NAFCU Compliance Blog

ADA Litigation Update: One Down, More to Go

Written by Pamela Yu, Special Counsel for Compliance and Research

Last Friday, a federal judge in Virginia granted a credit union's motion to dismiss in a lawsuit alleging the credit union's website was not compliant with the Americans with Disabilities Act (ADA).  The ruling represents a big initial victory for credit unions facing growing litigation threats over unclear website accessibility requirements under the ADA.

The Shakedown

Credit unions nationwide have faced a tide of lawsuits and demand letters over the past year relative to the ADA.  Currently, the ADA and the Department of Justice's (DOJ) implementing regulations are silent on website accessibility standards, and the DOJ recently removed an earlier initiative from its rulemaking agenda and withdrew two advanced notices of proposed rulemaking on the subject.  See, 82 Fed. Reg. 60932 (Dec. 26, 2017).  Ambiguities in the law have spawned a new cottage industry for opportunistic plaintiffs' attorneys looking to make a quick dollar off the backs of credit unions and other well-intentioned entities.  Generally the shakedown goes something like this:  lawyers send multiple, identical demand letters alleging ADA website violations to credit unions, banks, and other entities throughout a targeted state on behalf of one unnamed, repeat complainant, then settle for several thousand dollars per case. If the case doesn't settle, the lawyers file suit. 

Some credit unions are making the business decision to settle, but others have decided to fight the charges in federal court. 

Carroll v. Northwest Federal Credit Union

In the first of these cases involving a credit union to be decided by the court, the plaintiff generally alleged that he is a visually-impaired individual who visited the credit union's website but was unable to navigate the website due to accessibility barriers and, as a result, was denied the full use and enjoyment of the facilities and services of the credit union.  However, the plaintiff did not allege he was a member of the credit union or even clearly within the credit union's limited field of membership (multiple-common bond).  See, Carroll v. Northwest Federal Credit Union, No. 1:17-cv-01205, slip. op. at 5 (E.D. Va. Jan. 26, 2018).

NAFCU filed a brief as amicus curiae (i.e., "friend of the court") in support of the defendant credit union's motion to dismiss on the grounds that, among other things, a website is not a place of public accommodation under Title III of the ADA and the plaintiff lacked standing to sue because he was not a member of the credit union.  

A Credit Union Win

The court's January 26th decision granted the credit union's motion to dismiss, ruling that the plaintiff did not have standing to sue the credit union because he was not a member or eligible for membership and would not likely use the credit union's services.  The court therefore determined the plaintiff did not sufficiently establish an injury-in-fact:

"Here, the defendant, Northwest Federal Credit Union ("Northwest FCU"), is a credit union chartered by the Federal government which only includes a specific membership field. . . . Plaintiff is not included in this membership field, nor has he alleged any facts in his Complaint to suggest he is [a member] or otherwise eligible to become a member of Northwest FCU.  As a result, Plaintiff is unable to deposit money in, or obtain a loan or other services from Defendant. 

Plaintiff is unable to show that he has suffered an injury in fact or that there is certain impending future harm.  [Plaintiff] cannot make this showing because he has not established that he is entitled, or would ever be entitled, to utilize any services provided by Northwest FCU." Carroll v. Northwest Federal Credit Union, No. 1:17-cv-01205, slip. op. at 5 (E.D. Va. Jan. 26, 2018).

In addition, the court found that a website is not a place of public accommodation subject to Title III ADA protections:

"Plaintiff's claim also fails because the website is not a place of public accommodation.  Title III of the ADA prohibits discrimination in public accommodations based on disability.  The statute provides for a list of entities that are considered public accommodations.  Notably absent from the list is the term "website".  Not only is "website" not found on the list, but the statute does not list anything that is not a brick and mortar "place".  Over the years Congress has extensively amended the ADA; however, at no point did Congress choose to add websites as a public accommodation."  Id. (citations omitted).

The War Rages On

The decision is a huge first win for credit unions in the battle against these unwarranted ADA legal actions.  But the war is not over.  The lower court's decision is not considered binding under common law principles: “A single district court decision . . . has little precedential effect[, and i]t is not binding on . . . other district judges in the same district.” See, U.S. v. Articles of Drug Consisting of 203 Paper Bags, 818 F.2d 569, 572 (7th Cir. 1987).

Other judges in the same district and in various other federal jurisdictions will likely consider similar credit union ADA cases soon. While the decision in Carroll is persuasive authority—especially as it is the first case to rule on whether credit union membership is necessary to establish standing—the decision is not binding precedent on other courts or federal jurisdictions. 

NAFCU has filed three additional amicus briefs to support credit unions in several similar cases, and on January 5th NAFCU stood with one of those credit unions while the judge heard oral arguments on their motion to dismiss.  We will continue to fight for our members against these unfair suits.  Meanwhile, the plaintiff in Carroll has filed an amended complaint.  Because the court dismissed the case "without prejudice," the plaintiff was free to amend his complaint and refile a new suit.  Notably, however, the plaintiff is still not a member of the credit union.  Stay tuned. 

For more information about ADA website litigation and NAFCU's ongoing efforts to stand up for credit unions on this issue, please visit our dedicated ADA webpage here.

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

Written by Jennifer Aguilar, Regulatory Compliance Counsel

2016 Mortgage Servicing Amendments

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

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

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

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

Updated COPPA Guidance

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

Federal Reserve’s Payments Study

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

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

CFPB Issues Final TRID "Fix" Rule

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

ICYMI: NCUA Second Quarter News Letter; New Procedures for External Audit Reports

Written By: André B. Cotten, Regulatory Compliance Counsel

Here in DC we have been experiencing an extended chilly, rainy spring, but I hope the weather is better wherever you are. In the month of May, NCUA issued its second quarter newsletter that detailed numerous topics, including but not limited to: consumer compliance risk indicators; share insurance; indirect lending; information security; the new MBL rule; and the fifth BSA compliance "pillar".

In today's blog, I've highlighted a few topics from the second quarter 2017 newsletter. I've also included a note about a recent NCUA Credit Union Express regarding new procedures for delivery and review of external audit reports.

Managing an Indirect Lending Program

Credit unions have increased their lending for both new and used automobiles over the last several years. A key aspect of this growth has been indirect auto lending. To be clear, an indirect lending relationship exists when members within the credit union's field-of-membership apply for credit directly through a car dealer.

Although this indirect lending relationship can be a convenient way of diversifying the credit union's loan portfolios, an indirect lending program does come with potential risks. According to the NCUA Report, a credit union may want to "establish clear expectations and have regular contact with participating dealers to ensure the program is being administered in accordance with the board of director's expectations for risk management."

Credit unions can make strategic decisions when managing an indirect lending program, such as:

• Establishing appropriate growth goals and concentration limits, along with minimum standards for creditworthiness;
• Monitoring the performance and risk-levels of the portfolio;
• Setting loan rates to ensure adequate profitability; and
  
• Taking early action to revise the program when adverse performance trends occur.

The NCUA Report contains a more detailed discussion about preventative management practices.

Credit unions may want to seek to understand the unique risks associated with indirect lending and have the expertise and processes in place to offer this service safely. The credit union will definitely want to monitor trends in the auto lending market, which is currently showing signs of increased credit risk, and regulator evaluating the effectiveness of a credit union's risk-management practices.

FinCEN Adds Fifth BSA Compliance "Pillar"

In 2016, FinCEN issued a final rule that imposed new requirements for identifying and verifying beneficial owners of legal-entity customers. This new rule, which amended the Bank Secrecy Act, became effective in July 2016, and all federally insured credit unions must comply fully by May 11, 2018.

This final rule added a fifth core element to the original four core elements of an effective BSA and anti-money laundering compliance program. Under the new rule, a credit union's program must now include this fifth core element:

• Risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to:
  • Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and
  • Conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain the update customer information.

Credit unions will need to develop and maintain compliance procedures to identify and verify the beneficial owners of legal-entity members. In preparation for the May 2018 implementation date, credit unions may want to review their "policies, processes, record-retention practices, information technology systems, employee training and other aspects of their BSA/AML compliance programs".

Please see these additional resources for more information:

“Customer Due Diligence Requirements for Financial Institutions,”

“Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions.”

Do You Need to Report an Information Security Incident?

Threats to information security range from unintentional human error to cyberattacks. Since members' sensitive information is constantly at risk, it is important that credit unions understand their reporting requirements when an information security incident occurs.

Regulatory Context

From a federal regulatory perspective, the Gramm-Leach-Bliley Act requires the NCUA Board to establish appropriate standards for federally insured credit unions relating to administrative, technical and physical safeguards for member records and information. Part 748 of NCUA's rules and regulations direct federally insured credit unions to establish a security program that incorporates Gramm-Leach-Bliley requirements and to detail response procedures to unauthorized access to member information.

Appendix B of Part 748 of NCUA's rules and regulations also directs a credit union's response program to contain procedures for notifying the appropriate NCUA regional director. According to the NCUA Report, the credit union may want to plan for the notification to occur as soon as possible after the credit union becomes aware of an incident involving unauthorized access to or use of sensitive member information. In addition, a federal insured, state-chartered credit union may also want to have procedures to notify its state supervisory authority.

Specifically, the preamble to the Federal Register notice for Part 748, Appendix B, states:

"The NUCA Board has concluded that the standard for notification to regulators should provide an early warning to allow [the] NCUA or applicable state supervisory agency to assess the effectiveness of a credit union's response plan, and, where appropriate, to direct that notice be given to members if the credit union has not already done so."

Note, "member information" is a defined term in Appendix A to Part 748, and the term "sensitive member information" is defined in Appendix B to Part 748.

In regards to Appendix B, NCUA Legal Opinion 06-0332 clarifies that "where an incident, even one involving sensitive member information, involves little or no likelihood of harm to the member, a credit union need not notify the NCUA." Consequently, the credit union's risk assessment of the incident is a critical component of your response program, and a material factor in your decision to notify the regional director.

Practical Application

According to the NCUA Report, credit unions may want to consider including details in their response programs concerning their notification procedures for members, regulators and other concerned parties.

To determine whether the regional director notification is warranted, the credit union may want to assess the inherent risk of the incident based on the information available. Then, if applicable, the credit union may want to consider any immediate mitigating actions it took to reduce the risk to the member. If the incident involves sensitive member information and presents the potential for harm (more than little-or no-likelihood of harm) to the member, the credit union may be prompted to notify the NCUA regional director. Federally insured, state-chartered credit unions may also notify their state supervisory authority.

Even if the credit union decided not to notify the NCUA regional director, the credit union may want to retain documentation of its risk assessment to demonstrate compliance with Part 748's reporting expectations.

The NCUA Report also details a best practice for the content of notifications to the NCUA regional director:

• The incident;
• The risk to the member or members;
• The corrective actions taken already;
• Any additional corrective or mitigation actions planned;
• Your coordination with law enforcement; and
• Any other relevant factors.

Note, state supervisory authorities may have their own notification requirements.

Lastly, the credit union may need to notify other parties, such as its insurance or bond company. Notifying your NCUA regional director does not replace other reporting requirements such as: filing a suspicious activity report, notifying the FBI or involving local law enforcement.

For more information, please visit the NCUA's Cybersecurity Resources Webpage.

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New Procedures for External Audit Reports

Last month, NCUA issued a Credit Union Express that provided an overview of the new procedures for delivery and audit reports. NCUA has recently updated its policies governing how and when examiners will receive external audit reports. This updated procedure is meant to maintain better custody of audit reports. As the NCUA Credit Union Express mentions, "this new policy was created partly in response to a recommendation made by NCUA 's Office of Inspector General during a material loss review. The report recommended examiners obtain audit reports directly from the auditors rather than receiving them from credit union management to avoid any potential manipulation."

As an additional reference, please refer to the recently updated National Supervision Policy Manual (p.52/p.66 with PDF pagination): https://www.ncua.gov/Legal/GuidesEtc/GuidesManuals/SupervisionManual.pdf

Just a Friendly Reminder that Bribery is Still Illegal

Written by Pamela Yu, Special Counsel for Compliance and Research

Credit union bribery is illegal. 

Perhaps this is news to no one, but I was reminded of this recently when asked by a NAFCU-member whether a credit union employee could accept a monetary gift of thanks from a member.  While gifts of appreciation and other gratuities from members to credit union employees are, in most cases, innocent and well-intentioned, an employee's receipt of such gifts can raise bribery concerns.

 Code of Conduct

NCUA has an old, but still effective, Interpretive Ruling and Policy Statement (IRPS) from 1987 (See, IRPS 87-1) that provides guidance to federally insured credit unions with respect to the Bank Bribery Act. See, 18 U.S.C. §215.  Among other things, IRPS 87-1 "encourages federally-insured credit unions to adopt codes of conduct that describe the prohibitions of the bank bribery law" and recommends procedures to ensure compliance with the law.

By way of brief background, the Bank Bribery Act generally prohibits a credit union "officer, director, employee, agent, or attorney " from seeking or accepting anything of value, with the corrupt intent to be influenced or rewarded in connection with any business or transaction of the credit union. The law also prohibits anyone from offering or giving anything of value to a credit union officer, director, employee, agent, or attorney in connection with any business or transaction of the credit union, with the intent to corruptly influence or reward that person.

Specifically, the law states:

"(a)  Whoever—

(1)   corruptly gives, offers, or promises anything of value to any person, with intent to influence or reward an officer, director, employee, agent, or attorney of a financial institution in connection with any business or transaction of such institution; or

(2)   as an officer, director, employee, agent, or attorney of a financial institution, corruptly solicits or demands for the benefit of any person, or corruptly accepts or agrees to accept, anything of value from any person, intending to be influenced or rewarded in connection with any business or transaction of such institution;

shall be fined not more than $1,000,000 or three times the value of the thing given, offered, promised, solicited, demanded, accepted, or agreed to be accepted, whichever is greater, or imprisoned not more than 30 years, or both, but if the value of the thing given, offered, promised, solicited, demanded, accepted, or agreed to be accepted does not exceed $1,000, shall be fined under this title or imprisoned not more than one year, or both." See, 18 U.S.C. §215(a). 

It is important to remember this prohibition on credit union employee gifts, because the penalties are criminal, not to mention pretty severe:

• If the value of the item or benefit offered or given to the credit union employee is greater than $1,000 in value, the offense is a felony punishable by up to 30 years imprisonment and/or a fine of up to $1,000,000 or three times the value of the bribe or gratuity, whichever is greater.
• If the thing of value is $1,000 or less, the offense is a misdemeanor punishable by imprisonment of up to one year and/or a similar fine. See, 18 U.S.C. §215(a).

Exceptions

There are some exceptions to this general prohibition, to allow credit union employees and officials to accept reasonable gifts and entertainment under certain circumstances. IRPS 87-1 states:

"In its code of conduct, the credit union may, however, specify appropriate exceptions to the general prohibition of accepting something of value in connection with credit union business. There are a number of instances where a Credit Union Official, without risk of corruption or breach of trust, may accept something of value from one doing or seeking to do business with the credit union. In general, there is no threat of a violation of the statute if the acceptance is based on a family or personal relationship existing independent of any business of the institution; if the benefit is available to the general public under the same conditions on which it is available to the Credit Union Official; or if the benefit would be paid for by the credit union as a reasonable business expense if not paid for by another party. By adopting a code of conduct with appropriate allowances for such circumstances, a credit union recognizes that acceptance of certain benefits by its Credit Union Officials does not amount to a corrupting influence on the credit union's transactions." See, IRPS 87-1 (Emphasis added). 

Examples of acceptable gifts and benefits that a credit union may incorporate into its code of conduct include the following:

• Gifts, gratuities, amenities, or favors based on obvious family or personal relationship where the relationship is the motivating factor for the gift.
• Meals, refreshments or entertainment of reasonable value and in the course of a business meeting.
• Loans on customary terms to finance proper and usual activities.
• Advertising or promotional material of reasonable value (e.g., pens, pencils, note pads, key chains, etc.)
• Discounts or rebates on merchandise or services that do not exceed those available to others.
• Gifts of reasonable value that are related to recognized events or occasions (e.g., a promotion, wedding, Christmas, etc.)
• Civic, charitable, educational, or religious organizational awards of recognition.
• Other gifts, on a case-by-case basis, if approved by the credit union.

NCUA does not define what is "reasonable" in value because "what is reasonable in one part of the country may appear lavish in another part of the country."  However, a credit union may establish an acceptable range of dollar values or specific dollar limits on excepted gifts.  

Disclosure

Additionally, a credit union's code of conduct should provide that if a credit union employee or official is offered a gift in excess of what is acceptable under the credit union's code of conduct, the employee or official must disclose that fact to the credit union.  Keep in mind, however, that while such disclosure evidences good faith, the prohibitions of the bank bribery statute are not mitigated merely by the disclosure:

"The code of conduct should provide that, if a Credit Union Official is offered or receives something of value beyond what is authorized in the credit union's code of conduct or written policy, the Credit Union Official must disclose that fact to an appropriately designated official of the credit union. The credit union should keep written reports of such disclosures. An effective reporting and review mechanism should prevent situations that might otherwise lead to implications of corrupt intent or breach of trust and should enable the credit union to better protect itself from self-dealing. However, a Credit Union official's full disclosure evidences good faith when such disclosure is made in the context of properly exercised supervision and control. Management should review the disclosures and determine that what is accepted is reasonable and does not pose a threat to the integrity of the credit union. Thus, the prohibitions of the bank bribery statute cannot be avoided by simply reporting to management the acceptance of various gifts." See, IRPS 87-1 (Emphasis added).

While criminal credit union bribery is likely a rare occurrence, it is always a good idea to periodically review credit union codes of conduct and to remind employees and officials of the restrictions on certain gifts from members.

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 Need Direction?

The 2017 edition of our popular Credit Union Compliance GPS e-manual is now available. It's a must-have, searchable resource that explains complicated regulatory language in easy-to-understand terms and covers everything from the basic anatomy of a credit union to specifics of the NCUA, CFPB, important regulations and more. Plus, one purchase allows you to share it with your colleagues. Get a sneak peek of the Regulation E section of the Member Accounts chapter.

 

In Case You Missed It, End of Summer Round Up; Programming Note

Written by Shari R. Pogach, Regulatory Paralegal

As we close out the waning days of summer and head into the long Labor Day weekend, we’ve compiled items the agencies have pushed out in the last few weeks that you might have overlooked. 

NCUA

• Exam Video Series – Four-part learning video series for credit union board members on the purpose, process and components of a NCUA examination.

• High-Impact Community Partnerships Webinar – A 90-minute webinar on Wednesday, September 21, 2016, at 2 p.m. Eastern for credit unions looking to build community partnerships to offer more products and services. Online registration is available here.

• Going Digital: Strategies for Providing Digital Services – A Small Credit Union Learning Center guidebook with instructions on creating a strategic plan for analyzing the need for digital products and developing them to meet member needs. 

• The NCUA Report – The August 2016 issue contains articles from NCUA offices on agency initiatives and topical supervisory, regulatory and compliance issues.

• Prohibition Notices – Five notices were issued in August to individuals convicted of crimes of dishonesty.

CFPB

• HMDA Rule Implementation – Bureau resources to help understand, implement and comply with the changes to Home Mortgage Disclosure Act and Regulation C.

• Report on Fighting Elder Financial Exploitation Through Community Networks – Explains what elder financial exploitation prevention and response networks do, how they work, how they can work better and how they can be established. In addition to the report, the bureau also has developed a Resource Guide for Networks on starting and developing a network

• Technical Correction to TILA – The bureau issued a correction to add comments 1026.41(e)(5)-1, -2, and -3 to the official commentary in Regulation Z. The comments were issued earlier but were mistakenly omitted when updating the official Code of Federal Regulations (CFR). This was simply a technical correction to formally correct the official CFR.

• Monthly Complaints Snapshot Report – The latest report focuses on consumer complaints dealing with bank accounts and service issues. It also takes a look at consumer complaints from Ohio.

• Settlement Professional’s Guide – A resource to help settlement professionals through the TILA/RESPA TRID changes.

U.S. Department of the Treasury/Federal Banking Agencies

• Joint Fact Sheet on Foreign Correspondent Banking: Approach to BSA/AML and OFAC Sanctions Supervision and Enforcement – Describes the expectations of U.S. regulators, the supervisory examination process and the use of enforcement actions concerning anti-money laundering and sanctions with foreign correspondent banking.

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Programming Note. NAFCU will close at noon today and also be closed on Monday for the long holiday weekend. We will be back to blogging on Wednesday. Enjoy the weekend!

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Corpse Flower.  One thing I did this summer was join a whole lot of other folks in the heat to check out the corpse flower (Amorphophallus titanum), also known as the stinky plant, when it bloomed in early August at the U.S. Botanic Garden here in Washington.  And, I have the pictures to prove it. 

ICYMI – NCUA MLA and Other Webinars; NCUA Regulatory Alert; CFPB Spring Rulemaking Agenda and TILA Annotated Model TRID Disclosures

Written by Brandy Bruyere, Director of Regulatory Compliance

Much of NAFCU’s staff was in Nashville last week for our Annual Conference, for those who were able to join us, thanks! It was a great week. Once in a while, we like to wrap up a few things just in case you missed it.

NCUA MLA Webinar. NCUA’s Office of Consumer Protection is holding a webinar on the Military Lending Act on Wednesday, June 29 at 2 PM Eastern. You can register for the webinar here. If you have questions (I know many of you have asked great questions, such as the MLA’s impact on statutory liens), you may submit them in advance to [email protected], using the subject line “MLA Regulatory Amendments.”

Other NCUA Webinars. It’s a busy month for NCUA in terms of webinars, here are a few others that may be of interest. This includes webinars on accounting for small CUs, webinar on growing your CU, and a CDFI webinar:

• Wednesday, June 22, at 2PM Eastern –NCUA Office of Small Credit Union Initiatives Webinar on Internal Controls and Accounting – you can register for this webinar here
• Thursday, June 22, at 2PM Eastern – NCUA Webinar on Community Development Financial Institutions Certification – you can register here
• Archive Available Soon (held on June 8) – NCUA Webinar on Growing Your Credit Union

NCUA Regulatory Alert on Small Creditors and Rural/underserved Areas. The CFPB recently implemented statutory changes relating to certain exemptions in Regulation Z for small creditors. On May 24, NCUA issued Regulatory Alert 16-RA-05 that includes a chart and summary of these changes.

CFPB Spring Rulemaking Agenda. On May 19, the CFPB issued its spring rulemaking agenda. While the rulemaking agendas often underestimate the timeline for proposals and rules, highlights include:

• Final Rule Estimates – Mortgage servicing (July 2016), prepaid products (July 2016), Regulation P (possible incorporation of statutory changes to annual privacy notices, August 2016), and Regulation CC (December 2016 although this is may be more of a placeholder than actual estimated action date)
• Proposed Rule Estimates – TRID amendments (July 2016), payday lending (proposed June 2)
• Prerule Stage – Debt collection, overdraft, Regulation B and business lending

TRID Model Disclosures with Statutory Annotations. Many found the model Loan Estimate and Closing Disclosure with regulatory annotations helpful, so the CFPB released versions with citations to Chapter 2 of the Truth in Lending Act. The Loan Estimate is here, and the Closing Disclosure is here.

Buddies. It’s been a while since I posted a Lemmy/Nolan update. Now that Nolan is a full-fledged toddler (21 months already!), we’re working with him on learning Lemmy’s boundaries – and learning that some food is really just for Lemmy. They get a long pretty well though. 

 

In Case You Missed It, NCUA Edition!

Written by Eliott C. Ponte, Regulatory Compliance Counsel

Yes, another In Case You Missed It (ICYMI) blog is here.  This time, the focus is on the NCUA.  Below are six different topics that we wanted to flag for our blog readers.  Enjoy.

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NCUA Hosting Cybersecurity Risk Webinar

The NCUA is hosting a cybersecurity risk webinar on Thursday, May 12, 2016, at 2:00 P.M. EST.  The webinar will include information on how small credit unions can prepare for, or recover from, a cybersecurity event.  The webinar will also include information on minimizing cybersecurity vulnerabilities in products and services, balancing the impact associated with fraud risk and prevention, and using the FFIEC’s cybersecurity assessment tool.  To register for this webinar, click on this link.  Participants may submit questions in advance at [email protected].  The NCUA has requested that any questions submitted contain the phrase “Cybersecurity: What Can You Do?” in the subject line. 

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NCUA’s New Video Module for Merging CUs

Last month, NCUA’s office of Small Credit Union Initiatives released a three-part YouTube video series that discusses current trends in credit union mergers, when a credit union board should consider a merger, and how to negotiate a merger agreement that best serves the credit union’s interests.  Blog readers who are interested in watching these videos may do so by clicking on this link.

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NCUA April Edition of The NCUA Report

The April edition of The NCUA Report was released on April 19, 2016.  The April edition includes articles on protecting servicemembers and their families, a farewell from Chairman Debbie Matz, Regulatory Modernization Initiative Results 2011-2016, the Bank Note rule, and Lessons of Financial Literacy Month. 

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NCUA to Host Minority Depository Institutions Listening Session

On Wednesday, May 25, 2016, the NCUA will host a listening session to solicit input on ways it can enhance its Minority Depository Institutions Preservation Program.  The Minority Depository Institutions Preservation Program devotes additional efforts toward preserving and promoting eligible minority credit unions as prescribed by Section 367 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The listening session will be held at NCUA’s Central Office, 1775 Duke Street, Alexandria, Virginia, beginning at 2:00 P.M. EST.  If you cannot attend the live session, you may participate over livestream.  Registration to participate in the livestream is required. Participants may submit questions in advance at [email protected].  The NCUA has requested that any questions submitted contain the phrase “Sustaining Minority Depository Institutions Listening Session” in the subject line. 

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NCUA Offering $2 Million in Grants

NCUA’s Office of Small Credit Union Initiatives will accept grant applications from June 1^st through June 30^th.  To apply, a credit union must have a “Low-Income Credit Union” designation or an equivalent in the case of a Qualifying State-chartered Credit Union.  The guidelines for the 2016 grants can be found here.  The NCUA is offering four separate initiatives:

Capacity and Growth.  NCUA plans to award individual grants of up to $15,000 per credit union to implement new lending strategies, deposit products, or other growth strategies to expand and increase financial access to underserved communities.  For a full list of eligible projects, look at page 3 of the 2016 OSCUI Grant Guideline.

Cyber Security.  Up to $7,000 will be available to assist credit unions in building the infrastructure needed to continually monitor and enhance the security of its data systems and to protect member information.  Page 6 of the 2016 OSCUI Grant Guideline contains a full list of projects eligible for funding.

Staff Training.  NCUA will give up to $3,000 for training credit union employees and volunteers in areas related to credit union governance, management, and operations.  

Student Internship.  Grants of up to $4,000 will be available to each credit union to hire students enrolled in high school or college.  The $4,000 grant is only available to pay the intern, and these funds may not be used to cover any other costs.

On Wednesday, May 11, 2016, at 2:00 P.M. EST, the NCUA will be offering a webinar on the grant process.  The webinar will cover the grant application process and the four eligible grant initiatives as well as urgent-needs grants and loans that are available year-round.  To register for this webinar, click on this link.  Participants may submit questions in advance at [email protected].  The NCUA has requested that any questions submitted contain the phrase “NCUA 2016 Grant Webinar” in the subject line. 

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Free Consulting from the NCUA

Credit unions that have either (1) total assets of less than $100 million, (2) a new charter, (3) a designation as a Minority Depository Institution, or (4) a designation as a low-income credit union can nominate themselves to receive free consulting services from the NCUA’s Office of Small Credit Union Initiatives.  NCUA’s consulting services are provided by experienced economic development specialists who offer assistance to credit unions in the areas of budgeting, consumer compliance, field of membership expansion, marketing, merger guidance, and strategic planning.  Selected credit unions receive assistance for a six-month period.  Credit unions must nominate themselves by May 31, 2016.  For additional information, please visit the consulting page for the Office of Small Credit Union Initiatives  or email the Office of Small Credit Union Initiatives at [email protected].

Get Ready to Submit Credit Card Agreements; ICYMI

Written by Brandy Bruyere, Director of Regulatory Compliance

Sorry everyone, this is not an April Fool’s joke – the rule requiring credit card issuers to submit agreements to the CFPB each quarter will be back in effect at the end of this month. Last year, the CFPB temporarily suspended this rule until April 30, 2016. More details can be found in this past NAFCU blog post. Since April 30 is right around the corner, many credit unions have asked if card agreements need to be submitted this month.

Well, yesterday the CFPB answered this question in a letter indicating that the suspension is not being extended any further, but rather credit card agreements must be submitted by May 2, 2016 as applicable. As a reminder, section 1025.58(c) says the following:

“§1026.58   Internet posting of credit card agreements.

[…]

(b) Definitions—

(1) Agreement. For purposes of this section, “agreement” or “credit card agreement” means the written document or documents evidencing the terms of the legal obligation, or the prospective legal obligation, between a card issuer and a consumer for a credit card account under an open-end (not home-secured) consumer credit plan. “Agreement” or “credit card agreement” also includes the pricing information, as defined in §1026.58(b)(7).

(c) Submission of agreements to Bureau—

(1) Quarterly submissions. A card issuer must make quarterly submissions to the Bureau, in the form and manner specified by the Bureau. Quarterly submissions must be sent to the Bureau no later than the first business day on or after January 31, April 30, July 31, and October 31 of each year…”

Keep in mind that the rule does contain a de minimis exemption in section 1026.58(c)(5) for financial institutions with fewer than 10,000 open credit card accounts as of the last business day of the calendar quarter. 

A credit union’s submission must contain several pieces of information:

• Identifying information about the credit union and the agreements submitted, including the credit union’s name, address, and identifying number (such as a tax identification number);
• The credit card agreements that the credit union offered to the public as of the last business day of the preceding calendar quarter that the card issuer has not previously submitted to the Bureau;
• Any credit card agreement previously submitted to the CFPB that was amended during the preceding calendar quarter and that the card issuer offered to the public as of the last business day of the preceding calendar quarter; and
• Notification regarding any credit card agreement previously submitted to the CFPB that the credit union is withdrawing.

Because the rule’s requirement was suspended for several quarters, there may be new or withdrawn agreements that the credit union has not previously submitted or provided notice to the CFPB, as applicable.  The rule seems to require credit unions to look back over the course of the past year for any new card or withdrawn agreements that were not part of prior submissions to the CFPB. As far as amended agreements, the rule only states that those agreements amended in the past quarter require submission although NAFCU has reached out to the CFPB for clarification on this point.

How to submit credit card agreements. To meet the upcoming May 2 deadline, the CFPB will no longer send the old submitting spreadsheet to card issuers. Instead, the CFPB set up an email address for submitting card agreements:

“You can [submit agreements] by emailing [the CFPB] links to (or webpage addresses for) the consumer credit card agreements that you post on your public website. Current regulations require you to post on your public website a complete set of the consumer credit card agreements that you offer to consumers. (§ 1026.58(d).) The agreements you have to post on your public website are the same as those you need to submit to the Bureau. As a result, sending us the relevant links or webpage addresses is the easiest and most straightforward way to meet your submission requirement.

Include in your email the name and address of the issuer that offers the product, plus a unique identifying number for the issuer such as a DUNS [Data Universal Numbering System] or RSSD [Replication Server System Database] number. Sending us that identifying information plus links or webpage addresses to your properly posted agreements is sufficient to meet all your submission obligations under § 1026.58(c). No other information is required. (Comment 58(c)(1)-3.)

Although the Bureau believes that issuers will generally find that emailing agreement links or webpage addresses to the Bureau is the fastest and simplest way to submit the required agreements, you may also comply by emailing us pdf copies of all the agreements you offered to the public as of the end of March 2016. Alternatively, you may email us the agreements and information identified in § 1026.58(c)(1)(ii), (iii), and (iv). Whatever submission method you choose, remember to include your identifying information.”

The CFPB went on to clarify that these emails should not be sent in an encrypted format and that instructions will be updated for future deadlines (i.e. August 1 and October 31, 2016). Submissions should be sent to [email protected] and the CFPB will provide a confirmation of receipt within two business days.

ICYMI (In Case You Missed It). I also wanted to flag a couple of issues for our blog readers that may be of interest from earlier in the month:

• SCRA Mortgage Protection – The Servicemembers Civil Relief Act contains a provision that protects servicemembers from foreclosure without either a court order or a waiver for 90 days after active duty service ends. Congress has temporarily extended this time period multiple times for periods of up to one year. As we blogged about back in January, the most recent extension of the 90 day time period expired back on December 31, 2015. However, on March 21, 2016 Congress passed a bill that extends the one year protection period through December 31, 2017. The bill is also retroactive to January 1, 2016. President Obama is expected to sign this bill soon. Again, this is not an April Fool’s joke, Congress really did pass a bill!

• NCUA Amends Investments Rule on Bank Notes – at its March meeting, the NCUA Board finalized a rule that changes the maturity requirement for bank note investments, detailed in section 703.14(f)(5). The current rule limits federal credit unions to investing in bank notes with an original weighted average maturity of less than 5 years. The amendment removes the word “original” to provide a little more flexibility to FCUs for these investments.

• CFPB Issues Advisory on Preventing Elder Abuse – On March 21, the CFPB issued an advisory on preventing and responding to elder financial exploitation and a report of recommendations. These resources may be helpful to credit unions concerned about addressing these kinds of issues as they arise with members.

• NCUA March Edition of The NCUA Report, 2015 Annual Report – The March edition of The NCUA Report came out early last week and includes articles on moving to an 18 month exam cycle, the MBL rule and financial literacy. This month NCUA also issued its 2015 Annual Report, which reviews the agency’s objectives for last year, assesses performance such as the agency’s priority goals and includes financial information.

Finally in celebration of Friday, here’s how Lemmy recovers from a puppy play date (or how some of us may feel after a busy week):