NAFCU Compliance Blog

Friday Links

Posted by Anthony Demangone

Here are a few items of interest on this fine Friday.

Free Fed Webinar.  The Federal Reserve's Consumer Compliance Outlook "service" is hosting a free webinar on May 26 to address the Fed's proposal regarding "Ability to Repay Standards for Mortgages." You can sign up via the link above.  I think the "Consumer Compliance Outlook" gang is one of the better regulator-related services out there.  They write and speak in English.  While I may not like the stances they take on things, I do salute the fact that the Fed, via this group, clarifies areas of confusion and speaks plainly on regulatory burdens.  I find that their webinars are jammed full with useful, although sometimes painful, information.

Reg E and Remittances.  The Fed just released a proposal to deal with  remittances.  In short...

The Federal Reserve Board on Thursday requested public comment on a proposed rule that would create new protections for consumers who send remittance transfers to recipients located in a foreign country.

The proposed rule would require that remittance transfer providers make certain disclosures to senders of remittance transfers, including information about fees and the exchange rate, as applicable, and the amount of currency to be received by the recipient. In addition, the proposed rule would provide error resolution and cancellation rights for senders of remittance transfers.

The proposal is being made under Regulation E (Electronic Fund Transfers) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

We'll have a 60-day comment period once this is published in the Federal Register.

CFPB.  Here is a possibly-overlooked component of the CFPB.  Its research arm. The CFPB just wrote a bit about this division and what it will do.   Here are some snippets from the post:

The CFPB is building an Office of Research to support its commitment to evidence-based policymaking. The research office will produce new findings that deepen our understanding of the problems that consumers, firms, and markets encounter. It will also help the CFPB conduct rigorous policy evaluations, which in turn will help maximize our effectiveness in addressing these problems and minimize unintended consequences...

Under Sendhil’s leadership, the Office of Research will conduct research on a variety of topics and, in many cases, publish findings under the consumer bureau’s name. Frequently, though, researchers will choose their own topics, data, and methodology themselves, draw their own conclusions, and publish in their own names.

I'll leave you to your own conclusions.  

Reg E; ATM Fee Disclosures & The CFPB

Written by Steve Van Beek

Anthony mentioned the rash of ATM lawsuits yesterday.  In that post, he linked to a 2009 FDIC letter that discussed the ATM fee disclosure requirements in Reg E.  Here is how the FDIC letter summarizes the requirement:

"Notices must be posted both (1) in a prominent and conspicuous location on or at the automated teller machine, and (2) on the screen or on paper before the consumer is committed to paying a fee." (emphasis in original).

That doesn't seem too confusing.  So, let's take a look at the underlying regulatory requirement from Reg E - 205.16(b) & (c):

"(b) General. An automated teller machine operator that imposes a fee on a consumer for initiating an electronic fund transfer or a balance inquiry shall:

(1) Provide notice that a fee will be imposed for providing electronic fund transfer services or a balance inquiry; and

(2) Disclose the amount of the fee.

(c) Notice requirement. To meet the requirements of paragraph (b) of this section, an automated teller machine operator must comply with the following:

(1) On the machine. Post in a prominent and conspicuous location on or at the automated teller machine a notice that:

(i) A fee will be imposed for providing electronic fund transfer services or for a balance inquiry; or

(ii) A fee may be imposed for providing electronic fund transfer services or for a balance inquiry, but the notice in this paragraph (c)(1)(ii) may be substituted for the notice in paragraph (c)(1)(i) only if there are circumstances under which a fee will not be imposed for such services; and

(2) Screen or paper notice . Provide the notice required by paragraphs (b)(1) and (b)(2) 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."  (emphasis added).

Hmm.  That looks a bit more complicated than the FDIC's summary.  It comes to the same conclusion - the notice must be both (1) on the ATM and (2) on the screen prior to the member finishing the transaction and being charged a fee.  But, look at all the legalese credit unions have to jump through to reach that conclusion.  

***

Last week, I highlighted some issues with confusing regulations that were causing compliance headaches.  Monday, Anthony posted a very interesting quote from Elizabeth Warren:

"During my many visits with you, I’ve heard about the high cost of regulatory compliance. I understand the difficulty of determining what is or is not required by a particular regulation – and the costs that creates. I appreciate the widespread anxiety and frustration over the future of community banks and other small financial institutions. I know that you want a regulatory structure that doesn’t require an army of lawyers. Big banks may be able to afford to hire all those lawyers, but you cannot.

This is what you have said to me in visits all around the country: Community banks work hard to build long-term partnerships with the families they serve. Community banks didn’t cause this financial crisis. And badly done regulation can further weaken our community banks, significantly increasing the pressures they face. How should the new consumer bureau incorporate these lessons into its work?"  (emphasis added)

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.

Bonus Question:  Who has authority over Regulation E (which implements the Electronic Funds Transfer Act) starting on July 21, 2011?  My read indicates this power stays with the Federal Reserve. (Update on 12/13/2012: The CFPB obtained authority for Reg E on July 21, 2011.  It did not take steps to clarify the issue for credit unions).

Will the CFPB tell the Federal Reserve it should review section 205.16 of Reg E?  A clearer Regulation E will lead to less consumers being harmed and less lawsuits being filed.  That looks like an easy win-win for the CFPB.     

Thursday Recap

Posted by Anthony Demangone

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

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

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

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

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

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

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

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

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

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

***

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

Thunderous Thursday; This and That

Posted by Anthony Demangone

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

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

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

***

Here are a few other items of interest...

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

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

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

Risk-Based Pricing Notice and Recordkeeping; Other Stuff

Posted by Anthony Demangone

As you pore over your risk-based pricing notice procedures, you may come across an interesting discovery.  There really are no record retention requirements spelled out in the final regulation.  So, what is one supposed to do?  How can you prove compliance?

One thought is that a credit union could rely on its policies and procedures, which will spell out how a credit union has decided to provide notices under the rule - assuming it has to provide risk-based pricing notices. I don't think such a stance is unreasonable.  In fact, that is the requirement the Fed created for Regulation E.  Here's the Fed's description of Regulation E's record retention requirements, found in the Staff Commentary, Section .13(b).

A financial institution need not retain records that it has given disclosures and documentation to each consumer; it need only retain evidence demonstrating that its procedures reasonably ensure the consumers' receipt of required disclosures and documentation.

I'm curious to see how others are handling this.  Feel free to leave a comment on the blog with your record retention plans.

***

Here are some other items.

• The most recent episode of Current Issues in Credit Unions is available.  So fire up that iPod!
• At Compliance Seminar, a speaker noted that the best risk management guidance document for ACH is OCC 2006-39.  After looking at the document, it is hard to argue against the speaker's statement.
• Leave it to Saturday Night Live to create perhaps the most effective financial literacy tool for consumers that I've ever seen. (Video.)  Keep in mind that your workplace may have a policy on watching videos while at work.  Believe me, though - this one is gold.  Gold, Jerry. Pure gold.

This and That...

Posted by Anthony Demangone

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

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

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

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

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

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

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

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

Seminar Kicks Off Today; Regulation E and "Knowledge"

Posted by Anthony Demangone

NAFCU's Regulatory Compliance Seminar kicks off today in Grapevine, Texas.  We have a packed agenda and a packed house, as this year's seminar has sold out.  With seminar in full swing, NAFCU's staff back in the home office will be swamped.  Please keep that in mind.  Our email and telephone response times may be a longer than usual, and we appreciate your understanding.  

***

As you may be aware, Regulation E creates a system that generally protects consumers from losses due to unauthorized electronic funds transfers - as long as the member notifies you when they become aware of the issue.  Regarding the loss or theft of an access device, you may think that the receipt of a periodic statement should indicate the time when the member has knowledge of the loss or theft of such a card.  The reasoning would go like this: if the member reads their statement and compares it against their transactions, they should be able to learn about the loss or theft of their debit card.  Not so fast my friend.  

Here's what the Fed says in the Official Staff Interpretation to Regulation E:

The fact that a consumer has received a periodic statement that reflects unauthorized transfers may be a factor in determining whether the consumer had knowledge of the loss or theft, but cannot be deemed to represent conclusive evidence that the consumer had such knowledge.  (Emphasis added.)

So, you can use the fact that the member received a statement as a factor, but it is not, by itself, conclusive proof of knowledge. 

This and That...

Posted by Anthony Demangone

Happy Friday and Happy October, everyone. My inbox is overflowing, so here are some compliance tid -bits for your general consumption.

Investment due diligence.  NCUA has issued Letter to Credit Union 10-CU-18 to clarify its expectations regarding due diligence efforts with credit union investments. The guidance stresses the importance of due diligence, and provides seven areas of issues that credit unions should clarify before purchasing an investment. 

Overdraft protection. Here's an interesting blog post (Bank Lawyer's Blog) on how the financial industry may have overblown the effects of Regulation E's restrictions on overdraft protection programs.

Prohibition orders.  NCUA has issued its latest batch of prohibition orders.   As I've said many times, these orders are a nice way to remind folks at your credit union that people will try to rip you off from the inside.

RESPA.  HUD has issued volume two of its RESPA roundup. It is a short, two-page document.  Be sure to pass it along to your resident RESPA expert. 

Corporate stabilization.  NCUA has produced a 4th presentation in its corporate stabilization series. This presentation details NCUA's corporate resolution strategy.

MDIA.  NAFCU members: our Regulatory Alert on the Fed's Interim Final Rule implementing the MDIA is now available. (Member log-in needed.)

FDIC Overdraft Guidance - Uh-Oh; Gift Cards; My Favorite Salad

Posted by Anthony Demangone

Yesterday, the FDIC released proposed guidance on overdraft protection programs.  The proposed guidance is very troubling, even though it is limited to FDIC-related banks and thrifts.  In today's political environment, I worry that NCUA will follow suit.  The proposed guidance, if made final, will put a good deal of downward pressure on ODP fee income for FDIC institutions. 

The proposed guidance is Financial Institution Letter FIL-47-2010.  The FDIC is seeking comments to the proposal. Here's a summary of the guidance from the FDIC:

The FDIC expects the institutions it supervises to closely monitor and oversee any overdraft payment programs they offer to consumers. Such oversight should include appropriate measures to mitigate risks, incorporating the best practices outlined in the attached 2005 Joint Guidance on Overdraft Protection Programs, and effective management of third-party arrangements. Management should be especially vigilant with respect to product over-use that may harm consumers, rather than providing them the protection against occasional errors or funds shortfalls for which the programs were intended. The FDIC is seeking comment on these supervisory expectations. (Emphasis added.)

Oh-oh, indeed.  If you don't remember the 2005 Joint Guidance, here it is, via Letter to Credit Union 05-CU-03.  What are those best practices?  (Keep in mind that the best practices would extend to all ODP vehicles, not just debit and ATM cards.)  Here are a few from the list:

• Provide election or opt-out rights.  If opt-out rights exist, they must be clearly disclosed.
• Alert consumers before a transaction would trigger an ODP fee, giving them the chance to decline to proceed.
• Promptly notify consumer when an ODP service is used.  This could involve sending a notice to the affected consumer on the day the use an ODP service.
• Consideration of using daily fee limits on ODP services.
• Monitoring accounts for excessive ODP usage

As you can see, these best practices would not be easy to implement.  Should the FDIC guidance become final in its current form, it will be another blow to ODP fee income.  It would seem to me that there would be pressure for NCUA to follow suit.  Finally, should institutions not follow the guidance, it would be a great issue for the CFPB to champion as it comes out of the gate.

On a related note, Wells Fargo has to pay $203 million to California residents (NY Times) in compensation for the fact that it manipulated transactions to increase ODP fee income.  What was one of their sins?  Posting transactions from largest dollar amount to smallest.  You can access the court's decision form the link above.  Wells Fargo indicates it will appeal. 

***

Yesterday, the Federal Reserve issued an interim final rule to amend Regulation E in response to recent legislation that extends the effective date for certain provisions of a Regulation E rule concerning practices related to gift cards.  Here's how the Fed described the rule:

The Federal Reserve Board on Wednesday announced its approval of an interim final rule implementing recent legislation modifying the effective date of certain disclosure requirements applicable to gift cards under the Credit Card Accountability Responsibility and Disclosure Act of 2009. For gift certificates, store gift cards, and general-use prepaid cards produced prior to April 1, 2010, the legislation and interim final rule delay the August 22, 2010, effective date of these disclosures until January 31, 2011, provided that several conditions are met.

***

It is summer, so it isn't uncommon to host a backyard barbecue, or travel to one.  Here's a salad that my wife and I reverse engineered that has been a hit.  And yes, I said reverse engineer.  It is pretty darn close to the Misto salad at Faccia Luna - one of our favorite local haunts. 

• Chop up "hearts of romaine" lettuce.
• Chop up red onion, cucumber, and tomatoes.  (I like roma tomatoes, but that's just me.)
• Add fruit and nuts.  I personally like the cranberries and candied walnuts mix you can find in quite a few stores, but raisins and dates will work as well.
• Crumbled feta or goat cheese
• Salt and pepper to taste.
• Here's the kicker - use champagne vinaigrette for the dressing. 

Of course, you can tinker til your heart's content.  But this is usually how we make it at Casa Demangone.  It is easy to prepare, and quite tasty.

Have a great weekend, everyone!

Grab Bag

Posted by Anthony Demangone

I have a ton of interesting tid-bits in my email in-box that caught my eye.   

ODP.  NCUA has published the Federal Reserve overdraft protection opt-in notice, and urged credit unions to use the form to meet the Federal Reserve's August 15 compliance deadline for existing members.  NCUA's notice is a bit confusing for two reasons.  First, it overlooks the fact that there was a July 1, 2010 ODP notification deadline for new members. Second, if your credit union does not have an overdraft protection program as defined by Regulation E, there is no deadline, as there's no need to send out the opt-in form. 

Golden parachutes.  As discussed earlier, NCUA issued a proposal at its last NCUA board meeting to address the permissibility of "golden parachutes" for certain distressed credit unions.  NAFCU members: we have produced a Regulatory Alert to provide a detailed overview of the proposal.  (NAFCU members only.)

Podcast.  Current Issues in Credit Unions Episode 50 is now available.

LUA.  As I've noted before, NCUA has indicated that they'll take a more aggressive position regarding administrative actions.  It appears that they are holding true to their word.  Yesterday, NCUA published its fourth Letter of Understanding and Agreement of 2010.  NCUA alleges weak management, declining net worth and earnings, weak recordkeeping and internal controls, and weaknesses in the annual audit.  While no civil money penalty was assessed, the credit union has or had a number of difficult action items to perform in a short period of time.

Fee triggers.  The HOEPA fee trigger for 2011 will increase to $592.  Somewhere, a compliance officer is saying...I remember back when it was only $400.

State of things.  NCUA has released Letter to Credit Unions 10-CU-12 to discuss the state of the credit union industry.  For those who create presentations for your board, the report contains a ton of useful graphs and statistics.

IRA Periodic Statements; Shameless Plug

Posted by Anthony Demangone

Because it is Friday, and because I love all of you, I thought I would try to save you some money.  Here's a regulatory wrinkle that might save your credit union a few dollars.

IRA periodic statements.  If your credit union offers IRA accounts, you may be shocked to learn this little fact. You are under no legal obligation to deliver IRA periodic statements.  IRAs are exempt from Regulation E, as the regulation considers them to be "trusts." Trusts, are not subject to Regulation E, per the regulation's definition of "account."  In addition, Truth in Savings does not mandate that you send a periodic statement.  It only creates certain requirements if you do.  For the "Doubting Thomas" in you, here's the regulatory language from Regulation E.

(b)(1) Account means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.

(2) The term includes a “payroll card account” which is an account that is directly or indirectly established through an employer and to which electronic fund transfers of the consumer's wages, salary, or other employee compensation (such as commissions), are made on a recurring basis, whether the account is operated or managed by the employer, a third-party payroll processor, a depository institution or any other person. For rules governing payroll card accounts, see §205.18.

(3) The term does not include an account held by a financial institution under a bona fide trust agreement.

And from the Staff Commentary of Regulation E:

Custodial agreements. An account held under a custodial agreement that qualifies as a trust under the Internal Revenue Code, such as an individual retirement account, is considered to be held under a trust agreement for purposes of Regulation E.

If you add the two together, you'll find that IRAs are not subject to Regulation E.  Therefore, they are not subject to Regulation E's periodic statement requirements. Even if the IRA gets an electronic deposit. Now, let's look at NCUA's Truth in Savings regulation. 

• The staff commentary to NCUA's Truth in Savings regulation point blank states that the regulation does not require that you send a periodic statement.  It simply states that if you do so, you must follow its requirements.
  
• Note that the definition of "periodic statement" also excludes "share certificates."  Therefore, even TIS's requirements do not apply to share certificates. So, if you have an IRA account that only holds a share certificate, you are completely off the radar. NCUA only requires if you voluntarily disclose information, that the information be accurate and not misleading. 

So, let's summarize.

•  IRAs (and HSAs for that matter) are not "accounts" for the purposes of Reg E.  For that reason, they are not subject to Reg E's periodic statement requirements - even if the member deposits funds electronically into the account on a regular basis.
• Truth in savings does not mandate that you send periodic statements. Its requirements only kick in if you decide to send one.  And its requirements do not apply to share certificate accounts.    

So, how can this save you money?  Let's see.

1. Technically, you could simply do away with periodic statements for IRAs.  You would still have to send the IRS-mandated disclosures, so members would still get some information.  This choice, however, may not be feasible from a "member expectation" point of view. 
2. If you are going to send periodic statements, there's certainly no regulatory need to send them on a monthly basis.  Quarterly certainly is OK.  And I don't see a regulatory hurdle to an annual periodic statement.  You just have to meet NCUA's Truth in Savings requirements if the IRA account holds a  non share-certificate, account. 

***

Shameless plug. Next Wednesday, I'll take part in a 2-hour long webcast that will cover the August 22 Reg Z changes and the changes found within the 2010 BSA/AML Examination Manual.  I've reviewed the slides so far, I'm convinced that the content will be worth your time.  I'll take roughly 20 slides and 30-40 minutes to hit the BSA portion, and then Steve and Sarah will address the remainder.  We've allotted an extra 30 minutes to answer any extra questions and answers, as we'll hit on so many topics. And yes, I do note the irony.  I tried to save you money above.  And now I'm asking for it.  Such is life.

Have a great weekend, everyone!

Corporate Assessment; Opt In Issue; Credit Card Agreement Specifications; FinCEN "Stored Value" Rule

Posted by Anthony Demangone

NCUA has issued Letter to Credit Union 10-CU-09 to discuss the recent NCUA board actions concerning its corporate stabilization program.  If your credit union has questions about the 13.4 basis points assessment, this guidance provides a good deal of information. 

***

Here was an interesting issue that I just stumbled upon.  A credit union called to note that certain gas stations near his credit union have created their own "debit card." (I'm assuming this is nation-wide.) The card links to the member's credit union account, but it clears as an ACH transaction.  The question was this: how do these cards fit within Regulation E's overdraft protection rule?  Answer: They don't.  

Regulation E's ODP opt-in rule only applies to cards issued by or on behalf of the account-holding bank or credit union.  This comes from the Official Staff Interpretation section of Regulation E:

Section 205.17(b) applies to ATM and one-time debit card transactions made with a debit card issued by or on behalf of the account-holding institution. Section 205.17(b) does not apply to ATM and one-time debit card transactions made with a debit card issued by or through a third party unless the debit card is issued on behalf of the account-holding institution. § 17(b)(1)(i) of the Official Staff Interpretations supplement to Regulation E. 

***

A little birdie told me that she received an email from the Fed indicating that the Fed will create new technical specifications for submitting credit card agreements per Reg Z.  The next submission is due by August 2, 2010. Reportedly, the Fed will be emailing the new specifications shortly. 

***

The Credit CARD Act mandated that new regs be issued to address the "stored value" system in relation to anti-money laundering and financial crimes.  Well, FinCEN yesterday, FinCEN issued a proposal to deal with that mandate.   The proposal, though, does not apply to depository institutions.   It is focused on MSBs.  But don't forget that the recent changes to the BSA manual do discuss risk mitigation controls for credit unions that offer stored value products. Here's a 7-page overview (member log-in needed) of the BSA manual changes. It will be made available to anyone who signs up for our July 14th webcast, which will also address the BSA changes. 

Negative Balance and Sustained Overdraft Fees under Reg E

Written by Steve Van Beek

As I mentioned in yesterday's post on Reg E, credit unions need to pay close attention to the clarifications the Federal Reserve issued recently on the Reg E final rule.  The clarifications contain two new comments and detailed analysis by the Federal Reserve on negative balance and sustained overdraft fees that CUs will want to read.  The preamble is on pages 4-6 of this PDF with the two new sections of the official staff commentary on page 8.

Outstanding Negative Balance - Comment 205.17(b)-8.

The Fed clarified in this comment that CUs can not charge negative balance fees to members if the only negative balance is solely from ATM or one-time debit card transactions:

"8. Outstanding Negative Balance. If a fee or charge is based on the amount of the outstanding negative balance, an institution is prohibited from assessing any such fee if the negative balance is solely attributable to an ATM or one-time debit card transaction, unless the consumer has opted into the institution’s overdraft service for ATM or one-time debit card transactions. However, the rule does not prohibit an institution from assessing such a fee if the negative balance is attributable in whole or in part to a check, ACH, or other type of transaction not subject to the prohibition on assessing overdraft fees in § 205.17(b)(1)."   

Notice that the rule does not prohibit a negative balance fee that is attributed "in whole or in part to a check, ACH, or other type of transaction" not subject to the new Reg E rules.  See the examples in Comment 9 for more information.

Daily or Sustained Overdraft, Negative Balance or Similar Fee or Charge - Comment 205.17(b)-9.

First off, note that the Federal Reserve named this comment very broadly.  Financial institutions will not be able to come up with a creative term for their fee in an attempt to move outside the rules.  As the comment indicates:

"If a consumer has not opted into the institution’s overdraft service for ATM or one-time debit card transactions, the fee prohibition in § 205.17(b)(1) applies to all overdraft fees or charges for paying those transactions, including but not limited to daily or sustained overdraft, negative balance, or similar fees or charges. Thus, where a consumer’s negative balance is solely attributable to an ATM or one-time debit card transaction, the rule prohibits the assessment of such fees unless the consumer has opted in."

The Fed then goes on to give examples of when the CU could charge negative balance or sustained overdraft fees when the negative balance is attributed to a combination of ATM/one-time debit card transactions and checks/ACH or recurring debit card transactions.   

Credit unions will want to review the assumptions the Fed uses and the examples themselves to determine when they may be able to charge negative balance or sustained overdraft fees.

Of course, if a member opts-in to overdraft coverage for ATM and one-time debit card transactions - CUs could properly charge the disclosed fees in those situations.  

For the Fed's assumptions and the examples - see page 8 for Comment 9 to 205.17(b).

Clarifications to Reg E Opt-in Requirement

Written by Steve Van Beek

As you work through finalizing your Reg E opt-in process, do not forget about the clarifications the Federal Reserve recently published.  Of course, the big clarification was that the Fed formally declared that financial institutions need an opt-in before charging a fee even for "gas station transactions" and other situations where funds were available when authorized but subsequent transactions cause the transaction to overdraw the account.  As the preamble states:

"The final rule does not provide any exceptions for allowing overdraft fees for ATM and one-time debit card transactions to be imposed without consumer consent. For clarity, however, the Board is deleting § 205.17(b)(4) and instead incorporating its content into a revised comment to § 205.17(b)(1). For the reasons explained in the SUPPLEMENTARY INFORMATION to the Regulation E final rule, as well as the March 2010 proposed rule, the Board believes that adopting exceptions to the fee prohibition would undermine the consumer’s ability to understand the institution’s overdraft practices and to make an informed choice. 74 FR 59045; 75 FR 9121. Moreover, permitting fees on transactions that are authorized on sufficient funds but settle on insufficient funds would create a disincentive to resolve inefficiencies in payment systems and in processing procedures, which would not benefit consumers. 

The final rule clarifies that the prohibition on assessing overdraft fees under § 205.17(b)(1) applies

to all institutions, including those institutions that have a policy and practice of declining to authorize and pay any ATM or one-time debit card transactions when they have a reasonable belief at the time of the authorization request that the consumer does not have sufficient funds available to cover the transaction." (emphasis in original).

Timing of Written Confirmation

The clarifications also make clear that institutions need to have procedures to ensure that overdraft fees are only assessed on transactions paid after the CU mails or delivers the written confirmation.  Thus, institutions have an incentive to provide the written confirmation promptly after a member opts-in.   See new comment 205.17(b)-7 on page 7 and the preamble on pages 3-4 for more information on the Fed's rationale.

And, of course, the member's opt-in can not apply to any transactions conducted or paid prior to the member's opt-in.  Thus, if a member finally opts-in on November 1, 2010 - the CU can not go back and charge fees for any transactions in the past even if they overdrew the account.  The member's opt-in only applies to future transactions.  And, the member retains the right to revoke his/her opt-in consent at any time in the future. 

Opt-in is Per Account, Not Per Member

The Fed also added some clarification to an issue some credit unions have struggled with:

"Industry commenters also asked whether opt-ins for multiple accounts may be obtained on one consent form (or in the course of obtaining opt-ins through any other method, such as over the phone or on-line). Any determination as to whether an opt-in has been obtained from a consumer in compliance with the rule depends on the facts and circumstances. However, whether or not a single form is used to obtain consumers’ opt-ins, a separate opt-in decision must be made for each account, and the choices must be presented in a clear and readily understandable manner. Thus, a statement on the form that the consumer’s signature acts as an opt-in for all of the consumer’s accounts is not permissible under the final rule."  (emphasis added).  See the bottom of the first column on page 7.

While the CU can have multiple blanks on an opt-in form to allow members to opt-in for more than one account, the CU can not treat one opt-in as applicable to all a member's subaccounts.

Gift Cards and Changing Fees

Posted by Anthony Demangone

Among the 2,673 things compliance officers are working on this summer are gift cards.  The Federal Reserve issued amendments to Regulation E that affect gift cards that will take affect August 22, 2010. I won't get into all the details in this post, but I did want to note a strange twist that some of you may not have noticed. 

As you may recall, gift cards will need fee information on the card and distributed at purchase.  Cards must not expire for at least five years.  So, once you issue the gift card, can you increase a dormancy fee after the fact?  Nope. The Fed explained its rationale in the Preamble to the final rule.

For the foregoing reasons, § 205.20(c)(3) is adopted as proposed, with some revisions. One industry commenter requested that the Board clarify in the final rule that an issuer may modify the terms of the certificate or card after purchase, so long as the modifications are disclosed to the consumer. The Board believes permitting the modification of fees and terms and conditions of expiration for certificates or cards would be problematic because many certificates or cards are issued without obtaining the name or other information about the consumer. Moreover, the certificate or card may be given to another consumer after purchase. In such cases, it would be difficult to inform consumers that fees and terms and conditions of expiration for a certificate or card have changed, because the issuer would not have the consumer’s contact information. Moreover, permitting an issuer to change the fees and terms and conditions of expiration for a certificate or card after purchase would undermine the purpose of disclosing those fees and terms of expiration prior to purchase. Consumers would be unable to rely on the fees and terms and conditions of expiration disclosed on different certificates or cards when comparing products. Therefore, § 205.20(c)(3) provides that fees and terms and conditions of expiration that are required to be disclosed prior to purchase may not be changed after purchase. The Board has also modified § 205.20(c)(3) to clarify that an issuer or vendor, as referenced in EFTA Section 915(b)(3)(B), is a person that issues or sells a certificate or card to a consumer. (Emphasis added.)  

So, if your credit union issues gift cards, you better get comfortable with those fees.  If you change your fee structure regarding gift cards, the changes will only affect new cards.  With that in mind, you'd have to find a way to track fee amounts for the old cards so that you don't charge a new fee to an old gift card.

It just keeps getting better, doesn't it?

Reg E and DD Final Rules; June Compliance Monitor Available

Posted by Anthony Demangone

While I say this every year, I don't mind repeating myself.  How in the world did it become June this quickly?  If you know the answer to that, please let me know.  Bonus points for sarcastic answers.  (Feel free to leave them in the comments section of the blog.)

Overdraft Protection.  Last week, the Fed issued two final rules to clarify issues related to its two recent rulemakings that address overdraft protection.  Those two rulemakings were Regulation DD and Regulation E.  After the Fed issued those proposals, affected financial institutions had a lot of questions.  The Fed first issued a proposal to clarify those issues, and now they issued a final rule to "finalize" the clarifications.

(Note, Regulation DD is the Fed's Truth in Savings regulation.  NCUA has its own version, housed in Part 707 of its rules and regulations.  So, the Fed's final rule technically does not affect credit unions.  NCUA, however, does have a mandate to ensure that its rule is substantially similar to the Fed's.  For that reason, I tend to read Reg DD proposals and finals.  NCUA often follows up with similar rules.)

You can access the final rules here.  They'll be effective soon, with both rules becoming effective 30 days after the Fed publishes them in the Federal Register.

The rules closely track the proposal, and there really isn't anything in them that is earth-shattering.  Here are a few items of note:

• The Reg E clarification solidifies the Fed's position that the rule prohibits overdraft fees on ATM and one-time debit card transactions of any type without an opt-in.  Even if your credit union does not have a formal ODP program, you may not charge a fee when such a transaction overdraws an account, without an opt in from the member.  Even if you have no choice but to pay that transaction due to card network rules.  The Reg DD clarification finalizes the Fed's position that you may not tinker with the term "total overdraft fees" on your periodic statement fee table.
• There was some confusion on whether you had to include monthly and year-to-date (YTD) fee disclosures on a periodic statement if your credit union did not offer a formal overdraft protection program.  Here was the thinking: The section that requires monthly and YTD totals appears to be triggered only if your credit union has a formal ODP program as defined by the rule.  So, if you don't have such a program, you don't need monthly and YTD totals for NSF fees.  That was the thinking, anyway.  The final rule appears to give additional support to that argument.

The Board did not receive comment on the proposed amendments, which are adopted substantially as proposed. Section 230.6(a)(5) has been revised from the proposal to indicate that the aggregate fee disclosure is required on periodic statements "if applicable," because § 230.11(a) does not require aggregate fee disclosures when a consumer has not incurred any overdraft fees for the calendar year-to-date.  Final Reg DD clarification, p. 4.

I'll write an article with additional detail in the next Compliance Monitor.  Our Reg Affairs staff is working on an overview as well.

***

Speaking of the NAFCU Compliance Monitor, the June issue is now available.

Odds and Ends

Posted by Anthony Demangone

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

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

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

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

Regulators and Issue Spotting

Posted by Anthony Demangone

In the past few months, I have read a number of blogs and articles that make the point that financial regulators mishandled the housing crisis.  The articles argue that the regulators should have warned the industry of the looming crisis.  On a related note, I have heard quite a few complaints about the Federal Reserve's move to regulate overdraft protection programs by amending Regulation E.  These complaints often mention that the changes came out of left field, hinting that any regulatory action that threatens so much income should have given the industry some additional warning.

I'm not going to defend regulators, but I wanted to point out how much information was pushed out to the industry on these issues.

Mortgage Crisis.  I don't think anyone could have predicted the current mortgage crisis accurately.  But take a look at the following guidance documents that NCUA and others issued. Granted, some of the guidance may have been issued too late to help certain credit unions in specific situations.  But the list does get your attention, especially looking back through the years. 

• In September of 2004, NCUA issued Letter to Credit Union 04-CU-13.  The letter notes that credit union shares were increasing faster than loans.  Credit unions may have been tempted to pursue "alternative lending arrangements."  These arrangements included sub-prime lending, indirect lending, and outsourced lending arrangements.  NCUA said all three were viable, if the credit union understood and properly managed the risks.
• In May 2005, NCUA and others issued Letter to Credit Union 05-CU-07 to warn of the risks of home equity lending.  Rising housing values coupled with low interest rates were driving growth in this area. NCUA and other regulators outlined risks, noting that many institutions had relaxed underwriting standards.  
•   In October 2005, NCUA and others issued Letter to Credit Unions 05-CU-15.  They didn't beat around the bush, as this was titled "Risks in Real Estate Lending." 
•  In October 2006, NCUA and others issue Letter to Credit Unions 06-CU-16. This one ramped up the guidance, providing risk management expectations for non-traditional mortgage products and home equity lending. 
• In April 2007, NCUA and others issued Letter to Credit Union 07-CU-06.  This was to provide guidance to credit unions on how to work with borrowers who were suffering from "payment shock" when ARMs readjusted.  Later that year, they issued another Letter to Credit Unions about sub-prime mortgage lending. 
• By 2008, the guidance turned to dealing with loss mitigation efforts in real estate lending.   And consumer information for hybrid ARM products. 
• In June 2008, NCUA issued this guidance that directly spoke about the affect of the mortgage market on corporate credit unions.  
• There are more pieces of guidance as you move through the rest of 2008 through the current day. 
• Enter 2009, and you see a number of laws and regulatory changes dealing with this issue: HVCC, MDIA, HOEPA changes to Reg Z, to name a few. 

Overdraft protection.  How did we get to the Reg E rule?  It started back in 2005, and it quickly gathered steam via a number of areas. 

• In 2005, NCUA issued Letter to Credit Unions 05-CU-03 to address concerns with overdraft protection programs.  It offered a set of "best practices."  Guess what was part of the suggested best practices? That's right, a discussion of an opt-in.

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.

• In 2005, the Fed and NCUA issued a rule (effective July 1, 2006) that provided additional information to consumers about overdraft fees if the institution marketed the ODP program.
• In January 2007, Rep. Carolyn Maloney (D-N.Y.) announces her plan to introduce legislation dealing with ATM and debit card overdraft fees.  Over the course of the new few years, other bills are introduced, and hearings are held on the issue of overdraft protection.
• In December 2008, the Fed issued another rule (effective January 1, 2010) requiring added disclosures about overdraft fees for all institutions.  
• In December 2008, the Fed issued a proposed change to Reg E to address overdraft fees for ATM cards and debit card transactions.  Last November, they issued a final rule, which will take effect July 1 of this year. 

Hindsight is 20/20.  I understand that.  But there is a lesson to be learned here. NCUA and other regulators usually deal with problems first by sending out guidance.  If the problem persists, they persist with more.  If the problem is still there, and if Congress and consumer groups lean on them, there might be a rule.  And if that doesn't move fast enough, Congress very well may step in. Remember this lesson as time marches forward.  Other crises will arise.  That's a guarantee.  When NCUA and others issue guidance to alert you to a risk, take notice.

Consumer Compliance Outlook Overview

Posted by Anthony Demangone

On Friday, wrote about the most recent issue of the Federal Reserve's Consumer Compliance Outlook.  In that post, I focused on its guidance on the Reg E ODP rules.  But today, I want to let you know about the rest of the issue.  This periodical is always a good read.

• There's a compliance alert about the Reg CC changes.
• There's a great overview of the Credit CARD Act provisions that have been put in place.

• How about a nice overview of some interesting court cases?

• Not to mention a regulatory update, and a calendar of upcoming deadlines.

All in all, a good issue.  And they even threw in a list of useful compliance links.

Reg E Guidance; CIICU; NAFCU Member "Stuff"

Posted by Anthony Demangone

The most recent issue of the Fed's Consumer Compliance Outlook is now available.  While the publication touches on a number of compliance issues, the part that caught my eye deals with the Fed's Regulation E changes that affect overdraft protection programs.   The Fed provides a general overview of the rule, and the article contains 24 questions and answers.  Many of these deal try to clarify "hazy" areas within the rule.  Here are three that caught my eye. (I also give a little commentary in italics.)

Is it possible for consumers to opt in electronically, such as through an online banking portal?
Yes, see question 2. However, the institution must first provide the consumer with an opt-in notice in writing or, if the consumer agrees, electronically. The consumer should also be given the right to revoke the opt-in agreement in the same manner he or she used to opt in.

Many folks are trying to find ways to allow consumers to opt in at ATMs.  The Fed says this is OK, but this guidance indicates that the consumer should also be able to revoke their opt-in at the ATM as well.

Can a financial institution provide existing customers with opt-in notices before July 1, 2010, but not implement their choices until August 15, 2010?
Yes, a financial institution may provide the notice required by §205.17(b)(1)(i) and obtain the consumer's affirmative consent to the financial institution's overdraft service for ATM and one-time debit card transactions before July 1, 2010, provided that the financial institution complies with all of the requirements of §205.17. (Comment 205.17(c)-1) However, to avoid misleading consumers, the institution should modify its notice to include a statement such as "After August 15, 2010, we will not authorize and pay overdrafts for the following types of transactions unless you ask us to (see below)." (§205.17(d)(6))

Many of us thought a delayed implementation was possible under the rule.  This guidance solidifies that view. (Whew.)

Can a customer opt in at the customer level or must he or she opt in individually for each account he or she has with an institution?
Opt-in occurs at the account level, not at the customer level. Moreover, it can only occur for accounts that are already open, not for accounts that may be opened in the future.

This guidance indicates that opt-ins must be done individually for each account that a member has with your credit union.  

There are a ton of other questions within the guidance, so I suggest that you take a few minutes and read it.

***

The most recent episode of "Current Issues in Credit Unions" is available.  As usual, Rob and the gang put together a nice show.

***

NAFCU Members: We have some "stuff" for you.  Access NAFCU's Regulatory Alerts on NCUA's recent Reg Flex and Fiduciary Duties proposals.  Also, the April issue of NAFCU's Compliance Monitor is now available.

Federal Reserve Finalizes Gift Card Rules under Reg E

Written by Steve Van Beek

Yesterday, the Federal Reserve released its final rules on Gift Cards.  The rules are included under Regulation E and will be published in the Federal Register shortly.  NAFCU will prepare a Final Regulation summarizing the new rules.  As a reminder, NAFCU's Regulatory Alerts, Final Regulations, and Comment Letters can be found on our webpage (Alerts and Finals are NAFCU-member only).  After clicking on the type of document (i.e., Final Regulations) you are searching for, look to the left-hand column if you want to browse prior year Alerts and Finals.

The mandatory compliance date, as required by the Credit CARD Act, is August 22, 2010.  Page 15 of the 177 page final rule makes it clear that any cards sold on or after August 22, 2010 must fully comply with the new requirement.  

Due to time restraints from Compliance School, we have not been able to give a detailed look at the new rule but the Fed's summary in its press release provides a good starting point:

"The final rules prohibit dormancy, inactivity, and service fees on gift cards unless: (1) the consumer has not used the certificate or card for at least one year; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees. Expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded."

Additionally, pages 11-15 of the final rule are a summary by the Federal Reserve.  I have cut out those five pages and they can be found in this link.

Regulation E Opt-in Form; San Antonio, Here I Come! (And you're welcome to join me)

Posted by Anthony Demangone

Many credit unions are in the midst of planning how to comply with Regulation E's upcoming requirements for overdraft protection programs.  Part of the planning concerns how to prepare the opt-in form itself.  There is a general misunderstanding about the opt-in form.  Many credit unions believe that you may not tinker with the model form at all.  That really is not entirely true.  Here's how the Fed explains it:

Under the final rule, the opt-in notice required by § 205.17(b)(1)(i) may not contain any information that is not specified or otherwise permitted by § 205.17(d) and must be in a form substantially similar to Model Form A-9. P. 39 of the final rule. (Emphasis added.)

So, the form must be substantially similar to the model form.  True.  True.  But you are allowed to include any information that is permitted under 205.17(d).  And that does give you some flexibility.  For example, 205.17(d)(6) outlines permissible modifications.

(6) Permitted modifications and additional content. If applicable, the institution may modify the content required by §205.17(d) to indicate that the consumer has the right to opt into, or opt out of, the payment of overdrafts under the institution's overdraft service for other types of transactions, such as checks, ACH transactions, or automatic bill payments; to provide a means for the consumer to exercise this choice; and to disclose the associated returned item fee and that additional merchant fees may apply. The institution may also disclose the consumer's right to revoke consent. For notices provided to consumers who have opened accounts prior to July 1, 2010, the financial institution may describe the institution's overdraft service with respect to ATM and one-time debit card transactions with a statement such as “After August 15, 2010, we will not authorize and pay overdrafts for the following types of transactions unless you ask us to (see below).”

Also, the Federal Reserve in no way prevents you from sending a cover letter in addition to the opt-in form that is chock full of marketing material.  So while you are limited in what you can put on the opt-in form, the sky is the limit on any marketing materials that accompany it.  Well, not quite.  Remember that any marketing materials would be advertisements, subject to NCUA's Truth in Savings regulation.  

***

NAFCU Compliance is coming to the great state of Texas! And I am writing to invite you to attend a regulatory compliance overview that I’ll be hosting during NAFCU’s upcoming Volunteers Conference in San Antonio, Texas.  The session will run from 2:00 p.m. to 4:00 p.m. on Thursday, May 20, 2010 at the Marriott San Antonio Rivercenter.  

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

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

There is no registration fee or cost for you to attend this compliance roundup, and it is open to NAFCU members and non-members.  That's just how we roll here at NAFCU.  In fact, if there is more than one professional on your staff that you feel could benefit by attending, we invite them to attend as well.

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

A Little of This, A Little of That

Posted by Anthony Demangone

Here are a few things kicking around my in-box.  Enjoy!

• The Fed has created an online publication to help consumers learn about the new overdraft protection rights that will take effect July 1, 2010.  I always point these out, because these publications always trigger columns by financial columnists in area newspapers.  And your members will read those columns.  For that reason, I'd take a look-see.

• Oh, the irony.  On the day the Feb. 22 Reg Z rules go into effect, the Fed finally published the rule in the Federal Register.

• Speaking of the Fed and their little consumer websites, here's one for the new CARD Act protections. There are two points to remember here.  As I noted above, people will get this information via columns and TV news spots.  Also, we're going to have to include the address for this web site on credit card applications and solicitations beginning on July 1, 2010.  See 12 C.F.R. Part 226. 5a(b)(15). 

• NAFCU is hosting a RESPA webcast on March 3. 

Fed Clarifies Regs E and DD on Overdraft Issues; Pat Yourself on the Back

Posted by Anthony Demangone

On Friday, the Federal Reserve issued proposed changes to Regulations E and DD (their Truth in Lending regulation).  The changes were designed to answer a number of questions that arose concerning both regulations as they relate to overdraft protection issues.  But don't get excited.  None of the clarifications really go our way.

Regulation E.  The Fed's proposal clarifies the following:

• If your credit union has a policy and procedure to only pay ATM and non-recurring debit card transactions when you have a reasonable belief that funds are available, you are exempt from having to send an opt-in notice to the member  But the Fed goes to great lengths to clarify that the exception does not permit your credit union to charge an overdraft fee should a transaction somehow overdraft the account.  Here's how they dropped the hammer.

 The proposal adds new comment 17(b)(4)-1 to explain that, assuming a consumer has not opted in, if an institution with such a policy and practice authorizes an ATM  or one-time debit card transaction on the reasonable belief that the consumer has sufficient funds in the account to cover the transaction, but at settlement the consumer has insufficient funds in the account (for instance, due to intervening transactions that post to the consumer’s account), the institution may not assess an overdraft fee or charge for paying that transaction. However, institutions that have such a policy and practice are not required to comply with the requirements of §§ 205.17(b)(1)(i)-(iv), including the notice and opt-in requirements, if no fees are assessed.

• The proposal also clarifies that for credit unions with an overdraft protection program, the credit union may not charge an overdraft fee against a consumer's account until it sends the consumer a written confirmation of his or her choice to opt into the overdraft program.  Note: you don't have to wait for the consumer to receive it. As I read it, once the notice is sent - you can begin charging overdraft fees for ATM and non-recurring debit card transactions.
• If your credit union uses a tiered fee arrangement concerning negative account balances.  Rather than try to explain it, just read the following for yourself:

To the extent institutions impose tiered fees based on the amount of the consumer’s outstanding negative balance, proposed new comment 17(b)-8 clarifies that the fee or charge must be based on the amount of the negative balance attributable solely to check, ACH, or other transactions not subject to the fee prohibition. For instance, if a consumer’s negative balance of $30 is attributable in part to a debit card transaction that initially overdrew the account, and in part to a $10 check that the bank subsequently paid, the institution should base any overdraft fees solely on an outstanding negative balance of $10.

• The rule also clarifies how the restriction concerning ODP fees works in relation to daily or sustained overdraft/negative account fee.

Under the final rule, consumers who do not opt in may not be assessed any overdraft fees for paying ATM or one-time debit card transactions, including daily or sustained overdraft, negative balance, or similar fees or charges. As noted above, consumers who do not opt in may reasonably expect not to incur per-item overdraft fees for ATM and one-time debit card transactions, even if such transactions overdraw their account. Similarly, such consumers would reasonably expect not to incur daily or sustained overdraft, negative balance, or similar fees or charges due to these transactions. For clarity, proposed comment 17(b)-9.i explains that if a consumer has not opted in, the prohibition on assessing overdraft fees and charges overdraft fees or charges in § 205.17(b)(1) applies to all overdraft fees or charges, including but not limited to daily or sustained overdraft, negative balance, or similar fees or charges, assessed for paying an ATM or one-time debit card transaction. Thus, where a consumer’s negative balance is attributable solely to an ATM or one-time debit card transaction, the rule prohibits the assessment of such sustained overdraft fees if the consumer has not opted in.

Truth in Savings.  Here's what the Fed "clarified."

• The Fed now included the aggregate ODP and NSF fee (yearly and month-to-date) requirement in the section pertaining to periodic statement requirements.
• You must use the term "Total Overdraft Fees" in the aggregate fee disclosure for overdraft fees.  You cannot substitute any other name for those fees.
• It addresses retail sweep accounts, noting that the new TIS requirements concerning the disclosure of account balances does not affect retail sweep accounts.  If your credit union uses retail sweep accounts, be sure to read the discussion beginning on page 6 of the proposal.

Those comprise the biggest pieces of guidance within the two proposals, as I read them.  Again, the Fed makes no reversals that really help us.  But I really didn't expect that. 

***

Today's the big day - February 22, 2010.  I know how hard you have worked to bring your credit unions into compliance with the numerous new requirements found within the Fed's changes to Reg Z.  You are all to be commended.  Steve Van Beek is working on an article for March's Compliance Monitor that will tee-up the July 1, 2010 deadline issues.  But for now, pat yourself on the back for a job well done.

Timing of Over the Limit Fees; Overview Document

Editor's Note: NAFCU will open 2 hours late due to the Federal Goverment's decision to do the same for its DC-area offices.

Posted by Anthony Demangone

The Regulation Z requirements taking affect February 22 are confusing.  There are a ton of moving parts.  Case in point...over the limit fees.   Here's what I mean.  Starting on February 22, you cannot charge over the limit fees without following the new over-the-limit fee opt-in requirements.  But wait a minute...the new requirement kicks in on the 22nd. Can you still charge an over-the-limit fee for transactions that took place earlier in the month?   It isn't clear from the reg itself. 

But remember the 37 pages of the final rule that deals with transitions and mandatory compliance dates?  What does that say?

For credit card accounts opened prior to February 22, 2010, a card issuer may elect to provide an opt-in notice to all of its account-holders on or with the first periodic statement sent after the effective date of the final rule. Card issuers that choose to do so are prohibited from assessing any over-the-limit fees or charges after the effective date of the rule and prior to providing the opt-in notice, and subsequently could not assess any such fees or charges unless and until the consumer opts in and the card issuer sends written confirmation of the opt-in. The final rule does not, however, require that a card issuer waive fees that are incurred in connection with over-the-limit transactions that occur prior to February 22, 2010 even if the consumer has not opted in by the effective date. Thus, for example, a card issuer may assess fees if the consumer engages in an over-the-limit transaction prior to February 22, 2010, but the transaction posts or is charged to the account after that date, even if the consumer has not opted in by the effective date. Final rule, p. 521.

That's the beauty of the "preamble" or discussion portion of a final rule. It just comes out and says what the rule sort of says.  At least some of the time.

***

Hey NAFCU members.  We've updated the Reg Z 2/22 Overview Document, adding a new overview for Section 226.55 - Limitations on Increasing APRs, Fees and Charges.   It is available here.  We should have the updated document available by midday.

Non-NAFCU members...you'll get a copy of this document if you sign up for tomorrow's webcast.  See below for a link where you can sign up.

***

Possibly of interest:

• Don't forget tomorrow's webcast on Reg E (ODP) and Reg Z (2/22/10 Reg Z changes.)
• Come meet the NAFCU Compliance Team and Learn "Some Compliance!" March 22-26, Gaylord National, Maryland.
• Come join us next fall for NAFCU's Regulatory Compliance Seminar (clap clap clap clap) deep in the heart of Texas.

Friday Grab-Bag

Posted by Anthony Demangone

We've made it to the end of the week.  If you told me I would have made it this far on Wednesday, I would have had my doubts.  Here are a few thoughts on a few items.

• NCUA has its monthly board meeting today.  Usually, they post their draft items that they considered on this site by mid-morning.
• The Fed has indicated to us that they'll soon issue guidance on the Reg Z "floor" issue.  I don't know what it will say, or in what form it will come.  Stay tuned.

• The most recent "Current Issues in Credit Unions" is available.  I'm now a co-host for this information-packed podcast.  I do feel like the pig in the parlor, though, when I see all the other legal eagles who co-host.  This issue addresses Reg Z, Reg E (ODP), Reg CC, Interest Rate Risk, and the SAFE Act.  These things are great, as there's nothing quite like listening to different points of view to hone your own understanding of an issue. 

• FinCEN has released the latest issue of SAR Activity Review: By the Numbers.   NAFCU has produced a nice overview article, which you can read here.  And this older blog post shows how you can use this guidance document to freshen up BSA training sessions.

• NCUA has released its latest batch of prohibition orders.  As I always say, these orders can drive home security training and they also underscore the need for good internal controls and audits.

• Representative Barney Frank (D-MA) released this memo on the CFPA.  It is a good read for those who think the CFPA, as currently envisioned, is not an issue for credit unions.  Because those folks would be mistaken.

Have a great weekend, everyone.  You deserve it.

Grab Bag

Posted by Anthony Demangone

For those working on Regulation Z issues, you're probably aware of this upcoming requirement:

Proposed § 226.7(b)(12)(iv)(A) provides that a card issuer must provide through the toll-free telephone number disclosed pursuant to proposed § 226.7(b)(12)(i)(E) or (ii)(E) the name, street address, telephone number, and Web site address for at least three organizations that have been approved by the United States Trustee or a bankruptcy administrator pursuant to 11 U.S.C.  111(a)(1) to provide credit counseling services in the state in which the billing address for the account is located or the state specified by the consumer.

Wouldn't it be great if a web site existed that organized all of these approved organizations by state?  It does, right here. 

***

Remember that member business lending webinar hosted by NCUA?  It is now available on NCUA's website.   As much as I love the webinar, I really love the fact that NCUA has posted a series of 49 Questions and Answers to go with it.  All of the Q and A's deal with MBL issues.  You know I love me some FAQs.

***

The Fed has published its most recent issue of its Consumer Compliance Outlook.  As usual, it is a very good read.  There's an article on E-SIGN. (Read it.) Payroll cards.  (Read it.)  And a fantastic grouping of consumer-compliance-related resources.  (Read it. Love it.  Live it.)  And there's more.  (Read that, too.)

***

Have a great weekend, everyone!

A Quick Look Toward 2010

Posted by Anthony Demangone

When I was a young lad, I realized that I would graduate from high school in 1990.  1990!  That date seemed like something from a science fiction movie.  Twenty years later, I still get those same feelings each year.  2010?  It can't be.  But it is.  And it will take me about a month to remember to write 2010 on my checks.

With that in mind, here's a quick run-down on things that we should keep in mind this year.

SAFE Act.  If you are a state or federally-chartered credit union, there's still no news here.  NCUA has yet to issue a final rule.  And the deadline for registration is still 180 days after the system starts accepting registrations.

Escrowing.  I'm not even sure if that is a valid verb.  But we'll start doing that for higher-priced mortgage loans this April.  And for manufactured homes, the escrow deadline is in October.

BSA.  The BSA manual will be updated at some point.  I'm not sure when, but it very well may require you to tweak your BSA/AML program. The CARD Act will require Treasury to issue rules to bring stored value cards under the BSA regulatory system.  I expect that rule at some point. 

Reg Z. Ugh.   Where do I begin?  Sure - we have a good grasp on how the open-end changes will wreck our social lives this year.  But don't forget that there the July 1 changes to Reg Z's open end rules that already were to take affect before the CARD Act entered our lives.  Also, there are proposals on HELOCs and closed-end lending that should go final this year.  The private student lending rule takes effect in February.  And the mortgage transfer/sale rule kicks in later this month.  In addition, there are two more Credit CARD Act provisions that will become affective this August.  The Fed will need to issue rules for those this year.

Reg E.  The overdraft rules kick in on July 1, 2010.  We expect additional guidance from the Fed this month on this topic.

FCRA.  Risked-based pricing notice rules kick in on January 1, 2011. But don't forget that another "FACT Act rule" kicks in on July 1, 2010 - the Accuracy and Integrity Guidelines. 

Corporates.  NCUA has a major proposal out there to overhaul the corporate credit union system.  NAFCU members - we urge you to respond to our Regulatory Alert's call for comments on this proposal.

Reg CC.  The Fed has not officially changed the regulation due to the impending death of non-local checks.  But they'll have to do so at some point in 2010.

The Hill.  Reg Reform and overdraft protection issues are addressed in a number of areas. But nothing has passed both houses.  Stay tuned.

So, 2009 was a bear.  I'm not sure what animal 2010 will ultimately be, but it won't be a kitten. 

NAFCU Offices Closed; Monday Morning Grab Bag; CULookup.com on CBS

Editors's note:

Due to the blizzard of 2009, the Federal Government has closed its agencies in the Washington, D.C. area.  NAFCU follows the Fed's lead in this area, so our offices are closed today.  And that's just as well, as I'm unable to lift my arms after shoveling out two cars.   We'll hopefully get back at it on Tuesday.

 

A view from my front window Sunday morning.
 

Posted by Anthony Demangone

Here are a few things worth sharing.

• The FDIC has issued its most recent "Supervisory Insights" publication.  Of note in this issue: interest risk management.  The FDIC sees that bank asset maturities are lengthening.  And in this rate environment, that comes with added risk. 

• The FFIEC has issued proposed guidance to address compliance and reputation risks when offering reverse mortgages. The proposed guidance appears to be a nice primer on reverse mortgages if you need one.

• If you missed the Fed's recent teleconference on Reg E, they archived the presentation.

• NCUA has issued a legal opinion letter that clarifies how share insurance protection can cover "529 accounts."

• FinCEN has released its 2009 fiscal year annual report.  It provides a decent 20,000 foot analysis of what the agency was up to during the past fiscal year.

***

Last week, NAFCU's credit union locator website CULookup.com was featured on the CBS Early Show. You can follow this linkto an article as well as the video that was shown last Thursday.  Financial contributor Vera Gibbons spent a good amount of time with Harry Smith discussing the great benefits of credit unions and why many people are switching over to credit unions from banks right now. She mentions NCUA insurance, the fact that credit unions have money to lend, and that credit unions are member-owned and member-operated.

Now, just how did she find out all of this information? Well, our PR department put her in contact with our CEO Fred Becker, who met with her and provided her with some great credit union information. Trade associations are known for their lobbying and regulatory work but they are working hard for you in many many ways, including PR and marketing.

In the piece, she points viewers to a great tool - CULookup.com- as a place to find a credit union they could join. CULookup.com was developed and is maintained by NAFCU's subsidiary, NAFCU Services Corporation. For NAFCU members, listing your credit union on this website is free - go check it out and make sure your credit union is listed and the information is accurate.

Regulation E and Overdrafts: Unintended Consequences?

Posted by Anthony Demangone

Editor's apology: This is a long post.  Especially for a Friday.  But I think it is important enough to merit the length.

Yesterday, the Federal Reserve held a tele-conference to offer guidance about recent amendments to Regulation E that affect overdraft protection programs. You can access the presentation materials here. 

The teleconference revealed a very important, and potentially costly, clarification.  But first, let me give a wee bit of background.

In short, the changes to Regulation E will mean that after July 1, 2010, you may not charge a fee when a non-recurring debit card or ATM transaction overdraws an account unless you have given that member disclosures describing your overdraft program - and the member opts in.  Again - unless the member opts in, you will not be able to charge a fee for such debit card and ATM transactions that overdraw an account.

There is an exception, though.  If your credit union has a policy that it only pays those non-recurring debit card or ATM transactions when funds are available when the authorization comes in, you will not need to comply with the opt-in requirements.  But does that exception allow you to charge fees as well, or just it just relieve you from the notification and opt-in requirements?  And that's a bid deal.

Even for credit unions that do not have overdraft programs and fit within that exception, some non-recurring debit card and ATM transactions will sneak through.  Examples?  Your ATM network goes offline and the member makes a withdrawal that exceeds the account balance.  Or the gas station only sends an authorization through for $1, before the member pumps $100 of gas into his Hummer.  Collectively, I'll call these "gas station" transactions. But, the exception still stands.  You don't have to comply with the opt-in requirements in order to process them.  If you can charge fees for those, that's a good deal of revenue.  If not, you might have a big revenue hole to fill.

Here's the clarification that caught everyone's attention.  You'll find it on pages 14 and 15 of the Fed's presentation via the link above.  The exception is only for the opt-in disclosure.  The exception does not allow you to charge a fee. The presentation clarifies that there is no exception that allows a credit union to charge a fee for any non-recurring debit card or ATM transaction that overdraws an account.  You to have the opt-in.  So, for the "offline ATM" transaction, or the "gas station" transaction that takes the account negative, you cannot charge a fee without that opt-in.

Enter Troy.  I don't know who Troy is, but his question summed up everyone's frustration.  You could practically hear his teeth grind as he spoke.

His bank does not have an overdraft program.  They do not pay any transaction unless funds are available when the check, ATM transaction or debit card authorization comes in.  So he fits within the exception.  His bank does not have to send the "opt-in" form to its customers.

But his bank has charged, and wishes to continue charging, a fee when those "gas station" transactions hit accounts.  Those transactions take accounts negative, and he wants to charge a fee to mitigate the risk of the negative account.  How does he go about charging that fee after July 1. 

One of the Fed speakers said to use the opt-in form.  But Troy correctly pointed out that an opt-in form won't really work, because what would the member be opting into?  His bank has no choice but to clear the "gas station" transaction, even if the member does not opt in.  The member is really only opting into the fee! 

The other Fed speaker paused, and said that they just never considered that a financial institution would want to charge fees for "gas station" transactions. (As my colleague Steve said during the training session, perhaps the Fed should spend a little less time on consumer testing, and spend a little bit more on learning how our industry does business.)

Troy followed up and said that this whole debacle has created an unintended consequence.  Credit unions or banks that want to charge fees for "gas station" transactions may have to consider creating a full-blown overdraft protection program for debit and ATM cards.  Something Troy does not want to do. 

We're sending a letter to the Fed to underscore our concerns on the subject.

Happy Friday, everyone.

Editors's Note: Reportedly, the Fed will issue some clarifying guidance on this issue in January.

Tuesday Leftovers

Posted by Anthony Demangone

Here's a little of "this and that" to help you through your Tuesday.

• FinCEN announces an important update for E-Filers.   FinCEN has implemented the second phase of the BSA E-Filing SAR Acknowledgements and Validation process. Phase I was implemented in September 2009 and provided BSA E-Filers with an acknowledgement of receipt for a submitted Suspicious Activity Report (SAR). Phase II applies data quality checks and will provide financial institution filers with information on the quality of their submissions for electronically filed SARs.
• NAFCU members: We've released a Final Regulation on Regulation E's recent final rule on opt-ins for overdraft protection services.  Access it here.  (Member log-in needed.)  We've also released a Regulatory Alert on the Regulation E proposal that affects gift cards.

• HUD announces a new RESPA outreach program to help all of us comply with the new RESPA rules that take affect next month.  HUD  will make earlier versions available in an archived format.  (I don't see any of those posted yet, but it does look like the December 3 PowerPoint is available here.   And I don't see the scheduled sessions on their "schedule page."  Be sure to check back. Don't forget, we're offering a RESPA and FHA related webcast this Thursday.

• NCUA has released its semi-annual regulatory agenda.  These documents are great as they give you an idea of what NCUA has done and what is in the hopper.  The Fed also issued its agenda.

Scope of Overdraft Fees - Reg E

Posted by Steve Van Beek

As everyone works through the new Reg E Overdraft rules, I think it is important to remember which fees are being regulated.  In addition to the overdraft fee, a member must opt-in before the credit union could charge (for ATM and one-time debit card transactions):

• Daily Overdraft Fee;
• Sustained Overdraft Fee; 
• Negative Account Fee; or 
• Any other similar fees - no matter what the credit union calls the fee. 

Here is the Fed's rationale (from the preamble - page 9 of the PDF - middle column):

"A few commenters recommended that the Board define ‘‘overdraft fee’’ to exclude fees assessed on accounts that maintain a negative balance for an extended period (often referred to as ‘‘sustained’’ overdraft fees). The Board believes, however, that any fee charged on an account for an overdraft should be subject to the rule, including but not limited to a per item, per occurrence, daily, sustained overdraft, or negative balance fee. A consumer who inadvertently overdraws his or her account may not learn about the overdraft until several days after the occurrence of the overdraft and so may unknowingly accrue additional fees. Therefore, the Board believes all overdraft fees should be within the scope of the rule." (emphasis added).

Additionally, these additional fees must be disclosed by financial institutions on the opt-in form.  See page 21 for 205.17(d) and the staff commentary to 205.17(d) on page 23.  

Thus, we can result with the following situation.

1. The credit union was forced to pay a one-time debit card transaction (based on its network rules) even though the transaction took the account into the negative.
2. The credit union is prohibited from charging an overdraft fee because the member has not opted-in 
3. The credit union can not charge a "sustained overdraft fee" even if the account is still negative after a certain period of time - because it was the one-time debit card transaction that triggered the account into the negative. 

However, if a subsequent check, ACH, or recurring debit transaction hits the account (while still negative) - the credit union would be able to charge an overdraft fee for that transaction as it is not subject to the overdraft restrictions.  Could the credit union charge a sustained overdraft fee if the two transactions are keeping the account overdrawn?  It is unclear.  The credit union could argue that the sustained overdraft fee is being charged not for the one-time debit but for the subsequent transaction.  In essence, the argument is that the sustained overdraft fee is charged for the subsequent (non-protected) transaction still being overdrawn and not the protected transaction.  This would mean if the account only had protected transactions causing the account to be overdrawn - the credit union would not charge the sustained overdraft fee.  Unfortunately, at this point, I think we might need more information from the Fed before these questions are clear.  

Compliance Dates Reminder

Posted by Sarah Loats

There's quite a few compliance dates next year and the Federal Reserve sure seems to like July 1, 2010, as there are three fairly major rules effective that day. Let's recap, shall we (the links will take you to NAFCU's Final Regulation summaries):

1. Regulation Z open-end lending rules. Prior to the Credit CARD Act, the Federal Reserve issued final rules to the open-end lending rules. This was a major overhaul of the open-end lending rules, amending the rules for applications and solicitations, initial disclosures, periodic statements, and advertising, among other things.  For the changes that haven't been swallowed up by the Credit CARD Act, the effective date is still July 1, 2010.

2. FACT Act.  By July 1, 2010, credit unions must have in place policies and procedures regarding the accuracy and integrity of information provided to consumer reporting agencies.  This rule also addresses direct disputes from consumers.

3. Regulation E overdraft rules. This rule is probably fresh in your head, but again, the effective date is July 1, 2010.

As if that wasn't enough, we have quite a few more compliance dates coming up next year:

• RESPA - January 1.
• Truth in Savings (disclosures of overdraft fees on periodic statements and disclosure of account balances through automated systems) - January 1.
• Private Student Lending - February 14.  .
• Credit CARD Act - February 22.
• Reg GG - June 1.
• More Credit CARD Act (gift cards, reasonableness and proportionality of fees, reevaluation of credit card rate increases) - August 22.
• HELOC and closed-end mortgages amendments to Reg Z and SAFE Act registration requirements- who knows??? 

Maybe it's time to look into that year-long sabattical...

A Little of This and a Little of That

Posted by Anthony Demangone

Much like the leftover turkey that is starting to go bad in your fridge, I had a few leftover items getting dusty in my in-box.  Enjoy!  (With or without cranberry sauce.)

• The Fed is offering a FREE audio conference on December 10 to go over the ODP-related changes coming to Regulation E.  Sign up here.
• The FDIC issued Financial Institution Letter FIL-66-2009 to help banks comply with Reg E's requirements concerning ATM disclosures.  It seems that some of them were not complying with section 205.16 of Reg E.  If some banks are tripping up on this, I bet some of us are as well.  Ergo, I'd give this a glance to make sure you're O.K.
• FinCEN's CTR informational pamphlet is now available in Spanish.
• NAFCU members, the December 2009 Regulatory Newsletter is available here. (Member log-in needed.)
• Did you wonder whether NAFCU members and non-members can sign up for NAFCU Today, a wicked good credit union news service?  Why yes, yes you can.

Odds and Ends

Posted by Anthony Demangone

The regulators do not seem to grasp the idea that some of us have Holiday shopping to do.  The pace of news has been furious, and it doesn't seem to be slowing down a bit.  Here's some recent items of interest.

Gift cards.  Yesterday, the Fed released proposed changes to Regulation E that would restrict fees and expiration dates that would apply to gift cards.   This proposal flows from the Credit CARD Act, which required the Fed to issue rules in this area.  The proposal would prohibit dormancy, inactivity, and service fees on gift cards unless: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees.   Under the proposal, expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.  We'll have 30 days to comment once this is published in the Federal Register.

120 Days of Love.  Not quite, but close enough. Last Friday, HUD announced that it will "exercise restraint" for the first 4 months of 2010 in its enforcement of RESPA. And it urges federal regulators to follow suit. As you would expect, HUD will give lenience to those who made "good faith" efforts to comply.

RESPA procedures.  Speaking of RESPA, the FFIEC interagency RESPA exam procedures have been released.  These procedures will be used by examiners.  The procedures also provide a very good overview of all the changes taking place to the RESPA requirements. 

NCUA.  The agenda for this Thursday's board meeting is available.  The item that caught my eye? NCUA will release its proposal regarding corporate credit unions.   Last week, Chairman Debbie Matz indicated that NCUA examiners will take a close look at fixed-rate mortgage loan concentrations, and increased delinquencies in indirect lending, member business lending and loan participations.  She also said that if credit unions do not address NCUA recommendations that were in a private Document of Resolution, expect a public Letter of Understanding and Agreement or Cease and Desist Order. 

SAFE Act.  Last week, the FDIC issued a final rule to implement the SAFE Act requirements.   Of note: the document, which is labeled a draft, has NCUA's name on it, along with other regulators.  Therefore, I would expect NCUA to follow suit shortly.  Remember, you'll have 180 days to register folks covered by the regulations once the registration system is open and ready to take registrations.

Reg E Rule: Possible Exception Overview

Posted by Anthony Demangone

On Friday, I wrote about the recently issued final rule that amends Regulation E to provide new consumer protections concerning overdraft protection.  My phone and email box starting to overheat, and generally it was in reference to this question: What about those transactions where we have to pay a point of sale debit card transaction that overdrafts the account because the gas station only authorized $1, but the transaction posts for $60?

Please allow me to give you the 50-cent answer, because I think it is important to see how this new final rule will work. Here's a link to the final rule.  Please print it out or save it to your computer.  I'll reference certain pages of the final rule, so having a copy would be beneficial.

The general rule:  Outside of applicable exceptions, 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 program, unless you comply with the notice and opt-in requirements. Section 205.17(b), pp. 79-80

Let's stop and think about that.

1. First, this only applies to consumer accounts. Commercial accounts need not be included.
2. Overdraft program.  Is it defined?  You bet.   At section 205.17(a).  It defines it as "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."  It does not include a line of credit subject to Reg Z, transfers from savings accounts, or a line of credit or other transaction exempt from Regulation Z.  You'll find this on pp. 78-79.  This definition limits the new rule's scope.
3. Finally, there's an exception.  Let's explore that.

The exception.  Here it is, word for word.

The requirements of § 205.17(b)(1) do not apply to an institution that has a policy and practice of declining to authorize and pay any ATM or one-time debit card transactions when the institution has a reasonable belief at the time of the authorization request that the consumer does not have sufficient funds available to cover the transaction. Financial institutions may apply this exception on an account-by-account basis. Section 205.17(b)(4).  p. 80.

So, if your credit union has a policy and practice of declining to authorize and pay ATM or one-time debit card transactions when you have a reasonable belief at the time of the authorizationrequest that the consumer does not have sufficient funds available to cover the transaction - you do not have to send out the opt-in notification.

But why would you?  If you have a policy and procedure of only paying these transactions when funds are available, then you technically have a policy of not allowing members to overdraft their accounts using these transactions.  There'd be nothing for the member to opt-in to.  As we read the final rule, there's nothing that appears to prevent credit unions from charging fees in this situation.

If, on the other hand, you do have a policy and practice of paying such transactions when funds are not available pursuant to an overdraft program as defined by Reg E, then you do have to send an opt-in notice as required by the regulation.

So, what about those gas station transactions that we discussed earlier?

This is where it gets very hazy.  The following discussion comes from pp. 52-53.

...The Board believes that consumers who make the choice not to opt in may reasonably expect an ATM or one-time debit card transaction to be declined if there are insufficient funds in their account, and that they will not be charged overdraft fees. Adopting exceptions to the prohibition on fees would undermine the consumer’s ability to understand the institution’s overdraft practices and make an informed choice.

    The Board recognizes that financial institutions and consumers have imperfect information as to the balance in the account at the time of the transaction. Financial institutions face operational limitations in processing transactions, and in tracking the consumer’s actual balance, because transactions may not be processed in real-time. Similarly, even if a consumer checked his or her balance prior to a transaction, the balance may not be updated, so the consumer may inadvertently overdraw his or her account on the belief funds are available. On balance, the Board believes financial institutions are in a better position to mitigate the information gap by developing improved processing and updating systems, as they have in recent years, and as the Board expects they will continue to do over time.

    The rule does not, however, prohibit financial institutions from paying 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, so long as a fee is not imposed. For example, under network rules, financial institutions must pay authorized debit card transactions, even if at settlement intervening transactions by the consumer have reduced the consumer’s available balance below the authorized amount of the transaction. To address any safety and soundness concerns, and as discussed above, institutions may debit the consumer’s account for the amount of the overdraft, provided that the institution is permitted to do so by applicable law.

So, where does that leave us?

Those without an overdraft program, who are eligible for the exception. If you look at the regulation itself and not the guidance, the regulation only says that an institution cannot charge a fee to a consumer's account pursuant to an overdraft protection program unless the consumer has opted in as outlined in the regulation.  Credit unions without an overdraft protection program as outlined by the rule (those who have a policy not to pay POS and ATM overdrafts when they reasonably determine that funds are not available) are not subject to the notice and opt-in requirement.  So it appears they have an argument that they can pay those gas station transactions and nothing appears to prohibit them from charging a fee.

Those with an overdraft program, who are ineligible for the exception.  They have to give the notice and opt-in. And the guidance above appears to show the Fed's thoughts that if a member chooses not to opt-in, these institutions can pay the "gas station" transaction - but cannot charge a fee.

The strange aspect of this is that there appears to be a disconnect between the guidance and the actual Reg.  The reg creates a clean exception, but that exception gets muddy when you read the explanatory language that comes with the regulation.  I wish this were an easy, clear issue - but it isn't. This rule is a big deal for many of you, so I urge you to do your own research.  We're digging through this as quickly as we can, but nothing compares to a legal opinion provided by competent legal counsel.

And remember that this analysis doesn't take into account the various legislative fixes that might address the number of possible overdrafts in a day or month and the amount of overdraft fees.

Regulation E Final Regulation Released: Worst Case Scenario Realized

Posted by Anthony Demangone

Yesterday, the Federal Reserve issued a final rule to amend Regulation E to limit the ability of financial institutions to charge overdraft fees for one-time POS and ATM transactions.  Under the final rule, consumers must give their affirmative "opt-in" to the overdraft program before such fees can be charged.  The compliance effective date is July 1, 2010.  Here's a nice, depressing one-page summary.

• The "opt-in" must be given for all accounts.  New and  existing accounts.
• Anyone who opts in has a continuous right to opt-out.
• You cannot bundle the opt-in for POS and ATMs with overdraft services for checks and other transactions.  In other words, ATM and POS transactions get their own, independent opt-in.
• Here's the model opt-in form.

• Again, while the rule takes affect 60 days after the final rule is published in the Federal Register, the compliance effective date is July 1, 2010.

My general thoughts?

1. This will affect budgeted revenues for credit unions that charge overdraft fees for these types of transactions.  Insert this information into your budgeting process as soon as possible.
2. It seems that Congress and regulators do not want us to earn non-interest income.  Overdraft fees. Over-the-limit fees on credit cards.  Interchange.  What would your credit union look like if it lost 80 percent of its non-interest income?  What would you have to do to survive?  Those questions are seeming more and more relevant as time passes.
3. I wonder if you'll start seeing a resurgence of monthly maintenance fees on share accounts in the not-to-distant future.

Oh, and have a nice weekend everyone.

Dispute Fees; Foreclosure and Evictions

Posted by Anthony Demangone

Credit card and debit card disputes can be a drag.  Especially if the dispute seems to be nothing more than an attempt to weasel out of a legitimate transaction.  Can you fee members if the dispute resolution shows that the member actually conducted the transaction?

It doesn't look like it.

Regulation Z or Regulation E governs plastic disputes, depending on the situation.  But both regulations indicate that financial institutions should not do things to "chill" good faith assertions of errors.

Regulation Z (Official Staff Interpretation to 226.13)

2. Charges for error resolution. If a billing error occurred, whether as alleged or in a different amount or manner, the creditor may not impose a charge related to any aspect of the error resolution process (including charges for documentation or investigation) and must credit the consumer's account if such a charge was assessed pending resolution. Since the Act grants the consumer error resolution rights, the creditor should avoid any chilling effect on the good faith assertion of errors that might result if charges are assessed when no billing error has occurred. (Emphasis added.)

Regulation E (Official Staff Interpretation to 205.11(c)

3. Charges for error resolution. If a billing error occurred, whether as alleged or in a different amount or manner, the financial institution may not impose a charge related to any aspect of the error-resolution process (including charges for documentation or investigation). Since the act grants the consumer error-resolution rights, the institution should avoid any chilling effect on the good-faith assertion of errors that might result if charges are assessed when no billing error has occurred. (Emphasis added.)

Both sections do use the word "should."  But I think the Fed is very clear on this issue.  And from a member service/reputation risk point of view, I know how I would come down on this issue.

***

NCUA has issued NCUA Regulatory Alert 09-RA-08 to remind credit unions of their responsibilities under "The Protecting Tenants at Foreclosure Act of 2009."   Here's a thumbnail sketch:

When a credit union takes title to a rental property after foreclosure, it must:

1. Provide bona fide tenants with 90 days notice prior to eviction; and
2. Allow bona fide tenants with leases to occupy property until the end of the lease term, with the exception that the lease can be terminated on 90 days notice if the unit is sold to a purchaser.

If your credit union does mortgage lending and has or will foreclose on properties, be sure to understand this guidance.

***

NAFCU's Regulatory Compliance team is in a good mood.  We're a collective 3-0, as Michigan, Ohio State and Penn State were victorious last weekend.  Should one or more of our teams falter this Saturday, please take that into account when contacting us.   Just in case we're a bit moody.

Have a great weekend, everyone.  Even you Syracuse Orangemen. And yes, I know they are now called the Orange.  It is just that I am becoming an old fuddy-duddy who hates change of any kind.

Deadlines...

The deadlines approaching compliance peeps are many.  It can be very difficult to keep everything straight.  With that in mind, here's some help.

Truth in Savings.   NCUA has a proposed rule to amend Part 707 of its rules and regs.  The changes would mirror the Fed's Reg DD.  Currently, only credit unions that promote their overdraft protection programs need to provide monthly and year-to-date NSF and ODP fee totals.  After this become effective, all credit unions will need to make those disclosures, whether or not they promote the programs.  While NCUA's rule is a proposal, they are mandated to keep their Truth in Savings rule aligned with the Fed's.  So this train is a'comin.

Compliance Deadline: If it mirrors Reg DD, January 1, 2010.
Here's a link to NCUA's proposal.
Here's a link to the Reg DD final rule.

On a related note, the Fed currently has another overdraft-protection-related proposal.  They have issued a proposal to amend Regulation E that could conceivably require consumers to opt-in to a financial institution's overdraft protection program for ATM and one-time POS transactions.  Access the proposal here.   Comments were due back on March 30.

RESPA.  Despite everyone and their brother asking HUD to derail their RESPA reform efforts, HUD is proceeding with the amendments to its RESPA regulation.  The changes mostly amend the GFE and HUD-1 and HUD 1-A.

Compliance Deadline: January 1, 2010.
Here's a link to a HUD page that contains a link to the final rule, forms, and other information.  Note that the "required use" provision has been yanked, and that some minor provisions of RESPA reform have already become final.

UDAP.  NCUA, along with other financial regulators, issued a final rule to amend Part 706 of its rules and regulations.  The rule creates 5 new "unfair acts and practices" related to credit cards that are a no-no.  But the wind has been knocked out of this regulation by a credit card bill recently signed by President Obama.

Compliance Deadline: July 1, 2010
Here's a link to NCUA's final rule.

Credit CARD Act of 2009.  President Obama recently signed this piece of legislation into law.  In a word: ugh.  The law codifies expands, and strengthens many of the consumer protections found within the UDAP and Regulation Z amendments. 

Compliance Deadline: It depends:

• Generally, it becomes effective 9 months after President Obama signed the bill. That is February 22, 2010.
• But two provisions become effective earlier, and warrant some attention.  The 45-day notice requirement for change-in-terms and 21-day timing requirement for billing statements both take affect 90 days after the signing, which is August 20, 2009.  Yes.  2009.

Here's a link to the Credit CARD Act of 2009.

Regulation Z.  Where to begin?  Well, how about chronologically.

Mortgage Loan Disclosures.  Thanks to the Mortgage Disclosures Improvement Act, credit unions must move up their compliance efforts concerning the disclosure requirements for certain mortgage loans.

Compliance Deadline: July 30, 2009.
Here's a link to the Fed's final rule for this requirement.
Here's a link to the FDIC's FIL on this requirement.  English! 
And the FDIC provided this supplement, which is a nice side-by-side chart. Side-by-side chart!

HOEPA Amendments.  The Fed has amended Regulation Z to put in place a ton of mortgage-related protections for consumers.  They did so under authority from the Home Ownership and Equity Protection Act of 1994.  The goal was to eliminate deceptive acts and practices for mortgage products.  Most of the provisions apply to higher-priced mortgage loans.  But not all.

Compliance Deadline: It depends.

• October 1, 2009 for nearly all the provision.
• April 1, 2010 for the escrow provisions. Unless the mortgage covers manufactured housing.  Then the deadline is October 1, 2010.

I always have a heard time finding this rule.  So here's some help.
Here's a link to the final rule from the Fed.
Here's a link to a simply fantastic overview from the Philadelphia Fed.

Open-end Amendments.  Remember when this was supposedly what we were supposed to worry about?!  Ha!  Well, this final rule that amends Regulation Z changes everything we know about open-end lending.    And this final rule contains provisions mandated by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Compliance Deadline:  July 1, 2010. 

Here's a link to the Fed's announcement, which contains links to the final rule, forms, etc.

NACHA's IAT Rule.  The IAT is a new Standard Entry Class code for ACH payments to identify international transactions.  International transactions are those payments that have been funded internationally or are being sent to another country and a part of the transaction will be processed via the ACH Network.

Compliance Deadline:September 18, 2009.

Here's a link to a great IAT resource page, developed by NACHA.

***

With that in mind, try to have a great weekend, everyone!

FDIC on the MDIA; ODP; Online Training

Posted by Anthony Demangone

On Friday, Sarah wrote a nice post on the changing mortgage requirements brought about by the Mortgage Disclosure Improvements Act. (MDIA).  As she pointed out, back in 2008, the Fed issued changes to Regulation Z that amended some disclosure requirements for closed-end mortgages.  In 2009, as mandated by the MDIA, the Fed had to issue additional changes and move up compliance deadlines. 

On Monday, the FDIC issued a Financial Institution Letter that does a GREAT job of highlighting all of these changes.  Access the guidance here.   And this supplement provides a side-by-side comparison of the 2008 and 2009 Reg Z amendments to closed-end mortgage disclosures. 

If only someone would create such a chart that compares the Reg Z changes with the credit card bill.

***

Representatives Carolyn Maloney, Barney Frank and Luis Gutierrez issued a strongly-worded letter to the Federal Reserve asking that the agency implement strong controls on overdraft protection programs.  Specifically, they are seeking an opt-in requirement for consumers and a rule that prohibits issuers to order transactions in a way that maximize ODP fees.  Access the letter here.

***

NAFCU's Online Training for volunteers and new employees is now available for purchase.  Read all about it here.  If you've seen me lead a training session, you'll have a good idea regarding the quality and substance of the sessions.   Let me know if you have any questions about the new product, which is available to all credit unions - even those who do not belong to NAFCU. 

Unauthorized; Newsletter; Uh-oh

With all the text message scams currently taking place, there is a good chance that one of your members will give some crook his or her debit card number, PIN and security code.  With that in mind, some of you may have the following question:

If the member gives his or her personal data away after falling victim to a text message scam, they must be on the hook for any resulting unauthorized transactions.  Right?

Wrong.

Regulation E governs electronic funds transfers (EFTs).  The regulation also governs when consumers will be responsible for unauthorized EFTs.  In the staff commentary to Regulation E, the federal reserve states this:

Consumer negligence. Negligence by the consumer cannot be used as the basis for imposing greater liability than is permissible under Regulation E. Thus, consumer behavior that may constitute negligence under state law, such as writing the PIN on a debit card or on a piece of paper kept with the card, does not affect the consumer's liability for unauthorized transfers.

If the member gives his or her debit card information away to a crook over the phone, that might be negligence.  As noted above, however, that negligence means nothing.  The member gave his or her data over the phone because the member thought there was some security-related freeze on their card.  They thought they were authorizing the lifting of the freeze, not the subsequent transactions.  It is a very one-side rule that favors consumers.

(Go here to read the commentary.  Simply search for the word negligence to find the relevant text highlighted above.)

***

NAFCU members, the February compliance newsletter is available here.  (Member log-in needed.)

***

Mandy was laughing a few nights ago.  Here's what she found in the nursery.

I told him he could sleep there whenever he wants, as long as he learns to change diapers.

A Little of This; A Little of That

Posted by Anthony Demangone.

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

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

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

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

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

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

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

***

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

 

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

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

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

Compliance Guy: (Blank stare.)

 

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

Reg Z Final Rule Dropped; U Da Man? No. UDAP

Posted by Anthony Demangone

Did you hear a loud noise yesterday?  The Federal Reserve dropped the long-awaited final rule to amend the open-end portion of Regulation Z.  (That was what you heard.  611 pages makes quite a sound when it hits the floor.)

Go here to view the final rule.  It is a doozy, for sure.  The compliance deadline is July 1, 2010.  This final rule was far beyond my holiday cookie-clouded ability to analyze coherently for this posting.  But for now, understand that the rule is here.  (Happy Holidays from the Fed, everyone!) 

Here's something I read that might affect credit unions that offer open-end lending programs with sub-accounts:

The final rule generally adopts the proposal that would clarify that credit is not properly characterized as open-end credit if individual advances are separately underwritten. (Emphasis added.)

***

Yesterday, NCUA, the Federal Reserve and Treasury joined together to issue a final rule to address unfair and deceptive acts and practices in the area of credit cards.  NCUA will house its rule under Part 706 of its rules and regulations.  Here's what you need to know now:

Compliance deadline.  This puppy doesn't go into affect until July 1, 2010.  That's a long time from now, but the changes outlined in the final rule may take a long time to implement.

On the editing floor.  Not everything that was in the proposal made it to the final rule.  The final rule does not address overdraft privilege programs.  Are we out of the clear?  Not so fast, my friend.  The Fed will address this issue with proposed changes to Regulation E.  The Fed released that proposal yesterday as well.  I haven't read through it yet.  There was enough depressing news from the Fed already.  I felt no need to dig deeper. 

What does this final rule do?

1. Late payments -- Prohibits treating a payment as late unless consumers are given a reasonable time period for payment. A credit card statement must be sent at least 21 days before payment is due.
2. Payment allocation -- Requires reasonable allocation of amounts paid in excess of a required minimum payment in relation to interest rate accruals The rule specifically requires allocation to segments with the highest APRs in descending order or among the balances in the same proportion to the total outstanding balance.
3. Application of interest rate increases to pre-existing balances -- Prohibits credit card issuers from applying an increased APR to existing balances except in cases of a variable rate account, where payments are 30 days late or do not comply with a workout arrangement, and when a “go to” rate has been previously disclosed on an account with a specified term or expiration date. 
4. Double cycle billing -- Prohibits a finance charge based on days in a prior billing cycle for an outstanding balance in the current cycle.
5. Security deposits and fees for providing credit -- Prohibits an FCU from financing a security deposit or other account opening fees if the charges constitute a majority of the available credit offered. The rule modifies the proposal to limit first month fees to no more than 25 percent of available credit, and requires that fees between 25 and 50 percent of available credit be spread equally over the next five months.

Now, the devil is in the details.  This is a broad overview.  Here would be my battle plan: go over the rule.  See what affects you.  And then call a meeting with everyone involved in credit cards to see what you need to do.  These changes may (let's be real, will) require changes to data processing systems, such as those that allocate payments.  This means most of you will be herding cats and bashing your head against a wall dealing with third parties to implement some changes.  Don't wait too long to get started.

Go here to read the final rule or if you want to kill a tree print it out.

***

Have a great weekend everyone.  I hope your holiday shopping is in better shape than mine.  (The cookbook will be distributed soon.  And it will be a dandy!  Diets beware!)

Recent Changes to VISA Operating Regulations - January 1 Deadline

Credit unions that use VISA should be aware of a recent change to VISA's Operating Regulations.  The changes were effective July 1, 2008 and card issuers have a mandatory compliance date of January 1, 2009.

The changes include two definitional changes:

"Non-Visa Debit Transaction—Effective July 1, 2008, an act between a Visa Check Card or Visa Debit Card Cardholder and a merchant that results in the generation of a transaction on a PIN-Debit Network.

PIN-Debit Network—Effective July 1, 2008, a non-Visa debit network that typically authenticates transactions by use of a PIN that is not generally known as, marketed as, or enabled as a competitive general-purpose card program, or other prohibited payment program, either directly or through a joint acceptance agreement."  

The first objective is to determine if the network(s) your credit union uses allow "Non-Visa Debit Transactions."  Karl Leslie of Wolters Kluwer Financial Services has written a wonderful article summarizing the rule changes and helping financial institutions determine if they need to comply.

"Determining whether a financial institution has enabled Non-Visa Debit Transaction processing appears to be dependant on the network an institution uses. In other words, if your network has enabled Non-Visa Debit Transaction processing, then you have too. Stated more broadly, all financial institutions that use that network have enabled Non-Visa Debit Transaction processing and thus need to comply with the Visa rule.

For example, let’s say your network offers a PIN-less bill payment product. A merchant that uses the same network offers that payment option in its online payment environment. One of your cardholders goes to that merchant’s web site and chooses that payment option because she sees the payment option has the same logo as she has on her card. Your institution has to honor that PIN-less bill pay transaction because you agreed to do so when you subscribed to your network. As a result, your institution has enabled Non-Visa Debit Transaction processing.

We are aware of the following networks that offer a PIN-less payment option:  STAR, PULSE, NYCE, COOP, and ACCEL/Exchange."  (emphasis added).

If one of your networks allows "Non-Visa Debit Transactions" the credit union must make certain disclosures to its cardholders as well as notifying VISA because these "Non-Visa Debit Transactions" would not be conducted through VISA's network and, therefore, would not receive VISA's zero liability and other protections. 

Take a look at your language in your cardholder agreement and Reg E disclosure to see if it addresses transactions not conducted through the VISA network.  If not, you may need to add this information as well as disclosing this information to your cardholders on an annual basis. 

    

No, not that deadline; Married Life

There's a compliance deadline coming October 1.  And I'm not talking about Affiliate Marketing.

Last year, the Federal Reserve announced final rules to amend Regs B, E, M, Z and DD.  The amendments address the delivery of electronic disclosures.   Here's the Fed's press release, which includes links to each final rule.  Remember, NCUA has to ensure that our Truth in Savings rule closely mimics their Reg DD, so expect changes in the not too distant future. 

Don't blame the messenger.

***

My father said something funny the other day.  He grew up in Latrobe, Pennsylvania, which is 40 or so miles outside of Pittsburgh.  He played tennis for Duquense, which is in downtown Pittsburgh.  He may live in north-central Pennsylvania, but he's a Pittsburgh boy, through and through. After the Steeler's victory last week, I called to chat.  Both my Mom and Dad were on the line. 

Mom: Your father said something that made me laugh this weekend.  He said that at his age, the only thing that he gets excited for is the Steelers.
Dad: It's true.  I was sick to my stomach all day Sunday.

I told Mandy, and I think she saw her future.  She looked worried.

Editor's note: The editor isn't watching as much football as he did as a bachelor.  Mandy says this is a good thing.  The editor is not so sure. 

Unauthorized EFT?

This is why I love my job.  A member called with an interesting issue.  We don't know the answer, and we don't know that there is an answer.  But it is fascinating, in a compliance kind of way.

The situation. A member opens a joint account with her minor child.  The credit union has a policy whereby they will not issue a debit card to a minor.  Therefore, they issue a debit card just to the mother.  The mother now reports that the daughter has withdrawn $500 at an ATM, and she'd like the credit union to reimburse her via Regulation E's unauthorized EFT provisions.  Regulation E does not really address this situation.

Here are some observations:

• The daughter is joint, so she has a right to all the money.  So where is the harm?
• Is the joint relationship an implicit authority for the daughter to use the card?
• The account is a joint account, not a UTMA.
• The mother is adamant that the transaction was unauthorized.
• How did the daughter get the PIN?

So what's a credit union to do?  I'd love to hear your thoughts.

NCUA Express and other Gems

At a recent board meeting, NCUA Chairman Johnson commented that only 24 percent of credit unions are using NCUA Express.  NCUA Express is a vehicle through which NCUA communicates electronically with federally-insured credit unions.  With this service, credit unions will receive Regulatory Alerts, Legal Opinion Letters, Letters to Credit Unions and other important notifications as they become available from NCUA.  Sign up for NCUA Express here. 

Other agencies have similar services as well. 

Sign up for the FinCEN notification service here.
Sign up for the U.S. Treasury notification service here. (Can include OFAC notifications.)
Sign up for the Federal Reserve notification service here.

The Compliance Guy loves this stuff.  He goes on vacation.  He may miss work due to illness.   But he always checks his email.  With email notifications, it is far less likely that I'll be blindsided by compliance-related developments.

***

NAFCU has published a Final Regulation that covers the Federal Reserve's recent final regulations that amend Regs (take a deep breath) B, E, M, Z and DD.  The final rules address electronic communications with members.  The compliance deadline for these is October 1, 2008.  You can access NAFCU's Final Regulation here. (NAFCU members only.)

Odds and Ends, and Electronic Alphabet Soup

Late last week, the Federal Reserve announced final rules to amend Regs B, E, M, Z and DD.  The amendments address the delivery of electronic disclosures.   Here's the Fed's press release, which includes links to each final rule.  Remember, NCUA has to ensure that our Truth in Savings rule closely mimics their Reg DD, so expect changes in the not too distant future. 

While amendments to all these regs may seem dauting, it really is a good thing.  For example, the changes generally will allow credit unions to give electronic disclosures to members who access applications or advertisements electronically.  Mandatory compliance with this regs will be October 1, 2008.  

***

NAFCU members, the following is for you.

• The November BSA Blast is available here.   (NAFCU member log in needed.)
• NAFCU's Regulatory Affairs Department has updated a very useful tool.  Especially those who lose track of which FACT Act provisions are on the books and which are not.  Access a handy-dandy chart on this page (Scroll to bottom.)

California Wildfires; Reg E and "Reasonable Period"

NCUA has activated its "Disaster Assistance" in response to the California wildfires.  In short, NCUA (when necessary):

• Encourages CUs to make loans with special terms and reduced documentation to affected members
• Will reschedule routine examinations of affected credit unions if necessary
• Guarantee lines of credit for credit unions through the National Credit Union Share Insurance Fund
• Make loans to meet the liquidity needs of member credit unions through the Central Liquidity Facility

You can access the guidance here.  Worth noting: you do not need to be a California credit union to have members who are affected by the wildfires.

***

All credit unions are aware of Regulation E and how it governs member responsibility for unauthorized electronic funds transfers (EFTs).  The rationale behind the system is simple; members only have so long to bring evidence of unauthorized transfers to the attention of a credit union.  (Two, four, and sixty days, depending on the situation.) If the member misses the deadline, then the member is responsible for the loss.  Regulation E, however, builds in a safety net.  If a member's delay in notification was due to "extenuating circumstances," then a credit union must extend the deadlines to a "reasonable period." 12 C.F.R. 205.6(b)(4).  If you read the Official Staff Interpretation to Regulation E, the Fed indicates that extended travel and hospitalization are examples of "extenuating circumstances."  Is there an example of "reasonable period?"  Of course not.  So, here's my question to you: at your credit union, what constitutes a "reasonable period."  In other words, if a member is away on extended travel or hospitalization, how long would you extend Regulation E's normal deadlines.  The Compliance Guy looks forward to reading your comments.