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Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer Child Tax Credit Deposits The IRS will begin issuing the first monthly payment of the expanded and newly-advanceable Child Tax Credit (CTC) from the American Rescue Plan on July 15. The payments will be made on the 15th of each month unless the 15th falls on a weekend or holiday. Eligible families will receive a payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above. Households covering more than 65 million children will receive the monthly CTC payments through direct deposit, paper check, or debit cards, and IRS and Treasury are committed to maximizing the use of direct deposit to ensure fast and secure delivery. The IRS explained that eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon. The IRS has promised more information is coming soon on these payments, which will be found here. CFPB Escrow Account FAQs The Consumer Financial Protection Bureau (CFPB) recently issued a series of FAQs relating to escrow accounts which can be found here. The FAQs touch on general issues such as what is an escrow account under Regulation X, information must be included in the initial and annual escrow statements, and charges that a servicer may require a borrower to deposit into an escrow account. Other FAQs address more specific topics such as escrow account analysis and deficiencies, shortages and surpluses. CFPB Electronic Fund Transfers FAQs The CFPB also recently issued eight FAQs on electronic fund transfers. The FAQs address the unauthorized transfer and error resolution provisions under the Electronic Fund Transfer Act and Regulation E, including situations when a consumer is fraudulently induced by a third party to provide their account information or private network rules conflict with the regulation. Be sure to review all these FAQs which can be found here. But to draw your attention to a couple FAQs – if a third party fraudulently induces a consumer into sharing account access information that is used to initiate an electronic fund transfer from the consumer’s account, does the transfer meet Regulation E’s definition of “unauthorized electronic fund transfer”? The CFPB’s response provides - Yes. Regulation E defines an unauthorized electronic fund transfer (EFT) as an EFT from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. 12 CFR § 1005.2(m). Comment 1005.2(m)-3 explains further that an unauthorized EFT includes a transfer initiated by a person who obtained the access device from the consumer through fraud or robbery. Similarly, when a consumer is fraudulently induced into sharing account access information with a third party, and a third party uses that information to make an EFT from the consumer’s account, the transfer is an unauthorized EFT under Regulation E. For example, the Bureau is aware of the following situations where a third party has fraudulently obtained a consumer’s account access information: (1) a third party calling the consumer and pretending to be a representative from the consumer’s financial institution and then tricking the consumer into providing their account login information, texted account confirmation code, debit card number, or other information that could be used to initiate an EFT out of the consumer’s account, and (2) a third party using phishing or other methods to gain access to a consumer’s computer and observe the consumer entering account login information. EFTs stemming from these situations meet the Regulation E definition of unauthorized EFTs. Another FAQ – Can a financial institution consider a consumer’s negligence when determining liability for unauthorized electronic fund transfers under Regulation E? No. Regulation E sets forth the conditions in which consumers may be held liable for unauthorized transfers, and its commentary expressly states that negligence by the consumer cannot be used as the basis for imposing greater liability than is permissible under Regulation E. 12 CFR § 1005.6; comment 6(b)-2. For example, consumer behavior that may constitute negligence under state law, such as situations where the consumer wrote the PIN on a debit card or on a piece of paper kept with the card, does not affect the consumer's liability for unauthorized transfers under Regulation E. Comment 1005.6(b)-2. Regulation Z Advertising In case you missed it, in the Federal Reserve’s Compliance Outlook newsletter they included a good article on complying with Regulation Z’s advertising requirements, which can be found here. The article discusses the key advertising provisions in Regulation Z for open- and closed-end credit, provides examples from recent bank examinations, and highlights sound practices for managing compliance risks associated with marketing and advertising. The definition of advertisements under Reg Z is very broad – basically any promotion, direct or indirect, for a credit transaction, and includes any medium – such as, newspapers, magazines, leaflets, promotional fliers, radio announcements, television commercials, internet advertisements, direct mailers, interior and exterior signage, point-of-sale displays, and telephone solicitations. The article discusses and provides examples for various aspects of the Reg Z advertising rules, such as “actually available terms” and “clear and conspicuous advertisements.” The article also gets into the all the triggering terms and additional disclosures under Reg Z, including the tricky HELOC advertisements. The article includes several handy tables/charts that summarize the various points – plainly listing the triggering terms, providing examples and then the additional disclosures as applicable. Make sure your marketing and compliance departments save this as a “favorite” article for future review and reference when promoting a credit transaction. NCUA Regulatory Alert 21-RA-07 The National Credit Union Administration (NCUA) recently issued a regulatory alert to remind credit unions about the CFPB’s interpretive rule that clarified prohibition against sex discrimination in the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, encompasses discrimination based on sexual orientation and gender identity discrimination. This rule was effective March 16, 2021. In the interpretive rule, the CFPB also clarified that ECOA's and Regulation B's prohibition against sex discrimination encompasses discrimination motivated by perceived nonconformity with sex-based or gender-based stereotypes, as well as discrimination based on an applicant's associations. As a reminder, Reg B, which implements ECOA, provides that a creditor shall not refuse to grant an individual account to a creditworthy applicant on the basis of sex, marital status, or any other prohibited basis. Prohibited basis means race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract); the fact that all or part of the applicant's income derives from any public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act or any state law upon which an exemption has been granted by the CFPB. Prohibited basis refers not only to characteristics—the race, color, religion, national origin, sex, marital status, or age—of an applicant (or officers of an applicant in the case of a corporation) but also to the characteristics of individuals with whom an applicant is affiliated or with whom the applicant associates. This means, for example, that under the general rule noted above, a creditor may not discriminate against an applicant because of that person's personal or business dealings with members of a certain religion, because of the national origin of any persons associated with the extension of credit (such as the tenants in the apartment complex being financed), or because of the race of other residents in the neighborhood where the property offered as collateral is located. 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
Child Tax Credit Deposits
The IRS will begin issuing the first monthly payment of the expanded and newly-advanceable Child Tax Credit (CTC) from the American Rescue Plan on July 15. The payments will be made on the 15th of each month unless the 15th falls on a weekend or holiday.
Eligible families will receive a payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above.
Households covering more than 65 million children will receive the monthly CTC payments through direct deposit, paper check, or debit cards, and IRS and Treasury are committed to maximizing the use of direct deposit to ensure fast and secure delivery.
The IRS explained that eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon.
The IRS has promised more information is coming soon on these payments, which will be found here.
CFPB Escrow Account FAQs
The Consumer Financial Protection Bureau (CFPB) recently issued a series of FAQs relating to escrow accounts which can be found here.
The FAQs touch on general issues such as what is an escrow account under Regulation X, information must be included in the initial and annual escrow statements, and charges that a servicer may require a borrower to deposit into an escrow account. Other FAQs address more specific topics such as escrow account analysis and deficiencies, shortages and surpluses.
CFPB Electronic Fund Transfers FAQs
The CFPB also recently issued eight FAQs on electronic fund transfers. The FAQs address the unauthorized transfer and error resolution provisions under the Electronic Fund Transfer Act and Regulation E, including situations when a consumer is fraudulently induced by a third party to provide their account information or private network rules conflict with the regulation. Be sure to review all these FAQs which can be found here.
But to draw your attention to a couple FAQs – if a third party fraudulently induces a consumer into sharing account access information that is used to initiate an electronic fund transfer from the consumer’s account, does the transfer meet Regulation E’s definition of “unauthorized electronic fund transfer”? The CFPB’s response provides - Yes. Regulation E defines an unauthorized electronic fund transfer (EFT) as an EFT from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. 12 CFR § 1005.2(m). Comment 1005.2(m)-3 explains further that an unauthorized EFT includes a transfer initiated by a person who obtained the access device from the consumer through fraud or robbery. Similarly, when a consumer is fraudulently induced into sharing account access information with a third party, and a third party uses that information to make an EFT from the consumer’s account, the transfer is an unauthorized EFT under Regulation E.
For example, the Bureau is aware of the following situations where a third party has fraudulently obtained a consumer’s account access information: (1) a third party calling the consumer and pretending to be a representative from the consumer’s financial institution and then tricking the consumer into providing their account login information, texted account confirmation code, debit card number, or other information that could be used to initiate an EFT out of the consumer’s account, and (2) a third party using phishing or other methods to gain access to a consumer’s computer and observe the consumer entering account login information. EFTs stemming from these situations meet the Regulation E definition of unauthorized EFTs.
Another FAQ – Can a financial institution consider a consumer’s negligence when determining liability for unauthorized electronic fund transfers under Regulation E? No. Regulation E sets forth the conditions in which consumers may be held liable for unauthorized transfers, and its commentary expressly states that negligence by the consumer cannot be used as the basis for imposing greater liability than is permissible under Regulation E. 12 CFR § 1005.6; comment 6(b)-2. For example, consumer behavior that may constitute negligence under state law, such as situations where the consumer wrote the PIN on a debit card or on a piece of paper kept with the card, does not affect the consumer's liability for unauthorized transfers under Regulation E. Comment 1005.6(b)-2.
Regulation Z Advertising
In case you missed it, in the Federal Reserve’s Compliance Outlook newsletter they included a good article on complying with Regulation Z’s advertising requirements, which can be found here. The article discusses the key advertising provisions in Regulation Z for open- and closed-end credit, provides examples from recent bank examinations, and highlights sound practices for managing compliance risks associated with marketing and advertising.
The definition of advertisements under Reg Z is very broad – basically any promotion, direct or indirect, for a credit transaction, and includes any medium – such as, newspapers, magazines, leaflets, promotional fliers, radio announcements, television commercials, internet advertisements, direct mailers, interior and exterior signage, point-of-sale displays, and telephone solicitations.
The article discusses and provides examples for various aspects of the Reg Z advertising rules, such as “actually available terms” and “clear and conspicuous advertisements.” The article also gets into the all the triggering terms and additional disclosures under Reg Z, including the tricky HELOC advertisements. The article includes several handy tables/charts that summarize the various points – plainly listing the triggering terms, providing examples and then the additional disclosures as applicable.
Make sure your marketing and compliance departments save this as a “favorite” article for future review and reference when promoting a credit transaction.
NCUA Regulatory Alert 21-RA-07
The National Credit Union Administration (NCUA) recently issued a regulatory alert to remind credit unions about the CFPB’s interpretive rule that clarified prohibition against sex discrimination in the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, encompasses discrimination based on sexual orientation and gender identity discrimination. This rule was effective March 16, 2021.
In the interpretive rule, the CFPB also clarified that ECOA's and Regulation B's prohibition against sex discrimination encompasses discrimination motivated by perceived nonconformity with sex-based or gender-based stereotypes, as well as discrimination based on an applicant's associations.
As a reminder, Reg B, which implements ECOA, provides that a creditor shall not refuse to grant an individual account to a creditworthy applicant on the basis of sex, marital status, or any other prohibited basis. Prohibited basis means race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract); the fact that all or part of the applicant's income derives from any public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act or any state law upon which an exemption has been granted by the CFPB.
Prohibited basis refers not only to characteristics—the race, color, religion, national origin, sex, marital status, or age—of an applicant (or officers of an applicant in the case of a corporation) but also to the characteristics of individuals with whom an applicant is affiliated or with whom the applicant associates. This means, for example, that under the general rule noted above, a creditor may not discriminate against an applicant because of that person's personal or business dealings with members of a certain religion, because of the national origin of any persons associated with the extension of credit (such as the tenants in the apartment complex being financed), or because of the race of other residents in the neighborhood where the property offered as collateral is located.
As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.