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Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer NCUA Letters to CUs – Mortgage Servicing The National Credit Union Administration (NCUA) issued Letter to Credit Unions 21-CU-14 regarding an interagency statement the NCUA joined concerning supervisory and enforcement approaches to mortgage servicing. The letter and the joint statement can be found here. This recent statement provides that the agencies no longer believe the temporary flexibility described in the April 2020 Joint Statement are necessary. As you may recall, the April 2020 Joint Statement provided the agencies announced, “they would not take supervisory or enforcement action against mortgage servicers for failing to meet certain timing requirements under the mortgage servicing rules as long as the servicers made good faith efforts to provide those required notices or disclosures and took the related actions within a reasonable period of time.” The agencies are ending this flexibility believing that mortgage servicers have had sufficient time to adjust their operations by, among other things, taking steps to work with consumers affected by the COVID-19 pandemic and developing more robust business continuity and remote work capabilities. In its letter, the NCUA notes “The NCUA recognizes the ongoing challenges faced by mortgage servicers and their efforts to assist members affected by the ongoing COVID-19 pandemic. The NCUA encourages servicers to continue working with their borrowers who may be experiencing financial difficulty.” NCUA Letter to FCUs The National Credit Union Administration (NCUA) recently issued Letter to Federal Credit Unions 21-FCU-06, which can be found here. The NCUA is extending flexibility for federal credit unions to conduct meetings virtually in 2022 due to the ongoing COVID-19 pandemic. As reminder, FCUs may adopt the model bylaw provision that provides an emergency exception to in-person quorum requirements. The model language is in the above referenced letter. The NCUA hereby notifies all federal credit unions that, if they have adopted this bylaw amendment, it is appropriate to invoke its provisions at any point in 2022 for meetings occurring in that year if a majority of the board of directors so resolves for each such meeting. General quorum requirements must still be met for all-virtual meetings. HMDA – Threshold Changes Coming The Consumer Financial Protection Bureau (CFPB) issued FAQs to address the upcoming threshold changes for open-end loans which will occur January 1, 2022. These FAQs can be found here. In April 2020, the CFPB issued a final rule amending Regulation C to permanently set the reporting threshold for open-end lines of credit at 200, effective January 1, 2022, upon the expiration of the temporary threshold of 500 open-end lines of credit. Beginning January 1, 2022, an institution that originated at least 200 open-end lines of credit in each of the two preceding calendar years, and meets all other Regulation C institutional coverage criteria, will be required to collect, record, and report data about its open-end lines of credit. For example, an institution that originated at least 200 open-end lines of credit in both calendar years 2020 and 2021, and meets all other Regulation C institutional coverage criteria, will be required to collect, record, and report data about its open-end lines of credit for calendar year 2022 to be submitted by March 1, 2023. Advertising – Overdraft Services The Truth in Savings Act (TISA), which is implemented in NCUA rules and regulations at Part 707, enables credit union members and potential members to make informed decisions about accounts at credit unions. This part requires credit unions to provide disclosures so that members and potential members can make meaningful comparisons among credit unions and depository institutions. Included in these disclosure requirements are specific requirements when advertising overdraft services found under 12 CFR 707.11. However, before we review 707.11 it is important to remember the basic requirement for advertisements under TISA, an advertisement must not be misleading or inaccurate or misrepresent a credit union's account agreement. Furthermore, an advertisement cannot refer to refer to or describe an account as “free” or “no cost” or contain a similar term if any maintenance or activity fee may be imposed on the account. The word “profit” must not be used in referring to dividends or interest paid on an account. Some examples of advertisements that would be misleading, inaccurate, or misrepresent the deposit contract are: Representing an overdraft service as a “line of credit,” unless the service is subject to 12 CFR part 1026 (Regulation Z). Representing that the credit union will honor all checks or authorize payment of all transactions that overdraw an account, with or without a specified dollar limit, when the credit union retains discretion at any time not to honor checks or authorize transactions. Representing that members with an overdrawn account can maintain a negative balance when the terms of the account's overdraft service require members promptly to return the share account to a positive balance. Describing a credit union's overdraft service solely as protection against bounced checks when the credit union also permits overdrafts for a fee for overdrawing their accounts by other means, such as ATM withdrawals, debit card transactions, or other electronic fund transfers. Part 707.11(b) requires that any advertisement promoting the payment of overdrafts must disclose in a clear and conspicuous manner: (i) The fee or fees for the payment of each overdraft; (ii) The categories of transactions for which a fee for paying an overdraft may be imposed; (iii) The time period by which the member must repay or cover any overdraft; and (iv) The circumstances under which the credit union will not pay an overdraft. To drill down on each of these triggered disclosures a little further, the fees that must be disclosed include per-item fees as well as interest charges, daily or other periodic fees, and fees charged for maintaining an account in overdraft status, whether the overdraft is by check or by other means. The fees also include fees charged when there are insufficient funds because previously deposited funds are subject to a hold or are uncollected. With regard to the circumstances under which the credit union will not pay an overdraft, the regulation requires a credit union to describe the circumstances under which it will not pay an overdraft. It is sufficient to state, as applicable: “Whether your overdrafts will be paid is discretionary and we reserve the right not to pay. For example, we typically do not pay overdrafts if your account is not in good standing, or you are not making regular deposits, or you have too many overdrafts.” Advertisement includes using print media such as newspapers or brochures, telephone solicitations, electronic mail, or messages posted on an Internet site to promote the credit union’s policy or practice of paying overdrafts – unless the service would be subject to Reg Z. Advertisement includes a message on a periodic statement informing the member of an overdraft limit or the amount of funds available for overdrafts. For example, a credit union that includes a message on a periodic statement informing the member of a $500 overdraft limit or that the member has $300 remaining on the overdraft limit, is promoting an overdraft service. The regulation does include a number of exceptions (12) that are NOT communications about the payment of overdrafts and therefore not subject to additional advertising disclosures. 12 CFR 707.11(b)(2). One of these exceptions relates to an advertisement made through broadcast or electronic media, such as television or radio. However, as is the norm for compliance – there are exceptions to exceptions. Always be sure to read the commentary! The exception for advertisements made through broadcast or electronic media, such as television or radio, does not apply to advertisements posted on a credit union's Internet site, on an ATM screen, provided on telephone response machines, or sent by electronic mail. 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
NCUA Letters to CUs – Mortgage Servicing
The National Credit Union Administration (NCUA) issued Letter to Credit Unions 21-CU-14 regarding an interagency statement the NCUA joined concerning supervisory and enforcement approaches to mortgage servicing. The letter and the joint statement can be found here.
This recent statement provides that the agencies no longer believe the temporary flexibility described in the April 2020 Joint Statement are necessary. As you may recall, the April 2020 Joint Statement provided the agencies announced, “they would not take supervisory or enforcement action against mortgage servicers for failing to meet certain timing requirements under the mortgage servicing rules as long as the servicers made good faith efforts to provide those required notices or disclosures and took the related actions within a reasonable period of time.”
The agencies are ending this flexibility believing that mortgage servicers have had sufficient time to adjust their operations by, among other things, taking steps to work with consumers affected by the COVID-19 pandemic and developing more robust business continuity and remote work capabilities.
In its letter, the NCUA notes “The NCUA recognizes the ongoing challenges faced by mortgage servicers and their efforts to assist members affected by the ongoing COVID-19 pandemic. The NCUA encourages servicers to continue working with their borrowers who may be experiencing financial difficulty.”
NCUA Letter to FCUs
The National Credit Union Administration (NCUA) recently issued Letter to Federal Credit Unions 21-FCU-06, which can be found here. The NCUA is extending flexibility for federal credit unions to conduct meetings virtually in 2022 due to the ongoing COVID-19 pandemic.
As reminder, FCUs may adopt the model bylaw provision that provides an emergency exception to in-person quorum requirements. The model language is in the above referenced letter. The NCUA hereby notifies all federal credit unions that, if they have adopted this bylaw amendment, it is appropriate to invoke its provisions at any point in 2022 for meetings occurring in that year if a majority of the board of directors so resolves for each such meeting. General quorum requirements must still be met for all-virtual meetings.
HMDA – Threshold Changes Coming
The Consumer Financial Protection Bureau (CFPB) issued FAQs to address the upcoming threshold changes for open-end loans which will occur January 1, 2022. These FAQs can be found here.
In April 2020, the CFPB issued a final rule amending Regulation C to permanently set the reporting threshold for open-end lines of credit at 200, effective January 1, 2022, upon the expiration of the temporary threshold of 500 open-end lines of credit.
Beginning January 1, 2022, an institution that originated at least 200 open-end lines of credit in each of the two preceding calendar years, and meets all other Regulation C institutional coverage criteria, will be required to collect, record, and report data about its open-end lines of credit. For example, an institution that originated at least 200 open-end lines of credit in both calendar years 2020 and 2021, and meets all other Regulation C institutional coverage criteria, will be required to collect, record, and report data about its open-end lines of credit for calendar year 2022 to be submitted by March 1, 2023.
Advertising – Overdraft Services
The Truth in Savings Act (TISA), which is implemented in NCUA rules and regulations at Part 707, enables credit union members and potential members to make informed decisions about accounts at credit unions. This part requires credit unions to provide disclosures so that members and potential members can make meaningful comparisons among credit unions and depository institutions.
Included in these disclosure requirements are specific requirements when advertising overdraft services found under 12 CFR 707.11. However, before we review 707.11 it is important to remember the basic requirement for advertisements under TISA, an advertisement must not be misleading or inaccurate or misrepresent a credit union's account agreement. Furthermore, an advertisement cannot refer to refer to or describe an account as “free” or “no cost” or contain a similar term if any maintenance or activity fee may be imposed on the account. The word “profit” must not be used in referring to dividends or interest paid on an account.
Some examples of advertisements that would be misleading, inaccurate, or misrepresent the deposit contract are:
Representing an overdraft service as a “line of credit,” unless the service is subject to 12 CFR part 1026 (Regulation Z).
Representing that the credit union will honor all checks or authorize payment of all transactions that overdraw an account, with or without a specified dollar limit, when the credit union retains discretion at any time not to honor checks or authorize transactions.
Representing that members with an overdrawn account can maintain a negative balance when the terms of the account's overdraft service require members promptly to return the share account to a positive balance.
Describing a credit union's overdraft service solely as protection against bounced checks when the credit union also permits overdrafts for a fee for overdrawing their accounts by other means, such as ATM withdrawals, debit card transactions, or other electronic fund transfers.
Part 707.11(b) requires that any advertisement promoting the payment of overdrafts must disclose in a clear and conspicuous manner: (i) The fee or fees for the payment of each overdraft; (ii) The categories of transactions for which a fee for paying an overdraft may be imposed; (iii) The time period by which the member must repay or cover any overdraft; and (iv) The circumstances under which the credit union will not pay an overdraft.
To drill down on each of these triggered disclosures a little further, the fees that must be disclosed include per-item fees as well as interest charges, daily or other periodic fees, and fees charged for maintaining an account in overdraft status, whether the overdraft is by check or by other means. The fees also include fees charged when there are insufficient funds because previously deposited funds are subject to a hold or are uncollected.
With regard to the circumstances under which the credit union will not pay an overdraft, the regulation requires a credit union to describe the circumstances under which it will not pay an overdraft. It is sufficient to state, as applicable: “Whether your overdrafts will be paid is discretionary and we reserve the right not to pay. For example, we typically do not pay overdrafts if your account is not in good standing, or you are not making regular deposits, or you have too many overdrafts.”
Advertisement includes using print media such as newspapers or brochures, telephone solicitations, electronic mail, or messages posted on an Internet site to promote the credit union’s policy or practice of paying overdrafts – unless the service would be subject to Reg Z.
Advertisement includes a message on a periodic statement informing the member of an overdraft limit or the amount of funds available for overdrafts. For example, a credit union that includes a message on a periodic statement informing the member of a $500 overdraft limit or that the member has $300 remaining on the overdraft limit, is promoting an overdraft service.
The regulation does include a number of exceptions (12) that are NOT communications about the payment of overdrafts and therefore not subject to additional advertising disclosures. 12 CFR 707.11(b)(2). One of these exceptions relates to an advertisement made through broadcast or electronic media, such as television or radio. However, as is the norm for compliance – there are exceptions to exceptions. Always be sure to read the commentary! The exception for advertisements made through broadcast or electronic media, such as television or radio, does not apply to advertisements posted on a credit union's Internet site, on an ATM screen, provided on telephone response machines, or sent by electronic mail.
As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.