CUNA Regulatory Advocacy Report

CUNA Regulatory Advocacy Report: April 27, 2012

CFPB’s Inquiry into Overdraft Protection Continues

Responding to the request of CUNA and others outside the credit union system, earlier this week, the Consumer Financial Protection Bureau (CFPB) formally extended until June 29, its data collection on overdraft protection programs and practices. The comment period was previously set to conclude Monday, April 30.

As noted in last week’s Regulatory Advocacy Report, we urged the agency to extend the time period for its collection of information on overdraft programs to ensure it receives sufficient responses to have an accurate representation of overdraft programs and draws correct conclusions about the impact of such programs on consumers.

Because the CFPB has extended its comment deadline, CUNA is also extending the deadline for credit unions to comment to us and complete our overdraft survey. We really hope credit unions will respond to us by May 25.  About 365 credit unions have already commented, and we greatly appreciate your input on this very important issue.

CUNA will be sharing a draft of our comments to the CFPB with leagues and others by June 10 and will file our comment letter with the CFPB by June 15. A copy of our letter will be shared as soon as we can in early June.

In addition to its formal data collection through the Federal Register, the CFPB continues its examination of the overdraft practices of nine banks, including JPMorgan Chase, Wells Fargo, Bank of America, U.S. Bancorp, Regions Financial, and PNC Financial Services.  The examination includes much of the same information sought through the CFPB’s request for comments, such as how the banks persuade customers to enroll in overdraft protection programs and the extent to which less-costly alternatives are available.

CUNA Reminds Credit Unions OF Due Diligence Resources

As has been reported, a letter that NCUA sent to over 5,000 credit unions last month directing those credit unions to manage their business arrangements with a particular service provider has caused a number of credit unions to raise questions about the expectations of examiners regarding due diligence requirements of credit unions.  (It is important to reinforce that the NCUA letter did not direct credit unions to discontinue business relationships with that service provider but did reinforce that credit unions are expected to meet due diligence requirements.)

What regulators mean when they refer to “due diligence requirements” has often been unclear if not downright opaque. To help credit unions stay on top of these requirements and steps ahead of the examiner, CUNA has developed a due diligence guide that was updated last year. 

Entitled, “The CUNA Third-Party Vendor Management Guide,” the 88 -page guidance includes NCUA’s list of questions that credit unions should be able to answer regarding due diligence as well as other key information on risk assessments and agreements with third party vendors. 
The guide is free and available to all CUNA members. Click Here for a link to the CUNA Due Diligence guide. If you have trouble accessing the link, please contact Elaine Rowley at
Consumer Financial Protection bureau (CFPB) Regulations Chart

All of us–leagues, credit unions, CUNA–have been sorely taxed trying to keep track of the various issues that the CFPB is working on. We have repeatedly asked the agency to publish a list of the proposals in the pipeline as well as a time line for implementation of issues under the Dodd-Frank Act and other CFPB priorities.

While the agency is looking into our request, we decided to put together our own chart of key CFPB issues, which we hope is helpful. We will be updating this chart as issues change.     

To access the CUNA CFPB Regulations Chart, click here

CUNA/WOCCU to File Comment Letters on IRS Proposal

Working with the World Council of Credit Unions, CUNA is filing a comment letter with the Internal Revenue Service (IRS) urging important exemptions for credit unions from proposed IRS requirements under the Foreign Accounting Tax Compliance Act of 2010 (FATCA). Comments are due to the IRS Monday, April 30.  The letter, which will be posted to CUNA’s Regulatory Advocacy website after it is filed, urges the IRS to consider the minimal benefits of applying the rule to credit unions in this country versus the costs and staff resources that credit unions will have to expend to comply. Under the proposal, domestic credit unions, as withholding agents, would be subjected to new requirements to identify, monitor, report on and withhold a 30% tax payment from certain payments made to foreign financial institutions and other entities.  CUNA is also supporting WOCCU’s efforts to blunt the impact of the rule on credit unions outside of the United States.  Further details of CUNA’s Letter will be in next week’s Regulatory Advocacy Report.

Government Accountability Office Releases the Results of

IT’S Audit of the FDIC’s 2010 and 2011 Financial Statements

On April 19, the Government Accountability Office (GAO) released the results of its audit of the FDIC’s 2010 and 2011 financial statements.  The GAO approved the financial statements, finding that the FDIC fairly presented, in all material respects, the 2010 and 2011 financial statements for the two funds it administers, the Deposit Insurance Fund (DIF) and the Federal Savings and Loan Insurance Corporation (FSLIC).  However, the GAO identified deficiencies in how the FDIC determined and reported estimates of losses to the DIF resulting from bank resolution transactions involving shared-loss agreements.  Since the start of the financial crisis, the FDIC’s typical means of disposing of failed banks has involved entering into agreements where another institution would acquire the bank, and enter into an agreement sharing the losses with the FDIC, called a “shared-loss agreement.” 

The FDIC reported that since the beginning of 2008, the FDIC has resolved 281 bank failures using such shared-loss agreements.  In its audit, the GAO found three specific control deficiencies relating to the shared-loss model: (1) the FDIC “lacked effective controls over testing and verifying” the shared-loss model; (2) the FDIC lacked effective controls over the integrity of source data used by the shared-loss model in deriving estimates of losses; and (3) the FDIC “lacked effective documentation for key aspects” of its shared loss estimation process, hindering an “adequate review” of the process, the shared-loss model, and the loss estimates derived from the model.  According to the GAO, it reported in both 2009 and 2010 that the FDIC did not have “clear and comprehensive” documentation over this process to allow it to adequately review the model, and that even though the FDIC attempted to address this issue, it was not successful.

The GAO found that, out of almost $43 billion in estimated losses from shared-loss agreements in 2011, these deficiencies caused errors in loss provisions totaling $769 million in the FDIC’s draft 2011 statements.  However, the FDIC corrected this in the finalized 2011 statements, reducing the loss estimates to $274 million.  Consequently, the GAO stressed that “it is critical that FDIC design and implement effective controls and ensure that all steps in the shared loss model are fully documented to allow for appropriate review of key steps in the process.”  The GAO said that it would be making recommendations to the FDIC to address these issues in a separate report.  The FDIC responded to the GAO’s report, stating that it continues to take steps to address the deficiencies raised by the GAO in its audit report. 

OMB Guidance Issued on Cumulative Effects of Regulations

We wanted to call your attention to a recently issued guidance memorandum that has been issued by the Office of Management and Budget relating to regulatory burdens.  The memorandum was addressed to the heads of executive departments and agencies from the Administrator of the Office of Information and Regulatory Affairs.  The memorandum references previously issued Executive Order 13563, which directs agencies to take active steps to take account of the cumulative effect of new and existing rules and to identify opportunities to harmonize and streamline multiple rules. 

The memorandum states:

The goals of this effort should be to simplify requirements on the public and private sectors; to ensure against unjustified, redundant, or excessive requirements; and ultimately to increase the net benefits of regulations. 

The memorandum identifies several steps that agencies should carefully consider, where appropriate and feasible, and to the extent permitted by law, to further assess the cumulative effects of regulations and take opportunities to reduce burdens and to increase net benefits as part of an agency’s cost benefit analysis, consistent with Executive Order 13563.  The guidance became effective on March 20, 2012, and can be accessed here.

Rest assured, we will be following up with NCUA to press the agency to ensure its actions are in line with this latest directive from OMB.

NCUA Issues Legal Opinion Letter on MBL Appraisals

Last week, the NCUA Office of General Counsel released Legal Opinion Letter 11-1126 in response to an inquiry by a CUSO, regarding whether the Interagency Appraisal and Evaluation Guidelines require a credit union to obtain an appraisal when selling a participation interest in a member business loan (MBL), based on the following facts:

  • The CUSO works with credit unions that offer to sell participations in commercial real estate secured MBLs to other credit unions from the originating credit union’s MBL portfolio.
  • The MBLs have been held on the originating credit union’s books for several years, are in current repayment status, and have a loan to value ratio of less than 80%, with no deterioration in the subject property.
  • The terms, conditions, and pricing of the loan at origination remain the same at the time of the participation sale.

NCUA’s appraisal rule, Part 722, sets appraisal requirements for federally related real estate transactions.  Under section 722.3(a) of the rule, certain real estate-related financial transactions are exempt from the appraisal requirement, including those involving the sale of an interest in a loan.

As applied to the facts described above, the sale of a participation interest in an MBL secured by commercial real estate is exempt from the appraisal requirement, assuming the note meets the criteria discussed in the Interagency Appraisal and Evaluation Guidelines, which clarify the appraisal rule, according to the opinion letter.  In applying this exemption, the Guidelines state that, “If each note or real estate interest meets the . . . regulatory requirements for appraisals at the time the real estate note was originated, the institution need not obtain a new appraisal to support its interest in the transaction.”

The opinion letter concludes that, under the facts presented, an appraisal would not be required by the rule provided the loans met the appropriate appraisal requirements when originated.  However, federally insured credit unions should maintain risk management systems and policies that address the level of risk associated with loan participations.  In addition, even though an exemption from the appraisal requirement may apply, the Guidelines note that NCUA may require a federally insured credit union to obtain an appraisal or evaluation “when there are safety and soundness concerns on an existing real estate secured credit.”  75 Fed. Reg. at 77464.

CUNA Attends CFPB Small Business Review

Panel on Mortgage Servicer Rules

On Tuesday, the Consumer Financial Protection Bureau (CFPB) held a Small Business Regulatory Enforcement Act (SBREFA) panel discussion regarding upcoming mortgage servicer rulemakings.  CUNA members Brian Barkdull, CEO of American Southwest Credit Union, Tiffany Michel, Vice President of Lending of Omaha Police FCU, and Victor Petroni, SVP of Lending of First New England FCU, and other credit unions participated on the SBREFA panel.  CUNA staff also attended the discussion.  In addition, the panel included community banks and other mortgage servicing companies, as well as representatives from the Small Business Administration and Office of Management and Budget.

During the panel discussions, participants reviewed the CFPB mortgage servicer proposals under consideration, discussed the direct and indirect impact on businesses and consumers, responded to CFPB staff questions, and provided detailed examples from their experiences.  Overall, credit union and other panelists recommended that the agency: minimize duplicative regulations, consider the costs on small financial institutions, consider meaningful exemptions or multi-tiered approaches, and focus on targeting the problem areas instead of overly broad rules.

As previously discussed in the CUNA Regulatory Advocacy Report on April 13, the CFPB has released an outline and fact sheet on the mortgage servicer rules under consideration.  The CFPB has reiterated that they plan to propose the mortgage servicer rules this summer, and these rules will be finalized by January 21, 2013.  CUNA will be following up with the CFPB on the mortgage servicer rules and other rulemaking efforts, and we will continue to work with the Leagues and credit unions on any further developments.

CUNA Participates in ABA Routing Number Board Meeting

On Thursday, CUNA’s representative, Ms. Julie Renderos, EVP / Chief Financial Officer from Suncoast Schools FCU, and CUNA staff participated in the annual American Bankers Association (ABA) Routing Number Administrative Board in-person meeting.  This meeting focused on ABA routing number policy and administration, as well as other payments-related issues.  At the meeting, Federal Reserve Board and Federal Reserve Bank of Atlanta staff also provided a briefing on payment system trends, upcoming regulatory updates and research, including with the Regulation CC check clearing proposal and Automated Clearing House (ACH) developments.  CUNA is a voting member on the ABA Routing Number Board and the other voting members include the ABA, the Clearing House Association, and NACHA – The Electronic Payments Association.

CUNA Comments to NACHA on Healthcare Payments Proposal

Today, CUNA will submit a comment letter to NACHA – The Electronic Payments Association regarding their ACH healthcare payments processing proposal.  The proposal is about how Receiving Depository Financial Institutions (RDFIs) that process healthcare electronic funds transfers (EFTs) on the ACH network would provide payment information to assist their healthcare provider receivers, such as physicians, hospitals, and other companies, when there is a processing problem.  In our letter, CUNA urged NACHA to minimize costs on financial institutions that process healthcare remittance (reimbursement) payments on the ACH network.  We believe NACHA should continue to permit RDFIs to provide healthcare payments information to assist their healthcare receivers based on the capabilities and preferences of both the RDFI and the receiver.   Instead of the three proposed options, NACHA should continue to permit RDFIs to provide healthcare payments information on CCD+ entries to assist their healthcare receivers based on the capabilities and preferences of both the RDFI and its receiver, as currently permitted under Subsection of the NACHA Operating Rules.


As we look forward to the new week, we will continue to press regulators for a better environment with fewer regulatory burdens imposed on credit unions.  Our highest regulatory advocacy priority is to minimize the rules credit unions have to follow and to improve the examination process to the greatest extent possible.  We will cover these and other issues in our next report.

In the meantime, if you have any questions or comments about this report, please feel free to contact Mary Dunn, Bill Hampel, or me.

Best regards,

Bill Cheney

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