NAFCU Compliance Blog

Deconstructing the QM Safe Harbor in Construction to Permanent Loans; CFPB Mortgage Servicing Guide Updates

By: Reginald Watson, Regulatory Compliance Counsel

Greetings Compliance Friends!

It has been a few years since the CFPB's implementation of the ability to repay requirements and qualified mortgage safe harbor, yet many credit unions still find the points and fees calculations confusing, particularly the scale of the exemption for construction loans in the context of a hybrid construction to permanent loan.  As a reminder, Regulation Z now requires credit unions to consider a consumer's ability to repay a residential mortgage loan and these requirements are set out in section 1026.43(c).

Loans that meet the standard of a qualified mortgage under sections 1026.43(e) or (f) are given a presumption that the borrower has the ability to repay. The calculation of all applicable points and fees are an aspect of determining whether a transaction is a qualified mortgage and therefore, whether the transaction is presumed to meet the “ability-to-repay” requirements of section 1026.43(c). The procedures for counting points and fees are the same as those provided in the high cost mortgage rule found in section 1026.32(b)(1). The credit union is required to establish a member's ability to repay for only those residential mortgage loans which are covered by the scope of section 1026.43(a), which contains a specific exemption for "a construction phase of 12 months or less of a construction-to-permanent loan." 12 C.F.R. §1026.43(a)(3)(iii). If a loan is outside the scope of section 1026.43(a), then there is no regulatory requirement to establish a consumer's ability to repay under section 1026.43 or calculate the points and fees.

So, how do we account for the points and fees calculation when the credit union is financing the permanent loan in addition to the construction phase? 

The commentary to Regulation Z seems to give us two options: for purposes of the qualified mortgage rule, the credit union may treat the construction phase and the permanent phase as one single transaction, or as two separate transactions.  Either way, the credit union would be required to follow the procedures under section 1026.32(b)(1) to calculate the points and fees for all applicable charges for both the construction phase and the life of the loan. However, it is not entirely clear how to allocate fees between the construction and permanent phase of a loan – but the preamble to the ATR/QM rule indicates that the ability to treat these kinds of loans as either one or two transactions draws upon section 1026.17(c)(6)(ii)-5. The preamble also referred back to section 1026.17(c)(6)(ii) in other areas, so while not entirely clear, it seems this rule may be helpful guidance generally.  The staff commentary to section 1026.17(c)(6)(ii)-5 seems to suggest that when separating the transactions, the points and fees may be allocated as the credit union sees fit:

5. Allocation of costs.When a creditor uses the special rule in §1026.17(c)(6) to disclose credit extensions as multiple transactions, fees and charges must be allocated for purposes of calculating disclosures. In the case of a construction-permanent loan that a creditor chooses to disclose as multiple transactions, the creditor must allocate to the construction transaction finance charges under §1026.4 and points and fees under §1026.32(b)(1) that would not be imposed but for the construction financing. For example, inspection and handling fees for the staged disbursement of construction loan proceeds must be included in the disclosures for the construction phase and may not be included in the disclosures for the permanent phase. If a creditor charges separate amounts for finance charges under §1026.4 and points and fees under §1026.32(b)(1) for the construction phase and the permanent phase, such amounts must be allocated to the phase for which they are charged. If a creditor charges an origination fee for construction financing only but charges a greater origination fee for construction-permanent financing, the difference between the two fees must be allocated to the permanent phase. All other finance charges under §1026.4 and points and fees under §1026.32(b)(1) must be allocated to the permanent financing. Fees and charges that are not used to compute the finance charge under §1026.4 or points and fees under §1026.32(b)(1) may be allocated between the transactions in any manner the creditor chooses. For example, a reasonable appraisal fee paid to an independent, third-party appraiser may be allocated in any manner the creditor chooses because it would be excluded from the finance charge pursuant to §1026.4(c)(7) and excluded from points and fees pursuant to §1026.32(b)(1)(iii).

Thus, it seems that the credit union may make a risk-based business decision when allocating points and fees for purposes of the qualified mortgage safe harbor for the permanent financing phase of the loan. Appendix D to Reg Z provides specific guidance on how to make the actual calculations when these loans are treated as separate transactions in Part I or as a single transaction in Part II.

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CFPB Issues Update to Small Entity Compliance Guide

On March 29, 2018, CFPB updated the Mortgage Servicing Small Entity Compliance Guide (version 3.1) to incorporate recent amendments to the 2016 Mortgage Servicing Rules. As you may recall, we discussed these amendments in a previous NAFCU blogpost. Check out this link for our other blogs on the 2016 Mortgage Servicing Rules. CFPB also recently created a mortgage servicing coverage chart that credit unions may find helpful.

Navigating the Regulation Z Maze: Notice Requirements for Terminating Discounted Rates on Credit Cards; 2018 Rural and Underserved Counties List

Written by Jennifer Aguilar, Regulatory Compliance Counsel

Last month, I blogged on the timeframes for running promotions on your credit cards. A question then came up regarding whether credit unions have to provide notice when the promotional rate ends and how to handle situations where a member no longer qualifies for a discounted rate, such as an employee preferential rate or a special rate for autopay. This blog addresses the change in terms notice requirements for promotions and discounts that are agreed to after a credit card account is opened and are not provided for in the original card agreement.

In true regulator fashion, getting the answer to this seemingly simple question is not so easy. Once you have figured out where to start, you'll wander through obscure parts of the rule and commentary only to find yourself in a completely different section of the rule. As it can be quite easy to get lost in the maze of cross-references and confusing language, it's helpful to take it one step at a time. So, I'll guide you slowly through the maze and hopefully you won't get lost along the way.

As a starting point, the issue with credit cards is that section 1026.55 generally prohibits credit unions from increasing the rate on a credit card account unless a particular exception applies. When the promotional or discounted rate is first applied to the account, there is no need to worry about this general prohibition since the rate is actually decreasing. However, the commentary explains that this general prohibition also applies to a promotional or discounted rate. Therefore, once the rate has been discounted, credit unions cannot increase that discounted rate back to the original rate unless an exception applies.

For promotional rates, this is pretty straightforward as section 1026.55(b)(1) provides an exception for temporary rates in effect for at least six months. However, it gets a bit more complicated when a member no longer qualifies for a discounted rate. Section 1026.55(b)(3) allows credit unions to increase the rate if it provides advance notice, but there are a couple of twists to this exception. First, it creates a protected balance. This means that all transactions made during the time the rate discount was in place and those transactions made within 14 days of the advance notice must continue to receive that lower rate until the protected balance is paid off. Second, this exception cannot be used during the first year the account is opened. For example, if a member receives a discounted rate for using autopay and then cancels autopay within the first year, the rule prohibits a credit union from increasing the rate until after the first year ends.

Now that we have worked our way through the first part of the maze, let's keep going. Section 1026.55(b)(3) points you to section 1026.9(c) to determine the applicable timeframe and content requirements for the notice. Section 1026.9(c)(2) generally requires a credit union to provide 45-day advance notice when it changes the APR on an account. However, section 1026.9(c)(2)(v) provides a number of exceptions to the general 45-day advance notice requirement. The commentary to this section explains that if the rate is temporarily discounted, a change in terms notice is not required when the rate increases back to the original rate as long as the credit union previously disclosed certain terms. The commentary sends you to a different section of the rule to determine the disclosure requirements – section 1026.9(c)(2)(v)(B).

Section 1026.9(c)(2)(v)(B) requires credit unions to disclose the following: when the reduced APR will apply and the APR that will apply when the reduced APR ceases to apply. If these disclosures are made in advance (e.g. when the credit union offers the discounted rate), advance notice is not required when the member no longer qualifies for the discounted rate. If the disclosures are not made in advance, then the rule requires the credit union to provide notice 45 days before the original rate is imposed. That 45-day advance notice must comply with the content requirements in section 1026.9(c)(2)(iv)(A).

Whew, that was confusing. Congratulations on sticking with me through the end. I know it can be exhausting wandering through the rules and all that commentary. Hopefully, this blog will serve as your shortcut when dealing with these types of discounted rates. That way, you can be just like Groundskeeper Willie and reach the end of the maze in a fraction of the time:

As always, the NAFCU compliance team is here to help you find all your regulatory shortcuts.

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Yesterday, the CFPB released its updated lists of rural and underserved counties - 2018 List of Rural or Underserved Counties and 2018 List of Rural Counties. The CFPB has also updated its Rural or Underserved Areas Tool. Credit unions can use these lists and the tool to determine whether a particular property is located in a rural or underserved area. The lists and tool can be found here.

Obtaining A Consensual Security Interest For Credit Cards

Written by Stephanie Lyon, Regulatory Compliance Counsel

Last week, I had the pleasure of going through the CFPB's credit card agreement database to find my creditor's credit card agreement. This research project was not just for fun… I was specifically looking for similarities in the language financial institutions use to obtain a consensual security interest in their members' or customers' deposit accounts. Seeing just how different credit card agreements can be made me wonder what drive some of the disclosure language and format in this area. So let's review the regulatory requirements to obtain a consensual security agreement for credit cards.

To begin, Regulation Z has a general blanket prohibition against offsetting a member's deposit funds to cover the member's delinquent credit card. See, 12 C.F.R. § 1026.12(d)(1). This means that financial institutions cannot automatically take funds from their customer's deposit account if the customer is delinquent on their credit card.

However, the rule has an exception that permits creditors to obtain a consensual security interest. To ensure the consensual security is not a functional equivalent of a right of offset, the regulation requires the following things: (1) member must affirmatively agree to the security interest (i.e., the consensual requirement); (2) creditor must disclose security interest in account-opening disclosures; and (3) creditor must be able to evidence the member is aware and intended to provide the security interest. The regulation also suggests three ways of meeting the last requirement. Basically, the credit union can ensure its members are aware and intend to provide a security interest by doing something substantially similar to one or more of the following:

1. Obtain a separate signature or initials on the agreement indicating that a security interest is being given;
2. Place the security agreement on a separate page, or otherwise separate the security interest provisions from other contract and disclosure provisions; or
3. Make reference to a specific amount of deposited funds or to a specific deposit account number.

12 C.F.R. § 1026, Supp I, 1026.12(d)(2)—1. While the regulation provides examples of how to demonstrate awareness and intent, the appropriateness of the format a credit union chooses will be a question of fact. For example, in reviewing publicly available credit card agreements, it seems that many financial institutions are emphasizing the security lien provision by placing a text box or by highlighting/bolding the security lien provisions. While this is not a manner explicitly stated by Regulation Z, this could be one way to ensure the member is aware and consents to giving the credit union a security lien. As there has been litigation on the sufficiency of these methods, credit unions may want to consult their legal counsel or document providers to ensure the method selected will satisfy the security interest requirements of Regulation Z. For more information on the litigation side of things, see this article published in the 2016 January-February Edition of the NAFCU Journal.  

Another thing to note is that unlike the right of offset, credit unions that properly disclose the security interest as outlined above may have a security interest in after-acquired property. See, 12 C.F.R. § 1026, Supp I, 1026.12(d)(2)—2. Meaning, funds deposited after the credit card account is opened are not excluded from the credit union's security interest and these funds could be used to pay for a delinquent credit card.

Finally, credit unions wishing to obtain a security interest in currently opened credit cards may want to look at section 1026.9(c)(2)(i)(A) which requires a change in terms notice at least 45 days prior to the effective date of a significant change in account terms for credit cards. A “significant change in account terms” means “a change to a term required to be disclosed under [sections] 1026.6(b)(1) and (b)(2), an increase in the required minimum periodic payment, a change to a term required to be disclosed under [section] 1026.6(b)(4), or the acquisition of a security interest.” 12 C.F.R. § 1026.9(c)(2)(ii) (emphasis added).

SALE! BOGO! DOORBUSTER!: Running Promotions on Your Credit Cards

Written by Jennifer Aguilar, Regulatory Compliance Counsel

In my opinion, the first Sunday after the Super Bowl is the most depressing day of the year. After months of having every Sunday filled with excitement and record-breaking moments, you suddenly have a day with nothing to do. And that's just depressing. So, I filled my day with a trip to the mall. Pause – I'll give you all a moment to recover from the shock that there's still someone out there who doesn't shop online. . . I always prefer the mall because most of the stores are so desperate to get people in the door that they give you really great discounts that you often can't get online. They all have these colorful signs in the windows advertising discounts on your entire purchase or free gifts with your purchase.

Like any other business, credit unions also use these kinds of flashy offers to attract customers. However, unlike the stores at the mall, credit unions have to comply with a number of different requirements for their offers. From advertising to account opening and beyond, the rules are complex and can be hard to follow. Today's post will focus on the rules for how long credit unions must honor a promotional rate on a credit card. The rules below apply for both new accounts and promotions on existing accounts.

Generally speaking, the credit card rules in Regulation Z prohibit credit unions from increasing the rate on a credit card unless a specific exception applies. One of those exceptions – contained in section 1026.55(b)(1) – allows credit unions to increase the rate after the expiration of a promotional period.  The promotional period must be at least six months. Well, that's pretty easy, right? Not so fast. The commentary actually provides two different methods for calculating the promotional period depending on the types of transactions subject to the promotional rate – multiple transactions or one-time transactions.

Multiple Transactions. The first method covers promotional rates that apply to multiple transactions. For example, all purchases made between February and September. Credit unions may limit the types of transactions that qualify for the promotional rate to particular categories – such as all purchases or a balance transfer over $1,000 – or a particular time period – such as all purchase made in December.  If the promotional rate applies to multiple transactions, it does not matter how many transactions the member actually makes – as long as multiple transactions qualify for the promotional rate than the first method applies.

So, what is the calculation method? Well, the promotional period begins on the date the credit union provides the 55(b)(1) disclosures – that is, the disclosures that explain the length of the promotional period and the APR that will apply after the end of the promotional period. However, if the date the account can first be used is later than the date the credit union provided the disclosures, then the promotional period begins on that date instead. The promotional period must end at least six months from that beginning date. Here is an example from the commentary that illustrates how this works:

On November 1, 2017 the card issuer offers the consumer a 0% rate for six months on purchases made during the months of November and December and states that a 17% rate will apply after the promotion. The following purchases are made: November 15 for $500; December 15 for $300; and January 15 for $150. The card issuer may begin charging the 17% rate on the $500 purchase and the $300 purchase starting on May 1, 2018 as this is six months from November 1. However, the issuer may charge the 17% rate on the $150 purchase beginning on January 15 since it was made after the specified time period.

One-time transactions. The second method covers promotional rates that will apply to only one transaction. For example, a balance transfer. Again, credit unions can put limitations on the transaction that will qualify for the promotional rate – such as a purchase over $5,000 or a balance transfer made in January. When the promotional rate applies only to one-time transactions, then the promotional period begins on the date of that transaction. The promotional period must end at least six months from that transaction date. Here are a couple examples from the commentary that illustrate how this works:

Example 1: On June 1, 2017, a card issuer offers a 0% APR for six months on the purchase of an appliance and an 18% rate will apply after that. On September 1, 2017 a $5,000 appliance is purchased.  The card issuer may begin charging the 18% rate on March 1, 2018 as this is six months from September 1.

Example 2: On June 1, 2017, a card issuer offers the consumer a 5% rate for six months on a balance transfer of at least $1,000 and states that a 15% rate will apply after that. On June 15, a $3,000 balance is transferred to the account. On July 15, a $200 purchase is charged to the account. The card issuer may begin charging the 15% rate on the $3,000 transferred balance on December 15 as this is six months from June 15. However, the card issuer may charge the 15% rate on the $200 purchase beginning on July 15 because this purchase did not qualify for the promotional rate.

When dealing with promotional rates, credit unions will need to first determine whether the promotional rate will apply to multiple transactions or only to one particular transaction. Once the credit union has made this determination, it can determine when the promotional period starts. Determining when the promotional period starts is essential for compliance as the period must run for at least six months.

Flag on the Play: Imposing Penalty Rates

Written by Jennifer Aguilar, Regulatory Compliance Counsel

It's December. Football weather has settled in and the playoff race is heating up. If you're anything like me, you spent the entire day yesterday glued to the RedZone or, for those lucky few, you actually got to watch your team on the local broadcast. As every sports fan knows, sometimes no matter how hard the players play, sometimes it's up to the referees to decide the outcome (eyeroll and audible groan as you remember that terrible completely wrong call the refs made that cost your team the game). Most of time, the referees are on the same page and impose the right call, like these guys:

But, sometimes, no one can agree on what right call should be, like these guys:

So, what to do then? Well, go back to the rulebook. Every once in a while, credit unions find themselves in a similar position – your member hasn't paid her bill on time or has exceeded her credit limit and now you need to be the ref and enforce the rules and impose a penalty rate. But before you do so, you may find it helpful to review the rulebook first to ensure that you're making the right call. As penalty rates are most common with open-end credit products, the rules discussed below apply to open-end not home-secured credit.

The first rulebook to review is the credit agreement. This agreement lays out the obligations between you and your member but it also lays out your rights when the member fails to live up to her obligations. Before you can impose a penalty rate for such failures, you have to have the authority to do so. The agreement will usually tell you whether or not you have such authority. The agreement will also explain the circumstances under which a penalty rate may be imposed. In the event your agreement is silent on this issue, your state law may explain whether the credit union has the authority to impose a penalty rate. While the credit agreement is an important place to start, don’t forget that there is another rulebook to review too – Regulation Z.

Penalty rates are generally permissible under Regulation Z. So, as long as you have the contractual authority to do so and one of the circumstances laid out in the credit agreement has occurred, you may impose the penalty rate. Regulation Z does, however, have a couple rules that must be followed. Section 1026.9(g) requires advance notice before you can impose the penalty rate. The notice must be provided after the event that triggered the penalty rate and at least 45 days before the effective date of the increased rate. The notice must include the following:

• Statement that the penalty rate has been triggered;
• Date the penalty rate will apply;
• Circumstances under which the penalty rate will no longer apply or a statement that the penalty rate may apply indefinitely;
• Statement of which balances the penalty rate will apply to and which balances the regular rate will continue to apply to, if any;
• If the account is a credit card, a statement of the principal reasons for the rate increase; and
• If the rate increase is the result of a failure to make a minimum periodic payment within 60 days of the due date, a statement that the increased rate will no longer apply to transactions occurring before or within 14 days of the notice if the member makes the next six consecutive minimum payments on time.

If the open-end credit plan is a credit card and the penalty rate was imposed because the member failed to make a minimum payment within 60 days of the due date, section 1026.59(e) requires credit unions to review the account periodically to determine whether the penalty rate is still applicable. The first review is required within six months of the sixth payment due date following the effective date of the penalty rate. After that, the review is required once every six months. In conducting the account review, the rule requires credit unions to review the factors that led to the application of the penalty rate. If the credit union determines that the penalty rate should no longer apply based on the review, the rule requires the credit union to reduce the rate back to the rate that previously applied within 45 days of completing the review. No review is required if the member makes the next six consecutive payments on time and, as a result, the credit union returns the rate to the rate that applied prior to imposing the penalty rate.

NCUA Issues Temporary Exemption on Appraisals for Disaster Zones

By Reginald Watson, Regulatory Compliance Counsel

Greetings compliance friends! In the wake of excessive flooding brought about by the many recent tragic hurricanes, NCUA together with several other agencies have granted temporary exceptions to the current appraisal requirements in major disaster zones. Since we've received quite a few questions on this, I figured it would be a good opportunity to review the NCUA appraisal requirements and un-package this temporary exemption.

NCUA's appraisal requirements depend on the loan value and its terms. NCUA’s Rules and Regulations do not require a formal appraisal if the transaction is 250k or less. Generally, any loan with a transactional value of $25,500 or less requires only a “written valuation” that meets FIRREA requirements. A loan with a transactional value between $25,501 and $250,000 only requires a formal appraisal if it is a "higher-priced" mortgage loan; and all loans of $250,001 or more require an appraisal.

For transactions requiring an appraisal, the central requirement is that the appraisal must be "performed by a state certified or licensed appraiser." For transactions requiring a written valuation, it must "be performed by an individual having no direct or indirect interest in the property, and qualified and experienced to perform such estimates of value for the type and amount of credit being considered."  12 C.F.R. §722.3(d). The minimum requirements for written estimates of market value are addressed in Appendix B of the Interagency Appraisal and Evaluation Guidelines.

In addition to the transaction threshold issue, §722.3 outlines the other exceptions to the general requirement to seek an appraisal, including situations in which:

• A lien has been taken out on the property as collateral only through an abundance of caution, and the transaction terms are no more favorable than they would have been in the absence of a lien;
• A lien has been taken out on the property for purposes other than the real estate's value;
• A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate;
• The transaction involves an existing extension of credit at the lending credit union provided that there is no advancement of new monies and no obvious or material changes to market conditions;
• The transaction involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgage-backed securities;
• The transaction is wholly or partially insured or guaranteed by a United States government agency or United States government sponsored agency;
• The transaction either: 
  • Qualifies for sale to a United States government agency or United States government sponsored agency; or
  • Involves a residential real estate transaction in which the appraisal conforms to the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation appraisal standards applicable to that category of real estate; or
• The regional director has granted a waiver from the appraisal requirement for a category of loans meeting the definition of a member business loan.

Appendix A to the Interagency Appraisal and Evaluation Guidelines, provides additional guidance on these exemptions and describes how institutions can comply with Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).The guidance was joined by NCUA, and was attached to Letter to Credit Unions 2010-23.

Higher Priced Mortgages

As referenced in §722.3(f), if a loan is a second mortgage that is closed-end consumer credit secured by the consumer’s principal dwelling and qualifies as a higher-priced mortgage loan (HPML), it may require an appraisal under Regulation Z. §1026.35(c). An HPML is a closed-end secured residential loan "with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by a certain number of percentage points. §1026.35(c)(2) also provides an appraisal threshold exemption which is currently $25,500, along with additional exemptions to the appraisal rule for HPMLs. The threshold is set to increase to $26,000 on January 1, 2018. The CFPB official commentary discusses all these exemptions in further detail and emphasizes that although these types of transactions may be exempt from the CFPB's appraisal rule, the requirements under FIRREA and §722.3 still apply. Thus, an appraisal would be required for HPMLs between $25,500 and $250,000, and a written valuation conforming to the Interagency Appraisal and Evaluation Guidelines would be required for loans that do not require an appraisal under NCUA. An additional written appraisal for HPMLs may be required for recently acquired properties subject to certain conditions found in §1026.35(c)(4).

In summary, it appears any loan with a transactional value of $25,500 or less requires only a written valuation that conforms to Appendix B of the interagency guidance. A loan with a transactional value between $25,500 and $250,000 only requires a formal appraisal if it is a HPML. All loans carrying a value of $250,001 or more require an appraisal.

Loans in Disaster Areas

On October 16, 2017, NCUA, together with several other agencies, released a Letter to Credit Unions (17-CU-06) granting a temporary exemption to the FIRREA appraisal requirements in major disaster areas, as defined by the President. The exemption provides flexibility to credit unions with loans secured by real estate and located in the affected areas, including parts of Florida, Georgia, Puerto Rico, Texas, and the U.S. Virgin Islands. The exemptions will remain in effect for a three-year period from the date of the declaration.

The order specifically requires that the property involved was located within the major disaster area, there is a binding commitment to fund the transaction, the value of the real property supports the institution's decision to enter into the transaction, and the transaction must continue to be subject to review by management in the course of examinations of the institution.

This waiver is an attempt to ensure that any shortage of appraisers would not further delay the recovery process for these regions. We at NAFCU have been saddened to see the extent of the damage and loss of life and have compiled a list of resources to help credit unions in these disaster areas. Our thoughts and prayers go out to all those who have been affected.

Don’t You Forget About Us: Prohibitions and Limitations under Regulation Z

Written by Jennifer Aguilar, Regulatory Compliance Counsel

As compliance folks in the post-Dodd–Frank Era, we sometimes get so caught up with what must be disclosed that it's easy to overlook some of the prohibitions and limitations buried in the consumer regulations. Today's post is a roundup of questions that touch on some of the prohibitions and limitations for open-end credit products.

Our credit union would like to increase the late fee for our HELOCs, are there any regulatory issues with this increase?

Section 1026.40(f)(3) generally prohibits credit unions from changing any term on an open-end home equity plan. The commentary explains that this rule prohibits credit unions from increasing fees and imposing new fees once the plan is opened. This rule covers all the plans terms, not just those terms that must be disclosed under Regulation Z.

The rule does, however, provide a number of limited exceptions to this general prohibition. One of these exceptions allows credit unions to change a term as long as it obtains the member's consent. The commentary further explains that the member must expressly agree to the stated change in writing at the time the change is made and that continued use of the credit plan does not constitute consent.

Section 1026.9(c)(1) requires a 15-day advance notice if the credit union changes any term required to be disclosed under section 1026.6(a). Section 1026.6(a) requires credit unions to disclose all finance charges and any other charges that may be imposed as part of the plan. The commentary to paragraph 6(a)(2) specifically includes late fees as other charges imposed as part of the plan, so advance notice is required. The notice must be in writing and sent to each affected member at least 15 days prior to the effective date of the change.

Our credit union would like to start charging member's a fee for paying their credit card by phone. Can we do this?

For credit card accounts, section 1026.10(e) prohibits credit unions from charging a fee to make a payment by any particular method, including payment by phone. However, if the payment method involves an expedited service by a customer service representative, then credit unions may charge a fee for that payment method. This rule covers both fees charged by the credit union as well as fees charges by a third party that collects or processes payments on the credit union's behalf.

The commentary explains that "expedited" means that the credit union actually credits payment the same day or the next day if the payment is received after the established cut-off time. The commentary goes on to explain that "service by a customer service representative" requires the payment transaction be made with the help of a live representative. An automated system is not "service by a customer service representative," but credit unions may use an automated system for a portion of the transaction as long as a live representative is involved with the transaction.

We heard recently that LIBOR may come to an end sometime in the future. We use the 6-month LIBOR as the index for our variable-rate HELOCs. Can we change to a new index now?

For open-end home equity lines of credit, section 1026.40(f)(3) states that a credit union may change the index on a plan only if three conditions are met: (1) the original index is no longer available, (2) the new index's historical movements are substantially similar to the original index, and (3) the new index and margin will result in a rate substantially similar to the rate in effect at the time the original index became unavailable. The commentary reiterates that the original index must actually be unavailable before a credit union may select a new index.

CFPB Supervisory Highlights; More HMDA Guidance

Written by: André B. Cotten, Regulatory Compliance Counsel

Hello, Compliance Friends. We are counting down the days to San Diego. The NAFCU Compliance Team will be hosting our Regulatory Compliance School and Regulatory Compliance Seminar the week of October 9^th.

 On September 12, 2017, the CFPB issued its latest supervisory report sharing a plethora of observations from recent examinations and other supervisory activities. The report covers issues observed by the Bureau in the areas of automobile loan servicing, credit card account management, debt collection, deposits, and fair lending. Other topics, such as small-dollar lending, collection, mortgage origination, and mortgage servicing were also addressed. Today's blog will provide some of the highlights of the Bureau's findings.

Automobile Loan Servicing. In recent examinations, CFPB examiners reviewed how servicers are overseeing repossession agents and how repossessions are conducted. The Bureau's report alleges that some servicers are repossessing vehicles after the repossession was cancelled due to a formal extension agreement or the borrower has made a payment.

In these instances, the servicers wrongfully coded the account as remaining delinquent, customer service representatives did not timely cancel the repossession order after borrowers made sufficient payments or entered agreement with the servicer to avoid repossession, or repossession agents had not checked the documentation before repossessing and thus did not learn that repossession had been cancelled.

As a result of the examiner's findings, the servicers implemented a system that requires repossession agents to verify that the repossession order is still active immediately prior to repossessing the vehicle, for example, through a specially designed mobile application for that purpose.

Credit Card Account Management. The Bureau examiners noted that generally their supervised entities are complying with Federal consumer financial laws.

However, CFPB examiners observed that one or more credit card issuers violated Regulation Z by failing to provide the requisite tabular disclosures with the account opening materials provided to numerous cardholders. The entities in question acknowledged the violations with examiners and initiated a review to ensure that the errors were limited, the root causes were identified, and corrective actions were developed.

CFPB Supervision also reviewed the calls between customer service representatives and consumers. The review revealed customer service representatives routinely veering from or abandoning their scripts, which resulted in misrepresentation and higher fees for consumers. To mitigate the deceptive practice, entities established more effective controls over communications to consumers, ensured representatives informed consumers of free payment options prior to authorization of an expedited phone payment and reimbursed fees to consumers impacted by the deceptive representations about the costs and availability of pay-by-phone options.

Debt Collection. The CFPB examiners noted that some entities made false representations to consumers about the effect on their credit score of paying a debt in full rather than settling the debt for less than the full amount. As the CFPB explained in a 2013 bulletin, representations about the impact of paying a debt on a consumer's credit score may be deceptive. The bulletin states that "in light of numerous factors that influence an individual consumer's credit score, such payments may not improve the credit score of the consumer to whom the representation is being made. Consequently, debt owners or third-party debt collectors may well deceive consumers if they make representations that paying debts in collection will improve a consumer's credit score." As a result of these findings, the entities in violation amended training materials to reflect this Bureau's guidance.

Deposits. The CFPB continues to examine financial institutions for compliance with Regulation E as well as review for any unfair, deceptive, or abusive acts or practices (UDAAPs) in connection with deposit accounts.

The CFPB examiners noted that several institutions are engaged in unfair acts or practices by placing hard holds on customer accounts to stop all activity when the institutions observed suspicious activity. These holds resulted in the consumers' accounts being locked, resulting in payments not being honored, deposits being rejected, and the consumer lacking access to his or her funds for as long as two weeks. The examination also found that some institutions also failed to clearly, consistently, and promptly communicate the nature and status of these holds.

As a result, the CFPB directed the institutions to cease unnecessarily placing hard holds on consumer deposit accounts and to develop and implement policies and procedures to clearly, consistently, and promptly communicate with consumers with respect to hard holds place on their accounts.

In addition, the CFPB's Supervisory Highlights also addressed deceptive statements about overdraft protection products. Examiners identified institutions engaged in a deceptive act or practice by misrepresenting their opt-in deposit overdraft protection products when answering inbound telephone calls from consumers, including that:

• The overdraft protection product applied to check, automated clearing house (ACH), and recurring bill payment transactions;
• The overdraft protection product allowed a consumer to withdraw more money than the daily ATM cash withdrawal limit and be subjected to only one overdraft fee; and
• The overdraft protection product would take effect on the same day as enrollment.

Supervision directed the depository institutions in violation to cease misrepresenting features of their overdraft protections products.

Fair Lending. In general, the CFPB examiners found deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.

The Bureau's review also revealed data quality issues, which were related to a lack of complete and accurate loan servicing records, made certain fair lending analyses difficult or impossible to perform. The examiners attributed these data quality issues to significant weaknesses in compliance management system related policies, procedures, and service provider oversight.

These are just some of the highlights from the CFPB's report. The full report is available here.

More HMDA Guidance

On September 28^th, the CFPB released HMDA implementation materials to support the recently issued 2017 HMDA rule. The Bureau has updated the 2018 Institutional Coverage Chart, the 2018 Transactional Coverage Chart and the Key Dates Timeline.

You can find the materials here on the CFPB's HMDA implementation webpage.

2018 Adjusted Threshold Levels for Truth in Lending Regulations (Regulation Z)

Written by Reginald Watson, Regulatory Compliance Counsel

Greetings compliance friends! My name is Reggie Watson, and I recently joined NAFCU as a Regulatory Compliance Counsel. Prior to NAFCU, I spent 3 years investigating financial fraud matters for DOJ's civil division. I am excited to join the Regulatory Compliance family here at NAFCU and look forward to working with all of you soon!

Just recently, the Consumer Financial Protection Bureau (CFPB) issued its annual inflation-based adjustments of certain threshold dollar amounts for transactions covered under Regulation Z (which implements the Truth in Lending Act). The changes include regulations under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD ACT), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Bureau is required to adjust a variety of thresholds annually for inflation. These changes are based on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2017 and will become effective on January 1, 2018.

Credit Cards

Regulation Z prohibits a card issuer from imposing a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) plan unless the fee “represents a reasonable proportion of the total costs” incurred for the violation, or is within the safe harbor provision of 12 C.F.R. section 1026.52(b). If a credit card issuer charges anything up to the safe harbor amount for certain violations, it is considered to be in compliance with Regulation Z. The threshold that triggers requirements to disclose minimum interest charges will remain at $1.00 in 2018.

The safe harbor amounts will also remain the same as in 2017:

• $27 for a first late payment; and
• $38 for each subsequent late payment over six months.

Ability-to-Repay/Qualified Mortgage

For dollar amounts related to determining a borrower’s ability to repay a transaction secured by a dwelling, the threshold for qualified mortgages in 2018 will require that total points and fees not to exceed:

• 3 percent of the total loan amount for a loan greater or equal to $105,158;
• $3,155 for a loan amount greater or equal to $63,095 but less than $105,158;
• 5 percent of the total loan amount for a loan greater or equal to $21,032 but less than $63,095;
• $1,052 for a loan amount greater or equal to $13,145 but less than $21,032; and
• 8 percent of the total loan amount for a loan less than $13,145.

Home Ownership and Equity Protection Act (HOEPA) Loans

Regulation Z sets additional requirements for high-cost mortgages. To be considered a high-cost mortgage, the transaction must be secured by the consumer’s principal dwelling and the APR and loan amount have to be over a certain threshold. For 2018, the total loan amount threshold will be increased to $21,032 and the adjusted points and fees must exceed 5% of the total loan amount. See, 12 C.F.R. § 1026.32(a)(ii). Loans below $21,032 will also be considered a high-cost transaction if the points and fees exceed the lesser of 8% of the total loan amount or $1,052.

For more information on Regulation Z's 2018 adjusted thresholds, see the CFPB's proposed rule in the Federal Register or their press release.

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Free Webcast!

Equifax Data Breach: Your Vital Next Steps

Thursday, September 28 | 2:00 p.m. – 3:30 p.m. ET

Join NAFCU staff and Reed & Jolly attorney David Reed for this week's free webcast. You'll receive the essential information you need to prepare your credit union for the data breach aftermath.

Key Takeaways:

• Learn the steps to take to ensure your credit union isn't a victim of fraud
• Discover what programs to put in place to assist your members
• Understand how to do your due diligence when using Equifax in the future
• Know what you’re liable for, and how to ensure you have the appropriate coverage for any fraud claims
  

Significant Changes Require Advance Notice: What’s Significant?; Fiduciary Rule Delay Update

Written by Jennifer Aguilar, Regulatory Compliance Counsel

For one reason or another, credit unions often find themselves updating their credit agreements. Inevitably, this leads to the all-important question: Do I need to tell members before I make this change? While it is generally a good idea to inform members of changes to their credit agreements, Regulation Z has specific rules for when a credit union must provide advance notice – any significant change requires advance notice. So, the next question is: What's a significant change?

While Regulation Z covers various types of credit, this post focuses on the change in terms rules for open-end credit that is not secured by a home. Section 1026.9(c)(2)(i)(A) states that when a "significant change in account terms" is made, a credit union is required to provide written notice at least 45 days prior to the change taking effect. In the real world, we all have a general understanding of what significant means, but, under Regulation Z, this is a defined term with a very specific meaning that does not necessarily align with our real world understanding. Paragraph (c)(2)(i)(A) points you to another paragraph for the definition of significant changes and that paragraph redirects you to yet another paragraph. These incessant cross-references are enough to confuse any diligent compliance officer, so here's the basic starting point: the account opening disclosures.

For open-end credit that's not secured by a home, the account opening disclosure rules can be found in section 1026.6(b). A change to a term required to be disclosed under paragraphs (b)(1), (b)(2) or (b)(4) is defined as a "significant change in account terms."  The definition covers any change to these terms, not just increases or additions. This covers the following terms:

• Periodic rate and APR;
• Fixed finance charge and/or minimum interest charge;
• Transactions charges;
• Grace period;
• Balance computation method;
• Fees for the following events: cash advances, late payments, over-the-limit transactions, balance transfers and returned payments;
• Fees for required insurance, debt cancellation or debt suspension coverage; and
• Certain variable rate information.

In addition to the account opening disclosures, Regulation Z's change in terms rule also includes two other changes in the definition of a significant change in account terms. These are: increases in the required minimum periodic payment and the acquisition of a security interest. For all significant changes, the rule requires 45-day advance notice. The notice must be in writing and state the following:

• A summary of the change;
• A statement that changes are being made;
• For non-credit card accounts, a statement that the consumer has the right to opt out of the change;
• The date the change is effective;
• A statement that additional information about the change can be found in the notice, if applicable; and
• For APR increases:
• the balances to which the new rate will apply,
• if a penalty rate applies at the time, a statement that the new rate will not apply until the penalty rate no longer applies, and
• for credit card accounts, a statement of reasons for the rate increase.

There are account opening disclosures relating to some charges that may not require a 45-day advance written notice, but could still require notice before the member "becomes obligated" to pay the charge. These charges are detailed in section 1026.6(b)(3) and include certain finance charges; taxes; charges that affect the member's access to the plan; termination charges and charges for voluntary credit insurance, debt cancellation or debt suspension coverage. For changes to these charges, the rule requires a credit union to either comply with the 45-day advance notice requirement or provide notice before the member must pay the charge. Decreases to these charges do not require notice. For more details, see section 1026.9(c)(2)(iii).

There are also a few related items to keep in mind when dealing with changes in terms. The right to reject for credit card plans applies to significant changes in account terms. The change in terms rule excludes certain changes from the 45-day notice requirement such as changes the member agreed to and rate increases due to delinquency, default or as a penalty. These changes have their own notice requirements. There is also a separate notice rule for decreasing a member's credit limit. Finally, there is a list of changes that do not require advance notice detailed in section 1026.9(c)(v) which include "reduction of any component of a finance charge," extension of the grace period, and some situations where the line is suspended or terminated.

NAFCU members can find more resources related to change in terms notices in this past Compliance Monitor article.

* * *

On Wednesday, the Department of Justice filed a notice of plans to delay implementation of three fiduciary rule exemption changes from Jan. 1, 2018, to July 1, 2019. More details on this notice can be found in yesterday's NAFCU Today. NAFCU will keep its members posted as more information is released.

Consumer Compliance Outlook-Understanding Finance Charges for Closed-End Credit; Implementing the Consumer Compliance Rating System

Written by André B. Cotten, Regulatory Compliance Counsel

Consumer Compliance Outlook. The first 2017 issue of the Philadelphia Federal Reserve's Consumer Compliance Outlook is now available. This issue's articles include:

• Combating Elder Financial Abuse (for more information, see this past blog post)
• On the Docket: Recent Federal Court Opinions
• Understanding Finance Charges for Closed-End Credit
• Implementing the New Uniform Interagency Consumer Compliance Rating System

Today's blog post will highlight some key concepts from the articles "Understanding Finance Charges for Closed-End Credit" and "Implementing the New Uniform Interagency Consumer Compliance Rating System".

"Understanding Finance Charges for Closed-End Credit"

Regulation Z defines "finance charge" as "…the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction." While on its face, the definition of finance charge seems clear, it becomes challenging to apply because of the wide range of fees and charges that can be incurred in credit and because the definition is subject to several exceptions. Although the definition of a finance charge is the same for closed- and open-end credit transactions, the disclosure rules are different. The Consumer Compliance Outlook article provides a detailed discussion on the disclosure of finance charges for closed-end credit transactions.

The article also includes a table (see, p. 6) which displays the "Interagency Examination Procedures for Regulation Z," which credit unions may find helpful for identifying finance charges. The article notes that this chart is meant only as a guide. The chart separates charges into several categories: 1) some charges that are always included in the finance charge, 2) some that are always excluded, 3) some that may be excluded if certain conditions are met, and 4) some that are excluded with respect to credit secured by real property or in a residential mortgage transaction (even though they would be considered finance charge in other types of credit transactions).

The article also discusses the importance of identifying and disclosing the finance charge. The finance charge can contribute to errors in other TILA disclosures that rely upon an accurate finance charge. For instance, the APR is calculated based on the finance charge. Note, Regulation Z defines tolerances with respect to the disclosed finance charge. For closed-end loans, the tolerances appear in Section 1026.18(d). An inaccurate disclosure of the finance charge and an APR outside of tolerances can result in restitution to consumers affected by an error.

Since properly classifying fees as finance charges can be challenging, and errors can be costly, the article also discusses common issues Federal Reserve examiners have seen that result in finance charge errors. Subsequently, the article provides credit unions with tips and tools to prevent finance charge violations, such as enhancing controls to mitigate potential risk. The article also suggests appropriately training staff and reviewing disclosure systems will also help to prevent disclosure errors.

"Implementing the New Uniform Interagency Consumer Compliance Rating System".

In November 2016, the Federal Financial Instructions Examination Council (FFIEC) announced its updated Uniform Interagency Consumer Compliance Rating System (CC Rating System). The revisions reflect the regulatory, examination, technological and market changes that have occurred since the release of the original rating system.

According to the article, the CC Rating System is a supervised policy used by the agencies' examiners to evaluate financial institutions' adherence to consumer compliance laws and regulations. The primary purpose of the CC rating system is to ensure that financial institutions are elevated in a comprehensive and consistent manner and that supervisory resources are appropriately focused on areas exhibiting the risk of consumer harm and on institutions that warrant elevated supervisory attention.

The FFIEC developed the following principles to serve as a foundation for the CC Rating System: Risk-Based; Transparent; Actionable; Incentives for Compliance. Note, the revised CC Rating System was not developed to set new or higher supervisory expectations for financial institutions. Instead, the revised system provides a consumer compliance rating that more fully complements the agencies' risk-focused examination.

The CC Rating System establishes a framework of compliance factors that examiners use during consumer compliance examinations to assess a financial institution's performance. The 12 CC Rating System assessment factors are organized within the following three categories: Board and Management Oversight; Compliance Program; Violations of Law and Consumer Harm. Based upon the examiners' comprehensive evaluation of the institution's performance under those assessment factors, the examiners assign an overall consumer compliance rating to the financial institution.

Credit unions can anticipate discussing the new CC Rating System during their next consumer compliance examination.

2017 Adjusted Threshold Levels for Regulations Z and C; Updated HMDA Resources

Written by Stephanie Lyon, Regulatory Compliance Counsel

The Consumer Financial Protection Bureau (CFPB) has been updating and adjusting threshold dollar amounts for transactions covered under Regulation Z (which implements the Truth in Lending Act) and Regulation C (which implements the Home Mortgage Disclosure Act) since the middle of last year. As most threshold adjustments became effective as of January 1^st, 2017, we thought it would be helpful to gather this information in a one-stop shop.

Regulation Z

The Dodd-Frank Act and the CARD Act require the Bureau to adjust a variety of thresholds annually for inflation. Below are a few of the most notable adjusted amounts:

Credit Cards

Regulation Z prohibits a card issuer from imposing a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) plan unless the fee “represents a reasonable proportion of the total costs” incurred for the violation, or is within the safe harbor provision of 12 C.F.R. section 1026.52(b). If a credit card issuer charges anything up to the safe harbor amount for certain violations, it is considered to be in compliance with Regulation Z.

The safe harbor amounts will remain the same as in 2016:

• $27 for a first late payment; and
• $38 for each subsequent late payment over six months.

Ability-to-Repay/Qualified Mortgage

For dollar amounts related to determining a borrower’s ability to repay a transaction secured by a dwelling, the threshold for what is a qualified mortgage in 2017 will require that total points and fees not to exceed:

• 3 percent of the total loan amount for a loan greater or equal to $102,894;
• $3,087 for a loan amount greater or equal to $61,737 and less than $102,894;
• 5 percent of the total loan amount for a loan greater or equal to $20,579 but less than $61,737;
• $1,029 for a loan amount greater or equal to $12,862 and less than $20,579; and
• 8 percent of the total loan amount for a loan less than $12,862.

Home Ownership and Equity Protection Act (HOEPA) Loans

Regulation Z sets additional requirements for high-cost mortgages. To be considered a high-cost mortgage, the transaction must be secured by the consumer’s principal dwelling and the APR and loan amount have to be over a certain threshold. For 2017, the total loan amount will be increased to $20,579 and the loan’s points and fees must exceed 5% of the total loan amount. See, 12 C.F.R. § 1026.32(a)(ii). Loans below $20,579 will also be high-cost if the points and fees exceed the lesser of 8% of the loan amount or $1,029.

Escrow Requirement

Creditors making higher priced mortgage loans must escrow the borrower’s property taxes and insurance unless the credit union meets certain exceptions. Credit unions with an asset size of less than $2.069 billion (increased from $2.052 billion in 2016) that extend a covered loan for a property that is located in rural or underserved areas and meet other requirements are exempt from establishing escrow accounts. See, 12 C.F.R. § 1026.35(b).

Special Appraisal Requirements

Higher-priced mortgage loans are considered to be higher risk and hence require that the credit union obtain a written appraisal based on a physical visit to the home’s interior.12 C.F.R. § 1026.35(c)(3)(i). The rule contains a few exceptions for the appraisal requirement including for transactions of less than an amount adjusted annually, which will remain the same as last year, $25,500.

For more information on Regulation Z’s 2017 adjusted thresholds, see the CFPB’s rule in the Federal Register or their press release.

Regulation C

HMDA Asset Size Reporting Exemption

HMDA exempts small credit unions from reporting HMDA data for the following year, using a multi-prong test that includes an asset threshold. There is no change from last year’s asset size exemption. So in 2017, credit unions with assets at or below $44 million as of December 31, 2016 will continue to be exempt from collecting and reporting HMDA data in 2017. See, 12 C.F.R. § 1003.2 (Financial Institution)(2).

Updated Resources

Also, I wanted to highlight that additional Resources for HMDA Filers were posted by the CFPB to their webpage and the FFIEC’s page. Among the additions are:

• The release of the 2017 Loan/Application Register (LAR) Formatting Tool
• Modifications to the Technology Preview, Filing Instructions Guide for data collected in or after 2018, and Frequently Asked Questions (FAQs).

The CFPB has an additional HMDA implementation page full of easy to digest coverage charts like the 2017 HMDA institutional coverage chart , which looks something like this:

Business Days and Holidays – Unwinding Regulation Z

Written by Brandy Bruyere, Director of Regulatory Compliance

We hope everyone had a nice weekend and any celebrations were successful and pleasant time with family and loved ones. With a couple of federal holidays falling on the weekend recently, we have had a few credit unions ask about how this impacts the Regulation Z definition of “business day.” Because Reg Z is so fun, there are two definitions of “business day” that apply to different situations:

(6) Business day means a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under §§1026.15 and 1026.23, and for purposes of §§1026.19(a)(1)(ii) [limit on imposing fees for a reverse mortgage application before disclosures are provided], 1026.19(a)(2) [waiting period for good faith estimates], 1026.19(e)(1)(iii)(B) [providing Loan Estimate at least 7 business days before consummation], 1026.19(e)(1)(iv) [timing of the receipt of the Loan Estimate], 1026.19(e)(2)(i)(A) [restriction on fees before Loan Estimate is provided], 1026.19(e)(4)(ii) [limits on providing revised Loan Estimates], 1026.19(f)(1)(ii) [timing requirements for providing a Closing Disclosure], 1026.19(f)(1)(iii) [timing of receipt of the Closing Disclosure], 1026.20(e)(5) [timing of delivery of escrow cancellation notices], 1026.31 [includes timing requirements for high-cost and reverse mortgage disclosures], and 1026.46(d)(4) [private education loans], the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.

(Emphasis and clarifications added.)

Notice that the specific definition of “business day” that includes all calendar days except Sundays and legal public holidays applies to many of timing requirements of the TILA/RESPA integrated disclosures (TRID) rule. How does this this work if a holiday is on a weekend?

To start, this only impacts a handful of holidays. Some of these federal holidays are always on a Monday, like Labor Day or Memorial Day, and Thanksgiving is always on a Thursday. But for federal holidays with set dates, specifically Christmas Day, New Year’s Day, Independence Day and Veteran’s Day, some years the holiday will fall on a weekend and be officially observed on either the previous Friday, or the following Monday.

The federal government seems to recognize Sunday holidays on the following Monday and Saturday holidays on the previous Friday. 2017 provides two examples – New Year’s Day is recognized on Monday, January 2 and Veteran’s Day, which falls on a Saturday, is recognized on Friday, November 10.

Let’s go back to the Reg Z definition of “business day.” Other than for specific provisions, like the right of rescission or certain disclosure timing requirements, a business day is based on a function test and includes days where the credit union’s “offices are open to the public for carrying out substantially all of its business functions,” as further clarified in the commentary:

1. Business function test.Activities that indicate that the creditor is open for substantially all of its business functions include the availability of personnel to make loan disbursements, to open new accounts, and to handle credit transaction inquiries. Activities that indicate that the creditor is not open for substantially all of its business functions include a retailer's merely accepting credit cards for purchases or a bank's having its customer-service windows open only for limited purposes such as deposits and withdrawals, bill paying, and related services.

But what about the rules subject to the other definition of business day like the right of rescission, or delivery of various disclosures under TRID? The commentary indicates that if the federal holiday is observed on another day, such as the Friday before the holiday, that Friday is still a “business day” for the purposes of the applicable rules:

2. Rule for rescission, disclosures for certain mortgage transactions, and private education loans.A more precise rule for what is a business day (all calendar days except Sundays and the Federal legal holidays specified in 5 U.S.C. 6103(a)) applies when the right of rescission, the receipt of disclosures for certain dwelling- or real estate-secured mortgage transactions under [TRID]…, or the receipt of disclosures for private education loans under §1026.46(d)(4) is involved. Four Federal legal holidays are identified in 5 U.S.C. 6103(a) by a specific date: New Year's Day, January 1; Independence Day, July 4; Veterans Day, November 11; and Christmas Day, December 25. When one of these holidays (July 4, for example) falls on a Saturday, Federal offices and other entities might observe the holiday on the preceding Friday (July 3). In cases where the more precise rule applies, the observed holiday (in the example, July 3) is a business day.

(Emphasis added.)

Do other rules take a similar approach? No – in fact, under Regulation CC, the Monday following a weekend holiday not a business day, by definition:

(f) Banking day means that part of any business day on which an office of a bank is open to the public for carrying on substantially all of its banking functions.

(g) Business day means a calendar day other than a Saturday or a Sunday, January 1, the third Monday in January, the third Monday in February, the last Monday in May, July 4, the first Monday in September, the second Monday in October, November 11, the fourth Thursday in November, or December 25. If January 1, July 4, November 11, or December 25 fall on a Sunday, the next Monday is not a business day.

(Emphasis added.)

Meanwhile, Regulation E follows one rule that tracks the first Regulation Z “business function” type test, here’s the definition and some of the commentary:

(d) “Business day” means any day on which the offices of the consumer's financial institution are open to the public for carrying on substantially all business functions.

[…]

2. Substantially all business functions.Substantially all business functions include both the public and the back-office operations of the institution. For example, if the offices of an institution are open on Saturdays for handling some consumer transactions (such as deposits, withdrawals, and other teller transactions), but not for performing internal functions (such as investigating account errors), then Saturday is not a business day for that institution. In this case, Saturday does not count toward the business-day standard set by the regulation for reporting lost or stolen access devices, resolving errors, etc.

Overall, different regulations have different timing requirements, and to keep things fun, do not take a uniform approach to how to tally when these timing requirements have been met. Is it by calendar days, or business days? If business days, what’s a business day? These are some of the fun things compliance officers get to tackle on a regular basis.

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Upcoming NAFCU Webcast:

CECL Update – What’s Next?

Live Webcast Tuesday, January 10, 2017 | 2:00-3:30 p.m. ET

Join this crucial webcast for an in-depth understanding of the new standard and how it can impact your credit union. You'll explore ALLL methodology, interagency guidance and learn how to plan for CECL adaptation.

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Programming Note. In observance of New Year’s Day, NAFCU will be closed on Friday, December 30 and Monday, January 2. We’ll be back to blogging on Wednesday, January 4. Have a safe and happy New Year! In the meantime, we tried taking photos at home for our holiday card, and found that this task was much easier last year when Nolan was not terribly mobile yet. Lemmy cooperates though, for treats.

“New Year, New Products and Services-Frequently Asked Questions: Advertising”

Written by André B. Cotten, Regulatory Compliance Counsel

Greetings, compliance comrades! As we head towards the start of a new year, we have noticed an uptick in advertising related questions. Before we get into the details of the advertising requirements, it is useful to remember that the type of products or services and the definition of terms have impact on the scope of regulatory requirements.

In regards to the Truth in Savings Act, an advertisement is defined by section 707.2 as a commercial message that appears in any medium and that promotes directly or indirectly the availability of, or a deposit in, a share account. This is a very broad definition. However, the official commentary provides additional guidance.

Similarly, a key to understanding Regulation Z’s advertising rule is determining which rules apply to your proposed advertisement. Regulation Z has different rules depending on whether the product is open-end or closed-end. There are also special regulatory provisions for HELOCs and promotion rate advertisements. In order to know which rules apply you will need to determine what product you are advertising.

This blog covers some of the more frequently asked questions on advertisements.

If a credit union offers deferred interest on credit cards for an introductory period, should it be concerned about advertising requirements under Regulation Z?

Regulation Z contains advertising requirements specific to deferred interest programs. The term deferred interest is defined as “finance charges, accrued on balances or transactions, that a consumer is not obligated to pay or that will be waived or refunded to a consumer if those balances or transactions are paid in full by a specified date.” See, 12 C.F.R. § 1026.16(h)(2). If a deferred interest offer is advertised for a credit card (or other non-home-secured open-end loan), Regulation Z requires the credit union to state the deferred interest period in a clear and conspicuous manner in the advertisement, and include information about the terms that would apply when the transaction is not paid in full within the deferred interest period or if the account is in default before the end of the deferred interest period. These disclosures must be stated in a prominent location closely proximate to the first statement of “no interest,” “no payments,” “deferred interest,” “same as cash” or similar term. The language must be similar to that provided in Sample G-24 in Appendix G to Regulation Z.

Are there different requirements for advertisements that are inside the credit union, versus those that exist outside of a branch?

Truth in Savings has some different requirements for advertisements in these situations, but Regulation Z does not. Truth in Savings carves out advertisement-related exceptions for certain types of advertisements. Specifically, the regulation eases advertising requirements for broadcast or electronic media such as TV or radio (but not credit union websites), outdoor media (such as billboards), telephone response machines, and signs inside the premises of a credit union. See, 12 C.F.R. § 707.8(e).

Regulation Z regulates advertisements for both open and closed-end loans. See, 12 C.F.R. §§ 1026.16, 1026.24. If a credit union plans to advertise its loan products, it must comply with all of Regulation Z’s requirements regardless of whether the advertisement is placed inside or outside of the branch. However, the staff commentary does have alternative disclosure options for radio and television ads set forth in sections 1026.16(e) and 1026.24(g).

Must the credit union obtain its members’ consent under Truth in Savings or Regulation Z before delivering its advertising materials through email?

The advertising requirements of Truth in Savings (TISA) and Truth in Lending Acts (TILA) may be implicated when sending email advertisements, but credit unions do not need member consent to send email advertisements under these statutes/regulations. However, the requirements of the CAN-SPAM Act, which applies to unsolicited commercial emails, may also be triggered. CAN-SPAM generally requires unsolicited commercial ads to be labeled as an advertisement or solicitation and to include opt-out instructions along with the sender’s physical and electronic address. NCUA Regulatory Alert 04-RA-07 provides guidance on complying with CAN-SPAM. The FTC also has a document on CAN-SPAM compliance available on its website

If a “trigger term” is stated in the negative, is the credit union required to provide the additional advertising disclosures?

Under Regulation Z, “trigger terms” do require additional advertising disclosures when stated in the negative, or even when not stated explicitly, but readily implied. See, 12 C.F.R. Part 1026, Supp. I, comments 1026.16(b)(1)-1 and -2. For instance, if a credit union states its credit card had “no annual fee” is a statement of the term, this would trigger the additional disclosures. See, 12 C.F.R. § 1026.16(b)(1). Similarly, if the credit union were to claim “we will not charge you an annual fee” – the additional disclosures are still required as this statement is the same as stating “no annual fee.”

Given the differences between the rules for open-end and closed-end loans, how could a credit union convert an advertisement if a product is converted?

There are separate advertising requirements for open-end and closed-end loans in Regulation Z. The advertising requirements for open-end loans are found in 12 C.F.R. § 1026.16 and the requirements for closed-end loans are found in 12 C.F.R. § 1026.24. Unfortunately, there is no shortcut to converting open-end marketing pieces into compliant closed-end advertisements. A credit union would need to review the closed-end advertising rules and make sure its advertising includes all the necessary disclosures. The staff commentary to section 1026.24 contains additional details on the requirements.

Final Thoughts

Advertising compliance is the result of having a strong compliance management system that includes effective policies, procedures, education and communication about the applicable regulatory requirements. The advertising rules pursuant to the Truth in Savings Act and Regulation Z both generally prohibit commercial messages that are misleading, inaccurate or misrepresent a credit union’s deposit accounts or loan products.

Credit unions that fail to comply with the advertising rules also run the risk of potential UDAAP issues. The following three prongs are used to determine if an act or practice is “deceptive”: 1) it causes or is likely to cause substantial injury to consumers; 2) the injury is not reasonably avoidable by consumers; and 3) the injury is not outweighed by countervailing benefits to consumers or to competition. A “substantial injury” typically takes the form of monetary harm because of an unfair act or practice.

Also keep in mind that NCUA has an overarching advertising rule in Part 740 that prohibits all federally-insured credit unions from using any advertising that is “inaccurate or deceptive in any particular, or which in any way misrepresents its services, contracts, or financial condition…” Overall, clear and conspicuous advertisements and oversight of advertising materials can minimize potential confusion and complaints, fosters good member relations, and help reduce credit, legal, and other risks to the institution.  

Happy Holidays!

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Programming Note:

NAFCU will be closed Friday, December 23^rd and Monday, December 26^th for the Christmas Holidays.

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The Regulatory Compliance Team really enjoyed the photo booth last week at NAFCU’s Annual Holiday Party!

CFPB Publishes 2017 Rural and Underserved Counties Lists; 18-Month Exam Cycle is Back

Written by Pamela Yu, Special Counsel for Compliance and Research

Happy Monday!  Last week, CFPB published a list of counties determined to be rural and a list of counties determined to be rural or underserved for use in 2017. 

CFPB has several rules that refer to its “rural or underserved” and “rural” counties lists.  Each year, the Bureau publishes new lists for use the following year.  As a refresher, the rules that refer to these lists are:

• Escrow requirements under TILA/Regulation Z.
• Ability to repay and qualified mortgage standards (ATR/QM) under TILA/Regulation Z.
• High-cost mortgage and homeownership counseling amendments to TILA/Regulation Z and RESPA/Regulation X.
• Appraisals for higher-priced mortgage loans (HPML).

Why does this matter? Well, the lists can significantly impact mortgage originations for certain entities. Credit unions operating predominantly in rural or underserved counties are exempt from certain regulatory requirements.

For example, as we blogged about back in September 2015, the CFPB’s final amendments to its definition of small creditors and rural or underserved areas under Regulation Z provided some credit unions with regulatory relief, specifically with respect to the HPML escrow requirement, which contains an exemption for small creditors; the high-cost mortgage rule, which exempts small creditors from a prohibition against balloon payment features on these kinds of loans; and the ATR/QM rule, which permits small creditors to make certain portfolio and balloon payment QMs.

In amending the rural definition by substituting the word “area” for “counties” within the regulation, the September 2015 final rule moved to a more granular approach than the previous standard, thus providing greater relief to certain credit unions.

CFPB’s rural counties lists are generally defined by using the United States Department of Agriculture Economic Research Service’s urban influence codes, while the underserved counties lists are defined by reference to data collected under the Home Mortgage Disclosure Act (HMDA).  The 2017 lists also include, in their entireties, the following U.S. territories as rural areas: Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, and the U.S. Virgin Islands.

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NCUA’s 18-Month Exam Cycle is Back—Hooray!

Last Thursday, the NCUA Board approved, as part of the agency’s 2017-2018 budget, ten recommendations from the agency’s Exam Flexibility Initiative  working group, including an extended 18-month exam cycle for well-managed, low-risk federal credit unions with assets of less than $1 billion.  Since NCUA moved to an annual exam cycle at the height of the financial crisis, credit unions have contended with more frequent exams of increased scope and complexity in the post-Dodd-Frank era.  However, as the industry has recovered along with the overall U.S. economy, NAFCU and its member credit unions have called for relief in this area. 

In response, in May 2016, NCUA Chairman Metsger established the Exam Flexibility Initiative to review NCUA’s examination and supervision program and to consider ways to modernize and improve the agency’s examination process.  A working group formed under the initiative solicited input from credit union stakeholders and, as a result of that feedback, issued a report in October 2016 making ten recommendations for approval by the NCUA Board.  Specifically, in addition to an 18-month exam cycle for certain well-run credit unions, the working group recommended the following:

• An 8- to 12- month examination cycle, timed from the prior exam completion date, for federal credit unions not meeting the criteria for an 18-month exam cycle.
• Enhanced examinations of small federal credit unions.
• Enhanced coordination of exams for federally insured, state-chartered credit unions.
• Establishment of an NCUA and state supervisor working group.
• Establishment of provisions for all federally insured credit unions relative to random sampling examinations, measurement of exam cycles, and NCUA’s authority to conduct more frequent examinations.
• Enhanced examination planning and notice procedures.
• An optional post-exam credit union survey.
• Reduction of NCUA’s onsite exam presence.
• Improved consistency of examiner training.

The working group’s full report is available here. 

While the NCUA Board’s approval of these recommendations is mostly welcome news for credit unions, NAFCU continues to call for an extended exam cycle for all well-run, healthy credit unions regardless of asset size, as well as an independent appeals process for disputing exam results.

The extended exam cycle will become effective January 1, 2017. Other improvements, including the post-exam credit union survey, will begin in July of next year.

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Upcoming NAFCU Webcast: CFPB Mortgage Servicing Rules – 2016 Final Changes

Live Webcast Wednesday, November 30, 2016 | 2:00-3:30 p.m. ET

Although most of the new requirements are not effective until October 19, 2017, our experiences with the CFPB have taught us that it's best to begin implementing reviews and processes early rather than wait to implement changes within tight timeframes. Attend this strategic webcast to explore the details of the new final rule and the potential impact on your credit union's servicing processes and procedures.

CFPB Issues Mortgage Servicing Rules – Part Four: Periodic Statements

Written by Shereefat Balogun, Regulatory Compliance Counsel

On August 4, 2016, the CFPB amended its mortgage servicing requirements.  Since then, NAFCU has been combing through and analyzing the 900+ page rule to help our members better understand the changes and new requirements.  We have already blogged on the changes relating to Successors in Interest, Force-Placed Insurance, and Loss Mitigation.  Today, we will highlight some of the notable changes made to the periodic statement requirements under Regulation Z’s servicing provisions. 

Before getting into the specifics though, here are some resources from the CFPB that break down the final rule to make it easier to digest:

• Here’s a link to the Final Rule. This final regulation includes the preamble with rulemaking background, and a section-by section analysis with the provisions of the final rule and public comments.
• There’s a 9-page summary of the major changes which gives a high-level discussion of the major provisions of the rule. View the overview here.
• The actual amended rule with model forms and commentary (and 100+ pages), can be found here.

Moving on…the final rule makes several significant changes to the periodic statement requirements under Regulation Z, including:

Clarifies certain periodic statement disclosure requirements relating to mortgage loans that have been accelerated, have been permanently modified, or are in temporary loss mitigation programs (12 C.F.R. Part 1026, comment 1026.41(d)(1)).  Section 1026.41(d)(1)(iii) provides that the periodic statement required by §1026.41(d) must include the amount due.  The CFPB added commentary to clarify that:

• If the balance of a mortgage loan has been accelerated but the servicer has agreed to accept a lesser amount to reinstate the loan, the servicer MUST disclose the LESSER amount, i.e. the reinstatement amount, on the periodic statement; not the entire accelerated balance.  In the preamble, the CFPB reasoned that displaying the lesser amount rather than the full accelerated balance would make the consumer more likely to pay the reinstatement amount, thereby preventing foreclosure.  The CFPB further explained that having the full acceleration amount on the periodic statement will cause confusion, particularly if the consumer was told previously that he/she was only required to pay a lesser reinstatement amount. 

• If the loan contract has been permanently modified, the servicer MUST disclose the amount due under the modified loan contract; not the pre-modified amount. 

• If the consumer has agreed to a temporary loss mitigation program, the servicer MAY disclose either: (i) the payment due under the temporary loss mitigation program; or (ii) the amount due according to the original loan contract.

Requires servicers to send periodic statements to borrowers in bankruptcy or who have discharged the loan, subject to a limited exemption (12 C.F.R. §1026.41(e)(5)).  Currently, §1026.41(e)(5) provides a blanket exemption from the requirement to send a periodic statement  if a consumer is in bankruptcy or has discharged a mortgage loan through bankruptcy. The final rule changes that, and now generally requires servicers to send periodic statements to borrowers, unless otherwise exempted.  Section 1026.41(f) of the final rule requires servicers to send modified statements to certain borrowers in bankruptcy or who have discharged the loan.  The content of the statement will vary depending on whether the borrower is in bankruptcy under Chapter 12 or 13.  These changes were driven by a general concern that borrowers in bankruptcy often lack important information about their mortgage loan account if a servicer does not send the periodic statement.  Here are some takeaways:

• The final rule limits the circumstances in which a servicer is exempted from providing a periodic statement.  Under the final rule, a servicer is exempted from providing the periodic statement if a two-prong test is satisfied.  A servicer is not required to provide a periodic statement if: (1) any borrower on the loan is a debtor in bankruptcy or has discharged personal liability for the mortgage loan through bankruptcy; and (2) any of the following occurs: (i) the borrower requests in writing that the servicer cease providing a periodic statement; (ii) the borrower’s bankruptcy plan provides that the borrower will surrender the home securing the loan, will avoid the lien, or otherwise does not provide for payment of pre-bankruptcy arrearage or maintenance of payments due under the loan; (iii) the bankruptcy court order provides for the avoidance of the lien, lifts the automatic stay, or requires the servicer to stop providing statements; or (iv) the borrower files a statement of intent to surrender the home securing the loan and has not made any payment on the loan after filing for bankruptcy.

• The final rule applies the exemption at the loan level.  Thus, a servicer is exempt with respect to all consumers on a mortgage loan if the exemption criteria are met with respect to any borrower on the loan. 

• Servicers are required to provide modified periodic statements for certain borrowers in bankruptcy.  Section 1026.41(f) lays out certain omissions and additions for these modified statements.  For example, the statement may omit information about late payment fees, certain delinquency information, and the notice of whether the servicer has issued the first notice or filing for foreclosure.  On the other hand, the periodic statement must include a statement identifying the borrower’s status as a borrower or the discharged status of the loan, as well as a statement that the periodic statement is for informational purposes only.  There are additional provisions relating to borrowers in bankruptcy under Chapter 12 or 13.  For example, these periodic statements may omit the information regarding delinquency.  Similarly, there are certain required additions as well.  For example, the statement must show all the payments received since the last statement, as well as all charges the servicer has imposed since the last statement.  Additionally, these periodic statement must disclose a statement that, as applicable: (i) the amount due includes only post-petition payments and no other payments due under the bankruptcy plan; (ii) the borrower should send post-petition payments to the trustee, and not the servicer, if the borrower’s plan so requires; (iii) the information disclosed on the periodic statement may not include payments the borrower made to the trustee, and may be inconsistent with the trustee’s records; (iv) encourages the borrower to contact his/her attorney or trustee with questions; and (v) if the borrower is more than 45 days delinquent on post-petition payments, the servicer has not received all payments that became due since the bankruptcy filing. 

Exempts servicers from sending periodic statements if the loan is charged off, provided the servicer meets certain conditions (12 C.F.R. §1026.41(e)(6)).  The final rule exempts servicers from the periodic statement requirements of §1026.41 for charged-off loans if: (i)  the servicer will  not charge additional fees or interest on the account; and (ii) the servicer provides a final periodic statement, clearly and conspicuously labeled “Suspension of Statement & Notice of Charge Off- Retain This Copy for Your Records.”  This final periodic statement must contain certain disclosures, including statements that the loan has been charged off, the servicer will not impose new fees or interest, the lien on the property remains in place and that the borrower is liable for the loan and related obligations such as taxes, and that the lien is not being cancelled or forgiven.  In the preamble, the CFPB stated that these disclosures were important to help borrowers better understand the meaning and consequence of charge-off, including the borrower’s ongoing payment obligations.  Also, the Bureau concluded that this final statement will provide important consumer protections while easing the burden for servicers associated with providing ongoing periodic statements. 

Provides sample periodic statement forms.  The final rule provides sample forms that servicers may use for borrowers in bankruptcy to ensure compliance with the requirements under §1026.41.

Rule’s Effective Date: The changes regarding the bankruptcy periodic statement exemption and modified statements for borrowers in bankruptcy are effective 18 months after publication in the Federal Register, and the other periodic statement changes are effective 12 months after publication in the Federal Register.  And yes, we’re still waiting for the rule to be published. Not there yet! 

In the meantime, while preparing for the new compliance requirements, credit unions may want to consider reviewing their policies and procedures to make sure they reflect the new servicing requirements. 

As always, if you have any questions relating to this article or any other issues concerning the amended mortgage servicing rules, please contact NAFCU’s regulatory compliance team.  We’re here for you!

CFPB Issues Final Prepaid Rule

Written by Pamela Yu, Special Counsel for Compliance and Research

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CFPB Issues Mortgage Servicing Rules – Part Three: Loss Mitigation; DoD Military Lending Act Interpretive Guidance out Today

Written by Shereefat Balogun, Regulatory Compliance Counsel

As many of you know, the CFPB recently issued its final amendments to the mortgage servicing rules contained in Regulation X and Z.  Now we all know that compliance folks work hard, and we’re use to reading through voluminous pages of regulatory text.  However, ending our short summer with 900+ pages of mortgage servicing rules (or any rule!) is a bummer.  In an effort to make this more manageable and “pleasant”, we’re breaking this up a bit.  The changes can be grouped in broad topics including: Successors in Interest; Requests for Information; Force-Placed Insurance; Early Intervention; Loss Mitigation; Prompt Payment Crediting; Periodic Statements; and Small Servicer Exemption.  We have already covered the changes relating to “Successors in Interest” and “Force-Placed Insurance”.  This post will focus on the changes made to the loss mitigation requirements.    

Before getting into the specifics of the loss mitigation requirements, we've broken up the final rule to make it easier to digest:

• Here’s a link to the Final Rule. This final regulation includes the preamble with rulemaking background, and a section-by section analysis with the provisions of the final rule and public comments.
• There’s a 9-page summary of the major changes which gives a high-level discussion of the major provisions of the rule. View the overview here.
• The actual amended rule with model forms and commentary (and 100+ pages), can be found here.

Moving on to the changes made to the loss mitigation requirement.  The final rule makes several significant changes to loss mitigation requirements under the mortgage servicing rules, including:

• Requires servicers to notify borrowers when their loss mitigation applications are complete (§ 1024.41(c)(3)). Under the final rule, a servicer will be required to provide written notice that a borrower’s loss mitigation application is complete within 5 days (excluding legal public holidays, Saturdays, and Sundays) of receiving a complete application.  The notice must set forth certain information including: (i) a statement that the loss mitigation application is complete; (ii) the date the servicer received the completed application; (iii) a statement that the servicer will evaluate the application within 30 days; (iv) a statement that the borrower is entitled to certain foreclosure protections while the application is pending; (v) a statement that the servicer may require and request additional information, and the consequences if the borrower fails to respond to that request; and (vi) that the borrower may be entitled to additional protections under State or Federal Law. 

• Permits servicers to provide short-term loss mitigation options based on evaluation of incomplete applications (§ 1024.41(c)(2)(iii)).  Under the existing rule, a servicer may offer a short-term payment forbearance program to a borrower based upon an evaluation of an incomplete loss mitigation application.  The final rule now adds the ability for a servicer to offer a short-term repayment plan.  The final rule requires that, if accepted by the borrower, the servicer must provide a written notice stating the specific terms and duration of the plan, that other loss mitigation options may be available, and that the borrower may submit a complete application to be evaluated for those options.  Note that the servicer still cannot file for foreclosure if the borrower is performing under the plan.

• Requires servicers to exercise reasonable diligence in obtaining third party information, and prohibits servicers from denying a borrower solely because of the missing information unless efforts have been made for a significant period of time (§ 1024.41(c)(4)). Under the current rule, servicers must use reasonable diligence in obtaining documents or information from third parties, if such information is needed to determine which loss mitigation options it will offer to the borrower.  Moreover, the current rule prohibits servicers from denying an application solely because the servicer lacks the necessary third party information.  The final rule reiterates this point, but provides an exception to this general prohibition.  Under the new rule, a servicer may deny an application if a servicer has exercised reasonable diligence to obtain the required information “for a significant period of time.”  See comment 41(c)(2)(ii) for a discussion of what might be considered a “significant period of time.”

• Modifies an existing exception to the 120-day prohibition on foreclosure filing to allow a servicer to join the action of a superior lienholder (§ 1024.41(f)).  The current exception merely allowed the servicer to join as a subordinate lienholder. 

• Reinforces and clarifies prohibition on “dual tracking” (Commentary to § 1026.41(g)). The current rule prohibits servicers from moving for judgment or order of sale while simultaneously working with borrowers on loss mitigation options. The commentary to the final amended rule clarifies that, if a servicer has already initiated a foreclosure action and subsequently receives a timely complete application, the suit should avoid a foreclosure judgment or order of sale, unless the borrower’ application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement.  It is important to note that, according to the commentary, the responsibility falls on the servicer to ensure that the foreclosure does not move forward while an application is pending.  This is especially key where the servicer has hired outside counsel to handle the foreclosure.  The commentary makes clear that “a servicer is not relieved of its obligations because foreclosure counsel’s actions or inaction caused a violation.”

• Requires servicers to offer borrowers with loss mitigation options throughout the life of the loan (§ 1026.41(i)). The current rule requires servicers to consider loss prevention programs and avoid foreclosure one time during the life of the loan. Thus, if a delinquent borrower became current and subsequently defaulted again, a servicer was not required to consider the borrower for loss mitigation options.  However, this “one bite at the apple” provision is no longer sufficient.  The final amended rule requires a servicer to evaluate a borrower for loss mitigation whenever the borrower becomes delinquent and is otherwise eligible for a loss mitigation program, unless the borrower was delinquent at all times since submitting the prior application.  For example, if the borrower has previously submitted a complete application and fully performed under the plan and becomes current on payments, but then becomes delinquent again, the servicer must evaluate the borrower for loss mitigation options. 

• Clarifies obligations of servicers when a servicing transfer occurs (§ 1026.41(k)). The final amended rule makes clear that when a service transfer occurs while a loss mitigation application is pending, the new servicer (the transferee servicer) must comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer; however the rule does provide extensions to the timeframes in certain limited circumstances.

Rule’s Effective Date: Generally, the amendments to the final rule will become effective one year after publication in the Federal Register, with some exceptions including amendments to the rule that address successors in interest, the provisions of periodic statements to borrowers in bankruptcy, and the amendments that address when servicers may stop collecting information from borrowers for a particular loss mitigation option.  These amendments will not become effective until 18 months after publication in the Federal Register.   

In preparing for the new compliance requirements, credit unions may want to consider reviewing their policies and procedures to make sure they reflect the new servicing requirements, including policies that address communications with outside foreclosure counsel. 

As always, if you have any questions relating to this article or any other issues concerning the amended mortgage servicing rules, please contact NAFCU’s regulatory compliance team.  We’re here for you!

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DoD Military Lending Act Interpretive Guidance out Today!

A few weeks ago, NAFCU issued a statement indicating that the DOD is expected to publish interpretive guidance on the MLA rules soon.  Well, the guidance was published today in the Federal Register.  NAFCU's Regulatory Compliance team is studying the guidance and will update the association’s MLA Compliance Guide in advance of the effective date (October 3, 2016).  In the meantime, you can find NAFCU’s extensive collection of MLA compliance resources here. 

Not all Periodic Statements are Created Equal

Written by Stephanie Lyon, Regulatory Compliance Counsel

Bonjour, I am back from a wonderful Paris voyage where I tied the knot with the most wonderful man in compliance.

A few weeks ago we received a question from a member who wanted to know the specific requirements for periodic statements for loans. Regulation Z requires credit unions to provide borrowers with prompt, regular and accurate information for certain loan types. 12 C.F.R. § 1026. The content and format of periodic statements vary and it is important to occasionally check your credit union’s periodic statements to ensure the correct rules are being applied. I broke down the requirements for four loan types and included the section of the rule in which you can find the specific requirements. Keep in mind that some periodic statements will be shaped by state law and contractual obligations as opposed to federal regulations. Below is a quick reference chart with the loan type and applicable rules.

LOAN TYPE	RULE
Closed-end Credit Secured by a Dwelling	Regulation Z § 1026.41,  Official Interpretation & Appendix H
Non-home Secured Closed-End Consumer Loans & Non-Secured Closed-End Consumer Loans	State Law & Contract/Loan Agreement
Open-End Credit Secured by a Dwelling	Regulation Z § 1026.7(a), Official Interpretation and Appendix G
Non-Home Secured Open-End Credit	Regulation Z § 1026.7(b), Official Interpretation and Appendix G

Closed-End Credit Secured by a Dwelling

For “closed-end consumer credit transaction[s] secured by a dwelling”, such as closed-end first and second mortgage loans, Reg Z section 1026.41 and its official interpretation specifically address periodic statement requirements. The general requirement is to provide the borrower with a periodic statement for each billing cycle. See, 12 C.F.R. § 1026.41(a)(2). The sections that follow talk about timing, form, content and layout, and exceptions. See, 1026.41(b)-(e). Among the most notable exemptions is for small servicers that together with their affiliates, service 5,000 or fewer mortgage loans. See, 12 C.F.R. § 1026.41(e)(4).

Appendix H has useful sample forms that combine the components of periodic statements. For example, H-30(A) is a Sample Form of a Periodic Statement, H-30(B) is a sample of a Periodic Statement with Delinquency Box, and H-30(C) is a sample of a Periodic Statement for a Payment-Option Loan. Compliance officers may want to look at these samples and compare them to the ones currently used by their mortgage department to ensure that the statements have not been changed to accommodate vendors, exceptions, and marketing messages.

Non-Home Secured Closed-End Consumer Loans & Non-Secured Closed-End Consumer Loans

Regulation Z does not have specific requirements for these loans. The rule largely defers to the agreement between the credit union and the member to set timing, format and content requirements. Hence if the credit union’s loan agreement states that the credit union will provide the member with monthly/quarterly/annual statements, then the requirement to provide periodic statements becomes contractual. There may be state law requirements that regulate periodic statements for these loan types, so the credit union may want to discuss state law requirements with local counsel to ensure that it has the appropriate content, format and timing.

Open-End Credit Secured by a Dwelling

Similar to closed-end credit, Regulation Z breaks up requirements for home secured and non-home secured open-end credit. Specifically, Reg Z section 1026.7(a) and its official interpretation pertain to Home Equity Lines of Credit (HELOCs). The official interpretation in this section is very helpful and in-depth. Some of the information that a HELOCs periodic statements must have are account balance, transactions, credits, rates, balances on which finance charge was computed, amount of finance charge, APR, grace period, address for notice of billing errors, and closing date of billing cycle. See, 12 C.F.R. § 1026.7(a)(1)-(10).

For HELOCs, Appendix G-18 has sample periodic statement forms and it also breaks down some sections like interest charge fees and late payments. Make sure to reference home-secured open-end credit periodic statement model forms and not the credit card model form.

Non-Home Secured Open-End Credit

Section 1026.7(b), with its relevant official interpretation, pertains to non-home secured open-end lines of credit including credit cards. Among some of the components of this loan type are previous balances, transactions, noting any credits given such as a returned merchandise or rebate finance charge, periodic rates used to compute the interest rate charges, change-in-terms, due date and late payment costs, etc. See, 12 C.F.R. § 1026.7(b)(1)-(12). The format requirements are found in section 1026.7(b)(13) which discusses the positioning, proximity and grouping of certain information. 12 C.F.R. § 1026.7(b)(13).

For non-home secured open-end credit, Appendix G-18 provides a great example of the requirements found in the rule. Appendix G-18(D) has a credit card model form and the rest of the G-18 series has other open-end credit periodic statement disclosures and components.

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Finally, I would like to highlight one final item—a photo from my wedding. This is proof that two compliance people can take some time out from rules and regulations to have fun. You may recognize the groom from numerous webcasts, conferences and face-to-face interactions he has with our members.

 

Deconstructing TRID’s Application to Construction Loans: Disclosing AP Table in Single Combined Disclosures; BSA Webcast Series

Written by Shereefat Balogun, Regulatory Compliance Counsel

It has been over five months since the implementation of the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules, yet many credit unions are still worried about disclosure requirements, particularly as they apply to construction-to-permanent loans. One issue that credit unions have had questions about is the Adjustable Payment Table under §1026.37(i) and how it should be completed if a construction-to-permanent loan is disclosed as a single transaction with one set of disclosures. Some have had some confusion as to whether the table is even required in every circumstance.

Generally, the “Adjustable Payment Table” (the “AP Table”) described in 1026.37(i) is only required if the periodic principal and interest payment may change after consummation based on a loan term other than a change to the interest rate, or the transaction contains a seasonal payment product feature. If the transaction does not include either of these loan terms, then the table should not be disclosed on the Loan Estimate.

If the creditor is required to disclose the AP Table because the periodic principal and interest payment will change after consummation, for reasons other than a change to the interest rate, or if the transaction contains a seasonal payment feature, then Section 1026.37(i)(1) through (4) requires a creditor to disclose on the Loan Estimate the periods during which the following features will be in effect: (i) interest only; (ii) optional payment; (iii) step payment; and (iv) seasonal payment product features. The periods required to be disclosed should be disclosed by describing the number of payments counting from the first periodic payment due after consummation.

In the context of a construction-to-permanent loan, if the creditor chooses to disclose this loan as a single transaction with one set of disclosures, the AP Table must be disclosed. Note that, in the construction phase of this loan, the borrower will typically make interest-only payments. Once the construction phase is complete and the permanent phase starts, the borrower will transition into making regular periodic principal and interest payments. Accordingly, with construction-to-permanent loans transactions, there will always be a payment change after consummation that will not be based on a change to the interest rate.

When a creditor elects to disclose a construction-to-permanent loan as a single transaction, the AP table is disclosed pursuant to §1026.37(i), with particular adherence to §§1026.37(i)(1) and (5). The rule provides in relevant part:

(i) Adjustable payment table. If the periodic principal and interest payment may change after consummation but not based on an adjustment to the interest rate, or if the transaction is a seasonal payment product as described in paragraph (a)(10)(ii)(E) of this section, a separate table under the master heading “Closing Cost Details” required by paragraph (f) of this section and under the heading “Adjustable Payment (AP) Table” that contains the following information and satisfies the following requirements:

(1) Interest only payments. Whether the transaction is an interest only product pursuant to paragraph (a)(10)(ii)(B) of this section as an affirmative or negative answer to the question “Interest Only Payments?” and, if an affirmative answer is disclosed, the period during which interest only periodic payments are scheduled.

…

(5) Principal and interest payments. Under the subheading “Principal and Interest Payments,” which subheading is immediately preceded by the applicable unit-period, the following information:

(i) The number of the payment of the first periodic principal and interest payment that may change under the terms of the legal obligation disclosed under this paragraph (i), counting from the first periodic payment due after consummation, and the amount or range of the periodic principal and interest payment for such payment, labeled “First Change/Amount”;

(ii) The frequency of subsequent changes to the periodic principal and interest payment, labeled “Subsequent Changes”; and

(iii) The maximum periodic principal and interest payment that may occur during the term of the transaction, and the first periodic principal and interest payment that can reach such maximum, counting from the first periodic payment due after consummation, labeled “Maximum Payment.”

12 CFR 1026.37(i)(1) and (5)(emphasis added).

As way of illustration, if the interest-only period during the 12-month construction phase has a rate that adjusts monthly, in disclosing whether there are interest-only payments as required under §1026.37(i)(1), the creditor should state “yes for your first 12 months”. Moreover, under §1026.37(i)(5)(i), the monthly principal and interest payments disclosure labeled “First Change” or “Amount” must disclose the range of minimum and maximum payments that will be made at the second payment.

Note that this general rule applies whether the construction and permanent phases have fixed rates or adjustable rates, or one phase is fixed and the other is adjustable. The key is to remember that the loan is considered a single transaction; and within that single transaction there is a change in payment after consummation as a result of the transition from construction to permanent, which therefore requires the AP Table and the corresponding disclosures under Section 1026.37(i).

On a final note, many creditors have criticized the CFPB for its lack of clear guidance on TRID’s application to construction loans and specifically cite the absence of sample forms and minimal reference to construction loans in the commentary. While some credit unions have considered whether to continue offering construction loans, TRID and Regulation Z's disclosure requirements and guidance generally apply to covered construction loans, except where otherwise mentioned. This is the case even if the guidance or rule provision is not directly on construction loans. And of course, for NAFCU members, if you have any questions on any specific disclosure requirements, please feel free to contact NAFCU’s Regulatory Compliance team, and we would be happy to address any of your specific concerns.

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BSA: Reports & Training for CU Boards

Live Webcast: Tuesday April 19 | 2:00 p.m. – 3:30 p.m. EST

Part of the BSA Webcast Series

It’s vital to understand the roles and responsibilities of credit union board members regarding the Bank Secrecy Act (BSA). Attend this webcast to understand your board’s BSA duties such as risk assessments, policy reviews, and updates, as well as recommended additional training needs. You’ll also get tips for in-house training and learn how to properly report SARs to your board.

It’s Just Like the Movie Inception: Increasing APRs on 60-Day Delinquent Credit Cards

Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel

Recently, a member asked about the timing involved in providing notice of an APR increase following a 60-day delinquency on a credit card account. The member knew that the notice needed to be sent 45 days prior to the increase, but was not sure whether it could be sent 15 days after delinquency, allowing the APR to be increased on the 61^st day of delinquency, or if the 60 days needed to pass before it could be sent at all.

I wasn’t sure either, so I started to dig.

I started with the exception to the general prohibition on increasing the APR in in section 1026.55(b)(4):

Ҥ1026.55 Limitations on increasing annual percentage rates, fees, and charges.

(b) Exceptions. A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under §1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to an exception set forth in this paragraph even if that increase would not be permitted under a different exception.

(4) Delinquency exception. A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under §1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) due to the card issuer not receiving the consumer's required minimum periodic payment within 60 days after the due date for that payment, provided that:

(i) The card issuer must disclose in a clear and conspicuous manner in the notice of the increase pursuant to §1026.9(c) or (g):

(A) A statement of the reason for the increase; and

(B) That the increased annual percentage rate, fee, or charge will cease to apply if the card issuer receives six consecutive required minimum periodic payments on or before the payment due date beginning with the first payment due following the effective date of the increase; …”

Section 1026.55 points the reader to section 1026.9 for details about sending the notice. Section 1026.9(g) contains information specific to sending a notice regarding a penalty APR:

“(g) Increase in rates due to delinquency or default or as a penalty—

(1) Increases subject to this section. For plans other than home-equity plans subject to the requirements of §1026.40, except as provided in paragraph (g)(4) of this section, a creditor must provide a written notice to each consumer who may be affected when:

(i) A rate is increased due to the consumer's delinquency or default; or

(ii) A rate is increased as a penalty for one or more events specified in the account agreement, such as making a late payment or obtaining an extension of credit that exceeds the credit limit.

(2) Timing of written notice. Whenever any notice is required to be given pursuant to paragraph (g)(1) of this section, the creditor shall provide written notice of the increase in rates at least 45 days prior to the effective date of the increase. The notice must be provided after the occurrence of the events described in paragraphs (g)(1)(i) and (g)(1)(ii) of this section that trigger the imposition of the rate increase.”

(Emphasis added.) This feels like an answer, because it says the creditor shall provide the notice AFTER the occurrence of the events. But the events it references are those “described in paragraph (g)(1)(i)" of section 1026.9... not section 1026.55. Section 1026.9(g)(1)(i) says nothing about 60 days’ delinquency. The language of (g)(1)(i) is merely the “consumer’s delinquency or default.” The consumer is typically “delinquent” following the expiration of their grace period. However, it seems strange that section 1026.9(g) would allow a notice of a rate change to be sent following a delinquency of one day, when a delinquency of 60 days is the minimum before section 1026.55 would allow the rate to actually be changed.

The commentary to section 1026.9(g) provides a little guidance regarding the relationship of the two sections:

“9(g) Increase in Rates Due to Delinquency or Default or as a Penalty

1. Relationship between § 1026.9(c) and (g) and § 1026.55—examples. Card issuers subject to § 1026.55 are prohibited from increasing the annual percentage rate for a category of transactions on any consumer credit card account unless specifically permitted by one of the exceptions in § 1026.55(b). See comments 55(a)-1 and 55(b)-3 and the commentary to § 1026.55(b)(4) for examples that illustrate the relationship between the notice requirements of § 1026.9(c) and (g) and § 1026.55.”

That tells us nothing! So the commentary to section 1026.9(g) points you to the commentary to section 1026.55(a), for more information about how to comply with sections 1026.9(g) and 1026.55(b).

 The commentary to section 1026.55(a) does provide actual examples addressing the timing question:

“B. Account becomes more than 60 days delinquent after provision of §1026.9(g) notice. Same facts as above except the payment due on June 15 of year two has not been received by August 15. Section 1026.55(b)(4) permits the card issuer to apply the 28% penalty rate to the $1,500 purchase balance and the $200 purchase because it has not received the June 15 payment within 60 days after the due date. However, in order to do so, §1026.55(b)(4)(i) requires the card issuer to first provide an additional notice pursuant to §1026.9(g). This notice must be sent no earlier than August 15, which is the first day the account became more than 60 days' delinquent. If the notice is sent on August 15, the card issuer may begin accruing interest on the $1,500 purchase balance and the $200 purchase at the 28% penalty rate beginning on September 29.” (Emphasis added.) See 12 C.F.R. Part 1026, Supp. I, comment 1026.55(a)-1.iii.B.

AHA! The notice should be sent only once the account is 60 days’ delinquent. One should feel a sense of satisfaction having actually arrived at a solution… and yet…

Abbreviating “Annual Percentage Rate” When Advertising Rates for Closed-End Consumer Credit

Written by Benjamin M. Litchfield, Regulatory Compliance Counsel

Greetings compliance fans and Happy Leap Day! We have received questions lately about whether credit unions are required to use the term “annual percentage rate” in advertisements for closed-end consumer credit or, in the alternative, whether credit unions can use the abbreviation “APR.” This may be the result of some confusion regarding the different regulatory requirements under NCUA’s Truth in Savings Rule and the CFPB’s Regulation Z. This blog post will (hopefully) clarify this issue for you.

Truth in Savings requires credit union advertisements to state the rate of return on share, share draft, and share certificate accounts as an “annual percentage yield,” using that term. In parenthesis, the rule clarifies that

“The abbreviation “APY” may be used provided the term ‘annual percentage yield’ is stated at least once in the advertisement.”

12 C.F.R. § 707.8(b). This means that somewhere in the advertisement, the credit union must spell out the phrase “annual percentage yield” at least once in order to comply with NCUA’s rule.

Regulation Z has a similar requirement for advertisements for closed-end consumer credit. The rule states that

“If an advertisement states a rate of finance charge, it shall state the rate as an “annual percentage rate,” using that term. If the annual percentage rate may be increased after consummation,  the advertisement shall state that fact…”

12 C.F.R. § 1026.24(c). Based on a strict reading of the text of the rule, and with some knowledge of the disclosure regime under Truth in Savings, it might seem like Section 1026.24 would require credit unions (and other financial institutions) to use the phrase “annual percentage rate” at least once in closed-end advertisements.

The Official Interpretations to Regulation Z, however, appear to allow credit unions to use the abbreviation “APR” rather than fully spelling out “annual percentage rate” in advertisements:

“Advertised rates must be stated in terms of an annual percentage rate, as defined in § 1026.22. Even though state or local law permits the use of add-on, discount, time-price differential, or other methods of stating rates, advertisements must state them as annual percentage rates. Unlike the transactional disclosure of an annual percentage rate under § 1026.18(e), the advertised annual percentage rate need not include a descriptive explanation of the term and may be expressed using the abbreviation APR…”

Official Interpretations, § 1026.24(c)-1. On the surface, it would seem that the text of the rule and the text of the commentary are in tension. The rule requires credit unions to state the rate as an annual percentage rate, “using that term.” On the other hand, the commentary allows credit unions to use the abbreviation “APR.”

A closer reading of the commentary, however, appears to suggest that the Federal Reserve’s (the agency that drafted the original rule) primary concern when drafting the rule was that credit unions disclose the cost of credit as an “annual percentage rate” as defined in Section 1026.22 and calculated according to Appendix J. It seems that it was also important to distinguish the “annual percentage rate” under Regulation Z from the simple interest calculation methodologies described in the commentary that may be allowed under state or local law.

It also appears that given the requirement in Section 1026.18(e) that credit unions disclose and provide a brief description of the “annual percentage rate” in the account opening disclosures, the Federal Reserve was less concerned about whether the credit unions used “annual percentage rate” or “APR” in advertisements. Read this way, the rule and commentary appear to allow credit unions to use the abbreviation “APR” in advertisements without first spelling out “annual percentage rate” provided that the rate disclosed otherwise meets the Regulation Z definition of “annual percentage rate” and uses Regulation Z calculation methodology.

On the other hand, the preamble to NCUA’s Truth in Savings Rule shows that the NCUA Board was very concerned with distinguishing the “annual percentage rate” disclosed under Regulation Z with the “annual percentage yield” disclosed under Truth in Savings. See, 58 Fed. Reg. 50394, 50401-402 (Sept. 27, 1993). This concern may have led to the Board adopting a conservative approach that requires credit unions to define “APY” in advertisements at least once to prevent member confusion.

I hope this brief history lesson has clarified this issue for you. Have a Happy Leap Day!

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Free Webcast!

NCUA’s MBL Changes Explained: What you need to know

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

In this free webcast you’ll get a thorough overview of NCUA’s Member Business Lending (MBL) rule that eliminate the rule's from its architect, Larry Fazio, director of NCUA’s Office of Examination and Insurance. You’ll cover the process allowing credit unions to decide for themselves if a borrower should be exempt from a personal guarantee. You’ll also review details of how the final rule requires credit unions currently engaged in commercial lending, as well as those considering stepping into this space, to develop board-approved policies that thoughtful delineate their individual commercial underwriting standards and infrastructure.

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

Written by Shereefat Balogun, Regulatory Compliance Counsel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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NAFCU Regulatory Affairs Department: Update from Washington

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

Part of the CFPB/NCUA Webcast Series

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

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

 

Rates They Are A-Changin’ – Disclosure Requirements for Variable Rate Products

Written by Benjamin M. Litchfield, Regulatory Compliance Counsel

Greetings compliance fans! With the Federal Open Market Committee (FOMC) largely expected to announce an increase in the federal-funds rate today, many of you may be wondering what obligations credit unions have under federal law to inform members should rates on some variable-rate products increase. This blog post covers some of those questions by taking a look at NCUA’s Truth in Savings Rule and Regulation Z.

Before diving into these rules, keep in mind that share accounts and consumer credit plans are, at their base, contracts between a credit union and its membership that may be subject to various state and federal requirements outside of the scope of either Truth in Savings or Regulation Z. When contemplating a change in interest rates, the credit union’s agreement with the member will determine when the credit union can change rates on existing accounts.

Truth in Savings (TIS)

TIS rules regarding subsequent disclosures require 30 calendar days’ advance written notice for some changes to share accounts. However, section 707.5(a)(1) explicitly exempts variable-rate changes. Moreover, the rule only requires disclosure of changes that are adverse to the interests of the member. Therefore, an increase in the dividend rate and corresponding annual percentage yield would not be required to be disclosed in advance.

Regulation Z

For open-end consumer credit plans, such as credit cards, unsecured loans, and home equity plans, Regulation Z does not require credit unions to provide members with change-in-terms notices before rate increases under properly disclosed variable-rate plans. 12 C.F.R. § 1026.9(c)(2)(v)(C). For this exception to the advance written notice requirement to apply, the rate change must be based on a publicly available index that is not under the credit union’s control. Official Interpretations of Regulation Z state that an index is publicly available if the member can independently obtain and use it to verify the annual percentage rate applied to the account.

The commentary provides examples of certain circumstances where the index will be considered to be under a credit union’s control such as when the index is the credit union’s own prime rate or cost of funds. Another example is where the contract specifies a rate floor that does not permit the variable rate to decrease consistent with the index. It is worth noting, however, that the commentary does allow a rate ceiling that does not permit the variable rate to increase beyond a certain threshold. Finally, an index will be considered to be under a credit union’s control where the credit union has the authority to pick the index to be used.

The commentary also notes that the change must be as a result of a change in the index, and not a change in the margin used to determine the variable rate. For example, changing the margin from LIBOR + 2.50% to LIBOR + 3.00%, would not be considered an increase “due to the index” and therefore would require additional disclosures. For credit card accounts, changing the margin would also trigger the member’s right to reject the proposed changes.

For adjustable-rate mortgages (ARMs), Regulation Z requires credit unions to provide disclosures in connection with the adjustment of interest rates that result in corresponding adjustment to the payment. 12 C.F.R. § 1026.20(c). The disclosures should be provided to members at least 60 days but no longer than 120 days before the first payment at the adjusted level is due. For ARMs with uniformly scheduled rate adjustments, such as an adjustment every 60 days, credit unions must provide disclosures at least 25 days but no more than 120 days before the first payment at the adjusted level. This rule also applies to ARMs originated prior to January 10, 2015 in which the adjusted interest rate and payment are calculated based on a date that is less than 45 days prior to the adjustment date.

It is important to note that changes that occur within the first 210 days of the closing do not trigger advance notice requirements because homeowners will have received notices of the change at closing. 12 C.F.R. § 1026.20 (d). However, if the first adjustment to an ARM occurs within 60 days of consummation and the new interest rate disclosed at consummation was an estimate, the disclosures must be provided to members as soon as practicable but no less than 25 days before the first payment at the adjusted level is due.

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Cats and Christmas Trees: My wife and I recently put up our Christmas tree. While doing so, Hazel, the younger of our two cats decided that she wanted to help out. We adopted her from Meow Stories, a local cat rescue in Fredericksburg, VA and haven’t been happier. Her brother, Max, seems pleased to have a friend in his own haughty, cat-appropriate way.

 

 

CFPB Issues Interpretive Rule on Homeownership Counseling Requirements, and Finalizes One-Year Suspension of TILA Requirement for Quarterly Submission of Credit Card Agreements

Written by Eliott C. Ponte

CFPB Issues Interpretive Rule on Homeownership Counseling Requirements.  The CFPB issued a final interpretive rule, amending its 2013 guidelines, to assist lender compliance with RESPA and TILA homeownership counseling requirements. 

Under RESPA, credit unions must provide applicants for a federally related mortgage loan with a clear and conspicuous written list of certified homeownership counselors.  12 C.F.R. 1024.20(a)(1).  RESPA states a credit union may use one of two methods for generating the required list.  First, a credit union can use a tool developed and maintained by the CFPB.  Second, a credit union can use data made available by the CFPB or HUD, provided the data are used in accordance with instructions provided with the data.  12 C.F.R. 1024.20(a)(1)(ii).  The interpretive rule describes instructions for credit unions to use in complying with the second method for generating a list.  The interpretive rule addresses the number of counselors that must appear on a list of counselors (according to the CFPB, listing ten housing counseling agencies ensures fairness among housing counseling agencies), the use of zip codes to generate a list of counselors, counselor contact information, and combining the list of counselors with other discourses. 

TILA prohibits a credit union from making a high-cost mortgage loan (as defined by HOEPA) unless it receives written certification that the member has obtained mortgage counseling from an approved counselor.  The interpretive rule clarifies the qualifications necessary to provide high-cost mortgage counseling, and provides guidance on the issue of credit union participation in counseling. 

With regard to the credit union’s participation in counseling, it is the CFPB’s position that “counselor independence and impartiality, which the anti-steering provision seeks to preserve, may be adversely affected by a concern that another counselor may be selected or the content of the counseling influenced if the counselor requests that the [credit union] not listen to the counseling and the [credit union] does not agree.”  See final interpretive rule page 12.  Therefore, the interpretive rule states that credit unions will “comply with the anti-steering provision if a counselor is allowed to request that the creditor not participate or listen on the call.”  Id.  However, the CFPB is not enacting a prohibition on credit union’s participation, as the CFPB states that a “counselor ... is allowed to request that a [credit union] participate in a call or a portion of a call.”  Id. 

CFPB Finalizes One-Year Suspension of TILA Requirement for Quarterly Submission of Credit Card Agreements.  Last week the CFPB issued a final rule adopting a one-year suspension of its own regulation that requires certain credit card issuers to send their credit card agreements to the CFPB each quarter. Under the final rule, credit card issuers will not be required to submit agreements that would otherwise have been due to the CFPB by the first business day on or after April 30, July 31, and October 31 of 2015, and January 31, 2016.  The suspension does not affect the requirement for issuers to post their credit card agreements on their own publicly available websites.  12 C.F.R. 1026.58(d).

The rationale behind the suspension of quarterly submissions is so the CFPB can develop a more streamlined and automated electronic submission system. In its statement, the CFPB said the new system should enable faster posting of new and revised agreements on its website.

Credit card issuers must resume submitting credit card agreements on a quarterly basis to the CFPB starting on April 30, 2016.  In lieu of providing new and amended agreements and notice of withdrawn agreements for the April 30, 2016 submission, issuers are permitted to submit to the CFPB a complete, updated set of agreements offered to the public as of the calendar quarter ending March 31, 2016.  See comment 58(c)(1)-3.

The CFPB Updates Two Asset-Size Thresholds; Cybersecurity Webcast; Puppy Love

Written by Brandy Bruyere, Regulatory Compliance Counsel

Two Asset-size Thresholds Adjusted for Inflation.

The CFPB recently adjusted two of its asset-size exemption thresholds relating to mortgages as required by underlying statutes. The first is under Regulation C relating to the Home Mortgage Disclosure Act (HMDA). HMDA includes asset-size exemptions within its definition of the term “financial institution” so some smaller institutions receive regulatory relief from HMDA’s data reporting requirements. This asset threshold must be adjusted annually for inflation, and for 2015 the CFPB increased the threshold by $1 million. Accordingly, credit unions with assets of $44 million or less as of December 31, 2014 will be exempt from HMDA data collection requirements in 2015.

Regulation Z also includes an asset-size threshold as one of several requirements for a financial institution to be eligible for an exemption from the escrow requirements for higher-priced mortgage loans (HPMLs). The Truth in Lending Act requires the CFPB to also adjust this threshold for inflation which for 2015 is increasing from $2.028 billion to $2.060 billion in assets. It is important to note that this also impacts the qualified mortgage (QM) rules relating to small creditor portfolio and balloon payment QMs because the definition of “small creditor” cross-references this section of the HPML rule (See 12 C.F.R. 1026.43(e)(5)(i)(D)).

Cybersecurity Governance Update: New FFIEC Requirements.

It feels like there’s a new example of failed cybersecurity efforts every week. Don’t be the next. Attend this webcast to get help aligning your credit union with the FFIEC’s new cybersecurity requirements. You’ll discover the latest cyber-fraud trends, gain an understanding of the new requirements, and learn how to apply them to your risk management program.

Puppy Love. Lemmy just loves having a “human puppy” around the house, we're still working with him on his personal space issues though. As you can see, he has not quite mastered that! Also, while the holidays are a couple of weeks behind us now, I can’t help but share a photo that our son will despise when he’s a teenager—yes, that is an elf costume. A friend pointed out that he looks pretty mad about the indignity even as a baby.

CFPB Warns Credit Card Companies Against Deceptively Marketing Promotional Offers; Free Kick; Farewell

Written by Ricardo Piñeres, Regulatory Compliance Counsel

CFPB Warns Credit Card Companies Against Deceptively Marketing Promotional Offers.  In a bulletin released last week, the Consumer Financial Protection Bureau (CFPB) warned credit unions, and other credit card issuers, against deceptively marketing interest-rate promotions.  The CFPB issued the bulletin because of the Bureau’s concerns regarding the marketing practices of some card issuers, especially with regards to promotional rates and balance transfer offers.

According to a press release that accompanied the bulletin’s release, “[t]he Bureau believes some companies’ marketing materials do not clearly disclose that consumers must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on routine purchases for which they were not charged interest previously. For some consumers, these surprise charges can make the cost of transferring a balance more expensive than revolving the same balance on their existing card.”

After a brief discussion regarding the CFPB’s reasons for releasing the bulletin, the bulletin discusses: the risks of deceptive advertising practices; the risks of abusive practices; and Regulation Z’s disclosure requirements.  Furthermore, the bulletin has a final section that states the Bureau’s expectations for credit card issuers, as follows:

“The Bureau expects credit card issuers to incorporate into their compliance management systems adequate measures to prevent violation of Federal consumer financial laws, including the Dodd-Frank Act’s prohibitions on unfair, deceptive, or abusive acts or practices.  Consequently, credit card issuers are expected to implement internal controls sufficient to ensure that they market promotional APR offers in a manner that limits the risk of statutory or regulatory violations and related consumer harm.  These steps should include, but are not limited to, ensuring that:

• All solicitations, applications, account-opening materials, and convenience checks comply with the requirements in Regulation Z;
• All marketing materials clearly, prominently, and accurately describe the material costs, conditions, and limitations associated with the offers; and
• All marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.”

In addition to the bulletin and the press release, the CFPB also hammered home their perspective with a consumer-facing post on the Bureau’s blog.  The blog post warned consumers to be on the lookout for deceptive advertisements regarding promotional rates, and also warned consumers on the implications of losing the protections of the grace period.

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Free Kick.  My wife and I just got back from a great week on vacation in the city of my birth – Cartagena, Colombia.  While there, we were lucky to get to watch Colombia’s friendly against Brasil on television.  Sadly, Neymar found enough magic on a free kick to give Brasil a 1-0 victory.  That being said, watching the match at a restaurant in Cartagena reminded me of why I fell in love with football.  It may have only been a friendly, but it seemed like every other person was wearing a national team jersey and the city came to stop for those two hours while people were glued to the game cheering on their Seleccion Colombia.  It was an absolutely wonderful way to cap off a summer that brought me so much joy after having not seen Mi Seleccion in a World Cup since 1998.  I can’t wait to see wait the next four years under Jose Pekerman bring to Colombia.  In the meantime, here are two videos from Colombia’s World Cup opener that still give me goose bumps: Colombian National Anthem and Caracol Highlights.

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Farewell.  This will be my final blog post here at the NAFCU Compliance Blog.  While I have decided to leave the NAFCU Compliance team in order to head back to the government relations field, I have thoroughly enjoyed these past eight months of covering compliance hot topics and providing my take on the wonderful world of football.  It has also been a pleasure providing compliance advice to the many of you that have called or emailed with compliance questions.  I leave behind some great colleagues here at NAFCU Compliance, and I thank them for sharing their knowledge, thus making me a better attorney.  Lastly, I also want to thank all of the readers of this blog.  It has been so much fun interacting with you and trading perspectives on the beautiful game and sharing in the excitement of a truly incredible World Cup.

CFPB Adjusts CARD Act, HOEPA, and TILA Thresholds for Inflation

Written by Brandy Bruyere, Regulatory Compliance Counsel

The CFPB is required to annually adjust certain threshold amounts within various rules based on inflation. Last week, the bureau published a final rule implementing a few of these adjustments under the CARD Act, HOEPA and TILA. The rule modifies the credit card penalty fee safe harbor, the HOEPA total loan amount and fee trigger thresholds, and the loan amounts for specific points and fees limits under Regulation Z’s qualified mortgage rule.

CARD Act Penalty Fees Safe Harbor. Under Section 1026.52(b) of Regulation Z, fees on credit card accounts must generally be based on costs, but the rule contains safe harbor amounts that are considered compliant. Effective January 1, 2015, the safe harbor penalty fees will increase by one dollar. The new safe harbor for a member’s first late payment will be $27 and $38 for subsequent late payments within the same six month period.

HOEPA Annual Threshold and Fee Trigger Adjustments. Under Section 1026.32, whether a mortgage is considered high-cost depends on the annual percentage rate, with different thresholds for different loan amounts. Effective January 1, 2015, a loan that is $20,391 or above will be a high-cost mortgage if the loan’s points and fees exceed 5% of the total loan amount. A loan will also be high-cost if its points and fees exceed the lesser of 8% of the loan amount or $1,020 for loans for less than $20,391. Here is an excerpt from the final rule:

 

“Effective January 1, 2015, for purposes of determining the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent is $20,391. Comment 32(a)(1)(ii)-3, which lists the adjustments for each year, is amended to reflect the new dollar threshold amount for 2015.

Effective January 1, 2015, for purposes of determining whether a consumer credit transaction that is secured by a consumer’s principal dwelling and is not otherwise exempt is covered by § 1026.32 (based on the total points and fees payable by the consumer at consummation), a loan is covered if the points and fees exceed $1,020 or 8 percent of the total loan amount, whichever is lower. Comment 32(a)(1)(ii)-1, which lists the adjustments for each year, is amended to reflect the new dollar threshold amount for 2015.”

Ability to Repay and Qualified Mortgage (QM) Annual Threshold Adjustments. Finally, the bureau’s rule also changes the loan amounts subject to the various points and fees limits to meet the requirements of a QM. Here is the excerpt from the rule:

“Effective January 1, 2015, for purposes of determining whether a covered transaction is a qualified mortgage, a covered transaction is not a qualified mortgage unless the transaction’s total points and fees do not exceed 3 percent of the total loan amount for a loan amount greater than or equal to $101,953; $3,059 for a loan amount greater than or equal to $61,172 but less than $101,953; 5 percent of the total loan amount for loans greater than or equal to $20,391 but less than $61,172 ; $1,020 for a loan amount greater than or equal to $12,744 but less than $20,391 , and 8 percent of the total loan amount for loans less than $12,744. Comment 43(e)(3)(ii)-1, which lists the adjustments for each year, is amended to reflect the new dollar threshold amounts for 2015.” (Emphasis added.)

Remember, none of these changes go into effect until January 1, 2015 but it is good to make a note of it now.

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NAFCU's 2014 Credit Union Compliance GPS is still available. This comprehensive, electronic resource translates complex regulatory language into plain English. The latest edition includes improved user-friendly search functions, including more hyperlinks and bookmarks and much more. You can purchase a copy for your credit union here!

 

The Start of a Series: TILA/RESPA Integrated Mortgage Disclosures Rule - Scope and Applicability

Written by JiJi Bahhur, Director of Regulatory Compliance

As many of you already know (we’ve blogged about it here, here, and here), the Consumer Financial Protection Bureau (CFPB) finalized the Truth in Lending Act/ Real Estate Settlement Procedures Act (TILA/RESPA) Integrated Mortgage Disclosures rule in November of last year.  The final rule is a biggie – nearly 2,000 pages in length – and because of that, I’d like to start a series of blogs on the subject (which will post intermittently between other hot credit union topics).  These blogs will not fully cover any particular part of the TILA/RESPA rule but rather will serve to point out certain aspects of the rule or to put something on your credit union’s radar. 

Today, I’d like to focus on the scope and applicability of the TILA/RESPA rule.

Which Credit Unions are Covered?

The TILA/RESPA Integrated Mortgage Disclosures rule applies to most closed-end mortgage loans, regardless of the credit union’s asset size or pricing of the mortgage (i.e., Higher Priced Mortgage Loans).  Because there is no small creditor exemption under this rule, all credit unions who originate closed-end mortgage loans must comply with these new mortgage disclosure regulations.

What Mortgage Loans are Covered?

Closed-end mortgage loans are consumer credit transactions secured by real property, including transactions such as: purchases, refinances and loans for second homes or vacation homes. Of note, the disclosures are also required for construction-only loans, for loans secured by vacant land and for loans secured by 25 acres or more. Currently, those three types of loans are not within the scope of RESPA, but are subject to the new TILA/RESPA rule.

While the final mortgage disclosures rule applies to most mortgage loans that credit unions make, it does not apply to the following:

• Home-equity lines of credit (HELOCs);
• Reverse mortgages;
• Mortgages secured by a mobile home or dwelling that is not attached to real property; and
• Mortgage loans made by persons that are not “creditors” under Regulation Z.

The new Integrated Disclosures must be provided by a credit union that receives an application from a consumer on or after August 1, 2015.  The credit union may not use the new disclosures for applications received prior to August 1, 2015 because TILA/RESPA did not provide a provision for early compliance.  Early use of the new disclosures would result in violation of the current TILA and RESPA rules.

If you’d like to track other / future TILA/RESPA blogs in the series, click here.  Also, check out NAFCU’s Mortgage Resources Page.  We’ve updated it to include a section of resources on TILA/RESPA including NAFCU’s Scope and Applicability Chart (NAFCU log-in required).

Navigating Regulation Z: The CFPB’s eRegulations Tool

Written by JiJi Bahhur, Director of Regulatory Compliance

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

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

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

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

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

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

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

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Have a great weekend, everyone!

CFPB Releases Guide to Completing TILA/RESPA Integrated Disclosure Forms; NCUA Board Meeting Agenda; Deadline Alert-Submission of First Quarter 2014 Call Report and Profile Information; Past Due Twin Check-In

Written by JiJi Bahhur, Director of Regulatory Compliance

TILA/RESPA Integrated Disclosure Forms Guide.  Last Thursday, the CFPB released a guide to assist with the completion of the new Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) integrated disclosure forms.  The guide provides instructions for completing loan estimate and closing disclosure forms as well as models and samples of these forms. The guide comes as a companion to the recently released Small Entity Compliance Guide which we blogged about here.   

It is important to note that the TILA/RESPA rule does not allow creditors the ability to comply early.  In other words, creditors may not use the new integrated disclosures prior to the rule’s effective date, August 1, 2015.  Between now and then, creditors should follow the current disclosure requirements under Regulations Z and X, and use the existing forms for applications received before the effective date.

NAFCU’s compliance team recently made available a scope and applicability chart and the first of a series of articles on the TILA/RESPA integrated disclosure rule.  NAFCU’s resources on the TILA/RESPA integrated disclosure rule can be found here.  We will continue to update this page with any NAFCU-created resources as they become available.

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NCUA’s Board Meeting Agenda.  NCUA’s April Board Meeting will take place tomorrow, Thursday, April 24, 2014.  Matters to be considered during the open session include, among other items, the following:

• Proposed Rule, Appendix B of Part 701, Associational Common Bond Requirements.
• Final Rule, Part 702, Credit Union Capital Planning and Stress Testing.

We’ll be sure to blog on the outcome of the meeting once that information is available.

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Deadline Approaching! Submit First Quarter 2014 Call Report and Profile Info by Friday!  The deadline for submitting first quarter 2014 Call Report and Profile information is Friday, April 25^th (11:59:59 pm, Eastern Daylight Time). 

Credit unions that fail to meet the filing deadline may potentially be subject to civil money penalties.  According to the April 2014 NCUA Report, “each penalty will vary based on the reason for the delay or inaccuracy, ranging from $10 per day to a maximum of $1 million per day or one percent of total assets, whichever is less.” 
 
For more information on this issue, take a look at the related Letter to Credit Unions (14-CU-03) here.

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Past Due Twin Check-In.  I’ve received some emails that I’m past due for sharing more pictures of the twins.  My sweet buds, Kyse and Ava, turned 20 months old on Easter Sunday.  Here are a few recent photos!

 

CFPB Releases Small Entity Compliance Guide for Integrated TILA/RESPA Disclosures; April Compliance Monitor and New TILA/RESPA Scope & Applicability Chart Now Available

Written by Brandy Bruyere, Regulatory Compliance Counsel

On Monday, the CFPB released its newest Small Entity Compliance Guide for the TILA/RESPA integrated disclosures rule. The guide is 89 pages long and intended to provide a plain English explanation of the rules. While this may seem long, the guide is substantially more manageable than the nearly 2,000 page final rule the CFPB issued in November, 2013. The guide is a good starting point for credit unions to use for determining what is necessary to be compliant by the rule’s August 1, 2015 effective date.

The guide is organized similarly to the CFPB’s other compliance guides. There are several main sections including an introduction, an overview, and the scope of the rule followed by the various requirements for the disclosures themselves. Generally, the rule requires two main disclosures—the Loan Estimate and the Closing Disclosure. The CFPB explains the Loan Estimate as follows:

 “For closed-end credit transactions secured by real property (other than reverse mortgages), the creditor is required to provide the consumer with good-faith estimates of credit costs and transaction terms on a new form called the Loan Estimate. This form integrates and replaces the existing RESPA GFE and the initial TIL for these transactions. The creditor is generally required to provide the Loan Estimate within three-business days of the receipt of the consumer’s loan application (see section 6.1 below on the timing requirements of the Loan Estimate). (§ 1026.19(e)(1)).”

 The CFPB gives the following summary of the Closing Disclosure:

“For loans that require a Loan Estimate and that proceed to closing, creditors must provide a new final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. The form integrates and replaces the existing HUD-1 and the final TIL disclosure for these transactions. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan. (§ 1026.19(f)(1)(ii)).”

The guide goes on to discuss the specific content requirements for the disclosures, the tolerances for estimates, and the rules for revising or correcting the disclosures. There is also an overview of the delivery and timing requirements for providing members with these documents.    

 In terms of the compliance deadline, the guide answers a key question—can credit unions use the integrated disclosures to comply with TILA/RESPA before August 1, 2015. Unfortunately, the answer to this question is no:

 “…For transactions where the application is received prior to August 1, 2015, creditors will still need to follow the current disclosure requirements under Regulations X and Z, and use the existing forms (Truth-in-Lending disclosures, GFE, HUD-1).”

In other words, the effective date of the rule operates like a switch, requiring credit unions to change from one compliance system to another overnight. This will present difficulties, particularly for loans with closing dates that are at or near the compliance deadline.

As compliance professionals tackle these challenges, besides the guide the CFPB created an implementation page on its website for the rule. On this webpage, you will find links to the final rule and several sample Loan Estimates and Closing Disclosures which may be helpful. The CFPB also listed an email address for sending questions or feedback to the bureau: [email protected].

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April Compliance Monitor and New Scope and Applicability Chart. NAFCU will have ongoing efforts to help members prepare to implement the TILA/RESPA integrated disclosures rule. Our Compliance Monitor will feature an ongoing series of articles discussing the rules, starting with our April issue which we released yesterday. This month’s Compliance Monitor discusses the scope of the rule and the basic requirements for the Loan Estimate and Closing Disclosures. Additionally, NAFCU’s compliance team created a new Scope and Applicability Chart for the rule which is now available in the CFPB mortgage rules resources section of our website.

Giant Treat for a Giant Dog! We aren’t the only ones who spoil our dog. A friend recently attended a pet expo, and couldn’t resist the impulse to buy our dog a two-foot long cow femur. He likes when treats come in his size! 

NCUA Regulatory Alerts; CFPB Updates Consumer Brochures & Examination Manuals; Upcoming Webcast

Written by Brandy Bruyere, Regulatory Compliance Counsel

We hope everyone successfully survived last Friday’s mortgage rule compliance deadlines! While many of us spent Monday settling into the new regulatory regime, NCUA released two Regulatory Alerts— 14-RA-03 and 14-RA-04 (Alerts). These Alerts provide an overview of the new mortgage servicing rules under Regulation X (RESPA) and Regulation Z (TILA). Most of these rules went into effect on January 10^th and these Alerts are helpful basic summaries of these rules.

Together, these two Alerts address the nine mortgage servicing provisions. The first three are under Regulation Z and the last six are under Regulation X:

• Periodic statements;
• Adjustable Rate Mortgage (ARM) disclosure notices;
• Prompt crediting and payoff statements;
• Force-placed insurance;
• Error resolution and information requests;
• General servicing policies, procedures, and requirements;
• Early intervention with delinquent members;
• Continuity of contact with delinquent members;
• Loss mitigation

Generally, the Alerts address the scope of the regulations as well as the content and timing required for various notices and statements. Also, both Alerts summarize the definition of the small servicer exemption:

“How Does a Credit Union Qualify for the Small Servicer Exemption?

Your credit union is considered a small servicer under both the TILA and RESPA Mortgage Servicing rules if:

• Together with any affiliates, you service 5,000 or fewer mortgages, and you (or an affiliate) are the creditor or assignee for all of them.

An affiliate is defined as any company that controls your credit union, is controlled by your credit union, or is under common control with your credit union.6 For example, a credit union service organization (CUSO) that is owned by a credit union is considered an affiliate.

If you service any mortgages you (or an affiliate) did not originate or do not own, you do not qualify as a small servicer, even if you service 5,000 or fewer loans overall. For example, if you service 2,000 loans—1,999 of which you own or originated and one of which you neither own nor originated but for which you own the servicing rights—you do not qualify as a small servicer because you service a loan for which you (or an affiliate) are not the creditor or assignee.

To determine if you are a small servicer, count “mortgage loans” only. A mortgage loan is a closed-end consumer credit transaction secured by a dwelling. Do not include reverse mortgages, timeshare plans, or loans you voluntarily service for a creditor or an assignee that is not an affiliate and for which you do not receive any compensation or fees.

The small servicer exemption is determined each calendar year based on the loans you and your affiliates service as of January 1 for the remainder of the year.

You can lose the small servicer exemption if you:

• Service more than 5,000 loans; or

• Take on the servicing of a loan you do not own or did not originate.

If you lose the exemption, you have six months from the date you stopped being a small servicer or until the next January 1 (whichever is later) to comply with the RESPA/TILA mortgage servicing requirements from which you were exempt as a small servicer.”

Just remember, the small servicer exemption is only available for a few of the mortgage servicing rules. Here is a past NAFCU blog which clarifies which rules are eligible for this exemption.

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CFPB Updates. Also, on Friday the CFPB released two items that may be of interest. The first details changes to certain consumer information brochures (Sample Letters to Mortgage Servicers to Guide Consumers). The second is a notice regarding updates to its examination manuals for mortgage origination and servicing.

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Shameless Plug Alert—Webcast: On Wednesday, February 5^th, NAFCU will host a webcast titled Getting Complaints – What to Do Next to Safeguard and Improve Your Credit Union. A properly activated complaint management process helps satisfy NCUA requirements for documenting and responding to customer criticisms. Register by Jan. 29 to save $100 and learn the steps your credit union should be implementing.

I’ll end on a palate cleanser, at least for those who love dogs. My husband and I adopted our dog from a local rescue two years ago, and during that time my dog has almost grown as big and robust as mortgage regulations. It’s hard to believe he was ever so “small.”

 

Just Here to Help; NAFCU's Compliance Team

Written by JiJi Bahhur, Director of Regulatory Compliance

With several of the new mortgage rules set to go into effect tomorrow, including ability-to-repay and qualified mortgages, the NAFCU compliance team wanted to take a moment to reach out to those that have been tirelessly involved in implementing compliance programs to address the numerously burdensome changes.  It has been a long, hard (and of course expensive) journey, and unfortunately, it’s not over.

We have heard that there are credit unions (or really, in many cases, their vendors) that aren’t going to be ready by tomorrow.  As scary as this can be, the credit union still has a leg to stand on: the CFPB and NCUA have both assured credit unions that good faith efforts of compliance will be acceptable in the early months after the new rules become effective.  

More specifically, CFPB Director Richard Cordray has said that the agency is seeking “good faith efforts of substantial compliance” in the first few months.  Echoing the same sentiment, NCUA wrote, in Letter to Credit Unions 14-CU-01, that “[a]s with any new requirement in its early stages after becoming effective, NCUA field staff will take into account a credit union’s good-faith efforts to comply with the new rule.”

Having this leg to stand on is indeed comforting, but only time will tell how this will pan out with the examiners of each agency.  As many credit unions have encountered in the past, examiners from different agencies, or even individual examiners within the same agency, are not always on the same page, especially where there isn’t a detailed definition of “good faith efforts of substantial compliance” available. 

NAFCU has been here to assist you with these upcoming rules and will continue to do so, both through our advocacy with the agencies and through numerous compliance resources that NAFCU has authored. To help with complying with these mortgage changes, all of NAFCU’s resources on the new mortgage rules, including Scope & Applicability Charts, articles, blog posts, webcasts and consolidated regulatory text can be found on our special mortgage resources webpage.  And, here are links to articles on various aspects of the mortgage rules that appeared in the Compliance Monitor in the last several months (available with NAFCU login):

• Qualified Mortgages Without the 43 Percent Debt-to-Income Ratio Requirement
• Mortgage Servicing: Error Resolution& Information Request Processing,
• Small Creditor Portfolio Exemption for QMs Explained,
• Understanding the Qualified Mortgage Quagmire,
• New Appraisal Requirements: Regulation B and Higher-Priced Mortgage Loans,
• Mortgage Loan Originator Requirements,
• New Homeownership Counseling Disclosure Requirement, and
• Escrow Requirements for Higher-Priced Mortgage Loans.

Also, to help make researching on the blog a little easier, we created blog categories for mortgage reform posts. The categories are:

• Mortgage Reform – Appraisals,
• Mortgage Reform – Escrow,
• Mortgage Reform – HOEPA/High-Cost,
• Mortgage Reform – Loan Originator,
• Mortgage Reform – Qualified Mortgages; and
• Mortgage Reform – Servicing.

Other NAFCU resources available to assist with the mortgage rules include:

• NAFCU’s Regulatory Compliance School
• NAFCU’s Regulatory Compliance Seminar
• NAFCU’s Online Learning options, including its unlimited webcast subscription.

The CFPB also has numerous resources for complying with the mortgage rules, including a central page for their mortgage rule implementation resources. This page includes compliance guides, videos and other resources.  Additionally, NCUA issued a regulatory alert and supervisory letter to examiners that both provide general guidance for credit unions to comply with the CFPB’s ability-to-repay/qualified mortgage rule for all loan applications received on or after Jan. 10.  NCUA also issued a regulatory alert on mortgage servicing and a regulatory alert on homeownership counseling requirements.

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NAFCU’s Compliance Team.  You may have noticed some new names on the blog.  NAFCU’s compliance team has made some additions in an effort to continue to provide our members with valuable, timely compliance information.  We’d like to take this opportunity to say thank you for being dedicated readers of our blog.  We aspire to provide you with materials that will assist you with your day-to-day needs. 

Data Breaches Happen- NAFCU is Reacting, Are You?

Written by Alicia Nealon, Regulatory Compliance Counsel

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

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

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

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

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

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

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

2014 HMDA Reporting Threshold; CARD Act and HOEPA Annual Adjustments; Asset-Threshold for HPML Escrow Exemption; Early Bird Savings for NAFCU’s Regulatory Compliance School

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

2014 HMDA Asset Threshold. The CFPB has issued a final rule, effective January 1, 2014, adjusting the asset-size exemption threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA).

For 2014, the exemption threshold is $43 million (up from $42 million). Banks, savings associations, and credit unions with assets of $43 million or less as of December 31, 2013, are exempt from collecting data in 2014. Note that an institution’s exemption from collecting data in 2014 does not affect its responsibility to report the data it was required to collect in 2013. The CFPB’s press release is available here.

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CARD Act Penalty Fees Safe Harbor. The CFPB also issued a final rule amending the safe harbor threshold amounts for credit card penalty fees in Regulation Z, section 1026.52(b)(1)(ii)(A) and (B).

Effective January 1, 2014, the adjusted dollar amount for the penalty fees safe harbor is $26. The safe harbor for each subsequent violation within the following six months is $37.

HOEPA Annual Threshold Adjustment. In the same final rule, the CFPB adjusted the statutory fee trigger for HOPEA loans to $632, effective January 1, 2014. Keep in mind that this adjustment applies to loans consummated on or after January 1, 2014, and will apply until the revised HOEPA fee trigger adopted in the CFPB’s 2013 HOEPA final rule takes effect on January 10, 2014. This issue is discussed in the preamble to the final rule:

“The fee trigger being adjusted in this Federal Register notice pursuant to TILA section 103(bb) is used in determining whether a loan is covered by § 1026.32. Such loans have generally been known as “HOEPA loans.” On January 10, 2013, the Bureau issued a final rule pursuant to, inter alia, section 1431 of the Dodd-Frank Act, which revised the statutory fee trigger for HOEPA loans. 78 FR 6856 (Jan. 31, 2013) (2013 HOEPA Final Rule). The amendments adopted in the 2013 HOEPA Final Rule, including the revised fee trigger, apply to loans for which the creditor received an application on or after January 10, 2014. Id. at 6939. The Bureau is mindful of the need to coordinate implementation of this final rule with the effective date of the January 10th final rule adopting revisions to the HOEPA fee trigger. Accordingly, the adjustment to the fee trigger that is being published today will become effective on January 1, 2014, will apply to loans consummated on or after January 1, 2014, and will apply until the revised HOEPA fee trigger takes effect. Pursuant to section 1431 of the Dodd Frank Act and § 1026.32(a)(1)(ii) as amended by the 2013 HOEPA Final Rule, implementation of the 2013 HOEPA Final Rule will change the HOEPA fee trigger to $1,000, which will be adjusted annually thereafter in accordance with § 1026.32(a)(1)(ii) as amended by the 2013 HOEPA Final Rule. Id. at 6968.” (My emphasis)

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Asset-Threshold for HPML Escrow Exemption.  And the last threshold of mention today: the CFPB issued a final rule effective January 1, 2014 that implements an automatic adjustment to the asset-size exemption for the TILA Higher-Priced Mortgage Loans (HPMLs) escrow account regulation. The rule requires that credit unions maintain an escrow account to cover the costs of property taxes and insurance for HPMLs for a minimum of five years. There is an exemption for certain credit unions that meet the following requirements:

• Operate in a predominantly rural or underserved area;
• The credit union retains its mortgage obligations in portfolio;
• Originated less than 500 first-lien HPMLs during the preceding calendar year; and
• Do not exceed the asset-size threshold set by the CFPB

This final rule will determine which entities qualify for this exemption for 2014. The CFPB is increasing the asset-size threshold by 1.4%, from $2 billion to $2.028 billion. Credit unions that originated fewer than 500 first-lien HMPLs and whose assets were $2.028 billion or below as of December 31, 2013 will be exempt from the TILA escrow requirement for HPMLs. The CFPB’s press release is available here.

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Early Bird Savings for NAFCU’s Regulatory Compliance School. Ready to tackle the new year and get control over compliance issues? Register by January 10 for our Regulatory Compliance School and you’ll save $200 off the registration by using code “HOLIDAY”.  Need a little more time? Register by January 17 and you’ll still save $100 with early bird savings.

NCUA Issues Regulatory Alert on Upcoming Deadline for ATR/QM; NAFCU Regulatory Affairs Team Releases Final Regulation on the TILA/RESPA Final Rule

Written by Brandy Bruyere, Regulatory Compliance Counsel

Yesterday, NCUA released a Regulatory Alert containing an overview of the CFPB’s Ability-to-Repay/Qualified Mortgage (ATR/QM) rule. This rule becomes effective next week and will apply to loan applications received on or after January 10, 2014. Drawing upon several resources including CFPB’s small entity compliance guide and mortgage origination comparison chart, the Regulatory Alert is a helpful summary that simplifies some complex issues. Some of the key topics include:

• The scope of the rule, meaning which loans are covered and which are exempt;
• The eight ATR underwriting factors;
• Explanation of the verification requirements for making its ATR determinations;
• Overview of the record retention requirements;
• Discussion of QMs including the distinction between non-higher priced QMs which receive safe harbor protection and higher-priced QMs which are presumed compliant;
• The four type of QMs (general, temporary, small creditor, and balloon-payment) which NAFCU outlined in this month’s Compliance Monitor (available with login);
• A chart of caps on QM points and fees limits;

The Regulatory Alert notes that NCUA plans to release a Supervisory Letter to examiners prior to the January 10, 2014 deadline. The Alert also includes links to other resources such as the CFPB’s small entity compliance guide, a mortgage origination comparison chart, and a small creditor QM flowchart. Finally, keep in mind that NAFCU has a variety of helpful compliance resources for the upcoming mortgage rules deadlines.

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TILA-RESPA Final Rule. The CFPB’s TILA-RESPA final rule on integrated mortgage disclosures has been published in the Federal Register. We previously blogged about this rule on November 22, 2013. NAFCU’s Regulatory Affairs team has prepared a Final Regulation (13-EF-31) summarizing key aspects of this rule for NAFCU members, available here (with login).

CFPB Releases Semiannual Regulatory Agenda--Fall 2013

Written by Brandy Bruyere, Regulatory Compliance Counsel

Happy Monday compliance folks! My name is Brandy Bruyere and I am one of two new Regulatory Compliance Counsels here at NAFCU. As this is my first blog post, and it's Monday, we'll start with something short.

Last week the CFPB posted its Semiannual Regulatory Agenda for Fall 2013. This agenda provides insight into which regulations the CFPB will focus on over the next six months. The agenda is organized by rulemaking stage and is current as of September 6, 2013.” Here is the list of various regulations by stage:

Prerule State:

• Home Mortgage Disclosure Act (Regulation C)
• Annual Privacy Notice
• Payday Loans and Deposit Advance Products
• Debt Collection Rule
• Overdraft
• Further Amendments to 2013 Mortgage Rules (Regulations X and Z)

Proposed State:

• Requirements for Prepaid Cards (Regulation E)
• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets
• Amendments to FIRREA Concerning Appraisals
• Extension of the Temporary Exception for Certain Disclosures Under the Remittance Transfer Rule

Final Rule Stage:

• Restatement of Federal Consumer Financial Law Regulations
• Amendments to TILA Concerning Appraisals
• Integrated Mortgage Disclosures under RESPA (Regulation X) and TILA (Regulation Z)
• Equal Access to Justice Act Implementation Rule
• Rules of Practice for Issuance of Temporary Cease-and-Desist Orders
• The Expedited Funds Availability Act (Regulation CC)
• Defining Larger Participants of the Student Loan Servicing Market*
• Amendments to 2013 Mortgage Rules (Regulations B, X, and Z)

* Since releasing the agenda last week, the CFPB has published a final rule on “Defining Larger Participants of the Student Loan Servicing Market.”

The CFPB blog announcing the release of the agenda also highlights certain pending rulemakings such as regulation of prepaid card products and its expectations to release a proposal to reduce the annual privacy notices customers must receive. The blog also discusses areas the agency will consider in 2014 for potential regulation such as debt collection, payday loans and deposit advance products.

CFPB Updates its Mortgage Exam Procedures; On the Move

Written by JiJi Bahhur, Director of Regulatory Compliance

I don't know about you all, but I have a hunch that most of us are still trying to catch up with our reading from the holiday.  We'll keep it light today . . .

Last week, the Consumer Financial Protection Bureau (CFPB) released updates to its exam procedures in connection with the new mortgage regulations issued in January 2013.  The updates cover all final rules issued by the CFPB through October 15, 2013.

Although the CFPB only has examination authority over credit unions with more than $10 billion in assets, the exam procedures serve as guidance to all credit unions on how the CFPB will conduct examinations for compliance with the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).

The CFPB’s Supervision and Examination Manual can be located here. 

 ***

Baby Kyse is on the move!  Ava isn’t quite there yet, but she does enjoy standing on her feet so I know she’ll get there soon enough!

 

That's my boy!

 

CFPB Finalizes TILA/RESPA Integrated Disclosure Rule; 2013 NAFCU Compliance Seminar Group Photo

Written by JiJi Bahhur, Director of Regulatory Compliance

After more than two years of research and testing, the Consumer Financial Protection Bureau (CFPB) issued – this past Wednesday – the long-anticipated Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) rule.  Among several highlights from the rule, it provides for new, easier-to-use integrated disclosures, also known as the “Know Before You Owe” mortgage forms, that clearly lay out the terms of a mortgage for a homebuyer. The purposes of these new integrated disclosures are to provide improved consumer understanding, better comparison shopping, and avoid costly and unexpected surprises at the closing table. 

Currently, credit unions are required to provide two separate disclosures – “early” TILA Statement and Good Faith Estimate (GFE) – within three business days after receiving a mortgage application.  Under the final rule, these disclosures would be combined into one early disclosure document, the Loan Estimate, which borrowers must receive within three days after application.

Also, credit unions are currently required to provide two separate closing disclosures – final TILA Statement and HUD-1 Settlement Statement – three business days before closing on a loan.  The final rule combines the final TILA and HUD-1 disclosures into one closing form, the Closing Disclosure, which borrowers must receive three days before closing.

The TILA/RESPA rule (and mandatory use of the new integrated forms) is set to take effect on August 1, 2015.  While this extended implementation time is a win for credit unions – and something NAFCU pushed the CFPB for – it is important to note that the rule is 1,888 pages long and will require your credit union to make significant changes to how it conducts a mortgage transaction.

For a quick look at some of the other highlights from the rule, take a look at this message from Carrie Hunt, NAFCU’s Senior Vice President of Government Affairs/General Counsel.  Also note, NAFCU will issue a Final Regulation providing a summary of the final rule.  When it is available, you can find it here (NAFCU log-in required).

For further information on these new integrated mortgage disclosures, check out these CFPB resources:

• CFPB Press Release
• Factsheet about the “Know Before You Owe” Mortgage Disclosures
• The TILA/RESPA Mortgage Disclosure Rule

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On a lighter note, I’d love to share the group photo from NAFCU’s Regulatory Compliance Seminar that took place this past October in Nashville, Tennessee.  It was a great crowd and we look forward to seeing you all next year in Baltimore, Maryland. 

***

Have a fabulous weekend!

CFPB’s Findings on the CARD Act; NCUA’s 2014 Board Meeting Schedule; Extra! Extra! Buy NAFCU’s 2013 Credit Union Compliance GPS and Get the 2014 Manual Free!

Written by JiJi Bahhur, Regulatory Compliance Counsel

CFPB’s Findings on the CARD Act.  The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) was signed into law in May 2009 with the intent of establishing fair and transparent practices in the credit card market.  Last week, the CFPB released a report detailing how the CARD Act has, as intended, increased consumer protections and fairness, including reducing penalty fees and making the cost of credit cards clearer to consumers. 

In preparing its report, the CFPB used data covering most of the credit card marketplace.  Based on this data, several findings were made.  As summarized by the press release, the report found that:

• “Total cost of credit declined: The CFPB found that the total cost of credit declined by two percentage points between 2008 and 2012. The total cost of credit includes all fees, interest, and finance charges paid by the consumer to the card issuer. The decline in the total cost of credit has occurred even as annual fees and interest rates have increased, indicating a shift from back-end pricing toward more transparent front-end pricing that consumers can understand and evaluate more easily.

• Overlimit fees have been effectively eliminated: Before the CARD Act took effect, card issuers could charge an overlimit fee for transactions that put cardholders over their credit limit. Each overlimit transaction could result in an additional overlimit fee. With the law’s requirement that consumers opt-in to fees before they are allowed to exceed their credit limit, the CARD Act essentially eliminated overlimit fees as a source of cost to consumers and revenue to issuers. The report found that consumers paid about $2.5 billion less in overlimit fees than they paid in 2008.

• Size of late fees declined: The CARD Act required that penalty fees, such as late fees, be “reasonable and proportional” to the relevant violation of account terms. As a result, the report found that the average size of late fees diminished. The CFPB estimates that the average late fee went down by $6 after the CARD Act took effect. Based on the data used to prepare the report, that reduction resulted in a $1.5 billion decrease in late fees paid by consumers in 2012.

• Responsible access to credit remains available: As the financial crisis hit, creditors faced losses and as a result, implemented more restrictive credit standards. While the amount of available credit card credit has generally decreased since the financial crisis began, there is still $2 trillion of unused credit for consumers with credit cards in the marketplace. One factor affecting credit availability is a notable drop in the number of consumers who receive unsolicited credit limit increases on their accounts. Now that consumers have to ask for their credit limit to be raised rather than having it happen automatically, these increases are happening less frequently.

• Young consumers are better protected from credit cards they cannot afford: Before the CARD Act, it was often too easy for young consumers to rack up unmanageable credit card debt and damage their credit rating. Now, consumers under the age of 21 cannot get a credit card unless they can demonstrate an independent ability to repay the debt or unless they have a cosigner over 21. The report found that the percent of young adults ages 18-20 that have at least one credit card account has dropped by half.”

Although the overall findings included a two-percentage point decline in the total cost of credit between 2008 and 2012, there are still areas of concern in the credit card market.  Some of the areas of concern include add-on products, fee harvester cards, deferred interest products, and disclosures – all of which are discussed in more detail in the report.  The CFPB will continue to monitor these areas of concern and take action where appropriate.

To view the report in its entirety, click here.  Also, you can view NAFCU’s comment letter on the subject matter here.

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NCUA’s 2014 Board Meeting Schedule. Last Friday, the NCUA Board released its monthly meeting schedule for 2014.  The schedule, subject to change, is available here. 

***

NAFCU’s Credit Union Compliance GPS.  Regulatory burden got you down? Well, help is here by way of NAFCU’s 2013 Credit Union Compliance GPS! Newly updated and written by NAFCU’s compliance team, this is an essential resource for all credit union compliance officers and staff. The electronic manual explains complex regulatory language in plain English and includes user-friendly bookmarks, hyperlinks and pagination for easy navigation.  With updated resources and guidance to help your compliance research efforts, this is a must-have reference tool!

With one purchase, you can share the manual with your entire credit union staff for one affordable price - $399 for NAFCU member credit unions and $499 for nonmember credit unions. And, if you purchase the 2013 Credit Union Compliance GPS today, you will get the 2014 Credit Union Compliance GPS when it’s available in March – at no extra cost!  Also, if you register for NAFCU’s Compliance School before the 2014 version is available, you’ll get the benefits of the 2013 version until the 2014 version is available!

What are you waiting for? Get your copy today!

CFPB Amends Ability-to-Repay and Mortgage Servicing Rules; Provides Clarification on Implementation Dates for ARM Disclosures

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB finalized amendments to its ability-to-repay and mortgage servicing rules. These amendments clarify, correct, or amend provisions on:

• The relation to State law of Regulation X’s servicing provisions;

• Implementation transition requirements for adjustable-rate mortgage disclosures;

• The small servicer exemption from certain of the new servicing rules;

• Exclusions from the repayment ability and prepayment penalty requirements for higher-priced mortgage loans (HPMLs);

• The use of government sponsored enterprise (GSE) and Federal agency purchase, guarantee or insurance eligibility for determining qualified mortgage (QM) status; and

• The determination of debt and income for purposes of originating QMs.

The CFPB's press release highlights some of the changes, and the final rule may be found here.

*** 

Implementation Dates for ARM Notices. One particular item that I want to bring to your attention – which is not a revision to the rule itself or the official commentary – is clarification that the CFPB has included in the section-by-section analysis regarding implementation dates for ARM Notices.

When the CFPB issued its final mortgage servicing rules amending Regulation Z back in February, it did not provide guidance regarding its expectations for providing ARM disclosure notices required by amended sections 1026.20(c) and 1026.20(d) for ARMs that would be adjusting shortly after the January 10, 2014 effective date (and for which the timing requirements could not be complied with unless institutions sent out notices before the effective date of the rule).

Well, the CFPB must have received quite a few requests for clarification on the issue, and includes this clarification:

"Implementation Date. In its proposal, the Bureau did not seek to revise or clarify § 1026.20(c) and (d), the adjustable-rate mortgage (ARM) servicing regulations issued by the Bureau in the 2013 TILA Servicing Final Rule. Nevertheless, the Bureau received unsolicited queries regarding the implementation dates for these rules. Despite the unsolicited nature of these comments, the Bureau believes it would be helpful to clarify the ARM implementation dates.

ARM regulations § 1026.20(c) and (d) generally apply to ARMs originated both prior to and after the January 10, 2014, effective date. However, no servicer is required to comply with the rule until the effective date.

Implementation Date for § 1026.20(d). Because the notice required by § 1026.20(d) must be provided to the consumer between 210 and 240 days before the first payment is due after the initial interest rate adjustment, servicers will not be required to provide the § 1026.20(d) notice when such payment is due 209 or fewer days from the effective date. However, payments due 210 or more days from the effective date are subject to the rule.

Implementation Date for § 1026.20(c). Because the notice required by § 1026.20(c) must be provided to the  consumer between 60 and 120 days before the first payment is due after an interest rate adjustment causing a corresponding change in payment, servicers will not be required to provide the § 1026.20(c) notice when such payment is due 25 to 59 days from the effective date. Note that, under the time frame of current § 1026.20(c), notices are required 25 to 120 days before the first payment is due after the interest rate adjustment. Thus, servicers already will have provided the § 1026.20(c) notices required by the current rule when such payment is due 24 or fewer days from the January 10, 2014, effective date.” (Emphasis added)

Ability to Pay Rules for Credit Cards – Credit Unions Can Still Require Independent Income and Assets

Written by Bernadette Clair, Regulatory Compliance Counsel

I hope everyone enjoyed the holiday weekend!  Now, it’s back to the grind…

Earlier this month, my colleague JiJi blogged about the CFPB’s final rule amending Regulation Z’s ability to pay rules for credit cards. For consumers age 21 and over, these changes allow credit unions and other card issuers to consider income and assets that a consumer has a reasonable expectation of access to as the consumer’s income or assets.

We’ve received questions from quite a few folks about this change – in particular, whether a credit union is now required to include the income and assets that a consumer has a reasonable expectation of  access to when considering a consumer’s ability to pay. Answer: No.

Under the CFPB’s final rule, card issuers can choose to establish lending policies and procedures that consider income and assets to which a consumer age 21 and over has a reasonable expectation of access, OR they can choose to limit consideration of a consumer’s income or assets to the consumer’s independent income and assets. (Keep in mind that for consumers under the age of 21, section 1026.51(b)(1)(i) requires card issuers to consider independent ability to pay.)

From the rule:

“(a) General rule— (1)(i) Consideration of ability to pay. A card issuer must not open a credit card account for a consumer under an open-end (not home-secured) consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the consumer's ability to make the required minimum periodic payments under the terms of the account based on the consumer's income or assets and the consumer's current obligations.

(ii) Reasonable policies and procedures. Card issuers must establish and maintain reasonable written policies and procedures to consider the consumer's ability to make the required minimum payments under the terms of the account based on a consumer's income or assets and a consumer's current obligations. Reasonable policies and procedures include treating any income and assets to which the consumer has a reasonable expectation of access as the consumer's income or assets, or limiting consideration of the consumer's income or assets to the consumer's independent income and assets. Reasonable policies and procedures also include consideration of at least one of the following: The ratio of debt obligations to income; the ratio of debt obligations to assets; or the income the consumer will have after paying debt obligations. It would be unreasonable for a card issuer not to review any information about a consumer's income or assets and current obligations, or to issue a credit card to a consumer who does not have any income or assets.” 12 CFR 1026.51(a)(1) (emphasis added).

 In other words, for consumers age 21 and over, a card issuer may consider income and assets to which an applicant has a reasonable expectation of access, but is not required to do so.

One issue to consider, however, is whether choosing to exclude this type of income will leave your credit union at a competitive disadvantage compared to other lenders.  Food for thought.

CFPB Issues Final CARD Act Rule: Stay-at-Home Spouses and Partners

Written By JiJi Bahhur, Regulatory Compliance Counsel

Recently, the Consumer Financial Protection Bureau (CFPB) finalized amendments to the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), making it easier for spouses and partners who do not work outside of the home to qualify for credit cards.  In the existing regulation, card issuers were limited to consideration of only a card applicant’s independent income or assets, thus resulting in numerous creditworthy applicants – such as stay-at-home spouses and partners – being declined credit card access even though they had the means to pay the debt. 

The final amendments to the CARD Act now allow credit card issuers to consider income that a stay-at-home applicant, who is 21 or older, shares with a spouse or partner when evaluating the applicant for a new account or increased credit limit. From the summary of the final rule:

“The final rule has four main elements. First, the final rule generally removes references to an “independent” ability-to-pay standard from § 1026.51(a)(1) and associated commentary.  As a result, card issuers are no longer required to consider whether consumers age 21 or older have an independent ability to pay; instead, card issuers are now required by Regulation Z to consider the consumer’s ability to pay. Second, in determining a consumer’s ability to pay, the final rule permits issuers to consider income or assets to which an applicant or accountholder who is 21 or older – and thus subject to § 1026.51(a) rather than § 1026.51(b) ‒ has a reasonable expectation of access. The final rule clarifies by examples in the commentary those circumstances in which the expectation of access is deemed to be reasonable or unreasonable. Third, the final rule continues to require in §1026.51(b)(1)(i) that consumers under the age of 21 without a cosigner or similar party who is 21 years or older have an independent ability to pay, consistent with TILA section 127(c)(8). Finally, the final rule clarifies that application of the independent ability-to-pay standard to consumers under 21, consistent with Regulation Z, does not violate the Regulation B prohibition against age-based discrimination.”

The final rule can be found here.  The final rule took effect on May 3, 2013 and requires mandatory compliance by no later than November 4, 2013, although card issuers may, at their option, come into compliance before that date.

CFPB Issues Guides on HPML Appraisals, ECOA Valuations, and HOEPA Rule

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB issued Small Entity Compliance Guides for the TILA Higher-Priced Mortgage Loans Appraisal Rule (HPML Appraisal Rule), Equal Credit Opportunity Act (ECOA) Valuations Rule, and 2013 Home Ownership and Equity Protection Act (HOEPA) Rule.

Today I want to highlight an excerpt from Section 3 of the HPML Appraisal Rule Guide which discusses when the disclosure requirements of the HPML Appraisal Rule and ECOA Valuations Rule overlap and provides guidance on how to comply with the disclosure and timing requirements when both rules apply to a transaction.  From the guide:

“III. How do the Appraisals for Higher-Price Mortgage Loans Rule and the Equal Opportunity Credit Act Valuations Rule overlap?

For first-lien HPMLs that are covered by the HPML Appraisal Rule, the disclosure requirements overlap with the ECOA Valuations Rule. The ECOA Valuations Rule implements Dodd-Frank Act amendments to ECOA, which require you to provide consumer disclosures and free copies of appraisals and other written valuations.

You can use the disclosure under the ECOA Valuations Rule to satisfy the requirements of this rule. The ECOA guide and the ECOA Valuations Rule are online at http://www.consumerfinance.gov/regulations/disclosure-and-delivery-requirements-for-copies-of-appraisals-and-other-written-valuations-under-the-equal-credit-opportunity-act-regulation-b/.

The ECOA Valuations Rule imposes a different deadline structure for providing copies of appraisals to consumers. Under the ECOA Valuations Rule, the copies of appraisals must be provided “promptly upon completion” or three business days before closing, whichever is earlier.

As a result, if the appraisal is completed early in the application process, then the “promptly upon completion” deadline will come first, since it will be earlier than the three-business-days-before-closing deadline under this rule.

In addition, the applicant can waive the deadline under the ECOA Valuations Rule and elect to receive the copies at closing, whereas the applicant cannot waive the three-business-days-before-closing deadline under the HPML Appraisal Rule. 

If the transaction is subject to both rules, then comply with the earlier deadline. The HPML Appraisal Rule deadline will be earlier if the applicant provides a waiver under the ECOA Valuations Rule.

For example, if an applicant waives the deadline under the ECOA Valuations Rule, you will still need to comply with the three-business-day-before-closing requirement in this rule.

If the applicant does not waive the three-business-days-before-closing deadline, generally the ECOA Valuations Rule “promptly upon completion” deadline will be earlier.

 

IV. What text do I use in my disclosure to consumers?

Use this text in your disclosure to consumers:

“We may order an appraisal to determine the property’s value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.”

For a first-lien transaction, you can also add the word “promptly” to the disclosure, telling the consumers you will “promptly” give them the copy. Then you will have the same disclosure used to comply with the ECOA Valuation Rule. (Regulation B, 12 CFR 1002.14(a)(2))”

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NAFCU Members: Check out this month’s Compliance Monitor (available for download here) which features an in-depth discussion of these disclosure and timing requirements in the article entitled New Appraisal Disclosure Requirements: Regulation B and Higher-Priced Mortgage Loans (NAFCU login required).

The Three Primary Changes Made by the Final TILA Escrow Rule

Written By JiJi Bahhur, Regulatory Compliance Counsel

As Steve mentioned in Monday’s blog, the CFPB issued a Small Entity Compliance Guide for the Amendments to the Escrow Requirement for Higher-Priced Mortgage Loans.  The purpose of this Guide is to provide the requirements of the Escrow final rule in plain English.  The Guide does a pretty good job laying out what credit unions need to know and do to be compliant with the final rule by June 1, 2013. 

The Small Entity Compliance Guide is broken out into eight main sections:

1. Introduction
2. What is the TILA Escrow Rule
3. What are the important changes in the TILA Escrow Rule compared with existing regulations?
4. What are the exemptions to the TILA Escrow Rule?
5. What definitions do I need?
6. What else do I need to know?
7. Practical implications and compliance considerations
8. Other resources

It’s surprisingly a very easy read, especially because each main section is broken down into smaller compartments (sub-sections) and the index is on-point to what each sub-section contains.  As an example, let’s take a look at section 3 (see above).  The sub-section under section 3 is “What are the three primary changes made by this rule?”  And under that, simplified and in plain English, you find the three primary changes:

“These are the three primary changes this rule makes compared with existing regulations:

1. It lengthens to at least five years the required minimum period most creditors must maintain an escrow account for first-lien higher-priced mortgage loans secured by a consumer’s principal dwelling. You must maintain the escrow account until one of the following occurs: 1) the underlying debt obligation is terminated or 2) after the five-year period, the consumer requests that the escrow account be canceled. However, if you are canceling the escrow account at the consumer’s request, the loan’s unpaid principal balance must be less than 80 percent of the original value of the property securing the underlying debt obligation, and the consumer must not be currently delinquent or in default on the underlying obligation.

2. It clarifies that you do not have to escrow insurance payments for homeowners in common interest communities where the governing body is required to purchase master insurance policies.

3. It exempts from the escrow requirement loans made by certain small creditors that operate predominantly in rural or underserved counties, as long as they are not subject to forward commitments for sale to nonexempt creditors.” 

I have to say, if you haven’t read the final rule, or if you are just struggling with some of the language in the final rule, you definitely want to take a look at this. 

Don't forget to visit NAFCU's Mortgage Rules webpage - a one-stop shop for resources on all of the new mortgage regulations.  Among other related items, you can find NAFCU's article, featured in February's Compliance Monitor, on Escrow Requirements on HPMLs, which includes a detailed run-down of the small creditor exemption (NAFCU log-in required). 

***

There are a lot of new rules – the escrow rule being one – that may apply to your credit union so it is important to have a plan of attack.  Don’t let the effective dates creep up on you . . . time will fly!  Speaking of time flying, Kyse and Ava turned 8 months old this past weekend. 

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

Written by Steve Van Beek

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

Specifically, the Interagency Statement discusses:

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

The full Interagency Statement is here.

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

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

***

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

Go Blue!

Mortgage Periodic Statements & The E-SIGN Act; Key Takeaways from NAFCU's Webcast

Written by Steve Van Beek

One of the issues discussed last week at School and again on yesterday's webcast was the ability of credit unions to send mortgage periodic statements electronically without going through the full E-SIGN Act consent process.

Here is the language from new 12 CFR 1026.41(c):

"(c) Form of the periodic statement. The servicer must make the disclosures required by this section clearly and conspicuously in writing, or electronically if the consumer agrees, and in a form that the consumer may keep. Sample forms for periodic statements are provided in appendix H-30. Proper use of these forms complies with the requirements of this paragraph (c) and the layout requirements in paragraph (d) of this section." (Emphasis added).

The official staff commentary to 12 CFR 1026.41(c) has additional information:

"41(c) Form of the periodic statement.

1. Clear and conspicuous standard. The “clear and conspicuous” standard generally requires that disclosures be in a reasonably understandable form. Except where otherwise provided, the standard does not prohibit adding to the required disclosures, as long as the additional information does not overwhelm or obscure the required disclosures. For example, while certain information about the escrow account (such as the account balance) is not required on the periodic statement, this information may be included.

2. Additional information; disclosures required by other laws. Nothing in § 1026.41 prohibits a servicer from including additional information or combining disclosures required by other laws with the disclosures required by this subpart, unless such prohibition is expressly set forth in this subpart, or other applicable law.

3. Electronic distribution. The periodic statement may be provided electronically if the consumer agrees. The consumer must give affirmative consent to receive statements electronically. If statements are provided electronically, the creditor, assignee, or servicer may send a notification that a consumer's statement is available, with a link to where the statement can be accessed, in place of the statement itself.

4. Presumed consent. Any consumer who is currently receiving disclosures for any account (for example, a mortgage or checking account) electronically from their servicer shall be deemed to have consented to receiving e-statements in place of paper statements."  (Emphasis added).

As you can see, the commentary is extremely important. It clarifies that simple consent to electronic statements is sufficient (as opposed to the electronic consent required by the E-SIGN Act). It also clarifies that members who have consented to receive other disclosures electronically "shall be deemed to have consented" to receiving their mortgage periodic statement electronically.

Of course, the new periodic statement requirement only applies to credit unions that service 5000 or more mortgage loans (NAFCU log-in required). However, credit unions below the threshold - and, thus, not required to the new periodic statement - can still use the commentary as a guide to the delivery of any mortgage servicing information they currently send to members.

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Two Important Notes.  

1. Limited Scope. This does not open the flood gates with regard to the E-SIGN Act. This flexibility applies solely to closed-end loans secured by a dwelling. It does not extend to HELOC statements which must follow 12 CFR 1026.7. The flexibility also does not extend to other products (checking accounts, credit cards, etc.). 
2. Training Staff. The E-SIGN Act has already caused numerous headaches for compliance officers. This flexibility for mortgage periodic statements (simple consent versus full E-SIGN Act consent) has the potential to amplify this confusion.

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Yesterday's webcast included a detailed discussion of this issue as well as many of the other "under the radar" issues in the new mortgage regulations. Below you can find the Key Takeaways from the webcast (click on the photo of the slides):

Of course, the webcast is available for on-demand purchase. If you are following the Key Takeaways from School and putting together a mortgage implementation team at your credit union, this would be a good webcast to watch together to ensure everyone is on the same page.

CFPB Focusing on Students (and Private Student Loans); Free UDAP Webinar

Written by Steve Van Beek

The CFPB recently reiterated their focus on financial products offered to students.  A brief discussion of two current efforts is below. 

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CFPB Inquiry into Campus Products.  In late January, the CFPB launched an inquiry into the financial products marketed to students through colleges and universities.  If your credit union has a relationship with a local college or university (or if you CU is sponsored by one!), be sure to keep an eye on this issue.   

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CFPB Focusing on Private Student Loans.  The CFPB has not been shy when indicating they will be focusing heavily on private student loans.  If your credit union makes private student loans, be sure to track the CFPB’s actions and ensure you are ready for future changes.  On February 21, the CFPB penned two blog posts on student loans.  The first looked at student debt and schools.  The second was titled “Help Stop the Student Debt Domino Effect.”  The CFPB also announced a new Notice and Request for Information on the student loan market.  NAFCU’s Regulatory Affairs team will be providing a Regulatory Alert on this request for information and will also be drafting a comment letter to the CFPB. 

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Free UDAP Webinar.  On March 5, The Philadelphia Federal Reserve’s Consumer Compliance Outlook will feature a free webinar on UDAP - Analysis, Examinations, Case Studies, and Emerging Risks.  The webinar will look at:

• Consumer Financial Protection Bureau (CFPB) UDAAP and Federal Reserve Bank UDAP legal authorities

• UDAP legal analysis and examination procedures

• UDAP and bank holding company risk

• Case studies and emerging areas of risk

• Recommendations for implementing an effective UDAP compliance program

The webinar will start at 2:00 p.m. EST on March 5th.  With the CFPB’s future actions in this area unknown, be sure to tune in.

Finding the New Reg Z & Reg X Requirements in the Electronic Code of Federal Regulations

Written by Steve Van Beek

A couple weeks back, we looked at finding the new homeownership counseling disclosure requirements in the Electronic Code of Federal Regulations (e-CFR).  Now that all the final rules have been published, I thought it would be good to link to all the new and amended regulatory texts so that you have a central location for finding the future regulatory language. 

Note:  Below are links to the major changes - but there are tons of other little changes and tweaks to other sections of Regulation Z and Regulation X.  Additionally, some of the link names have the same citations but they go to a different regulatory text.  For example, there are numerous links to "Appendix I" but they all go to different staff commentary.   

Regulation Z (Truth in Lending Act) - 12 CFR 1026

• New Interest-Rate Adjustment Notices - 12 CFR 1026.20

• New Points & Fees Test - Closed-end Credit - 12 CFR 1026.32

• New High-Cost APR Thresholds & Expansion of High-Cost to Open-end Credit - 12 CFR 1026.32

• New Prohibitions & Requirements for High-Cost Mortgages - 12 CFR 1026.34

• Changes to Escrow Requirement for Higher-Priced Mortgage Loans - 12 CFR 1026.35

• New Appraisal Requirements for Higher-Priced Mortgage Loans - 12 CFR 1026.35

• New Negative Amortization Counseling Requirement - 12 CFR 1026.36(k)

• Changes to Prompt Payment Crediting & Payoff Statements - 12 CFR 1026.36(c)

• New Mortgage Loan Originator Compensation, Qualifications, Training, Disclosures & More - 12 CFR 1026.36

• Periodic Statements for Mortgage Loans - 12 CFR 1026.41

• Ability-to-Repay Requirements & Qualified Mortgage Standards - 12 CFR 1026.43

Appendices to Regulation Z

• New Model Forms for Adjustable-Rate Mortgages and Periodic Statements - Appendix H

• Higher-Priced Mortgage Loan Appraisal Safe Harbor Review - Appendix N

• Illustrative Written Source Documents for HPML Appraisal Rules - Appendix O

• Standards for Determining Monthly Debt and Income - Appendix Q

Official Staff Commentary to Regulation Z - Appendix I

• New Staff Commentary for Points & Fees Test; Ability-to-Repay Requirements & Qualified Mortgage Standards - Appendix I

• New Staff Commentary for High-Cost Mortgages; Negative Amortization Counseling Requirement - Appendix I

• New Staff Commentary for Appraisals on Higher-Priced Mortgage Loans - Appendix I

• New Staff Commentary for ARM notices; Payment Crediting & Payoff Statements; and Periodic Statements - Appendix I

• New Staff Commentary for Mortgage Loan Originator Requirements (all of them) - Appendix I

Regulation X (Real Estate Settlements Procedures Act) - 12 CFR 1024

• Changes to Escrow Accounts - 12 CFR 1024.17

• New Homeownership Counseling Disclosure - 12 CFR 1024.20

New Subpart C to 12 CFR 1024

The CFPB reorganized Regulation X - including a new Subpart C with Mortgage Servicing Requirements.  Sections 1024.30 through 1024.41 can all be found at this link.  Below are the new sections under Subpart C:

Subpart C—Mortgage Servicing

1024.30   Scope.

1024.31   Definitions.

1024.32   General disclosure requirements.

1024.33   Mortgage servicing transfers.

1024.34   Timely escrow payments and treatment of escrow account balances.

1024.35   Error resolution procedures.

1024.36   Requests for information.

1024.37   Force-placed insurance.

1024.38   General servicing policies, procedures, and requirements.

1024.39   Early intervention requirements for certain borrowers.

1024.40   Continuity of contact.

1024.41   Loss mitigation procedures.

The language of those new sections is available here.

Appendices to Regulation X

• New Model Language for Force-placed Insurance Notices - Appendix MS-3

• New Model Language for Early Intervention; Loss Mitigation; and Housing Counselor Notices - Appendix MS-4

• Official Bureau Interpretations to Reg X - Supplement I (link goes to Federal Register)

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Wow - that is a lot of links and a long blog post.  I know I've been running down some rabbit holes in my research and I'm sure some blog readers have as well.  Hopefully this blog post helps organize the confusion.  A bit.  Have a great weekend!