NAFCU Compliance Blog

Overdraft Opt-In Notices: What about Checks?

Written by: André B. Cotten, Regulatory Compliance Counsel

Hi, Compliance Friends! It's already March, so we are busy preparing for our semi-annual Regulatory Compliance School. Every year NCUA publishes its annual supervisory priorities. Amongst this year's priorities, the NCUA has identified Overdraft Services as an area of interest. This blog presents an analysis for when opt-in notices are required, especially for checks that have been returned for insufficient funds.

One-time Debit Card and ATMs

Pursuant to section 1005.17(b)(1), Regulation E's opt-in requirement only applies to  ATM and one-time debit card transactions. From a plain-reading of the regulatory text, there is no regulatory requirement for an opt-out with regard to overdrafts for paper checks. However, interagency guidance has indicated that offering an election or opt-out of services is a best practice, both from a safety and soundness perspective and to avoid potential UDAAP issues with regard to overdrafts.

To begin this analysis, we are going to want to look at section 1005.17(b)(1):

(b) Opt-in requirement—

(1) General. Except as provided under paragraph (c) of this section, a financial institution holding a consumer's account shall not assess a fee or charge on a consumer's account for paying an ATM or one-time debit card transaction pursuant to the institution's overdraft service, unless the institution:

(i) Provides the consumer with a notice in writing, or if the consumer agrees, electronically, segregated from all other information, describing the institution's overdraft service;

(ii) Provides a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the service for ATM and one-time debit card transactions;

(iii) Obtains the consumer's affirmative consent, or opt-in, to the institution's payment of ATM or one-time debit card transactions; and

(iv) Provides the consumer with confirmation of the consumer's consent in writing, or if the consumer agrees, electronically, which includes a statement informing the consumer of the right to revoke such consent.

(emphasis added). As the excerpt notes above, the prohibition is specific to a credit union's ability to charge a fee for the overdraft payment, not to the credit union's payment of the overdraft. The commentary to section 1005.17(b) states that a credit union "may pay overdrafts for ATM and one-time debit card transactions even if a consumer has not affirmatively consented or opted in to the institution's overdraft service. If the credit union pays such an overdraft without the member's affirmative consent, however, it may not impose a fee or a charge for doing so." Note, Regulation E does not prohibit the credit union from debiting the member's account for the overdrawn amount.

Checks

From reviewing the quoted text from the commentary above, Regulation E uses the term "overdraft service." Taking this a step further, it seems this requirement applies for any courtesy pay, bounce protection or overdraft program that meets the definition of an "overdraft service" in Regulation E, regardless of how the program is titled by a credit union. Let's review the definition of overdraft service below from section 1005.17(a):

(a) Definition. For purposes of this section, the term “overdraft service” means a service under which a financial institution assesses a fee or charge on a consumer's account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account…

(emphasis added). Thus, an opt-in is not required for overdraft service generally, only to assess a fee in connection with one-time debit card and ATM transactions.

However, in NCUA Letter to Credit Unions 2005-03 and the Interagency Guidance on Overdraft Protection Programs, NCUA stated that best practices for overdraft programs include providing election or opt-out services:

"Program Features and Operation

• Provide election or opt-out of service. Obtain affirmative consent of consumers to receive overdraft protection. Alternatively, where overdraft protection is automatically provided, permit consumers to "opt out" of the overdraft program and provide a clear consumer disclosure of this option." NCUA Letter to Credit Unions 2005-03, pp. 19.

In general, additional scrutiny from examiners is mostly rooted in giving members insufficient information and control regarding overdraft services. Consequentially, offering additional information and control can be a key step in compliance risk mitigation. Below is additional generalized language from the guidance:

"Best Practices

Clear disclosures and explanations to consumers of the operation, costs, and limitations of an overdraft protection program and appropriate management oversight of the program are fundamental to enabling responsible use of overdraft protection. Such disclosures and oversight can also minimize potential consumer confusion and complaints, foster good customer relations, and reduce credit, legal, and other potential risks to the institution. Institutions that establish overdraft protection programs should, as applicable, take in to consideration the following best practices, many of which have been recommended or implemented by financial institutions and others, as well as practices that may otherwise be required by applicable law. While the Agencies are concerned about promoted overdraft protection programs, the best practices may also be useful for other methods of covering overdrafts. These best practices currently observed in or recommended by the industry include: […]"

Providing these additional opt-outs can help the credit union avoid allegations of unfair, deceptive or abusive practices. From a reputation risk perspective, it clearly establishes the rules and expectations of account ownership with the credit, thus mitigating possible unrest amongst the membership.

Below are several resources from the NCUA and CFPB to assist credit unions in reviewing their overdraft programs in advance of examination:

• Regulation E's requirements for overdraft services found at 12 C.F.R. § 1005.17, its commentary, and Model Form A-9 illustrating these requirements.
• NCUA guidance:

• NCUA AIRES Exam Questionnaires, Overdraft (Bounce) worksheet;
• Risk Alert 10-RA-12, "Member Notice Requirements for Overdraft Services";
• Letter to Credit Unions 05-CU-03, "Overdraft Protection (Bounce Protection) Programs";
• Interagency Overdraft Services Consumer Compliance Discussion Outlook Live Webinar.

• CFPB's Supervisory Highlightsreports:
  • Summer 2017, section 2.4.4;
  • Winter 2015, section 2.3;

The Final Prepaid Rule: Version 3.0; Refresher on the EU's GDPR

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

Since 1982, no less than seven different cuts of Ridley Scott's science fiction masterpiece Blade Runner have been shown to theater audiences. The initial workprint version didn't test well, so the studio re-cut it, adding a rightfully maligned voice-over and a preposterous "happy ending." Both the director and generations of film snobs-to-come found it insufferable. A version with extended, more violent fight scenes was released for international audiences, and a version with toned down violence and nudity was produced for television broadcast. In the early 90's, positive responses to an unauthorized release of the original workprint prompted the 1992 release of a director's cut version, but Ridley Scott still didn't feel he had sufficient time or control to finish it the way he wanted. In 2007, Scott was able to make the version he wanted -- the "Final Cut" -- which was released with the 25th Anniversary Edition blu-ray. Blade Runner is one of my favorite movies, and it proves that, sometimes to get something right you need a quarter of a century and at least seven iterations.

Which is to say, the CFPB is still working on the Prepaids Rule.

The initial proposed rule was released on December 23, 2014, with following corrections to the proposal being released February 5, 2015. The rule went final for the first time on November 22, 2016, with an effective date of October 1, 2017. Less than 4 months later, on March 15, 2017 the Bureau issued another proposal, recognizing some issues with implementation of the final rule, seeking more time for additional adjustments and suggesting the effective date be delayed six months. That proposal went final on April 25, 2017, with a new effective date of April 1, 2018. However, the Bureau did believe further adjustments were necessary, and on June 29, 2017, another proposal was issued, delaying the implementation date further and proposing changes to the regulation. While it has not yet been published in the Federal Register, the Bureau has released the third Final Rule on prepaids, and the new effective date is April 1, 2019.

With all this rule writing and rewriting, one of the more painful parts of this process has been identifying the regulatory language that would be current on the effective date. On that front, the CFPB has done us a solid: they finally released an unofficial, informal redline of the rule, allowing compliance personnel to read the rules as a whole. The redline is even bookmarked!

The FINAL Final Rule

The most recent final rule makes several changes to the rule, most significant of which is the April 1, 2019 effective date. Other changes include:

• Revising the error resolution and limited liability provisions so that they only apply to prepaid accounts that are registered with the credit union and for which the identity of the account holder has been verified;
• Creating limited exceptions to the credit-related provisions to address situations where a credit card is liked to a digital wallet;
• Expanding situations where an account issuer can run a negative balance, if certain conditions are met;
• Making clarifications and minor adjustments to several provisions in Regulation E, including the definition of a prepaid account, unsolicited issuance of access devices, pre-acquisition disclosure requirements and submission of prepaid account agreements; and
• Technical corrections!

Refresher on the European Union's GDPR

 The NAFCU Compliance Team has seen an uptick in questions about the scope of the European Union's General Data Protection Regulation (GDPR). Apparently some vendors are raising the red flag for their clients. NAFCU recently hosted a webcast (for purchase) on the GDPR which credit unions may find helpful. We also blogged about the GDPR in May of last year, and that might be worth revisiting: Privacy Laws from Across the Pond: Scoping Out the GDPR.

The GDPR's scope is drawn very broadly. It does not require the credit union to have a location in the EU or for the website user to be an EU citizen or resident for the rule to apply. Here is a section from that prior blog post:

"Scope

The Directive applied mostly to organizations that had an establishment or "means of processing" physically located within the EU. The GDPR, however, expands the application of EU privacy law to organizations not located in the EU, but doing certain business in the EU.

For entities that do not have an establishment in the EU, the GDPR applies to any organization that processes the personal data of natural persons in the EU under two circumstances: 1) when offering them goods or services, even if it's not in return for payment, or 2) in monitoring their behavior which takes place within the EU. See, EU Regulation 2016/679, Ch. 1, Art. 3(2)."

The full post contains more detail, including the definitions that are necessary to really understand this scope. However, even if the credit union falls within the scope, there is still a question as to whether and when compliance with the rule may be appropriate for individual credit unions. It is not clear how the European Union would enforce the law against organizations without a presence in the EU. Neither the CFPB nor NCUA have indicated an appetite to examine for it. Credit unions seeking a realistic assessment of the risk that GDPR noncompliance would pose to the credit union should speak with an attorney experienced in international law. A proper assessment of this risk should help the credit union assess whether GDPR compliance is appropriate and necessary at this time.

Reg E Error Resolution for POS Disputes and Unjust Enrichment; Blockchain Resources

By Stephanie Lyon, Regulatory Compliance Counsel

Talk about Black Friday, the perfect opportunity for fraudsters to go holiday shopping with your member's debit cards, online or in store. The holiday season truly is a fantastic time to review key provisions of the error resolution process of Regulation E. So let's dig in!

The basic concept of the error resolution process is that members will notify their credit union when they notice an unauthorized EFT from their account. See, 12 C.F.R. § 1005.11(b). The credit union will receive the information needed to investigate the claim and resolve the issue within a specified time period. While the credit union investigates the error, the member will be provided with provisional funds to minimize disruptions to the member's life.  See, 12 C.F.R. § 1005.11(c)(2)(i). Finally, the credit union will notify the member of the resolution and make the provisional credit final or revoke the credit if no error occurred. Sounds simple enough, right?

Wrong. Regulation E is deceptively simple, but it is full of compliance pitfalls and stumbling blocks. We have already addressed a couple of these issues in prior blogs here and here. Today's blog focuses on point-of-sale (POS) dispute timelines and what to do if you finalized the provisional credit and new information shows the member was already refunded by the merchant or the transaction was not unauthorized.

The normal timeline to resolve a Reg E error is within 10 business days of when the member notifies the credit union of an unauthorized transfer from their account. See, 12 C.F.R. § 1005.11(c)(1). Some credit unions pride themselves in providing extreme member service and correcting most errors within this timeline and to save themselves the hassle of providing provisional credit. While admirable and very member-friendly, this also means the credit union will have to mad-rush to investigate the dispute, contact merchants, compare signatures, pull video from the security cameras (if any) and come to a conclusion. Whew! I am exhausted just thinking about the process. In POS dispute cases, 10 days is simply not enough to even get a return call from merchants, let alone any documentation of the transaction.

To remedy this, the regulation permits the investigation period to be extended up to 90 days for point-of-sale (POS) debit card transactions such as swiping your debit card at any store in the mall. See, 12 C.F.R. § 1005.11(c)(3)(ii). To take advantage of the extended timeline, the credit union must: (1) provisionally credit members for the amount of the alleged error as long as the member notifies the credit union in writing; (2) notify the member within 2 business days of the amount and date the provisional credit was given; and (3) give the member full use of the provisional credit while the investigation is pending.

Taking the time to investigate a POS dispute is essential as lately, credit unions are noticing that merchants are refunding members after the credit union has already resolved the error and finalized provisional credit. Basically, the member is getting back their money twice. As awesome as it is to get a windfall, it is simply not right. So credit unions want to know whether they can remove funds from a member's account if the member had been made whole by the merchant or if the credit union uncovers convincing evidence that the transaction was not unauthorized.

The answer to this question is not found in the regulation—of course. That would make it way too easy on the NAFCU compliance team that takes these questions as a white elephant gift from the regulators. Regulation E explicitly states that credit unions can reverse provisional credit if there was no error or a different error occurred. See, 12 C.F.R. § 1005.11(d). Nothing in the regulation states that credit unions can take back final credit if it later discovers that no error or a different error occurred. If this seems inherently unfair, you are not alone. There is an entire contract law concept called unjust enrichment that has been around long before any of us or our predecessors were thinking about compliance. The just of this notion is that someone received a benefit they were not entitled to at the expense of someone else. Unfortunately, to pursue an unjust enrichment claim, the credit union would have to file a civil suit against the member who received the windfall. A less expensive option may be to politely ask the member to reimburse the credit union if the merchant credited the member or if the member later admits to having made the transaction. But an even better option is probably to take the full 90 days to investigate the dispute and ensure the credit union is monitoring the member's account during that time.

Regardless of the option, this is an area where the regulation is not entirely clear on when or whether a credit union has the ability to revoke final credit if the member is unjustly enriched. Interestingly enough, the remittance transfer rule that makes up sections 1005.30 to 1005.36 of Regulation E, has a provision regarding these types of unjust enrichment cases that should be added to the EFT error resolution part of the regulation. Here is a relevant excerpt from the official interpretation to section 1005.33(f):

…In addition, nothing in this section prevents an account-holding institution or creditor from reversing amounts it has previously credited to correct an error if a sender receives more than one credit to correct the same error. For example, assume that a sender concurrently asserts an error with his or her account-holding institution and remittance transfer provider for the same error, and the sender receives credit from the account-holding institution for the error within 45 days of the notice of error. If the remittance transfer provider subsequently provides a credit of the same amount to the sender for the same error, the account-holding institution may reverse the amounts it had previously credited to the consumer's account, even after the 45-day error resolution period under §1005.11.

12 C.F.R. § 1005, Supp I, 1005.33(f)—1 (emphasis added). I am just going to put it out there, adding this to the official interpretation of section 1005.11(d) would be a pretty fantastic present for all compliance officers.

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Blockchain Resources

NAFCU Regulatory Affairs Counsel Andrew Morris recently wrote an article for our Cyber Café edition of the Compliance Monitor (log-in required). To continue to assist credit unions interested in staying ahead of the curve he teamed up with NAFCU Special Counsel Pamela Yu, to produce a webpage that describes how blockchain technology impacts credit union regulations from BSA to Mortgage Servicing. This resource is available to all and can be accessed here.

Increased Liability Triggers Reg E Disclosures

Written by Stephanie Lyon, Regulatory Compliance Counsel

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

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

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

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

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

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

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

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

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

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

Not Déjà Vu: Just Another Prepaid Proposal; Programming Note

Written by Stephanie Lyon, Regulatory Compliance Counsel

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

Error Resolution & Liability Limitations

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

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

Digital Wallets

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

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

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

See, 82 Fed, Reg. 29649.

Implementation Date

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

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

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

Debit Cards in the Age of Instant Gratification: Disclosing Instant Issuance Fees

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

More credit unions must be offering instantly issued credit and debit cards these days because the NAFCU Compliance Team has noticed an increase in questions on the topic. I personally remember the first time I received a debit card instantly because I was so impressed. I went into my bank (yes, it was a bank – forgive me, I was young and ignorant in the ways of the world) to open an account and the woman helping me told me she was going into the vault to get my card. When she came back with a plastic debit card with my name already printed on it, I was shocked. Technology has allowed some credit unions to offer instant issuance as an amazing member service… but it does cost money. Multiple members have asked lately whether instant issuance fees must be disclosed or if they trigger a change-in-terms notice. There's not necessarily a clear-cut answer to this… but we can look at the decision points credit unions might consider.

Account Opening

Generally, Truth in Savings (Part 707) covers the required disclosures for deposit accounts. Section 707.4(b)(4) requires the disclosure of the amount of any fees "that may be imposed in connection with the account." This language is quite broad, but there is staff commentary to sub-section 707.4(b)(4) that helps determine which fees must be disclosed at account opening:

"(b)(4) Fees

1. Types of fees. Fees related to the routine use of an account must be disclosed. The following are types of fees that must be disclosed in connection with an account:

i. Maintenance fees, such as monthly service fees.

ii. Fees related to share deposits or withdrawals.

iii. Fees for special services, such as stop payment fees, fees for balance inquiries or verification of share and deposits, fees associated with checks returned unpaid, fees for regularly sending to members share drafts that otherwise would be held by the credit union, and overdraft line of credit access fees (if charged against the share account).

iv. Fees to open or to close an account.

v. Fees imposed upon dormant or inactive accounts.

2. Other fees. Credit unions need not disclose fees such as the following:

[…]

ii. Incidental fees, such as fees associated with state escheat laws, garnishment or attorneys fees, to change names on an account, to generate a midcycle periodic statement, to wrap loose coins, for photocopying, for statements returned to the credit union because of a wrong address, and locator fees." 12 C.F.R. Part 707, App. C, comments 707.4(b)(4)-1 and -2.

As referenced in the staff commentary, some fees do need to be disclosed and others do not. These lists are not exhaustive and instant issuance fees are not referenced, so a credit union would need to make a determination as to which category above seems to apply its instant issuance fee. That may depend on the circumstances when such a fee is charged. For example, if a credit union charges the fee for all cards which are issued instantly when an account is opened in person, that fee may be more akin to a "fee to open… an account" and more closely related to routine use. However, if a credit union provides the initial card for no charge, and an instant issuance fee is only charged when a replacement card is required due to a member misplacing the card or the card being worn out, an argument could be made that the fee is more akin to an "incidental fee,"  as it is not connected to routine use of the account. Ultimately, each credit union would need to examine when the fees are charged and make its own risk based determination as to whether the fees are more routine or incidental in nature.

Some of you may also be saying "It's a debit card – what about Regulation E?" Under section 1005.7(b)(4), fees must be disclosed if they are imposed "for electronic funds transfers or the right to make transfers." There is no reference to access devices or instance issuance in section 1005.7(b) or its commentary. Again, credit unions would need to make their own determination as to whether the fee and the circumstances in which it is charged amounts to a fee the right to make transfers and required to be disclosed, or if it is more akin to an incidental fee for expedited service and disclosure is not required.

Change-In-Terms

For both Truth in Savings and Regulation E, whether a change in terms notice is required because a fee is changed or a credit union adds the ability to offer instant issuance depends on whether the fee is the type to be disclosed in the first place. So a credit union may need to do the above analysis, even if an account in question has existed for some time. Under section 707.5(a) of Truth in Savings, a credit union would provide notice of any change in a term required to be initially disclosed under section 707.4(b). If a change in terms notice is required, it would be provided at least 30 calendar days before the change is effective.

Under section 1005.8 of Regulation E, notice of a change is required when that change affects a term required to be disclosed initially under section 1005.7(b) and the change could result in, among other things, "increased fees for the consumer. See, 12 C.F.R. § 1005.8(a)(1)(i). If notice is required under TIS and Regulation E, a notice can be sent under Regulation E's 21 day timeline, rather than Truth in Savings' 30 day timeline, and this will satisfy Truth in Savings requirements. See, 12 C.F.R. § 707.3(c).

As is so often the case, there is not a straight answer on this. Whether an instant issuance fee for a debit card must be disclosed would differ from credit union to credit union, depending on what triggers the fee and a credit union's own analysis under Regulation E and Truth in Savings. But hopefully this helps credit unions facing these questions to identify some of the pivot points as they make their own determinations.

Return to Sender: Time to Comment on Remittance Transfer Disclosures

Written by Stephanie Lyon, Regulatory Compliance Counsel

My parents and younger sister live in the south of Spain, so this past Christmas Devon and I learned the hard way that sending gifts abroad is not only difficult but incredibly expensive. To sum it up, we had to pay hefty shipping and insurance costs at the U.S. Postal Office and once the package arrived in Spain we were surprised with an additional imposition of import duties and taxes as well as a local delivery fee. Needless to say, when the package made its way to a sorting hub in Barcelona and triggered a bill that was sent to my parents for about half the cost of the presents, pragmatic me told them to just let the package return to the United States. In the end we received the package back about 4 months later, soaked in water, and mangled (picture below). After this experience we no longer send gifts abroad; rather we now use our local credit union to send international remittance transfers and kindly request that my parents take my little sister shopping.

The reason sending money abroad can be better than mailing items internationally is because of the disclosure requirements of the remittance transfer rule which helps the sender avoid unpleasant surprises similar to the one the Spanish government handed me.

Basically, the remittance transfer rule requires that credit unions provide the sender with a written prepayment disclosure full of helpful information such as the exchange rate, fees and taxes that may be imposed, and the amount of money expected to be delivered prior to the payment of the transfer. See, 12 C.F.R. § 1005.31(b)(1), (e)(1). The rule also requires that the credit union give the sender a receipt once the transfer is made. See, 12 C.F.R. § 1005.31(b)(2). As an alternative to providing two separate disclosures, the rule permits credit unions to provide a combined written disclosure prior to payment, so long as the provider also provides proof of payment once the remittance transfer is made. See, 12 CFR § 1005.31(b)(3). Examples of these three disclosures can be found in Appendix A to Regulation E and the CFPB's website.

Understanding the timing and content of these disclosures is key to comply with the rule. To help with that, here is a nifty chart from the CFPB's small entity compliance guide:

NAFCU's compliance team has been contacted before regarding how to practicably provide the required written disclosures, especially as more members bank remotely. I wanted to highlight that in cases when the member requests a remittance transfer through online-baking, the rule does permit the credit union to provide the pre-payment disclosure electronically without regard to E-SIGN consent; however the receipt must comply with E-SIGN requirements. See, 12 C.F.R. § 1005.31, Supp. I, comment (a)(2) – 1. This leaves credit unions in a bit of a compliance dilemma.

For example, remote members that have not yet consented and cannot properly consent to E-SIGN delivery at the moment but need to make a funds transfer can be highly inconvenienced. For those instances, the rule has a narrow exception for remittance transfers completed by phone. The exception allows a credit union to treat an impractical written or electronic request as an inquiry as long as the credit union then calls the member to facilitate the remittance transfer entirely by phone. See, 12 C.F.R. § 1005.31, Supp. I, comment (a)(3) – 2. By completing the remittance transfer entirely by phone, the credit union may provide the required disclosures orally instead of going through the impracticality of sending written disclosures to a member who may not be near a computer.

There are other variations of the same issue for providing required disclosures and other parts of the international remittance transfers rule. So the CFPB is requesting comments on its plan to assess the effectiveness of this rule. If your credit union struggles with the requirements of the remittance transfer rule or can otherwise think of a better system for providing these required disclosures, feel free to contact NAFCU's Regulatory Affairs team or let the CFPB know directly. The important thing is to have a channel to further improve this system for your members and to lift some of the operational burden off credit unions.

Exceptions to the Prepaid Rule: What's Missing from the Buffet?

Written by Stephanie Lyon, Regulatory Compliance Counsel

The CFPB’s final rule on prepaid accounts, which is the Bureau's version of all you can eat regulation, was issued near the end of 2016. We have previously blogged on the general application of the rule as well as the definition of a prepaid account. Today’s blog focuses on what's missing from the buffet.

Issuers of Prepaid Access

Smaller credit unions have recently asked if the prepaid rule carved out an exception for smaller financial institutions. Unfortunately, the rule does not have an asset size threshold requirement for compliance with the prepaid rule. Hence all credit unions that are issuers of prepaid access will have to comply with the final rule. This requires providing the credit union’s prepaid account agreements to the Bureau for posting on the CFPB’s website on a rolling basis (not quarterly). See, 81 Fed. Reg. 84129.

There is an exception, however, that will not require credit unions with less than 3,000 “open” prepaid accounts to provide their agreements to the Bureau. See, 81 Fed. Reg. 84140.  So what exactly does “open” mean? The rule defines a prepaid account as open if either:

1. There is an outstanding balance in the account;
2. the member can load funds to the account even if the account does not currently hold a balance; or
3. the member can access credit (i.e. overdraft line of credit) from a covered separate credit feature offered in connection with a prepaid account.

See, 81. Fed. Reg. 84133. Nonetheless, credit unions will still be required to post the prepaid account agreements to their own website and to have the agreement readily available upon request. See, final 12 C.F.R. § 1005.19(c).

This is a great time to communicate with vendor providers of prepaid cards and outside packaging to establish who will lead the compliance efforts for the product so that the credit union can continue to issue prepaid cards to its members without fear of the approaching compliance deadline. After all, compliance cannot be outsourced, but credit unions may contractually require vendors to adhere to regulatory requirements to ease its compliance effort.

Sellers of Prepaid Access

According to the most current 5300 call report on the NCUA’s webpage, only about 16% of credit unions issue prepaid cards. Other smaller credit unions however, choose to sell prepaid cards issued by a different financial institution or third-party service provider. Luckily for these credit unions, the CFPB drew a distinction between issuers of prepaid access and other institutions that merely sell prepaid cards.

In order for a credit union to be within the scope of Regulation E, which will implement part of the prepaid rule, it has to either:

1. Directly or indirectly hold prepaid accounts, or
2. issue prepaid accounts and agree to provide electronic funds transfer services.

See, 12 C.F.R. § 1005.2(i). Credit unions that merely sell prepaid cards but do not hold the accounts or agree to provide electronic funds transfers for these prepaid accounts would not meet the definition of a financial institution that issues prepaid accounts or access. Specifically, the prepaid rule states, “… the burden of and liability for complying with this final rule would generally fall on the financial institution that issues the prepaid accounts, not on the banks or credit unions selling those products.” 81 Fed. Reg. 83964.

If your credit union is only selling prepaid access, you may still want to review and familiarize yourself with the lengthy requirements of the rule. While the issuer of the card will be primarily liable for prepaid access compliance, the credit union may take an active approach to compliance and create a checklist of the disclosures and information that should be on and off the prepaid card and package to ensure members receive great service.

Consumer Compliance Outlook – Overview of Regulation E Requirements for Foreign Remittance Transfers + Compliance Trivia!

Written by Shereefat Balogun, Regulatory Compliance Counsel

The Second Issue 2016 of the Federal Reserve’s Consumer Compliance Outlook is now available.  This issue provides an overview of the Regulation E requirements for foreign remittance transfers. The publication also contains revised interagency questions and answers regarding community reinvestment, regulatory updates, and federal court opinions.  This post will focus on the article’s overview of the Regulation E requirements for Foreign Remittance Transfers, as we receive a lot of compliance questions relating to these transactions. 

As way of background, the CFPB published a final rule regarding remittance transfers in February 2012, which became effective on February 7, 2013.  Since the rule’s enactment in 2012 however, it has been amended several times.  The article provides an excellent summary of the rule’s requirements, incorporating the changes that have been made.  Some of the most material changes noted in the article include:

Coverage

• Clarification that U.S. military installations in foreign countries are located in a U.S. state for purposes of the rule. The general definition of a remittance transfer is the electronic transfer of funds requested by a sender in the United Stated to a designated recipient in a foreign country by a remittance transfer provider. See, 12 C.F.R. §1005.30. The rule and commentary provide guidance as to when a recipient is located in a foreign county so as to trigger the rule’s coverage.  In 2014, the CFPB clarified that a designated recipient does not include a transfer to persons at U.S. military installations in foreign countries because they are treated by the rule as being on U.S. soil.  What this means is that if the credit union receives a request from a member specifying that the funds will be received at a location on a U.S. military installation that is located in a foreign country, the transfer will be received on U.S. soil, i.e. in a state, and would not be considered a remittance transfer under the rule.  However, a transfer from a U.S. military installation abroad to a recipient in a foreign county is covered by the rule.  See, 12 C.F.R. 1005, Supp. I, comments 1005.30(c) – 2.

• Providing Guidance on how a provider can determine if a sender is making a remittance transfer primarily for personal, family, or household purposes. A remittance transfer covered by the rule is one requested by a consumer primarily for personal, family, or household purposes.  See, 12 C.F.R. §1005.30 (e), (g).  A credit union can determine if a transfer is for personal, family, or household purposes by examining the type of account from which the transfer is being made.  If the account is used for personal, family, or household purposes, the credit union can assume the transfer is for that purpose, unless the credit union has specific information that suggest otherwise.  See, 12 C.F.R. 1005, Supp. I, comments 1005.30(g) – 2.  Similarly, a credit union can assume a transfer requested from a business account is not primarily for personal, family, or household purposes.  See, 12 C.F.R. 1005, Supp. I, comments 1005.30(g) – 3.

Disclosures

• New disclosures to the prepayment form, when third-party fees and taxes may apply, stating that third-party fees or taxes may apply to the remittance transfer, which could result in the designated recipient receiving less than the amount disclosed. When a sender requests a remittance transfer, the credit union must deliver prepayment disclosures listing critical terms of the transactions. These disclosures can be found in 12 C.F.R. §1005. 31.  As part of the mandatory disclosures, a credit union must disclose any covered third-party fees imposed on the remittance transfer by a person other than the credit union.  Moreover, the credit union must also provide a statement that noncovered third-party fees or taxes may apply to the remittance transfer and result in the designated recipient receiving less than the amount disclosed.  This statement is only required to the extent that these fees or taxes do or may apply to the transaction.  For compliance purposes, credit unions may use Model Forms A-30(a)-(c), contained in Appendix A to the rule.  

Use of Estimates

• Extension of the sunset date for temporary provision allowing credit unions to rely on estimates until July 21, 2020. Generally, disclosures must be accurate when the sender makes a payment.  However, because there are circumstances where credit unions may not always be able to determine all of the transaction terms with full accuracy, the rule provides some exceptions.  One exception allows credit unions to rely on estimates that are “reasonably accurate” when the exact amounts cannot be determined for reasons beyond their control.   See, 12 C.F.R. §1005.32(a).  This exception applies only to the exchange rate fees and taxes imposed by other persons.  Note that this exception is temporary and was scheduled to sunset on July 21, 2015 pursuant to the statute; however, the CFPB extended the temporary exception until July 21, 2020.
  

• Publishing a safe-harbor list of recipient countries qualifying for the permanent exception for the use of estimates. In addition to the temporary exception, credit unions may take advantage of two other exceptions.  These exceptions are permanent and permit estimates if: (1) a credit union cannot determine the exact amounts because of a recipient nation’s laws, or (2) the methods by which transfers are made to a recipient nation do not permit the credit union to know the amount of currency to be received.  See, 12 C.F.R. §1005.32(b)(1).  For compliance purposes, the CFPB established a safe-harbor list of countries that qualify for the second exception.  Currently, five countries are on the list- Aruba, Brazil, China, Ethiopia, and Libya.  While a credit union can still use estimates for a country not on the list if the exception applies, the credit union would not obtain a safe harbor.  See, 12 C.F.R. §1005.32(b)(1)(ii).

The rule’s commentary provides helpful guidance for determining if either of the two exceptions apply.  

Error Resolution

• Explaining that when a transfer is delayed because the provider or third party was investigating suspicious, blocked, or prohibited activity that could not have been reasonably foreseen, the delay is not an error. The error resolution procedures for remittance transfers are distinct from the regular error resolution procedures for electronic funds transfers, and are contained in 12 C.F.R. §1005.33. Section 1005.33 specifies what errors are subject to the error resolution procedures, and also provides certain exceptions.  For instance, delays resulting from the credit union’s screening procedures or in accordance with the BSA, OFAC, or similar laws are not considered errors.  See, 12 C.F.R. §1005.33(a)(1)(iv)(B).  The CFPB clarified in a later amendment that this includes a credit union’s investigation of potentially suspicious, blocked, or prohibited activity that could not have been reasonably foreseen.  See, 12 C.F.R. 1005, Supp. I, comments 1005.33(a) – 7.

• Clarifying that when a credit union makes a refund because a sender provided incorrect or insufficient information that prevented the transfer from being completed as requested, any taxes collected and fees imposed by an intermediary may be deducted from the refund, except for the fees the intermediary will refund to the credit union. See, 12 C.F.R. 1005, Supp. I, comments 1005.33(c) – 12.

In light of all the changes made since 2012, the article concludes by reminding credit unions the importance of having procedures in place to monitor and implement regulatory changes, to test internal controls to ensure the changes are implemented properly, and to provide adequate training to staff.

Fun Fact: The article notes that the World Bank estimates that the global market for foreign remittance transfers was $581.6 billion in 2015.  The U.S. ranked as the top transmitter, sending $56.3 billion in transfers to recipients in foreign countries in 2014.

Compliance Resources: There are a number of resources available to assist credit unions in compliance with the remittance transfer requirements. The National Credit Union Administration’s Regulatory Alert 13-RA-06 provides a useful overview of the requirements.

Here are some other resources that can help a credit union evaluate the remittance transfer requirements:

• The CFPB’s Main Remittance Regulation page;
• Subpart B of Regulation E – containing the regulatory text for the Requirements for Remittance Transfers (12 C.F.R. § 1005.30 – 1005.36).
• Small Entity Compliance Guide (updated in August 2014 to reflect recent technical amendments to the remittances rule);
• Safe Harbor Countries List;
• The CFPB’s August 2013 Webinar on the remittances requirements and the slides from that presentation;
• The CFPB’s (unofficial) consolidated regulatory text and commentary for the various final rules;
• The remittance transfer examination procedures that will be used by the CFPB to examine entities that provide remittance transfers; and
• The CFPB’s eRegulations tool for the remittance transfer rule on eRegulations;

Compliance Trivia: What are the safe harbor requirements for the remittance transfer rule?

It’s the Most Wonderful Time of the Year… for Credit Card and Debit Card Error Disputes

Written by Shereefat Balogun, Regulatory Compliance Counsel

This time of year usually drums up incidents of unauthorized transactions and subsequent error disputes from consumers to recoup their money.  Shoppers ran to their favorite retailers with their debit and credit cards in tow, to catch those alluring Black Friday, Small Business Saturday, and Cyber Monday sales.  And it’s not over! Christmas and more holiday sales are still underway.  Indeed, shoppers are busy…and so are the fraudsters. 

Generally, cardholders who are victims of unauthorized transactions will notify the credit union of an error and may obtain a refund from the credit union.  If the credit union determines that the cardholder’s request is valid, it will withdraw funds that were previously deposited into the merchant’s bank account and return the money to the member.  This post will remind credit unions how to process error disputes under Regulation E (for debit cards) and Regulation Z (for credit cards). 

Processing Debit Card Error Disputes under Regulation E

Regulation E, section 1005.11 governs the error resolution procedures for electronic fund transfers (EFTs) like ATM or debit card transactions.  Section 1005.11(a)(1) provides the types of errors covered by the rule, which includes “unauthorized electronic transfers”.  An unauthorized electronic transfer is one that is initiated by a person other than the member without authority to initiate the transfer. 

Notice of Error from Member

A credit union’s obligation to investigate is triggered once it receives a written or oral notice of an error from the member.  The notice must be received by the credit union no later than 60 days after delivery of the periodic statement on which the alleged error is first reflected.  The notice must comply with the content requirements set forth in 1005.11(b).  If the credit union receives an oral notice, the credit union may require the member to give written confirmation within 10 business days of the oral notice.  See, 12 C.F.R. §1005.11(b). 

Investigation

After the credit union receives a timely notice from the member, the credit union must conduct an investigation.  Section 1005.11(c)(1) requires a credit union to investigate and determine whether an error occurred within 10 business days of receiving the notice and to report the determination to the member within 3 business days.  Moreover, the credit union is required to correct the error within 1 business day after determining that an error occurred.  The 10-day investigation period may be extended to 45 days, if the credit union provisionally credits the member’s account in the amount of the alleged error within 10 business days of receiving the notice. However, provisional credit can be withheld if the credit union requires, but does not receive, written confirmation within 10 business days of an oral notice of error.  Lastly, the 45 days may be extended to 90 days if the unauthorized electronic funds transfer resulted from a point-of-sale debit card transfer.  See, 12 C.F.R. §1005.11(c).  

Credit unions often ask us if they are allowed to require affidavits or police reports from members who report unauthorized use of their debit card.  Regulation E does not permit a credit union to require documentation such as affidavits or copies of police reports as a requirement to start an investigation.  Rather, as explained above, the regulation requires the credit union to start the investigation as soon as it receives notice (oral or written) of an error.  My colleague Stephanie Lyon wrote a great blog on this topic earlier this summer.

Member Liability

So even where there is unauthorized use on the car, a member may be held liable if he/she fails to timely notify the credit union.  Under Regulation E, there are three possible tiers of member liability for unauthorized EFTs depending on the situation.  A member may be liable for: (1) up to $50; (2) up to $500; or (3) an unlimited amount, depending on when the unauthorized EFT occurs.  Specifically, the $50/$500 tier and the amount of liability imposed will be based on whether “timely notice” was given to the credit union.  See, 12 C.F.R. §1005.6.

If the member notifies the credit union within two business days after learning of the unauthorized use, the member's liability is capped at $50.  If the member fails to notify the credit union within two business days, the $500 liability cap applies.  Also, note that if the member’s delay in notifying the credit union was due to extenuating circumstances, the two-day limit must be extended.  The commentary to the rule explains that extenuating circumstances include travel.  This is worth highlighting, as many people travel during the holiday season and this may come up as a reason for not notifying the credit union sooner. The member can also be subject to unlimited liability if the member fails to notify the credit union within 60 days. 

Notably, under Regulation E, negligence is not a factor in determining a consumer’s liability for unauthorized EFTs under Regulation E.  So whether the member was silly for shopping on a seemingly suspicious website, or was irresponsible for leaving her debit card in the fitting room while trying on some new items, is irrelevant.

Lastly, credit unions should be aware that the liability rules described above may be different for VISA/Master Card purposes. In late 2014, the card networks adopted zero liability provisions as applied to debit and ATM cards, thus VISA and MasterCard branded debit cards may be subject to different liability provisions.  Credit unions are advised to consult with the credit card network’s rules for compliance purposes. 

Processing Credit Card Error Disputes under Regulation Z

 Regulation Z, section 1026.13 governs billing error resolution for credit cards.  Similar to Regulation E, Regulation Z, section 1026.13(a) defines the types of errors covered by the rule, which also includes an unauthorized use of the card.  See, 12 C.F.R. §1026.13(a)(1).  Unlike Regulation E though, another error covered by the rule would be where a member alleges that, while the transaction was authorized, the good or service was not received, or it was received but not in the form he/she agreed to. See, 12 C.F.R. §1026.13(a)(3).  This may happen where Member A ordered a flat screen TV from Amazon, and although it may have shipped, it was never received by the member; or even more funky, the member order a 32” flat screen but only received a 26’’ flat screen.  The commentary gives other examples, such as when the member refuses to take delivery of goods because they did not comply with the contract; or the wrong quantity was delivered; or the delivery was late. 

Notice of Error from Member

Unlike, Regulation E where a notice of error can be oral or written, a credit union’s obligations under Regulation Z are triggered once it receives a billing error notice in writing.  Like Regulation E, the notice must be received by the credit union no later than 60 days after delivery of the periodic statement on which the alleged error is first reflected.  See, 12 C. §F.R. 1026.13 (b).

Investigation

The credit union is generally required to mail or deliver written acknowledgment to the member within 30 days of receiving a billing error notice, and to resolve the error no later than 90 days after receiving the billing error notice from the member.   See, 12 C.F.R. §1026.13(c).  The rule establishes error resolution procedures where: (i) the billing error occurred as alleged by the member; and (ii) a different billing error or no billing error occurred.  If the credit union determines that a billing error occurred as claimed by the member, the credit union would be required to correct the error and credit the member's account in the amount disputed, and mail or deliver a correction notice to the consumer within 90 days of receiving the notice of error.  See, 12 C.F.R. §1026.13(e).

Regulation Z does not have the same 10-day provisional credit requirement as Regulation E.  Although there isn’t a provisional credit requirement, note that the credit union cannot try to collect the disputed amount while conducting its investigation.  See, 12 C.F.R. §1026.13 (d)(1)(emphasis added).

Lastly, it’s worth highlighting that under Regulation Z, 12 C.F.R. §1026.12, a member has the right to assert certain claims and defenses against the credit union concerning property or services purchased with a credit card, if the merchant was unwilling to resolve the dispute; that is, as against the credit union, the member can assert any claims or defenses that can be asserted against the merchant.  So going back to our flat screen TV example, if the member disputes the receipt of the item with Amazon, and Amazon fails to resolve the issue, the member can assert certain any claims against the credit union.  Moreover, the member would be permitted to withhold payment up to the amount of credit extended for that television.  See, 12 C.F.R. §1026.12(c).  

In addition to Regulation E and Regulation Z, the credit union may also need to consider card association rules (i.e. MasterCard and Visa) because they have some specific contractual requirements dealing with provisional credit that may be more beneficial to the member than the regulatory minimums.  Accordingly, the credit union would need to review those rules for provisions governing provisional credit.

Member Liability

Regulation Z defers to Regulation E’s liability provisions where the error dispute claimed is for the unauthorized use of a credit card involving an EFT.  See, 12 C.F.R. §1005.12(g).  Notably, there aren’t any regulatory provisions that govern member liability in the situation that doesn’t involve unauthorized use, i.e., where the member makes a dispute concerning an undelivered item. 

Again, don’t forget about those Visa/Master Card rules.  In addition to Regulation E and Regulation Z liability provisions, the credit union may also need to consider the card association rules, namely the zero liability provisions. 

The use of credit cards and debit cards will be prevalent this holiday season, and with the rise in cyberattacks and other fraud schemes, we may see an uptick in error disputes in the upcoming months. 

I know this was a lot of information, but it’s real out there! Oh, and if you hadn’t had enough, on Wednesday, the Federal Reserve Board published a report containing information on debit card transactions in 2015, including information on fraud losses.  The report states that debit card fraud losses increased by 44 percent from 2013 to 2015.  See, I told you it’s real!

As always, if you have any questions relating to this issue or any other general concerns, feel free to reach out to your NAFCU compliance team. We’re here for you!

What’s a Prepaid Account?

Written by Brandy Bruyere, Director of Regulatory Compliance

On October 5, 2016 the CFPB finalized its rules for prepaid accounts, with most provisions becoming effective on October 1, 2017.  An initial question for determining how the rule may impact a credit union is whether any of the credit union’s products fall within the scope of the rule by meeting the new definition of “prepaid account” in Regulation E. New section 1005.2(b)(3) includes:

• A “payroll card account,” meaning one directly or indirectly established through an employer where a consumer’s wages, salary or other compensation are sent by electronic funds transfer;
• A “government benefit account,” as defined in revised section 1005.15(b)(2) to mean those established by a government agency for distributing government benefits (although not needs-tested benefits) to a consumer electronically;
• An account that is marketed or labeled as “prepaid” and that is redeemable upon presentation at multiple, unaffiliated merchants for goods or services or usable at ATMs; or
• An account that meets the following conditions:
  • Issued on a prepaid basis in a specified amount, or not issued on a prepaid basis but can be loaded with funds later;
  • Has the primary function of conducting transactions with multiple unaffiliated merchants for goods or services, at ATMs, or to conduct person-to-person (P2P) transfers; and
  • Is not a checking account, share draft account or negotiable order of withdrawal account.

There are some exceptions to the definition. If the account is not a payroll card account or government benefit account, then the following accounts are not “prepaid accounts” under section 1005.2(b)(3)(ii):

• An account loaded only with funds from a health savings account, medical savings account, flexible spending arrangement, dependent care assistance program, or transit/parking reimbursement;
• An account directly or indirectly established through a third party that is loaded only with qualified disaster relief payments;
• The P2P function is established through the US government with the primary function to conduct closed-loop transactions on US military installations or similar government facilities;
• Gift certificates as defined in section 1005.20(a)(1) and (b);
• Store gift cards, as defined in section 1005.20(a)(2) and (b);
• Loyalty, award or promotional gift carts, as defined in section 1005.20(a)(4) and (b); or
• A general use prepaid card as defined in section 1005.20(a)(3) and (b), that is marketed as a gift card or gift certificate; or
• An account established for distributing needs-tested benefits in a program established under state or local law, or administered by a state or local agency.

Certain pass-through services are also excluded from the general definition of a prepaid account. Staff comment 1005.2(b)(3)(i)—6 says the following:

6. Prepaid account acting as a pass-through vehicle for funds. To satisfy § 1005.2(b)(3)(i)(D), a prepaid account must be issued on a prepaid basis or be capable of being loaded with funds. This means that the prepaid account must be capable of holding funds, rather than merely acting as a pass-through vehicle. For example, if a product, such as a digital wallet, is only capable of storing a consumer's payment credentials for other accounts but is incapable of having funds stored on it, such a product is not a prepaid account. However, if a product allows a consumer to transfer funds, which can be stored before the consumer designates a destination for the funds, the product satisfies § 1005.2(b)(3)(i)(D).

In other words, if a service merely operates as a digital wallet that stores payment credentials, the member cannot store funds, and the member cannot access the balance then it would not be a prepaid account. However, further commentary clarifies that to meet the definition of prepaid account, it is not necessary that the account be reloadable by the consumer or a third party. Official Interpretation 1005.2(b)(3)(i)—7.

As with many regulations, including existing Regulation E, the commentary is key here, so this blog is really just a glimpse as some of the intricacies in this 1,689 page rule – and does not even get to what products might be a “hybrid prepaid-credit card” that will be subject to certain provisions in Regulation Z.  For more information, NAFCU members can find our Final Regulation summary of this rule here (log in required).

Seem like a lot? The CFPB must have thought so too, since the Bureau created a six page flowchart to help credit unions determine whether a particular product meets the definition of “prepaid account.” You can find it here and other Bureau resources here.

***

Black Friday. Instead of scrambling against the crowds at stores for discounts, on the day after Thanksgiving my parents and I took Nolan to nearby Great Falls National Park. He kept trying to climb over the railings, but it was a fun trip. Nolan also learned a new word this weekend - pie! 

We Listened So You Don’t Have To: Interagency Overdraft Services Webinar

Written by Stephanie Lyon, Regulatory Compliance Counsel

On Wednesday, November 10^th, the Consumer Financial Protection Bureau (CFPB), the National Credit Union Administration (NCUA) and other financial services regulators joined to present a webinar on overdraft practices and issues identified through consumer complaints, examinations, and enforcement actions. You can listen to the audio of the webinar here and download the presentation slides here.

Unfair, Deceptive or Abusive Acts and Practices (UDAAP)

The key issues identified by the regulators centered on unfair and deceptive practices such as failing to obtain proper opt-ins, having overdraft practices that differed to those disclosed on the opt-in forms, and misrepresentations from staff regarding the service. The NCUA representative did state that the Agency continues to be impressed with credit unions’ tendency to promote financial literacy such as educating members on the benefits and the fees associated with the use of overdraft services. However, there are a few examples of unfair and deceptive acts and practices that are worth reviewing.

Some of the practices regulators found problematic are:

• Promoting constant use of overdraft service
• Not explaining overdraft alternatives that may be cheaper
• Improperly trained staff that is unable to explain program and alternatives
• Suggesting the overdraft service is free when there is a fee associated with the use
• Transaction re-ordering to increase consumer costs

It is no secret that CFPB and other regulators have their eye set up overdraft services. Credit unions can review CFPB’s supervisory highlights to get an idea of the overdraft practices that are raising potential UDAAP concerns in the industry.

Risk Management

The regulators gave a few options for monitoring overdraft services to mitigate the risk of facing an enforcement action. Among these suggestions a couple can be beneficial for credit unions:

1. Comparing the credit union’s disclosures to its actual policy and procedures to ensure that they accurately describe the credit union’s practices.

For example, if the credit union uses the member’s available balance to decide if there is an overdraft, the disclosures should clearly and conspicuously explain the practice so members are not caught by surprise if they incur an overdraft when there would be no overdraft if the member’s ledger balance was taken into account. Another important instance is when a software change makes the system operate differently than the disclosures anticipate.

2. Monitoring member complaints to identity systemic failures that should be reported to senior management.

A credit union that actively monitors member complaints is better positioned to find trends of potential member confusion or staff misrepresentations regarding overdraft services. For instance, if one teller consistently tells members that the service is free to encourage them to opt-in and the credit union receives 3 complaints from members who were charged an overdraft fee, this can serve as an early warning signal.

3. Monitor and control risks presented by third party vendors.

This risk management strategy is best understood by reviewing a recent CFPB enforcement action against Santander’s Bank. The Bank’s third party service provider was enrolling customers without affirmative opt-in and providing deceptive information to get consumers to opt-in. According to the enforcement action, Santander did not exercise appropriate oversight of its third party overdraft service provider and was ordered to pay a whopping $10 million civil money penalty.  You can read more about this enforcement action here.

In light of the interest overdraft services are receiving from regulators and potential plaintiffs alike, credit unions may want to ensure their program follows Regulation E’s disclosure and opt-in/opt-out requirements as well as review consumer complaints to identify potential unfair, deceptive or abusive practices.

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Early Thanksgiving

This weekend, my family celebrated thanksgiving early because we will not be able to be together on the actual date. It is the third year I celebrate thanksgiving with my wonderful husband Devon, and as usual, we made enough food to feed a family of 12. I have to admit, I was thrilled to have an excuse to use the wedding china we received for our wedding.

CFPB Issues Final Prepaid Rule

Written by Pamela Yu, Special Counsel for Compliance and Research

Happy Wednesday!  I hope you all had a pleasant Columbus Day weekend, or, as we like to call it in my expat-Canadian household, Thanksgiving weekend.  Yes, that’s right. Canadian Thanksgiving is in October.  What else is different about Thanksgiving in Canada versus in the U.S.?  Not much—just like in America, it’s all about turkey coma and pumpkin pie.  Except instead of watching football we watch the Toronto Blue Jays sweep the Texas Rangers to advance to the American League Championship Series (Go Jays!). 

Now that NAFCU’s Compliance team is back in the office, it’s time to start diving into CFPB’s new final rule on prepaid accounts (Prepaid Rule).  The Prepaid Rule, which is a healthy 1,689 pages, mandates comprehensive consumer protections for prepaid accounts under Regulation E, which implements the Electronic Fund Transfer Act; Regulation Z, which implements the Truth in Lending Act; and the official interpretations to those regulations.

The final rule modifies Regulation E to create prepaid account provisions governing disclosures, limited liability and error resolution, and periodic statements.  It also adds new requirements regarding the posting of account agreements.  Additionally, the final rule regulates overdraft credit features that may be offered in conjunction with prepaid accounts.  Such credit features, with some exceptions, will be covered under Regulation Z where the credit feature is offered by the prepaid account issuer, its affiliate, or its business partner and credit can be accessed in the course of a transaction conducted with a prepaid card. 

The rule is effective October 1, 2017.  However, the requirement (in § 1005.19(b)) for prepaid account issuers to submit their prepaid account agreements, which must satisfy the rule’s form and content requirements, to the CFPB for posting on its website is delayed until October 1, 2018.

The final rule was issued by the CFPB last Wednesday and NAFCU’s Regulatory Affairs team will be providing a detailed summary of the final rule shortly, which will be available to NAFCU members on our website (member login required).  NAFCU issued a Regulatory Alert on the proposed rule in late 2014, which is currently available to members on our website (14-EA-27).  The CFPB has also provided a new implementation web page.  In the meantime, this post will provide a high-level overview of the scope of the “prepaid account” definition in the final rule.

The Prepaid Rule adds the term “prepaid account” to the definition of “account” in Regulation E. Accounts within the scope of the rule’s definition of prepaid account are subject to various requirements under amended Regulation E.  

Definition. The criteria for whether an account is a prepaid account under the final rule are set forth in 12 CFR 1005.2(b)(3). See p. 1425-1427 of the Prepaid Rule.

Under the rule, payroll card accounts and government benefit accounts are prepaid accounts.  Additionally, a prepaid account includes a product that is either of the following, unless a specific regulatory exclusion applies:

• An account that is marketed or labeled as “prepaid” and is redeemable upon presentation at multiple, unaffiliated merchants for goods and services or usable at automated teller machines (ATMs); or
• An account that meets all of the following: (1) Is issued on a prepaid basis in a specified amount or is capable of being loaded with funds after issuance; (2) Whose primary function is to conduct transactions with multiple, unaffiliated merchants for goods or services, to conduct transactions at ATMs, or to conduct person-to-person (P2P) transfers; and (3) Is not a checking account, a share draft account, or a negotiable order of withdrawal (NOW) account.

Exclusions. An account that satisfies one or both of the above tests is not a prepaid account for the purposes of the rule if it is any of the following:

• An account loaded only with funds from a health savings account, flexible spending arrangement, medical savings account, health reimbursement arrangement, dependent care assistance program, or transit or parking reimbursement arrangement;
• An account that is directly or indirectly established through a third party and loaded only with qualified disaster relief payments;
• A gift certificate;
• A store gift card;
• A loyalty, award, or promotional gift card;
• A general-use prepaid card that is both marketed and labeled as a gift card or gift certificate; or
• An account established for distributing needs-tested benefits in a program established under state or local law or administered by a state or local agency.

Additionally, the P2P functionality of an account established by or through the U.S. government is not a prepaid account under the rule if the account’s primary function is to conduct closed-loop transactions on U.S. military installations or vessels, or similar government facilities.

Also, an account established for a commercial purpose is not a prepaid account because, under the existing definition of account in Regulation E, an account is subject to Regulation E only if it is established primarily for a personal, household, or family purpose.  In addition, under the existing definition in Regulation E, an account held under a bona fide trust agreement is not an account subject to Regulation E; therefore, an account held under a bona fide trust agreement is also not a prepaid account.

It is important to note, however, that the definition of prepaid account is not limited to general purpose reloadable cards or prepaid products that otherwise function as transaction account substitutes. 

CFPB has provided a flow chart that may help credit unions to determine if an account is a prepaid account under the final rule.

NAFCU’s Regulatory Compliance team is continuing to analyze the new Prepaid Rule to understand its full impact on credit unions.  Stay tuned for more information in the coming weeks.  

Debit Card Error Resolution: Can We Require an Affidavit?

Written by Stephanie Lyon, Regulatory Compliance Counsel

Greetings, fellow compliance aficionados! My name is Stephanie Lyon and I recently joined NAFCU as a Regulatory Compliance Counsel. Prior to NAFCU, I worked as a compliance officer in a small credit union and also interned at a large credit union during law school. I am thrilled to join the Regulatory Compliance Team and I look forward to working with all of you!

Now let’s all have a moment of silence for the hundreds of thousands of dollars credit unions have paid to members whose pin numbers were written on the back of their cards when lost or to members who went online shopping at www.fraudsters.com and had their card information stolen. Stories like these are not uncommon in the financial industry and each narrative seems to be more outrageous and expensive than the last. Unfortunately, some regulations are very member friendly and may make a credit union pay for losses, even if the member was negligent.

The federal Electronic Funds Transfer Act and Regulation E were enacted to protect consumers from electronic fund transfer errors and prevent financial institutions from unduly delaying the investigation and crediting of funds when errors are detected. The generous consumer protections built into Reg E, specifically section 1005.11 and its relevant staff commentary, may cause some credit unions to consider implementing procedures for members reporting unauthorized electronic fund transfers. These procedures require members to take steps in order to get their money back, with the goal of preventing unreasonable losses to the credit union. Credit unions often ask NAFCU’s compliance team if the credit union can require members who report unauthorized use of their debit card to provide documentation like police reports, affidavits, and signed written statements. While it is understandable that credit unions may want documentation from their members, the rule is very member friendly, mechanical and allows for minimal procedural variances in the error resolution process.

The rule states that a “financial institution may require a member to give written confirmation of an error within 10 business days of an oral notice” provided that the credit union tells the member of this requirement. See, 12 C.F.R. § 1005.11(b)(2). For credit unions that require a written confirmation, the error resolution process may look something like this:

1. Member notices an unauthorized charge on their account and calls the credit union.

2. The credit union asks the member to provide a written confirmation while it investigates the dispute per section 1005.11(b)(2).

3. The member fails to send a written confirmation of the error and the credit union takes longer than 10 business days to make a final determination.

4. The credit union has to make a decision of whether or not to provisionally credit the member’s account per section 1005.11(c)(2)(i).

5. The credit union makes the final determination of the error, makes the provisional credit final (if provided) and notifies the member per section 1005.11(c)(1).

There is extensive debate among compliance officers on whether section 1005.11(b)(2) and its relevant commentary allow credit unions to require members to provide affidavits and police reports. Unfortunately for credit unions, the rule is written narrowly and only gives credit unions the discretion to require written confirmation and withhold provisional credit in specific circumstances. The relevant sections of the rule that talk about written confirmation and provisional credits are sections 1005.11(b)(2) and 1005.11(c)(2)(i)(A), respectively.

First, let’s discuss what must be in the written confirmation. According to Reg E, the required contents of the member’s error notice are few; it must (a) enable the institution to identify the member (account number, member number, social security number or other personal identifier); and (b) indicate why the member believes an error exists along with the type of error, date, and amount of the error. See, 12 C.F.R. § 1005.11(b)(1)(ii)-(iii). The contents of the error notice can be given by the member orally or in writing. The rule does allow credit unions to require a signed written confirmation after receiving an oral notice of error. Is a signed written statement an affidavit? While affidavit requirements vary by jurisdiction, the Merriam-Webster dictionary defines an affidavit as “a sworn statement in writing made especially under oath or on affirmation before an authorized magistrate or officer.” Reg E’s written confirmation requirement is not nearly that formal.

Next, let’s discuss how the ability of the credit union to require a written confirmation impacts investigation responsibilities under Reg E. The main responsibilities of credit unions are to investigate an EFT error and to come to a resolution. Credit unions argue that without written confirmation, the credit union does not have anything to investigate and hence it should not have to pay for the unauthorized use of the member’s card. Even though the credit union may take into account the lack of documentation as a factor for its investigation, it must begin investigating promptly upon receipt of an oral notice. The rule clearly states that the credit union must follow all of the steps outlined in the regulation, even if the member only gives oral notice of the error. See, 12 C.F.R.§ 1005.11(b)(1). Comment 1005.11(b)(1) – 2 states:

“2. Investigation pending receipt of information. While a financial institution may request a written, signed statement from the consumer relating to a notice of error, it may not delay initiating or completing an investigation pending receipt of the statement.” 

(emphasis added).

In cases when the credit union is unable to conclude its investigation in 10 business days, it may take up to 45 calendar days from receipt of a notice of error to investigate and determine whether an error occurred. If the credit union chooses to use the additional time, it must provisionally credit the member’s account in the amount of the alleged error, unless the institution requires but does not receive written confirmation within 10 business days of an oral notice of error. See, 12 C.F.R. § 1005.11(c)(2)(i)(A). Hence a credit union can make the choice to withhold provisional funds if the member fails to provide the written confirmation of the error so long as the credit union does not delay commencing an error investigation because the member has not provided an affidavit, police report or other signed written documentation.

The bottom line is, Reg E does not permit altering the member’s rights or the investigation process by requiring additional documentation, whether they are police reports, affidavits, or otherwise. If the credit union requires a written confirmation and the member fails to provide it within 10 business days, the credit union does not have to provisionally credit the member’s account. So, while the credit union can request a written confirmation of the error, it cannot close an investigation merely because the credit union did not receive it. Credit unions requiring affidavits and police reports during its EFT error investigations may want to review their procedures with counsel, or risk giving its members reasons to complain to the NCUA.

CFPB Issues Compliance Bulletin on Preauthorized Debit Transactions Under the Electronic Fund Transfer Act and Regulation E

Written by Shereefat Balogun, Regulatory Compliance Counsel

On November 23, the CFPB issued a compliance bulletin (Bulletin 2015-06) concerning the Electronic Fund Transfer Act (EFTA) and Regulation E requirements for obtaining a consumer’s authorization for preauthorized electronic fund transfers. In the bulletin, the CFPB observed that some entities are not fully complying with the requirements imposed by the EFTA and Regulation E. The bulletin primarily focuses on two areas: (i) obtaining the member’s authorization for preauthorized EFTs over the telephone; and (ii) providing a copy of the authorization to the member.

As you may know, Regulation E requires that preauthorized EFTs from a member’s account be authorized “only by a writing signed or similarly authenticated by the consumer.” Moreover, a copy of the authorization but be provided to the member. In the bulletin, the CFPB explains that a credit union may obtain a member’s authorization over the phone, provided that the requirements of the E-Sign Act are met. Specifically, the bulletin states that Regulation E may be satisfied if a member signs or similarly authenticates the authorization orally. For example, a member can authorize preauthorized EFTs by entering a code into their telephone keypad; or the credit union may record and retain the member’s oral authorization. In both instances, Regulation E is satisfied, provided the member intends to sign the record as required by the E-Sign Act. Note that the E-Sign Act prohibits the use of oral recordings as electronic records, where a law or regulation requires that information be provided to a consumer in writing. However, in the bulletin, the CFPB makes clear that the E-Sign Act’s restriction does not apply to Regulation E’s preauthorized EFT requirements because Regulation E does not specify that entities provide a writing to consumers when obtaining the authorization.

The bulletin also discusses Regulation E’s requirement for a credit union to provide a copy of an authorization for a preauthorized EFT to the member, noting that two of the most significant terms of an authorization are timing and the amount of the recurring transfers from the member’s account. The CFPB also provides an alternative to providing a copy of the authorization after its execution- a credit union can provide a confirmation form. For example, a credit union may provide a member with two copies of the authorization form, and ask the member to sign and return one and to retain the second copy.

Lastly, the CFPB makes clear that credit unions must obtain member authorizations before initiating preauthorized EFTs and provide a copy of that authorization to members. The CFPB encourages credit unions to provide a copy of the authorization to the member before the first preauthorized EFT is initiated.

 

Hodgepodge Monday and a Special Goody from NAFCU

Written by JiJi Bahhur, Director of Regulatory Compliance

NAFCU Goody.  Members asked, and today they will receive.  NAFCU’s compliance team has updated its consolidated regulatory text on the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) Integrated Disclosure (TRID) rule.  Available with a NAFCU member log-in, the updated consolidated text can be located on NAFCU’s mortgage resources webpage here and serves as a great research tool. 

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Free NAFCU-NCUA Webcast, Fine-Tuning Your Compliance Program: Common Compliance Violations.  On July 21, Bernadette and I will be joining NCUA’s Judy Graham, program director in the Office of Examination and Insurance, Patrick Truett, information system officer for E&I, and Matt Nixon, program officer in the Office of Consumer Protection, in presenting “Fine-Tuning Your Compliance Program: Common Compliance Violations.”  We will discuss how credit unions can navigate common compliance issues and examine various compliance areas of interest.

Online registration is available here and participation is free. You can find more information here.

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CFPB’s Fifth TRID Webinar Available.  Part 5 of the CFPB’s TILA/RESPA webinar series is now available for viewing here.  This fifth and final webinar addresses specific questions related to rule interpretation and implementation challenges that have been raised to the CFPB by creditors, mortgage brokers, settlement agents, software developers, and other stakeholders. In particular, this session covers industry questions relating to operations and technology challenges.

Recordings of the previous webinars in the TILA/RESPA series are available at the links below:

TILA-RESPA Integrated Disclosure, Part 1 — Overview of the Rule

TILA-RESPA Integrated Disclosure, Part 2 - Various Topics

TILA-RESPA Integrated Disclosure, Part 3 — Completing the Loan Estimate

TILA-RESPA Integrated Disclosure, Part 4 — Completing the Closing Disclosure

Just a reminder – if you are looking for additional help with TILA/RESPA, NAFCU’s Credit Union Compliance GPS contains an appendix that is solely dedicated to TILA/RESPA.  Also, check out our TILA/RESPA Boot Camp and blog series.

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CFPB Issues Guiding Principles for Faster Payment Networks.  Last week, the CFPB outlined guiding principles for faster payment networks.  In the CFPB’s guidelines, it states:

“Improvement in payment systems can aid many users — and consumers, in particular — if accompanied by more robust and timely information about payments and receipt of funds. When integrated with systems such as mobile banking and other channels by which consumers may obtain real time information about their account balances, consumers could know more definitively when they do and do not have funds with which to conduct transactions. At best, faster payments could enable faster, safer, and more accessible commerce.”

The guidelines focus on privacy, transparency, costs, security, access and more.  To view the guidelines, click here.  To view the press release, click here.

It should be noted that other federal agencies, including the Federal Reserve, have been engaged in initiatives to improve payment systems as well.  NAFCU has been very involved in these efforts and will continue to gather input on how to improve the U.S. payments system. 

CFPB Semiannual Rulemaking Agenda; NAFCU Risk Management Seminar

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

CFPB Semiannual Rulemaking Agenda. As Brandy mentioned last week, the CFPB recently announced its Semiannual Rulemaking Agenda for Spring 2015. The agenda includes a listing of regulations in the various rulemaking stages.  A couple of highlights from those in the final rule stage include:

• Home Mortgage Disclosure Act (HMDA) (Regulation C). The CFPB estimates that it will release a final rule amending Regulation C in August 2015. Under the HMDA proposed rule, depository and non-depository institutions meeting all other criteria under Regulation C, and which had originated 25 or more covered loans in the previous calendar year, would be required to report expanded HMDA data.

 

• Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z). The CFPB also anticipates that it will release a final rule on prepaid products in January 2016. The prepaid accounts proposed rule would establish new consumer protections for the prepaid market that would require market participants to limit consumers’ losses when funds are stolen or cards are lost, investigate and correct errors, provide free access to account information, and follow the practices of credit card protections if a credit product is offered in connection with a prepaid account. The CFPB also proposes new “Know Before You Owe” prepaid disclosures that would provide consumers with clear information about the costs and risks of prepaid products upfront.

The CFPB’s semiannual rulemaking agenda is available in its entirety here.

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NAFCU Risk Management Seminar. Shameless Plug Alert! Join us in the Mile High City this summer, August 3-5, 2015, for critical credit union risk training. Developed in part by a taskforce of peers who are experts in the field, this new conference will give you a 360° view of the internal and external risks facing your credit union, and gain a better understanding of how to properly manage them. From credit and interest rate risk to compliance, strategic and reputation risk, NAFCU's new Risk Management Seminar will give attendees the tools needed to properly navigate the most serious risks threatening their credit union. Save $100 with promo code RISKSAVINGS. Offer ends 6/5/15. Click here to enroll.

CFPB Revises The Remittance Rule

By Eliott C. Ponte, Law Clerk

The Dodd-Frank Act added new requirements for remittance transfers under the Electronic Fund Transfer Act by directing the CFPB to issue regulations amending Regulation E.  Under this mandate, the CFPB released a series of regulations (the Remittance Rules) corresponding with Congress’ intent.  These regulations became effective on October 28, 2013.  NAFCU issued a summary of the final regulation on July 21, 2012, which can be found by clicking this link (you must be a NAFCU Member to access this summary).

Of the many Remittance Rules promulgated by the CFPB, the Dodd-Frank Act required that consumers be provided with exact pricing disclosures before paying for a remittance transfer.  Foreseeing problems with such requirements, Congress included a provision that allowed insured financial institutions to provide estimated disclosures where exact information could not be determined for reasons beyond a financial institution’s control.  Congress sought this exemption to be temporary, and thus included a sunset provision that retired this exemption on July 21, 2015.  Hedging against their own expectations, Congress also empowered the CFPB to extend the exemption for an additional five years if the CFPB determined that the expiration of the exemption would negatively affect the ability of insured financial institutions to send remittances to locations in foreign countries. 

In April of this year, the CFPB announced that it sought to amend the Remittance Rules by, among other things, extending the exemption for an additional five years (ten years in total, which is the maximum length as allowed by the Dodd-Frank Act).  Last week, the CFPB announced that it finalized its proposed regulations, thereby extending the exemption period until July 21, 2020.  In prepared remarks, CFPB Director Richard Cordray said, “today’s final rule will help ensure these changes are implemented smoothly and that consumers will be well-protected during that process.”

In addition to extending the exemption, the CFPB also adopted several clarifications and technical corrections to the Remittance Rule.  First, the CFPB clarified that U.S. military installations abroad are considered to be located in a “State” for purposes of the Remittance Rule.  Prior to this clarification, the Remittance Rule was unclear as whether a United States military base in a foreign nation was considered a “State” for the purposes of the regulation.  Under the final rule, transfers that will be received at a location on a United States military base that is physically located abroad are considered to be received in a “State.”  Similarly, transfers that are sent to a recipient’s account that is also located on a United States military base abroad is considered to be located in a “State.” 

Second, the CFPB clarified that whether a remittance transfer from an account is for personal, family, or household purposes (and thus, whether the transfer could be a remittance transfer) may be determined by ascertaining the primary purpose of the account.  Next, the CFPB clarified that faxes are considered writings for purposes of satisfying certain provisions of the Remittance Rule that require remittance transfer providers to provide written disclosures. 

Fourth, the clarified regulation permits providers to include the CFPB’s new remittance-specific consumer website (the Spanish speaking version of the website can be found here, although it is not currently functioning) as the website that providers must disclose on remittance transfer receipts.  Finally, the CFPB released a revised version of its compliance guide to reflect the changes finalized in the updated regulation.  The Final Regulation is available here.

CFPB Issues Data Report on Overdraft Programs

Written by Brandy Bruyere, Regulatory Compliance Counsel

Last week, in CFPB’s ongoing consideration of rulemaking in the area of overdraft programs, the bureau released a report on overdraft services. This report is based on consumer experiences with about 2 million accounts held at large banks under the bureau’s supervisory authority, meaning those financial institutions with over $10 billion in assets. The report concluded, among other things, that “the majority of debit card overdraft fees are incurred on transactions of $24 or less.” Other key findings include:

• Overdraft and other non-sufficient funds fees constitute the majority of checking fees that consumers incur;
• 8% of consumers account for almost 75% of all overdraft fees;
• The median amount of a transaction leading to an overdraft fee for all types of debits is $50;
• The propensity to overdraft an account is correlated with age, as 10.7% of consumers age 18-25 have over 10 overdrafts a year while only 2.8% of consumers over age 62 incur such frequent overdrafts; and
• Over half of consumers who overdraft return their accounts to a positive balance within three days, and 76% become positive again within a week.

The bureau indicated in its press release that it “plans further studies on how overdraft works and how it is affecting consumers” and “is also weighing what consumer protections are necessary for overdraft and related services.” In a press call regarding the release of the report, CFPB Director Richard Cordray’s prepared comments may provide some insight as to what kind of rulemaking we may see in this area:

“…Overdraft fees should not be ‘gotchas’ when people use their debit cards. But unfortunately, the wider use of debit cards means those who opt in for overdraft are likely to get charged more fees. Our study shows that more often than not, consumers who incur overdraft fees for using their debit card are doing so for small purchases of $24 or less.

Moreover, our study found that the majority of consumers put money back into their bank accounts within three days of their overdraft transactions – maybe their paychecks got posted or a deposit finally cleared. In fact, more than 75 percent have positive account balances within a week.

The result is that some consumers are essentially paying $34 – which is the typical overdraft fee – to have the bank spot them less than $24 for just a few days. If a consumer were to get a loan on those terms, that would equate to an annual percentage rate of over 17,000 percent…

I want to take pains to note that nothing in this report implies that banks and credit unions should be precluded from offering overdraft coverage. But we need to determine whether current overdraft practices are causing the kind of consumer harm that the federal consumer protection laws are designed to prevent.” (Emphasis added.)

The bureau plans additional studies and meanwhile the prerule stage of rulemaking on overdrafts is scheduled to be ongoing until February, 2015 so it is unlikely that we will see a proposed rule soon. However, the bureau continues to signal a willingness to further regulate in the area of overdrafts. 

Personal Space. My attempts to make Lemmy understand the concepts of personal space have been in vain. These days, he requires reminders that the baby "brother" is not a pillow!

Navigating Regulation Z: The CFPB’s eRegulations Tool

Written by JiJi Bahhur, Director of Regulatory Compliance

As part of its eRegulations tool, the Consumer Financial Protection Bureau (CFPB) launched, earlier this week, an “easier-to-navigate” electronic version of Regulation Z, which implements the Truth in Lending Act.  From the CFPB’s blog:

“The public, industry, and the government all benefit from regulations that are easier to find, read, and understand. That is why last year we launched our eRegulations tool which combines important information that can often be difficult to navigate or is spread throughout a regulation, often separated by dozens or even hundreds of pages. Ideally, using eRegulations will lead to better compliance and improved accessibility.

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By adding Regulation Z, one of the most complex and heavily-consulted consumer financial regulations, we can help mortgage stakeholders better understand and comply with the recent amendments implementing the Ability to Repay rules, the new federal mortgage integrated disclosures, and other changes. Stakeholders who deal with credit cards, auto loans, student loans, and other consumer credit will also benefit, because Regulation Z covers virtually all forms of consumer credit.”

The purpose of the eRegulations tool is to provide a way to effectively display past, current and future versions of a regulation that are not yet effective but that have been published in the Federal Register.  The tool also has a new feature that allows comparison of two versions of the regulation so the person looking at the regulation can see what the differences are from one version to the other. 

It sounds nice and I don’t doubt that it could be of use when conducting research, but the CFPB did provide a disclaimer that users should be aware of.  From the eRegulations tool:

“The CFPB’s eRegulations tool is an editorial compilation of material and not an official legal edition of the Code of Federal Regulations or the Federal Register. We have made every effort to ensure the material presented in this tool is accurate, but if you are relying on it for legal research you should consult the official editions of those sources to confirm your findings. Nothing in this tool binds the Bureau or creates any rights, benefits, or defenses, substantive or procedural, that are enforceable by any party in any manner.”

Currently, the CFPB’s eRegulations tool includes Regulation E, for electronic funds transfers, and Regulation Z, for consumer credit products. 

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Have a great weekend, everyone!

Data Breaches Happen- NAFCU is Reacting, Are You?

Written by Alicia Nealon, Regulatory Compliance Counsel

As the holidays officially come to a close, and we all deal with the mountain of decorations-to-be-taken-down, gifts-to-be-returned, and unwanted-holiday-pounds-to-lose, the credit union community also has to deal with the holiday gift that nobody asked for- the Target data breach.

In late December 2013, Target confirmed that there was a massive data breach at their stores between November 27 and December 15 of credit and debit card information. There are a few things to consider when a breach of information like this occurs.

First, it may be important for a credit union determine the appropriate operational controls that need to be taken, such as monitoring accounts, closing accounts and reissuing cards.  While they will ultimately be a business decision for the credit union, these decisions will depend on what information from the account has been compromised, as that will dictate the risk of fraudulent and unauthorized transactions that could be charged to the card and/or account. Depending on the number of impacted accounts within an individual credit union, the credit union will have to make the business decision whether to reissue the cards, or close the accounts.

Second, it may be appropriate for a credit union to address its liability for unauthorized transactions.  Both Regulation E and Regulation Z limit a member’s liability for unauthorized transactions. 12 CFR 1005.6; 12 CFR 1026.13. Additionally, the agreements between the credit union and VISA and MasterCard typically require a “zero liability” for the member for unauthorized transactions.  Accordingly, the liability often falls onto the credit union.  To mitigate this risk, credit unions may make the business decision to reissue cards or close compromised accounts. 

There is no technical federal regulatory requirement to for a credit union to notify its members or NCUA of a merchant (e.g., Target) data breach. Credit unions are only required to notify members and NCUA when there has been a direct data breach of the credit union’s system maintained by it or its third-party service provider.  However, member notification, in any data breach context, may help to mitigate against the risk of fraudulent or unauthorized transactions, and NCUA generally would want to know about a merchant breach. If a credit union chooses to alert their members, NCUA’s Regulation Appendix B to Part 748 contains a Guidance on Response Programs for Unauthorized Access to Member Information and Member Notice.  

Overall, the Target breach serves as reminder to credit unions who have card accounts (especially credit card accounts) of the usefulness of having established practices for incidents that compromise their member’s financial and personal information.  These practices, which are designed foremost to protect members and also protect the credit union from the effects of data breaches, can help guide a credit union as it determines what operational control actions are required for dealing with fraudulent activity.

While the Target breach may have been as unwanted as the mountain of holiday decorations, returns and pounds cluttering our households, NAFCU has made one of our new year resolutions to encourage Congress to addresse data security, and retailers to protect consumers from breaches that compromise their financial and personal information. 

Remittance Rule Safe Harbor List; November Compliance Monitor Available; Meet the NAFCU Family (Fun Video Alert)!

Written by JiJi Bahhur, Director of Regulatory Compliance

Remittance Rule Safe Harbor List.  Yesterday, the CFPB published a notice of the current safe harbor list of countries that qualify for an exception in the remittance rule.  The list, effective concurrently with the final remittance rule on October 28, 2013, remains unchanged from the initial release on September 26, 2012.

To provide some background, the final remittance rule generally requires remittance transfer providers to give consumers sending remittance transfers certain specified disclosures, including the applicable exchange rate, any fees imposed and taxes collected by the provider, and covered third-party fees.  The safe harbor list provides an exception: it permits estimates of certain disclosures when a remittance transfer provider cannot determine the exact amounts it must disclose at the time the disclosures are required because the laws of the recipient country do not permit such determinations. 

The list currently contains the following countries: Aruba, Brazil, China, Ethiopia, and Libya.  The CFPB intends to revise the list periodically; however, none of the countries currently listed will be removed from the list prior to July 1, 2014. 

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November Compliance Monitor.  The November 2013 NAFCU Compliance Monitor is now available for download by NAFCU members. This month's articles are on Mortgage Servicing: Error Resolution & Information Request Procedures and the NCUA Common Bond Advertising Requirements.  And, of course,
the latest Compliance Calendar is also available.

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NAFCU Video.  Ever wonder who you’re speaking with when you call in to NAFCU?  Or even who is behind these crazy blog postings?  Well wonder no more!  Meet the folks that provide you with Extreme Member Services every day.  This video will definitely make your Wednesday!

August 2013 NCUA Report Released; Illinois Follows Suit with ATM Fee Disclosure Requirements; NAFCU’s 2013 Compliance GPS Updated; NAFCU Office Closures

Written by JiJi Bahhur, Regulatory Compliance Counsel

August 2013 NCUA Report.  Earlier this week, the NCUA released its August 2013 NCUA Report.  There are several featured articles, but I’d like to bring attention to the Region II Report: Understanding Member Business Loan Waivers (Report). 

Member business loan (MBL) waivers were addressed in NCUA Letter to Credit Unions 13-CU-02.  The purpose was to clarify the waiver process under Part 723 of the NCUA Rules and Regulations.  However, even with the guidance, the subject remains confusing and has resulted in a number of frequently asked questions (FAQs).  In this Report, NCUA provides the FAQs that it receives on MBL waivers.  The combination of 13-CU-02 and these FAQs can assist credit unions with proper management of their MBL programs.

To review the FAQs, click here.  To review the August 2013 NCUA Report in full, click here.

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ATM Fee Disclosures.  You may recall that the federal requirement for an “on the machine” fee notice for ATMs was removed in late 2012 when President Obama signed the ATM Fee Disclosure Bill (the CFPB officially amended Reg E in March). However, there are still state laws that could require this "on the machine" notice. New York was one of those states until August 1, when Governor Andrew Cuomo signed legislation to remove the requirement from New York law.  And, Illinois Governor Pat Quinn signed legislation to remove the “on the machine” requirement – effective on August 16 – from Illinois law.

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NAFCU’s 2013 Credit Union Compliance GPS has been updated to include recent regulatory changes.  What is this GPS, you ask?  It is a compliance officer’s dream!  NAFCU’s GPS is a must-have, electronic resource for all credit union compliance officers and staff. It explains complex regulatory language in plain English and covers everything from the basic anatomy of a federal credit union to specifics of the NCUA, CFPB, and important credit union regulations including Regulation E, BSA and much more.  For more information and a sneak-peek into the GPS, click here.

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Programming Note.  NAFCU’s offices will close today at noon and remain closed Monday for the long holiday weekend.  We’ll be back to blogging next Wednesday!  Have a great weekend!

Outstanding Article on Reg E Error Resolution Procedures; Upcoming NAFCU Webcasts

Written by Steve Van Beek

Last Wednesday, I blogged on an article from the Fourth Quarter 2012 Philadelphia Federal Reserve's Consumer Compliance Outlook on Vendor Risk Management. Today, I wanted to share another outstanding free article on Error Resolution Procedures and Consumer Liability Limits for Unauthorized Electronic Funds Transfers.

The article is an absolute must read  - especially the examples which demonstrate the timeframes and liability limits. I strongly suggest passing this around to others at your credit union and consider using for training.

Reg E error resolution procedures has been mentioned by NCUA's Office of Consumer Protection in the past as an area where they see numerous member complaints and technical violations by credit unions (for example, by missing the timeframe requirements).  Again, take a look at the full article and be sure to share liberally at your credit union to ensure everyone is on the same page.

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Upcoming NAFCU Webcasts.  We have another full slate of webcasts for the next month or so. Registration is open for all the webcasts listed below:

• Which New Requirements Apply to HELOCs? - April 10, 2013.  Register by COB Wednesday to Save $100!
  • Unfortunately, the new requirements applicability to HELOCs are scattered throughout the 3507 pages of mortgage information released by the CFPB. I'll be explaining which requirements apply to HELOCs and, just as importantly, which do not. If your credit union makes HELOCs, be sure to sign up!

• Preparing for New Mortgage Servicing Notices - April 17, 2013
  • Suzanne Garwood of Venable, LLP will explain new mortgage servicing notices including the mortgage periodic statement, interest rate adjustment notices (ARM notices) and force-placed insurance notices. Keep in mind that the small servicer exemption only applies to the periodic statement requirement and all credit unions servicing closed-end mortgages would need to comply with the ARM notices and force-placed insurance notices. Sign up by April 10 to Save $100!

• A Look Inside NCUA's National Supervision Policy Manual - May 1, 2013
  • Hear from experienced credit union attorney David Reed and Larry Fazio, Director of NCUA's Office of Examination & Insurance, on NCUA's new National Supervision Policy Manual. You'll receive an overview of the examination process - including recent (and future) changes by NCUA. Sign up today!

• NCUA's Office of Consumer Protection: Function, Role and Objectives - May 8, 2013 - Free to all credit unions!!
  • Keeping an eye on NCUA's Office of Consumer Protection was a key takeaway from NAFCU's Regulatory Compliance School. The webcast will feature Gail Laster, Director of NCUA's Office of Consumer Protection, and Moisette Sweat, Director of Consumer Compliance Policy & Outreach, as they explain the role of NCUA's Office of Consumer Protection. Because of the importance of this information, we are making this webcast available for free to all credit unions.  Sign-up here (look to the right for the "Register Now" button).

You can find additional information on NAFCU's live and on-demand webcasts here.  

A Final Farewell to the Legacy Forms; eCFR Updated to Reflect ATM Disclosure Amendments; Happy Weekend from the Twins

Written By JiJi Bahhur, Regulatory Compliance Counsel

With April 1 approaching, I thought today would be a good time to remind you all that after March 31, 2013, the legacy reports can no longer be used for filing SARs and CTRs.  Starting April 1, 2013, the new SAR and CTR forms must replace the legacy forms if you have not already said your goodbyes to those forms. 

For more information, check out FinCEN’s guidance on this matter and past blog posts written by NAFCU’s Compliance Team (here, here, and here). 

***

In last Friday’s blog post, Steve mentioned that the CFPB issued a final rule requiring the removal of the Regulation E requirement to place ATM fee disclosure language “on the machine.” He also mentioned that the final rule would be effective immediately upon publication in the Federal Register.  Well, as of March 26, 2013, the final rule has been published in the Federal Register.  And on a grander note, the language has already been removed from the Electronic Code of Federal Regulations, thus making everything consistent. 

    “§ 1005.16   Disclosures at automated teller machines.

     (a) Definition. “Automated teller machine operator” means any person that operates an automated teller machine at which a consumer initiates an electronic fund transfer or a balance inquiry and that does not hold the account to or from which the transfer is made, or about which an inquiry is made.

    (b) General. An automated teller machine operator that imposes a fee on a consumer for initiating an electronic fund transfer or a balance inquiry must provide a notice that a fee will be imposed for providing electronic fund transfer services or a balance inquiry that discloses the amount of the fee.

    (c) Notice requirement. An automated teller machine operator must provide the notice required by paragraph (b) of this section either by showing it on the screen of the automated teller machine or by providing it on paper, before the consumer is committed to paying a fee.

    (d) Imposition of fee. An automated teller machine operator may impose a fee on a consumer for initiating an electronic fund transfer or a balance inquiry only if:

     (1) The consumer is provided the notice required under paragraph (c) of this section, and

     (2) The consumer elects to continue the transaction or inquiry after receiving such notice.”

Now when credit unions research Regulation E, the regulation matches the underlying law! Imagine that!

***

The twins and I intend to just relax this weekend.  We hope you can do the same!

CFPB Issues Final Rule to Remove ATM Fee Disclosure; The Cost of Compliance

Written by Steve Van Beek

Yesterday, the CFPB announced - via blog post - that they were issuing a final rule to amend Regulation E to remove the federal "on the machine" requirement for ATM fee disclosures.  Kudos to the CFPB for reading our blog post from last week and taking action to remove this unnecessary regulatory burden (the CFPB's inaccurate regulation; Congress had removed the requirement from the Electronic Funds Transfer Act three months ago).

Of course, it wouldn't be a CFPB blog post without a plea for consumers to submit a complaint.  Here is how the blog post ends:

"Congress recently amended the law about ATM fee disclosures to eliminate the sticker requirement. Now the CFPB is following the law by changing these rules. While this change means that consumers may no longer see a sticker on the ATM telling them that the ATM owner may charge a fee, the information about these charges, including the amount of the charge, will still appear on the ATM screen or a printout. The consumer will be able to cancel the ATM transaction without paying a dime.

At the CFPB, we work to ensure that consumers have the information they need to make informed decisions about their financial products and services. If you have had a confusing experience with ATM fees, you may contact the CFPB to tell us your story or submit a complaint."

Importantly, the final rule will be effective immediately upon publication in the Federal Register. While it took the CFPB three months to follow Congress' command, at least they took the appropriate step and made the rule effective immediately.

***

Cost of Compliance.  Earlier in the week, the CFPB issued a blog post indicating they were studying the cost of complying with consumer financial regulations.  Below is the language from the post:

"We’re studying the costs of complying with consumer finance regulations

Banks, credit unions, and other financial services providers are concerned with compliance costs – how much it costs to comply with financial regulations – and we’re interested as well. Regulations can have many benefits for consumers, but the benefits sometimes come at a cost.

What we want to know
What are the extent and nature of compliance costs?

So, what are we doing?
Our Research, Markets, and Regulations team is studying the costs related to rules we inherited from other agencies. We want to increase public understanding of compliance costs. As a first step, we will talk to banks across the country about the costs they incur to comply with consumer regulations for deposit products and services. These include products like checking accounts and debit cards, which nearly all banks offer and most consumers use. Through our research, we hope to become better and smarter regulators."

Now, you may be thinking - with all the new regulatory requirements - the last thing we have time to do is spend time and resources quantifying the time and resources we're expending on complying with regulations!!

A completely understandable point. But, keep in mind that you don't need to respond directly to the CFPB or conduct a full analysis of your information.  NAFCU's research division collects information on a monthly basis from NAFCU members and uses this information to help inform NAFCU comment letters, letters to the Hill and outreach to the media.

Each month, NAFCU's research division sends out an Economic and CU Monitor survey which is summarized and reported in the Economic and CU Monitor.

So, if you don't have the time or resources to provide a full "compliance cost" evaluation - consider going to NAFCU’s Economic and CU Monitor page and complete the online survey each month. It only takes 15 minutes and you don't need to answer questions that aren't applicable or that you where you don't have the information at hand.

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Have a great weekend!  And for all those at Compliance School this week - thanks for an outstanding week!  

Regulatory Burden: Update the Regulations, Please!

Written by Steve Van Beek

I have an irregular blog post series where I highlight specific examples of unnecessary regulatory burden.  You can see past blog posts at the bullets below:

• Regulatory Burden: Piles of Old Guidance

• Regulatory Burden: Short-Term

Regulatory Burden - Update the Regulations, Please!  Today I want to look at another form of regulatory burden. And, I'm going to use three different regulators as examples (equal opportunity!) The general gist is that when credit unions look at the regulations - they should be accurate. When Congress changes the law, regulators have an obligation to update their regulations so that entities they regulate - including credit unions - can rely on those regulations. If the regulations aren't updated promptly, the result is a textbook case of unnecessary regulatory burden.

***

Example 1 - Consumer Financial Protection Bureau. The CFPB has certainly been busy. However, I'd be shocked if they didn't notice that President Obama signed H.R. 4367 on December 20, 2012. This law removed the federal requirement for the "on the machine" ATM fee disclosures under the Electronic Funds Transfer Act (and implemented by Regulation E). If the CFPB did miss this, they should subscribe to the blog as they would see we were "hopeful" they would take swift action:

"Regulation E implements the EFTA and hopefully the CFPB will move very swiftly to amend Regulation E to ensure that everyone is aware of the change.

...

Note:  The removal of the requirement will occur after President Obama signs the bill and enacts it into law.  Thus, credit unions' litigation and compliance risk will reduce at that point.  The CFPB moving quickly to amend Regulation E and clarify the remaining requirement will be the icing on the cake.  Hopefully we don't have to wait too many birthdays."

Well, here we are on March 12, 2013 and a look to Regulation E - 12 CFR 1005.16 - clearly shows the CFPB hasn't updated Regulation E to implement the amendments to the Electronic Funds Transfer Act.

Where is the Burden? The burden lies in the fact that if a compliance officer was reviewing Regulation E they would come to the conclusion that federal law still requires the "on the machine" disclosure. Which is wrong. The Electronic Funds Transfer Act was amended by H.R. 4367 to remove the federal requirement and the CFPB just hasn't found the time to update Regulation E.

An isolated incident?  Must be due to the unique situations related to a new regulatory agency who was given so many mandates by Dodd-Frank.  Keep reading, it gets worse.

***

Example 2 - Federal Reserve Board. Dodd-Frank adjusted the "next-day availability" requirement under Regulation CC from $100 to $200. We blogged on this issue three times in 2011 and wondered why the Federal Reserve didn't issue a proposal to amend this one section of Reg CC:

"So, the Dodd-Frank change to Regulation CC - the one that bumps the $100 next day availability amount to $200 - when does it become effective?  July 21, 2011.  Some of you are thinking that you can wait, however, until the Fed finalizes its current Regulation CC rulemaking to comply.  Wrong.  Surprise, surprise, but the Fed buried this detail into its Reg CC proposal. 

Section 1086(e) of the Dodd-Frank Act increases from $100 to $200 the minimum amount of funds deposited by check or checks on a given business day that a bank must make available by opening of business on the next business day pursuant to § 603(a)(2)(D) of the EFA Act. That provision of the EFA Act is implemented in § 229.10(c)(1)(vii) of Regulation CC, and the increase is expected to take effect on July 21, 2011, regardless of whether the Board and the Bureau have amended Regulation CC. See, 76 Fed. Reg. 16,869."  [May 9, 2011 Blog Post]

***

"Regulation CC.  A change in Regulation CC from $100 to $200 for next-day availability.  The Federal Reserve has proposed changes to Reg CC that have not been finalized.  This change to $200 becomes effective though the Federal Reserve has not changed the language of Reg CC.  

....

Reality Check: Why didn't the Fed propose two different rules?  Rather than confuse the entire financial industry, the Fed could have easily issued one rule to implement the Dodd-Frank change and a separate rule to propose its other changes to Reg CC." [July 20, 2011 Blog Post]

***

"The letter is dated August 15.  Which is interesting because the change to $200 became effective July 21, 2011.  

Dodd-Frank was signed on July 21, 2010.  The Reg CC proposal was released March 3, 2011.  I'm still puzzled why the Fed did not propose two separate rules - with one proposal solely implementing the $200 change.

These are the types of headaches that do not get captured in any data on regulatory burden." [August 21, 2011 Blog Post]

A brief amendment to that last statement - these headaches do get realized by credit unions. Now, we need the regulators to realize the impact of their actions (or inactions).

Where is the Burden? A credit union searching the requirements for next-day availability under 12 CFR 229.10 of Regulation CC would find this:

"(vi) A check deposited in a branch of the depositary bank and drawn on the same or another branch of the same bank if both branches are located in the same state or the same check processing region; and,

(vii) The lesser of—

(A) $100, or

(B) The aggregate amount deposited on any one banking day to all accounts of the customer by check or checks not subject to next-day availability under paragraphs (c)(1) (i) through (vi) of this section."

And, if they followed that language - they would have a regulatory violation.  Let me repeat that - if a credit union followed the language of Regulation CC - as published by the Federal Reserve in the Electronic Code of Federal Regulations - they would have a regulatory violation as the regulation is incorrect.  If that isn't regulatory burden, I don't know what is!

***

Example 3 - National Credit Union Administration. By now, everyone is aware that the unlimited share insurance coverage for noninterest-bearing transaction accounts expired on December 31, 2012. We blogged on this issue on December 18, 2012 and then again on January 2, 2013. We also had discussions with NCUA about updating 12 CFR 745.14 of their regulations to prevent confusion by credit unions - which we discussed in our February 7, 2013 blog post.

So, here we are on March 12, 2013 and the language of NCUA's 12 CFR 745.14 still hasn't been removed. Granted, this example isn't as egregious due to the inclusion of this language "(a) Separate insurance coverage. Through December 31, 2012, a member's funds in a 'noninterest-bearing transaction account' (as defined in § 745.1(f) of this part)" - however, it still makes a credit union researching 12 CFR 745.14 follow-up with whether this has been unlimited share insurance has been extended or not. It hasn't and NCUA should make that information clear by removing 12 CFR 745.14 from their regulations.

Where is the Burden? There were so many back-and-forths on the unlimited share insurance issue - including Footnote 1 of NCUA's Letter to Credit Unions 12-CU-14 - that it is understandable that credit unions would be unsure whether or not the unlimited coverage was extended. NCUA could ease this burden by updating their regulations.

***

But, Regulating is Difficult. I'm sometimes told that I'm too harsh on regulators. That they have very difficult jobs. I get that. I'm not denying that fact (my wife works at a federal financial regulator and I know how hard she works). However, a basic job of a regulator is to make sure their regulations are clear and understandable. And, accurate.  This last part is extremely important. Credit unions need to be able to rely on the regulations that are published by the regulators. If they have to second-guess whether the regulations are accurate, they cannot perform other tasks - such as serving their members.

***

Summary.  If you are ever looking for an example of regulatory burden to show your Congressman - this blog post is a good start. We have the following:

• One example where a federal regulator failed to promptly update their regulations after Congress explicitly amended the law to remove an unnecessary regulatory burden from financial institutions.

• One example where a federal regulator failed to promptly update their regulations after Congress explicitly amended the law to provide further protections to consumers.

• One example where a federal regulator failed to update their regulations after Congress failed to extend a provision that was explicitly designed to "sunset" after a specific period of time.

I've been in the Washington D.C. area almost nine years and if I've learned one thing it is that Congress does not like to be ignored. 

NAFCU's Regulatory Compliance School Just Got Better - Regulatory Update Day

Written by Steve Van Beek

We've heard you!  For the past couple of years, we've received the following feedback about NAFCU's Regulatory Compliance School (paraphrased, of course):

"School is great and provided a solid foundation for understanding the regulatory requirements credit unions face on a daily basis.  BUT, the rules are changing so fast that it would be great to receive updates on what has just changed and what is changing next."

With this in mind, we've created Regulatory Update Day at NAFCU's 2013 Regulatory Compliance School (March 18-23 in National Harbor, Maryland).  

Regulatory Update Day (Thursday, March 21st) will provide:

• A clear understanding of what changes NCUA has in store for 2013 – including their Exam Focus

• An overview of the scope and applicability of the CFPB’s seven new mortgage regulations*

• A detailed look at the CFPB’s Qualified Mortgage/Ability-to-Repay requirements*

• Answers to Frequently Asked Questions on the mortgage rules from NAFCU’s compliance team*

• Insight from credit union attorneys and practitioners on how best to set up your implementation strategy

You can find more information on Regulatory Update Day here.  The three sessions with the "*" are sessions that are also part of NAFCU's Mortgage Reform Webcast Series.

The other 4 days of Compliance School will remain the same as will the opportunity to take the NAFCU Certified Compliance Officer (NCCO) exams.  Good luck!  

***

And, all attendees at NAFCU's 2013 Regulatory Compliance School will receive NAFCU's 2013 GPS (coming soon!) as well as NAFCU's Scope & Applicability Charts.

Remember:  You do not need to be a NAFCU member credit union to attend NAFCU's conferences or webcasts.  In fact, you don't even need to work at a credit union.  Each School usually features a handful of consultants, vendors and other credit union "peeps" who support credit unions - in one way or another - on a daily basis.      

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Resources for the CFPB's International Remittances Regulation

Written by Steve Van Beek

A Wild Ride.  The evolution of the CFPB's international remittances regulation has been confusing to everyone.  First, we had the rule proposed by the Federal Reserve.  Then, the CFPB took over on July 21, 2011.  The CFPB finalized the rule but also proposed amendments to the rule at the same time.  Then, realizing the rule was not workable, the CFPB issued a delay of the effective date while it proposed additional changes.  So, that is where we are - trying to figure out where we are at.  And, how your credit union will be able to comply.  The CFPB has indicated the new effective date will likely be 90 days after they finalize the latest proposed changes (although they are taking comments).  That doesn't leave much time if your CU has made a business decision to continue offering remittance transfers to your members.

Below are a variety of resources that may be helpful to understand the new requirements and what steps your credit union will need to take to comply.

• The CFPB's Main Remittance Regulation Webpage

• Small Entity Compliance Guide

• Safe Harbor Countries List

• The CFPB's October 2012 Webinar on the Remittances Rule (also available here)

• Presentation Slides from October 2012 Webinar

• CFPB Bulletin 2012-08 Announcing Delay of Implementation Date

• Proposal to Amend Certain Provisions of Remittance Rule (but not the 100 transaction safe harbor level)

NAFCU also has these resources available to NAFCU-member credit unions:

• Regulatory Alert on Latest Remittance Proposal (13-EA-01) - Covers the Latest Proposed Changes

• Final Regulation on Remittance Requirements (12-EF-10) - Covers the Rules after the Concurrent Proposal was Finalized

• Final Regulation on Remittance Requirements (12-EF-02) - Covers the First Remittance Regulation Finalized by the CFPB

Throughout the process NAFCU has sent numerous comment letters to the CFPB on the remittance requirements.  Recently, we sent a letter urging the CFPB to further delay the requirements to ensure the rules do not unnecessarily burden credit unions trying to comply:

“First, NAFCU requests that the CFPB further extend the 90-day delay of the effective date to allow credit unions sufficient time to comply with the proposed rule and to make the required disclosures of fees, taxes, and exchange rates. Second, NAFCU continues to believe that the CFPB should exempt federally regulated credit unions, or, alternatively, small entities consistent with the Small Business Regulatory Enforcement Fairness Act, from the purview of the final remittance transfer rule. The regulatory burden that the remittance transfer rule places on credit unions will lead to a significant reduction in consumers’ access to remittance transfer services. Many credit unions already facing an enormous compliance burden have or will be forced to discontinue their remittance programs, and those that continue to offer remittances will be forced to significantly increase their members' fees.  

Further, NAFCU would like to reiterate the necessity for the CFPB to respond to credit union concerns during the rulemaking process, rather than implementing remedial measures after the fact. Although NAFCU appreciates the CFPB’s responsiveness to reconsider the remittance rule, proactive efforts by the CFPB to address potential problems and reduce the future compliance costs and regulatory difficulties faced by credit unions would be far more effective when conducted prior to and during the rulemaking process.”  (Emphasis added).

The last paragraph is especially important.  The process this regulation has taken has left everyone's head spinning.  The CFPB had opportunities to listen to industry feedback and make changes upfront.  Instead, they finalized the rules and only then did they realize they were not workable.  Unfortunately, the lack of operational experience and background at the CFPB was on full display.  They had a rule and were going to finalize it no matter what the consequences.  

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NAFCU Remittances Webcast Today.  We also have a webcast on the Remittances Webcast today at 2:00 p.m. EST.  Be sure to tune in.  We've extended the early-bird deadline indefinitely, so you can purchase the webcast at any time (including after today) at the early-bird price.  To learn more about the webcast, click here.  

ATM Fee Disclosure Bill Signed; HMDA Reporting Threshold

Written by Michael Coleman, Regulatory Compliance Counsel

ATM Fee Disclosure Bill. On Thursday, December 20^th, 2012, President Obama signed the ATM Fee Disclosure bill (H.R. 4367) into law. We previously blogged about the impact this law has for credit unions, including the reduction of litigation risk, state law impacts, removal of the physical signs, and updates to Regulation E.

Now that the bill has been signed into law, the federal requirement for posting a physical notice on the ATM itself has been removed. Therefore, the credit union’s litigation and compliance risk going forward was reduced effective December 20, 2012.  This will allow credit unions to reduce the time and effort and costs spent tracking, photographing, documenting and auditing the notices on your ATMs.

State Law. As noted before, although the federal requirement for the physical notices has been eliminated, there still may be state laws which require a physical notice on ATMs. Two states that we are aware of that have such laws are New York (NY Gen Bus § 399-y) and Nevada (Nev. Rev. Stat. Ann. § 660.052). You might want to check your own state’s laws and perhaps consult your local counsel with regards to any state law requirements that might affect your credit union. If you find applicable state law citations, please feel free to let us know.  

Removal of Notices. While the notices are no longer required on the actual ATMs, there is really no harm in leaving them there, and no reason to immediately remove the existing notices from the machines. The extra notice provided by the sign is still a service to member and non-member ATM users, and as mentioned above, there may be state law requirements for on machine disclosures.

***

2013 HMDA Asset Threshold. On December 28, 2012 the CFPB announced  the 2013 HMDA asset threshold, the final rule was published in the Federal Register on December 31, 2012. Institutions with assets of $42 million or less as of December 31, 2012, are exempt from HMDA reporting in 2013. The CFPB was a bit more timely with the publication of the threshold this year (they announced the 2012 threshold on February 15, 2012), let’s hope the trend continues.

HMDA Data Entry Software.  The free FFIEC HMDA Data Entry Software, version 2013 for calendar year 2013 data due March 3, 2014 is now available for download.

NCUA HMDA Webinar. NCUA will host a free webinar on January 24, 2013 at 2pm EST entitled “HMDA: Accuracy and Timeliness.” During the webinar experts from NCUA and the Federal Reserve Board will:

• address common errors identified in HMDA LAR data and submissions;
• provide tips for preparing and submitting accurate and timely HMDA LARs; and
• discuss financial institution management responsibilities in the HMDA process.

You can register for the webinar here. See NCUA’s press release for more details.

2012 HDMA Data. Reminder: For those credit unions over the 2012 threshold, your HDMA data for calendar year 2012 must be submitted by March 1, 2013.

***

Redskins, Again. Last week was the end of the NFL’s regular season, and the Redskins came up big time defeating Dallas to win the NFC East for the first time since 1999 and secure their first playoff berth since 2007. Needless to say, this weekend’s playoff game against Seattle has this Skins fan excited!

  

The ATM Fee Disclosure Bill & What it Means to Your Credit Union

Written by Steve Van Beek

By now, you'd probably heard that the ATM Fee Disclosure bill has passed the Senate and awaits President Obama's signature.  Great news to be sure, but there are some things to keep in mind.

Summary.  A quick summary of the issue may be useful.  The bill would remove the federal requirement for posting a physical notice on the ATM itself.  The on-the-screen notice will still be required in all situations.  

Biggest Impact.  The biggest impact this change will have is that it will reduce your litigation risks related to ATM notices.  Of course, you could still get sued after this law is in place (this is America, you can be sued for anything) - but you'd have an outstanding defense (I can't think of a better defense than Congress specifically looked at this and decided it shouldn't be law of the land).  

Note:  This law wouldn't change the outcome of any ongoing lawsuits or settlements.  The allegations in those suits came from when the underlying requirement was still law (and it still is until the President's signature).  

State Laws.  Another big issue to consider is that this bill will change the federal law on ATM fee disclosures.  There are state laws that could still require an "on the machine" fee disclosure even after this law is passed.  I know New York state has such a law and I'm sure there are others (if you know of others - please feel free to leave a comment on this blog post along with the citation if you have it).  

Remove Notices?  This all leads to the question of what your credit union should do after this law is passed.  The clearest is that you can reduce the time and effort spent tracking, photographing, documenting and auditing the notices on your ATMs.  These additional resources were all needed to help reduce the litigation risk.  When the bill is signed, the need for that amount of due diligence and documentation is removed.  

But what about the actual notices on our ATMs?  My thought is there is no reason to take any action to remove your existing notices.  While they would no longer be required, there is no harm in keeping them on the ATMs.  And, there are still benefits to keeping the notices.  

1. If you were sued after the law change, you'd have another defense.
2. As mentioned above, there could be a state law that requires the disclosure "on the machine."
3. Members (and non-members) are given additional notice about any fees (of course, they'll still receive the "on the screen" notice prior to being charged a fee.

Amendments to Regulation E.  When signed, this law will amend the Electronic Funds Transfer Act (EFTA).  Regulation E implements the EFTA and hopefully the CFPB will move very swiftly to amend Regulation E to ensure that everyone is aware of the change.  

Stepping into the wayback machine, here is a link to a blog post from April 2011 where I took a look at how confusing the existing language of Regulation E was and that this could actually be part of the reason there have been issues with fee disclosure notices.  Here is a snippet from that post:

"Here is my two-cent answer:  When small institutions are being sued around the country for ATM fee disclosures issues, it might be prudent to take a look at the underlying regulatory requirement to see if the disclosure requirements are clear and straightforward.  Credit unions want to comply with the regulations - don't make it harder than it needs to be." 

Obviously, the CFPB didn't make this issue a priority previously (remember their plans to streamline?).  But, kudos to Congress for stepping up and making this commonsense change to help remove one burdensome requirement from credit unions.  

Note:  The removal of the requirement will occur after President Obama signs the bill and enacts it into law.  Thus, credit unions' litigation and compliance risk will reduce at that point.  The CFPB moving quickly to amend Regulation E and clarify the remaining requirement will be the icing on the cake.  Hopefully we don't have to wait too many birthdays.  

ATM Fee Disclosure & CFPB Privilege Bills Pass Senate; NCUA Webinar; Member Call-In

Written by Steve Van Beek

Yesterday, we gave a roundup of various issues On the Hill.  Last night, the Senate passed both the ATM Fee Disclosure bill as well as the CFPB Privilege bill.  These will both move along to President Obama's desk for his signature.  You can find additional details in the NAFCU Today.  The NAFCU Today also has the latest on the TAB/NIBTA bill which would extend the unlimited share insurance on noninterest-bearing transaction accounts.  

***

NCUA Webinar.  NCUA recently announced a free webinar on Mergers this Friday.  The webinar will address the following questions:

• Why do mergers happen?
• Should merger scenarios be a part of strategic planning?
• Who is responsible for protecting the interests of members during a merger?
• How to maintain viability and avoid administrative mergers?
• How to find the ideal merger partner?
• What is the merger process?

Registration is now available.  The webinar is slated for 2:00 p.m. EST on Friday, December 14th.    

***

NCUA Small Credit Union Website.  NCUA also announced new features and a new design for their Office of Small Credit Union Initiatives (OSCUI) website.  The new website is here.    

***

NAFCU Member Call-In.  If you missed the live call-in last Thursday, you can still listen to the audio version here (NAFCU member log-in required).  The total call is just under 43 minutes.  If you don't have 43 minutes, you can listen to the compliance discussion from the 26:00 mark until the 35:30 mark.  

Remittances Webinar; Fair Lending Webinar; Archived Nonaccrual/TDR Webinar

Written by Steve Van Beek

Remittances.  The CFPB recently opened their Remittances Webinar to everyone - without the need to register (the webinar is free).  The webinar will be available on this page beginning at 2:30 p.m. Eastern.  The webinar will last 90 minutes.

That is TODAY at 2:30 p.m. Eastern.  Be sure to tune in.    

NOTE - The CFPB issued their small entity compliance guide yesterday.  

*** 

Fair Lending.  The Philadelphia Federal Reserve's Consumer Compliance Outlook will be hosting a Fair Lending Webinar tomorrow - October 17th from 2:00 - 3:30 p.m. Eastern.  You can register here.   

The presentation slides are already available here.  Topics to be discussed are:

• Recent Fair Lending Enforcement Actions
• Risk Assessments
• Fair Lending Compliance Management
• Data Reporting and Analysis
• FHA LGBT Rule, Disability Discrimination, Maternity Leave Discrimination
• Loss Mitigation and Loan Modification
• Redlining

Remember - TOMORROW at 2:00 p.m. Eastern.  Register here.   

***

Nonaccrual and TDR Webinar.  NCUA's webinar on Workouts, Nonaccrual and TDRs is now archived and available.  The webinar can be watched here.  A transcript is also available inside the webinar (or at this link).       

Is this What a Level Playing Field Looks Like?; 2996 Pages in Six Weeks

Written by Steve Van Beek

Proponents of Dodd-Frank and the Consumer Financial Protection Bureau tried to tell credit unions that Dodd-Frank and the CFPB would be good for credit unions.  The playing field would be leveled and the regulatory burden would be lowered on small institutions.

Here is a snippet from Elizabeth Warren's testimony before the House on May 24, 2011:

"A significant part of our mission will also be to help level the playing field for smaller lenders, such as community banks and credit unions. We recognize that the regulatory pressures on banks have increased substantially over time. While regulatory costs may be manageable on a per-account basis for the largest financial institutions, for smaller businesses, all the complicated rules, extensive paperwork, and expensive compliance reviews can be daunting. If we continue on our current regulatory trajectory, traditional banks and credit unions will be put at a further disadvantage that could push many out of business.

American consumers are best served by a strong and diversified financial services industry. Many community banks and credit unions embrace relationship lending, and they often work in partnership with the families they serve. Some smaller institutions provide a banking presence in otherwise-underserved communities, both in our cities and in rural areas. If community banks and credit unions continue to face competitive pressures triggered by a complex regulatory system, then those institutions will not be as able to serve American families. In that case, not only do the banks lose, but families lose as well.

The CFPB is committed to working with smaller institutions to reduce regulatory costs. We have already begun that work, and we are pleased to report to Congress that the spirit of openness and cooperation expressed by community banks and credit unions has been extraordinary. The mortgage disclosure integration project is one area in which we are seeking to reduce regulatory burdens, and we expect that it will serve as an excellent test case as we design our ongoing processes for how the consumer bureau and smaller institutions can work together to increase the ability of these institutions to spend less time on regulations and more time serving America’s families."  (Emphasis added).

Now, I want to ask a question to credit unions:  Does what is stated above match what the CFPB has done in the past 6 weeks as indicated below?  

• TILA/RESPA Proposed Rule (1099 Pages)
• HOEPA/High-Cost Mortgage Proposed Rule (293 Pages)
• August Final Rule on Remittances (168 Pages) which Amends the February Final Rule (417 pages)
• Mortgage Servicing Proposed Rules - TILA (313 Pages) - RESPA (442 Pages)
• Higher-Risk Appraisals Proposed Rule (211 Pages) - New!
• Regulation B Proposed Rule - Free Copies of Appraisals (53 Pages) - New!

So, here is my question to the CFPB:  Is proposing 2996 pages of new regulations - within a six week period - how you envisioned "working with smaller institutions to reduce regulatory costs"?

And now a question for proponents of Dodd-Frank and the CFPB:  Is this what a level playing field looks like? 

CFPB Releases Semiannual Regulatory Agenda - Spring 2012; Seminar in Seattle

Written by Steve Van Beek

CFPB Regulatory Agenda.  Yesterday, the CFPB posted its Semiannual Regulatory Agenda - for spring 2012.  The previous Semiannual Regulatory Agenda was released in February 2012.  The latest release follows the same format and includes a listing of regulations in the various rulemaking stages: prerule stage, proposed rule stage, final rule stage, long-term actions and completed actions.  

Below is a listing of the various future regulations - organized by rulemaking stage.  Keep in mind the agenda is current as of April 13, 2012 and the CFPB has taken numerous actions since putting this agenda together.    

Prerule Stage:

• Registration of Certain Nonbank Covered Persons
• Supervision of Larger Depository Institutions and Affiliates
• Home Mortgage Disclosure Act (Regulation C)
• Requirements for Prepaid Cards (Regulation E) 

Proposed Stage:

• Amendments to TILA and FIRREA Concerning Appraisals
• Disclosure Rules and Substantive Protection for Certain High Cost Mortgage Loans (Regulation Z)** (proposed on July 9th)
• Mortgage Originator Standards (Regulation Z)
• Mortgage Servicing (Regulation X; Regulation Z)
• TILA/RESPA Mortgage Disclosure Integration (Regulation X; Regulation Z)** (proposed on July 9th)
• Credit Card Pre-Opening Account Fees (Regulation Z)
• Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination
• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 2) 
• Copies of Appraisals or Other Valuations To Be Furnished by Creditor (Regulation B)

Final Rule Stage:

• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 1)** (finalized on July 16th)
• Disclosure of Records and Information
• State Official Notification Rule
• Rules Relating to Investigations
• Rules of Practice for Adjudication Proceedings
• Restatement of Federal Consumer Financial Law Regulations
• Requirements for Escrow Accounts (Regulation Z)
• TILA Ability to Repay (Regulation Z)
• Confidential Treatment of Privileged Information
• Disclosure Rules for Remittance Transactions (Regulation E)

Long-Term Actions:

• Alternative Mortgage Transaction Parity (Regulation D)
• Business Lending Data (Regulation B)
• TILA Mortgage Amendments (Regulation Z) 

Completed Actions: 

• Disclosure Rules for Remittance Transactions (Regulation E)

***

Only 27 potential rulemakings!!  The Regulatory Agenda also includes a short summary of each rulemaking that is useful for providing a quick overview of what will be covered by the rulemaking.  However, as last Monday's proposed rules show - a short summary doesn't do much when the proposals are 1099 pages and 293 pages.  

***

NAFCU's 2012 Regulatory Compliance Seminar.  Luckily, you don't have to read and understand all 27 potential rulemakings on your own.  We'll be covering quite a few of them at our 2012 Regulatory Compliance Seminar in Seattle, Washington - October 23-26.

The program-at-a-glance is available here (and we'll be including additional sessions as the proposals continue to flow).  We already have a session on the TILA/RESPA mortgage disclosures, the upcoming mortgage servicing proposal (including the periodic statement requirement) as well as a session on the remittances final rule.  Detailed session descriptions can be found here.

Remember - you do not need to be a NAFCU member to attend.  And, Save $100 if you Register by August 31st!

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).    

ATM Fee Disclosures; CFPB Challenged; July 11 NAFCU Compliance Webcast

Written by Steve Van Beek

Tomorrow, the House Financial Services Committee will mark-up H.R. 4367.  The bill would repeal the dual disclosure requirement and, hopefully, put an end to the cottage industry of individuals driving around the country suing financial institutions.  For additional information, check out the NAFCU Today.    

For NAFCU Resources on complying with the existing ATM fee disclosure requirement, check out our April 18 blog post.

***

CFPB & FSOC.  A community bank from Texas, the Competitive Enterprise Institute and the 60 Plus Association have challenged the constitutionality of the creation of the Consumer Financial Protection Bureau, Director Cordray's appointment and the creation of the Financial Stability Oversight Council (FSOC).

An overview of the arguments can be found in an op-ed published in the Wall Street Journal:  Why Dodd-Frank is Unconstitutional.   

***

NAFCU Webcast.  Don't forget - on July 11 Carrie Hunt, NAFCU's General Counsel and VP of Regulatory Affairs, and I will be doing a Regulatory Update webcast.  You can find additional details and registration information here.  

Sign up by July 5th and Save $100.  

BSA E-Filing Reminder; ATM Fee Disclosure Bill Update

Written by Bernadette Clair, Regulatory Compliance Counsel

FinCEN has issued a notice reminding financial institutions that effective July 1, 2012, most Bank Secrecy Act (BSA) reports must be filed electronically.  In the notice, FinCEN reiterates that as of the effective date, institutions must submit most reports electronically unless they have been granted a temporary exemption.

If you need more information on this requirement, our March 7^th blog included links to FinCEN’s final rule, along with a few E-filing resources.

FinCEN Webinar.  FinCEN held a webinar earlier this month regarding the technical specifications of the new SAR, CTR and DOEP forms.  This webinar was geared toward IT folks, so be sure to pass this along to anyone at your credit union who fits the bill.

Topics covered in the webinar include:

• Overview of the E-Filing specifications for FinCEN’s new CTR, SAR, and DOEP.
• Overview of BSA E-Filing Test site and Testing Process.
• FAQs about the E-Filing specifications.

The recorded webcast can be viewed here.

Note:  FinCEN will be conducting a future webinar for compliance professionals with BSA-related responsibilities.  The webinar will discuss the E-Filing process for the new CTR and SAR. 

Who do I call with Technical Questions related to E-Filing?  FinCEN provides the number to its BSA E-Filing Help Desk for technology-related questions:  1-866-346-9478.

****

ATM Bill Update.  Last Thursday, Sen. Michael Johanns, R-Neb., ranking member of the Senate Banking Subcommittee on Security, International Trade and Finance, introduced bill S. 3204 to end the requirement to display a fee-notice placard on automated teller machines.   Steve blogged about a similar bill, H.R. 4367, last month. 

Both S. 3204 and H.R. 4367 would revise the Electronic Funds Transfer Act by eliminating the placard fee-notice rule. If the legislation is enacted, ATM owners would only be required to provide notices of fees on screen at a point when consumers can still opt to cancel their transactions.

NAFCU is urging credit unions to contact their lawmakers to urge support for S. 3204 and H.R. 4367. Dial 202-224-3121, or use our Take Action tools.

Member Complaints; NAFCU's 2012 Regulatory Compliance Seminar

Written by Steve Van Beek

Consumer and member complaints are at the forefront of quite a few conversations right now (including quite a few news articles).  The CFPB's promotion of their complaint process is one reason for this uptick in discussion as is the centralized complaint process for financial products.  

The CFPB issued their 2011 Annual Report on Consumer Complaints and it is full of useful information to review.  Here is a snapshot of the results:

"Between July 21 and December 31, 2011 the CFPB received 13,210 consumer complaints, including 9,307 credit card complaints and 2,326 mortgage complaints.

Forty-four percent of all complaints were submitted through the CFPB's website and 14.7 percent via telephone calls.  Referrals from other regulators accounted for 34.9 percent of all complaints received.  The rest were submitted by mail, email, and fax."

Future reports will include even more details - including complaints in new areas such as private student loans, auto loans and checking accounts.  Be sure to review the full report or pass it along to the appropriate person at your credit union.   

NCUA.  The March 2012 edition of the NCUA Report also included an article on Trends in Member Complaints and Consumer Inquiries.  Of note, the article indicates that of the complaints received in 2011 less than 1 percent involved a consumer compliance violation.  Of that 1 percent, half of those were related to timing issues related to the error resolution process under Regulation E.  

***

NAFCU Regulatory Compliance Seminar.  October seems like a long way off but it will be here before you know it.  We are in the process of putting together the content and agenda - so please feel free to send in any comments, ideas or suggestions.  We love your input and this conference is really about you all so let us know what you need.

Here is what we are tentatively looking at so far (topics are subject to change, of course):

• TILA/RESPA Mortgage Disclosures
• Upcoming Mortgage Servicing Requirements
• The Latest on Overdraft Protection
• Remittance Transfers under Regulation E
• CUSOs
• Loan Participations
• Bank Secrecy Act Changes
• Social Media
• NCUA Update
• CFPB Update

I think that is a pretty good start - but let us know what you are looking for and how we can make NAFCU's 2012 Regulatory Compliance Seminar even better than the past.  

Recertification for NCCOs.  Remember, attending Regulatory Compliance Seminar is the best way to recertify your NAFCU Certified Compliance Officer (NCCO) designation.  Seminar offers 24 CEUs which is enough to fully recertify for two years.

Seattle, Washington.  Did I mention Seminar was in Seattle?  Right Downtown?  Well, now I have.  Hope to see you October 23-26, 2012!    

ATM Fee Disclosure Bill; Complying with Current ATM Fee Disclosure Requirements

Written by Steve Van Beek

Yesterday, Representatives Blaine Luetkemeyer (R-MO) and David Scott (D-GA) introduced a bill, H.R. 4367, that would eliminate the requirement to include the ATM fee disclosure notice on the ATM itself (the on-screen notice would still be required).  

This would remove compliance and legal headaches from financial institutions who are continuously checking, photographing and documenting their ATMs to have defenses against the cottage industry of individuals suing ATM owners alleging inadequate notice.   

***

Existing Disclosure Requirements.  While the bill being introduced is a good first step, the unnecessarily confusing regulatory requirements remain in place.  In other words, the legal and compliance risks for credit unions do not change until this bill is passed (if it is passed).  

NAFCU Resources.  In the meantime, below are some NAFCU Compliance resources on the Regulation E ATM Fee Disclosure issue:

• ATM Fee Disclosures - September 2011 NAFCU Compliance Monitor Article (made available to everyone).  Note: The article references the prior 12 CFR 205 rather than 12 CFR 1005.  Update: The ATM Fee Disclosure article with the CFPB citations is available here.   
• NAFCU Comment Letter to the CFPB on Regulatory Streamlining - March 2, 2012 (see page 6-7 for ATM Fee Disclosure discussion).
• Joint Letter to the Hill - February 8th, 2012.  Summary in NAFCU Today.
• January 11, 2011 Blog Post - with a link to That Credit Union Blog on defending against class actions.
• April 26, 2011 Blog Post - with a link to Bankersonline.com on defenses against torn-down disclosures.
• April 27, 2011 Blog Post - looking at the unnecessarily confusing and complex disclosure requirement in Regulation E which is part of the problem.  

***

Regulatory Burden.  Think about the unnecessary burden this way:  The current legal and regulatory environment has financial institutions and ATM operators taking time away from serving their customers/members to go out and photograph their ATMs in order to provide defenses against class action lawsuits.  

CFPB.  If the CFPB wants to protect consumers and ensure financial institutions are working to help consumers, they need to get on their soapbox and talk to Congress about removing this unnecessary burden.  Additionally, they should take a good, hard look at their regulatory authority under the Electronic Funds Transfer Act and determine if they can remove this ridiculous requirement and get institutions back to providing services to their members rather than taking photos of their ATMs.  

Financial Literacy; NCUA LCU 12-CU-04; Remittance Transfers; NCUA IRR Video

Written by JiJi Bahhur, Regulatory Compliance Counsel

Financial Literacy Month.  April is Financial Literacy Month and NAFCU is conducting a survey of members seeking general information about the different types of financial literacy programs they offer and how the credit union determines the effectiveness of its program. 

For background information on Financial Literacy Month and where to obtain the results of NAFCU’s survey, check out this NAFCU Today story. 

NCUA also announced a twitter campaign for Financial Literacy Month.  The CFPB will also be active this month with information for consumers.

***

NCUA Letter to Credit Unions 12-CU-04.  NCUA announced, in its Letter to Credit Unions 12-CU-04, that it’s making $1.3 million in grants available to low-income credit unions.  Any credit union with a low-income designation may apply for up to $25,000 in grants for initiatives covering financial literacy and education in school branches; new product/service development; staff, official and board member training; student and job creation internship; and/or volunteer income tax assistance. 

The LCU has an attached enclosure – 2012 Grant Guidelines for Low-Income Credit Unions – which provides examples of projects that these grants could fund, the grant process, and the application.  The deadline to apply for a grant under this program is June 29, 2012. 

***

Remittance Transfers.  The CFPB recently blogged on the consumer benefits of the new remittance transfer rule, which goes in effect in February 2013:

“Better Disclosures: Under this rule, remittance transfer providers must generally disclose the exchange rate, any fees related to the remittance, the amount of money that will be delivered abroad, and the date the money will be available. Certain disclosures must be provided both before and after the consumer pays for a remittance transfer. Consumers will generally receive these disclosures in English and sometimes in other languages. The CFPB thinks the clarity provided by these disclosures will help inform consumer decisions and instill confidence.

Option to Cancel: Typically, consumers will have at least 30 minutes after payment to cancel a remittance. If they cancel within the 30 minute window, they will get their money back, whether they make a mistake, change their minds, or feel something isn’t right.

Correction of Errors: With this rule, remittance transfer providers will generally be held accountable for errors. If a remittance sender reports a problem with a transfer within 180 days, the provider must generally investigate and correct errors. Companies that provide remittance transfers may also be responsible for mistakes made by their agents. The CFPB believes this will encourage remittance transfer providers to use reliable agents and partners in the U.S. and abroad, helping to weed out the bad actors.” 

***

NCUA IRR Video.  NCUA released its third economic update series, which features an in-depth discussion on NCUA’s Interest Rate Risk (IRR) rule.  The rule essentially requires a written policy to address IRR management and an effective IRR program for successful asset liability management.  To see the free video, go here (Youtube.com). 

Also, NAFCU Members, the April Compliance Monitor features an article on Interest Rate Risk with additional information and resources on the new requirement (Effective September 30, 2012).  

Updated 2012 NAFCU Credit Union Compliance GPS is Now Available!

Written by Steve Van Beek

Shameless Plug Alert!

We are very pleased to announce the availability of the Updated 2012 NAFCU Credit Union Compliance GPS.  Over the course of the last year, there have been many small tweaks and changes that have made life difficult for credit unions and, specifically, compliance officers (and many others as well).  These included technical changes to regulations as well as substantive changes to regulations and regulators.  

The Updated 2012 GPS has been thoroughly updated and edited to reflect these changes and provide those researching credit union issues a useful, electronic guide. 

For example, the Updated GPS includes:

• A New Section on the Consumer Financial Protection Bureau;
• Updated Links after NCUA's Website Change;
• Updated Regulatory Citations Reflecting the CFPB's Ownership of the Consumer Regulations;
• Links to the CFPB's Version of the Electronic Code of Federal Regulations;
• An Expanded Bank Secrecy Act Section;
• A Separate Section on Vendor Management; and
• Many more additional updates and edits to ensure accuracy.   

In non-bullet format, the Updated 2012 GPS contains all new links to the updated NCUA website (including Legal Opinion Letters and Letters to Credit Unions).  The GPS also contains the new, correct citation to the CFPB's regulations (i.e., 12 C.F.R. 1026 rather than 12 C.F.R. 226 for Regulation Z) as well as links to the CFPB's regulations to help you find the most up-to-date version of the consumer regulations.       

Pricing.  The Updated 2012 GPS is $399 for NAFCU members and $499 for anyone else.  The GPS is not limited to credit unions and can be purchased by anyone interested in learning more about credit union laws and regulations. 

***

Table of Contents.  To get a feel for the Updated 2012 GPS, take a look at the following Tables of Contents which list the Sections that are included in each Chapter (plus the Appendix).

• Main Table of Content - 1-Page Snapshot of the 2012 GPS
• Chapter Specific Cover Pages - Listing of the Sections by Chapter
• Complete Table of Content - Listing the Contents of Each Section
• The Consumer Financial Protection Bureau Section Table of Contents 

***

Below are a couple of additional items about the Updated GPS.  

Electronic Manual.  The GPS is designed to be a an electronic manual as it contains numerous links to regulations and guidance documents.  Of course, you can print off your own copy of the GPS and use the hardcopy as a quick resource guide.  But, the best bang for your buck is being able to use the electronic links and be taken directly to the NCUA Legal Opinion Letter being described or NCUA's Statutory Lien regulation in 12 C.F.R. 701.39.

Available to Everyone.  The GPS is available for purchase by anyone and everyone.  We've had law firms and audit firms purchase the GPS in the past in addition to numerous credit unions.  Additionally, your credit union does not need to be a NAFCU member to purchase.  We hope the GPS serves as a valuable resource for anyone seeking to learn more about credit unions and the regulations that impact their daily operations.

One GPS Per Credit Union.  Remember - the purchase of the GPS provides access to your entire credit union or organization!  Please feel free to share the GPS with your colleagues at your credit union.  However, we put a lot of time and effort into creating and editing the GPS and we ask that you not share your GPS with other credit unions or third-parties.  

Regulatory Compliance School.  If your credit union sent someone to NAFCU's 2012 Regulatory Compliance School last week, that person should already have an electronic copy of the Updated GPS.  Be sure to track that copy down and share throughout your credit union.  No additional purchase would be required.  

CFPB to Inquire About Overdraft and Courtesy Pay Programs

Written by Steve Van Beek

There was no shortage of information yesterday regarding the CFPB's first steps toward reviewing overdraft programs.  I was just mentioning a few weeks ago how the CFPB has the ability "to drop" a new issue without advanced notice to the industry.  This could be labeled as Exhibit A.  

I'm sure quite a few other folks where enjoying a quiet Wednesday (yeah right) until they saw the news "CFPB to Review Overdraft Programs" come across their email inboxes.  And, while we are at it - what do the regulators have against February 22nd?  I know a lot of folks still get heartburn thinking about the February 22, 2010 deadlines from the Credit CARD Act.    

***

A couple of quick points on the CFPB's inquiry:

• There is currently no proposed rule.
• The "Penalty Fee Box" information would require a large change to periodic statements.  Don't forget to scroll down to the second page for additional potential changes.
• The CFPB will be looking at more than just ATM and one-time debit card transactions.
• The CFPB has no trouble getting its message out to thousands of news sources.
• The $25 Big Mac is an endangered species.  I wouldn't be surprised to see a "reasonable and proportional" discussion take place which would limit the fee to the amount of the overdraft.  
• Credit unions can expect numerous calls and comments from their members.  Your members will be reading the news stories mentioned above.  Now might be a good time for additional training on your credit union's current policies.

This is just the first stages of the CFPB's inquiry as the CFPB is collecting data, comments and input from all interested parties.  This information will be the basis for the CFPB's decisions on which steps to take next - including future rule changes.

***

Here is the information released yesterday from the CFPB:

• CFPB's Press Release
• Director Cordray's Prepared Remarks
• CFPB's Blog Post asking Consumers "What's Your Status?"
• CFPB's Notice and Request for Information
• The "Penalty Fee Box" Model
• Video: Cordray's Remarks and a Panel Discussion with Consumer Groups and Financial Institutions

Note: There was also a Town Hall Meeting in New York City.  If the recorded video is posted by the CFPB, I'll add a link to that as well.

***

As you can see, the CFPB is not dipping a toe in the water.  They are climbing the diving board and preparing to make a cannonball.

ATM Fee Disclosures; CFPB & Privilege; Footnotes

Written by Steve Van Beek

Just a quick update on a few issues you might have seen in the news.

ATM Fee Disclosures.  NAFCU, CUNA, the ABA and other trade associations have joined together to call for an amendment to the Electronic Funds Transfer Act to end the "ATM Fee Disclosure" class action lawsuits.  You can read more on this issue in the NAFCU Today.  The letter sent to the Hill is available here.  

CFPB and Privileged Information.  NAFCU also sent a letter to the Hill urging support of a bill that would change the law to ensure information shared with the CFPB would remain confidential.  The law currently provides this protection for information shared with NCUA.  More from the NAFCU Today here and here.

***

Footnotes.  The NAFCU Compliance Team is currently updating NAFCU's Credit Union Compliance GPS with new information, updated links and citations.  I felt a duty to share with the blog readers this footnote from the Regulation Z chapter.

Here is the text:

"Disclosures included in a footnote⁶ are not considered 'in a prominent location.'"

The footnote material is here....and very true:

"6 You read this footnote because you are a compliance officer and required to follow very detailed laws and regulations. Regulators are starting to disallow disclosures in footnotes through the increased use of “clear and conspicuous” requirements. This trend will most likely continue under the CFPB."

The "prominent location" reference in this situation comes from the promotional rate and fee disclosures from Reg Z's open-end advertising requirements in 12 C.F.R. 1026.16(g).  Of course, the restriction on using footnotes to provide the required disclosures is included in the official staff commentary!! 

What is the saying?  Do as I say……

Finding the CFPB's Regulations

Written by Steve Van Beek

Dodd-Frank transferred authority for the "enumerated consumer laws" to the CFPB on July 21, 2011.  In late December, the CFPB officially republished the regulations that implemented these "enumerated consumer laws" in its own section of the Electronic Code of Federal Regulations.

For credit unions, this means we need to use the CFPB's regulations for our research and our citations.  For example, the correct citation for Regulation Z is now 12 C.F.R. 1026 and not 12 C.F.R. 226.  

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Why does this matter?  When the CFPB issues changes to these regulations - such as the remittances final rule - these regulations will only update the CFPB's Regulation E.  The prior version of Regulation E - under the Federal Reserve - will not be updated.  In order to research the latest and most accurate information, look to and cite the CFPB's regulations.  Note:  The remittances final rule can be found in Subpart B to Regulation E.    

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CFPB Regulations.  Below are links to the CFPB's regulations with the updated citations.  This should be the starting point for your research.  

• 12 C.F.R. 1002 - Regulation B:  Equal Credit Opportunity Act
• 12 C.F.R. 1003 - Regulation C:  Home Mortgage Disclosure Act
• 12 C.F.R. 1005 - Regulation E:  Electronic Funds Transfers
• 12 C.F.R. 1006 - Regulation F:  Fair Debt Collection Practices Act
• 12 C.F.R. 1007 - Regulation G:  SAFE Act Mortgage Licensing - Federal System
• 12 C.F.R. 1016 - Regulation P:  Privacy of Consumer Financial Information
• 12 C.F.R. 1022 - Regulation V:  Fair Credit Reporting Act
• 12 C.F.R. 1024 - Regulation X (RESPA):  Real Estate Settlement Procedures Act
• 12 C.F.R. 1026 - Regulation Z - Truth in Lending Act

Above is not a complete list, but they are the ones with the biggest impact on credit unions.  The full listing of the CFPB's regulations is in Section 1000-1099 of Title 12 of the Electronic Code of Federal Regulations.

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A couple of other items to keep in mind:

• Truth in Savings.  Credit Unions need to follow Part 707 for Truth in Savings rather than Regulation DD.  This blog post has more information.
• Federal Reserve.  The Federal Reserve lost authority for quite a few regulations.  However, they retain control over regulations that were not deemed to be "consumer" regulations.  This blog post has additional information on which regulations stayed with the Federal Reserve.  

CFPB's Semi-Annual Regulatory Agenda

Written by Steve Van Beek

Earlier this week, the CFPB published its "Semi-Annual Regulatory Agenda" in the Federal Register.  This agenda gives credit unions a peek at which regulations the CFPB is working on.  Their Agenda includes rules that are in the "prerule" stage; rules that are in the "proposed" rule stage; and those that are in the "final" rule stage.  Keep in mind these are stages and doesn't mean there is an existing proposed rule for "TILA/RESPA" combined disclosures.  It means the CFPB is working on a proposed rule (i.e., in the drafting phase of the rulemaking process.)  

Here are a couple that are specifically mentioned:

Prerule Stage.  Business Lending Data (Regulation B) - Required by Section 1071 of Dodd-Frank.

Proposed Rule Stage.  TILA/RESPA Mortgage Disclosure Integration (Reg Z and Reg X).

Final Rule Stage:  

• Remittances Transfers (Regulation E) - which has already been finalized.
• Requirements for Escrow Accounts (Regulation Z) - for higher-priced mortgage loans.
• Ability to Repay for Mortgages (Regulation Z) - including the "qualified mortgage" criteria.

The Semi-Annual Regulatory Agenda provides a very brief summary of the the rules which might be useful to track what is coming next.  

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Agency Rule List.  The CFPB's Regulation page contains a link to their "Agency Rule List."  The Agency Rule List provides similar information to the Semi-Annual Regulatory Agenda but is more comprehensive.  It is hosted at the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB).

NCUA also maintains a listing of regulations that it is working on.  That listing is available here.  The same caveats for final rule "stage" applies.  

As we mentioned yesterday, NCUA usually proposes and finalizes rules during a formal Board meeting.  For the CFPB, keeping an eye on their Agency Rule List is important to know what actions they are considering next.   

The CFPB's Ability to Finalize Existing Proposed Regulations

Written by Steve Van Beek

One of the areas of the CFPB's regulatory authority that hasn't received very much attention is the CFPB's ability to finalize a regulation that was proposed by another regulator.  We saw the CFPB take this action with the Remittances final rule - which was originally proposed by the Federal Reserve.

Section 1063(j).  Dodd-Frank specifically indicated that proposed rules - to amend a consumer regulation - would transfer to the CFPB as well.  This allows the CFPB to finalize a proposed rule without having to "repropose" the regulation in the Federal Register.  Section 1063(j) of Dodd-Frank:

"(j) STATUS OF RULES PROPOSED OR NOT YET EFFECTIVE.— (1) PROPOSED RULES.—Any proposed rule of a transferor agency which that agency, in performing consumer financial protection functions transferred by this title, has proposed before the designated transfer date, but has not been published as a final rule before that date, shall be deemed to be a proposed rule of the Bureau."

Remittances.  As we saw with remittances, the CFPB decided to finalize the remittances rule (by their statutory deadline of January 21, 2012) and issue a proposed rule at the same time.  NAFCU members:  Our Regulatory Alert (12-EA-05) on the remittances proposal is now available.    

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Existing Proposed Rules.  There are quite a few other proposed rules that are "hanging out there" and which could be finalized by the CFPB without further warning (i.e., without a new proposed rule).  Of course, the CFPB could reissue a new proposed rule if it wanted to take a different approach than was taken by the Federal Reserve.    

Below is a listing of a few proposed rules that the CFPB inherited on July 21, 2011 when it obtained its regulatory authority.

Regulation Z:  Ability-to-Repay for Mortgages.  Originally proposed by the Federal Reserve in April 2011, the CFPB has indicated it will finalize this rule in Spring 2012.  

Regulation Z:  Escrow Accounts.  Originally proposed by the Federal Reserve in February 2011.  I wouldn't be surprised if we saw this rule finalized sometime in 2012.     

Regulation Z:  Credit Insurance; Right of Rescission; HELOCs.  The Federal Reserve had proposed changes in August 2010.  In February 2011, the Federal Reserve announced it would not finalize these proposals as the CFPB would gain authority over Regulation Z on July 21, 2011.  

Regulation Z:  Closed-End Mortgages; HELOCs.  The Federal Reserve also had proposed changes to Closed-End Mortgage disclosures and HELOC disclosures.  The Fed issued these proposals in July 2009.  These proposals were also tabled by the Federal Reserve in February 2011 - passing authority on to the CFPB.    

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Credit Insurance.  We've blogged on the credit insurance issue a couple of times in the past.  

• A September 2010 blog post highlights the proposed model form and how it will definitely lead to fewer policies.
• A March 2011 blog post highlights a GAO study focused on credit insurance products.    

If your credit union offers these products, this is definitely an area to keep an eye on.  

When It Rains, It Pours............Regulations

Written by Steve Van Beek

The DC area has had some unseasonably warm weather the past couple of weeks - but the flood of regulations coming from the regulators make it seem like we need to have our galoshes with us at all times.  The past couple of weeks have been a good example of regulatory onslaught from multiple angles - making the lives of compliance officers everywhere very difficult.

Given the fast-paced nature of the recent proposals and finalized regulations, I thought a quick blog post highlighting where to find the new rules was a good start up this mountain I like to call "regulatory change."  As an aside, I'm very interested to see Chairman Matz discuss NCUA's efforts to ease the regulatory burden on credit unions during NCUA's February 8th webinar (which also features CFPB Director Richard Cordray).

Interest Rate Risk Policy - Final Rule.  Recently NCUA issued a final rule on interest rate risk policies.  That rule will be published in the Federal Register this morning.  This final rule becomes effective September 30, 2012.    

Loan Workouts, Nonaccrual Policy & TDRs - Proposed Rule.  At its January Board meeting, NCUA also proposed a new rule that would require all federally-insured credit unions to have a written loan workout/modification policy.  The proposal also contains an Interpretive Ruling & Policy Statement discussing nonaccrual status and troubled debt restructuring reporting.  This proposal was published in the Federal Register yesterday and includes a short, 30-day comment period.

Derivatives - Advanced Notice of Proposed Rulemaking (ANPR).  NCUA also issued a ANPR on derivatives that would provide opportunities for credit unions to use derivatives to manage interest rate risk.  This proposal has not been published yet, but it will have a 60-day comment period (from the date it is published in the Federal Register).

Regulation E (Remittances) - Final Rule.  We discussed this final rule yesterday and I'm fairly certain we'll all become good friends with this rule over the next year.  The final rule will become effective February 7, 2013.

Regulation E (Remittances) - Proposed Rule.  Quite possibly a new record - proposing a rule to amend a final rule that was published on the same day.  Bravo!  The CFPB issue a proposed rule that would tweak the recent final rule.  Rest assured (warning - you may need to adjust your snark meter), the CFPB has indicated they will finalize this proposed rule before the finalized rule that it amends becomes effective.

Junior Lien Loan Loss Allowances - Guidance.  On Tuesday, NCUA along with the other regulators who make up the Federal Financial Institutions Examination Council (FFIEC) announced new guidance for junior lien loan loss allowances.  The Interagency Guidance is here and NCUA also issued Accounting Bulletin 12-1.

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On a happier note, all this talk about raining, pouring and galoshes got me thinking about a wonderful trip with my (now) wife in Seattle.  Good times!  

CFPB Issues Final Rule on Remittance Transfers; Proposes Changes As Well

Written by Bernadette Clair, Regulatory Compliance Counsel

On January 20, 2012, the CFPB adopted a final rule amending Regulation E (Electronic Fund Transfers) to include consumer protections for various types of remittance transfers.  The rule was originally proposed by the Federal Reserve Board last May; however, authority to finalize the rulemaking transferred to the CFPB on July 21, 2011.

Effective Date.  The rule will be effective February 7, 2013.  The rule is slated to be published in the Federal Register on February 7, 2012.  The final rule and a proposed rule are both available at the Federal Register Public Inspection Desk (click the links that say "pre-publication PDF version" to find the full language).

Location in Regulation E.  The new rules will be located in a new Subpart B to Regulation E.  The rule creates new sections 12 CFR 1005.30-36 along with new model forms (A-30 through A-41).  After the rule is published in the Federal Register, the new requirements will be added to the CFPB's Reg E in the Electronic Code of Federal Regulations.  

Coverage.  The rule was issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which creates comprehensive consumer protections for remittance transfers.  Remittance transfer is defined broadly and includes most electronic transfers of funds sent by consumers in the United States to recipients in other countries – including international wire and ACH transactions.  Remittance transfer provider is also broadly defined as any person that provides remittance transfers for a consumer in the normal course of its business, regardless of whether the consumer holds an account with such person.  This definition includes credit unions.

Key provisions of the final rule include: 

• A requirement that the remittance transfer provider provide certain pre-payment disclosures to a sender containing information about the specific transfer – such as the exchange rate, applicable fees and taxes, and the amount to be received by the recipient.  The remittance transfer provider is also generally required to provide disclosures when payment is made, including the same information provided on the pre-payment disclosure, plus additional disclosures. Alternatively, the final rule permits remittance transfer providers to give senders a single written disclosure prior to payment containing all of the information required on the receipt, so long as the provider also provides proof of payment. 

• The establishment of sender cancellation and refund rights.  The rule contains error resolution standards that are similar to those that currently exist under Regulation E for electronic fund transfers.  Note that the proposed rule originally provided for a one business day cancellation period – that has been reduced in the final rule to 30 minutes. 

• Adoption of liability standards under which a remittance transfer provider will be liable for violations by an agent, when such agent acts for the provider.

Model Forms.  You can find model forms on the CFPB’s website here.

Exceptions.  The rule does contain a temporary exception permitting certain estimated disclosures where an insured depository institution or credit union is unable to determine the exact amount for reasons beyond its control.  The exception sunsets five years from the date of enactment of Dodd-Frank (i.e., July 21, 2015), unless extended by the CFPB.

A second exception applies when the remittance transfer provider cannot determine certain amounts because of the laws of the recipient country, or the method by which transactions are made in the recipient country. The CFPB expects to issue a safe harbor list of countries to which this second exception applies.

Regulatory Final.  NAFCU's Regulatory Affairs team is working on a Final Regulation summary of this rule for NAFCU members. 

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Proposed Rule.  Concurrent with the final rule, the CFPB also issued a proposed rule detailing further amendments to the remittance transfer rule.  Under the proposal, a person making no more than 25 remittance transfers per year would generally not be deemed to be providing remittance transfers in the normal course of business.  The CFPB is seeking comments on whether this threshold should be higher or lower.

Changes to disclosure and cancellation requirements for certain transfers are also proposed.   The CFPB intends to complete any further rulemaking on matters raised in this proposed rule before the end of the one-year implementation period.

CFPB Outlines Supervision Process; ATM Disclosures

Written by Steve Van Beek

On Tuesday, the CFPB issued a press release outlining its approach for supervising depository institutions over $10 billion in assets.  For more information on the CFPB's approach, see Wednesday's NAFCU Today story.

One thing that caught my eye as a compliance junkie?  This part at the very bottom:

"The CFPB will post on its website the initial phase of its Examination Manual, which is the field guide for examiners supervising both banks and other consumer financial services companies. The publication of the manual will be accompanied by a general invitation for feedback and suggestions for improvements from the banking industry, nonbank financial services companies, federal and state agencies, consumer and community groups, and the general public." 

If done right, this manual could be a great resource for all credit unions regardless of asset size.  It will also be useful in a situation where your NCUA examiner has a different opinion on an issue than your credit union.  Remember, after July 21, 2011, the CFPB becomes the authority on all consumer regulations.  In the past, NCUA would look to the Federal Reserve on Reg E or Reg Z issues but going forward this is the CFPB's territory.  Hopefully the CFPB will use plain English in its manual and not just recite the regulatory language (a habit other regulators have, unfortunately, fallen into).  

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We have touched on ATM fee disclosures in a couple of blog posts already in 2011 - here; here and here.  As I was researching another issue yesterday, I ran across an article from NCUA's Office of Consumer Protection on this issue as well.  The article provides a straightforward overview of the disclosure requirements and can be found on page 5 of the May 2011 NCUA Report.