accounts” in an equivalent manner. Due to the clarity of this Act, with regard to share insurance for IOLTAs, no implementing regulations are required to affect this aspect of the Act. Thus, NCUA reiterates IOLTA share insurance coverage is currently and will remain in place regardless of the direction the final rule takes.

However, other aspects of the Act remain ambiguous. As such, NCUA proposes the following: 1) the type of escrow accounts that should be included in the category of “other similar escrow accounts” as the phrase is used in the Insurance Parity Act; 2) prepaid card programs, such as payroll cards, should not be considered IOLTAs or “other similar escrow accounts” for share insurance purposes; 3) no additional recordkeeping requirements are imposed by the Insurance Parity Act; 4) while credit unions will begin to contain funds for non-members in IOLTAs and “other similar escrow accounts,” insured credit union’s BSA responsibilities continue; and 5) non-member funds kept in a federal credit union as a result of the enhanced share insurance coverage provided by the Insurance Parity Act do not count towards a federal credit union’s limit on the receipt of payments on shares from non-members pursuant to §701.32 of NCUA’s regulations.

Here is an overview of each item.

“Other similar escrow accounts”

In addition to the Insurance Parity Act providing that pass-through insurance coverage for IOLTAs, the Act also provides that escrow accounts “similar” to IOLTAs have pass-through insurance available. The type of escrow accounts that should be included in the category “other similar escrow accounts” as the phrase is used in the Insurance Parity Act is unclear. The Act remains silent as to the definition of “similar” and fails to describe what constitutes an escrow account that is “similar” to an IOLTA. Thus, NCUA is tasked with defining what accounts are “similar” to IOLTAs.

Given the various types of escrow accounts and the comparative nature of “similar,” NCUA seeks to provide regulatory clarity and certainty with regard to “other similar escrow accounts.” In addition, NCUA seeks to avoid case-by-case analyses of escrow accounts because this process would be inefficient and would provide credit unions with little to no notice of what would constitute “other similar escrow accounts.”

With that said, NCUA recognizes some escrow accounts whose nature and structure are similar, though not identical, to an IOLTA such as: typical realtor escrow accounts and prepaid funeral accounts. The signature characteristic common to these escrow accounts is that each has a licensed professional or other individual serving in a fiduciary capacity and holding funds for the benefit of a client as part of some transaction or business relationship. Therefore, NCUA proposes that escrow accounts with the signature characteristic should have pass-through share insurance coverage up to the limits provided for in Part 745 of NCUA’s regulations.

Prepaid card programs

Generally, prepaid card programs and IOLTAs have completely different structures and serve completely different purposes. More specifically, prepaid card programs and IOLTAs are completely different because the characteristics of the attorney/client relationship and fiduciary duties present in an IOLTA account are absent with prepaid card programs. Therefore, NCUA proposes that prepaid card programs, such as payroll cards, should not be considered IOLTAs or “other similar escrow accounts” for share insurance purposes.

Recordkeeping requirements

NCUA’s current share insurance regulations in §745.2(c)(1) and (2) provide the recordkeeping requirements for IOLTAs and “other similar accounts.” Therefore, NCUA proposes no additional recordkeeping requirements.

BSA requirements for insured credit unions

While credit unions will begin to contain funds for non-members in IOLTAs and “other similar escrow accounts,” insured credit unions BSA responsibilities continue. Therefore, NCUA proposes no additional BSA responsibilities for insured credit unions.

Federal credit union’s limit on the receipt of payments on shares from non-members pursuant to §701.32 of NCUA’s regulations

Under the Insurance Parity Act, IOLTAs and “other similar escrow accounts” are considered member accounts if the attorney administering the IOLTA or the escrow agent administering the account is a member of the insured credit union. In addition, NCUA believes that if an IOLTA or “other similar escrow accounts” satisfies this criterion then the IOLTA or “other similar escrow account” should be considered a member account for purposes of §701.32 of NCUA’s regulations. Therefore, NCUA does not propose any regulatory change on the limit of the receipt of payments on shares from non-members pursuant to §701.32 of NCUA’s regulations.

This proposal has a 60-day comment period. NAFCU’s Regulatory Affairs team will release a Reg Alert on this proposal later this week. 

CFPB Enforcement Action for Alleged Unlawful Overdraft Practices; April 2015 NCUA Report; March NCUA Board Meeting Video

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

CFPB Enforcement Action for Alleged Unlawful Overdraft Practices. Last week, the CFPB announced its first enforcement action for alleged violations of Regulation E’s requirement to obtain affirmative consumer opt-in before charging a fee for one-time debit and ATM overdrafts. (See, 12 C.F.R § 1005.17(b)(1).  The target of the enforcement action, Regions Bank (“Regions” or “bank”), also allegedly made deceptive misrepresentations regarding overdraft fees assessed in connection with linked accounts and overdraft and NSF fees assessed in connection with loan repayments on the bank’s deposit advance product.

Specifically on the issue of affirmative consumer opt-in prior to charging overdraft fees, it appears that the customers affected were those who had linked their checking accounts to savings accounts or lines of credit to cover overdrafts. According to the consent order, the CFPB found that in instances where an ATM or one-time debit transaction exceeded the available balance in both the checking and the linked account, the bank paid the transaction and charged an overdraft fee of up to $36. However, because the bank had erroneously determined that its linked accounts were not subject to the opt-in requirement, and had therefore not obtained affirmative consumer opt-in, the fees were charged in violation of the rule.

In addition to making sure all affected consumers are reimbursed, the bank must identify and fix all instances of negative credit reporting resulting from the unlawful fees, and pay a $7.5 million penalty payment to the CFPB’s Civil Penalty Fund. The CFPB indicated that Region’s violations could have justified a larger penalty, but the CFPB credited the bank for making reimbursements to consumers and promptly self-reporting to the Bureau once the issues were brought to the attention of senior management.

The consent order may be found in its entirety here.

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

Economic Growth Expected to Continue But Uncertainty on the Horizon

Chairman’s Corner: Five New Areas of Regulatory Relief

Take Part in Financial Capability Month

Board Member McWatters’ Perspective: Reflections on GAC

Board Actions: NCUA Seeks to Eliminate Fixed-Assets Cap

Identifying and Preventing Common Recordkeeping Deficiencies

Second Half of 2015 Brings Changes to Mortgage Disclosures

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March NCUA Board Meeting Video. Lastly, the video recording of NCUA’s March open meeting is now available. The March video, along with archived videos of past Board meetings, may be found on this page of NCUA’s website.

NCUA Board Finalizes Changes to Associational Common Bond Rules

Written by Brandy Bruyere, Regulatory Compliance Counsel

On April 24, 2014, the NCUA Board proposed to amend requirements relating to associational common bonds. The proposal included the addition of a threshold determination where an association formed “for the purpose of expanding credit union membership” would be rejected without further consideration. NCUA also proposed adding a factor to the current “totality of the circumstances” test that would consider, based on several factors, whether “corporate separateness” exists between the federal credit union (FCU) and the association. The proposal also listed seven kinds of associations that would be eligible for “automatic” approval. (NAFCU blogged about the proposal here and here).

Yesterday, the NCUA Board held an open meeting to consider several agenda items, including finalizing new rules relating to associational common bonds. Here is an overview of the changes.

Threshold Requirement

When reviewing an application to add an association to a FCU’s field of membership (FOM), NCUA will now make a “threshold” determination before even applying the totality of the circumstances test to “determine if the association has been formed primarily for the purpose of expanding” FCU membership. (Preamble, p. 13). If so, NCUA will deny the addition, but if not, NCUA will then apply the totality of the circumstances test to determine if there is a common bond among the members of the association. While the proposal included a requirement that an association operated independently for at least one year prior to being added a FCU’s FOM, NCUA removed this in the final version.

Revised Totality of the Circumstances Test

The current test uses seven factors for determining whether there is a common bond among an association’s members:

•  “Whether members pay dues;”

•  “Whether members participate in the furtherance of the goals of the association (changed in the final rule);”

•  “Whether the members have voting rights. To meet this requirement, members need not vote directly for an officer, but may vote for a delegate who in turn represents the members' interests;”

•  “Whether the association maintains a membership list;”

•  “Whether the association sponsors other activities;”

•  “The association's membership eligibility requirements (changed in the final rule);” and

•  “The frequency of meetings.”

Neither the presence nor the absence of any of these factors will determine whether an association has a common bond, rather all the factors are viewed in their totality. In other words, operationally the rule remains the same. However, the final rule adds an additional factor to this test relating to separateness between the credit union and the association, and changes the language of a couple of the existing factors:

• “Whether the association provides opportunities for members to participate in the furtherance of the goals of the association;”  
• “Whether the association's membership eligibility requirements are authoritative;”
• “Separateness– NCUA reviews if there is corporate separateness between the group and the federal credit union. The group and the federal credit union must operate in a way that demonstrates the separate corporate existence of each entity. Specifically, this means the federal credit union’s and the group’s respective business transactions, accounts, and corporate records are not intermingled.”

While the proposal would have considered several specific factors as to whether the association and the credit union maintain separateness, the final rule uses more general factors. For example, whether the association and the credit union maintain a separate physical location is no longer one of the listed considerations for separateness.

Pre-approved Groups

The April 2014 proposal included seven groups that could be automatically added a FCU’s charter:

• Alumni associations;
• Religious organizations (including churches or groups of related churches);
• Electric cooperatives;
• Homeowners associations;
• Labor unions;
• Scouting groups; and
• Associations that have a mission based on preserving or furthering the culture of a particular national or ethnic origin.

The final rule includes these seven kinds of groups and five additional groups eligible for automatic approval:

• Parent teacher associations that are “local” and “serve a single school district;
• Chamber of commerce groups, limited to the group’s members (not the members’ employees);
• Athletic booster clubs whose members have voting rights;
• Fraternal organizations or civic groups “with a mission of community service” where members have voting rights; and
• Organizations promoting social interaction or educational initiatives among people with “a common occupational profession.”

Here is a chart of examples from the preamble to the rule:

 

NCUA also added language stating that “each class of member will be evaluated based on the totality of the circumstances. Individuals or honorary members who only make donations to the association are not eligible to join the credit union.” See, Final Rule, p. 34. However, NCUA’s other requirements for adding groups to a FCU’s charter relating to the FCU’s capitalization, safety and soundness record, harm of an expansion on existing members, etc. will still apply. See, Preamble, p. 12; Chartering and Field of Membership Manual, IV.B.2—Numerical Limitation of Select Groups.

The rule will go into effect 60 days after publication in the Federal Register. At yesterday’s Board meeting, NCUA staff advised that the agency is drafting guidance to delineate how the Office of Consumer Protection (OCP) will apply the revised totality of the circumstances test as well as clarify the due process procedures OCP utilizes when evaluating an expansion application. As you review the final rule, if you encounter any areas you believe warrant clarification in this upcoming guidance, please reach out to NAFCU’s Director of Regulatory Affairs, Alicia Nealon, [email protected]. 

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Palate Cleanser. Being from Northeast Ohio, it was against my better judgment but I bought my son a Red Sox shirt to make my Bostonian husband happy. Lemmy photo bombed Nolan, then just had to say hi!