CUNA Regulatory Advocacy Report
May 22, 2012
CUNA Regulatory Advocacy Report: May 18, 2012
CUNA addressed many Regulatory Advocacy issues this week and here is an update on them and our work to help credit unions.
- CUNA Raises Range of Concerns with NCUA on Key Issues
- CFPB Updates CUNA on Pending Issues
- White House Holds Update Call on President Obama’s Plan to Help Responsible Homeowners and Heal the Housing Market
- CFPB Holds Roundtables on Mortgage Servicing
- Upcoming Small Business Review Panel on Mortgage Loan Origination Standards
- Hearing on Dodd-Frank Regulations on Systemically Important Nonbank Financial Institutions
- CUNA Coordinates Advocacy on CFPB International “Remittance Transfer” Rules with Other Financial Trade Groups
- Treasury Financial Management Service Implements ACH Transaction Update on the Green Book
- GAO Report on Implementation of FATCA: IRS Needs to Further Develop Risk, Compliance, and Cost Plans
- CUNA Continues to Work with the IRS to Address Tax-Exempt Status Revocation Issues
- This Just In from NCUA – GAO Says NCUA’s Methodology for Loss Estimates Was Adequately Documented
Earlier this week, CUNA General Counsel Eric Richard and Deputy General Counsel Mary Dunn met with NCUA’s senior staff to discuss a range of issues and concerns. Those attending the meeting for NCUA were General Counsel Mike McKenna, Director of Examination and Insurance Larry Fazio, his deputy Tim Segerson, and E&I Supervision Director Matt Biliouris.
NCUA staff reaffirmed that the agency is making improvements in the CUSO and loan participation proposals, based on comments received from CUNA, Leagues and others, although the extent of the changes remains unclear. While it is likely that NCUA will require registration with the agency for all CUSOs, the scope of other provisions should be limited to CUSOs providing lending and IT services and support.
Regarding the loan participation proposal, the agency wants to work with CUNA to establish a working group to discuss operational aspects of loan participations and ways to address NCUA’s concerns that should not be as intrusive as the loan participation proposal.
While CUNA strongly opposed both of these proposals, and we urged that no new rule is necessary in these areas, we have been trying to work with the agency to improve the proposals as much as possible since it is clear NCUA plans to move forward with some kind of rulemakings on these topics.
The working group that NCUA plans to establish on loan participations will be similar to the one that CUNA urged and helped form on troubled debt restructurings (TDRs). (The final TDR rule is on the agency’s agenda for the May 24 Board meeting. Also on the agenda is the final rule on Reg Flex credit unions and an interpretive ruling on the agency’s Supervisory Review Committee.)
CUNA raised a number of regulatory relief issues with NCUA, and we will be working with the agency to pursue these, which include allowing:
- Blanket waivers under one application process for all of the member business loan regulatory requirements that are not required by statute, such as LTV requirements;
- Greater flexibility on field of membership and in voluntary merger situations; and
- A credit union to be considered low-income based on a branch meeting the low-income criteria as opposed to the entire credit union having to meet the criteria, as suggested by the NWCU Association.
We also returned to several issues we have raised with NCUA before which include: minimizing credit unions’ overall regulatory burdens; no longer requiring the personal guarantee for a member business loan (an idea that was also raised at the first NCUA Listening Session in Boston); more flexibility in the definition of “community” and “rural district” for field of membership purposes; and allowing insurance coverage for Interest on Lawyers Trust Accounts (IOLTAs) to be based on the clients ownership of his or her funds, rather than focusing only on the attorney, which limits the insurance coverage for these accounts. CUNA has identified other regulatory burden issues as well and will be pursuing them in addition to the ones we raised this week. NCUA staff indicated their willingness to look into these matters, and we will keep you posted on our progress in achieving changes to benefit credit unions.
The Consumer Financial Protection Bureau (CFPB) is expected to announce the members of its Consumer Advisory Board (CAB) in July, according to CFPB staff who briefed CUNA in a separate meeting Wednesday on CFPB issues. While the agency plans to issue a request for nominations for the Credit Union Advisory Council (CUAC) that CFPB Director Richard Cordray is establishing, the agency also plans to organize that group in July as well, if things go according to the agency’s game plan. While names that were submitted for the CAB will be fully considered for the CUAC, the process will invite nominations in the coming weeks from the credit union system specifically for the CUAC. The CFPB said it plans to work with CUNA during this process.
CUNA has been urging the agency to consider ways to exempt credit unions from rulemakings and developing rules that could impact credit unions negatively, and we reiterated that strong position during our meeting this week. While the CFPB says it does not plan to move forward with any proposal on overdraft programs until next year, CUNA has raised serious concerns that efforts to regulate in this area should not include credit unions. The CFPB should focus on entities that have engaged in abusive practices, which would avoid regulation of credit unions. We raised similar concerns about the developing mortgage servicing and origination regulations as well as the final rule on remittances. CUNA has provided data to the agency that shows most credit unions offering remittance services to their members have many more transfers per month than 25, which is the safe-harbor ceiling under the pending proposal designed to provide some regulatory relief from the final remittance rule. Agency staff said they are seriously reviewing the safe-harbor proposal, including the extent to which the 25 transfers-per-month level should be increased. Mary Dunn represented CUNA at the meeting.
Help Responsible Homeowners and Heal the Housing Market
On Monday, the White House held an update call regarding President Obama’s plan to help responsible homeowners and heal the housing market. The plan, which was originally announced on February 1, 2012, would require Congressional action, which President Obama urged as an item on his May 8, 2012 “to do” list for Congress. The White House representatives on the call stressed that this plan is an important economic priority for the Administration, as it would reduce monthly mortgage payments by up to $3,000 per year per family on average, therefore reducing the likelihood of defaulting. The White House representatives added that, in order to implement the President’s plan, Congress needs to enact legislation in three key areas: (1) Eliminate any remaining barriers to refinancing for borrowers with GSE-backed loans, for example by eliminating the cost of an appraisal and opening up competition for lenders and servicers to participate in refinancing; (2) Implement a mechanism by which the closing costs would be covered for borrowers who choose to take the savings from refinancing to build equity in their homes by keeping their monthly payments the same, despite a lower interest rate; and (3) Ensure that all borrowers, not just those with GSE-backed loans, who are current on their mortgages, have the opportunity to refinance.
Under the third prong of the plan, “responsible” homeowners—those who are current on their mortgages, have not missed a payment in the past six months, and have no more than one missed payment in the six months before that, and who meet other qualifications—would be able to refinance their mortgages at today’s low interest rates. In addition to being current on their mortgages, homeowners could qualify for the program if they have a current FICO score of 580 or higher; the loan being refinanced is not worth more than area median home values (as determined by the Federal Housing Administration (FHA) conforming loan limits); and the loan being refinanced is for a single family, owner-occupied principal residence. The refinancing plan would not be limited to GSE-backed mortgages, and homeowners would have the opportunity to build equity in their homes by reducing their interest rate but keeping their payment the same (by putting the extra cash in their monthly payment toward the principal). Non-GSE-backed mortgages would be refinanced through FHA, and FHA would put in place streamlined procedures like those currently in place for GSE-backed loans eligible for the HARP program. The White House representatives clarified that only FHA conforming loans, rather than jumbo loans, would be eligible for refinancing under this plan. Originally, President Obama’s plan called for the refinancing activities to be funded through imposing a fee on the largest financial institutions. But the White House representatives on the call noted that Senator Feinstein (D-CA) has introduced legislation (S.3047) that would fund the plan by extending the existing 10-basis point fee on government insured loans through 2021. The text of this bill is not yet publicly available. For additional detail on President Obama’s plan, please see CUNA’s summary, available here. If you have any questions, please contact CUNA’s Counsel for Special Projects, Kristina Del Vecchio. CUNA will provide additional details on President Obama’s plan as they become available.
Earlier this week, the CFPB held several roundtable discussions at its headquarters here in Washington surrounding the mortgage servicing rules that the Bureau is considering. As a follow up to the small business review panel that was held last month on these issues, the CFPB held three separate meetings on Tuesday to obtain input on the proposals under consideration from industry trade organizations, consumer groups and additional financial institutions and mortgage servicers. Working with the Maryland and D.C. Credit Union Association and the Pennsylvania Credit union Association, CUNA invited Chris McDonald, President & CEO of Andrews FCU, Russ McAtee, Chief Operating Officer of Andrews FCU, Cos Manzo, Vice President of Mortgage Services for the Pennsylvania mortgage CUSO First Heritage Financial, LLC, and Christina Mihalik, Vice President for Governmental Affairs of the Pennsylvania Credit Union Association to accompany CUNA staff Jared Ihrig and Kristina Del Vecchio to the CFPB for these meetings. The topics of discussion at these meetings focused on new requirements set forth in the Dodd-Frank Act relating to mortgage servicing including the following:
- Mortgage periodic statement disclosures;
- Force-placed insurance notices;
- ARM notices required to be sent prior to the first reset of hybrid ARMs;
- Prompt crediting of payments and payoff request requirements; and
- Error resolution and response to inquiries requirements.
In addition to these statutorily-required disclosures and notices, the CFPB was also seeking input on proposals and requirements it is considering that are outside of the Dodd-Frank Act which include:
- Reasonable information management policies and procedures;
- Early intervention for troubled or delinquent borrowers; and
- Continuity of contact requirements for servicers in handling delinquent borrowers
During these meetings, both CUNA staff and our invited participants stressed to CFPB staff that credit unions were not the cause of the financial crisis, and that the Bureau should utilize its statutory authority to exempt credit unions from these mortgage rules, where appropriate and permissible. Additionally, we urged the Bureau to consider the surmounting costs associated with changes to systems, training, vendor relationships and operational/member concerns that credit unions would likely face if subjected to these mortgage servicing requirements. CUNA continues to meet with CFPB officials on this and other rulemaking initiatives and we will be working with our Consumer Protection Subcommittee and our Housing Finance Reform Task Force on these issues, as well. We anticipate an active summer relating to upcoming CFPB rules which are required to be issued under the Dodd-Frank Act. For more information on the particular mortgage servicing proposals under consideration, please see our April 13 Regulatory Advocacy Report and click here .
Mortgage Loan Origination Standards
Next Wednesday, the CFPB will be holding its next Small Business Review panel on mortgage loan origination standards as required under the Small Business Regulatory Enforcement Fairness Act. Lisa Brown, President and CEO of Tallahassee-Leon FCU, has been selected by the CFPB to participate on this panel, and she will be accompanied by CUNA Senior Assistant General Counsel Jared Ihrig for the meeting next week. For more information concerning the proposals under consideration by the Bureau in this area, click here and see our Regulatory Advocacy Report from last week. CUNA will be working with our Consumer Protection Subcommittee and our Housing Finance Reform Task Force in the coming weeks to gather input on these loan origination standards, and we will have an update on the small business review panel discussions in an upcoming Regulatory Advocacy Report.
Important Nonbank Financial Institutions
CUNA continues to monitor Dodd-Frank Act implementation and related regulatory updates, including those regarding systemically-important financial institutions (SIFIs) and their effects on the financial system and cybersecurity. On Wednesday, the House Financial Services Financial Institutions Subcommittee held a hearing to review regulations regarding the designation of nonbank SIFIs and the progress on Dodd-Frank implementation. U.S. Treasury Deputy Assistant Secretary for Financial Institutions, Lance Auer, testified regarding the Financial Stability Oversight Council’s (FSOC’s) regulation and guidance for identifying nonbank SIFIs that would be subject to enhanced prudential standards, including capital and risk-management, and supervision by the Federal Reserve Board (Board). At the hearing, the Board also testified on its coordination with FSOC and provided an update on their proposed regulations to supervise and examine nonbank SIFIs.
“Remittance Transfer” Rules with Other Financial Trade Groups
On Wednesday, CUNA and other financial trade groups, including NACHA – The Electronic Payments Association, Consumer Bankers Association, and Clearing House Association participated in a call to coordinate additional regulatory and legislative advocacy on the CFPB’s international “remittance transfer” rules. CUNA continues to highlight credit unions’ concerns regarding the remittance transfers final rule and proposal to the CFPB; the final rule would impose unsustainably high compliance costs and legal liabilities on credit unions that provide transfers through “open networks,” including international wire and ACH transfers. Last week, we submitted data from a CUNA survey that showed estimated numbers of international fund transfers at credit unions to the CFPB. For further information, please review our April 2012 comment letter on the follow-up proposal, and our final rule analysis regarding the final rule’s compliance requirements.
ACH Transaction Update on the Green Book
On Wednesday, the U.S. Treasury Financial Management Service (FMS) implemented updates on ACH transactions to the FMS Green Book (Guide to Federal ACH Payments and Collections) to be more consistent with the NACHA Operating Rules. The FMS Green Book is a comprehensive guide for financial institutions, including credit unions, which receive and send federal government payments on the ACH network. Effective immediately, on ACH transactions sent by FMS, the Identification Code Designator (ICD) of the Company ID Field will now reference a “1,” “3,” or “9” followed by the appropriate Identification Number. Previously, all ACH transactions sent by FMS referenced a “3” in the first position of the Company ID Field. For further information and the latest updates, please visit the FMS website on the FMS Green Book. CUNA continues to monitor changes that affect the ACH network, including updates from FMS and NACHA.
IRS Needs to Further Develop Risk, Compliance, and Cost Plans
Earlier this week, the Government Accountability Office (GAO) released a report regarding IRS implementation of the Foreign Account Tax Compliance Act (FATCA), titled Foreign Account Reporting Requirements: IRS Needs to Further Develop Risk, Compliance, and Cost Plans. FATCA requirements for U.S. taxpayers and FFIs will be phased in over the next few years. Beginning on January 1, 2014, U.S. entities will be required to withhold 30% on certain payments to foreign financial institutions (FFIs) unless the FFIs have entered into an agreement with IRS. CUNA strongly opposes the recent IRS proposal to implement this provision of FATCA, as described in our comment letter to the IRS.
Among other findings, the GAO determined that the IRS has made progress by taking initial implementation steps that align with some leading practices, such as identifying an implementation team and communicating with external stakeholders and staff. The report also noted that, as the IRS is phasing in FATCA over multiple years, and some aspects of program design have not been finalized, the IRS will not be able to complete detailed plans for all aspects of FATCA implementation in the near term. However, the IRS can begin to document its broad strategies for assessing risk; using information it obtains from taxpayers and FFIs to improve taxpayer compliance, and developing a comprehensive resource estimate.
The GAO makes the following recommendations for the IRS to improve FATCA implementation:
- Develop a consolidated risk assessment;
- Complete a broad strategy, including a timeline and performance measures, for how the IRS intends to use information collected based on the FATCA requirements to improve tax compliance; and
- Establish and document a timeline for completing a comprehensive FATCA cost estimate.
CUNA will continue its efforts, including through working with the World Council of Credit Unions, to minimize the regulatory compliance burdens on credit unions associated with FATCA.
Tax-Exempt Status Revocation Issues
As you may know, CUNA and the other members of the UBIT Steering Committee have been working with the IRS to remove credit unions from the IRS tax-exempt status revocation list, which is posted on the IRS website here. Approximately 580 credit unions currently appear on this list. It is CUNA’s understanding that many of the credit unions on this list are no longer in existence, or have incorrectly had their tax-exempt status revoked, placing them on the list. The credit unions appearing on this list have received letters from the IRS stating that their tax exemption has been revoked for failure to file a Form 990 for three consecutive years. Although only state-chartered credit unions are required to file an annual Form 990, many Federal credit unions have also been erroneously placed on this list, typically because filing a Form 990T (required to claim the health care insurance premium credit) has triggered revocation letters. The IRS has informed CUNA that in order to correct this issue, it needs to know which credit unions are no longer in existence, and how many are listed with inaccurate Employer Identification Numbers (EINs). CUNA has been working with the Leagues to collect this data, and we are still in the process of collecting and analyzing such data. If you have any questions about this, or have erroneously received a revocation letter from the IRS, please contact your local League representative, or CUNA’s Counsel for Special Projects Kristina Del Vecchio .
for Loss Estimates Was Adequately Documented
The Government Accountability Office (GAO) has informed NCUA that it is satisfied GAO’s recommendation — that the NCUA Office of Inspector General review the agency’s loss estimates regarding the legacy assets of some of the corporate credit unions — has been implemented.
In a recent report, , NATIONAL CREDIT UNION ADMINISTRATION: Earlier Actions Are Needed to Better Address Troubled Credit Unions (GAO-12-247), GAO hadrecommended that NCUA provide the NCUA Office of Inspector General (OIG) supporting documentation that would verify the total losses incurred from January 1, 2008 to June 30, 2011. Here are excerpts from the GAO letter to NCUA:
…[W]e are closing this recommendation as implemented. In response to our recommendation, NCUA provided its OIG the supporting documentation on the loss estimates for the Stabilization Fund and NCUA 2010 Financial Statement Audit for Temporary Corporate Credit Union Stabilization Fund, which was released after we completed our review and was therefore not available for our analysis. Based on the documentation provided, the OIG has concluded the loss estimates are reasonable.
To ensure that the intent of the recommendation was fully addressed, on May 7, 2012, we met with NCUA and OIG officials to discuss the documentation that NCUA had provided to its OIG. We also reviewed a sample of the supporting documentation, and we found that the methodology (including key assumptions) used to calculate the estimates was appropriately documented. We also found that the estimates were adequately supported in the documentation provided.
We have asked for a briefing for CUNA staff from NCUA on the documentation it provided to the OIG and will update you on that in a future report.
Another busy week has come and gone. Next week will present many of the same issues and others as well. We will be working on all of them and making every effort throughout the week to do our very best to advance regulatory relief for credit unions.
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