NAFCU Compliance Blog

Four 'Calls for Comment' to Heat-Up Your Summer

Written by Michael Emancipator, Senior Regulatory Affairs Counsel

Although it doesn't feel like it here in Washington, DC, the un-official start of summer has started (official start is June 21). That means pool parties, BBQs, and…proposed rules from NCUA! That's right – this summer will be chockfull of opportunities to write comment letters to NCUA. To provide you with a bit of poolside reading, I thought I'd give you a brief rundown of NCUA rules with open comment periods so that you feel empowered to write your own comment letter to the agency. After all, they hear from us all the time – the most impactful letters come directly from members.

Merger Rule

We had been expecting this proposal for quite some time, given Acting Chairman McWatters' statements in early February expressing interest in reevaluating NCUA's merger process.  With comments likely due in late July or early August, the proposed merger rule was just approved by the NCUA Board last week. On the surface, the proposed amendments seem more like a complicated instruction manual on how to send disclosures, and when notifications must be sent. However, we have concerns that the added delays will start to stack upon one another, which holds the potential for adverse impacts. At a high level, the proposal:

1. Revises and clarifies the contents and format of the required member notice for voluntary mergers.
2. Requires merging credit unions to disclose all "merger-related financial arrangements" payed to their CEO, the next four highest payed employees after the CEO, and any member of the Board of Directors or the supervisory committee.
3. Increases the minimum time period before the member vote that the emerging FCU must give notice to its members. The proposal requires notices be mailed at least 45 days, but no more than 90 days, before the meeting to vote on the merger.
4. Adds procedures to enable members to communicate with each other on a large scale regarding the merger.
5. Conforming amendments to other provisions the regulations regarding termination of federal share insurance when the continuing credit union is not a federal credit union.

Of the changes proposed, a few stand out that are worth mentioning. Regarding the second proposal, it would change in a new definition of "covered person," which will replace the existing definition of "senior management official" from section 708b.2. The proposal explains that this change is required because in some recent voluntary mergers involving smaller credit unions, the current definition of "senior management official" was under-inclusive and did not cover some individuals who perform significant managerial duties despite not having an executive officer title.

Also, where the merging credit union is a FCU, the proposal requires the following in the submission of the merger proposal to NCUA: (1) all board minutes for the merging and continuing credit union that reference the merger during the 24 months before the approval date of the merger plan by the board of directors of both credit unions; and (2) a certification from the merging credit union and the continuing credit union that there are no "merger-related financial arrangements" other than those disclosed in the required notice to members.

Potentially the most novel component of the proposal is the fourth proposed change – the creation of a member-to-member communications process. Already required for credit unions converting to banks, the proposal would require FCUs to inform members that they can provide their opinions about the proposed merger to other members. Members can submit their opinions in writing to the merging FCU within 30 calendar days of receipt of the merger notice, and the FCU will forward those opinions to other members. The merging credit union must ensure that all member-to-member communications are received at least 15 calendar days before a vote. Of note, the minimum time requirements seem like they could allow for disgruntled members to gum-up the process, not to mention the logistical nightmare of potentially facilitating several dozen member-to-member communications.

Appeals Process and Supervisory Review Committee

The Board also issued two other proposals last week, both regarding credit union processes for appealing exams. The first would standardize the appeals process for regulations that currently have their own review and appeals procedures. The other would expand the number of supervisory determinations appealable to the agency's Supervisory Review Committee (SRC) and provide credit unions the opportunity for additional review by the director of the Office of Examination and Insurance.

Changes in the appeals process under the proposed rule include:

• Expanding the number of material supervisory determinations that can be appealed to the agency’s Supervisory Review Committee;
• Creating an optional intermediate level of review before an appeal goes to the Committee; and
• Changing the nature and composition of the Committee.

Under the proposed rule, an appeal at any level would not affect, delay, or impede any formal or informal supervisory or enforcement action in progress. Likewise, it would not affect NCUA’s authority to take any supervisory or enforcement action against a federally insured credit union.

Changes to the SRC process could create a more uniform process for appealing certain program office decisions to the Board. Several existing NCUA regulations provide a right of appeal, but these generally lack uniformity and may be confusing to parties who might seek to appeal an adverse decision to the Board. The proposed rule would bring these under a uniform set of procedures.

Subject matters affected by the new rule would include:

• chartering and field of membership;
• investment authority;
• conversions and mergers;
• creditor claims in liquidations; and
• share insurance determinations.

As he stated during last week's Board meeting, both these issues are "near and dear" to Chairman McWatters. NAFCU is certainly pleased to see the agency taking the next step on this issue. Since examinations are often the only time that credit unions have face-time with agency personnel, a well-oiled exam process, as well as a speedy appeal, is of paramount importance.

NAFCU welcomes both these proposals, and we encourage you to take the opportunity to let NCUA know how you feel. If you have nightmare exam stories to share, but don't feel comfortable putting your name out there, use us as an intermediary. The example will serve as great evidence as to why exam appeals reform is necessary.

2017 Regulation Review

Every summer, NCUA reviews one-third of its regulations and solicits industry feedback on ways to reduce burdens or administrative hurdles. This year, the NCUA is reviewing mainly administrative procedural rules. NAFCU has drafted a Regulatory Alert which summarizes the rules being reviewed.

So here's my cheesy appeal: this summer, whether you're enjoying your beach vacation or stay-cation, or when you're watching the fireworks on the Fourth of July or at a baseball game, be productive and plan to comment on at least one of these proposals. If you want to talk it over, give us a call at Reg Affairs. We can walk you through it, and then you can be the expert at your credit union. 

Otherwise, have a great summer!

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Upcoming NAFCU Risk Management Seminar:

If your job duties include ERM for your credit union, next week is the final chance to save $200 on our Risk Management Seminar coming up in July in beautiful Denver. Learn strategies to effectively identify and manage your credit union's risk at an enterprise level. Plus, you'll have the chance to earn the NAFCU Certified Risk Manager (NCRM) designation or renew your current certification without having to retake the exam. Check out the agenda or download the full brochure.

Upcoming Webcast:

Fair Credit Reporting Act (FCRA) Fundamentals and Current Trends

Wednesday, June 7 | 2:00 p.m. – 3:30 p.m. EST 

Prioritizing Your Efforts……. Superhero Style!

Written By Shereefat Balogun, Regulatory Compliance Counsel

 As compliance professionals, it's so hard being the good guy all of the time because there are so many things to focus on.   In the movies, the superhero has to choose between saving their partner, saving themselves, or completing the mission.  And of course, in the movies the superhero ends up somehow successfully doing all three.  Well, despite the common adage that "life isn't always like the movies", we can rise like the superhero by prioritizing our efforts and focus on the issues that our regulators are focusing on, specifically the CFPB and NCUA.

About three weeks ago, the CFPB issued its monthly report on consumer complaints.  Based on the report's findings, consumer debt collection continues to be a clear focus of the CFPB, as well as credit reporting. 

• Debt Collection- For a few years now, debt collection has been the source of most complaints submitted to the Bureau, and this report continues to highlight that. Debt collection was the most complained about product submitted in January 2017. Generally, consumers complain that collectors contacted them for debts that they do not owe; harass them by making multiple calls weekly or daily, or using false, deceptive, or misleading statements in connection with the debt collection; threatened to take illegal actions, such as arrests or seizure of the consumer's property; and impermissibly contacted or shared information with others, such as employers.  For more on the CFPB's efforts on debt collection practices, check out my previous blog on the topic here.

• Credit Reporting- The CFPB notes that the most common issues identified by consumers are problems with incorrect information on credit reports, which accounted for 76% of the complaints. Other issues identified include, the process for blocking and removing information resulting from identity theft.  The report states that consumers report notifying furnishers of information of identity theft with appropriate documentation, only to have accounts verified as accurate.  Notably, just two weeks ago, the Bureau issued its Supervisory Highlights which focuses on consumer reporting and concludes that the Bureau's work in the consumer reporting market is ongoing and remains a high priority.  Amongst its findings, the CFPB observes: 
  • Weaknesses in compliance management systems, such as weak oversight by management and the Board of Directors over furnishing practices; failure to update policies and procedures; weak training of employees who conduct furnishing and dispute handling operations; and weak monitoring and corrective action.
  • Absence of policies and procedures designed to: handle and investigate direct disputes from consumers; facilitate the creation and retention of documentation to substantiate final dispute decision; prevent duplicative or mixed reporting.
  • False representations by financial institutions in order to obtain a consumers' consumer report. For example, making false statements that a consumer had applied for a loan, and thus the institution had a permissible purpose to obtain the report.

These reports can be a useful tool, as they can help credit unions evaluate which products and services are more problematic and thus, should be addressed in order to avoid or mitigate regulatory risks. 

And let's not forget about our beloved…NCUA! The Supervisory Priorities for 2017 may be helpful in prioritizing our efforts.  Indeed, we referenced the 2017 priorities in a previous blog back in January.  Generally, the guidance informs credit unions of NCUA's primary areas of focus for 2017 as an effort to help prepare for this year's examination process.  As a reminder, this year's supervisory focus will be on:

• Cybersecurity- NCUA will continue to evaluate credit unions' cybersecurity risk management practices and encourages credit unions to use the Cybersecurity Assessment Tool (CAT) to bolster their security and risk management processes.  In case you may have missed it, NAFCU members can take advantage of a user-friendly workbook version of CAT here.
• Bank Secrecy Act Compliance- In 2017, NCUA field staff will focus on credit unions' relationship with money services businesses (MSBs) and other accounts that may pose a higher risk for money laundering.  NCUA expects credit unions to conduct appropriate due diligence, analysis, and monitoring when offering services to MSBs.  NCUA Letter to Credit Unions 14-CU-10 provides guidance on how credit unions can identify and mitigate risks associated with MSBs.
• Internal Controls and Fraud Prevention- NCUA field staff will continue to assess the adequacy of internal controls, as well as procedures and processes designed to prevent and control fraud.
• Interest Rate and Liquidity Risk- NCUA has started using a revised interest rate risk supervisory tool and new examination procedures to assess interest rate risk management practices.  For more information about the revised tool and new procedures, see NCUA Letter to Credit Unions 16-CU-08.  Also, examiners will focus on the relationship between interest rate risk and liquid risk.
• Commercial Lending- As you know, NCUA revised its Member Business Loans/Commercial Lending rule, which became effective January 1, 2017.  Field staff will evaluate a credit union's commercial loan policies and procedures and assess the risk management processes associated with managing a commercial loan portfolio.  NCUA warns that credit unions should be prepared to provide documentation to support management's ability to monitor and manage its commercial loan portfolio.  For more information, see NCUA Letter to Credit Unions 16-CU-11.
• Consumer Compliance- NCUA field staff will examine credit unions' compliance with the Military Lending Act (MLA), as well as the Servicemembers' Civil Relief Act (SCRA).  For more information on the MLA, see NCUA Letter to Credit Unions 16-CU-07.  NCUA Letter to Credit Unions 09-CU-12 provides guidance on complying with the SCRA. In particular, this enclosure provides a good overview of the SCRA requirements.

This month's Compliance Monitor, written by my colleague André Cotten, analyzes the NCUA's supervisory priorities for 2017 in more detail and highlights NCUA and NAFCU resources on each issue.  If you haven't checked it out already, please do!

"S..S..S.. on my chest 'cause I'm ready to save 'em."  Mantra of the year, Yes!!!  Be your credit union's superhero by focusing on the regulators' priorities to help save time, lives, and money.

As always, if you have any questions, please feel free to reach out to us.  We are here for you!

Credit Union Incentive Plans Can Be a Useful Tool to Drive Performance, if Done Properly + Compliance Trivia!

Written by Shereefat Balogun, Regulatory Compliance Counsel

Credit unions generally use incentive plans to drive results, whether that be more loans or more deposits.  The overall goal is to reward employees for achieving certain results.  In May 2016, NCUA and other financial regulators issued a proposed Incentive Compensation Rule; while the rule is not yet finalized, credit unions are subject to other regulations that place restrictions on employee compensation or incentive plans.  NAFCU gets a number of question regarding employee incentives, and given NCUA’s growing concern and examination of these plans, credit unions are advised to develop an Incentive Compensation policy that is approved by the Board, and complies with the regulatory framework governing compensation and incentive structures.

NCUA Regulations

There are generally 3 NCUA rules that limit incentive compensation practices: Section 701.21 (c)(8) which restricts practices in connection with lending activities; Section 701.23(g) which places limits on compensation relating to the sale or purchase of eligible obligations; and Section 721.7 which addresses compensation related to incidental powers.

NCUA’s lending rules prohibit senior management employees from participating in a loan incentive plan.  Section 701.21(c)(8)(i) prohibits paying compensation in connection with any loan made by the credit union.  This rule regulates incentives given to employees in connection with the extension of a loan to a non-employee member.  There are some exceptions in (c)(8)(iii), which include salaries and incentives based on overall financial performance. There is also an exception for employee loan incentive programs established and monitored by a credit union’s board of directors; however, senior management is specifically excluded from this exception.  From the rule:

(8)(i) Except as otherwise provided herein, no official or employee of a Federal credit union, or immediate family member of an official or employee of a Federal credit union, may receive, directly or indirectly, any commission, fee, or other compensation in connection with any loan made by the credit union.

…

(iii) This section does not prohibit:

(A) Payment, by a Federal credit union, of salary to employees;

(B) Payment, by a Federal credit union, of an incentive or bonus to an employee based on the credit union's overall financial performance;

(C) Payment, by a Federal credit union, of an incentive or bonus to an employee, other than a senior management employee, in connection with a loan or loans made by the credit union, provided that the board of directors of the credit union establishes written policies and internal controls in connection with such incentive or bonus and monitors compliance with such policies and controls at least annually.

(D) Receipt of compensation from a person outside a Federal credit union by a volunteer official or non-senior-management employee of the credit union, or an immediate family member of a volunteer official or employee of the credit union, for a service or activity performed outside the credit union, provided that no referral has been made by the credit union or the official, employee, or family member.

12 C.F.R. §701.21(c)(8)(emphasis added).

Note that under this rule an employee, including senior management employees, may receive an incentive in connection with a loan based on the credit union’s overall financial performance.  However, only non-senior management employees may receive incentives in connection with a loan pursuant to the credit union’s written procedures that are established and approved by the Board of Directors.

Section 701.23(g) is very similar and tracks the language of 701.21(c)(8), except that the restrictions pertain to the purchase, sale, or pledge of an eligible obligation (i.e., a loan or group of loans). The rule generally has the same restriction and exceptions, as well as limitation as applied to senior management employees. 

Similarly, Section 721.7 places the same restriction but is not specific to any particular activity, and is more broadly applied to any authorized activity the credit union engages in.  See, 12 C.F.R. §721.7.

Regulation Z Prohibition on Mortgage Loan Originators’ Compensation Practices

Incentive compensation is also regulated in Regulation Z, as applied to mortgage loan originators and is indeed a much scrutinized area.   Regulation Z, §1026.36(d) prohibits mortgage loan originators from receiving compensation based on certain terms of a mortgage loan transaction, such as interest rate, APR, collateral type, and origination fees.  See, 12 C.F.R. §1026.36(d).

It’s worth flagging, the CFPB’s definition of “loan originator”, as this could include non-lending employees.  The rule’s definition of “loan originator” is broader than the definition of “loan originator” used in the SAFE Act, and includes the following activities if done for or in the expectation of compensation:

• takes an application;
• offers, arranges, assists a member in obtaining or applying to obtain credit;
• negotiates, or otherwise obtains or makes an extension of credit for another person; or
• advertises, communicates, or represents to the public that they can or will perform any loan origination activities.

See, 12 C.F.R.§1026.36(a).

NCUA in 2014 issued a Regulatory Alert discussing the CFPB’s Mortgage Loan Originator Compensation Requirements.   

Preferential Loans to Employees

On a related matter, we also receive questions relating to preferential loans to employees.  Generally, credit unions may give preferential loans, or lower loan rates, to its employees, so long as those employees do not include officials.  The relevant section to rely on is 12 CFR 701.21(d).

Section 701.21 sets forth the standards to which a federal credit union must adhere when making loans. Under this provision, a federal credit union is prohibited from granting preferential loans to its officials or an immediate family member of an official. See, 12 C.F.R. §701.21(d)(5).  This includes any member of the Board of Directors, credit committee or supervisory committee.  However, there is no prohibition against a federal credit union offering preferential loans to its employees.

For reference, here are two NCUA legal opinion letters on the topic:

• https://www.ncua.gov/Legal/OpinionLetters/OL2006-0343.pdf

• https://www.ncua.gov/Legal/OpinionLetters/OL1997-0247.pdf

In light of the current rules regulating compensation and incentive structures and the impending finalization of the Incentive Based Compensation Rule, credit unions are strongly advised to develop comprehensive Board policies regarding compensation.  The policy should comply with the regulatory framework, including the presence of strong internal controls, and should be reviewed by the Board annually. 

As always, if you have any questions relating to this article or any other compliance issue, please contact NAFCU’s regulatory compliance team.  We’re here for you!

Trivia: Under the proposed Incentive Based Compensation Rule, what would be the record retention for documenting the credit union’s incentive-based compensation arrangement?

 

Compilation of Legal Opinion Letters on Board Compensation

Written by Brandy Bruyere, Director of Regulatory Compliance

At NAFCU, we’re often asked about where the line is between reasonable reimbursements for a federal credit union’s board of directors and impermissible compensation that is prohibited by section 701.33 of NCUA’s regulations.  As it turns out, there are many legal opinion letters from NCUA on this subject. This chart provides the letter number, title with hyperlink to the letter, and a very short description of the letter. Because legal opinion letters can be rather nuanced, this is not a substitute for giving these a detailed review when answering a question about what kinds of costs are permitted for reimbursement. But, it can help hone in initial research efforts and save some time digging around NCUA’s website.

Board Compensation
11-0152	Training Reimbursement to Credit Union Officials	Permissibility of reimbursing “appropriate” training and related travel expenses
11-0805	Volunteer Service Award Policy	Nominal monetary awards permitted to recognize multiple years of service
10-0919	Compensation under 701.33 of NCUA’s Regulations	Section 701.33 definition of compensation versus IRS 1099 definition
10-0913	Provision of Long-term Care Insurance to Credit Union Officials	Long term care insurance as permissible health care coverage for directors (discussion regarding nonvoting directors later rescinded for those directors serving beyond mere “honorary” capacity by 11-0152 included above)
03-1053	FCU Officials’ Use of Business Equipment	Use of office equipment like computers and cell phones to perform official duties permitted
03-1030	Hiring of FCU Director as Part Time Employee	Permissibility of paid employees serving on the board where paid responsibilities are distinct from board duties
00-0508	Impermissibility of Free Safe Deposit Boxes for Board and Committee Members	Free safe deposit box is impermissible compensation
99-0621	Health Insurance for Board and Committee Members	Providing health insurance either directly or by reimbursing costs
98-1215	Reimbursement to Credit Union Volunteers for Child Care	Reimbursement of child care is impermissible (same conclusion reached in letter 92-0507)
97-0305	Travel, Lodging, and Lost-time Pay for Board of Directors	Reimbursement of travel and lodging to attend board meetings is permissible, reimbursement for lost wages is impermissible
95-1218	Reimbursement of Expenses	Reimbursement of lost wages is impermissible (but board meetings can be attended by phone)
93-0233	Gifts to Committee Members	Gifts of nominal value are permissible (notes that IRS interpretation of “compensation” used to some extent on this issue)
93-0733	Reimbursement of Lost Wages	Reimbursement for lost wages impermissible
91-0215	Meal Reimbursement for Directors	Reasonable costs for meal reimbursements are permissible

The overall takeaway is that NCUA has historically taken a pretty narrow view of what expenses can be reimbursed for a FCU’s board of directors. Besides health care costs which are permitted by §111 of the FCU Act (12 U.SC. § 1761), expenses that can be covered are generally those that relate to the directors’ official duties. Examples include relevant training and related travel, lodging and meal reimbursement, use of office equipment. In some narrow cases, a nominal gift like a volunteer service award is permissible, but other expenses that may seem reasonable in a colloquial sense, such as child care costs or lost wage reimbursement, are not permitted.

A PDF version of this chart can be downloaded here: BOD Compensation Chart

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Preparing for an NCUA Cybersecurity Exam

Thursday, April 28 | 2:00 p.m. – 3:30 p.m. EST

Part of the Data Security Webcast Series

Your best approach for successfully completing an NCUA cybersecurity exam: preparation. The ever-changing cybersecurity environment requires regular upkeep, and this webcast will help you stay ahead of the game. Learn how to assess your credit union through the FFIEC self-assessment tool, and discover how risk management and cybersecurity affect each other. You’ll walk away with ideas on how to conduct proper testing, how to identify and evaluate threats and even more vital cybersecurity issues.

 

Deconstructing TRID’s Application to Construction Loans: Disclosing AP Table in Single Combined Disclosures; BSA Webcast Series

Written by Shereefat Balogun, Regulatory Compliance Counsel

It has been over five months since the implementation of the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules, yet many credit unions are still worried about disclosure requirements, particularly as they apply to construction-to-permanent loans. One issue that credit unions have had questions about is the Adjustable Payment Table under §1026.37(i) and how it should be completed if a construction-to-permanent loan is disclosed as a single transaction with one set of disclosures. Some have had some confusion as to whether the table is even required in every circumstance.

Generally, the “Adjustable Payment Table” (the “AP Table”) described in 1026.37(i) is only required if the periodic principal and interest payment may change after consummation based on a loan term other than a change to the interest rate, or the transaction contains a seasonal payment product feature. If the transaction does not include either of these loan terms, then the table should not be disclosed on the Loan Estimate.

If the creditor is required to disclose the AP Table because the periodic principal and interest payment will change after consummation, for reasons other than a change to the interest rate, or if the transaction contains a seasonal payment feature, then Section 1026.37(i)(1) through (4) requires a creditor to disclose on the Loan Estimate the periods during which the following features will be in effect: (i) interest only; (ii) optional payment; (iii) step payment; and (iv) seasonal payment product features. The periods required to be disclosed should be disclosed by describing the number of payments counting from the first periodic payment due after consummation.

In the context of a construction-to-permanent loan, if the creditor chooses to disclose this loan as a single transaction with one set of disclosures, the AP Table must be disclosed. Note that, in the construction phase of this loan, the borrower will typically make interest-only payments. Once the construction phase is complete and the permanent phase starts, the borrower will transition into making regular periodic principal and interest payments. Accordingly, with construction-to-permanent loans transactions, there will always be a payment change after consummation that will not be based on a change to the interest rate.

When a creditor elects to disclose a construction-to-permanent loan as a single transaction, the AP table is disclosed pursuant to §1026.37(i), with particular adherence to §§1026.37(i)(1) and (5). The rule provides in relevant part:

(i) Adjustable payment table. If the periodic principal and interest payment may change after consummation but not based on an adjustment to the interest rate, or if the transaction is a seasonal payment product as described in paragraph (a)(10)(ii)(E) of this section, a separate table under the master heading “Closing Cost Details” required by paragraph (f) of this section and under the heading “Adjustable Payment (AP) Table” that contains the following information and satisfies the following requirements:

(1) Interest only payments. Whether the transaction is an interest only product pursuant to paragraph (a)(10)(ii)(B) of this section as an affirmative or negative answer to the question “Interest Only Payments?” and, if an affirmative answer is disclosed, the period during which interest only periodic payments are scheduled.

…

(5) Principal and interest payments. Under the subheading “Principal and Interest Payments,” which subheading is immediately preceded by the applicable unit-period, the following information:

(i) The number of the payment of the first periodic principal and interest payment that may change under the terms of the legal obligation disclosed under this paragraph (i), counting from the first periodic payment due after consummation, and the amount or range of the periodic principal and interest payment for such payment, labeled “First Change/Amount”;

(ii) The frequency of subsequent changes to the periodic principal and interest payment, labeled “Subsequent Changes”; and

(iii) The maximum periodic principal and interest payment that may occur during the term of the transaction, and the first periodic principal and interest payment that can reach such maximum, counting from the first periodic payment due after consummation, labeled “Maximum Payment.”

12 CFR 1026.37(i)(1) and (5)(emphasis added).

As way of illustration, if the interest-only period during the 12-month construction phase has a rate that adjusts monthly, in disclosing whether there are interest-only payments as required under §1026.37(i)(1), the creditor should state “yes for your first 12 months”. Moreover, under §1026.37(i)(5)(i), the monthly principal and interest payments disclosure labeled “First Change” or “Amount” must disclose the range of minimum and maximum payments that will be made at the second payment.

Note that this general rule applies whether the construction and permanent phases have fixed rates or adjustable rates, or one phase is fixed and the other is adjustable. The key is to remember that the loan is considered a single transaction; and within that single transaction there is a change in payment after consummation as a result of the transition from construction to permanent, which therefore requires the AP Table and the corresponding disclosures under Section 1026.37(i).

On a final note, many creditors have criticized the CFPB for its lack of clear guidance on TRID’s application to construction loans and specifically cite the absence of sample forms and minimal reference to construction loans in the commentary. While some credit unions have considered whether to continue offering construction loans, TRID and Regulation Z's disclosure requirements and guidance generally apply to covered construction loans, except where otherwise mentioned. This is the case even if the guidance or rule provision is not directly on construction loans. And of course, for NAFCU members, if you have any questions on any specific disclosure requirements, please feel free to contact NAFCU’s Regulatory Compliance team, and we would be happy to address any of your specific concerns.

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BSA: Reports & Training for CU Boards

Live Webcast: Tuesday April 19 | 2:00 p.m. – 3:30 p.m. EST

Part of the BSA Webcast Series

It’s vital to understand the roles and responsibilities of credit union board members regarding the Bank Secrecy Act (BSA). Attend this webcast to understand your board’s BSA duties such as risk assessments, policy reviews, and updates, as well as recommended additional training needs. You’ll also get tips for in-house training and learn how to properly report SARs to your board.

Compliance Roundup

Written by Shereefat Balogun, Regulatory Compliance Counsel

Happy Monday ya’ll… and happy November!   October was a pretty busy month on the regulatory side.  We had TRID implementation in the beginning of the month.  A few weeks later, NCUA’s final RBC requirements and CFPB’s final HMDA rule dropped…on the same day!  It was pretty rough.  So to start off the new month, we’re going to keep it light and just give you some compliance tid-bits for your general consumption. 

October Issue of NCUA Report Now Available.  NCUA’s latest report is now available.  The report covers topics such as expansion of the small credit union threshold, NCUA’s plan to acquire vendor authority, and possible field of membership changes.  Some highlights:

• NCUA Board Expands Small Credit Union Threshold to $100 Million- NCUA recently raised the asset ceiling for a “small” credit union from $50 million to $100 million under the Regulatory Flexibility Act.  The change adds 733 more federally insured credit unions to the classification of “small entity”, and thus makes them eligible for special consideration of regulatory relief in future rulemaking and assistance from the agency’s Office of Small Credit Union Initiatives.  The final rule is effective November 23, 2015.
• NCUA Highlights Push for Vendor Authority- NCUA has stated that acquiring vendor authority is one of the agency’s top legislative priorities.  NCUA wants the ability to examine and regulate third-party service providers.  Opponents of this plan argue that it will be another undue burden for credit unions; or that NCUA’s current policies requiring credit unions to exercise due diligence in their monitoring of third-party service providers is sufficient to quell any concerns. 
• McWatters Suggests Field of membership Changes- Also in this issue, NCUA Board Member, J. Mark McWatters explains that the FCU Act can support more flexibility for credit union as it relates to field of membership.  Moreover, McWatters opines that the agency’s current requirements on field of membership go beyond what the FCU Act authorizes.  McWatters challenges the agency to be bold, and present to credit unions a field of membership proposal that will facilitate growth for credit unions.  While acknowledging that the most significant changes on field of membership can only come from Congress, McWatters urges credit unions to agree upon and decide what changes they want to pursue and develop a plan to of action for Congress to consider.

Delegation of Community Charter Amendments.  Speaking of field of membership- NCUA recently issued a final rule relating to the approval of community charters.  We have been asked about how the new rule impacts a credit union’s request for expansion.  The new rule does not change the process by which a community chartered credit union applies for an expansion of its geographic boundaries; rather it transfers the authority to review and approve such requests that may result in a membership pool of more than 1 million people from the NCUA Board to the Office of Consumer Protection (OCP).  NAFCU has put together a summary of the final rule which can be found here.  Here are the highlights of the new Delegation:

• The NCUA Board delegated to the Office of Consumer Protection (OCP) its authority to review and approve community charter expansion requests involving a potential membership pool of more than one million people.
• Under the approved change, the Director of OCP now has the authority to approve all community charter application, conversion or expansion requests.
• OCP is required to request review and comment by the Office of Examination and Insurance prior to making any determination involving community charters with a potential membership pool of more than one million people.
• After approving a community charter conversion or expansion, OCP will continue to follow up with the federal credit union every year for three years to monitor progress.
• The NCUA Board reserves the right to hear appeals of any charter denials by OCP.

CFPB Releases 2016 List of Rural or Underserved Counties.  The 2016 list of rural or underserved counties is now available. What does that mean for you? Some businesses with volume in rural or underserved counties that outweighs volume in other counties are exempt from certain regulatory requirements in “Ability to Repay” and “Qualified Mortgage” standards, as well as escrow requirements, under TILA.   You can find the list here.

NCUA Proposed Rule: Investment and Deposit Activities- Bank Notes.  The NCUA Board proposes to amend the maturity requirement for bank notes to be permissible investments for federal credit unions by removing the word “original” from the current requirement that bank notes have “original weighted average maturities of less than 5 years.”  If this proposed rule is finalized, federal credit unions will be able to purchase bank notes that were originally issued with maturities greater than 5 years, but have remaining maturities of less than 5 years.  There is a 30-day comment period, rather than the traditional 60-day period.  The comment period ends on November 23, 2015.

 See, not too bad! 

 

 

Post-Caucus Regulatory Round-Up: NCUA Board Takes Action on Regulatory Flexibility Act and Aggregate Lending Limits; CFPB Releases Updated TRID Examination Procedures; FRB Announces 2015 Fair Lending Webinar

Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel

Caucus is over and what a week it was! Meeting our members face-to-face and helping you make direct connections with your representatives here in Washington, D.C. has been fantastically rewarding. Thanks to all who attended! While credit unions were on the Hill, the regulators have been busy. Here are some highlights from the regulators this week.

NCUA Board Takes Action on Regulatory Flexibility Act and Aggregate Lending Limits

Today at NCUA’s Board meeting, the board voted on final rules regarding the Regulatory Flexibility Act and the aggregate lending limit for corporate credit unions. The Board increased the asset threshold for ‘small entity’ designation from $50 million to $100 million, and committed to reevaluating the threshold every three years. That will give some credit unions special consideration for regulatory relief. The Board also voted to exclude Central Liquidity Facility-related bridge loans from the aggregate unsecured lending cap on loans to one borrower by corporate credit unions. 

Also, at the board meeting, NCUA Chairman Debbie Matz recommended a policy change that would authorize the Office of Consumer Protection to approve community charter expansion requests that are currently reserved for board consideration. Earlier this year, NCUA began an internal review of its Field of Membership regulations in order to streamline procedural and regulatory hurdles that unnecessarily burden credit union growth.

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CFPB Releases Updated TRID Examination Procedures

On Tuesday, the CFPB updated its Supervision and Examination Manual sections on Mortgage Origination Exam Procedures and TRID Examination Procedures for examinations after the October 2015 effective date. The updated examination procedures can be accessed here. While most credit unions will not be examined for consumer compliance by the CFPB, any guidance is helpful in trying to find one’s way out of the dreaded TRID labyrinth.

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FRB Announces 2015 Fair Lending Webinar

Also, on Tuesday, the Federal Reserve Bank of San Francisco has announced an interagency Outlook Live webinar on Fair Lending Hot Topics. The webinar will be 90 minutes long and cover CFPB mortgage updates, use of data in evaluating fair lending risk, compliance management, pricing, maternity leave discrimination, post-origination risks, auto lending settlements and others. Participating agencies include the DOJ, CFPB, FDIC, OCC, FRB, HUD and NCUA. The webinar takes place on Thursday, October 15, 2015 and requires registration which can be done here. 

What Does Your Board Need to Know About the CFPB?

Written by Steve Van Beek

The headline above was my goal when I created a presentation for NAFCU's Board of Directors & Supervisory Committee Conference next month in Asheville, North Carolina. The first point is that the CFPB's regulations apply to all credit unions.

After that, you can see my overview and key takeaway slides below.

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It's Not Too Late. Your Board can still sign up for the conference - May 15-17 in Asheville, NC - and we'll be having similar discussions at NAFCU's Annual Conference - July 9-13 in Boston, Massachusetts.  

Here is another question: How are you informing and updating your Board on the CFPB's actions (and potential actions)? 

Vendor Risk Management - Compliance Considerations

Written by Steve Van Beek

Back in May 2012, the Philadelphia Federal Reserve's Consumer Compliance Outlook webinar series discussed Vendor Risk Management - Compliance Considerations (the slides are available here). The Fourth Quarter 2012 Consumer Compliance Outlook publication included an article that provides highlights of the main themes. As you can see from the headings and subheadings, this article is a must read:

Vendor Risk Management - Compliance Considerations

QUESTIONS ABOUT THIRD PARTIES

What Are Common Types of Third-Party Relationships?

What Are the Risks of Using Vendors?

PRACTICES THAT INCREASE THE RISK OF VIOLATIONS

• Overreliance on third-party vendors.
• Failure to train new staff or retain knowledgeable staff.
• Failure to adequately monitor the vendor.
• Failure to set clear expectations.

EXAMPLES OF VENDOR RISK MANAGEMENT COMPLIANCE ISSUES

Flood Insurance Monitoring

Loan Modifications

Credit Card Administration

Disclosure Software

Revenue Enhancements

BEST PRACTICES

• Due diligence.
• Risk assessment.
• Clear contractual expectations.
• Comprehensive monitoring program.
• Board oversight.

CONCLUSION

Vendors provide value in the expertise and experience they offer; however, financial institutions must still maintain active oversight. It is important to remember that when a vendor performs a service or function, the institution bears ultimate responsibility for compliance. Because varying levels of risk remain with the institution that offers the product or service, a strong vendor risk management program is key to maintaining compliance and avoiding claims of improper treatment of bank customers. With good vendor management, banks can minimize the risk of less direct oversight or control and maximize the benefits gained through a well-managed vendor relationship. Specific issues about vendor risk management should be raised with your primary regulator.

Again, I recommend reviewing the full article and passing it along to your colleagues.

***

I also wanted to highlight the subsection on board oversight - which states:

"Board oversight. Keeping the board of directors properly informed about the vendor management program is key to ensuring that they can provide proper oversight and that the bank’s management process addresses the risks inherent in third-party relationships. The board should review the vendor management policy, due diligence reports, risk assessments, and monitoring results."

Board of Directors & Risk Management. Risk management and the role of the credit union's board of directors will be the focus of my colleague Anthony Demangone's presentation at NAFCU's upcoming Board of Directors and Supervisory Committee Conference.

Additionally, I'll be presenting on How the CFPB Impacts Your Credit Union and will include a discussion of the CFPB's latest actions related to "unfair, deceptive or abusive acts or practices" (UDAAP) - including how the actions of third-parties resulted in liability for the financial institutions. If your board is considering attending, sign up by Friday, March 29th to Save $100.

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NAFCU's Online Training Program also includes 14 courses for credit union boards - including one on Risk Management.  

The Extra 30 Minutes & Director Education

Written by Steve Van Beek

On Friday I blogged about the Importance of Informed, Decisive and Strategic Board Members.  Over the weekend, I read another article that highlighted this issue and included a great tip.  The article was from NCUA Board Member Michael Fryzel and states:

"Recently, when visiting a credit union, I heard an excellent idea on helping board members better understand the many aspects of the financial services world. I call the idea "the extra 30."

Each month, prior to their board meeting, directors arrive at the credit union 30 minutes early. Those extra 30 minutes are then spent listening, asking questions and learning about one specific topic that will help them do their jobs better.

The range of subjects covered during the extra 30 minutes can be anything from the value of passbook accounts to asset liability management. It can even be a discussion on an NCUA regulation or the benefits of derivatives.

The extra 30 sessions should be concise, plain English presentations that provide solid information on a particular subject. The session should leave the participants knowing a little more than they knew before and eager for what is to come at the next session."

Of course, when I'm reading the section above I'm thinking about ways credit unions can use NAFCU's Online Training Program which includes 14 unique modules for boards. The majority of the modules are between 25 and 35 minutes in length - a great way to train during "the extra 30 minutes."

Board Member Fryzel continues:

"Director education is one of the most important functions of a credit union. The people entrusted with fiduciary responsibility need to know what their credit union is doing and what they are voting to approve when making decisions. Credit unions must continue to provide directors with the opportunity to understand and become familiar with the many aspects of our ever changing financial world. The first step in achieving that goal is to make education easy, available and understandable.

What better way to begin than with just an extra 30?"

Again - this builds on Friday's blog post on the Importance of Informed, Decisive and Strategic Board Members.  

***

Modules from NAFCU's Online Training Program. Below is a listing of the 14 board modules in NAFCU's Online Training Program:

1. The Nature, Foundation and Organization of Federal Credit Unions (33 minutes)
2. The Role of the Federal Credit Union's Board (34 minutes)
3. The Role of the Supervisory Committee (33 minutes)
4. Ethics and Fiduciary Duties (26 minutes)
5. The Regulation of Federal Credit Unions (23 minutes)
6. The Examination of Federal Credit Unions (38 minutes)
7. Risk Management (36 minutes)
8. Privacy, Security & Identity Theft (19 minutes)
9. The Bank Secrecy Act, Money Laundering and Financial Crime (44 minutes)
10. Asset Liability Training (35 minutes)
11. Discrimination Issues for Credit Unions (32 minutes)
12. On-Demand Webcast:  Essential Financial Literacy Education (60 minutes)
13. On-Demand Webcast:  Corporate Governance and Board Fiduciary Duties (90 minutes)
14. On-Demand Webcast:  BSA & OFAC Compliance for Directors and Supervisory Committee Members (75 minutes)

I see numerous opportunities to get your extra 30!  You can get a sneak peek at the Online Training Program here.

The Importance of Informed, Decisive and Strategic Board Members

Written by Steve Van Beek

Yesterday, we blogged on the latest The Federal Credit Union magazine - including an article on The Vital Life of the CU Director.

Well, that article isn't the only one focusing on the role of the credit union's board of directors.  The NCUA Report has included detailed articles in both the January and February issues.

The January issue had an article from Region V titled Strong Board Leadership is Essential for Successful Credit Unions.  The article includes this summary:

"We found the most successful directors display three overarching and essential characteristics.

• They have a clear understanding of their role.
• They are engaged in critical decisions.
• They have a strategic mindset."

You can find the full article here.

The February issue includes an article from NCUA Chairman Debbie Matz titled Volunteer Directors Play Critical Role in Safety & Soundness (continued on page 6).

The article focuses on the board's duties to oversee the direction of the credit union as well as their risk management duties - including:

• Interest Rate Risk
• Third-Party Risk - including

1. Credit Risk; and
2. Reputation Risk

• Aging Membership

The article ties risk management back into overall safety and soundness.  

Read together - these articles provide a compelling case for informed, decisive and strategic credit unions boards.

***

With the above in mind, I wanted to share two NAFCU resources to help ensure your credit union's board is informed, decisive and strategic.  

NAFCU's Board of Directors & Supervisory Committee Conference.  NAFCU's 32nd Board of Directors Conference will be held May 15 - 17 in beautiful Asheville, North Carolina.  You can view the conference agenda here, which includes the following:

• Bank Secrecy Act and Risk Management with NAFCU's Anthony Demangone

• Fiduciary Duties and Ethics: The Top 10 Things Credit Union Directors Need to Know with NAFCU's Carrie Hunt

• Strategic Succession Planning

• How the CFPB Impacts Your Credit Union with Yours Truly

• Regulatory Update with NAFCU's Carrie Hunt

And, much more - including the opportunity to earn Bank Secrecy Act and Financial Literacy training certificates.  You can find additional information here (including the full conference brochure).

Sign up by March 22nd to get the early-bird rate!

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NAFCU's Online Training Program.  NAFCU also offers an affordable online training program for credit unions.  The program includes 14 modules for board members - including two on the Bank Secrecy Act and one on Financial Literacy (training certificates are available for board members who view those modules).  You can find FAQs here and pricing information here.  If you have any questions - just shoot me an email and I'll help in any way I can.     

***

Be sure to pass the articles and the training opportunities along to your management and board.  And, remember that all of NAFCU's educational events - including our Board of Directors conference and Online Training Program - are open to all credit unions regardless of NAFCU membership.

***

Have a great weekend!  

The Federal Credit Union Magazine; Upcoming NAFCU Webcasts

Written by Steve Van Beek

The March-April edition of NAFCU's The Federal Credit Union magazine is now available.  I thought you'd enjoy the following articles:

• Rules, Rules and More Rules: How the CFPB is Impacting CUs

• The Vital Life of the CU Director

• NAFCU Expands Regulatory Team

• NAFCU's Legislative Priorities

• Management, Gen Y Style - including these five great tips:

1. Hire those who know more than you.
2. Work thoroughly and slowly.
3. Mentor and be mentored.
4. The art of woo.
5. Think of others first.

• Learning from Noncompliance

• What Bankers Worry About

As you can see, there is a little bit for everyone - be sure to pass along to others at your credit union that might be interested.  

***

Upcoming NAFCU Webcasts.  We have a full slate coming up.  Remember - NAFCU's conferences and webcasts are open to anyone and everyone (NAFCU members receive preferred pricing). 

• An Inside Guide to CU Board of Directors - March 13

• BSA Compliance Update: Citations, Investigations and Criminal Activity - March 19

• Digging Deeper: CFPB's Mortgage Rules with NAFCU's Compliance Team - March 27

• Which New Requirements Apply to HELOCs?  - April 10

• Preparing for New Mortgage Servicing Notices - April 17

• A Look Inside NCUA's National Supervision Policy Manual - May 1

I'm biased - but that is a great slate of upcoming webcasts.  If you're thinking - I want them all - we got you covered.  You can still purchase NAFCU's Unlimited Webcast Subscription - including access to the six webcasts we've already held in 2013.  

NCUA on Succession Planning

Written by Steve Van Beek

NCUA's January NCUA Report indicated that NCUA's Office of Small Credit Union Initiatives (OSCUI) would be conducting succession planning sessions for small credit unions:

"OSCUI will hold six CEO Boot Camps throughout the country for credit union managers and their successors. The CEO Boot Camps are designed as one-day total immersion events that combine OSCUI and credit union leagues’ knowledge bases. Each participating credit union league or association will help develop an event’s agenda according to the immediate needs of their small asset size credit unions. 

Participants in the CEO Boot Camps have an opportunity to first hear subject experts review specific topics and then rotate in a round-robin fashion for discussions with individual industry leaders. Agenda topics include understanding the five key ratios, loan underwriting, collections, new products and services relevant to small credit unions, and pricing."

When the dates for the Boot Camps are available, the information will be listed on OSCUI's training webpage.  OSCUI will also host a number of workshops throughout the country and you can find those dates and locations here.  

***

Seven Steps to Finding a Credit Union CEO.  The June 2012 NCUA Report included an article from Region III that highlighted seven steps to finding a qualified credit union CEO.  The article's seven steps are:

1. Select a Search Committee
2. Develop a Plan
3. Establish Qualifications
4. Advertise
5. Interview Process
6. Background Checks
7. Decision

One of the tips for the interview process is to "request applicants respond to written questions or be prepared to discuss a package of information - financial statement or business plan, for example - sent to the candidate.  This technique reveals the candidate's thought process, assessment, and decision-making skills."  You can find the full article here.   

NAFCU Mortgage Reform Webcast Series; The January NCUA Report; NAFCU's Upcoming Conferences

Written by Steve Van Beek

NAFCU Mortgage Reform Webcast Series.  We are happy to announce that we are planning a full slate of mortgage-related webcasts for 2013.  The first one is already set and ready to go:  

• The CFPB's Final Mortgage Regulations - Wednesday, February 13th at 2:00 - 3:30 p.m. EST

Speaking will be legendary credit union attorney Andy Keeney from Kaufman & Canoles.  

Following that are these (subject to tweaks, of course, based on the details of the final rules):

• CFPB Compliance Update by NAFCU's Compliance Team - March 27th

• The New Regulations that Apply to HELOCs - April 10th

• Mortgage Periodic Statements - April 17th

• Consumer Information Requests & Error Resolution Procedures - May 15th

• CFPB's Ability to Repay/Qualified Mortgage Rule - June 5th

• Mortgage Loan Origination - August 21st 

• CFPB Compliance Update by NAFCU's Compliance Team - November 6th

There may be others that are added as well.  The full listing is available here.

Best Value:  Sign up for NAFCU's 2013 Unlimited Webcast Subscription (pricing info here) and you'll receive access to all of NAFCU's 2013 webcasts - including the Mortgage Reform Series.   

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January NCUA Report.  The latest issue of the NCUA Report is available.  This issue includes the following articles that might be helpful:

• Office of Examination and Insurance Report: Capacity, Clarity and Consistency Guide NCUA Exams in 2013
• Credit Union Membership Growth Accelerates
• Region V Report: Strong Board Leadership is Essential for Successful Credit Unions
• Office of Consumer Protection Report: CFPB Extends Implementation of Remittance Rule
• Office of Small Credit Union Initiatives Report: NCUA To Address Succession Planning for Small Credit Unions

The one that really jumped out at me is the Strong Board Leadership article.  Well, that and the article on NCUA's Exam Focus for 2013.  Both might be good ones to pass along at your credit union.  

***

NAFCU's Upcoming Conferences.  Speaking of Strong Board Leadership, make sure your Board is aware of the educational opportunities at NAFCU's Board of Directors and Supervisory Committee conference (May 15-17 in Asheville, NC) and NAFCU's Annual Conference & Solutions Expo (July 9-13 in Boston, MA).  

Bonus (we can use "bonus" without additional disclosures as we are not a credit union!):  The same promo code that we mentioned last week - NEWYEAR - will work for Board of Directors Conference and Annual Conference.  Just be sure to Register by January 31st using the NEWYEAR promo code and you'll Save $100 (in addition to the early-bird rate)!   

CFPB By the Numbers; BSA Webcast for Directors and Supervisory Committee

Written by Steve Van Beek

Last week was NAFCU's Congressional Caucus - which is a great event for credit leaders to discuss their issues with their representatives, Senators and regulators.  As part of Caucus, I put together a short presentation and accompanying fact sheet in an attempt to quantify the burden on credit unions from the CFPB's actions (so far).  

Ultimately, the fast-paced schedule of Caucus did not allow the time for me to give the presentation.  Fear not, I'm sharing the information with you today in hopes that you will share with your senior management and Boards to show them the impact the CFPB is having on credit unions.   

• Consumer Financial Protection Bureau - By the Numbers Presentation
• Consumer Financial Protection Bureau - By the Numbers Fact Sheet

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BSA Webcast.  On October 10, 2012, NAFCU will be hosting a BSA Webcast designed for Board of Directors and Supervisory/Audit Committee members.  Of course, you do not need to attend for the live viewing and can use the webcast at your next Board or Supervisory Committee meeting to fulfill your training requirements.  Sign up by October 3rd and Save $100. 

 

Compliance Resources: Newsletters; Webinars; Webcasts

Written by Steve Van Beek

Today's post seeks to aggregate some useful compliance resources. 

NCUA Listening Session.  The first of NCUA's six listening sessions is today in Boston.  Registration for all sessions is now available here.  

NAFCU Members.  The May 2012 NAFCU Compliance Monitor is now available.  This month the articles look at the CFPB's movements in mortgage servicing as well as third-party service providers.  For those who missed the April 2012 BSA Blast, it is available here.    

Both the Compliance Monitor and the BSA Blast are NAFCU-member publications.  If your credit union is interested in NAFCU membership, check out our trial membership program.  Additional member benefits are discussed here.  

If you are a NAFCU-member and would like to be added to the Compliance Monitor and BSA Blast email notification lists, just send us an email - [email protected].  

***

Vendor Risk Management Webinar.  The Philadelphia Federal Reserve is hosting a free Risk Management Webinar today at 2:00 Eastern.  The slides are already up and available here.  

FinCEN Webinar.  FinCEN will be hosting a free May 8th webinar discussing the technical specifications of the new SAR, CTR and DOEP forms.  Registration is here.   

Note:  This webinar promises to be very, very technical and geared toward IT folks.  Be sure to pass this along to anyone at your CU who fits the bill.  FinCEN will be conducting a future webinar for compliance professionals. 

CU Online Upgrade Webinar.  NCUA recently announced an upcoming upgrade to CU Online.  The upgrade is scheduled for May 28th and NCUA is hosting a free May 15th webinar discussing the upgrade.  Registration is here.  

***

NAFCU Webcasts.  We also have a series of upcoming webcasts that might be of interest:

• May 9th:  Essential Financial Literacy Education (Sign up today and save $100)
• May 17th:  IRA Compliance: Managing a Successful IRA Program
• May 24th:  An Inside Look at NCUA's Interest Rate Risk Rule

Remember, all NAFCU webcasts are available for one-year after the purchase date and can be viewed numerous times.  The Financial Literacy webcast is a good example.  Not many credit union Boards meet at 2:00 p.m. on a Wednesday - but your credit union can use the webcast at a Board meeting or training session by accessing the "on-demand" version. 

All NAFCU webcasts are listed here (both upcoming live webcasts and on-demand webcasts).  

Noninterest-Bearing Transaction Account Q&A; NAFCU's 31st Board of Directors Conference

Written by Steve Van Beek

Two months ago NAFCU held a webcast on NCUA Share Insurance Coverage - Expectations and Disclosures.  One of the questions from the live webcast was on noninterest-bearing transaction accounts and I wanted to share the Q&A with blog readers.

"Question:  We have a question about the requirement to notify members if we alter their noninterest-bearing transaction account.  Our credit union currently offers only noninterest-bearing transaction accounts – which are fully insured until December 31, 2012.  If we added a new checking account which would offer dividends would we be required to notify members?  What about if members switched from our noninterest-bearing transaction account to our new product that pays dividends?

Answer:  Great questions.  Let’s tackle them separately.  For the first question, the credit union would not be required to notify members when you add a new product that pays dividends.  Your members with the existing noninterest-bearing transaction account are not being impacted by the creation of the new product.  The terms and conditions on the existing noninterest-bearing transaction account are not being altered and, thus, no notice would be required to the members.  Those accounts will remain fully insured until December 31, 2012. 

For the second question, the credit union would not be required to notify members that voluntarily close their noninterest-bearing transaction account and open an account that pays dividends.  The credit union has not made a change to the terms of the noninterest-bearing transaction account and, thus, no notice would be required. 

That being said, it would be a good member service to notify members that their decision to close their noninterest-bearing transaction account and move toward a dividend-paying transaction account could impact their share insurance coverage.  While not required, this notification could be important – especially for members with large balances."

Without additional Congressional action, the unlimited share insurance coverage for noninterest-bearing transaction accounts will expire on December 31, 2012.   

Note:  We blogged on noninterest-bearing transaction accounts in the past as well:  June 22, 2011; June 3, 2011; May 27, 2011; May 26, 2011; and May 24, 2011.   

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Now for a long shameless plug that you might want to pass along to your Board or Supervisory Committee.

NAFCU's 31st Board of Directors and Supervisory Committee Conference.  NCUA’s Inspector General William DeSarno and Deputy Inspector General Jim Hagen will be presenting at NAFCU’s 31st Annual Credit Union Board of Directors and Supervisory Committee Conference, May 16-18 in Palm Springs.  

You might be wondering what does NCUA's Office of Inspector General do?  Among other duties, they write the Material Loss Reviews (MLRs) which discuss what issues helped cause a credit union to fail or need a merger.  These provide a great opportunity to learn from others (July/August 2010 Compliance Central from The Federal Credit Union magazine).

Additionally, Anthony has a great blog post today on NAFCU's CU Musings Blog which highlights some of the findings in these MLRs and looks at a common theme.   

***  

The early registration deadline was Friday, March 23 – but I’m extending the $100 savings until this Friday, March 30 for blog readers (or anyone they pass the word on to). Use the code VCDIS for each registration from your credit union to save through Friday, March 30.  

Board members and Supervisory Committee members who attend have the ability to earn certificates for both Bank Secrecy Act training and Financial Literacy training.  

Additionally, I'll be presenting on the Consumer Financial Protection Bureau and you can be assured your Directors and Supervisory Committee members will receive the latest information about the CFPB's actions and how they will impact credit unions.    

FinCEN Issues Advisory on SAR Confidentiality

Written by Bernadette Clair, Regulatory Compliance Counsel

FinCEN released an advisory on March 2, 2012, reminding financial institutions, and the lawyers that advise them, of the requirement to maintain SAR confidentiality.  Apparently, there has been an uptick in the number of private parties seeking SARs from financial institutions – private parties who shouldn’t know a SAR exists.

FinCEN’s advisory is a stern reminder that financial institutions, and their current and former directors, officers, employees, agents, and contractors, are prohibited from disclosing SARs, or any information that would reveal the existence of a SAR.  In addition, civil and criminal penalties can be imposed for the unauthorized disclosure of a SAR.  From the advisory:

“FinCEN reminds financial institutions to be vigilant in maintaining the confidentiality of SARs. This includes ensuring all employees, agents, and individuals appropriately entrusted with information in a SAR are informed of the individual obligation to maintain SAR confidentiality. This obligation applies not only to the SAR itself, but also to information that would reveal the existence (or non-existence) of the SAR. Likewise, such persons should be informed of the consequences for failing to maintain such confidentiality, which could include civil and criminal penalties as explained herein.

A financial institution may consider including such information as part of its ongoing training of all employees. Furthermore, financial institutions may want to remind their counsel of the strict requirements of SAR confidentiality. Additional risk-based measures to enhance the confidentiality of SARs could include, among other appropriate security measures, limiting access on a "need-to-know" basis, restricting areas for reviewing SARs, logging of access to SARs, using cover sheets for SARs or information that reveals the existence of a SAR, or providing electronic notices that highlight confidentiality concerns before a person may access or disseminate the information.”

My takeaway:  It might be a good idea to review the internal controls you have in place to protect SAR confidentiality – you don’t want to be the weak link.

***

Tomorrow I’ll be speaking at compliance school on BSA/OFAC compliance.  For those of you taking the NCCO certification exams…study hard, the end is in sight!

With NAFCU staff at school this week, keep in mind that response times to compliance questions may be a little longer than usual.

Talking About the CFPB

Written by Steve Van Beek

Yesterday, I had the opportunity to give a presentation on the Consumer Financial Protection Bureau.  You may have heard of these guys.  It was a fun presentation with a very good questions from the attendees.  

I wanted to share a recent article on the CFPB that I wrote for The Federal Credit Union.  The article takes "A Closer Look at the CFPB" and discusses the following areas:

• The CFPB's Supervision and Examination Powers;
• The CFPB's Regulatory Authority;
• Unfair, Deceptive or Abusive Acts or Practices (UDAAP); and
• Additional Areas of Focus.

The full article is here and might be useful to share with your colleagues, senior management and your Boards.  Note: Since the article was written, the CFPB has already moved forward on regulating nonbanks.

***

The CFPB will not be a passive agency and there will be plenty more CFPB issues to discuss in the future.  I'll be talking about the CFPB at future NAFCU Conferences as well, including:

• NAFCU's Board of Director and Supervisory Committee Conference - May 16-18 in Palm Springs, CA;
• NAFCU's Annual Conference & Exhibition - July 24-28 in Nashville, TN; and
• NAFCU's 2012 Regulatory Compliance Seminar - October 23-26 in Seattle, Washington.

Of course, we'll be talking more than just the CFPB - but you can be assured you or your colleagues will receive the latest on the CFPB and how its actions will impact your credit union.   

Regulatory Review: A Look at Part 701.33; Reg Alert on TDRs

Written by Steve Van Beek

Yesterday, we discussed NCUA's annual regulatory review.  I mentioned a couple of weeks ago that I hoped NCUA would review their guidance as well.  An example might help illustrate how NCUA could review their guidance and reduce the headaches for compliance officers.  

Part 701.33.  NCUA will be reviewing Part 701.33 of its regulations which addresses reimbursement, insurance, and indemnification of officials and employees.  To me, it would be very beneficial to credit unions if NCUA's review of Part 701.33 involved an analysis of their opinion letters and whether it would be appropriate to clarify the regulation.  

Example.  An advanced search on NCUA's website (under the Legal Opinion Letters category) for "701.33" comes up with 30 NCUA Legal Opinion Letters.  There are extremely old letters as well as quite a few recent letters.  

Suggestion.  Considering the current 12 C.F.R. 701.33 has resulted in 30 formal legal opinion letters over the years, wouldn't it make sense for NCUA to update the regulation to codify these interpretations?  Perhaps NCUA could issue Official Staff Commentary that would provide clarity to credit unions to prevent compliance officers from having to wade through numerous legal opinion letters to ensure they have correct interpretation from NCUA.

***

NAFCU Members.  NAFCU's Regulatory Alert on Loan Workouts and Nonaccrual Policy and Regulatory Reporting of Troubled Debt Restructured Loans is available.  The proposal has a short comment period with comments due to NAFCU on February 17th.  NCUA is accepting comments until March 1st.   

Comments on CUSO Proposal; BSA and Risk Managment Webcast for Directors

Written by Steve Van Beek

NAFCU has submitted our comment letter on NCUA's proposed rule on CUSOs.  You can view the comment letter here.  

Additional information is in the NAFCU Today. 

***

Next Wednesday - October 5 - will feature a return performance by Anthony Demangone as he will be presenting a BSA and Risk Management webcast for Directors and Executives.

Any credit union (or other third-party) can sign up and you can save $100 by signing up through Wednesday, September 28.

Here is what will be discussed:

"Make sure your board and supervisory committee get their annual BSA training before the end of 2011!

Managing BSA compliance as a credit union board is just another form of risk management. All too often, BSA training programs focus on the technical aspects of compliance, without properly discussing risk management. This webcast, based on a heavily attended session at NAFCU’s 2011 Annual Conference, weaves risk management and BSA compliance together. Board members and supervisory committee members who watch this webcast will gain a foundational understanding of risk management, which will help them better understand their role in managing the credit union’s BSA program. Those who purchase the webcast will have the option to purchase a CD of the live broadcast to use for board and supervisory committee training sessions. Viewing the webcast can help credit unions comply with NCUA training requirements regarding the Bank Secrecy Act.

Demangone’s presentation will first address risk management:

• What are NCUA expectations regarding risk management?
• What are the seven major types of risk that NCUA examiners focus upon?
• How do credit union officials manage risk?

Regarding the Bank Secrecy Act, Demangone will cover the following:

• What is money laundering, and why do criminals attempt it?
• Important concepts of the Bank Secrecy Act regulatory system.
• What are the goals of the BSA regulatory system? (Once you know what regulators are after, other things start to make sense.)
• What about the Office of Foreign Assets Control (OFAC)?
• What are the credit union’s responsibilities for managing BSA risks?
• What is a board’s ultimate responsibility?"

 The $100 off savings ends tomorrow - so take a look today to help meet your credit union training requirements.

Robert's Rules of Order

Written by Steve Van Beek

Many credit unions use Robert's Rules of Order for their annual meetings and Board meetings.  The 11th Edition of Robert's Rules of Order is now available.  (Hat Tip to Dan M.)  There is also a listing of changes from prior versions.

NCUA's model FCU bylaws include a fill-in-the-blank section for the credit union to indicate which parlimentary authority it will use for meetings.  Here is from Article IV, Section 4 of the model bylaws:

"(k) To the extent consistent with these bylaws, all meetings of the members will be conducted according to ______________. The order of business for the annual meeting may vary from the suggested order, provided it includes all required items and complies with the rules of procedure adopted by the credit union.

The credit union must fill in the blank with one of the following authorities, noting the edition to be used: Democratic Rules of Order, The Modern Rules of Order, Robert's Rules of Order, or Sturgis' Standard Code of Parliamentary Procedure."

Be sure to check your credit union's own bylaws and note that if the credit union updates to the 11th edition of Robert's Rules of Order - it would need to amend its bylaws to reflect the edition being used.

***

Have a great weekend!   

1000th Blog Post; Compensation to Directors

Written by Steve Van Beek

I hope everyone had a great long weekend.  I wanted to thank all the loyal readers out there as today marks the 1000th blog post for the NAFCU Compliance Blog.  You guys are what makes the blog great - thank you!    

***

Last week, NCUA issued Legal Opinion Letter 11-0805 regarding compensation for volunteers.  Here is the opening paragraph:

"Thank you for your letter to the General Counsel of July 23, 2011, seeking our opinion on whether Hudson Valley FCU’s policy of giving a Volunteer Service Award of a $250 Visa gift card is permissible under NCUA’s rule limiting compensation of officials, 12 C.F.R. 701.33 (“the Rule”).  The policy provides for such awards “at the end of each five-year period of service” to volunteers who may include members of the credit union’s board of directors (“BOD”) and committees. As explained below, our opinion is that a Volunteer Service Award recognizing an individual director’s or committee member’s substantial length of service is permissible under the Rule so long as the award is nominal in valuein proportion to the period of service it covers."  (emphasis added).

What is nominal?  From the closing of the letter:

"Based on our prior opinions, and adjusted for inflation, we would consider a maximum of $50 per year of service to be 'nominal.'"

One of the prior opinions from NCUA on this issue is a 1993 letter where NCUA took the same position for nominal gifts.  

May I play devil's advocate for a moment?  Thanks.  Considering that NCUA has had the same opinion since at least 1993 - why doesn't NCUA amend 12 C.F.R. 701.33 to provide an additional exception to the definition of "compensation"?  There are already three exceptions in Part 701.33(b) to the definition of "compensation" so this wouldn't be new territory.  

Why make credit unions research and review legal opinion letters to find this longstanding exception?  Remember - NCUA reviews 1/3 of their regulations each year.  It appears Part 701.33 will come back up for review in 2012.  Hopefully NCUA will take the initiative and add this exception to the regulation itself.

Of course, be sure to review the full letter if your credit union offers a similar award or is thinking about doing so.  

***

Again - wanted to thank you for supporting the blog and supporting NAFCU!  Tomorrow will be post 1001 - see you there!     

Adverse Action Notices; Fiduciary Duties Policy; NCUA Webinar

Posted by Sarah Loats Zimmermann

Adverse Action Forms. Confusion abounds surrounding the proposed adverse action forms under Reg B. The confusion probably stems from the fact that the change required by the Dodd-Frank Act (to include credit scores and other information in an adverse action notice) is a change to the FCRA adverse action notice requirements. Changes are not being made to the ECOA/Reg B adverse action requirements at this time.

However, very often a credit union needs to send both adverse action notices at the same time. Therefore, the Federal Reserve created model forms that combine the Reg B and FCRA adverse action notice requirements. These model forms are housed in Appendix C to Reg B, and because there are changes to the FCRA notice requirements the Federal Reserve needs to change those model forms that purport to satisfy both the Reg B and FCRA adverse action notice requirements.

The proposed model forms were published in the Federal Register in March. The FCRA notice requirements kick-in July 21, 2011 per the Dodd-Frank Act. Final forms have not yet been issued, but keep an eye out for them because July 21 is just around the corner. If you are itching for a more detailed discussion of this issue, please see the Background section of the proposed rule. If that link doesn't work for you, go to the Fed's press release announcement. You can access the proposed rule from there as well.


Fiduciary Duties Policy.  NAFCU members, another very generous member has offered a sample Fiduciary Duties policy for the policy exchange library. If you'd like to review it, you can go to the library and peruse the Miscellaneous section. It is aptly named Fiduciary Duties. And when that generous nature strikes you, please consider offering a sample policy of your own.

 

NCUA Webinar.  NCUA will be holding a free webinar Thursday May 26 (tomorrow) at 4 pm. The topic is the proposed voluntary prepaid Corporate Stabilization Fund assessments program that NCUA announced at its May 19 Board meeting. NCUA's press release about the webinar contains a link to register.

NCUA Board Meeting; ALLL Webinar; Term Limits?

Posted by Anthony Demangone

OK, this really is my last blog post!

Good morning, folks.  I hope everyone had a great weekend.  Das Twins, Mandy and I ventured to the Baltimore Zoo this weekend with friends.  I always love any visit to "Charm City," and the zoo was fantastic. 

Now, back to our regulatory zoo.

NCUA.  They released the agenda for this Thursday's NCUA Board Meeting.  I was expecting to see a CUSO rule, but it was nowhere to be seen.  Here are the items of interest:

1. Final Rule - Part 740 of NCUA's Rules and Regulations, Accuracy of Advertising and Notice of Insured Status.
2. Final Rule - Part 745 of NCUA's Rules and Regulations, Share Insurance and Appendix.
3. Final Rule - Part 750 of NCUA's Rules and Regulations, Golden Parachute and Indemnification Payments.
4. Proposed Rule - Part 705 of NCUA's Rules and Regulations, Community Development Revolving Loan Fund.
5. Voluntary Prepayment of Stabilization Fund Assessment.
6. Insurance Fund Report.

ALLL.  NCUA has released the agenda for an "Allowance for Loan and Lease Losses" webinar that will be held on May 26.   In NCUA's words:

The webinar will facilitate credit unions’ understanding of the 2006 Interagency Policy Statement on the topic. Credit unions have worked to understand how qualitative and environmental (Q&E) adjustments can better inform their estimates of inherent losses existing in the loan portfolio. The NCUA presenters will benchmark best practices in this area. The webinar will be interactive with opportunities for two-way communication.

I've said this before, and I'll say it again.  Regulators don't offer these webinars just for kicks.  They must see some problems or confusion in this area.  For that reason, find the person at your credit union responsible for the ALLL process, and make sure they know about this webinar. 

Term limits for directors.  We get quite a few questions each year about term limits for federal credit union directors.  The theory behind a term limit is that it forces turnover on a board.  Proponents of term limits say that such policies bring fresh ideas to a board that may have stagnated.  Opponents say such policies push great directors out the door for no reason.  NCUA's official position on this issue is clearly laid out in this legal opinion.   

It is our long-standing position that the only eligibility requirements for federal credit union board membership are those contained in the Act. That is, as long as an individual is a member of the FCU (Section 111 of the Act, 12 U.S.C. ~1761) and has not been convicted of a crime involving dishonesty or breach of trust (Section 205(d) of the Act, 12 U.S.C. ~1785(d)) (or if he has been convicted of such a crime, the NCUA Board has waived the Section 205(d) prohibition), he is eligible for election to the board of directors. Article VI, Section 7 of the Standard Federal Credit Union Bylaws permits an FCU's board of directors to set a minimum age requirement.

We have consistently rejected proposed nonstandard bylaw amendments or FCU policies that restrict completely any member's eligibility to run for the board of directors. In our view, such proposed bylaws and policies are impermissible because they serve as an absolute bar against an FCU member running for and serving on the board for a particular term, in conflict with the Act.

This does not, however, preclude an FCU's board and nominating committee from having a policy of nominating only individuals who have served less than three consecutive three year terms on the board of directors. Article VI of the Standard Federal Credit Union Bylaws gives the nominating committee discretion to set standards for determining which members it deems worthy of nomination. The FCU board can provide guidance on this policy. Thus, the nominating committee can have a term limit policy. However, all members other than those nominated by the nominating committee may run for the board by submitting the appropriate petition and/or by being nominated from the floor, whichever the FCU's bylaws allow. Individuals who are nominated by petition or from the floor are not subject to the nominating committee's standards, and may not be precluded from running for the board of directors as long as they meet the criteria specified in the Act and the FCU's bylaws.

There you have it.

Reading the Tea Leaves

Posted by Anthony Demangone

I'm not a very creative guy, so when I add a catch-phrase to my limited arsenal, it tends to be inserted into the line-up almost immediately.  At some point, I added "reading the tea leaves" to my vocabulary.  Rarely a day has gone by without me uttering those words.

"Reading the tea leaves" is a form of fortune telling.  In short, some folks allegedly can look at used-up tea leaves and tell someone's future.  To most folks, the leaves just look like a pile of wet leaves. But to the trained eyes, they'll see the future.  I'm sure mine would be something like this:

Fortune teller speaking to me: I see crayons on walls, requests for car keys, and immense checks being written to institutes of higher learning. 

As compliance officers, we can do something similar.  We keep track of a multitude of issues.  When a regulator or some other credible source adds new information to our matrix, we may see how that new piece of information creates "ripples on the pond."  And we may see how those ripples might affect the operations of our credit union.  Let me walk through a few items that I've seen recently to show you how I try to read the tea leaves.

Directors.  The Bank Lawyer's Blog recently wrote this post regarding how recent developments may make it difficult to recruit/find new candidates for a community bank's board of directors.  Credit unions are not community banks, and an uptick in FDIC lawsuits against the directors of failed banks does not mean the same will happen for us in credit unions. But, articles like these show how prospective directors might perceive an unpaid spot on your board.  Add to this NCUA's recent rule on fiduciary duties, and you see a trend.

Reading the tea leaves...Your credit union may see the availability of viable board candidates shrink.  It isn't that there are fewer qualified people within your field of membership.  It may be that fewer of them would be interested in serving.  It may be time to look at how you recruit and retain strong officials in light of these facts.  Possible areas to look?  Nominating committees.  Associate board members.  Supervisory committee. Other volunteer committees. 

Foreclosures.  Two recent events popped up on my radar screen regarding foreclosures.  First, the GAO issued this report that calls for federal regulation of the foreclosure process.  Second, the FDIC recently devoted an entire issue of its "Supervisory Insights" publications to foreclosures. Here's how the FDIC spun that issue: "This Special Foreclosure Edition describes lessons learned from an interagency review of foreclosure practices at the 14 largest residential mortgage servicers and includes examples of effective mortgage servicing practices derived from these lessons."

Reading the tea leaves...The issue of federal regulation of the foreclosure process is quickly rolling downhill.  Many experts expect a ton of additional foreclosures, and others are predicting further drops in the market value of American real estate.  After a crisis, one often sees new regulation.  (PATRIOT Act, Sarbanes-Oxley, Credit CARD Act, Dodd-Frank.)  I would expect federal action in this area.  So, look at your own credit union's foreclosure policies and procedures.  Take a look at the FDIC and GAO recommendations.  That's a good start.  And stay tuned.  

There you have it.  As a compliance officer, it is understandable when one focuses on the trees instead of the forest.  But the more that you can take a step back and see where that forest is heading, the better off you'll be, as well as your credit union. 

CFPB; 1099; FDIC Complaints and Risk Management

Editor's Note.  Some of you had a difficult time opening certain links in yesterday's blog post. Here's my guess regarding what happened.  Many of you receive the blog post via email, and many email systems make it difficult to click on hyperlinks for security reasons.  If you had those problems yesterday, here's what I'd do.  Go to the actual blog post on the internet, which is here, and try the links again. Compliance peeps who had problems with the links in the email indicated to me that they were able to open the documents from the blog's web site. 

Posted by Anthony Demangone

Here are a few items of note...

The CFPB. Stories about President Obama appointing Elizabeth Warren to head the CFPB via a recess appointment seem to be gaining traction. (WSJ.com).   Also, the CFPB has issued what appears to be its first guidance document.   The guidance clarifies that the Dodd-Frank requirements found in section 1071 will not go into effect until the CFPB issues regulations.  And what did Section 1071 do?  It amended the Equal Credit Opportunity Act to require financial institutions to collect and report information concerning credit applications made by women or minority-owned businesses and by small businesses.

1099.  Ding-dong, this witch is dead.  (NAFCU Today.) For months, we chronicled how a small provision in the recent health care reform law amended 1099-MISC requirements in a way that would have placed a huge new burden on businesses – including credit unions.  Luckily, reasonable minds came to the rescue. President Obama recently signed legislation into law that repeals that provision.

FDIC Complaint.  Here's another great blog post from the Bank Lawyer's Blog.  This post analyzes claims made by the FDIC against the former directors and officials of failed banks.  Here's one portion of the post that caught my eye:

In the case of Corn Belt Bank, which failed in 2009, the FDIC found five loans that caused losses to the bank ("Loss Loans"), alleged that the former directors and officers were negligent or grossly negligent in making the loans because they were improperly underwritten, and that the officers and directors breached their fiduciary duties to the bank. The former officers and directors failed to adequately inform themselves of the relevant risks and acted recklessly in approving them. In addition, the FDIC alleges undue loan concentration, out-of-area lending, high loan-to-value ratios, and overall weak loan administration. Finally, the FDIC alleges that regulatory examiners "repeatedly warned" the bank of these risks and the bank chose to ignore these warnings.

I really do see a sea change when it comes to boards, corporate governance and risk management.  When a financial institution's risk management program fails or is non-existent, directors won't be able to point their fingers at management and say, "That was their responsibility." When it comes to risk management and boards, it is becoming increasing clear that there is no "they" or "their."  

***

I wanted to key you all in to a NAFCU promotion.  Here's an ad you may have seen recently. 

We're urging non-members who are eligible to join NAFCU to consider trying us on for size with a free, no obligation 6 month trial.   If you enjoy the blog, I think you'd enjoy membership with NAFCU.  Take a look at what we offer and consider kicking the tires.  As I always like to say, free is good.  

 

Three-Letter Acronym Day! TIS, ODP, BSA and BOD

Posted by Anthony Demangone

Here are a few three-letter topics for you.

TIS.  (Hat tip to Mr. Van Beek.) A report released by PIRG could draw additional attention to Truth in Savings disclosures.  PIRG's study found that banks are still "hiding" fees. 

Fewer than half (38%) of branches complied easily with the simple researcher request for fee schedules required by the Truth In Savings Act; only after two or more requests did a total of 55% percent of branches provide fee schedules as requested and as required by the Truth In Savings Act.  In a finding virtually identical to recent U.S. Government Accountability Office (GAO) results, nearly one-quarter (23%) of branches surveyed refused to comply at all. Others provided often weighty piles of useless other brochures.

PIRG made recommendations to the CFPB to fix the issue.

• The CFPB should extend the requirements of the Truth In Savings Act to the Internet. It should require that banks post fees in a searchable web format (e.g., xml or similar), to encourage the establishment of local online shopping guides by community groups.
• The CFPB should require that the most important savings and checking disclosures required by the Act be provided prominently in a tabular format, such as the “Schumer Box” required for credit card disclosures.

They even make a recommendation to NCUA.

Credit unions generally have fewer and lower fees than banks, but their account disclosures are even murkier than most bank disclosures. The NCUA should, with advice from the CFPB, issue model guidelines on fee disclosures and require credit unions to explain the basic terms of their accounts in a better way.

How much of this report will find its way into guidance or regulation?  It is hard to say.  But if the CFPB cracks open Regulation DD, this report will surely find its way to the desk of those working on the project.   And with all of the consumer-friendly changes to Regulation Z, it seems it is only a matter of time until changes find their way to the "checking account" side of things.

ODP.  You may remember that the FDIC issued guidance to its regulated entities regarding their ODP programs.  As I wrote earlier, it does seem possible that the guidance could find its way to NCUA.  That has not yet happened.  But for those tracking this issue, the FDIC has issued an FAQ document to provide additional guidance.   For those tracking the FDIC ODP issue, this document is a must-read.

BSA.  There are a few things to mention here.  First, for NAFCU members - the latest issue of the BSA Blast is available.   It has a few nice articles, a BSA and OFAC-centric calendar, as well as a BSA quiz for your staff.  Enjoy.  And just in case folks forgot that BSA is still an important issue - remind them that a Florida bank was just hammered with a $7 million CMP for BSA deficiencies.  Finally, if you have a few minutes, read this article. (The Guardian.)  It outlines how a large U.S. bank allegedly was used to launder billions of dollar of illicit drug money - over the protests of one of the bank's own anti-money laundering specialists. 

BOD. Finally, you may want to forward this nice article (Boardmember.com) to whomever handles your board issues.  In short, the article discusses five things that your board members should be thinking about as they work on your board.   

A New Month Is Upon Us; Associate Board Members and Training

Posted by Anthony Demangone

Someone just sent me the following, and I wanted to share it with everyone as quickly as possible.  

***

April 1, 2011. 3:01 a.m. Washington, D.C. (AP) - Federal lawmakers and regulators gathered in an unprecedented meeting early this morning to apologize to America's credit unions.

"You know, we always say how you guys aren't the problem, and then we went ahead and wrote rules that tripled your compliance burdens while hampering your ability to earn interest and non-interest income," said one lawmaker who asked to remain anonymous. "I apologize.  I'm sorry." 

Regulators chimed in, stating that they too went overboard against America's credit unions. One official from the Federal Reserve spoke about the agency's recent final rule that tweaked a few provisions mandated by the Credit CARD Act. 

"We were tweaking a few provisions, and we issued a final rule that was more than 300 pages long," she said, asking to remain anonymous. "No one can read what we write.  Not even us!" 

All regulators and lawmakers signed a binding agreement that outlined the following actions:

1. Senator Richard Durbin will abstain from any discussion or vote involving interchange.  
2. Regulators vow to begin writing regulations in English.  They anticipate the need for extensive training as they implement the initiative.
3. Regulators are implementing the "no more than 50" rule.  Final regulations may not take up more than 50 pages in the Federal Register.
4. Federal lawmakers agree to pass legislation agreeing to a 50-year implementation freeze of the Dodd-Frank Act, giving GAO ample time to measure its effect on credit unions below $1 trillion in assets.  If any credit union within that category is harmed in any way, the Dodd-Frank Act will be repealed in a public ceremony involving a copy of the original legislation, and either a flamethrower or dynamite. 
5. Each federally-insured credit union will have a "whammy" button installed in their operations center.  If any credit union wishes to stop a piece of federal legislation or regulation, all they have to do is yell "no whammies" and hit the button, much like the 1980's game show, Press Your Luck. (YouTube). 

The agreement contains 39 other items, and can be downloaded here.

***

NCUA recently issued a legal opinion letter that creates an important and welcome change in their position concerning associate and emeritus director positions. 

In its legal opinion, NCUA indicated that federal credit unions may reimburse associate board members and directors emeritus for their training costs, as long as the volunteer is not serving in just an honorary capacity. 

In previous opinions of this office, we have stated that volunteer members of non-voting, advisory committees, such as emeritus or associate directors, are not eligible to receive expense reimbursement or insurance benefits. See for example OGC Op. 10-0913 (October 29, 2010). Upon reconsideration, we are of the opinion that if the individuals in question provide services that are established by the board and that go beyond merely serving in an honorary capacity, the normal exceptions to the statutory bar on compensation should apply. This would include reimbursement for training and training-related expenses that are appropriate to the service being provided.

So, not only are these officials allowed to attend board meetings and other credit union events, but they now can attend training at conferences and other locales with the credit union paying or reimbursing them for the costs associated with the training. This opinion should help credit unions attract and retain individuals to help their corporate governance.

***

Have a great weekend, everyone.  And Happy April Fool's Day!

Thoughts on School; Force-Placed Insurance; Policies and Board Involvement; HSAs

Posted by Anthony Demangone

I'm back in the saddle at NAFCU after a fantastic week at our compliance school.  If you want to see what 180 enthused credit union compliance officers look like, well, it looks like this:

I think one attendee summed the week up well in a brief exchange with me on Friday.  He thanked me and NAFCU for the event.  I said I was glad that he enjoyed it.

"Oh, I didn't enjoy it. It was a great event and I learned a ton.  But I wouldn't call it enjoyable!" 

And I know exactly what he meant.  It was a wonderful week, but a very tough week.  

***

Now, back to the grind.  

Force-placed insurance.  Here's a fantastic post (Bank Lawyer's Blog) that discusses the AG proposed settlement regarding mortgage servicers and how it would affect force-placed insurance. In short, the settlement agreement would prohibit mortgage loan servicers from earning profit from force-placed insurance policies.  Under the proposal, mortgage servicers would be prohibited from force-placing insurance with an affiliate, and from accepting "kick-backs," referral fees or accepting anything of value related to the force-placement of insurance.  If you want the bloody details, just start reading on page 24.   My takeaway? Any income you receive from force-placed insurance related to mortgage servicing is now clearly subject to increased regulatory risk.  If the proposed AG agreement finds its way into the requirements of the secondary market, or on to the "to-do" list at the CFPB, the agreement may very well affect your bottom line. Stay tuned.

Board fiduciary duties and policies and procedures. Here's a thought that came up a few times at NAFCU's Compliance School.  I see a potential red flag in the following situation. NCUA has indicated that boards should be involved in the formation of many important credit union policies.  The board sets the credit union's appetite for risk, its limitations for concentration, etc.  When a policy is supposed to reflect a board position, how can that policy be written without their involvement at some level?  And how could a credit union adopt a policy created by a third party without having board involvement to tailor it to their credit union's operations? Credit union should consider how this might affect their board members, especially in relation to their duty of care. 

HSAs. Treasury has redesigned and reorganized its web page dedicated to Health Savings Accounts. 

Monday Morning Hodgepodge

Posted by Anthony Demangone

Happy Monday, everyone!  I hope you enjoyed your weekend half as much as I did.  Here are a few items to get yourself rolling.  

Regulatory Compliance School.  We're gearing up for a record crowd at this month's NAFCU Regulatory Compliance School.  NAFCU's attorneys have been busy drafting a new manual for the event.  Here's a sneak peek at the manual's table of contents.  As you can see, we've been pretty busy for the past year or so.  We'll have the manual available for sale later this spring if anyone is interested. 

1099.  We're getting closer to a legislative fix to the 1099-MISC fiasco that came out of last year's health care reform legislation. 

CFPB.  The new agency continues to meet with "smaller" institutions.  The CFPB wrote of a recent visit by community bankers. They recently met with NAFCU staff and a small number of NAFCU member credit union CEOs as well.  The agency is hearing a lot from us, but it will be important to continue a dialogue regarding concerns we have with regulatory burden.  And an open door is much better than the alternative.

Fiduciary duties. NCUA responded to a request from NAFCU to clarify that a federal credit union's board of directors can continue to delegate its ultimate authority over senior management to the chief executive officer of the federal credit union.

In response to Hunt’s specific questions, (Bob) Fenner said this doesn’t change existing NCUA policy. The full board may delegate to its executive committee the authority to hire, fire, determine duties of, set compensation for and discipline senior management, he said. It can also, within limits, delegate to the chief executive officer the authority to hire, fire and compensate subordinate employees, including other management personnel. 

Fenner noted that “if a board determines to delegate to the CEO the authority to hire, fire, fix the compensation of, or discipline other senior managers,” appropriate standards and controls should be put in place.

Mortgages. Reuters reports state attorney generals have sent proposals to America's largest mortgage lenders that recommends principal reductions before resorting to foreclosure. This doesn't appear to directly affect credit unions, but attorney generals can effectively regulate on a national basis if they strike the right agreements with the right parties.  (Think HVCC.)  Stay tuned.

_____________________________________________________

Wouldn’t it be great to have one comprehensive resource on your shelf you could use for everyday guidance and support?

Check out Sheshunoff's Mortgage Lending Operations and Administration manual. 
Be sure to include the NAFCU11 promo code at checkout to save 10% on the price.  

Board Governance and "Direct Dialing"

Posted by Anthony Demangone

Through the years, I have learned that some read regulations and guidance documents through a lens that serves their interests. For instance, they focus on the one paragraph of a document that seemingly supports their position, while ignoring many provisions that do not.  I've come to believe that one of best qualities a compliance officer can have is the intestinal fortitude to look an executive or board member in the eyes, and say the following with certainty and professionalism:

I'm sorry, but I don't believe the regulation says that.

I had one of those moments recently with a compliance officer from a federal credit union.  It seems that one director from the credit union was calling staff members directly to check in on certain loan applications, certain projects, and the like. The director said that the new NCUA regulation concerning fiduciary duties said that the director could do that, and in fact, encouraged directors to bypass the CEO to deal with staff whenever they wanted. 

Let's say it together.  I'm sorry, but I don't believe the regulation says that.

The director perhaps read a news article that casually talked about the regulation.  Or perhaps the director did skim the new rule.  In any event, the regulation doesn't exactly support the director's argument.

Here's the section of the regulation that the director pointed to:

(2) Federal credit union staff providing services to the board of directors or any committee of the board under paragraph (c)(1) of this section may be required by the board of directors or such committee to report directly to the board or such committee, as appropriate.

I'll just make a few points on this text.  There's no mention of "director" in that paragraph.  Rather, this paragraph talks of the board's right to require staff to report to the board, or a committee of the board, as appropriate.  A director, by himself or herself, has little to no power. It is only as part of a board that the director can vote on matters, assuming a quorum is present.  So, a board, or a committee of a board, would have that right - but, again, this paragraph does not talk about a director's individual right. 

Did NCUA discuss this issue elsewhere? Yes, they did.  When NCUA issues a final rule, they also publish a "discussion" section that goes into detail regarding what they were thinking when they crafted certain provisions of a regulation. Here's what they said about the paragraph that we're discussing today.

Some commenters opposed the provision requiring FCU employees (staff) to report directly to the board of directors or committees of the board, stating this would undermine management’s authority over the employees of the credit union. Another commenter questioned whether committees other than the supervisory committee had the authority to require employees to report directly to the committee. One commenter argued that direct contact between the board of directors and the credit union’s employees would put employees at the beck and call of the board and could interfere with the employees’ regular duties.

The NCUA Board disagrees. An FCU’s board of directors cannot permit the chief executive officer (CEO) to screen all the board’s information sources.  While the board of directors should not attempt to bypass the CEO in giving direction to management and employees, the board is free to ask any manager, employee, or independent contractor to provide the board and its committees information directly and not through the filter of the CEO. The NCUA’s Office of General Counsel has previously opined that board members must be free to gather information from any source in the credit union to perform their board duties. OGC Op. No.03–0763 (Sept. 29, 2003).  (Emphasis added.)

To summarize, a federal credit union's board does have the right to gain direct access to information from credit union employees.  And they have that right, as appropriate, as needed to perform their duties. But NCUA went on to clarify that boards should not bypass the CEO to direct or manage the credit union's employees.  That's the CEO's job. 

Now, I believe that is what the regulation states!  (As always, though, I'm happy to hear comments and feedback, especially on board governance issues.)

***

Here are some tasty compliance tid-bits.

• The repeal of a new and controversial 1099-MISC reporting requirement is nearly here.
• Episode 57 of "Current Issues in Credit Unions" is fresh out of the oven.

FinCEN Advisory on Elder Abuse; This and That

Posted by Anthony Demangone

Yesterday, FinCEN released an advisory designed to help financial institutions spot the "red flags" of elder abuse.  The guidance shares a number of "red flags" that might signal elder abuse.  Here are some examples:

• Uncharacteristic nonpayment for services, which may indicate a loss of funds or access to funds;
• Debit transactions that are inconsistent for the elder;
• Uncharacteristic attempts to wire large sums of money;
• Closing of CDs or accounts without regard to penalties.
• A caregiver or other individual shows excessive interest in the elder's finances or assets, does not allow the elder to speak for himself, or is reluctant to leave the elder's side during conversations;
• The elder shows an unusual degree of fear or submissiveness toward a caregiver, or expresses a fear of eviction or nursing home placement if money is not given to a caretaker;
• The financial institution is unable to speak directly with the elder, despite repeated attempts to contact him or her;
• A new caretaker, relative, or friend suddenly begins conducting financial transactions on behalf of the elder without proper documentation;
• The elderly individual's financial management changes suddenly, such as through a change of power of attorney to a different family member or a new individual;
• The elderly customer lacks knowledge about his or her financial status, or shows a sudden reluctance to discuss financial matters.

In addition, FinCEN gives guidance on the completion of SARs involving elder abuse.

In order to assist law enforcement in its effort to target instances of financial exploitation of the elderly, FinCEN requests that financial institutions select the appropriate characterization of suspicious activity in the Suspicious Activity Information section of the SAR form and include the term "elder financial exploitation" in the narrative portion of all relevant SARs filed. The narrative should also include an explanation of why the institution knows, suspects, or has reason to suspect that the activity is suspicious. It is important to note that the potential victim of elder financial exploitation should not be reported as the subject of the SAR. Rather, all available information on the victim should be included in the narrative portion of the SAR. (Emphasis added.)

This is one piece of guidance that your credit union should read, because every member of every credit union hopes to be elderly one day.  (I guess the one exception to this would be a field of membership limited to the world of Logan's Run. I'm hoping the 14 of you who saw that movie or read the book will appreciate the arcane reference.)  In all seriousness, elder abuse is a big problem.  So read the advisory.  It also seems to be tailor made to be the foundation of a great front-line training session.

***

Here are some additional items of possible interest.

• Here's a link to NAFCU's comment letter on the Fed's debit card interchange fee proposal. Let me sum it up: Boooo!
• The FDIC reportedly plans to sue three former WAMU executives for more than $1 billion. (Puget Sound Business Journal.)
• NAFCU is offering a "key ratio" webcast on March 2 designed to help credit unions meet the new financial literacy requirement for federal credit union directors. 
• It looks like JPMorgan Chase is now going "above and beyond" when it comes to complying with the SCRA. Or should I say, overcomplying. 

Finally, here are things you don't want to hear or overhear when an electrician is in your house.

• Tim, we're going to need a saw, and I think we'll both need ladders. 
• Ma'am, I've been dreading this job.  This will not be easy. 
• Man, would you look at all of the stuff that that fell out of the ceiling!
• Wow, the last guy really messed this up.  This will take some time to fix.

Yes, I heard all of these phrases on Monday.

 

It's the plan, man. The plan.

Posted by Anthony Demangone

Yesterday, NCUA released some much anticipated (and perhaps dreaded) guidance concerning its recent rulemaking on fiduciary duties.  It was released in the form of Letter to Federal Credit Unions 10-FCU-02, and the letter's attachment.   The guidance spells out NCUA's expectations concerning the new director fiduciary duty regarding financial literacy. It also talks a wee bit about the other duties, but the guidance clearly focuses on financial literacy.

In short...It's all about the plan, man.  Here's a key portion of the guidance:

It is NCUA’s intent to ensure that all federal credit union directors have a basic understanding of their credit union’s finances. It is not NCUA’s intent to increase examiner scrutiny of the financial skills of particular directors. Rather, examiners will evaluate whether the credit union has a policy in place to make available the appropriate training to enhance the financial knowledge of the directors.

OK, so perhaps its all about the policy, man.  The policy. 

So, what is a credit union director supposed to know?  What is this "financial literacy" all about?  In NCUA's words:

At a minimum, a director should be able to examine the credit union’s balance sheet, income statement and be able to answer the following questions:  

• What does this line item mean?
•  Why is it important to the credit union?
• Is the value of the line item changing over time? If so, what does that change (either positive or negative) mean?
• Is the change important to the credit union?

A director must understand the specific activities in which his or her credit union engages. In particular, a director must understand not only how these activities generate revenue for the credit union but also, and perhaps most importantly, the various risks associated with these activities that could lead to financial loss.

To do their job in a meaningful manner, it is essential that directors understand the risks found in depository institutions -- that is, credit, liquidity, interest rate, compliance,3strategic, transaction, and reputation risk. Moreover, directors must understand the internal control structures at the credit union that limit and control these risks.

So, you have to have a plan...err, a policy, that shows how your credit union will provide the necessary resources and training so that they can meet the financial literacy component discussed above.

And what does that policy have to look like?  In NCUA's words, the policy should provide:

• Opportunities and funding for directors to acquire the skills needed to evaluate the credit union’s finances. Some directors may come to the director position with the necessary financial knowledge. Other directors may obtain the necessary financial skills through internal credit union training, external training, self education, on-the-job experience, or a combination of these activities.
• Education alternatives for directors commensurate with the size and complexity of the credit union. Alternatives could include, but not be limited to, training provided by vendors or trade associations; college courses or other opportunities at colleges or universities; NCUA’s Office of Small Credit Union Initiatives (OSCUI) training program presented at various workshops across the country beginning March 5, 2011; and NCUA’s Office of Examination and Insurance (E&I) internet-based training. We will distribute additional information when the development is complete.
• Solutions that take into account the appropriate deadlines for the financial literacy duty as outlined in NCUA's guidance document.

Compliance Guy Conclusion: Kudos to NCUA.  This guidance is just what we asked for last week. There's a good deal of flexibility for federal credit unions here.  Examiners, according to the guidance, won't be quizzing your directors for an explanation of the net worth ratio.  Rather, they want to see how your training policy gets your board where they need to be.

With that in mind, please allow me to hop on my soapbox. 

If NCUA wants a policy, give them a policy! Make sure you hit each bullet point outlined in the guidance document so that you can defend your policy should someone examine it.

Opportunities and funding.  How does your credit union ensure that directors have opportunities and funding to hit the financial literacy requirement?  Do you have training scheduled for a board meeting?  What if someone misses that board meeting?  Does your policy address that?  And what if someone joins your board two weeks after your training session? These aren't end of the world problems, but you should think about addressing them in your policy.

Education alternatives.  NCUA notes that lots of different training formats can work. They don't come out and say that they require you to come up with alternatives, but I think that's never a bad idea.  A healthy mix of training solutions will help you show examiners that each director has been given opportunities, funding, and education alternatives in order to meet this new NCUA requirement. 

Time-frames.  Also make sure that your policy shows how you'll ensure that new directors (and existing) meet the timing requirements found in the fiduciary duties rule and guidance. 

So, NCUA has given us a flexible road map to meet this new compliance requirement.  Use that map!  I'll shy away from over-the-top shameless plugs.  Just keep in mind that NAFCU (as well as others) are offering solutions to this plan. If you are taking advantage of them, or you plan to, just be sure to document that fact.  It doesn't have to be in your policy, but you can use certificates, outlines, course descriptions, etc., as a way of showing that you are following your policy.  

NAFCU Offices with 2 hour delay; This and That...

Editor's Note: NAFCU's offices will open 2 hours later today (11 a.m.) due to yesterday's snow storm. I know people like to make light of Washington D.C. and what we consider bad winter weather.  But last night was bad. Very, very, bad. 

Posted by Anthony Demangone

Here are some items of interest.

Interchange. The U.S. House of Representatives Financial Services Committee has announced its tentative committee schedule.  If you glance at the list, you'll see that on February 17, the House Financial Services Subcommittee will hold a hearing regarding the Fed's interchange rulemaking process. Rep. Bachus (R-Ala.), who chairs the House Financial Services Committee has already voiced his desire to review the interchange rule, so this hearing should be one to watch. It didn't hurt that President Obama spoke about the need to chip away at the nation's regulatory burden during his State of the Union address on Tuesday.  We sent a letter to the Hill recently regarding the Durbin amendment with a clear message: Blow it up, please. 

SOTU. Speaking of President Obama and the State of the Union address, NAFCU's Fred Becker quickly fired off a response to President Obama's message.  We agree that the regulatory burden should be reduced, and we defended the federal credit union tax exemption, among other things.

Board governance.  Here's another thought-provoking post from the Board Governance Blog. The author talks about the interplay between NCUA's new fiduciary duties rules, and a federal credit union's board governance policies. 

Shameless plug.  Just a reminder that I will take part in a NAFCU webcast next Wednesday regarding NCUA's new fiduciary duties webcast.  The webcast will address the new rule, and it will also provide financial literacy training for directors. Read all about it here.

This and That; A Well-Fed Elmo

Posted by Anthony Demangone

Here's a few things to finish off the week.

NCUA.  NCUA held its monthly board meeting yesterday.  There was a minor tweak to its Truth in Savings regulation to bring it into line with Regulation DD.  The also disclosed their priorities for 2011.  You can access the items from the board meeting here.  In addition, we did write an article for today's NAFCU Today on the meeting.   NCUA also issued its most recent edition of the NCUA Report.  This issue tackles some timely issues:

• Financial literacy
• Recent board actions
• Risk management on online banking
• Trends in mortgage delinquencies
• Contingency fund planning

Privacy.  The OTS has issued a compliance guide for the model privacy notice. While this would have been handy dandy three months ago, the guide looks to be written in a clear manner and should be useful if you still have issues in that area. 

MBLs.  Here's a nice historical look at member business lending at credit unions. (Elliot Kashner, at CreditUnions.com)

***

Here's how we found Elmo the other day, thanks to Kate.  I'm just glad that Elmo didn't ask for cottage cheese.  I'm off to State College this weekend to visit family and kneel at the shrine. Have a great weekend, everyone!

This and That; When One Door Opens, Another Door Opens?

Posted by Anthony Demangone

My inbox still runneth over.  Here are some items of interest.

• Director lawsuits.  The FDIC recently announced, that as of December 14, 2010, it had authorized 109 lawsuits against former employees and officials of failed banks.  The lawsuits total roughly $2.5 billion in claims. It is hard to read too much into these types of things.  Just because the FDIC sues one former bank official, it doesn't mean they're more likely to sue another - or that NCUA is more likely to sue a former credit union director.  But I do think it shows that the FDIC is actively looking at failed institutions to see if there are actionable claims.  And NCUA has not ruled out lawsuits against former directors either.  In addition, these types of announcements are always a good reminder that good corporate governance is important.  A strong board, supervisory committee, and senior management are essential.  And that can take up resources in finding the right people and getting them the tools they need to do their job. 
• SCRA foreclosure provisions.  Certain provisions of the SCRA related to foreclosures were supposed to sunset at the end of 2010.  President Obama's signature extended those provisions for an additional two years.
• White House.  President Obama reportedly is considering bringing in William Daley, a pro-business bank executive (and former Commerce Secretary), as his chief of staff.  (Bloomberg.) Any injection of business and banking knowledge should be a good thing as Daley would be able to counsel the President on how administration actions might affect financial institutions. (Reports were that an announcement was imminent at "press time.")
• Oversight.  Here's another story highlighting GOP plans to closely review financial reform. (Washingtonpost.com) 

***

My son Briggs has not been the world's best sleeper.  Over the past 21 months, I've seen quite a few 2 a.m.airings of ESPN's SportsCenter.  The little guy would just get up around 1 or 2 a.m., and stay awake for 90 minutes.  Any attempt to reintroduce him to his crib was met with protests more effective than one can imagine.  My wife and I live in a 3-square foot condo surrounded by neighbors, so the thought of him screaming through the night invariably led to thoughts of my car getting "keyed."  So SportsCenter and I became fast friends.

Over the Holidays, we visited my sister.  Her home has spare rooms, so we put Senor Briggs and his sister down for the night and shut the door.  He hollered.  He screamed.  At one point, he even seemed to yodel.  But we stayed firm, knowing that all offended ears were related to us by blood or marriage.

It worked.  He may have been a bit angry with me, but by the second night, he figured it out.  He was stuck. And he started sleeping through the night. For those of you not familiar with kids and their sleep habits, let me say this.  When a child starts sleeping through the night, you notice an improvement in your life. I put it up there with the invention of fire, indoor plumbing, and televised baseball.

So we got cocky.  Oh, our life is back to normal, we exclaimed.  All the while, the Gods were chuckling.

We put Master Briggs down for the night recently, knowing he was down for the night.  A bottle of wine was opened.  We settled in for the evening.  Then we heard...it.  The door handle was jiggling.  I opened the door, and there was Master Briggs with a big smile. He had figured out how to get out of his crib.  Was it a smile he had?  Perhaps a "sly grin" is more accurate.

As I said in the title, when one door opens...another door...opens. (Sigh.)  Have a great weekend, everyone!

"You do realize, Dad - I'm calling the shots one way or the other."

Fiduciary Duties Rule: Financial Literacy

Posted by Anthony Demangone

Late last month, NCUA established the "effective dates" for its federal credit union duties rule. 

The new NCUA rule addressing the duties of federal credit union boards will be effective in January 2011, and compliance with the financial literacy portion of the rule will be required by July 2011.

Directors elected or appointed on or before January 27, 2011, including those directors serving prior to NCUA finalization of the rule, must be in compliance with the financial literacy requirements by July 27, 2011. Directors elected or appointed after January 27, 2011 must satisfy the financial literacy requirements within six months following seating.

This clearly show's NCUA's expectations that existing directors who were in place before NCUA finalized its rule are subject to  its financial literacy requirements.  And what is that financial literacy requirement? 

"Each FCU director has the duty to... At the time of election or appointment, or within a reasonable time thereafter, not to exceed six months, have at least a working familiarity with basic finance and accounting practices, including the ability to read and understand the Federal credit union’s balance sheet and income statement and to ask, as appropriate, substantive questions of management and the internal and external auditors...."

Here are my 2 cents on this:

• Does this mean all directors must receive financial literacy training?  No. The regulation doesn't mandate training.  It mandates a level of knowledge.  If you have existing board members (or new board members) who can meet the test above, there's no need for additional training.  This does beg the question though...how do you decide exactly which directors meet this test, and how do you show examiners that Director A didn't need it, while Director B did?  You could come up with an internal system to determine who needs the training and document your decision. Or it might be easier to give all existing and income directors some sort of training.  That creates fewer moving parts, and even seasoned veterans can benefit from a refresher course.  I know I do. 
• Ugh, so now we have to run out and purchase some new-fangled training program?  Absolutely not. You may do so, but there's no reason why you couldn't do this in-house. Does your credit union have a CFO who could go over balance sheets, important ratios, basic accounting and finance issues, etc.? If so, why not consider building an in-house training program?  Again, some folks will seek outside solutions to simplify the process. 
• Try to embrace the new requirement as a way to improve your board.  Believe me, I know that new requirements are a drag, and credit unions often see them as yet another "check the box" requirement.  But this new duty is NCUA's attempt to ensure that each federal credit union director has the necessary tools to do the job. Now that is a requirement, take advantage of the opportunity to strengthen and improve your board.  Better boards equal better credit unions, in my humble opinion.

Stop reading if you dislike shameless plugs.

NAFCU has a few ways you can prepare for NCUA's new fiduciary duties rule.

• I'll be presenting a webcast on February 2, 2010 2011 (ugh, I'll be writing 2010 until June) that gives a broad overview of the new rule.  Stay tuned for an opportunity to sign up.
• NAFCU does have an online training "solution" created for federal credit union directors (that's vendor speak) that includes a module on financial literacy. 
• Our volunteer's conference will have a session devoted to reading financial statements, as well as other training opportunities for directors and other officials. 

Fiduciary Duties; This and That

Posted By Anthony Demangone

Here are a few thoughts about NCUA's recently issued fiduciary duties rule.

Training and existing directors.  As I pointed out on Friday, NCUA's new fiduciary duties rule requires that new directors obtain a basic level of financial literacy within six months of election or appointment.  When the rule becomes effective, it is easy enough to identify those new directors.  But what about existing directors?  Are they grandfathered?  The rule is silent on this issue.  NCUA did indicate that it will issue additional guidance in the near future to clarify expectations.  On one hand, we can wait for further guidance. On the other hand, if your federal credit union has a director who does not feel comfortable reading financial reports or does not understand basic accounting, what are you waiting for?  Training in that area would make them a more effective director, whether the training is required or not. 

Business practices.  A savvy reader brought this to my attention.  The new fiduciary duties rule mandates that a board directs management's operation of the federal credit union in conformity with the FCU Act, NCUA regulations, other applicable law, and sound business practices.  I raise the last point, because the reader brought this thought to my attention.  If an examiner wants your credit union to do something that goes against a sound business practice, such as something that doesn't conform to GAAP, it looks like your board has a fiduciary duty to ignore the examiner. How about that? (Hat tip to Peter.)

***

Here are a few other items of interest...

WikiLeaks.  You see that a member wants to use your credit union to make a payment to WikiLeaks.  Do you allow the member to make the transaction?  There's no official guidance, but some banks are saying "no." (Washington Post.)

CFPB.  Elizabeth Warren has reportedly chosen the new head of enforcement for the CFPB, and he has quite sharp teeth. (Cleveland Leader.) 

Question of the Day.  Are you "Astroturfing?"  (Kaufman and Canoles.) Yes, this is compliance related.  I promise. 

Unsolicited Marriage Advice of the Day.  Never hold anything that your spouse says after 2 a.m. against them.  Or anything that they say while assembling IKEA furniture.  For some reason, sleep deprivation or furniture "activation" brings strange words out of one's mouth.  Of course, I'm the one that usually benefits from this guidance in my household. 

Thursday Recap

Posted by Anthony Demangone

Oh what a tangle web we weave, when first we decide to work in regulatory compliance. Yep, yesterday was one of those days that did tangle up one's workflow.  I'll keep this as brief as possible, highlighting what I think are key takeaways from yesterday's regulatory downpour.  

NCUA.  NCUA was a busy beaver yesterday.  Here's a link to all of the items that the board approved.

Fiduciary Duties.  NCUA issued its long-awaited final rule on Fiduciary Duties, Mergers and Conversions.  The compliance deadline is quickly approaching, as this rule becomes effective 30 days after the rule is published in the federal register.  That means likely a late January/early February effective date.  In a nutshell, the rule creates federal standards of duty and care for federal credit union directors.  It closely tracks the proposal, but there were some changes.  Most notably, new directors will have six months to become financially literate.  (The proposal only gave them 90 days.)  NAFCU is preparing an overview of the new rule.  In addition, NCUA plans on issuing additional guidance on this issue, so stay tuned.

Training myths and realities. Many of you were wondering about the training requirements in the rule.  Let me be clear: The rule creates no training mandate.  It creates expected levels of performance, and some directors may need training to meet those expectations.  Example: new directors need to be financially literate within 6 months.  If you have a CPA join your board, I'm sure he or she is A-OK.  But someone with a marketing or HR background likely will need some training.  And that can be done in one of a number of ways.  In addition, the rule mandates that boards somehow ensure that management operates the credit union in conformity with the FCU Act, NCUA regulations, other laws and regulations, and sound business practices.  There's no training mandate there, but how in the world could a director meet that expectation without ongoing education?  Here's what I would do: take a look at your training program and tweak it as necessary.  Consider in-person training at board meetings, conferences, or learn-at-your-own-pace training solutions.  Shameless plug warning.  As an example, NAFCU has a volunteer's conference and an annual conference that can help your directors meet these new expectations.  In addition, I developed an online training program for federal credit union directors that can do the same. The online training program has a free 2-week trial that can let you kick the tires a bit. 

Indemnification. I know there was a good deal of angst concerning this rule's possible affect on indemnification.  Many directors told me that they were scared that they'd lose indemnification if any business deal went south.  That's not what the rule says.  Here's what it says, and I think you'll see that the rule's "loss of indemnification" provisions will rarely, if ever, come into play. But they are a possibility, I have to say that. 

"...a Federal credit union may not indemnify an official or employee for personal liability related to any decision made by that individual on a matter significantly affecting the fundamental rights and interests of the Federal credit union’s members where the decision giving rise to the claim for indemnification is determined by a court to have constituted gross negligence, recklessness, or willful misconduct. Matters affecting the fundamental rights and interests of Federal credit union members include charter and share insurance conversions and terminations." (Emphasis added.)

I'll only add this: when is the last time a lawsuit against your board progressed all the way to a judge's decision?  (And that's not to say that it couldn't happen next year if it hasn't happened already.)

Proposal for Unlimited Share Insurance for Non-Interest Bearing Transaction Accounts.  NCUA issued a proposal to clarify the definition of the term "noninterest bearing transaction account," that the insurance is separate and in addition to, other share insurance coverage amounts, and to note certain notice and disclosure requirements. NCUA notes that the unlimited share insurance protection, while temporary, is already in place as mandated by the Dodd-Frank Act.  Read the proposal if you need additional details. 

Proposal for Accuracy of Advertising and Notice of Insured Status.  NCUA issued a proposal to revise provisions of its advertising statement rule. In short, insured credit unions, under the proposal, would be required to include the statement in all radio and television advertisements, annual reports, and statements of condition required to be published by law.  Currently, for example, radio and television advertisements that are not longer than 30 seconds do not need to official advertising statement.  This rule would zap that and other exemptions. The proposal does a number of other things, so please read it.  But here's one that caught my eye: the proposal would clarify what it means when it says the official advertisement must be in a size and print that is clearly legible.  The proposal doesn't require a specific font size.  But it would require that in addition to legibility, the font size for the official advertising statement has to be no smaller than the smallest font size used in other portions of the ad that are designed to convey information. We'll have 60 days to comment on the proposal.

Interchange.  Yesterday, the Fed issued its long-awaited proposal to address debit card interchange fees. The proposal sets out two alternatives, but both would cap debit card interchange fees at 12 cents per transaction - roughly 70 percent less than the 2009 average.  While Dodd-Frank stated that this restriction was only supposed to affect institutions with more than $10 billion in assets, Federal Reserve staff acknowledged that card companies very well may set one set of rates for all institutions, regardless of size.  For a shorter read, consider reading this memo prepared by Federal Reserve Staff for the Fed Board. Ultimately, final restrictions will take effect by July 21, 2011. NAFCU is preparing an overview of the proposal for its members.  Ugh. This one hurts. 

***

Have a great weekend, everyone.  Even you, Senator Durbin. 

Thunderous Thursday; This and That

Posted by Anthony Demangone

Buckle up, folks. Today will be quite a day.  Here's what's on tap:

NCUA's Board Meeting. NCUA will issue a final rule on mergers, conversions, and fiduciary duties.  This rule may have far reaching effects concerning board recruitment, board education, and general corporate governance issue.  While the fiduciary duties portion of the rule doesn't really create anything new, it will draw more attention to the issue and perhaps heighten expectations.  I'll write more about this tomorrow.  In addition, NCUA is looking at a proposal concerning unlimited share insurance protection for non-interest bearing transaction accounts. If you are chomping at the bit to see what the rules say, visit this NCUA page after 9 a.m.

Interchange.  Today, the Fed will issue a proposal concerning debit interchange fees.  While the ultimate rule can only affect institutions with more than $10 billion in assets, we have grave concerns that this process will reduce debit interchange income for all.  I'm sure there will be a ton of news items throughout the day on this subject. 

***

Here are a few other items of interest...

Automated Underwriting?  Why, yes. Yes you can.  NCUA issued this legal opinion, which indicates that completely automated underwriting systems do not necessarily run afoul of the Federal Credit Union Act and NCUA regulations. 

Agricultural Lending.  The FDIC issued this financial institution letter to share its expectations on what it considers to be "prudent" management of agricultural lending through farming and economic cycles. Sure, the FDIC doesn't regulate credit unions, but I bet that if you do agricultural lending, this document will be of some use. 

The NCUA Report.  NCUA released the latest edition of this publication. This report looks at additional corporate issues, an overview of the overhead transfer rate, foreclosures, and more. 

NCUA Board Meeting Agenda Available; More on Elizabeth Warren

Posted by Anthony Demangone

NCUA has released the agenda for this Thursday's board meeting. This meeting practically overflows with big compliance issues.  Such as...

• NCUA will issue a final rule concerning Fiduciary Duties.  (The rule also addresses merger and conversion issues.)  This rule is a big deal, as it will create federal standards of duty and care. In addition, NCUA may clarify expectations on financial literacy and educational requirements concerning federal credit union boards. 
• A proposed rule regarding insurance coverage for non-interest bearing transaction accounts. 
• A proposal to amend NCUA's "accuracy of advertising and insured status" regulation.  
• There's other stuff as well, so please review the agenda.

More on Elizabeth Warren.  Here are a few additional items regarding Elizabeth Warren. (I keep focusing on news stories where she is quoted, as I find her views important.  She's putting the CFPB together, so her views be stamped into the new agency.)

• Earlier, I noted this article from Kiplinger.But I forgot to highlight a very telling quote from Ms. Warren. Here's the last Q and A from the article:

"What's your advice for Kiplinger's readers while they're waiting for this to happen? Anyone who carries credit-card debt from month to month is in financial trouble. This is not a normal state, nor is it sustainable over time. Not paying off that credit card is always a bad sign, so pay it off. That's my best advice."

Whoah, Nelly! Anyone who carries credit card debt month-to-month is in trouble? Really? I understand that it is sound financial advice for consumers to pay off their credit card debts each month when possible.  But to assume that anyone carrying any balance is in trouble goes a bit far. There is a product that requires consumers to pay off their balance each month.  It is called a charge card.  A credit card is designed to be used, and carrying a balance is a basic option of the product.  This quote makes it seem that Ms. Warren finds credit cards, by their very nature, to be fundamentally bad for consumers. Sort of financial cigarettes, if you will. 

• Elizabeth Warren also participated in a "question and answer" session highlighted by the U.S. Treasury.  There's no way her quotes were taken out of context here, as Treasury itself controlled the content.  I've inserted my snarky commentary as necessary in bold text. 

1) With hundreds of problems in the consumer financial products and services marketplace that the CFPB could chose to focus on, how do you decide where to dive in and begin? What have your top priorities been out of the blocks?

Credit cards are a top priority because they are the most widely held credit product in the country. Four out of five families have a credit card and 50 million American families cannot pay off their credit card debt each month in full.  Man, she hates credit cards. Forget payday lenders, fly-by-night "credit repair companies, and auto-title loan companies.  Credit cards are front and center on her agenda.  

 

Mortgages are the other top priority because they are the single most important financial decision that most families will make. We have learned from recent history that a bad mortgage can not only destabilize an entire family, but that enough of them can destabilize the entire economy.

 

2) You frequently cite streamlining disclosures as a way to level the playing field and give families better tools to make the choices that are best for them.  When will consumers start seeing a difference?

Consumers can already see a difference. Look at what the banks are advertising right now and see how often phrases like “simplicity,” “no tricks” and “clarity” are showing up. The industry recognizes that these consumer credit markets have to change.  Advertising is not always the best measure of progress.  Case in point.   Personally, I think a consumer advocate would do better to look at ads like these. (YouTube.com) Do American consumers rack up debt because of credit cards, or because we've created a national culture of consumption?

 

3) Your first week on the job, you and Secretary Geithner held a mortgage disclosure forum at Treasury and just this week, the CFPB implementation team held a follow up symposium. What have you learned from these sessions?

The current disclosures increase costs for lenders while providing very little benefit for consumers. We've been saying this for years. We want to reverse that and decrease the costs of disclosure while increasing the value to consumers. The way to do that is to make that disclosure clearer and more usable for consumers.  Amen. 

 

4) You’ve spoken a lot about how the consumer credit market is “broken.” How do we know the market isn’t working and what can the CFPB do to fix it?

When a family cannot tell the cost in full of a credit card, when it is not possible to determine the risks of a mortgage in advance, and when people can’t directly compare three or four products– apples to apples – to tell which costs the most and which bears the most risk, then the market is broken.

 

This agency will drive toward making the costs clear, making the risks clear, and making it easy for consumers to compare one product with another. When they can do that, credit markets will work for families.  Keep in mind that many regulators have gone before you with this same task in hand.  The Federal Reserve has spent a good deal of time on consumer issues and consumer testing of financial disclosures.  No matter how much work you throw into this, keep in mind that you'll run into one basic problem: many consumers simply do not attempt to read disclosures.  I agree that some credit card agreements are complex, but the Schumer Box gives consumer more than enough information to compare credit card products.  And to say that the mortgage problems we face today are due to poor disclosures while not talking about broker misrepresentations, predatory lenders, and consumer responsibility is simply not telling the whole story.  

 

5) What roles will personal responsibility and financial education play in the consumer credit market once the CFPB is stood up?

I believe in personal responsibility, but it only works when prices and risks are clear up front and not buried in pages and pages of incomprehensible fine print. But, I also believe in American families. When they have better information they will make good decisions and those good decisions will make families stronger and ultimately will make the entire economy stronger.  I am not aware of any credit union in America that buries the cost of a mortgage or credit card.  They may exist, but I don't deal with them.  The Schumer Box, MDIA, RESPA and Truth in Lending generate a ton of price-related information for consumers.  But consumers have to take responsibility.  It is disappointing that when directly asked about consumer responsibility, Ms. Warren takes another shot at lenders for their alleged sins.

Long-Term Care Insurance for Credit Union Officials

Posted by Anthony Demangone

Recently, NCUA issued Legal Opinion Letter 10-0913 (October 29, 2010) that touches upon whether federal credit unions can offer long-term care insurance to officials without limiting coverage to situations or areas of risk that involve the official's duties with the credit union.  

NCUA responds in the affirmative.  

In 1982, we indicated that, from a practical point of view, it “would likely be impossible” to limit health insurance (e.g., limit the cause of illness, etc.) only to credit union activity. See attached Letter from E.F. Callahan, NCUA Chairman to James C. Barr, Executive Vice President and Director, Credit Union National Association, Inc. (July 29, 1982). Similarly, it would be difficult, from a practical standpoint, to provide long-term care insurance to FCU officials, but to limit coverage only to the risks associated with an official’s credit union activities. Accordingly, the mere fact that long-term care insurance would provide protection for other areas of risk to which an official is exposed outside his or her credit union activities does not prohibit an FCU from providing such insurance to its officials.

There are two other things I want to highlight from the legal opinion letter.

• Even if a federal credit union were to offer the insurance, coverage would have to end immediately once an official is no longer capable of serving as an official or otherwise leaves office.  In addition, there could be no residual benefits, except for any claims pending.
• Non-voting volunteer committees established by the FCU’s board of directors, such as emeritus or associate directors, are not eligible to receive long-term care benefits from the credit union.  NCUA indicates that members of regular, voting volunteer committees (e.g., supervisory, credit, investment committees) are entitled to insurance benefits, while members of non-voting, advisory committees are not.

Shameless Plug Monday: NAFCU Compliance School Revamp; Online Training; This and That

Posted by Anthony Demangone

Warning...warning...shameless plug alert.

For those into compliance, you may have heard of NAFCU's Regulatory Compliance School.  It is a week-long, intense educational conference designed to hammer compliance into the minds of its attendees. There is optional testing, all with the goal of obtaining the NAFCU Certified Compliance Officer (NCCO) designation.  

We are revamping the school, from top to bottom.  Check out the new agenda.

Why we are revamping it.  Any product or service must adapt.  For those who attended the School in the past, you may recall that it had entire sessions devoted to the Right to Privacy Act and NCUA's Credit Practices Rule.  But the school didn't address credit union bylaws, share insurance, RegFlex, the right of offset, and many other important topics.  In addition, while the old format shoveled information at attendees, the School never talked about research skills, how to write effectively, or what the role of the compliance officer really is. 

What we did.  You'll see many more topics in the agenda. However, you may see that many of the sessions are shortened.  We simply can't touch on many new things while devoting 2 hours to Regulation Z.  Or an hour to the Right to Financial Privacy Act.  We've tried to create a School manual that provides detailed information about each regulatory area, while also providing research tips and resources.  In addition, we devote an entire day (Wednesday) on "compliance officer skills."  Finally, we're moving to a four-test format.  Many attendees in the past indicated that they were simply burned out by the end of the week.  We decided that cutting a test allowed us to create a day (Wednesday) when attendees could learn how to be a better compliance officer without the stress of a test hanging over their head. 

If I had to sum up why we're changing school and what our goal is, it would be this.

In the current regulatory climate, rote memorization and intense study will only get you so far.  Memories fade, and regulations morph.  The true way to achieve regulatory success is to build skills through which a compliance officer can assimilate and research new changes as they come along, while maintaining a solid understanding of basic regulatory framework. 

That's our goal.  We hope you consider joining us.

***

NCUA's fiduciary duties proposal (we expect the final will likely released in December) has quite a few credit unions looking at training programs for their board of directors.  With that in mind, consider signing up for a free (and fairly short) webinar that highlights NAFCU's Online Training Program for Volunteers and New Employees. It will be held tomorrow at 2 p.m. (EST)

***

Here are a few tid-bits to get us started:

• FinCEN has released a guidance document that provides a number of questions and answers about it Travel Rule requirement. 
• The Fed has released a consumer's guide to credit reports, credit scores and credit report errors.  It might be something for you to consider including on your website to help your members understand how these things affect them.
• There are never enough hours in the day!  With that in mind, NAFCU members should know that our overview of the Regulation Z proposal concerning mortgages, HELOCs and reverse mortgages is available.  (The proposal addresses other things as well.)  These overviews can be a great resource. 

MBL Guarantees

Posted by Anthony Demangone

Since NCUA issued its final rule to whittle down amend its RegFlex regulation, we've received quite a few questions concerning the soon-to-be-gone "principal guarantee" exception.  One of the more common questions is this: Assuming a business is owned by three principals, could we have each principal guarantee just one-third of the loan amount each?  

No, as explained in this legal opinion letter.   Each principal, as outlined in the regulation, would each guarantee the full amount of the loan. Here's a snippet of the opinion letter.

Who is a principal with respect to a limited liability partnership or a limited liability corporation, where the managing partner usually has a minority ownership position but has the authority to borrow and pledge assets?  You further ask whether the managing partner must guarantee the entire amount of the loan or just the managing partner’s pro rata share? 

Natural person partners having a majority ownership interest in a partnership must each guarantee the full amount of a loan to a partnership

***

We now think it is more likely that NCUA's final rule on fiduciary duties will be addressed during the NCUA December board meeting. 

Some Scary Stuff; Happy Halloween!

Posted by Anthony Demangone

With Halloween just a few days away, I thought I'd share some news and items that might be considered spooky.

Elizabeth Warren.  If you have any doubt about how Ms. Warren views the financial services industry, watch this video.  But I think you really can see her true colors when she answers a question regarding the fact that some institutions are instituting account fees to try to compensate for lost revenue due to all of the new regulations. You can jump to that specific question and answer by scrolling down and clicking the fifth hyperlink below the video.  Here's a transcript.

Question: I have a question that came in a couple of seconds ago from Allen G.  The banking industry is try to offset lost revenues due to new regulations - Credit CARD (Act), overdraft - by charging consumers additional fees on checking and other products.  What are your thoughts on what the industry is doing?

Ms. Warren's Response. You know, I have to say this...it really does amaze me. There was a major financial institution that sent out a letter to its shareholders in the last quarter. And the letter said, in effect, I'm paraphrasing - but only slightly - the new laws, because remember - we've already gotten some new law in place, the card law for example, that eliminate some of the worst practices on credit cards.  These new laws that have come into place under the current leadership have cost us $650 million this quarter.  And you know, I had this moment when I read that and I thought, hmmm, one company $650 million that they say that these new laws outlawing these bad practices cost them, I kind of read that the other way. That's $650 million that stayed in the hands of American families. $650 million from just one company on just a few bad practices that were banned thanks to the work of the current Congress, thanks to the work of Carolyn Maloney, who was one of the persons who really lead the efforts on this.  Thanks to the work of President Obama. So here's my view on the card, or any other creditor, that somehow they are entitled to certain level of revenue, particularly a level of revenue set in a time when, you know, when it was kind of an anything-goes world, I'm just not there. Instead, my view is let's see what a competitive market brings us.  There may be a period of time when some of the larger financial institutions to squeeze out every last nickel - to push harder on fees in one place because they can't do them in another, but over time, I'll tell you where this Agency (CFPB) is driving - we are striving toward a consumer market in which products are easier to read, easy to see what the costs are and easy to make comparisons. As we push toward that, the room for anyone within the financial services industry to make their money by squeezing you here and squeezing you there through tricks and traps - that's going to go away. And I want to be clear -I think there are some banks that will be glad to see that day come and I think they'll do very well competitively.  And banks that don't like it are the ones that eventually customers like you will make the difference on whether or not they survive. 

ODP.  Here's a news story regarding a bank that was ordered to refund $32 million in overdraft fees and pay a $1 million civil money penalty to the OCC.  Here's the OCC press release, which links to the official documents. It is a reminder of what can happen when you play fast and loose with the rules at the expense of consumers. Here's what the OCC said:

The settlement is based on the OCC’s conclusion that the bank engaged in unfair or deceptive practices that violated the Federal Trade Commission Act. Specifically, the bank assessed excessive amounts of overdraft fees and improperly assessed recurring fees, or “continuous overdraft fees” against certain consumers. In addition, in its marketing brochures the bank emphasized the free or low cost features of certain accounts while omitting information about costly features such as overdraft protection. The bank’s marketing also suggested that certain accounts were well-suited for consumers who had previous difficulty in managing their bank accounts, while omitting information about the high-cost features of its overdraft protection.

FDIC lawsuits.  Here's a scary blog post regarding the FDIC possible getting ready to launch a "tsunami" of lawsuits against the officers and directors of failed banks. (Bank Lawyer's Blog.)  NCUA rarely does this, although they do have one suit going against officers and directors of U.S. Central. If this waive of litigation takes place, I wonder what it will do to the cost and requirements involved with D&O insurance?

Killer bees.  There has been a sighting of large bees near Arlington, Virginia. Be careful. Very, very careful.

Have a happy and safe Halloween, everyone!

This and That...

Posted by Anthony Demangone

I'll cover a ton of ground in this one, as my e-mail inbox is overflowing at the moment.  I've include links to a number of interesting articles and blog postings today. Well, hopefully you'll find them to be interesting...

ADA and ATMs. The National Federation of the Blind has sued United Airlines , claiming their electronic kiosks violate two California laws, one of which protects disabled California citizens.  If someone at your credit union does not understand the importance of coming into compliance with the new ADA expectations, just show them the press release from the NFB.

Reg D adjustments.  The Fed has announced its annual adjustment for reserve calculations and deposit reporting for Regulation D. 

Reg E.  The Fed has issued Consumer Affairs Letter CA 10-12, which announces revised inter-agency exam procedures for Regulation E. It is a fantastic resource for Regulation E issues.

Board minutes. Here's a great article that discusses numerous issues regarding board minutes.  (The Metropolitan Corporate Counsel, written by Christopher S. Connell of Stradley, Ronon, Stevens & Young, LLP)  Who should take the notes? What should the minutes contain?  Can and should individual directors take notes?  Pass this along to your board parliamentarian. 

NCUA.  NCUA has released its board meeting schedule for 2011. It may be worthwhile to place these dates on your calendar, as these are the dates when new rules and proposals would be issued from NCUA.  Those rules have a tendency to throw a wrench into the works of an otherwise normal compliance officer workday. 

Social media.  Are attorneys and compliance officers "social media killers?"  Here's a nice discussion of the issue. (Bank Lawyer's Blog.)

Compliance. Here's a nice discussion on the role of compliance within a corporate entity. (The Metropolitan Corporate Counsel, Hubert Klein, Lily Bradow.) 

Good to be back! This and That

Posted by Anthony Demangone

Last week's compliance seminar was a huge hit. Here's a quick shot I took from the back of the room.  If you stare at the picture long enough, you will actually begin to understand the risk-based pricing notice regulation.  

Here's one great tip that I heard from an NCUA official during the conference.  When you send a waiver request to a regional director, be sure to work with your examiner.  The official said when a request for waiver comes in from a credit union, a regional director usually reaches out to the credit union's examiner to get their input on what to do.  If you kept the examiner in the loop regarding your request, they won't be surprised.  If an examiner supports a waiver request, that goes a long way, according to the official.

My email inbox.  I would enjoy business travel more if the world stopped spinning while I was out of the office.  That still doesn't appear to be an option, so here are some of the interesting items that I want to share.

St. Paul Croatian Federal Credit Union.  NCUA's office of inspector general has released a material loss review examining the failure of Saint Paul Croatian Federal Credit Union.   Wow.  That's about all I can say. Fraud, weak internal controls, and weak NCUA supervision are all discussed in the report.  If you are into internal controls and risk management, you may want to sit down as you read this one.

SAFE Act Fees.  You probably already heard this, but Conference of State Banking Supervisors floated a proposed schedule of SAFE Act related fees.  While this is just a proposal and your input is sought, you should look at the numbers and inject them into the budget process if it is not too late.  

NCUA Report.  NCUA has released the most recent issue of the NCUA Report.   This report contains a ton of information on recent corporate stabilization efforts, multi-featured open-end lending plans, and supervisory committees. NCUA's article contained a link to this top-ten list from KPMG regarding the top 10 things audit committees should be doing this year.  And I love top 10 lists.  This one particularly. 

BSA and Boards.  In the most recent issue of the SAR Activity Review, FinCEN writes an article (starting on page 33 of the issue) designed to help financial institution boards understand the value of BSA-related filings made by financial institutions.  It might be useful to include in your next board packet. (Hat tip to Mr. Clarke.)

Credit CARD Act.  The OTS has updated the Regulation Z portion of its examination procedures to include information about the CARD Act.  It is a nice resource if you need an overview. 

Forced Board Training?

Posted by Anthony Demangone

This past year, I have spoken to a number of credit union executive and board members who talk about a common issue.  It is very difficult for them to get some board members to attend training.  The reasons include the following:

1. I'm elected.  I'll do as I please.
2. I have a busy life, so I don't have time to attend training events.
3. I'm a volunteer.  There's no way I'm sitting through an hour-long training session on the BSA.  

While such directors are rare exceptions, it can cause problems for the affected credit unions.  Directors who, for whatever reason, do not want to attend training events, put the credit union at risk. They'll make uninformed decisions, and their spot on the board will not contribute in any way to oversight, risk management, and corporate governance.

Can a credit union force the hand of such directors?  In a way, yes.  NCUA talked about this issue in NCUA Legal Opinion Letter 95-0207.  Here's the applicable sections of the rule:

1. Can the board of directors establish educational requirements for its members and remove directors that fail to satisfy the requirements?

An FCU may require all newly elected directors to attend educational programs within a specified period of time after being elected to the board of directors.  Assuming the requirement was reasonable and the director does not complete the requirement, it could constitute a failure to perform his duties pursuant to Article VII, Section 7 of the Standard FCU Bylaws.  The board may then remove that individual or take other action to deny renomination as discussed below.

2. If a board member does not fulfill the educational requirements, can the board refuse to nominate that board member for additional term?

Article VI of the Standard FCU Bylaws gives the nominating committee discretion to set standards for its nominees. It has been NCUA's long-standing position that the FCU Act and the Standard FCU Bylaws contain the only eligibility requirements for membership on an FCU's board. However, neither the FCU Act nor the FCU Bylaws prohibit a nominating committee from adopting a policy that excludes nominees who have failed to satisfy reasonable requirements. An incumbent board member who is not nominated by the nominating committee, however, is not barred from seeking an additional term.  Individuals other than those nominated by the nominating committee may run for the board by submitting the appropriate petition and/or by being nominated from the floor at the meeting called to hold the election, and as prescribed in your bylaws. As long as an individual meets the criteria specified in the FCU Act and the bylaws, the FCU may not prevent that person from running for the board of directors.

So, a board itself can establish its own set of educational requirements.  If a director does not abide by the policy, then he or she would be subject to removal and barred from nomination.  But the key thing to remember is that this must flow from the board.  The board itself must fashion the policy and vote to implement it.  While this may not be an easy process for many boards, this NCUA opinion letter is something worth considering. 

$2 Million CMP!! (And a fantastic compliance road map thrown in for free.)

Posted by Anthony Demangone

Yesterday, the FDIC announced a $2 million civil money penalty against Monterey County Bank of California. The bank was slammed by the FDIC for what it considered to be "unfair and deceptive" practices related to the bank's balance transfer credit card and debit card program.  If you read the FDIC's order, you'll soon ask yourself this: who was looking out for the management of compliance risk related to these programs? 

While the FDIC doesn't come out and say what the bank allegedly did, you can infer what the problem was by what the bank must stop doing.  Here are a few practices that must stop:

• Offering credit cards which are intended for the transfer and payment of charged-off consumer debt ("Balance Transfer Credit Cards") without disclosing the age of the debt and the fact that the transferred debt is time-barred and/or no longer reportable by credit reporting agencies;
• Offering Balance Transfer Credit Cards to consumers when the Bank does not have sufficient substantiation that the debtor is obligated for the amount of indebtedness subject to the Balance Transfer;
  
• Refrain from misleading consumers about the utility of Balance Transfer Credit Cards advertised as credit cards when, in fact, the consumers have no available credit at the time the credit card is issued; and my favorite claim,
  
• Refrain from misrepresenting debt collection programs as a credit card offer.
  

Yikes.  So now the bank must pay $2 million to make the FDIC go away.  But that's not all.  As I read the FDIC order, it almost sounded like the FDIC said this: You guys do not respect or understand the importance of compliance.  If you aren't willing to build a good compliance program, we'll force you to do it.   Here's what they must do on that front:

• The bank's board agreed to participate fully in the oversight of the bank's compliance system, including the approval of appropriate policies and procedures;
• The board has to create a board compliance committee, made up of 3 board members.  The committee must meet at least monthly to review minutes of the compliance committee, compliance officer reports, compliance program management audit reports; and compliance program policies, and compliance with the FDIC's order.
• The board compliance committee must report to the board each month, noting review and approval of all items, and noting who dissents.
• The board must allocate appropriate resources toward the compliance function.  The compliance officer must have direct access to the board and board compliance committee
• AND THE FDIC MADE SURE TO PUT THIS IN ABOUT THE COMPLIANCE OFFICER'S AUTHORITY AND RESOURCES: The board must ensure that the Compliance Officer has and retains sufficient authority and independence to implement policies related to Consumer Laws and to institute corrective action as needed. This authority shall include the ability to cross departmental lines, have access to all areas of the Bank's operations, and effectuate corrective action upon discovering deficiencies.  The board must also ensure that the Compliance Officer receives ongoing training, sufficient time, and adequate resources to effectively oversee, coordinate, and implement the Bank's Compliance Management System,

I could go on, because there's more.  There's more about the supervision of third parties. The development of an effective compliance system.  Training.  The compliance officer.  Independent audits. And more.

This order is the perfect road map for any credit union that wants to build a solid compliance program.  File this one away, folks.  There is a ton of useful information and great ideas in there.