Compliance Center: NCUA Priorities, 1099s, and More

The National Credit Union Administration (NCUA) released letter to credit unions 15-CU-01 which details the areas the Administration’s supervisory priorities for 2015.  Cybersecurity, interest rate risk (IRR), and Bank Secrecy Act (BSA) compliance top the priorities for the Administration.

The letter is intended to assist credit unions in preparing for the 2015 NCUA examination cycle. According to the NCUA, “As always, agency field staff will be focusing on the areas of highest risk in the credit union system and compliance with new regulations.”

In addition, the letter contains information of the NCUA’s plan to streamline examinations for credit unions with assets up to $50 million and CAMEL ratings of 1, 2, or 3.

The 2015 Examination Priorities Are:

  • Cybersecurity: This area has become the NCUA’s top examination priority and the NCUA plans to redouble efforts to ensure that the credit union system is prepared for a range or cybersecurity threat.  The NCUA field staff will focus on proactive measures that credit unions can take to protect their data, including:
    • encrypting sensitive data;
    • developing a comprehensive information security policy;
    • performing due diligence over third parties that handle credit union data;
    • monitoring cybersecurity risk exposure;
    • monitoring transactions, and
    • testing security measures.
  • Interest rate risk(IRR): IRR has long been the agencies top examination priority, and with the continued low interest rate environment, it will remain one of the primary concerns for all federal financial institution regulators. The NCUA field staff will continue to use existing guidance to assess credit unions’ IRR exposure. The agency is also in the process of updating the existing guidance to ensure that IRR is assessed accurately and that the appropriate supervisory steps are taken in response to excessive IRR exposure. NCUA’s IRR guidance and rule requirements are posted on the Interest Rate Risk Resources webpage.
  • BSA Compliance: The field staff will continue to assess credit unions’ compliance with BSA, with a focus on credit unions’ relationships with money service businesses. Credit unions can provide services to MSBs while meeting their BSA requirements, but they should be aware of the unique risk exposure MSBs can present. The agency recently issued guidance to field staff to educate them about MSBs and steps credit unions can take to mitigate the money-laundering risks posed by MSBs. NCUA and the other federal banking agencies have established minimum expectations that credit unions should meet when providing services to MSBs, including: 
    • identifying customers;
    • ensuring that each MSB is registered with the Financial Crimes Enforcement Network (FinCEN) and in compliance with state and local licensing requirements; and
    • conducting a BSA/Anti-Money Laundering risk assessment to document the level of risk associated with each MSB account and determine whether greater due diligence is necessary.
  • Liquidity and contingency funding plans rule: Full compliance with relevant provisions of the NCUA’s liquidity rule will be examined by agency staff. In 2015, field staff will be assessing compliance with this provision and evaluating contingent funding testing results at credit unions with assets of at least $250 million.
  • Truth in Lending Act-Real Estate Settlement Procedures Act (TILA-RESPA) integrated disclosure rule: The rule will become effective Aug. 1, 2015 and NCUA staff will be assessing compliance with the rule once it goes into effect.
  • Ability-to-repay and qualified mortgage standards rule: NCUA staff will be looking at credit unions’ compliance with the required provisions, and ensuring that their mortgage lending programs are being operated in a safe and sound manner.
  • Lending programs: The NCUA continues to monitor trends in credit union loan portfolios, and staff will examine whether institutions are performing due diligence in all loan products and services, particularly new ones that have become available in recent years. 

The NCUA also released what types of examinations federal credit unions will be subject to, by CAMEL rating and asset size.

Compliance Question of the Week

What does the credit union need to know about mailing 1099-INT Forms to our members?

If a member qualifies for a 1099-INT, the credit union must use the official IRS Form 1099-INT or an acceptable substitute. Additionally, the statement may also contain the following information:

  • Form W-2, W-8, W-9, or other Forms 1098, 1099, and 5498 statements;
  • A check from the account being reported;
  • A letter explaining why no check is enclosed;
  • A statement of the person’s account that is shown on the 1099-INT; and
  • A letter explaining the tax consequences of the information shown on the statement.

No additional enclosures, such as advertising, promotional material, or a quarterly or annual report, are permitted. Even a sentence or two on the year-end statement describing new services offered by the payer is not permitted. Logos are permitted on the envelope and on any nontax enclosures.

A recipient statement may be perforated to a check or to a statement of the recipient’s specific account. The check or account statement to which the recipient statement is perforated must contain, in bold and conspicuous type, the legend “Important Tax Return Document Attached.”

The legend “Important Tax Return Document Enclosed” must appear in a bold and conspicuous manner on the outside of the envelope and on each letter explaining why no check is enclosed, or on each check or account statement that is not perforated to the recipient statement. The legend is not required on any tax form, tax statement, or permitted letter of tax consequences included in a statement mailing. Further, you need not pluralize the word “document” in the legend simply because more than one recipient statement is enclosed.

Related Link:

IRS General Instructions for Certain Information Returns

Legal Briefs

National Credit Union Administration (NCUA)

NCUA Vice Chairman Rick Metsger discussed Field of Membership changes and how they can help credit unions grow at a recent meeting of the Virginia Credit Union League.

The NCUA released the agenda for its January 15, 2015 Board Meeting. During this Board Meeting, the NCUA will consider the revised proposed Risk-Based Capital rule.

The NCUA announced the release of new videos on the agency’s YouTube channel to help educate consumers on fraud, scams, and cyber threats.

The NCUA issued Letter to Credit Unions number 15-CU-01 outlining the agency’s supervisory priorities for 2015. An item to note is that the priorities include a focus on cybersecurity.

Consumer Financial Protection Bureau (CFPB)

With the increased focus on military lending and debts, the CFPB wrote a blog post on how unpaid military debts can impact military servicemembers’ career.

Federal Reserve Bank (FRB)

The FRB released its November 2014 Consumer Credit G.19 report, showing a consumer credit increase as a seasonally adjusted annual rate of 5 percent.

The January issue of FedFocus has been released.

The minutes and statement of the December 16-17, 2014 Federal Open Market Committee have been released.

Federal Housing Administration (FHA)

The FHA has announced that it will reduce the annual premiums that new borrowers will pay for insurance premiums by half of a percent.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of January 2, 2015. The last update prior to this was December 23, 2014.

Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News, Federal, NCUA.