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 

The Feds Might be Coming for Mary Jane

Written by Pamela Yu, Special Counsel for Compliance and Research

Since moving my family from the DC metro area to Denver last summer, curious friends and family have often asked about the marijuana industry out here in the Mile High City.  After eight months in beautiful Colorado, I can report that yes, we have a pot shop just up the street (actually, it's a pretty fancy "cannabis boutique") and yes, the marijuana industry in this state is booming and thriving.  In 2015 alone, Colorado reportedly collected more than $135 million in taxes and license fees related to legal marijuana sales, with more than $35 million of those funds earmarked for public school construction projects.  But is the Mary Jane Gravy Train about to find a major roadblock in its path?

The Trump Administration is signaling that a major shift in federal marijuana enforcement policy may be just around the corner.  As we have blogged about in the past, credit unions providing, or interested in providing, financial services to marijuana-related businesses already face significant legal, compliance and operational challenges, and these difficulties are about to get worse.

By way of background, to date, more than half the country—28 states in total—has legalized marijuana in some form at the state level.  Under the Controlled Substances Act (CSA), however, marijuana remains a schedule I controlled substance, which makes it illegal under federal law to manufacture, distribute, or dispense marijuana.  See, 12 U.S.C. §812(b)(1).  In addition, criminal provisions of federal money laundering statutes, unlicensed money remitter statutes, and the Bank Secrecy Act (BSA) remain in effect with respect to marijuana-related activity.  For example, it is a federal criminal offense to engage in certain financial and monetary transactions with the proceeds of a “specified unlawful activity,” including marijuana-related funds.  See, 18 U.S.C. §§ 1956 and 1957.  It is also a federal criminal offense to transact funds “derived from” marijuana-related activity by or through a money transmitting business. See, 18 U.S.C. § 1960.  Financial institutions that conduct transactions with funds derived by marijuana-related activity may also be subject to criminal liability for failing to identify or report financial transactions involving marijuana proceeds.  See, 31 U.S.C. §5318(g).

As such, financial transactions involving proceeds from marijuana-related activity can still form the basis for federal criminal prosecution, despite growing legalization under state law.  Due to this conflict between federal and state law, credit unions and banks have been challenged in providing financial services to marijuana-related businesses.  Financial institutions have also faced uncertainty about how they can provide services to marijuana-related businesses consistent with their BSA compliance obligations.  As a result, legal marijuana-related businesses remain largely unbanked and typically operate as cash-based businesses, increasing the risk of robbery and other crimes.  Several members of Congress have called for legislative and/or regulatory action to enhance financial access for legal marijuana-related businesses.  In response, under the Obama Administration, the Department of Justice (DOJ) issued "Cole" memos in 2013 and 2014 addressing marijuana enforcement, and the Financial Crimes Enforcement Network (FinCEN) in 2014 issued guidance on BSA expectations regarding marijuana-related businesses. Together, the DOJ memos and the FinCEN guidance created a path—albeit somewhat narrow—for credit unions to serve marijuana-related businesses consistent with their compliance obligations. 

However, recent comments from the White House and the attorney general are strongly hinting at a reversal from the previous administration's policy that the federal government would not direct its investigative and prosecutorial resources to states where marijuana is allowed under state law. 

In February, while drawing some distinction between medical and recreational marijuana, White House press secretary Sean Spicer indicated that "there is still a federal law that we need to abide by when it comes to recreational marijuana," and "I do believe you will see greater enforcement of it."

Meanwhile, during his Senate confirmation proceedings attorney general Jeff Sessions testified that, "I won't commit to never enforcing federal law," after previously stating, "good people don't smoke marijuana."

While still speculative at this point, a change in federal drug enforcement priorities could mean even greater uncertainty for credit unions already serving or looking to serve marijuana-related businesses. The DOJ memos and FinCEN guidance provided a framework for offering financial services to marijuana-related businesses but the fact remains that marijuana is still illegal under federal law.  At the end of the day, agency guidance and enforcement policies are not binding law.  The Trump Administration has full discretion and authority to overturn the DOJ memos and alter federal enforcement priorities with respect to marijuana-related activity.  If that happens, credit unions providing financial services to marijuana-related businesses are vulnerable to uncertain legal and compliance liabilities. 

Keep in mind that FinCEN's guidance relies on the enforcement posture articulated in the 2013 and 2014 DOJ memos:

FinCEN is issuing this guidance in light of recent state initiatives to legalize certain marijuana-related activity and related guidance by the U.S. Department of Justice (“DOJ”) concerning marijuana-related enforcement priorities. This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.

Accordingly, if federal law enforcement priorities change or the DOJ memos are repealed or revised, credit unions can no longer rely on the FinCEN guidance for serving marijuana-businesses, heightening BSA compliance risks.  It is also unclear at this point how NCUA would respond to any change in federal drug enforcement policy.  While the agency instructed its examiners to follow the DOJ and FinCEN guidance, all bets are off if the current White House reverses course, and NCUA will almost certainly comply with any new directives from the Trump Administration with respect to federal enforcement of marijuana-related activities.

A lot remains uncertain, but if your credit union is serving or looking to serve marijuana-related businesses, be sure to watch this space for updates on any further developments.  Also, as always, feel free to reach out the NAFCU Compliance Team with any questions.

CFPB's Latest Monthly Complaint Report Demonstrates CFPB's Continued (and Growing) Focus on Debt Collection

Written by Shereefat Balogun, Regulatory Compliance Counsel

Yesterday, the CFPB released its latest Monthly Complaint Report, which provides a high-level snapshot of trends in consumer complaints. It is important to keep in mind that credit unions under $10 billion are not included in the Consumer Complaint Database, which forms the basis of the monthly reports. Notwithstanding, the 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. Moreover, in light of the increased scrutiny of debt collection practices, credit unions are generally advised to monitor the various regulatory bulletins, reports and enforcement actions in this area in order to properly assess whether they are in compliance with FDCPA and Dodd-Frank.

As of March 1, 2016, the CFPB has handled about 834,000 consumer complaints; approximately 219, 200 of those complaints were related to debt collection. Some of the findings in the snapshot include:

• Debt collection represented 26% of total cumulative complaints, beating mortgage as the most-complained about product;

• The biggest debt collection complaint concerned attempts to collect on a debt that is not owed. This complaint accounted for 38% of debt collection complaints received.

• The second biggest complaint touched on communication tactics used by debt collectors. Specifically, consumers complained about frequent or repeated calls from debt collectors, reporting that they receive multiple calls weekly or daily. Additionally, consumers complained about receiving debt collection calls at work. Some consumers reported that their debt was disclosed to a supervisor or other third-party; while others reported that collectors made in person visits to their workplace. Also, consumers reported that requests to cease communications were not honored. This category of complaints represented 19% of debt collection complaints submitted.

• Consumers complained that they were not given enough information to verify whether or not they owed the debt in question.

For a few years now, debt collection has been the source of most complaints submitted to the bureau, and this report highlights that. It is clear that debt collection continues to be one of CFPB’s top priorities, and it does not appear that efforts in this area will slow down. Indeed, last week, the bureau issued its 2016 Fair Debt Collection Practices Act Report, which in addition to citing the general complaints reported in the Monthly Complaint Report, also: (i) summarizes the CFPB’s supervisory activities in the debt collection market; (ii) describes the bureau’s enforcement actions; and (iii) discusses developments in the CFPB’s rulemaking initiatives. In the report’s section on supervisory activities, the CFPB describes the following FDCPA violations found by its examiners:

• Failing to state in subsequent phone calls that the call was from a debt collector. The FDCPA requires debt collectors to state in subsequent communications that the communication is from a debt collector. (15 U.S.C. §1692e(11))
• Failing to implement consumer requests regarding communications, such as honoring a request to not be contacted at work. Generally, the FDCPA sets limits on a debt collector’s ability to communicate with members. For example, a debt collector, without prior consent of the consumer, is prohibited from communicating with a consumer in an attempt to collect a debt, at the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication. (15 U.S.C. §1692c(a)(2)). Also under the FDCPA, when consumers notify a debt collector that they wish the debt collector to cease communication with them, the debt collector must generally honor that request.  (15 U.S.C. §1692c(c)).
• Use of false, deceptive or misleading representations regarding credit reporting. The FDCPA prohibits a debt collector from using any false, deceptive, or misleading representation in connection with the collection of any debt. For example, a debt collector may not make false statements about the amount of any debt; or make a representation that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure or garnishment of any property or wages of unless such action is lawful and the debt collector or creditor intends to take such action. (15 U.S.C. §1692e).

The report also describes fifteen debt collection enforcement actions filed by the CFPB in 2015. With respect to rulemaking, Director Cordray stated that the bureau “continues its effort to develop the first comprehensive federal regulations covering debt collection.  We are considering provisions to ensure that debt collectors have sufficient information to collect the debt, prevent unfair, deceptive and abusive acts and practices, inform consumers of their rights, and provide interpretation of some sections of the FDCPA.”  While Director Cordray did not offer a specific timeframe for rulemaking, he did indicate that the CFPB “is preparing to convene one or more Small Business Regulatory Enforcement Fairness Act panels before issuing a notice of proposed rulemaking.”

In short, these recent developments demonstrate that debt collection is still at the top of the CFPB's list. Accordingly, credit unions, particularly those with more assets of $10 billion or more, need to pay attention to its debt collection practices.

The CFPB’s Monthly Complaint Report can be found here.

You can view the CFPB’s Consumer Complaint Database here.

FFIEC Implores Financial Institutions to Stop the Bleeding; Free Kick

Written by Ricardo Piñeres, Regulatory Compliance Counsel

On Thursday, April 10, the Federal Financial Institutions Examination Council (FFIEC) released an alert regarding the “Heartbleed” vulnerability.  The alert is intended to make credit unions, and other financial institutions, aware of the seriousness of the “Heartbleed” vulnerability and how it can create a situation where attackers could access private information that would normally be encrypted.

“Heartbleed” is a vulnerability in the OpenSSL cryptographic library that may put systems that use this encryption method at risk.  OpenSSL is an open-source implementation of the Secure Sockets Layer (SSL) and Transport Layer Security (TLS) protocols commonly used to protect data in transit.  OpenSSL, popular for implementing encryption in websites, e-mail servers, and applications, is used in common network services such as web servers, email servers, virtual private networks (VPN), instant messaging, and other applications.  Financial institutions may be using OpenSSL to cryptographically authenticate their servers to customers, and to protect passwords and other sensitive data from eavesdropping.

The vulnerability has existed in OpenSSL versions 1.0.1 through 1.0.11 since December 31, 2011, but it was not discovered until April 7 of this year.  Because of the vulnerability, an attacker may be able to decrypt, spoof, or perform man-in-the-middle attacks on network communications that would otherwise be protected by encryption.  Furthermore, attackers could potentially impersonate bank services or users, steal login credentials, access sensitive email, or gain access to internal networks.

FFIEC’s alert urges financial institutions to:

• Ensure third-party vendors using OpenSSL on their systems are aware of the vulnerability and take appropriate mitigation steps;
• Monitor the status of their vendors’ efforts;
• Identity and upgrade vulnerable internal systems and services; and
• Follow appropriate patch management practices and test to ensure a secure configuration.

FFIEC also suggests replacing private keys and X.509 encryption certificates after applying patches.  Furthermore, the alert says financial institutions should assume current encryption keys for vulnerable servers are no longer viable and that institutions should also strongly consider having users and administrators change passwords after applying the OpenSSL patch.

For more information on the “Heartbleed” vulnerability and how it works, visit Codenomicon’s webpage devoted to the vulnerability.  Three security engineers from Codenomicon, along with an individual from Google Security, were the discoverers of the vulnerability.  There is also a simplistic, yet fun, comic strip that explains the basics of “Heartbleed.”  Lastly, the FDIC put out a useful press release last week that lists several helpful resources for improving financial institutions' cyber security.

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Free Kick.  With under two months left until the start of the World Cup, I thought that I would start my group previews.  Today, I’ll give a brief preview of Groups A and B, and future posts will preview the rest of the groups.

Group A: As the host country, Brasil was placed in Group A, and they received a pretty favorable draw.  Without a doubt, the host nation is the class of the group and I would be shocked if they don’t win all three of their group games.  Luiz Felipe Scolari’s greatest challenge will be keeping a very talented squad loose and ensuring that the pressure does not derail Neymar and Company.

After a bizarrely sluggish final qualifying phase, Miguel Herrera appears to have Mexico going in the right direction.  Croatia have a strong squad, but I think that the one-match suspension to Mario Mandzukic and the ten-game suspension (currently being appealed) to Josip Simunic may be just a little too much for them to overcome.  Cameroon will struggle in this group because of their lack of quality goal scorers beyond Samuel Eto’o.

Key Match: Mexico v. Croatia, June 23 (4:00 pm EDT).  The final group match for both teams will likely decide which team joins Brasil in the knock-out rounds.

Projected Finish: (1) Brasil; (2) Mexico; (3) Croatia; and (4) Cameroon.

 

Group B: The first of the three “Groups of Death” features both finalists from South Africa (Spain and the Netherlands), Chile, and Australia.  Let’s dispense with the obvious, Australia will struggle to get even a point out of this group.  Even though they are a bit more vulnerable than back in 2010, I still think that Spain is the favorite to top this group.  There is just too much depth and familiarity amongst the players for Spain to not have a positive showing at this tournament.

On paper, the Netherlands has more attacking options and more solid core in the midfield than Chile, but they may have the same problems that plagued them in Euro 2012 – a lack of chemistry amongst their younger players.  As Alexis Sanchez goes, so will Chile.  If he is on, they will be a threat to make a run in this tournament.  While Chile caught fire at the end of qualifying, their occasional defensive lapses may end up costing them against the deadly attacking options possessed by Spain and the Netherlands.

Key Matches: Spain v. the Netherlands, June 13 (3:00 pm EDT); and Chile v. the Netherlands, June 23 (12:00 pm EDT)

Projected Finish: (1) Spain; (2) the Netherlands; (3) Chile; and (4) Australia

D.C. Circuit Decision is a Big Win in the Debit Interchange Battle; Free Kick; Two Helpful Webcasts

Written by Ricardo Piñeres, Regulatory Compliance Counsel

Friday was supposed to be a quiet day for the NAFCU Compliance Department, but the U.S. Court of Appeals for the D.C. Circuit had other plans for us.  The court released its opinion in the debit interchange case (NACS v. Board of Governors of the Federal Reserve System) Friday morning, and lots of us at NAFCU spent Friday reading and analyzing the opinion so that we could give you the most important information.  Judge David Tatel, writing for the three-judge panel that also included Judges Harry Edwards and Stephen Williams, penned a concise 38-page opinion that largely overturned Judge Richard Leon’s District Court ruling from last year that had favored the merchants.

 

Interchange Fee

The bulk of the opinion is spent dissecting whether or not the Federal Reserve properly exercised its power in interpreting the Durbin Amendment and whether or not the costs that the Federal Reserve included in its interchange fee calculation were reasonable to include in the fee, as per the legislative language.  After going through several levels of legal and grammatical analysis, the court held that the Federal Reserve crafted a rule that largely fell within the constructs of the Durbin Amendment.

Judge Tatel spent several pages discussing the modern legal theories regarding legislative construction and the important role that punctuation plays in determining the intent of the legislature.  The outcome of this analysis was the key to the opinion’s decision on interchange fees.  If the panel agreed with the lower court ruling and the merchants’ reading of the Durbin Amendment’s language and grammar, then the Federal Reserve would be deemed to have promulgated a rule that exceeded Congressional intent in allowing for card issuers to recover more than just the variable costs of a debit transaction.

After going through this analysis and quoting from such classics as E.B. White and William Strunk’s The Elements of Style and Lynn Truss’s Eats, Shoots & Leaves, the panel held that the Federal Reserve was within its right to include more than just the variable costs.

Because of this holding, the panel also had to go through an analysis as to whether each one of the individual, “non-variable” costs that were included in the Federal Reserve’s interchange fee calculation.  The panel held that the following costs were appropriately included in the fee calculation: (1) fixed authorization, clearance, and settlement costs; (2) network processing fees; and (3) fraud loss costs.

The panel believed that transaction monitoring costs could reasonably be calculated as part of the fee, but also believed that the Federal Reserve had not adequately explained its reasoning for including the transaction monitoring costs.  Therefore, the panel remanded the issue of the transaction monitoring costs to give the Federal Reserve an opportunity to explain its rationale for including the costs in the interchange fee calculation.

 

Routing & Anti-Exclusivity

Judge Tatel’s opinion for the panel stated early on in its section regarding the routing and anti-exclusivity provisions of the Federal Reserve’s rule that the merchants’ arguments had a “steep hill to climb.”  This is because the panel felt that a plain text reading of the Durbin Amendment seemed to align with the Federal Reserve’s reading of the provisions, thus allowing for the rule’s requirement that issuers activate two unaffiliated networks regardless of the method of authentication (PIN or signature).  After a fairly short analysis, the panel held that the merchants’ argument stating that cards needed to be activated on at least two unaffiliated networks per authentication method did not hold muster.

 

What does it all mean for credit unions

In the short term, credit unions will be able to continue administering their debit card programs in the same manner in which they have been since the Federal Reserve’s rule was promulgated.  Furthermore, the debit interchange fee calculation will remain unchanged while the Federal Reserve decides how to move forward with regards to the inclusion of the transaction monitoring costs.

NAFCU will continue to monitor the debit interchange legal battle, and will provide further updates, as they become available.  For further information on this issue, please visit NAFCU’s webpage devoted to the debit interchange rule.

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Free Kick.  Being a fervent supporter of a football team has its highs and lows.  This weekend brought one of the lowest lows possible, as my beloved Arsenal were utterly humiliated by Chelsea.  The 6-0 tragedy has me too depressed to write much about football, but I did want to mention two things related to that match.

First, how can a refereeing crew make such an egregious mistake in so clearly sending off the wrong player by handing Kieran Gibbs a red card for a foul committed by Alex Oxlade-Chamberlain?!  The decision made absolutely no impact on the ultimate outcome, but it is a mistake that no refereeing crew should ever make.  Hopefully, the crew is properly disciplined for such a poor performance.

Lastly, I do want to tip my hat to Arsene Wenger.  While Saturday’s outcome undoubtedly left a sour taste in his mouth, he deserves to be congratulated for managing his 1,000^th game at Arsenal.  It’s been a pleasure watching his teams fill Highbury and the Emirates with attractive and fundamentally-sound football for almost 20 years now!

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Two Helpful Webcasts

Risk-Based Capital Rule: How NCUA’s Proposal Will Impact You

Delve into NCUA’s risk-based capital proposal and learn how it could impact your operations both immediately and long-term. Register by April 3 to save $100.

 

Fair Lending II: How NCUA Guidance and the CFPB’s Focus Affect You

Gain insight into the latest guidance NCUA has issued regarding fair lending, and the best practices for implementing it. You’ll also learn the CFPB’s expectations for fair lending risk management practices. Register by April 16 to save $100.

NCUA’s Flawed Proposed Risk-Based Capital Rule; Free Kick

Written by Ricardo Piñeres, Regulatory Compliance Counsel

At their January monthly board meeting, the NCUA Board of Directors approved Proposed Rule: Prompt Corrective Action; Risk-Based Capital (Part 702) with a 90-day comment period.  I am going to keep my analysis of the rule at a 30,000 foot level.  That said, the proposed rule goes into extreme detail as to how the risk-based capital ratio would be calculated and the different risk weights that would be used if the proposed rule were to go into effect.  So, some of you that are fascinated by numbers may really enjoy sifting through those sections of the proposed rule.

Let’s start with the most basic change that is being proposed – how a credit union is classified for capitalization purposes.  Under the proposed rule, credit unions would be classified as one of the following:

• Well Capitalized (Net worth ratio of 7% or above and risk-based capital ratio of 10.5% or above);
• Adequately Capitalized (Net worth ratio of 6% - 6.99% and risk-based capital ratio of 8% - 10.49%);
• Undercapitalized (Net worth ratio of 4% - 5.99% or risk-based capital ratio of less than 8% with a net worth ratio of 6% or above);
• Significantly Undercapitalized (Net worth ratio of 2% - 3.99% or net worth ratio of 4% - 4.99% and fails to submit/materially implement an approved net worth restoration plan); or
• Critically Undercapitalized (Net worth ratio of less than 2%).

Credit unions with $50 million or less in assets at the end of the previous quarter would be exempt from the risk-based capital ratio requirements.

So, how will the risk-based ratio be calculated under the new rule?  Under the proposed rule, the risk-based ratio would be determined by the percentage of a credit union’s net worth available to cover losses, divided by the credit union’s defined risk-weighted asset base.  The risk-weighted asset base is determined by subtracting a credit union’s NCUSIF deposit and goodwill/other intangibles from the credit union’s risk-weighted assets.  For a general overview of how to calculate all of those components, view this slideshow prepared by the NCUA’s Office of Examination and Insurance.  For a more detailed explanation of the calculations, see the proposed rule.

Along with these new risk-based capital standards, the NCUA has indicated that individual credit unions may be required to maintain higher levels of risk-based capital if the agency raises additional supervisory concerns.

The NCUA has estimated (based on June 2013 call report data) that in excess of 90% of credit unions that would be affected by the changes would be considered either well or adequately capitalized under the proposed rule.  Unfortunately, an estimated 199 credit unions that are currently considered well capitalized would see their status drop under the proposed rule, with 10 of those credit unions being deemed undercapitalized.  Credit unions that are interested in seeing how the proposed rule’s changes would affect them, can view that information using the NCUA’s On-Line Calculator for Proposed Risk-Based Capital Rule.

The NCUA believes that it needs to make these proposed changes in order for the risk-based capital requirements for natural person credit unions to be more in line with the requirements for FDIC, Federal Reserve, and OCC-regulated institutions, as well as more closely resembling the requirements for corporate credit unions.  That being said, this proposal is just the latest example of how the NCUA (and its other regulatory brethren) is unable to properly address many of the issues facing credit unions under the current, flawed regulatory framework.  NAFCU has called on the NCUA to join in advocating for legislative fixes that will give the agency the proper framework to effectively protect credit union members. 

Furthermore, as NAFCU CEO Dan Berger pointed out in his January 28 letter to the NCUA, “[NAFCU] question[s] whether the risk weighting proposed actually matches real risk in the system.  The proposed rule assigns rigid risk-weights to many investments that when properly examined represent much less risk than the assigned risk-weights.”  Therefore, it will be important for credit unions to take part in the comment process to, hopefully, show the NCUA that some of their preconceived notions regarding risk are not applicable and should be weighted differently or, even better, allow for varying risk-weights based on different programs that individual credit unions have implemented to mitigate risks.

Finally, let me take a moment to express some concern regarding the NCUA’s On-Line Calculator for Proposed Risk-Based Capital Rule.  I understand that the agency is attempting to make it easier for individual credit unions to understand how the proposed rule would affect them, but the NCUA is actually oversimplifying a very complex measure.  Having the calculator publicly available could lead to unfair reputational harm and general misunderstandings of a credit union’s health, especially for those credit unions that would see a drop in their capitalization classification.

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Free Kick. After a 16-year absence, Colombia will be returning to the World Cup this summer.  Los Cafeteros put together an impressive qualifying run, finishing second to Argentina in the South American region.  So impressive was their play that many pundits have tipped them as a team to watch in Brasil.  But could their dream be over before it even begins?

During a Coupe de France match on January 22 against Monts d'Or Azergues of France’s third division, Colombia and AS Monaco’s Radamel Falcao Garcia was stretchered off the field in the 40^th minute with what turned out to be a torn ACL in his left knee.  Following a successful surgery in Portugal on Saturday, doctors have given the Colombian striker a 50-50 chance of being available to play for Colombia at the World Cup.  Falcao, for his part, has said that he will take the recovery day-by-day, and will work his hardest to keep his World Cup dream alive.

Many have written that the loss of Falcao would be a crushing blow to Colombia’s hopes.  I disagree.  Call me a homer (I was born in Cartagena, Colombia), but I believe that Colombia has many quality attacking options should Falcao be unavailable to play in Brasil.  This current generation of Colombian football has been blessed by many quality (though young or unproven) attacking players.  From F.C. Porto’s Jackson Martinez and Juan Quintero to Udinese’s Luis Muriel and River Plate’s Teofilo Gutierrez, Jose Pekerman (Colombia’s manager) should have several options to fill Falcao’s role up front, should the AS Monaco forward not recover in time for the tournament.  A bigger problem for Colombia would be a loss in the midfield or center-back positions, as they do not have as much depth in those roles.

That said, it would be a shame if Falcao did end up missing the tournament because he is one of the most exciting strikers in today’s game and is a large part of the reason for Colombia’s return to the World Cup.  Such a talent deserves the chance to show off his skills on the world’s biggest stage.  FUERZA TIGRE!!!

Creating a Safe and Modern 21st Century Payment System; Programming Note; Free Kick; Invaluable Knowledge

Written by Ricardo Piñeres, Regulatory Compliance Counsel

My name is Ricardo Piñeres, and I am the new Regulatory Compliance Counsel here at NAFCU.  I know what you’re thinking: “Did I somehow trip into a time machine and get propelled into the future?  Aren’t Alicia and Brandy the new Regulatory Compliance Counsels?”  Well, things move pretty fast here at NAFCU, and in an effort to better help our members navigate the crazy world of compliance, I have also been added to the team.  I truly look forward to sharing my thoughts on compliance issues on this blog.

While you may not have time traveled, I do want you to spend some time thinking about the future.  What will our payment systems look like as we continue boldly pushing forward into the 21^st Century?  While cash, checks, ACHs, and other forms of payment have served us well for many years, our industry is at an interesting crossroads.  Consumers are demanding more real-time transactions that do not compromise security.  Consumer electronics and the technology that powers them are getting more powerful with every passing second.  It’s only a matter of time before our current payment systems become obsolete.

So, why should you care?  Isn’t this a discussion for the technocrats, market researchers, and product development teams both within and outside of the financial services industry?  While they may be the driving forces behind much of the changes that will inevitably be coming, compliance specialists absolutely need to take an active role in the discussions.  It is you who will be tasked with ensuring that these payment systems and the processes that our institutions use in making them work are fully compliant with both current and future laws.  Therefore, you need to be thinking of what you want these systems to look like and how you think they should be regulated.

Back in September, the Federal Reserve Banks released a white paper that outlined what they preliminarily view as the goals of payment systems evolution and the hurdles that lie ahead.  In this white paper the Federal Reserve Banks have identified five desired outcomes that they want to be accomplished within ten years.  They are:

• Key improvements to the future state of the payment system have been collectively identified and embraced by payment participants, and material progress has been made in implementing them.
• A ubiquitous electronic solution(s) for making retail payments exists that does not require the sender to know the bank account number of the recipient.  Confirmation of good funds will be made at the initiation of the payment.  The sender and receiver will receive timely notification that the payment has been made.  Funds will be debited from the payer and made available in near real time to the payee.
• Over the long run, greater electronification and process improvements have reduced the average end-to-end (societal) costs of payment transactions and resulted in innovative payment services that deliver improved value to consumers, businesses, and governments.
• Consumers and businesses have better choice in making convenient, cost-effective, and timely cross-border payments from and to the United States.
• The Federal Reserve Banks have collaborated, as appropriate, with the industry to promote the security of the payment system from end-to-end amid a rapidly evolving technology and threat environment.  In addition, public confidence in the security of Federal Reserve financial services has remained high.

While it is great that the Federal Reserve Banks are proactively working towards the modernization of the U.S. payment system, it needs to be industry leaders that are the driving force behind any changes to the payment system.  It would be akin to the government having stepped in and mandated a winner in the VHS/BETA Max and Blu-Ray/HD-DVD wars.  The industry standards were set by consumer choice, and the same needs to happen with the evolution of payment systems.  The growth of a modern payment system must happen naturally with tech companies, financial services institutions, payment networks, consumer groups, and other interested parties coming together to see what are the best solutions to this complex puzzle.  The Federal Reserve Banks’ role should be akin to a moderator working to ensure that all interested parties are a part of the developmental process.  That being said, the various industries must be allowed enough autonomy from the Federal Reserve Banks to find real and practical solutions that address the various issues in creating a safe and modern payment system.

NAFCU’s Regulatory Alert (13-EA-31) on the Federal Reserve Banks’ white paper on improving payment systems is available here (NAFCU log-in required).  Also, take a look at this CU Insight post – written by Carrie Hunt: Let Industry Lead the Way for Payment System Reform. 

***

Programming Note.  NAFCU’s offices will close today at noon for the Martin Luther King, Jr. holiday and will reopen on Tuesday, January 21.  We will be back to blogging on Wednesday, January 22.

***

Free Kick. As you get to better know me, you will learn about my love for football (soccer), and with each one of my blog posts, I’ll be adding a short thought on the world of football.  Today’s thought:

What better way to mentally fight the cold of this winter than by being transported to Brazil through the sounds of Gaby Amarantos and Monobloco’s Todo Mundo, Coca-Cola’s anthem for this year’s World Cup (an English version was recently released by David Correy and a Spanish version has been released by Carlos Vives – my favorite musician).  It’s got a great beat and reminds me that there are only 145 days until the tournament begins!

***

Last Day for Early Bird Savings - NAFCU's Regulatory Compliance School.  Before you leave for the weekend, lock in your $100 in early-bird savings for NAFCU’s Regulatory Compliance School March 10-15 in National Harbor, Md. Today is the last day to save!  You’ll get credit union regulatory compliance from A to Z, plus the chance to take the exams to earn the respected title of NAFCU Certified Compliance Officer.

 

2013 HMDA Getting it Right Guide; New NAFCU Calendar; Reg Alert on Escrow Proposal

Written by Steve Van Beek

2013 HMDA Guide. Yesterday, the Federal Financial Institution Examination Council (FFIEC) issued the 2013 HMDA Getting it Right! guide. According to the main page:

"The 2013 edition reflects the transfer of authority over Regulation C from the Federal Reserve Board to the Consumer Financial Protection Bureau. Appendix D, comment 1003.2 (Financial Institution)-2 is updated with the asset-size threshold exemption applicable to collection of 2013 data. There are also minor changes to the general text of the Guide, including updates to Sources of Geographic Information and Submitting the LAR."

You can find the full PDF of the 2013 Guide here.  

***

Long Time Coming. Now, you may be wondering when the last version of the Guide was issued?  2010.  The 2011 version would have been the lame duck one when the Federal Reserve still had authority for Regulation C (HMDA). However, there was no guide issued. On July 21, 2011, the CFPB took over Regulation C and they failed to release a guide in 2012.  Fortunately, in year two, the CFPB found the time to update the Guide and provide guidance to HMDA-reporting institutions.

***

Garbage In, Garbage Out? The CFPB is a self-described "data-driven" agency. If you doubt it, take a read through this Bloomberg.com story: U.S. Amasses Data on 10 Million Consumers as Banks Object. To me, if you want to be data-driven - the best first step is to make sure your regulatory requirements are clear and understandable so that the data you collect (whether it be consumer complaints, HMDA data, or anything else) is as reliable as possible. But, that's just me.  

***

NAFCU Calendar.  NAFCU has a new calendar on our website that features:

• Compliance Deadlines;

• Important Regulatory Dates;

• Education & Conferences;

• CU Research Survey Deadlines; and

• Other Important Dates.

The calendar allows you to navigate month-by-month, click to find more information and add dates to your own calendar. For example, the "more information" link on the June 1st Escrow Changes Deadline includes this information:

CFPB Compliance Deadline: Escrow Requirement

Description:

Amended escrow requirements for higher-priced mortgage loans. Added a new small creditor exemption for credit unions that meet a four-part test.

Regulatory Text: 12 CFR 1026.35

NAFCU Compliance Blog: Mortgage Reform - Escrows

NAFCU Resources: www.nafcu.org/mortgagerules/#escrow

Download the latest full Compliance Calendar, including proposed regulations, past deadlines and more.

Date:Jun 01, 2013    

Add to Calendar                                             Back to Calendar

***

NAFCU Members. The Mortgage Rules webpage includes NAFCU's Regulatory Alert on the CFPB's recent proposed rule. The proposal was published in the Federal Register yesterday and only provided 15-days for comments (comments to NAFCU on the Regulatory Alert are due on Wednesday, April 24).  

30 Minutes to Report Credit Card Plans?; Consumer Compliance Outlook; HELOC Webcast

Written by Steve Van Beek

Information Collection on Report for Credit Card Plans. Remember back on February 1 where I got all bent out of shape regarding the CFPB's expansion of their Credit Card Survey to certain credit unions with 10 days notice? 

Yesterday, the CFPB issued an Information Collection Request which asks whether the 30 minutes it estimates for financial institutions - including approximately 20 of the largest credit unions - is accurate. 

"Request for Comments: Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information shall have practical utility; (b) The accuracy of the Bureau's estimate of the burden of the collection of information, including the validity of the methods and the assumptions used; (c) Ways to enhance the quality, utility, and clarity of the information to be collected; and (d) Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget (OMB) approval. All comments will become a matter of public record."  (Emphasis added).

The reporting form is FR 2572. And, you can also review the instructions and form (opens as an Excel document) for responding to the report. After reading the instructions, would you say that completing the task would take 30 minutes?  Me neither.  

For the 20 or so credit unions who were recently added to the Report - did it take your credit union 30 minutes?  For those credit unions who weren't covered - how long did it take you to determine you weren't covered?  

***

Consumer Compliance Outlook. The First Quarter issue of the Philadelphia Federal Reserve's Consumer Compliance Outlook is now available. The articles this issue include:

• Servicemember Financial Protection Webinar: Questions and Answers
• 2012 Year in Review Webinar: Questions and Answers
• Credit CARD Act Requirements for Gift Certificates, Store Gift Cards, and General-Use Prepaid Cards

You can also download the full PDF here.

***

HELOC Webcast. Don't miss NAFCU's webcast tomorrow on Which New Requirements Apply to HELOCs? - where I'll be walking through the new mortgage requirements that apply to HELOCs.   

***

Wow - you couldn't ask for a better game last night (a different outcome, sure!).  Hats off to Louisville on a great season and an outstanding game. For Michigan - what a run and well done. 

I'll leave you with my favorite image from the game (Getty Images):

Oh, yeah - that was called a foul. One thing is for sure, the blog has definitely upped its basketball coverage since the days of Anthony's Penn State Nittany Lions. Fred also mentioned the coverage was a little too skewed to Michigan - so here is a link to Navy's season as well (does David Robinson have any eligibility left?).   

Read the Playbook - NCUA's Examination Focus for 2013

Written by Steve Van Beek

My colleague Anthony Demangone had a great blog post yesterday on NCUA tipping their hand on their Examination Focus for 2013. Anthony showed two slides from NCUA which highlighted:

• Ten Red Flags for Examiners

• Ten Things Your Examiner Will Like to See

I encourage you to view the slides on Anthony's blog post.

***

Those slides are very helpful to credit unions, but don't stop there. NCUA has provided tons of information on what their focus will be in 2013. NCUA has given you the playbook, be sure you read it!

Below are four resources from NCUA that you'll want to review:

• Letter to Credit Unions 13-CU-01 on NCUA's Supervisory Focus for 2013

• Capacity, Clarity and Consistency Guide NCUA Exams in 2013 (from January NCUA Report)

• NCUA's Examination Issues in 2013 Webinar (aired initially on March 27, 2013)

• NAFCU’s May 1^st Webcast on NCUA’s National Supervision Policy Manual

Have a great weekend and Go Blue!

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.  

Cyber Threats; SCRA; Fannie Mae Resources; Economic Update; Mortgage Servicing Transfers

Written by Steve Van Beek

Below are couple of tidbits for your Tuesday.

***

NCUA Risk Alert on Cyber Threats.  NCUA issued Risk Alert 13-Risk-01 on steps credit unions should take to protect against Distributed Denial-of-Services (DDoS) attacks.  In recent months, these attacks have ticked up at financial institutions – including credit unions.  Be sure to pass this Risk Alert along to those in charge of risk management and information technology at your credit union.    

***

CFPB “Hit or Myth” on SCRA.  The CFPB had a recent blog post on various confusing issues related to servicemember protections under SCRA.  These “Hit or Myth” questions and answers might be useful for internal SCRA training.  For more CFPB information on servicemembers, check out this page.    

*** 

Fannie Mae Loan Quality Resources. If your credit union sells loans to Fannie Mae, be sure to check out their new resources regarding Loan Quality.  The webpage includes resource guides as well as free webinars to help understand Fannie Mae’s procedures.  Be sure to pass along the resource page to others at your credit union. 

***

NCUA’s February Economic Video.  NCUA’s latest economic video is now available for viewing on YouTube.  Each month, NCUA’s Chief Economist John Worth provides an overview of the economic market and how it impacts credit unions.  These are great videos to include in strategic planning or board sessions as NCUA comes directly to you – via YouTube – each month with an economic update.  

***

CFPB Bulletin on Mortgage Servicing Transfers.  In addition to changing nearly all the mortgage servicing requirements in January, the CFPB has mortgage servicing transfers in their crosshairs.  In mid-February, the CFPB announced their intent to “closely monitor transfer activity” by mortgage servicers.  In conjunction with the announcement, the CFPB issued Bulletin 2013-1 which provides specific information regarding the CFPB’s detailed focus on mortgage servicing transfers.  

Two March 1st Deadlines: Electronic Payments & HMDA Data

Written by Steve Van Beek

Friday - March 1st - marks the deadline for two completely unrelated issues.

Mandatory Electronic Federal Payments.  Starting March 1st, all federal benefit payments must be electronic.  While this won't necessarily be a direct impact on your credit union - it will be a big change for some of your members.  We blogged on this back in December and included links to numerous resources from Treasury's Go Direct campaign.

***

Home Mortgage Disclosure Act (HMDA) Deadline.  Friday is also the deadline for credit unions to submit their 2012 HMDA data.  NCUA previously issued Regulatory Alert 13-2 which highlights the March 1, 2013 deadline for submitting HMDA data.

Additionally, NCUA conducted a free HMDA webinar on January 24th that credit unions should be sure to check out.  The webinar features discussion from NCUA's Office of Consumer Protection, the Federal Reserve's HMDA/CRA team (including my wife - who did a great job*) and representatives from the CFPB and OCC.  The archived webinar is available here.

*And, I'm not just saying this because I didn't wish her a Happy Valentine's Day on the blog (unlike a certain other veteran NAFCU blogger).   

Listen for yourself, I'll say it again - great job!  

CFPB's Authority Without a Director - Redux

Written by Steve Van Beek

A ruling by the U.S. Court of Appeals for the District of Columbia (WashingtonPost.com) on the recess appointments of 3 National Labor Relations Board (NLRB) appointments caused quite a stir on Friday afternoon.  Especially, considering CFPB Director Richard Cordray was appointed at the same time.

You are probably going to read quite a bit in the upcoming weeks (and months) about what this means for Cordray's appointment and - more importantly - the CFPB's recently released final mortgage regulations (and, the remittance transfer regulation).  For credit unions, I want to point you back to one of my blog posts from June 2011 on the CFPB's Authority Without a Director.  In that post, I looked at what the CFPB could do if it did not have a "Senate-confirmed director:"

Even without a Director, the CFPB can (among other powers):

• Write rules, orders and guidance regarding any of the consumer laws that transfer to the CFPB.  This includes proposing new regulations as well as finalizing regulations (both its own and proposals it inherits from other agencies);

• Conduct examinations of and issue and enforce orders against banks, savings associations or credit unions with assets of greater than $10 billion; and

• Take over consumer protection issues related to RESPA and certain consumer rules previously under the authority of the Federal Trade Commission. 

That post relied on a January 11, 2011 joint letter from the Inspector Generals of the Federal Reserve and Treasury Department - especially Question & Answer #5.  

***

So, What Should Credit Unions Do?  Continue working on understanding and complying with the CFPB's regulations.  The CFPB had authority to issue regulations under Regulation Z (TILA), Regulation X (RESPA) and Regulation E (EFTA - remittance transfers) even without the Senate-confirmed Director.  Thus, if Cordray's recess appointment were overturned - the new requirements would still be mandatory.  Now, there would likely be numerous nuances and intricacies that would pop up - but the best course of attack is to continue to work toward understanding and complying with the CFPB's regulations.  

***

Ironically, nonbank mortgage originators and servicers would be in a slightly different boat (as would nondepository providers of remittance transfers) as the CFPB wouldn't have authority over those entities without a proper Director.  Of course, that isn't to say they would get off scot-free (in fact, it could turn out worse) - but it is a different analysis than for banks and credit unions who were already regulated at the federal level. 

***

Now is also a good time to remind readers of this blog's legal disclaimer:

LEGAL DISCLAIMER

This website is intended to provide general compliance information in regard to the subject(s) covered. It is provided with the intent and understanding that the publisher is not engaged in the act of rendering legal, accounting or any other professional advice. The information provided in this website is not intended nor should be used as a substitute for legal advice or other expert opinions and services in specific situations. NAFCU is not responsible for the content of comments and reserves the right to delete or block comments that it finds inappropriate.

Ah, that feels better.  Have a great week everyone!

ATMs and the ADA; Secretary Geithner on Reg Reform

Posted by Sarah Loats

The Justice Department has revised its ADA regulations including its Standards for Accessible Design under the ADA. This rule imposes new standards for ATMs, which are set forth in Section 707 of the guidelines.

Some of the standards include ensuring the same degree of privacy for input and output of information is available to all individuals, speech output capability, and providing adequate clear floor or ground space.

Unless a credit union determines that doing so would result in an "undue burden," it may need to bring existing ATMs into compliance. The text below is an excerpt from the final rule adopting enforceable accessibility standards:

ATMs. The 2010 Standards set out detailed requirements for ATMs, including communication-related requirements to make ATMs usable by individuals who are blind or have low vision. In the NPRM, the Department discussed the application of a safe harbor to the communication-related elements of ATMs. The NPRM explained that the Department considers the communication-related elements of ATMs to be auxiliary aids and services, to which the safe harbor for elements built in compliance with the 1991 standards does not apply.

The Department received several comments regarding this issue. Several commenters representing banks objected to the exclusion of communication-related aspects of ATMs from the safe harbor provision. They explained that the useful life of ATMs--on average 10 years--was longer than the Department noted; thus, without the safe harbor, banks would be forced to retrofit many ATMs in order to comply with the proposed regulation. Such retrofitting, they noted, would be costly to the industry. A few representatives of the disability community commented that communication-related aspects of ATMs should be excluded from the safe harbor.

The Department consistently has taken the position that the communication-related elements of ATMs are auxiliary aids and services, rather than structural elements. See 28 CFR part 36, app. B at 728 (2009). Thus, the safe harbor provision does not apply to these elements. The Department believes that the limitations on the effective communication requirements, which provide that a covered entity does not have to take measures that would result in a fundamental alteration of its program or would cause undue burdens, provide adequate protection to covered entities that operate ATMs.

NAFCU's Regulatory Affairs team is working on a Final Regulation summary of this rule. The final rule is effective 6 months from publication in the Federal Register.

***

The Secretary of Treasury Timothy Geithner spoke about Reg Reform on Monday. In his speech, he laid out the core principles that will guide them in the reform going forward:

1. Speed - including speeding up the pace of rule-writing.
2. Full transparency and disclosure.
3. To not layer new rules on top of old ones, but to streamline and simplify.
4. To safeguard freedom of innovation and competition while at the same time preventing abuse and excess risk.
5. Create a more level playing field, domestically and globally.
6. Bring more order and coordination to the regulatory process.

In addition, his comments on consumer protection specifically indicate that they will be looking at simplifying disclosures for credit cards, auto loans, and mortgages. And, in regards to mortgages, he noted that they will be meeting next month with experts in the mortgage industry to discuss how to combine the "two separate and inconsistent federal mortgage disclosure forms." I assume he's talking about the RESPA and TIL disclosures. 

Credit CARD Act; Contact Us

Posted by Steve Van Beek

First things first, the language of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) is available on NAFCU's Compliance website (available to both NAFCU members and non-members).

Ok, only 33 pages.  Not so bad, right?  Unfortunately, there appears to be a trade-off where we received brevity in exchange for confusion.  Trust me, the law is much harder to read than the regulations.  

How did we get here?  Congress codified, strengthened, enhanced and moved up many of the protections that NCUA and the other federal regulators adopted in their regulation on Unfair or Deceptive Acts or Practices (UDAP - Part 706 of NCUA's Regulations).  Congress also added new restrictions on credit card accounts.     

What does this mean?  The protections on credit card accounts are now law.  The Credit CARD Act amended the Truth in Lending Act.  In contrast, the Federal Reserve (and NCUA) had adopted the UDAP regulations under existing authority under the Federal Trade Commission Act (FTC Act).  Six of one or a half dozen of the other, right?  No, again.  The fact that these protections are now codified in laws rather than regulation means they are harder to change.  

However, there is a glimmer of sun for federal credit unions.  The Credit CARD Act applies to a broader scope of institutions than the UDAP regulations ensuring each card issuer is operating on a level playing field.  For example, state-chartered credit unions were not subject to the UDAP regulations (because for unfair practices they are regulated by the FTC) but they will be subject to the Credit CARD Act.  

What do we need to do?  Review the new Credit CARD Act and determine how your card operations need to adjust to comply with the law.  The law covers a wide variety of situations, such as gift cards, credit cards to persons under the age of 21, and the timing to send periodic statements - just to name a few.  

When is the effective date?  The majority of the provisions of the Credit CARD Act become effective 9 months after President Obama signed the bill into law.  President Obama signed the Act on May 22, 2009 making February 22, 2010 the effective/compliance date for many of the provisions.  Note:  This is more than 4 months prior to when the UDAP regulations are slated to become effective (July 1, 2010).  The UDAP regulations are still scheduled to be implemented - the Credit CARD Act does not mean credit unions do not need to be follow UDAP - though the regulators may amend the UDAP regulations at a future date.

Editor's Note: The original post accidently listed February 22, 2009 as the effective date - it is, rather, February 22, 2010.

However, Congress determined that two sections of the Credit CARD Act warranted earlier effective dates 90 days after enactment - August 20, 2009.  Yes, as in 70 days from today.  

Which provisions are effective August 20, 2009?  

Section 101. Protection of Credit Cardholders. (a) Advance Notice of Rate Increase and Other Changes Required.   (see pages 2-3 of the Credit CARD Act PDF).

Advanced Notice 

Beginning on August 20, 2009, credit unions will need to send an advanced notice of (a) an increase in an APR; or (b) other significant changes - including an increase in any fee or finance charge.  The advanced notice must be 45 days before the effective date of the change.  The Federal Reserve Board will determine what "other significant changes" trigger the advanced notice.  Until the Federal Reserve provides clarity in this area, credit unions may want to use Regulation Z, 12 CFR 226.9(c), as guidance for which terms of the account might be considered significant.   

Right to Cancel

A "Right to Cancel" statement must accompany the advanced notice to the member.  The statement needs to inform the member of his/her right to cancel the account and, in effect, reject the changes.  The Federal Reserve Board is required to establish rules regarding the "Right to Cancel."  It is unclear what information would be required to accompany this "Right to Cancel" statement.  My best guess is that the credit union would need to inform the member of what canceling the account would entail (i.e. no new purchases; retain existing APR and terms; repayment options, etc.)  Additionally, the law prohibits a credit union from requiring a member who exercises his right to cancel the account to repay the obligation in full.  Rather, the credit union needs to provide a repayment method that is no less beneficial than one of the methods in Section 171(c)(2) of the Truth in Lending Act (see page 4 of the Credit CARD Act PDF).   

Section 163.  Timing of Payments.  (see page 9 of the Credit CARD Act PDF).

Credit unions need to mail or deliver periodic statements 21 days or more before the payment due date in order to charge a late fee.  Note: This section applies to all open end consumer credit plans and is not limited to credit cards.

Additionally, another section of the Credit CARD Act, Section 106 (on page 9), requires the payment due date for a credit card account to be on the same day each month (i.e. the 18th of the month).  If the due date falls on a day the credit union does not accept payments, the credit union may not treat a payment received the next business day as late.  Note: Section 106 is not effective until February 22, 2010 but credit unions should consider its impact when making any needed changes to their credit card billing cycles.

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NAFCU will be relaying information regarding all the new rules and requirements as fast as we can.  Be on the lookout for a big overview blog posting from Anthony tomorrow summarizing many of the upcoming compliance deadlines.

NAFCU is planning a webcast on the Credit CARD Act in August, so stay tuned for information on that webcast.

As always, NAFCU members can call or e-mail us with their questions.  We have created a "Contacting NAFCU Compliance" cheat sheet that is available on our compliance homepage.  Talk to you soon.