ARTICLE
Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer Don’t Be a Mule The Department of Justice (DoJ) recently announced the results of its initiative to halt money mule activity. Money mules assist fraud schemes by receiving money from victims, many of them elderly, and forwarding proceeds to foreign-based perpetrators. As announced by the DoJ, multiple law enforcement agencies worked together to halt the conduct of more than 600 money mules, spanning over 85 federal districts. The DoJ has provided several resources and educational tools to assist in combatting money mule activity, which can all be found here and include this useful educational poster. It is important to remember (and remind others) that acting as a money mule is illegal and punishable, even if you aren’t aware you’re committing a crime. Here is a short video of an individual who tells her story of being the victim of a romance scam and ultimately was prosecuted for two federal crimes. Another money mule PSA can be found here which could be helpful in educating others about these scams. As a reminder, FinCEN issued an advisory in 2020 on this topic – FIN-2020-A003, that provides guidance to credit union on reporting money mule scams related to COVID-19, including several red flags that can assist the credit union in identifying potential money mule activity. A few examples include: The customer receives multiple state unemployment insurance payments to his/her account, or to multiple accounts held at the same financial institution, within the same disbursement timeframe (e.g., weekly or biweekly payments) issued from one or multiple states. The customer’s account(s) receives an unemployment deposit from a different state in which he/she reportedly resides or has previously worked. Deposited funds are quickly diverted via wire transaction to foreign accounts located within countries known for having poor anti-money laundering controls. The customer provides information that his or her purported employer asked the customer to receive funds into his/her personal bank account, so that the employer can then process or transfer funds via wire transfer, ACH, mail, or money service businesses out of the customer’s personal account. Reg E FAQs The Consumer Financial Protection Bureau (CFPB) recently updated its FAQs related to the Electronic Funds Transfers/Regulation E, which can be found here. A number of the recent updates discuss how Regulation E relates to person-to-person (P2P) transactions. As discussed in more detail in the FAQs, any P2P payment that meets the definition of EFT is covered by EFTA and Regulation E. The term “electronic fund transfer” or “EFT” means any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer's account. Accordingly, Regulation E applies to any person-to-person (P2P) or mobile payment transactions that meet the definition of EFT, including debit card, ACH, prepaid account, and other electronic transfers to or from a consumer account. As a reminder, Regulation E requires that after a credit union receives oral or written notice of an error from a consumer, the financial institution must do all of the following: Promptly investigate the oral or written allegation of error; Complete its investigation within the time limits specified in Regulation E; Report the results of its investigation within three business days after completing its investigation; and correct the error within one business day after determining that an error has occurred. NCUA Board Meeting The final 2021 board meeting of the National Credit Union Administration (NCUA) occurred yesterday and covered a lot of information. Final Rule Approved – Complex Credit Union Leverage Ratio The NCUA Board unanimously approved a final rule to allow complex credit unions (over $500 million), that meet certain criteria, to opt into the complex credit union leverage ratio (CCULR). This relieves these credit unions from having to calculate a risk-based capital ratio, as implemented by the 2015 Final Rule. This final rule can be found here and is effective January 1, 2022. Under the final rule, a qualifying complex credit union is defined as a complex credit union that meets the following criteria: (1) Has a CCULR (net worth ratio) of 9 percent or greater; (2) Has total off-balance sheet exposures of 25 percent or less of its total assets; (3) Has the sum of total trading assets and total trading liabilities of 5 percent or less of its total assets; and (4) Has the sum of total goodwill and total other intangible assets of 2 percent or less of its total assets. The final rule also makes several amendments to update the NCUA’s October 29, 2015, risk-based capital final rule, including addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, deducting certain mortgage servicing 2 assets from a complex credit union’s risk-based capital numerator, revising the treatment of goodwill, and amending other asset risk weights. Final Rule Approved – Mortgage Servicing Assets A final rule relating to Mortgage Servicing Assets (MSA) was also unanimously approved. This final rule can be found here and is effective April 1, 2022. The final rule removes the prohibition on Federal Credit Unions (FCUs) from purchasing MSRs under the Investment Rule. Briefly, section 703.14 is therefore amended to explicitly permit an FCU to purchase MSAs from other Federally Insured Credit Union (FICUs), provided: 1) After the last full examination of the credit union, the FCU received a composite CAMELS rating of 1 or 2, which also included a Management rating of 1 or 2; 2) The underlying mortgage loans of the MSAs are loans the FCU is empowered to grant; 3) The FCU purchases the MSAs within the limitations of the FCU’s board of directors’ written purchase policies; and 4) The board of directors or the FCU’s investment committee approves the purchase in advance. Final Rule – Subordinated Debt Finally, the NCUA also approved an amendment to the Subordinated Debt Rule. This amendment is found here and is effective January 1, 2022. This final rule amends the definition of “Grandfathered Secondary Capital” to include any secondary capital issued to the United States Government or one of its subdivisions (U.S. Government), under a secondary capital application approved before January 1, 2022, irrespective of the date of issuance. This amendment is narrowly tailored to provide an exception to the issuance cutoff date, if the secondary capital issuance is: 1. To the U.S. Government; and 2. Being conducted under a secondary capital application that was approved before January 1, 2022, under either § 701.34 of the NCUA’s regulations, for federal credit unions, or § 741.203 of the NCUA’s regulations, for federally insured, state-chartered credit unions. Last Attorney Conference for the Non-Attorney – January 11, 2022 Thank you for everyone that has joined us for the first two sessions of the Attorney Conference for the Non-Attorney webinar series. Do not missed your opportunity to hear from industry experts on January 11, 2022, for the last session in this series that will be tackling regulatory hot topics. Credit unions face many regulatory changes and are burdened with the challenges of maintaining compliance with these changes. This session explores several hot button regulatory issues and provides information regarding cannabis banking, consumer privacy/data, cybersecurity, and Reg E issues related to electronic payments. Registration can be found here. Most credit unions do not have in-house counsel or access to the type of information provided at events like CUNA’s Attorney Conference. The Attorney’s Conference for Non-Attorneys can provide this information to you, along with risk mitigation strategies to help protect your credit union from liability. This series is made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League. As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.
Compliance Update with Amy K
by Amy Kleinschmit, Chief Compliance Officer
Don’t Be a Mule
The Department of Justice (DoJ) recently announced the results of its initiative to halt money mule activity. Money mules assist fraud schemes by receiving money from victims, many of them elderly, and forwarding proceeds to foreign-based perpetrators.
As announced by the DoJ, multiple law enforcement agencies worked together to halt the conduct of more than 600 money mules, spanning over 85 federal districts.
The DoJ has provided several resources and educational tools to assist in combatting money mule activity, which can all be found here and include this useful educational poster.
It is important to remember (and remind others) that acting as a money mule is illegal and punishable, even if you aren’t aware you’re committing a crime. Here is a short video of an individual who tells her story of being the victim of a romance scam and ultimately was prosecuted for two federal crimes. Another money mule PSA can be found here which could be helpful in educating others about these scams.
As a reminder, FinCEN issued an advisory in 2020 on this topic – FIN-2020-A003, that provides guidance to credit union on reporting money mule scams related to COVID-19, including several red flags that can assist the credit union in identifying potential money mule activity.
A few examples include:
The customer receives multiple state unemployment insurance payments to his/her account, or to multiple accounts held at the same financial institution, within the same disbursement timeframe (e.g., weekly or biweekly payments) issued from one or multiple states.
The customer’s account(s) receives an unemployment deposit from a different state in which he/she reportedly resides or has previously worked.
Deposited funds are quickly diverted via wire transaction to foreign accounts located within countries known for having poor anti-money laundering controls.
The customer provides information that his or her purported employer asked the customer to receive funds into his/her personal bank account, so that the employer can then process or transfer funds via wire transfer, ACH, mail, or money service businesses out of the customer’s personal account.
Reg E FAQs
The Consumer Financial Protection Bureau (CFPB) recently updated its FAQs related to the Electronic Funds Transfers/Regulation E, which can be found here.
A number of the recent updates discuss how Regulation E relates to person-to-person (P2P) transactions. As discussed in more detail in the FAQs, any P2P payment that meets the definition of EFT is covered by EFTA and Regulation E.
The term “electronic fund transfer” or “EFT” means any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer's account. Accordingly, Regulation E applies to any person-to-person (P2P) or mobile payment transactions that meet the definition of EFT, including debit card, ACH, prepaid account, and other electronic transfers to or from a consumer account.
As a reminder, Regulation E requires that after a credit union receives oral or written notice of an error from a consumer, the financial institution must do all of the following: Promptly investigate the oral or written allegation of error; Complete its investigation within the time limits specified in Regulation E; Report the results of its investigation within three business days after completing its investigation; and correct the error within one business day after determining that an error has occurred.
NCUA Board Meeting
The final 2021 board meeting of the National Credit Union Administration (NCUA) occurred yesterday and covered a lot of information.
Final Rule Approved – Complex Credit Union Leverage Ratio
The NCUA Board unanimously approved a final rule to allow complex credit unions (over $500 million), that meet certain criteria, to opt into the complex credit union leverage ratio (CCULR). This relieves these credit unions from having to calculate a risk-based capital ratio, as implemented by the 2015 Final Rule.
This final rule can be found here and is effective January 1, 2022.
Under the final rule, a qualifying complex credit union is defined as a complex credit union that meets the following criteria: (1) Has a CCULR (net worth ratio) of 9 percent or greater; (2) Has total off-balance sheet exposures of 25 percent or less of its total assets; (3) Has the sum of total trading assets and total trading liabilities of 5 percent or less of its total assets; and (4) Has the sum of total goodwill and total other intangible assets of 2 percent or less of its total assets.
The final rule also makes several amendments to update the NCUA’s October 29, 2015, risk-based capital final rule, including addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, deducting certain mortgage servicing 2 assets from a complex credit union’s risk-based capital numerator, revising the treatment of goodwill, and amending other asset risk weights.
Final Rule Approved – Mortgage Servicing Assets
A final rule relating to Mortgage Servicing Assets (MSA) was also unanimously approved. This final rule can be found here and is effective April 1, 2022.
The final rule removes the prohibition on Federal Credit Unions (FCUs) from purchasing MSRs under the Investment Rule. Briefly, section 703.14 is therefore amended to explicitly permit an FCU to purchase MSAs from other Federally Insured Credit Union (FICUs), provided: 1) After the last full examination of the credit union, the FCU received a composite CAMELS rating of 1 or 2, which also included a Management rating of 1 or 2; 2) The underlying mortgage loans of the MSAs are loans the FCU is empowered to grant; 3) The FCU purchases the MSAs within the limitations of the FCU’s board of directors’ written purchase policies; and 4) The board of directors or the FCU’s investment committee approves the purchase in advance.
Final Rule – Subordinated Debt
Finally, the NCUA also approved an amendment to the Subordinated Debt Rule. This amendment is found here and is effective January 1, 2022. This final rule amends the definition of “Grandfathered Secondary Capital” to include any secondary capital issued to the United States Government or one of its subdivisions (U.S. Government), under a secondary capital application approved before January 1, 2022, irrespective of the date of issuance.
This amendment is narrowly tailored to provide an exception to the issuance cutoff date, if the secondary capital issuance is: 1. To the U.S. Government; and 2. Being conducted under a secondary capital application that was approved before January 1, 2022, under either § 701.34 of the NCUA’s regulations, for federal credit unions, or § 741.203 of the NCUA’s regulations, for federally insured, state-chartered credit unions.
Last Attorney Conference for the Non-Attorney – January 11, 2022
Thank you for everyone that has joined us for the first two sessions of the Attorney Conference for the Non-Attorney webinar series.
Do not missed your opportunity to hear from industry experts on January 11, 2022, for the last session in this series that will be tackling regulatory hot topics.
Credit unions face many regulatory changes and are burdened with the challenges of maintaining compliance with these changes. This session explores several hot button regulatory issues and provides information regarding cannabis banking, consumer privacy/data, cybersecurity, and Reg E issues related to electronic payments.
Registration can be found here.
Most credit unions do not have in-house counsel or access to the type of information provided at events like CUNA’s Attorney Conference. The Attorney’s Conference for Non-Attorneys can provide this information to you, along with risk mitigation strategies to help protect your credit union from liability. This series is made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League.
As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.