Mon, Jan 5, 2015
The past year has been filled with regulatory changes that have kept credit union personnel on their toes trying to implement new and revised requirements. Although 2013 was a busy year getting ready for all of the pending Consumer Financial Protection Bureau (CFPB) regulatory changes, 2014 was the year credit unions had to implement the CFPB rules that were required by Dodd–Frank Wall Street Reform and Consumer Protection Act, which Congress enacted in 2010.
In addition to new regulatory requirements from the CFPB, other agencies provided additional requirements that placed credit unions under a regulatory burden that may be considered one of the greatest in recent history. One of the more active agencies was the Financial Crimes Enforcement Network (FinCEN) with several new Bank Secrecy Act requirements.
Many of the new requirements that credit unions had to implement in 2014 included policy requirements and each of the quarterly updates of CU PolicyPro in 2014 included new and revised policies so that credit unions could comply with the regulatory requirements. Having a policy is only the beginning of meeting the requirements and it is important for credit unions to understand and implement the changes that are required. What follows is a review of the regulatory changes we faced as an industry in 2014:
Remittance Transfer Rules – Regulation E
The 2014 amendments to the Remittance Transfer Rules provide new disclosure requirements and error resolution and cancellation rights to consumers who send remittance transfers to other consumers or businesses in a foreign country. The CFPB Remittance Transfer Guide is a good source for information.
Ability to Repay & Qualified Mortgage Rule – Regulation Z
The Ability to Repay and Qualified Mortgage Rule requires credit unions make a reasonable, good faith determination of a member’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loans) and establishes certain protections from liability under this requirement for qualified mortgages. The CFPB Ability to Repay & Qualified Mortgage Small Entity Compliance Guide is a good resource.
High-Cost Mortgage and Homeownership Counseling Amendments – Regulations X & Z
The HOEPA Rules expand the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act and revise and expand the tests for coverage under HOEPA. Additional restrictions have also been applied to mortgages that are covered by HOEPA, including a pre-loan counseling requirement and a requirement that all members receive information about homeownership counseling providers. The CFPB Home Ownership and Equity Protection Act Rule Small Entity Compliance Guide is a good reference.
Loan Originator Compensation Requirements – Regulation Z
The Loan Originator Compensation Rule implements requirements and restrictions for loan originator compensation and includes: qualifications and registration or licensing of loan originators; compliance procedures for credit unions; banning mandatory arbitration clauses; and restrictions on financing single-premium credit insurance. Access the CFPB Loan Originator Rule Small Entity Compliance Guide for guidance.
Appraisals and Other Written Valuations Rules – Regulation B
The revisions to Regulation B require credit unions provide members applying for a loan secured by a first lien on a dwelling to provide free copies of all appraisals and other written valuations and requires the credit union notify members in writing that copies of appraisals will be provided to them promptly. The CFPB Equal Credit Opportunity Act Valuation Rule Small Entity Compliance Guide is a good resource.
Appraisals for Higher-Priced Mortgage Loans – Regulation Z
The appraisal rules for mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage requires the credit union obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used. For guidance refer to the CFPB TILA Higher-Priced Mortgage Loans Appraisal Rule Small Entity Compliance Guide.
Escrow Requirements – Regulation Z
The escrow requirement amendments lengthen the time a mandatory escrow account for a higher-priced mortgage loan must be maintained. The CFPB TILA Higher-Priced Mortgage Loans Escrow Rule Small Entity Compliance Guide provides guidance.
Mortgage Servicing Rules – Regulation X & Z
The amendments to Regulation X based on the mortgage servicing rules addresses credit union servicers’ obligations to establish reasonable policies and; provide information about mortgage loss mitigation options to delinquent members; establish policies and procedures for providing delinquent members with continuity of contact with servicer personnel capable of performing certain functions; and to evaluate members applications for available loss mitigation options. The amendments to Regulation Z address initial rate adjustment notices for adjustable-rate mortgages, periodic statements for residential mortgage loans, prompt crediting of mortgage payments, and responses to requests for payoff amounts. The mortgage servicing rules are complex and some portion of the rules apply to all credit unions. The CFPB Real Estate Settlement Procedures Act and Truth in Lending Act Mortgage Servicing Final Rules Small Entity Compliance Guide should be consulted for guidance.
Annual Privacy Notice Requirement – Regulation P
In the fourth quarter of 2014 Regulation P was amended to allow credit unions with an alternative delivery method for the required annual privacy notice. Credit unions must meet certain requirements in order to be able to use the new web delivery method. A careful review of the requirements and their implications for the credit union is advised and can be found in the Federal Register – Amendment to the Annual Privacy Notice Requirement.
Liquidity and Contingency Funding Plans – 12 CFR Part 741
In 2014 the NCUA enacted the Liquidity and Contingency Funding Rule that requires federally insured credit unions with less than $50 million in assets to maintain a basic written policy that provides a credit union board-approved framework for managing liquidity and a list of contingent liquidity sources that can be employed under adverse circumstances. The rule requires FICUs with assets of $50 million or more to have a contingency funding plan that clearly sets out strategies for addressing liquidity shortfalls in emergency situations. Finally, the rule requires
FICUs with assets of $250 million or more to have access to a backup federal liquidity source for emergency situations.
Derivatives - 12 CFR Parts 703, 715, and 741
This final rule permits Federal credit unions to engage in limited derivatives activities for the purpose of mitigating interest rate risk. The final rule addresses permissible derivatives and characteristics, limits on derivatives, operational requirements, counterparty and margining requirements, and the procedures a credit union must follow to apply for derivatives authority.
Capital Planning and Stress Testing – 12 CFR Part 702
NCUA issued the Capital Planning and Stress Testing Rule to require federally insured credit unions with assets of $10 billion or more to develop and maintain capital plans. The rule also provides for annual stress tests of those credit unions.
Credit Union Service Organizations Rule – 12 CFR Parts 712 and 741
Effective in June 2014, CUSO’s were required to provide basic profile information to the NCUA and relevant state authority. Credit unions should review NCUA Letter 13-CU-13 to determine if written agreements between the credit union and the CUSO need to be amended to comply with the new requirements.
Voluntary Liquidation – 12 CFR Part 710
The Voluntary Liquidation rule was amended to reduce administrative burdens on voluntarily liquidating federal credit unions and recognize technological advances by: permitting liquidating FCUs to publish required creditor notices in either electronic media or newspapers of general circulation; increasing the asset-size threshold for requiring multiple creditor notices; requiring that preliminary partial distributions to members not exceed the National Credit Union Share Insurance Fund insurance limit for any member share account; specifying when liquidating FCUs must determine member share balances for the purposes of distributions; and permitting liquidating FCUs to distribute member share payouts either by wire or other electronic means or by mail or personal delivery.
As a part of the NCUA’s annual regulatory review process several changes were implemented:
- Based on requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act the NCUA’s rulemaking authority under the Federal Trade Commission Act (FTC Act). As a result, the NCUA Board (Board) repealed NCUA’s regulations governing unfair or deceptive acts or practices.
- The NCUA amended their regulations to include the agency’s current central and field office structures.
- The NCUA’s payday alternative loans regulation was amended to replace all references to ‘‘short-term, small amount loans’’ and ‘‘STS loans’’ with corresponding references to ‘‘payday alternative loans’’ and ‘‘PAL loans.’’ The latter terms more accurately reflect the nature and purpose of this loan product.
Appraisals – 12 CFR Parts 701 and 722
Based on new appraisal regulations introduced by the CFPB the NCUA eliminated the duplicative requirements that credit unions make copies of appraisals available to members. Additionally, a federally insured credit union is now permitted to refinance or modify a real estate-related loan held by the FICU without having to obtain an additional appraisal if there is no advancement of monies and adequate collateral protection.
Promoting a Culture of Compliance - FIN-2014-A007
Based on reviews of the Bank Secrecy Act FinCEN issued guidance about the importance of a compliance culture in financial institutions. FinCEN stated that regardless of a credit unions size and business model, a financial institution with a poor culture of compliance is likely to have shortcomings in its BSA/AML program. They provided guidance on strengthening the BSA/AML compliance culture by ensuring that: (1) its leadership actively supports and understands compliance efforts; (2) efforts to manage and mitigate BSA/AML deficiencies and risks are not compromised by revenue interests; (3) relevant information from the various departments within the organization is shared with compliance staff to further BSA/AML efforts; (4) the institution devotes adequate resources to its compliance function; (5) the compliance program is effective by, among other things, ensuring that it is tested by an independent and competent party; and (6) its leadership and staff understand the purpose of its BSA/AML efforts and how its reporting is used.
To support law enforcement efforts to fight human smuggling and human trafficking, FinCEN provided guidance to financial institutions on how to detect and report suspicious financial activity that may be related to human smuggling and/or human trafficking.
FinCEN issued a statement because they felt it was important to reiterate the fact that banking organizations can serve the MSB industry while meeting their Bank Secrecy Act obligations. They state that MSBs play an important role in a transparent financial system, particularly because they often provide financial services to people less likely to use traditional banking services and because of their prominent role in providing remittance services.
BSA Expectations Regarding Marijuana-Related Businesses – FIN-2014-G001
Because many states have legalized certain marijuana-related activity, FinCEN provided guidance on how financial institutions can comply with Bank Secrecy Act requirements due to the fact that the Federal government still classifies marijuana as an illegal substance.
In the past year there have been several revisions and new lists that need to be confirmed and reviewed as a part of meeting the OFAC requirements. List changes affected the Foreign Sanctions Evaders List (FSE), Specially Designated Nationals List (SDN) and the Consolidated non-SDN List.
The IRS made revisions to the FATCA or Foreign Account Tax Compliance Act to target the illicit activities of individuals who use offshore accounts to evade taxes. Many of the revisions apply to foreign financial institutions (FFIs), however, the requirements to withhold from certain payments made to FFIs began on July 1, 2014. The IRS continues to publish instructions on these FATCA revisions and credit unions are encouraged to contact their tax advisor to make sure reporting is being conducted correctly on 1042 and W-8Ben forms.
The FASB update permits a credit union to amortize goodwill on a straight-line basis over a period of ten years, or less if the CU can demonstrate that another useful life is more appropriate. It also permits the credit union to apply a simplified impairment model to goodwill.
It is important to ensure your credit union is in compliance with these regulatory changes as we enter 2015. Refer to the CU PolicyPro quarterly compliance update reviews to see how these regulatory changes affect your credit unions policies.