NAFCU Compliance Blog

Consumer Compliance Outlook – New Flood Insurance Requirements; CFPB Assists with Application of TRID to Construction Loans; Regulatory Affairs Webcast: Update from Washington; Programming Note

Written by Shereefat Balogun, Regulatory Compliance Counsel

Consumer Compliance Outlook. The Third/Fourth Quarter 2015 issue of the Federal Reserve’s Consumer Compliance Outlook is now available. Articles in this issue, which focuses on flood insurance compliance, include:

• Agencies Issue Final Rule for New Flood Insurance Requirements
• Flood Insurance Compliance Requirements

The Editors noted that the issue is devoted to flood insurance compliance because flood insurance requirements regularly appear among the top-cited violations by examiners.

As a reminder, on July 21, 2015 NCUA, along with several other regulators, jointly published a final rule to implement new flood insurance requirements enacted by the Biggert-Waters Flood Insurance Reform Act of 2012 (BWA) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). We previously blogged about the topic earlier here.

Generally, the rule requires that credit unions escrow premiums and fees for flood insurance for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after January 1, 2016, unless the credit union or a loan qualifies for a statutory exception.

We receive a lot of compliance questions relating to the statutory exceptions. Generally, our members want to know which loans and which lenders are exempted from the new flood insurance requirements. The rule provides the following exceptions to the escrow requirements:

• The loan is primarily for business, commercial or agricultural purposes;
• The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage.
• The flood insurance coverage is provided by a policy that meets the requirements of 760.3(a) and is provided by a condominium association, cooperative, homeowners association, or other applicable group as a common expense;
• The loan is a home equity line of credit;
• The loan is a nonperforming loan that is 90 or more days past due; or
• The loan is a term of less than 12 months.

Moreover, the rule includes a “small lender” exception. The rule exempts any credit union with total assets of less than $1 billion (as of December 31^st of either of the two previous calendar years) that, as of July 6, 2012,:

• was not required under federal or state law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of any loan secured by residential improved real estate or a mobile home; and

• did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home.

The article on Agencies Issue Final Rule for New Flood Insurance Requirements provides an excellent summary of the flood insurance escrow requirements. The issue also contains a resource page with helpful flood insurance links.

***

CFPB Assists with Application of TRID to Construction Loans. Earlier this week, the CFPB published a fact sheet on how construction loans are affected by TILA/RESPA Integrated Disclosure (TRID) rules. The fact sheet notes that construction loans are:

• covered by the “know before your owe” mortgage disclosures unless the loans are open-end transactions or are for a commercial purpose, and
• covered by existing provisions under Regulation Z, including the Loan Estimate and Closing Disclosure rule.

The fact sheet also covers how to disclose a construction loan with permanent financing as either one transaction or more than one transaction.

***

NAFCU Regulatory Affairs Department: Update from Washington

Live Webcast: Thursday, January 28 | 2:00 p.m. – 3:30 p.m. EST

Part of the CFPB/NCUA Webcast Series

The industry’s best Regulatory Affairs team is your direct connection to credit union regulatory updates and rulemakings brought by the CFPB, NCUA and other regulators. Through this webcast you’ll receive an update on what’s new coming out of Washington, and how it could affect your most vulnerable departments. Learn about overdraft, field of membership, the future of payments and other essential topics.

***

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

 

NCUA’s September Edition of the NCUA Report Goes Live!

Written by Eliott C. Ponte, Regulatory Compliance Counsel

The September Edition of the NCUA Report

Last week, the NCUA released its September 2015 report.  Featured articles include: 

• Preparing for an Active Shooter Situation
• Chairman’s Corner:  The Power of Partnerships
• Small Steps by Members Can Prevent Big Losses
• Board Perspectives: Building a Better Playbook
• Board Perspectives:  Out Membership Rules Can Be Better with Your Help
• Understanding the Purchase and Assumption Process
• Flood Insurance Requirements Expanded for Lenders and Servicers
• Credit Union Locator Gets New Look, Search Functions, and Map Features

 

One article I want to highlight is Preparing for an Active Shooter Situation.  Unfortunately, active shooter situations have become more prevalent over the recent years.  While these events are still rare, the article states credit unions may want to consider preparing for an active shooter situation at or near their credit union.  Credit unions should note that this article does not impose any new regulatory requirements and whether to implement such training is a business decision for the credit union.  If the credit union is interested in conducting active shooter training, the article offers a three–step model to help train employees—run, hide, or fight.

The article also highlights two training resources that are available to the credit union at no cost.  First, the article highlights a training video produced and published by the Federal Bureau of Investigation.  The introduction to the video is slightly graphic—no more than a typical action movie—but the video demonstrates the run, hide, or fight model in action.  Second, FEMA has an interactive web based course on active shooters.  The course also has a final exam, which may be helpful for credit unions that are interested in have a self-paced active shooter training program.  FEMA’s course is one hour long, but is very helpful for credit unions who wish to offer this type of training to their employees at no cost.

Another article that is worth reading is the Flood Insurance Requirements Expanded for Lenders and Servicers.  While NAFCU’s Victoria Daka published a detailed article on the new flood insurance requirements in the September Compliance Monitor, the NCUA article provides a high-level summary of the major changes to the flood rule. 

***

Advanced Topics in BSA

Live Webcast: Tuesday, September 29 | 2:00 p.m. – 3:30 p.m. EST

An old dog can provide new tricks—and that is exactly the case with the BSA.  Despite existing for half a century, the act is constantly evolving, and you need to ensure you are keeping up with the changes.  Join us and cover hot BSA topics regarding OFAC penalties and enforcement actions, due diligence requirements, human trafficking, and more.  For more information, click here.

Final Joint Flood Insurance Rule; Free Member Business Lending Rule Webcast

Written by Victoria Daka, Regulatory Compliance Counsel

During its June 18th meeting, the NCUA Board approved the final joint rule on flood insurance, which amends regulations pertaining to loans secured by property located in special flood hazard areas. These regulations implement the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).

More specifically, the final rule establishes requirements for financial institutions with respect to the escrow of flood insurance payments, consistent with changes in the HFIAA.  Additionally, the final rule includes a new exemption no longer requiring separate flood insurance for certain detached structures. Here are some highlights from the final rule.

First, the rule does contain a small lender exemption for many institutions with assets under $1 billion as of December 31 in either of the past two calendar years. However, to qualify for this exemption, the credit union must meet an additional two-part test. As of July 6, 2012, the credit union:

"(A) Was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of any loan secured by residential improved real estate or a mobile home; and

(B) Did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for any loans secured by residential improved real estate or a mobile home." 

The final rule also exempts from the requirements of this rule any structure that is a part of residential property even if it is detached from the primary residential structure of that property and does not serve as a residence. However, although not required, lenders may require flood insurance on these detached structures for the benefit of the borrower.

Escrow Requirement

760.5(a)(1) – Applicability. The final rule requires that regulated lending institutions escrow premiums and fees for flood insurance for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after Jan. 1, 2016, unless the regulated lending institution or a loan qualifies for a statutory exception.

760.5(a)(2) – Exceptions. The final rule provides the following exceptions to the requirements:

• The loan is primarily for business, commercial or agricultural purposes;
• The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage.
• The flood insurance coverage is provided by a policy that meets the requirements of 760.3(a) and is provided by a condominium association, cooperative, homeowners association, or other applicable group as a common expense;
• The loan is a home equity line of credit;
• The loan is a nonperforming loan that is 90 or more days past due; or
• The loan is a term of less than 12 months.

760.5(b) – Notice. The final rule requires the credit union or servicer to mail or deliver written notice to the borrower using language substantially similar to the model clauses. This writing is intended to put borrowers on notice that the credit union or servicer is required to escrow all the premiums and fees for the required flood insurance.

760.5(c)(2) – Change In Status. This section of the final rule points out that if a credit union previously qualified under the small lender exception (under 760.5(c) of the final rule, credit unions with assets of less than $1 billion as of December 31^st of either of the two previous calendar years) but now has assets that exceed this threshold for two consecutive years, the credit union would have to comply with this rule’s requirements on or after July 1^st of the following year.

760.5(d) – Option to Escrow. This section informs credit unions that are not exempt from this rule to offer, make available and provide notice to borrowers about the option to escrow all premiums and fees for any flood insurance required for any loan secured by residential improved real estate or a mobile home that is outstanding on January 1, 2016.

§ 760.6 Required Use of Standard Flood Hazard Determination Form

The final rule requires credit unions to use the standard flood hazard determination form when determining whether the property used as collateral is located in a flood hazard area.

Note that the HFIAA does not affect the other provisions of the Biggert-Waters Act relating to private flood insurance and force-placed flood insurance.  Those issues are expected to be addressed in a different rule at a later date. 

The Final Joint Flood Insurance Rule can be viewed in its entirety here. NAFCU’s Regulatory Affairs team will also prepare a Final Regulation Alert for our members in the coming weeks which can be found here. 

***

Free Webcast! NCUA’s New Member Business Lending Rule, with Larry Fazio

Live: Wednesday, July 1 | 2:00 p.m. – 3:30 p.m. ET

NCUA’s proposed Member Business Lending (MBL) rule will eliminate the rule’s waiver process, allowing credit unions to decide for themselves whether or not a borrower should be exempt from a personal guarantee. Find out how the proposed rule will impact your credit union straight from the rule’s architect, Director of NCUA’s Office of Examination and Insurance Larry Fazio, along with a Q&A session. Click here for more information.

 

CFPB TILA/RESPA Implementation Delay; NCUA Board Meetings Results

Written by JiJi Bahhur, Director of Regulatory Compliance

The Consumer Financial Protection Bureau (CFPB) and National Credit Union Administration (NCUA) have been busy bees this week with announcements and issuances that credit union professionals will definitely want to know and hear more about.

***

Delayed Implementation of TILA/RESPA.  On Wednesday, Director Richard Cordray of the CFPB announced that the bureau will be issuing a proposed amendment to delay the implementation deadline for the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) Integrated Mortgage Disclosure requirements until October 1.  This delay would provide credit unions two more months to comply with the rules, which are currently scheduled to go into effect on August 1, 2015.

“The CFPB will be issuing a proposed amendment to delay the effective date of the Know Before You Owe rule until October 1, 2015,” CFPB Director Richard Cordray said in a prepared statement. “We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks.”

While this delay is a step in the right direction, and one that NAFCU welcomes, a two-month delay may still not be enough to meet credit unions’ needs. Credit unions have been gearing up and working diligently with vendors to ensure timely compliance with the TILA/RESPA Integrated Mortgage Disclosure rule, but there are still a number of ambiguities in the rule that need to be addressed by the CFPB. 

At this point, it’s hard to tell what this will mean or how this will affect credit unions, but once the CFPB releases its proposal on delayed implementation of TILA/RESPA, NAFCU will provide greater detail on what it entails on our compliance blog. 

As an aside, what I would love to see the CFPB do between now and the new October 1 effective date is issue an FAQ detailing answers to questions and ambiguities the bureau has been made aware of. 

***

NCUA Board Meeting Results. On Thursday, the NCUA Board held an open meeting to discuss the following items, all of which were unanimously approved:

1. Final Interagency Rule, Part 760 of NCUA’s Rules and Regulations, Loans in Areas Having Special Flood Hazards.
2. Board Briefing, Final Interagency Policy Statement Establishing Joint Diversity Assessment Standards.
3. Final IRPS 13-1, Minority Depository Institution Preservation Program.
4. Notice and Request for Comment, Regulatory Review in Accordance with the Economic Growth and Regulatory Paperwork Reduction Act.
5. Federal Credit Union Loan Interest Rate Ceiling.
6. Proposed Rule, Part 723 of NCUA’s Rules and Regulations, Member Business Lending.

While it would bring me great pleasure to go into all the details surrounding each of these agenda items, I’ll save you from having to read a 5-page blog on a Friday morning.  That being said, we plan to cover some of these items in detail on the blog next week.  If you would like to get a head start on your reading, take a look at NCUA’s Board Action Bulletin, available here. 

Interagency Flood Insurance Proposal; Programming Notes

Written by Victoria Daka, Regulatory Compliance Specialist

In late October, the National Credit Union Administration, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit Administration, and Office of the Comptroller of the Currency issued a joint notice of proposed rulemaking which proposes to amend regulations pertaining to loans secured by property located in special flood hazard areas. These regulations implement the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).

More specifically, the proposed rule, if finalized as is, will establish requirements for financial institutions with assets of more than $1 billion or servicers acting on their behalf, with respect to the escrow of flood insurance payments, consistent with changes in the HFIAA.  Also, if finalized as is, the proposal will include a new exemption no longer requiring separate flood insurance for certain detached structures. Below, you’ll find highlights from the proposal: 

§ 760.4 Exemptions – First of all, this section exempts from the requirements of this rule any structure that is a part of residential property even if it is detached from the primary residential structure of that property and does not serve as a residence. However, although not required, lenders may require flood insurance on these detached structures for the benefit of the borrower.

§ 760.5 Escrow Requirement –

760.5(a)(1) – Applicability. This section requires that regulated lending institutions escrow premiums and fees for flood insurance for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after Jan. 1, 2016, unless the regulated lending institution or a loan qualifies for a statutory exception.

760.5(a)(2) – Exceptions. This section provides the following exceptions to the requirements:

• The loan is primarily for business, commercial or agricultural purposes;
• The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage.
• The flood insurance coverage is provided by a policy that meets the requirements of 760.3(a) and is provided by a condominium association, cooperative, homeowners association, or other applicable group as a common expense;
• The loan is a home equity line of credit;
• The loan is a nonperforming loan that is 90 or more days past due; or
• The loan is a term of less than 12 months.

760.5(b) – Notice. This section requires the credit union or servicer to mail or deliver written notice to the borrower using language substantially similar to the model clauses. This writing is intended to put borrowers on notice that the credit union or servicer is required to escrow all the premiums and fees for the required flood insurance.

760.5(c)(2) – Change In Status.This section points out that if a credit union previously qualified under the small lender exception (under 760.5(c) of the proposal, credit unions with assets of less than $1 billion as of December 31^st of either of the two previous calendar years) but now has assets that exceed this threshold for two consecutive years, the credit union would have to comply with this rule’s requirements on or after July 1^st of the following year.

760.5(d) – Option to Escrow. This section informs credit unions that are not exempt from this rule to offer, make available and provide notice to borrowers about the option to escrow all premiums and fees for any flood insurance required for any loan secured by residential improved real estate or a mobile home that is outstanding on January 1, 2016. 

§ 760.6 Required Use of Standard Flood Hazard Determination Form – This section requires credit unions to use the standard flood hazard determination form when determining whether the property used as collateral is located in a flood hazard area.

Remember, this is just a proposal at this time.  Also, note that the HFIAA does not affect the other provisions of the Biggert-Waters Act relating to private flood insurance and force-placed flood insurance.  Those issues are expected to be addressed in a different rule at a later date. 

***

Programming Note. NAFCU's office will close at noon today and will also be closed on Thursday and Friday for the long Thanksgiving holiday weekend. We will be back to blogging on Monday. Have a happy Thanksgiving and great long weekend!

Relief on the Horizon for Flood Escrow Requirement; NCUA Holds Board Meeting; Shameless Plug

Written by Brandy Bruyere, Regulatory Compliance Counsel

Cautious Optimism Regarding Flood Escrow Requirements. On July 6^th, 2012 President Obama signed the Biggert-Waters Flood Insurance Reform Act into law. Biggert-Waters introduced a host of changes to flood insurance, including mandatory escrowing of flood insurance premiums for a broad range of both existing and new home loans. The law also included a provision that the escrow requirements would become effective on July 6^th, 2014. On October 10^th, 2013 NCUA and several of its fellow regulators issued a joint proposed rulemaking implementing the various requirements of the Biggert-Waters. The escrow proposal applied to nearly all loans secured by real estate in a flood zone. While Biggert-Waters also included an exception for some credit unions, this was very narrow. Only credit unions with less than $1 billion in assets and did not have a consistent, uniform policy of escrowing their real estate loans would be exempt.  Without final regulations, the looming July 6^th deadline has been causing some anxiety in the compliance community for those trying to stay on top of their regulatory obligations.

There is tentatively good news this Friday in regards to escrow accounts for flood insurance. Congress recently passed a bill amending Biggert-Waters, including reforming the escrow provisions. President Obama is expected to sign this bill which would be helpful for those credit unions concerned about the upcoming July deadline.

First, the bill will delay the implementation date for the flood escrow requirement until January 1^st, 2016. This gives NCUA and other regulators time to finalize regulations in accordance to the changes to the law. Additionally, the new law narrows the scope of the escrow requirement by excluding several additional kinds of loans from the law. The excluded loans now include:

• Home equity lines of credit;
• Loans secured by real estate or a mobile home that is used for a business purpose;
• Loans secured by a condominium or similar property where the association provides flood insurance as part of common expenses;
• Junior or subordinate loans where flood insurance is already provided under the superior loan;
• Nonperforming loans; and
• Loans with terms of 12 months or less.

Finally, while Biggert-Waters required credit unions to escrow both outstanding and new loans, the new law relieves some of the regulatory burden by making flood escrows for outstanding loans optional. Outstanding loans are those which still have a remaining balance and would be subject to the flood escrow rule if the loan had been originated, refinanced, increased, extended, or renewed on or after January 1^st, 2016. Instead of mandating flood escrows for these accounts, instead credit unions must offer members the option to escrow their flood premiums for these loans. Overall, this law, if signed as expected, will provide a reprieve by both delaying and narrowing the scope of the Biggert-Waters flood escrow requirement.

***

NCUA Board Holds March Meeting.  The NCUA Board met yesterday with two items on its agenda. First, the Board received an update on the Temporary Corporate Credit Union Stabilization Fund. Second, the Board unanimously approved a joint rulemaking regarding minimum requirements for appraisal management companies. However, Chairman Matz noted that NCUA, while required to participate in this rulemaking by Dodd-Frank, is actually the only financial regulator that is “lacking the regulatory authority to examine vendors for safety and soundness and compliance with laws and regulations.” For more information, the March Board Action Bulletin is available here.

***

The New Compliance GPS Has Landed! The 2014 edition of NAFCU’s Credit Union Compliance GPS is here! This comprehensive, electronic resource translates complex regulatory language into plain English. The latest edition includes an expanded section on Reg E and the Remittance Transfer Rule, 7 new sections on the CFPB’s mortgage rules, improved user-friendly search functions, including more hyperlinks and bookmarks and much more. Get yours today!

Finally, I can’t share good news without adding a happy canine photo to the blog. I thought about discussing March Madness, but I’m not really qualified. Also, I become irrationally angry when bracket-busters do not work in my favor! Anyway, here is what my dog looks like when he’s pretending to be a sports fan watching college basketball:

No News Left Behind

Written by JiJi Bahhur, Director of Regulatory Compliance

It would be nearly impossible to cover every piece of news that drops in any single month, but we try our best to cover as many notable items that may impact credit unions here on NAFCU’s Compliance Blog.  Today, I’d like to point to a few items that we did not have a chance to mention during the busy month of October.

NCUA Guidance on DORs and Exam Findings.  NCUA issued Letter to Credit Unions 13-CU-09 to streamline the examination report and clarify for federally insured credit unions the difference between a document of resolution and examiner findings.  New processes related to issuing and following up on the examination report are also being implemented by the agency.  Under the new process, examiners are now required to follow up with credit union officials on outstanding DOR items within 120 days after the timeframe for completion has passed.  The changes to the examination report and the new processes are contained in the agency’s revised National Supervision Program Manual.  The agency stated that full implementation will begin with examinations that start after January 1, 2014.

Electronic Filings.  NCUA issued a final rule, effective January 1, 2014, that requires all federally insured credit unions to file quarterly call reports and profile data electronically using NCUA’s information management system or other electronic means specified by the agency.  Manual filing of this information is no longer an option for federally insured credit unions. NCUA guidance and the extended call report deadlines for 2014 are available in Letter to Credit Unions 13-CU-11.

No Share Insurance Premium for 2013. Announced during the October NCUA Board meeting, insured credit unions will not be assessed a share insurance premium for 2013.  The NCUSIF ended September at a ratio equal to 1.31 percent of insured shares, above the statutory minimum of 1.2 percent. If the fund ends the year above that level, any excess would be transferred to the Temporary Corporate Credit Union Stabilization Fund. The NCUSIF's year-to-date net income was $110.3 million; a negative $25 million was budgeted this year.

Flood Hazard Interagency Proposal.  The NCUA Board issued an interagency proposed rule regarding loans in areas having special flood hazards.  The proposal amends the agency’s regulations on federal flood insurance to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters).  It establishes: 1) that regulated lending institutions must accept “private flood insurance,” as defined in Biggert-Waters, as satisfaction of the flood insurance requirement;  2) an expansion of the escrow requirement for flood insurance payments to all residential loans secured by residential real estate; and 3) a clarification of the provisions relating to force placement of flood insurance.  A Regulatory Alert with an analysis of the proposal will be provided to NAFCU members.  Currently, existing guidance that NCUA has issued still applies to credit unions.

 ***

 Have a great weekend!

Taking a Closer Look at the Interagency Statement on Flood Insurance – Part 2: Private Flood Insurance and Escrow of Flood Insurance Payments

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week we blogged about the Interagency Statement on the Impact of the Biggert-Waters Act (Statement) and several provisions of the Biggert-Waters Act (Act) that became effective upon enactment on July 6, 2012 – dealing with civil money penalties and force placement of insurance.

The Statement also addresses provisions that are not yet effective and will require rulemaking by the federal regulatory agencies. These provisions include:

Private Flood Insurance. Currently a lender may, but is not required to, accept private flood insurance that meets the requirements of the Flood Disaster Protection Act (FDPA). The Act amended the mandatory purchase requirement to require lenders to accept private flood insurance policies as satisfaction of the mandatory purchase requirement if the coverage provided by the private flood insurance satisfies the standards specified in the Act.

The Act also requires lenders to disclose to borrowers that:

• Flood insurance under the National Flood Insurance Program (NFIP) is available from private insurance companies or from the NFIP directly;
• Flood insurance that provides the same level of coverage as an NFIP policy may be available from private insurance companies; and
• Borrowers are encouraged to compare policies.

 These provisions of the Act are not effective until implementing regulations are issued.

 ***

Escrow of Flood Insurance Payments: The Act also contains a provision requiring lenders and servicers to escrow flood insurance payments for new and existing residential real estate and mobile home secured loans outstanding or entered into after July 6, 2014.

There is a limited exemption for certain institutions. Except as may be required under state law, an institution with assets less than $1 billion is exempt from the escrow requirement if the institution, as of July 6, 2012, was not required by federal or state law to escrow taxes or insurance for the term of the loan, and the institution did not have a policy of requiring the escrow of taxes and insurance.

This section of the Act also requires implementing regulations and as noted in the Statement, the agencies intend to publish escrow regulations in sufficient time for the industry to implement them prior to July 2014.

Taking a Closer Look at the Interagency Statement on Flood Insurance: Civil Money Penalties and Force Placement of Insurance

Written by Bernadette Clair, Regulatory Compliance Counsel

In our April 1st blog, we mentioned the release of an Interagency Statement on the Impact of the Biggert-Waters Act (Statement) by several agencies including the NCUA. (As of this posting, NCUA has not issued its own announcement, but in the meantime the Statement is available on the Office of the Comptroller of the Currency’s website here.) For more information about the Act itself, see our blog from July 25th of last year.

The Statement was issued to provide guidance on the “effective dates of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Act), enacted July 6, 2012, and the impact of the Act on the Agencies’ proposed Interagency Questions and Answers.” Agency rulemaking will be required to implement some of the Act’s provisions; however, today we want to point out several provisions that became effective upon enactment on July 6, 2012, dealing with civil money penalties and force placement of insurance.

Civil Money Penalties. The Act amended the Flood Disaster Protection Act of 1973 (the FDPA) to increase the civil money penalties that can be assessed against lenders for failure to comply with flood insurance requirements. The maximum civil money penalty for a FDPA violation has been increased to $2,000.  The Act also removed the penalty cap per year.

***

Force Placement of Insurance. The Act also amended the FDPA to require lenders to release a force-placed policy within 30 days of receipt of confirmation of a borrower’s flood insurance coverage and refund premiums for the period during which the force-placed policy and the borrower’s policy were both in effect. From the Statement:

 “The FDPA provides that a lender or its servicer must notify a borrower if it determines that the flood insurance coverage on the improved real estate or mobile home serving as collateral for the borrower’s loan has expired or is less than the amount required for that particular property (42 USC 4012a(e)). The notice must inform the borrower of the need to purchase flood insurance. If the borrower fails to purchase flood insurance within 45 days after notification, the lender or servicer must purchase flood insurance on behalf of the borrower and may charge the borrower for the cost of premiums and fees incurred by the lender or servicer. The Act amends the FDPA to:

• Provide that the premiums and fees that a lender or servicer may charge the borrower include premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide sufficient coverage amount;

• Require the lender or servicer, within 30 days of receiving a confirmation of a borrower’s existing flood insurance coverage, to terminate any force-placed insurance and refund to the borrower all force-placed insurance premiums and any related fees paid for by the borrower during any period of overlap between the borrower’s policy and the force-placed policy; and

• Require a lender or servicer to accept as confirmation of a borrower’s existing flood insurance policy a declarations page that includes the existing flood insurance policy number and the identity and contact information for the insurance company or agent.”

 Note in particular the first bullet above, which points out that the FDPA has been amended to specifically provide that a lender can charge the borrower for premiums and fees incurred for coverage beginning on the date flood insurance coverage lapsed.

The ability to charge a borrower for insurance coverage within the 45 day notification period has been the topic of discussion for years and was the subject of multiple versions (available here and here) of proposed Interagency flood insurance Q&A #62.  The amendment to the FDPA clarifies that it is permissible to charge for policy coverage that begins on the date that flood insurance lapsed, which would include charges incurred for coverage within the 45 day notice period.  Accordingly, the Agencies have indicated that Q&A #62 is no longer necessary and will not be finalized.

Interagency Statement on Flood Insurance; NAFCU's April Compliance Monitor; Go Blue!

Written by Steve Van Beek

On Friday afternoon, the Office of Comptroller Currency posted an Interagency Statement on the impact of the Biggert-Waters Act. NCUA is a part of the interagency group and I expect that they'll issue an announcement early this week. According to the statement, "this guidance discusses the effective dates of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Act), enacted July 6, 2012, and the impact of the Act on the Agencies’ proposed Interagency Questions and Answers."

Specifically, the Interagency Statement discusses:

• Force Placement
• Civil Money Penalties
• Private Flood Insurance
• Escrow of Flood Insurance Premiums
• Interagency Q&As

The full Interagency Statement is here.

***

April Compliance Monitor. The April 2013 NAFCU Compliance Monitor is now available for download (NAFCU members only). The April issue includes a detailed article on new Mortgage Loan Originator Requirements as well as an article outlining the New Homeownership Counseling Disclosure Requirement. If you've missed any Compliance Monitors in 2013, head to this link where you can find the 2013 issues as well as direct links to the main articles.

Additionally, the April 2013 edition of NAFCU's Compliance Calendar & Pending Regulations Chart is also available.

***

Final Four Bound. In case you missed Michigan's domination of Florida yesterday, I've conveniently included a link to the highlights here. And, who can forget Friday's outstanding comeback against Kansas. If you were wondering my reaction to Trey Burke's three-pointer late in regulation, this video pretty much sums it up (if you need a refresher on the 1998 World Cup and Dennis Bergkamp, I've got you covered).

Go Blue!

Updated Forms – Standard Flood Hazard Determination; SCRA Notice Disclosure

Written by Bernadette Clair, Regulatory Compliance Counsel

In honor of Friday, we’ll take a break from the CFPB and keep it light today.  These are a couple of forms that have recently been updated and that you’ll want to make sure don’t slip under the radar.

Standard Flood Hazard Determination (SFHD) Form.  FEMA recently updated the SFHD Form used for determining whether flood insurance is required and available in connection with making, increasing, extending, renewing or purchasing a loan.  The form number has been changed from FEMA Form 81-93 to FEMA Form 086-0-32 and the expiration date of the new form is May 30, 2015.

FEMA indicates that it will be allowing users a three year transition period, ending on the expiration date (May 30, 2015), to update their systems before use of the revised form is mandatory.  Credit unions can continue using the previous form until the end of the transition period, and can begin using the new form as soon as their systems are updated.  The new form is available here.

Servicemembers Civil Relief Act (SCRA) Notice Disclosure.  HUD has issued an updated Form HUD-92070 with an expiration date of November 30, 2014.  (The previous form expired July 31, 2012).  Since 2006, mortgage lenders have been required to send delinquent homeowners this notice informing them of the rights available under the SCRA.  Credit unions should begin using the updated notice if they have not already done so.

Have a great weekend, everyone!

National Flood Insurance Program Extension Comes with Additional Requirements; NAFCU Regulatory Alerts

Written by Bernadette Clair, Regulatory Compliance Counsel

In our July 11th blog, we mentioned that President Obama signed a long-term reauthorization of the National Flood Insurance Program (NFIP), extending the program through September 30, 2017.  In addition to the five-year extension, the Biggert-Waters Flood Insurance Reform Act of 2012 (Act), which can be found here starting on page 521, contains additional provisions impacting credit unions.

Here are a few highlights that caught my eye:

• Increased Penalties.  The Act increases civil money penalties that can be assessed against lenders for failure to comply with flood insurance requirements.  The Act sets forth a penalty of $2,000 per violation and removes the penalty cap.
• Mandatory Escrow.  The Act contains a provision requiring lenders to escrow flood insurance payments.  The requirement applies to “any mortgage outstanding or entered into on or after the expiration of the 2-year period beginning on the date of enactment of this Act.” (Section 100209(b)).  There is a limited exemption for institutions with assets of less than $1,000,000,000 that meet certain additional criteria.
• Disclosures.  Notification will be required under RESPA that flood insurance is available under the NFIP or from a private insurance company, whether or not the real estate is located in an area having special flood hazards.
• Force-Placed Insurance.  The Act requires lenders to release a force-placed policy within 30 days of receipt of confirmation of a borrower’s flood insurance coverage and refund premiums for the period during which the force-placed policy and the borrower’s policy were both in effect.
• Premium Subsidies.   Provision of the Act also phase out certain federal premium subsidies, and prohibits subsidies for any property not previously insured by the NFIP or with a lapsed flood insurance policy.  These changes could impact member’s flood insurance premiums for second home loans, refinances, as well as other loans.

FEMA has indicated that guidance on the NFIP implementation will be provided in future bulletins.

****

Regulatory Alerts.  NAFCU’s Regulatory Affairs Team has issued two Regulatory Alerts seeking input from NAFCU members on the CFPB’s proposed TILA/RESPA rule.  The first alert, 12-EA-19, covers the proposed definition of finance charge.  The additional proposed changes are covered by the second alert, 12-EA-20.

House Passes ATM Disclosure Fix; Flood Insurance Extended for 5 Years; HMDA

Written by Steve Van Beek

ATM Disclosure Bill.  On Monday, the House voted 371 to 0 to pass H.R. 4367 which would remove the "on the machine" fee disclosure requirement from the Electronic Funds Transfer Act (and 12 CFR 1005.16 of Regulation E).  Up next, NAFCU will continue to push the Senate to pass a similar bill.    

***

Flood Insurance.  On Friday, President Obama signed a long-term reauthorization of the National Flood Insurance Program.  The five-year extension pushes the program through September 30, 2017.  This long-term extension will provide some sense of certainty in the mortgage market in the upcoming years.  Even as most other parts of the mortgage process will be changed by Dodd-Frank, at least credit unions will not need to worry about continual lapses of the flood insurance program.  

***

The CFPB's republishing of the consumer regulations has caused a couple of technical issues.  Hopefully, these will be fixed by the CFPB in the future - but I wanted to point one out as an important resource has been accidently hidden during the republishing.  

HMDA Commentary.  The official staff commentary of Regulation C provides extensive information and discussion on the underlying HMDA reporting requirements.  Unfortunately, during the republishing the official staff commentary - Supplement I - was pushed under Appendix B in the Electronic Code of Federal Regulations.  Until this is fixed, you'll need to go to Regulation C in the e-CFR and then scroll through Appendix B in order to find the official staff commentary to Regulation C (Supplement I).    

Flood Insurance; Reverse Mortgages; NCUA Letter 12-CU-07; Hearing on Mobile Payments

Written By JiJi Bahhur, Regulatory Compliance Counsel

Flood Insurance.  On Friday, Congress approved an omnibus agreement that, among other things, provides a five-year reauthorization for the National Flood Insurance Program (NFIP).  The law includes a NAFCU-backed clarification on lenders’ force-placement of flood insurance when coverage lapses.  President Obama is expected to sign this into law soon as this issue goes to press.  For the latest, check out NAFCU Today. 

***

The CFPB’s Reverse Mortgages Report.  Last Thursday, the Consumer Financial Protection Bureau (CFPB) sent a very lengthy report to Congress addressing reverse mortgages.  While compiling the information for the report, the CFPB found that reverse mortgages are complex and difficult for consumers to understand, and increasingly, have resulted in unintended use. 

Since Dodd-Frank gives the CFPB the authority to implement rules on reverse mortgage transactions, the CFPB is seeking information so that it can consider future rulemakings on the topic.  From the report to Congress, the CFPB found four areas where additional research would help determine if additional consumer education or regulatory action is needed.  Those four areas include:

• Factors that influence reverse mortgage consumers’ decision-making;
• Consumers’ use of reverse mortgage loan proceeds;
• Longer-term consumer outcomes of a decision to obtain a reverse mortgage; and
• Differences in market dynamics and business practices among broker, correspondent, and retail channels. 

Although there are not many credit unions that offer reverse mortgages, this is something to keep an eye on.  The request for information is published in the Federal Register with a 60-day comment period.  Also, the CFPB published a four-page consumer guide to reverse mortgages. 

***

NCUA Letter 12-CU-07.  Last Thursday, the National Credit Union Administration (NCUA) released a letter to credit unions addressing interagency guidance designed to protect military homeowners changing duty stations.  The NCUA Letter to Credit Unions on Mortgage Servicing Practices Impacting Military Homeowners (Letter No: 12-CU-07) details the steps that credit unions servicing mortgage loans to military families should take to implement the Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders, which we blogged on last week.  The guidance addresses unfair, deceptive, or abusive practices in relation to homeowners serving in the military and who have received Permanent Change of Station (PCS) orders.

***

Hearing on Financial Services and Consumer Credit.  Last Friday, FinCEN’s Director, James H. Freis, and CFPB’s Assistant Director of Card and Payment Markets, Marla Blow, testified before the Financial Services Subcommittee, on mobile payments.  The gist of the testimony was that existing regulations would need to be examined to determine if there are barriers that need to be addressed, and if so, how to update the regulations to address potential concerns. 

To view the testimonies of James H. Freis and Marla Blow, go here and here. 

Qualified Mortgages; Flood; Compliance Monitor; Fair Lending Webinars

Written by Steve Van Beek

Below are just a few quick items for your Friday - have a great weekend!

Qualified Mortgages.  The Consumer Financial Protection Bureau has reopened the comment period for their Qualified Mortgage rule (also known as the Ability-to-Repay rule).  The new comment period ends on July 9, 2012.  It had been expected that the CFPB would finalize this rule in early 2012 but it kept getting pushed back - with good reason as this rule has the potential to significantly alter the mortgage market - and now looks like it will be late 2012 before a final rule.  Dodd-Frank requires the rule in place by January 2013.  The CFPB's notice regarding the extended comment period is here. 

***

Flood.  A 2-month extension was passed and then signed by President Obama.  This extends the National Flood Insurance Program (NFIP) through July.

***

NAFCU's Compliance Monitor.  Our June 2012 issue of NAFCU's Compliance Monitor is now available for download by NAFCU members.  This month the articles focus on Reporting Interest Payments to Nonresident Aliens as well as the increased Focus on Fair Lending.

***

Fair Lending Webinars.  The Federal Reserve's Consumer Outlook Live series is hosting a June 21st webinar on 2010 Census Data - What it Means for CRA, HMDA and Fair Lending Compliance.  The webinar is free and follows on the heels of their November 2, 2011 - Fair Lending Issues and Hot Topics webinar (archived version available).   

The Federal Credit Union (TFCU) Magazine; Flood; NCUA Regulatory Review

Written by Steve Van Beek

A couple of weeks back, we highlighted the Compliance Central articles in past The Federal Credit Union magazine editions.  Well, NAFCU has recently updated and enhanced The Federal Credit Union and released a reader-friendly digital version.

To view the May/June issue of The Federal Credit Union go here and click on the image.  The digital version is interactive allowing you to click on a particular article and be taken directly to that page.  This month's issue includes articles on:

• The 55+ Advantage - How credit unions are leverageing opportunities with older Americans.
• In the Year 2022 - Are credit unions prepard for the mobile future?

This is in addition to the usual Compliance Central articles and views from NAFCU's President/CEO Fred Becker and NAFCU's Chair.  Again, the digital version is available here.  

***

Flood.  The House seems on track to pass a flood insurance extension - providing an additional 60-days of coverage.  Something tells me we'll have similar stories and discussions in a few months on flood.  Additional information is available in the NAFCU Today.

***

NCUA's Regulatory Review.  NAFCU has released its Regulatory Alert (12-EA-12) on NCUA's Annual Regulatory Review of its regulations.  Take a minute to analyze the regulations under review and send along your comments.  Now is the time to voice your comments and frustrations with the existing regulations.  And, by sending your comments to NAFCU - you can get your message to NCUA anonymously.  

More on Prepaids; NCUA Grants Available; NCUA on YouTube; Flood Insurance Update

Written by Steve Van Beek

Below are just a couple short items to help you ease into the upcoming long weekend.

CFPB ANPR on Prepaids.  The CFPB's ANPR was published today in the Federal Register.  Comments are due by July 23, 2012.  NAFCU members - our Regulatory Affairs team will have a Regulatory Alert out in the near future.

For more on prepaids, the CFPB's press release is here and Director Cordray's speech is here.  

***

NCUA Grants and Loans.  Credit unions with a low-income designation might want to take a look at NCUA grants and loans through their Community Development Revolving Loan Fund (CDRLF).  NCUA has a YouTube video with additional details on the program.  

Importantly, NCUA has prioritized its 2012 grants for the following:

• Financial literacy and education in school branches;
• New product and service development;
• Staff, official, and board member training;
• Student and job creation internships; and
• Volunteer Income Tax Assistance. (emphasis added).

Additional information on the process can be found in Letter to Credit Unions 12-CU-04 and the Enclosure (which includes the grant guidelines).  

***

NCUA's May Economic Update.  NCUA has a new Youtube video with their May 2012 Economic Update.  

***

Flood Insurance.  The NAFCU Today has the latest on a possible Flood Insurance extension.  If you are interested in having the NAFCU Today emailed to you each day, you can sign up here.  The NAFCU Today is open to everyone who is interested.   

BSA Due Diligence ANPR; FFIEC IT Handbook; Flood Insurance Expiring Soon

Written by Steve Van Beek

FinCEN has extended the comment period for their Advanced Notice of Proposed Rulemaking (ANPR).  The comment period was scheduled to end on May 4th but FinCEN will accept comments for an additional 30 days.

NAFCU's comment letter has already been submitted and can be found here.  I particularly enjoyed this section which discusses FinCEN's weak cost-benefit analysis.   

"Further, NAFCU believes that this rulemaking is representative of exactly the type of regulation that President Obama sought to address in two executive orders, both issued in 2011, establishing a reasonable, but firm, standards that both executive and independent agencies should meet before issuing regulations.  Executive Orders 13563 and 13579 specifically direct executive and independent agencies to conduct careful analysis of the likely consequences of regulation, including the cost and benefits.  The ANPR places far too much weight on the benefits of having a standard regime across regulated institutions, and offers very little discussion, let alone much weight, to the cost that many institutions would bear.    

The Executive Orders also direct agencies to ensure regulations promote economic growth, innovation, competitiveness and job creation.  The ANPR would achieve none of these goals.  In fact, these goals would be undermined as the proposal would force credit unions to devote more financial and human capital to regulatory compliance rather than to lending and other products and services."

If you missed it earlier, be sure to check out this NAFCU Compliance Blog post which roundups up recent BSA changes and future changes.  

***

IT Exam Handbook.  The FFIEC announced recent updates to their IT Examination Handbook.  They have also added a "What's New" page that will track changes in between formal updates.  This page also includes a Change Log that might be useful.

***

Flood Insurance.  The latest temporary Band-Aids for the National Flood Insurance Program (NFIP) are set to come off May 31st.  Congress needs to act soon to prevent a lapse in flood insurance coverage.  NAFCU has been pushing for a long-term extension as well as urging Congress to act prior to lapse.  For more, see this Joint Letter sent to the Senate yesterday.  

In June 2010, NCUA issued Letter to Credit Unions 10-CU-08 which addresses issues related to flood insurance lapses.  This Letter and the Enclosure might be good ones to keep handy as May rolls along.  

Updated Agency Contact Information - Credit Card Disclosures & FEMA Notices

Written by Bernadette Clair, Regulatory Compliance Counsel

Today, we'll continue with the updated Agency information that we started yesterday.   

Credit Card Applications and Solicitations; Account Opening Disclosures.  Last but not least, credit unions need to update references to the Federal Reserve’s website on credit card applications and solicitations provided under12 CFR 1026.60 and credit card account opening disclosures provided under 12 CFR 1026.6(b)(2)(xiv) to refer to the CFPB and the CFPB’s website.

• For a visual example of the change, here is the CFPB's G-10(B) Model Form from Appendix G of Section 1026.  See the section "For Credit Card Tips from the Consumer Financial Protection Bureau."

For more detailed discussion on this particular change, see our January 10, 2012 blog post.

When must credit unions make these changes?  January 1, 2013 is the deadline for all of these updates.  If you haven’t already updated your forms, it’s never too early to start since even the smallest changes can take time. Plus, it always feels good to check something off the list!

****

Updated Address for Obtaining the Standard Flood Hazard Determination Form

Since we’re on the subject of address changes, NCUA’s recent technical amendments rule changed the address credit unions can use to obtain a copy of FEMA’s Special Flood Hazard Determination Form.  The address, found in 12 CFR 760.6(a) has been changed from FEMA’s mailing address to FEMA’s website, http://www.fema.gov/.  

Hat tip to Joyce for pointing this one out!

This rule also contains a couple of other technical changes – we blogged about one of these – the changes to the Equal Housing Lending Poster – back on March 22^nd.

NCUA Webinar with Richard Cordray; Consumer Compliance Outlook; NAFCU Compliance Monitor

Written by Steve Van Beek

NCUA Town Hall Webinar.  Yesterday, NCUA announced it would host a February 8th town hall webinar that will include Richard Cordray, Director of the CFPB.  The webinar is free, but you do need to sign-up.    

Consumer Compliance Outlook.  The 4th Quarter issue of Consumer Compliance Outlook has been released by the Philadelphia Federal Reserve.  This issue includes the two articles below that might be useful:

• Flood Insurance Compliance Requirements
• Servicemembers Civil Relief Act - Compliance Update 

January Compliance Monitor.  The January 2012 Compliance Monitor is now available for NAFCU members.  This month's issue features Tips for Conducting a SAFE Act Audit and an Overview of the CFPB's Streamlining Initiative.

NAFCU Members: If you'd like to receive an email each month when the Compliance Monitor is available, simply email us at [email protected] and we'll get you added to the email subscription list.   

Fair Lending Webinar; Flood FAQs

Written by Steve Van Beek

It was one of those weekends - Michigan, the Tigers and the Lions lose.    

***

The Philadelphia Federal Reserve's Consumer Compliance Outlook Live will host a November 2, 2011 webinar on Fair Lending and Hot Topics.  The webinar will include a discussion by the Non-Discrimination Working Group of the Financial Fraud Enforcement Task Force.  From the invitation:

"The Financial Fraud Enforcement Task Force was created by President Obama in November 2009 and is the largest coalition whose purpose is to confront financial fraud relating to the financial crisis. The Task Force has a five-part mission, one of which is to address discrimination in the lending and financial markets.

The Non-Discrimination Working Group focuses on financial fraud and unfair practices directed at people or neighborhoods based on race, color, religion, national origin, sex, age, disability, or any other basis prohibited by law. The Working Group is chaired by representatives of the Department of Justice, the Department of Housing and Urban Development, the Federal Reserve Board, and the Attorney General of Illinois on behalf of the State Attorneys General."

***

On Friday, the Agencies (including NCUA) issued guidance that updates Interagency Q&As for Flood Insurance.  The guidance finalized two Q&As and requested comment on three additional Q&As.  

The full notice can be found here.

OCC ODP Proposed Guidance; CFPB; NFIP

Written by Sarah Loats Zimmermann

OCC ODP proposed guidance. Another federal agency is jumping on the ODP guidance bandwagon. The OCC issued proposed supervisory guidance last week. This guidance, if finalized, would not apply to credit unions, but for those of you following the ODP guidance issue, it's one more sign of the times.  Reviewing the OCC's proposed guidance, it doesn't appear to have specific guidelines. For example, in relation to consumer usage of ODP, the OCC proposed guidance suggests that banks should establish prudent limitations and monitor accounts for excessive usage; however, it does not indicate a specific limitation (the FDIC's guidance states that if a consumer overdraws an account 6 times where a fee is charged in a 12-month period, the bank should contact the consumer to discuss less costly alternatives). It does however list several ODP practices it is concerned with, including excessive reliance on ODP fee income, lack of responsible limits on customer costs and usage, and failure to monitor promotional practices for potentially misleading statements. Again, this guidance wouldn't apply to credit unions, but you may want to keep it in the back of your minds when discussing your own ODP programs.

CFPB. Elizabeth Vale is the Assistant Director for Community Banks and Credit Unions at the CFPB (so, an important person for us). Yesterday, she blogged about the outreach the CFPB has made to community banks and credit unions regarding the inital proposed TILA/RESPA combined forms.

Flood. Last week, the Senate Banking Committee held a hearing on the reauthorization of the NFIP program. As you may know, the program is set to expire on September 30 this year, so Congress will need to reauthorize the NFIP before then in order to avoid another lapse. 

NCUA's Office of Consumer Protection; Compliance GPS

Written by Steve Van Beek

I have focused quite a bit recently on the role and authority of the CFPB.  While the CFPB will have rulewriting authority that will impact all credit unions, NCUA will remain the primary examiner for federal credit unions with less than $10 billion in assets.

The new CFPB has been generating tremendous amounts of press coverage.  I have a feeling this will only intensify when the CFPB starts writing and enforcing regulations.  Financial journalists and consumer groups will write articles detailing the practices the CFPB is focusing on.  This will spark an uptick in consumer and member complaints.  For example, if the CFPB hints that a practice might be "unfair or deceptive," any institution involved in that practice will face reputation risk and will need to examine its practices.    

One thing to keep in mind is that NCUA will handle member complaints for credit unions under $10 billion in assets.  Any complaints the CFPB receives for credit unions below this threshold will be passed on to NCUA.  Those complaints will be handled by NCUA's Office of Consumer Protection - an office recently created by NCUA to focus on consumer compliance issues.

Unfortunately, we do not have a good idea of how NCUA's Office of Consumer Protection will handle these complaints and the processes it will use to communicate issues with credit unions.  On Monday, NAFCU sent a comment letter to NCUA seeking transparency regarding the new office and asking NCUA to, at a minimum, release a Letter to Credit Unions outlining the Office's functions and expected policies and processes in order for credit unions to be prepared.

***

Shameless Plug:  NAFCU has a new Credit Union Compliance GPS manual available.  The manual is electronic and includes numerous links to legal opinion letters, guidance documents, and the regulations themselves.  

You can take a peek at the table of contents as well.  We have chapters on the E-SIGN Act, Share Insurance, How to Conduct Research and many more.  The manual is available for purchase by anyone seeking to know more about compliance issues facing credit unions.  

Have a great weekend!      

Material Loss Review; CFPB and Mortgage Forms; Help from Others

Posted by Anthony Demangone

Happy Wednesday, folks. 

Material Loss review. Recently, NCUA's Office of Inspector General released a material loss review for Members United Corporate Federal Credit Union.  The report noted that a general lack of proper oversight on the part of the credit unions management team and board greatly contributed to the credit union's conservatorship by NCUA.  If you deal with board issues, this is a must read.  It underscores the importance of good corporate governance and risk management. 

CFPB and Mortgage Forms.  Elizabeth Warren has stated again and again that one of the CFPB's first priorities will be to reconfigure mortgage-related disclosures. Well, she wasn't kidding.   That link takes you to the CFPB website that discusses that particular "project." 

Help from others.  

• The FEMA Flood Insurance Manual has been updated, effective May 1.  
• The OCC has issued a bulletin regarding  updated SCRA exam procedures, and another regarding Protecting Tenants at Foreclosure Act of 2009 exam procedures. 
• The OTS issued this bulletin, which updates their Reg Z procedures. 

Bliss. And yesterday marked my third anniversary with my lovely wife, Mandy. Here's my favorite picture from that day:

 

Put on Your Thinking Hat and Sharpen Your Pencils; You Can't Spell Baseball without BSA; It Is Easy, Being Green

Posted by Anthony Demangone

NCUA reviews a third of its regulations every three years.  It maintains a "rolling list" of the rules that it will review in a given year.  Here is their list for 2011.   From a compliance point of view, here's what stood out:

• 748 Security Program, Report of Suspected Crimes, Suspicious Transactions, Catastrophic Acts, and Bank Secrecy Act Compliance
• 749 Records Preservation Program and Appendices-Record Retention Guidelines; Catastrophic Act Preparedness Guidelines
• 760 Loans in Areas Having Special Flood Hazards

NCUA is asking for comments on these (and other) regulations by August 5, 2011.  Now's your chance.  So, ask yourself this question.  Is there anything that I'd like to see clarified in these rules?  Removed?  Added? 

Say It Ain't So, Livo.  If you've read this blog long enough, you'll know that I'm a big fan of the Washington Nationals.  Well, the fact that one of our best pitchers is the target of a money laundering investigation clearly caught my attention. (NatsInsider.com.)

NCUA is going green.  As part of its "Earth Day" efforts, NCUA reminded credit unions that its NCUA Express service is a nice and free way to get useful NCUA-related information and protect some trees. If you are a credit union employee and you have compliance or audit-related responsibilities, this is a no-brainer.  Sign up if you have not done so already.  If you are a consultant, though, you can't sign up.  I wish NCUA would allow any interested third party to sign up for this useful service.  The FDIC does.  So does the OCC.  And Treasury.  And FinCEN.  And the Department of Justice. And the CFPB. So please, NCUA - please let us sign up. If for no other reason, NCUA, do it for the trees.  Oh, and the children.  Do it for the trees and the children. 

NFIP Extended; Fire up the iPod.

Posted by Anthony Demangone

I thought I would start off the week with some good news.  President Obama has signed legislation into law that extends the National Flood Insurance Program for one year. 

Also, the 52nd episode of Current Issues in Credit Unions is now available. 

That's all I can muster today after this weekend of football.  A tip of the cap to the Hawkeyes and Ravens.  

This and That...

Posted by Anthony Demangone

Here are a few items of interest on this first Friday of the Fall.

Flood Insurance.  The House passed an extension of the NFIP through September 30, 2011.  It is now on to President Obama for his signature.   The temporary extension doesn't reform the system.  But lawmakers say they plan to attempt reforms next year.  (Reuters.)

 Mortgage advertising  The FTC announced a notice of proposed rulemaking  concerning mortgage advertising.  The proposal would apply to state-chartered credit unions, but not federally-chartered credit unions.  But Los Federales may not be completely out of the woods.  If your credit union works with a CUSO, that CUSO should be aware of the proposal.  Interested parties must comment by November 15th.  

Changing times.  Yesterday, Blockbuster filed for Chapter 11 bankruptcy.   (The Street.)  I think the news strikes close to home on a day when NCUA will release its corporate credit union overhaul, and as we look down the double barrels of the CFPB.  Time marches on, and change is the only constant.  Blockbuster had a stranglehold on the U.S. no more than ten years ago.  Since that time, the way we watch movies has changed on a revolutionary scale.  Netflix, Redbox, and "on demand" systems dominate today.  Something else may dominate in 2020.  For credit union compliance officers, the industry that we serve will also change.  Drastically.  The way we serve members will change, and we, as compliance officers, must be ready to handle the inevitable regulatory changes that will come with it.

Flood; Ms. Warren

Posted by Anthony Demangone

Flood.  The Senate has passed legislation (WSJ.com)  that would extend the National Flood Insurance Plan through September 30, 2011.  The bill now sits before the House for its consideration.

Ms. Warren.  She spoke before NAFCU's Congressional Caucus before meeting with our Board of Directors.  Ms. Warren's comments were general and very friendly to the audience.   While she admitted that her goal was to create a level playing field between consumers and financial institutions, she also said her goal was to create an even playing field among different financial institutions as well.  Her implication was clear.  Bad actor-financial institutions will be targeted, and credit unions should be better off as a result.  Only time will tell.  Here are some other outlets that reported on her speech.  

• Bloomberg.com.
• NAFCU.
• CU Times.
• Reuters.

As I sat in the front row, I hastily took this photo with my trusty Blackberry.  For the entirety of her speech, I was sending her this mental message: Credit unions are the most-consumer friendly financial institution in America.  Focus on check cashers, car title businesses, and the like.  I'm sure our board gave some sort of similar message along those lines, only they did so vocally and without mental trickery. 

Flood Insurance and Modifications; CTRs: Fannie Mae

Posted by Anthony Demangone

Happy Tuesday, everyone.

Modifications.  The folks at Bankersonline.com give us a great reminder.  When doing a loan modification to a real estate loan, do not forget about flood insurance requirements. 

CTRs. Roughly 18 months ago, FinCEN loosened CTR exemption requirements.  Yesterday, FinCEN released a report that discusses the impact of those changes.  The following two paragraphs came from the executive summary of the report. Emphasis is added.

The positive effects of those changes are most clearly reflected in the number and type of DOEP filings. Overall, FinCEN found that DOEP filings fell 44 percent to the lowest levels ever. Since the rule made DOEP filings unnecessary when the subject is a bank, government agency, or governmental authority, those filings dropped nearly 75 percent in 2009. Those filings should eventually fall to zero, and measuring them is a good indication of the rule’s effectiveness...

The adoption of the amended CTR exemption rules also appears to have helped reduce the overall volume of CTR filings. While economic conditions may account for some of this decrease, FinCEN found that the total number of CTRs filed in 2009 declined nearly 12 percent compared with the previous year, dropping from 15.5 million to 13.7 million. This trend is particularly important as CTRs account for almost 90 percent of financial institutions’ annual BSA filings. This decrease was seen among the smallest (13.6 percent year-over-year reduction) and the largest
institutions (20.3 percent reduction). As a result, it appears likely that fewer CTR filings are being made on transactions of limited or no use to law enforcement, while the higher value CTRs that remain are becoming easier to identify. 

Fannie Mae.  Fannie Mae recently announced changes to its servicing guide. If you are a Fannie Mae servicer, I'd give it a close read.

In the News

Posted by Sarah Loats

Welcome back from the holiday weekend. I hope everyone had a chance to unwind and recover from the July 1 deadline craziness. Here are just a few news-worthy notes to start the week.

• Congress cleared the way for a flood insurance extension through September 30. The measure awaits the president's signature.
• NCUA filed a notice of claim on U.S. Central to protect its right to seek recovery under the liability policy.
• NAFCU members, our July Compliance Monitor is now available.
• Last week, NCUA held a "town hall" webinar where it discussed, among other things, corporate credit unoins and legacy assets. In case you missed it the first time, you can now access the archived version.
• NCUA has issued Letter to Credit Unions 10-CU-11, which provides guidance on the merger and purchase and assumption process.

This and That...

Posted by Anthony Demangone

Happy "Hump Day," everyone.  Here's a few tid-bits for your consumption.

NFIP.  There has been a good deal of guidance related to the lapse of the National Flood Insurance Program.  NCUA decided to join in the fun, issuing Letter to Credit Union 10-CU-08 to highlight FEMA guidance that addresses "lapse" related issues. 

Compensation.  Recently, the Fed, OCC, OTS, and FDIC issued guidance on "incentive compensation." The goal was to ensure that incentive compensation arrangements at financial organizations take into account risk and are consistent with safe and sound practices. NCUA did not sign on to the guidance, but it still might be useful to review if your credit union is reviewing its compensation policies and practices. 

Member assessment fee?  A member asked us if his credit union could assess a fee to the credit union's membership to pass on the cost of the 13.4 basis points corporate assessment.  The credit union didn't want to create a "account maintenance fee."  Rather, as mentioned above, they wanted to simply pass the costs along directly to the membership.  I'm not sure that is possible.  In 1993, NCUA was asked whether a federal credit union could directly pass along their league dues to the membership.  NCUA said no.   The letter is not long, so here it is in its entirety.

You requested an opinion concerning whether an FCU may pass along its League dues to its membership in the form of an annual assessment. This practice is impermissible.

ANALYSIS

Section 109 of the FCU Act permits FCUs to charge "a uniform entrance fee if required by the board of directors" when becoming a member of the FCU. 12 U.S.C. ~1759. No other membership fees are permitted by the FCU Act. Under the ancient legal maxim "expressio unius est exclusio alterius," where something is designated in a statute, all omissions should be interpreted as exclusions. See Sutherland Stat. Const. ~47.23 (5th ed., 1992). Therefore, no annual membership fees of FCU members may be assessed except for the initial entrance fee. This is a long-standing policy of the NCUA. See Letter from John L. Ostby, NCUA General Counsel, to Michael Marion, Assistant Counsel, Michigan Credit Union League, dated June 8, 1981.

Credit unions would be able to increase fee income in other ways to compensate for the assessment, but a direct fee to the membership does not appear possible based on this legal opinion letter.

This and That...

Posted by Anthony Demangone

Here are a few things to kick off your week.

Death of free checking? I don't like to say I told you so, but this was pretty easy to see coming.  A Wall Street Journal article points to the possible death of "free checking."  With all the constraints placed on our shoulders in the last year or so, is this truly a surprise to anyone?

Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.

Free checking accounts, which have been widely available for more than a decade, have been a boon to middle-class consumers and attracted low-income customers to the banking system for the first time.

Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don't generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts.

Flood.  Two things remain the same.  We're still in a NFIP lapse.  And the civil money penalties for bank flood violations keep rolling in.  (Link to Bankersonline.com.)

Mortgage fraud.  In the past, you may recall FinCEN hammering away on the issue of mortgage fraud.  I think they were on to something.  Recently, the DOJ announced an indictment involving a $1.9 billion mortgage fraud scheme.  More than 1,200 individuals have been arrested on similar charges in the last few months.  While the horse may be out of the barn, here's a link to FinCEN's latest mortgage fraud update.

NCUA Virtual Town Hall Meeting.  NCUA is taking registrations for its "virtual" town hall meeting with NCUA Chairman Debbie Matz. 

Ponzi Schemes.  Here's an interesting blog post from BankInfoSecurity.com on Ponzi schemes, and how they might affect your credit union.  And if anyone wants a truly terrifying picture of a Ponzi scheme, just read this book.   It is a page-turner.

Fed Issues Final Reg Z Rules, NCUA Meeting Revision; Flood

Posted by Anthony Demangone

Yesterday, the Federal Reserve issued a final regulation to implement the last two provisions of the Credit CARD Act.  The two provisions address: 1) proportional and reasonable penalty fees on credit cards; and 2) Reviews of APR increases for credit card accounts.  The Fed provided this 45,000 foot overview:

Among other things, the final rule, which amends Regulation Z (Truth in Lending):  

• Prohibits credit card issuers from charging a penalty fee of more than $25 for paying late or otherwise violating the account's terms unless the consumer has engaged in repeated violations or the issuer can show that a higher fee represents a reasonable proportion of the costs its incurs as a result of violations.
• Prohibits credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer's violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.
• Bans "inactivity" fees, such as fees based on the consumer's failure to use the account to make new purchases.
• Prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
• Requires issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.

In addition, the Fed created this consumer brochure to help explain the changes to consumers.  This may be a great training tool for front line staff. 

NAFCU is preparing a Final Regulation to give you an overview of the final rule.  I'll alert you when that is available.  With that in mind, here are some ideas on how I'd tackle this issue:

• First, keep in mind that this rule only applies to credit cards.  The limitations on fees won't affect any other products.  The requirement to revisit APR increases only affects credit cards as well.
• Contact your third party vendors that help you with your credit card portfolio.  Make sure they are aware of the final rule, and ask them how they will help you comply with the changes.  For example, the "safe harbor" fee is $25.  But you can charge $35 if the member has been late on one of his or her last six payments.  In addition, late fees generally cannot be more than the underlying transaction.  So, if a member is late on a $15 minimum payment credit card payment, you won't be able to charge more than $15.  Will your data processing system be able to handle the variables?  And what about your disclosures?  
• Keep in mind that if you change your late fees for credit cards, that is something that takes board approval for FCUs per your bylaws.  Check out your bylaws to determine if that language is in there.
• Start looking at your credit card portfolio to determine which cards have had an APR increase since January 1, 2009.  That is the universe you'll be working within for the APR review portion of the final rule. 
• Consider signing up for the NAFCU webcast, where we'll detail this final rule.  It is scheduled for July 14.  (Bastille Day, no?) It will be delivered by Steve, Sarah, et moi.    

We'll dig through the final rule to highlight issues as the weeks march forward. 

***

This Thursday's NCUA Board meeting agenda has been changed. One item has been deleted from the open session ( Proposed Rule, Interest Rate Risk Policy) and one item has been added to the closed session (Consideration of Supervisory Activities). The revised agenda for this week’s meeting is available online here.

***

The NFIP lapses have been confusing for lenders, to say the least.  NAFCU sent this letter to the Hill on Monday evening. And we joined in sending  this letter yesterday.  Both letters urge Congress to reauthorize the NFIP as soon as possible. 

IRS Backup Withholding; BSA Civil Money Penalty; Fiduciary Duties; Seminar Snapshot

Posted by Anthony Demangone

Happy Friday, everyone!  Here's some info to help start the weekend.

Backup Witholding.  The IRS has issued Announcement 2010-41  regarding new procedures for backup withholding.  The announcement applies only when a credit union receives a second notice from the IRS that a member has provided an incorrect taxpayer identification number (TIN) or name.  Under IRS rules, when the second notice is received the credit union must obtain validation of the TIN from the Social Security Administration (SSA) or the IRS, but to do that, the member must authorize the SSA to send the now discontinued Form SSA-7028 to the credit union.  The announcement outlines how the credit union needs to notify the member on providing the credit union with validation of the SSN.

BSA Civil Money Penalty.  Yesterday, FinCEN announced a $1 million civil money penalty against Pamrapo Savings.

Pamrapo’s lack of internal controls combined with unqualified BSA compliance personnel, relatively non-existent training and deficient independent testing resulted in a wholly ineffective BSA compliance program which, in turn, resulted in the failure to file a substantial number of currency transaction and suspicious activity reports in an accurate and timely manner. Pamrapo Savings Bank, without admitting or denying the allegations, consented to payment of the civil money penalty.

So, yes, BSA is still an issue for regulators.  Did I mention that NAFCU will host a BSA-related webcast on July 14th?  (Shameless, shameless plug, I know.)

Fiduciary Duties.   NAFCU recently sent this comment letter to NCUA on the fiduciary duties proposal.  I like reading comment letters, because they can highlight issues that you may have missed when reading a proposal.   If you look at NCUA's proposal rules homepage, they have links where you can read the comments.

Speaking of fiduciary duties, many folks have been asking if NAFCU's online training program satisfies the proposal's requirements on board training.  Since I created the training program, I tend to get those questions. Here's my take:

1. First, the proposal is just a proposal. We won't know what the final rule requires until it is issued.
2. Assuming that the final rule will mirror the proposal (which is a huge assumption), there appears to be two major areas where directors may need training.  First, the proposal appears to require that, within 90 days of joining the board, directors need to have training on financial issues so that they can read a financial statement and raise appropriate questions.  Second, directors have to be able to ensure that the credit union runs its affairs within all applicable laws and regulations.  Both of these areas likely will need training.

Does our training meet these requirements?  That's a tough call, because I'm not the final judge.  We do have an ALM session that addresses some aspects of financial reports.  We do talk about how credit unions are regulated and examined.  And we address BSA.  But ultimately, you'll have to ensure that the training program you select meets your needs.  In other words, do your due diligence.  With that in mind, take a look of the outline of our training program for directors and officials.  And here is the training homepage, which includes a demo.

Flood.  The FDIC recently issued more than $16,000 in civil money penalties against two different banks for alleged flood insurance violations.  This really worries me, because banks get clobbered for flood insurance deficiencies all the time. Don't believe me?  Look at this page at BankersOnline to see the list of flood CMPs.  More than 25 banks have received civil money penalties this year. But for some reason, credit unions do not get these CMPs, even though the requirements are the same.  This keeps me up at night.  With that in mind, we'll have someone at this year's NAFCU Compliance Seminar to address flood insurance issues. Here's a description of the session.

Stemming the Tide of Flood Compliance Issues
This presentation will provide insight into credit unions’ compliance obligations under the federal flood regulations with a focus on changing requirements under recently revised regulatory guidance. You will learn about the regulators’ “Questions and Answers Regarding Flood Insurance”, challenges related to resolving flood determination discrepancies, and NFIP reform and how it impacts credit unions and their members.  Opportunities for asking questions will be provided to allow you to bring your compliance issues to the table. Presented by Scott Giberson, CFM, Compliance Manager, CoreLogic Flood Services.

OK, that's enough for today.  Enjoy your weekend, everyone!

This and That

Posted by Anthony Demangone

Here are some items of interest.

Economy.  NCUA indicates that the first quarter financials show few positive signs for credit unions.  Of note is the following quote from NCUA Chairman Debbie Matz:

“As long as serious economic issues persist, credit unions will be challenged. NCUA is taking administrative actions wherever necessary to uphold safety and soundness standards. We are working diligently to ensure that credit unions maintain strong balance sheets so that they can continue to serve members well through the economic recovery and beyond.” (Emphasis added.)

Reg Reform.  I've read a number of articles that estimate that perhaps more than 200 rulemakings will be needed to implement whatever regulatory reform becomes law.  Yes, perhaps more than 200.  And some of the rules must be written by an agency that has yet to be created.  Here's my view of the crystal ball: 2011 will see a slowdown in new rules from regulators.  There are a few remaining proposal and final rules of note, but after January 1, 2011, there likely will be a lull.  But when the new agency kicks into gear and regulators start writing regs to implement the reg reform law, be prepared to be busy.  I'm thinking late 2011/early 2012 will see the beginning of the avalanche.  Many of the rules will affect credit unions, but we'll have to read each one to know for sure.

Flood.  We're in a NFIP lapse again.  As noted before, regulators have issued guidance to help us understand how to proceed during a lapse.

TCCUSGP Extended.  NCUA extended the expiration date of NCUA’s Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP) from June 30, 2012, to September 30, 2012. With this extension, new investments with maturities of two years or less in participating corporate credit unions made before September 30, 2012, will be fully covered by the guarantee program. This is in addition to the existing deposits already covered.

Risk Management.  NCUA recently issued Letter to Credit Union 10-CU-06,which focuses on interest rate risk.  This is simply a regurgitation of guidance the regulators issued back in January of 2010.  With the importance of risk management, though, I thought I'd give it a shout out.  Also, on page 10 of the guidance is a list of NCUA guidance documents that touch upon interest risk management.  You might want to forward this guidance and that list of other guidance documents to your CFO.  If you are the CFO, feel free to send yourself an email.

This and That

Posted by Anthony Demangone

So many compliance issues, so little time!

Flood insurance.  The FDIC issued a nice Financial Institution Letter highlighting responsibilities of institutions during a lapse in the National Flood Insurance Plan. Sure, the FDIC does not regulate credit unions, but the guidance should be useful.  And speaking of flood insurance, Rep. Barney Frank has proposed legislation that would extend the NFIP through the end of September 2010. The NFIP will lapse at the end of this month unless Congress acts to extend the program. 

NCUA prohibition orders. NCUA recently issued three prohibition orders against individual who worked (notice the past tense) at federally insured credit unions. The prohibition orders can help trainers drive home the following two points:

1. There is a need for strong internal controls and audit functions, as there are people who will rip off credit unions from the inside if they think they can get away with it;
2. The prohibition orders can act as a deterrent, as they show that there are consequences.  The orders show that people are watching.  

Credit Card Act - Report.  The Credit CARD Act required the FTC to study the feasibility of ATM emergency systems that could help consumers alert authorities when a crime takes place at an ATM.  When I saw the requirement of the study, it caught my attention. If the report concluded that such systems would be the bee's knees, there could be a drive to upgrade ATMs throughout the country.  And that could be costly.  Well, here's the study.  The study indicates that there isn't much data on this issue.  But it concludes that such "alert systems" likely would not deter crime, the systems might increase the likelihood of injury to the consumer who used such a system, and that the implementation of such a system on ATMs would be cost-prohibitive.  Well, that's that. 

Odds and Ends

Posted by Anthony Demangone

Here's a mixed bag of items that were lurking in my email inbox.

• HUD recently issued a final rule that will increase net worth requirements for FHA lenders and will eliminate FHA approval requirements for loan correspondents. The discussion regarding the net worth changes begins on page 7.  
• The National Flood Insurance Program has been reauthorized...until the end of May.  
• Treasury (and others) has issued this proposal regarding what financial institutions must do when they receive a garnishment on an account that receives federal benefits. Here's a little overview:

The proposed rule would establish procedures that financial institutions must follow when a garnishment order is received for an account into which Federal benefit payments have been directly deposited. The proposed rule would require financial institutions that receive a garnishment order for an account to determine whether any Federal benefit payments were deposited to the account within 60 calendar days prior to receipt of the order and, if so, would require the financial institution to ensure that the account holder has access to an amount equal to the sum of such payments in the account or to the current balance of the account, whichever is lower. 

• The Fed has published this online publication for consumers so that they can understand the new protections for gift cards that will take effect August 22, 2010.  These publications will find their way into newspapers.  As a former journalist who dealt with deadlines, I know how tempting it can be to take such a brochure and turn it into a "financial column."  So, your members will get this information.  And that can lead to questions. 
• The OCC issued this bulletin on the upcoming Regulation E overdraft opt-in requirements. I know, the OCC is not NCUA, but Reg E affects banks and credit unions equally.  So this may be of use.
• More than 150 credit unions are signed up for NAFCU's Reg Z webcast, which will take place this Wednesday.

Federal Reserve Consumer Affairs Letters; San Antonio Reminder

Posted by Anthony Demangone

The Fed does a nice job with its Consumer Affairs Letters.  Consumer Affairs letters address significant policy and procedural matters related to the Federal's consumer compliance supervisory responsibilities. Even though they are not designed for us, they can be very useful.  Case in point:

• The Fed issued this CA letter to address the recent lapse of the National Flood Insurance Plan.  Attached, is a nice guidance document that answers many questions in relation to the Fed's flood insurance regulation.  NCUA has a very, very similar regulation, found in Part 760.  Here's a snippet from the guidance:

Does a lapse in FEMA flood insurance authority mean that loans secured by improved real property located in special flood hazard areas may not be made by lenders?

No, it does not. Lenders are not precluded during a lapse in flood insurance authority from making loans due to a lack of NFIP flood insurance. However, flood insurance is not available under the NFIP during a lapse. During a lapse, a lender may legally make a loan to a borrower secured by improved real property in a SFHA without requiring the borrower to obtain flood insurance coverage. This does not mean, however, that a lender is relieved of other obligations under federal flood insurance law nor does it mean that safety and soundness considerations can be disregarded. Both of these matters are dealt with in more detail below.

As always, read all of the guidance document.  There is a ton of useful information there.

• The Fed also issued this CA letter concerning the submission of consumer credit card agreements, now a requirement (with exceptions) thanks to the Credit CARD Act.
• Finally, there is this CA letter, which addresses interagency exam procedures regarding the FACT Act "Duties of Furnishers of information" requirements.  NCUA issued its own rules, in Part 717 of its rules and regulations.  Attached to the letter is a copy of the exam procedures.  The procedures give background information as well as the questions that examiners will be asking.  Good, good stuff.  

***

Reminder: I want to invite you to attend a free regulatory compliance overview that I’ll be providing during NAFCU’s upcoming Volunteers Conference in San Antonio, Texas.  The session will run from 2:00 p.m. to 4:00 p.m. on Thursday, May 20, 2010 at the Marriott San Antonio Rivercenter.  

I plan to cover a wide range of compliance topics (ramble) during these two hours.  I'm sure I'll hit on overdraft protection, Reg Z, the SAFE Act and more.  I'll probably mention Penn State football and force you to see a few pictures of my kids as well.  Attendees of this session will also obtain 1.75 credit hours for their NCCO designation.

After our compliance session, you are also invited to attend the opening cocktail party at the Volunteers Conference.  The cocktail party is from 4:00 p.m. to 5:00 p.m. at the  Marriott San Antonio Rivercenter and serves as a meet and greet opportunity for folks attending the conference.

There is no registration fee or cost for you to attend this compliance roundup, and it is open to NAFCU members and non-members.   

We do need you to RSVP ASAP so we can make arrangements for meeting space at the hotel.  So please contact NAFCU staffer Olivia Gonzaga, at [email protected] or 703-842-2205, to let us know how many from your credit union will be attending this special compliance roundup.

BSA CMP; Flood Lapse; NCUA OIG Report; NCUA Report

Posted by Anthony Demangone

Here are a few things that were kicking around my inbox.

• The OTS issued a $5 million civil money penalty against Pamrapo Savings Bank, SLA, (New Jersey) for alleged Bank Secrecy Act violations.  Is this a huge, international bank?  It doesn't seem so.  It has 87 employees, and just under $600 million in assets.  The OTS agreement linked above doesn't say much about what they allegedly did wrong.  Perhaps the biggest lesson here is that you don't have to be massive to get a massive fine when it comes to BSA.
• Congress has allowed the National Flood Insurance Program to lapse again. 

  FEMA issued this letter last month to warn us that Congress was close to letting the National Flood Insurance Program lapse. The letter includes a link to "guidelines" that FEMA created to address what happens in such "lapse" situations. 

• NCUA's Office of Inspector General issued a "material loss review" concerning the failure of High Desert Federal Credit Union.  The OIG office wanted to determine what led to the failure and to grade NCUA's supervision of the credit union.  The report found that NCUA examiners did not adequately evaluate the risk of the credit union real estate construction portfolio. In addition, NCUA failed to adequately ensure that the credit union addressed issues repeatedly highlighted on DORs.  Finally, the report found that NCUA failed to adequately monitor waivers given to the credit union.  The report covered additional ground, so please give it a read.  My gut tells me that NCUA will be more likely to play hardball with credit unions that fail to address NCUA concerns about member business loans in the future.  No one likes to be called out in a report. 
• The March NCUA Report has a nice little article on interest rate risk.   NCUA does not throw stuff into these newsletters for no reason.  If they write about interest rate risk, they believe that many credit unions need the information. Hint hint. 

Flood Insurance; "Free" Credit Reports; and Member Complaints

Editor's Note: The Fed just released a proposed rule for the remaining portions of the Credit CARD Act that have to be implemented.  The link takes you to an overview page, which also provides a link to the tiny 157-page proposal.  I'll have more on this tomorrow.

Posted by Anthony Demangone

Flood insurance.  The President has signed the Temporary Extension Act of 2010, which temporarily extends the National Flood Insurance Program through...March 28, 2010.

Free credit report commercials.  OK, I realize that this doesn't directly affect you.  But I hate these commercials, even if some of them have catchy songs and jingles.  Here's why: the commercials often mislead consumers.  The ads often imply that a company provides a free credit report, but the company may require the consumer to sign up and pay for some service to get it.  And along the way, the advertisement somehow neglects to mention that consumers already have access to a free copy of their credit report. Well, no more.  At least not after April 2.  The Federal Register has published a final rule issued by the FTC to clean up these advertisements a bit, as required by the Credit CARD Act.

To that end, the Commission amends the Free Annual File Disclosures Rule to require certain advertisements for ‘‘free credit reports’’ to include prominent disclosures designed to prevent consumers from confusing these ‘‘free’’ offers with the federally mandated free annual file disclosures available through the single centralized source. In addition, the final amended Rule requires nationwide consumer reporting agencies to delay advertisements for products and services through the centralized source until after consumers receive their free annual file disclosures, and prohibits other practices that may interfere with the free annual file disclosure process.

Amen, to that.  I really can't tell you how much I hate those commercials.  The thought that some consumer, my grandmother, for example, has to pay $29.95 a month to get a free credit report burns me.

Member complaints.  The most recent issue of The NCUA Report highlights how NCUA handles member complaints.  The issue also highlights recent Board actions and organizational changes within NCUA.  It is a good read.  Also, the portion regarding member complaints is a good item to share with your member service division.  Member complaints can find their way to NCUA, and understanding how NCUA handles those complaints may affect how you handle member "feedback."

This and That

Posted by Anthony Demangone

We'll get back to Regulation CC tomorrow.  Today, I'd like to share some items that have been getting dusty in my e-mail in-box.

• The Fed makes it official regarding the completion of the check processing restructuring.
• Have you seen the Ally Bank "pony" ad?  Cute and funny, right? Well, perhaps not for everyone. Read ICBA's take on this.  They were outraged that Ally implied that most banks are unethical and misleading.  Their letter is a strong reminder that other people see your advertisements.  Before you throw a competitor or a class of institutions under the bus in an advertisement, make sure you understand the risks.
• OFAC released its Annual Terrorist Assets Report.  It is a fairly interesting read, and it shows just how much has been blocked.  The charts/data could come in handy if you had to make an OFAC training presentation to staff.
• FEMA issued this letter last week to give folks a heads up that Congress was close to letting the National Flood Insurance Program lapse. (It has now officially lapsed, although action may be taken soon to fix the problem.) The letter includes a link to "guidelines" that FEMA created to address what happens in such "lapse" situations. 

• Rob Rutkowsi has put together a "best of issue" for the Current Issues in Credit Unions podcast.

Escrow for Flood Insurance; Dividends on Escrow Accounts?

Posted by Steve Van Beek

The new higher-priced mortgage requirements under HOEPA require the escrowing of taxes and mortgage insurance for loans secured by a first lien on a principal dwelling.  This blog post discusses this requirement.  Reminder: the deadline is April 1, 2010 (or October 1, 2010 for manufactured homes).  

So what does this have to do with flood insurance?  NCUA's regulations require credit unions that escrow for taxes and mortgage insurance to also escrow for flood insurance:

"§ 760.5 Escrow requirement.
If a credit union requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after November 1, 1996, the credit union shall also require the escrow of all premiums and fees for any flood insurance required under § 760.3. The credit union, or a servicer acting on behalf of the credit union, shall deposit the flood insurance premiums on behalf of the borrower in an escrow account. This escrow account will be subject to escrow requirements adopted pursuant to section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount that may be maintained in escrow accounts for certain types of loans and requires escrow account statements for those accounts, only if the loan is otherwise subject to RESPA. Following receipt of a notice from the Director of FEMA or other provider of flood insurance that premiums are due, the credit union, or a servicer acting on behalf of the credit union, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due."

Note that the section says "if a credit union requires the escrow."  Could you argue that it is not the credit union requiring escrow but, rather, HOEPA which requires the credit union to escrow?  I'm not so sure.  In practice, the credit union would require escrowing of taxes and mortgage insurance to comply with HOEPA and, therefore, would need to escrow for flood insurance as well.

Thanks to Katey from Chevron FCU for bringing this to our attention.  

***

The new HOEPA requirements will result in some credit unions escrowing for the first time which will bring some new challenges.  One of them is state law that attempts to require escrow accounts to pay interest (or dividends).  

Do federal credit unions have to pay dividends on escrow accounts?  NCUA says that these state laws are preempted as they attempt to regulate the setting of dividends (an explicit power granted to the FCU Board under the Federal Credit Union Act).  Here is another NCUA opinion from 1991 on a Wisconsin state law.

A Little of This; A Little of That

Posted by Anthony Demangone

I'm back from my diaper-related vacation.  Here are a few things that were rattling around in my in-box. 

• Flood.  A bank was hit with a $100,000 civil money penalty for flood-related violations.  In case you thought that was a typo, let me spell it out.  One.  Hundred.  Thousand.  Dollars.  Here's a link to the Order for Civil Money Penalty.  Read the first page of the order to see what this bank was doing.  Or not doing, as the case may be.   Note that the bank neither admits or denies that it did anything wrong.  But it will be writing a large check in any event.
• Scams.  The OTS has issued a foreclosure rescue scam brochure.  Access it here.  This is good information that you may want to "borrow" when creating newsletter material.  And the fact that it has been issued by OTS doesn't hurt.  I don't know if NCUA is planning on following suit.
• BSA. A credit union in Region I just let me in on an interesting tid-bit.  The credit union's BSA program noted that management would select the BSA Officer.  Once chosen, the credit union's BOD would approve the choice, and that was noted in the board meeting minutes.  Not good enough, said the examiner.  The examiner wanted the program to actually state the BSA officer(s) name.  Hmmm.  Why?  They wanted to know who the BSA Officer was when they looked at the policy/program.  Is that requirement expressly stated in any BSA regulation?  Not that I can find. 
• NCUA Board meeting.  NCUA has a pretty busy Board meeting today.  They make their board materials available on the morning of the meeting.  You usually can access those materials here.

Flood Insurance CMPs

Posted by Steve Van Beek

Sometimes it takes catastrophic events like the floods in North Dakota to get everyone focused on the need for flood insurance.  However, bank regulators have been consistent - rain or shine - in handing out flood insurance civil money penalties (CMPs).  Here is a link to a updated list of flood penalties including some recently handed out by the FDIC.  Currently, the penalty amount is $385 per violation, but there is some talk in Congress of increasing the penalty to $2,000 per violation and eliminating the annual cap on penalties (currently $130,000 for FCUs). 

***

Just a reminder that NCUA issued a Regulatory Alert earlier this year to inform credit unions of the new Standard Flood Hazard Determination Form from FEMA.     

A Little Of This; A Little Of That

Here are some things that were bouncing around in my inbox.  Enjoy:

• What regulation needs another amendment?  That's right, Regulation Z!! Last week, the Fed announced a proposal that would add disclosure and timing requirements for certain private education loans.  The proposal comes from a mandate found in the Higher Education Opportunity Act (HEOA).  (If I were a betting man, I'd predict that this acronym will not catch on.)  HEOA requires the Fed to issue final rules on this by August 14, 2009.  Access additional details here.
• The cram down bill that has passed the House does contain a provision that would make the $250,000 bump in share insurance protection permanent.  But the bill must navigate the Senate and be signed by President Obama before it becomes law.  Stay tuned.
• Tucked into the omnibus appropriations bill that will keep the Federal lights on through the end of fiscal year 2009 is the reauthorization of National Flood Insurance Program.  It is now reauthorized through September 2009.

• You may recall that NCUA issued a final rule to amend insurance signs at shared branches.  We hear that NCUA is still working on finalizing the design of a model sign which will be posted on their website soon.

Odds and Ends

Here are a few things that were kicking around my in-box.

• NCUA has posted Regulatory Alert 09-RA-02to alert credit unions to the new HMDA asset-size exemption threshold.  (Say that 5 times quickly.) 
• NCUA has posted Letter to Federal Credit Union 09-FCU-03 to alert us that the membership data collection process began with examinations that began in 2009.
• Bank of America has settle a lawsuit regarding its overdraft protection program.  To the tune of $35 million.  If your credit union offers such a program, I'd give this a read.

• NCUA has posted Regulatory Alert 09-RA-01 to alert credit unions to the new Standard Flood Hazard Determination Form.

• NAFCU has a webcast scheduled next month to address HUD's final rule that amends RESPA.  Read all about it here.

Corporate Stabilization; Flood Insurance

Last week, NCUA held a closed board meeting.  During that meeting, NCUA made a number of moves in an attempt to stabalize the corporate credit union system.  The information they sent after that meeting (you can access additional details here) has raised a number of questions.  I wish I had the answers.

For that reason, NAFCU is hosting a free webcast tomorrow, during which NCUA will explain how the corporate stabilization will affect the industry.  Sign up for the webcast here.  It is open to members and nonmembers.

***

Bank regulators keep hammering away with flood insurance-related civil money penalties.  Bankers Online maintains this webpage to keep track of the penalties.  As you'll see, there were a number of civil money penalties issued in December 08.  Go hereto see an overview of NCUA requirements in this area. (The link will open a zip file that contains four flood-related guidance documents.)

A Little of This; A Little of That

Posted by Anthony Demangone.

Here are a number of things that caught my eye recently:

1. If you're credit union does "drawings" or other types of incentive-based marketing contests, please read this blog postingby Robert Rutkowski.   Good, good stuff.  There are more compliance issues than meet the eye.

2. Our paralegal, Shari Pogach, wrote a nice summary of a Federal Reserve study that examined violations by banks and thrifts in the areas of Regulations Z, B, DD (Truth in Savings), CC, E, and P (privacy).  Available for members here, the article could serve as a simple auditing tool.  Review the errors made by others to see how you measure up.

3. Here's a good flood insurance update that I recently read.

4. Our Book of Answers keeps being updated.  NAFCU members can access the latest version here.

5. NCUA has released the agenda for next week's board meeting.  The only compliance related item will be a final rule concerning the "Official Sign."  Access the agenda here.

6. It is official.  HUD has delayed enforcement of the "required use" provision from the RESPA final rule for 90 days.  Access its Federal Register notice here.

***

NAFCU's offices will be closed next Monday and Tuesday.   My goals are to finish assembling the twins' cribs and watch my Steelers win against Baltimore.  I mentioned those goals to someone else earlier this week, and this is what following:

 

Coworker: You should really enjoy the game this weekend.
Compliance Guy:  I plan on it.

Coworker: I don't think you understand.  This may be the last time you get to see the Steelers play in peace for the next 18 years.  Once the twins come, forget about it.

Compliance Guy: (Blank stare.)
Coworker: You know that I'm serious, right?  And that assumes they leave the house at age 18.  It could be 20 years.

Compliance Guy: (Blank stare.)

 

Have a great weekend, everyone!  Even you Ravens' fans!  Until Wednesday, stay warm!

IRA RMD Guidance; New Flood Form Unveiled

The IRS has released IRS Notice 2009-09 to help financial institutions report required minimum distributions (RMDs) for 2009.  As you may recall, President Bush recently signed the Worker, Retiree, and Employee Recovery Act of 2008, which waives RMDs for 2009.  The notice gives guidance on how to complete IRS Form 5498 and gives other tips.

Issuers of the 2008 Form 5498, IRA Contribution Information, should not put a check in Box 11. However, in recognition of the short amount of time to make programming changes, if a financial institution issues a 2008 Form 5498 with a check in Box 11, the IRS will not consider such form issued incorrectly solely because of the check in Box 11, provided the IRA owner is notified by the financial institution no later than March 31, 2009, that no RMD is required for 2009.

In addition, the RMD information required under Notice 2002-27, 2002-18 I.R.B. 814, need not be sent to IRA  owners for 2009. If a financial institution sends a separate RMD statement to an IRA owner, either initially or in response to the owner’s request for the financial institution to calculate the RMD for 2009, the financial institution must show the RMD for 2009 as zero (0). Alternatively, the financial institution may send the IRA owner a statement showing the RMD that would have been required but for the waiver of RMDs for 2009, along with an explanation of the waiver for 2009.

The IRS encourages all financial institutions to inform IRA owners who delayed taking their 2008 RMD until April 1, 2009, that they are still required to take that distribution.

Access Notice 2009-09 here.

***

FEMA recently unveiled its new Standard Flood Hazard Determination Form.   (Unveil, perhaps is too strong a word.   This certainly isn't the new I-Phone.)  Access the FEMA press release here, which also contains a link to the new form.  To allow users of the Form time to update their systems to the new version, the effective date for mandatory use of the new Form will be June 16, 2009.

Frequently Asked Questions; delicious

Anthony has mentioned the value of Frequently-Asked-Questions documents in past blog postings here and here.  These documents can help compliance officers weave through convoluted regulations and find answers to common issues.  Here are a few that I've found useful in the past: 

Bank Secrecy Act

Anti-Money Laundering Compliance FAQs

FinCEN Answers to FAQs on BSA

FAQs on Final CIP Rule - February 2004

FAQs on Final CIP Rule - May 2005

FAQs Relating to BSA and Hurricane Katrina

OFAC

OFAC Q&As Prepared by Treasury

Privacy

FAQs on the Privacy Regulation

Share Insurance

FAQs from NCUA's October 7, 2008 Webinar on Share Insurance Changes

NCUA's FAQs on NCUSIF and Share Insurance

HMDA

FAQs on Regulation C (HMDA Reporting)

RESPA

FAQs on RESPA for Industry

Appraisals

FAQs on Appraisal Regulation and Interagency Statement*

*Note:  The Agencies recently announced a proposal to replace this interagency statement.

Third Party Due Diligence

FAQs from NCUA's January 29, 2008 Webinar on Third-Party Relationships

Flood Insurance

2008 Proposal on Interagency Q&As on Flood Insurance (would replace 1997 Q&As)

1997 Interagency Q&As on Flood Insurance

Servicemembers Civil Relief Act (SCRA)

HUD's Q&As for Lenders Regarding SCRA

Judge's Guide to SCRA - including Q&As

Health Savings Accounts

Q&As on Health Savings Accounts - IRS Notice 2004-50

Q&As on Health Savings Accounts - IRS Notice 2008-59

Check 21 Act

Consumers FAQs on Check 21

FAQs for Financial Institutions on Check 21

Check 21 FAQs on Financial Institutions Requirements - from ABA

Accounting for Loan and Lease Losses (ALLL)

Questions and Answers on Accounting for Loan and Lease Losses

Online Banking

FFIEC Guidance on Authentication in an Internet Banking Environment

Savings Bonds

FAQs on Savings Bonds

***

You never know when these FAQ's will come in handy.  That is why I have mine bookmarked on my delicious page.

If you are wondering what delicious is, take a look at the user guide and slides I prepared for a talk on Organizing the Compliance Information Flow at NAFCU's 2008 Regulatory Seminar.

If you know of other valuable FAQ documents, please let us know by adding a comment to this post.