CUNA Regulatory Advocacy Report
August 13, 2012
Good afternoon. It has been another busy week, and here is an update on some of the issues that we worked on this week.
- CUNA Presses NCUA for More Regulatory Relief
- Update on CUNA Advocacy with the CFPB
- CFPB Remittance Transfers “Safe Harbor” Final Rule
- CFPB Issues Proposed Mortgage Servicing Rules
- NCUA Adds LICU Issues to August 14 Webinar Topics
- MFOEL Challenges Continue
- Update on Several Accounting Issues
- Federal Reserve Reports on the Mobile Payments Regulatory Landscape
Last Friday, I sent a letter to the NCUA Board regarding a number of issues on which the agency should provide regulatory relief to credit unions. Click here for a copy of the letter. NCUA is reviewing these recommendations now and CUNA will be meeting with NCUA senior legal staff and others this month to discuss the recommendations and support their adoption. The letter was produced with input from the leagues, the AACUL Regulatory Advocacy Advisory Committee, members of CUNA’s councils and committees, and others.
The letter focused on 17 areas in which the agency should provide regulatory relief. These include urging NCUA to: form an credit union advisory council, provide more relief on member business lending, revisit field of membership requirements to facilitate credit union growth, allow certain derivatives to help well-run credit unions manage interest rate risk, allow more flexibility on the treatment of REO properties that credit unions hold, raise the asset threshold in the definition of a small credit union, improve the mergers process, provide more latitude for credit unions to change their bylaws, allow greater insurance coverage for IOLTAs, publish to credit unions the new examiners’ manual, and a number of others. We provided specific recommendations to the agency on how these measures could be accomplished consistent with the Federal Credit Union Act.
We also reiterated our strong opposition to NCUA’s loan participation proposal as we continue to urge the agency to bury it and the proposal on credit union service organizations. We will report back to you on CUNA’s Regulatory Advocacy meetings with NCUA later this month to continue our efforts to pursue these changes for regulatory relief for credit unions.
Update on CUNA Advocacy with the CFPB
Since before the agency was officially organized, CUNA has been meeting with CFPB officials about credit unions and issues of concern. Since the release of the remittances rule Tuesday, we have already met with CFPB staff to voice our continuing concerns and to discuss any possible options for further regulatory relief on that rule. (See the item below on the new rule.)
I will be talking again with Richard Cordray personally on August 14 on key concerns, and I know the Michigan and California Leagues have also met with him very recently and emphasized problem areas, including the remittance rule and mortgage regulation. CUNA Deputy General Counsel Mary Dunn was invited by the CFPB to address senior and supervisory staff at an agency conference held Wednesday. She told more than 300 agency staff that dumping more rules on credit unions that might put some out of business or cause them to stop offering certain products is not in consumers’ best interests.
We will have further meetings with CFPB officials this month and throughout the fall. Several leagues are also scheduling meetings with them, which we encourage, and want to coordinate on uniform messages. We would be glad to facilitate meetings and provide talking points or other background information for any of those meetings. Please coordinate with Mary Dunn at email@example.com and we will keep you posted on all of our discussions with them.
CFPB Remittance Transfers “Safe Harbor” Final Rule
As you may know, the CFPB earlier this week released its final rule regarding the safe harbor exemption from the international remittance transfers final rule. While the final rule is an improvement over the 25 transfers per year in the proposal, CUNA and leagues had repeatedly urged the CFPB to increase its proposed safe harbor for credit unions and other providers to no less than 1,000 transfers per year. However, the final rule only permits an exemption for providers that transmit 100 or fewer remittances a year. The safe harbor final rule supplements the final rule published in the Federal Register in February 2012, and also specifies requirements for transfers scheduled in advance, including preauthorized transfers.
The remittances final rule applies to credit unions and financial institutions that provide consumers with international electronic funds transfer services, because it broadly defines the term “remittance transfers” to include virtually all cross-border electronic funds transfers initiated by consumers in the U.S., including international ACH, international wire transfers, and transfers through money transfer organizations. The final rule will require new disclosure and other requirements for institutions covered by the rule, effective on February 7, 2013.
CUNA and leagues remain very concerned that the remittance transfers final rules will impose high compliance costs and legal liabilities on credit unions. CUNA will coordinate with the leagues to reach out to affected credit unions and obtain updated data on their transfers that we can provide to the CFPB in support of our request for further consideration of the impact of the rules on credit unions’ remittances programs.
CFPB Issues Proposed Mortgage Servicing Rules
The CFPB today issued two proposals to implement provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding servicing of mortgage loans. Comments will be accepted until October 9, 2012, and the rules are slated to be finalized in January 2013. The agency held an off the record conference call yesterday on the proposals in which CUNA participated. Here are links to the information the agency released today, including the proposals. CUNA already has identified a number of problem issues and concerns with the proposals and will be working with our Housing Finance Reform Task Force, Consumer Protection Subcommittee, the leagues and the CUNA Lending Council to develop our complete list of recommendations regarding the proposals.
Key Points in the Proposals
The proposals cover nine major topics and include model forms where appropriate.
(1) Periodic billing statements (TILA proposal): The Dodd-Frank Act generally mandates that servicers of closed-end residential mortgage loans (other than reverse mortgages) must send a periodic statement for each billing cycle. The periodic statement requirement generally would not apply for fixed-rate loans if the servicer provides a coupon book, if certain requirements are met. An exception from these requirements is proposed for small servicers that service 1000 or fewer mortgage loans but only for loans that they originated or where they retain the servicing rights.
(2) Adjustable-rate mortgage interest-rate adjustment notices (TILA proposal): Servicers would have to provide a notice 210 to 240 days prior to the first rate adjustment (which could be an estimate of the rate and payment change) and subsequent notices to consumers 60to 120 days before a payment change adjustment. Servicers would no longer be required to provide an annual notice if a rate adjustment does not result in an increase in the monthly payment.
(3) Prompt payment crediting and payoff payments (TILA proposal): Servicers must promptly credit payments from borrowers, generally on the day of receipt. If a payment is less than a full contractual payment, the payment may be held in a suspense account. When the amount in the suspense account covers a full installment of principal, interest, and escrow (if applicable) the servicer would be required to apply the funds to the oldest outstanding payment owed. An accurate payoff balance must be provided to a consumer no later than seven business days after receipt of a written request from the borrower for such information.
(4) Force-placed insurance (RESPA proposal): Servicers would not be permitted to charge a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance and the servicer has provided required notices. One notice to the borrower would be required at least 45 days before charging for force-placed insurance coverage and a second notice would be required no earlier than 30 days after the first notice. If a borrower provides proof of hazard insurance coverage, then the servicer would be required to cancel any force-placed insurance policy and refund any premiums paid under the forced-placed policy. In addition, if a servicer makes payments for hazard insurance from a borrower’s escrow account, a servicer would be required to continue those payments rather than force-placing a separate policy, even if there is insufficient money in the escrow account. Charges related to forced place insurance (other than those subject to state regulation as the business of insurance or authorized by federal law for flood insurance) must relate to a service that was performed and bear a reasonable relationship to the servicer’s cost of providing the service.
(5) Error resolution and information requests (RESPA proposal): Servicers would be required to meet certain procedural requirements for responding to information requests or complaints of errors. The proposal defines specific types of claims which constitute an error, such as a claim that the servicer misapplied a payment or assessed an improper fee. A borrower could assert an error either orally or in writing. Servicers could designate a specific phone number and address for borrowers to use. Servicers would be required to acknowledge the request or complaint within five days. The servicer would have to correct or respond to the borrower with the results of the investigation, generally within 30 to 45 days. Further, servicers generally would be required to acknowledge borrower requests for information and either provide the information or explain why the information is not available within a similar amount of time. A servicer would generally not be required to delay a scheduled foreclosure sale to consider a notice of error.
(6) Information management policies and procedures (RESPA proposal): Servicers would be required to establish reasonable information management policies and procedures taking into account the servicer’s size, scope, and nature of its operations. A servicer’s policies and procedures would satisfy the rule if the servicer regularly achieves the document retention and servicing file requirements, as well as certain objectives specified in the rule. A servicer must retain records relating to each mortgage until one year after the mortgage is discharged or servicing is transferred and must create a mortgage servicing file for each loan containing certain specified documents and information.
(7) Early intervention with delinquent borrowers (RESPA proposal): Servicers would be required to make good faith efforts to notify delinquent borrowers of loss mitigation options. If a borrower is 30 days late, the proposal would require servicers to make a good faith effort to notify the borrower orally and to let the borrower know that loss mitigations options may be available. If the borrower is 40 days late, the servicer would be required to provide the borrower with a written notice with certain specific information, including examples of loss mitigation options available, if applicable, and information about the foreclosure process.
(8) Continuity of contact with delinquent borrowers (RESPA proposal): Servicers would be required to have staff available to help delinquent borrowers with loss mitigation options where applicable and no later than five days after providing the early intervention notice. Servicers would be required to establish reasonable policies and procedures designed to ensure that the servicer personnel perform certain specified functions where applicable.
(9) Loss mitigation procedures (RESPA proposal): Servicers that offer loss mitigation options to borrowers would be required to implement procedures to ensure that complete loss mitigation applications are reasonably evaluated before proceeding with a scheduled foreclosure Within 30 days of receiving a borrower’s complete application, the servicer would be required to evaluate the borrower for all available options, and, if the denial pertains to a requested loan modification, notify the borrower of the reasons for the servicer’s decision, and provide the borrower with at least a 14-day period within which to appeal. Appeals would have to be decided within 30 days by different personnel than those responsible for the initial decision. Additional requirements would apply when a complete application is received.
NCUA Adds LICU Issues to August 14 Webinar Topics
The National Credit Union Administration is adding Low-Income Credit Union (LICU) issues to the agenda of its already announced Aug. 14 webinar on pending Central Liquidity Facility (CLF) changes and the agency’s new proposed rule on credit union access to emergency liquidity.
The agency last week sent letters to more than 1,000 credit unions indicating they are eligible for low-income designation. While the letter confers no new powers on recipient credit unions, it does streamline the process of becoming LICU-designated. That designation brings benefits that include the ability to accept supplemental capital and an exemption from the small business lending cap under certain circumstances.
Credit unions receiving letters may now opt-in with a simple reply that agrees to the LICU designation.
The webinar is scheduled to begin at 2 p.m. (ET) and will be hosted by NCUA Division of Capital Markets Director and CLF President Owen Cole. And Office of Small Credit Union Initiatives Director William Myers will discuss the recent LICU announcement.
The NCUA suggested that webinar participants review background information on the CLF before the webinar. Information on the CLF will be released to credit unions in an upcoming letter, the NCUA said.
As background on the CLF and liquidity portions of the webinar, more than 6,000 natural person credit unions will lose access to the CLF, which serves as a liquidity lender to credit unions in need of emergency funding, when U.S. Central Bridge Corporate CU closes in late October. In anticipation of this closing, the NCUA last month proposed a new emergency liquidity access rule.
Webinar participants may submit their questions for NCUA staff to WebinarQuestions@ncua.gov. The subject line should read “CLF and Your Credit Union’s Contingent Liquidity,” the agency has said. To register for the webinar, use the resource link. — Lisa McCue, CUNA NewsNow
MFOEL Challenges Continue
In last week’s regulatory advocacy report, we shared with you that many credit unions continue to remain concerned about multi-featured open-end lending following the issuance of NCUA’s letter to federal credit unions in July. CUNA is continuing its analysis of the guidance, and CUNA and CUNA Mutual staff will be presenting a webinar next Wednesday, August 15 to further address this issue.
One of the points that remains confusing to credit unions centers around the term “consummation,” which NCUA uses on page 5 of the letter. However, consummation is determined by state law, and can vary from state to state. Regulation Z requires that closed-end disclosures must be given prior to consummation of the credit transaction. Most states define this term as the time at which the consumer becomes obligated (usually when they establish the credit agreement, not when they receive the funds). We raised this issue in a joint letter from CUNA and CUNA Mutual to CFPB Director Cordray and NCUA Chairman Matz in February of this year, as well. In releasing this recent guidance, NCUA has arguably re-defined this term, and credit unions in some states are continuing to struggle with compliance requirements when it comes to MFOEL. CUNA and CUNA Mutual are continuing to seek additional clarifications on these issues.
Update on Several Accounting Issues
I would like to provide a brief update on the following accounting issues: the establishment of the Financial Accounting Foundation’s (FAF) Private Company Council, the release of the Financial Accounting Standards Board’s (FASB) discussion paper on a private company decision-making framework, and the release of FASB’s proposal on liquidity risk and interest rate risk disclosures. CUNA’s Accounting Subcommittee is following all of these issues.
Private Company Council: Earlier this summer, the FAF Board of Trustees established the Private Company Council, which is a new body intended to improve the process of setting accounting standards for private companies, including credit unions. CUNA expressed our support for the Council in a comment letter filed with the FAF earlier this year. The Council, which will be overseen by the FAF Board of Trustees, will: (1) determine whether exceptions or modifications to existing U.S. Generally Accepted Accounting Principles (GAAP) are required to address the needs of users of private company financial statements, and (2) serve as the primary advisory body to FASB on the appropriate treatment for private companies for items under active consideration on the FASB’s technical agenda. The Council will develop, deliberate, and formally vote on proposed exceptions or modifications to GAAP. If endorsed by FASB, the proposed exceptions or modifications will be exposed for public comment, followed by the Council publicly redeliberating the proposed exceptions or modifications and then providing them to FASB for a final decision on endorsement. If FASB makes a final decision to endorse, the exceptions or modifications will be incorporated into GAAP.
Discussion Paper on Decision-Making Framework: FASB has released a discussion paper that outlines an approach for deciding whether and when to modify GAAP for private companies. The paper contains initial FASB staff recommendations of criteria to determine whether and in what circumstances it is appropriate to adjust financial reporting requirements for private companies. The decision-making framework when finalized will help FASB and the Private Company Council identify the unique needs of users of private company financial statements as well as opportunities to reduce the cost and complexity of preparing private company financial statements in accordance with GAAP. It would also help them improve the relevance of those statements to users. The decision-making framework is not intended to be an entirely new conceptual framework that would lead to fundamentally different reporting between private and public companies. CUNA will be weighing-in with FASB on the proposed framework; FASB is accepting comments through October 31.
Proposal on Liquidity Risk and Interest Rate Risk Disclosures: FASB has issued a proposed standard that is intended to help financial statement users better understand organizations’ exposure to liquidity risk and interest rate risk. The proposed liquidity risk disclosures would provide information about the risk encountered by the reporting organization when meeting its financial obligations, and would apply to all private, public, and not-for-profit organizations, including credit unions. The proposed interest rate risk disclosures would provide information about the exposure of financial assets and liabilities to market interest rate fluctuations. Click here to access CUNA’s Comment Call on the proposal. FASB is accepting public comments through September 25.
Federal Reserve Reports on the Mobile Payments Regulatory Landscape
In late July, the Federal Reserve Banks of Atlanta and Boston published a summary report on the mobile payments regulatory landscape. The report covered the opportunities, challenges, and regulatory coverage of mobile payments. The mobile payments industry and financial regulators recognize that the complexity of the regulatory framework for mobile financial services requires further and ongoing analysis. Also, the report noted a need for education of industry stakeholders, regulators, policymakers, and consumers. Consumer protection regulators, such as the CFPB and the FTC, are also interested in how consumers have appropriate information and disclosures on mobile transactions. Finally, the report covered new payment entities such as non-depository institution payment providers, as well as financial inclusion and the underserved. Also, in late July, the Federal Reserve Bank of Boston published another report entitled, the “Opportunities and Challenges to Broad Acceptance of Mobile Payments in the United States.”
CUNA continues to monitor mobile payment developments and work with the CUNA Payments Policy Subcommittee, CUNA Councils, and others. In addition, we are working with the CUNA BITS Liaisons Task Force, which has a number of credit unions currently participating on the BITS Mobile Financial Services Working Group.
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