NAFCU Compliance Blog

Credit Union Incentive Plans Can Be a Useful Tool to Drive Performance, if Done Properly + Compliance Trivia!

Written by Shereefat Balogun, Regulatory Compliance Counsel

Credit unions generally use incentive plans to drive results, whether that be more loans or more deposits.  The overall goal is to reward employees for achieving certain results.  In May 2016, NCUA and other financial regulators issued a proposed Incentive Compensation Rule; while the rule is not yet finalized, credit unions are subject to other regulations that place restrictions on employee compensation or incentive plans.  NAFCU gets a number of question regarding employee incentives, and given NCUA’s growing concern and examination of these plans, credit unions are advised to develop an Incentive Compensation policy that is approved by the Board, and complies with the regulatory framework governing compensation and incentive structures.

NCUA Regulations

There are generally 3 NCUA rules that limit incentive compensation practices: Section 701.21 (c)(8) which restricts practices in connection with lending activities; Section 701.23(g) which places limits on compensation relating to the sale or purchase of eligible obligations; and Section 721.7 which addresses compensation related to incidental powers.

NCUA’s lending rules prohibit senior management employees from participating in a loan incentive plan.  Section 701.21(c)(8)(i) prohibits paying compensation in connection with any loan made by the credit union.  This rule regulates incentives given to employees in connection with the extension of a loan to a non-employee member.  There are some exceptions in (c)(8)(iii), which include salaries and incentives based on overall financial performance. There is also an exception for employee loan incentive programs established and monitored by a credit union’s board of directors; however, senior management is specifically excluded from this exception.  From the rule:

(8)(i) Except as otherwise provided herein, no official or employee of a Federal credit union, or immediate family member of an official or employee of a Federal credit union, may receive, directly or indirectly, any commission, fee, or other compensation in connection with any loan made by the credit union.

…

(iii) This section does not prohibit:

(A) Payment, by a Federal credit union, of salary to employees;

(B) Payment, by a Federal credit union, of an incentive or bonus to an employee based on the credit union's overall financial performance;

(C) Payment, by a Federal credit union, of an incentive or bonus to an employee, other than a senior management employee, in connection with a loan or loans made by the credit union, provided that the board of directors of the credit union establishes written policies and internal controls in connection with such incentive or bonus and monitors compliance with such policies and controls at least annually.

(D) Receipt of compensation from a person outside a Federal credit union by a volunteer official or non-senior-management employee of the credit union, or an immediate family member of a volunteer official or employee of the credit union, for a service or activity performed outside the credit union, provided that no referral has been made by the credit union or the official, employee, or family member.

12 C.F.R. §701.21(c)(8)(emphasis added).

Note that under this rule an employee, including senior management employees, may receive an incentive in connection with a loan based on the credit union’s overall financial performance.  However, only non-senior management employees may receive incentives in connection with a loan pursuant to the credit union’s written procedures that are established and approved by the Board of Directors.

Section 701.23(g) is very similar and tracks the language of 701.21(c)(8), except that the restrictions pertain to the purchase, sale, or pledge of an eligible obligation (i.e., a loan or group of loans). The rule generally has the same restriction and exceptions, as well as limitation as applied to senior management employees. 

Similarly, Section 721.7 places the same restriction but is not specific to any particular activity, and is more broadly applied to any authorized activity the credit union engages in.  See, 12 C.F.R. §721.7.

Regulation Z Prohibition on Mortgage Loan Originators’ Compensation Practices

Incentive compensation is also regulated in Regulation Z, as applied to mortgage loan originators and is indeed a much scrutinized area.   Regulation Z, §1026.36(d) prohibits mortgage loan originators from receiving compensation based on certain terms of a mortgage loan transaction, such as interest rate, APR, collateral type, and origination fees.  See, 12 C.F.R. §1026.36(d).

It’s worth flagging, the CFPB’s definition of “loan originator”, as this could include non-lending employees.  The rule’s definition of “loan originator” is broader than the definition of “loan originator” used in the SAFE Act, and includes the following activities if done for or in the expectation of compensation:

• takes an application;
• offers, arranges, assists a member in obtaining or applying to obtain credit;
• negotiates, or otherwise obtains or makes an extension of credit for another person; or
• advertises, communicates, or represents to the public that they can or will perform any loan origination activities.

See, 12 C.F.R.§1026.36(a).

NCUA in 2014 issued a Regulatory Alert discussing the CFPB’s Mortgage Loan Originator Compensation Requirements.   

Preferential Loans to Employees

On a related matter, we also receive questions relating to preferential loans to employees.  Generally, credit unions may give preferential loans, or lower loan rates, to its employees, so long as those employees do not include officials.  The relevant section to rely on is 12 CFR 701.21(d).

Section 701.21 sets forth the standards to which a federal credit union must adhere when making loans. Under this provision, a federal credit union is prohibited from granting preferential loans to its officials or an immediate family member of an official. See, 12 C.F.R. §701.21(d)(5).  This includes any member of the Board of Directors, credit committee or supervisory committee.  However, there is no prohibition against a federal credit union offering preferential loans to its employees.

For reference, here are two NCUA legal opinion letters on the topic:

• https://www.ncua.gov/Legal/OpinionLetters/OL2006-0343.pdf

• https://www.ncua.gov/Legal/OpinionLetters/OL1997-0247.pdf

In light of the current rules regulating compensation and incentive structures and the impending finalization of the Incentive Based Compensation Rule, credit unions are strongly advised to develop comprehensive Board policies regarding compensation.  The policy should comply with the regulatory framework, including the presence of strong internal controls, and should be reviewed by the Board annually. 

As always, if you have any questions relating to this article or any other compliance issue, please contact NAFCU’s regulatory compliance team.  We’re here for you!

Trivia: Under the proposed Incentive Based Compensation Rule, what would be the record retention for documenting the credit union’s incentive-based compensation arrangement?

 

SAFE Act Housekeeping Reminder

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

First off, I hope everyone had a great Thanksgiving holiday, spending time with friends and family!

This is the time to update and renew loan originator registrations. The SAFE Act renewal period, which began November 1st, will expire on December 31, 2013. Remember that under the SAFE Act, all credit unions and their MLOs must renew their registration during the annual renewal period each year (there is an exception for MLOs registering for the first time less than six months prior to the end of the annual renewal period). If a credit union and its MLOs do not renew their registration, they would be prohibited from originating residential mortgage loans until their status has been reactivated.

From 12 CFR 1007.103(a)(2):

Ҥ 1007.103 Registration of mortgage loan originators.

[…]

(2) Covered financial institution requirement —(i) In general. A covered financial institution that employs one or more individuals who act as a residential mortgage loan originator must require each such employee to register with the Registry, maintain this registration, and obtain a unique identifier in accordance with the requirements of this part.

(ii) Prohibition. A covered financial institution must not permit an employee who is subject to the registration requirements of this part to act as a mortgage loan originator for the covered financial institution unless such employee is registered with the Registry pursuant to this part.”

If the institution’s MLO(s) misses the December 31 deadline for annual renewal, the MLO’s status goes inactive. During the period of inactivity, the MLO cannot originate loans, but as soon as the MLO renews his/her registration, he/she will go back to active status and may begin originating again.

NCUA Finalizes Technical Amendments on Privacy; SAFE Act & Share Insurance

Written by Steve Van Beek

Last Thursday, NCUA issued a final rule which made numerous technical corrections to NCUA's regulations. Of note are three that had caused continued confusion for compliance officers of credit unions:

• NCUA's Privacy Regulation - 12 CFR 716

• NCUA's SAFE Act Regulation - 12 CFR 761

• Share Insurance Coverage of Noninterest-bearing Transaction Accounts - 12 CFR 745.14

Privacy & SAFE Act. NCUA lost authority for both privacy and the SAFE Act on July 21, 2011 when regulatory authority transferred to the CFPB and the technical amendments add cross-references to the CFPB's regulations which credit unions must follow. Here is from the final rule:

"In 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act substantially changed the federal legal framework with respect to consumer financial protection regulation. Among the many changes, title X of the Dodd-Frank Act transferred to the CFPB NCUA’s rulemaking authority under the Gramm-Leach-Bliley Act and the Secure and Fair Enforcement for Mortgage Licensing Act of 2008.

…

To assist federally insured credit unions, the rescinded parts of NCUA’s regulations will retain their original heading and be amended to include a cross citation to the CFPB’s republished version of the regulation."

NCUA's regulations will be updated with the cross-reference after the final rule is published in the Federal Register. The CFPB’s privacy regulation is 12 CFR 1016 and the SAFE Act regulation is 12 CFR 1007.

Share Insurance. The third amendment I wanted to highlight - the amendment to NCUA's Share Insurance regulation - was one that NAFCU had asked for numerous times since December 31, 2012 (including our "Update the Regulations, Please!" blog post). Here is NCUA's summary of their amendment:

"Section 343 of the Dodd-Frank Act provided that, on a temporary basis, NCUA would fully insure the net amount that any member or depositor at an insured credit union maintained in a noninterest-bearing transaction account. NCUA amended part 745 of its regulations to implement these temporary statutory changes through a final rule that became effective on June 24, 2011. Consistent with the sunset provisions in Dodd-Frank Act section 343(b)(3) and §745.14 of NCUA’s regulations, NCUA is rescinding its regulations implementing the temporary expanded insurance coverage granted under Dodd-Frank Act section 343(b)(1). In particular, the rule removes the definition of “noninterest-bearing transaction account” in §745.1(f), and removes §745.14 governing noninterest-bearing transaction accounts. The Board notes, however, that these accounts continue to be insured under other provisions of part 745."

The unlimited share insurance coverage for noninterest-bearing transactions accounts expired on midnight on December 31, 2012. This change should also be reflected in the Electronic Code of Federal Regulations after the final rule is published in the Federal Register.

***

Programming Note: NAFCU's offices will be closing early today and we'll also be closed on Monday for the holiday. 

We'll be back blogging on Tuesday - have a great weekend!

Mortgage Headache Areas; Upcoming Mortgage Reform Webcasts

Written by Steve Van Beek

Yesterday was NAFCU's first webcast as part of our Mortgage Reform Webcast Series.  I provided an overview of the seven new mortgage regulations - focusing specifically on the scope & applicability of the new requirements.  

I also provided some insight on "Headache Areas" and included this list at the end of the presentation:

• Determining Exemption Applicability

• New Notices – Content-Rich and Strict Timelines

• Error Resolution & Information Request Procedures

• Loan Originator Compensation Determinations

• Implementing So Many Changes At One Time

And, there will be many additional headaches as credit unions work toward implementing the new requirements.  Even self-induced ones.  

There is some hope on the horizon as the CFPB issued their best press release of their history which highlights their Implementation Plan for New Mortgage Rules.  The CFPB's plan indicates they are listening to NAFCU and credit union concerns regarding the overwhelming burden of reading, understanding, interpreting and implementing numerous requirements simultaneously.  Of course, we'll have more information on the CFPB's plan in future blog posts.

***

Upcoming Mortgage Reform Webcasts.  As I mentioned, yesterday's webcast was the first of our series and registration for the next three is now open.

• CFPB's Ability to Repay and Qualified Mortgage Requirements - March 6, 2013 - 2:00 p.m. to 3:30 p.m.

On March 6, Andy Keeney from Kaufman & Canoles will be examining the details of the CFPB's Ability-to-Repay Requirements and Qualified Mortgage Standards.  Andy will walk through the new underwriting guidelines - including the debt-to-income requirements - and explain how these rules will impact credit union mortgage lending.  And, importantly, the steps your credit union needs to take to comply by January 10, 2014.  

• Digging Deeper: CFPB's Mortgage Rules - March 27, 2013 - 2:00 p.m. to 3:30 p.m.

I'll be joined by my colleagues JiJi Bahhur, Bernadette Clair and Mike Coleman as we explore details of the CFPB's new mortgage requirements.  We'll provide answers to Frequently-Asked-Questions that our team has fielded from NAFCU member credit unions.  And, we'll take a look ahead at what other areas the CFPB is likely to address in 2013.  

• Which New Requirements Apply to HELOCs? - April 10, 2013 - 2:00 p.m. to 3:30 p.m.

I'll provide a detailed look at which requirements apply to home equity lines of credit and - just as importantly - which do not apply so that your credit union can best position your implementation strategy.  If your credit union makes HELOCs, this is one you'll want to attend as the new requirements are sprinkled throughout the CFPB's 3507 pages!

***

Programming Note:  NAFCU's offices will be closing early tomorrow and will be closed on Monday for the Federal holiday.  We'll have a blog post tomorrow and then start back up again on Tuesday.   

NAFCU's Scope & Applicability Charts for the New Mortgage Rules; NAFCU Calls for CU Reg Relief

Written by Steve Van Beek

The CFPB's 3507 pages of new mortgage regulations has everyone wondering where to start and how to best handle the new requirements.  One of the best first steps is to determine which requirements apply to which types of mortgage loans.  To help with this, NAFCU has put together the following Scope & Applicability Charts:

• Regulation Z (TILA) Mortgage Servicing Requirements

• Regulation X (RESPA) Mortgage Servicing Requirements

• Loan Originator Compensation, Qualifications, Training and Disclosure Requirements

• Regulation B Appraisal Requirements

• Appraisal Disclosure Requirement for Higher-Priced Mortgage Loans

• Appraisal Requirements for Higher-Priced Mortgage Loans

• New Escrow Requirements for Higher-Priced Mortgage Loans

• New Requirements for High-Cost Mortgage Loans

• New Homeownership Counseling Disclosure Requirement

• Ability-to-Repay Requirements and Qualified Mortgage Standards 

Now, you might be wondering how you gain access to those charts.  There are Five Ways:

• NAFCU members have access directly via NAFCU's CFPB Mortgage Rules webpage.

• Registrants for today's webcast on The CFPB's Final Mortgage Regulations (registration is still open) will be able to download the charts during the webcast.

• Attendees at NAFCU's Regulatory Compliance School will hear a similar presentation to today's webcast and will receive access to the charts at School in March (of course, NAFCU members can access the charts here).

• Purchasers of NAFCU's Credit Union Compliance GPS will receive access in mid-March when the 2013 GPS is available.

• Non-NAFCU member registrants of NAFCU's Regulatory Compliance Seminar will receive access in the next week.  If you sign-up for Seminar after today, we'll get the charts to you within a week of your registration.   

A Note on Sharing of Charts.  We put a ton of time and effort into researching and creating these charts.  And, we've made the accessible - in one way or another - to any credit union or organization that is interested.  Please do not share these outside of your credit union.  Of course, if you have any questions - just shoot me an email.  

Hope to see you on today's Mortgage Rules Webcast.

***

NAFCU Calls for Regulatory Relief.  Yesterday morning, NAFCU sent a letter to Senate and House leaders calling for a five-point plan on providing regulatory relief for credit unions through administrative, capital, structural, operational and data security reforms.  You can find the letter here.  For additional details, check out the NAFCU Today.

Reg B Appraisal Final Out; CFPB Summary of Higher-Risk Appraisals; More on Mortgage Servicing Rules

Written by Steve Van Beek

A couple of additional items before the weekend.  Reminder: NAFCU's offices will be closing early today and will be closed until Tuesday.  

Regulation B Appraisal Finalized.  The CFPB released their final rule for free copies of appraisals under Regulation B.  The press release is here.  There is a consumer summary as well as a detailed summary.    

The special page for the Regulation B final rule is located here.   

Effective Date:  January 18, 2014.  

***

Appraisals for Higher-Risk Mortgages.  As expected, the CFPB issued their own information regarding the interagency final rule on appraisals for higher-risk mortgages.  Their press release is here.  They also released a consumer summary as well as a detailed summary.  Effective Date: January 18, 2014.    

The special page for the Appraisals for Higher-Priced Mortgages* is located here.

*Note: The final rule adopts the term "higher-priced" for these loans to help align the rule with the existing "higher-priced" mortgage loan requirements (including escrows).  

NCUA also issued a press release and a link to the final rule on their website.  

So where will credit unions need to look for this requirement?  NCUA's rule or the CFPB's?

Here is from the final rule:

"The NCUA and FHFA adopt the rules as published in the Bureau’s Regulation Z at 12 CFR 1026.35(a) and (c), by cross-referencing these rules in 12 CFR 722.3 and 12 CFR Part 1222, respectively."

Thus, after the rules are in the Electronic Code of Federal Regulations, credit unions will need to use 12 CFR 1026 - Regulation Z - as NCUA's rule will simply tell them to go find the requirements in 12 CFR 1026.35. 

Just for fun, here is the wonderful legalese that will be located in 12 CFR 722.3(f):

"(f)  Higher-priced mortgage loans.  A credit union may not extend credit to a consumer in the form of a “higher-priced mortgage loan” as defined in 12 CFR 1026.35(a)(1), without meeting the requirements of section 129H of the Truth in Lending Act, 15 U.S.C. 1639h, and its implementing regulations in Regulation Z, 12 CFR 1026.35(c)."

Say that five times fast.  

***

More on Mortgage Servicing.  There has been quite a bit of discussion in the news about the 5000 transaction exemption for mortgage servicing.  Unfortunately, some of it has the potential to cause confusion.  When you are reading news stories or summaries of the mortgage servicing rule, remember that the 5000 transaction exemption does not cover all the new requirements.  For example, the requirements for error resolution and information requests procedures will apply to all credit unions performing mortgage servicing.  And, it looks like the force-placed insurance requirements will apply as well.  

"The Bureau agrees that additional exemptions are appropriate for certain of the rulemakings.  As discussed in more detail below, the Bureau has determined not to implement these additional exemptions to those regulations that principally implement requirements set forth in the Dodd-Frank Act.  These include the requirements in §§ 1024.35 (Error Resolution Procedures), 1024.36 (Information Requests), and 1024.37 (Force-Placed Insurance).  With respect to error resolution procedures and information requests, those provisions build upon the existing Qualified Written Request procedures, which are currently applicable to the servicers discussed above.  Providing an exemption to these requirements would have removed a currently existing consumer protection."  Page 90-91 of the Reg X/RESPA Mortgage Servicing Final Rule.

There could be more.  For now, if a colleague starts celebrating that you are under 5000 transactions and not subject to the mortgage servicing rule - just remind them of these six words that compliance officers know too well: "the devil is in the details."

Note: NAFCU's Mortgage Reform Webcast Series will feature a May 15 webcast on the error resolution and information request requirements.  

What is a Transaction?  We'll have more on this in a future blog post, but the periodic statement requirement covers all closed-end loans secured by a dwelling.  This would include closed-end home equity loans.  Open-end loans (i.e., HELOCs) are excluded.  Again, expect additional information next week on this issue (I have a weekend reading date with the devil to discuss the details).  

***

Final Rule for Mortgage Loan Originator Compensation?  I haven't seen it yet, but it is likely to come out today as well.  

The best place to check is the CFPB's main regulation page.  We'll also post the information on this blog post (yes, the one you are reading) after it is out.  Just click this link and you'll go to the compliance blog itself and will be able to see any updates.

Update at 4:30 p.m. on 01/18/2013.  Cordray's remarks on mortgage loan originator compensation are here.  Our NAFCU Today story is here.  Additional information on the rule - including the full regulatory text - is not expected until Sunday.    

Update at 6:45 a.m. on 01/19/2013.  The CFPB's press release is available as is their summary of the rule.  The full rule will come out Sunday, January 20th.  

Update at 2:00 p.m. on 01/20/2013.  The CFPB's special regulation page for the MLO rule is here.  The full MLO compensation rule is available here (541 pages).

Effective Date:  The press release indicates the effective date for the majority of the new requirements will also be January 10, 2014.  However, two provisions - prohibition on mandatory arbitration and the prohibition on financing credit insurance - will be effective June 1, 2013.

Have a great weekend!

CFPB Finalizes First Three Mortgage Regulations: Qualified Mortgages; Escrows; & HOEPA

Written by Steve Van Beek

Did you hear that?  No worries, it was just the sound of thousands of dying trees after the CFPB's first three mortgage regulations were finalized.  If you heard a second noise, it was probably your printer dying. 

***

Now, on to the good stuff.  Initially, it is good idea to overview which rules were finalized and which are coming next.

Which Three Regulations?  Yesterday, the CFPB finalized the qualified mortgage rule (AKA the ability-to-repay rule), the escrow rule for higher-priced mortgages, and the HOEPA/High-Cost/Section 32 mortgage rule.  

What is Left?  It is expected that the CFPB will finalize the remaining regulations on January 17th at their field hearing in Atlanta.  Which ones?  Mortgage servicing (both Reg Z and Reg X), mortgage loan originator compensation (and much more - including SAFE Act angles), appraisals for higher-risk mortgages, and Regulation B appraisal disclosure requirements.  Yikes! 

Of course, it is always possible the CFPB waits on one or two of these - especially given that neither the higher-risk appraisals or Reg B appraisals are listed on the CFPB's latest Regulatory Agenda.  But, be prepared for all of these to be coming out soon.  

What about TILA/RESPA Integrated Disclosures?  The new disclosure forms will be finalized later in 2013.  Dodd-Frank mandated that the CFPB propose new regulations by July 21, 2012 but it did not mandate a timeframe for the final regulation.  

***

Qualified Mortgages - Ability-to-Repay.  This is the one that got all the press yesterday.  There was the field hearing, the press release, Cordray's prepared remarks, the blog post, the Fact Sheet, the Summary and.........finally, the final rule (804 pages).  

The CFPB created a special page for each new final rule and you can find the Qualified Mortgage/Ability-to-Repay page here.

This page includes the full final rule and it also takes a page out of this blog's playbook and breaks the new rule down by preamble, regulatory text and official interpretations.  

Effective Date:  The final rule contains an effective date of January 10, 2014.

Concurrent Proposal:  The CFPB also proposed changes to the just finalized regulation.  The proposal can be found here.  Including the preamble, regulatory text and the official interpretations.   

Of course, we'll have more on this final rule and the proposed rule in the future.

***

Escrow Final Rule - Higher-Priced Mortgages.  To much less fanfare, the CFPB also finalized a rule on escrow requirements for higher-priced mortgages (the original proposal was from the Federal Reserve way back in March 2011).  The CFPB released a consumer guide on this rule (where is the compliance officer guide?)  There is also a one-page summary here.

The CFPB's special page for the escrow final rule is here.

The full final rule is here (116 pages).  There are also separate documents with the preamble, regulatory text and the official interpretations.

Effective Date:  This final rule is effective June 1, 2013.     

***

HOEPA/High-Cost Mortgage - Final Rule.  The CFPB also finalized a rule implementing changes to high-cost mortgages.  A consumer guide for this rule is also available.  A three-page summary is here.     

The CFPB's special page for the HOEPA/High-Cost final rule is here.

The full final rule is here (431 pages).  There are also separate documents with the preamble, regulatory text and the official interpretations.

Effective Date:  This final rule is effective January 10, 2014.

Importantly, this final rule did not include a decision on whether to expand the definition of finance charge.  That decision will be made as part of the TILA/RESPA Integrated Disclosure final rules.   

***

Adding It Up.  So, that is 804 + 116 + 431 = 1351 new pages.  And, more to come next week.

And, silly me, I thought I'd be able to finalize the third Game of Thrones book prior to the show starting back up.  

Bonus:  While there are many resources above, I wanted to share my personal favorite.  Have a great weekend!  

A Few Housekeeping Reminders to Start off the Year

Written by Bernadette Clair, Regulatory Compliance Counsel

Welcome back! We hope everyone enjoyed the holidays and good times with family and friends.

Before delving into the New Year, we thought it might be useful to consolidate some of our recent blog posts highlighting compliance deadlines that have come and gone over the last week, so they don’t get lost in the shuffle.

SAFE Act Housekeeping Reminders.  The SAFE Act renewal period expired on December 31, 2012.  Credit unions and their MLOs must renew their registration during the annual renewal period each year.  Independent testing for compliance with the SAFE Act and its implementing regulations is also required annually, and may be conducted by credit union staff or an outside party.

TAG/NIBTA – Expiration of Unlimited Share Insurance Coverage.  Congress did not extend the unlimited share insurance coverage for noninterest-bearing transaction accounts, so this temporary coverage expired on December 31, 2012.  NCUA Letter to Credit Unions 12-CU-14 details steps for credit unions to take, such as communicating the change in insurance coverage to your membership and making sure account disclosures properly disclose the level of insurance coverage.

Reporting Nonresident Alien Interest.  IRS final regulations that went into effect April 19, 2012, require credit unions to report interest of $10 or more in the aggregate, paid to certain nonresident aliens on or after January 1, 2013.  The first filing will be required in 2014, for the tax year 2013.

CFPB Website Reference for Credit Card Application & Account Opening Disclosures.  As of January 1, 2013, your credit card disclosures need to reference the CFPB (in the past they mentioned the Federal Reserve). When the CFPB republished Regulation Z , sections 12 CFR 1026.60 (applications and solicitations) and 12 CFR 1026.6 (account opening disclosures) were changed to reflect the CFPB's authority over Regulation Z and credit cards.

Updates to Adverse Action Notices and Risk Based Pricing Notices.  Also as of January 1, 2013, credit unions must ensure their risk-based pricing notices refer to the CFPB as the appropriate federal regulatory authority.  Adverse action notices must also be updated to reflect either NCUA’s Office of Consumer Protection (OCP) for federal credit unions with assets under $10 billion or the CFPB for those with assets of $10 billion or more.

SAFE Act Housekeeping Reminders

Written by Bernadette Clair, Regulatory Compliance Counsel

Annual Renewal.  The SAFE Act renewal period, which began November 1st, will expire on December 31, 2012.  Remember that under the SAFE Act, all credit unions and their MLOs must renew their registration during the annual renewal period each year (there is an exception for MLOs registering for the first time less than six months prior to the end of the annual renewal period).  If a credit union and its MLOs do not renew their registration, they would be prohibited from originating residential mortgage loans until their status has been reactivated.

From 12 CFR 1007.103(a)(2):

“§ 1007.103   Registration of mortgage loan originators.

[…]

(2) Covered financial institution requirement —(i) In general. A covered financial institution that employs one or more individuals who act as a residential mortgage loan originator must require each such employee to register with the Registry, maintain this registration, and obtain a unique identifier in accordance with the requirements of this part.

(ii) Prohibition. A covered financial institution must not permit an employee who is subject to the registration requirements of this part to act as a mortgage loan originator for the covered financial institution unless such employee is registered with the Registry pursuant to this part.”

If for some reason the institution’s MLO(s) misses the December 31 deadline for annual renewal, it doesn’t mean the MLO is forever banned from originating loans.  What it does mean is that the MLO’s status goes inactive.  During the period of inactivity, the MLO cannot originate loans, but as soon as the MLO renews his/her registration, he/she will go back to active status and may begin originating again.

Annual Independent Testing.  Independent testing for compliance with the SAFE Act and its implementing regulations must be conducted at least annually in accordance with section 1007.10(f).  The testing may be conducted by credit union staff or an outside party.

Below is a Q&A from the December 2012 NAFCU Compliance Monitor discussing the annual audit requirement:

Question: Is there a requirement to conduct an annual S.A.F.E. Act audit? We are a small credit union with only two employees registered as Mortgage Loan Originators. We thought we could tailor our S.A.F.E. Act policies and procedures to the size and complexity of our mortgage lending activity.

Answer. Yes, an annual S.A.F.E. Act audit is required. Although the general requirement under S.A.F.E. Act implementing regulations is to adopt policies and procedures appropriate to the nature, size, complexity and scope of the credit union’s mortgage lending activities, there are several minimum requirements that must be included in a covered institution’s policies and procedures. See, 12 C.F.R. § 1007.104. One of these minimum requirements is to “provide for independent testing for compliance with this part to be conducted at least annually by covered financial institution personnel or by an outside party.” See, 12 C.F.R. § 1007.104(f). Note, however, that the credit union is not necessarily required to engage outside auditors to conduct this annual testing. The testing can be conducted by credit union personnel, so long as the personnel performing the audit are independent from those responsible for establishing and maintaining the credit union’s S.A.F.E. Act policies and procedures.

Tracking the CFPB's Mortgage Proposals - Federal Register

Written by Steve Van Beek

With the various mortgage proposals from the CFPB, I thought a good Friday blog post would be one that linked to the various proposals in the Federal Register so that credit unions had the proposed rules in one place.

Initially, here is a link to the CFPB's section of the Federal Register.  Below are links to the CFPB's mortgage proposals.

• High-Cost Mortgages and Housing Counseling Amendments Note: The comment period for the finance charge portion has been extended until November 6th.  
• Equal Credit Opportunity Act (Regulation B) - Appraisals
• Integrated Mortgage Disclosures under TILA/RESPA Note:  The comment period for the finance charge portion was also extended until November 6th.
• Appraisals for Higher-Priced Mortgage Loans
• Loan Originator Compensation (Regulation Z)

Update (10/01): The Mortgage Servicing proposals can be found here (Reg Z) and here (Reg X).  It doesn't appear that the Mortgage Servicing proposed rules have been published in the Federal Register yet (the comment period ends October 7th for those proposals).  Those proposals can be found here:  Reg Z and Reg X.  Our August 23rd blog post also has a recap of our mortgage servicing blog posts to date.

***

NAFCU Seminar.  We'll be discussing both of the Mortgage Servicing proposals as well as the TILA/RESPA Integrated Mortgage Disclosures in breakout sessions in Seattle (October 23-26th).  We'll also be discussing the other proposals in our CFPB Update sessions.  

On-Demand Webcast.  If you missed the 3-hour marathon webcast on Wednesday, you can still purchase the on-demand version in order to get a detailed update of the CFPB's proposals on mortgage servicing and high-cost mortgages (including the impact on HELOCs).  I also provided an overview of the proposed Integrated Disclosures.

***

Football Season.  I'll admit we've been a little slow on the football talk lately.  With that being said:  Go Blue!

Have a great weekend!

Keeping a Record of NCUA's Regs; NAFCU's Comment Letter on TILA/RESPA

Written by Steve Van Beek

On Tuesday we blogged about the FTC's rescission of their regulations that transferred to the CFPB.  We also indicated that NCUA was likely to follow soon after and rescind their rules.  We also included this information about making a copy of the current rules:

"Prior to this occurring, it might be a good business practice to make a copy of the soon-to-be rescinded regulations to ensure your credit union has a copy of the regulations in effect in the past in the case of a member complaint, exam issue or lawsuit."

A very helpful comment highlighted that the Government Printing Office (GPO) retains a copy of each year's CFR in PDF or XML format.  Below are the 2011 PDFs of the rules that transferred from the NCUA to the CFPB.   

Main Rules.  These three rules were transferred either completely (Privacy and SAFE Act) or almost completely (Fair Credit Reporting Act).

• Part 716 - Privacy of Consumer Financial Information
• Part 717 - Fair Credit Reporting
• Part 761 - Registration of Residential Mortgage Loan Originators 

There are a few other regulations listed in the CFPB's Federal Register notice on the transferred regulations but they are not major changes and only impact certain situations.  Part 707 - NCUA's Truth in Savings regulation - is also included on the list but rulemaking authority for Part 707 remains with NCUA.

Note:  Prior years of regulations can be found by using this GPO starting page.  Hat tip to Kennyb.      

***

TILA/RESPA Disclosure Combination.  On Monday, NAFCU submitted a comment letter to the CFPB on their plans to combine the TILA and RESPA disclosures.  The comment letter is 7 pages long and highlights areas of concerns as the CFPB continues along their Dodd-Frank mandate.  

Remember:  The CFPB has to have an official proposal out for the TILA/RESPA combined disclosures by July 21, 2012.  Their Know Before You Own project was not an official proposed rule and was not part of the Administrative Procedures Act.   

Playing Catch-Up: SAFE Act Procedures; Compliance Monitor; Final Regulations

Written by Steve Van Beek

Initially, I want to say Thank You to all the attendees at last week's Regulatory Compliance School.  It was a great week, made even better by the great questions and interaction among attendees.  Thank You - and hope to see you at Regulatory Compliance Seminar in the future (no tests - I promise!)  

And - good luck to everyone who took the NCCO Exams!  

***

Strange as it sounds, it feels good to be back in the office after a long week at School.  I'm sure there are more than a few items to get up to speed on, but first a few older items that might be useful.

CFPB's SAFE Act Examination Procedures.  On March 7, the CFPB announced their SAFE Act examination procedures.  While the CFPB's primary examination authority extends only to credit unions above $10 billion in assets, all credit unions offering mortgage loans need to follow Regulation G - 12 CFR 1007.  I'd pass these examinations procedures along to the appropriate folks at your credit union as NCUA might take a similar approach in its future examinations.  If nothing else, the examination procedures could serve as a useful internal audit tool.      

NAFCU's March Compliance Monitor.  The March 2012 NAFCU Compliance Monitor is available.  The Worth Noting section highlights issues over the past month or so that might impact your credit union and there are articles on the CFPB and small blurbs on Health Care Reform and Periodic Statements for Mortgages.  

The Compliance Monitor is a NAFCU member-only publication.  If your credit union is interested in learning more about NAFCU membership, take a peek at our trial membership program.

NAFCU Final Regulation - Reg E:  International Remittances.  NAFCU-members, our Final Regulation on the Remittances rule is available (12-EF-02).  Compliance is required by February 7, 2013. 

NAFCU Final Regulation - NCUA:  Interest Rate Risk Policy.  Our Final Regulation on NCUA's Interest Rate Risk Policy and Management is also available (12-EF-01).  Remember, compliance is required by September 30, 2012.

Finding the CFPB's Regulations

Written by Steve Van Beek

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

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

***

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

***

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

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

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

***

A couple of other items to keep in mind:

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

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

Written by Steve Van Beek

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

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

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

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

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

SAFE Act Renewal Period…Going…Going…

Written by JiJi Bahhur, Regulatory Compliance Counsel

Just a friendly reminder that the SAFE Act renewal period is set to expire on December 31, 2011.  Under the SAFE Act, all credit unions and its MLOs must renew their registration between the annual renewal period each year (there is an exception for MLOs registering for the first time less than six months prior to the end of the annual renewal period).  Part 761.102(a) of NCUA’s Rules and Regulations define the annual renewal period as November 1 through December 31 of each year.  If a credit union and its MLOs do not renew their registration, they would be prohibited from originating residential loans.  Here is from 12 CFR 761.103(a)(2): 

Ҥ 761.103 Registration of mortgage loan originators.

.......

(2) Credit union requirement —(i) In general. A credit union that employs one or more individuals who act as a residential mortgage loan originator must require each employee who is a mortgage loan originator to register with the Registry, maintain this registration, and obtain a unique identifier in accordance with the requirements of this part.

(ii) Prohibition. A credit union must not permit an employee of the credit union who is subject to the registration requirements of this part to act as a mortgage loan originator for the credit union unless such employee is registered with the Registry pursuant to this part.”

There is some leniency in the SAFE Act.  First, although all institution accounts must be renewed during each annual renewal period, the same does not always apply to the institution’s MLO(s).  If the MLO completed his/her initial registration less than 6 months prior to the end of the annual renewal period for that year, Part 761.103(b)(3) of the rule allows for an exception to annual renewal for that particular year.  Thus, any MLOs who registered on or after July 1st of 2011 would not be required to renew in 2011.    

Second, if for some reason the institution’s MLO(s) misses the December 31 deadline for annual renewal, it doesn’t mean the MLO is forever banned from originating loans.  What it does mean is that the MLO’s status goes inactive.  During the period of inactivity, the MLO cannot originate loans, but as soon as the MLO renews his/her registration, he/she will go back to active status and may begin originating again.

Below is a Q&A from the November 2011 NAFCU Compliance Monitor explaining the exception for MLOs who registered after July 1, 2011:

Question: We registered all our mortgage loan originator (MLO) personnel at the beginning of the year. I understand that we need to renew the credit union account before December 31, 2011, but I don’t need to renew our MLO registrations until next year, correct?  

Answer: No. If your employees were registered before July 1st then you will need to renew the registrations before December 31st and again annually thereafter as long they are active mortgage loan originators. “The annual registration renewal requirement set forth in paragraph (b)(1) of this section does not apply to a registered mortgage loan originator who has completed his or her registration with the Registry pursuant to paragraph (a)(1) of this section less than 6 months prior to the end of the annual renewal period.” See, 12 C.F.R. §761.103(b). Thus, any registrations that were made active after July 1st are not required to be renewed in that same calendar year but must be renewed in subsequent years. Any registrations prior to July 1st would need to be renewed between November 1 and December 31.     

For additional information on the SAFE Act renewal process, check out our October 18th blog post.

Upcoming Compliance Dates; Veterans Day

Written by Sarah Zimmermann

I believe we've touched on these upcoming compliance issues separately but we thought it might be helpful to put them together in a cohesive post. Below are three compliance issues that are coming up soon.

SAFE Act Renewal.  MLOs that were registered before July 1 are required to renew their registrations before December 31 and they will not need to pay a renewal fee this year. Individual employees who registered after July 1 are not required to renew their registrations by the December 31 deadline but must do so in coming years. All institution accounts need to renew on an annual basis regardless of when the initial registration occurred and will pay a $100 fee. For more information the Nationwide Mortgage Licensing System & Registry has a Federal Registry Renewal and Reactivation Handbook.

 

NCUA's Advertising Rule.   NCUA's final advertising rule has a mandatory compliance date of January 1, 2012. This rule requires credit unions to include the agency’s official advertising statement on annual reports and financial statements of condition required to be published by law and shortens the radio and television advertisement exemption requiring the statement with advertisements that are 15 seconds or longer. This final rule also defines the term “advertisement” and details the size requirement for NCUA’s official advertisement statement in print materials. NAFCU members, you can read more about this in NAFCU's Final Regulation 11-EF-15, which can be accessed from this page.

Member online authentication. In June, NCUA issued Letter to CUs 11-CU-09 which included supplemental guidance to the 2005 FFIEC guidance on online member authentication. NCUA notes in the letter that examiners will evaluate authentication controls under the enhanced expectations outlined in the supplemental guidance, which includes further guidance on layered security.

***

 

In honor of Veterans Day, NAFCU offices will be closed tomorrow, November 11. As always, we'd like to extend our gratitude and appreciation to those who have served, do serve, and will serve. Your service allows us to the live the lives we do. On that note, Anthony penned a great blog last year reminding us of the laws that protect servicemembers financially. Rather than recreate, I figured we could link to it.

Have a great weekend everyone. We'll be back on Monday.

SAFE Act Renewal Process

Written by Steve Van Beek

The SAFE Act requires mortgage loan originators (MLOs) to renew their registrations annually.  The annual renewal period is from November 1 to December 31.  

The underlying regulatory requirement for the annual renewal comes from 12 CFR 761.103(b):

"(b) Maintaining registration. (1) A mortgage loan originator who is registered with the Registry pursuant to paragraph (a) of this section must:

(i) Except as provided in paragraph (b)(3) of this section, renew the registration during the annual renewal period, confirming the responses set forth in paragraphs (d)(1)(i) through (viii) of this section remain accurate and complete, and updating this information, as appropriate; and

(ii) Update the registration within 30 days of any of the following events:

(A) A change in the name of the registrant;

(B) The registrant ceases to be an employee of the credit union; or

(C) The information required under paragraphs (d)(1)(iii) through (viii) of this section becomes inaccurate, incomplete, or out-of-date.

(2) A registered mortgage loan originator must maintain his or her registration, unless the individual is no longer engaged in the activity of a mortgage loan originator.

(3) The annual registration renewal requirement set forth in paragraph (b)(1) of this section does not apply to a registered mortgage loan originator who has completed his or her registration with the Registry pursuant to paragraph (a)(1) of this section less than 6 months prior to the end of the annual renewal period."

As Section 761.103(b)(3) indicates - the renewal process does not apply to MLOs who registered after July 1st.

The Nationwide Mortgage Licensing System (NMLS) has numerous resources on the renewal process.

• Streamlined Annual Renewals (Federal Registry) 

• Federal Registry Renewal and Reactivation Handbook

• FAQs on Renewal Process

Here is one of the FAQs:

"Q. Who needs to renew?

A. According to federal regulations, registrations that become initially active before July 1 must be renewed by the end of that same calendar year, as well as all subsequent years.  Registrations initially made active after July 1 are not required to be renewed by the end in that same calendar year, but must be renewed in subsequent years.  All institution accounts must be renewed on an annual basis, regardless of when the institution’s account was created."

SAFE Act - Consumer Access; CFPB Advisor Named

Written by Steve Van Beek

The SAFE Act included a requirement for consumers and members to be able to view mortgage loan originator information in a publicly available database.  That "Consumer Access" database is now up and running and can be found here.  This is a good way to see what your members might see.  

There is additional information on the Consumer Access from the Federal Registry here.   

***

Bart Shapiro has been announced as Senior Advisor for the CFPB Office of Community Banks and Credit Unions.  This office is headed by Elizabeth Vale.  Shapiro comes to the CFPB from the Department of Housing and Urban Development (HUD).  More information on Shapiro is available in the NAFCU Today.

CFPB Nomination Hearing; SAFE Act

Written by Steve Van Beek

Congress will be heading out of town for August and the Senate Banking Committee has postponed Richard Cordray's Nomination hearing until September 6, 2011.  Both chambers will continue to meet in pro forma sessions which will prevent President Obama from making any recess appointments - including for Cordray as Director of the Consumer Financial Protection Bureau.

***

We have been getting quite a few SAFE Act NMLS # questions - specifically where and when the number must be disclosed.  The best starting resource is 12 C.F.R. 761.105(b) which is part of NCUA's regulations implementing the SAFE Act.  That section states:

 

"(b) A registered mortgage loan originator shall provide his or her unique identifier to a member:

(1) Upon request;

(2) Before acting as a mortgage loan originator; and

(3) Through the originator's initial written communication with a member, if any, whether on paper or electronically."

The two most common questions we received are: does the NMLS # need to be on emails and does the NMLS # need to be on business cards?

The Agencies discussed business cards when they issued the final rule.  Here is from the preamble:

"Furthermore, the Agencies intend § __.105(b)(3) of the rule to cover written communication from the originator specifically for his or her customers, such as a commitment letter, good faith estimate or disclosure statement, and not written materials or promotional items distributed by the Agency-regulated institution for general use by its customers. While, this provision does not require institutions to include the unique identifier on loan program descriptions, advertisements, business cards, stationery, notepads, and other similar materials, institutions are not prohibited from doing so. We also clarify that the requirement to provide the unique identifier to the consumer through the originator’s initial written communication, if any, applies whether that communication is provided in writing on paper or through electronic means. We have clarified this requirement in the final rule. The Agencies also clarify that the unique identifier may be provided orally, except pursuant to paragraph (b)(3) under which the unique identifier would be provided with the written or electronic communication."  (emphasis added).

That discussion is dealing with Section 761.105(b)(3) and the initial written communication.  

However, what about Section 761.105(b)(2)?  That section requires disclosure before acting as an mortgage loan originator (MLO).  Credit unions have options in meeting this requirement - but they do need to make sure the MLO discloses their NMLS # before acting as an MLO.  

Including the NMLS # on email signatures and business cards is one way of disclosing the unique identifier to members before acting as an MLO.  The credit union could adopt other procedures to meet the disclosure requirement as it is not a regulatory requirement to include the number on business cards or email signatures.

On a practical note, I'm not sure there is a concern about overdisclosure in this situation.  The credit union could include the NMLS # on business cards, email signatures and disclose the number via other means without worry about disclosing the number in too many places.

***

The CFPB now has authority over the SAFE Act.  Perhaps the CFPB will provide straightforward guidance in the future?   

SAFE Act; NCUA on Interchange; Shameless Plug - GPS

Posted by Anthony Demangone

The SAFE Act questions appear to be gaining momentum here at NAFCU.  That means that many of you are in the middle of the MLO registration process.  We've heard one particular issue from many of you, and it concerns background checks.  In short, many credit unions are starting to receive "criminal record" information about employees as a result of the MLO registration process.  In many cases, the information is less than clear.  Just what do regulators expect financial institutions to do with this information? 

The following comes from the "preamble" of the SAFE Act final regulation. 

“The employing institution will be responsible for reviewing the criminal history background report once it is completed, and taking any necessary action based on the findings of this report, pursuant to the institution’s policies and procedures, as required by this final rule. We note that the registrant will obtain a unique identifier during the registration process and not when the registration is complete.”

You'll need to review your own policies and procedures to see what they say.  Perhaps they are silent.  If so, now might be a good time to think about how you want to handle any information you receive as a result of a criminal history background report.  What will the process entail?  Who will handle such issues?  What will you do if the report is less than clear?  

The good news is that regulators have given you the flexibility to handle this issue as you see fit.  The bad news is that such flexibility comes with a price - you will need to sit down and make a business decision on how to proceed.

NCUA on Interchange.   NCUA Chairman Debbie Matz sent this letter to the Fed regarding NCUA's views on their debit interchange regulation. The letter seems to say that the Fed's proposal will adversely affect those CUs under $500 million in assets.  In the letter, NCUA notes that it didn't look at all foundational costs.  The implication is that if your shop is over $500 million in assets, you can sit back, relax, and enjoy your berries and cream while watching Wimbledon on the tele.  In any event, we think their analysis fell short, and we responded as such with this letter. 

GPS.  The NAFCU Compliance Credit Union Compliance GPS is now available for purchase.   This is the manual we created for our own NAFCU Compliance School  Check out its table of contents, which should give you a good idea of whether the manual is a good fit.  A few things I'd like to point out:

• This is designed to be an electronic manual.  There are links, links, and more links.  If you want to print this puppy out, that's on you. 
• It is available for purchase by NAFCU members and nonmembers alike.  Just one manual is needed per shop - you can share amongst yourselves as you see fit after the purchase.
• We'll update this again for next year's Regulatory Compliance School.  Attendees of the 2011 school already have this manual, so if your credit union sent someone to that school - there's no need to purchase it again this year. 

Have a great weekend!

Warren Hits the Road; 18% for another 18; SAFE Act; A Chart Worth Viewing

Posted by Anthony Demangone

Here are a few items to start your week.

"A" for effort.  Elizabeth Warren has accomplished one of her goals - to visit a small, independent banker in every state.   She's certainly getting a message that is near and dear to credit unions.  Here's a snippet of a speech she recently gave to community bankers:

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

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

FCU Usury Ceiling.  The NCUA board did extend the 18% usury ceiling for an additional 18 months, through September 10, 2012.  If you need to show documentation for their decision, visit Letter to Federal Credit Union 11-FCU-04.

SAFE Act.  The NMLS SAFE Act Compliance Countdown blog notes the existence of four how-to seminars that should help your credit union navigate the SAFE Act MLO registration process. 

Monday Morning Humor? A hat tip to Jason for this gem. I'm not sure whether the following is funny, or a tad depressing.  Public Citizen put together this simple chart that shows the maze that federal regulators must navigate when they create regulations. 

____________________________________________________

Practices and Procedures for Financial Institution Risk Management
Please use code NAFCU11 to save 10% on all new orders

 

SAFE Act Registry FAQ Posted

Posted by Anthony Demangone

If you've read our blog over the past few years, you'll know how much we love FAQ guidance documents.  Well, here's another one to add to the list.  A SAFE Act FAQ. 

The NMLS Registry posted the guidance document on Friday.  There's a ton of good stuff here.  Be sure to pass this along to your SAFE Act administrator. Here's a taste:

Q. An MLO’s fingerprints came back as “illegible”.  Do I need to repay the criminal background check fee to schedule a new appointment?

A. No.  The criminal background check fee covers the collection and submission of a second set of fingerprints if the first set is deemed illegible by the FBI.  If the second set of fingerprints is deemed illegible, the MLO does not need to submit a third set of prints.  Rather, the FBI will attempt to locate any pertinent criminal history record information using the MLO’s name and demographic information provided in the MU4R.

Mortgages; Happy Birthday Kate and Briggs!

Posted by Anthony Demangone

A few of us were chatting around the office the other day, and the subject of mortgages came up.  We quickly began shaking our heads.  On one hand, many people are chewing out financial institutions for not making enough loans.  And the government has spent the last few years doing what it can to prop up the U.S. housing market.  All the while, credit unions and other mortgage lenders are getting pounded from every conceivable direction.  Just think about the following.

Regulation Z.  MDIA disclosures were put in place.  Then there was the mortgage loan sale or transfer notice regulation..  In case that wasn't enough, along came a rule on mortgage loan originator compensation.  Those MDIA disclosures?  They were amended. Requirements regarding higher-priced mortgage loans were put in place.  And then new HPML loan requirements for jumbo mortgages were announced.  In that same announcement, the Fed issued a proposal that would amend the first set of HPML requirements. And don't tell me that they tweaked that MDIA disclosure again?  Oh, and the entire system of disclosures for closed end mortgages and HELOCs are in the process of being amended.  The CFPB will pick that process up sometime in the future. 

SAFE Act.  Need I say more? 

RESPA.  The GFE and HUD-1 were completely overhauled.  And the CFPB announced that they want to rework the disclosures as soon as they gain their official powers.

Appraisals.  First, a state Attorney General from New York manages to ink a deal with Fannie and Freddie that practically changed appraisal requirements for the entire country.  Then regulators, including NCUA, issued their interagency appraisal and evaluation guidelines, which completely overhauled just about every aspect of the appraisal process.  And the Fed has issued its appraisal regulation.  All of these requirements have mortgage lenders jumping through hoops - many of which appear to complicate the process without ensuring any benefit to the housing system. 

GSEs.  The future of GSEs are on the line. Congress and the Obama administration are trying to craft solutions to deal with these entities, all the while, leaving a great deal of uncertainty for credit unions that need access to some sort of secondary market for liquidity and interest rate risk management. 

Servicers.  Add to all of this a recent development.  State Attorney Generals crafted an agreement/settlement offer sheet for the largest mortgage lenders in America.  While this on the surface doesn't directly affect credit unions, many of the agreement's requirements may find their way into regulations and guidance documents or become industry servicing standards.  Some of those provisions are quite onerous, such as one that raises the issue of cram downs. 

Dodd-Frank. Provisions in Dodd-Frank will likely increase downpayment requirements for many mortgage loans. 

CFPB.  As noted above, Elizabeth Warren has indicated that one of the CFPB's first priorities will be to overhaul mortgage disclosures.  Combining TILA and RESPA disclosures is not necessarily a bad thing, but given everything we've gone through already, a break might be nice. 

Market Forces.  Oh, lest we forget.  Mortgage values are down, there is talk about a partial elimination of the mortgage interest deduction, and mortgage rates will likely increase in the not too distant future.

So, if you work with mortgages and someone wants to know how "work is going," feel free to send them this post. The pace and amount of change in this area has been practically unmanageable.  There is so much risk and uncertainty, I wonder if some lenders will simply decide to exit the mortgage market altogether.  All of this uncertainty and change also creates another problem - it tends to favor large organizations who can throw oodles of compliance and legal resources at the problem. Smaller shops may eventually leave the market or merge themselves out of existence.  Wasn't there a cry about ending "too big too fail?" 

Oh, and feel free to share this with your Congressman if he or she wants an example of regulatory burdens faced by credit unions. 

***

Speaking of the rapid pace of change, Kate and Briggs turned two today. Looking back on these two years, well, the words just escape me. It is hard to describe the effect they've had on my life. 

 

 

SAFE Act Registry is Open for Business

Posted by Anthony Demangone

Yesterday, the federal bank and credit union agencies announced the opening of the SAFE Act MLO registration system. 

Following expiration of the 180-day initial registration period on July 29, 2011, any employee of an agency-regulated institution who is subject to the registration requirements will be prohibited from originating residential mortgage loans without first meeting these requirements. The rules include an exception for mortgage loan originators that originated five or fewer mortgage loans during the previous 12 months and who have never been registered; they would not be required to complete the federal registration process.

So, here's a possible battle plan for compliance.

1. First, you need to understand if the rule applies to you, and if it does, who you plan to register as MLOs at your credit union. A good place to start is the NCUA SAFE Act webpage.   From there, you can read the regulation, and view the all-important Appendix A.  That appendix goes into examples of who is and who is not an MLO.  Also, read the NCUA FAQ document, which is also available form the NCUA SAFE Act webpage.  
2. Once you understand who will be registered, visit the registry website.   At the top of the page, you'll see a number of resources - including 2 "getting started" pages, and one training link. This resource page is also a gem of resources. Specifically, this grouping of "quick guides" is enough to make a compliance officer cry. (Like this one on getting fingerprinted.) These guys really have organized a ton of information for you. 
3. To top it off, they provide a number to a call center that is staffed with registry experts. The number: (240) 386-4444.  I tested it out.  A friendly fellow answered after one ring.  He confirmed the fact that he and his colleagues are there to help your registry-related questions.  (But they won't say who at your credit union will need to be registered.  Rather, they'll help you get those folks registered.)

I'll just pass on one tip.  That July 29th deadline might seem like a long way off in the distance. The folks who run the registry say to get started as soon as possible.  They also run the various state licensing systems, so they've managed this process a number of times.  And at the end of each deadline, they said that there were a small number of folks who waited too long and missed their respective deadline.  Don't be those folks.  

Exam Issues "On the Radio"; Other "Stuff"

Posted by Anthony Demangone

Yesterday, I had the opportunity to take part in a panel discussion on examination issues, hosted by the Credit Union Times.  You can listen in here.  (Warning - the broadcast will start automatically. Length: roughly 30 minutes.) The discussion was lively, focusing on what credit unions are experiencing, what they can expect, and how they can prepare themselves for examinations. With that in mind, here's a link to NAFCU's "Managing Exams in Challenging Times" white paper.  It is free to NAFCU members and non-members alike. 

Here's some other "stuff."

• EEOC complaints are on the rise.  (Kaufman & Canoles.) Here's a link to the EEOC report.  And if you want to see a very detailed chart showing a historical breakdown of EEOC charges by type, go here. Why do I mention this?  This shows a general up-tick in EEOC claims, which in my mind signals a possible increased risk of an EEOC claim at your credit union. How would you tap down that increased risk?  Training.  For employees and management. 
• The NMLS, the SAFE Act registration system, has announced a series of training programs for financial institutions who will need to register MLOs.   The "how to" series breaks the process into four training programs. 
• The CFPB has a proposal out regarding how it will handle consumer complaints. As I read this, the CFPB plans to share complaint-related information with...well, just about anyone it wishes.  Check out the "routine uses" section on page 2 of their proposal.   When their system is up and running, just be aware that the CFPB will (assuming this proposal makes its way into final form in a similar form) be able to share a consumer complaint about your credit union with NCUA, a Member of Congress in some instances, or law enforcement. For this reason, it may be wise to see how your credit union currently handles member complaints.  Do you track complaints?  How are those complaints resolved?  While I have no data to back this up, it seems to me that the better you handle direct complaints, the less likely it will be that this CFPB complaint process will be problematic.  

 

 

Thursday's This and That; Baseball Scholarship?

Posted by Anthony Demangone

Here are a few things rattling around in my in-box.  

SAFE Act.  The NMLS Federal Registry has posted a good deal of new information to help institutions prepare for the upcoming MLO registration process. Even though the registry is not open yet, this website should help you get started. 

BSA.  So, just how bad could it be to disclose the existence of a SAR to a member?  Pretty bad, it seems. Although, the bank bribery violations didn't help either.  

Dodd-Frank.  If you visit their web-site, it won't take you long to see what the Republican leadership of the House Financial Services Committee thinks of Dodd Frank. Not much.  Not much at all.

ATMs and Class Action Lawsuits.  My friend and fellow credit union attorney Rob Rutkowski pens a very interesting blog post on how one financial institution avoided a class action lawsuit regarding ATM signage. And he used "skullduggery" and "Byzantine" in the same post.  Well done, Rob. 

Risk-Based Pricing Notices.  Yesterday, I was invited to attend a future (February) Consumer Compliance Outlook webinar on Risk-Based Pricing Notices.  Now, you're invited as well. These guys usually put on a good show. 

The Wrong One is Winning.  My son Briggs is in a "chucking" stage.  If he disagrees with my position on an issue, such as, "Can Briggs Play With the TV Remote," he voices his displeasure by locating small objects, picking them up, and chucking them as far as he can. Luckily, that's about four feet at the moment.  My bright idea was to see if I could enlist Kate to help me out.  So when he chucks, I ask Kate to help me pick up.  And I praise her as she does.  There's only one problem...Briggs is far more efficient at chucking than Kate is at helping.    

This and That...

Posted by Anthony Demangone

Here are some items of interest...

• NCUA has released its agenda for this Thursday's NCUA Board meeting.  The agenda isn't Earth-shattering in terms of compliance.
• Treasury has named Holly Petraeus to head the Office of Servicemember Affairs at the CFPB. I expect that the creation of this office will shine a bit more light on military compliance issues, such as the SCRA.  Regarding Ms. Petraeus, you'd be hard-pressed to find anyone who understands more about military life.  This comes from the Treasury announcement.

Petraeus knows firsthand from her own personal experience as well the strains facing America’s troops and their families. She is the daughter of Army Gen. William A. Knowlton, a previous superintendent of West Point. Her son, brother, grandfather, and great-grandfather all served in our armed forces. Petraeus, a military spouse for more than 35 years, is also the wife of Army Gen. David Petraeus, current Commander of the International Security Assistance Force in Afghanistan and former Commander of the U.S. Central Command.

• FinCEN pushed a lot of paper recently.  First, they released their semi-annual SAR Activity Review - By the Numbers.   This document gives you a TON of statistical data on SAR filings.  If you do BSA training, these statistics can be used to create fancy, colorful charts.  People seem to like those.  FinCEN also released an updated Mortgage Loan Fraud Update.   It looks like SAR filings related to mortgage fraud continue to increase.
• The IRS is looking to increase reporting requirements.  They issued this proposal which would require financial institutions to report interest/dividend payments to nonresident aliens of any foreign country. 
• The NMLS (the SAFE Act Registry) has announced a number of  internet-based workshops to introduce institutions to the registry.  The workshops are not designed for individual mortgage loan originators.  It looks like the workshops cost $50.
• It has begun.  Congressman Michelle Bachman (R-Minn.) introduced her first bill for this Congress.  The bill would repeal the Dodd-Frank financial reform legislation. 

SAFE Act Update; This and That

Posted by Anthony Demangone

The long-awaited SAFE Act registration system appears to be nearly ready.  NCUA recently announced that the initial registration period is expected to begin around January 31, 2011 and end on July 29, 2011. NAFCU has a webcast scheduled for January 12, 2011 to help credit unions understand the process. 

***

Here are a number of other items that accumulated over the Holidays.

• The latest "Current Issues in Credit Unions" Podcast is ready.
• Felix Salmon points out a wee bit of irony in this blog post: If the CFPB is all about clear disclosures, why is this press release a 69-word sentence?
• My old contracts professor thinks Congress is pushing many Americans to loan sharks. (WSJ, subscription needed.) (Hat tip to Suzie.)
• Felix Salmon takes issue with NCUA's union contract, and NCUA, for that matter.
• NCUA will push for the following legislative fixes during this Congress: 3rd party vendor examination authority, increasing the MBL limit, supplemental capital, and the extension of the statute of limitations provision applicable to actions filed by NCUA as conservator/liquidating agent of a credit union. The list comes from testimony provided by NCUA Chairman Debbie Matz. See pages 33-35.
• Today, NCUA will host a free webinar on troubled debt restructurings (TDRs). 

Good to be back! This and That

Posted by Anthony Demangone

Last week's compliance seminar was a huge hit. Here's a quick shot I took from the back of the room.  If you stare at the picture long enough, you will actually begin to understand the risk-based pricing notice regulation.  

Here's one great tip that I heard from an NCUA official during the conference.  When you send a waiver request to a regional director, be sure to work with your examiner.  The official said when a request for waiver comes in from a credit union, a regional director usually reaches out to the credit union's examiner to get their input on what to do.  If you kept the examiner in the loop regarding your request, they won't be surprised.  If an examiner supports a waiver request, that goes a long way, according to the official.

My email inbox.  I would enjoy business travel more if the world stopped spinning while I was out of the office.  That still doesn't appear to be an option, so here are some of the interesting items that I want to share.

St. Paul Croatian Federal Credit Union.  NCUA's office of inspector general has released a material loss review examining the failure of Saint Paul Croatian Federal Credit Union.   Wow.  That's about all I can say. Fraud, weak internal controls, and weak NCUA supervision are all discussed in the report.  If you are into internal controls and risk management, you may want to sit down as you read this one.

SAFE Act Fees.  You probably already heard this, but Conference of State Banking Supervisors floated a proposed schedule of SAFE Act related fees.  While this is just a proposal and your input is sought, you should look at the numbers and inject them into the budget process if it is not too late.  

NCUA Report.  NCUA has released the most recent issue of the NCUA Report.   This report contains a ton of information on recent corporate stabilization efforts, multi-featured open-end lending plans, and supervisory committees. NCUA's article contained a link to this top-ten list from KPMG regarding the top 10 things audit committees should be doing this year.  And I love top 10 lists.  This one particularly. 

BSA and Boards.  In the most recent issue of the SAR Activity Review, FinCEN writes an article (starting on page 33 of the issue) designed to help financial institution boards understand the value of BSA-related filings made by financial institutions.  It might be useful to include in your next board packet. (Hat tip to Mr. Clarke.)

Credit CARD Act.  The OTS has updated the Regulation Z portion of its examination procedures to include information about the CARD Act.  It is a nice resource if you need an overview. 

SAFE Act

Posted by Anthony Demangone

On Friday, I was lucky enough to attend a SAFE Act briefing held by the Conference of State Banking Supervisors.   This group has the unenviable job of managing both the SAFE Act state licensing systems, as well as the SAFE Act federal registration system.  Here's some information from the meeting that should help you as you prepare your credit union to comply with the SAFE Act registration requirements.

• The registration system will be open as early as January 28, 2011.  The folks at CSBS are gunning for that date to have everything ready.
• Here's the federal registration webpage.  As you'll see, there's no action needed yet.
• Each credit union will need to open an account as an organization.  You'll need a RSSD number (from the Fed) to do so. Note, the bottom link on this NCUA SAFE Act page should allow you to locate your number
• In addition, each credit union will need to name an account administrator.  The administrator will have access to nearly all the information that has been filed for the credit union’s MLOs.  
• While individual originators at each credit union will have the possibility of registering themselves, CSBS really recommends that the credit union manage the entire process.  Your credit union will be able to upload a batch of individuals and manage their progress along the way.  (Details on how to do this will be coming soon.)  A draft “batch” form will be released soon, so credit unions will be able to look at that form to see what information needs to be gathered.  Note that your credit union won’t be able to start uploading until the registry becomes active. 
• Your credit union will complete form MU1R, and individuals will complete MU4R.   These forms will be available in the next few weeks. Again, both the credit union and prospective MLOs can look at these to see what information must be gathered in anticipation of the registry opening.
• For individuals, they’ll need to be fingerprinted.  The recommended way is via one of 900 regional electronic fingerprinting stations. There will be thousands of paper fingerprinting stations in the network as well, but they take more time and lead to more “denied” fingerprints due to blurriness, etc.  There will be a ton of information about the fingerprinting process released in the near future.
• The fingerprinting will trigger a criminal background test. 
• Fees.  There will be 3 types of fees.  A processing fee, a background test fee, and a fee for the administrator.  The CSBS will issue proposed fees shortly and invite public comment.  The credit union will be able to pay for all MLOs.   But until the fees are paid for a given MLO, registration is not possible. 

Other points that came up:

CUSOs.  Credit unions will need to determine if a CUSO employee ever acts as an MLO for the credit union under an “employee” relationship.  If so, that person may need to be both a licensed MLO (for the CUSO) and a registered MLO for the credit union. 

Training, guidance, and other help. There will be a ton of resources and help to guide you through the registration process.  The CSBS has managed 48 state registration deadlines so far, so they really know what they are doing.  They will release registration guidelines that touch on every aspect of the registration process. In addition, there will be a call center (currently there, just not open to federal institutions until the registry opens) that will be staffed  from 9 a.m. to 7 p.m., Monday through Friday, to answer registration-related questions.  

Register early.  CSBS officials indicated that problems do pop up from time to time (bad fingerprints, etc.), so that if a credit union waits until day 170, or 175, it may not meet the 180 deadline. CSBS officials indicated that this has happened at every state licensing  deadline so far.  With that in mind, they urge institutions to begin the registration process as early as possible. 

SAFE Act; NCUA Board Meeting Agenda; Creative Money Laundering; Deflation; When You Wish Upon Penn State

Posted by Anthony Demangone

As we've discussed earlier, NCUA expects you to have a SAFE Act policy in place by October 1, 2010.  Also, as mentioned earlier, a NAFCU member was gracious enough to donate their SAFE Act policy to the NAFCU policy exchange library. (NAFCU Member log-in needed.)

Well, our good friends at BankersOnline.com have also provided a model policy and a model set of procedures.  They stress, and rightly so, that the policies are just drafts. You have the ultimate responsibility to ensure that the policy and procedures fit your shop.

***

NCUA has release the agenda for next week's NCUA Board Meeting.

***

I just love Felix Salmon.  The guy is a voracious reader, and his analytical skills are very impressive.He occasionally writes about financial issues.  In this post,  he discusses a recent book that he read where a character launders money by building a resort that is never used.  Does it seem far-fetched?  Read the post and answer that question for yourself.  In any event, it is a good reminder that organized crime is always looking for ways to launder money.  If they can find a way to do it at your credit union and go undetected, they surely will.

***

You may have heard about the risk of deflation.  Just what is it, and what's the big deal? Mint.com has created a wonderful visual guide to the concept of deflation.  This could be a good thing to share should a director or other official have questions on how deflation might affect the U.S. economy.

***

Have a great weekend, everyone.  Even you Crimson Tide fans. I will be rubbing my lucky penny and uttering the following wish Saturday evening.

Please forget my last wish that dealt with Regulation Z and the Federal Reserve.  I'm sure they are nice folks at the Fed, and I apologize for using that language to describe them.  In place of that wish, I insert the following. I wish that Penn State beats Alabama today.  I understand that the world has major problems, including world hunger, unemployment, the Gulf of Mexico's ecosystem, and reality television.  But in the midst of granting wishes for those things, I'm sure no one would notice if you granted my wish concerning a little old football game. And if Alabama fans make any wishes to the contrary, please ignore them.  Remember, you granted their wish last year.

Podcast Available; SAFE Act Fingerprints

Posted by Anthony Demangone

The most recent "Current Issues in Credit Unions" podcast is available for download or listening.   Here's the episode's agenda:

• Indirect Lending Guidance from NCUA
• More stuff on the CFPB
• Proposed changes to Reg Z to enhance consumer protections for closed end mortgages, reverse mortgages and HELOCs
• Interim final rule to amend Reg Z to implement MDIA provisions
• Final rule concerning mortgage sale and transfer notifications
• Final rule to address mortgage loan originator compensation
• Big K Round Up.

My schedule actually allowed me to take part this month!

***

I received a question from a NAFCU member wondering how NCUA expects credit unions to fingerprint their staff.  I checked the NCUA SAFE Act page, and found this:

When will the Registry be available for registration?

We anticipate that the Registry will be available for online registration in early 2011. Once NCUA has provided public notice that the registry is available, credit unions will have 180 days from that date to ensure that MLOs register and receive their unique identifier.

We encourage you to begin gathering the data that will be required for the registration process to ease the potential burden of this task.

We expect the details on the mechanics of registration to be forthcoming from the Registry and anticipate that these instructions will answer many of your questions about the actual process of registering your MLOs including how to process fingerprints, etc.  (Emphasis added.)

So, we wait. And as Tom Petty wisely points out, waiting is the hardest part.

Consumer Compliance Outlook; This and That

Posted by Anthony Demangone

Earlier, I discussed how the Federal Reserve recently released five regulations related to mortgage lending.  I plan to write a bunch on these issues, but today I thought I'd share with you a solid resource.  The Federal Reserve periodically puts out a free audio conference that hits on timely topics.  Last Thursday, they released their most recent one, and boy, oh boy, is it timely.  Here are the topics they covered in the hour-long presentation:

• HMDA –Hearings
• Mortgage Rulemakings –Regulation Z (Truth in Lending)
• • 1. Phase 1 Proposed Rule to Improve Disclosures for Mortgages and HELOCs (August 2009)
  • 2. Final Rule on Originator Compensation
  • 3. Phase 2 Proposed Rule --Reverse Mortgages and Rescission
  • 4. Final Rule on Notice of Loan Transfer
  • 5. Interim Rule for MDIA-required disclosures of highest rate and payment
  • 6. Proposed Rule Implementing Higher Threshold for Escrows on Jumbo Loans
• Dodd-Frank Wall Street Reform & Consumer Protection Act –Mortgage Provisions (Title XIV)
• EFTA –Legislation and Rulemakings

I was on travel late last week, so I have not had a chance to listen in yet, but I will.  Here's a link to the audio conference.  And here's a link to the PowerPoint presentation that they used.  From the audio file, it looks like the presentation lasts just over an hour.  I think listening to it would be an hour well spent.

***

SAFE Act: NAFCU members: A NAFCU member was gracious enough to donate their SAFE Act policy to the NAFCU policy exchange library.  As always, you are ultimately responsible for the creation of your own policy.  But seeing someone else's can give you some good ideas.

Money, money, and more money.  Regulators have released a free training video on how to spot counterfeits of the new $100 bill. Scroll down to the "educational videos" section. It is hosted by...David.  That's right - just David.

Examinations.  Here's a good blog post on what to do when you think an examiner has been overreaching.   (Governance and Strategic Planning blog.)

SAFE Act Deadline Approaching

Posted by Anthony Demangone

When many compliance officers think of the SAFE Act, they envision the complicated registration process.  For federally-insured credit unions, there's no requirement to register mortgage underwriters yet.  So we sit and wait, right?Not quite.

There's a SAFE Act deadline of October 1, 2010 to keep in mind.  By that date, credit unions must have written policies in place that provide a basic framework for complying with the SAFE Act.  Yesterday, NCUA released Letter to Credit Union 10-CU-13 to remind us of that fact. 

In addition, the NCUA guidance draws attention to a FAQ page related to the SAFE Act.  These FAQs should be useful in crafting  your policies. NCUA indicated in the letter that it expects credit unions to refine their policies once more "definitive details" about the registration process become available.

NCUA Board Meeting; This and That

Posted by Anthony Demangone

Yesterday, NCUA held its monthly board meeting.  You can access all the draft materials here.  NAFCU has written an article highlighting the meeting here.  Of note:

• Golden Parachutes. NCUA approved a proposal that would do two things.  It would, with exceptions, generally prohibit "troubled" credit unions from entering into contracts that include "golden parachutes."  The prohibition would contain a grandfather clause to exclude all existing agreements.  But if finalized, new and amended agreements could come under the rule.  As noted above, this restriction would only apply to "troubled" credit unions, which include those that are CAMEL 4 or 5, in conservatorship, as well as a few other categories. The rule would also prohibit indemnification payments for all credit unions in certain situations that are outlined in the rule. 
• Truth in Savings. The board also approved amendments to NCUA's Truth in Savings regulation to bring it into line with Regulation DD. The comments address retail sweep accounts and the terminology for overdraft protection disclosures. (Nothing new here, folks.)

Keep in mind that the board handled additional items, so I urge you to review the draft materials and article noted above.  NAFCU will prepare a Regulatory Alert for the "golden parachute" rule, which has a fast turnaround.  NCUA wants comments within 30 days of the rule's publication in the Federal Register.

***

In other news...

• The CFPB may be poaching employees from other agencies, NCUA included.  (Washington Post.)
• The FFIEC has a new SAFE Act homepage, which contains a ton of useful information for credit unions with questions about the recently published final rule.
• Regarding gift cards, President Obama has signed H.R. 5502 into law, which delays the effective date of the Regulation E gift card disclosure rule until January 31, 2011 for cards produced before April 1, 2010.  Without the move, retailers were worried that millions of unsold gift cards would go to waste and be unusable for the upcoming 2010 holiday season.  I'm thinking the Fed will issue some regulatory clarification due to this change. 
• Is Reg GG going bye-bye, at least in its current form? Perhaps.  A bill is working its way forward that would relieve the regulatory burden with the current internet gambling regulation.

That's enough for today.  Have a great weekend, everyone.

SAFE Act; Interchange; BSA

Posted by Anthony Demangone

We're almost at the weekend folks.  Almost.  Here are a few things of note.

The SAFE Act.  The Federal Register has finally published a final rule from NCUA and other regulators regarding the SAFE Act.  Read the presser here, which also contains a link to the regulation.

• The final rule takes effect October 1, 2010.  But remember, that date isn't when the registration requirement starts.  You have six months to get the necessary people registered once the registration system is active.
• The agencies indicate that the registration system will begin taking registrations as soon as January 28, 2011.

Interchange.  There's a new threat to interchange income.  Senator Durbin (D-Ill.) is trying to tap down interchange fees paid by the federal government through the appropriates process.  Read all about it here. This is in addition to the upcoming Federal Reserve rule that would limit debit card interchange fees.

BSA. Here are a few minor BSA items.  First, there's a new phone number an e-mail address for the BSA E-Filing Help Desk.  Access the new information here.  FinCEN has also updated its 314(a) Fact Sheet.  The fact sheet provides an overview of the 314(a) request process, and it provides statistics that could be used for training events.

SAFE Act

Posted by Sarah Loats

The SAFE Act is here, but the Registry is not. That is to say, the Registry is not available for registration of employees of credit unions. Once it is, the NCUA and other federal banking agencies will release a public announcement and once that announcement is out credit unions and their employees will have 180 days to register.

Credit unions will want to know "who has to register". Well, it depends on who in the credit union fits the definition of a mortgage loan originator, and Appendix A is probably your best resource for determining who needs to register. It provides examples of what constitutes "taking an application" and "offering or negotiating loan terms." You can find Appendix A towards the end of the rule.

Of note, be ready to pay fees for registering. The costs of maintaining the Registry will likely be passed on to credit unions and banks and mortgage loan originators. The final rule provides:

"Section 1510 of the S.A.F.E. Act (12 U.S.C. 5109), expressly authorizes the Registry to "charge reasonable fees to cover the costs of maintaining and providing access to information from the [Registry], to the extent that such fees are not charged to consumers for access to such [Registry]." We anticipate that the Registry will charge fees for registration, change in employment, renewal, and fingerprint processing and background checks. Although some commenters specifically requested information on the anticipated costs associated with registering with the Registry, the Agencies are at this time unable to provide this information as the fees have yet to be established by CSBS and SRR. The Agencies are consulting with the CSBS and SRR regarding the fees that the Registry expects to impose. One commenter specifically asked the Agencies to grant Agency-regulated institutions the opportunity to comment on fees. CSBS has indicated that it intends to provide an opportunity for the public to comment on these fees, and any future adjustments to such fees, before their imposition on Federal registrants and/or their employing institutions.41"

For more information, NAFCU has issued its Final Regulation on the rule and the June Compliance Monitor has an article on the SAFE Act (member log-in required).

Semi-Annual Agendas; NACHA Operating Rules

Posted by Anthony Demangone

Tis the season for agency semi-annual agendas, which show what agencies are working on from a regulatory point of view.  I'm not sure these documents are super useful, but there is some information buried within them.

• NCUA's agenda.   NCUA discusses the privacy rule it issued a while ago, its decision to remove a confidentiality of SAR reports rule from the agenda, and its decision to withdraw the UDAP rule that pertained to credit cards.  
• The Fed's agenda.   As I read this, we may see the Reg Z closed end rule in May.
• The FTC's Agenda.  It just mentions the privacy rule that it issued, along with NCUA and other financial regulators.  Old news.
• Treasury's Agenda.  Now, this has a little more meat on the bone.  FinCEN looks like they'll have a stored value card proposal out in April. (They better hurry up.)  My first read is that this rulemaking is limited to MSBs and should not affect depository institutions (including credit unions. ) But we'll have to wait for the proposal to know for sure. In addition, the OCC looks to issue a final SAFE Act rule in May.  If they do, I would expect NCUA and other financial regulators to follow suit. 

 ***

NACHA has announced that its membership has approved a "simplification" of its Operating Rules.  The effort, according to NACHA, shouldn't change the substance of the rules.  They'll just be easier to digest and understand.

Previously organized around major topics, the simplified Rules framework is structured around the rights and responsibilities of participants in the ACH Network, making them more navigable by participants. In addition, clear, understandable, and consistent language has been adopted throughout the Rules as part of this process. This new version of the NACHA Operating Rules will go into effect on  January 1, 2011.

NCUA Board Meeting Agenda; This and That

Posted by Anthony Demangone

NCUA has released the agenda for this Thursday's NCUA Board Meeting.  It is a light agenda, and no, the SAFE Act is not one of the items to be discussed.  (Speaking of the SAFE Act, a little birdie tweeted in my ear that the federal mortgage underwriter registration system likely will not be ready until 2011.)

***

Here are a number of items of interest.

• Reputation. Here's a wonderful blog post from the Bank Lawyer's Blog that reminds us that just because we can do something, it doesn't mean that we should. Before moving forward, we should always think about our reputation.  The post describes how a JP Morgan Chase marketing campaign designed to push customers to use "signature" rather than "PIN" on their debit cards backfired.  It turns out that the marketing materials went to a journalist who viewed them as misleading.  It sort of went downhill from there.

• Misleading Overdraft Program.  The OTS issued a $400,000 civil money penalty against a bank for a number of things.  But what caught my eye was that a good deal of the cease and desist order centered on a misleading overdraft protection program.  Moving forward, the bank must set aggregate overdraft fee limits for account holders as well as giving customers a reasonable opportunity to stop "daily overdraft fees." (see page 8.)  Oh, and now the bank has to repay customers who were "harmed" by the overdraft protection program.  How much?  A total of $12 million. Granted, this is a bank that is regulated by OTS.  But generally, all federal regulators have very similar administrative powers.  That should get your attention.

• OTS Best Practices.  When the OTS issued the CMP above, it also issued proposed supplemental guidance for overdraft protection "best practices."  This guidance is not joint in nature - it was only issued by the OTS.  I may look into this in greater detail later on.  But for now, I just pass it along as an FYI.

• BOD. Filene's blog does a nice job of highlighting how the role of a credit union director is becoming more difficult.

• The most recent issue of NACHA's Risk Management News is available.  This is a good overview document for ACH peeps.

• Check out the new $100 bill. The presser links to an interactive program that shows off the new security features of the new "Benjamin."  I bet your tellers could use that information.

• The FTC is looking into whether they need to tweak COPPA.

S.A.F.E. Act Update; Bank of America and ODP on Debit Cards; Whoops

Posted by Anthony Demangone

Yesterday, the FFIEC released a series of "frequently asked questions" to address queries about the status of S.A.F.E. Act regulations.  In short, expect a rule shortly, and then some time later...they'll let you know when the registry is open to begin registering applicable employees.  Here are the highlights:

What are the Federal registration requirements under the S.A.F.E. Act?

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the S.A.F.E. Act) requires the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the Farm Credit Administration (collectively, the Agencies) to jointly develop and maintain a Federal registration system for individual employees of Agency-regulated institutions who engage in the business of residential mortgage loan origination. The statute requires these individual mortgage loan originators to be registered with the Nationwide Mortgage Licensing System and Registry (Registry), a database established previously by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the States. [http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx] 

What are the Federal registration requirements under the Agencies' draft final rule?

The Agencies have prepared a draft final rule, which the Federal Deposit Insurance Corporation Board recently approved, for the Federal registration required by the S.A.F.E. Act. Under the draft final rule and the Federal Register notice: 

Individual residential mortgage loan originators employed by Agency-regulated institutions must:

• Register with the Registry and maintain their registration.
• Obtain a unique identifier through the Registry that will remain with that originator, regardless of employment changes.  
• Mortgage loan originators and their employing institutions must provide their unique identifiers to consumers. 

Agency-regulated institutions must:

• Require their employees who are mortgage loan originators to comply with these requirements.  
• Adopt and follow written policies and procedures to assure compliance with the registration requirements.

When will the draft final rule be finalized?

The draft final rule is currently under review by the OMB pursuant to Executive Order 12866. [http://www.reginfo.gov] The Agencies expect to publish the rule following the completion of that review process and final agency approval, as necessary. 

When do I have to complete my Federal registration?

At this time there is no action required in the Registry of any mortgage loan originator who is an employee of an Agency-regulated institution and whose origination activities are solely within the scope of that employment. 

The draft final rule provides for a 180-day period within which to complete initial registrations, beginning on the date that the Agencies provide in a public notice that the Registry is accepting registrations from Agency-regulated institution employees. The Agencies and CSBS are working together to ensure the Registry becomes operational as soon as possible. The Agencies will notify the institutions they supervise when the Registry becomes operational. That information will also be posted on this webpage. 

And so...we wait.

***

This was a bit of a shock.  Bank of America announced that it is ending overdrafts for all of its one-time debit card transactions this summer. 

***

Yesterday, I announced that I'll be giving a compliance-related talk in San Antonio on May 20th.  But I gave the wrong email address if you wanted to RSVP!  The correct address is for Olivia, at [email protected].

Balance Transfers; NCUA SAFE Act LOL; Blah, Blah, Blah

Posted by Anthony Demangone

Here's another Reg Z wrinkle that many folks may not have seen.  I'm speaking of 12 C.F.R. Part 226.55(d). As we know, section 226.55 provide a general prohibition on increasing credit card rates unless the increase can fit within one of our exceptions found in that section.  But look at .55(d):

(d) Continuing application. This section continues to apply to a balance on a credit card account under an open-end (not home-secured) consumer credit plan after:

(1) The account is closed or acquired by another creditor; or

(2) The balance is transferred from a credit card account under an open-end (not home-secured) consumer credit plan issued by a creditor to another credit account issued by the same creditor or its affiliate or subsidiary (unless the account to which the balance is transferred is subject to § 226.5b).

In other words, if you close a credit card account, or it is acquired by another creditor in a merger or acquisition, or if the balance is transferred from one account to another account by the same creditor - the protections of 226.55 come along for the ride.  The Fed was concerned that card issuers would attempt to increase the APR on existing balances by wooing consumers to convert an existing card to a new one that had a short-term promotional rate of say, 2.99 APR, but with a much higher rate that would kick in after the promotion ended.  With the 226.55(d), the existing balance remains protected.  As always, please read the reg and staff commentary for additional details.

Before you hyperventilate, the restriction will not govern balance transfers from other card issuer accounts that the member transfers to your credit union.  If a member transfers a balance from say, Bank of America, to your credit union, you can charge whatever your rate is on whatever they transfer.  But if you acquire a credit card account from another credit union via a merger or acquisition, then those balances are protected via 226.55.

***

NCUA issues Legal Opinion Letter 09-1018 to clarify that, in its opinion, that federal law preempts a North Carolina state law that attempts to require federal credit unions to file a notice of exemption from state licensing requirements.  The letter has SAFE Act implications.  Here's a snippet:

"While the SAFE Act contemplates separate state and federal regimes for mortgage loan originators, it provided for a national registration system and required NCUA, the other federal banking agencies, and the Farm Credit Administration to develop and maintain a system for registering mortgage loan originators employed by institutions regulated by these agencies. The federal agencies have published a proposed rule, 74 Fed. Reg. 27,386 (June 9, 2009), to establish the Nationwide Mortgage Licensing System (NMLS) for individuals engaged in the business of residential mortgage loan origination and a final rule is expected soon. Individuals, if employed at a federally regulated institution, must register on the NMLS. Individuals who are not employed at a federally regulated institution must be licensed under state law and register on the NMLS.

NCUA’s regulatory provision on preemption of state law states it does not apply to aspects of credit transactions primarily regulated by other federal law. 12 CFR §701.21 (b)(3). The SAFE Act expressly addresses the registration requirements for mortgage loan originators regulated by federal agencies. FCUs and their employees who originate mortgages will be required to register under this federal registration regime. In addition to the provisions of the FCU Act supporting preemption of the exemption notice requirement in North Carolina law, the SAFE Act addresses the sole basis identified in the state law for requiring exempt institutions to "claim and confirm" their exemption. The SAFE Act requires a national registry open to consumers and, thus, fully addresses the basis identified in the state law, namely, to facilitate the referral of consumers who contact the state commissioner. N.C. Gen. Stat. §53-244.050 (g). Therefore, we conclude federal law preempts the state provision requiring FCUs to file a notice of exemption from the state licensing requirements under the North Carolina SAFE Act. "

So, if a state SAFE Act system tries to have you file an exemption, NCUA has taken the stance that such a requirement is preempted.

***

I'm going to yabba-dabba at a number of NAFCU events in the near future, if you are interested.

• The NAFCU member call-in, on February 10.  This member-only overview is very good, and very free. 
• A Reg Z and Reg E webcast, on February 17.   Members and nonmembers, and even non credit unions (such as law firms) can sign up for this event.

• NAFCU's Regulatory Compliance School, on March 22-26.   I'm the MC.  (Yes, I have lots of bad jokes planned.) And I'll talk on the Right to Financial Privacy Act, Privacy and Security of Member Info, and BSA.  This event is open to all, as long as your check clears. The early bird registration discount ends this Friday.

• NAFCU's Volunteer's Conference, on May 20-22.  I'll be speaking on general regulations for board members and supervisory committee members, and BSA for credit union officials.  And I'll likely be eating my weight in wonderful Tex-Mex food, as the educational event takes place in San Antonio along the River Walk.  Again, members and non-members are welcome.

FinCEN Ruling on CIP; Tom Petty

Posted by Anthony Demangone

Those unfamiliar with the Bank Secrecy Act's Customer Identification Program (CIP) requirements may not understand the issue with post office boxes and the CIP.  The two generally do not get along.  CIP requires that you gather a residential or business street address. 

This NCUA CIP FAQ shows the tension between post office boxes and CIP requirements. 

What address should be obtained for customers who live in rural areas who do not have a residential or business address or the residential or business address of next of kin or another contact individual? For example, is a rural route number acceptable?

Yes, the number on the roadside mailbox on a rural route is acceptable as an address. A rural route number, unlike a post office box number, is a description of the approximate area where the customer can be located. In the absence of such a number, and in the absence of a residential or business address for next of kin or another contact individual, a description of the customer’s physical location will suffice. (Emphasis added.)

This makes sense. The whole purpose behind the CIP is to gather information about prospective customers and members.  If a crime is being committed, law enforcement likes to kick down doors.  I have yet to see an episode of NCIS, NCIS: LA, CSI: Crime Scene Investigations, CSI: Miami, CSI: Las Vegas, CSI New York, Law and Order, Law and Order: Special Victims Unit, Numb3rs, Without a Trace,  Medium, or The Mentalist where they kick down a post office box.  Law enforcement wants to know where the criminals live, not where they pick up their mail.

But here's an issue.  What if a person is part of an address confidentiality program (ACP).  ACPs are found in 31 states, and they are used to protect victims of domestic violence, sexual assault and stalking.  Under ACPs, the PO Box can be used as their legal business address. 

So, what gives?

FinCEN made public a ruling yesterday that makes an exception.

Accordingly, in an effort to support [name of state ACP] requirements, as well as similar requirements that may arise in other states that have established an ACP, under 31 U.S.C. § 5318(a)(5) and 31 C.F.R. § 103.55(a), FinCEN authorizes the following exception to the requirement that a [financial institution] obtain a customer’s residential or business street address: a customer who participates in a state-created ACP shall be treated as not having a residential or business street address and a secretary of state, or other state entity serving as a designated agent of the customer consistent with the terms of the ACP, will act as another contact individual for the purpose of complying with FinCEN’s rules. Therefore, a [financial institution] should collect the street address of the ACP sponsoring agency for purposes of meeting its CIP address requirement.  (Emphasis added.)

***

Tom Petty? Waiting is the hardest part.  

We understand that NCUA will approve the final SAFE Act rule later this month.  Remember - this does not necessarily trigger the 6-month deadline to get everyone registered.  That kicks in when the federal registry is actually open for business. If you want a sneak peek, take a look at the  FDIC's final rule on the SAFE Act.  I bet ours will be very, very, very similar - if not identical.  

A Quick Look Toward 2010

Posted by Anthony Demangone

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

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

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

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

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

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

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

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

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

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

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

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

Odds and Ends

Posted by Anthony Demangone

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

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

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

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

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

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