Source: https://nafcucomplianceblog.typepad.com/nafcu_weblog/2017/08/index.html
Timestamp: 2019-04-19 03:04:06+00:00

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The Financial Crimes Enforcement Network (FinCEN) recently issued revised Geographic Targeting Orders (GTO) to target shell companies buying luxury properties. Transactions conducted in Honolulu, Hawaii, are now included under the revised GTO, making a total of seven major metro areas where U.S. title insurance companies are required to identify the natural persons behind shell companies used to pay for high-end real estate. The August 22, 2017, revised GTO also has broadened the transaction categories to now include wire transfers. Any covered transaction made "without a bank loan or other similar form of external financing; and ... made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, or a funds transfer" must be reported to FinCEN.
In addition to the revised GTO, FinCEN released FIN-2017-A003 to provide financial institutions and the real estate industry with information on the money laundering risks associated with some real estate transactions. The guidance provides some red flag activity and case examples. FinCEN also has a frequently asked questions document here.
FFIEC BSA/AML Examination Manual Update. Word on the street is that an interagency group of federal banking regulators has started working on amending the Federal Financial Institutions Examination Council’s Bank Secrecy Act exam manual to account for the new customer due-diligence rule issued by the Financial Crimes Enforcement Network last year. No details as yet on how in depth the updated manual and standalone sections on the Customer Due-Diligence Rule will address the extent to which financial institutions will have to obtain and verify beneficial ownership data from existing clients or which of the rule's provisions will be prioritized for enforcement.
Useful Tools. Our credit union industry friend, Andy Keeney, of Kaufman & Canoles, has provided you with these two useful resource tools: NCUA's List of Required Policies for Board of Directors of Credit Unions and Credit Union Board Compensation by State.
A Final Laugh. Here, courtesy of Payments.com are a few quick stories of some incompetent bank robbers to hopefully give you a chuckle, because we all just need a laugh once in a while.
On Thursday, the CFPB published a final rule amending the 2015 Home Mortgage Disclosure Act rule. This finalizes technical changes and amendments that the Bureau proposed back in April 2017 while also finalizing a July 2017 proposal to increase the reporting threshold for open-end home equity loans from 100 loans to 500 loans. The regulatory references to HMDA below are not to the current version of the rule, but the rule as amended in 2015 (and further amended by last week's rule).
Technical Amendments. First, here is a summary of a few of the key amendments to the HMDA rule.
"…If the applicant agrees to proceed with consideration of the [credit union's] counteroffer, the [credit union] reports the action taken as the disposition of the application based on the terms of the counteroffer. For example, assume a [credit union] makes a counteroffer, the applicant agrees to proceed with the terms of the counteroffer, and the [credit union] then makes a credit decision approving the application conditional on satisfying underwriting or creditworthiness conditions, and the applicant expressly withdraws before satisfying all underwriting or creditworthiness conditions and before the institution denies the application or closes the file for incompleteness. The [credit union] reports that the action taken as application withdrawn in accordance with comment 4(a)(8)(i)–13.i. Similarly, assume a [credit union] makes a counteroffer, the applicant agrees to proceed with consideration of the counteroffer, and the [credit union] provides a conditional approval stating the conditions to be met to originate the counteroffer. The [credit union] reports the action taken on the application in accordance with comment 4(a)(8)(i)–13 regarding conditional approvals."
"…Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)–1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale."
Loan purpose for purchased loans originated before January 1, 2018. Section 1003.4(a)(3) requires credit unions to report the purpose of a covered loan or application. Categories include home purchase, home improvement, or refinancing, an “other” category, and a cashout refinancing category. The Bureau is adding new comment 4(a)(3)–6 to clarify that, for purchased covered loans where the origination took place before January 1, 2018, a credit union complies with § 1003.4(a)(3) by reporting that the requirement is not applicable.
There are many more technical amendments and NAFCU is still reviewing the final rule. In the coming weeks, we will publish a Final Regulation for members providing a summary of the changes as well as a consolidated regulatory text so stay tuned.
Amended Open-end Line of Credit Threshold.
"Originations. Whether an institution is a financial institution depends in part on whether the institution originated at least 25 closed-end mortgage loans in each of the two preceding calendar years [January 1, 2017] or at least 100 open-end lines of credit [January 1, 2018] in each of the two preceding calendar years. Comments 4(a)-2 through -4 discuss whether activities with respect to a particular closed-end mortgage loan or open-end line of credit constitute an origination for purposes of § 1003.2(g)."
The Bureau is amending HMDA effective January 1, 2018, to increase the open-end threshold from 100 to 500. However, this increase is only temporary – effective January 1, 2020, the threshold will revert to 100 open-end lines of credit.
Reporting 2017 HMDA Data (and Beyond). We've had some credit unions ask us about reporting methods for 2017 HMDA data. Currently, and in the past, the FFIEC has collected and processed HMDA data for the CFPB, OCC, FDIC and NCUA. Currently, for 2017 reporting of 2016 data, Appendix A still points credit unions to the FFIEC for reporting.
As we've noted before, the CFPB is developing a web-based submission tool which will be intaking and processing HMDA data on behalf of the agencies. See, 80 Fed. Reg. 66246. That tool will be used for the submission of 2017 data in 2018. Beginning in 2018, Appendix A will direct reporting credit unions to use the CFPB website and it's submission tool/HMDA platform, which should be ready in the 4th quarter of this year for testing.
Some credit unions have asked if submissions by mail will still be an option. Currently, subsection II.A. in Appendix A states "If…you elect to submit your data by regular mail, then use the following address: […]" and provides the FRB address for mailing data. As of January 1, 2018, the submission instructions in Appendix A will no longer contain any instructions for submission via regular mail, only instructions for submission through the CFPB's portal.
Beginning in 2019, Appendix A will be entirely removed and new section 1003.5(a)(5) will direct reporting institutions to the instructions on submitting data which will live in a separate document on the Bureau's website. The reporting in 2019 will be done under the new rule, meaning the inclusion of instructions for submitting the new data collected in 2018. However, the actual method of submission – the CFPB's HMDA Platform – will have already been used in 2018 while submitting 2017 data.
Hello, compliance friends! As a millennial, before trying a new restaurant, traveling somewhere new or even a joining a new credit union, I like to at least do some research. Normally, I try to read reviews from various sources to ascertain a broad sense of the market's feedback. As people continue to grow more reliant on the opinions of others, I want to explore what this may mean for credit union complaints and how credit unions can potentially mitigate this risk.
From a reputational risk perspective, a member complaint going viral presents a huge threat to credit unions. To mitigate this risk, a well-designed and properly implemented complaint management program is a tool that can uncover noncompliant business practices. Strong complaint management programs also can improve member service by providing members with an easy-to-use method of resolving issues.
Note: as a credit union considers their complaint management system, the credit union may also want to review and define what constitutes a "complaint" so that staff understands when escalation to the complaint resolution process is necessary. The credit union may also want to institute appropriate training on these policies for any staff members that resolve complaints or may have the opportunity to receive a complaint from a member. It is also important for policies and procedures to include how and when responses should be made, including any regulatory time limitation, i.e. Regulation E's error resolution process.
More importantly, regulators are increasingly focusing on member complaints as a source of future regulation and as an examination trigger. A comprehensive complaint management process allows a credit union to prevent and reduce regulatory violations through self-identification and correction. Alternatively, complaint data can validate a credit union's controls in some areas and indicate risks and the need for training in others.
In June 2015, NCUA issued Letter to Credit Unions 15-CU-04 advising that the agency had changed its complaint-handling process to allow credit unions 60 days to resolve most consumer complaints before the NCUA Consumer Assistance Center intervenes. The consumer complaint process has two distinct phases: 1) attempted resolution by the credit union and 2) investigation by the Consumer Assistance Center.
During the first phase, NCUA forwards the complaint to the chairman of the appropriate credit union committee, and the credit union then has the opportunity to review the complaint and has 60 days to attempt its resolution. During the complaint resolution process, the credit union is encouraged to communicate directly with the member. NCUA also recommends the credit union respond in writing to the member, with a copy of the letter going to the Consumer Assistance Center, referencing the case number and whether it was able to resolve the complaint.
The second phase involving a formal investigation will begin if the Consumer Assistance Center does not receive a written response from the credit union within the 60-day time frame or if a response is received advising no resolution was possible. Conversely, if the Consumer Assistance Center is notified in writing within the 60-day period that the matter has been resolved, it will close the case. However, the member retains the right to dispute the resolution of the complaint in writing, within 30 calendar days of the credit union's response letter. A member dispute may also trigger a formal investigation.
A comprehensive complaint management program consists of the following: policies and procedures; clear channels of communication; an investigation process; written response; maintaining records; corrective action; and retaining, organizing and analyzing complaint data.
A credit union's written policies and procedures regarding the handling of complaints is critical in creating fair, consistent and timely resolution of complaints. A credit union may also want to establish policies and procedures for both complaints received from a member directly, as well as a complaint received from a regulatory body.
The Office of Consumer Financial Protection and Access's guidance recommends establishing channels to receive member complaints and inquiries such as telephone numbers or email addresses dedicated to receiving this type of correspondence.
After a credit union receives a complaint, the method of investigation depends on the nature of the complaint. However, an investigation may include: interviewing the member; reviewing the member's account information and history; interviewing appropriate credit union officials and staff; reviewing pertinent written and unwritten policies and procedures; reviewing multiple loans to determine the actual practices of the credit union; and reviewing relevant laws and regulation.
Once the investigation is complete, both the supervisory committee guide and the OCFPA recommend that responses to complaints be provided to the member in writing. A written response allows the credit union to explain the resolution of the complaint to the member in a precise and clear manner, as well as creating a record of the date and manner in which the complaint was resolved.
If the investigation of a complaint leads to the discovery of illegal, improper, unfair or discriminatory practices at the credit union, it is critical that the discovery leads to change in that practice. The credit union may also consider developing procedures to address or correct illegal or improper practices. For example, a credit union's recommendation for corrections could include a change to policies and procedures, additional compliance training and monitoring, and updating tools, systems and written materials.
Lastly, collecting and logging complaint data has the potential to reveal a wealth of information. The credit union may want to consider refining its data indicators to better categorize, organize, and analyze complaint data. Theoretically, analyzing complaint data provides a credit union with the opportunity to address trends, isolate areas of risk, identify weakness in controls and self-identify compliance violations.
A comprehensive complaint management system can lead to cost efficiencies by preventing member loss, allowing for self-identification and correction of regulatory violations, and preventing litigation by preemptively fully resolving member complaints.
As we tackle the painful job of picking apart the CFPB's TRID "Fix" final rule, we are reminded again of the Bureau's deep appetite for technical minutiae. It's a regulation in the style of ancient filigree, complex to behold and not particularly easy to use. Identifying and absorbing these hyper-intricate changes is just step one in the mission to actually understand what will change for credit unions who have to use this rule.
So, today, we are going to look at one piece of the amendments: clarification regarding costs paid to affiliates for which there is no applicable tolerance.
(E) Charges paid for third-party services not required by the creditor. These charges may be paid to affiliates of the creditor." 12 C.F.R. § 1026.19(e)(3)(iii) (Emphasis added).
"The Bureau understands that there is uncertainty whether all five of the § 1026.19(e)(3)(iii) categories include charges paid to affiliates of the creditor or if only the § 1026.19(e)(3)(iii)(E) category (i.e., charges paid for third-party services not required by the creditor) includes charges paid to affiliates of the creditor. The Bureau believes there are reasonable arguments to support either of those interpretations under the current rule but is proposing to change the rule prospectively so that all five categories expressly include charges paid to affiliates." 81 Fed. Reg. 54332.
In exchange for choosing the more expansive of these possible interpretations, the CFPB is adding a caveat: a charge paid to an affiliate must be "bona fide" in order for it to have no applicable tolerance rules. The Bureau stated that this addition was intended to limit any potential harm associated with allowing variations without regard to tolerances on charges paid to affiliates.
"(iii) Variations permitted for certain charges. An estimate of any of the charges specified in this paragraph (e)(3)(iii) is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of whether the amount paid by the consumer exceeds the amount disclosed under paragraph (e)(1)(i) of this section. For purposes of paragraph (e)(1)(i) of this section, good faith is determined under this paragraph (e)(3)(iii) even if such charges are paid to affiliates of the creditor, so long as the charges are bona fide: […]" 81 Fed. Reg. 37768 (Emphasis added).
The final rule also adds new comment 4 to paragraph 19(e)(3)(iii), which describes that a charge is bona fide if it is "lawful and for services that are actually performed."
The comment also reinforces that just because a charge has no applicable tolerance does not mean it is automatically in good faith under section 1026.19(e)(3)(i). The charge must still be consistent with the best information reasonably available to the creditor at the time the disclosure is provided. The existing commentary to section 19(e)(1)(i) directs readers to the commentary to section 1026.17(c)(2)(i) for an explanation of that standard.
The good news is that more fees may not be subject to a tolerance requirement for good faith analysis. The bad news is that there is now yet another hoop in the TRID rules to push a fee through before it can be confidently charged to a borrower. But credit unions and their affiliates are not in the business of charging their members illegal or sham fees, so this one should be relatively painless.
Last week, several of my NAFCU colleagues and I attended the 11th Mid-Atlantic Anti-Money Laundering Conference, a multi- day symposium held here in Washington, DC, and presented by the FBI, ICE, U.S. Secret Service, IRS and DEA. This conference is a useful one in that it gives financial institution attendees the opportunity to hear law enforcement cases that illustrate how the "bad guys" are using the U.S. financial system to launder their ill-gotten proceeds. It's also helpful to hear that the information you all submit doesn't just disappear into a black hole.
The information provided in Suspicious Activity Reports (SARs) is useful and appreciated. During the conference, multiple law enforcement investigators noted how important SARs are to their investigations and in one illustrated case, a SAR was the actual trigger for the investigation. Whether a SAR starts an investigation or enhances an ongoing one, law enforcement stresses that such information sharing is vital.
Third party service providers and facilitators are moving monies for everyone – the provider simply wants the commission.
In some cases a third party may have been with an institution for years – look for a sudden spike in activity as it may now be being used as a shell company for money laundering.
Newly created companies with a great deal of account activity could be a possible indicator of fraudulent activity.
Sudden usage of dormant accounts – law enforcement sees dormant accounts as vulnerable for fraudulent activity.
Trade based money laundering, such as textiles, phones, vehicles and electronics, is growing.
Think about when your institution's systems are sleeping – this vulnerability was handily used in the Bangladesh Bank heist, i.e., weekends, holidays and time zone differences.
Employee benefit plan and trust fraud – fraud is ripe in instances where there is a single plan administrator. Look out for transactions making no business sense or sudden stoppage of deposits as funds could be improperly rerouted. There is no reason for funds to be transferred out of a pension plan.
While it is not illegal for a doctor's office to accept cash payments, it is a little strange especially if the amounts are quite high.
Commodity purchases are being financed through financial institutions with the repayments being made with drug proceeds. How often do you review your repayments as opposed to deposits?
Understand the nature and purpose of your member's business.
What triggers the re-categorization of your member from low risk to high risk?
Make sure your BSA staff has the proper stature and influence within your institution. They should be involved with product and member/customer development.
Your internal controls must not remain static in conjunction with your institution's risk profile.
Update and evaluate your systems continuously – the robustness and effectiveness must be ongoing along with ongoing validation of rules.
There should be clear elevation protocols and procedures for reporting of issues.
Geographic risk must also be taken into consideration even by smaller financial institutions.
MLA Update. The Department of Defense informed NAFCU in a letter that, at this time, it would not delay its October 3 implementation date for credit card compliance under the Military Lending Act rule. More details can be found in this NAFCU Today story, here.
For one reason or another, credit unions often find themselves updating their credit agreements. Inevitably, this leads to the all-important question: Do I need to tell members before I make this change? While it is generally a good idea to inform members of changes to their credit agreements, Regulation Z has specific rules for when a credit union must provide advance notice – any significant change requires advance notice. So, the next question is: What's a significant change?
While Regulation Z covers various types of credit, this post focuses on the change in terms rules for open-end credit that is not secured by a home. Section 1026.9(c)(2)(i)(A) states that when a "significant change in account terms" is made, a credit union is required to provide written notice at least 45 days prior to the change taking effect. In the real world, we all have a general understanding of what significant means, but, under Regulation Z, this is a defined term with a very specific meaning that does not necessarily align with our real world understanding. Paragraph (c)(2)(i)(A) points you to another paragraph for the definition of significant changes and that paragraph redirects you to yet another paragraph. These incessant cross-references are enough to confuse any diligent compliance officer, so here's the basic starting point: the account opening disclosures.
for credit card accounts, a statement of reasons for the rate increase.
There are account opening disclosures relating to some charges that may not require a 45-day advance written notice, but could still require notice before the member "becomes obligated" to pay the charge. These charges are detailed in section 1026.6(b)(3) and include certain finance charges; taxes; charges that affect the member's access to the plan; termination charges and charges for voluntary credit insurance, debt cancellation or debt suspension coverage. For changes to these charges, the rule requires a credit union to either comply with the 45-day advance notice requirement or provide notice before the member must pay the charge. Decreases to these charges do not require notice. For more details, see section 1026.9(c)(2)(iii).
There are also a few related items to keep in mind when dealing with changes in terms. The right to reject for credit card plans applies to significant changes in account terms. The change in terms rule excludes certain changes from the 45-day notice requirement such as changes the member agreed to and rate increases due to delinquency, default or as a penalty. These changes have their own notice requirements. There is also a separate notice rule for decreasing a member's credit limit. Finally, there is a list of changes that do not require advance notice detailed in section 1026.9(c)(v) which include "reduction of any component of a finance charge," extension of the grace period, and some situations where the line is suspended or terminated.
NAFCU members can find more resources related to change in terms notices in this past Compliance Monitor article.
On Wednesday, the Department of Justice filed a notice of plans to delay implementation of three fiduciary rule exemption changes from Jan. 1, 2018, to July 1, 2019. More details on this notice can be found in yesterday's NAFCU Today. NAFCU will keep its members posted as more information is released.
Some of you may have tuned in to the CFPB HMDA webcast that NAFCU hosted last Thursday (available on demand here and free for both members and nonmembers). Michael Byrne, project director in the CFPB's Technology and Innovation Division, provided an overview of the CFPB's new web-based HMDA data submission tool. Here are a few of the FAQs that seem worth sharing based on the webcast, with summarized answers.
Question- We use different loan platforms for our closed-end mortgages, HELOCs, and business loans, and each system produces its own set of data. Will the new system allow credit unions to submit multiple LARs and stack the documents within the application?
Answer – The new system will not accept multiple LARs so credit unions will need to aggregate all the data into one document before uploading to the new filing application. Also, every time a new file is uploaded, the application will overwrite the previously submitted file.
Question – We currently input LARs manually for some kinds of loans because our volume is not that high. Will we need software now to create LAR files?
Answer – The CFPB created an Excel based LAR Formatting tool on its HMDA for Filers webpage which will help with these kinds of situations. The tool can be downloaded here.
Question – How many individual log ins does the new system allow a credit union to create? Can the credit union allow third-party vendors to access the application?
Answer – The new application leaves it to the credit union to determine how many users can log into the system and whether or not to allow any third parties to have access.
Question – Will the system allow for administrator-level type privileges to be designated so the credit union can delete the log on files for employees who have left the credit union, limit access for some personnel at some points in the process, and similar situations?
Answer – At this time, the system is not configured for this kind of feature.
Question – When will we have access to the 2017 HMDA submission platform?
Answer – The tentative production schedule has the beta version of the 2017 submission platform becoming available sometime in the third quarter of 2017 and the final version available sometime in the fourth quarter 2017. On a related note, the previously promised check digit tool and geocoding tool are also tentatively scheduled to be available in fourth quarter 2017. The production schedule, which was provided in the handouts to last week's webcast, can be downloaded here: Download HMDA Tools Production Schedule. (Editorial note – we've blogged about these "missing" tools in the past so we appreciated this news).
The webcast covered many more questions than these and in some cases added additional details. If you missed it or there is someone in your credit union that handles HMDA filing and would benefit from more information, please feel free to share with them.
LEI Questions. Recently, a member shared some insights about the process for registering for a Legal Entity Identifier with the GMEI Utility (note, Bloomberg is also offering an LEI service). Overall, there are questions that do not seem to apply to credit unions, like the name of the "ultimate parent" or the "registration authority" of the organization. While Bloomberg had response options like "no known person" some of these issues seemed less clear for using GMEI's system. I sent a couple of questions to their customer service email address, and thought I would share their answers.
Question – For some states, under "03. Entity Information," there is a "Registration Authority ID" for Alaska, California, Montana, Nebraska, and Utah. Federal credit unions are not incorporated under state laws like other US entities as they are federally chartered. Would federal credit unions from these states just put "not available" even if they operate in one of these 5 states?
Answer – "The Registrations Authority ID pertains to the relevant state business or regulatory registry the entity is listed with. The choices for this field are currently limited; for a credit union I would advise selecting “Not Available” from the drop down."
Question – Federal credit unions that seem to have successfully registered for an LEI have answered the question about "ultimate" and "direct" parent listings as "opt out" and then "no known person" but some have asked whether this is actually accurate.
Question –Does GMEI Utility send an email or other notification/reminder that the LEI is up for renewal before the year mark, or is the entity responsible for keeping track of that date itself and following up accordingly next year to renew?
Answer – "The [credit union's] contact will receive automated renewal reminders approximately 60 days prior to the next renewal date. Further reminders will subsequently be sent 30 days, 15 days, 10 days, 5 days and 1 day prior to renewal."
Overall, I found GMEI Utility to have a helpful customer service option, although it did take about two weeks to receive a response. For those using Bloomberg, they have a 24 page User Guide and their own email address to contact for help – lei-support@bloomberg.net.
Palate Cleanser. It's been a while since I've posted a Nolan/Lemmy update. Lemmy turns 6 this month, but for a big guy he's still in pretty good shape. Here he is trying to pretend he does not want to steal my dinner. Meanwhile, Nolan is turning the corner towards 3 and since he's so active, he's in toddler soccer!
First of all, I wanted to congratulate our newest class of NCBSOs! NAFCU wrapped its second BSA Seminar in beautiful Colorado last week where several questions were asked and concerns raised that are worth noting. Apparently, the latest issue with Bank Secrecy Act (BSA) examinations seems to surround examiners who believe credit unions may be over-filing Suspicious Activity Reports (SARs). FinCEN addressed this issue back in 2004 when it coined the term "defensive filing" to mean "when an institution files a suspicious activity report on an activity or transaction that really is not suspicious."
Before we attempt to understand examiners' concerns, let's start with the basics on SAR filings. Under the BSA, credit unions are required to file these reports in several circumstances. For example, credit unions must file a SAR for insider abuse involving any amount (insiders may include employees, officials, and managers). Credit unions are also required to file a SAR when there is a criminal violation of $5,000 or more and the suspect is known or can be identified. See, 31 C.F.R. § 1020.320(a)(2). In instances when the suspect is unknown, the credit union must file a SAR if the criminal violation amounts to $25,000 or more.
Other SAR triggers include transactions conducted or attempted by, at or through the credit union and aggregating $5,000 or more if the credit union suspects, or has reason to suspect that the transaction may involve potential money laundering or other illegal activity. The same requirement applies if the credit union suspects the member may be structuring to evade BSA reporting or if the transaction has no business or apparent lawful purpose. See, 31 C.F.R. § 1020.320(a)(2)(ii)-(iii). Aside from these required filings, the BSA also allows credit unions to file SARs to "report of any suspicious transaction that it believes is relevant to the possible violation of any law or regulation…" See, 31 C.F.R. § 1020.320(a)(1). This is commonly known as a catch-all provision.
"The decision to file a SAR is an inherently subjective judgment. Examiners should focus on whether the bank has an effective SAR decision-making process, not individual SAR decisions. Examiners may review individual SAR decisions as a means to test the effectiveness of the SAR monitoring, reporting, and decision-making process. In those instances where the bank has an established SAR decision-making process, has followed existing policies, procedures, and processes, and has determined not to file a SAR, the bank should not be criticized for the failure to file a SAR unless the failure is significant or accompanied by evidence of bad faith."
So it is clear for BSA examinations, the role of the examiner is not to comb through all credit union's SARs. Rather examiners are tasked with ensuring the credit union is effectively monitoring accounts and transactions, flagging suspicious activity, and reporting the activity per the SAR requirements. After all, FinCEN even recognizes that a "one-size fits all approach" is not appropriate for suspicious activity monitoring and reporting.
The takeaway here is that in the interest of complying with BSA laws, credit unions should ensure they are filing SARs whenever they suspect illegal activity is involved with an account or transaction(s). This is especially important as FinCEN's recent enforcement actions against financial institutions target BSA program failures to detect and report suspicious activity. For more in-depth information on enforcement actions, see NAFCU's quarterly BSA Blast (member log-in required).
If your examiner feels the credit union is over-filing, this may be a good time to: (1) have a conversation about the appropriateness of the credit union's internal controls, policies and procedures to identify suspicious activity instead of defending specific decisions; and (2) review the SAR narrative to make sure it is effectively explaining why the activity appears suspicious and drawing contrast to the prior use of the account—which according to the FFIEC BSA/AML Examination Manual, examiners "should not criticize the [credit union's] interpretation of the facts."
On July 10th, the CFPB finalized its rule on arbitration agreements. On July 19th, the final rule was published in the Federal Register. If you haven't had a change to read it yet, prepare yourself -- it's already a CFPB classic. The final rule establishes Part 1040, which consists of 5 sections regarding the use of arbitration agreements and reporting of arbitration outcomes.
The general coverage of the rule (in extreme summary) is anyone that provides financial products or services to consumers primarily for personal, family, or household purposes -- or anyone that offers certain ancillary services to a provider of those products or services to consumers. The definition of consumer refers only to individuals, not legal entities, so the rule would not apply to incorporated member businesses or trusts.
Among the broad list of financial products and services included in coverage is the majority of credit union offerings, including deposit accounts covered by Truth in Savings and/or Regulation E, loans, check cashing and fund transfer services, and automobile leasing. Providers may also be covered if they offer certain ancillary services to institutions that offer these products, like settlement services, loan servicing, consumer reporting and debt collection. For the sake of clarity from here on out, I'm going to refer to credit unions that are providers of covered products and services under Part 1040 as "credit unions."
Any court filings relying on the arbitration to support dismissal, deferral or stay.
The section requires these to be provided to the Bureau within 60 days of filing the applicable document with the court or arbitrator, and allows for the redaction of certain information. The Bureau intends to post these records on the internet, and sets deadlines for itself in doing so.
The rule becomes effective 60 days after publication, i.e. September 18, 2017. However, section 1028 of the Dodd-Frank Act, which was the provision requiring the CFPB to consider arbitration agreement regulations, stated that the provision would not apply to agreements until "after the end of the 180-day period beginning on the effective date of the regulation." To accommodate this delay period, the text of section 1040.5(a) specifies that it only applies to pre-dispute arbitration agreements entered into on, or after, March 19, 2018.
There is an exception for agreements already packaged into general-purpose prepaid cards where the consumer for the card is unknown. If the consumer becomes known and the credit union can contact the consumer in writing, it must amend the arbitration agreement to contain the appropriate language within 30 days of obtaining that contact information.
The commentary discusses when a pre-dispute arbitration agreement is "entered into." Obviously, this means when a new agreement is established, but it also includes when a credit union provides a member with a new covered product or service that is subject to a preexisting arbitration agreement, or when the credit union purchases a loan and obtains the rights under a preexisting arbitration agreement.
The commentary also clarifies instances that are not "entering into" an arbitration agreement, including modifying or amending the terms of a current loan subject to a preexisting arbitration agreement.
We are still digesting this rule and, given the Bureau's appetite for hyper-technical requirements, you will probably be hearing more from us on it as we pick it apart.
In preparation for NAFCU’s annual meeting with the Federal Reserve, we would like to know your opinion on a variety of topics, including lending, liquidity and housing conditions, as well as a number of regulatory issues and strategic challenges. Your responses to these survey questions are very important to both the Federal Reserve Board and to the credit union community, and every survey response is helpful and greatly appreciated! The survey results will be summarized in our annual Report on Credit Unions, a publication referenced by the Treasury Department in their recent study. Participants will receive a free copy of the 2017 report later this year.

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