NAFCU Compliance Blog

NCUA Determines NYS Lease Security Accounts Qualify For Pass-Through Share Insurance

Written by Stephanie Lyon, Regulatory Compliance Counsel

The first NCUA Legal Opinion Letter of 2018 answers the question whether New York State Lease Security Accounts (NYS Lease Accounts) qualify as "other similar escrow accounts" for the purpose of receiving pass-through share insurance. The background for this legal opinion dates back to 2015 when NCUA amended its share insurance regulation implementing the Credit Union Share Insurance Fund Parity Act, making it possible for credit unions to offer IOLTA and other similar escrow accounts by making these types of accounts eligible for share insurance coverage. Prior to this rule amendment, credit unions were not able to offer these types of fiduciary accounts as credit unions can only offer membership shares that are eligible for insurance coverage. See, 12 C.F.R. § 741.9.

Currently, the share insurance rule defines "other similar escrow account" as "an account where a licensed professional or other individual serving in a fiduciary capacity holds funds for the benefit of a client or principal as part of a transaction or business relationship. Examples of such accounts include, but are not limited to, real estate escrow accounts and prepaid funeral accounts." 12 C.F.R. § 745.14(c)(1)(ii). Because of the relatively large scope of the definition of "other similar escrow accounts", many credit unions have been asking whether certain accounts, such as the NYS Lease Account that allows a landlord to deposit a tenant’s security deposit on rental property, are similar enough to qualify for pass-through share insurance coverage.

Factors For "Other Similar Escrow Accounts"

Just recently, NCUA decided to weigh in on this debate with Legal Opinion Letter 17-0424 to give an example of another "similar escrow account" that would qualify for share insurance coverage. Note that this legal opinion letter is not determinative for other accounts even if they are similar as the letter takes into account specific state laws and factual representations made by the credit union that submitted the question. Nonetheless the letter is helpful to better understand the concept of “other similar escrow accounts” and identify the factors that make an account eligible for pass-through share insurance coverage.

Among the items to consider when determining if an account qualifies as a similar escrow account are: (1) membership eligibility; (2) existence of fiduciary relationship; and (3) funds are held for the benefit of a client or principal as part of a transaction or business relationship. Item 1 is easy to determine as the only factor that matters is whether the attorney administering the IOLTA or the agent/individual administering the other similar escrow account is a member of the federally insured credit union in which the funds are held. This is different from other account types such as irrevocable trusts in which the ability of the credit union to open the account relies on the membership of the settlor or the beneficiary of the funds instead of the membership status of the trustee. Items 2 and 3 are slightly more complicated as they may require the credit union review its state law as this may impact whether a fiduciary relationship exists and whether the funds are held as part of a business transaction.

The legal opinion letter in question reviewed the three items above and determined that the landlord was subject to membership with the credit union. The letter also discusses that under NYS law a landlord holds the security deposit in trust for a tenant, the actual owner of the funds, in a fiduciary capacity as part of their real estate related business relationship. Hence, NYS Lease Accounts are considered to be "similar escrow accounts".

Keep In Mind…

NCUA did note that even if the NYS Lease Account qualifies as a similar escrow account, there are other requirements under the rule that must be met to ensure the funds are insured. For example, the rule has recordkeeping requirements and dictates the manner in which an IOLTA or other similar escrow account must be titled. See, 12 C.F.R. § 745.14(a)(2).

For those reasons, credit unions considering offering these types of fiduciary accounts may want to review their state law and closely follow the requirements of Part 745 to ensure members are aware of the requirements to retain adequate documentation evidencing the fiduciary relationship between the attorney/agent administering the account and the clients/principals.

Finally, for research purposes, this letter is currently housed in NCUA's webpage under Legal Opinion Letters from 2017, even though it was released February 1^st, 2018.

Two Utes Walk Into a Credit Union to Open Accounts…

Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel

Laywers love To Kill a Mockingbird. I need both hands to count the number of lawyers I know who have dogs or children named Atticus. Personally, I have always advocated for My Cousin Vinny as the better movie about trial work. So when a wave of questions about ute accounts youth accounts came in to the Regulatory Compliance team  recently, I could not resist.

The Federal Credit Union Act expressly provides that a federal credit union (FCU) may issue shares in a minor's name, subject to conditions prescribed by the bylaws. See, 12 U.S.C. § 1765. NCUA’s Federal Credit Union Standard Bylaws permit minors to own shares, but points to state law with regards to their rights to transact business with the federal credit union:

“Article XV. Minors

Section 1. Minors permitted to own shares. Shares may be issued in the name of a minor. State law governs the rights of minors to transact business with this credit union.”

See, 12 C.F.R. Part 701, Appendix A, Article XV, Section 1. The standard bylaws direct an FCU to the state law in their jurisdiction regarding the rights of a minor because whether or not a minor has legal ability to enter into a binding agreement, i.e. the legal capacity to contract, is determined by law in each state. If an FCU were to enter into a contract, for example - an account agreement, with someone who did not have capacity to do so at the time the agreement was made, the agreement could become void, possibly even years later. For this reason, most credit unions require a parent or adult to also be on the account, to ensure that an enforceable agreement is in place. An FCU considering youth accounts or writing a policy regarding youth accounts should speak with local counsel who can advise it on the law regarding minority and capacity to contract in the credit union’s jurisdiction.

NAFCU members have also asked about performing Customer Identification Program (CIP) procedures on youth accounts. When a parent opens the account for the minor because the minor does not have the legal capacity to make an agreement under state law, the customer for an account is usually the parent. Below is from the CIP Overview section of the FFIEC’s Bank Secrecy Act/Anti-Money Laundering Examination Manual:

“The CIP rule applies to a ‘customer.’ A customer is a ‘person’ (an individual, a corporation, partnership, a trust, an estate, or any other entity recognized as a legal person) who opens a new account, an individual who opens a new account for another individual who lacks legal capacity, and an individual who opens a new account for an entity that is not a legal person (e.g., a civic club).”

(Emphasis added.) Even if not needed for CIP reasons, many credit unions request the minor’s SSN and/or birth certificate to document the account and to ensure the minor is actually a minor.

 If a state’s laws and the credit union’s policies permit the minor to open the account on his or her own behalf, then the minor is the customer. In this case, the FCU should perform CIP regarding the minor as it would on any other customer.

 One final consideration with regard to youth accounts is the Children’s Online Privacy Protection Act (COPPA). COPPA imposes certain requirements on operators of websites or online services directed to children. Credit unions are subject to COPPA if they operate a website or online service directed to children, or have actual knowledge that they are collecting or maintaining personal information from a child online. COPPA could apply to a credit union’s internet-based services, such as online banking. A credit union could be unintentionally accessing a minor’s personal information through cookies or similar devices which may collect nonpublic personal information. Making COPPA determinations generally requires an analysis of the specific facts and circumstances surrounding a credit union’s online activities against the requirements of COPPA. Thus, a credit union may want to work with local counsel to see if COPPA applies. The FTC’s website has an excellent overview of COPPA.

Vinny Gambini may have been great at cross-examination, but he was terrible at managing his reputation. Don’t make the same mistake! Check out NAFCU’s new webcast:

How to Manage Reputation Risk: A Deep Dive into Murky Waters

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

Part of the Risk Webcast Series

Enterprise Risk Management (ERM) is becoming a more prominent management strategy in the credit union industry. This webcast focuses on the importance of reputation management and NCUA’s requirements and expectations. You’ll work through real examples of risk scenarios that could significantly impact your reputation, such as data breaches and social media attacks. Learn how to properly implement a reputation risk plan and how to defend your credit union.

IOLTAs Now, Escrows on Deck??

Written by Alicia Nealon, Director of Regulatory Affairs

With the passage of the NAFCU-supported Credit Union Share Insurance Parity Act, Congress directed NCUA to provide pass-through share insurance coverage to interest on lawyers' trust accounts (IOLTAs), and other similar escrow accounts.  So now the answer to the burning question that so many credit unions have been asking: can credit unions start offering IOLTAs and other similar escrow accounts with share insurance coverage now?

Short Answer

IOLTAs- YES!!

“Other similar escrow accounts”- soon, but you need to weigh-in

Long(er) Answer

The Credit Union Share Insurance Fund Parity Act mandates that NCUA provide share insurance coverage to interest on lawyers' trust accounts (IOLTAs), and other similar escrow accounts, on a pass through basis regardless of whether they are comprised of funds of members or nonmembers.  The law, however, provides that pass-through insurance will only be extended “in accordance with regulations issued by [NCUA]”

In December 2014, NCUA Chairman Matz announced that federal credit unions may immediately begin offering IOLTAs with share insurance coverage.  She also indicated that NCUA will make changes to Part 745 to fully conform with the Credit Union Share Insurance Fund Parity Act.

So what does this all mean? NCUA has spoken on IOLTAs and confirmed that federal credit unions can start offering IOLTAs today with share insurance coverage. NCUA, however, is waiting to address other parts of the law, such as “other similar escrow accounts,” in upcoming regulation. 

As the agency contemplates its amendments to Part 745, it’s pivotal that the credit union industry provide feedback as we have a chance to frame the discussion of how NCUA will interpret the law’s “other similar escrow accounts” language.

Lucky for us, Part 745 is actively open for comment.  As many of you may know, NCUA is conducting a review of all its regulations under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA).  Because EGRPRA requires NCUA to categorize its regulations, the agency conducts the review as a series of comment periods for each category of regulations.  Currently, NCUA is in the second phase of its EGRPRA review, and Part 745 is one of the regulations open for comment.

Earlier this week, NAFCU released its Regulatory Alert 15-EA-03 on NCUA’s second EGPRRA review, and specifically addressed how the passage of the Credit Union Share Insurance Fund Parity Act would require NCUA to amend Part 745.  We are asking our members what types of escrow accounts that they believe warrant share insurance coverage, including any escrow accounts that they currently offer or any they may want to offer in the future. 

My Friday wish is that you all consider these questions and either complete our Regulatory Survey, or reach out to me directly ([email protected], 703-842-2266) with your thoughts.  NAFCU has been extremely active on this issue, from leading the charge to pass the Credit Union Share Insurance Fund Parity Act, to encouraging NCUA to immediately act on it. We are going to keep our momentum going, but we need your feedback! 

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Compliance and Football: I am sure those in the compliance community will be watching the Super Bowl this Sunday between the New England Patriots and the Seattle Seahawks, along with almost everyone else in America.  Those that have followed the news leading up to the game, will know that the Patriots have come under fire for the air pressure of some of the footballs that the team provided in the AFC Championship game.  While there has been a lot of buzz in the media about what is being termed “deflate-gate,” a good compliance officer knows it is important to read what the rules say.  In order to help you sound intelligent when this discussion arises at your party for the big game on Sunday, I thought I would share with you the link to the proper section of the NFL rulebook the covers “The Ball” so, like a good compliance officer, you can know what the rules actually say when others are pontificating about the issue.  And since you’ll know the right rules, maybe you will get a high-five, unlike Tom Brady…..

Credit Union Share Insurance Parity for IOLTAs

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

I hope everyone had a wonderful weekend – and here’s a little good cheer for Monday morning!

Last week, President Obama signed H.R. 3468, the “Credit Union Share Insurance Parity Act,” into law, ensuring that federally insured credit unions have parity with FDIC-insured institutions for escrow accounts such as Interest on Lawyer Trust Accounts (IOLTAs). Share insurance parity for these accounts has been a key aspect of NAFCU’s five-point plan for regulatory relief for credit unions.

Previously, credit unions have been at a competitive disadvantage compared to banks because they could not offer the same level of insurance on lawyers’ trust accounts, since not all clients of a lawyer were members of the credit union that held the trust. Now, under the new law, these accounts are insured to the limit allowed by the Credit Union Share Insurance Fund. From NCUA’s press release:

“Credit unions now have parity with banks and, effective immediately, can fully insure lawyers’ trust accounts up to $250,000 for each owner of the funds, which they could not do before,” Matz said. “An attorney who is a member of the credit union where the trust account is opened now has a choice of financial institutions for that trust account. This enhances public confidence in both the banking and the credit union systems now that federal share and deposit insurance programs administered by NCUA and the FDIC are the same.” (My emphasis)

Matz also said NCUA will make changes to its regulations to fully conform to the Act.

Election Day and Lame Duck Congress around the Corner

Written by, Jillian Pevo, Director of Legislative Affairs               

It seems like we are in a perpetual campaign cycle here in Washington, DC, I’m sure many of you have seen enough political commercials, yard signs and shameless self-promotion in the last six months to last a lifetime. The stakes seem to be pretty high for a midterm election with Senate Democrats fighting to keep a razor thin majority and a number of competitive statewide races that could go either way. In the House of Representatives, Republicans are expected to retain their majority but there will still be some personnel changes on key committees. With just over a week to go, national headlines are being dominated by issues of concern to many Americans including the government’s response to the Ebola virus and Islamic State in Iraq and Syria (ISIS). These high-profile issues and others could sway undecided voters as they head to the polls next Tuesday. 

Regardless of election outcomes, the current Congress is scheduled to reconvene one last time after election day for a “lame duck” session.  While much of the session’s agenda will be shaped by what happens on election day and who will control Congress in January, there are a few items that are very likely to see action, including government funding and expiring tax provisions known as tax extenders. At NAFCU, we will continue to push the Senate to take up House-passed regulatory relief measures that will make small but positive changes at our nation’s credit unions. These measures include:

• Exempting financial institutions from sending annual privacy notice disclosures when policies have not changed (House-passed H.R. 749/S. 635 awaits Senate action).  While the CFPB has recently acted on this issue, we believe a legislative solution is the better answer in the long run;
• Providing credit unions parity with FDIC-insured institutions when it comes to deposit insurance coverage on Interest on Lawyers Trust Accounts or IOLTAs (House-passed H.R. 3648/S. 2699 awaiting Senate action); and
• Amending the calculation of points and fees under the CFPB’s qualified mortgage rule (House-passed H.R. 3211/S. 1577 awaiting Senate action).        

While legislative action this Congress is unlikely, NAFCU will also continue to push lawmakers to address the lack of national data security standards at retailers. Countless breaches occurred while Congress was out of session including the massive Home Depot breach. NAFCU has called for the creation of a bipartisan-bicameral Congressional working group to get key lawmakers together to devise a set of legislative policy prescriptions that would put standards into place at retailers and ensure that they are financially liable when a breach occurs on their end. President Obama recently called for national legislation to address ongoing data security breaches and we are hopeful that Congress acts with urgency.

Please don’t hesitate to reach out to NAFCU’s Legislative Affairs division should you have any questions about matters before Congress. And, don’t forget to vote! 

NCUA Habla Español; Free Kick

Written by Ricardo Piñeres, Regulatory Compliance Counsel

Last Monday, NCUA released a Spanish-language version of its Share Insurance Estimator.  The new tool works just like its English-language counterpart and is intended to help credit union members better understand how their deposits are insured by the NCUSIF.

In a press release to mark the occasion, the NCUA encouraged credit unions to share this new tool with their members.  The agency believes that this new resource will “help [Spanish-speaking members] make informed decisions about their finances.”

The new Share Insurance Estimator joins the other tools and resources that the NCUA has translated and adapted for Spanish-speaking consumers that are available on the agency’s Spanish-language website aimed at consumers, espanol.MyCreditUnion.gov.  Credit unions with Spanish-speaking members may want to consider using and/or linking to these NCUA resources to help members better understand their finances and the credit union system.  This Spanish-language website has many of the tools and resources that are available on the English-language site, www.myCreditUnion.gov.

If your credit union has any questions about the Share Insurance Estimator, you can reach out to  the NCUA Office of Consumer Protection’s consumer access division by calling (800) 755 – 1030 (select option 2), or sending an email to [email protected].

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Free Kick.  In exactly one month, the world’s attention will turn to Sao Paulo for the kick-off of the World Cup.  The 31-day tournament will start with the hosts (Brasil) facing off against Croatia at 4:00 pm EDT.  Every four years, we get to experience the joy that only be created by the single greatest month in the sports world.  In preparation for this year’s tournament, I have been doing short group previews.  Today, I will preview Groups F and H.  I previously previewed Groups A & B, and D & E.

Group F: No seeded team was given a more favorable draw than Argentina.  The Albiceleste are head and shoulders above the rest of the group both from a talent and experience perspective.  Not only do the rest of the teams in this group pale in comparison to the Argentine squad, but the schedule for this group requires the least amount of travel and none of the games will be played in the hottest regions of Brasil.  That could spell trouble for some of the other tournament favorites, as Argentina will likely waltz into the knock-out stages without breaking much of a sweat, thus being fresh for the business-end of the tournament.

An interesting note from this group – Bosnia-Herzegovina will be the only team making its World Cup debut.  They qualified by winning their UEFA (the European zone) qualifying group and are blessed with a dangerous and in-form attacking option in Edin Dzeko.  The Super Eagles are in another World Cup, and while this iteration of Nigeria is not as talented as previous squads, they will give the Bosnians a run for the second spot.  The group is rounded out by Iran.  The Iranians were quite impressive in their run to the World Cup, but they are a flaw team that may have defensive failures during what will likely be a three-match appearance.  That said, they do possess some skilled attackers and could steal a point or two to make things interesting.

Key match: Nigeria v. Bosnia-Herzegovina, June 21 (4:00 pm EDT).

Projected finish: (1) Argentina; (2) Nigeria; (3) Bosnia-Herzegovina; and (4) Iran.

 

Group H: If it weren’t for the Belgians, this would be the most evenly matched group in the entire tournament.  Belgium is currently experiencing a golden era in footballing terms and will bring a squad laden with talent to Brasil.  I expect them to win this group relatively easily, so long as they can avoid any mental letdowns.  The fight for second-place is essentially a three-way “coin toss.”  Russia boasted a strong defense in the qualifiers, but can they score and can they focus on the task at hand?  The South Korean squad boasts some truly skilled ball-handlers, but there are still many question marks in the back line.  The Algerians have some great attacking options and past squads have pulled off some upsets at previous World Cups, but could this year’s team just fall one or two solid players short of the knock-out rounds?

Key matches: Russia v. South Korea, June 17 (6:00 pm EDT); South Korea v. Algeria, June 22 (3:00 pm EDT); and Algeria v. Russia, June 26 (4:00 pm EDT).

Projected finish: (1) Belgium; (2) Russia; (3) South Korea; and (4) Algeria.

A Regulatory Romantic Friday- NCUA Updates Share Insurance Estimator and Brochures; Chairman Matz holds Townhall Webinar

Written by Alicia Nealon, Regulatory Compliance Counsel

Happy Valentine’s Day Compliance Community! In the Valentine's Day of Hallmark’s fantasies, we’d be showered in roses, candy, cards, and assorted heart-shaped items. But our realities may be decidedly less romantic. Well if Cupid passed you by this Valentine’s Day, don’t worry- NCUA has issued some of its own “love letters” in the last few weeks.

First, in January NCUA announced a redesigned version of the E-Calculator, now called the Share Insurance Estimator, which allows credit union members to calculate share insurance coverage and ask questions. It still serves the same function as the previous Calculator, but now allows credit union members to fill out information while consulting reference materials, among other improvements to navigability and content. 

Second, in early February, the agency released a revised version of its booklet Your Insured Funds, which NCUA says presents the latest share insurance coverage information in a new, easy-to-read format helpful to credit unions as well as their members. The updated booklet, 61 pages long, explains how credit union members’ accounts are covered by the National Credit Union Share Insurance Fund. NCUA also publishes a briefer, six-panel brochure, How Your Accounts are Federally Insured, which gives the highlights of account coverage. Both can be downloaded online or ordered via the mail and telephone. To order these resources, complete the order form available here or call (703) 518-6340.

Finally, on Wednesday, NCUA Chairman Debbie Matz hosted a Townhall webinar with CFPB Director Richard Cordray, during which time she stressed how seriously the agency considers feedback on proposed rules. Specifically addressing the agency’s proposed rule on risk-based capital, Chairman Matz acknowledged the various concerns surrounding the rule, such as its individual minimum-capital requirements. She discussed that NCUA sometimes revises its rules between the proposed stage and the final rule and that the agency will take a hard look at credit unions’ concerns as the capital proposal moves forward. In addition to raising concerns about the proposal, NAFCU has completed a Regulatory Alert on the proposed rule and is currently taking comments from our members.

If all these goodies from NCUA aren’t enough to satisfy the regulatory romantic in all of us this Valentine’s Day, I will close with this thought (that will likely get me laughed out of the office, but alas, if you can’t be corny on Valentine’s Day- when can you be??)

Roses are red,

Violets are Blue,

We here at NAFCU simply LOVE YOU!

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If you like what you read here, consider signing up for Anthony Demangone’s blog on management and leadership – Musings from the CU Suite. Anthony is an NCCO and used to head up Compliance at NAFCU.  You can visit the blog here, or sign up to have it delivered via email.

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Programming Note.  NAFCU’s offices will close today at noon for the President’s Day holiday and will reopen on Tuesday, February 18^th.  We will be back to blogging on Wednesday, February 19^th.

No News Left Behind

Written by JiJi Bahhur, Director of Regulatory Compliance

It would be nearly impossible to cover every piece of news that drops in any single month, but we try our best to cover as many notable items that may impact credit unions here on NAFCU’s Compliance Blog.  Today, I’d like to point to a few items that we did not have a chance to mention during the busy month of October.

NCUA Guidance on DORs and Exam Findings.  NCUA issued Letter to Credit Unions 13-CU-09 to streamline the examination report and clarify for federally insured credit unions the difference between a document of resolution and examiner findings.  New processes related to issuing and following up on the examination report are also being implemented by the agency.  Under the new process, examiners are now required to follow up with credit union officials on outstanding DOR items within 120 days after the timeframe for completion has passed.  The changes to the examination report and the new processes are contained in the agency’s revised National Supervision Program Manual.  The agency stated that full implementation will begin with examinations that start after January 1, 2014.

Electronic Filings.  NCUA issued a final rule, effective January 1, 2014, that requires all federally insured credit unions to file quarterly call reports and profile data electronically using NCUA’s information management system or other electronic means specified by the agency.  Manual filing of this information is no longer an option for federally insured credit unions. NCUA guidance and the extended call report deadlines for 2014 are available in Letter to Credit Unions 13-CU-11.

No Share Insurance Premium for 2013. Announced during the October NCUA Board meeting, insured credit unions will not be assessed a share insurance premium for 2013.  The NCUSIF ended September at a ratio equal to 1.31 percent of insured shares, above the statutory minimum of 1.2 percent. If the fund ends the year above that level, any excess would be transferred to the Temporary Corporate Credit Union Stabilization Fund. The NCUSIF's year-to-date net income was $110.3 million; a negative $25 million was budgeted this year.

Flood Hazard Interagency Proposal.  The NCUA Board issued an interagency proposed rule regarding loans in areas having special flood hazards.  The proposal amends the agency’s regulations on federal flood insurance to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters).  It establishes: 1) that regulated lending institutions must accept “private flood insurance,” as defined in Biggert-Waters, as satisfaction of the flood insurance requirement;  2) an expansion of the escrow requirement for flood insurance payments to all residential loans secured by residential real estate; and 3) a clarification of the provisions relating to force placement of flood insurance.  A Regulatory Alert with an analysis of the proposal will be provided to NAFCU members.  Currently, existing guidance that NCUA has issued still applies to credit unions.

 ***

 Have a great weekend!

Thank You; NCUA’s October 2013 Board Action Bulletin – Two Finals and a Proposal; Remittance Transfer Effective Date Alert

Written by JiJi Bahhur, Director of Regulatory Compliance

Thank You.  I wanted to extend a thank you to all attendees and presenters that joined us during last week’s sold-out Regulatory Compliance Seminar. As the compliance challenges continue, the ability to learn from each other and discuss common issues and concerns will continue to be an invaluable resource in the credit union industry and help everyone stay up-to-date on the latest requirements and interpretations.

Thanks again for making this year's Compliance Seminar a success.  When the group photo is available, I'll be sure to share.

NCUA’s October 2013 Board Action Bulletin.  Last Thursday, the National Credit Union Administration (NCUA) Board (Board) held its October 2013 Board meeting.  Three items were unanimously approved during the Board’s open session:

• A final rule requiring all federally insured credit unions to plan for liquidity events. Credit unions with assets exceeding $250 million need to have access to NCUA’s Central Liquidity Facility, the Federal Reserve’s Discount Window, or both.

• A final rule requiring all federally insured credit unions to electronically file Call Report information with NCUA. The rule will reduce operating costs and result in more accurate and timely credit union data.

• A proposed rule to protect the National Credit Union Share Insurance Fund by requiring annual stress tests at federally insured credit unions with assets exceeding $10 billion.

Other items on the open meeting agenda included:

• Board Briefing, Proposed Interagency Policy Statement, Joint Diversity Standards for Regulated Entities.

• Board Briefing, Proposed Interagency Rule, Part 760, Loans in Areas Having Special Flood Hazards.

• Quarterly National Credit Union Share Insurance Fund Report.

For a deeper look into the items discussed, ruled and briefed on during this meeting, take a look at NCUA’s Board Action Bulletin here, but I’d like to focus on the final Liquidity and Contingency Funding Rule.  The final rule – affecting section 741.12 of NCUA’s rules and regulations – requires all federally insured credit unions to take specific steps to ensure appropriate risk management and access to liquidity. 

In its Board Action Bulletin, the NCUA provides a helpful table summarizing the general requirements based on credit union size.

 

Credit Union Asset Size	Liquidity Rule Requirement
Under $50 million	Federally insured credit unions in this group must maintain a basic written liquidity policy. Approved by a credit union’s board, the policy must provide a framework for managing liquidity and a list of contingent liquidity sources that can be employed in emergency situations.
$50 million or more	In addition to a written liquidity policy, federally insured credit unions in this group must have a contingency funding plan that clearly sets out strategies for meeting emergency liquidity needs.
$250 million or more	In addition to a written liquidity policy and contingency funding plan, federally insured credit unions in this group must establish access to at least one contingent federal liquidity source: either NCUA’s Central Liquidity Facility, the Federal Reserve’s Discount Window, or both.

 

It should be noted that the final rule raises the highest asset threshold, which requires access to a federal liquidity provider, to $250 million from the $100 million in the proposed rule.

Effective March 31, 2014, the final rule is available online here. The NCUA published a Letter to Credit Unions (LCU) that provides guidance on how credit unions can comply with this regulation, including a timeline to ensure credit unions are in compliance by the effective date.  Also, NAFCU will issue a Final Regulation (NAFCU log-in required), which will be available here. 

Remittance Transfer Effective Date Alert.  Just a friendly reminder: today – October 28, 2013 – is the effective date for the final remittance transfer rule. 

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

Written by Steve Van Beek

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

• NCUA's Privacy Regulation - 12 CFR 716

• NCUA's SAFE Act Regulation - 12 CFR 761

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

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

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

…

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

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

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

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

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

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

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

Regulatory Burden: Update the Regulations, Please!

Written by Steve Van Beek

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

• Regulatory Burden: Piles of Old Guidance

• Regulatory Burden: Short-Term

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

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

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

...

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

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

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

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

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

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

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

***

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

....

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

***

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

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

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

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

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

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

(vii) The lesser of—

(A) $100, or

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

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

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

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

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

***

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

***

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

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

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

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

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

Bozo's Grand Prize Game & Share Insurance; NAFCU's March Compliance Monitor

Written by Steve Van Beek

NAFCU's Compliance School is only a couple of weeks away and we are busy putting together the final details - including our presentations.  One of the sessions is on NCUA's Share Insurance and I wanted to share my favorite slide:

To me, Bozo's Grand Prize Game contains lessons for understanding share insurance coverage.  An account can only fit in one "bucket" at a time.  Understanding this helps explain share insurance coverage and how members can structure their accounts to maximize share insurance.  

***

NAFCU's March Compliance Monitor.  The March issue of NAFCU's Compliance Monitor is now available for NAFCU members.  The March issue highlights NAFCU's Scope & Applicability Charts and includes two main articles:

• Understanding the Small Servicer Exemptions

• NCUA's Final Credit Ratings Rule Impacts Credit Union Investments

There are also numerous Q&As on the CFPB's new mortgage requirements - including ones submitted during our webcast on the CFPB's Final Mortgage Regulations (available for on-demand purchase).

NAFCU Members:  If you click on the article links above you'll notice a new feature - we are publishing our articles in HTML format (in addition to the PDF).  This means the articles are fully-searchable on NAFCU's website.  And, we have more enhancements in the works as well - so stay tuned!

Have a great weekend!

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

Written by Steve Van Beek

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

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

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

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

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

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

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

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

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

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

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

***

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

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

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NCUA's Annual Regulatory Review; Noninterest-Bearing Transaction Accounts & 12 CFR 745.14

Written by Steve Van Beek

A couple weeks ago, NCUA announced the list of their regulations they'll review in 2013:

• 12 CFR 711  Management Official Interlocks
• 12 CFR 712  Credit Union Service Organizations
• 12 CFR 713  Fidelity Bond and Insurance Coverage for FCUs
• 12 CFR 714  Leasing
• 12 CFR 715  Supervisory Committee Audits and Verifications
• 12 CFR 716  Privacy of Consumer Financial Information
• 12 CFR 717  Fair Credit Reporting
• 12 CFR 721  Incidental Powers
• 12 CFR 722  Appraisals
• 12 CFR 723  Member Business Loans
• 12 CFR 724  Trustees and Custodians of Certain Tax-Advantaged Savings Plans
• 12 CFR 725  National Credit Union Administration Central Liquidity Facility
• 12 CFR 740  Accuracy of Advertising and Notice of Insured Status
• 12 CFR 741  Requirements for Insurance
• 12 CFR 745  Share Insurance and Appendix
• 12 CFR 747  Administrative Actions, Adjudicative Hearings, Rules of Practice and Procedure, and Investigations

The list is available here.  This regulatory review time is a great time to bring ongoing issues to NCUA and demonstrate the regulatory burden from the existing regulations and, importantly, how the existing regulatory burden needs to be reduced as there are new burdens being piled on - from multiple regulators - on a daily basis. 

***

Initial Thoughts.  Looking at the list, a couple items jumped out at me.  First, it will be interesting to see how NCUA handles 716 and 717 now that the CFPB has taken over authority for Privacy and a supermajority of FCRA.  Second, is NCUA going to look at providing additional exemptions to the "official advertising statement" - such as for use in social media?  Looks like a natural fit for 12 CFR 740.5(c)(9).  My third thought is below.

***

Noninterest-Bearing Transaction Accounts.  As of December 31st, the unlimited share insurance coverage for noninterest-bearing transaction accounts expired.  Now would be a good time to make sure you've removed any notices from your branches and your website.  Also, if you haven't already - be sure to provide impacted members with a notice (you have flexibility as discussed in this December 18th blog post).  

NCUA issued Letter to Credit Unions 12-CU-14 to help inform credit unions in advance of the expiration.  After the expiration was finalized, NAFCU talked with NCUA staff about updating Section 745.14 to remove the outdated language for noninterest-bearing transaction accounts and it looks like it is in the works.  

A Few Housekeeping Reminders to Start off the Year

Written by Bernadette Clair, Regulatory Compliance Counsel

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

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

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

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

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

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

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

NAFCU's Meeting with CFPB Director Cordray

Written by Steve Van Beek

A couple of weeks ago, the NAFCU Board of Directors along with our senior staff met with Director Cordray and a few key players on the CFPB's rulewriting team.  You can read a news recap of the meeting here.  However, today I wanted to give you a brief rundown of some of the issues that NAFCU discussed with the CFPB.    

• Qualified Mortgages and the Ability to Repay Rule.  NAFCU indicated the CFPB needs to provide a safe harbor for qualified mortgages (rather than a rebuttable presumption).  NAFCU also discussed the difficultly of tying the qualified mortgage determination to metrics (debt-to-income ratio, etc.) because the metrics cannot take into account non-quantitative factors.   

• Proposal to Change Definition of Finance Charge.  NAFCU discussed the CFPB's proposal to amend the definition of finance charge - which would alter how the annual percentage rate (APR) is calculated.  We argued this change was not required by Dodd-Frank and the CFPB shouldn't add this large compliance burden to credit unions.  We have previously blogged on this issue here (drop the APR proposal), here (NAFCU's official comment letter) and here (potential impact on FCU usury ceiling).  

• Points & Fees.  NAFCU discussed how CFPB's proposed points and fees tests have the potential to hurt credit unions that have CUSOs.  The CFPB's proposals might treat fees from affiliates differently than fees from non-affiliates and this could make a credit union's mortgage look less competitive.  

• Remittances.  NAFCU provided an overview of the challenges facing credit unions as they try to comply with this new rule.  Credit unions are facing a huge compliance burden and many are working with third parties to find a solution.  But, that also brings with it third-party due diligence costs and considerations.  Many credit unions will be forced to stop offering remittances and those that continue to offer remittances will see a large fee increase passed along to their members.  

• Providing Formal Opinion Letters or Other Guidance.  NAFCU urged the CFPB to provide an avenue for credit unions to obtain a formal opinion from the CFPB.  A prior example was the CFPB's unwillingness to provide a formal opinion on the Change-In-Terms Notice issue that we blogged about in mid-October.  If the CFPB would have provided formal guidance, it would have saved credit unions lots of time and money (not to mention the reduction in headaches).  

Quick Tidbits.  The CFPB seemed interested in the issues NAFCU was raising.  Unfortunately, it did not seem they had the time or inclination to make the changes.  The CFPB pointed back to Dodd-Frank repeatedly to indicate that their hands were tied by Congress.  However, they did indicate they are looking at 12 month implementation period for the majority of the mortgage rules.  And, they are looking at how to improve their communication of the final rules to regulated entities (including a "plain English" guide of the mortgage changes).   

***

NAFCU Offices Closing.  Just a heads up that NAFCU's offices will be closed next week and through the beginning of the year.  We won't be blogging during this period.  Of course, we don't need to tell anyone that 2012 has been a challenging year on the compliance front.  And, 2013 promises to bring many additional challenges as well.  We'll be charging our batteries and getting ready for 2013 and we hope you are able to as well.   

Update on TAG/NIBTA and Unlimited Share Insurance Coverage - NCUA Letter to Credit Unions

Written by Steve Van Beek

Update on TAG/NIBTA Unlimited Share Insurance.  It looks more and more like Congress will not extend the unlimited share insurance coverage for noninterest-bearing transaction accounts.  Earlier this afternoon, NCUA issued Letter to Credit Unions 12-CU-14 which included these steps for credit unions:

• Evaluate whether your credit union holds member accounts with the temporary unlimited insurance coverage.
• Communicate to your membership the potential changes in insurance coverage occurring on January 1, 2013.
• Ensure your account disclosures properly disclose the level of insurance coverage.
• Make your membership aware of NCUA's Share Insurance Tool Kit.

Be Ready to Remove Notices.  As we blogged on previously, you'll also need to make sure you remove any notices about the unlimited share insurance coverage soon after January 1, 2013.  These will most likely be in your branches and on your website.

A couple of natural questions:  

How do you communicate with your membership?  

I think there is a good argument that credit unions have flexibility in notifying membership (especially as the process is not spelled out in Dodd-Frank, the FDIC's guidance or NCUA's Letter).  The notification could be a combination of email messages, website notices, phone calls, letters, etc.  It is probably too late for statement messages.     

Does this mean every member?

Similarly, there is a good argument that credit unions make efforts to notify impacted members (or those likely to be impacted).  Do members who do not have a noninterest-bearing transaction account need to be notified?  What about members who have $5,000 in a noninterest-bearing transaction account?  Good questions and there haven't been clear answers in the guidance.  Ultimately, your notification process and which members you notify will be a business decision for your credit union.  One that you should be sure to document.  

***

The letter also indicates that this expiration may impact your credit union's accounts at other institutions.

"We also encourage you to review your credit union’s investments in federally insured deposits of other financial institutions in the event they are currently subject to unlimited coverage.  If you have unlimited coverage deposits in other institutions that will be expiring, you should update your due diligence for credit risk implications."

***

Temporary Corporate Credit Union Share Guarantee.  NCUA's Letter also reminds CUs of the expiration of the Temporary Corporate Credit Union Share Guarantee program.  NCUA had previously issued Letter to Credit Unions 12-CU-03 with that reminder.  For additional information on this, check out the 2nd half of our blog post from March. 

December NCUA Report - Notice for Expiring Share Insurance Coverage

Written by Steve Van Beek

The December issue of the NCUA Report is now available.  This issue includes the following:

• Share Insurance and Stabilization Funds in Strong Positions
• Chairman's Corner: 2012 A Transformative Year for Credit Unions
• Board Actions: 2013 Budget Holds the Line on Staffing Levels
• Board Perspective (Board Member Fryzel): Time to Reassess
• Funds Available to Help Hardest Hit Members with Their Mortgages
• Office of Consumer Protection Report: Unlimited Share Insurance Coverage for Non-Interest Share Draft Accounts Ends Dec. 31, 2012
• Region IV Report: What Makes a Sound Member Business Lending Program?
• CFPB Delays New Mortgage Disclosures
• With Corporate Credit Unions System on Solid Footing, Share Guarantee Program Ends Dec. 31, 2012

If you are like me, the article on Unlimited Share Insurance Coverage Expiration jumped out at you.  The FDIC had issued guidance in early November to its institutions regarding the expiration of FDIC insurance.  It looks like NCUA is getting ready to provide information to credit unions.  Here is from the article:

"Beginning on January 1, 2013, NCUA will no longer insure noninterest-bearing transaction accounts separately from other accounts or in excess of the standard $250,000 share insurance amount. As the statutory expiration date nears, NCUA encourages federally insured credit unions to take reasonable steps to notify their members of this change in coverage and to help members restructure their accounts to maximize share insurance coverage. NCUA plans to post additional information on its website to help credit unions and their members navigate this transition."  (Emphasis added).

The good thing is that this gives credit unions quite a bit of flexibility (letters, statement notices, email, website notices, etc.) in how they notify affected members.  You'll probably want to review how many noninterest-bearing transaction accounts your credit union has - including how many are currently near or above the $250,000 level.  It would be a good idea to begin drafting language to inform those members of the change (you can build off the FDIC's model language).  You'd also want to prepare to take down any notices - such as in your branches and website - soon after January 1, 2013.  

A couple of other issues:

Watch Congress.  There is a bill that would extend this unlimited coverage for 2 more years.  Community banks are pushing hard for this extension - but it isn't looking likely.  If Congress does not act (i.e., does not pass an extension), the unlimited share insurance expires at midnight on December 31, 2012.     

Watch NCUA's Website.  The article in the NCUA Report indicated NCUA will be putting additional information - perhaps including model notices - on their website.  Keep an eye on this.  When we see it, we'll be sure to pass it along.  

Share Insurance After a Merger

Written by Steve Van Beek

One of the issues I covered during Wendesday's webcast was share insurance after a merger.  Part 745.2(f) of NCUA's Regulations provides the general framework.  

Granted, the issue isn't one that comes up all the time as there (1) needs to a merger or assumption and (2) there need to be members who were members of both credit unions that have now merged.  

Here is 12 CFR 745.2(f):

"(f) Continuation of separate share insurance coverage after merger of insured credit unions. Whenever the liability to pay the member accounts of one or more insured credit unions is assumed by another insured credit union, whether by merger, consolidation, other statutory assumption or contract: The insured status of the credit unions whose member account liability has been assumed terminates, for purposes of this section, on the date of receipt by NCUA of satisfactory evidence of the assumption; and the separate insurance of member accounts assumed continues for six months from the date the assumption takes effect or, in the case of a share certificate, the earliest maturity date after the six-month period. In the case of a share certificate that matures within the six-month grace period that is renewed at the same dollar amount, either with or without accrued dividends having been added to the principal amount, and for the same term as the original share certificate, the separate insurance applies to the renewed share certificate until the first maturity date after the six-month period. A share certificate that matures within the six-month grace period that is renewed on any other basis, or that is not renewed, is separately insured only until the end of the six-month grace period." 

Thus, the general rule from NCUA is that separate share insurance coverage applies for a six-month grace period.  Prior to the end of the grace period, the member may need to restructure their accounts to ensure their accounts remain fully insured.  If the member holds share certificates, there is extra flexibility built into the rules.  

If your credit union has recently gone through a merger or has plans to, be sure to review if you have members that belonged to both credit unions and determine if their share insurance coverage might be impacted.  

Have a great weekend!   

NCUA Board Materials; Know Before You Owe; CFPB Hearings; Webcasts

Written by Steve Van Beek

Below are a few tidbits for your Thursday morning.  

NCUA Board Meeting.  The NCUA Board is meeting today and the draft materials are usually available an hour prior to the Board meeting.  The agenda for the meeting is here.  The draft materials will be posted here shortly after 9 a.m. EST.  Update:  NCUA's website indicates the Board materials will be available after today's Board meeting.

Know Before You Owe.  The CFPB released the latest on its Know Before You Owe project to combine the TILA-RESPA disclosures.  The CFPB is continuing to work on the closing documents and is not yet at the proposal stage of the rulemaking process.  Feel free to send any comments you have to the CFPB directly or to NAFCU.  

Cordray Testimony.  The NAFCU Today had a great recap of Richard Cordray's testimony on Tuesday before a House Subcommittee.  Cordray will be testifying in front of the Senate Banking Committee next Tuesday, January 31st - so expect headlines to continue on the new CFPB Director.

Share Insurance Webcast.  Yesterday was our special 2-hour webcast on NCUA's Share Insurance Coverage.  If you missed the webcast, you can still purchase the on-demand version which is available for 12 months.  For a listing of our upcoming live webcasts and available on-demand webcasts, click here.             

Speech on Reg Burden; Reg D Comments; Share Insurance Webcast

Written by Steve Van Beek

Last Friday, Federal Reserve Board Governor Elizabeth Duke gave a speech to community bank presidents and indicated that regulators need to resist the urge to regulate using "one-size fits all" regulation and supervision.  

"I do believe in the community bank model and its future. Indeed, I believe there is a real place for the customization and flexibility that community banks can exercise to meet the needs of local communities and small business customers. Still, the disproportionate cost of regulatory compliance for smaller institutions is real. Financial supervisors must be vigilant in efforts to maintain financial system stability and ensure that consumers are able to understand their financial product choices, no matter where they choose to bank. However, as we and other agencies craft regulations to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and adjust supervisory practices to meet these priorities, I think we must avoid a one-size-fits-all approach to supervision."

While the speech was directed at community banks, there are clear parallels for credit unions who are facing increased regulatory compliance costs.  I continue to find it interesting that regulators talk about reducing regulatory burden when there is a 2,300 page elephant in the room mandating thousands of regulatory changes.  Every tweak and adjustment that stems from Dodd-Frank increases the regulatory burden.  For compliance officers, even the process of determining if a regulation applies to their credit union is a challenge with the current pace of regulatory change.

***

In mid-December, NAFCU sent a comment letter to the Federal Reserve on Regulation D.  NAFCU emphasized the need to update the arcane transactional limitation requirements to reflect the modern environment.  Here is one paragraph from the letter:

"The current law is burdensome and confusing for depositors that wish to have unfettered access to their funds. It is unreasonable to expect consumers to understand and remember the arcane limits on the number and type of transfers that are allowed out of their savings account.  For example, under the current rule, transfers among the consumer’s accounts via online banking are limited; however, a consumer can make unlimited transfers via mail or by messenger. The rule is outdated and as a consequence, the restrictions on transfers are incoherent to even the most knowledgeable consumers. It would be helpful to consumers if the regulation was modified to reflect the current financial services environment."  

Updating the Regulation D transaction limitation requirements is a win-win as consumers obtain greater access to their funds and credit unions would need to spend less time and resources classifying and monitoring transactions.

***

On January 25th, NAFCU will host a special 2-hour webcast on Share Insurance featuring yours truly.  The early-bird pricing ends at the end of day tomorrow - so you can save $100 by signing up today or tomorrow.  

We are going to be covering Share Insurance issues from a couple of different angles: 

• How Share Insurance is Calculated Per Account - Based on Ownership Type;
• Disclosure of Federally-Insured Status on Advertisements;
• Share Insurance Disclosure Requirements Where Credit Unions Take Deposits;
• How Mergers Impact Share Insurance Coverage;
• Options for Educating Members on their Share Insurance Coverage;
• NCUA's Share Insurance Calculator; and 
• Detailed Examples of Certain Accounts and the Amount of Insurance Coverage Available.

The full information is here.  Also, because this is a 2-hour webcast, NCCOs can earn 2 CEU credits.

Questions & Answers.  As usual, we'll be answering questions during the webcast.  Due to complex nature of share insurance questions - we'll also be posting a detailed Q&A document that will be available to attendees after the webcast.  If you are registered and have questions ahead of the webcast - please send them in ([email protected]) and I'll try to add the issue into the presentation.  At a minimum, we'll include the question in our Q&A document. 

Member Education: Online Authentication; Savings Bonds; Share Insurance

Written by Steve Van Beek

A few recent NCUA Letters to Credit Unions have included information regarding member education.  Below are a few areas where credit unions have been encouraged to educate members - in addition to the required regulatory disclosures already provided.

Member Education for Online Authentication

The recent online authentication guidance included a section on member education.  Pages 7 and 8 of the guidance include information on educating members.  Below are two of the types of communications that are expected:

• An explanation of under what, if any, circumstances and through what means the credit union may contact a member on an unsolicited basis and request the member’s provision of electronic banking credentials; and
• A listing of institutional contacts for members’ discretionary use in the event they notice suspicious account activity or experience member information security-related events.  

The guidance does not mention how often or in what format this information should be provided.  This provides credit unions with some flexibility in communicating with members.  It is quite possibility that credit unions already provide some of this information to members on a regular basis as a fraud prevention tool.  If so, be sure include those efforts in your documentation for the latest FFIEC guidance.  

Savings Bonds - Reminder: No more over-the-counter savings bonds sales after 12/31/2011 

NCUA's Letter to Credit Unions 11-CU-15 on Changes to Savings Bonds included information on educating members.  Here is from the Letter:

"Educate members about the upcoming changes. Let your members know they will no longer be able to buy paper savings bonds at your credit union or by mail order.  You are also encouraged to refer members to www.treasurydirect.gov where they can purchase, manage, and redeem electronic savings bonds online.  Electronic savings bonds are secure and convenient to manage in a TreasuryDirect account, and your members will no longer have to worry about storing, misplacing, or losing paper savings bonds.  In addition, with a TreasuryDirect account, members can purchase electronic savings bonds as gifts and convert paper savings bonds to electronic ones."

In this situation, NCUA is simply indicating credit unions should make members aware of the change and their options going forward.  

Share Insurance Coverage

Going back to 2008, NCUA issued Letter to Credit Unions 08-CU-18 on educating members on share insurance coverage.  The 2008 letter was written during the uncertainty of the financial crisis.  However, the message should not be lost on credit unions - especially with the influx of new members coming over from banks who might not be familiar with the share insurance coverage provided by the National Credit Union Share Insurance Fund.  

Going Forward

As the CFPB begins to regulate, there will most likely be additional pushes toward member education.  Credit unions should continue their efforts to provide education to members through their websites, newsletters and statements to ensure members are informed.  

As your credit union provides education to your members, document your efforts.  The credit union might offer this education anyway, but it can also be useful to document compliance.  For example, if you credit union offers identity theft or fraud prevention workshops - be sure to include this information as part of your compliance efforts to meet the expectations of the latest online authentication guidance.  

***

Programming Update:  NAFCU's offices will be closed on Friday, December 30th and Monday, January 2nd.  We'll be back blogging in 2012!  Have a Happy New Year!  

Noninterest-Bearing Disclosure; NCUA on IRAs; Interchange

Written by Steve Van Beek

The compliance deadline for the noninterest-bearing transaction account disclosure is Friday, June 24, 2011.  We have had a few questions about the language of the actual notice.  It is below: 

NOTICE OF CHANGES IN TEMPORARY NCUA INSURANCE COVERAGE FOR TRANSACTION ACCOUNTS

All funds in a “noninterest-bearing transaction account” are insured in full by the National Credit Union Administration through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the coverage of at least $250,000 available to members under the NCUA's general share insurance rules.

The term “noninterest-bearing transaction account” includes a traditional share draft account (or demand deposit account) on which the insured credit union pays no interest or dividend. It does not include any transaction account that may earn interest or dividends, a negotiable order of withdrawal (“NOW”) account, money-market deposit account, and Interest on Lawyers Trust Account (“IOLTA”), even if share drafts may be drawn on the account. For more information about temporary NCUA insurance coverage of transaction accounts, visit www.ncua.gov.

The notice is located in 12 C.F.R. 745.14(c)(1) of NCUA's Regulations (the full Part 745 is here).   

Credit unions do not have flexibility to change the language of the notice itself.  The notice must remain as listed above.  However, credit unions could include supplemental information near the notice which discusses which accounts at the credit union are fully insured and, perhaps, informing members to see a credit union employee for more information.  

***

NCUA issued Legal Opinion Letter 11-0241 which addresses the share insurance coverage of inherited individual retirement accounts (IRAs).  The letter indicates share insurance coverage could continue for an inherited IRA if certain conditions are met.  The letter also cautions about complex IRS issues that pertain to inherited IRAs.  If your credit union offers IRAs, this would be a good letter to pass along to whoever manages that process (which might be you!).  

***

The Federal Reserve has set a time and date for an open Board meeting to finalize the Interchange regulation.  The meeting will take place at 3:30 p.m., Wednesday, June 29, 2011.  We may not know any more about the final rule between now and the 29th but this advance notice does indicate the Fed will finalize the rule at this time.  More info in the NAFCU Today.   

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.  

Footnote 4's Impact on NIBTAs; Text of NIBTA Notice

Written by Steve Van Beek

Am I the only one who is sick of writing and saying "noninterest-bearing transaction accounts?"  It seems there are more unanswered questions in this new rule than there are answers.  And less than 21 total days before the effective date of June 24, 2011.  

One issue that we have seen is credit unions wondering if their accounts meet the definition of noninterest-bearing transaction accounts (NIBTAs) because they have a clause in their disclosures (and bylaws).

The model clauses in Appendix B to NCUA's Truth in Savings regulation includes this language:

"The credit union reserves the right to require a member intending to make a withdrawal from any account (except a share draft account) to give written notice of such intent not less than seven days and up to 60 days before such withdrawal.

Note: This disclosure is limited to federal credit unions with Bylaws containing this limitation. See Standard Federal Credit Union Bylaws, Art. III, section 5(a). Similar disclosures are required of any state-chartered credit unions having similar limitations in their bylaws, or under state law. This limitation does not directly relate to the “number” or “amount” of transactions, and accordingly, may not be necessary under §707.4(b)(5), but would, if applicable, be required by §707.3(b)."

So, the question is: Does this mean our accounts are no longer noninterest-bearing transaction accounts because we reserve the right to require advance notice of withdrawal?  

NCUA tucked the answer into Footnote 4 of their final rule.  NCUA indicates this reservation is an administrative requirement and does not impact the determination of whether the account meets the definition of a noninterest-bearing transaction account.  Here is Footnote 4:

"4 The NCUA Board does not believe the general provisions of Article III, Section 5(a) of the Federal Credit Union Bylaws, or other similar provisions, affect the definition ofnoninterest-bearing transaction account or the share insurance coverage of this kind ofaccount. Article III, Section 5(a) of the bylaws states that with respect to memberwithdrawals from share accounts, the federal credit union’s board of directors has theright, at any time, to require members to give up to 60 days written notice of intention towithdraw the whole or any part of the amounts paid in by members. The NCUA Boardconsiders this a broad, administrative provision that does not alter the nature of anaccount that otherwise satisfies the definition of a noninterest-bearing transactionaccount."  76 Fed. Reg. 30251. 

So - these accounts would be noninterest-bearing transaction accounts even though the credit union has reserved the right to require advance notice of withdrawals.

*** 

I just wonder what would happen if a credit union put the discussion of a main issue in the footnote of the preamble to a Federal Register document!  If you are thinking "unfair and deceptive" - we are on the same wavelength.

As an extra bonus, guess what happens when this rule is published in the Electronic Code of Federal Regulations (12 C.F.R. 745.1(f))?  If you guessed - the footnote is nowhere to be found - you are two for two.    

***

If you are looking for the exact text of 745.14(c)(1) notice, the language has been posted in the Electronic Code of Federal Regulations.  You are looking for the language starting with the capitalized letters and going through "www.ncua.gov."  There was not any font or size requirements included in the final rule.  I think credit unions would want to follow the "clearly legible" standard used for other notices.

***

Extra Friday Bonus:  If you are wondering where you have heard of a prominent Footnote 4 before (and you wanted to bat 3-for-3 going into the weekend) - check the comments to the blog by clicking through the title of this blog post.  

***

Super Geeky Footnote 4 Reference.  I still sometimes lose sleep over a different Footnote 4.  The one from a 1938 United States Supreme Court Case - United States vs. Carolene Products Co.  304 U.S. 144.  Wikipedia entry here.

During a Constitutional Law exam, one essay question was simply (I'm paraphrasing but not shortening):

"Explain Footnote 4 of Carolene Products as it relates to Constitutional Powers and Limitations." 

I don't remember what I wrote, but I don't think it was pretty.  Did I mention my professor was the one who wrote the Constitutional Law textbook we were using?  Ouch.  

Have a great weekend.

The Second Disclosure for Noninterest-bearing Transaction Accounts

Written by Steve Van Beek

We have had quite a few questions related to the final rule for noninterest-bearing transaction accounts.  I wanted to highlight one - when the second disclosure would be required - because the final rule doesn't provide a good example.  My Tuesday blog post also did not fully discuss this issue (that post has been updated).  

The language in 12 C.F.R. 745.14(c)(2) is as follows:

"(2) If an insured credit union uses sweep arrangements, modifies the terms of an account, or takes other actions that result in funds no longer being eligible for full coverage under this section, the insured credit union must notify affected members and clearly advise them, in writing, that such actions will affect their share insurance coverage." (emphasis added).

Thus, if the credit union takes an action that would result in certain accounts no longer being fully insured - the credit union would need to notify these members.  The notice would need to inform the members that their accounts will no longer qualify for unlimited share insurance coverage.  NCUA addresses this in preamble to the final rule:

"The second notice requires insured credit unions to notify members individually of any action they take to affect the share insurance coverage of funds held in noninterest-bearing transaction accounts. Although this second notice requirement continues to be mandatory in the final rule, it is noteworthy that NCUA does not impose specific requirements regarding the form of the notice. Rather, NCUA expects insured credit unions to act in a commercially reasonable manner and to comply with applicable state and federal laws and regulations in informing members of changes to their account agreements."

This notification is different than the Section 745.14(c)(1) notice that must be posted on the credit union's website and in its branches.  This second notice needs to be sent when the credit union takes an action.  What kind of action?

The proposal to the new regulation includes the best example I've found:

"Under the proposed notice requirements, if an insured credit union modifies the terms of its account agreement so that the account may pay dividends, the insured credit union must notify affected members that the account no longer will be eligible for full share insurance coverage as a noninterest-bearing transaction account. Though such notifications would be mandatory, the proposed rule does not impose specific requirements regarding the form of the notice. Rather, NCUA would expect insured credit unions to act in a commercially reasonable manner and to comply with applicable State and Federal laws and regulations in informing members of changes to their account agreements." (emphasis added). 

In this example, the credit union beginning to pay dividends on the account means the account no longer meets the definition of "noninterest-bearing transaction account" and would no longer be fully insured.

In short, this second disclosure would be required when the credit union takes an action which results in an account losing its unlimited share insurance coverage.  In those situations - such as when the credit union starts to pay dividends on the account - the credit union would need to notify those account holders in writing that their accounts are no longer fully insured.  Those accounts would then be insured under NCUA's regular share insurance rules because they would no longer be "noninterest-bearing transaction accounts." 

***

Have a wonderful, long holiday weekend!  See you Tuesday.  

NonInterest Disclosure Deadline; NCUA Webinars; Consumer Compliance Outlook

Written by Steve Van Beek

On Tuesday, I blogged about the new regulation on noninterest-bearing transaction accounts.  Yesterday, the final rule was published in the Federal Register which starts the clock on the "30-day window" before the rule becomes effective.  Compliance with the new rule is required by June 24, 2011 (30 days after notice in the Federal Register). 

***

NCUA Webinars.  In addition to NCUA's webinar today (May 26) on Voluntary Prepaid Assessments, NCUA will be hosting a separate webinar on Allowance for Loan and Lease Losses (ALLL).  The ALLL webinar begins today (May 26) at 2 p.m. EST and will be followed at 4 p.m. by the Voluntary Prepaid Assessment's webinar.

NCUA does archive their webcasts, so if you are looking for additional Troubled Debt Restructing (TDR) information you may want to review NCUA's January 6, 2011 webinar on TDRs.      

***

Consumer Compliance Outlook.  Today is also the day of the Philadelphia Federal Reserve's free webinar on the Fed's Regulation Z Proposal on Ability to Repay for Mortgages.  The webinar starts at 2 p.m EST.  These webinars are usually archived so you can still catch the webinar at a later date.  The slide deck for today's webinar is here.

The Consumer Compliance Outlook also provides a quarterly newsletter that focuses on issues related to Federal Reserve regulations.  The First Quarter 2011 Newsletter is here and includes a Regulatory Calendar of proposed and finalized rules by the Federal Reserve.  They also have a handy "Index by Topic" which lists past articles they have written.    

NAFCU Members:  Our Regulatory Alert on the Ability to Repay proposed rule is now available.

NonInterest-Bearing Transaction Accounts; Dodd-Frank Webcast

Written by Steve Van Beek

Last Thursday, NCUA finalized a rule to fully insure, until December 31, 2012, noninterest-bearing transaction accounts.  The underlying requirement for this rulemaking comes from Section 343 of Dodd-Frank.  The actual insurance coverage is already effective but NCUA's rule defines "noninterest-bearing transaction account" and requires credit unions to provide notice of the temporary insurance.

Insurance is Separate.  NCUA clarified this unlimited insurance for noninterest-bearing transaction accounts (or nondividend-bearing transaction accounts for FCUs) is separate from, and in addition to, the member's share insurance coverage for other accounts.  NCUA included this example:

"[I]f a member has a $225,000 share certificate and a no-dividend share draft account with a balance of $300,000, both held in a single ownership capacity, he or she would be fully insured for $525,000 (plus dividends accrued on the share certificate), assuming the member has no other single-ownership funds at the same credit union." 

This result occurs because the $225,000 share certificate is insured under NCUA's normal share insurance rules (insured up to $250,000 in total for all individual accounts).  The $300,000 no-dividend share draft account is also fully insured - even though it is an individual account - because the unlimited share insurance for these accounts is separate from, and in addition to, other accounts at the same credit union.  This unlimited coverage for these accounts will expire after December 31, 2012, unless extended by Congress.    

Disclosure and Notice Requirement.  Credit unions that offer noninterest-bearing transaction accounts need to provide a disclosure in the lobby of its main office, in each branch and on their websites.  The language of the notice will be located in 12 C.F.R. 745.14(c)(1).  Until the rule is published in the Federal Register (and subsequently included in the Code of Federal Regulations), you can see the disclosure requirements here (page 15-16).

There is a second notice required if the credit union uses sweep arrangements.  If your credit union offers these types of arrangements, the second notice would need to be provided to any members utilizing those types of products.  Pages 5-6 of the rule describe and define these arrangements.

Update on 05/26:  This second notice would also be triggered if the credit union takes action that changes the account in a way that impacts the share insurance coverage.  An example would be if the credit union started to pay dividends on the account - which would remove the account from the unlimited share insurance coverage because it would no longer be "noninterest-bearing." 

Effective Date.  This rule will become effective 30 days after it is published in the Federal Register.  We will update you with that final date, but credit unions that offer noninterest-bearing transaction accounts should begin to prepare for their disclosures right away.    

***

Shameless plug alert:

Dodd-Frank Webcast.  On June 2, NAFCU will have a webcast highlighting the provisions of Dodd-Frank that will impact credit unions.  Ted Dreyer of Wolters Kluwer will provide an update on implementation of Dodd-Frank regulations and upcoming deadlines.  And, of course, no discussion of Dodd-Frank would be complete without analyzing how the CFPB will impact credit unions.  You can save $100 by signing up by Thursday, May 26.         

NCUA Finalizes Changes to Its Advertising Rules; Dallas

Written by Steve Van Beek

Yesterday, NCUA held their monthly Board meeting.  One of the final rules will impact every credit union.  NCUA finalized an amendment to change its requirements for the "official advertising statement."  In 2008, NCUA amended the "official advertising statement" to allow credit unions three options.

Those three options are:

1. The full text version.  "This credit union is federally insured by the National Credit Union Administration."
2. The short title.  "Federally insured by NCUA."
3. Use of the official NCUA share insurance logo.  

This latest amendment changes when the "official advertisement statement" is required.  

Part 740 - Accuracy of Advertising and Notice of Insured Status

Exemptions.  NCUA had proposed to remove three exemptions to its requirement to disclose the "official advertising statement."  After reviewing the comments, NCUA ended up eliminating one of the exemptions and limiting (rather than removing) the two other exemptions.  

Currently, section 740.5(c) of NCUA's regulations include these three exemptions (among others):

(c) The following advertisements need not include the official advertising statement:

(1) Statements of condition and reports of condition of an insured credit union which are required to be published by state or federal law or regulation;

.................

(8) Advertisements by radio that do not exceed thirty (30) seconds in time;

(9) Advertisements by television, other than display advertisements, that do not exceed thirty (30) seconds in time;"

NCUA completely removed the exemption for "Statements of condition and reports of condition."  After January 1, 2012, these statements need to include the "official advertising statement" in "a prominent position on the front cover of the document or on the first page readers see if there is no cover page."

After reviewing the comments to the proposal, NCUA decided not to completely eliminate the radio and TV exemptions.  Instead, NCUA reduced the exemptions to 15 seconds.  Thus, radio and TV advertisements longer than 15 seconds need to include the "official advertising statement."

Definition of Advertisement.  NCUA also defined the term "advertisement" for the purposes of Part 740.  The finalized definition is:  "(b) Advertisement as used in this part means a commercial message, in any medium, that is designed to attract public attention or patronage to a product or business."  12 C.F.R. 740.1(b).  This definition is identical to the FDIC's definition.  

However, keep in mind that Part 740 relates to member accounts and when the "official advertising statement" is required.  One of the current exemptions (which was not changed in this final rule) indicates that loan advertisements do not fall within the realm of this rule.  

"(c) The following advertisements need not include the official advertising statement:

.......

(12) Advertisements that do not relate to member accounts, including but not limited to advertisements relating to loans by the credit union, safekeeping box business or services, traveler's checks on which the credit union is not primarily liable, and credit life or disability insurance." 

And, this makes sense as these products are not federally-insured.  

Font Size for Print Advertisements.  NCUA's rule also attempted to clarify its requirement that the "official advertising statement" be clearly legible.  The new standard after January 1, 2012 is that the official advertising statement (whether it be the text in the NCUA logo or the "Federally insured by NCUA" text) must be "in a size and print that is clearly legible and may be no smaller than the smallest font size used in other portions of the advertisement...."  

The good news is NCUA did not mandate a font size requirement.  The bad news is the credit union will need to review its advertisements to make sure the "official advertising statement" is not smaller than other language used.

Mandatory Compliance Date.  Compliance with these changes will be required by January 1, 2012.  However, if you want your advertising campaign to be able to extend into 2012 you would need to review your ads for compliance at an earlier date as NCUA declined to "grandfather" existing advertising campaigns.  

The full language of the rule is here.  Cover letter is here.  

Pro Tip:  If you are new to compliance or want to improve your understanding of the rulemaking process, this is a great rule to read.  NCUA does a very good job explaining its proposal, the comments submitted and the rationale for their final decision.    

***

My fiance, my (future) in-laws and I are headed to downtown Dallas for a short 3-day trip.  If you have any must-sees, must-dos or especially must-eats in or around Dallas - don't be shy!  We are open to ideas.  

***

Also, considering it appears to be an early "rivalry week" for Michigan-Ohio State on the blog - I had to share this photo of my soon-to-be Divided House.  

 That photo was obviously taken before last November's meeting. 

Thursday Recap

Posted by Anthony Demangone

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

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

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

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

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

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

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

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

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

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

***

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

Thunderous Thursday; This and That

Posted by Anthony Demangone

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

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

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

***

Here are a few other items of interest...

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

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

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

NCUA Board Meeting Agenda Available; More on Elizabeth Warren

Posted by Anthony Demangone

NCUA has released the agenda for this Thursday's board meeting. This meeting practically overflows with big compliance issues.  Such as...

• NCUA will issue a final rule concerning Fiduciary Duties.  (The rule also addresses merger and conversion issues.)  This rule is a big deal, as it will create federal standards of duty and care. In addition, NCUA may clarify expectations on financial literacy and educational requirements concerning federal credit union boards. 
• A proposed rule regarding insurance coverage for non-interest bearing transaction accounts. 
• A proposal to amend NCUA's "accuracy of advertising and insured status" regulation.  
• There's other stuff as well, so please review the agenda.

More on Elizabeth Warren.  Here are a few additional items regarding Elizabeth Warren. (I keep focusing on news stories where she is quoted, as I find her views important.  She's putting the CFPB together, so her views be stamped into the new agency.)

• Earlier, I noted this article from Kiplinger.But I forgot to highlight a very telling quote from Ms. Warren. Here's the last Q and A from the article:

"What's your advice for Kiplinger's readers while they're waiting for this to happen? Anyone who carries credit-card debt from month to month is in financial trouble. This is not a normal state, nor is it sustainable over time. Not paying off that credit card is always a bad sign, so pay it off. That's my best advice."

Whoah, Nelly! Anyone who carries credit card debt month-to-month is in trouble? Really? I understand that it is sound financial advice for consumers to pay off their credit card debts each month when possible.  But to assume that anyone carrying any balance is in trouble goes a bit far. There is a product that requires consumers to pay off their balance each month.  It is called a charge card.  A credit card is designed to be used, and carrying a balance is a basic option of the product.  This quote makes it seem that Ms. Warren finds credit cards, by their very nature, to be fundamentally bad for consumers. Sort of financial cigarettes, if you will. 

• Elizabeth Warren also participated in a "question and answer" session highlighted by the U.S. Treasury.  There's no way her quotes were taken out of context here, as Treasury itself controlled the content.  I've inserted my snarky commentary as necessary in bold text. 

1) With hundreds of problems in the consumer financial products and services marketplace that the CFPB could chose to focus on, how do you decide where to dive in and begin? What have your top priorities been out of the blocks?

Credit cards are a top priority because they are the most widely held credit product in the country. Four out of five families have a credit card and 50 million American families cannot pay off their credit card debt each month in full.  Man, she hates credit cards. Forget payday lenders, fly-by-night "credit repair companies, and auto-title loan companies.  Credit cards are front and center on her agenda.  

 

Mortgages are the other top priority because they are the single most important financial decision that most families will make. We have learned from recent history that a bad mortgage can not only destabilize an entire family, but that enough of them can destabilize the entire economy.

 

2) You frequently cite streamlining disclosures as a way to level the playing field and give families better tools to make the choices that are best for them.  When will consumers start seeing a difference?

Consumers can already see a difference. Look at what the banks are advertising right now and see how often phrases like “simplicity,” “no tricks” and “clarity” are showing up. The industry recognizes that these consumer credit markets have to change.  Advertising is not always the best measure of progress.  Case in point.   Personally, I think a consumer advocate would do better to look at ads like these. (YouTube.com) Do American consumers rack up debt because of credit cards, or because we've created a national culture of consumption?

 

3) Your first week on the job, you and Secretary Geithner held a mortgage disclosure forum at Treasury and just this week, the CFPB implementation team held a follow up symposium. What have you learned from these sessions?

The current disclosures increase costs for lenders while providing very little benefit for consumers. We've been saying this for years. We want to reverse that and decrease the costs of disclosure while increasing the value to consumers. The way to do that is to make that disclosure clearer and more usable for consumers.  Amen. 

 

4) You’ve spoken a lot about how the consumer credit market is “broken.” How do we know the market isn’t working and what can the CFPB do to fix it?

When a family cannot tell the cost in full of a credit card, when it is not possible to determine the risks of a mortgage in advance, and when people can’t directly compare three or four products– apples to apples – to tell which costs the most and which bears the most risk, then the market is broken.

 

This agency will drive toward making the costs clear, making the risks clear, and making it easy for consumers to compare one product with another. When they can do that, credit markets will work for families.  Keep in mind that many regulators have gone before you with this same task in hand.  The Federal Reserve has spent a good deal of time on consumer issues and consumer testing of financial disclosures.  No matter how much work you throw into this, keep in mind that you'll run into one basic problem: many consumers simply do not attempt to read disclosures.  I agree that some credit card agreements are complex, but the Schumer Box gives consumer more than enough information to compare credit card products.  And to say that the mortgage problems we face today are due to poor disclosures while not talking about broker misrepresentations, predatory lenders, and consumer responsibility is simply not telling the whole story.  

 

5) What roles will personal responsibility and financial education play in the consumer credit market once the CFPB is stood up?

I believe in personal responsibility, but it only works when prices and risks are clear up front and not buried in pages and pages of incomprehensible fine print. But, I also believe in American families. When they have better information they will make good decisions and those good decisions will make families stronger and ultimately will make the entire economy stronger.  I am not aware of any credit union in America that buries the cost of a mortgage or credit card.  They may exist, but I don't deal with them.  The Schumer Box, MDIA, RESPA and Truth in Lending generate a ton of price-related information for consumers.  But consumers have to take responsibility.  It is disappointing that when directly asked about consumer responsibility, Ms. Warren takes another shot at lenders for their alleged sins.

Unlimited Insurance for Non-interest Bearing Accounts; More Regs = More Fees?

Posted by Anthony Demangone

For those of you who read the Dodd-Frank Act closely, you'll remember that it gave the FDIC and NCUA the ability to offer unlimited insurance protection for non-interest bearing transaction accounts through 2012.  The FDIC is about to act on its new power, but NCUA has been silent as to its plans on what it will do.   We've urged NCUA to move quickly on the issue, but there's no official word yet.  Stay tuned. 

***

It seems that Chase is now charging different fees depending on the channel through which it delivers the service.  (NetBanker.) It seems they charge more for certain "in person" transactions now. This shouldn't shock anyone.  With losses to income due to the CARD Act, Regulation E, and other new regulatory burdens, many financial institutions are rethinking how they price products and services.  This is the latest example of what happens when regulation is placed over a free market system.  When it costs more for a business to deliver products and services, they either accept less income, cut costs, raise prices or do a combination of the last two.  People tend to forget that banks and credit unions are businesses. The free market always adapts.

This and That...

Posted by Anthony Demangone

We made it to the weekend, everyone.  Feel free to congratulate yourselves. Given today's regulatory climate, I always celebrate the completion of another work week. (Because each Monday, I usually wonder how I'm ever going to get through everything on my to-do list!)

Here are a few items of note.

• NCUA has released the agenda for its free indirect lending webinar.  Scheduled for November 9, it will cover indirect lending background and statistics, red flags, case studies and lessons, best practices, guidance and references.  If your credit union does indirect lending, you have to watch this thing.  And here's why: this isn't just any old organization making a presentation.  This is the regulator talking about its own rules and expectations.  In addition, the question and answer portion of these NCUA webinars are always fruitful.  You may not like the taste of the fruit, but they are fruitful nonetheless.
• NCUA has issued Letter to Credit Unions 10-CU-22 to highlight and describe its new Merger Partner Registry. If you have questions on how the registry will work and/or how to take advantage of it, this is the document to consult first.
• NCUA has produced a share insurance widget that credit unions may install on their websites, blogs, or other internet-related thingamajobs, which will direct consumers to NCUA's new share insurance campaign. 

Have a great weekend, everyone.  Even you Wildcat fans. 

Internet Rumors; This and That; Das Twins

Posted by Anthony Demangone

A number of members emailed me to ask about a 1% tax on credit union and bank transactions.  There are quite a few emails circulating about the alleged tax, and some credit union members have voiced concerns that it will affect their Social Security checks, deposits, etc.  It certainly is an email that gets your attention.

There's no need to worry. The idea of a 1% tax was put into a bill, but the bill has no cosponsors and is not going anywhere.  Feel free to read more about the issue here, via Snopes.com.  

Let me share with you one of my personal tests.  I call it the "front page" rule.  If you get an email that makes amazing claims about a transaction tax, a tax on emails, or some other shocking thing, ask yourself this question: Have I seen this discussed on the front page of any newspaper?  If the answer is no, then you are likely looking at a hoax.  While email is wonderful, it generally is not the source of breaking news. Especially when forwarded by your Aunt Susie.

***

You Snooze, You Lose.  We have a packed house for the 2010 Regulatory Compliance Seminar in Grapevine, Texas.  Unfortunately, we've had to close registrations for the upcoming conference. 

My Name is Earl.  The hurricane making its way up the East Coast is a good reminder to review NCUA's most recent guidance on hurricanes and disaster preparedness.  It is Letter to Credit Unions 10-CU-10.  If you are in the path of the hurricane, please stay safe.

Share Insurance.  Not all of Dodd-Frank is bad.  The law made the $250,000 share insurance level permanent.  NCUA has issued a final regulation to amend its share insurance and official sign regulations as a result.

Das Twins.  OK, I know many of you only glance at this blog occasionally to look for any new photos of Kate and Briggs.  They are 17 months old now, and they have become experts at:

• Running into any sharp-edged piece of furniture
• Throwing food as far as they can the moment they are done eating
• Knowing when to use a smile to get their way, or a well-timed burst of screaming

Here are some recent shots:



Have a great weekend, everyone.  Even you Youngstown State fans.

I'm Back!; This and That

Posted by Anthony Demangone

Chicago was a great conference, and it reminded me how valuable in-person training events can be.  While presentations can provide a good deal of information, networking with fellow credit union peeps can be even more rewarding.  You see how other credit unions are organized, how they view the world, and how they solve problems.  It is very good stuff.  If you want to read articles about the conference, please scan through the news items at www.nafcu.org.

***

NCUA Board Meeting.  The agenda for this week's board meeting is now available. 

Share insurance.  Not all of Reg Reform was bad.  The share insurance level of $250,000 is now permanent.    You may want to check on how your credit union had been advertising share insurance levels.  Some credit unions advertised it as $250,000, but noted via a disclaimer that the level was only authorized through the end of 2013.  Now that the $250,000 is permanent, such disclaimers are no longer accurate.  

Comparative advertisements.  I've always said that comparative advertisements that say that your credit union or that credit unions in general are better than banks run a bit of a risk.   People will see your ad, and they'll see if they can poke a hole in it.  I'm not saying credit unions should not run such ads.  But they should be aware of the risks involved.  One such ad was run recently, and here was the reaction. 

RESPA's QWR; TCCUSGP Extended; Newsletter Document Updated

Posted by Anthony Demangone

If you have received a qualified written request from a member per RESPA, you probably groaned a bit.  The requests can be intimidating.  On the surface, QWRs appear to require a ton of work, and you often wonder if you are being set up for a lawsuit or some other type of shenanigans. 

Along those lines, I found this article from the American Banker Association's Banker Journal that details steps financial institutions can take to more efficiently handle such requests.  The article provides a general overview of QWRs, and it provides citations and legal explanations that you should find to be useful.  A very good read, indeed.

***

NCUA has extended the expiration date of the Temporary Corporate Credit Union Share Guarantee Program, also known by its easy to remember acronym, TCCUSGP.  Really?  That acronym may be the worst one.  Ever.

***

NAFCU members:  Did you know that we have a master .pdf document that includes all of our newsletters since 1999?   This document is a treasure trove of articles, guidance and "questions and answers."  Note that the information is included as it was originally printed, so some information will be outdated.  That being said, I use the document on a weekly basis. 

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

Editors's note:

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

 

A view from my front window Sunday morning.
 

Posted by Anthony Demangone

Here are a few things worth sharing.

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

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

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

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

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

***

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

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

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

Truth in Savings and ODP: The Periodic Statement; Odds and Ends; Shameless Plug

Posted by Anthony Demangone

Let's discuss NCUA's recent changes to its Truth in Savings rule that affect overdraft protection programs, shall we?  Today, let's focus on the changes to the periodic statement.

• Here's a link to the final rule.
• Remember, it takes effect January 1, 2010.

With the changes, all credit unions with an overdraft protection program must disclose on their periodic statement all ODP fees and NSF fees.  Before, only those credit unions that marketed their ODP programs had to make such disclosures.  The fees must be totaled for the current month and year-to-date.  NCUA provides a model form, B-12, which you can find on p. 3 of the final rule. 

Here are some questions we've received.

Does our disclosure have to look just like the model form?  The requirement is that your disclosure must be substantially similar to their model disclosure.  707.11(a)(3).  Is "substantially similar" defined?  Nope.  During their recent teleconference, the Fed indicated that for their Reg DD, they expect to see some sort of chart or table.  But that's the Fed speaking on their reg. NCUA has not issued any formal clarifying guidance on this issue concerning its Truth in Savings reg.  My two cents?  I understand that many statement vendors indicate that creation of a chart is difficult.  But the further away you get from the model form, the higher your compliance risk on this point.  Do the best you can, and if you can't provide a chart, I'd document why it isn't possible.

The model form shows totals for ODP and NSF fees.  We don't have an overdraft protection program.  But we do charge NSF fees.  Do we need to provide the chart and give monthly totals for NSF fees, even without an ODP program?  That's a good question, which the reg does not really address.  I think it is reasonable to reach the conclusion that you don't need to provide monthly and year-to-date totals for NSF fees if you do not have an ODP program.  Remember - these new requirements are found in section 707.11 of the Truth in Savings regulation.  That section is titled: "Additional requirements for overdraft services."  That being said, let me just throw this out there.  Many credit unions that do not offer overdraft protection programs may, in fact, offer such programs in the eyes of NCUA and the Fed.  If a debit card transaction overdraws the account because the gas station only sent through an authorization for $1, credit unions must clear that transaction.  Do you charge a fee in that situation?  The Fed clearly thinks that is an overdraft fee.  (See Reg E's changes.)  So, I bet the Fed would expect you to show those fees in the ODP portion of the disclosures, even though you probably don't think you have an ODP program.  NCUA has not opined on this issue.  So, take it for what it  is worth: food for thought.

We have a sort of overdraft service where we transfer funds from another share account owned by the member to cover an overdraft.  Or they can apply for a line of credit.  We do charge fees for those transfers.  Are those covered by this regulation?  No.  The reg clearly excludes these types of overdraft programs from its scope. 

We use "combined statements" that group all share accounts owned by the member.  There could be one checking account and 5 other savings/money market accounts on one periodic statement.  Our overdraft program covers all of these accounts.  Can we combine all fees into 1 chart or table?  Or does each account get its own?  Good question.  I wish I had the answer to that one.  The regulation talks about disclosing fees that take place on an account, but it doesn't clearly address what to do when more than one account or subaccount is on each periodic statement.

Editor's note.  The Fed indicated that it will provide updated guidance to address unanswered questions from its most recent tele-conference on concerning ODP.  The tele-conference did address issues regarding Reg DD, so the Fed may weigh in on some of these issues early in 2010 in its Consumer Compliance Outlook newsletter.

***

• NAFCU members, the Book of Answers has been updated.
• NCUA has issue legal opinion letter 09-1067 to clarify share insurance protection for 529 accounts. Here's a snippet from the letter:

  You requested clarification regarding share insurance coverage of qualified tuition savings program accounts (529 accounts). Specifically, you asked whether 529 accounts are insured as public units or as member accounts. Under NCUA share insurance rules, 529 accounts may be insured as public units or, on a pass-through basis, so long as membership and traceability requirements are met.

***

Now for the shameless plug.  NAFCU is offering a special holiday savings opportunity for its 2010 conferences and volunteer/new staff online training program.  If you use the promo code PREHOL when you sign up by 12/31/09, you'll save 10 percent. 

Here's my two cents.  If you know that you or someone else at your credit union is going to attend one of our conferences next year, this will save you money.  The same goes if you were going to purchase our volunteer/new employee online training. If you are going to spend the money, why not take advantage of the discount?   You may want to pass this along to your training coordinator or others who might sign up for conferences.   You can see our conference lineup here.

Editor's note: You don't have to be a NAFCU member to attend or use the promo code.

Share Insurance Protection Extension; HMDA, Getting It Right!

It's official, the $250,000 share insurance protection level has been extended until the end of 2013.  Read NCUA's presser on the development here. (Technically, it was official when President Obama recently signed legislation into law.)  But some folks like to see the NCUA logo on the announcement.   Members, for example.

***

The FFIEC has updated their HMDA, Getting It Right! Manual.  Access it here.  If you want to know what changed, check out this document.  A few thoughts about this manual.

• This manual is an example of good guidance.  It is updated regularly.  It provides visual charts, plain English explanations, the reg itself, and model forms.  If I ever meet the person who decided to create this manual, I'll buy him or her lunch.
• If you deal with HMDA/Reg C - this manual is a must read.  When I get a question about HMDA, it is the first place I look.

Are We Worthy?; Corporate Stabilization; Share Insurance

As compliance officers, we work to make sure our credit unions stay out of hot water to the best of our ability.  But we don't make money for our credit unions.  We don't generate revenue.  Basically, we eat up payroll, and we kill a lot of trees when we print out regulatory proposals.

How much are we worth?  It is hard to answer that question with a hard number.  But I did read something very interesting the other day in an issue of the Corporate Counsel.  Access the article here.  In short, the author tries to determine whether compliance departments failed during the current market turmoil.  Here's a paragraph:

Is there a new appreciation for this (compliance, ethics and risk management) these days? A reality check comes from Vincent Kaminski, who hopes it's true but isn't so sure. Kaminski, who was a risk analyst at Enron Corp. and now teaches at Rice University, says that traders tell him risk management has been "elevated" since the crash. But many risk management departments are "Potemkin villages," he says. "They were set up to fail." The problems he perceives apply to compliance and ethics as well. Companies often marginalize them, and the departments are given responsibility but no authority. And sometimes they go begging for resources. At Enron, Kaminski's group didn't control its own budget so they had to find a corporate sponsor. And that permitted executives to limit their inquiries.

The article gives some "lessons" for compliance/ethics departments based on what has happened in the past few years.   I consider this to be good stuff.  Very, very good stuff.

***

Our lobbyists are pretty good. 

Yesterday, the U.S. Senate passed S. 896, the Helping Families Save Their Homes Act of 2009, by a vote of 91-5.  The legislation does a few pretty major things. 

• It would allow up to eight years to repay National Credit Union Share Insurance Fund (NCUSIF) premiums.
• It would increase the National Credit Union Administration’s (NCUA’s) borrowing authority to $6 billion (with emergency authority to $30 billion)
• It would create a temporary corporate credit union stabilization fund and provide credit unions seven years to pay off the fund. 
• In addition, it would remove the December 31, 2009 sunset for increased deposit insurance coverage of $250,000 and extend it to the end of 2013.

(Whew - did you get all that?) The action now heads to the House.  If you want to read more, NAFCU put together a very nice news story here.

The Hill; Prohibition Orders; Softball

Posted by Anthony Demangone

Wow, was yesterday a big day on Capitol Hill.

First, a movement to give bankruptcy judges the ability to "cram-down" mortgages in certain situations was unsuccessful yesterday.  As you may recall, NAFCU opposed the proposed legislation.  The movement, which was pushed as an amendment to major housing legislation before the U.S. Senate needed 60 votes.  It fell short of 50.  Kudos to NAFCU's team of lobbyists, who worked around the clock the last few weeks. 

The Senate is also looking at giving NCUA additional borrowing authority to deal with the corporate credit union situation, as extending the share insurance increase to $250,000.

Finally, the House passed legislation to provide additional legislative protections to consumers in the area of credit cards.  Much of the legislation is already going to take affect as part of UDAP.  But the legislation would codify those changes, making them much more difficult to roll back.  That now moves to the Senate. 

Rather than hash out all the details, NAFCU Today has done a good job of providing great overviews of what took place.  Read all about it here.

***

NCUA issued prohibition orders on Wednesday.  Read all about them here.  The orders are good wake-up calls for two groups of people:

1. Those who refuse to believe that there are people simply looking to rob your credit union blind; and
2. Those people who think no one is looking for insider abuse.

***

Have a great weekend, everyone!  Mandy and I have a babysitter for Saturday! My goal is to have an adult beverage or two, have a nice dinner, and then fall asleep by 9 p.m.

***

Added by Steve Van Beek

NAFCU Softball Update: The NAFCU Nationals split their games on Thursday night.  The first game was a nail biter with NAFCU losing 11-10.  We rallied in the bottom of the last inning and had the tying run on third base but their centerfielder made a diving catch to end the game.

Game Two was a whole new game with the NAFCU bats catching fire.  The game started with a inside-the-park homerun by Quincy, one of NAFCU's lobbyists, and we never looked back.  Final Score: 23-3 (the good way). 

Share Insurance; Swine Flu, Second Liens

I know that its hard to keep track of everything these days.  Regarding share insurance, the housing bill being consider on the Hill this week contains a provision that would make the share insurance bump to $250,000 permanent.

***

The World Health Organization has raised its influenza pandemic alert to Phase 5 (out of 6).  According to the WHO:

Based on assessment of all available information and following several expert consultations, Dr Margaret Chan, WHO's Director-General raised the current level of influenza pandemic alert from phase 4 to 5. She stated that all countries should immediately activate their pandemic preparedness plans. At this stage, effective and essential measures include heightened surveillance, early detection and treatment of cases, and infection control in all health facilities.

Visit www.pandemicflu.gov, which is a one-stop locale for U.S. government information on pandemic preparations.

***

Here's some details concerning President Obama's plan to help homeowners with second liens.  Program fact sheets are toward the bottom of the page. 

NCUA on YouTube

Posted by Sarah Loats

NCUA's April 2009 Newsletter is available. Nothing earth-shattering here, but it's another resource for recent NCUA information, including a piece on NCUA's Share Insurance advertising campaign, a 5-month video, print, and electronic campaign with Jane Bryant Quinn, a financial journalist, to promote that member accounts in federally insured credit unions are safe and secure.

You can find the share insurance advertisement on YouTube. Sweet.

Proposed Rules. NCUA recently issued three proposed rules. The first proposal would amend NCUA regulations to conform them to NCUA’s new online reporting system, which "modernizes" the way insured credit unions submit reports and other information. NCUA also proposes to exclude CU SIP and CU HARP investments from a credit union’s total assets for operating fee calculation purposes. Finally, NCUA issued proposed amendments to Truth in Savings for electronic disclosures and overdraft fee disclosures to align it with the Federal Reserve’s Regulation DD.

In addition the Federal Reserve recently issued a proposal to amend Regulation Z to implement the Higher Education Opportunity Act of 2008.

The links will take you to NAFCU's Regulatory Alerts (Member log-in required), which summarize the proposed rules for you.

NCUA has released its agenda for its April 21, 2009 Board Meeting.  Looks like there is an ANPR and a Final Rule on the same thing (Part 717, Subpart E, Sections 717.40-717.43, Appendix E of NCUA’s Rules and Regulations, Fair Credit Reporting). Hmmmm... stay tuned.

Here's Your Sign...

Posted by Steve Van Beek

Last month, NCUA issued a final rule on the shared branch insurance sign with a April 3, 2009 effective date.  NAFCU will be issuing its Final Regulation on the shared branch insurance sign later today.  If your credit union does not participate in a shared branch or if your shared branching relationship consists of only federally insured credit unions, the second sign would not be required. 

NAFCU was able to obtain copies of NCUA’s shared branch second sign.  The signs below are for your information but credit unions should wait until NCUA releases the official version of the signs before updating its own signs.

Here is the language for the second sign for teller windows at federally insured credit unions:

The second sign for teller windows at shared branches operated by non-credit union entities looks like this:

Here is a brief summary of the new changes that the Compliance Guy penned:

NCUA approved a final rule to amend regulations (§ 740.4) that requires federally insured credit unions to display the official NCUA sign at every teller station or window where insured funds or deposits are normally received.  The regulation requires tellers accepting share deposits for both federally insured credit unions and non-federally insured credit unions to post a second sign adjacent to the official NCUA insurance sign.  The old rule required this second sign to list each federally insured credit union served by the teller along with a statement that only those credit unions listed were federally insured.  NCUA revised the rule to replace the currently required listing of credit unions.  Instead, credit unions must merely post a statement that not all of the credit unions served by the teller are federally insured and that members should contact their credit union if they need additional information.  The effective date is April 3, 2009.

Enjoy the weekend!

Hill Testimony; NCUA Board Meeting

Posted by Steve Van Beek

Yesterday was a busy day for NCUA.  In the morning, Chairman Fryzel testified before the Senate Banking Committee at a hearing on "Modernizing Bank Supervision and Regulation, Part I."  NCUA issued a press release summarizing Chairman Fryzel's testimony.  Part II of the hearing will be held on March 24, 2009.  The text of Chairman Fryzel's testimony is here.  

In the afternoon, NCUA Executive Director, David Marquis, testified before the Senate Banking Committee at a hearing on "Current Issues in Deposit Insurance."  At the same hearing, Terry West, CEO of Vystar CU testified on behalf of CUNA and David Wright, CEO of Services Center FCU, testified on behalf of NAFCU.

Over in the House, Sheila Albin, Associate General Counsel at NCUA, testified yesterday before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit (say that five times fast...)  The hearing was on two bills - H.R. 627, the Credit Cardholders' Bill of Rights Act of 2009; and H.R. 1456, the Consumer Overdraft Protection Fair Practices Act of 2009.  The witness list and background on the hearing can be found here.  Sheila Albin's s testimony is here. 

***

NCUA also conducted its March Board meeting yesterday afternoon.  The open meeting agenda consisted of four items:

1. Proposed Rule – Parts 741, 748 and 749 of NCUA’s Rules and Regulations, Credit Union Reporting.
2. Proposed Rule – Part 707 of NCUA’s Rules and Regulations, Truth in Savings Act Disclosures.
3. Final Rule – Part 742 of NCUA’s Rules and Regulations, Regulatory Flexibility Program.
4. Insurance Fund Report.

The proposed rule on Credit Union Reporting addresses NCUA's movement toward web-based Call Reports.  For additional information, NCUA has made this presentation available which explains the transition. 

The proposed rule on Truth in Savings, Part 707, will align NCUA's regulations with already finalized Federal Reserve changes to its Truth in Savings (Regulation DD) on electronic disclosures and disclosure of aggregate overdraft fees on periodic statements.  The comment period is 60 days.  In NCUA's words:

SUMMARY: As required by the Truth in Savings Act (TISA), NCUA is proposing to amend its TISA rule and official staff interpretation to align it with the Federal Reserve Board’s Regulation DD. Specifically, the rule would amend the provisions and provide guidance on the electronic delivery of disclosures. Additionally, NCUA is proposing to amend the rule and the official staff commentary to require all credit unions to disclose aggregate overdraft fees on periodic statements; currently, this disclosure requirement only applies to credit unions that promote the payment of overdrafts. The proposed rule also addresses balance disclosures credit unions provide to members through automated systems. 

The final rule on Reg Flex provides additional leeway to Reg Flex FCUs who have acquired unimproved land for future expansion.  The final rule will be effective 30 days after it is published in the Federal Register.  Here is the summary:

SUMMARY: NCUA is amending its Regulatory Flexibility (RegFlex) Program to provide additional flexibility to qualifying federal credit unions (FCUs) when acquiring unimproved land for future expansion. Previously, when an FCU acquired unimproved land for future expansion and did not fully occupy the completed premises within one year, it was required to partially occupy the completed premises within three years or obtain a waiver. This amendment increases the three years to six years for RegFlex FCUs without a waiver. NCUA is also making conforming amendments to its fixed asset rule to be consistent with the RegFlex changes.

Detailed information on the Share Insurance Fund Report can be found here and here. 

The board agenda and materials can be found here.  In addition to the open meeting, NCUA also conducted a closed meeting.

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In case you were wondering.....Yes - the 16 links in one post is a NAFCU Compliance Blog record. 

Have a great weekend everyone!  Enjoy the great college basketball -  Go Blue!

A Little Of This; A Little Of That

Here are some things that were bouncing around in my inbox.  Enjoy:

• What regulation needs another amendment?  That's right, Regulation Z!! Last week, the Fed announced a proposal that would add disclosure and timing requirements for certain private education loans.  The proposal comes from a mandate found in the Higher Education Opportunity Act (HEOA).  (If I were a betting man, I'd predict that this acronym will not catch on.)  HEOA requires the Fed to issue final rules on this by August 14, 2009.  Access additional details here.
• The cram down bill that has passed the House does contain a provision that would make the $250,000 bump in share insurance protection permanent.  But the bill must navigate the Senate and be signed by President Obama before it becomes law.  Stay tuned.
• Tucked into the omnibus appropriations bill that will keep the Federal lights on through the end of fiscal year 2009 is the reauthorization of National Flood Insurance Program.  It is now reauthorized through September 2009.

• You may recall that NCUA issued a final rule to amend insurance signs at shared branches.  We hear that NCUA is still working on finalizing the design of a model sign which will be posted on their website soon.

NCUA Board Meeting Agenda Available; HMDA Regulatory Alert

NCUA has released the agenda for this Thursday's NCUA Board meeting.  You can access it here.

Here's what they are going to cover:

1. Proposed Rule - Section 701.6 of NCUA's Rules and Regulations, Operating Fee Calculation.
2. Final Rule – Section 740.4 of NCUA's Rules and Regulations, Requirements for the Official Sign.
3. Insurance Fund Report.

Materials for the board meeting will be available Thursday morning.

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NCUA has released Regulatory Alert 09-RA-03.  The alert is designed to provide a general overview of HMDA requirements in light of the approaching HMDA filing deadline.  Here's a snippet:

NCUA anticipates every credit union that is required to report 2008 HMDA data will provide a readable transmission file to the FRB by the March 2, 2009 deadline. Following March 2, the FRB will provide a list of delinquent filers to NCUA. Credit unions appearing on this list could become subject to civil money penalty assessments.

NET Activated; TARP and Share Insurance; Shameless Plug

Last Thursday, NCUA activated its National Examination Team.  You may remember this from the NCUA budget meeting.  NCUA indicated that they needed a larger budget to help pay for extra examiners.  This is part of that effort.  Read the NCUA press release about the activation here.   Here's a snippet.

This initiative is in further response to the difficulties caused by declining home values, high mortgage delinquency rates, high foreclosure rates, high unemployment rates, and concentrations of real estate loans that have affected credit unions to varying degrees. Where those factors are present, NCUA will deploy a specialized team of examiners who will concentrate on the most difficult cases.... 

....NET will supervise assigned credit unions until problems are resolved, either returning the credit union to regional supervision or activating merger, conservatorship or closure. 

Additionally, the NET will be responsible for examining and supervising approximately ten credit unions, mainly large and more complex institutions.  The NET also represents an opportunity to expose NCUA examiners to a broad range of credit unions and varying levels of risk, thereby augmenting NCUA’s succession planning objectives.   The NET is comprised of a director, five problem case officers (PCOs) and the equivalent of one loss risk analysis officer (LRAO). In addition, regional subject matter examiners (SMEs) will be detailed to NET on an as needed basis.

NCUA didn't list the credit unions who will be examined and supervised by the NET.  My guess is this: if yours is on that list, you probably knew it by now.

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Representative Barney Frank (D-MA) has introduced legislation to amend the TARP provision of Emergency Economic Stabilization Act of 2008.  Read Representative Frank's press release here.  From the release, you'll be able to view the actual legislation.  But here's an interesting portion:

Title VII - Permanent Increase in FDIC and NCUA Deposit Insurance Limits

Makes permanent the increase in deposit insurance coverage for banks and credit unions to $250,000, which was enacted temporarily as part of the Emergency Economic Stabilization Act and is scheduled to sunset on December 31, 2009, and includes an inflation adjustment provision for future coverage.

Again, this is just legislation, but you can see that Rep. Frank has already taken steps to make permanent the increase in share insurance protection that took place last year. 

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Now, for the shameless plug.  (First, I hope you don't mind these.  I figure that you read this blog because compliance issues are important to you and your credit union.  NAFCU offers many compliance related products and services, so I want to alert you to something when I think it can help.)

With that in mind, I wanted to alert you to the NAFCU webcast annual subscription.  For one fee, you can watch all our webcasts.  What do we have lined up? Here are the webcasts that we currently have planned.  

• Surviving the Real Estate Crisis: Maximizing Recovery for Delinquent Loans;
• Real Estate Settlement Overhaul: Complying with RESPA Reform;
• Reg Z and UDAP: An Overview of Changes Coming for 2010;
• Complying with UDAP and Reg Z: How the Changes Will Impact Your Credit Card Programs;   
• Applications and Solicitations: Complying with New Disclosure Rules - Reg Z Final Rule Part 1;
• Account Opening Disclosures Changes from A to Z - Reg. Z Final Rule Part 2;
• Periodic Statements and Changing Terms: Complying with Additional Disclosures - Reg Z Final Rule Part 3; and 
• New Advertising Rules: How They Will Impact Your Marketing Programs  - Reg Z Final Rule Part 4.

Go here for additional details. (Pricing is $2,500 for NAFCU members, and $3,500 for nonmember credit unions.)

FDIC Insurance and stored value cards

The FDIC recently issued a general counsel's opinion to indicate that...

Under the new (general counsel opinion), all funds underlying stored value products will be treated as ‘‘deposits’’ if they have been placed at an insured depository institution. As a result, all such funds will be subject to FDIC assessments. Also, all such funds will be insured up to the insurance limit. Whether the funds are insurable to the holders of the access mechanisms, as opposed to the distributor of the access mechanisms, will depend upon the satisfaction of the FDIC’s standard requirements for obtaining ‘‘pass-through’’ insurance coverage.

Access the opinion here.  Access a NAFCU Today article here.  Why do I mention this? The FDIC and NCUSIF are very similar in structure.  While NCUA has not indicated that it will follow suit, it very well could.  If that were to happen, how would that affect your NSUSIF assessment?  Keep an eye out on this one.