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Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer NCUA Proposed Rule – Subordinated Debt At its recent board meeting the National Credit Union Administration (NCUA) issued a proposed rule relating to subordinated debt. This proposal can be found here and is open for a 30 day comment period. You may recall, the NCUA finalized a subordinated debt rule in December 2020 permitting low income credit unions, Complex Credit Unions, and New Credit Unions to issue Subordinated Debt for purposes of Regulatory Capital treatment. This rule is effective January 1, 2022. This proposed rule would amend 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 an application approved before January 1, 2022, irrespective of the date of issuance. In the discussion of the proposed rule, the NCUA notes that it is not considering any other changes to the final Subordinated Debt rule. NCUA Letter to Credit Unions 21-CU-09 The NCUA recently issued Letter to Credit Unions 21-CU-09 to provide credit union lenders and mortgage servicers with information as certain homeowner protections come to an end. Included with the letter are a number of FAQs on End of Forbearance and Foreclosure/Eviction Moratorium. This letter discusses Section 4013 CARES Act loan modifications, which are still available until January 1, 2022 – provided certain criteria are met. It also discusses homeowner and renter assistance programs. The U.S. Treasury Department information on emergency rental assistance programs is available here. Compliance Reminder – Oral disclosure of APR Regulation Z, which implements the Truth in Lending Act, provides numerous disclosure do’s and don’ts. From an advertising perspective the requirements can be confusing as the regulation includes a lot of – if you say “this” then you must say “that,” but you must never say “that other thing” when stating “this.” That is a reminder for another day’s compliance article – but until then be sure to check out the advertising channel in Infosight for handy checklists for advertising different loan products. Today’s article is a reminder of what can and can’t be said when someone calls the credit union and inquires about a rate. Yes, there is a regulation that covers that too which is found under 12 CFR 1026.26 – Use of annual percentage rate in oral disclosures. With regard to open-end credit, the regulation provides that in an oral response to a consumer's inquiry about the cost of open-end credit, only the annual percentage rate or rates shall be stated. The creditor may state periodic rates in addition to the required annual percentage rate, but it need not do so. If the annual percentage rate for open-end credit cannot be determined in advance because there are finance charges other than a periodic rate, the corresponding annual percentage rate shall be stated, and other cost information may be given. As further explained in the commentary, “if the annual percentage rate is unknown because transaction charges, loan fees, or similar finance charges may be imposed, the creditor must give the corresponding annual percentage rate (that is, the periodic rate multiplied by the number of periods in a year, as described in §§1026.6(a)(1)(ii) and (b)(4)(i)(A) and 1026.7(a)(4) and (b)(4)). In such cases, the creditor may, but need not, also give the consumer information about other finance charges and other charges.” With regard to closed-end credit, in an oral response to a consumer's inquiry about the cost of closed-end credit, only the annual percentage rate shall be stated. However, unlike rules for open-end credit, the creditor may state other annual or periodic rates that are applied to an unpaid balance, along with the required annual percentage rate. This rule permits disclosure of a simple interest rate, for example, but not an add-on, discount, or similar rate. If the closed-end annual percentage rate cannot be determined in advance, the annual percentage rate for a sample transaction shall be stated, and other cost information for the consumer's specific transaction may be given. The commentary notes, “If the creditor cannot give a precise annual percentage rate in its oral response because of variables in the transaction, it must give the annual percentage rate for a comparable sample transaction; in this case, other cost information may, but need not, be given. For example, the creditor may be unable to state a precise annual percentage rate for a mortgage loan without knowing the exact amount to be financed, the amount of loan fees or mortgage insurance premiums, or similar factors. In this situation, the creditor should state an annual percentage rate for a sample transaction; it may also provide information about the consumer's specific case, such as the contract interest rate, points, other finance charges, and other charges.” 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
NCUA Proposed Rule – Subordinated Debt
At its recent board meeting the National Credit Union Administration (NCUA) issued a proposed rule relating to subordinated debt. This proposal can be found here and is open for a 30 day comment period.
You may recall, the NCUA finalized a subordinated debt rule in December 2020 permitting low income credit unions, Complex Credit Unions, and New Credit Unions to issue Subordinated Debt for purposes of Regulatory Capital treatment. This rule is effective January 1, 2022.
This proposed rule would amend 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 an application approved before January 1, 2022, irrespective of the date of issuance.
In the discussion of the proposed rule, the NCUA notes that it is not considering any other changes to the final Subordinated Debt rule.
NCUA Letter to Credit Unions 21-CU-09
The NCUA recently issued Letter to Credit Unions 21-CU-09 to provide credit union lenders and mortgage servicers with information as certain homeowner protections come to an end. Included with the letter are a number of FAQs on End of Forbearance and Foreclosure/Eviction Moratorium. This letter discusses Section 4013 CARES Act loan modifications, which are still available until January 1, 2022 – provided certain criteria are met. It also discusses homeowner and renter assistance programs. The U.S. Treasury Department information on emergency rental assistance programs is available here.
Compliance Reminder – Oral disclosure of APR
Regulation Z, which implements the Truth in Lending Act, provides numerous disclosure do’s and don’ts. From an advertising perspective the requirements can be confusing as the regulation includes a lot of – if you say “this” then you must say “that,” but you must never say “that other thing” when stating “this.” That is a reminder for another day’s compliance article – but until then be sure to check out the advertising channel in Infosight for handy checklists for advertising different loan products. Today’s article is a reminder of what can and can’t be said when someone calls the credit union and inquires about a rate. Yes, there is a regulation that covers that too which is found under 12 CFR 1026.26 – Use of annual percentage rate in oral disclosures.
With regard to open-end credit, the regulation provides that in an oral response to a consumer's inquiry about the cost of open-end credit, only the annual percentage rate or rates shall be stated. The creditor may state periodic rates in addition to the required annual percentage rate, but it need not do so.
If the annual percentage rate for open-end credit cannot be determined in advance because there are finance charges other than a periodic rate, the corresponding annual percentage rate shall be stated, and other cost information may be given. As further explained in the commentary, “if the annual percentage rate is unknown because transaction charges, loan fees, or similar finance charges may be imposed, the creditor must give the corresponding annual percentage rate (that is, the periodic rate multiplied by the number of periods in a year, as described in §§1026.6(a)(1)(ii) and (b)(4)(i)(A) and 1026.7(a)(4) and (b)(4)). In such cases, the creditor may, but need not, also give the consumer information about other finance charges and other charges.”
With regard to closed-end credit, in an oral response to a consumer's inquiry about the cost of closed-end credit, only the annual percentage rate shall be stated. However, unlike rules for open-end credit, the creditor may state other annual or periodic rates that are applied to an unpaid balance, along with the required annual percentage rate. This rule permits disclosure of a simple interest rate, for example, but not an add-on, discount, or similar rate.
If the closed-end annual percentage rate cannot be determined in advance, the annual percentage rate for a sample transaction shall be stated, and other cost information for the consumer's specific transaction may be given. The commentary notes, “If the creditor cannot give a precise annual percentage rate in its oral response because of variables in the transaction, it must give the annual percentage rate for a comparable sample transaction; in this case, other cost information may, but need not, be given. For example, the creditor may be unable to state a precise annual percentage rate for a mortgage loan without knowing the exact amount to be financed, the amount of loan fees or mortgage insurance premiums, or similar factors. In this situation, the creditor should state an annual percentage rate for a sample transaction; it may also provide information about the consumer's specific case, such as the contract interest rate, points, other finance charges, and other charges.”
DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.