CUNA’s Credit Union Magazine Shares the Top 10 Issues on the CFPB’s Radar

The Consumer Financial Protection Bureau (CFPB) has a very full agenda planned for 2015. Here are 10 issues the CFPB is working on, starting with areas the bureau definitely is focusing on and moving on to more uncharted—and controversial—territory.

1. TILA-RESPA Disclosures

The Dodd-Frank Act mandated the CFPB integrate requirements under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) into coordinated disclosures.

In November 2013, the bureau finalized its regulations creating new loan estimate and closing disclosure forms, effective Aug. 1, 2015.

Consider these cautions about the new regulations:

  • Don’t expect the bureau to postpone the effective date. The bureau said it provided a 21-month implementation period—longer than customary—because it understood the compliance difficulties (“CFPB proposes TILA-RESPA changes,” p. 42).

    And you can’t comply early. The CFPB won’t provide a “transition” period because it wants to allow consumers to “comparison shop” among mortgage lenders.

  • Recognize these changes require much more than merely updating forms. You’ll need to make significant data processing changes. Press all your vendors to make sure they’re on track, too. Tell the bureau or CUNA if you have concerns about your vendors meeting deadlines, because you will need plenty of time to test systems and train staff.
  • Understand that your credit union will have to run old and new systems simultaneously.

    Any loan application received by July 31, 2015, will be processed with current forms, and any application received on or after Aug. 1, 2015, will have to comply with the new requirements.

Moreover, the new TILA-RESPA rule covers most, but not all, closed-end consumer loans secured by real property. You’ll continue to administer reverse mortgages and mobile home loans using current forms and procedures.

CUNA continues to ask the bureau to provide much-needed clarifications in these new regulations.

2. Annual Privacy Notices

CUNA has long pressed Congress and the CFPB to stop requiring credit unions to provide annual privacy notices in paper form. In October, the CFPB adopted a new rule—effective immediately—allowing financial institutions to post privacy notices online if they comply with certain conditions. Generally, to be eligible, a credit union:

  • Cannot have changed its privacy information since delivering the most recent paper notice.
  • Cannot share information in ways that trigger the member’s opt-out rights.
  • Must use the model privacy form.
  • Must allow a consumer to review the online privacy notice without logging in.
  • Must annually inform members—through billing statements or other communication—of the availability of notices online, and that they can obtain paper copies by calling a specific telephone number.

Credit unions don’t have to switch to online delivery, and may continue mailing annual privacy notices.

3. Prepaid Cards

In mid-November, the CFPB issued a proposed rule on general purpose reloadable (GPR) cards. The proposal would cover traditional plastic prepaid cards, as well as mobile and other electronic prepaid accounts that can store funds.

Prepaid card issuers would be required to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, provide easy and free access to account information, and adhere to provisions in Reg E and the CARD Act, if a credit product is offered in connection with a prepaid account.

Also, new, standardized “Know Before You Owe” disclosures would be required to provide consumers with up-front information about the costs and risks of prepaid products.

4. HMDA Data

The Dodd-Frank Act requires the CFPB to collect approximately 17 new pieces of information under the Home Mortgage Disclosure Act (HMDA).

In July, the bureau issued an HMDA proposal that more than doubled the statutory data-collection requirements, including details on “qualified mortgage” factors.

Although the comment period closed Oct. 29, CUNA continues to object strenuously to many elements of the CFPB’s proposal, including the mandatory reporting on HELOCs, which typically are supported by separate systems than closed-end first mortgages.

HMDA reporting will expand, but not until the beginning of 2016 at the earliest.

5. Debt Collection

The Fair Debt Collection Practices Act (FDCPA) has never applied to credit unions or other creditors collecting their own loans. The federal law applies only to third-party debt collectors and has never contained any implementing regulations.

But this might change.

Since July 2013, the CFPB has received more than 42,000 complaints about debt collection practices.

The bureau has taken several enforcement actions against debt collection agencies, usually relying on its “unfair, deceptive, or abusive acts or practices” (UDAAP) authority. And a year ago, the bureau issued an advance notice of proposed rule-making on debt collection.

CUNA’s comment letter urges the bureau to use its exemption authority to exclude credit unions from any new regulation.

Don’t be surprised to see debt collection practices as a “hot issue” in 2015.

6. Overdraft Programs

The CFPB has focused a lot of attention on checking account overdrafts, including a public “request for information” in February 2012, a request for input on a possible “penalty fee box,” and June 2013 and July 2014 research reports on overdrafts. Also, the Credit Union Advisory Council meeting in September 2014 focused on overdraft programs at credit unions.

CUNA doesn’t expect the bureau to even decide if it will proceed with any rulemaking before the second half of 2015. It’s likely the bureau will convene a small-business panel of industry stakeholders before it does anything.

Regardless, CUNA understands this issue is of great concern to many credit unions and has advocated firmly on their behalf. So far on this issue, the bureau:

  • Has clearly indicated it will act first on payday lending, and consider account overdraft s a distinct issue.
  • Appears to understand that consumers value having access to overdraft programs. “We’re not looking to ban these courtesy products,” CFPB Director Richard Cordray said at the fall Advisory Council meeting.
  • Has acknowledged it lacks legal authority to regulate overdraft fees, but believes it has authority to regulate the number of overdraft s permissible over a certain time period and the order in which checks must be posted.

CUNA will continue to press the bureau to avoid any action that would undermine credit union overdraft programs.

7. Opening Checking Accounts

In October, the CFPB hosted a day-long forum on checking account access to explore screening methods used by banks and credit unions.

Underscoring a desire to protect low-income consumers, Cordray inquired whether reliance on “specialty consumer reporting agencies”—such as ChexSystems and similar providers—“raises questions about whether financial institutions unfairly block some consumers from opening checking accounts.”

The CFPB indicated specific concerns with:

  • Whether consumers can readily access their reports.
  • Whether the information is accurate, particularly when it’s mostly negative.
  • Whether consumers can get inaccuracies corrected.
  • How financial institutions use these reports.

It’s difficult to know how—or if—the agency will pursue the issue.

8. Indirect Auto Lending

The CFPB issued a controversial bulletin in March 2013 titled “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.” The bulletin addresses auto lenders’ accountability for auto dealers’ illegal discriminatory markups of loans the lenders purchase.

The bureau has also imposed a number of enforcement penalties against specific banks engaged in indirect auto lending, and released a “Supervisory Highlights” report detailing the auto-lending discrimination it has found. The CFPB has identified some ways institutions can limit their fair lending risk, including:

  • Conducting internal monitoring to correct for potential discrimination stemming from discretionary pricing policies; and
  • Eliminating dealers’ ability to mark up the price of a loan, and instead compensating them fairly using a different mechanism.

And in September, the bureau proposed a “larger participants rule,” which defined its oversight over larger, nonbank auto finance companies.

CUNA urges any credit union involved in indirect auto lending to read the CFPB’s views on potential liability and fair lending risks.

9. Credit Cards

Contrary to early expectations, the bureau has yet to launch any rule-making on credit cards. That doesn’t mean it’s a dead issue.

The bureau issued a bulletin in July 2013 cautioning credit card issuers to properly disclose terms and conditions when marketing add-on products such as identity theft protection and credit score tracking.

The CFPB issued another bulletin in September 2014 reminding credit unions to properly disclose terms and conditions when marketing interest-rate promotional offers on balance transfers, deferred interest, and convenience checks.

Other areas possibly on the bureau’s radar include online disclosures, mandatory arbitration provisions, and rewards programs.

The September bulletin provides an example of the CFPB’s broad authority, granted by the Dodd-Frank Act, to address what the bureau finds to be UDAAP. This new authority applies to both enforcement actions and rule-making.

10. Consumer Complaint Database

The CFPB’s consumer complaint database includes complaints about credit cards, mortgages, account services, debt collection, money transfers, credit reporting, student loans, auto loans, and payday loans.

Since starting its database in 2012, the bureau has received more than 470,000 complaints and has published 290,000 in its database. CUNA doesn’t have numbers on how many of the complaints involve credit unions, but we know it’s a very small amount.

To be clear, the public database includes only complaints involving the four credit unions under the bureau’s direct supervision (those with $10 billion or more in assets). CFPB forwards other complaints against credit unions to NCUA or state regulators for resolution.

The bureau’s supervision and enforcement teams regularly use this database to target exams and enforcement actions.

In July, the bureau proposed expanding its complaint database to give consumers the option to submit written narratives. CUNA has expressed concern that this proposal might turn an informational database into a place where angry consumers simply go to vent about their bad experiences.

Because the CFPB and NCUA have placed significant importance on consumer complaints, every credit union should have a centralized process for receiving, addressing, and retaining member complaints.

A Call to Action

This “top 10 list” demonstrates a significant expansion of the bureau’s regulatory and enforcement activity into so-called “second tier” issues—those the Dodd- Frank Act didn’t mandate.

Credit unions must convince the CFPB it shouldn’t impair their service to members because of overly broad regulations intended to address the “bad apples” operating in the financial marketplace.

JUSTIN SANTOPIETRO is regulatory affairs specialist in CUNA’s regulatory affairs department. Contact him via CUNA’s compliance email inquiry box at cucomply@cuna.com.

Compliance Question of the Week

What is the difference between IRS form 1099-INT and form 1099-MISC?   

Form 1099-INT must be filed for each person the credit union pays $10 or more in interest during the calendar year.  Interest is the amount paid or credited by a credit union on deposits.  Even if the credit union does not call the amount interest (dividends), it may still be included in the definition of interest for the purpose of filing a 1099-INT.

Form 1099-MISC must be filed for each person the credit union pays at least $600 in prizes, awards, gross proceeds paid to an attorney, professional fees, or services.  Form 1099-MISC must be filed once each calendar year regarding the payments made during the calendar year.

When determining whether to file a 1099-INT or 1099-MISC for an incentive, consider whether the incentive was given in connection with either opening a deposit account or maintaining an account relationship. If the incentive was given for one of those reasons, the item given is considered interest and a 1099-INT must be filed if it is valued at $10 or more.  If the person did not agree to participate based on the opening or maintaining of an account, a 1099-MISC is required.

Related Links:

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA announced that IOLTA accounts (lawyers trust accounts) are now insured up to $250,000 for each owner of the funds.

The NCUA has published amendments to its appraisal rules. The amendments aim to remove duplicate requirements under the CFPB’s appraisal rules and will be effective on January 20, 2015.

The NCUA has released a new economic update video.

Consumer Financial Protection Bureau (CFPB)

The CFPB announced its annual adjustment to the dollar amount used for determining a small loan exemption from the HPML appraisal rules. The new threshold, effective on January 1, 2015, is $25,500.

The CFPB announced a change in the asset size threshold for certain creditors to qualify for an exemption from the requirement to establish an escrow account for HPMLs. The new threshold, effective January 1, 2015, will be $2.060 billion.

The CFPB also increased the exemption threshold for HMDA asset-size exemption to $44 million. This increase will be effective on January 1, 2015.

Federal Reserve Bank (FRB)

The FRB has released the minutes of the Federal Advisory Council from its most recent meeting in December.

Financial Crimes Enforcement Network (FinCEN)

FinCEN is requesting nominations for the Bank Secrecy Act Advisory Group.

U.S. Treasury

The U.S. Treasury has announced that it will hold a roundtable discussion on January 13, 2015 that will explore financial access for money service businesses (MSBs).

Federal Deposit Insurance Corporation (FDIC)

The FDIC has released its Fall 2014 issue of Consumer News.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of December 23, 2014. The last update prior to this was December 19, 2014.

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance News, CUNA.