NAFCU Compliance Blog

Does the SCRA Ring a Bell?: Some Frequently Asked Questions

Written by: André B. Cotten, Regulatory Compliance Counsel

Hello, compliance friends! I am still recovering from an intense week at NAFCU's Regulatory Compliance School last week. However, I enjoyed meeting so many of you in-person, and I look forward to connecting with more of you at future NAFCU events. One issue that is always on our agenda and leads to questions at this conference is the Servicemembers Civil Relief Act (SCRA).

To provide a bit of context, the SCRA was enacted on December 19, 2003 to clarify and strengthen the protections provided to military personnel through the Soldiers' and Sailors' Civil Relief Act of 1940. The SCRA protects active duty military personnel, and in certain circumstances their spouses and dependents, by requiring creditors to reduce interest rates on certain loans, by prohibiting foreclosures without a court order, and by allowing servicemembers to terminate motor vehicle leases in certain circumstances.

One of the main challenges in complying with the SCRA is the lack of implementing regulations or formal guidance. As a result, we must look at the law itself for guidance, although it is worth noting that there are also enforcement actions and litigation that clarify the SCRA.

This blog will give a high-level overview of some frequently asked questions regarding the SCRA.

Is a credit union allowed to negatively report on a servicemember to the credit bureaus?

The SCRA does not permit a credit union to negatively report the member to the credit bureaus unless the member is delinquent. Specifically, section 518 prohibits making an "adverse report relating to the creditworthiness of the servicemember" solely because the servicemember properly exercises his or her rights under the SCRA. However, if a credit union has complied with the SCRA and the member is late sending their payment, then the SCRA would not prohibit the credit union from reporting to the credit bureaus.

Is there a time limit for a servicemember to notify the credit union of their military service in order to qualify for the reduced interest rate?

Generally, the six percent protection is retroactive to the member's entry into military service, even if the member does not notify the credit union in a timely fashion. As previously mentioned, the SCRA does not have any implementing regulation so we mostly have to rely on the statute. Here's a relevant excerpt:

 “§ 527. Maximum rate of interest on debts incurred before military service

 (a) Interest rate limitation.

(1) Limitation to 6 percent. An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember's spouse jointly, before the servicemember enters military service shall not bear interest at a rate in excess of 6 percent –

(A) during the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage; or

(B) during the period of military service, in the case of any other obligation or liability. " (Emphasis added).

Section 527(b)(1) goes on to state that the servicemember has 180 days after the termination or release from military service to invoke the 6% interest rate limitation.

Also, when determining which servicemembers are eligible for the 6% interest rate cap, the SCRA also defines the terms “military service” and “period of military service” which clarify which servicemembers are eligible for certain protections. There is also a Department of Defense database that tracks SCRA status. A 2011 edition of the Philadelphia Federal Reserve's Consumer Compliance Outlook article also contains a helpful overview of SCRA issues including invoking the 6% interest rate cap.

If a member makes a request for the reduced rate after the loan has either been paid or charged off, must the credit union refund any applicable interest and fees?

While there is not clear regulatory guidance here, in the event interest exceeds six-percent, the SCRA requires a credit union to refund any interest in excess of the six-percent "that would otherwise be incurred" during military service. There is no exception in the statute for interest already paid or interest on a loan which has been paid off during military service but prior to the request. The SCRA does not provide a specific method for the refund, so in these kinds of cases, consulting with counsel may be helpful.

If the member has purchased a vehicle through an installment contract with a credit union, is the servicemember allowed to voluntarily return the vehicle and have their debt considered settled?

The SCRA allows a servicemember to terminate an existing auto lease if he or she enters military service for a period of 180 days or more. Additionally, for leases entered into after military service begins, a member can terminate the lease if he or she is deployed outside of the United States. However, there is not a similar provision for installment contracts.

Alternatively, the SCRA still protects servicemembers if their ability to make their installment payments is "materially affected" by their military service, here's an excerpt from section 532:

532. Protection under installment contracts for purchase or lease

(a) Protection upon breach of contract.

(1) Protection after entering military service. After a servicemember enters military service, a contract by the servicemember for—

(A) the purchase of real or personal property (including a motor vehicle); or (B) the lease or bailment of such property, may not be rescinded or terminated for a breach of terms of the contract occurring before or during that person's military service, nor may the property be repossessed for such breach without a court order. (Emphasis added).

The SCRA allows a servicemember to waive their rights under the SCRA in writing and forfeit the lease for personal property (i.e. vehicle) secured by that property. Here is a relevant excerpt from section 517:

(b) Actions requiring waivers in writing. The requirement in subsection (a) for a written waiver applies to the following:  

(1) The modification, termination, or cancellation of—

(A) a contract, lease, or bailment; or

(B) an obligation secured by a mortgage, trust, deed, lien, or other security in the nature of a mortgage.

(2) The repossession, retention, foreclosure, sale, forfeiture, or taking possession of property that—

(A) is security for any obligation; or

(B) was purchased or received under a contract, lease, or bailment. (Emphasis added).

A forfeiture of rights must be executed separately from the contract or other underlying agreement, and it must be in at least 12 point font. However, keep in mind that the Military Lending Act does not permit waiver of SCRA rights for MLA covered loans.

Also, the SCRA is not clear as to how the forfeiture of a purchase contract is to be treated, but gives three rather discretionary options to a court. As a result, the credit union may consider speaking with local counsel regarding the recession of purchase contracts, since these are generally case-by-case determinations. Also, some states have statutes that protect servicemembers more favorably than the federal SCRA.

Final Thoughts

The SCRA has been amended multiple times. For example, in October 2010, the Veteran's Benefits Act (VBA) of 2010 was signed into law. The VBA provides a private cause of action for servicemembers for SCRA violations. The relief available includes damages, injunctions and attorney's fees. This Department of Justice website also contains a list of enforcement actions that can be helpful for researching specific SCRA questions. Credit unions reviewing SCRA issues may want to ensure they are complying with the SCRA's requirements since noncompliance can be costly and present legal and reputation risks.

Prioritizing Your Efforts……. Superhero Style!

Written By Shereefat Balogun, Regulatory Compliance Counsel

 As compliance professionals, it's so hard being the good guy all of the time because there are so many things to focus on.   In the movies, the superhero has to choose between saving their partner, saving themselves, or completing the mission.  And of course, in the movies the superhero ends up somehow successfully doing all three.  Well, despite the common adage that "life isn't always like the movies", we can rise like the superhero by prioritizing our efforts and focus on the issues that our regulators are focusing on, specifically the CFPB and NCUA.

About three weeks ago, the CFPB issued its monthly report on consumer complaints.  Based on the report's findings, consumer debt collection continues to be a clear focus of the CFPB, as well as credit reporting. 

• Debt Collection- For a few years now, debt collection has been the source of most complaints submitted to the Bureau, and this report continues to highlight that. Debt collection was the most complained about product submitted in January 2017. Generally, consumers complain that collectors contacted them for debts that they do not owe; harass them by making multiple calls weekly or daily, or using false, deceptive, or misleading statements in connection with the debt collection; threatened to take illegal actions, such as arrests or seizure of the consumer's property; and impermissibly contacted or shared information with others, such as employers.  For more on the CFPB's efforts on debt collection practices, check out my previous blog on the topic here.

• Credit Reporting- The CFPB notes that the most common issues identified by consumers are problems with incorrect information on credit reports, which accounted for 76% of the complaints. Other issues identified include, the process for blocking and removing information resulting from identity theft.  The report states that consumers report notifying furnishers of information of identity theft with appropriate documentation, only to have accounts verified as accurate.  Notably, just two weeks ago, the Bureau issued its Supervisory Highlights which focuses on consumer reporting and concludes that the Bureau's work in the consumer reporting market is ongoing and remains a high priority.  Amongst its findings, the CFPB observes: 
  • Weaknesses in compliance management systems, such as weak oversight by management and the Board of Directors over furnishing practices; failure to update policies and procedures; weak training of employees who conduct furnishing and dispute handling operations; and weak monitoring and corrective action.
  • Absence of policies and procedures designed to: handle and investigate direct disputes from consumers; facilitate the creation and retention of documentation to substantiate final dispute decision; prevent duplicative or mixed reporting.
  • False representations by financial institutions in order to obtain a consumers' consumer report. For example, making false statements that a consumer had applied for a loan, and thus the institution had a permissible purpose to obtain the report.

These reports can be a useful tool, as they can help credit unions evaluate which products and services are more problematic and thus, should be addressed in order to avoid or mitigate regulatory risks. 

And let's not forget about our beloved…NCUA! The Supervisory Priorities for 2017 may be helpful in prioritizing our efforts.  Indeed, we referenced the 2017 priorities in a previous blog back in January.  Generally, the guidance informs credit unions of NCUA's primary areas of focus for 2017 as an effort to help prepare for this year's examination process.  As a reminder, this year's supervisory focus will be on:

• Cybersecurity- NCUA will continue to evaluate credit unions' cybersecurity risk management practices and encourages credit unions to use the Cybersecurity Assessment Tool (CAT) to bolster their security and risk management processes.  In case you may have missed it, NAFCU members can take advantage of a user-friendly workbook version of CAT here.
• Bank Secrecy Act Compliance- In 2017, NCUA field staff will focus on credit unions' relationship with money services businesses (MSBs) and other accounts that may pose a higher risk for money laundering.  NCUA expects credit unions to conduct appropriate due diligence, analysis, and monitoring when offering services to MSBs.  NCUA Letter to Credit Unions 14-CU-10 provides guidance on how credit unions can identify and mitigate risks associated with MSBs.
• Internal Controls and Fraud Prevention- NCUA field staff will continue to assess the adequacy of internal controls, as well as procedures and processes designed to prevent and control fraud.
• Interest Rate and Liquidity Risk- NCUA has started using a revised interest rate risk supervisory tool and new examination procedures to assess interest rate risk management practices.  For more information about the revised tool and new procedures, see NCUA Letter to Credit Unions 16-CU-08.  Also, examiners will focus on the relationship between interest rate risk and liquid risk.
• Commercial Lending- As you know, NCUA revised its Member Business Loans/Commercial Lending rule, which became effective January 1, 2017.  Field staff will evaluate a credit union's commercial loan policies and procedures and assess the risk management processes associated with managing a commercial loan portfolio.  NCUA warns that credit unions should be prepared to provide documentation to support management's ability to monitor and manage its commercial loan portfolio.  For more information, see NCUA Letter to Credit Unions 16-CU-11.
• Consumer Compliance- NCUA field staff will examine credit unions' compliance with the Military Lending Act (MLA), as well as the Servicemembers' Civil Relief Act (SCRA).  For more information on the MLA, see NCUA Letter to Credit Unions 16-CU-07.  NCUA Letter to Credit Unions 09-CU-12 provides guidance on complying with the SCRA. In particular, this enclosure provides a good overview of the SCRA requirements.

This month's Compliance Monitor, written by my colleague André Cotten, analyzes the NCUA's supervisory priorities for 2017 in more detail and highlights NCUA and NAFCU resources on each issue.  If you haven't checked it out already, please do!

"S..S..S.. on my chest 'cause I'm ready to save 'em."  Mantra of the year, Yes!!!  Be your credit union's superhero by focusing on the regulators' priorities to help save time, lives, and money.

As always, if you have any questions, please feel free to reach out to us.  We are here for you!

Repossessions, Foreclosures, and the Servicemembers Civil Relief Act - A Primer and Some Resources

Written by Benjamin M. Litchfield, Regulatory Compliance Counsel

Happy Friday to all of you out there in regulatory compliance land. On July 26, 2016, the U.S. Department of Justice filed a lawsuit against a creditor for repossessing servicemembers’ motor vehicles without first obtaining court orders authorizing repossession. Among the allegations made by the Justice Department include charges that the institution did not have adequate procedures for determining the military status of members prior to exercising its contractual rights to seize collateral to satisfy delinquent loans. In addition to injunctive relief, the Justice Department also seeks monetary damages and civil penalties.

The Servicemembers Civil Relief Act (SCRA or Act) prohibits credit unions from repossessing personal property (including a motor vehicle) or foreclosing on a mortgage after a servicemember enters military service without first obtaining a court order if the servicemember made a deposit or installment payment before entering military service. See, 50 U.S.C. § 3952(a)(1)-(2). The Act also contains additional protections against foreclosure or sale for any existing obligation on real or personal property owned by a servicemember secured by a mortgage, deed of trust, or other security in the nature of a mortgage. See, 50 U.S.C. § 3953(a)(1)-(2). A knowing violation of either of these provisions is a misdemeanor and can result in a fine or imprisonment for up to a year, or both. See, 50 U.S.C. §§ 3952(b), 3953(d).

Furthermore, the protections of the Act are not necessarily limited to servicemembers. When a court grants a stay, postponement, or suspends an action taken by the credit union, the court may also grant similar relief to sureties, guarantors, cosigners, or any “other person who may be primarily or secondarily subject to the obligation or liability.” 50 U.S.C. § 3913(a). Dependents may also request a court to grant similar protections if “the dependent’s ability to comply with a lease, contract, bailment, or other obligation is materially affected by reason of the servicemember’s military service.” 50 U.S.C. § 3959. Finally, the Act also protects citizens of the United States serving with allied forces. See, 50 U.S.C. § 3914.

Unlike the Military Lending Act, a servicemember may waive any rights and protections provided by the SCRA. Waiver of protections against repossessions and foreclosures, however, must be made in writing, “executed as an instrument separate from the obligation or liability to which it applies,” and are effective only if made during or after the servicemember’s period of military service. See, 50 U.S.C. § 3918(a). What this appears to mean is that credit unions may not rely on a blanket waiver in a loan agreement but rather must secure a separate waiver from the servicemember during or after military service. As with any other disclosure, credit unions may wish to review the document to ensure that disclosures are provided in a clear and conspicuous manner to ensure that the servicemember makes a knowing and intelligent waiver of his or her SCRA rights. Furthermore, there may be state law requirements for such a waiver, or state court procedural requirements for the presentation and reliance on such a waiver. While not necessarily addressing this issue, some useful resources addressing clear and prominent disclosures can be found in my last blog on deceptive advertising.

Although not required by the SCRA itself, NCUA has recommended that credit unions establish internal controls to manage potential SCRA compliance risk. Some internal controls recommended by NCUA and other banking agencies include:

• Determining military status prior to initiating a civil action by reviewing information available on the Defense Manpower Data Center (DMDC) SCRA database (available here);

• Researching military status periodically;

• Maintaining up-to-date books and records that document military status;

• Providing comprehensive training to loan officers and collections departments on SCRA compliance; and

• Having a quality assurance process to ensure that employees are following the credit union’s policies and procedures.

One thing to note is that the DMDC’s SCRA database is separate from the MLA database which is used to perform a covered borrower check to determine compliance with the Department of Defense’s Military Lending Act Rule.

Additional information on SCRA risk management can be found in this 2012 webinar on the SCRA available through the Federal Reserve. Letter to Credit Unions 09-CU-12 (June 2009) also provides resources, including interagency SCRA Exam Procedures and a copy of the AIRES Questionnaire dealing with SCRA compliance, that may also be helpful. In addition to SCRA compliance risk, credit unions may also wish to consider any potential reputation risk that may result from taking action against an active duty member of the armed forces. This article by an enforcement specialist at the Federal Reserve Bank of Philadelphia provides a useful summary on how credit unions may identify, measure, and mitigate reputation risk.

I hope this blog has been helpful and that you enjoy your weekend.

***

DoD Military Lending Act Interpretive Guidance Released

This blog was written before DoD issued its MLA interpretative guidance on August 26, 2016. The interpretative guidance can be found in the Federal Register. NAFCU's Regulatory Compliance team will update the association’s MLA Compliance Guide in advance of the effective date (October 3, 2016) to account for the new guidance.

***

CFPB Updates TRID Webinar Question Index.  On Wednesday, July 27, 2016, the CFPB announced that it has updated its index of questions addressing the Bureau’s TRID Rule. The index now includes questions asked and answered during the March 1, 2016 and April 12, 2016 Outlook Live webinars hosted by the Federal Reserve. You can access that index here.

Get Ready to Submit Credit Card Agreements; ICYMI

Written by Brandy Bruyere, Director of Regulatory Compliance

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

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

“§1026.58   Internet posting of credit card agreements.

[…]

(b) Definitions—

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

(c) Submission of agreements to Bureau—

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

TRID AND SCRA

Written by: Eliott C. Ponte, Regulatory Compliance Counsel

TRID Technical Corrections

 Twas the night before Christmas, when all through the regs, only one thing was changing, and that was TRID! 

The CFPB issued a final rule containing technical corrections to the final TILA-RESPA Integrated Disclosure Rule (TRID).  The technical corrections became effective on December 24, 2015, which was the date of its publication in the Federal Register. 

According to the final rule, the “publication of the TILA–RESPA Final Rule in the Federal Register resulted in several unintended deletions of existing regulatory text from Regulation Z and the Official Interpretations (commentary) in the Code of Federal Regulations (CFR) and, in one case, the omission of regulatory language in the TILA–RESPA Final Rule from the CFR.”  The CFPB maintains that the technical corrections are non-substantive changes to TRID, and these changes merely correct accidently deleted or omitted text.  Specifically, the final rule makes the following technical corrections to Regulation Z:

• Amends section 1026.22(a)(5) to restore subparagraphs (i) and (ii).
• Amends the commentary to § 1026.17 at paragraph 17(c)(1)-2 to restore subparagraphs i, ii, and iii.
• Amends commentary paragraph 17(c)(1)-4 to restore subparagraphs i.A, and i.B.
• Amends commentary paragraph 17(c)(1)-10 to restore introductory text and subparagraphs iii, iv, and vi.
• Amends commentary paragraph 17(c)(1)-11 to restore subparagraphs i, ii, iii, and iv.
• Amends commentary paragraph 17(c)(1)-12 to restore subparagraphs i, ii, and iii.
• Amends commentary paragraph 17(c)(4)-1 to restore subparagraphs i and ii.
• Amends commentary paragraph 17(g)-1 to restore subparagraphs i and ii.
• Amends the commentary to § 1026.18 at paragraph 18(g)-4 to restore text to subparagraph i.
• Adds commentary paragraph 7 to Appendix D of Regulation Z, as this was included in the TRID Final Rule but was accidently omitted when codified in the CFR. 

***

Extension of the SCRA’s Post-Service Mortgage Protections Likely

The Servicemembers Civil Relief Act’s (SCRA’s) post-service mortgage protection ensures servicemembers who are serving in the armed forces are protected against losing their home for one year upon his or her return from active duty, if the mortgage was obtained before the servicemember was an active member of the military. Originally, the extension was for 90-days; however, in 2008 Congress voted to extend this protection to nine months.  In 2012, the protection was extended to one year.  As of December 31, 2015, the one-year extension protection expired, and the period of mortgage protection has now reverted to the original 90-days. 

Currently, the Senate introduced and passed bill S. 2393, which would restore the one-year protection through December 31, 2017.  The House is similar bill (H.R. 189) that would restore the one-year protection through December 31, 2016.  While it is not clear which or when any bill will pass, it is likely that some version of the bill will eventually pass. 

***

How to Develop an Enterprise-Wide Risk Management Function

Live Webcast: Wednesday, January 13 | 2:00 p.m. – 3:30 p.m. EST

Learn step-by-step guidelines for creating and executing a best-practice, enterprise-wide risk assessment. This informative webcast will cover essential topics such as: how to develop a risk model, key factors to include in your risk assessment, identifying the potential risks of financial, operational, and IT processes and more. Help ensure you are performing a proper risk assessment for your credit union so you can adequately contain the highest potential risks.

Department of Justice Takes Action Against Lender for SCRA Violations

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

The Department of Justice recently announced a proposed consent order to resolve allegations against Santander Consumer USA Inc. (Santander) for violating the Servicemembers Civil Relief Act (SCRA).  Santander allegedly initiated and completed 760 repossessions, without court orders, of motor vehicles owned by covered servicemembers, and allegedly attempted to collect fees arising from an additional 352 improper repossessions in connection with acquired loans. Santander has agreed to pay at least $9.35 million to resolve the lawsuit and must also repair the credit of all affected servicemembers.

The lawsuit is based on alleged violations of Section 532(a)(1) of the SCRA. Absent a waiver of rights by written agreement in accordance with Section 517, the SCRA requires a court order before vehicle repossession can occur if the servicemember took out the loan, and made a payment, before entering military service. From the statute:

Ҥ 532. Protection under installment contracts for purchase or lease

(a) Protection upon breach of contract 

(1) Protection after entering military service After a servicemember enters military service, a contract by the servicemember for—

(A) the purchase of real or personal property (including a motor vehicle); or

(B) the lease or bailment of such property, may not be rescinded or terminated for a breach of terms of the contract occurring before or during that person’s military service, nor may the property be repossessed for such breach without a court order.

(2) Applicability

This section applies only to a contract for which a deposit or installment has been paid by the servicemember before the servicemember enters military service.” 50 U.S.C. App. § 532(a). (Emphasis added)

In addition to making compensation payments, the proposed consent order requires Santander to develop, and submit for approval, SCRA compliant policies and procedures for motor vehicle repossessions, policies and procedures for processing SCRA relief requests, and staff training materials. Refer to the complaint and consent order for complete details.

SCRA Resource Tip.  The Department of Defense maintains a Defense Manpower Data Center database, designed to help verify if an individual is eligible for SCRA protections.  The database is accessible here.

Have a great weekend everyone! 

One-Year Extension of the SCRA’s Post-Service Mortgage Protections

Written by Eliott C. Ponte, Regulatory Compliance Counsel

On Friday, the House and Senate unanimously passed a one-year extension of the Servicemembers Civil Relief Act’s (SCRA’s) post-service mortgage protections.  See S. 3008. The amendment will extend a provision that ensures servicemembers who are serving in the armed forces are protected against losing their home for one year upon his or her return from active duty, if the mortgage was obtained before the servicemember was an active member of the military. 

Congress first extended the period of foreclosure protection under the SCRA in 2008.  Originally, the extension was for 90-days; however, in 2012, Senator Sheldon Whitehouse successfully extended the SCRA protection to one year.  The protection was set to expire at the end of this year, and the period of mortgage protection would have reverted back to 90 days.  With the passage of S. 3008, the provision was extended for one more year and will now expire on December 31, 2015. 

Compliance officers reading this blog are probably thinking, enough with the history lesson; what about the HUD-92070 form that accompanies the extended SCRA protection!  Unfortunately, there is no official word on this front; however, NAFCU anticipates the Department of Housing and Urban Development (HUD) to update the HUD-92070 form to reflect the most recent extension in the very near future.  When HUD does issue an updated HUD-92070 form, rest assured that NAFCU will sound the alarms to alert credit unions to start using the new form. 

Comment Letter Talking Points for DoD’s Military Lending Act Proposal; Recent Policy Changes to Military Allotment Process

Written by Quincy Enoch, Military Liaison

Hello and Happy Holidays,

The Holidays are fast approaching which means the comment period deadline for the Department of Defense (DoD) lending rule is approaching fast as well. As Mike and I noted in our November 21^st post, this rule is going to impact all credit unions by creating additional compliance burdens for all credit unions.

Understanding the impact the DoD proposed rule will have on the credit union industry, many of our members have expressed interest in sending comments to DoD. With this in mind, NAFCU has prepared a helpful guide to look to when preparing your comment letters. If you have any questions, please don’t hesitate to contact me at [email protected].

DoD rule talking points

***

Additionally, I would like to mention a recent change to the military allotment process. According to DoD, as a result of abuses of the allotment system by predatory banks and retailers, Secretary Hagel has prohibited the use of allotments to pay for particular items (for only active duty troops). These items include:

  - Vehicles (e.g., automobiles, motorcycles, boats);

  - Appliances or household goods (e.g., washer, dryer, furniture);

  - Electronics (e.g., laptop, tablets, cell phone, television); or,

  - Other consumer items considered to be tangible and movable.

The policy change is with respect to new allotments and will not affect any current allotments. The prohibition will only apply to allotments started on or after the effective date, which is January 1, 2015. The policy change will not affect allotments to savings account, checking accounts, investments, mortgages or rent.

These policy changes were made under Secretary Hagel’s authority to make changes to the Financial Management Regulation (FMR) and did not require the typical rulemaking procedures. To enforce the prohibition, DoD will require servicemembers to certify under penalty of the Uniform Code of Military Justice (UCMJ) that the allotment is not being set up for the purpose of the purchase, lease or rental of personal property or payment towards personal property.

Some helpful links:

DoD Announcement

Fact Sheet

Why the DoD Rule Affects All Credit Unions; Mike Coleman Says Goodbye to NAFCU

By Michael Coleman, Director of Regulatory Affairs, and Quincy Enoch, Military Liaison

In talking to credit unions about the impact of a recently proposed rule from the Department of Defense (DoD) regarding the Military Lending Act (MLA), many credit unions have noted that they have very few servicemembers in their membership or they don’t have any products that are over the 36% lending cap. Unfortunately, neither of those facts have a major impact on the compliance burden caused by the proposed MLA rule.

The real question credit unions should be asking is, “Do we offer credit cards, signature loans, traditional lines of credit, overdraft lines of credit or essentially any unsecured credit of any kind?” If so, then the MLA rule most definitely impacts your credit union.

The rule requires not only that covered products (which the rule defines as “consumer credit”) remain under a 36% “military annual percentage rate” but also that servicemembers receive special disclosures when consumer credit is extended to them. Under the proposed rule consumer credit is defined as all credit extended to servicemembers and dependents except mortgages, loans secured by personal property or loans for vehicle purchase. The definition includes essentially all unsecured lending. This is a significant expansion of the definition of consumer credit, which currently has a targeted focus on payday loans, vehicle title loans, and tax refund anticipation loans.

The true compliance burden stems from the fact that the rule places the responsibility of identifying servicemembers on the lender. That means  anytime a member comes in to obtain consumer credit it is the responsibility of the credit union to have a method in place to determine if that member is a servicemember or not. The rule allows flexibility regarding methods to determine the status of an applicant, but the lender is only granted a safe harbor if the lender checks the Defense Manpower Data Center (DMDC) database. This means that credit unions will need to integrate checking the DMDC into their systems before issuing any consumer credit to ensure compliance and obtain the safe harbor. Another significant problem with using the DMDC for a safe harbor is that the DMDC has not functioned properly recently, and the proposed rule would exponentially increase the number of searches the DMDC would need to handle. So the question then is, what do you do to obtain the safe harbor if the DMDC is down? Right now, it’s not clear.

Unfortunately, this  only gets you  half way to complying with the rule because there is an actual knowledge provision as well. The provision states that if the lender has actual knowledge of the status of the servicemember or dependent, the safe harbor will no longer be in effect. This mean that credit unions will also need to setup an internal database or procedures to check what the credit union actually knows as well, because if a servicemember presents you with a military ID when opening a joint account for himself and his spouse, the credit union then has actual knowledge that both the servicemember and spouse are covered borrowers for the purpose of the MLA rule.

The bottom line is that even if you do not have servicemembers in your credit union’s field of membership, this rule will have a significant impact on your credit union. It might affect the types of credit products that you are able to offer members of the military, and it definitely will increase compliance costs and operational burdens. Credit unions have a strong history of providing excellent service to servicemembers and safe credit products that meet their needs, which makes getting this rule right essential. NAFCU has issued a regulatory alert, and will submit comments to the DoD. We sent a letter to the NCUA on the proposal to express some initial credit union specific concerns, and called on the DoD to extend the comment period for the proposed rule. We’ve also joined other industry efforts related to the DoD proposal. Check out the Chairman’s Corner article in the most recent NCUA Report where Chairman Matz noted that NCUA will provide comments formal to the DoD on the rule.

***

Thank you Credit Union-Land! This is just Mike talking now. Today is my last day with NAFCU, and I can’t say it loud or often enough, I am incredibly thankful to NAFCU for all the opportunities over the past several years, and for the best group of colleagues around. From my days in Compliance with Steve, JiJi, Bernadette, and Shari, to my current role as Director of Regulatory Affairs with Alicia, Angela, Megan, and PJ, and my time with all of NAFCU's government affairs team, I couldn’t have asked for a better group of people to work with to help NAFCU members and the credit union industry. And working for and learning from Dan, Fred, Carrie, and Anthony has been an incredible experience.

And of course, many thanks to the best members around. It’s impossible for me to describe how many devoted credit union people I have met along the way. I’ve talked to many of you directly, whether in person at conferences, or over the phone, via email, you name it. And the most common theme I have seen is that credit union people care. They care about their credit unions and they care about the credit union movement. It’s been an honor working with you, and I promise I won’t be a stranger! Thanks again for everything.

DOD Proposes to Expand Military Lending Act Rate Cap to More Consumer Credit Products

Written by Shari R. Pogach, Regulatory Paralegal

Last Friday, the Department of Defense (DOD) announced a proposed regulation that would expand the Military Lending Act’s (MLA’s) 36 percent rate cap, among other protections, to additional consumer credit products.  DOD’s proposed changes would apply the MLA protections to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit and credit cards (with some conditional exclusions).  

Under current implementing rules, MLA protections extend to closed-end payday loans for no more than $2,000 and with a term of 91 days or fewer, closed-end auto title loans with a term of 181 days or fewer and closed-end tax refund anticipation loans. The proposed changes would amend the definition of “consumer credit” to more closely match the definition under the Truth in Lending Act, covering more credit products.  Not all credit products would be affected by the proposed regulation - residential mortgages and purchase-money loans (to buy items like cars) are excluded from the MLA’s definition of “consumer credit.”

Elements of the proposal include:

• Amendments to extend the protections of the MLA implementing regulations to a broader range of credit products. The proposal would define “consumer credit” to be consistent with closed- and open-end credit products that already are regulated under the Truth in Lending Act. The intent is to move away from the product-by-product approach and towards a comprehensive, no-gaps approach.
• Alignment of the MLA with TILA to provide service members with more lasting protections.
• Loan disclosures intended to simplify a lender’s disclosure obligations to covered borrowers under the MLA and would provide for a non-numerical descriptive statement of Military APR that would be consistent across loans offered to service members.
• Allow lenders to assess whether borrowers are covered by the MLA by checking their status in an existing, publicly-available online DoD database. Lenders who used the database would receive a safe harbor from liability under the MLA.

NAFCU will be studying the proposed rule carefully for any unintended consequences from the proposal that would prevent credit unions, particularly those operating on military installations, from providing those safe credit products that servicemembers have come to depend on from their credit unions.  Comments on the proposed rule are due November 28, 2014.  A Regulatory Alert with an analysis of the proposal will soon be available for NAFCU members here (NAFCU member login needed). 

Obama Highlights the SCRA and the NCUA is Hosting a Merger Best Practices Webinar Next Week

Written By Eliott C. Ponte, Law Clerk

Obama Higlights the SCRA

Last month President Obama announced a partnership with lenders across the country that will help deliver important financial protections to our military community.  The partnership voluntarily commits certain lending institutions to check the Defense Manpower Database Center on a regular basis to determine if any servicemember who has not invoked their Servicemenber Civil Relief Act (SCRA) rights is entitle to a lower interest rate because they have entered active military duty.  Essentially, instead of waiting for a service member to identify themselves as entering active military duty (a reactive approach), some lenders will identify members using the DOD database who have not requested SCRA relief and automatically give them the relief they are entitled to receive under the SCRA (a proactive approach).  Such a partnership will likely help any servicemember who is entitled to relief under the SCRA, but has not formally requested SCRA relief. 

While the SCRA has protected servicemembers for many years, because of President Obama’s announcement, I thought I would blog about the some of the most frequently asked compliance questions regarding the SCRA, in case your credit union starts to receive questions about the SCRA.  Two frequent questions NAFCU receives about the SCRA are (1) when does the SCRA require the credit union to lower the servicemeber’s interest rate, and (2) does the SCRA relief include fees that are associated with the loans (e.g., late fees). 

When does the SCRA require the credit union to lower the servicemeber’s interest rate?

The language from the SCRA places a 6% interest rate cap on an obligation incurred “before the servicemember enters military service.”  See 50 U.S.C. § 527(a).  The key phrase from the SCRA is “enters military service.”  This term does not distinguish between a new enlistee and an existing reserve member that is called into active military duty.  Thus, a credit union is required to lower the servicemember’s interest rate when the service member is placed into active military service.

When dealing with this type of question, it is best to remember the logic behind the SCRA: If the servicemember was on active duty when the loan was made, the servicemember should have known his/her budget and planned accordingly.  Thus, relief is not mandatory when a servicemember enters into a loan during his/her active duty.  On the other hand, if the loan was made before entering into active duty, then the service member could not have properly budgeted to make his/her loan payments (you must presume a loss of income to the member when they enter active duty).  Therefore, in the latter hypothetical, the SCRA grants him/her relief by lowering their interest rate to 6%.

 

Does the SCRA relief include fees that are associated with the loan?

The SCRA has defined the term “interest” broadly, which includes fees and service charges.  According to 50 U.S.C. § 527(d), “the term "interest" includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.”  (emphasis added).

 

NCUA Hosting Merger Best Practices Webinar

The NCUA announced that it would be hosting a Merger Best Practices Webinar on Wednesday, September 17, 2014.  The webinar will include discussions on (1) when to consider merging, (2) merger structure and negotiations, (3) cardinal characteristics of a credit union heading towards merger, and (4) how to maximize benefits for credit union members and staff.

Credit unions who are interested can register for the free webinar at the following NCUA website.  Participants have been asked to submit questions in advance to [email protected].  The NCUA has requested that teh subject line of the email read, “Merger Best Practices.”

CFPB Releases Guidelines for Protecting Servicemembers from Payday Lenders

Written by JiJi Bahhur, Regulatory Compliance Counsel

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) specifically tasked the Consumer Financial Protection Bureau (CFPB) with supervisory authority over payday lenders.  And after the Department of Defense concluded that predatory lending practices by payday lenders were a threat to military personnel and their families, Congress passed the Military Lending Act (MLA) – which provides greater protections for military families – and gave the CFPB the authority to enforce it as well.  As part of its efforts, the CFPB, earlier this month, issued guidelines to its examiners on how to identify consumer harm and risks related to MLA violations when supervising payday lenders. 

The new guidelines (updated examination procedures) apply to the short-term, small-dollar credit market, known as payday lending.   More specifically, the special protections offered by the MLA apply to closed-end payday loans of $2,000 or less with terms of 91 days or fewer.  Quoted from the CFPB’s news release, the requirements that payday lenders must follow include:

• “Annual percentage rate capped at 36 percent: Because most payday loans are for several hundred dollars and have finance charges of $15 or $20 for each $100 borrowed, a typical two-week term can equate to an annual percentage rate (APR) ranging from 391 percent to 521 percent. Payday lenders must cap the APR – which incorporates all fees and costs associated with the loan – at 36 percent when lending to servicemembers.

• No rolling over of loans: When consumers cannot pay back the loan at the time it is due, borrowers can often pay only the finance charges and renew the loan. This fee does not reduce the amount owed. If a payday loan is rolled over multiple times, it’s possible to pay several hundred dollars in fees and still owe the original amount borrowed. Payday lenders are banned from rolling over loans for servicemembers, unless the new transaction results in more favorable terms for the servicemember.

• No signing away of servicemember rights: The MLA prohibits lenders from making servicemembers waive their rights under the Servicemembers Civil Relief Act or other state or federal laws that provide critical consumer protections. The MLA also prohibits lenders from requiring servicemembers to waive their right to seek resolution of any legal claims in court.

• No requiring allotments to repay: Under the military allotment system, military personnel can repay their loans by having payments directly deducted from their paycheck before their salary is deposited in their account. When servicemembers pay by allotment, they lose certain consumer protections as well as their flexibility to adjust their budget if a financial emergency comes up. The MLA bans lenders from requiring military members to pay by the allotment system and gives servicemembers control over how their income is spent.”

Through its enforcement and supervisory work, the CFPB will be scrutinizing lenders to make sure that they are following the MLA requirements when they make short-term, small-dollar loans to servicemembers and their dependents.

Consumer Compliance Outlook – Q&A's from the Servicemember Financial Protection Webinar

Written by Bernadette Clair, Regulatory Compliance Counsel

In a previous blog, Steve mentioned the release of the First Quarter 2013 issue of the Philadelphia Federal Reserve's Consumer Compliance Outlook.

One of the articles, Servicemember Financial Protection Webinar, Questions and Answers, provides answers to some of the most common questions received during an interagency Outlook Live webinar the Federal Reserve System hosted back on September 10, 2012.

Here are a couple questions from the article that we often get asked here at NAFCU too, dealing with the maximum rate of interest that may be charged on debts incurred prior to military service:

Question No. 5

“Per the information provided during the webinar, I understand that fees cannot be in excess of 6 percent for service members. Is it correct that if a service member invokes his or her rights, you cannot charge more than 6 percent for any fees (including late fees and fees for nonsufficient funds), but you can charge up to 6 percent?

Under section 527 of the SCRA, the maximum rate of interest on debts incurred prior to military service is 6 percent. Additionally, section 527(a)(2) of the SCRA provides that interest on debt covered by the SCRA that exceeds the 6 percent cap must be forgiven. The SCRA defines the term interest to include “service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.” A creditor may seek relief from a court in order to impose additional fees and charges based on a finding that the service member’s ability to meet the obligation at a rate greater than 6 percent was not materially affected by military service. Accordingly, for obligations covered under the SCRA, creditors should include in the interest calculation any fee or charges incurred with respect to the covered debt, including late payment fees and other fees incurred after origination.”

Question No. 6

“Does the bank have to recalculate the monthly payments to reduce the loan interest rate to 6 percent, or is it acceptable to extend the maturity date and provide the borrower with a new payment schedule?

Section 527 of the SCRA requires both the forgiveness of interest in excess of 6 percent and the prevention of acceleration of principal. Therefore, the creditor should adjust the interest rate and reflect that reduction in the periodic payment. Any extension of the loan’s maturity date would not represent forgiving the interest.”

See the article for the full set of Q&A’s from the webinar.  You can also access the archived Outlook Live webinar here.

30 Minutes to Report Credit Card Plans?; Consumer Compliance Outlook; HELOC Webcast

Written by Steve Van Beek

Information Collection on Report for Credit Card Plans. Remember back on February 1 where I got all bent out of shape regarding the CFPB's expansion of their Credit Card Survey to certain credit unions with 10 days notice? 

Yesterday, the CFPB issued an Information Collection Request which asks whether the 30 minutes it estimates for financial institutions - including approximately 20 of the largest credit unions - is accurate. 

"Request for Comments: Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information shall have practical utility; (b) The accuracy of the Bureau's estimate of the burden of the collection of information, including the validity of the methods and the assumptions used; (c) Ways to enhance the quality, utility, and clarity of the information to be collected; and (d) Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget (OMB) approval. All comments will become a matter of public record."  (Emphasis added).

The reporting form is FR 2572. And, you can also review the instructions and form (opens as an Excel document) for responding to the report. After reading the instructions, would you say that completing the task would take 30 minutes?  Me neither.  

For the 20 or so credit unions who were recently added to the Report - did it take your credit union 30 minutes?  For those credit unions who weren't covered - how long did it take you to determine you weren't covered?  

***

Consumer Compliance Outlook. The First Quarter issue of the Philadelphia Federal Reserve's Consumer Compliance Outlook is now available. The articles this issue include:

• Servicemember Financial Protection Webinar: Questions and Answers
• 2012 Year in Review Webinar: Questions and Answers
• Credit CARD Act Requirements for Gift Certificates, Store Gift Cards, and General-Use Prepaid Cards

You can also download the full PDF here.

***

HELOC Webcast. Don't miss NAFCU's webcast tomorrow on Which New Requirements Apply to HELOCs? - where I'll be walking through the new mortgage requirements that apply to HELOCs.   

***

Wow - you couldn't ask for a better game last night (a different outcome, sure!).  Hats off to Louisville on a great season and an outstanding game. For Michigan - what a run and well done. 

I'll leave you with my favorite image from the game (Getty Images):

Oh, yeah - that was called a foul. One thing is for sure, the blog has definitely upped its basketball coverage since the days of Anthony's Penn State Nittany Lions. Fred also mentioned the coverage was a little too skewed to Michigan - so here is a link to Navy's season as well (does David Robinson have any eligibility left?).   

Cyber Threats; SCRA; Fannie Mae Resources; Economic Update; Mortgage Servicing Transfers

Written by Steve Van Beek

Below are couple of tidbits for your Tuesday.

***

NCUA Risk Alert on Cyber Threats.  NCUA issued Risk Alert 13-Risk-01 on steps credit unions should take to protect against Distributed Denial-of-Services (DDoS) attacks.  In recent months, these attacks have ticked up at financial institutions – including credit unions.  Be sure to pass this Risk Alert along to those in charge of risk management and information technology at your credit union.    

***

CFPB “Hit or Myth” on SCRA.  The CFPB had a recent blog post on various confusing issues related to servicemember protections under SCRA.  These “Hit or Myth” questions and answers might be useful for internal SCRA training.  For more CFPB information on servicemembers, check out this page.    

*** 

Fannie Mae Loan Quality Resources. If your credit union sells loans to Fannie Mae, be sure to check out their new resources regarding Loan Quality.  The webpage includes resource guides as well as free webinars to help understand Fannie Mae’s procedures.  Be sure to pass along the resource page to others at your credit union. 

***

NCUA’s February Economic Video.  NCUA’s latest economic video is now available for viewing on YouTube.  Each month, NCUA’s Chief Economist John Worth provides an overview of the economic market and how it impacts credit unions.  These are great videos to include in strategic planning or board sessions as NCUA comes directly to you – via YouTube – each month with an economic update.  

***

CFPB Bulletin on Mortgage Servicing Transfers.  In addition to changing nearly all the mortgage servicing requirements in January, the CFPB has mortgage servicing transfers in their crosshairs.  In mid-February, the CFPB announced their intent to “closely monitor transfer activity” by mortgage servicers.  In conjunction with the announcement, the CFPB issued Bulletin 2013-1 which provides specific information regarding the CFPB’s detailed focus on mortgage servicing transfers.  

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

Written by Steve Van Beek

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

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

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

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

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

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

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

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

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

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

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

***

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

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

***

SCRA Notice Updated; NAFCU's Beltway Buzz!

Written By JiJi Bahhur, Regulatory Compliance Counsel

It’s Friday – and I don’t know about you all – but I think we’ve had enough complicated compliance issues to deal with over the past few weeks.  Consider it a belated Valentines gift from me to you – I’m keeping it short and sweet today!  

***

HUD has updated the Service Members Civil Relief Act (SCRA) Notice (form HUD-92070), the form that provides notice of the legal rights and protections under the SCRA.  The update is effective through December 31, 2014, and stems from the amendment to Section 533(b) of the SCRA which changes the timeframe for foreclosure protection from “9 months” to “one year.”   

These changes were effective as of February 2, 2013.  If you're looking for a copy of the form with the updates already made, you can find it on bankersonline.  If HUD gets around to updating the form on its website, we'll provide that link at a later time. 

***

NAFCU Members - Be sure to catch the Beltway Buzz!  Sign-up for our new monthly e-newsletter and get a fun look at the latest developments in CU legislation. Written by NAFCU’s Vice President of Legislative Affairs Brad Thaler, you’ll get an inside look at what’s happening in Washington, but with humor and insight not typically delivered in other industry news publications (except of course, this blog!). Click here to sign up.

***

Have a great weekend everyone! 

CFPB Sharing Complaint Data; Unverified Complaints; Feedback on NCUA Process

Written by Steve Van Beek

Back in mid-December, the CFPB announced it would be sharing consumer complaint data with state regulatory agencies.  They also note that this is just the beginning:

"In the future, we’re planning on building ways to accept complaints and information from the agencies as well, and to make the data available to other federal agencies, state attorneys general, local agencies, congressional offices as appropriate, and other governmental organizations like the California Monitor (a program of the California Attorney General) and the Office of Mortgage Settlement Oversight."

The announcement then goes on to provide a summary of the CFPB's complaint process:

"What happens when I file a complaint?

When a consumer files a complaint, we screen it to make sure that it’s complete and not a duplicate of another complaint we’re already working on for that consumer. Next, we send it to the company in question and ask them to reply to the complaint within 15 days and expect them to close all but the most complicated complaints within 60 days. After the company responds, we publish a selection of the data (with information identifying the consumer removed) in our public Complaint Database."

You'll easily notice that there is no verification process.  And, the Complaint Database's disclaimer doesn't exactly jump off the page.  Of course, this is an issue we've discussed over and over on the blog - so much so that we have a Member Complaints category.  

***

Initially, it is important to remember that credit unions under $10 billion are not included in the Consumer Complaint Database.  The CFPB will forward any complaints from these credit unions to NCUA and credit unions will need to follow NCUA's procedures for responding to member complaints (more on this at the end of the blog post).  

Unverified Complaints.  So, what is the big deal with unverified complaints?  The reputation risk issue is one that cannot be ignored.  In this age of viral media - where a simple complaint or issue can fly through blogs, Facebook, Twitter - it is much harder to correct inaccurate information.  Sometimes, once the story is out there, it is....well, out there.  

But, there is another angle that could be even more dangerous.  The CFPB's Annual Report on Student Loans and the companion report - The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform - both use consumer complaints as a focal point to help show the current regulations or enforcement is insufficient.  

The latter quotes directly from consumer complaints, for example:

        
That comes from page 5 of the Report.  An earlier quote includes this footnote:  "This report cites information from specific complaints submitted to the CFPB. In these cases, the consumers have provided consent to include the details of their complaints."

Again, there is no mention of verification of the complaints.  I'm interested, was the rate incorrect?  We don't know.  But, the CFPB is implying it was by including one side of the story.  Remember:  The institution - whichever institution this was from - is prohibited by privacy laws from providing any information about the member's account.  So, we have the one side of the story.

Of course, I'm not saying these complaints are not true.  I'm just saying they are unverified (if they were verified, the CFPB should include that information).  

And, I'm not saying that institutions always do everything correctly.  For example, if this complaint is accurate - the institution has a lot of work to do:

"According to a complaint received by the CFPB, one borrower had six loans with a servicer, two of which had interest rates above six percent and four of which had interest rates below six percent. Instead of reducing the interest rate on the two higher-rate loans to six percent and leaving the four lower-rate loans untouched, the servicer simultaneously increased the interest rate on the lower-rate loans up to six percent."

Or, it could have been a mistake that was quickly corrected by the institution.  We just don't know.

***

The New Cycle?  The reason I bring this up is that this seems to be the start of a new type of regulating that credit unions need to be aware of.  Or, at the least it is a new type of justifying the need for new regulation.  

Think about it.  The CFPB is soliciting consumer complaints (remember the flashing red "complaint button" on their first website?)  Then, they write a report (usually to Congress) using the complaints to argue there are issues that need to be corrected.  There might also be testimony to explain the report and what they've found.  After that?  Well, it might just be that the reports help build the case for a new regulation (or a new law from Congress).  All with unverified consumer complaints.  

At this point, we don't know.  But, the CFPB seems to be falling short of their data-driven analysis goal:

"The CFPB is a data-driven agency. We take in data, manage it, store it, share it appropriately, and protect it from unauthorized access. Our aim is to use data purposefully, to analyze and distill data to enable informed decision-making in all internal and external functions."

And, remember - the new requirements that come from these new regulations or laws will not be limited to credit unions with more than $10 billion in assets.  The new requirements will apply to everyone.  

***

NCUA Complaint Process.  Taking a little different angle here.  We've detailed the NCUA Complaint process a couple of times on the blog.  Most recently here and here.  What we are interested in from blog readers is if there are areas NCUA could improve?  If so, please let us know.  We'll be sure to raise the issues with NCUA and see if some of the issues can be smoothed out.  

CFPB Report on Private Student Loans; CFPB Remittances Webinar; NAFCU's Offices Closed

Written by Steve Van Beek

We'll keep this blog post brief as we’ll have additional information on the CFPB reports in future blog posts.

***

Private Student Loan Report.  On October 16th, the CFPB issued a report on private student loans.  Here is from the press release:

"Today’s report, which was mandated by Congress, analyzed approximately 2,900 private student loan complaints, comments, and other submissions and input from borrowers. The report found that roughly 95 percent of the complaints are about loan servicing – when borrowers try to pay back their debt or are unable to pay."

The report is available here.  A fact sheet is available here.   

***

Student Loans and Servicemembers.  On October 18th, the CFPB issued a report on student loans and servicemembers.  Prominent in the report were discusses of student loans and the SCRA:

"Many servicemembers navigate hurdles that may be unnecessary in order to receive the SCRA interest rate cap. Once a borrower has qualified for this interest-rate cap, the SCRA requires the servicer to continue to provide this benefit for the duration of the servicemember’s time on active duty, as reflected in the servicemember’s orders. We have received complaints from servicemembers, on active duty for multiple years, who reported that they were told that their interest-rate cap would expire annually, and were subsequently required to submit  additional orders in order to retain this benefit."

The report is available here.  The CFPB also released a Guide for Servicemembers with Student Loans.  

***

CFPB Remittances Webinar.  If you missed the CFPB's webinar on remittances, you can view the archive here (slides are here).  The Small Entity Compliance Guide is also available.

***

NAFCU Closed.  NAFCU follows the Federal Government Operating Status and our offices will be closed today due to Hurricane Sandy.  NAFCU Members:  If you have compliance questions, please email us at [email protected].  If you call, please leave a voicemail and we'll get back to you as soon as we can.   

For those in and around the Hurricane area, be safe!

Upcoming Webinars and Webcasts; NAFCU's October Compliance Monitor

Written by Steve Van Beek

Webinars and Webcasts.  There are quite a few free webinars to keep on your radar:

• October 4 at 3:00 p.m. EDT - Town Hall with Chairman Matz - Registration is Still Open

• October 16 at 2:30 p.m. EDT - New Requirements for Remittance Transfer Providers - Sign-Up by sending an email to [email protected] by October 9.  If you have a question you'd like answered during the webinar - send it to [email protected] by October 5.  

• October 17 at 2:00 p.m. EDT - Fair Lending Hot Topics by the Philadelphia Federal Reserve's Consumer Compliance Outlook

• Archived:  Servicemember Financial Protection (Compliance with the SCRA) - Slides are here.

NAFCU also has a couple of upcoming webcasts that might be of interest:

• October 10 - BSA/OFAC for Directors and Supervisory Committee  - Keep in mind that you can watch the archived webcast for up to one year - making this perfect for a future Board meeting or training event.  Sign up by October 3 and Save $100.  

• October 24 - Social Media and Website Compliance - This webcast will also be viewed live by all Regulatory Compliance Seminar attendees.  Sign up by October 17 and Save $100.  

• November 7 - CFPB's Latest Mortgage Proposals - NAFCU's Compliance team will overview the mortgage loan originator proposal, interagency higher-risk appraisal proposal and the Regulation B appraisal proposal.  Sign up by October 31 and Save $100.    

***

NAFCU's October Compliance Monitor.  NAFCU Members: Our October Compliance Monitor is now available for download.  This issue includes lengthy articles on the "high-cost" mortgage proposal (including a discussion of the potential change to the definition of "finance charge") and the CFPB's mortgage servicing proposals.  We've also attached a six-page chart which helps organize the 20 new notices included in the mortgage servicing proposals.  Happy reading!

Free SCRA Webinar; Updated NAFCU Member Benefit - Industry Snapshot & Board Briefing

Written by Steve Van Beek

Free SCRA Webinar.  The Philadelphia Federal Reserve, joined by the CFPB, NCUA and other regulators, will be hosting a free SCRA webinar on Monday, September 10 from 2:30 to 4:00 Eastern.  If you can't catch the live webinar, they usually provide archived versions shortly thereafter (past archived webinars are available here).

Topics to be covered include:

• Permanent Change of Station Guidance
• HAMP Enhancements
• Short Sale Assistance for Military Homeowners
• Recent Enforcement Actions
• SCRA Compliance Tips

You can sign-up here.  NCUA also sent out a notice about this event and I think that is a step in the right direction for NCUA. 

***

NAFCU's Industry Snapshot & Board Briefing.  NAFCU members - we've updated a members-only benefit that may be useful in this environment of rapid regulatory changes.  Our updated Industry Snapshot and Board Briefing resources are provided quarterly and highlight the latest legislative and regulatory issues that could impact credit unions.  

Here are a couple of potential uses for the Industry Snapshot and Board Briefing:

• Incorporate the report and/or PowerPoint into your board packet.
• Distribute the materials to senior staff at your credit union.
• Use the PowerPoint slides (in part or in whole) to make your own presentation to your board or senior staff.
• Incorporate the materials into new executive or director orientation.

NAFCU Members - take a look at the new reports here (along with an introduction video from NAFCU's President and CEO Fred Becker).  Note: The Q2 report is the latest report available and the Q3 report will be available later this fall.  

Updated Forms – Standard Flood Hazard Determination; SCRA Notice Disclosure

Written by Bernadette Clair, Regulatory Compliance Counsel

In honor of Friday, we’ll take a break from the CFPB and keep it light today.  These are a couple of forms that have recently been updated and that you’ll want to make sure don’t slip under the radar.

Standard Flood Hazard Determination (SFHD) Form.  FEMA recently updated the SFHD Form used for determining whether flood insurance is required and available in connection with making, increasing, extending, renewing or purchasing a loan.  The form number has been changed from FEMA Form 81-93 to FEMA Form 086-0-32 and the expiration date of the new form is May 30, 2015.

FEMA indicates that it will be allowing users a three year transition period, ending on the expiration date (May 30, 2015), to update their systems before use of the revised form is mandatory.  Credit unions can continue using the previous form until the end of the transition period, and can begin using the new form as soon as their systems are updated.  The new form is available here.

Servicemembers Civil Relief Act (SCRA) Notice Disclosure.  HUD has issued an updated Form HUD-92070 with an expiration date of November 30, 2014.  (The previous form expired July 31, 2012).  Since 2006, mortgage lenders have been required to send delinquent homeowners this notice informing them of the rights available under the SCRA.  Credit unions should begin using the updated notice if they have not already done so.

Have a great weekend, everyone!

SCRA GAO Study will Add More Pressure on NCUA Examiners; Smith’s Testimony on Dodd-Frank Financial Oversight Law

Written By JiJi Bahhur, Regulatory Compliance Counsel

SCRA GAO Study.  In its report on the Servicemembers Civil Relief Act (SCRA), the Government Accountability Office (GAO) has determined that prudential regulators, such as NCUA, should conduct more extensive loan file testing for SCRA compliance.  Further, the report urges NCUA, among others, to step up their methods for ensuring compliance with the SCRA protections as they relate to mortgage foreclosures. 

The GAO study revealed that there have been at least 15,000 instances where institutions have failed to properly reduce a servicemember’s mortgage interest rates and more than 300 improper foreclosures in recent years.  The study also revealed that only 48 percent of banks and credit unions have been reviewed for SCRA compliance over the past several years.  Of the institutions that did receive a compliance examination, only half involved a loan file review, and even then, only files indicated by the financial institutions as servicemember files were examined. 

Further, the GAO found that there was a lack of information sharing among the prudential regulators and other federal departments and agencies charged with SCRA compliance oversight.  The GAO stated that if the regulators and agencies were to collaborate with one another, it could lead to more effective supervision and improve awareness. 

NCUA has responded to the GAO’s report, stating the conclusions were “reasonable and consistent with your [GAO’s] findings.” 

For more information, you can view the GAO Report here.

***

Smith’s Testimony on Dodd-Frank Financial Oversight Law.  The House Financial Services Subcommittee on Oversight and Investigations held a hearing yesterday to learn about the effects of implementing the Dodd-Frank financial oversight law.  Specifically, the committee examined the consequences and impact on families, communities, and small businesses.  Witnesses from small banks and credit unions testified, including Lynette Smith, President/CEO, of Washington Gas Light Federal Credit Union.  Lynette did a great job presenting the case of how a small credit union is impacted by Dodd-Frank.  Of course, I knew she would as I had the pleasure of working for her for 2.5 years prior to me joining the NAFCU team. 

You can watch the hearing here.  Lynette’s written testimony can be viewed here. 

Consumer Compliance Resources; NAFCU’s Comment Deadline for NCUA’s 2012 Review

Written By JiJi Bahhur, Regulatory Compliance Counsel

I don’t know about you all, but the break in the middle of the week for Independence Day just made me want the weekend to come even faster!  And so here we are…it’s finally Friday.  Let’s keep it simple but informative today. 

***

Consumer Compliance Resources.  As Steve mentioned in a blog post earlier this week, the Federal Reserve's 2nd Quarter Consumer Compliance Outlook is now available.  There are some really great articles in this issue, but I wanted to point you to the very handy section called Consumer Compliance Resources.  This particular page of the Consumer Compliance Outlook gives you the ability to link to very valuable consumer compliance resources – a Compliance Officer’s dream come true! 

Give it a try!  The page provides updated links to an array of resources, including but not limited to:

• CFPB’s Official Website (plus 7 other related links)
• Dodd-Frank Act (plus 3 other related links)
• Federal Reserve’s Consumer Compliance Handbook
• FFIEC Guidance on Electronic Banking
• Payment Cards Center
• Regulation B (plus 13 other Fair Lending-related links)
• Reg C/HMDA (plus 5 other related links)
• Reg E/EFTA (plus 2 other related links)
• SCRA (plus 6 other related links)

And it goes on and on.  It wouldn't be a bad idea to save that resource page in your favorites. 

***

NAFCU’s Comment Deadline for NCUA’s 2012 Review.  Today is the deadline for submitting comments to NAFCU on our Regulatory Alert regarding NCUA’s 2012 review of its regulations.  Comments can be submitted by answering the questions in the Regulatory Alert (accessible to members only) or you can send an email to Tessema Tefferi, Regulatory Affairs Counsel, at [email protected].

Flood Insurance; Reverse Mortgages; NCUA Letter 12-CU-07; Hearing on Mobile Payments

Written By JiJi Bahhur, Regulatory Compliance Counsel

Flood Insurance.  On Friday, Congress approved an omnibus agreement that, among other things, provides a five-year reauthorization for the National Flood Insurance Program (NFIP).  The law includes a NAFCU-backed clarification on lenders’ force-placement of flood insurance when coverage lapses.  President Obama is expected to sign this into law soon as this issue goes to press.  For the latest, check out NAFCU Today. 

***

The CFPB’s Reverse Mortgages Report.  Last Thursday, the Consumer Financial Protection Bureau (CFPB) sent a very lengthy report to Congress addressing reverse mortgages.  While compiling the information for the report, the CFPB found that reverse mortgages are complex and difficult for consumers to understand, and increasingly, have resulted in unintended use. 

Since Dodd-Frank gives the CFPB the authority to implement rules on reverse mortgage transactions, the CFPB is seeking information so that it can consider future rulemakings on the topic.  From the report to Congress, the CFPB found four areas where additional research would help determine if additional consumer education or regulatory action is needed.  Those four areas include:

• Factors that influence reverse mortgage consumers’ decision-making;
• Consumers’ use of reverse mortgage loan proceeds;
• Longer-term consumer outcomes of a decision to obtain a reverse mortgage; and
• Differences in market dynamics and business practices among broker, correspondent, and retail channels. 

Although there are not many credit unions that offer reverse mortgages, this is something to keep an eye on.  The request for information is published in the Federal Register with a 60-day comment period.  Also, the CFPB published a four-page consumer guide to reverse mortgages. 

***

NCUA Letter 12-CU-07.  Last Thursday, the National Credit Union Administration (NCUA) released a letter to credit unions addressing interagency guidance designed to protect military homeowners changing duty stations.  The NCUA Letter to Credit Unions on Mortgage Servicing Practices Impacting Military Homeowners (Letter No: 12-CU-07) details the steps that credit unions servicing mortgage loans to military families should take to implement the Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders, which we blogged on last week.  The guidance addresses unfair, deceptive, or abusive practices in relation to homeowners serving in the military and who have received Permanent Change of Station (PCS) orders.

***

Hearing on Financial Services and Consumer Credit.  Last Friday, FinCEN’s Director, James H. Freis, and CFPB’s Assistant Director of Card and Payment Markets, Marla Blow, testified before the Financial Services Subcommittee, on mobile payments.  The gist of the testimony was that existing regulations would need to be examined to determine if there are barriers that need to be addressed, and if so, how to update the regulations to address potential concerns. 

To view the testimonies of James H. Freis and Marla Blow, go here and here. 

Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders

Written By JiJi Bahhur, Regulatory Compliance Counsel

Several Agencies, including the Consumer Financial Protection Burean (CFPB) and the National Credit Union Administration (NCUA), issued guidance to mortgage servicers concerning military homeowners with Permanent Change of Station (PCS) orders.  The guidance addresses mortgage service practices that the Agencies feel may pose risks to homeowners who have informed the servicer that they have received military PCS orders.  What the guidance does not do is obligate servicers to offer any particular loss mitigation programs.

A PCS order would require a military homeowner to move to a new duty station.  Potentially, this can leave the homeowner in a predicament: a continued obligation to make payments to the mortgage after relocation.  When the military homeowner notifies the mortgage servicer of the PCS order, the servicer follows certain practices or provides certain options to the military homeowner.  Of particular concern to the Agencies are those practices that may mislead or harm homeowners with PCS orders.  The guidance provides the following concerns as potentially misleading or harmful:    

• Failing to provide homeowners with PCS orders who notify their servicers of such orders with accurate, clear, and readily understandable information about available assistance options for which the homeowner may qualify based on the information known to the mortgage servicer. 

• Asking homeowners with PCS orders to waive their legal rights under the Servicemembers Civil Relief Act (SCRA) or any other law as a prerequisite to the mortgage servicer either providing information to the homeowner about available options or evaluating the homeowner’s eligibility for assistance.

• Advising homeowners with PCS orders who are current on their loans and able to make the monthly payment to intentionally skip making payments in order to create the appearance that they are having financial difficulties in order to obtain assistance for which they would not otherwise qualify. 

• Failing to provide a reasonable means for homeowners with PCS orders to obtain information on the status of their request for assistance.

• Failing to timely communicate the servicer’s decision regarding requests for assistance from homeowners with PCS orders and failing to include an explanation of the reason for the denial, where required, so that the homeowner has an opportunity to address any deficiencies, if applicable.

To address potential concerns, the guidance goes on to state that mortgage servicers should ensure that its employees are properly trained on the available options for homeowners with PCS orders.  Further, there should be mortgage servicing policies and procedures in place to address this situation and to ensure compliance with the guidance.

Some other links of interest on the topic:

• Prepared Remarks by Holly Petraeus, CFPB’s Assistant Director for the Office of Servicemember Affairs

• FHFA Announcement on Short Sales for Military Homeowners who have Received PCS Orders

Potential Changes to the Servicemembers Civil Relief Act

Written by Steve Van Beek

On the Tuesday after Memorial Day, I thought it was fitting to discuss some movement on Capitol Hill regarding proposed extensions to the Servicemembers Civil Relief Act (SCRA).

As reported in the NAFCU Today, the House passed an Amendment offered by Elijah Cummings (D-MD) to the 2013 National Defense Authorization Act (which also passed the House in recent weeks).  The Amendment would provide additional protections to servicemembers.  The additional protections include:

• Extending post-service mortgage protection from nine months to 12 months;
• Extending certain SCRA protections to surviving spouses;
• Extending SCRA protections to all totally disabled veterans leaving the military;
• Requiring each financial institution - including credit unions - to designate a SCRA compliance officer; and
• Requiring institutions over $10 billion in assets to maintain a toll-free number for SCRA issues.

A similar bill was introduced in the Senate.  It is expected that the Senate will take up its own 2013 National Defense Authorization Act - which it will need to pass and then the House and Senate bills will be reconciled in conference committee.

For the SCRA issues, keep an eye out as these changes come from Congress directly rather than the regulators.  If these bills pass (in one form or another), we'll be sure to provide additional information.   

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.   

Reputation Risk; 2012 NCUA Board Meeting Schedule

Written by Steve Van Beek

A helpful reader (Mr. Demangone himself) passed along an article from the front page of the Washington Post on Wednesday.  The article discusses a lawsuit brought against some of the larger banks for allegedly charging illegal fees on home refinances for veterans under a VA loan program.  While this case may play out for a long time and the final determination is unclear, one thing is certain - these institutions have taken a severe hit to their reputations.      

One of beauties of this blog is the ability to reach back and find what was written about a particular topic in the past.  Here is a blurb from a past post discussing reputation risk:  

"By now, I hope you understand that I take a broad view of what a compliance officer should think about.  At the end of the day, we manage risk.  A good compliance officer not only worries about how something should be done - they also think about whether the credit union should even attempt to do it.   Credit unions should measure reputation risk when making every business decision."

***

Recently, the NCUA announced their Board meeting schedule for 2012.  If you are responsible for tracking NCUA's regulatory actions at your credit union - these are important dates to put on your calendar as NCUA proposes and finalizes regulations at these monthly Board meetings.    

Products Offered to Servicemembers; Phone-a-Friend

Written by Steve Van Beek

A little over a week ago, we mentioned the CFPB's Office of Servicemember Affairs request for information on financial products and services offered to servicemembers.

NAFCU's Regulatory Affairs team has produced a Regulatory Alert soliciting information from NAFCU-members.  Take a look and share your comments with NAFCU to help us draft our comment letter to the CFPB.  Remember, there is a very short comment window for this information request - with comments due to the CFPB by September 20th.  

***

For a little Friday fun (and a bit of info on ATM fee disclosure requirements), check out our Who Wants to Be Compliant video.  We are officially on the YouTubes.  

Have a great weekend! 

U.S. Central; Special Member Call-in; Servicemembers

Written by Steve Van Beek

On Friday, NCUA issued a press release regarding the failed recapitalization of U.S. Central.  From the release:

"The member-driven solution to charter PayNet as a vehicle to provide back-office payment and  settlement services to consumers through U.S. Central Bridge Corporate Federal Credit Union’s member corporate credit unions did not achieve sufficient support to launch PayNet as a viable business model. Agent for the conservator of U.S. Central Bridge, Scott Hunt, announced activation of NCUA’s contingency plans in a letter to the members of U.S. Central Bridge today.

“NCUA will look to alternative resolution plans to facilitate the orderly transition of member services to other service providers,” said Hunt. “While we have a fiduciary duty to achieve the least, long-term cost resolution of U.S. Central Bridge, we remain committed to minimizing disruption to its corporate members, and in turn, natural person credit unions and American consumers.” 

***

NAFCU will be hosting a special member call-in today at 2 p.m. Eastern to discuss the corporates.  Scott Hunt, NCUA's Director of the Office of Corporate Credit Unions will participate in the call.  The call-in is free but registration is required.

***

The CFPB's Office of Servicemember Affairs has issued a Request for Information regarding the products and services currently offered to servicemembers.  The Request has a short turnaround time of 14 days - with comments due by September 20, 2011. 

Know Before You Owe - Round 3; Servicemember Information

Written by Steve Van Beek

Yesterday, the CFPB announced Round 3 to its Know Before You Owe project to combine the Reg Z and RESPA disclosures.  There is both a consumer option and industry option available here.  

This round of feedback is open until Monday, August 8th at 7 p.m. (Eastern) - so be sure to provide your feedback by that time.   

***

The CFPB has included additional information for servicemembers on its website.  The Office of Servicemember Affairs has also put together a resources page for servicemembers.  The resources page includes the following subsections:

• Emergency assistance for servicemembers
• Service-specific personal financial management services
• Military spouses
• Legal assistance
• Information for wounded, ill, or injured warriors
• Money management and saving
• Information for surviving spouses
• Avoiding scams
• Other information
• The DoD Career Decision Toolkit

It might be a good idea to check out some of the resources on this page as there is a good chance that some of your members will have these same resources made available to them.  For example, this brochure from the Department of Justice does a good job highlighting some the legal protections for servicemembers.

HUD SCRA Notice Updated (Again); SCRA Article

Written by Steve Van Beek

Last Thursday, the U.S. Housing and Urban Development (HUD) announced an updated SCRA mortgage notification letter.  The press release includes a link to the new notice - Form 92070 with a revision date of 6/2011 - as does this webpage.  

The new notice contains information about Military OneSource.  This might be a good place to look around as this is the information your members will see if they read their SCRA notice.  There are two articles linked which might be useful reads as they written in plain English:

• The Servicemembers Civil Relief Act
• Mortgage Difficulties and the SCRA

***

Also, as was mentioned yesterday - the most recent Philadelphia Federal Reserve's Consumer Compliance Outlook has an article on Compliance Requirements for the SCRA.  

If you read the article, please note the link to the SCRA notice is no longer accurate.  The article links to a HUD Mortgagee Letter (2006-28) that included a previous version of the SCRA notice.  

Also, the HUD SCRA notice had been amended earlier in 2011.  Our February 22, 2011 blog post linked to the prior form (that apparently went poof).  I was able to find the January 2011 revision online - and there are a few changes so be sure the form you are using models the 06/2011 revision.  

The best place to find the latest is in the press release or the HUD forms page.  Look for Form 92070 and a revision date of 6/2011.

***

Notice that the recent press release from HUD does not mention any prior forms?  Chalk another one up on the tally of regulators making things harder than they need to be.  If you are making a list of unnecessary burdens, sloppy announcements of changed disclosure requirements should be on that list.      

This and That: CIiCU; SCRA; NAFCU Comment Letters & Finals

Written by Steve Van Beek

The latest Current Issues in Credit Unions podcast is now available.  Rob Rutkowski does a great job with these monthly podcasts and both he and Katherine Weber will be down at NAFCU's Regulatory Compliance Seminar in late October to do a live taping of the podcast.  

Speaking of Seminar........the agenda for this year's Seminar is now out - take a look for yourself.  We also have time set aside for "Compliance Hot Topics" as we all know there is a good chance for some regulatory shenanigans between now and October.  During those sessions Sarah and I will cover some of the latest rules and guidance issued.

Also, keep in mind that anyone can attend: NAFCU member; non-member; attorney; consultant; vendor - you name it - we'd love to see you in Florida.  Diversity of background and viewpoints are terrific things.   

***

A couple months back, Buckley Sandler delivered a webinar on SCRA issues.  The webinar and slides are here and might prove useful to review SCRA issues at your credit union in anticipation of increased scrutiny.

***

NAFCU has sent a couple of comment letters to NCUA recently.  One was our comment letter on Incentive-Based Compensation and the other our comment letter on NCUA's Proposed Voluntary Prepayment plan.

Our Regulatory Affairs team was also busy publishing Final Regulations on the Noninterest-bearing Transaction Account rule and the NCUA's Accuracy in Advertising rule.  NAFCU Members can access those Finals and others here.  

Material Loss Review; CFPB and Mortgage Forms; Help from Others

Posted by Anthony Demangone

Happy Wednesday, folks. 

Material Loss review. Recently, NCUA's Office of Inspector General released a material loss review for Members United Corporate Federal Credit Union.  The report noted that a general lack of proper oversight on the part of the credit unions management team and board greatly contributed to the credit union's conservatorship by NCUA.  If you deal with board issues, this is a must read.  It underscores the importance of good corporate governance and risk management. 

CFPB and Mortgage Forms.  Elizabeth Warren has stated again and again that one of the CFPB's first priorities will be to reconfigure mortgage-related disclosures. Well, she wasn't kidding.   That link takes you to the CFPB website that discusses that particular "project." 

Help from others.  

• The FEMA Flood Insurance Manual has been updated, effective May 1.  
• The OCC has issued a bulletin regarding  updated SCRA exam procedures, and another regarding Protecting Tenants at Foreclosure Act of 2009 exam procedures. 
• The OTS issued this bulletin, which updates their Reg Z procedures. 

Bliss. And yesterday marked my third anniversary with my lovely wife, Mandy. Here's my favorite picture from that day:

 

FinCEN Advisory on Elder Abuse; This and That

Posted by Anthony Demangone

Yesterday, FinCEN released an advisory designed to help financial institutions spot the "red flags" of elder abuse.  The guidance shares a number of "red flags" that might signal elder abuse.  Here are some examples:

• Uncharacteristic nonpayment for services, which may indicate a loss of funds or access to funds;
• Debit transactions that are inconsistent for the elder;
• Uncharacteristic attempts to wire large sums of money;
• Closing of CDs or accounts without regard to penalties.
• A caregiver or other individual shows excessive interest in the elder's finances or assets, does not allow the elder to speak for himself, or is reluctant to leave the elder's side during conversations;
• The elder shows an unusual degree of fear or submissiveness toward a caregiver, or expresses a fear of eviction or nursing home placement if money is not given to a caretaker;
• The financial institution is unable to speak directly with the elder, despite repeated attempts to contact him or her;
• A new caretaker, relative, or friend suddenly begins conducting financial transactions on behalf of the elder without proper documentation;
• The elderly individual's financial management changes suddenly, such as through a change of power of attorney to a different family member or a new individual;
• The elderly customer lacks knowledge about his or her financial status, or shows a sudden reluctance to discuss financial matters.

In addition, FinCEN gives guidance on the completion of SARs involving elder abuse.

In order to assist law enforcement in its effort to target instances of financial exploitation of the elderly, FinCEN requests that financial institutions select the appropriate characterization of suspicious activity in the Suspicious Activity Information section of the SAR form and include the term "elder financial exploitation" in the narrative portion of all relevant SARs filed. The narrative should also include an explanation of why the institution knows, suspects, or has reason to suspect that the activity is suspicious. It is important to note that the potential victim of elder financial exploitation should not be reported as the subject of the SAR. Rather, all available information on the victim should be included in the narrative portion of the SAR. (Emphasis added.)

This is one piece of guidance that your credit union should read, because every member of every credit union hopes to be elderly one day.  (I guess the one exception to this would be a field of membership limited to the world of Logan's Run. I'm hoping the 14 of you who saw that movie or read the book will appreciate the arcane reference.)  In all seriousness, elder abuse is a big problem.  So read the advisory.  It also seems to be tailor made to be the foundation of a great front-line training session.

***

Here are some additional items of possible interest.

• Here's a link to NAFCU's comment letter on the Fed's debit card interchange fee proposal. Let me sum it up: Boooo!
• The FDIC reportedly plans to sue three former WAMU executives for more than $1 billion. (Puget Sound Business Journal.)
• NAFCU is offering a "key ratio" webcast on March 2 designed to help credit unions meet the new financial literacy requirement for federal credit union directors. 
• It looks like JPMorgan Chase is now going "above and beyond" when it comes to complying with the SCRA. Or should I say, overcomplying. 

Finally, here are things you don't want to hear or overhear when an electrician is in your house.

• Tim, we're going to need a saw, and I think we'll both need ladders. 
• Ma'am, I've been dreading this job.  This will not be easy. 
• Man, would you look at all of the stuff that that fell out of the ceiling!
• Wow, the last guy really messed this up.  This will take some time to fix.

Yes, I heard all of these phrases on Monday.

 

This and That...

Posted by Anthony Demangone

I hope everyone enjoyed their long weekend.  Winter appears to be loosening its grip on the Washington, D.C. area. There's nothing like the sun on one's shoulders to put a skip in your step. Of course, by just thinking that out loud, I've ensured that we'll have a terribly cold spring.   Here are a few things to kick off the week.

Consumer complaints.  Last week, NCUA’s Chairman Debbie Matz and senior NCUA staff held a Webinar that covered a range of timely issues.  One of those concerned NCUA’s practice of handing consumer complaints.  As you may know, NCUA has established a new Office of Consumer Protection, which, among other things, will handle member complaints.  Previously, after receiving the complaint, NCUA would contact the credit union and ask it to reply to the member and copy NCUA.  This practice has now changed.  Now, after receiving a complaint, NCUA will contact the credit union (specifically, the credit union’s supervisory committee) and ask that it responds to NCUA’s office of consumer protection.  This is an important change and credit unions should be aware of it.

Archives.  I'm embarrassed to pass along something that I learned about NAFCU's own compliance blog.  Check out this archives page, which provides archives back to the beginning of the blog, as well as links to each of the blog's categories.  Here's how the conversation went.  

Steve: Check out this archive page.
Anthony: That's on our blog? 
Steve. Yes.
Anthony.  Cool.  

That's right - nothing gets by me.

Sale of non-deposit investments.  NCUA has published a legal opinion letter, which is their response to NACUSO on a number of issues related to NCUA's recent guidance on the sale of non-deposit investments. 

SCRA Notice.  HUD has updated its SCRA notice.

HPML.  The Bankers Compliance Consulting Blog has a nice post on HPMLs and how the issue of truncating versus rounding can make a big difference.  

_________________________________________________
 

 Check out Thompson's HR Policies manual.  Be sure to use the promo code NAFCU11 to save 10 percent at checkout.

More on Ms. Petraeus; NAFCU Member Call-In

Posted by Anthony Demangone

Yesterday, I wrote about how Ms. Petraeus wrote a letter to America's largest lenders regarding the SCRA.  Earlier this week, Ms. Petraeus testified before the House Veterans Affairs Committee. The CFPB wrote about her testimony here, and you can access a copy of her remarks through that link. She educated the Committee on her role at the CFPB, as well as the role of the office she leads.

Within the CFPB, our job is to make sure that every division of the CFPB understands the unique military community and the financial issues that impact it. I plan to work with our examiners to ensure they are current on military-specific issues, to encourage our enforcement team to take action against financial providers who break the law to harm servicemembers and to work with the consumer response unit to be sure that it is attuned to the military community and responsive to its concerns. We also plan to work closely with the consumer financial education team at the CFPB. History has shown us that best practices developed in support of the military can translate to the larger US community – and that the military can be a great test bed for innovative financial education products that could have an application to the population at large.

Her testimony is a good reminder for me to repeat something I mentioned before.  The existence of her office within the CFPB will shine a light on the intersection of servicemembers and financial services.  The SCRA will receive more attention. The DoD "MAPR" regulations will receive more attention.  Servicemembers now have a visible champion on the Hill, and those who feel aggrieved have a place to voice their complaint.

All of this means that American financial institutions must understand the rules that apply when they deal with servicemembers and their families.  With that in mind, here are some familiar, but important, resources.

• The FFIEC issued detailed examiner procedures regarding the DoD regulations.
• NCUA issued Letter to Credit Union 09-CU-12, which contains not only the DoD procedures from the first link, but also procedures regarding the SCRA.
• Here's a 146-page overview of the SCRA. (Courtesy of the American Bar Association.)  This loads very, very slowly.
• Here's an SCRA guide published by a retired Army Reserve JAG colonel.  (Courtesy of the American Bar Association.) It is very detailed, and very handy.

***

NAFCU will host its Member Call-In next Tuesday.  Sign up here.  It is a great member benefit, touching on all the major issues in CU-land.  But just what will we yabba-dabba about for an hour?  Well, we'll talk about the following:

• NAFCU's CEO, Fred Becker always kicks off the show with general comments about issues facing our industry.
• Next, our Legislative and Political Affairs teams will brief the listeners. They'll touch on interchange, Dodd-Frank technical corrections, GSE reform, tax reform and the federal budget, the MBL issue, and supplemental capital.
• Then our Regulatory Affairs team will discuss the corporate credit union situation, NCUA's new corporate rule, 2011 assessments, corporate stabilization, Dodd-Frank and the CFPB, incentive-based compensation, concentration and interest rate risk, changes to NCUA’s investment rule,  NCUA merger partner registry, the delay of the FASB fair value proposal, TDRs, and the consumer protection office at NCUA.
• I'm up next, addressing the Fed's recent decision to cease three Reg Z rulemaking efforts, NCUA's fiduciary duties rule, the SAFE Act registry,  Reg-Flex changes, insurance changes to non-interest-bearing transaction accounts, the SCRA, and consumer complaints.
• Finally, Dr. Tun Wai will analyze the economy and credit union trends. 

As I noted above, this is a member-only benefit. Not a member?  We'd love to have you join!  Shoot me an email if your credit union would like to learn more about becoming a NAFCU member.

***

Have a great weekend, everyone!

SCRA; CFPB and the Religious Community

Posted by Anthony Demangone

As you may recall, Holly Petraeus was recently named the head of the CFPB's Office of Servicemember Affairs.   Following some of the recent SCRA violations that made headlines, Ms. Petraeus wasted no time in using her office's resources to remind lenders of the importance of SCRA compliance.  She recently issued a letter to the nation's largest lenders. Here's a link to a blog post that contains the text of the language. (Foreclosureblues.)

Under the SCRA, the servicemember is supposed to notify the lender that he or she is covered by the SCRA.  But Ms. Petraeus urged lenders to be proactive, passing along what I think is an obvious compliance tip. So obvious, it never occurred to me.  Here is a part of her letter:

In view of recent experience, I would urge you to take steps to educate all your employees about the financial protections that the SCRA provides and to review your loan files to ensure compliance.  I would also urge you to take other proactive steps.

Where you have reason to believe that a borrower is on active duty – for example, where the borrower has changed his or her home address from a standard street address to an APO or FPO – I would urge you to contact the account holder to determine whether SCRA protections apply.

That last paragraph is a simple way to tap down compliance risk and reputation risk all at the same time.  Kudos, Ms. Petraeus.

***

I recently wrote that the CFPB started a blog.  Elizabeth Warren wrote a blog post recently on the day that the CFPB hosted a meeting with numerous religious leaders.  Here is a part of the posts:

We also know that religious leaders across the country are wrestling with the moral dimensions of the financial crisis of 2008. The crisis revealed how the financial system permitted lenders to hide the true costs and risks of mortgages and to steer those who trusted them into products they did not understand. While some people profited from this business model, across the country, millions more suffered through foreclosures, crippling debt, or bankruptcy. Personal gain for a few came at the expense of all, as risky and complicated mortgage products brought the entire economy to its knees.

My many conversations with community banks have also reminded me that many lenders offered their products in a fair and transparent manner, only to find themselves in competition with other lenders that were willing to misrepresent the price or hide risks, all in an effort to boost their own profits or market share.

Nor were the problems confined to lenders. The system also permitted some borrowers to take risks that not only hurt themselves, but also hurt their neighbors by driving the value of property higher and then pushing it off a cliff when those borrowers defaulted on their loans. Recklessness hurt us all.

Ultimately, the financial crisis harmed both our pockets and our principles. The moral dimensions of the crisis run deep. No one should forget that, for many centuries, consumer protection laws have been deeply rooted in religious and moral traditions. The laws have changed, but the basic notion that lending should not be used as an instrument of advantage-taking is deeply embedded in our collective consciousness.

Many people of faith and conscience fought diligently for the consumer bureau because they saw that the attitudes and practices that caused the financial crisis did not reflect our common values. Enacting the new CFPB was a David-versus-Goliath fight, but, in the end, American families triumphed.

I'll just say this.  In the David-versus-Goliath fight, where do credit unions fit in?  I appreciate that Ms. Warren envisions the CFPB "leveling" the playing field to help credit unions and community banks that had to compete against predatory lenders. But I fear that even with her goal of leveling the playing field, the regulatory burden will increase for good actors and bad actors alike.  For example, I know the CFPB has mentioned the need to reform credit card disclosures coming out of the gate.  I'd urge them to focus on the formerly unregulated entities first.  That would help American families and help level the playing field.  

This and That...

Posted by Anthony Demangone

Here are some things of possible interest.

BCP planning.  As you know, NCUA expects credit unions to conduct business continuity planning. (For a good resource, look at the FFIEC's BCP Booklet.)  Part of the BCP process is testing.  You build a plan, and then you try to poke holes in it.  But I think another way of testing is to look back at real-world events and see if you can learn from them and build those lessons into your BCP plan.  As I noted yesterday, DC had some nasty traffic issues recently due to winter weather.   One major part of the problem was that everyone left work in the DC region at the same time.  This created huge log-jams of traffic.  Couple the log-jam with weather, and you had quite a few people getting stuck.  (Try going up an icy hill in your car.  Hit the brakes, and then try to start moving again.  Good luck with that.) So, let's add this up: bad weather, lots of traffic, lots of cars that were stuck. Guess what happened?  People ran out of gas in the middle of the highway and simply abandoned their car.  Or people didn't have the necessary stuff in their car (sand, shovels, etc.) to get their car out of a jam, so they simply walked away.  Many of those folks did not come into work today, I guarantee that. Here's some possible take-away points that could have helped many.

• As soon as bad weather is predicted, fill your car's gas tank.
• If bad weather is predicted, plan a route to your home that doesn't involve hills. Or at least avoids the bad ones.
• If bad weather is predicted, make sure you have what you need in your car, including warm clothes, water, etc. 

This could be accomplished with a simple email to your staff once bad weather is on the horizon.  That won't solve every problem, but it will increase the likelihood that your staff makes it home safely.  Which means they'll be back at work sooner.

Current Issues in Credit Unions.  The latest issue of the podcast is now available.

Foreclosures.  Deutsche Bank made The New York Times for all the wrong reasons.   They foreclosed a mortgage in violation of the SCRA when a serviceman was away at war.  This article is a fantastic reminder of how important it is to understand the SCRA's protections, and the immeasurable reputation risks that can occur when you simply run blind to the SCRA's requirements. 

CFPB.  Treasury has announced the CFPB's legal eagle implementation team.   The group looks very impressive. (And I do detect a good deal of litigation experience.)

Have a great weekend, everyone. 

This and That; When One Door Opens, Another Door Opens?

Posted by Anthony Demangone

My inbox still runneth over.  Here are some items of interest.

• Director lawsuits.  The FDIC recently announced, that as of December 14, 2010, it had authorized 109 lawsuits against former employees and officials of failed banks.  The lawsuits total roughly $2.5 billion in claims. It is hard to read too much into these types of things.  Just because the FDIC sues one former bank official, it doesn't mean they're more likely to sue another - or that NCUA is more likely to sue a former credit union director.  But I do think it shows that the FDIC is actively looking at failed institutions to see if there are actionable claims.  And NCUA has not ruled out lawsuits against former directors either.  In addition, these types of announcements are always a good reminder that good corporate governance is important.  A strong board, supervisory committee, and senior management are essential.  And that can take up resources in finding the right people and getting them the tools they need to do their job. 
• SCRA foreclosure provisions.  Certain provisions of the SCRA related to foreclosures were supposed to sunset at the end of 2010.  President Obama's signature extended those provisions for an additional two years.
• White House.  President Obama reportedly is considering bringing in William Daley, a pro-business bank executive (and former Commerce Secretary), as his chief of staff.  (Bloomberg.) Any injection of business and banking knowledge should be a good thing as Daley would be able to counsel the President on how administration actions might affect financial institutions. (Reports were that an announcement was imminent at "press time.")
• Oversight.  Here's another story highlighting GOP plans to closely review financial reform. (Washingtonpost.com) 

***

My son Briggs has not been the world's best sleeper.  Over the past 21 months, I've seen quite a few 2 a.m.airings of ESPN's SportsCenter.  The little guy would just get up around 1 or 2 a.m., and stay awake for 90 minutes.  Any attempt to reintroduce him to his crib was met with protests more effective than one can imagine.  My wife and I live in a 3-square foot condo surrounded by neighbors, so the thought of him screaming through the night invariably led to thoughts of my car getting "keyed."  So SportsCenter and I became fast friends.

Over the Holidays, we visited my sister.  Her home has spare rooms, so we put Senor Briggs and his sister down for the night and shut the door.  He hollered.  He screamed.  At one point, he even seemed to yodel.  But we stayed firm, knowing that all offended ears were related to us by blood or marriage.

It worked.  He may have been a bit angry with me, but by the second night, he figured it out.  He was stuck. And he started sleeping through the night. For those of you not familiar with kids and their sleep habits, let me say this.  When a child starts sleeping through the night, you notice an improvement in your life. I put it up there with the invention of fire, indoor plumbing, and televised baseball.

So we got cocky.  Oh, our life is back to normal, we exclaimed.  All the while, the Gods were chuckling.

We put Master Briggs down for the night recently, knowing he was down for the night.  A bottle of wine was opened.  We settled in for the evening.  Then we heard...it.  The door handle was jiggling.  I opened the door, and there was Master Briggs with a big smile. He had figured out how to get out of his crib.  Was it a smile he had?  Perhaps a "sly grin" is more accurate.

As I said in the title, when one door opens...another door...opens. (Sigh.)  Have a great weekend, everyone!

"You do realize, Dad - I'm calling the shots one way or the other."

Veteran's Day - NAFCU Offices Are Closed

Posted by Anthony Demangone

NAFCU's offices are closed today in honor of Veteran's Day. In honor of the holiday (this will be an annual tradition), I wanted to share some resources that help explain the laws and regulations that apply to financial institutions when we serve men and women who are in the armed forces. 

As you know, the protections for those who serve in the military are largely grouped into two areas:

1. The Servicemembers Civil Relief Act, and
2. The recently enacted Department of Defense regulations that implemented provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007.  I'll refer to these as the DoD regulations.

Here are some resources that will help you navigate these requirements.

• The FFIEC issued detailed examiner procedures regarding the DoD regulations.
• NCUA issued Letter to Credit Union 09-CU-12, which contains not only the DoD procedures from the first link, but also procedures regarding the SCRA.
• Here's a 146-page overview of the SCRA. (Courtesy of the American Bar Association.)  This loads very, very slowly.
• Here's an SCRA guide published by a retired Army Reserve JAG colonel.  (Courtesy of the American Bar Association.) It is very detailed, and very handy.
• And here's a free SCRA brochure developed by NAFCU. (Member log-in needed.)

Finally, here are a few thoughts.  I tend to be a conservative fellow when it comes to compliance.  While the SCRA gives creditors the right to challenge those who assert rights under the law, I would tread very carefully in this area.  In addition, I wouldn't get too caught up in tracking exactly when rights spring to life, and whether the servicemember has all the proper paperwork to you before you take action, for example, to lower rates on covered loans. Here's why.

• Remember the purpose. The purpose behind the SCRA is to protect those who are in harm's way, protecting us.  Sure, the servicemember has to meet certain procedural hurdles, but I'd always keep this in mind: Those in need remember those who help them. 
• How much are you talking about, anyway?  So you have to lower an interest rate from 8.5 percent to 6 percent. How much money is that costing your credit union on an annual basis?  
• Remember your reputation.  Keeping in mind the last bullet point, is it worth it to be a real stickler on the SCRA?  Or does it make sense to be lenient?  You can always create a policy that is more beneficial than the SCRA requires.  One of my mentors had a good saying when people asked her whether the SCRA really protected a particular servicemember.  She would reply with this question: Would you want your SCRA decision regarding a particular member of the armed forces on the front page of your local newspaper? 

To all of you, enjoy the holiday.  And to my brother-in-law Rob, Uncle Jim, Uncle Bill, and my cousins Mark, Thomas, Patrick, Kyle, Devin, Matt and Corrie, many, many thanks for your service.  Also, my cousin Christine created this blog, which is dedicated to supporting those who support those who are serving our country in the armed forces. If you ever wanted to send a care package or support the troops in any way, this is the blog for you.  This post, for example, shows how easy it is to re-use boxes for military care packages. 

SCRA Exception to Reg Z - 226.55(b)(6)

Written by Steve Van Beek

This afternoon I have the pleasure of speaking at NAFCU's Regulatory Compliance School on Lending to Servicemembers.  One of the topics I will be talking about is the changes to Reg Z that require 45-days advance notice before removing the 6% interest rate cap on credit card account.  

The Federal Reserve included the SCRA exception as one of the six exceptions where financial institutions could increase the APR, fees, or charges under 226.55.  However, the Federal Reserve did not provide a similar exception in 226.9(c) to the 45-day notice requirement.  Here is the Fed's rationale from the preamble (see pages 36-37) to 226.9(c):

"A number of commenters urged the Board to adopt additional exceptions to the requirement to provide 45 days’ advance notice of significant changes in account terms. Several industry commenters stated that the Board should provide an exception to the advance notice requirements for rate increases made when the provisions of the Servicemembers Civil Relief Act (SCRA), 50 U.S.C. app. 501 et seq., which in some circumstances requires reductions in consumers’ interest rates when they are engaged in military service, cease to apply. These commenters noted that proposed § 226.55 provided an exception to the substantive repricing requirements in these circumstances. However, the Board is not adopting an analogous exception to the notice requirements in § 226.9. The Board believes that consumers formerly engaged in military service should receive advance notice when a higher rate will begin to apply to their accounts. A consumer may not be aware of exactly when the SCRA’s protections cease to apply and may choose, in reliance on the notice, to change his or her account usage or utilize another source of financing in order to mitigate the impact of the rate increase."

Additionally, the preamble to 226.55 (see page 37) includes this language:

"Furthermore, because the Board believes that a consumer leaving military service should receive 45 days advance notice of this increase in rate, the Board did not propose a corresponding exception to § 226.9. Commenters were generally supportive of proposed § 226.55(b)(6). Accordingly, it is adopted as proposed. However, although industry commenters argued that a similar exception should be adopted in § 226.9(c), the Board continues to believe – as discussed above with respect to § 226.9(c) – that consumers who leave military service should receive 45 days advance notice of an increase in rate."

Thus, even if the credit union includes information and disclosures when the servicemember initially receives the SCRA protections - the 6% rate will need to apply to the protected balance at least 45 days after the credit union provides notice to the member, under 226.9(c), of the expiration of their SCRA protections.  

Note:  The SCRA protections only apply to transactions made prior to the member entering military service and do not apply to transactions made on the credit card account after the member enters military service.  

Also, keep in mind that the requirements in 226.53 regarding payment allocation may mean these protected balances at 6% may stay on accounts for longer times as the CU will need to apply payments in excess of the minimum payment to the balance with the highest APR.  

As Tomorrow is Veterans Day...

Posted by Anthony Demangone

Tomorrow is Veterans Day.  NAFCU's offices will be closed tomorrow, and there will be no blog update.  In honor of the holiday, I wanted to share some resources that help explain the laws and regulations that apply to financial institutions when we serve men and women who are in the armed forces. 

As you know, the protections for those who serve in the military are largely grouped into two areas:

1. The Servicemembers Civil Relief Act, and
2. The recently enacted Department of Defense regulations that implemented provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007.  I'll refer to these as the DoD regulations.

Here are some resources that will help you navigate these requirements.

• The FFIEC issued detailed examiner procedures regarding the DoD regulations.
• NCUA issued Letter to Credit Union 09-CU-12, which contains not only the DoD procedures from the first link, but also procedures regarding the SCRA.
• Here's a 146-page overview of the SCRA. (Courtesy of the American Bar Association.)  This loads very, very slowly.
• Here's an SCRA guide published by a retired Army Reserve JAG colonel.  (Courtesy of the American Bar Association.) It is very detailed, and very handy.

• And here's a free SCRA brochure developed by NAFCU. (Member log-in needed.)

Finally, here are a few thoughts.  I tend to be a conservative fellow when it comes to compliance.  While the SCRA gives creditors the right to challenge those who assert rights under the law, I would tread very carefully in this area.  In addition, I wouldn't get too caught up in tracking exactly when rights spring to life, and whether the servicemember has all the proper paperwork to you before you take action, for example, to lower rates on covered loans. Here's why.

• Remember the purpose.The purpose behind the SCRA is to protect those who are in harm's way, protecting us.  Sure, the servicemember has to meet certain procedural hurdles, but I'd always keep this in mind: Those in need remember those who help them. 
• How much are you talking about, anyway?  So you have to lower an interest rate from 11.9 percent to 6 percent. How much money is that costing your credit union on an annual basis?  Or on used car loan that currently has a 7.9 rate? 
• Remember your reputation.  Keeping in mind the last bullet point, is it worth it to be a real stickler on the SCRA?  Or does it make sense to be lenient?  You can always create a policy that is more beneficial than the SCRA requires.  One of my mentors had a good saying when people asked her whether the SCRA really protected a particular servicemember.  She would reply with this question: Would you want your SCRA decision regarding a particular member of the armed forces on the front page of your local newspaper? 

To all of you, enjoy the holiday.  And to by brother-in-law Rob, and my cousins Mark, Thomas, Patrick, Kyle, Devin, Matt and Corrie, many, many thanks for your service.

Section 104; NCUA Letter to Credit Unions

Posted by Anthony Demangone

I hope everyone had a nice weekend.  Now, back to the Credit CARD Act daily grind.

Section 104 of the Credit CARD Act does a number of things.

5 p.m. Cutoff.  Section 104 amends Section 164 of the Truth in Lending Act to mandate that if a member makes a payment by 5 p.m. on their due date, you'd need to credit the payment as of that date.  To clarify: There's no requirement to post payments on the day they are received, but payments received by 5 p.m. on the due date must be credited on the due date.  Here's what Section 164 will look like after February 22, 2010:

 164. Prompt and fair crediting of payments.(a) IN GENERAL - Payments received from an obligor under an open end consumer credit plan by the creditor shall be posted promptly to the obligor's account as specified in regulations of the Board. Such regulations shall prevent a finance charge from being imposed on any obligor if the creditor has received the obligor's payment in readily identifiable form by 5:00 p.m. on the date on which such payment is due in the amount, manner, and location indicated by the creditor to avoid the imposition thereof.

This section seem to simply create a 5 p.m. cut-off, although arguably only for the due date. What if you close before 5?  Perhaps the Federal Reserve will clarify expectations when they issue regulations to implement the Act. 

Payment allocation.  Section 104 of the Credit CARD Act also requires that credit unions allocate any payment above the minimum periodic payment to the balance with the highest APR. Note: This is a stronger requirement than UDAP will require on July 1, 2010.  (UDAP would have given the credit union the option of pro rata application of payments.) To illustrate: if a member has a minimum payment of $50 and makes a $300 payment – the $250, in excess of the minimum, must be applied to the balance on the card with the highest APR. There are also other restrictions for certain deferred interest arrangements.

So, scrap what UDAP required.  Make sure your system (and the folks that program it) is ready for this requirement.  If they were shooting for July 1, 2010, using UDAP's requirements as a framework, they'll be late and off the mark. 

Changes to mailing address.  Additionally, if the credit union changes its mailing address or method of handling a member’s payments, it may not charge a late fee for 60 days – if the mailing address change causes a material delay in the crediting of a member’s payment. If a credit union provides two options for payments (such as an old mailing address and a new mailing address) during a transition period, the change would most likely not cause a material delay. The section is intended to prevent card issuers from switching their method of accepting payments to force consumer payments into being late (and, thereby, collecting the fee income).

These provisions go into effect on February 22, 2010.

***

NCUA has release NCUA Letter to Credit Union 09-CU-12 to share interagency exam procedures on credit issued to military personnel and their dependents.  You can access it here.  The letter has a number of attachments, which should give you valuable information about the DoD rule, as well as the SCRA. 

DoD Regulation Examination Guidance

Posted by Steve Van Beek

Last Tuesday, I had the opportunity to give a presentation on Lending to Servicemembers at NAFCU's Regulatory Compliance School.  The Lending to Servicemembers topic covers protections under the Servicemember Civil Relief Act of 2003 (SCRA) and the Department of Defense's (DoD) regulation: Limitations on Terms of Consumer Credit Extended to Service Members and Dependents.

The Federal Financial Institutions Examination Council (FFIEC) issued examination procedures for the DoD rule.  Sometimes when regulations affecting credit unions are not issued directly by NCUA, the information can be difficult to find and track.  This is the case with the DoD rule - so you might want to bookmark this guidance for later reference.  The Federal Reserve circulated the examination procedures at the end of July 2008. 

One of the key things to remember about the DoD rule is that it only applies to three specific products:  payday loans, vehicle title loans, and tax refund anticipation loans.  As a first step, check to see if your credit union offers either of those products as defined in the rule.  That is going to be examiner's first step as well:

"Examination Procedures

Determine Applicability of DoD Regulations and Evaluate Policies and Procedures
1. Determine if the creditor offers or purchases any consumer credit products covered by 32 C.F.R. Part 232 (payday loans, motor vehicle title loans, and tax refund anticipation loans as defined in § 232.3(b)(1)).

• If the creditor does not offer or purchase consumer credit products as described above, the regulation does not apply and no further review is necessary."  (page 4 - emphasis added).

That last sentence is music to any compliance officer's ears.

Frequently Asked Questions; delicious

Anthony has mentioned the value of Frequently-Asked-Questions documents in past blog postings here and here.  These documents can help compliance officers weave through convoluted regulations and find answers to common issues.  Here are a few that I've found useful in the past: 

Bank Secrecy Act

Anti-Money Laundering Compliance FAQs

FinCEN Answers to FAQs on BSA

FAQs on Final CIP Rule - February 2004

FAQs on Final CIP Rule - May 2005

FAQs Relating to BSA and Hurricane Katrina

OFAC

OFAC Q&As Prepared by Treasury

Privacy

FAQs on the Privacy Regulation

Share Insurance

FAQs from NCUA's October 7, 2008 Webinar on Share Insurance Changes

NCUA's FAQs on NCUSIF and Share Insurance

HMDA

FAQs on Regulation C (HMDA Reporting)

RESPA

FAQs on RESPA for Industry

Appraisals

FAQs on Appraisal Regulation and Interagency Statement*

*Note:  The Agencies recently announced a proposal to replace this interagency statement.

Third Party Due Diligence

FAQs from NCUA's January 29, 2008 Webinar on Third-Party Relationships

Flood Insurance

2008 Proposal on Interagency Q&As on Flood Insurance (would replace 1997 Q&As)

1997 Interagency Q&As on Flood Insurance

Servicemembers Civil Relief Act (SCRA)

HUD's Q&As for Lenders Regarding SCRA

Judge's Guide to SCRA - including Q&As

Health Savings Accounts

Q&As on Health Savings Accounts - IRS Notice 2004-50

Q&As on Health Savings Accounts - IRS Notice 2008-59

Check 21 Act

Consumers FAQs on Check 21

FAQs for Financial Institutions on Check 21

Check 21 FAQs on Financial Institutions Requirements - from ABA

Accounting for Loan and Lease Losses (ALLL)

Questions and Answers on Accounting for Loan and Lease Losses

Online Banking

FFIEC Guidance on Authentication in an Internet Banking Environment

Savings Bonds

FAQs on Savings Bonds

***

You never know when these FAQ's will come in handy.  That is why I have mine bookmarked on my delicious page.

If you are wondering what delicious is, take a look at the user guide and slides I prepared for a talk on Organizing the Compliance Information Flow at NAFCU's 2008 Regulatory Seminar.

If you know of other valuable FAQ documents, please let us know by adding a comment to this post. 

Veterans Day

NAFCU's offices are closed today.  But I thought that in honor of Veterans Day, I'd remind you of this blog's Servicemembers Civil Relief Act category.  If you go to that link, you'll be able to read a few posts that will help you comply with the SCRA, which was created to protect those who protect us.

Enjoy the holiday, everyone.

Attorney-Client Privilege; Great SCRA Resource

NCUA recently release NCUA Legal Opinion Letter 08-1032.   The letter notes that NCUA examiners will have access to credit union records that are protected by an attorney-client privilege. 

Our position regarding access to credit union records has not changed. Pursuant to the FCUA and NCUA’s Rules and Regulations, NCUA examiners are permitted complete access to the books and records of a credit union. See 12 U.S.C. §1756; 1784; 12 C.F.R. §741.1. Our opinion letter points out that NCUA previously permitted credit unions to withhold records covered by the attorney-client privilege because we recognized that courts might treat release of such privileged information to NCUA as a waiver of the privilege as to a third party. That possibility has been eliminated because of the addition of Section 205(j) to the FCUA. Accordingly, NCUA will no longer permit credit unions to withhold privileged documents because of an assertion that producing them will waive a privilege as to a third party.

This does not mean that it is no longer possible for a credit union to assert the attorney-client privilege against NCUA. However, our experience has been that the waiver of privilege as to a third party was almost always the reason for asserting privilege in the past. That possibility has been eliminated by Section 205(j).

As always, we suggest that you read the entire letter to get a complete picture of the opinion letter.

***

On Friday, the OCC released OCC Bulletin 2008-30.  It is a fantastic, concise SCRA resource.    Here are some other SCRA-related blog posts.

Good Things Come in Threes: Resources for the SCRA

I don't know how this happens, but things often do come in threes.  The last two days I've shared some good research tips.   Well, yesterday I came across two great resources for the Servicemember's Civil Relief Act.  I've always been looking for good resources for this, as there are no implementing regulations for this Act.

Here's the "Judge's Guide" to the SCRA.

And here's the SCRA Guide.  All 146 pages!

Enjoy, enjoy!