NAFCU Compliance Blog

Back to Basics: Are All Members Created Equal?

Written by Pamela Yu, Special Counsel for Compliance and Research

With reportedly 108 million credit union members, it's no secret that credit unions are a terrific choice for American consumers seeking financial services. Credit unions are member-owned, not-for-profit cooperative financial institutions that provide local communities with key financial products.  Unlike banks, which operate with the purpose of maximizing shareholder profits, credit unions operate with the purpose of returning benefits to their member-owners in the form of lower interest rates on loans and higher returns on savings and deposits. According to an independent study released by NAFCU earlier this year, the cumulative benefit credit unions provide the greater economy totals over $16 billion per year. 

Of course, to benefit from the advantages of credit union membership, individuals must be eligible to join a credit union. Usually, this means a person falls within a credit union's field of membership. A federal credit union's field of membership may include individuals who share a common bond of occupation, association, or community.  But if a person doesn't directly qualify for membership, they may still be eligible to join because of a close relationship with someone who does qualify.

"Primary" and "Secondary" Credit Union Membership

There are two types of credit union members: primary and secondary (or derivative) members. The way an individual may qualify for credit union membership depends on whether that person is a potential primary member or a potential secondary member.

NCUA's chartering and field of membership rules allow a federal credit union the discretion to include in its field of membership (FOM) "other persons eligible for credit union membership," including among others, "members of the immediate family or household."  The Chartering and FOM Manual defines "immediate family" as "spouse, child, sibling, parent, grandparent, or grandchild. This includes stepparents, stepchildren, stepsiblings, and adoptive relationships."  In addition, "household" is defined as "persons living in the same residence maintaining a single economic unit." This definition includes any person who is a permanent member of and participates in the maintenance of the household, including family members, domestic partners, foster children, and legal guardian relationships. Roommates in a single residence would also meet this definition, but a fraternity, sorority, or nursing home relationship would not. See, NCUA Letter to Federal Credit Unions 99-FCU-2, p. 23.

If such "other persons" are included in the credit union's FOM, both "primary" and "secondary or derivative" membership in the credit union is permitted.  NCUA has issued a number of legal opinions discussing the meaning and parameters of both primary and secondary membership.  Those opinions explain that an individual that is within a federal credit union's FOM is eligible for membership as a primary member.  Immediate family and household members of the primary member, because of their close relationship to the federal credit union's common bond group, are considered potential secondary or derivative members of the credit union. See, NCUA Legal Opinion 97-1020. 

The eligibility rules for primary membership vary from those for and secondary membership.  NCUA's Chartering and FOM Manual provides:

"Membership eligibility is extended only to individuals who are members of an “immediate family or household” of a credit union member. It is not necessary for the primary member to join the credit union in order for the immediate family or household member of the primary member to join, provided the immediate family or household clause is included in the field of membership. However, it is necessary for the immediate family member or household member to first join in order for that person's immediate family member or household member to join the credit union." (Emphasis added).

Thus, where a federal credit union has included the immediate family or household member clause in its field of membership, the immediate family and household members of a primary individual may join the credit union as long as the primary individual is within the credit union's FOM at the time the family or household member joins the federal credit union. In other words, immediate family and household members are allowed to join a federal credit union even if the primary individual is not a member, as long as the primary individual is currently within the federal credit union's FOM.  However, if the primary individual leaves the FOM without having become a member, the immediate family or household members of the primary individual are no longer eligible to join the credit union. See, NCUA Legal Opinions 97-1020; 98-0404.

On the flip side, if an immediate family or household member of a primary individual joins the credit union and, subsequently, that primary individual leaves the FOM, the family member can stay with the credit union.  Under the "once a member always a member" policy, immediate family or household members can maintain their membership in a federal credit union even if the primary individual is no longer within the field of membership. See, NCUA Legal Opinion 97-1020.  For example, in the circumstance where a primary individual dies, NCUA has opined that immediate family or household members that have already joined a federal credit union through their relationship to the primary individual within the credit union's common bond may continue their membership after that individual's death. See, NCUA Legal Opinion 97-1019.

 Example

 The flow charts below demonstrate primary and secondary membership eligibility.  For ease of reference, the charts analyze an immediate family or household relationship:

 

Keep in mind that there are other ways to qualify for secondary membership, aside from a close family or household relationship.  For example, "other persons" like volunteers, by virtue of their close relationship with a sponsor group, may also be included in the credit union's FOM. 

Finally, remember that eligibility alone is not enough to establish credit union membership. Under the Federal Credit Union Act, membership in a federal credit union requires an approved membership application and payment and maintenance of at least a par value share (as well as any applicable entrance fee). See, 12 U.S.C. §1759(a); FCU Bylaws, Article III.  

New York's DFS Final Cybersecurity Requirements – Will Others Follow?

Written by Shari R. Pogach, Regulatory Paralegal

While NAFCU is focused on federal compliance issues, a new state cybersecurity rule has made waves in recent months. The New York State Department of Financial Services (DFS) issued final regulations with mandatory cybersecurity requirements for financial services entities in February of this year.  The regulations became effective March 1, 2017, with a series of implementation deadlines for covered entities at six months, one year, 18 months and 24 months  – meaning for state-chartered credit unions in this state, the first compliance deadline is around the corner, August 28, 2017.  A covered entity is defined as all entities operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the New York banking, insurance or financial services laws.  There are exemptions for those entities with fewer than 10 employees, less than $5 million in gross annual revenue for three years or less than $10 million in year-end total assets. The New York state regulations indicate an enhanced focus on risk-prioritized and managed cybersecurity with corresponding burden and associated increased costs to financial institutions.

Here are some of the significant requirements under the DFS cybersecurity regulations:

• Written and ongoing maintained cybersecurity policies that must include a written incident response plan.
• A designated chief information security officer (CISO) to oversee the cybersecurity program that must have board and/or senior management access with annual reporting to same.
• Any cybersecurity events, incidents and/or breaches must be reported to the DFS no later than 72 hours from a determination that a cybersecurity event has incurred that: 1) requires reporting to a government, regulatory or supervisory body; or have a reasonable likelihood of material harm to the normal operations of the covered entity.
• Board or senior management certification of covered entity compliance.
• Penetration testing and vulnerability assessments with zero acceptance risk appetite levels.
• A five year audit trail retention period containing enough data to be able to recreate material transactions.
• A compliance monitoring and effectiveness program.
• Third party service provider security policy for risk management and review of the cybersecurity practices of the providers with periodic assessment and audit.

Many of these requirements are broad in scope so the DFS issued further guidance on a frequently answered questions page, including questions on the scope of entities that must comply, which can be found here. 

It is believed in the industry the DFS will be quick to enforce its regulations with infractions incurring civil penalties and possiblly criminal penalties.  The requirement for a designated CISO is to ensure an ability to determine going forward " a person, who is to blame" for any infractions. Unfortunately, the actions by New York DFS may be a harbinger to come of  similar regulation by other states or by the federal government as the United States is considered to behind in comparison to the  European Union's General Data Protection Regulation (GDPR).  

 

Overdrafts Still on the Radar

Written by Jennifer Aguilar, Regulatory Compliance Counsel

With the overdraft lawsuits still in the news, we have had a number of questions in the compliance inbox lately on the overdraft rules. The questions have touched on a number of the different overdraft provisions in both Truth in Savings and Regulation E. Here is a primer on the various rules that should serve as a helpful starting point in researching overdraft issues.

Truth in Savings

Section 707.11 of NCUA's Truth in Savings rule provides a couple different overdraft provisions. First, the disclosure requirements. The rule requires credit union to disclose two pieces of information about overdrafts fees on each periodic statement: (1) the total dollar amount of all fees imposed for paying items when there are insufficient or unavailable funds in the account, and (2) the total dollar amount of all fees imposed for returning items unpaid. The rule requires these totals to be provided for both the statement period and year-to-date. The commentary to this section explains that these totals must include per-item fees, interest charges, daily or other periodic fees and any fees for maintaining an overdrafted account. Credit unions may itemize fees in addition to providing the totals but are not required to do so.

Second, the advertising rules. If an advertisement promotes the payment of overdrafts, the rule requires that advertisement to also state: (1) the fee for paying each overdraft, (2) which transactions a fee for paying overdrafts will be imposed on, (3) the time period the member has to repay the overdraft, and (4) when the credit union will not pay an overdraft. These disclosures must appear on the advertisement in a clear and conspicuous manner. The rule also provides a number of exceptions including member-initiated inquiries, television or radio advertisements, billboards and ATM receipts.

Truth in Savings does not provide a specific definition for overdrafts. However, the commentary explains that overdrafts do not include transfers of funds from the member's other accounts even if the credit union charges a fee for the transfer or overdraft services subject to Regulation Z.

Regulation E

In addition to the Truth in Savings requirements, overdrafts are also covered by Regulation E. Section 1005.17(a) defines an overdraft service as a service where a credit union charges a fee on a member's account for paying a transaction when there are insufficient or unavailable funds in the account. Regulation E also does not cover transfers of funds from the member's other accounts or overdraft services subject to Regulation Z.

If a credit union charges a fee for its overdraft service in connection with an ATM or one-time debit card transaction, section 1005.17(b) requires members to opt-in to the overdraft service for these transactions. The rule requires credit unions to provide a written notice, a reasonable opportunity for the member to opt-in, the member's affirmative consent to opt-in and a confirmation of the opt-in. The notice must be provided separately from all other information. The member's affirmative consent to opt-in must be provided before a credit union may impose any fees for paying overdrafts on ATM or one-time debit card transactions. All overdraft fees must also be disclosed under section 1005.7(b)(5).

The written notice must be substantially similar to Model Form A-9. Section 1005.17(d) requires the notice to include: (1) a description of the overdraft service that includes the types of transaction that are covered by the service; (2) all fees associated with paying an overdraft including per-item fees, daily fees or other periodic fees and negative balance fees; (3) any maximum number of fees that will be imposed per day; (4) an explanation of the member's right to opt-in and (5) all other options for paying overdrafts that the credit union offers, such as a service that transfers funds from the member's other accounts.

Overdraft Litigation

As with most of the consumer regulations, Truth in Savings and Regulation E focus on specific disclosure requirements rather than any operational requirements. This has proved to be an area of concern in the overdraft lawsuits filed in the past few years. Both PNC and Bank of America got tied up in litigation over their transaction reordering practices. The banks would rearrange transactions and process the highest dollar transactions first rather than processing the transactions chronologically. This resulted in consumers being charged multiple overdraft fees in one day as opposed to a single overdraft fee that would have been charged if the banks had processed the transactions in chronological order.

Credit unions have also gotten hit with lawsuits over their practice of calculating the balance on a member's account. These credit unions used a member's available balance rather than actual balance to determine when an overdraft fee would be charged. A member's actual balance may differ from her available balance due to debit card or check holds and the fact that the actual balance differed from the available balance is not always apparent to the member.

While the overdraft rules in Truth in Savings and Regulation E do not provide requirements for how to apply transactions or calculate account balances, the rules do require credit unions to describe how the overdraft service works. Omitting key facts from that description can lead to costly litigation. NCUA's overdraft guidance is also a useful resource in determining best practices for overdraft services. The guidance suggests that credit union should clearly explain the operation, costs and discretionary nature of the service. The guidance also suggests that credit unions should explain transaction clearing practices and inform members as soon as the service has been used.

CFPB Proposes Change to HMDA HELOC Threshold, Releases HMDA Loan Scenarios; Rulemaking Agendas Updated

Written by Brandy Bruyere, Vice President of Regulatory Compliance

NAFCU has been working on issues with HMDA implementation on Capitol Hill and now we are seeing some results. As background, back in June Senators Mike Rounds and Heidi Heitkamp proposed legislation to change the reporting thresholds under HMDA, following up on with a letter to CFPB Director Cordray on the same issue. On July 10, 2017 Director Cordray responded to the Senators' letter indicating that the bureau was considering increasing the threshold for reporting open-end mortgages from 100 loans to 500 loans over a two year lookback period. For a little more information on HMDA thresholds for reporting, check out this blog or for a detailed overview, NAFCU members can access this article with their log in.

On July 14, 2017 the bureau issued its proposal with comments due by July 31, 2017 indicating that the CFPB may intend to move quickly on this action. The CFPB indicated that this is temporary at least for the time being while the bureau investigates what the appropriate threshold should be for reporting open-end dwelling secured loans:

The Bureau has heard concerns that, in setting the open-end transactional coverage threshold at 100 transactions, the Bureau set it too low. The Bureau is now proposing to increase that threshold to 500 or more open-end lines of credit for two years (calendar years 2018 and 2019). During that period, the Bureau will reconsider the open-end transactional coverage threshold: This temporary increase would allow the Bureau to do so without requiring financial institutions originating fewer than 500 open-end lines of credit per year to collect and report data with respect to open-end lending in the meanwhile.

Note, this proposal would not change the low reporting threshold for closed-end dwelling secured loans, which is set at 25 such loans under HMDA. NAFCU will submit comments on this proposal.

HMDA Loan Scenarios. On July 19, 2017 the CFPB released a set of hypothetical transactions as an additional tool for complying with upcoming changes to HMDA. Three different scenarios are covered: single-family closed-end purchase loans, non-natural person, multifamily purchase loans, and open-end lines of credit. The scenarios include data mapping samples based on the loan scenarios presented as storylines, with assumptions made "for the sake of simplicity and continuity," but may help credit unions make some determinations as to how to report some data points. The CFPB also made some changes to the documents on its Resources for HMDA Filers page.

Spring Rulemaking Agendas Released. The "Spring" 2017 rulemaking agendas are now available. While these documents are usually updated in late May, there was a bit of a delay this year, perhaps due to having a new administration. It may be helpful to compare the Fall 2016 agendas to the Spring 2017 agendas for an indication on priorities given the changes in Washington. NCUA's Fall 2016 Agenda is available here, and Spring 2017 here. The CFPB's Fall 2016 agenda is here, and Spring 2017 agenda here.

Fraud, Schemes and Scams: Let's talk Regulation P and Privacy

Written by: André B. Cotten, Regulatory Compliance Counsel

Regulation P requires credit unions to create a privacy policy that describes the information that it gathers and shares from and with third parties. Credit unions must disclose this policy to new members and to all members on an annual basis. Generally, credit unions that wish to share sensitive information with non-affiliated third parties must give affected members the right to opt out or block such sharing. This general right to "opt out," however, is subject to three large exceptions.

The first exception found in section 1016.14 allows credit unions to disclose nonpublic personal information to nonaffiliated third parties for "processing or servicing transactions" in without triggering the notice and opt out requirements.

Section 1016.15  provides other general exceptions to Regulation P's general rule. For example, a credit union may disclose nonpublic personal information where a consumer has consented and does not revoke the consent to the specific disclosure. A credit union may also disclose nonpublic personal information under this exception to comply with a properly authorized subpoena or with federal, state or local laws.

The last exception found in section 1016.13 permits a credit union to disclose nonpublic personal information to nonaffiliated third parties that perform services or functions for the credit union without providing an opt out. The credit union must satisfy conditions to qualify for this exception. The credit union must first describe the disclosure in its privacy notice. The credit union must also have an agreement with the recipient that prohibits it from using the information other than for the purposes for which it received the information and that it will properly maintain the confidentiality of the information.

Today's blog will focus on a couple of the section 1016.15 exceptions to access a member's nonpublic personal information through a subpoena or to prevent fraud.

Subpoena

Regulation P permits the credit union to disclose nonpublic personally identifiable information in order to comply with a properly authorized "civil, criminal or regulatory investigation, or subpoena or summons by Federal, state, or local authorities." 12 C.F.R. § 1016.15(a)(7)(ii).

Periodically, the NAFCU Compliance Team receives the question regarding what a credit union should do if it receives a subpoena that requires a member's nonpublic personal information. First, the credit union may want to contact local counsel. The credit union may also want to identify and calendar when it must respond to the subpoena. Since the recipient of a subpoena has a duty to identify and preserve responsive documents, the credit union may want to develop and implement a policy to ensure all responsive documents are identified, collected and preserved.

Furthermore, the credit union may want to determine potential response options. This will be a fact specific analysis to discuss with local counsel, however the credit union may have several response options, which may include:

• Comply with the subpoena and provide the requested testimony, documents or both;
• Serve written objections to a document subpoena;
• Move to quash (or modify) the subpoena;
• Move for a protective order;
• Contact the party who served the subpoena in an attempt to informally resolve the issue
• Contact an adverse party (that is, party to the litigation whose interests are adverse to those of the party that issued the subpoena) in an attempt to have the adverse party exercise its rights against the party who issued the subpoena

Ultimately, the decision whether to comply or resist the subpoena will be a risk-based business decision for the credit union. Several considerations impact the decision of whether to comply with (or resist) a subpoena, including: the time, effort and cost of compliance; whether or not sound legal and practical arguments to support non-compliance are available under the circumstances; the likelihood that arguments in support of non-compliance may be successful.

This article may be a helpful resource for credit unions seeking more guidance on how to deal with a subpoena.

Fraud

Regulation P also permits the credit union to disclose nonpublic personally identifiable information "to protect against or prevent actual or potential fraud, unauthorized transactions, claims or other liability."

Absent a legal directive, the credit union will have to make a risk-based business decision as to what degree of information is necessary to protect against or prevent fraud. From a conservative perspective, the credit union may consider only disclosing the information that is necessary to strike the appropriate balance between the credit union's desire to share information and its duty to safeguard member information from unauthorized access pursuant to part 748 of NCUA's Rules and Regulations.

Remember, the NCUA also has several resources that may assist the credit union with making this risk-based business decision:

• NCUA's Fraud Prevention Centerwebsite
• NCUA's Fraud Series videos
• AIRES Examination Questionnaires on "Red Flags" and "Internal Controls-Management"
• NCUA's Interpretive Ruling and Policy Statement 87-1regarding the Bank Bribery Act and codes of ethics

Moreover, the credit union may also want to review its member agreements for any contractual authority or obligations. Ultimately, the credit union's local counsel will be in the best position to offer further guidance.

Upcoming Webcasts:

FREE: Understanding the New HMDA Submission Tool
Thursday, August 3 | 2:00 p.m. – 3:30 p.m. ET 

Speakers from the CFPB will unveil and demonstrate the HMDA submission tool—be among the first to see it so you're best prepared. 

Accounting Changes: Everything but CECL
Wednesday, August 2 | 2:00 p.m. – 3:30 p.m. ET

Understand the details of accounting changes such as the new lease accounting standard, plus explore the role of the private company council and its impacts on your credit union.

 

Breaking Down the TRID Fix: 60 Days Isn't Really 60 Days, Except When It Is; Two Upcoming CECL Webcasts

 Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel

On July 6^th, the CFPB finalized its TRID "Fix" rule. Unfortunately, the CFPB continues to punt on addressing some obvious issues with TRID, including declining to address the obvious errors in their own sample forms. In TRID-land, we'll take what we can get.

Before jumping into the nuts and bolts of the final rule itself, it's important to get one thing straight: the effective date.

TRID "Fix" Implementation Dates

The proposal included a 120-day effective date for the implementation of the changes to TRID.

It its comment letter on the proposed rule, NAFCU reminded the CFPB that, as with the initial implementation of the TRID rule, credit unions will have to work with vendors to update processes and systems, perform testing and provide training to incorporate the changes. As such, the proposed 120 day time period for implementation was simply not realistic.

NAFCU also specifically asked for an extended period or 12 months to implement the changes, and for the Bureau to allow for early compliance where possible. Apparently NAFCU's requests were echoed by the majority of other industry commenters and the Bureau heard us.

For the majority of the changes, the rules themselves will become effective in the Code of Federal Regulations 60 days after they are published. However, compliance with the changes will not become mandatory at that time. Instead, compliance will become mandatory for applications received on or after October 1, 2018.

Regarding how credit unions can begin to implement the changes, the Bureau stated:

"For these reasons, the Bureau agrees with several commenters that it is appropriate to allow creditors flexibility to comply with the 2017 TILA-RESPA Amendments all at one time, or to phase in the changes prior to the mandatory compliance date. After considering the comments, the Bureau does not believe that it would be optimal in these circumstances for the Bureau to impose a detailed schedule for creditors to phase in the changes required by this final rule, for example by establishing multiple effective dates that are staggered over time. Thus, after the effective date of the 2017 TILA-RESPA Amendments, creditors generally may phase in the 2017 TILA-RESPA Amendments as best comports with their business models, whether based on application dates for specific provisions or even during the course of a transaction, although such phased-in compliance may not place the creditor in violation of provisions of Regulation Z (as interpreted by the commentary) unchanged by this final rule…" Final Rule, p. 416.

Exceptions for Two Post-Consummation Requirements

There is an exception to this implementation framework regarding a change to commentary implicating two requirements: (1) subsection 1026.20(e) regarding escrow cancellation notices and (2) the partial payment policy disclosure required by paragraph 1026.39(d)(5). Both of these provisions address notices which may be required during the life of the loan, possibly long after consummation.

There has been some confusion as to when exactly these post-consummation requirements applied to loans that might have been applied for or originated before the October 3, 2015 TRID implementation deadline. To clarify the issue, the CFPB is amending comment 1 to the scope of Subpart E to address this. New comment 1 to paragraph 1(d)(5) explains when these post-consummation requirements apply:

"Additionally, §§ 1026.20(e) and 1026.39(d)(5), as amended or adopted by the TILA-RESPA Final Rule, took effect on October 3, 2015, for transactions for which the creditor or mortgage broker received an application on or after October 3, 2015, and take effect October 1, 2018, with respect to transactions for which a creditor or mortgage broker received an application prior to October 3, 2015." Final Rule, p. 461.

This commentary becomes effective 60 days after publication of the final rule in the Federal Register, and there is no delayed implementation for that guidance. We will continue to dig into the so-called TRID Fix, and we will let you know what we find.

Two Upcoming CECL Webcasts

CECL - A Deep Dive Into 5 Implementation Models (For Purchase)
Wednesday, July 19 | 2:00 p.m. – 3:30 p.m. ET

NAFCU teamed up with a renowned team of data scientists to analyze the pros and cons of five implementation models for the new CECL rules. Hear what we found so you can choose the best model for your credit union.

 

CECL Roadmap - Understanding Requirements, Dispelling Myths & Planning Implementation (Free)
Thursday, July 20 | 2:00 p.m. – 3:30 p.m. ET 

Hear directly from FASB regulators the key steps and actions credit unions should take for a successful CECL implementation. You'll also gain a general understanding of CECL requirements.

 

Appeals Court Sends Lifeline to First Cannabis Credit Union

Written by Pamela Yu, Special Counsel for Compliance and Research

The 10^th Circuit Court of Appeals has revived the efforts of Colorado-based The Fourth Corner Credit Union (Fourth Corner) to become the nation's first cannabis credit union.  The credit union, chartered under an obscure provision in Colorado law that permits the state financial services commissioner to grant a charter so long as the credit union has "applied for" share insurance, was formed in 2014 to serve the state's legalized marijuana industry and its supporters.  On June 27, in a 2-1 majority opinion, the appellate court overturned the district court's ruling in the credit union's lawsuit against the Federal Reserve Bank of Kansas City (Fed Bank) after the bank denied Fourth Corner's application for a master account. Vacating the district court’s order and remanding with instructions dismiss the amended complaint without prejudice, the divided 10^th Circuit panel decision essentially gives Fourth Corner another shot at applying to the Fed Bank for a master account, which could pave the way for the credit union to finally open its doors for business. 

Background

In 2012, Colorado, along with Washington, became the first states in the nation to legalize recreational marijuana under state law.  However, under the Controlled Substances Act (CSA), marijuana remains a Schedule I substance, which makes it illegal under federal law to manufacture, distribute, or dispense marijuana.  See, 12 U.S.C. §812(b)(1).  As such, despite legalization under state law, financial transactions involving proceeds from marijuana-related activity can still form the basis for federal criminal prosecution.  As discussed in a prior blog post, this conflict between federal and state law presents a significant challenge to financial institutions in providing banking services to marijuana-related businesses (MRBs).  As a result, MRBs that are operating legally under state law remain largely unbanked and typically operate as cash-only businesses, increasing public safety risks.

In late 2014, Fourth Corner sought to address this banking void by forming a state-chartered credit union to exclusively serve MRBs and supporters of legalized marijuana in the state of Colorado.  According to its Facebook page, the credit union's mission is "to [provide] compliant banking services to those who share a common bond of support for the legalized marijuana industry." 

After getting the green light from the Colorado financial services commissioner, the newly-chartered credit union planned to open its doors in Denver in early 2015.  But the credit union's momentum was short-lived.  In July 2015, NCUA denied Fourth Corner's application for federal share insurance and, shortly after, the Fed Bank denied Fourth Corner's application for a master account, basing its denial, in part, on NCUA's insurance denial.  In response, Fourth Corner filed suit against the Fed Bank and NCUA in two related actions essentially alleging that "The NCUA and [the Fed Bank] acted in concert to unlawfully block [Fourth Corner] from gaining access to the Federal Reserve payments system," which the credit union deems is crucial to its operations.  See, Complaint, The Fourth Corner Credit Union v. National Credit Union Administration.  Indeed, without access to a master account, the credit union cannot access the Fed's payments system to electronically transfer funds. 

In short: no master account, no business. 

District Court Decision

In December 2015, the U.S. District Court for the District of Colorado dismissed, with prejudice, Fourth Corner's lawsuit against the Fed Bank.  Fourth Corner had asked the court for a mandatory injunction directing the Fed Bank to grant it a master account, but the court declined to grant such relief, finding that "courts cannot use equitable powers to issue an order that would facilitate criminal activity."  See, Dismissal Order, The Fourth Corner Credit Union v. Federal Reserve Bank of Kansas City.  While acknowledging that the "situation [is] untenable," the district court nevertheless concluded that the credit union's stated purpose in providing financial services to MSBs violated the CSA and "[a] federal court cannot look the other way" just because "financial institutions don’t mind violating the law."  See, Dismissal Order.  Fourth Corner appealed the decision to the U.S. Court of Appeals for the 10^th Circuit, which heard oral argument on the matter in November 2016.

10^th Circuit Court of Appeals Decision

In a deeply divided decision, the three-judge panel of the 10^th Circuit issued three separate opinions that overlapped on some points, but were in direct conflict on others.  Essentially, however, the appellate court vacated the lower court’s order and directed the district court to dismiss the amended complaint without prejudice.  In short, the decision allows Fourth Corner to reapply to the Fed Bank for a master account and to have the case heard again if the bank denies that request.  The court also noted that according to statute the Fed Bank must indiscriminately make Federal Reserve services available to "all depository institutions."  See, 12 U.S.C. § 248a(c). 

But… It is important to note that the appellate decision largely relies on Fourth Corner's promise in its amended complaint that it would service marijuana-related businesses only if doing so is legal:

"The district court dismissed the amended complaint, reasoning that Fourth Corner would use the master account to violate federal drug laws. This ruling was erroneous. The district court should have presumed that Fourth Corner would follow the court’s determination that servicing marijuana-related businesses is illegal. And in the amended complaint, Fourth Corner essentially promised to obey the law that would be set out in the eventual declaratory judgment. In these circumstances, the district court had little reason to jettison the standard on a motion to dismiss and rely instead on suspicions about what Fourth Corner would do." (Emphasis added).

Basically, the appeals court found that the district court relied on mere suspicions about what Fourth Corner might do, which was an insufficient standard to approve a motion to dismiss.

In other words, the appellate decision comes with a big caveat—while Fourth Corner may serve marijuana industry supporters and advocates, it may not serve MSBs that are illegal under federal law.

What does this mean for marijuana banking?

Given Fourth Corner's original goal of bringing vital financial services to unbanked MSBs, the 10^th Circuit decision is only a limited win for the would-be credit union.  The credit union is now presumably free to adjust its business plan, reapply for a master account and, if granted, to open for business to serve legal-marijuana advocates and other individuals and groups within its field of membership that it may legally serve under federal law.  But here's the thing—regardless of the disposition in court, the credit union was already able to serve those legally innocuous groups.  The key, of course, has always been the ability to serve MSBs that are legal under state law but illegal under federal law.  Viewing the decision through that lens, it's hard to say that the 10^th Circuit ruling has moved the ball forward for marijuana banking.  In fact, the decision may have brought the conflict of laws into even sharper focus.  

Indeed, the appeals court was unambiguous in one regard: 

"Today, two of the three panel members hold that servicing marijuana-related businesses remains illegal under federal law. With this holding by a panel majority, Fourth Corner will know that servicing marijuana-related businesses is illegal." (Emphasis added).

Oh, and don't forget that Fourth Corner's lawsuit against NCUA is still pending.  While the Colorado state financial services commissioner appears to have hinted that a denial of federal share insurance is not necessarily fatal to the credit union's business plan, a court ruling in favor of NCUA would certainly raise yet another roadblock for the embattled credit union.  Thus, while Fourth Corner has indicated that it will move forward in pursuing a master account, the credit union—and marijuana banking in general—continues to face a long and difficult road ahead.

Increased Liability Triggers Reg E Disclosures

Written by Stephanie Lyon, Regulatory Compliance Counsel

In 2014, the card networks made changes to their zero liability policies as applied to branded debit and ATM cards. Recently, Visa announced another change that replaces the standard in the Visa Core Rules for its zero liability policy from "grossly negligent" to "negligent". This change essentially raises the standard of care required by cardholders to meet the zero liability protections afforded by Visa. Many credit unions have asked the NAFCU compliance team a couple of questions associated with this change so we thought it would be helpful to round them up:

1. Should we send a change in terms notice under Regulation E to incorporate the change in language?

Regulation E requires a change in terms notice under four circumstances, one of which is the increase of liability for members going through the error resolution process.  See, 12 C.FR. § 1005.8(a)(ii). Before Visa announced this change, a member would have zero liability for unauthorized transactions unless he or she was grossly negligent or fraudulent in the handling of the account or card. Under the revised rule, the member will be afforded zero liability unless he or she is negligent or fraudulent in handling the account or card. So what is negligence anyways? While this can vary under state law and your attorney is in the best position to give a good summary of negligence, here are some basics. Negligence is a legal concept that compares the behavior of a hypothetical reasonable and prudent person to the behavior exhibited by your member. If the member's behavior negatively deviates from the expected behavior of a reasonably prudent person acting under similar circumstances, the member is said to be negligent, or in plain English, careless. Gross negligence on the other hand, is a step above negligence amounting to conscious and voluntary disregard of the need to act reasonably.

In effect, Visa's change could impose greater liability on a cardholder as the types of actions that will create liability will include both "negligence" and "gross negligence." Unfortunately, Visa has not defined which actions are negligent in its rules, so the exact behavior that may trigger liability seems to be a case-by-case determination. Nonetheless, credit unions may need to update EFT disclosures that reference Visa's zero liability policy and notify its members of this revision 21 days in advance through a change in terms notice. Regulation E has a model form for the error resolution notice but does not a model form for a change in terms notice. So credit unions may need to reach out to form providers or their counsel to draft this notice.

Finally, we have also heard that some credit unions will not be implementing this change and will not be imposing greater liability as they will continue to handle the error resolution process as per usual. In these cases, an updated disclosure may not be necessary as the credit union is choosing to provide a zero liability protection to its members under its own procedures that are more consumer friendly than Visa rules. This may create additional liability for the credit union but it is not unusual for credit unions to choose to be more lenient when imposing liability for unauthorized transactions based on its internal business decisions. However, credit unions taking this route may want to discuss the implications with their Visa representative.  

2. Negligence is not supposed to affect a member's liability under Regulation E. So how come Visa's standard can take negligence into account?

The basic premise of the interplay between Visa's rules and Regulation E is that Visa provides members more protections through its zero liability policy than Regulation E's error resolution. This means that for unauthorized transactions involving a Visa debit card or account, the Visa rules require a credit union to replace all funds taken as the result of an unauthorized debit transaction  (unless the member was negligent) while Regulation E may not require that all funds be returned (depending on timeliness and whether an access devise was used).

Here is a chart that reflects how these two liability standards work together specifically for signature-based transactions (i.e. transactions that require a debit card and a signature):

The Ceiling- Regulation E	The Floor- Visa's Zero Liability Policy
Credit union can impose up to $50 of liability if timely notice was given by the member	Credit union may not impose any liability if timely notice was given
Credit union can impose up to $500 of liability if member failed to provide timely notice and no extenuating circumstances exist	Credit union can impose Regulation E's liability if member was negligent when handling Visa debit card- among other things

This means that Regulation E serves as the ceiling for the amount of liability a credit union can impose on a member while Visa's zero liability is the floor. As long as the credit union is under the ceiling, it may offer better liability limits to its members. For that reason, Visa is allowed to condition its zero liability protections with a negligence standard as these additional protections do not conflict with Regulation E. If the member is negligent in handling the account or card, then the credit union has two choices, it can apply its own zero liability policy or apply Regulation E's liability for unauthorized transactions as long as the potential liability has been properly disclosed.

Pay by Check? What's a Check?

Written by Shari R. Pogach, Regulatory Paralegal

The Federal Reserve System recently released its research on the continually evolving payments industry, 2016 Federal Reserve Payments Study, using 2015 payments data.  This research is used to establish the total volume and composition of electronic and check payments in the U.S., and help determine estimates and trends in payments.  The data estimates from the data study are available in a downloadable data table format here.

While it isn't really news that we are using less cash and checks than we used to, the statistics of how rapidly that is occurring is interesting.  For example, total noncash payments per household jumped to almost 95 percent from 2000 to 2015.  These noncash payments included checks, card payments and electronic transfers via the automated clearinghouse (ACH) systems. Checks written per household fell to 7.1 per month in 2015, down from 19.3 per month in 2000.  Businesses are also increasingly replacing check payments with noncash payments.  In 2015, businesses wrote 24.1 checks per month on average, compared to 66.0 per month in 2000.  ACH transfers rose from 13.4 per month on average to 29.8 per month during the same time. 

The study noted a substantial difference in payment type preferred by consumers and businesses in the aggregate ranking of the number of noncash payments. Consumers prefer to use non-prepaid debit cards in making payments, followed by credit cards, checks and ACH debit transfers. ACH credit transfers were the most popular payment method used by businesses, followed by checks, credit cards and non-prepaid debit cards. 

The usage of alternative payment services and methods, such as payments:  initiated through a mobile device; made through specialized services for person-to-person payments; and using online payment authentication methods, showed high growth from 2012 to 2015.  Still, in comparison to the total number and value of noncash payments, the total number and value of payments using these methods remains low.

Information is now being collected on the number and value of noncash payments made during 2016 as part of a smaller and more targeted data collection effort for annual updates between the major studies published every three years.  The Federal Reserve expects this annual supplement to be released during the fourth quarter of 2017.

In addition, the 2016 study collected information on payments identified as fraudulent, allowing for the first time, estimates of trends in payments fraud by type of payment. Additional detail on the characteristics of fraud was collected from card networks and depository institutions.  Plans for the release of this information are for third quarter 2017.

So will checks eventually go the way of these items?

    

   

ICYMI: The Neverending Story on Mortgage Servicing, New COPPA Guidance and More Payments Data; TRID "Fix" Final Rule

Written by Jennifer Aguilar, Regulatory Compliance Counsel

2016 Mortgage Servicing Amendments

Enforcement. Late last month the CFPB issued a policy statement on the new mortgage servicing rules set to go into effect later this year and early next year. In the statement, the CFPB explains that credit unions will be permitted to implement the new rules three days prior to the compliance deadline of October 19 and April 19. The CFPB does not intend to take enforcement action for violations of the current mortgage servicing rules that occur between October 16 – 18 and April 16 – 18 resulting from a credit union's compliance with the new rules.

The CFPB issued this statement to allow credit unions more time to update and test their systems. In its statement, the CFPB explained that it has heard concerns that the compliance deadline may raise some operational issues since both dates fall midweek, on a Thursday. This would mean that credit unions would have from the close of business on Wednesday to the start of business on Thursday to update and test systems to ensure they are set for full compliance on Thursday. The CFPB believes that credit unions will benefit from being able to update and test systems over the weekend prior to the compliance deadline. 

Technical Corrections. The CFPB has also issued a number of technical corrections to the new mortgage servicing rules. These corrections go into effect on October 19. The corrections address two errors in the new Regulation X rules – a typo in model clause MS-4(D) and a cross reference in comment 39(d)(2)-1.

The corrections also address a few of the new provisions relating to periodic statements in Regulation Z. First, the effective date of April 19, 2018 for comment 41(c)-5 is added to the relevant amendatory instruction. Second, the effective date for model forms H-30(E), H-30(F) and commentary to section 1026.41(e) and (f) is changed from October 19 to April 19. This brings these forms and the commentary into conformity with the revisions to section 1026.41(e) and (f) which are effective April 19. Finally, the corrections add 12 U.S.C. 3533 as an authority citation for the Regulation Z amendments.

Updated COPPA Guidance

Last month, the FTC issued new guidance on the Children’s Online Privacy Protection Rule (COPPA) in order to address new developments, such as internet-connected devices for kids. The revised Six-Step Compliance Plan contains updates to assist credit unions in determining whether they are covered by COPPA and what they need to do to comply. For example, the new Plan explains that internet-connected toys or other devices are included in the definition of a “website or online service.” The Plan also expands the methods for obtaining a parent’s verifiable consent to collect information from children. Now, credit unions may verify that it really is the child’s parent giving the consent by using knowledge-based authentication questions or facial recognition to get a match with a verified photo ID. For a bit of a COPPA refresher, you can find some past blog posts here.

Federal Reserve’s Payments Study

The Federal Reserve has released additional data from its 2016 Payments Study. The Payments Study was developed in 2001 to evaluate trends in noncash payments in the US and is conducted every three years. Initial data from the 2016 Study was released last December. The additional data focuses on recent changes in both consumer and business payment methods. Here are some key findings from the Study:

• Noncash payments are on the rise. Households made 79% noncash payments per month in 2015. In 2000, households made 40% noncash payments per month.
• Consumers and businesses are writing fewer checks. In 2015, checks accounted for 13% of noncash payments, compared with 58% in 2000.
• The top four noncash payments among consumers were non-prepaid debit cards, general-purpose credit cards, checks and ACH debit transfers. The top four noncash payments among businesses were ACH credit transfers, checks, general-purpose credit cards and non-prepaid debit cards.
• The number of payments made with general-purpose credit cards and non-prepaid debit cards grew the fastest among all payment types between 2012 and 2015.

CFPB Issues Final TRID "Fix" Rule

Last Friday, the CFPB announced that it has finalized the amendments to the TILA-RESPA integrated disclosures that were proposed last year. The final rule seeks to provide additional guidance and clarity on the TRID requirements and makes a few technical corrections. Among other things, the final rule addresses tolerances, housing assistance loans and sharing disclosures with third parties. In the same announcement, the CFPB also issued a proposed rule on when it is permissible to use a Closing Disclosure for determining good faith and tolerances. NAFCU is reviewing both the final rule and the proposed rule and will have blogs and other tools available for members in the coming weeks.

The CFPB's HMDA Submission Tool…Coming Soon? Yes!; McWatters to Cordray: Exempt CUs from CFPB Oversight

Written by Brandy Bruyere, Vice President of Regulatory Compliance

Another day, another HMDA question keeps coming up that boils down to some regulatory version of "Where's Waldo?"

By my count, we are waiting on three things from the CFPB relating to HMDA implementation. The CFPB has promised to create a "check digit" tool and its own version of a geocoding tool for locating a property's census tract which are not yet available. Credit unions are also waiting on the CFPB to release its own web-based HMDA submission tool which has yet to be released.

As a reminder, while HMDA data is currently submitted to the FFIEC, this will change for 2018. The web-based submission tool is the system credit unions subject to HMDA reporting will be required to use in 2018 for submitting data collected in 2017.  In fact, the CFPB's Small Entity Compliance Guide for HMDA actually suggests becoming familiar with this tool as part of a credit union's planning for implementing HMDA:

9.1.1 Identifying changes to business processes, policies, and systems

The requirements of the 2015 HMDA Rule may affect a number of a Financial Institution’s business systems, processes, and policies. A review should be conducted of existing business processes, policies, and systems that the Financial Institution, its agents, and other business partners use. Identifying impacts early will allow the Financial Institution to understand what changes will be needed to support ongoing compliance.

When reviewing its existing processes, policies, and systems, a Financial Institution should consider the 2015 HMDA Rule’s requirement to submit data electronically beginning in 2018. Beginning in 2018, Financial Institutions will not be able to use paper-based submissions for HMDA data. The Bureau is creating a web-based tool for submission of HMDA data. Financial Institutions should become familiar with the new web-based submission tool and be able to use it to submit data beginning in 2018. For more information on the web-based submission tool, see http://www.consumerfinance.gov/hmda/. (Emphasis added.)

So understandably, credit unions have been asking – where is this submission tool that our teams need to "become familiar with" soon?

There is good news on this – we have been advised that the CFPB plans to make the submission tool live sometime in August and is holding webinars as part of the Bureau's HMDA outreach. NAFCU will host one of these webcasts in early August, which will be freely available. The plan is for CFPB staff to provide a demonstration of the tool and how to use it. Stay tuned for more details on how to register, or you can check back at this website in a couple of weeks for registration options.

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McWatters to Cordray: Exempt CUs from CFPB Oversight. In other news, NCUA Chairman McWatters wrote a letter to CFPB Director Richard Cordray yesterday asking the Bureau to provide an exemption for credit unions with assets above $10 billion from the CFPB's examination and enforcement authority. NAFCU has repeatedly called for credit unions to be exempt from the CFPB's rulemaking and examination authority, including as part of our 2015 five-point plan for regulatory relief. NAFCU President and CEO Dan Berger stated "NAFCU – from the Bureau's inception – was against the CFPB having direct oversight over credit unions and was the only financial services trade association to take that stance. NAFCU and its members thank Chairman McWatters for making this request directly to Director Cordray." You can read more here, and find our 2017 advocacy priorities here.

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Tuesday, August 1 | 2:00 p.m. – 3:30 p.m. EST 

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Consumer Compliance Outlook-Understanding Finance Charges for Closed-End Credit; Implementing the Consumer Compliance Rating System

Written by André B. Cotten, Regulatory Compliance Counsel

Consumer Compliance Outlook. The first 2017 issue of the Philadelphia Federal Reserve's Consumer Compliance Outlook is now available. This issue's articles include:

• Combating Elder Financial Abuse (for more information, see this past blog post)
• On the Docket: Recent Federal Court Opinions
• Understanding Finance Charges for Closed-End Credit
• Implementing the New Uniform Interagency Consumer Compliance Rating System

Today's blog post will highlight some key concepts from the articles "Understanding Finance Charges for Closed-End Credit" and "Implementing the New Uniform Interagency Consumer Compliance Rating System".

"Understanding Finance Charges for Closed-End Credit"

Regulation Z defines "finance charge" as "…the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction." While on its face, the definition of finance charge seems clear, it becomes challenging to apply because of the wide range of fees and charges that can be incurred in credit and because the definition is subject to several exceptions. Although the definition of a finance charge is the same for closed- and open-end credit transactions, the disclosure rules are different. The Consumer Compliance Outlook article provides a detailed discussion on the disclosure of finance charges for closed-end credit transactions.

The article also includes a table (see, p. 6) which displays the "Interagency Examination Procedures for Regulation Z," which credit unions may find helpful for identifying finance charges. The article notes that this chart is meant only as a guide. The chart separates charges into several categories: 1) some charges that are always included in the finance charge, 2) some that are always excluded, 3) some that may be excluded if certain conditions are met, and 4) some that are excluded with respect to credit secured by real property or in a residential mortgage transaction (even though they would be considered finance charge in other types of credit transactions).

The article also discusses the importance of identifying and disclosing the finance charge. The finance charge can contribute to errors in other TILA disclosures that rely upon an accurate finance charge. For instance, the APR is calculated based on the finance charge. Note, Regulation Z defines tolerances with respect to the disclosed finance charge. For closed-end loans, the tolerances appear in Section 1026.18(d). An inaccurate disclosure of the finance charge and an APR outside of tolerances can result in restitution to consumers affected by an error.

Since properly classifying fees as finance charges can be challenging, and errors can be costly, the article also discusses common issues Federal Reserve examiners have seen that result in finance charge errors. Subsequently, the article provides credit unions with tips and tools to prevent finance charge violations, such as enhancing controls to mitigate potential risk. The article also suggests appropriately training staff and reviewing disclosure systems will also help to prevent disclosure errors.

"Implementing the New Uniform Interagency Consumer Compliance Rating System".

In November 2016, the Federal Financial Instructions Examination Council (FFIEC) announced its updated Uniform Interagency Consumer Compliance Rating System (CC Rating System). The revisions reflect the regulatory, examination, technological and market changes that have occurred since the release of the original rating system.

According to the article, the CC Rating System is a supervised policy used by the agencies' examiners to evaluate financial institutions' adherence to consumer compliance laws and regulations. The primary purpose of the CC rating system is to ensure that financial institutions are elevated in a comprehensive and consistent manner and that supervisory resources are appropriately focused on areas exhibiting the risk of consumer harm and on institutions that warrant elevated supervisory attention.

The FFIEC developed the following principles to serve as a foundation for the CC Rating System: Risk-Based; Transparent; Actionable; Incentives for Compliance. Note, the revised CC Rating System was not developed to set new or higher supervisory expectations for financial institutions. Instead, the revised system provides a consumer compliance rating that more fully complements the agencies' risk-focused examination.

The CC Rating System establishes a framework of compliance factors that examiners use during consumer compliance examinations to assess a financial institution's performance. The 12 CC Rating System assessment factors are organized within the following three categories: Board and Management Oversight; Compliance Program; Violations of Law and Consumer Harm. Based upon the examiners' comprehensive evaluation of the institution's performance under those assessment factors, the examiners assign an overall consumer compliance rating to the financial institution.

Credit unions can anticipate discussing the new CC Rating System during their next consumer compliance examination.

Not Déjà Vu: Just Another Prepaid Proposal; Programming Note

Written by Stephanie Lyon, Regulatory Compliance Counsel

If you feel like you have heard a lot more about prepaid rules this past year than you would have liked, there's a reason for that. NAFCU's compliance team has blogged, written an article (member-only) and released a final rule alert about the not so final, final prepaid rule and about the rule's delay that pushed the compliance deadline to April 1, 2018. But that is just the start, in the rule's delay announcement, the CFPB stated it would also review a couple of substantive issues through a separate notice and comment rulemaking process. So today's blog focuses on the CFPB's latest proposal to amend the final prepaid rule specifically in regards to the error resolution and limitation of liability sections; credit-related provisions to digital wallets; and certain other clarifications and minor adjustments.

Error Resolution & Liability Limitations

The error resolution section of the final prepaid rule requires credit unions to promptly investigate a member’s notification of unauthorized EFTs on all prepaid accounts. The rule does contain a couple of timing and provisional credit variances if a credit union establishes a member identification and verification process and the member has not concluded or the credit union was unable to verify the member. See, 81 Fed. Reg. 83986. However, the credit union is still supposed to complete the investigation and credit members per the error resolution and liability sections of the rule. The CFPB received many comments from stakeholders on the error resolution and member liability requirements as the current Regulation E process for EFTs is already considered to be expensive and time consuming by many financial institutions.

So the bureau proposed to revise the error resolution and member liability sections to limit the error resolution requirements of Regulation E to verified prepaid accounts and to all verified and unverified prepaid payroll card or government benefit accounts. See, 82 Fed. Reg. 29632.  While helpful, there is a caveat to this limit. If a member is later verified, the credit union would then have to resolve errors with regard to disputed transactions that occurred prior to verification and credit members, consistent with the timing requirements and liability limitations of the prepaid rule. The proposal is attempting to strike a balance between overly burdensome error resolution and liability provisions while still protecting as many consumers from fraudulent transactions. 

Digital Wallets

What are these products exactly? Digital wallets are considered a "card, code, or other device that is capable of accessing two or more payment credentials for purposes of making payment for goods and services at multiple unaffiliated merchants." See, 81 Fed. Reg. 83967. Because of the final prepaid rule's broad definition of prepaid accounts, digital wallets can trigger both Regulation E and certain Regulation Z protections if the technology is capable of holding funds and accessing a separate credit feature. During implementation of the rule, it became apparent that there are some complications with applying the credit provisions of the prepaid rule to credit card accounts linked to digital wallets that can store funds where the credit card accounts are already subject to Regulation Z’s open-end credit card rules.

So the bureau proposed a limited exception in which members using digital wallets linked to a traditional credit card product would continue to receive Regulation Z’s open-end credit protections but would not receive the protections of the credit-related provisions of the prepaid rule (which apply to hybrid-prepaid credit cards) if the following five conditions are met:

1. The credit card account is a credit card account under an open-end (not home- secured) consumer credit plan that a member can access through a traditional credit card.
2. The prepaid account issuer and the card issuer will not allow the prepaid card to draw, transfer, or authorize the draw or transfer of credit from the credit card in the course of authorizing, settling, or otherwise completing transactions conducted with the card to obtain goods or services, obtain cash, or conduct P2P transfers, except where the prepaid account issuer or the card issuer has received from the member a written request that is separately signed or initialized to authorize the prepaid card to access the credit card account as described above.
3. The prepaid account issuer and the card issuer do not condition the acquisition or retention of the prepaid account or the credit card account on whether a member authorizes the prepaid card to access the credit card account as described in proposed section 1026.61(a)(5)(iii)(D)(2).
4. The prepaid account issuer applies the same terms, conditions, or features to the prepaid account when a member authorizes linking the prepaid card to the credit card account as described above in proposed § 1026.61(a)(5)(iii)(D)(2) as it applies to the member's prepaid account when the member does not authorize such a linkage. In addition, the prepaid account issuer applies the same fees to load funds from a credit card account that is linked to the prepaid account as described above as it charges for a comparable load on the member's prepaid account to access a credit feature offered by a person that is not the prepaid account issuer, its affiliate, or a person with which the prepaid account issuer has an arrangement.
5. The card issuer applies the same specified terms and conditions3 to the credit card account when a member authorizes linking the prepaid card to the credit card account as described above in proposed § 1026.61(a)(5)(iii)(D)(2) as it applies to the member's credit card account when the member does not authorize such a linkage. In addition, the card issuer applies the same specified terms and conditions to extensions of credit from the credit card account made with the prepaid card as with the traditional credit card.

See, 82 Fed, Reg. 29649.

Implementation Date

The CFPB's proposed rule would take effect concurrently with the general effective date of the prepaid rule—April 1, 2018. However, the bureau is considering whether this proposal will warrant an additional delay for the implementation of the prepaid rule so that credit unions and other industry stakeholders have time to modify disclosures and procedures or whether the proposed changes would eliminate the need for an additional delay.

These are just some of the proposed changes the bureau is seeking comments. So be sure to read NAFCU's Regulatory Alert (members-only) for more proposed changes and send us your comments so that we can ensure the soon-to-be final final prepaid rule makes sense for your credit union.

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Programming Note.  In recognition of Independence Day, NAFCU's offices will close early today at noon, and we will be closed on Tuesday, July 4. We'll reopen and be back to blogging on Wednesday. Have a safe and enjoyable holiday weekend… I know the Lyon household will be grilling and viewing the amazing D.C. fireworks!