CUNA Regulatory Advocacy Report
April 16, 2012
CUNA Regulatory Advocacy Report: April 13, 2012
Good afternoon. Here is our latest Regulatory Advocacy Report, which summarizes some of the top issues we pursued this week to help achieve a better regulatory and examination environment for credit unions.
- CUNA Provides Detailed Legal Analysis to CFPB On How it Can Use Its Statutory Authority to Eliminate On-Machine ATM Notices
- NCUA To Hold Examiner Conferences
- NCUA’s Office of Inspector General Criticizes AMAC
- CFPB Releases Outline of Proposals on Mortgage Servicing
- CUNA Attends CFPB HOEPA Roundtable
- CFPB Releases Financial Aid Comparison Shopper
- Additional MBL Resources
- CFPB Proposes Change to Regulation Z on Fee Limit Applicable to Credit Card Accounts
- Forthcoming CUNA Survey on Overdraft Protection Programs for CFPB’s Data Collection
- CUNA Follows Up with Federal Housing Finance Agency (FHFA) Regarding
- Director DeMarco’s April 10 Comments
CUNA Provides Detailed Legal Analysis to CFPB On How it Can Use Its Statutory Authority to Eliminate On-Machine ATM Notices
During a meeting last month of CUNA’s Executive Committee with Consumer Financial Protection Bureau (CFPB) Director Richard Corday and some of his key staff, the issue of redundant fee notices on the outside of automated teller machines (ATMs) was raised again. Director Corday asked CUNA to provide our analysis, which we have done; it is accessible here.
CUNA has discussed this issue on several occasions with the CFPB and written about it in comment letters and other communications to the agency. Financial institutions across the country are being subjected to lawsuits from eager plaintiffs that are suing them because an on-machine ATM notice has been removed, become soiled or otherwise disabled. Under the Electronic Fund Transfer Act, ATMs are required to provide an outside notice that a fee may be charged per transaction. However, these notices are of questionable usefulness to ATM users since more detailed notices are provided on-screen or in some instances via paper disclosures at the ATM.
While CUNA is working with other financial advocacy organizations to seek a federal statutory remedy that will forestall litigation related to ATM fee disclosure notices, CUNA’s analysis clearly shows that the CFPB has more than sufficient authority under the Dodd-Frank Act and the Electronic Fund Transfer Act, consistent with sound public policy, to amend Regulation E to eliminate the requirement for on-machine ATM fee disclosure notices. We are pursuing this in Congress as well as with the CFPB in order to obtain relief for credit unions from the on-machine notices that have been the subject of increasing litigation.
CUNA will be following up with the CFPB to discuss our analysis further and to press the agency to use the authority it has been provided by Congress to eliminate the outside ATM notice requirements.
On Monday, the House Oversight and Government Reform Committee will hold a hearing on the controversial 2010 conference held by the General Services Administration (GSA). Knowing that, we raised concerns with NCUA regarding their upcoming training conferences set for Orlando next week and the following week. About half of the 1,200 NCUA examiners and support employees will attend the conference each week.
As CUNA has reported, the agency has been working on an updated examination manual and the conference will review the manual as well as expectations for examiners. According to the agency, adjusting examiners’ use of documents of resolutions (DoRs) will also be discussed.
CUNA and league representatives have had a number of meetings and communications with NCUA to address concerns credit unions have raised about hostility from examiners and being subjected to examiner directives that are not based on legal requirements.
CUNA’s Examination and Supervision Subcommittee will be meeting with NCUA’s Director of Examination and Insurance, Larry Fazio, in May to continue our dialogue with the agency on improving the examination process. In meeting with CUNA’s Executive Committee during the CUNA Governmental Affairs Conference, NCUA Board Chairman Matz said Fazio is heading up an effort to improve the examination experience for credit unions and examiners alike. (This effort is not a moment too soon.)
Meanwhile, CUNA has also urged the agency to communicate better with credit unions. The agency will begin holding “Listening Sessions” around the country beginning in Boston on May 2nd. Credit unions and leagues are encouraged to attend the session closest to them.
The Office of Inspector General (OIG) for NCUA has issued a report on the agency’s management of its Asset Management Assistance Center (AMAC). The report is based on an audit conducted by an outside firm, Crowe Horwath LLP (Crowe).
The report looked at AMAC’s policies and procedures as well as internal controls for asset recovery, liquidations of member services, and the valuation process and disposal of property and assets, among other issues.
One of the main areas of focus of the audit was related to the liquidations of Norlarco Credit Union and Huron River Area Credit Union. The outside auditors found deficiencies over the valuation process of real estate owned (REO) by AMAC. Specifically, the report said that AMAC did not perform valuations on these properties in accordance with industry standards and did not always maintain proper support for the valuations that were completed. Also, AMAC did not formally complete a cost to carry analysis on REO, which the auditors concluded AMAC should have completed as part of its determination regarding whether to sell or hold real estate.
The report concluded that in all other significant respects the areas of AMAC that were reviewed were operating as intended by AMAC management.
On Tuesday, CUNA staff attended the CFPB’s announcement that was made at Operation Hope, a nonprofit organization focused on financial literacy, in Washington, DC, regarding proposed mortgage services rules. At the event, CFPB Director Cordray announced several proposed rules under consideration that will affect mortgage services across the nation; click here for an outline of the proposals. The CFPB plans to propose rules this summer and finalize them by January 2013. For a fact sheet on the mortgage servicing rules under consideration, click here. The rules under consideration include:
- Clear Monthly Mortgage Statements: Servicers would be required to provide regular statements with: a breakdown of payments by principal, interest, fees, and escrow; the amount of and due date of the next payment; and, for delinquent borrowers, alerts and information about counselors who can help them work with servicers and avoid foreclosure.
- Warning Before Interest Rate Adjustments: Servicers would be required to provide disclosures before the interest rate changes on most adjustable-rate mortgages. This disclosure would include information about when the change will take effect and a list of alternatives that the consumer may pursue if the new monthly payment is unaffordable. The first interest rate reset notice would include contact information for housing counselors.
- Options for Avoiding Costly “Force-Placed” Insurance: Because servicers have the responsibility to ensure that borrowers maintain hazard insurance on the property, if the borrower does not maintain such insurance, the servicer has the right to purchase insurance to protect the property. This is called “force-placed” insurance and is typically more expensive than insurance the borrower can purchase privately. The CFPB is considering a rule that would give the consumers more rights including requiring that servicers give advance notice and pricing information before charging consumers for this insurance.
- Early Information and Options for Avoiding Foreclosure: Servicers would be required to make good faith efforts to contact delinquent borrowers and inform them of their options to help avoid foreclosure. If a borrower contacts the servicer because she is having difficulty paying the loan, the servicer would have to provide timely, complete, and accurate information about her options. The CFPB is also considering rules that would require the development of certain policies and procedures involving the handling of a consumer’s account, which include:
- Payments Immediately Credited: Servicers generally would have to credit a consumer’s account promptly after receiving payment.
- Records Kept Up-to-Date and Accessible: Servicers would be required to establish reasonable policies and procedures designed to minimize errors, prevent document loss, provide accurate information to borrowers, and assist with error resolution.
- Errors Corrected Quickly: If a consumer notifies the servicer that she thinks there has been an error the servicer would be required to acknowledge receipt of the notification, conduct a reasonable investigation, and inform the consumer about the resolution in a timely manner.
- Direct and Ongoing Access to Servicer Foreclosure Prevention Team: Servicers would be required to provide delinquent borrowers (or borrowers who are asking for help to avoid delinquency) with direct, easy, ongoing access to employees who are dedicated and empowered to help troubled borrowers.
The CFPB stated that it may consider additional measures to address mortgage-servicing issues in coordination with other federal government partners, and it will also be convening a Small Business Review Panel April 24th to discuss these proposals. The CFPB has indicated that these rules will be proposed this summer, and will be finalized by January 21, 2013. The CFPB can provide up to one year for implementation, but has not yet decided how long of a transition period is necessary. The CFPB has also stated that it plans to engage extensively with consumers and industry in this rulemaking effort, as well.
On Tuesday of this week, CUNA Senior Assistant General Counsel Jared Ihrig attended a roundtable discussion held at the CFPB headquarters concerning upcoming changes relating to the Home Ownership and Equity Protection Act (HOEPA) provisions of Regulation Z. Title XIV of the Dodd-Frank Act made certain amendments to the Truth in Lending Act (TILA) specifically to the high-cost mortgage provisions added to TILA by HOEPA, and expands the scope of HOEPA coverage by, among other changes: including home-purchase loans and open-end credit plans (including home equity lines of credit); revising the thresholds that trigger HOEPA coverage including the annual percentage rate triggers and the “points and fees” trigger; and covering loans with prepayment penalties that exceed certain thresholds or that extend beyond 36 months after the closing of the loan. The amendments also add certain restrictions and requirements with regard to HOEPA loans including: prohibiting the financing, directly or indirectly, of any points and fees, prohibiting prepayment penalties and, in most circumstances, balloon payments; and requiring pre-loan counseling for consumers. The CFPB has indicated that it expects to issue a proposed rule, which will contain all of these amendments in July of this year.
On Wednesday, the CFPB launched the next phase of its Know Before You Owe student loan project by releasing a beta version of the Financial Aid Comparison Shopper, an interactive, online tool designed to help families plan for the costs of post-secondary education.
CFPB Director Richard Cordray unveiled the tool at a meeting in South Dakota on Wednesday with Senator Tim Johnson (D-SD), Chairman of the Senate Banking Committee. As reported in NewsNow, the Credit Union Association of Dakotas was well represented by League President and CEO Robbie Thompson, and representatives of 26 credit unions. Robbie said that the meeting provided an excellent opportunity to reinforce concerns about credit unions regulatory burdens with Senator Johnson and Director Cordray.
The CFPB kicked off the Know Before You Owe student loan project in October 2011 by working with the Department of Education on a draft Financial Aid Shopping Sheet that higher education institutions could use to present families with a uniform, easy-to-understand explanation of the total cost of post-secondary education and their options for financing it. The Financial Aid Comparison Shopper builds on that by helping students to compare the information across schools. For more information on the CFPB’s Financial Aid Comparison Shopper, click here.
CUNA continues to work closely with the CFPB on all of its rulemaking efforts, and we will keep you apprised as further developments occur which may impact the operations of credit unions going forward.
As we move forward with our grassroots efforts on the Member Business Lending (MBL) issue, here are two charts, which give side-by-side comparisons of the lending authorities, limitations, and powers for both credit unions and banks. To access these charts click here and here. We urge you to review these charts and utilize them in any discussions you may have with your members of Congress as you advocate for the removal of the MBL cap. CUNA would like to thank both the Credit Union Association of New York as well as the Ohio Credit Union League for their support and contributions to these new tools. We hope you find them useful.
Yesterday, the CFPB issued a proposed rule that would amend Reg Z and the commentary to Reg Z to restrict the current limit on fees associated with credit card accounts to only the first year after the account is opened. Currently, Reg Z limits the fees a credit card issuer can charge to 25% of the credit limit in effect when the account is opened. This limitation applies prior to and during the first year after the account has been opened. Under the proposal, Reg Z would be amended so that the limitation would apply only during the first year after account opening. Thus, the proposal would provide issuers with flexibility regarding credit card account fees that could be charged prior to card issuance.
A Regulatory Comment Call on the proposal will be available shortly.
The CFPB has launched an inquiry into checking account overdraft programs to determine how these practices impact consumers. Comments are due to the agency April 30, 2012 but CUNA has requested that the agency extend the period for responses. As part of that inquiry, the CFPB is seeking public input regarding overdraft programs and their costs, benefits, and risks to consumers. To facilitate a comprehensive and accurate response to the Bureau’s request for input, we have developed a survey that will be shared with leagues and provided to member-credit unions early next week. We strongly encourage credit unions to complete the survey as soon as possible.
CUNA Follows Up with Federal Housing Finance Agency (FHFA) Regarding Director DeMarco’s April 10, 2012 Comments
On April 10, FHFA Acting Director Ed DeMarco gave remarks before the Brookings Institution, indicating that FHFA is evaluating the possibility of implementing a principal forgiveness program and would make a decision in the next few weeks, perhaps by the end of April. Director DeMarco noted that FHFA believes that less than one million households would potentially be eligible for an FHFA sponsored principal forgiveness program, in comparison to the approximately 11 million underwater borrowers in the U.S. today. Director DeMarco expressed concerns that such a program would incentivize strategic defaults by borrowers who are current on their mortgages in order to benefit from principal forgiveness.
Yesterday, CUNA followed up with a letter to Director DeMarco asking FHFA to conduct a thorough up-front analysis of the possible effects of implementing any principal forgiveness program aimed at Enterprise-backed mortgages. CUNA pointed out that credit unions have traditionally originated high quality mortgage loans with stringent underwriting standards, and have had lower default rates than most banks during the economic crisis. Additionally, credit unions have been at the forefront of efforts to provide reasonable mortgage modifications to their members who are in distress. CUNA understands that any FHFA program would be limited to Enterprise-backed mortgages, and therefore would not directly affect credit unions’ balance sheets. Along these lines, CUNA asks FHFA to take into account the potential spillover effects that such a program could have on private sector mortgage modifications. CUNA expressed its concern that if FHFA were to implement a principal forgiveness program, some (or many) of the underwater borrowers without Enterprise-backed mortgages could seek similar principal forgiveness packages from their lenders or servicers. CUNA also stated that it shares FHFA’s concerns that a principal forgiveness program would incentivize borrowers to strategically default in order to obtain principal reductions. Since many borrowers may not know whether their loans are Enterprise-backed until after they default, and therefore whether they’d be eligible for an FHFA principal forgiveness program, even borrowers without Enterprise-backed loans may seek principal forgiveness from their lenders. CUNA is concerned that if an FHFA principal forgiveness program spills over into the private sector, it could have a significant negative impact on credit unions with regard to loans held in credit unions’ portfolios.
This has been another incredibly busy week and through this report, we want to make sure that you are update to date on key regulatory developments that have dominated our efforts. If you have any questions or comments about any of the items in the report, please feel free to contact Mary Dunn, Bill Hampel, or me.