ARTICLE
Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer Letter to Credit Unions – Capitalization of Unpaid Interest The NCUA recently issued Letter to Credit Unions 21-CU-07, to provide additional guidance regarding the recent removal of the prohibition of capitalization of interest in connection with loan workouts and modifications. Please note that North Dakota administrative rules continue to prohibit the capitalization of interest for loan workouts under 13-03-28-02(1)(e) for North Dakota state chartered credit unions. As you may recall, in June the NCUA approved a final rule to remove the prohibition on the capitalization of interest in connection with loan workouts and modifications. This final rule can be found here and was effective July 30. Appendix B to Part 741 establishes requirements for the management of loan workout arrangements, loan nonaccrual, and regulatory reporting of troubled debt restructured loans. The NCUA is amending Appendix B to remove the prohibition on the capitalization of interest in connection with loan workouts and modifications. The final rule continues to provide that a FICU may not, under any event, authorize additional advances to finance credit union fees and commissions. FICUs will be permitted to continue to make advances to cover third party fees to protect loan collateral, such as force placed insurance or property taxes. The final rule added policy requirements should a credit union permit capitalization of unpaid interest. The policy must require: compliance with all applicable federal and state consumer protection laws and regulations; documentation that reflects a borrower’s ability to repay, a borrower’s source(s) of repayment, and when appropriate, compliance with the FICU’s valuation policies at the time the modification is approved; providing borrowers with written disclosures; appropriate reporting of loan status for modified loans in accordance with applicable law and accounting practices; prudent policies and procedures to help borrowers resume affordable and sustainable repayments that are appropriately structured, while at the same time minimizing losses to the credit union; appropriate safety and soundness safeguards to prevent the following: i. Masking deteriorations in loan portfolio quality and understating charge-off levels, delaying loss recognition resulting in an understated allowance for loan and lease losses account or inaccurate loan valuations; overstating net income and net worth (regulatory capital) levels; and circumventing internal controls. The Letter to Credit Unions includes FAQs on capitalization of unpaid interest, which can be found here. These FAQs address: what is required in a loan modification policy that permits capitalization of interest; how does a credit union determine the ability to repay the debt; what disclosures should a credit union provide to a borrower for a loan modification that includes capitalized unpaid interest; and what methods are acceptable for capitalization of interest. Juneteenth Interpretive Rule The Consumer Financial Protection Bureau (CFPB) has issued an interpretative rule to provide guidance regarding the impact of the 2021 Juneteenth holiday on timing requirements under Regulation Z. As you will remember, on June 17, 2021, the President signed legislation that amended 5 U.S.C. 6103(a) to add “Juneteenth National Independence Day, June 19” (Juneteenth) to the list of Federal legal public holidays (Federal holidays). This legislation was immediately effective. Regulation Z, cross-references 5 U.S.C. 6103(a) in its definition of “business day” therefore, the specific business day definition in Regulation Z also changed on June 17, 2021. There are a number of timing requirements under Regulation Z that are dependent upon what is and is not a “business day” such as right of recission and timing for TRID disclosures. The CFPB issued this interpretative rule to clarify that the version of the specific business day definition that applies to the Reg Z is the version of the definition in effect when the relevant time period begins. As explained by the CFPB, “Accordingly, in the context of the 2021 Juneteenth Federal holiday and the affected closed-end rescission and TRID provisions, if the relevant time period began on or before June 17, 2021, then June 19, 2021 is a business day for purposes of the specific business day definition. If the relevant time period began after June 17, 2021, then June 19, 2021 is a Federal holiday for purposes of the specific business day definition.” FCU Interest Rate Ceiling The National Credit Union Administration (NCUA) issued Letter to Federal Credit Union 21-FCU-04 regarding the permissible loan interest rate ceiling extension. This letter can be found here. The June 24, 2021, NCUA Board action extends the 18 percent ceiling through March 10, 2023. The previous 18 percent rate ceiling expires on September 10, 2021. North Dakota Central Indexing System Enhancement An enhancement by which lenders can track new filings that include the debtors from their own filings is live in the North Dakota Central Indexing System. The Debtor Notification Subscription allows a user to subscribe to receive notifications for a selected debtor when a future filing is submitted by another user and includes that debtor. Existing users of the system were notified when the enhancement went live, but if you are not familiar with this platform you may be interested in this new enhancement. An instruction manual can be found here. A user may subscribe to a debtor using one of two methods, either subscribe to a debtor while completing the initial financing statement, or subscribe through the Data/Report Subscriptions menu option. This process is explained in more detail in the instruction manual. CFPB Updated Mortgage Servicing Guide The Consumer Financial Protection Bureau (CFPB) has released an update to its Mortgage Servicing Small Entity Compliance Guide that can be found here: Rules on mortgage servicing | Consumer Financial Protection Bureau (consumerfinance.gov). The updates provide an overview of the 2021 Mortgage Servicing COVID-19 Final Rule and 2020 Mortgage Servicing COVID-19 Interim Final Rule provisions, as well as identify what areas of the underlying Mortgage Servicing Rules are impacted by these Rules. These revisions for these two rules are generally discussed in Appendix B of the updated manual. As you will recall, the CFPB issued a final rule on June 28, 2021, which has an effective date of August 31, 2021, that amends Regulation X and provides certain protections for borrowers affected by the COVID-19 pandemic. IRS Reminder – Update EIN The IRS recently issued this press release to remind those entities with Employer Identification Numbers (EINs) that IRS regulations require EIN holders to update responsible party information within 60 days of any change by filing Form 8822-B, Change of Address or Responsible Party - Business. It is critical that the IRS have accurate information in cases of identity theft or other fraud issues related to EINs or business accounts. Starting in August, the IRS will begin sending letters to approximately 100,000 EIN holders where it appears the responsible party is outdated. Entities with EINs that are no longer in use should close their IRS tax accounts and follow steps outlined at Canceling an EIN - Closing Your Account. Updated FAQs for Paid Leave Tax Credits The IRS recently updated several FAQs regarding tax credits available under the American Rescue Plan Act of by employers with fewer than 500 employees for qualified sick and family leave wages paid with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021. Although the requirement that Eligible Employers provide leave under the Emergency Paid Sick Leave Act ("EPSLA") and Emergency Family and Medical Leave Expansion Act ("Expanded FMLA") under the FFCRA does not apply after December 31, 2020, the tax credits under sections 3131 through 3133 of the Internal Revenue Code ("the Code") are available for qualified leave wages an Eligible Employer provides with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021, if the leave would have satisfied the requirements of the EPSLA and Expanded FMLA, as amended for purposes of the ARP. As always, feel free to contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.
Compliance Update with Amy K
by Amy Kleinschmit, Chief Compliance Officer
The NCUA recently issued Letter to Credit Unions 21-CU-07, to provide additional guidance regarding the recent removal of the prohibition of capitalization of interest in connection with loan workouts and modifications.
Please note that North Dakota administrative rules continue to prohibit the capitalization of interest for loan workouts under 13-03-28-02(1)(e) for North Dakota state chartered credit unions.
As you may recall, in June the NCUA approved a final rule to remove the prohibition on the capitalization of interest in connection with loan workouts and modifications. This final rule can be found here and was effective July 30. Appendix B to Part 741 establishes requirements for the management of loan workout arrangements, loan nonaccrual, and regulatory reporting of troubled debt restructured loans.
The NCUA is amending Appendix B to remove the prohibition on the capitalization of interest in connection with loan workouts and modifications. The final rule continues to provide that a FICU may not, under any event, authorize additional advances to finance credit union fees and commissions. FICUs will be permitted to continue to make advances to cover third party fees to protect loan collateral, such as force placed insurance or property taxes.
The final rule added policy requirements should a credit union permit capitalization of unpaid interest. The policy must require: compliance with all applicable federal and state consumer protection laws and regulations; documentation that reflects a borrower’s ability to repay, a borrower’s source(s) of repayment, and when appropriate, compliance with the FICU’s valuation policies at the time the modification is approved; providing borrowers with written disclosures; appropriate reporting of loan status for modified loans in accordance with applicable law and accounting practices; prudent policies and procedures to help borrowers resume affordable and sustainable repayments that are appropriately structured, while at the same time minimizing losses to the credit union; appropriate safety and soundness safeguards to prevent the following: i. Masking deteriorations in loan portfolio quality and understating charge-off levels, delaying loss recognition resulting in an understated allowance for loan and lease losses account or inaccurate loan valuations; overstating net income and net worth (regulatory capital) levels; and circumventing internal controls.
The Letter to Credit Unions includes FAQs on capitalization of unpaid interest, which can be found here. These FAQs address: what is required in a loan modification policy that permits capitalization of interest; how does a credit union determine the ability to repay the debt; what disclosures should a credit union provide to a borrower for a loan modification that includes capitalized unpaid interest; and what methods are acceptable for capitalization of interest.
Juneteenth Interpretive Rule
The Consumer Financial Protection Bureau (CFPB) has issued an interpretative rule to provide guidance regarding the impact of the 2021 Juneteenth holiday on timing requirements under Regulation Z. As you will remember, on June 17, 2021, the President signed legislation that amended 5 U.S.C. 6103(a) to add “Juneteenth National Independence Day, June 19” (Juneteenth) to the list of Federal legal public holidays (Federal holidays). This legislation was immediately effective. Regulation Z, cross-references 5 U.S.C. 6103(a) in its definition of “business day” therefore, the specific business day definition in Regulation Z also changed on June 17, 2021.
There are a number of timing requirements under Regulation Z that are dependent upon what is and is not a “business day” such as right of recission and timing for TRID disclosures.
The CFPB issued this interpretative rule to clarify that the version of the specific business day definition that applies to the Reg Z is the version of the definition in effect when the relevant time period begins. As explained by the CFPB, “Accordingly, in the context of the 2021 Juneteenth Federal holiday and the affected closed-end rescission and TRID provisions, if the relevant time period began on or before June 17, 2021, then June 19, 2021 is a business day for purposes of the specific business day definition. If the relevant time period began after June 17, 2021, then June 19, 2021 is a Federal holiday for purposes of the specific business day definition.”
FCU Interest Rate Ceiling
The National Credit Union Administration (NCUA) issued Letter to Federal Credit Union 21-FCU-04 regarding the permissible loan interest rate ceiling extension. This letter can be found here. The June 24, 2021, NCUA Board action extends the 18 percent ceiling through March 10, 2023. The previous 18 percent rate ceiling expires on September 10, 2021.
North Dakota Central Indexing System Enhancement
An enhancement by which lenders can track new filings that include the debtors from their own filings is live in the North Dakota Central Indexing System. The Debtor Notification Subscription allows a user to subscribe to receive notifications for a selected debtor when a future filing is submitted by another user and includes that debtor.
Existing users of the system were notified when the enhancement went live, but if you are not familiar with this platform you may be interested in this new enhancement. An instruction manual can be found here. A user may subscribe to a debtor using one of two methods, either subscribe to a debtor while completing the initial financing statement, or subscribe through the Data/Report Subscriptions menu option. This process is explained in more detail in the instruction manual.
CFPB Updated Mortgage Servicing Guide
The Consumer Financial Protection Bureau (CFPB) has released an update to its Mortgage Servicing Small Entity Compliance Guide that can be found here: Rules on mortgage servicing | Consumer Financial Protection Bureau (consumerfinance.gov).
The updates provide an overview of the 2021 Mortgage Servicing COVID-19 Final Rule and 2020 Mortgage Servicing COVID-19 Interim Final Rule provisions, as well as identify what areas of the underlying Mortgage Servicing Rules are impacted by these Rules. These revisions for these two rules are generally discussed in Appendix B of the updated manual.
As you will recall, the CFPB issued a final rule on June 28, 2021, which has an effective date of August 31, 2021, that amends Regulation X and provides certain protections for borrowers affected by the COVID-19 pandemic.
IRS Reminder – Update EIN
The IRS recently issued this press release to remind those entities with Employer Identification Numbers (EINs) that IRS regulations require EIN holders to update responsible party information within 60 days of any change by filing Form 8822-B, Change of Address or Responsible Party - Business.
It is critical that the IRS have accurate information in cases of identity theft or other fraud issues related to EINs or business accounts.
Starting in August, the IRS will begin sending letters to approximately 100,000 EIN holders where it appears the responsible party is outdated. Entities with EINs that are no longer in use should close their IRS tax accounts and follow steps outlined at Canceling an EIN - Closing Your Account.
Updated FAQs for Paid Leave Tax Credits
The IRS recently updated several FAQs regarding tax credits available under the American Rescue Plan Act of by employers with fewer than 500 employees for qualified sick and family leave wages paid with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021.
Although the requirement that Eligible Employers provide leave under the Emergency Paid Sick Leave Act ("EPSLA") and Emergency Family and Medical Leave Expansion Act ("Expanded FMLA") under the FFCRA does not apply after December 31, 2020, the tax credits under sections 3131 through 3133 of the Internal Revenue Code ("the Code") are available for qualified leave wages an Eligible Employer provides with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021, if the leave would have satisfied the requirements of the EPSLA and Expanded FMLA, as amended for purposes of the ARP.
As always, feel free to contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.