Source: https://nafcucomplianceblog.typepad.com/nafcu_weblog/current_affairs/
Timestamp: 2019-04-25 01:48:46+00:00

Document:
Although it doesn't feel like it here in Washington, DC, the un-official start of summer has started (official start is June 21). That means pool parties, BBQs, and…proposed rules from NCUA! That's right – this summer will be chockfull of opportunities to write comment letters to NCUA. To provide you with a bit of poolside reading, I thought I'd give you a brief rundown of NCUA rules with open comment periods so that you feel empowered to write your own comment letter to the agency. After all, they hear from us all the time – the most impactful letters come directly from members.
Revises and clarifies the contents and format of the required member notice for voluntary mergers.
Requires merging credit unions to disclose all "merger-related financial arrangements" payed to their CEO, the next four highest payed employees after the CEO, and any member of the Board of Directors or the supervisory committee.
Increases the minimum time period before the member vote that the emerging FCU must give notice to its members. The proposal requires notices be mailed at least 45 days, but no more than 90 days, before the meeting to vote on the merger.
Adds procedures to enable members to communicate with each other on a large scale regarding the merger.
Conforming amendments to other provisions the regulations regarding termination of federal share insurance when the continuing credit union is not a federal credit union.
Of the changes proposed, a few stand out that are worth mentioning. Regarding the second proposal, it would change in a new definition of "covered person," which will replace the existing definition of "senior management official" from section 708b.2. The proposal explains that this change is required because in some recent voluntary mergers involving smaller credit unions, the current definition of "senior management official" was under-inclusive and did not cover some individuals who perform significant managerial duties despite not having an executive officer title.
Also, where the merging credit union is a FCU, the proposal requires the following in the submission of the merger proposal to NCUA: (1) all board minutes for the merging and continuing credit union that reference the merger during the 24 months before the approval date of the merger plan by the board of directors of both credit unions; and (2) a certification from the merging credit union and the continuing credit union that there are no "merger-related financial arrangements" other than those disclosed in the required notice to members.
Potentially the most novel component of the proposal is the fourth proposed change – the creation of a member-to-member communications process. Already required for credit unions converting to banks, the proposal would require FCUs to inform members that they can provide their opinions about the proposed merger to other members. Members can submit their opinions in writing to the merging FCU within 30 calendar days of receipt of the merger notice, and the FCU will forward those opinions to other members. The merging credit union must ensure that all member-to-member communications are received at least 15 calendar days before a vote. Of note, the minimum time requirements seem like they could allow for disgruntled members to gum-up the process, not to mention the logistical nightmare of potentially facilitating several dozen member-to-member communications.
The Board also issued two other proposals last week, both regarding credit union processes for appealing exams. The first would standardize the appeals process for regulations that currently have their own review and appeals procedures. The other would expand the number of supervisory determinations appealable to the agency's Supervisory Review Committee (SRC) and provide credit unions the opportunity for additional review by the director of the Office of Examination and Insurance.
Changing the nature and composition of the Committee.
Under the proposed rule, an appeal at any level would not affect, delay, or impede any formal or informal supervisory or enforcement action in progress. Likewise, it would not affect NCUA’s authority to take any supervisory or enforcement action against a federally insured credit union.
Changes to the SRC process could create a more uniform process for appealing certain program office decisions to the Board. Several existing NCUA regulations provide a right of appeal, but these generally lack uniformity and may be confusing to parties who might seek to appeal an adverse decision to the Board. The proposed rule would bring these under a uniform set of procedures.
As he stated during last week's Board meeting, both these issues are "near and dear" to Chairman McWatters. NAFCU is certainly pleased to see the agency taking the next step on this issue. Since examinations are often the only time that credit unions have face-time with agency personnel, a well-oiled exam process, as well as a speedy appeal, is of paramount importance.
NAFCU welcomes both these proposals, and we encourage you to take the opportunity to let NCUA know how you feel. If you have nightmare exam stories to share, but don't feel comfortable putting your name out there, use us as an intermediary. The example will serve as great evidence as to why exam appeals reform is necessary.
Every summer, NCUA reviews one-third of its regulations and solicits industry feedback on ways to reduce burdens or administrative hurdles. This year, the NCUA is reviewing mainly administrative procedural rules. NAFCU has drafted a Regulatory Alert which summarizes the rules being reviewed.
So here's my cheesy appeal: this summer, whether you're enjoying your beach vacation or stay-cation, or when you're watching the fireworks on the Fourth of July or at a baseball game, be productive and plan to comment on at least one of these proposals. If you want to talk it over, give us a call at Reg Affairs. We can walk you through it, and then you can be the expert at your credit union.
Otherwise, have a great summer!
If your job duties include ERM for your credit union, next week is the final chance to save $200 on our Risk Management Seminar coming up in July in beautiful Denver. Learn strategies to effectively identify and manage your credit union's risk at an enterprise level. Plus, you'll have the chance to earn the NAFCU Certified Risk Manager (NCRM) designation or renew your current certification without having to retake the exam. Check out the agenda or download the full brochure.
Since moving my family from the DC metro area to Denver last summer, curious friends and family have often asked about the marijuana industry out here in the Mile High City. After eight months in beautiful Colorado, I can report that yes, we have a pot shop just up the street (actually, it's a pretty fancy "cannabis boutique") and yes, the marijuana industry in this state is booming and thriving. In 2015 alone, Colorado reportedly collected more than $135 million in taxes and license fees related to legal marijuana sales, with more than $35 million of those funds earmarked for public school construction projects. But is the Mary Jane Gravy Train about to find a major roadblock in its path?
The Trump Administration is signaling that a major shift in federal marijuana enforcement policy may be just around the corner. As we have blogged about in the past, credit unions providing, or interested in providing, financial services to marijuana-related businesses already face significant legal, compliance and operational challenges, and these difficulties are about to get worse.
By way of background, to date, more than half the country—28 states in total—has legalized marijuana in some form at the state level. Under the Controlled Substances Act (CSA), however, marijuana remains a schedule I controlled substance, which makes it illegal under federal law to manufacture, distribute, or dispense marijuana. See, 12 U.S.C. §812(b)(1). In addition, criminal provisions of federal money laundering statutes, unlicensed money remitter statutes, and the Bank Secrecy Act (BSA) remain in effect with respect to marijuana-related activity. For example, it is a federal criminal offense to engage in certain financial and monetary transactions with the proceeds of a “specified unlawful activity,” including marijuana-related funds. See, 18 U.S.C. §§ 1956 and 1957. It is also a federal criminal offense to transact funds “derived from” marijuana-related activity by or through a money transmitting business. See, 18 U.S.C. § 1960. Financial institutions that conduct transactions with funds derived by marijuana-related activity may also be subject to criminal liability for failing to identify or report financial transactions involving marijuana proceeds. See, 31 U.S.C. §5318(g).
As such, financial transactions involving proceeds from marijuana-related activity can still form the basis for federal criminal prosecution, despite growing legalization under state law. Due to this conflict between federal and state law, credit unions and banks have been challenged in providing financial services to marijuana-related businesses. Financial institutions have also faced uncertainty about how they can provide services to marijuana-related businesses consistent with their BSA compliance obligations. As a result, legal marijuana-related businesses remain largely unbanked and typically operate as cash-based businesses, increasing the risk of robbery and other crimes. Several members of Congress have called for legislative and/or regulatory action to enhance financial access for legal marijuana-related businesses. In response, under the Obama Administration, the Department of Justice (DOJ) issued "Cole" memos in 2013 and 2014 addressing marijuana enforcement, and the Financial Crimes Enforcement Network (FinCEN) in 2014 issued guidance on BSA expectations regarding marijuana-related businesses. Together, the DOJ memos and the FinCEN guidance created a path—albeit somewhat narrow—for credit unions to serve marijuana-related businesses consistent with their compliance obligations.
However, recent comments from the White House and the attorney general are strongly hinting at a reversal from the previous administration's policy that the federal government would not direct its investigative and prosecutorial resources to states where marijuana is allowed under state law.
In February, while drawing some distinction between medical and recreational marijuana, White House press secretary Sean Spicer indicated that "there is still a federal law that we need to abide by when it comes to recreational marijuana," and "I do believe you will see greater enforcement of it."
Meanwhile, during his Senate confirmation proceedings attorney general Jeff Sessions testified that, "I won't commit to never enforcing federal law," after previously stating, "good people don't smoke marijuana."
While still speculative at this point, a change in federal drug enforcement priorities could mean even greater uncertainty for credit unions already serving or looking to serve marijuana-related businesses. The DOJ memos and FinCEN guidance provided a framework for offering financial services to marijuana-related businesses but the fact remains that marijuana is still illegal under federal law. At the end of the day, agency guidance and enforcement policies are not binding law. The Trump Administration has full discretion and authority to overturn the DOJ memos and alter federal enforcement priorities with respect to marijuana-related activity. If that happens, credit unions providing financial services to marijuana-related businesses are vulnerable to uncertain legal and compliance liabilities.
FinCEN is issuing this guidance in light of recent state initiatives to legalize certain marijuana-related activity and related guidance by the U.S. Department of Justice (“DOJ”) concerning marijuana-related enforcement priorities. This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.
Accordingly, if federal law enforcement priorities change or the DOJ memos are repealed or revised, credit unions can no longer rely on the FinCEN guidance for serving marijuana-businesses, heightening BSA compliance risks. It is also unclear at this point how NCUA would respond to any change in federal drug enforcement policy. While the agency instructed its examiners to follow the DOJ and FinCEN guidance, all bets are off if the current White House reverses course, and NCUA will almost certainly comply with any new directives from the Trump Administration with respect to federal enforcement of marijuana-related activities.
A lot remains uncertain, but if your credit union is serving or looking to serve marijuana-related businesses, be sure to watch this space for updates on any further developments. Also, as always, feel free to reach out the NAFCU Compliance Team with any questions.
Yesterday, the CFPB released its latest Monthly Complaint Report, which provides a high-level snapshot of trends in consumer complaints. It is important to keep in mind that credit unions under $10 billion are not included in the Consumer Complaint Database, which forms the basis of the monthly reports. Notwithstanding, the reports can be a useful tool, as they can help credit unions evaluate which products and services are more problematic and thus, should be addressed in order to avoid or mitigate regulatory risks. Moreover, in light of the increased scrutiny of debt collection practices, credit unions are generally advised to monitor the various regulatory bulletins, reports and enforcement actions in this area in order to properly assess whether they are in compliance with FDCPA and Dodd-Frank.
The biggest debt collection complaint concerned attempts to collect on a debt that is not owed. This complaint accounted for 38% of debt collection complaints received.
The second biggest complaint touched on communication tactics used by debt collectors. Specifically, consumers complained about frequent or repeated calls from debt collectors, reporting that they receive multiple calls weekly or daily. Additionally, consumers complained about receiving debt collection calls at work. Some consumers reported that their debt was disclosed to a supervisor or other third-party; while others reported that collectors made in person visits to their workplace. Also, consumers reported that requests to cease communications were not honored. This category of complaints represented 19% of debt collection complaints submitted.
Consumers complained that they were not given enough information to verify whether or not they owed the debt in question.
Failing to implement consumer requests regarding communications, such as honoring a request to not be contacted at work. Generally, the FDCPA sets limits on a debt collector’s ability to communicate with members. For example, a debt collector, without prior consent of the consumer, is prohibited from communicating with a consumer in an attempt to collect a debt, at the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication. (15 U.S.C. §1692c(a)(2)). Also under the FDCPA, when consumers notify a debt collector that they wish the debt collector to cease communication with them, the debt collector must generally honor that request. (15 U.S.C. §1692c(c)).
Use of false, deceptive or misleading representations regarding credit reporting. The FDCPA prohibits a debt collector from using any false, deceptive, or misleading representation in connection with the collection of any debt. For example, a debt collector may not make false statements about the amount of any debt; or make a representation that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure or garnishment of any property or wages of unless such action is lawful and the debt collector or creditor intends to take such action. (15 U.S.C. §1692e).
In short, these recent developments demonstrate that debt collection is still at the top of the CFPB's list. Accordingly, credit unions, particularly those with more assets of $10 billion or more, need to pay attention to its debt collection practices.
The CFPB’s Monthly Complaint Report can be found here.
You can view the CFPB’s Consumer Complaint Database here.
My name is Ricardo Piñeres, and I am the new Regulatory Compliance Counsel here at NAFCU. I know what you’re thinking: “Did I somehow trip into a time machine and get propelled into the future? Aren’t Alicia and Brandy the new Regulatory Compliance Counsels?” Well, things move pretty fast here at NAFCU, and in an effort to better help our members navigate the crazy world of compliance, I have also been added to the team. I truly look forward to sharing my thoughts on compliance issues on this blog.
While you may not have time traveled, I do want you to spend some time thinking about the future. What will our payment systems look like as we continue boldly pushing forward into the 21st Century? While cash, checks, ACHs, and other forms of payment have served us well for many years, our industry is at an interesting crossroads. Consumers are demanding more real-time transactions that do not compromise security. Consumer electronics and the technology that powers them are getting more powerful with every passing second. It’s only a matter of time before our current payment systems become obsolete.
So, why should you care? Isn’t this a discussion for the technocrats, market researchers, and product development teams both within and outside of the financial services industry? While they may be the driving forces behind much of the changes that will inevitably be coming, compliance specialists absolutely need to take an active role in the discussions. It is you who will be tasked with ensuring that these payment systems and the processes that our institutions use in making them work are fully compliant with both current and future laws. Therefore, you need to be thinking of what you want these systems to look like and how you think they should be regulated.
Key improvements to the future state of the payment system have been collectively identified and embraced by payment participants, and material progress has been made in implementing them.
A ubiquitous electronic solution(s) for making retail payments exists that does not require the sender to know the bank account number of the recipient. Confirmation of good funds will be made at the initiation of the payment. The sender and receiver will receive timely notification that the payment has been made. Funds will be debited from the payer and made available in near real time to the payee.
Over the long run, greater electronification and process improvements have reduced the average end-to-end (societal) costs of payment transactions and resulted in innovative payment services that deliver improved value to consumers, businesses, and governments.
Consumers and businesses have better choice in making convenient, cost-effective, and timely cross-border payments from and to the United States.
The Federal Reserve Banks have collaborated, as appropriate, with the industry to promote the security of the payment system from end-to-end amid a rapidly evolving technology and threat environment. In addition, public confidence in the security of Federal Reserve financial services has remained high.
While it is great that the Federal Reserve Banks are proactively working towards the modernization of the U.S. payment system, it needs to be industry leaders that are the driving force behind any changes to the payment system. It would be akin to the government having stepped in and mandated a winner in the VHS/BETA Max and Blu-Ray/HD-DVD wars. The industry standards were set by consumer choice, and the same needs to happen with the evolution of payment systems. The growth of a modern payment system must happen naturally with tech companies, financial services institutions, payment networks, consumer groups, and other interested parties coming together to see what are the best solutions to this complex puzzle. The Federal Reserve Banks’ role should be akin to a moderator working to ensure that all interested parties are a part of the developmental process. That being said, the various industries must be allowed enough autonomy from the Federal Reserve Banks to find real and practical solutions that address the various issues in creating a safe and modern payment system.
NAFCU’s Regulatory Alert (13-EA-31) on the Federal Reserve Banks’ white paper on improving payment systems is available here (NAFCU log-in required). Also, take a look at this CU Insight post – written by Carrie Hunt: Let Industry Lead the Way for Payment System Reform.
Programming Note. NAFCU’s offices will close today at noon for the Martin Luther King, Jr. holiday and will reopen on Tuesday, January 21. We will be back to blogging on Wednesday, January 22.
What better way to mentally fight the cold of this winter than by being transported to Brazil through the sounds of Gaby Amarantos and Monobloco’s Todo Mundo, Coca-Cola’s anthem for this year’s World Cup (an English version was recently released by David Correy and a Spanish version has been released by Carlos Vives – my favorite musician). It’s got a great beat and reminds me that there are only 145 days until the tournament begins!
Last Day for Early Bird Savings - NAFCU's Regulatory Compliance School. Before you leave for the weekend, lock in your $100 in early-bird savings for NAFCU’s Regulatory Compliance School March 10-15 in National Harbor, Md. Today is the last day to save! You’ll get credit union regulatory compliance from A to Z, plus the chance to take the exams to earn the respected title of NAFCU Certified Compliance Officer.
I encourage you to view the slides on Anthony's blog post.
Those slides are very helpful to credit unions, but don't stop there. NCUA has provided tons of information on what their focus will be in 2013. NCUA has given you the playbook, be sure you read it!
Have a great weekend and Go Blue!
Friday - March 1st - marks the deadline for two completely unrelated issues.
Mandatory Electronic Federal Payments. Starting March 1st, all federal benefit payments must be electronic. While this won't necessarily be a direct impact on your credit union - it will be a big change for some of your members. We blogged on this back in December and included links to numerous resources from Treasury's Go Direct campaign.
Home Mortgage Disclosure Act (HMDA) Deadline. Friday is also the deadline for credit unions to submit their 2012 HMDA data. NCUA previously issued Regulatory Alert 13-2 which highlights the March 1, 2013 deadline for submitting HMDA data.
Additionally, NCUA conducted a free HMDA webinar on January 24th that credit unions should be sure to check out. The webinar features discussion from NCUA's Office of Consumer Protection, the Federal Reserve's HMDA/CRA team (including my wife - who did a great job*) and representatives from the CFPB and OCC. The archived webinar is available here.
*And, I'm not just saying this because I didn't wish her a Happy Valentine's Day on the blog (unlike a certain other veteran NAFCU blogger).
Listen for yourself, I'll say it again - great job!
A ruling by the U.S. Court of Appeals for the District of Columbia (WashingtonPost.com) on the recess appointments of 3 National Labor Relations Board (NLRB) appointments caused quite a stir on Friday afternoon. Especially, considering CFPB Director Richard Cordray was appointed at the same time.
You are probably going to read quite a bit in the upcoming weeks (and months) about what this means for Cordray's appointment and - more importantly - the CFPB's recently released final mortgage regulations (and, the remittance transfer regulation). For credit unions, I want to point you back to one of my blog posts from June 2011 on the CFPB's Authority Without a Director. In that post, I looked at what the CFPB could do if it did not have a "Senate-confirmed director:"
Take over consumer protection issues related to RESPA and certain consumer rules previously under the authority of the Federal Trade Commission.
That post relied on a January 11, 2011 joint letter from the Inspector Generals of the Federal Reserve and Treasury Department - especially Question & Answer #5.
So, What Should Credit Unions Do? Continue working on understanding and complying with the CFPB's regulations. The CFPB had authority to issue regulations under Regulation Z (TILA), Regulation X (RESPA) and Regulation E (EFTA - remittance transfers) even without the Senate-confirmed Director. Thus, if Cordray's recess appointment were overturned - the new requirements would still be mandatory. Now, there would likely be numerous nuances and intricacies that would pop up - but the best course of attack is to continue to work toward understanding and complying with the CFPB's regulations.
Ironically, nonbank mortgage originators and servicers would be in a slightly different boat (as would nondepository providers of remittance transfers) as the CFPB wouldn't have authority over those entities without a proper Director. Of course, that isn't to say they would get off scot-free (in fact, it could turn out worse) - but it is a different analysis than for banks and credit unions who were already regulated at the federal level.
Ah, that feels better. Have a great week everyone!
First things first, the language of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) is available on NAFCU's Compliance website (available to both NAFCU members and non-members).
Ok, only 33 pages. Not so bad, right? Unfortunately, there appears to be a trade-off where we received brevity in exchange for confusion. Trust me, the law is much harder to read than the regulations.
How did we get here? Congress codified, strengthened, enhanced and moved up many of the protections that NCUA and the other federal regulators adopted in their regulation on Unfair or Deceptive Acts or Practices (UDAP - Part 706 of NCUA's Regulations). Congress also added new restrictions on credit card accounts.
What does this mean? The protections on credit card accounts are now law. The Credit CARD Act amended the Truth in Lending Act. In contrast, the Federal Reserve (and NCUA) had adopted the UDAP regulations under existing authority under the Federal Trade Commission Act (FTC Act). Six of one or a half dozen of the other, right? No, again. The fact that these protections are now codified in laws rather than regulation means they are harder to change.
However, there is a glimmer of sun for federal credit unions. The Credit CARD Act applies to a broader scope of institutions than the UDAP regulations ensuring each card issuer is operating on a level playing field. For example, state-chartered credit unions were not subject to the UDAP regulations (because for unfair practices they are regulated by the FTC) but they will be subject to the Credit CARD Act.
What do we need to do? Review the new Credit CARD Act and determine how your card operations need to adjust to comply with the law. The law covers a wide variety of situations, such as gift cards, credit cards to persons under the age of 21, and the timing to send periodic statements - just to name a few.
When is the effective date? The majority of the provisions of the Credit CARD Act become effective 9 months after President Obama signed the bill into law. President Obama signed the Act on May 22, 2009 making February 22, 2010 the effective/compliance date for many of the provisions. Note: This is more than 4 months prior to when the UDAP regulations are slated to become effective (July 1, 2010). The UDAP regulations are still scheduled to be implemented - the Credit CARD Act does not mean credit unions do not need to be follow UDAP - though the regulators may amend the UDAP regulations at a future date.
Editor's Note: The original post accidently listed February 22, 2009 as the effective date - it is, rather, February 22, 2010.
However, Congress determined that two sections of the Credit CARD Act warranted earlier effective dates 90 days after enactment - August 20, 2009. Yes, as in 70 days from today.
Which provisions are effective August 20, 2009?
Section 101. Protection of Credit Cardholders. (a) Advance Notice of Rate Increase and Other Changes Required. (see pages 2-3 of the Credit CARD Act PDF).
Beginning on August 20, 2009, credit unions will need to send an advanced notice of (a) an increase in an APR; or (b) other significant changes - including an increase in any fee or finance charge. The advanced notice must be 45 days before the effective date of the change. The Federal Reserve Board will determine what "other significant changes" trigger the advanced notice. Until the Federal Reserve provides clarity in this area, credit unions may want to use Regulation Z, 12 CFR 226.9(c), as guidance for which terms of the account might be considered significant.
A "Right to Cancel" statement must accompany the advanced notice to the member. The statement needs to inform the member of his/her right to cancel the account and, in effect, reject the changes. The Federal Reserve Board is required to establish rules regarding the "Right to Cancel." It is unclear what information would be required to accompany this "Right to Cancel" statement. My best guess is that the credit union would need to inform the member of what canceling the account would entail (i.e. no new purchases; retain existing APR and terms; repayment options, etc.) Additionally, the law prohibits a credit union from requiring a member who exercises his right to cancel the account to repay the obligation in full. Rather, the credit union needs to provide a repayment method that is no less beneficial than one of the methods in Section 171(c)(2) of the Truth in Lending Act (see page 4 of the Credit CARD Act PDF).
Section 163. Timing of Payments. (see page 9 of the Credit CARD Act PDF).
Credit unions need to mail or deliver periodic statements 21 days or more before the payment due date in order to charge a late fee. Note: This section applies to all open end consumer credit plans and is not limited to credit cards.
Additionally, another section of the Credit CARD Act, Section 106 (on page 9), requires the payment due date for a credit card account to be on the same day each month (i.e. the 18th of the month). If the due date falls on a day the credit union does not accept payments, the credit union may not treat a payment received the next business day as late. Note: Section 106 is not effective until February 22, 2010 but credit unions should consider its impact when making any needed changes to their credit card billing cycles.
NAFCU will be relaying information regarding all the new rules and requirements as fast as we can. Be on the lookout for a big overview blog posting from Anthony tomorrow summarizing many of the upcoming compliance deadlines.
NAFCU is planning a webcast on the Credit CARD Act in August, so stay tuned for information on that webcast.
As always, NAFCU members can call or e-mail us with their questions. We have created a "Contacting NAFCU Compliance" cheat sheet that is available on our compliance homepage. Talk to you soon.

References: §812
 § 1960
 §5318
 §1692
 §1692
 §1692