NAFCU Compliance Blog

Strengthening Your “Privileged Access” Procedures

Written by JiJi Bahhur, Director of Regulatory Compliance

With all the hype on cyber and data security, it would be appropriate to point out that it’s not always external threats we need to be wary of.  Internally, the credit union needs to be aware of and take appropriate steps to ensure that sound practices are in place for managing and monitoring privileged access to data and systems. 

In its August 2015 issue of the NCUA Report, NCUA defines privileged users and systems as “those with credentials that provide them with significant or unrestricted access to a credit union’s applications, systems and technologies.”  The article, What to Consider When Reviewing Privileged Access, goes on to state, “While this [privileged access] is necessary for the implementation, maintenance and operation of some of a credit union’s most vital systems, these people and systems also represent a significant risk.  These users have the potential to cause enormous damage if they act maliciously or inappropriately.” 

The short article goes on to provide key considerations that should be addressed during a credit union’s review of privileged access and users, which should occur, according to NCUA, at least annually.  The four key considerations discussed in the article include:

• Do our users need the level of access they currently have?
• Have we segregated sensitive systems and data stores into secure enclaves?
• Do we have effective oversight of privileged access?
• How can we make active monitoring part of our culture?

I’ll let you read the article to get more details on those four particular points, but I would like to take a moment to point you to other sources of information on how to strengthen your privileged access procedures, which in turn will assist with minimizing risks from the inside. 

FFIEC IT Examination Handbook

The Federal Financial Institutions Examination Council’s (FFIEC) IT Examination Handbook is a great resource for determining the types of internal controls that will strengthen your privileged access procedures.  Specifically, take a look at the Information Security Booklet.  Within the Information Security Booklet’s subsections, you will find good practices for controlling privileged access; information on restricting and monitoring privileged access; the importance of activity monitoring; and examination procedures that may help your credit union determine the effectiveness of your current processes. 

IT Aires Questionnaire

Credit unions may also find NCUA’s AIRES IT Exam Questionnaire useful when determining whether they have strong procedures in place for dealing with privileged access.  The questionnaires consist of a checklist of questions that examiners use when determining whether the credit union is in compliance or has a strong program in place to address risks. 

Actively managing privileged access by taking the steps addressed – in both the above-mentioned resources and article – can assist in reducing unauthorized access of critical systems. 

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Time Flies.  My little buds are growing up so fast – they turned 3 just last week!  “Time flies, but memories last forever” . . . thanks to cameras!  And a big thanks to you all for sharing in on those memories with me! 

 

Usage of Integrated Disclosures for Transactions Not Covered by TILA/RESPA Rule; Cookie Break

Written by JiJi Bahhur, Director of Regulatory Compliance

NAFCU continues to receive TILA/RESPA Integrated Mortgage Disclosures questions from its members.  As someone who has been digging through this rule for over a year, I must say these questions are not easy, especially since the questions become even more nitty gritty as the effective date, August 1, becomes nearer.  Recently, a TILA/RESPA question was posed at a compliance roundtable that NAFCU attended.  When the question was posed, I said to myself that it sounded awfully familiar . . . maybe something I recently read . . . and I was right. 

The question was as follows: Is it permissible to use the TILA/RESPA disclosures instead of the currently-required Good Faith Estimate (GFE) and HUD-1 disclosures for those loans that are not under the scope of the TILA/RESPA rule?  If so, this would prevent some credit unions from having to utilize two parallel systems.

The Short:  No.  Creditors originating transactions that are not covered under the TILA/RESPA rule must continue to use, as applicable, the GFE, HUD-1, and TIL disclosures required under current law.

The Long: While the TILA/RESPA rule applies to most mortgage loan transactions, there are certain categories of loans that are excluded from the rule. The TILA/RESPA rule does not apply to:

• Home-equity lines of credit (HELOCs);
• Reverse mortgages;
• Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling that is not attached to real property; and
• Mortgage loans made by a person or entity that is not a “creditor” under Regulation Z. 

For transactions not covered under the TILA/RESPA rule, as listed above, creditors originating these types of mortgages must continue to use, as applicable, the GFE, HUD-1, and TIL disclosures required under current law.  In other words, creditors cannot use the new integrated disclosure forms instead of the GFE, HUD-1, and TIL forms for non-covered transactions, thus requiring the use of two systems/platforms to generate applicable forms. 

Now, the bigger question (at least for me): Why did the original question sound familiar?  That’s right, the CFPB’s Small Entity Compliance Guide briefly makes mention of it.  From the Compliance Guide:

“4.2 What are the disclosure obligations for transactions not covered by the TILA-RESPA rule, like HELOCs and reverse mortgages?

The new Integrated Disclosures will not be used to disclose information about reverse mortgages, HELOCs, chattel-dwelling loans, or other transactions not covered by the TILA-RESPA rule. Creditors originating these types of mortgages must continue to use, as applicable, the GFE, HUD-1, and Truth-in-Lending disclosures required under current law.”

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Cookie Break.  Imagine this – a family with over a dozen sets of twins, three sets of which are 8 to 10 months apart in age and live within a 2-block radius of each other.  Yep, no imagination needed here – that’s my family.  And this is what a cookie break looks like on a warm Saturday afternoon after tons of running around the yard! 

If you don’t normally follow my blogs, my twins – Ava and Kyse – are, from left to right, third and fifth on the bench.

 

Friday Treat: Unofficial Transcripts of CFPB’s TILA/RESPA Webinars; Bubbles

Written by JiJi Bahhur, Director of Regulatory Compliance

As credit unions dig further into the TILA/RESPA Integrated Mortgage Disclosures rule, it is becoming more apparent that the rule itself and other CFPB-issued guidance does not address, clearly, some of the more nitty gritty issues that are surfacing.  In fact, NAFCU has been receiving a number of these questions – and I tell you – they are not easy to research and the answers are not all clear. 

Today, I won’t bog you down with difficult-to-comprehend information – after all, it is Friday!  Instead, I’d like to make you aware of another great TILA/RESPA resource that I recently stumbled upon.  As some of you know, over the last year, the CFPB and Federal Reserve Board have been co-hosting webinars that address questions about the TILA/RESPA Integrated Mortgage Disclosures rule.  Currently, four (4) of these co-hosted webinars exist and provide another avenue of guidance – oral guidance – from the CFPB on the TILA/RESPA rule.  Ideally, it would be nice if the CFPB transcribed these webinars, thus providing easily accessible, written guidance, but the CFPB has no plans of doing so (at least that I know of). 

But don’t fret!  During one of my recent TILA/RESPA searches online, I found a treasure!  BuckleySandler LLP, a leading consulting and law firm serving the financial services industry, has transcribed and made available publicly, the last three co-hosted webinars.  From BuckleySandler’s TRID Resource Page:

Webinars and Transcripts

• November 18, 2014: During this session, the Bureau addressed frequently asked questions relating to the Closing Disclosure. Our unofficial transcript is available here, and the recording is available here.

• October 1, 2014: During this session, the Bureau addressed frequently asked questions relating to the Loan Estimate. Our unofficial transcript is available here, and the recording is available here.

• August 26, 2014: During this session, the Bureau addressed frequently asked questions regarding the operational      requirements of the rule. Our unofficial transcript is available here, and the recording is available here.

• June 17, 2014: During this session, the CFPB provided a high-level overview of the rule. BuckleySandler did      not transcribe this webinar, but the recording is available here.

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Bubbles.  Kyse and Ava love bubbles.  I’m pretty sure I love bubbles even more because it keeps my kids entertained on the weekend.  Last weekend, we spent Saturday and Sunday blowing bubbles, riding bikes/cars, and playing with the neighbor kids. 

I look forward to this weekend’s adventures!  Have a great weekend, all! 

TILA-RESPA: Disclosing “No Cost” Loan Transaction on Loan Estimate and Closing Disclosure; Sibling Love?

Written by JiJi Bahhur, Director of Regulatory Compliance

With the effective date soon approaching, NAFCU continues to receive a number of questions from its members on the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Mortgage Disclosure rule.  Today, I’d like to tackle the treatment of “no cost” loan disclosures under the TILA-RESPA rule.  Let’s take a look at it from the Loan Estimate standpoint and then the Closing Disclosure.

[Note: hyperlinked references to “final rule” will direct you to Federal Register /Vol. 78, No. 251 /Tuesday, December 31, 2013 /Rules and Regulations 79825].

Question: Are credit unions required to disclose “no cost” loan transactions on the Loan Estimate form?

Answer: Yes. Credit unions are required to disclose “no cost” loan transactions on the Loan Estimate form.

According to the Preamble of the TILA-RESPA final rule, the CFPB “does not believe that it would be appropriate to exempt “no cost” loans from § 1026.19(e)(3)(i); therefore, “no cost” loans must still comply with the current limitations on settlement charge increases in Regulation X.  See, Final Rule, Page 350.  Section 1026.19(e)(3)(i) applies to all costs “imposed on the consumer,” even ones that may not be paid by the consumer.  The closing costs in “no cost” loan transactions qualify as costs imposed on the consumer – under § 1026.19(e)(3)(i) – even though the costs are not paid by the member or financed by the creditor. See, Final Rule, Page 350. The costs paid by creditors on a member’s behalf in “no cost” loan transactions must, therefore, be disclosed under the “Closing Cost Details,” “Loan Costs,” or “Other Costs” sections of the Loan Estimate form as applicable.

This standard applies to all loans for which closing costs are offset by credit or rebate provided by the creditor, regardless of whether all or just a portion of the closing costs are being offset. See, Final Rule, Page 1803. Under such circumstances, the creditor must disclose the credit or rebate as lender credit, using a negative number, with the label “Lender Credits” under the subheading “Total Closing Costs.” See, 12 CFR § 1026.37(g)(6)(i)-(ii). However, “any credit disclosed should be sufficient to cover the total amount of closing costs” that the credit union represented to the member is covered by the Lender Credit under the loan terms. See, Final Rule, Page 864.

 

Question: Are credit unions required to disclose “no cost” loan transactions on the Closing Disclosure form?

Answer: Yes. Credit unions are required to disclose “no cost” loan transactions on the Closing Disclosure form.

Both generalized and specific credits that a credit union provides for closing costs must be disclosed. Generalized credit provided for closing costs must be disclosed as a negative number under “Lender Credits” and designated as borrower-paid at closing. See, 12 CFR § 1026.38(h)(3). Specific credits attributable to a particular loan cost or other cost, such as the fees that the credit union currently pays, must be listed in the “Paid by Others” column in the “Closing Cost Details” table under § 1026.38(f) or (g). See, Final Rule, Page 1843.

For a description of lender credits from the creditor, see comment 17(c)(1)-19. For a discussion of general lender credits and lender credits for specific charges, see comment 19(e)(3)(i)-5.

Like much of the TILA-RESPA Integrated Mortgage Disclosure rule, how to address “no cost” loans is highly technical, but there is helpful clarification in the commentary. Where even the commentary is difficult to apply, sometimes the explanations in the Preamble to the rule, while not binding, can provide further explanation—but the Preamble is long, so searching key terms helps.

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Sibling Love? It's Wednesday - that time of the week when some people can use a funny story or a bit of fresh air to get them to Friday.  So today, I share this with you. 

These twins appear to be loving and easy-going but I assure you that Kyse and Ava are like any other brother and sister - they love to annoy each other!  Don't let the photo fool you!  Ava is actually crying her eyes out because Kyse invited himself as a passenger and the last thing she wanted to do was share! 

Happy Wednesday! 

“Other” Situations that May Trigger the Need for a Corrected Closing Disclosure; Join Us for NAFCU’s Member Call-In

Written by JiJi Bahhur, Director of Regulatory Compliance

In a recent blog post, I discussed pre-consummation changes that would require the credit union to issue a corrected Closing Disclosure to the consumer.  Today, as part of our continued TILA/RESPA blog series, I’d like to now focus on the “other” situations that can trigger the need for a corrected Closing Disclosure. 

Post-Consummation Events

During the 30-day period following consummation, if an event in connection with the settlement of the transaction occurs that causes the disclosures to become inaccurate and results in a change to an amount paid by the consumer, the creditor will be required to provide a corrected Closing Disclosure. In this situation, the creditor must deliver or place in the mail a corrected Closing Disclosure not later than 30 days after receiving information sufficient to establish that such an event has occurred.

Clerical Errors

Clerical errors are also subject to re-disclosure under section 1026.19(f)(2)(iv). Comment 1 to section 1026.19(f)(2)(iv) clarifies that an error is considered clerical "if it does not affect a numeric disclosure and does not affect requirements imposed by § 1026.19(e) or (f)." The commentary also provides a couple of illustrative examples:

"For example, if the disclosure identifies the incorrect settlement service provider as the recipient of a payment, then §1026.19(f)(2)(iv) requires the creditor to deliver or place in the mail corrected disclosures reflecting the corrected non-numeric disclosure no later than 60 days after consummation. However, if, for example, the disclosure lists the wrong property address, which affects the delivery requirement imposed by §1026.19(e) or (f), the error would not be considered clerical."

To correct non-numeric clerical errors, a creditor must deliver or place in the mail a corrected Closing Disclosure no later than 60 days after consummation.

Refunds to Cure Tolerance Violations

Finally, if a creditor provides a consumer with a refund to cure a tolerance violation in connection with the good faith analysis of the estimated closing costs, the creditor must deliver or place in the mail a corrected Closing Disclosure that reflects the refund no later than 60 days after consummation.

Stay tuned!  NAFCU’s TILA/RESPA blog series will continue to break-down sections of the rule over the next several months.

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Join Us for NAFCU’s Member-Only Call.

Please join NAFCU’s CEO Dan Berger, Senior Vice President of Government Affairs and General Counsel Carrie Hunt, and other Senior Staff, on Wednesday, March 18, at 4:00 p.m. Eastern for our first legislative and regulatory briefing of 2015. We'll discuss what’s ahead in the credit union industry and provide an outlook for the economy and more.

Participation is free for all members, but you must register to attend. If you need assistance registering for the call, please contact NAFCU’s Member Service Center at 800-344-5580 or [email protected].

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Happy Friday!

TGIF.  I thought I'd close out the week with a picture of my smiling twins!  They turned two-and-a-half this week.  Wow, how time flies!

 

Holiday News from the NCUA; Programming Note; Speaking of Holidays

Written by JiJi Bahhur, Director of Regulatory Compliance

With 2014 coming to an end, I thought I'd put on your radar some of the more recent items released by the National Credit Union Administration (NCUA) during this very busy holiday season.

MSB Exam Guidance from the NCUA.  For sake of not bogging you down on New Year’s Eve, I won’t be covering this guidance in any detail here (but we’ll be sure to do so in a very near future blog post).  What I do want to do is put it on your radar in case you missed it during the busy holiday season.

Just briefly, what is this guidance?  NCUA released Letter to Credit Unions 14-CU-10 (“letter”) to provide guidance to credit unions that provide or intend to provide account services to a money service business (MSB).  In the letter, it discusses what an MSB is, the potential risks posed by MSBs, and how a credit union can mitigate those risks.  Moreover, the letter advises credit unions to review the enclosed examiner guidance – Supervisory Letter No. 14-05 – because NCUA’s field staff have been provided this examiner guidance and will use it to evaluate credit unions that provide account services to MSBs.   

First 2015 Grant Round for Low-Income CUs.  With an application period between February 2 and March 3, 2015, NCUA is inviting applications for low-income credit unions interested in providing staff training or hiring interns through use of funds from the Community Development Revolving Loan Fund.  NCUA has stated that it will provide at least $360,000 in funding during this first grant round in 2015, which will cover more than 100 requests from low-income credit unions for internships or staff or volunteer training programs.  If you are designated as a low-income credit union, check out the NCUA’s announcement here for more information and how to apply.  

Latest Videos from the NCUA.  In the last couple of weeks, the NCUA has made available the following videos:

• NCUA Assessment Update - Stabilization Fund –posted on December 16^th, the video is based on information presented at the July 2014 NCUA open Board meeting. 
• New Economic Update Video – posted on December 23^rd, this video covers the latest economic activity, the 2015 economic outlook and the performance of federally insured credit unions during the third quarter.
• New NCUA Video Outlining Field of Membership Options and Strategies – posted on December 29^th, the video provides an overview of the various field of membership types available to federal credit unions and briefly identifies expansion and conversion opportunities available for each field of membership type.

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Programming Note.  NAFCU’s offices will close today at noon for the New Year and will reopen on Monday, January 5.  Happy New Year to you all! We’ll be back to blogging on Monday.

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Speaking of the holidays – my two-year old twins, Kyse and Ava, had a blast opening presents and going from house to house visiting family.  Some photos from the festivities:

Happy New Year to you all! 

FFIEC Releases Cybersecurity Best Practices; Free Webcast on Emerging Payments Technologies; Thing 1 and Thing 2

Written by JiJi Bahhur, Director of Regulatory Compliance

FFIEC Cybersecurity Best Practices. Earlier this week, the Federal Financial Institutions Examination Council (FFIEC) released observations from a recent cybersecurity assessment.  The “FFIEC Cybersecurity Assessment General Observations” suggests best practices to consider when assessing institutions’ cybersecurity preparedness. 

Divided into two main categories, the first part of the assessment discusses cybersecurity inherent risk, defining it as “the amount of risk posed by a financial institution’s activities and connections, notwithstanding risk-mitigating controls in place.”  Some questions to consider when assessing the level of cybersecurity inherent risk within the institution include:

• What types of connections (e.g., virtual private networks, wireless networks, telnet, etc.) does my financial institution have?
• How are we managing these connections in light of the rapidly evolving threat and vulnerability landscape?
• Do we need all of our connections?  Would reducing the types and frequency of connections improve our risk management?
• How do we evaluate evolving cyber threats and vulnerabilities in our risk assessment process for the technologies we use and the products and services we offer?
• How do our connections, products and services offered, and technologies used collectively affect our financial institution’s overall inherent cybersecurity risk?

The second part of the assessment reviews financial institutions’ current practices and overall preparedness, focusing on:

• Risk management and oversight;
• Threat intelligence and collaboration;
• Cybersecurity controls;
• External dependency management; and
• Cyber incident management and resilience.

As part of the assessment, the FFIEC also recommended that regulated financial institutions, including credit unions, participate in the Financial Services Information Sharing and Analysis Center (FS-ISAC) as part of their process to identify, respond to, and mitigate cybersecurity threats and vulnerabilities.  The FS-ISAC is a non-profit, information-sharing forum established by financial services industry participants to facilitate the public and private sectors’ sharing of physical and cybersecurity threat and vulnerability information.    

And last, as a result of the assessment, the FFIEC mentions in its assessment that it is reviewing and updating current guidance to align with changing cybersecurity risk.  To see the assessment in its entirety, including other questions to consider when managing cybersecurity at your credit union, click here. 

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Free Webcast. Digital Commerce: The Future is Here!

Emerging payments technologies such as Apple Pay can level the playing field with your biggest competitors. Stay relevant in the face of dynamic change; attend this webcast to learn how different payments options work and how to best implement them in your credit union. MasterCard’s Vice President of Emerging Payment Solutions, Rita Ramirez will provide you with the information you need to begin taking advantage of the exciting new changes in payments technologies. Free for NAFCU members and nonmembers!

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Thing 1 and Thing 2.  This year for Halloween, I decided to be creative and make my kids’ wigs from scratch for their Halloween costumes.  I’d say I did pretty darn well!  Toot, toot! 

 

CFPB Finalizes the Privacy Notices Rule; Seminar 2014 Wrap and Group Photo; Fall Fun with the Fam

Written by JiJi Bahhur, Director of Regulatory Compliance

On Monday, the CFPB announced that it finalized the privacy notices rule with the intent to promote more effective privacy disclosures from financial institutions to their customers/members.  So now the answer to the burning question that so many credit unions have been asking: Does the credit union still need to send annual privacy notices to its members? 

Short Answer

Yes, the credit union still needs to send annual privacy notices to its members; however, the CFPB’s final rule allows a credit union to post this annual privacy notice online instead of sending it out individually to members IF certain conditions are met.  

Long(er) Answer

Under the CFPB’s privacy notices final rule, credit unions will be able to post annual privacy notices online instead of distributing an annual paper copy to each individual member, if the credit union satisfies the following conditions:

1. The credit union does not share its members’  nonpublic personal information with nonaffiliated third parties in a manner that triggers Gramm-Leach Bliley Act (GLBA) opt-out rights;
2. The credit union does not include on its annual privacy notice information about certain consumer opt-out rights under section 603 of the Fair Credit Reporting Act (FCRA);
3. The credit union’s annual privacy notice is not the only notice provided to satisfy the requirements of section 624 of the FCRA;
4. The information included in the privacy notice has not changed since the member received the previous notice; and
5. The credit union uses the model form provided in GLBA’s implementing Regulation P.

Credit unions that meet the conditions above and that choose to rely on this new method of delivering privacy notices are also required to:

1. Convey at least annually on a regular consumer communication, such as a monthly billing statement, that the credit union’s privacy notice is available on its website and in paper and will be mailed upon request made to the provided toll-free number. This notice or disclosure would have to also include a specific web address that takes the member directly to the privacy notice;
2. Post the credit union’s current privacy notice continuously on a page of its website that contains only the privacy notice, without requiring a login or any conditions to access the page; and
3. Promptly mail (within 10 days) the credit union’s current privacy notice to consumers who request it by telephone.

If the credit union does not meet the conditions above or chooses not to use the new disclosures method, it will need to continue to deliver annual privacy notices to its members using other delivery methods. 

This blog won’t address some of the nitty gritties within each of the conditions above, but I do want to make a few quick mentions:

• While this final rule constitutes an important step to achieving improved annual privacy notice requirements, it is only available to those credit unions that do not share information with nonaffiliated third parties outside of the Regulation P exceptions [Ed. 10/23] .  In other words, credit unions that do share information with nonaffiliated third parties cannot take advantage of this final rule.

• NAFCU has long advocated for the elimination of duplicative and costly annual privacy notices.  In its comment letter, NAFCU noted that CFPB should not require credit unions to continuously post their privacy notices on their websites.  NAFCU argued that this “continuously” verbiage would effectively require that credit unions’ website remain functional at all times.  In the preamble to the final rule, the CFPB discussed NAFCU’s concerns and emphasized that this requirement “assumes that financial institutions will post the privacy notice on their websites so that the notice is available but for occasional or unavoidable interruptions, such as routine maintenance or unexpected malfunctions.”   In other words, the credit union will not violate this requirement if its website temporarily malfunctions.

The final rule is available in its entirety here.  NAFCU’s Regulatory Affairs team is working on a summary of the final rule, which when available, will be located here.  Also, NAFCU’s compliance team intends to address this final rule in more depth in near future publications. 

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Seminar 2014 Wrap and Group Photo.  Last week, NAFCU held its 2014 Regulatory Compliance Seminar.  The program contained 4 days of the hottest credit union compliance topics, great speakers, and an amazing group of attendees.  Below, I’ve shared a group photo taken during the event.

If you’re interested in attending Seminar next year, check out some of the details here.

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Fall Fun with the Fam.  I had to sneak this in.  It’s not often that I can get the entire family to look at the camera at the same time!

CFPB Updates and Adds to its TILA-RESPA Resources; Must-See TILA-RESPA Webcast; It’s Been a While

Written by JiJi Bahhur, Director of Regulatory Compliance

There’s nothing better than a quick, but solid burst of information on a lovely Friday (okay, that’s a stretch . . . but hopefully an attention-grabber for those of you who are eagerly awaiting the weekend to begin). 

Earlier this week, the Consumer Financial Protection Bureau (CFPB) updated both its Small Entity Guide for the Truth-in-Lending Act / Real Estate Settlement Procedures ACT (TILA-RESPA) Integrated Disclosure Rule and its Guide to Forms.  Prior to this September 2014 update, the last editions were published in March 2014 and April 2014, respectively. 

New to its available resources, the CFPB also released a timeline to assist with understanding the time requirements under the TILA-RESPA rule.  If you’ve been following NAFCU’s TILA-RESPA blog series, you’ve seen that there are a number of different timeframes that creditors, such as credit unions, need to be aware of.  The CFPB’s timeline shows how to apply the process and timing requirements under the TILA-RESPA rule for a specific real estate purchase transaction.

Just a friendly reminder, the TILA-RESPA rule goes into effect on August 1, 2015.  It seems like a ways away, but there is plenty that credit unions can be doing right now towards implementation (sounds like an opener for a near future blog)! 

For past blogs on this rule, take a look here.

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Webcast: TILA-RESPA: Difficult Issues and Their Solutions

Don’t wait until the last second. At almost 2,000 pages long, start preparing now to meet the requirements of the new TILA-RESPA Integrated Disclosure Rule. This vital webcast will give you a better understanding of the new rule and how your credit union will need to respond to it. This is one of the most important issues your credit union may face in the coming months — but we’ll offer solutions to help you and your colleagues sleep at night.

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It's Been a While.  Okay, it’s been a while but I’ve finally been able to glance through some recent photos of the kiddies.  Now two years old, here are a couple recent photos of my twins, Kyse and Ava.

 



Happy Friday to you all, and have a great weekend!

TILA-RESPA Integrated Mortgage Disclosure Rule: The Loan Estimate Disclosure – Timing and Delivery

Written by JiJi Bahhur, Director of Regulatory Compliance

In the last TILA-RESPA blog posting, we covered the general requirements for the new Loan Estimate.  Today, I’d like to highlight the when and how the Loan Estimate should be delivered. 

General Timing Requirements:

For purposes of the Loan Estimate, there are two timeframes that the creditor should be aware of.  First, the Loan Estimate must be delivered or placed in the mail to the consumer no later than the third business day after the creditor receives the consumer’s application for a mortgage loan.

Since delivery of the Loan Estimate form is triggered by receipt of application, it is important to note the definition of application under the TILA-RESPA Integrated Mortgage Disclosures rule. The final rule defines an application to mean the submission of a consumer’s financial information for purposes of obtaining an extension of credit. Specifically, the revised definition removes the seventh “catch-all” element – “any other information deemed necessary by the loan originator” – from the current definition of application under Regulation X and consists of the following six pieces of information:

• The consumer’s name;
• The consumer’s income;
• The consumer’s social security number to obtain a credit report;
• The property address;
• An estimate of the value of the property; and
• The mortgage loan amount sought.

Second, the creditor must deliver or place the Loan Disclosure in the mail not later than the seventh business day before consummation of the transaction.

The term “business day” has two different meanings for purposes of the Loan Estimate. For purposes of providing the Loan Estimate within three business days from application, the definition of “business day” is “a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.” For many credit unions, this will not include Saturdays. When calculating whether the Loan Estimate is provided at least seven business days before consummation, the term “business day” means “all calendar days except Sundays and the legal public holidays.” Unlike the first definition of “business day,” the latter definition includes Saturday as a business day.

Delivery Methods and Receipt: 

The creditor is responsible for ensuring that the Loan Estimate is received by the consumer in accordance with the timing requirements discussed above. New sections 1026.19(e)(1)(iii)-(iv) provide that if the creditor delivers the Loan Estimate to the consumer in person, it is considered received by the consumer on the day that it is provided.  If the creditor uses another method of delivery other than in-person delivery, the consumer is considered to have received the Loan Estimate three business days after it is delivered or placed in the mail.

In instances where a mortgage broker relationship is utilized, the mortgage broker may provide the Loan Estimate to the consumer on the creditor’s behalf, but it is the creditor’s responsibility to ensure that the content, delivery and timing requirements under the final rule are met.

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The next TILA-RESPA posting will discuss the good faith requirement and how it applies to the tolerance limitations prescribed by the TILA-RESPA rule.

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To all, I wish you a lovely weekend.  I intend to spend a ton of quality time with my buds this weekend since I take off for Annual Conference (AC) on Monday.  Stay cool, and if you're attending AC, come say hi!

 

TILA-RESPA Integrated Mortgage Disclosures Rule: The Loan Estimate Disclosure – General Requirements; Programming Note; What Are You Reading?

Written by JiJi Bahhur, Director of Regulatory Compliance

As part of the TILA-RESPA blog series, I’d like to take a look at the general requirements applicable to the Loan Estimate Disclosure today. 

The Loan Estimate form, a three-page document, integrates and replaces the existing RESPA Good Faith Estimate (GFE) and the initial Truth in Lending (TIL) disclosure. The general requirements, located in new sections 1026.19(e) and 1026.37, are summarized in the CFPB’s TILA-RESPA Small Entity Guide as follows:

• “Loan Estimate must contain a good faith estimate of credit costs and transaction terms. If any information necessary for an accurate disclosure is unknown, the creditor must make the disclosure based on the best information reasonably available at the time the disclosure is provided to the consumer, and use due diligence in obtaining the information. (§ 1026.19(e)(1)(i); Comment 19(e)(1)(i)-1)
• Loan Estimate must be in writing and contain the information prescribed in § 1026.37. The creditor must disclose only the specific information set forth in § 1026.37(a) through (n), as shown in the Bureau’s form in appendix H-24. (§ 1026.37(o))
• Delivery must satisfy the timing and method of delivery requirements. The creditor is responsible for delivering the Loan Estimate or placing it in the mail no later than the third business day after receiving the application. (§ 1026.19(e)(1)(iii))
• Creditors may only use revised or corrected Loan Estimates when specific requirements are met. Creditors generally may not issue revisions to Loan Estimates because they later discover technical errors, miscalculations, or underestimations of charges. Creditors are permitted to issue revised Loan Estimates only in certain situations such as when changed circumstances result in increased charges. (§ 1026.19(e)3)(iv))
• In certain situations, mortgage brokers may provide a Loan Estimate. As discussed in more detail in section 6.2 below, if a mortgage broker receives a consumer’s application, either the creditor or the      mortgage broker may provide the Loan Estimate. (§ 1026.19(e)(1)(ii))”

The new Appendix H to Part 1026 contains model forms, including multiple variations of each page of the Loan Estimate. The standard form, H-24, must be utilized for all loans subject to the TILA-RESPA rule that are federally related mortgage loans.  For loans that are not federally related mortgage loans but that are subject to the TILA-RESPA rule, creditors are not strictly required to use the H-24 form; however, the disclosure used by the creditor must contain the exact same information and be made with headings, content and format substantially similar to that form.

For a page-by-page overview of the Loan Estimate, the CFPB has provided a couple of resources that may be beneficial to a credit union. First, the CFPB’s TILA-RESPA Small Entity Guide provides page-by-page visuals of the form with general information describing what creditors are required to disclose. For further guidance, the CFPB has provided the TILA-RESPA Guide to Forms, which provides detailed, illustrated instruction on how to complete the individual fields and calculations for the Loan Estimate.

It should be noted that NAFCU’s June Compliance Monitor included an article entitled A Deep Dive into the Loan Estimate Disclosure: Requirements, Timing and Tolerances.  For fuller detail on the Loan Estimate, including information on delivery/timing and tolerance restrictions, take a look at that article (NAFCU log-in required).   

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

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What Are You Reading?  While some of you are nose deep into TILA-RESPA, I often find myself taking a break from the regulatory readings for something a little lighter.  Kyse and Ava have taken a great liking to books lately.  I like to think they actually enjoy when I read to them, but I’ve come to the realization they actually like carrying the books around more than anything.  Here they are, book in hand:  

NCUA Officially Clarifies CUSO Confusion; First Vacation with the Family

Written by JiJi Bahhur, Director of Regulatory Compliance

Over the last several months, NAFCU’s compliance team has received a number of questions from our members who have experienced some confusion with the CUSO rule.  Today, I’d like to share a real-life question we’ve received over a dozen of times, the response we’ve been providing to our members, and the clarification provided late last week by the National Credit Union Administration (NCUA).  The purpose of sharing our members’ question is to illustrate why the confusion arose.  I’ve also provided the response from NAFCU’s compliance team to our members, and although it is accurate, you’ll want to use and rely on NCUA’s clarification which is located in NCUA Letter to Credit Unions 14-CU-07 (discussed further below).

Real-Life Question:

We do not invest in or lend to a CUSO, but we do have a CUSO that we do other business with.  Do we have to amend our written agreement with this CUSO?  NCUA Letter to Credit Unions 13-CU-13 states that credit unions are required “to ensure that the CUSOs with which they do business agree to provide certain information directly to NCUA and the state supervisory authority, as applicable, on an annual basis.”  This statement seems to include all CUSOs with which a credit union does business and not just those that the credit union invests in or lends to.

NAFCU’s Response (Prior to 14-CU-07):

NCUA’s Letter to Credit Unions 13-CU-13 appears to have caused confusion amongst credit unions by including language that is broader than that required by the regulatory text.  NAFCU has received a number of inquiries from our members on this issue and we are looking into it. 

In the meantime, although 13-CU-13 seems to indicate broader coverage of the requirement to amend written agreements between credit unions and CUSOs, the regulatory text of the CUSO rule is limited to those CUSOs with which the credit union lends to or invests in.  Usually, the regulatory text prevails which would mean that the requirement to amend agreements applies only to those CUSOs the credit union invests in or lends to; however, we hope to see further clarification from NCUA in the near future to clear up some of this confusion.

NCUA’s Clarification:

Late last week, the NCUA released 14-CU-07 which clarifies whether a credit union must amend written agreements with all CUSOs it does business with or just those with which it lends to or invests in.  From the Letter:

“[T]here has been some confusion as to which credit unions must enter into a written agreement requiring a CUSO to submit annual reports. This letter clarifies that only those FICUs investing in or lending to a CUSO are subject to this part of the CUSO rule.

A FICU that only receives products or services from a CUSO—but does not have an investment in or a loan outstanding to a CUSO—is not subject to the requirement.“

NCUA further clarifies this issue in Legal Opinion Letter 14-0502. 

“You have asked for clarification of a provision in NCUA’s newly amended credit union service organization (CUSO) regulation. Specifically, you have asked if a federally insured credit union (FICU) receiving products or services from a CUSO must enter into a written agreement in which the CUSO is obligated to submit an annual report to NCUA even if the FICU does not have an investment in or loan outstanding to the CUSO. The answer is no. The amended CUSO rule requires only those FICUs investing in or lending to a CUSO to obtain a written agreement requiring the CUSO to submit annual reports.

The NCUA Board amended the CUSO rule on November 21, 2013. The new rule requires, among other things, a FICU to contractually bind a CUSO to submit an annual report to NCUA. Specifically, new §712.3(d)(4) states: “A FICU must obtain a written agreement from a CUSO before investing in or lending to the CUSO” that the CUSO will “annually submit . . . a report directly to NCUA and the appropriate state supervisory authority, if applicable.” (Emphasis added).

Accordingly, it is clear that a FICU that invests in or lends to a CUSO must comply with the new §712.3(d)(4) annual reporting requirement. However, §712.3(d)(3) of the CUSO rule, which addresses access to CUSO books and records, makes reference to FISCUs with an investment in, loan to, or “contractual agreement for products or services with the CUSO.” You have asked if the contractual agreement language in §712.3(d)(3) infers that FICUs with only a service contract with a CUSO must also obtain a written agreement for the CUSO to submit an annual report under new §712.3(d)(4). No, it does not.” 

In short, the confusion (regarding the above question) has come to an end.  A credit union does not need to amend written agreements with all CUSOs with which it does business; rather, it must amend written agreements with those CUSOs it invests in or lends to. 

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First Vacation with the Family.  Last weekend, my husband, children and I took our first vacation together as a family.  We went to Virginia Beach and had a fabulous time.  Here are some photos of the fun we had!

CFPB Releases Fair Lending Report; NAFCU’s May Compliance Monitor Available; Fun in the Sun

Written by JiJi Bahhur, Director of Regulatory Compliance

Last week, the Consumer Financial Protection Bureau (CFPB) released a fair lending report to Congress that highlights its enforcement actions under the Home Mortgage Disclosure Act (HMDA) and Equal Credit Opportunity Act (ECOA) during an 18-month period (July 21, 2013 – December 31, 2013).  Fulfilling part of its fair lending mandate under the Dodd-Frank Act, the CFPB’s report gives Congress an update on the bureau’s fair lending-related efforts and outlines key priorities for its supervision and enforcement work.

If you don’t have time to go through the entire report, take a look at the Executive Summary; it provides a quick run-down of the CFPB’s “key developments” in fair lending.  Below, you’ll find just one of a number of “key developments” the CFPB lists in the Executive Summary:

“Guidance on supervisory reviews.  The Bureau publicly released information about the methods our examination teams use to conduct three types of fair lending supervisory reviews: ECOA Baseline Reviews, ECOA Targeted Reviews, and HMDA reviews.  Through these supervisory activities we detected some violations of ECOA and HMDA; we also found that many lenders have instituted and maintained strong fair lending compliance management systems (CMS) and had no violations of ECOA and HMDA.  Using the guidance issued by the Bureau describing these reviews, lenders may self-assess their own compliance with ECOA and HMDA.  We also provided guidance to industry via Supervisory Highlights and Bulletins discussing fair lending topics.” (My emphasis added).

Although the CFPB only has examination authority over credit unions with assets of $10 billion or more, its supervisory focus affects credit unions of all sizes; and as the “key development” above states, the CFPB’s guidance and reports such as its fair lending report, serve as means for credit unions of all sizes to stay compliant with federal consumer financial laws such as the HMDA and ECOA. 

You can access the CFPB’s latest fair lending report here. 

Also, for more information on the bureau's work on fair lending, take a look at this CFPB blog.  Here's a snip-it:

"We’ve also carried out some recent enforcement actions for violations of ECOA and/or HMDA against:

• Two mortgage lenders for significant errors in their mortgage loan application data
• A credit card company for several violations of consumer protection laws, including unlawfully discriminating against card applicants on the basis of age.
• A mortgage lender for charging higher prices on mortgage loans to African-American and Hispanic borrowers than similarly creditworthy non-Hispanic white borrowers
• An indirect auto lender for harming minority borrowers who were charged higher interest rates than similarly creditworthy non-Hispanic white borrowers.

Additionally, we’ve released important information about fair lending, which we hope will benefit consumers, advocates, and industry. We introduced our HMDA Database, which allows the public to study trends in the mortgage market across the nation and in their own communities. We also released two fair lending bulletins to help consumers and industry stakeholders recognize fair lending and access to credit risks in the home mortgage and auto lending markets. And, we’ll continue to work with industry and trade representatives, fair lending, civil rights, consumer and community advocates to make sure that consumers know their rights and that lenders know how to comply with the rules."

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Also released last week, NAFCU’s May Compliance Monitor is available here (NAFCU login required).  This month’s featured articles include:

• NCUA Exam Spotlight: Private Student Lending
• Cybersecurity: Protecting Credit Unions from the Modern Day Butch Cassidy and His Gang

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Last, but definitely not least (at least in my book), I’d like to kick off the week by sharing some photos of my kiddies from this weekend.  It was beautiful this past weekend in the D.C. area and I know my family took full advantage of getting some much needed Vitamin D.

 

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

Written by JiJi Bahhur, Director of Regulatory Compliance

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

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

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

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

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

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

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

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

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

 

NCUA Releases Guidance on Derivatives Rule and Exam Expectations; NAFCU Compliance Resources Updated; Programming Notes

Written by JiJi Bahhur, Director of Regulatory Compliance

On Monday, NCUA’s new derivatives rule went into effect.  The rule allows credit unions with $250 million or more in assets that have a CAMEL rating of 1, 2, or 3 and a management component of 1 or 2 to use derivatives to hedge against interest rate risks.  Credit unions meeting this criterion must complete a two-step application process in order to qualify for derivatives authority.  

Coinciding with the effective date of the rule, NCUA issued Letter to CU 14-CU-04 to describe this application process.  NCUA also included Supervisory Letter No. 14-02, which clarifies the agency’s supervisory expectations about those derivatives products used by federal credit unions and federally-insured, state-chartered credit unions.

 The Letter to CU 14-CU-04 advises that “[t]hose credit unions approved for derivatives use will have limited authority to invest in simple interest rate derivatives for balance sheet management and risk reduction, including interest rate swaps, interest rate caps, interest rate floors, basis swaps, and Treasury futures.”   According to the Supervisory Letter, “NCUA will ensure that all federally-insured credit unions have the management, policies, procedures, and tools in place to safely use derivatives.”

While the Supervisory Letter details NCUA regulations and guidelines for credit unions that use derivatives, it notes that “[w]hen used properly, derivatives can help a credit union protect its earnings and capital from interest rate changes by hedging a portion of its interest rate risk (or other risks, for some FISCUs).”  

For more information on the derivatives rule, be sure to check out NAFCU’s Final Regulation, which provides a summary and detailed breakdown of the rule’s requirements. 

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NAFCU Resources Updated.  I wouldn’t want to toot our horn or anything, but I will on this lovely Friday morning.  NAFCU’s compliance team has updated a number of its compliance resources which are now available to members (NAFCU log-in required). 

• NAFCU’s ten (10) mortgage rule scope and applicability charts have been updated and made available on our mortgage resources webpage.

 

• Also, the mortgage rules consolidated regulatory text was updated and posted to the website.

 

• Last, a new section – TILA/RESPA Integrated Mortgage Disclosures – was added to the mortgage resources page.  This new section will be further developed with more resources on the final rule throughout 2014. 

And don’t worry!  We’ve got something for members and non-members alike.  In February, the compliance team completed an extensive editing project of NAFCU’s Credit Union Compliance GPS.  The electronic manual was edited to include regulatory changes throughout the past year, including the addition of 7 new sections on the CFPB’s mortgage regulations and a more developed subsection on remittances in the Regulation E section.  The GPS overhaul resulted in over 100 new pages in the manual.  The 2014 GPS will be available for purchase in the next week or so. 

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Programming Notes.  Next week (March 10 – 15), NAFCU’s compliance team and several other NAFCU staff will either be attending or presenting at NAFCU’s 2014 Regulatory Compliance School.  Because the compliance team will be in and out of the office all week, it is possible that we will have a delay on responding to our member questions, but we will get back to you as soon as possible! 

If you’re attending School, please don’t hesitate to come up and say hello!  We love putting faces with names.  And, if you have been following the growth of my twins on this blog - now 18 months old - you just might catch a glimpse of them in the halls of the Gaylord at the end of the week!

CFPB Releases Winter 2013 Edition of Supervisory Highlights; Time-Out

Written by JiJi Bahhur, Director of Regulatory Compliance

Recently, the Consumer Financial Protection Bureau (CFPB) released its winter 2013 edition of Supervisory Highlights, a report highlighting issues it uncovered through its supervision program during a specified period of time.   The winter edition includes supervision work completed between July and October 2013, and highlights problems like unfair and deceptive practices in the mortgage servicing market. 

In this edition of the Supervisory Highlights, the CFPB made it a priority to address mortgage servicing problems so that servicers can make necessary changes and prepare for compliance with the new mortgage servicing rules.  The new rules, which went into effect on January 10, 2014, require servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments, and correct errors on request.  The rules also provide strong protections for homeowners facing foreclosure. 

The CFPB’s press release summarizes some of the items that mortgage servicers were cited for, specifically relating to the ban on unfair, abusive or deceptive acts and practices.  These include: 

• “Unfair practices with servicing transfers: The rights to manage a loan are frequently bought and sold among servicers. Examiners found that two servicers engaged in unfair practices by failing to honor existing permanent or trial loan modifications after a servicing transfer, which resulted in borrowers being charged the wrong amount or being told to pay the wrong amount.

 

• Waiving consumer rights: CFPB examiners found that two servicers were requiring borrowers to waive any existing claims in order to get a forbearance or loan modification agreement. The examiners found these broad waiver clauses to be unfair as they were done without regard to individual circumstances.

 

• Poor payment processing: Servicers are responsible for processing loan payments and handling tax and insurance payments through escrow accounts. Examiners found that a servicer was marketing bi-weekly payment plans and misrepresenting how the plans worked. As a result, consumers did not save money the way they thought they would. Another servicer told some borrowers they would receive refunds from their escrow accounts, when in fact they would not.

 

• Failing to provide correct information to consumer reporting agencies:  Mortgage servicers generally provide data to consumer reporting agencies.  CFPB examiners found cases where servicers were misreporting short sales as foreclosures, which have a much more negative impact on a consumer’s      ability to get certain types of credit.”

Companies that were cited for the above violations were notified and required to take remedial measures.  In certain instances, the CFPB opened investigations for potential enforcement actions.

Even though the CFPB only supervises credit unions with total assets of more than $10 billion, the Supervisory Highlights can serve as a useful tool for credit unions of all sizes.  Why you ask?  The credit union can check their current practices and make necessary adjustments to potentially avoid scrutiny from their applicable examining agency, at least on those particular issues. 

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It’s Friday!  And even better, the weekend has arrived.  I like to take this time to try to take a time-out from compliance land.  Speaking of time-outs, my husband and I have attempted to implement “time-out” with our 17-month old son because he loves to pull his twin sister’s hair, steam roll her, use her as a bench, etc.  Last weekend, my son, Kyse, decided he wanted to break the blinds in the living room, which he successfully did.   Before my husband or I could even say anything, Kyse immediately ran to the time-out chair and sat down like it was common procedure.  I’m pretty sure both of our jaws hit the ground; we had to walk away quickly because we both were about to burst out into laughter.

Have a great weekend!

CFPB Updates its Mortgage Exam Procedures; On the Move

Written by JiJi Bahhur, Director of Regulatory Compliance

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

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

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

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

 ***

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

 

That's my boy!

 

CFPB Bulletin Puts CUs on Notice About Duty to Investigate Consumer Credit Report Disputes; NAFCU’s Online Training Updated; Ballapalooza Fun

Written by JiJi Bahhur, Regulatory Compliance Counsel

CFPB Bulletin 2013-09.  Earlier this month, the CFPB released CFPB Bulletin 2013-09 (Bulletin), putting on notice companies that supply information to consumer reporting companies. The Bulletin stresses that compliance with the Fair Credit Reporting Act (FCRA) requires furnishers of such information to investigate consumer disputes forwarded by the consumer reporting companies, and to review all relevant information provided with the disputes, including documents submitted by consumers.

Subject to its supervisory and enforcement authorities, the CFPB intends to evaluate compliance with the requirements set forth within the Bulletin and expects each furnisher, in summary, to comply with the FCRA by receiving information and investigating disputes, providing investigation results, and correcting inaccurate information.

The Bulletin notes that “[a]ny furnisher not currently maintaining a process that meets these requirements should take immediate steps to comply with the requirements of the law.” 

For more details on what the CFPB expects, view the press release here and the Bulletin here.

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NAFCU’s Online Training Updated.  Are you looking for essential trainings for your Board and new employees?  NAFCU’s recently updated Online Training program covers important education for board members and new staff, without requiring a travel budget.   New and updated courses include Bank Secrecy Act, member data security, financial literacy and fiduciary duties, how credit unions are regulated and examined and more!  For a full listing of training modules available under NAFCU’s Online Training program, visit here. 

And wait!  It gets even better!  If your credit union is interested in NAFCU’s Unlimited Webcast Subscription and Online Training program, we now offer the Virtual Learning Package, combining both the Webcast Subscription and Online Training at a great savings! Credit unions that buy now will have access through the end of 2014!

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Ballapalooza Fun.  I was planning on sharing some of the pictures from Kyse and Ava’s first birthday party, but to my dismay, they either came out blurry or they were crying in them (teething)!  On a good note, I have some great pictures of them playing with one of their birthday gifts – the Ballapalooza!

NACHA Launches 1073 Solutions Center to Assist with Remittances Compliance; Baby Compliance Solutions 101

Written by JiJi Bahhur, Regulatory Compliance Counsel

Yesterday, NACHA – The Electronic Payments Association – announced the launch of its 1073 Solutions Center with the objective of providing greater clarity and understanding of the requirements from the international remittances regulation.  The 1073 Solutions Center makes this possible by providing information, tools and resources, and available solutions to help financial institutions meet compliance and business needs with the regulation. 

If you’re wondering what the “1073” refers to, it’s because section 1073 of the Dodd-Frank Act establishes the regulatory framework for governing international remittance transfers originated by U.S. Consumers.  The 1073 Solutions Center is NACHA’s resource center intended to assist with compliance of such section; and in doing so, NACHA has provided the four steps to 1073 compliance on the 1073 Solutions Center main page:

 “Step 1 - Read and understand the regulation.

Step 2 - Determine how many consumer international remittance transfers you have annually.

Step 3 - Evaluate your procedures to determine how they will adapt to be in compliance.

Step 4 - Identify solutions to meet your business needs.”

Under each step, there is a wealth of information, resources, and solutions available.  If you are a credit union that generates more than 100 consumer international remittance transfers per year, take some time to go to the 1073 Solutions Center and poke around.  This is a great way to get any questions you may have had on the remittances regulation answered.

As a reminder, the final remittances rule takes effect October 28, 2013.

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Speaking of solutions, a couple nights ago, I was looking at two pictures I snapped of my kids. Unfortunately, and to my disappointment, neither picture was perfect: in the first picture, Kyse was looking up, but Ava was looking down; and in the second picture, vice versa.  Baby Compliance Solutions 101: associate yourself with talented friends who can take the good parts of each picture and turn it into one perfect picture!   Now, I'd say that is a solution!

NCUA's Derivatives Proposal; Can't Help Myself

Written By JiJi Bahhur, Regulatory Compliance Counsel

Today, the NCUA Board issued a proposed rule to provide qualified credit unions limited authority to engage in derivatives activities for purposes of mitigating against interest rate risk (IRR). But, the proposal establishes a “pay-to-play” regulatory scheme for credit unions that are permitted to engage in derivatives activities. I’ll get into that in a moment. 

First, I should probably give some background on what derivatives are and what NCUA is proposing. NCUA has created a Q&A document addressing this, among other things.  From the Q&A document:

“Q.1: What are derivatives? What kinds of derivatives is NCUA proposing to allow for credit unions?

The Commodities Futures Trading Commission (CFTC) broadly defines a derivative as: “A financial instrument, traded on or off an exchange, the price of which is directly dependent upon (i.e., “derived from”) the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement (e.g., the movement over time of the Consumer Price Index or freight rates). They can be used to hedge risk or to exchange a floating rate of return for fixed rate of return. Derivatives include futures, options, and swaps.”

While the term “derivatives” covers a broad spectrum of financial instruments in today’s market, NCUA is only recommending authorizing the use of plain-vanilla, US Dollar-denominated (USD) interest rate swaps and purchased-only interest rate caps. These instruments are widely transacted in today’s capital markets, have deep and transparent pricing and afford end users with strong liquidity and execution. The Bank for International Settlements reports that interest rate swaps are the largest component of the global over-the-counter (OTC) derivatives market.

With regard to interest rate swaps, the NCUA Board is proposing to authorize only standard “pay-fixed/receive-floating” and “pay-floating/receive-fixed” interest rate swaps. It is currently anticipated that most interest rate swaps users would enter into “pay-fixed/receive-floating” transactions to hedge against rising interest rates. This “plain vanilla” interest rate swap affords some protection against the most common interest rate exposure experienced by credit unions with material interest-rate risk (IRR) sensitivity—namely, a balance sheet with an asset portfolio that does not reset to external rate changes as quickly as its liabilities. Most credit unions use non-maturity and other short-term shares to fund longer duration assets, creating an inherent re-pricing mismatch for which pay-fixed/receive-floating interest rate swaps can provide some effective mitigation.”

Eligible credit unions seeking derivatives authority must submit an application for one of two levels of authority.  Level I authority contains more stringent limits, including limits to the notional value of interest rate swaps, aggregate book value of interest rate caps, combined limit of interest rate swaps and caps, and the maximum weighted average life of all derivatives transactions cannot exceed 5 years.  Level II authority has fewer limits, but credit unions that seek Level II authority must show why the Level I limits are not adequate to meet their IRR mitigation needs.

So what’s the catch? You have to “pay-to-play.”  The proposed rule calls for application fees and pretty hefty ones at that.  Level I application processing costs would range from $25,000 to $50,000 and Level II applications would range from $75,000 to $125,000.  If that’s not bad enough, there is an associated fee for every year after that. 

NAFCU has long advocated for expanded investment authorities for credit unions, but the "pay-to-play" proposal raises concerns as this would be the first time “pay-to-play” will be required in the credit union industry. 

The proposal can be accessed here.  NCUA’s Q&A document – which provides an understanding of the rule’s intent and the main contents – can be accessed here.  Also, NAFCU’s Regulatory Affairs team is in the process of drafting a Regulatory Alert (NAFCU Member Log-In required) on this proposal so keep your eyes peeled for that. 

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I just had to share these pictures with you all.  Have a great weekend.

The Three Primary Changes Made by the Final TILA Escrow Rule

Written By JiJi Bahhur, Regulatory Compliance Counsel

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

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

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

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

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

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

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

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

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

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

***

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

A Final Farewell to the Legacy Forms; eCFR Updated to Reflect ATM Disclosure Amendments; Happy Weekend from the Twins

Written By JiJi Bahhur, Regulatory Compliance Counsel

With April 1 approaching, I thought today would be a good time to remind you all that after March 31, 2013, the legacy reports can no longer be used for filing SARs and CTRs.  Starting April 1, 2013, the new SAR and CTR forms must replace the legacy forms if you have not already said your goodbyes to those forms. 

For more information, check out FinCEN’s guidance on this matter and past blog posts written by NAFCU’s Compliance Team (here, here, and here). 

***

In last Friday’s blog post, Steve mentioned that the CFPB issued a final rule requiring the removal of the Regulation E requirement to place ATM fee disclosure language “on the machine.” He also mentioned that the final rule would be effective immediately upon publication in the Federal Register.  Well, as of March 26, 2013, the final rule has been published in the Federal Register.  And on a grander note, the language has already been removed from the Electronic Code of Federal Regulations, thus making everything consistent. 

    “§ 1005.16   Disclosures at automated teller machines.

     (a) Definition. “Automated teller machine operator” means any person that operates an automated teller machine at which a consumer initiates an electronic fund transfer or a balance inquiry and that does not hold the account to or from which the transfer is made, or about which an inquiry is made.

    (b) General. An automated teller machine operator that imposes a fee on a consumer for initiating an electronic fund transfer or a balance inquiry must provide a notice that a fee will be imposed for providing electronic fund transfer services or a balance inquiry that discloses the amount of the fee.

    (c) Notice requirement. An automated teller machine operator must provide the notice required by paragraph (b) of this section either by showing it on the screen of the automated teller machine or by providing it on paper, before the consumer is committed to paying a fee.

    (d) Imposition of fee. An automated teller machine operator may impose a fee on a consumer for initiating an electronic fund transfer or a balance inquiry only if:

     (1) The consumer is provided the notice required under paragraph (c) of this section, and

     (2) The consumer elects to continue the transaction or inquiry after receiving such notice.”

Now when credit unions research Regulation E, the regulation matches the underlying law! Imagine that!

***

The twins and I intend to just relax this weekend.  We hope you can do the same!

More Form Changes - The FCRA: Regulation V; The "Real" Deal, as Promised

Written by JiJi Bahhur, Regulatory Compliance Counsel

The Consumer Financial Protection Bureau (CFPB) issued changes to several FCRA forms – which are implemented in Regulation V.  The following forms were affected by these changes:

• Appendix I – Summary of Consumer Identity Theft Rights
• Appendix K – Summary of Consumer Rights
• Appendix M – Notice of Furnisher Responsibilities
• Appendix N – Notice of User Responsibilities.

Of particular importance to credit unions is the “Summary of Your Rights Under the Fair Credit Reporting Act” form (Summary of Consumer Rights), which can be found in Appendix K of the final rule.  Changes to this form included removing the reference to the Federal Trade Commission and replacing it with CFPB instead; updating the addresses for contacting the Assistant General Counsel for Aviation Enforcement and Proceedings and the Surface Transportation Board; and correction of typographical errors in the Spanish language translation at the top of Appendix K. 

Credit unions that use credit reports as part of the hiring, promoting, or firing process (i.e., for an employment purpose) should be cognizant of these changes, as this form must go to employees, or applicants, after the credit union has acquired a consumer report, but before it has taken adverse action based on that report.  Credit unions that use consumer reports for employment purposes should be aware of the requirements, and should have a detailed policy and procedures to ensure compliance. 

Although the effective date of the form changes was November 14, 2012, it looks like the CFPB is giving some leeway on the timeframe to make the changes.  In the meantime, the old model forms will be construed as being in compliance with the FCRA provisions requiring such forms.  From the rule:

“To mitigate the impact of these changes on users of the model forms in the Bureau’s Appendices I, K, M, and N published December 21, 2011, the Bureau will regard the use of those model forms to constitute compliance with the FCRA provisions requiring such forms and will regard those forms to be substantially similar to the corrected forms published today, until further notice. The Bureau anticipates providing that further, notice along with ample time to allow for the orderly discontinuation of the December 21, 2011 model forms, when it issues a final rule to restate Regulation V in 2013.”

That being said, if your credit union uses these forms, it would be a good idea to start taking steps to update to these new forms.  Additionally, it looks like the CFPB has plans to make additional changes to Regulation V in 2013 – so stay tuned.  

***

It's a miracle!  The professional photographer was able to catch several photos of all four of us looking at the camera at the same time.  So, as promised, here is the family photo we chose...and of course I had to purchase the rights to all of the pics taken because there were some other memorable photos I just had to have (and I've shared one of those with you all as well).

The CFPB’s Supervisory Highlights from Fall 2012; The Attempted Family Photo

Written by JiJi Bahhur, Regulatory Compliance Counsel

In case you’re looking for something juicy to read, I thought I’d point you to an interesting topic (okay, okay…it’s interesting, but not interesting enough to call it juicy): highly problematic areas that financial institutions are struggling to stay compliant in.  As part of the supervisory authority given to the CFPB through the Dodd-Frank Act, the CFPB released its first issue of Supervisory Highlights, which highlights supervisory actions found between July 21, 2011, and September 30, 2012.  The CFPB’s Supervisory Highlights serve as a means to communicate to the public and financial services industry about its examination process and the kinds of problems CFPB examiners discovered through that process. 

This report can serve as a useful tool for credit unions, as it points to items that the CFPB carefully scrutinized during its supervisory process.  Further, credit unions can see the seriousness of noncompliance for those particular problem areas since the CFPB also goes into the corrective actions and remedies financial institutions had
to take to correct their deficiencies. 

I’ll leave the reading to you.  The report is short and sweet and very well-organized.  But just as a taste, the CFPB broke the deficiencies down into two main categories: (1) Compliance Management Systems and (2) Significant Violations Detected. 

• The CFPB deems a robust and effective compliance management system (CMS) as a critical component of a well-run financial institution.  The CFPB found financial institutions to be lacking across its entire consumer financial portfolio in instances where it failed to adopt and follow comprehensive internal policies and procedures, resulting in a breakdown in compliance and numerous violations of Federal consumer financial law.  Further, it found a CMS to be deficient in situations where there was failure to oversee affiliate and third-party service providers. 

• The CFPB found violations involving credit card, credit reporting, and mortgage origination activities to be significant violations.  Some of these violations resulted in public enforcement actions while others resulted in nonpublic supervisory actions.  At any rate, the discovered violations were of a broad spectrum and financial institutions were required to take corrective action, including but not limited to stopping the illegal practices, adopting effective policies and procedures, implementing robust compliance management programs, and paying out large sums of relief and civil money penalties.

The CFPB also released an appeals policy for supervised institutions as well as an updated version of the CFPB Supervision and Examination Manual, the guide used by examiners during the supervision process.  The appeals policy provides a means for financial service providers to request a review of any adverse findings set forth in its examination report.  The Manual serves as a great indicator of what the CFPB has authority to supervise and what it will be looking for during the examination process.  Even those credit unions under $10 Billion can use this Manual to ensure that it is compliant with Federal consumer financial laws. 

For those of you that are members of NAFCU, you can find a more detailed article on this topic in NAFCU’s January 2013 Compliance Monitor. 

***

On an even more interesting note (or at least I’d like to think so), my husband and I made an attempt this past weekend to take a professional family photo with the kiddies.  We decided to go professional when we realized we couldn’t seem to get a good picture where all four of us are actually looking at the camera.  I’m hoping to share the “good” picture with you all once I have access to it, but in the meantime, here is our “nonprofessional” attempt at getting us all in one picture…of course the boys aren’t looking the right way. 

 

Reporting Nonresident Alien Interest in 2013; Meet my Twins

Written By JiJi Bahhur, Regulatory Compliance Counsel

With the New Year right around the corner, I thought it would be fitting to remind you all of the IRS’s Nonresident Alien Interest requirements.  Although the final regulations were effective as of April 19, 2012, the rule applies to payments of interest made on or after January 1, 2013. 

The final regulations require credit unions to report interest of $10 or more in the aggregate, paid to certain nonresident aliens, for that particular year.  That means at the end of 2013, credit unions will be required to report interest paid on or after January 1, 2013.  Credit unions are only required by the regulations to report payments made to residents of countries listed in IRS Revenue Procedures 2012-24, which was published contemporaneously with the final regulations.  However, to alleviate potential burden, credit unions may choose in the alternative to report interest paid to all nonresident aliens rather than just those that are residents of countries found on the list.   

The regulations require that reporting is conducted using the same form that is currently used to report interest payments made to nonresident aliens who reside in Canada.  IRS Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding,” can be located here.   

As mentioned before, the IRS published a list of countries that require reporting to the IRS where the interest meets the $10 or more criteria.  A credit union may rely on the permanent residence address provided on a valid Form W-8BEN to determine the country of residence, unless the credit union knows or has reason to know that the documentation is unreliable.  

***

While I was out on leave, I received several emails asking about the birth of my twins – a boy and a girl.  Well, I’d like to introduce them to you all:  meet Kyse (rhymes with rice) and Ava, born August 20, 2012. 

A Whole Lot of FYIs

Written By JiJi Bahhur, Regulatory Compliance Counsel

 

I thought I’d keep it simple today with a couple…okay, a whole lot of…FYIs that you may (or may not) find interesting.

  

CFPB “Sweepstakes” Scam

The CFPB has issued a notice stating that if you receive a call from the “CFPB” in regards to a “sweepstakes” offer, it is a scam. Be careful not to provide any personal, consumer, or commercial information.

 

*** 

FinCEN SAR Activity Review – By The Numbers Issue 17

FinCEN has released its seventeenth issue of The SAR Activity Review – By the Numbers (BTN). The report is only published once a year and provides numerical data on SAR filings from the last 12 months. It is available here.

 

***

NCUA’s Office of Minority and Women Inclusion

In April, NCUA filed its first report to Congress on its Office of Minority and Women Inclusion (OMWI) and is expected to issue a proposal for comment in the future on standards for assessing credit unions' diversity policies. NAFCU wrote a letter to NCUA addressing OMWI’s assessment of credit unions’ diversity policy. March 29, 2012 - OMWI Assessment of CU's Diversity Practices.

 

NCUA’s OMWI was created in accordance with the Dodd-Frank Act. Its focus is diversity, civil rights and the promotion of minority and women hiring and contracting practices throughout the credit union industry. 

 

NCUA’s 2011 annual report notes actions taken thus far toward developing standards for assessing the diversity policies and practices of entities it regulates. It also looks at steps taken within the agency to promote diversity in its own hiring and procurement practices.

 

*** 

NCUA’s Plain Writing Act.

If you remember from Steve’s blog post on April 30^th, we were waiting to see NCUA’s Annual Report on the Plain Writing Act. That report is now available on NCUA’s webpage dedicated to the Plain Writing Act.

 

*** 

I could keep going, but I think I’ll stop right there for now. Okay, wait…one more...FYI: I’m having twins (a boy and a girl)!

 

 

Thanks for Everything

Posted by Anthony Demangone

I love my job.  I always have.  But I love NAFCU.  Always have.  Ever since I joined this organization in 2004.  So it is with mixed emotions that I have to tell you that my days as NAFCU's head compliance geek are at their end.  In a few short days, I'll transition into the role of NAFCU's Senior Vice President and Chief Operating Officer.  I'll be replacing Pat Morris, who is moving on to be CEO at the ACA.  That's very good news for a very good guy, and I can safely speak on behalf of NAFCU when I say that we wish him nothing but the best.   

It has been a sincere pleasure working with all of you, and I thank you for allowing me to barge into your office each morning through this blog.  Credit union compliance officers are my kind of people. You stand for the rule of law.  You respect process and procedures.  You bow to internal controls.  You understand that just because you can do something doesn't necessarily mean you may do it, or should.  Your role within an organization should be treasured, nurtured, and respected.  

In my new role at NAFCU, I'll be removed from NAFCU's compliance program.  I'll be in charge of helping my colleagues at NAFCU get what they need so they can do their jobs - which is to serve NAFCU's members.  I'll take with me the respect of risk management, internal controls, and critical analysis that I gained alongside you these past 6-plus years.  I'm humbled and excited at the challenge.

NAFCU's compliance services will still be here, and they'll continue to be great.  And the blog will live on as well.  No one person is indispensable, and that certainly extends to me.  Our compliance services will be headed up by someone else, and that's fine.  NAFCU is busy finding my replacement, but until then Sarah, Steve and Shari are here to help.  

Change is good, and learning new things and challenging yourself is great. Thanks again for humoring me with this blog, and I wish you all the best.

PS: And since I know what you really will miss most, here are a final few pics of Kate and Briggs.

 

NCUA Board Meeting; The Chairman on Comment Letters; Mortgage Doc Prototypes Near?

Posted by Anthony Demangone

Happy Friday, everyone.  We somehow made it through another week as compliance officers!

NCUA. Yesterday, NCUA held its monthly board meeting.  You can access the meeting materials here. It wasn't a huge compliance day, although NCUA did issue rules regarding corporates and they finalized a proposed IRPS that tweaks NCUA's Supervisory Review Committee.  NAFCU Today will provide overview of the meeting here.

Comment letters. NCUA Chairman Debbie Matz gives some great advice on how to write comment letters.  Via this link, you can read a quick overview of the four major areas where she gives advice, as well as watch a 5-minute video on the art of writing comment letters. This clearly is on the Chairman's mind right now, as she covered the same topic in this month's NCUA Report. 

The Mortgage Forms Are Coming.  Reportedly, the CFPB is close to releasing prototype model mortgage disclosure forms.  This will be our first chance to see how they'll handle model forms. 

***

As you can see, Kate and Briggs would rather be outside, enjoying springtime.  I hope you follow their lead, and enjoy your weekend!  If you are travelling, be safe.  

Some Thoughts on Regulations; Give Them What They Want

Posted by Anthony Demangone

Yogi Berra is a smart man.  This is one of his best observations.

Baseball is 90 percent mental.  And the other half is physical.

That is actually true, for anyone who has played the game.  I think Professor Berra was on to something. A similar calculation could be used for regulations. 

Ninety-percent of regulatory burden is made up of all the rules and regulations.  The other half is how those rules are written.

One of these days, someone is going to reinvent how regulations are drafted and presented.  If they get it right, I think it will be a win-win.  The regulations will be easier to read and understand.  And that will lead to greater compliance.  Usually, the goal of a regulation is to solve a simple problem.  If regulators can come up with simple, creative ways to solve that problem, everyone will be better off. 

Here are two examples off what I mean. 

1.  The CARD Act and Regulation Z. When the CARD Act became law, it mandated that the Fed issue a number of credit card-related regulations.  Those were issued in three waves.  The first proposal totaled more than 800 pages (ultimately 241 in the federal register) of dense regulatory language.  We spent a lot of resources helping our member figure out how to break the rule down into readable portions. (When someone can add value by helping someone else figure out how to read a regulation you've written, you may have a problem.) Over the course of the next year, additional proposals and clarifications were issued.  

And it continues.  Just last month, the Fed issued another "clarification" to clear up a hand-full of CARD Act-related issues.  The length of that clarification totaled more than 300 pages.  
 

2.  Unnecessary complexity.   MDIA has created an interesting discussion that has reached the level of complexity needed to launch a rocket into space.  What is that issue? If you overstate the loan's APR in your dwelling-secured loan's disclosures, must you re-disclose your MDIA disclosures under Regulation Z?  You'd think this would be a simple question.  But it is not.  I won't bore you with the bloody details.  But if you want to see the complexity - read this article issued by the Fed.   

To paraphrase Allen Iverson, we're talking about an overstated APR.  An overstated APR. A creditor in this situation has disclosed an APR to the member that ends up being higher than what the member will get.  The member will get a lower APR when the loan is consummated. In many cases, the member is no better or worse off - they pay the same amount. But in some cases, the lender must halt the process, re-disclose, and then wait for the necessary time before the loan can move to closing.

This could have been regulated a different way.  How about this general rule? If you overstate the APR, no harm, no foul. No need to re-disclose.  Just let the member know at closing what the new APR is.  If the member proceeds to closing, they surely didn't mind the higher APR.  And for those who think that this creates a perverse incentive to inflate costs to err on the side of overstating the APR, thereby erasing the need for re-disclosure, Adam Smith is rolling over in his grave.   Market pressures will demand that they get that as close as possible.  If it is too high, they'll lose mortgages at the margins to other lenders.

These were just two examples of how the regulatory system seems to be breaking down.  When it takes hundreds of pages to explain one provision of a rule, be it a provision of the CARD Act or MDIA, it may be time to come up with a different rule altogether. 

Here's a thought.  

What if financial organizations could create their consumer disclosures using a risk-based system that is based on their products and services.  The regulation could come up with certain over-arching goals, such as clarity of disclosures, and certain prohibited practices.  But beyond those basic requirements, each organization would have to defend its disclosures and advertisements against basic principles: Is this disclosure or advertisement easy to understand? Does it accurately describe the features and costs of the account or service? Can we say (with a straight face) that it would not mislead or confuse the average consumer. 

What do you guys think?

*** 

Give them what they want?  Well, during compliance school, more than a few of you approached me and said something like this

Yes, we like the compliance stuff...but we really like pictures of your kids.

I understand completely. And with that in mind...

They just had their 2-year check up.  Kate is now 3 foot, one inch tall.  Briggs is a clean three feet.  They both weigh just under 26 pounds.  Kate is in the 99th percentile for height.  Briggs is in the 86th percentile.  Come on, growth!  The Demangone side of the gene pool never saw 6 feet, to the best of my knowledge.  I look forward to when my kids can look down on me.

Have a great weekend, everyone!

Mortgages; Happy Birthday Kate and Briggs!

Posted by Anthony Demangone

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

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

SAFE Act.  Need I say more? 

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

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

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

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

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

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

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

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

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

***

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

 

 

Tuesday This and That; Time Flies

Posted by Anthony Demangone

Happy Tuesday, everyone.  I survived and thoroughly enjoyed my weekend alone with the Dynamic Duo.  But let me say this: if you hear anyone utter words to the effect that stay-at-home parents have a cushy existence, feel free to give them the evil-eye on my behalf.

Maybe when things slow down a bit (say, in 2015), I can write more blog postings on single issues. But my in-box says otherwise. I hope you don't mind these "This and That" posts. 

MERS.  By now, I'm sure you've read one of a number of stories regarding MERS.  According to its website:

MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.

Most of the recent stories about MERS are stories about foreclosures challenges based on the use of the MERS system. Here's just one example. The quote below was made about BOA and other major mortgage lenders.

“They're recognizing the writing on the wall, that there are serious problems associated with the basic business model and legal theories of the MERS system,” Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City who has written articles on Reston, Virginia-based MERS, said yesterday.

Now, not every court appears to be coming to the same conclusions about mortgages perfected via the MERS system, so I won't try to generalize.  But if your credit union is relying on the MERS system for its mortgages, just be aware of the current situation. 

More compliance.  Here's a blog post that talks about the current state of compliance for banks. (BankNews.) (And a hat tip to C. Bruen.)  The author argues that more compliance is rolling down the hill at financial institutions, arguing that institutions might want to attack the burden more proactively.

To manage the upcoming regulations as well as the ones already in place, Michael Brauneis, managing director in the regulatory risk practice for Protiviti, an industry consulting firm, believes banks will have to change the way they manage compliance. No longer will an informal committee of management team members be able to keep up.

Brauneis also believes many banks need to shift away from the whack-a-mole game — where one mole (or compliance problem) pops up in one particular area so the bank focuses on that one, meanwhile other problems are popping up in other areas.

“I think a lot of community bankers feel today like that’s the game they’re playing continuously, and they can’t get ahead of problems the regulators keep finding and can’t get ahead of new regulatory changes because they keep coming out,” said Brauneis.

The more banks can do to shift from that type of reactive firing model to a more proactive model that focuses on risk assessment, the better. A risk-based approach, for example, identifies the business environment, the risks associated with that environment and the requirements to comply. It then looks at the controls in place to manage that compliance and allocates resources for automating compliance controls to the areas of highest risk.

I wonder how many credit unions use a risk assessment for their entire compliance program? 

Speaking of Compliance.  Read this CFPB blog post about how Ms. Warren hopes to improve consumer protections. Here's a portion of the post:

The CFPB is working to change that. When prices and risks are clear up front, consumers can make the choices that are best for themselves and their families. In other words, we want a credit market that works for consumers.

During this week, we will be listening directly to American families, and we’ll outline our vision for protecting consumers. Richard Cordray, Assistant Director for Enforcement and the former Attorney General of Ohio, will discuss how we can partner with the states to ensure consistent enforcement of consumer financial protections across the nation. Holly Petraeus, the Director of the CFPB’s Office of Servicemember Affairs, will talk about the unique challenges facing the men and women in the armed services. And I will travel to the Anacostia neighborhood of Washington, DC, to hear directly from families who are turning their finances around in the wake of the economic crisis.

I raise two points.  Ms. Warren has consistently talked about clear, up-front pricing.  To me, that signals that she'd love to see costs for products incorporated in the APR or in fees that are clearly disclosed "up front." Anything that a reasonable person could view as "rope a dope" in nature - a product that lures people in with what looks like a low cost only to be followed by "hidden" fees - is subject to "regulatory risk."  You may want to scan your products and services to see if any "rope-a-dopes" are there.  You've been warned.

Also, note that the CFPB will actively work with State Attorney Generals to enforce consumer protection laws. This should push compliance risk up, as cooperation between these two entities will only bring additional attention to state law issues that possibly were unknown or given low priority before.

Advertisements in statements.  This article (MSNBC.com) talks about this growing trend. As I've stated earlier, federal credit unions can do this as well.   Of course, whether one wishes to do this is a business decision. The article and NCUA's opinion do give some important risk-related questions to ask.  

***

At some point, your kids stop being babies and become toddlers.  There's nothing that trumpets the arrival of such an event. But then someone takes a photo of your kid, like this one of Kate below just after she got a haircut, and you realize that it already happened. 

 

 

This and That; A Well-Fed Elmo

Posted by Anthony Demangone

Here's a few things to finish off the week.

NCUA.  NCUA held its monthly board meeting yesterday.  There was a minor tweak to its Truth in Savings regulation to bring it into line with Regulation DD.  The also disclosed their priorities for 2011.  You can access the items from the board meeting here.  In addition, we did write an article for today's NAFCU Today on the meeting.   NCUA also issued its most recent edition of the NCUA Report.  This issue tackles some timely issues:

• Financial literacy
• Recent board actions
• Risk management on online banking
• Trends in mortgage delinquencies
• Contingency fund planning

Privacy.  The OTS has issued a compliance guide for the model privacy notice. While this would have been handy dandy three months ago, the guide looks to be written in a clear manner and should be useful if you still have issues in that area. 

MBLs.  Here's a nice historical look at member business lending at credit unions. (Elliot Kashner, at CreditUnions.com)

***

Here's how we found Elmo the other day, thanks to Kate.  I'm just glad that Elmo didn't ask for cottage cheese.  I'm off to State College this weekend to visit family and kneel at the shrine. Have a great weekend, everyone!

Thursday's This and That; Baseball Scholarship?

Posted by Anthony Demangone

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

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

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

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

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

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

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

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

Posted by Anthony Demangone

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

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

***

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

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

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

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

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

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

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

Citations, Citations, Citations; Happy Holidays

Posted by Anthony Demangone

As we look toward 2011, I thought I'd spend the next week or so discussing some ideas that might help you in the coming year.  Today, I'd like to talk about citations. Not the kind that you get for double-parking.  I mean legal or regulatory citations that point to a specific part of a law, regulation, or guidance document.

If you hire an outside auditor, attorney, or other consultant, I'd demand that they provide a citation for every finding or recommendation.  Each and every one.  (You're paying them, right?) And if they tell you something is a best practice, I'd follow up with this question: A best practice based on what? All too often, we get calls or emails from credit unions that are trying to understand a recommendation from an auditor or consultant who failed to provide a citation.  So we spend 20 minutes or so trying to track down a citation to confirm the auditor's position.  And that assumes the auditor is correct.  An outside consultant should have no problem providing a citation that is the basis for his or her opinion. (The only exception to this is the negative opinion.  Example: NCUA does not regulate the color of your credit union's logo. You can look as long as you want, but you won't find a citation to support that position.)

Oh, and the same goes for examiners.

So, in 2011, ask for citations.  It will help you verify that an auditor, consultant, attorney or examiner is correct.  And it might force them to be a bit more judicious with their recommendations, knowing that they have to provide some legal or regulatory authority each time they tell you to do something. 

***

Happy Holidays, everyone. NAFCU's offices will be closed tomorrow in observation of Christmas.  We'll get back at it on Monday. 

The more I think about it, the next photo is a bit more aligned with the life of a compliance office in 2010.  You hold on for dear life and hope for the best. Here's hoping Santa is good to each and every one of you!

 

Some Scary Stuff; Happy Halloween!

Posted by Anthony Demangone

With Halloween just a few days away, I thought I'd share some news and items that might be considered spooky.

Elizabeth Warren.  If you have any doubt about how Ms. Warren views the financial services industry, watch this video.  But I think you really can see her true colors when she answers a question regarding the fact that some institutions are instituting account fees to try to compensate for lost revenue due to all of the new regulations. You can jump to that specific question and answer by scrolling down and clicking the fifth hyperlink below the video.  Here's a transcript.

Question: I have a question that came in a couple of seconds ago from Allen G.  The banking industry is try to offset lost revenues due to new regulations - Credit CARD (Act), overdraft - by charging consumers additional fees on checking and other products.  What are your thoughts on what the industry is doing?

Ms. Warren's Response. You know, I have to say this...it really does amaze me. There was a major financial institution that sent out a letter to its shareholders in the last quarter. And the letter said, in effect, I'm paraphrasing - but only slightly - the new laws, because remember - we've already gotten some new law in place, the card law for example, that eliminate some of the worst practices on credit cards.  These new laws that have come into place under the current leadership have cost us $650 million this quarter.  And you know, I had this moment when I read that and I thought, hmmm, one company $650 million that they say that these new laws outlawing these bad practices cost them, I kind of read that the other way. That's $650 million that stayed in the hands of American families. $650 million from just one company on just a few bad practices that were banned thanks to the work of the current Congress, thanks to the work of Carolyn Maloney, who was one of the persons who really lead the efforts on this.  Thanks to the work of President Obama. So here's my view on the card, or any other creditor, that somehow they are entitled to certain level of revenue, particularly a level of revenue set in a time when, you know, when it was kind of an anything-goes world, I'm just not there. Instead, my view is let's see what a competitive market brings us.  There may be a period of time when some of the larger financial institutions to squeeze out every last nickel - to push harder on fees in one place because they can't do them in another, but over time, I'll tell you where this Agency (CFPB) is driving - we are striving toward a consumer market in which products are easier to read, easy to see what the costs are and easy to make comparisons. As we push toward that, the room for anyone within the financial services industry to make their money by squeezing you here and squeezing you there through tricks and traps - that's going to go away. And I want to be clear -I think there are some banks that will be glad to see that day come and I think they'll do very well competitively.  And banks that don't like it are the ones that eventually customers like you will make the difference on whether or not they survive. 

ODP.  Here's a news story regarding a bank that was ordered to refund $32 million in overdraft fees and pay a $1 million civil money penalty to the OCC.  Here's the OCC press release, which links to the official documents. It is a reminder of what can happen when you play fast and loose with the rules at the expense of consumers. Here's what the OCC said:

The settlement is based on the OCC’s conclusion that the bank engaged in unfair or deceptive practices that violated the Federal Trade Commission Act. Specifically, the bank assessed excessive amounts of overdraft fees and improperly assessed recurring fees, or “continuous overdraft fees” against certain consumers. In addition, in its marketing brochures the bank emphasized the free or low cost features of certain accounts while omitting information about costly features such as overdraft protection. The bank’s marketing also suggested that certain accounts were well-suited for consumers who had previous difficulty in managing their bank accounts, while omitting information about the high-cost features of its overdraft protection.

FDIC lawsuits.  Here's a scary blog post regarding the FDIC possible getting ready to launch a "tsunami" of lawsuits against the officers and directors of failed banks. (Bank Lawyer's Blog.)  NCUA rarely does this, although they do have one suit going against officers and directors of U.S. Central. If this waive of litigation takes place, I wonder what it will do to the cost and requirements involved with D&O insurance?

Killer bees.  There has been a sighting of large bees near Arlington, Virginia. Be careful. Very, very careful.

Have a happy and safe Halloween, everyone!

This and That...

Posted by Anthony Demangone

I should have a sign in my office that reads "Things will hopefully slow down tomorrow." If I sold that sign to compliance officers, I might be writing this blog from my boat in the Bahamas. 

Indirect lending.  NCUA Board Member Gigi Hyland announced that NCUA will host a free webinar on indirect lending on Tuesday, November 9.  If you look at the panel of speakers, you'll see that NCUA is having senior members of its staff make the presentation.  They always answer a ton of questions and answers, so these webinars are a good place to measure NCUA's expectations on a topic.

RESPA.  The OCC has updated its RESPA exam procedures. They might come in handy, as RESPA is RESPA is RESPA, no matter if you are a bank, thrift or credit union. 

Fixed assets.  The NCUA is not the only financial regulator to issue material loss reviews.  OTS's inspector general wrote this report looking at the reasons why MainStreet Savings Bank failed.  The reason?  Fixed assets, to a certain degree. It brings home (a bit) at what NCUA may have been worried about regarding fixed assets and its RegFlex rule. (Hat tip to Mr. Clarke.)

The primary causes of MainStreet’s failure were its large investment in fixed assets, high overhead costs, and a very competitive local market. In 1998, MainStreet purchased a $22 million branch office and constructed a $4 million main office, which represented approximately 30 percent of the thrift’s total assets. The occupancy and related personnel expense increased the thrift’s overhead costs significantly and resulted in weak earnings. Management tried to implement a growth strategy in deposits and commercial real estate lending but was unsuccessful due to the highly competitive local market and a low net interest margin. Consequently, MainStreet could not absorb the increased overhead costs and incurred losses in 8 of the previous 11 years. These conditions were exacerbated by the deterioration in the Michigan economy. Loan delinquencies and classified assets increased significantly, which resulted in higher net operating losses that further diminished earnings and capital, and ultimately, led to MainStreet’s failure.

Sleep.  A certain set of twins in Arlington, Virginia seem to think it is perfectly acceptable to get up somewhere between 3:30 and 5 a.m. each morning.  They generally fall back asleep just as their father heads out the door for work.  Their father is not amused, but he is keeping tabs on the behavior and will dock their future allowances accordingly.

 

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.

This and That

Anthony Demangone

I was out of the office at NAFCU's Volunteer's Conference in San Antonio last week.  It is amazing how quickly one's email inbox can get out of control.  As I cleaned out my inbox, here are some things that caught my eye.

Current Issues in Credit Unions.  I co-host a podcast with a number of talented legal eagles.  The most recent edition is available here.  We touch upon, Reg Z, interchange, CUSOs, Reg GG, and more!

Risk-Based Pricing Notice.  NAFCU members, we have produced a final regulation to help you comply with the upcoming requirements here. 

Board Member Hyland. Speaking of podcasts, NCUA Board Member Gigi Hyland participated in a podcast that addressed the state of the industry, compliance with Red Flags, vendor management and more. Listen to it here.  Some of you may not know that Ms. Hyland is an attorney who served as GC for a corporate at one point.  So her views on compliance-related issues are worth a listen. The podcast is only 18 minutes long, and spends a good deal of time on fraud prevention and internal controls. 

Credit card agreements.  The Fed's online system is up and running.   The first thing I did was to check to see if my credit union's agreement was there.  I bet your members will do the same thing if they stumble upon the site.

Reg GG.  The OCC has issued a nice overview document which includes exam procedures for Reg GG. 

OK, I think that's enough for the Friday before Memorial Day.  I have three things to say about the upcoming three-day weekend.

1. Enjoy yourself and be safe.
2. Remember the reason we celebrate Memorial Day.  
3. Enjoy your family.  I'll do the same. 

  

This and That; Happy Birthday, Kate and Briggs!

Posted by Anthony Demangone

Here are a few things that were kicking around in my in-box.

• NCUA issues Regulatory Alert 10-RA-06 to alert credit unions to recent FinCEN guidance.  The guidance authorizes an exception for the CIP rule concerning address confidentiality programs.   I wrote about this earlier on the blog.
• Next week is NAFCU's Regulatory Compliance School, where many folks will prepare to pass exams in order to obtain their NCCO designation.  NAFCU members, note that Steve and Sarah will make multiple presentations, and that I will be at the conference all week.  Please be patient with our response times.  As always, a great way to get us is via [email protected]. 
• People often ask where I find many of the things that appear on the blog.  I respond that I don't find them.  They come to me, usually via my RSS reader.  An RSS reader pulls information from websites and blogs, and organizes them within a reader.  My RSS reader is provided by Google, and it tracks roughly 60 compliance-related blogs and websites.  (And some Big 10 football websites as well.)  I usually start my day with a cup of coffee while I scan new items. Interested? This video does a great job of filling in the details. 

***

Happy first birthday, Kate and Briggs!  The last year has been a wonderful roller coaster of feedings, diapers, laughter and...well, more diapers.  Life is good. For those who may be interested in pictures, visit the family blog here.

This and That

Posted by Anthony Demangone

You'll have to forgive me - this will be fairly brief.  We're all a wee bit whipped from yesterday's 2-hour webcast on Reg E and Reg Z.   Here's some stuff that has been kicking around my in-box.

• The FFIEC has released a white paper titled "Mortgage Fraud White Paper: The Detection and Deterrence of Mortgage Fraud Against Financial Institutions."  If your credit union does mortgage lending, this is a must read.  At a minimum, pass this along to whomever is responsible for fraud prevention at your credit union.

• The Department of Education has released the final version of the "self certification form" that you'll need to do private student lending.  Here's a cover letter from the agency highlighting the news.

• You can now sign up for FFIEC e-mail alerts here.  (Look for the icon in the upper right-hand corner.)

***

Don't ask my how, but my kids are now 11 months old.  Briggs is growing so quickly, he has begun supervising my work. 

 

Briggs: Dad, let me know when you're done, and I'll open up this gate.

BSA E-Filer FAQ; Reg Z; The Hill; Whoops

Posted by Anthony Demangone

You know how much I love FAQs.  Well, here's another.  FinCEN has issued an FAQ document for BSA E-Filers.  You can access it here.  The FAQ also is a transition document to help E-Filers transition to the world of "Adobe."

***

Last week, the Federal Reserve issued final regulations to implement the Mortgage Disclosures Improvement Act.  NAFCU Today wrote a nice article about the changes here.  Yesterday, the Fed published the final rule and commentary in the Federal Register.  Access the Federal Register Notice here.  Access the Fed's press release about the changes here.

***

Yesterday was a big day on the Hill.  The House passed a Credit Union Stablilization bill, and the Senate passed a credit card reform bill.  Read more about those developments here.

***

I was out with Kate and Briggs recently.  As you can see, I sort of forgot about that pig flu thing.  Luckily, this pig said he had his flu shots this year.

SAR Buzzer Beaters; Online Training

With all the games taking place in the never-ending NBA postseason, I thought I'd pass along this question and answer that touches upon the timing of SAR filings.  So, when does the dreaded clock start ticking?  From the date of the alleged suspicious activity?  Or from the date when you learn about it?  Read on... 

Question: There is some confusion within our credit union as to when the clock starts ticking for suspicious activity reporting. We have 30 days to file a Suspicious Activity Report (SAR). Is that 30 days from the day of the actual transaction or 30 days from when we determine we need to file a report?

 Answer: The Bank Secrecy Act (BSA) file rules require credit unions to file a SAR no later than 30 calendar days from the date of the initial detection of facts that indicate a SAR is required. The Financial Crimes Enforcement Network (FinCEN) notes that the 30-day (or 60-day, if the suspect cannot be identified) period does not begin until a credit union has conducted an appropriate review and determined that the transaction under review is “suspicious” within the meaning of the BSA regulations. FinCEN has further clarified that the “initial detection” of suspicious activity “does not necessarily occur on the date of the transaction(s), the date when an automated system generates a notice or red flag alert or the date when an employee initially reviews the transaction(s).” See  FinCEN SAR Activity Review – Trends, Tips & Issues, (Issue 14, October 2008), pages 37-38. Once a credit union has made its review and determined that the activity does not appear to have a business or lawful purpose and is therefore suspicious, the credit union then has 30 days from that date of determination to file a SAR.

    However, FinCEN reminds credit unions that any reviews of suspicious activity should be completed within a reasonable period of time. Issue 14 of FinCEN’s SAR Activity Review – Trends, Tips & Issues provides three excellent examples illustrating that the date of the initial detection does not necessarily trigger the 30 day filing period. You can access it here.

 

***

NAFCU is getting ready to launch a new online training program that I designed.  Get some details about it here.  I had a lot of fun with this project, and I'm very excited about it.  Then again, I'm hugely biased.

 

***

I know it is a Monday.  But cheer up.  As this photo points out, Summer cannot be far away.  I just have to find a way to keep flip-flops on their feet.  My idea of duct tape was quickly shot down by Mandy.  I told her I was kidding, but I think Mandy has her doubts.

 

Unauthorized; Newsletter; Uh-oh

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

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

Wrong.

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

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

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

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

***

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

***

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

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

Hold Your Horses; Electronic Stop Payments?; Allen Wrenches

President Obama has asked federal regulators to hold off on finalizing new or proposed regulations.  His request also includes possible extensions on existing compliance deadlines.  Read all about it here, in a very good NAFCU Today article.   The article provides a good overview, as well as a link to the White House Memorandum. 

NCUA has already pulled one final rule back due to the memo.  NCUA officials report that it is possible that other rules, including UDAP, could be affected.  Stay tuned.

***

Electronic stop payment orders?  You bet, says NCUA, as far as it is concerned.  In Legal Opinion Letter 08-1122 (January 5, 2009), NCUA indicates that NCUA regs do not require a signed, paper form.  But they do ask that credit unions look at state law requirements on the subject.  The letter is a good refresher on NCUA's recordkeeping requirements.

***

The two cribs are built.  So is a chest of drawers.  I have two words to describe my recent long weekend: allen wrench.  A bunch of folks have been asking, so I just wanted to pass along that Mandy is doing well and that the dynamic duo should be along in mid-March.

A Little of This; A Little of That

Posted by Anthony Demangone.

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

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

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

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

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

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

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

***

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

 

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

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

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

Compliance Guy: (Blank stare.)

 

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