CUNA Regulatory Advocacy Report

CUNA Regulatory Advocacy Report: April 20, 2012

Good afternoon. Here is our latest Regulatory Advocacy Report, which summarizes some of the top regulatory issues we pursued this week.

  • NCUA Responds to CUNA: The Agency Agrees it Can Take Steps to Improve the Examination Process
  • CUNA Releases Survey to Collect Input on Overdraft Protection Programs & Practices
  • CUNA Meets with the CFPB Again
  • Multi-Featured Open-End Lending Update
  • CUNA Attends Symposium on CFPB International “Remittance Transfer” Rules
  • IRS Issues Final Regulations on Reporting of Interest Paid to Nonresident Aliens
  • Recently Issued CFPB Bulletins
  • CUNA Participates on ACH Expedited Processing Working Group Call

NCUA Responds to CUNA: The Agency Agrees It Can Take Steps to Improve the Examination Process

This item was in today’s NewsNow but I wanted to include it in this report to make sure you saw it. We know there are still many concerns relating to NCUA and we are trying to tackle them on a daily basis. This letter, however, shows that we do have some important, common ground on issues that we are following up on with NCUA.

NCUA Chairman Debbie Matz has identified regulatory relief measures it is pursuing in a letter this week to CUNA President and CEO Bill Cheney. The chairman’s letter was in response to a letter we sent to her following the CUNA Government Affairs Conference in March.

The CUNA Executive Committee met with Chairman Matz during the GAC. “I believe those present would agree that the meeting produced useful discussions,” Cheney said, “although we all realize that there are many issues yet to be resolved regarding regulatory burdens, examination concerns and others.”

The letter from Chairman Matz indicates NCUA will be pursuing a number of actions that CUNA urged on behalf of credit unions, which include:

  • The agency is moving ahead with its proposal on troubled debt restructurings. CUNA’s Examination and Supervision Subcommittee, and Accounting Subcommittee, along with leagues, played an important role in urging the development of the proposal, as acknowledged in the letter. A TDR final rule may be considered by the NCUA Board in May.
  • NCUA is undertaking a review of its examination process. CUNA’s Examination and Supervision Subcommittee hopes to meet regularly with NCUA’s Director of Examination and Insurance Larry Fazio to develop and pursue recommendations for improvements.
  • While NCUA declined to issue a regulatory moratorium, the agency says it will “make every effort to draft rules that are as minimally burdensome as possible.” CUNA will be monitoring developments in this area closely.
  • The agency will be reviewing its field of membership regulation.

“I believe the letter from the NCUA Board Chairman overall reflects an increased awareness on the part of the agency on the merits of the issues and concerns that CUNA, leagues, and credit unions have raised,” Cheney said. CUNA welcomes the steps the Chairman has laid out.

In its meeting and communications with NCUA, CUNA has urged the agency to direct examiners to take a number of actions that would result in a more effective and productive exam for credit unions as well as for the agency. Such steps include providing the authority that an examiner directive is based on and ensuring examiners refrain from aggressive tactics in their dealings with credit unions, which CUNA will continue to pursue.

CUNA Releases Survey to Collect Input on Overdraft Protection Programs & Practices

As mentioned in last week’s Regulatory Advocacy Report, earlier this week, we released a survey to collect input from all member credit unions regarding overdraft protection programs and practices. Our data collection is in response to a request for information from the CFPB on the overdraft protection programs of all financial institutions. Any information submitted through our survey will be strictly anonymous. We ask credit unions to complete the survey by April 27. Your input is critical to our advocacy efforts with the CFPB regarding overdraft. Please see our Comment Call for additional information.

CUNA Meets with the CFPB Again

One of CUNA’s top regulatory advocacy goals, in addition to pursing ways to improve the regulatory and examination environment generally for credit unions, is to persuade the Consumer Financial Protection Bureau that credit unions should often be treated differently, since they do not need additional consumer protection regulation, from other entities that do. This objective may not be attainable in every circumstance because many of the regulatory requirements that the CFPB implements, including how they apply, are set by Congress. However, in areas that the CFPB has discretion, CUNA urges the agency to refrain from including credit unions under the scope of new requirements that are more appropriately directed at other entities.

As reported in this report and elsewhere, CUNA has already had numerous meetings with officials at the CFPB, including the discussion CUNA’s executive committee had with CFPB Director Richard Cordray during the Governmental Affairs Conference. Just this week, CUNA Regulatory Advocacy staff sat down in the CUNA office with the CFPB’s Bart Shapiro who currently is heading up the CFPB’s Office of Community Banks and Credit Unions, to discuss a range of serious concerns. The topics covered included:

  • Credit unions must continue to have flexibility to respond to their members’ needs for overdraft protection (see the separate item in this week’s report on CUNA’s overdraft protection survey);
  • Credit unions remain concerned about the remittances final rule and the low level of transactions that would qualify for an exemption from the rule’s requirements (CUNA’s comment letter and other CUNA advocacy to the CFPB has called for less onerous requirements for credit unions in this area);
  • Any data collection from the CFPB that includes credit unions should be very limited and the agency should first utilize information from call reports before initiating new data collection requirements for credit unions;
  • The CFPB’s latest announcement that it will pursue lending policies and practices that are discriminatory, including those that disadvantage protected groups, even if that was not the intent of the lender, and that credit unions do not need additional intervention in the area of fair lending;
  • CUNA urged that CFPB ensure the selection process for its new Consumer Advisory Board (CAB) is fair and balanced and will include credit union representatives;
  • CUNA also urged the agency to move forward to name the Credit Union Advisory Council. This council, unlike the CAB, is not statutorily required but the CFPB Director has indicated he plans to name such a group;
  • Concerns about new regulations in the areas of mortgages and mortgage servicing; and
  • Upcoming Small Business Regulatory Enforcement Fairness Act (SBREFA) panels. A mortgage-servicing panel will be held next Tuesday, April 24, and the CFPB will likely hold another on loan originator compensation shortly thereafter. Credit unions have been involved in all the SBREFA panels so far, including one on the combined TILA/RESPA forms.

Multi-Featured Open-End Lending Update

Earlier this week, CUNA Regulatory Advocacy Staff discussed with the Consumer Financial Protection Bureau (CFPB) the status of CUNA and CUNA Mutual’s repetitive requests for additional guidance from the CFPB and/or NCUA relating to multi-featured open-end lending (MFOEL) for credit unions. During the discussions, CUNA was advised that NCUA submitted draft guidance to the CFPB for its review and comments some time ago. The interpretative authority for Regulation Z, which implements the Truth in Lending Act, was transferred to the CFPB in July 2011. The CFPB official shared with CUNA that the draft guidance has been reviewed by CFPB staff, and that comments have been delivered back to NCUA on the draft guidance. According to the CFPB official, NCUA is continuing to revise the guidance, and that the matter remains slated on NCUA’s calendar. CUNA has also confirmed with NCUA that this is a matter that is actively being worked on, and that the agency hopes to issue additional information “relatively soon.” This being said, however, we do not know the exact timing of NCUA’s release of such guidance. CUNA is aware that many credit unions continue to wrestle with the vague and unclear terms such as “underwriting,” and “occasional or routine” that were not defined either in NCUA’s letter to Federal Credit Unions 10-FCU-02 or the Federal Reserve Board’s Official Staff Commentary to Regulation Z, and we continue to work with both NCUA and the CFPB to seek additional clarification and information for credit unions in this regard.

CUNA Attends Symposium on CFPB International “Remittance Transfer” Rules

On Wednesday, CUNA staff, along with representatives from the World Council of Credit Unions and the National Federation of Community Development Credit Unions, attended an all-day symposium to discuss the new international “remittance transfer” rules issued by the CFPB. The meeting was hosted by the Appleseed Network, a public interest group that advocated for strong consumer protections on remittance transfers, and also included participants from other financial associations, payment companies, law firms, non-profits, and consumer groups. At the meeting, CUNA staff discussed that credit unions continue to have many compliance concerns regarding the remittance transfers final rule, especially with “open network” transfers, and that we support regulatory flexibility that would allow credit unions to continue to offer remittances and complement the many financial services and financial literacy programs that credit unions provide to consumers and communities. The meeting also featured discussions on the final rule’s requirements with CFPB staff, compliance and new disclosure changes, and future developments on remittance transfers and research. CUNA continues to highlight that the final rule would impose unsustainably high compliance costs and legal liabilities on credit unions that provide transfers through “open networks,” such as international wire transfers and international ACH transfers through unrelated correspondent institutions. For additional information, please see our April 2012 comment letter, our July 2011 comment letter, and our final rule analysis, which describes the remittance transfers final rule’s requirements.

IRS Issues Final Regulations on Reporting of Interest Paid to Nonresident Aliens

Yesterday, the Internal Revenue Service (IRS) issued final regulations that require financial institutions to report interest payments made on deposit accounts held by nonresident aliens. While the new requirements are intended to reduce tax evasion, according to the IRS, we are concerned with the increased compliance burden associated with this information-reporting requirement. In April of last year, we filed a comment letter with the IRS strongly opposing the then-proposed regulations, noting that “the proposed rules would increase compliance costs for credit unions and, in turn, their members.”

The new regulations require information reporting on interest payments made on deposit accounts held by nonresident aliens from any of the countries enumerated on the IRS list, issued as Revenue Procedure 2012-24. This is a dramatic expansion from the current information reporting required for only Canadian nonresident aliens, as this Revenue Procedure now includes 78 different countries. This listing will be periodically updated by the IRS, and financial institutions will be required to report on nonresident aliens listing a permanent address in the jurisdictions listed on this list as of the previous December 31. For determining the covered nonresident aliens to be reported upon, credit unions may rely on valid and existing IRS Form W8-BENs obtained for such nonresident aliens, and may use the permanent address listed on this form. As a result of this final rule, it is now more important than ever that credit unions properly collect, maintain and update W8-BEN forms when they expire for all such nonresident aliens to be able to rely upon this information for purposes of completing IRS Form 1042-S. Under the rule, a financial institution must file IRS Form 1042-S for all relevant nonresident alien account holders from these affected countries.

We are reviewing the final rule and accompanying material further and pursuing all appropriate avenues, including Congressional ones, in an effort to alleviate the rule’s compliance burden on credit unions.

Recently Issued CFPB Bulletins

From time to time, the CFPB publishes various bulletins concerning everything from allowable communications with the CFPB to lending matters to service provider relationships. Since the beginning of this month, the agency seems to have stepped up the pace of such publications. The agency’s latest, issued yesterday, was a bulletin discussing the permissibility of state reciprocity with respect to transitional licensing of mortgage originators as it relates to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Earlier this week, the CFPB also issued a compliance bulletin, which indicates that the CFPB will use all available legal authority, including disparate impact, to pursue lenders whose practices discriminate against consumers. Disparate impact occurs when a lender’s practices or policies are not intended to discriminate, but nonetheless have discriminatory effects. This compliance bulletin applies to all institutions under the CFPB’s jurisdiction, and applies to credit products including mortgages, credit cards, student loans, and auto loans. In a separate bulletin issued last week, the CFPB clarified that financial institutions under CFPB supervision may be held responsible for the actions of the companies with which they contract, and the CFPB will hold such companies accountable when legal violations occur. Click here for this bulletin, and here for the CFPB’s press release. Two weeks ago, the CFPB also issued this bulletin discussing a particular inquiry surrounding compensation to loan originators by way of certain qualified plans.

While only three credit unions are under the enforcement and supervision of the CFPB, it might be a good idea to review these bulletins to be aware of the topics that might be considered “hot buttons” with the CFPB. You can bet that NCUA is reading these, as well, for their own purposes. For a complete list of all of the CFPB’s bulletins as well as additional guidance documents the agency has issued, click here. CUNA will continue to closely monitor all CFPB activity and continue working with the agency as new rules, bulletins and other developments unfold. We will summarize key parts of CFPB bulletins in an upcoming Regulatory Advocacy report.

CUNA Participates on ACH Expedited Processing Working Group Call

On Monday, CUNA staff participated on another call with the NACHA Expedited Processing and Settlement (EPS) Industry Support Group to review comments received and next steps on the EPS proposal. CUNA continues to express concerns raised by credit unions and urges NACHA to make improvements on the EPS proposal regarding a new premium same-day, network-wide service on the Automated Clearing House (ACH) network. In December 2011, we submitted a comment letter that emphasized that receiving depository financial institutions (RDFIs), especially smaller credit unions, would incur significant implementation and risk management costs if all RDFIs are required to receive and post expedited ACH payments. We continue to work with NACHA, the CUNA Payments Policy Subcommittee, and credit unions on different ACH issues and proposals, including the EPS proposal.


This has been another incredibly busy week and through this report, we want to make sure that you are up 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.

Best regards,
Bill Cheney

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