Washington State DCU Issues Examination Focus Update
June 9, 2020
The Washington State Department of Financial Institution’s Division of Credit Unions (DCU) has issued DCU Bulletin B-20-02,which provides more detail regarding the specific items examiners will review in light of the COVID-19 pandemic. The four 2020 exam focus areas are listed in the bulletin which also emphasizes the importance of making adjustments to the allowance for loan and lease losses funding analysis during an economic downturn.
The DCU’s 2020 examination focus areas continue to be:
- Consumer protection law compliance
- Business Continuity/Disaster Recover Testing
The pandemic has shifted credit union operations to a never seen before telework environment. Telework and remote access can pose greater exposure to the credit union’s network, systems and data. The DCU is recommending that credit unions review their network protections and determine if enhancements are needed to align with this new telework environment.
Consumer Protection Law Compliance
Many credit unions are taking action to assist members during the COVID-19 pandemic. The focus of the DCU review will include the policies and/or procedures for implementing the relief options offered by the credit union.
Credit unions have recently experienced an increase in deposits and decreased loan demand leading to increased cash and short-term investments. Examiners will review the credit union’s liquidity policy, procedures and practices for compliance with the liquidity and funding plan requirements that are listed in the NCUA’s regulations, and if need be, discuss the credit union’s plans for putting to use any excess liquidity.
Business Continuity/Disaster Recovery Testing
The DCU is recommending that credit unions review and update their business continuity plans (BCPs) accordingly to determine if any additional actions should be taken to minimize the potential adverse effects of the pandemic.
Allowance for Loan and Lease Loss Account Funding Considerations
Credit unions should be proactive in evaluating and considering adjustments to their ALLL funding methodology during an economic downturn in order to better predict future loan losses. DCU examiners will discuss with management whether the credit union has adjusted its ALLL account funding analysis due to expected losses because of the COVID-19 pandemic. If so, examiners will want to know what factors were involved in the decision to increase the ALLL account balance. ALLL account funding should take into consideration qualitative and environmental factors, such as economic, political, geographical and industrial factors. Examiners will consider the credit union’s size, its lending program complexity, and the inherent risks in its loan portfolio when evaluating the credit union’s ALLL funding analysis.
Question of the Week
Q. We are going to institute a new fee for non-member check cashing. Do we have to send out a 30-day advance change in terms notice?
A. No. Truth in Savings only requires the credit union to send a change in terms notice for any change in a term that is required to be disclosed under 707.4, if the change may reduce the annual percentage yield or adversely affect the member. However, a fee for non-member check cashing would not fall into this category.
The credit union would want to update its fee schedule and make the non-member aware of the fee prior to cashing the check.
National Credit Union Administration (NCUA)
Financial Regulators Statement on Financial Inclusion
The NCUA, along with the other members of the Federal Financial Institutions Examination Council (FFIEC), released a statement on the importance of financial inclusion.
Consumer Financial Protection Bureau (CFPB)
Remittance Rule FAQs related to COVID-19 Pandemic
The CFPB published FAQs related to remittance transfers during the COVID-19 emergency. The FAQs are designed to serve as a compliance aid for remittance transfers.
Statement on Supervisory and Enforcement Practices Regarding Electronic Credit Card Disclosures in Light of the COVID-19 Pandemic
The CFPB released a statement regarding the electronic credit card disclosures under Regulation Z. The statement provides temporary and targeted flexibility for credit card issuers regarding electronic provision of certain disclosures required to be in writing during the pandemic.
CFPB Takes Steps to Facilitate LIBOR Transition
With the transition away from LIBOR, the CFPB released an updated Consumer Handbook on Adjustable Rate Mortgages (CHARM) as well as a Notice of Proposed Rulemaking (NPRM) concerning the anticipated discontinuation of LIBOR, including proposing examples of replacement indices that meet Regulation Z standards. Additionally, the CFPB is issuing guidance (FAQs) on other important LIBOR transition topics that do not require amendments to Regulation Z.
CARES Act Forbearance and Foreclosure
The CFPB and CSBS issued a joint statement addressing mortgage loan forbearance under the CARES Act. The statement provides a statutory overview along with Q&A’s related to mortgage servicing.
NACHA has updated their ACH FAQs to include information on returning payments due to suspected unemployment issuance fraud and partial payment returns.
Office of Foreign Assets Control (OFAC)
OFAC has updated the SDN list as of June 8. The last update prior to this was May 27.
Questions? Contact the Compliance Hotline: 1.800.546.4465; firstname.lastname@example.org.