Source: http://nafcucomplianceblog.typepad.com/nafcu_weblog/2012/02/index.html
Timestamp: 2016-06-26 00:52:03
Document Index: 409428735

Matched Legal Cases: ['art 1', 'art 2', 'art 2', 'art 1', 'art 701', 'art 701', 'art 701', 'art 701']

NAFCU Compliance Blog: Posts from February 2012
Overdrafts: Linked Accounts and Regulation D - Part 1
I must confess - I haven't made it through all of the CFPB's Overdraft information from last week. I did want to discuss one issue that jumped out at me when I first glanced at the material and heard the CFPB roundtable on overdrafts. Linked Accounts. One of the alternatives the CFPB (and others at the roundtable) mentioned was the option of members being able to "link" their checking and savings accounts. By doing this, if a member overdrew their checking account the funds would automatically transfer from the member's savings account. Of course, this is by no means a silver bullet. In order for this to work, the member would need to have enough funds in their savings account to cover the overdrawn amount. While this is sometimes the case, it isn't always the case. Assuming a member has enough funds in their savings account to cover the overdrawn transactions from the checking account, there is another issue that seems to float under the radar whenever overdrafts and linked accounts are discussed.
Regulation D. I guess I spoiled the surprise in the title of the blog post, but this is something the CFPB - and everyone involved with looking at overdraft issues - needs to be aware of.
Regulation D limits the number of withdrawals from a savings account to six per month. This includes any withdrawals/transfers to cover overdrafts in a checking account. And, this is a combined six per month. So, if a member were to make two other "Reg D" withdrawals in a given month, the member would only have four left for transfers to the checking account to cover overdrafts.
A Question for the CFPB: What happens when a member has linked accounts and overdraws 8 times in a month?
The Quandary. Regulation D did not transfer to the CFPB as it is not a consumer regulation. The Federal Reserve retained authority over Regulation D and has been resistant to numerous calls to expand the six-transaction limitation on savings accounts (although they did remove the antiquated 3/6 distinction a few years ago). Sidenote: A portion of NAFCU's latest letter to the Fed on Reg D can be found in this January 17 blog post. Here are a couple of questions that I have for the CFPB:
Will you be talking to the Federal Reserve about the Regulation D transaction limitations?
Assuming you are unsuccessful in your discussions with the Fed, will the CFPB work to inform consumers of the Regulation D limitation when it promotes overdraft coverage via "linked accounts"?
To me, these are incredibly important questions to ask. First, credit unions and other financial institutions do not operate in a "one regulation" environment. It seems that every potential action a credit union makes is impacted by one regulation or another (or multiple). This overdraft issue is a perfect example - the CFPB wants consumers to link their accounts but have they thought about Regulation D? I sure hope so but I'm afraid that sometimes regulators get "tunnel vision" and only focus on their regulations. ***
I wanted to add a bit more but this post has gotten a bit lengthy so we'll have Part 2 tomorrow. Stay tuned. Posted by NAFCU on February 29, 2012 in CFPB, ODP, Reg D | Permalink
Streamlining Tool; Maturity Limits & Regulatory Review; March Madness
The CFPB's overdraft inquiry (more on this tomorrow) pushed back a couple of items I wanted to discuss.
CFPB's Streamlining Tool. A couple of weeks ago, the CFPB announced their web-based streamlining tool. If your credit union has one or two issues you'd like to raise - this is a good format as you wouldn't need to send a formal comment letter. The web-based streamlining tool is here.
NCUA Opinion Letter. In mid-February, NCUA made public an Opinion Letter on maturity limits for modified mortgage loans. The letter is very detailed and includes examples. The letter is also hard to summarize. The best approach is to review the complete letter - 11-0903.
NCUA's Reg Review. The letter interprets 12 C.F.R. 701.21(g) which is one of the sections under NCUA's current regulatory review. This looks like a perfect place for NCUA to provide clarity in the regulation rather than requiring credit unions to:
Know the existence of this legal opinion letter;
Be able to find this opinion letter;
Properly understand the complicated letter; and Ensure the legal opinion letter has not been superseded by another interpretation by NCUA.
By incorporating this letter into NCUA's regulations, NCUA would help credit unions and those working with credit unions find NCUA's interpretation for the maturity limits for modified mortgage loans. It may seem counterintuitive, but incorporating the letter into the regulation eases the regulatory burden on credit unions. ***
The language of the letter indicates NCUA has received multiple requests on the same issue. There are undoubtedly numerous other credit unions who have had the same questions and concerns who may not have taken the formal approach of reaching out to NCUA. One of the things about guidance is that it exists somewhere on the internet. With NCUA's recent approach to look at rules that are "outmoded, ineffective, insufficient or excessively burdensome", this opportunity is served up on a silver platter as NCUA could ensure its opinion was clear and easy for credit unions to find and understand by amending 12 C.F.R. 701.21(g) to reflect their interpretation on maturity limits for loan modifications. ***
March Madness - D3 Edition. March Madness usually starts a bit early in the Van Beek household as both my wife and I went to Division 3 schools. She went to the College of Wooster in Ohio and I went to Hope College in Michigan. Well, the Division 3 brackets were just announced and there is a possibility our alma maters could be facing off next Friday. Each team would need to win two games but both teams are hosting their games this weekend. And, both teams have a pretty good pedigree as Wooster finished runner-up for the championship last year and Hope is currently ranked #1 (you can find Wooster way down at #15).
Blog Readers: If your teams are in - let's hear about your rooting interests in the blog comments (click the title of the blog post to go to the blog itself). The full bracket can be found here. Posted by NAFCU on February 28, 2012 in CFPB, Lending, Married Life, NCUA, Regulatory Burden, Risk Management | Permalink
The CFPB and NonBanks; Upcoming NAFCU Webcasts
Last week, the CFPB issued a proposed rule to define "larger participants" in two consumer financial services markets. The proposal targets the debt collection and consumer reporting markets. Earlier this year, the CFPB issued a Notice and Request for Comment on how best to define "larger participants" and on which markets to focus on.
The Notice and Request for Comment was issued when the CFPB did not have a Director. Without a Director, the CFPB had been unable to regulate nonbank institutions - including defining "larger participants." Now that the CFPB has a Director, it can move forward with its NonBank Supervision Program. ***
Dodd-Frank gave the CFPB authority to supervise any nonbank entity in three markets: (1) mortgage origination and servicing; (2) payday lending; and (3) private education lending. The CFPB has the ability to supervise entities operating in these markets regardless of their size.
For other consumer markets, the CFPB must define "larger participants" and their recent proposed rule for the debt collection and credit reporting markets was their first steps in that direction.
The CFPB's Notice and Request for Comment indicating the CFPB was also going to be looking at the following consumer financial services markets:
Money Transmitting, Check Cashing, and Related Activities;
The CFPB still has the ability to define "larger participants" in these markets in the future. The CFPB would need to propose a separate proposed rule to cover these markets (or add new markets) in the nonbank supervision process.
March NAFCU Webcasts. NAFCU has a pair of webcasts coming up in March that might be of interest. Remember, NAFCU's webcasts are open to everyone. They are also available for viewing for a year after the original live webcast. Thus, if you and your colleagues can't make the live webcast - you can still view the content at a later date. This "on-demand" feature also works great for sharing the webcast with others at your credit union who could benefit from the information.
Wednesday, March 7, 2012: Preparing for the Heightened Scrutiny of CUSOs featuring Katherine Weber of The Weber Law Firm.
Thursday, March 15, 2012: Powers of Attorney and Subpoenas - The Risks, Abuses and Potential Liabilities of Credit Unions featuring Andy Keeney of Kaufman & Canoles. The full listing of NAFCU's live and on-demand webcasts can be found here. Additionally, we are always looking for webcast ideas that would be useful to credit unions. If you have ideas or suggestions, please email us at compliance@nafcu.org. Posted by NAFCU on February 24, 2012 in CFPB, CUSO, Dodd-Frank | Permalink
Dodd-Frank Mandates Statements for Mortgages - Part 2
Yesterday, we blogged on the Dodd-Frank requirement for mortgage statements. A natural follow-up question is: which mortgage loans will be covered?
Residential Mortgage Loans. Section 1420 of Dodd-Frank indicates the requirement applies to "residential mortgage loans." That isn't so bad. We'll just need to go to Regulation Z and look up the definition of "residential mortgage loan." Except, there isn't a current definition. Instead, Dodd-Frank added a definition of "residential mortgage loan." Dodd-Frank. Section 1401 of Dodd-Frank adds new definitions to Section 103 of the Truth in Lending Act - including Subsection (cc)(5) defining "residential mortgage loan":
‘‘(5) RESIDENTIAL MORTGAGE LOAN.—The term ‘residential mortgage loan’ means any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling, other than a consumer credit transaction under an open end credit plan or, for purposes of sections 129B and 129C and section 128(a) (16), (17),(18), and (19), and sections 128(f) and 130(k), and any regulations promulgated thereunder, an extension of credit relating to a plan described in section 101(53D) of title 11, United States Code."
Of course, we'll have regulations that implement this wonderful piece of legislative text. A couple things are "clear" from the statutory definition of "residential mortgage loan:"
Open-end loans are excluded - such as home-equity lines of credit (HELOCs).
Timeshare plans are excluded - the cross-reference to plans under 11 U.S.C. 101(53D).
This definition is very broad.
Ultimately, the CFPB will need to interpret all the wonderful cross-references and provide a concrete definition in Regulation Z. ***
Guidance from the Ability-to-Repay Proposed Rule. The Federal Reserve's May 2011 proposed rule did not directly define "residential mortgage loan" but it did tie the term to other Reg Z definitions. The Fed did interpret Subsection 103(cc)(5) of Truth in Lending and included this discussion:
"Section 1401 of the Act adds a new TILA Section 103(cc) that defines ‘‘residential mortgage loan’’ to mean, with some exceptions, any consumer credit transaction secured by a mortgage, deed of trust, or other equivalent consensual security interest on ‘‘a dwelling or on residential real property that includes a dwelling.’’ TILA Section 103(v) defines ‘‘dwelling’’ to mean a residential structure or mobile home which contains one- to four-family housing units, or individual units of condominiums or cooperatives.
Thus, a ‘‘residential mortgage loan’’ is a dwelling-secured consumer credit transaction, which can include: (1) A home purchase, refinancing, or home equity loan; (2) a loan secured by a first lien or a subordinate lien on a dwelling; (3) a loan secured by a dwelling that is a principal residence, second home, or vacation home (other than a timeshare residence); or (4) a loan secured by a one-to-four unit residence, condominium, cooperative, mobile home, or manufactured home.
However, the term ‘‘residential mortgage loan’’ does not include an open-end credit plan or an extension of credit relating to a timeshare plan[.]" 76 Fed. Reg. 27407. Of course, the CFPB will have the ultimate say when it finalizes the ability-to-repay rule (expected this spring) and when it proposes the coverage for the periodic statement requirement. ***
In short, credit unions should be prepared for the definition of "residential mortgage loan" to be very broad.
Programming Note: NAFCU's offices will be closed on Monday for the Federal Holiday. We'll be back blogging on Tuesday. Have a great long weekend!
Posted by NAFCU on February 17, 2012 in CFPB, Dodd-Frank, Reg Z | Permalink
Dodd-Frank Mandates Statements for Mortgages - Part 1
Quite a threatening headline, right? I'm sure quite a few of you have heard the rumblings in the last few days. CFPB Prototype. On Tuesday, the CFPB released a prototype mortgage statement. Similar to the CFPB's Know Before You Owe campaign, there is no proposed rule yet. This means credit unions need to look to the language of Dodd-Frank itself to get a feel for what is coming.
The CFPB also wrote a blog post, press release and op-ed which discuss the prototype statement.
Dodd-Frank. Section 1420 of Dodd-Frank includes the Mortage Statement requirement. More specifically, Section 1420 creates Subsection (f) to Section 128 of the Truth in Lending Act. The full section is not long and will take implementing by the CFPB before we'll know the full details of the requirements. For now, take a look at the language of Section 1420 along with the prototype statement as they are the best resources until we have a proposed rule (which will be part of Regulation Z).
Agency Rule List. This rulemaking is listed in the CFPB's Agency Rule List. It is included as being in the "proposed rule stage" under Mortgage Servicing. The indication is that we'll see a proposed rule sometime this summer. Which is the same timeframe given in the CFPB's blog post. Timing. The specific information on Mortgage Servicing also indicates the CFPB is required to have a final rule in place by January 21, 2013. Director Cordray has mentioned a couple of times that the CFPB intends to meet all the CFPB's statutory deadlines from Dodd-Frank. Of course, this doesn't mean the mortgage statement requirement will become effective in early 2013. There will still be an implementation period after the proposed and final rules - however, it does indicate the CFPB's hands are tied with regard to timing. ***
Coupon Books. There is a specific exception for creditors - including credit unions - who provide coupon books to borrowers. The exception is located in subsection (f)(3):
‘‘(3) EXCEPTION.—Paragraph (1) shall not apply to any fixed rate residential mortgage loan where the creditor, assignee, or servicer provides the obligor with a coupon book that provides the obligor with substantially the same information as required in paragraph (1).’’
Keep in mind that this is a limited exception. It would only apply to fixed-rate mortgages.
It would only apply to coupon books that contained substantially the same information as required to be on the monthly statement. As is usually the case, the devil will be in the details of the "coupon book" exception when the CFPB proposes a regulation to implement the statement requirement. We won't know how the CFPB interprets "substantially the same information" until they issue a proposed rule. ***
Tomorrow we'll take a look at which types of mortgage loans would be covered by this requirement. Stay tuned.
Posted by NAFCU on February 16, 2012 in CFPB, Dodd-Frank, Reg Z | Permalink
Challenges to Recess Appointments and the Impact on Credit Unions
There has been quite a bit of news recently about challenges to the constitutionality of President Obama's recess appointments - including of CFPB Director Richard Cordray. The National Federation of Independent Business (NFIB) has challenged the appointment (Businessweek.com) of three appointments to the National Labor Relations Board (NLRB). This challenge was added to an existing lawsuit challenging a new regulation issued by the NLRB which would require notices to employees of their right to unionize. This is the same NLRB notice that we've blogged about here and here (and which goes into effect April 30, 2012).
As reported in the NAFCU Today yesterday, 39 Republican Senators have pledged their intent to join the lawsuit challenging the constitutionality of the NLRB appointments. The Senators have sent a letter demonstrating their intent to challenge both the CFPB and the NLRB appointments (Politico.com).
As of today, there is not a lawsuit challenging Cordray's appointment even though the NLRB lawsuit involves some of the very same legal questions.
Why do I bring this up? Sometimes when issues continue to be circulated in the news there is the tendency for rumors to start and spread rapidly. One of those potential rumors is that a challenge to Cordray's nomination could prevent the CFPB's actions from applying to credit unions.
CFPB's Regulatory Authority. As we blogged on after Cordray's appointment, the CFPB gained power to enforce the "enumerated consumer laws" on July 21, 2011. This power was not contingent on the CFPB having a Director. Thus, even without a Director the CFPB had full authority to propose and finalize regulations implementing the consumer laws that applied to depository institutions - such as Regulation Z and Regulation E. For example, even without a Director the CFPB's could have finalized the recent regulation on remittances. CFPB's New Powers. The CFPB did obtain new powers when Cordray was appointed Director. While the CFPB's use of these powers could be challenged - they would still be the law of the land. For example, the CFPB's ability to declare a certain activity as an "unfair, deceptive or abusive act or practice" (UDAAP) would be done through the CFPB's new powers with a Director. While the CFPB's use of its UDAAP power could be challenged, credit unions would need to follow the CFPB's requirements even during a challenge. Summary. In short, credit unions will need to comply with the CFPB's mandates even if there are ongoing challenges to the CFPB's authority. Posted by NAFCU on February 08, 2012 in CFPB, Dodd-Frank | Permalink
Regulatory Review: A Look at Part 701.33; Reg Alert on TDRs
Yesterday, we discussed NCUA's annual regulatory review. I mentioned a couple of weeks ago that I hoped NCUA would review their guidance as well. An example might help illustrate how NCUA could review their guidance and reduce the headaches for compliance officers. Part 701.33. NCUA will be reviewing Part 701.33 of its regulations which addresses reimbursement, insurance, and indemnification of officials and employees. To me, it would be very beneficial to credit unions if NCUA's review of Part 701.33 involved an analysis of their opinion letters and whether it would be appropriate to clarify the regulation. Example. An advanced search on NCUA's website (under the Legal Opinion Letters category) for "701.33" comes up with 30 NCUA Legal Opinion Letters. There are extremely old letters as well as quite a few recent letters. Suggestion. Considering the current 12 C.F.R. 701.33 has resulted in 30 formal legal opinion letters over the years, wouldn't it make sense for NCUA to update the regulation to codify these interpretations? Perhaps NCUA could issue Official Staff Commentary that would provide clarity to credit unions to prevent compliance officers from having to wade through numerous legal opinion letters to ensure they have correct interpretation from NCUA.
NAFCU Members. NAFCU's Regulatory Alert on Loan Workouts and Nonaccrual Policy and Regulatory Reporting of Troubled Debt Restructured Loans is available. The proposal has a short comment period with comments due to NAFCU on February 17th. NCUA is accepting comments until March 1st. Posted by NAFCU on February 07, 2012 in Board of Directors, NCUA | Permalink
This and That: Power of Attorney; Current Issues; Disaster Recovery; Newsletters
With all the regulatory proposals, final rules, hearings, actions by the CFPB and other happenings, I thought we'd slow it down a bit for Friday. Below are just a few links that might be useful.
Power of Attorney. Andy Keeney had a great article in the CU Times discussing issues to consider when reviewing and accepting a Power of Attorney from a member.
Current Issues in Credit Unions. The latest podcast (Episode 67!!!) features discussion on writing comment letters, TDRs, loan participations and more.
Webcast on Disaster Recovery. On Wednesday, February 8th, NAFCU will have a webcast on Disaster Recovery Plans featuring Rob Rutkowski (who you may recognize from the Current Issues podcasts).
February 2012 Compliance Monitor. The latest issue of the Compliance Monitor is available for NAFCU-members. This month, the articles focus on the loan participation and Reg Flex proposed rules as well as a brief recap of the rules issued at the tail end of January. BSA Blast. The January 2012 issue of the BSA Blast (which is quarterly) is also available. As usual, the Blast is followed by a BSA Quiz - with answer sheet - that serves as a useful training tool for staff. ***
In case you were wondering who a Detroit Lions fan was rooting for on Sunday - I gotta go with Tom Brady (University of Michigan) and the Patriots. Have a great weekend everyone! Posted by NAFCU on February 03, 2012 | Permalink