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Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer Rulemaking Agendas Released A number of regulatory agencies have recently issued their spring rulemaking agenda. A review of the agencies’ rulemaking agendas can provide the credit union with insight on what potential compliance changes are on the horizon which can assist with strategic planning for compliance resources as well as products and services that the credit union offers or plans to offer in the future. While obviously it is just an agenda and subject to change, with new leadership at both the CFPB and NCUA it is good to see what it on their mind in terms of regulatory hot topic areas. CFPB Agenda The Consumer Financial Protection Bureau (CFPB), which is still awaiting confirmation of its next Director, issued their agenda which can be found here. Items in the final rule stage include amendments to Regulation Z to facilitate transition from LIBOR and an extension to the debt collection final rule’s effective date. The CFPB also anticipates issuing a final rule in July regarding its proposed revisions to Regulation X. As you may recall earlier this year, CFPB proposed amendments to the mortgage servicing early intervention and loss mitigation-related provisions in the Regulation X which implements RESPA. Later this year, we may see a proposed rule related to automated valuation models. Dodd-Frank amended the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals. The FIRREA amendments require implementing regulations for quality control standards for automated valuation models (AVMs). These standards are designed to ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews, and account for any other such factor that the agencies determine to be appropriate. This fall, it is anticipated that a proposed rule for business lending data will be issued; another Dodd-Frank requirement, which requires financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses. Section 1071 of the Dodd-Frank Act requires that certain data be collected, maintained, and reported to the Bureau, including the number of the application and date the application was received; the type and purpose of the loan or credit applied for; the amount of credit applied for and approved; the type of action taken with respect to the application and the date of such action; the census tract of the applicant’s principal place of business; the gross annual revenue of the business; and the race, sex, and ethnicity of the principal owners of the business. HMDA – the CFPB indicated that they are no longer pursuing two HMDA rulemakings that were listed in the proposed rule stage in previous agendas – one that concerns the data points that lenders must report and another related to the public disclosure of HMDA data. NCUA Agenda The National Credit Union Administration (NCUA) published agenda can be found here. On the proposed to-do list includes potential changes to investment and deposit activities under Part 703. The NCUA is considering issuing a proposed rule to amend Part 703 to modernize and improve the NCUA’s investment rule and to provide regulatory relief. The NCUA believes there may be certain provisions in part 703 that are overly restrictive and unnecessary from a safety and soundness perspective. A revised part 703 would provide federal credit unions with more flexible investment options. Purchase, sale and pledge of loans possible amendments. The NCUA Board is considering issuing a proposed rule to clarify federal credit unions' authority to purchase, sell, and pledge loans – including loan participations and eligible obligations – under sections 701.22 and 701.23 of the NCUA's regulations. Compensation in connection with loans to members and lines of credit to members. An advanced notice of proposed rulemaking was issued in 2019. The agenda indicates that the NCUA considering issuing a proposed rule to modernize the NCUA's regulations governing compensation in connection with loans to members and lines of credit to members to provide more flexibility to credit unions and their employees. Complex Credit Union Leverage Ratio. As provided for in the agenda, the NCUA is developing a proposed rule to integrate an analog to the community bank leverage ratio into the NCUA’s capital standards. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 required the other banking agencies to propose a simplified, alternative measure of capital adequacy for federally insured banks. In November 2019, the other banking agencies issued a final rule providing qualifying community banks the option to comply with a simplified leverage measure of capital adequacy. The Board anticipates proposing an equivalent provision for credit unions, consistent with the Federal Credit Union Act. We might see a final rule this fall which will amend the CAMELS rating. As you will recall, earlier this year the NCUA proposed to add “S” component to the rating system. CAMEL stands for - capital adequacy, asset quality, management, earnings, and liquidity. In practice, the liquidity component also assesses the credit union’s asset liability management, which includes sensitivity to market risk. The NCUA proposed to amend provisions in the Code of Federal Regulations to reflect its decision to update the examination and risk rating system from CAMEL to CAMELS by adding a component that will allow examiners to rate sensitivity to market risk (S). The proposal to add to the S component will enhance transparency and allow the NCUA and federally insured credit unions to better distinguish between liquidity risk and sensitivity to market risk. Other final rules we may see this fall include amendments to CUSOs under part 712. Earlier this year, NCUA proposed a rule to expand the permissible lending activities for CUSOs. Treasury/FinCEN Agenda Another agenda to pay attention to is the Department of Treasury, which can be found here, as there are a number of future FinCEN (BSA) rulemakings that will be occurring. This fall we may see a final rule to require banks and money service businesses to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency (CVC) or digital assets with legal tender status ("legal tender digital assets" or "LTDA") held in unhosted wallets, or held in wallets hosted in a jurisdiction identified by FinCEN. Another final rule expected this fall would clarify the meaning of "money" as used in the rules implementing the Bank Secrecy Act requiring financial institutions to collect, retain, and transmit information on certain funds transfers and transmittals of funds to ensure that the rules apply to domestic and cross-border transactions involving convertible virtual currency, which is a medium of exchange (such as cryptocurrency) that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status. Proposed rulemaking is expected to start later this summer to implement Section 6101 of the Anti-Money Laundering Act of 2020. This section requires the Secretary of the Treasury to promulgate regulations to carry out the provisions of Section 6101, concerning the development of public priorities for anti-money laundering (AML) and countering the financing of terrorism (CFT) policy, and the supervision and examination of financial institutions regarding the incorporation of those priorities, as appropriate, into their risk-based AML/CFT programs. Overdraft/NSF Fee Lawsuits Credit unions are continuing to receive threats of litigation and lawsuits regarding overdraft and/or NSF fees as discussed in the recently issued Risk Alert from Cuna Mutual Group. Be sure to review the entire Risk Alert, especially the risk mitigation tips – such as removing your account agreement from the credit union’s public facing website. If you missed the risk alert in your in-box you can also find it in InfoSight. 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
Rulemaking Agendas Released
A number of regulatory agencies have recently issued their spring rulemaking agenda. A review of the agencies’ rulemaking agendas can provide the credit union with insight on what potential compliance changes are on the horizon which can assist with strategic planning for compliance resources as well as products and services that the credit union offers or plans to offer in the future. While obviously it is just an agenda and subject to change, with new leadership at both the CFPB and NCUA it is good to see what it on their mind in terms of regulatory hot topic areas.
CFPB Agenda
The Consumer Financial Protection Bureau (CFPB), which is still awaiting confirmation of its next Director, issued their agenda which can be found here.
Items in the final rule stage include amendments to Regulation Z to facilitate transition from LIBOR and an extension to the debt collection final rule’s effective date.
The CFPB also anticipates issuing a final rule in July regarding its proposed revisions to Regulation X. As you may recall earlier this year, CFPB proposed amendments to the mortgage servicing early intervention and loss mitigation-related provisions in the Regulation X which implements RESPA.
Later this year, we may see a proposed rule related to automated valuation models. Dodd-Frank amended the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals. The FIRREA amendments require implementing regulations for quality control standards for automated valuation models (AVMs). These standards are designed to ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews, and account for any other such factor that the agencies determine to be appropriate.
This fall, it is anticipated that a proposed rule for business lending data will be issued; another Dodd-Frank requirement, which requires financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses.
Section 1071 of the Dodd-Frank Act requires that certain data be collected, maintained, and reported to the Bureau, including the number of the application and date the application was received; the type and purpose of the loan or credit applied for; the amount of credit applied for and approved; the type of action taken with respect to the application and the date of such action; the census tract of the applicant’s principal place of business; the gross annual revenue of the business; and the race, sex, and ethnicity of the principal owners of the business.
HMDA – the CFPB indicated that they are no longer pursuing two HMDA rulemakings that were listed in the proposed rule stage in previous agendas – one that concerns the data points that lenders must report and another related to the public disclosure of HMDA data.
NCUA Agenda
The National Credit Union Administration (NCUA) published agenda can be found here.
On the proposed to-do list includes potential changes to investment and deposit activities under Part 703. The NCUA is considering issuing a proposed rule to amend Part 703 to modernize and improve the NCUA’s investment rule and to provide regulatory relief. The NCUA believes there may be certain provisions in part 703 that are overly restrictive and unnecessary from a safety and soundness perspective. A revised part 703 would provide federal credit unions with more flexible investment options.
Purchase, sale and pledge of loans possible amendments. The NCUA Board is considering issuing a proposed rule to clarify federal credit unions' authority to purchase, sell, and pledge loans – including loan participations and eligible obligations – under sections 701.22 and 701.23 of the NCUA's regulations.
Compensation in connection with loans to members and lines of credit to members. An advanced notice of proposed rulemaking was issued in 2019. The agenda indicates that the NCUA considering issuing a proposed rule to modernize the NCUA's regulations governing compensation in connection with loans to members and lines of credit to members to provide more flexibility to credit unions and their employees.
Complex Credit Union Leverage Ratio. As provided for in the agenda, the NCUA is developing a proposed rule to integrate an analog to the community bank leverage ratio into the NCUA’s capital standards. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 required the other banking agencies to propose a simplified, alternative measure of capital adequacy for federally insured banks. In November 2019, the other banking agencies issued a final rule providing qualifying community banks the option to comply with a simplified leverage measure of capital adequacy. The Board anticipates proposing an equivalent provision for credit unions, consistent with the Federal Credit Union Act.
We might see a final rule this fall which will amend the CAMELS rating. As you will recall, earlier this year the NCUA proposed to add “S” component to the rating system. CAMEL stands for - capital adequacy, asset quality, management, earnings, and liquidity. In practice, the liquidity component also assesses the credit union’s asset liability management, which includes sensitivity to market risk. The NCUA proposed to amend provisions in the Code of Federal Regulations to reflect its decision to update the examination and risk rating system from CAMEL to CAMELS by adding a component that will allow examiners to rate sensitivity to market risk (S). The proposal to add to the S component will enhance transparency and allow the NCUA and federally insured credit unions to better distinguish between liquidity risk and sensitivity to market risk.
Other final rules we may see this fall include amendments to CUSOs under part 712. Earlier this year, NCUA proposed a rule to expand the permissible lending activities for CUSOs.
Treasury/FinCEN Agenda
Another agenda to pay attention to is the Department of Treasury, which can be found here, as there are a number of future FinCEN (BSA) rulemakings that will be occurring.
This fall we may see a final rule to require banks and money service businesses to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency (CVC) or digital assets with legal tender status ("legal tender digital assets" or "LTDA") held in unhosted wallets, or held in wallets hosted in a jurisdiction identified by FinCEN.
Another final rule expected this fall would clarify the meaning of "money" as used in the rules implementing the Bank Secrecy Act requiring financial institutions to collect, retain, and transmit information on certain funds transfers and transmittals of funds to ensure that the rules apply to domestic and cross-border transactions involving convertible virtual currency, which is a medium of exchange (such as cryptocurrency) that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status.
Proposed rulemaking is expected to start later this summer to implement Section 6101 of the Anti-Money Laundering Act of 2020. This section requires the Secretary of the Treasury to promulgate regulations to carry out the provisions of Section 6101, concerning the development of public priorities for anti-money laundering (AML) and countering the financing of terrorism (CFT) policy, and the supervision and examination of financial institutions regarding the incorporation of those priorities, as appropriate, into their risk-based AML/CFT programs.
Overdraft/NSF Fee Lawsuits
Credit unions are continuing to receive threats of litigation and lawsuits regarding overdraft and/or NSF fees as discussed in the recently issued Risk Alert from Cuna Mutual Group. Be sure to review the entire Risk Alert, especially the risk mitigation tips – such as removing your account agreement from the credit union’s public facing website. If you missed the risk alert in your in-box you can also find it in InfoSight.
As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.