Dakota Credit Union Association News Newswire

Compliance Update

Fri, 07 Jan 2022 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

NCUA – COVID-19 Reg Relief Extension

In case you missed it, at the end of 2021 the National Credit Union Administration announced the extension of certain COVID-19 regulatory relief provisions.

The provisions relate to the temporary raising the maximum aggregate amount of loan participations that a FICU may purchase from a single originating lender to the greater of $5,000,000 or 200 percent of the FICU’s net worth. Also, temporary suspension of limitations on the eligible obligations that a federal credit union (FCU) may purchase and hold. Finally, tolling the required timeframes for the occupancy or disposition of properties not being used for FCU business or that have been abandoned.

These temporary modifications will remain effective until Dec. 31, 2022.

Letter to Credit Union – Digital Assets

The NCUA also issued a Letter to Credit Union 21-CU-16 at the end of 2021 regarding relationships with third parties that provide services related to digital assets. The NCUA does not prohibit Federally Insured Credit Unions (FICUs) from partnering with third-party providers of digital asset services that leverage evolving technologies.

As explained by the NCUA, “a FICU’s relationship with third parties offering these services and related technologies will be evaluated by the NCUA in the same manner as all other third-party relationships. This includes a FICU exercising sound judgment and conducting the necessary due diligence, risk assessment, and planning when choosing to introduce or bring together an outside vendor with its members. FICUs should establish effective risk measurement, monitoring, and control practices for such third-party arrangements.”

Credit unions exploring relationships with these third parties should review this letter carefully as it provides additional guidance on due diligence, policy and agreement requirements, and advertising, among other items that credit unions should be mindful of.

FinCEN Enforcement Action

The Financial Crimes Enforcement Network (FinCEN) announced a $8 million civil money penalty against a Texas bank at the end of 2021, which can be found here.

In this particular case, the bank utilized an enterprise-wide automated Anti-money Money Laundering (AML) monitoring system that reviewed transactions and generated alerts of possible suspicious activity (“case alerts”) based on predetermined criteria; thereafter, case alerts were to be sent to an AML analyst to review the activity. One of the main issues, is that the bank understaffed its AML compliance office. As explained in the enforcement action, “the Bank retained six to eight BSA staff, including a BSA Officer and several BSA analysts, of which three reviewed case alerts on a regular basis and provided quality control review for one another. Those three BSA analysts each reviewed an average of 100 case alerts per day, which meant that BSA analysts often did not review supporting documents (cash deposit slips, wire transcripts, check images, etc.), although all of this information was readily available. This understaffing and failure to allocate sufficient resources further exacerbated the other failures identified below.”

With regard to Customer Due Diligence (CDD), the bank had implemented a CDD program which included assigning its customers a risk rating score based on a variety of risk factors, which it obtained through questionnaires for businesses and individuals. However, FinCEN found that the CDD questionnaires were often not updated when circumstances warranted and therefore at times lacked critical information. Where CDD questionnaires were flagged as incomplete, AML staff were instructed to obtain additional information from customer account officers rather than from the customers themselves.

As noted above, the bank’s automated AML monitoring system generated a substantial number of case alerts on potentially suspicious activity. The enforcement action notes, that “to reduce the number of case alerts AML staff had to review, the BSA Officer applied exemptions for customers whose activity was thought to be “well-known,” including those individuals later arrested for or convicted of financial crimes, which resulted in lowering the case alerts generated for those customers.”

FinCEN also found a failure to file at least 17 Suspicious Activity Reports.

The enforcement action goes on to describe three customers in more detail on which the bank failed to appropriate monitor and/or file SARs on.

NCUA – Automated Cybersecurity Evaluation Toolbox

A reminder to check out NCUA’s Automated Cybersecurity Evaluation Toolbox (ACET) which is a no-cost, downloadable application developed to be a cybersecurity resource for credit unions. The Toolbox assists institutions of all sizes and complexity to determine and measure their information and cybersecurity preparedness against several industry standards and best practice.

The NCUA issued Letter to Credit Union 21-CU-15, which includes FAQs regarding the toolbox in addition to a video that provides an overview of the entire process.

Find the ACET and other assessment tools here.

CU Policy Pro Updates

The below updates were made to 14 CU Policy Pro model policies. All documents related to this update can be found in the Resources area of CU PolicyPro (under Content Update Archives > December 2021).

Policy 2214 – Health Savings Accounts. Each year the IRS changes the contribution limits that can be made to health savings accounts for both individual and family plans. Those changes for 2022 are reflected in the policy revisions.

Policy 3165 - Loan Workouts and Nonaccrual Standards. This policy was revised to incorporate the contents of Model Policy 7616 – Loan Extensions. Information in both policies was duplicative and in order to provide more precise content for credit unions, this policy was revised and Policy 7616 will be retired. Note: prior to deleting a policy we recommend searching your CU Policies Manual for any references to the policy being deleted and update as needed.

Policy 3170 -Troubled Debt Restructure. This policy was revised to incorporate additional language regarding capitalization of interest for loan modifications when the borrower has the ability to repay the debt, effective on July 30, 2021 (previously prohibited). Policy 3165 was already amended with this content, but additional language was also added to this policy to reflect that change. (FCU only)

Policy 5400 – Capital Management. This policy was updated for credit unions that are under $500 million in assets to utilize and customize. These credit unions are not deemed to be “complex” under the NCUA’s Risk Based Capital rule that became effective on January 1, 2022. (Required for credit unions under $500 million)

Policy 5401 – Capital Management for Complex Credit Unions **New Policy** This policy was updated using Model Policy 5400 – Capital Management as a template, for credit unions that are over $500 million in assets and deemed to be “complex” under the NCUA’s Risk Based Capital rule that becomes effective on January 1, 2022. There are two Key Fields in this policy which should be defined. Note: We are providing both a redlined version so users can see how Policy 5400 was adjusted to create this policy, as well as a “New” policy version with no redlines. (Required for CU’s over $500 million)

Policy 6400 – Subordinated Debt and Procedure 6400.1 – Subordinated Debt Procedure **New Policy and Procedure** This policy was created in response to the NCUA Subordinated Debt Rule that became final effective on January 1, 2022. A corresponding model procedure was also created for credit unions that are pursuing the issuance/investment in subordinated debt. (Required if offered)

Policy 7210 – Credit Cards. Each year the CFPB adjusts the safe harbor fees for a first violation penalty fee and subsequent violations for credit cards. For 2022, the thresholds will be $30 and $41, respectively. Policy 7210 was updated accordingly.

Policy 7330 – Residential Real Estate Loans. This policy was revised to adjust the asset-based threshold for determining if a credit union is a small creditor under the rules.

Policy 7350 – Ability to Repay. Policy 7350 was revised to comply with the annual changes made to the points and fee thresholds to determine if a mortgage is considered a qualified mortgage under the rules, based on the Consumer Price Index. These changes became effective on January 1, 2022. Changes were also made to reflect the price-based thresholds for the general qualified mortgage definition, that becomes mandatory for compliance on October 1, 2022. The Qualified Mortgage Cure Provision was also removed based on the January 10, 2021 expiration.

Policy 7351 – Small Creditor Ability to Repay. Similar to Policy 7350, this policy was also revised to comply with the annual changes made to the points and fee thresholds based on the Consumer Price Index and the asset-based threshold for determining if a credit union is a small creditor under the rules. The Qualified Mortgage Cure Provision was also removed based on the January 10, 2021 expiration.

Policy 7362 – Temporary Policy for Loan Modifications and Reporting COVID-19. Policy 7362 was revised to incorporate the most recent guidance from the NCUA on COVID-19 relief extensions.

Policy 7370 – HOEPA Rule Requirement. The thresholds for determining if a loan is covered under HOEPA were also adjusted for January 1, 2022 and these amounts were updated in the policy accordingly.

Policy 7616 – Loan Extensions **DELETED** Since loan extensions are a type of loan workout, this policy is being retired and incorporated into model policy 3165 – Loan Workouts and Nonaccrual Standards. While some of the applicable key fields will be maintained, the content was duplicative and results in a more comprehensive policy with the combination.

Policy 7700 – Loan Review and Classification **New Policy** This is a new policy being created through revisions to existing Policy 7600 (Loan Review and Classification) to comply with the new requirements under CECL. References have been changed and this policy should be adopted when credit unions are ready to adopt the new 7715 – Allowance for Credit Losses policy in compliance with CECL (effective for credit unions on January 1, 2023). There is one Key Field in this policy which should be defined. Note: We are providing both a redlined version so users can see how Policy 7600 was adjusted to create this policy, as well as a “New” policy version with no redlines. (Required on effective date)

Policy 7715 – Allowance for Credit Losses **New Policy**

**7715.1 Allowance for Credit Losses Methodology *NEW*

This is a new policy being created through revisions to the existing Policy 7615 (Allowance for Loan Lease and Losses) to comply with the new requirements under CECL. While we expect this policy (and its corresponding methodology) to continue to evolve, we wanted to provide a model and support for those credit unions hoping to start preparations for transition (effective for credit unions on January 1, 2023). Note: We are providing both a redlined version so users can see how Policy 7615 was adjusted to create this policy, as well as a “New” policy version with no redlines. (Required on effective date)

Policy 9120 – Fair Debt Collection Practices Act. This policy had a minor update to provided clarification on the components deemed to be harassment or abuse related to telephone conversations. Credit unions are encouraged to adopt this revision if it helps provide clarity to credit union employees. (Recommended)

Policy 9200 – Home Mortgage Disclosure Act. This policy was updated to reflect the annual threshold change to determine asset size coverage for the rule, which has increased to $48 million. Credit unions below this asset size will not be required to report HMDA data. In addition, effective on January 1, 2022 the open-end threshold for reporting loans is being reduced from 500 to 200.

Policy 9220 – Home Ownership and Equity Protection Act. Similar to the changes made to Policy 7370, this policy was also revised to adjust the thresholds for determining if a loan is covered under HOEPA, effective January 1, 2022.

Policy 9420 – Regulation D – Monetary Control Act. Even though the reserves requirements are still set at zero, the reserve requirements thresholds amounts are updated each year. These changes are now reflected within the policy.

DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance Update

Fri, 17 Dec 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Don’t Be a Mule

The Department of Justice (DoJ) recently announced the results of its initiative to halt money mule activity. Money mules assist fraud schemes by receiving money from victims, many of them elderly, and forwarding proceeds to foreign-based perpetrators.

As announced by the DoJ, multiple law enforcement agencies worked together to halt the conduct of more than 600 money mules, spanning over 85 federal districts.

The DoJ has provided several resources and educational tools to assist in combatting money mule activity, which can all be found here and include this useful educational poster.

It is important to remember (and remind others) that acting as a money mule is illegal and punishable, even if you aren’t aware you’re committing a crime. Here is a short video of an individual who tells her story of being the victim of a romance scam and ultimately was prosecuted for two federal crimes. Another money mule PSA can be found here which could be helpful in educating others about these scams.

As a reminder, FinCEN issued an advisory in 2020 on this topic – FIN-2020-A003, that provides guidance to credit union on reporting money mule scams related to COVID-19, including several red flags that can assist the credit union in identifying potential money mule activity.

A few examples include:

The customer receives multiple state unemployment insurance payments to his/her account, or to multiple accounts held at the same financial institution, within the same disbursement timeframe (e.g., weekly or biweekly payments) issued from one or multiple states.

The customer’s account(s) receives an unemployment deposit from a different state in which he/she reportedly resides or has previously worked.

Deposited funds are quickly diverted via wire transaction to foreign accounts located within countries known for having poor anti-money laundering controls.

The customer provides information that his or her purported employer asked the customer to receive funds into his/her personal bank account, so that the employer can then process or transfer funds via wire transfer, ACH, mail, or money service businesses out of the customer’s personal account.

Reg E FAQs

The Consumer Financial Protection Bureau (CFPB) recently updated its FAQs related to the Electronic Funds Transfers/Regulation E, which can be found here.

A number of the recent updates discuss how Regulation E relates to person-to-person (P2P) transactions. As discussed in more detail in the FAQs, any P2P payment that meets the definition of EFT is covered by EFTA and Regulation E.

The term “electronic fund transfer” or “EFT” means any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer's account. Accordingly, Regulation E applies to any person-to-person (P2P) or mobile payment transactions that meet the definition of EFT, including debit card, ACH, prepaid account, and other electronic transfers to or from a consumer account.

As a reminder, Regulation E requires that after a credit union receives oral or written notice of an error from a consumer, the financial institution must do all of the following: Promptly investigate the oral or written allegation of error; Complete its investigation within the time limits specified in Regulation E; Report the results of its investigation within three business days after completing its investigation; and correct the error within one business day after determining that an error has occurred.

NCUA Board Meeting

The final 2021 board meeting of the National Credit Union Administration (NCUA) occurred yesterday and covered a lot of information.

Final Rule Approved – Complex Credit Union Leverage Ratio

The NCUA Board unanimously approved a final rule to allow complex credit unions (over $500 million), that meet certain criteria, to opt into the complex credit union leverage ratio (CCULR). This relieves these credit unions from having to calculate a risk-based capital ratio, as implemented by the 2015 Final Rule.

This final rule can be found here and is effective January 1, 2022.

Under the final rule, a qualifying complex credit union is defined as a complex credit union that meets the following criteria: (1) Has a CCULR (net worth ratio) of 9 percent or greater; (2) Has total off-balance sheet exposures of 25 percent or less of its total assets; (3) Has the sum of total trading assets and total trading liabilities of 5 percent or less of its total assets; and (4) Has the sum of total goodwill and total other intangible assets of 2 percent or less of its total assets.

The final rule also makes several amendments to update the NCUA’s October 29, 2015, risk-based capital final rule, including addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, deducting certain mortgage servicing 2 assets from a complex credit union’s risk-based capital numerator, revising the treatment of goodwill, and amending other asset risk weights.

Final Rule Approved – Mortgage Servicing Assets

A final rule relating to Mortgage Servicing Assets (MSA) was also unanimously approved. This final rule can be found here and is effective April 1, 2022.

The final rule removes the prohibition on Federal Credit Unions (FCUs) from purchasing MSRs under the Investment Rule. Briefly, section 703.14 is therefore amended to explicitly permit an FCU to purchase MSAs from other Federally Insured Credit Union (FICUs), provided: 1) After the last full examination of the credit union, the FCU received a composite CAMELS rating of 1 or 2, which also included a Management rating of 1 or 2; 2) The underlying mortgage loans of the MSAs are loans the FCU is empowered to grant; 3) The FCU purchases the MSAs within the limitations of the FCU’s board of directors’ written purchase policies; and 4) The board of directors or the FCU’s investment committee approves the purchase in advance.

Final Rule – Subordinated Debt

Finally, the NCUA also approved an amendment to the Subordinated Debt Rule. This amendment is found here and is effective January 1, 2022. This final rule amends 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 a secondary capital application approved before January 1, 2022, irrespective of the date of issuance.

This amendment is narrowly tailored to provide an exception to the issuance cutoff date, if the secondary capital issuance is: 1. To the U.S. Government; and 2. Being conducted under a secondary capital application that was approved before January 1, 2022, under either § 701.34 of the NCUA’s regulations, for federal credit unions, or § 741.203 of the NCUA’s regulations, for federally insured, state-chartered credit unions.

Last Attorney Conference for the Non-Attorney – January 11, 2022

Thank you for everyone that has joined us for the first two sessions of the Attorney Conference for the Non-Attorney webinar series.

Do not missed your opportunity to hear from industry experts on January 11, 2022, for the last session in this series that will be tackling regulatory hot topics.

Credit unions face many regulatory changes and are burdened with the challenges of maintaining compliance with these changes. This session explores several hot button regulatory issues and provides information regarding cannabis banking, consumer privacy/data, cybersecurity, and Reg E issues related to electronic payments.

Registration can be found here.

Most credit unions do not have in-house counsel or access to the type of information provided at events like CUNA’s Attorney Conference. The Attorney’s Conference for Non-Attorneys can provide this information to you, along with risk mitigation strategies to help protect your credit union from liability.

This series is made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance

Fri, 10 Dec 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

BSA/AML Exam Manual Updates

The FFIEC recently released additional updates to its BSA/AML Examination Manual. The updates affect sections relating to Charities and Nonprofit Organizations; Independent Automated Teller Machine Owners or Operators; and Politically Exposed Person. A new section was added to the manual – “Introduction – Customers.” Links to the updated sections can be found here. At the time of writing this article, these new sections had not yet been added to the online manual, which can be found here.

The new section “Introduction – Customers” sets the tone and describes the purpose for the subsections found under “Risks Associated with Money Laundering and Terrorist Financing.” These subsections provide information and considerations that may indicate the need for additional policies/procedures/processes to address potential money laundering/terrorist financing or other illicit financial activity.

The new section clearly states that, “Examiners are reminded that no specific customer type automatically presents a higher risk of ML/TF or other illicit financial activity. Further, banks that operate in compliance with applicable Bank Secrecy Act/anti-money laundering (BSA/AML) regulatory requirements and reasonably manage and mitigate risks related to the unique characteristics of customer relationships are neither prohibited nor discouraged from providing banking services to any specific class or type of customer.” This statement is repeated in each of the updated sections that are listed above.

The new section also notes, “Not all customers pose the same risk, and not all customers of a particular type are automatically higher risk. The potential risk to a bank depends on the facts and circumstances specific to the customer relationship.” This is reiterated in the updated subsections. For example, with regard to independent ATM owners and operators, the updated language reminds examiners that “Not all independent ATM owner or operator customers pose the same risk, and not all independent ATM owner or operator customers are automatically higher risk. The potential risk to a bank depends on the facts and circumstances specific to the customer relationship, such as transaction volume, locations of the ATMs, and the source of funds to replenish the ATMs.”

As it relates to the different customer types that are discussed in the exam manual, another highlight: “There is no BSA/AML regulatory requirement or supervisory expectation for banks to have unique or additional customer identification requirements or CDD steps for any particular group or type of customer. Consistent with a risk-based approach, the level and type of CDD should be commensurate with the risks presented by the customer relationship.”

As required under Customer Due Diligence (CDD) requirements, credit unions must have “appropriate risk-based procedures for conducting ongoing CDD to understand the nature and purpose of customer relationships, and to develop customer risk profiles.”

FinCEN – Proposed Rule

The Financial Crimes Enforcement Network (FinCEN) has issued a proposed rule to require certain entities, or “reporting companies,” to file reports with FinCEN to identify beneficial owners. The proposed rule can be found here and comments are due February 7, 2022, and a fact sheet can be found here.

This rulemaking will implement Section 6403 of the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021. Section 6403 requires FinCEN to maintain the information that it collects under the CTA in a confidential, secure, and non-public database. It further authorizes FinCEN to disclose the information to certain government agencies, domestic and foreign, for certain purposes specified in the CTA; and to financial institutions to assist them in meeting their customer due diligence requirements.

FinCEN will issue future rulemaking to revise its current regulation concerning customer due diligence (CDD) requirements for financial institutions. As credit unions are aware, the current CDD Rule requires credit unions to identify and verify the beneficial owners of legal entity customers when those customers open new accounts as part of those credit unions’ customer due diligence programs.

Under the proposed rule, a “reporting company” must file a report to FinCEN that identifies each beneficial owner and each company applicant. For new companies after the rule goes into effect, this report must be filed within 14 days after it was formed. For existing companies, this report must be filed within one year of the new rules effective date. There are also requirements that the company keep the information current by filing updated reports.

“Reporting company” is defined similar to “legal entity” for CDD beneficial ownership rules which credit unions are familiar with. Under the proposed rule a “reporting company” means either a domestic reporting company or a foreign reporting company. The term ‘‘domestic reporting company’’ means any entity that is: (A) A corporation; (B) Limited liability company; or (C) Other entity that is created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe. The term ‘‘foreign reporting company’’ means any entity that is: (A) A corporation, limited liability company, or other entity; (B) Formed under the law of a foreign country; and (C) Registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe. Also similar to beneficial ownership rules that credit unions currently have to follow, there are a number of exemptions.

CFPB – LIBOR Transition Final rule

The Consumer Financial Protection Bureau (CFPB) issued a final rule to amend Regulation Z to address transitioning from LIBOR for both open-end and closed-end lending products. This final rule is effective on April 1, 2022.

The CFPB has also updated its FAQs and PDFs of the mortgage servicing ARM interest rate adjustment forms, in addition to providing an executive summary of the final rule. These additional resources can be found here.

As hopefully everyone is aware, LIBOR is sunsetting. NCUA has issued several letters on the topic, stressing that “The NCUA encourages all federally insured credit unions to transition away from using the U.S. dollar LIBOR settings as soon as possible, but no later than December 31, 2021.”

To highlight a few of the changes, HELOC creditors and card issuers can transition away from using the LIBOR index to a replacement index on or after April 1, 2022, before LIBOR is expected to become unavailable. To accomplish this, this final rule imposes certain requirements on selecting a replacement index. HELOC creditors and card issuers must ensure that the APR calculated using the replacement index is substantially similar to the rate calculated using the LIBOR index, based generally on the values of these indices on October 18, 2021.

The final rule also revises change-in-terms notice requirements for HELOCs and credit card accounts to notify consumers how the variable rates on their accounts will be determined going forward after the LIBOR index is replaced. This final rule ensures that the change-in-terms notices for these accounts will disclose the index that is replacing the LIBOR index and any adjusted margin that will be used to calculate a consumer’s rate, regardless of whether the margin is being reduced or increased.

With regard to credit cards, the CFPB added an exception from the rate reevaluation provisions. Under current rules, when a card issuer increases a rate on a credit card account, the card issuer generally must complete an analysis reevaluating the rate increase every six months until the rate is reduced to a certain degree. To facilitate compliance, this final rule adds an exception from these requirements for increases that occur as a result of replacing a LIBOR index using the specific provisions described in the final rule for transitioning from a LIBOR index or as a result of the LIBOR index becoming unavailable.

With regard to closed-end credit, the final rule provides details on how to determine whether a replacement index is a comparable index to a particular LIBOR index for purposes of the closed-end refinancing provisions.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance Update

Fri, 03 Dec 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

HMDA – How much does it cost your CU?

The Consumer Financial Protection Bureau (CFPB) has issued a request for information concerning its Home Mortgage Disclosure Act (HMDA) rules. This RFI can be found here.

This assessment focuses on the CFPB’s 2015 HMDA final rule and subsequent amendments. The CFPB seeks data/feedback primarily on the following topics - (1) institutional coverage and transactional coverage; (2) data points; 3) benefits of the new data and disclosure requirements; and 4) operational and compliance costs.

As explained in the RFI, “To assess the HMDA Rule, the Bureau plans to analyze a variety of metrics and data to the extent feasible. Feasibility will depend on the data and information available to the Bureau as well as any information and data submitted in response to this request for comment. The Bureau plans to investigate the operational and compliance costs of the rule.”

Some of the inquiries that the CFPB is interested in data, numbers, feedback on include:

The activities undertaken by financial institutions to comply with the HMDA Rule’s criteria, as well as the adoption of loan-volume coverage thresholds, adoption of new and revised data points, and revisions to transactional coverage, including mandatory reporting of open-end lines of credit and the adoption of a dwelling-secured standard.

The HMDA Rule’s effect on the operational and compliance costs for financial institutions, including activities covered institutions conducted to collect and report new and revised data points.

The CFPB wants to do an evaluation of the benefits and costs of the new and revised data points, and the benefits and costs of new data reported under the revised coverage thresholds. Therefore, the CFPB needs to hear what the costs were to implement the 2015 HMDA rule – how much did your credit union spend on implementation and ongoing compliance?

Comments are due 60 days after this RFI is published in the Federal Register.

ND Admin Rule – Proposed Changes

The North Dakota State Credit Union Board has issued a notice for proposed changes to the North Dakota Administrative Rules Title 13 which will impact ND state chartered credit unions.

A hearing will be held on Friday, December 17 on the proposed changes.

Written or oral comments on the proposed rules must be received by December 31, 2021.

The notice can be found here and the proposed changes can be found here.

Among the proposed changes includes updates to ND Admin Rule 13-03-02-02 relating to requirements for advancement of money on security of real property. This includes incorporating changes to appraisal thresholds to reflect NCUA rule changes.

A new notice requirements is proposed under 13-03-15. New ND Admin rule 13-03-15-07 would require, “A credit union that operates physical facilities in any area that is experiencing an epidemic or other emergency may adjust the credit union’s operations in any manner that is reasonable to protect the credit union’s members, employees, assets, or business. Under this section a credit union may temporarily close or relocate offices, employees, or operations; restrict access to offices or services; and change the manner in which the credit union provides services. A credit union shall notify the Department of Financial Institutions of any actions the credit union takes under the authority of this section if such action results in a closure greater than one business day. The credit union shall give the department notice promptly and in any case within three business days of the credit union’s decision to adjust the credit union’s operations. The notice must describe the credit union’s actions and the expected duration of the credit union’s adjusted operations. Unless extended by the commissioner, a credit union’s authority to change the credit union’s operations under this section may not exceed sixty days.”

Significant changes were made to Chapter 13-03-22 – investment activities. Most the changes relate to derivatives found under 13-03-22-15 and charitable donation accounts under 13-03-22-16.

Updates to Chapter 13-03-24 – fidelity bond and insurance coverage of credit unions are proposed to reflect changes NCUA had made to their rules and regulations on the topic.

The proposed changes also relate to capitalization of interest regarding loan workouts found under 13-03-28-02 to reflect changes made by the NCUA.

FinCEN – Environmental Crimes

The Financial Crimes Enforcement Network (FinCEN) recently issued notice FIN-2021-NTC4 regarding an upward trend in environmental crimes and related illicit financial activity. This notice can be found here.

BSA officers – be sure to review this notice as it includes very specific suspicious activity report (SAR) filing instructions and highlights the likelihood of illicit financial activity related to several types of environmental crimes.

The Notice starts with fact – “Global environmental crimes are estimated by some international organizations to generate hundreds of billions in illicit proceeds annually and now rank as the third largest illicit activity in the world following the trafficking of drugs and counterfeit goods.” As explained by FinCEN, environmental crimes include - (i) wildlife trafficking, (ii) illegal logging, (iii) illegal fishing, (iv) illegal mining, and (v) waste and hazardous substances trafficking. Each of these crimes are further explained in by FinCEN.

NCUA Final Rule – Shared Facilities

At its recent board meeting, the National Credit Union Administration (NCUA) approved a final rule amending the chartering and field of membership rules for federal credit unions (FCUs), specifically as it relates to service facilities and multiple common bond FCUs.

This final rule can be found here and is effective 30 days after published in the Federal Register.

The chartering and field of membership manual (Manual) for multiple occupational/associational common bond FCUs requires that groups within a multiple common bond FOM must be within reasonable geographic proximity of the credit union. That is, the groups must be within the service area of one of the credit union’s service facilities.

This final rule revised “service facility” requirements to provide that shared locations are service facilities for purposes of multiple common bond FCU additions of groups, regardless of whether the FCU has an ownership interest in the shared branching network providing the locations.

Thus, the Manual provides, “A service facility for multiple common bond credit unions is defined as a place where shares are accepted for members’ accounts, loan applications are accepted, or loans are disbursed. This definition includes a credit union-owned branch, a mobile branch, an office operated on a regularly scheduled weekly basis, a credit union-owned ATM, or a credit union-owned electronic facility that meets, at a minimum, these requirements. A service facility also includes a shared branch or a shared branch network location, including a shared ATM or electronic facility that meets the above requirements, if the credit union participates in a shared branching network. This definition does not include the credit union’s Internet Web site.”

The final rule also added similar shared branching language to multiple common bond FCUs serving underserved communities as it relates to service facility. However, ATMs continue to be excluded from the from the definition of service facility for additions of underserved areas.

The Manual provides that a multiple common bond federal credit union may include in its field of membership, without regard to location, an “underserved area” as defined by the Federal Credit Union Act. Once an “underserved area” has been added to a FCU’s FOM, the credit union must establish within two years, and maintain, an office or service facility in the community. A service facility is defined as a place where shares are accepted for members’ accounts, loan applications are accepted and loans are disbursed. By definition, a service facility includes a credit union-owned branch, a shared branch, a mobile branch, an office operated on a regularly scheduled weekly basis, or a credit union-owned electronic facility that meets, at a minimum, the above requirements. A service facility also includes a shared branch or a shared branch network location, including an electronic facility that meets the above requirements, if a credit union participates in a shared branching network. This definition does not include an ATM or the credit union’s Internet Web site.

Share Your Concerns with CFPB

As Jay Kruse mentioned in his article on Wednesday, the CFPB recently issued a proposed rule that would require financial institutions to collect and report data on the credit applications of small businesses. The Bureau’s rulemaking is required to implement changes to the Equal Credit Opportunity Act (ECOA) made by Section 1071 of the Dodd-Frank Act. The intent of data collection is to facilitate enforcement of fair lending laws and to enable the identification of business and community development needs and opportunities.

The proposed changes result in extensive and recurring costs to comply with these new rules. Please take a moment to share your voice with the CFPB. Any expanded requirements will only create new significant challenges for credit unions trying to provide financial services to those that need them most. The CFPB needs to hear from credit unions on this, and you can send a message through the Grassroots Action Center.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance Update

Fri, 19 Nov 2021 00:00:00 GMT

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.

Legislative Update

Wed, 17 Nov 2021 00:00:00 GMT

Good Morning!

I hope everyone is having a great week and enjoying what may be our last bit of warm weather. As you know, Congress has been busy over the last month negotiating their Bipartisan Infrastructure Plan, which was just signed into law by President Biden on Monday, as well as the larger Build Back Better Act. However, state legislators across the country have also been busy with special sessions focusing on redistricting. This happens every ten years following the US population census.

The redistricting includes North and South Dakota, both of which held special sessions last week. The South Dakota Legislature actually conducted two special sessions that wrapped up last Wednesday, and the North Dakota Legislature concluded their five-day session on Friday. One major difference between North and South Dakota is that special sessions in South Dakota must be held for only one specific purpose, hence the need for two separate sessions.

South Dakota Special Session

The first special session held in SD (2021r) was to provide for the decennial redistricting of the Legislature. After three days of negotiations between the House and Senate, lawmakers were able to come to a compromise to pass a new redistricting plan, which will change the legislative boundaries for many of the state’s 35 districts. The plan truly was bipartisan, passing the house 37-31 and the Senate 30-2.

With the new year just weeks away, these newly drawn district lines will go into effect for the 2022 elections and continue until this process is repeated in 2031. You can find a breakdown of the new districts here on the LRC website.

The second special session held in South Dakota (2021i) was to consider the impeachment of Attorney General Jason Ravnsborg. The sole power of impeachment is held by the House of Representatives, which did pass a resolution appointing a nine member select committee to investigate whether articles of impeachment should be issued against the AG. The South Dakota Legislature has never formally considered impeachment, so this is definitely new territory. At least 36 of 70 house members, followed by 24 of 35 senators, would be needed for impeachment. Once the appointed select committee issues their report, both the full House and Senator will return to the process.

North Dakota Special Session

As I pointed out earlier, the North Dakota specially session is conducted slightly differently. Not only did the republican controlled legislature pass new redistricting legislation, but they were also able to pass bills focusing on COVID-19 vaccine mandates, critical race theory, a $350 income tax credit for North Dakota residents, as well as a measure appropriating the state’s $1.1 billion in federal coronavirus aid.

However, redistricting was the legislature’s main focus, and while the newly approved map continues to maintain 47 legislative districts, it does appear to shift a few of the rural districts into more urban areas due to population shifts. Also approved as part of the redistricting process were two subdivided House districts around the Turtle Mountain Indian Reservation and the Fort Berthold Indian Reservation. These districts would only be divided in the House and would be served by just one senator.

Be sure to stay tuned in to The Memo as we continue to break down the results of these special sessions in the upcoming weeks. Have a great week, and as always, don’t hesitate to contact me at jkruse@dakcu.org with any advocacy concerns.

Compliance Update

Fri, 12 Nov 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

FCU Feedback Needed – If Applicable

Alicia K. Schmitz, Associate Director of Advocacy for Projects and Strategy, with the Credit Union National Association (CUNA) has put out a call for feedback.

“We would like to put out another call for stories and/or examples of poor member behavior that would benefit from the passage of the Credit Union Governance Modernization Act. This bill would create a process for a credit union to expel a member who engages in egregious, dangerous, or illegal conduct. It is set to be marked-up in the House Financial Services Committee early next week and the committee has asked us for examples to share during the mark-up as they consider this legislation and its importance to credit unions.

Please send your examples to Abby Gunderson-Schwarz at AGundersonSchwarz@cuna.coop. Here is an example shared by the Minnesota CUs so you know generally what we are looking for.

Example
During a period of two years, this member acted inappropriately whenever he came into the credit union. He insisted on seeing specific female employees and when they were busy, he would wait or then call them. The member made very inappropriate comments and discussion to more than one employee. The member would come by employee cubes just to see if they were there and with another member, using the excuse that he needed a drink of water or had to use the restroom.

The member was seen going out to his car a few times near days end, removing his shirt and sitting on the open trunk of his car writing down what was thought to be the license plate numbers of certain female employees as they left for the day.

Our employees felt uncomfortable with the comments and attention, and then threatened when the member started carrying a knife in his belt whenever he came into the credit union.

FREE NCUA Webinar: Consumer Compliance and Fair Lending

The National Credit Union Administration (NCUA) will be hosting a free webinar on December 1 regarding consumer compliance and fair lending. The link to register can be found here.

Topics covered during this webinar will include: 2022 Consumer Compliance Exam Scope Activities; Fair lending updates; Observations on 2021 Consumer Compliance Exam Scope Activities; and Regulatory updates, including the rule on capitalizing unpaid interest and the 2021 COVID-19 Temporary Mortgage Servicing Rule.

NCUA Letter to Credit Unions (21-CU-03) Subordinated Debt

The NCUA has issued a letter to credit unions regarding its subordinated debt rule that will become effective January 1, 2022. This letter can be found here. The letter stresses that, “any issuances of secondary capital not completed by January 1, 2022, will be subject to the requirements of the final rule. Any low-income designated credit union that does not complete its secondary capital issuance by the above mentioned date will be required to be approved under the final rule, if such low-income credit union seeks to issue subordinated debt.” The small exception is a proposed rule still under consideration relating to issuances to the United States government or one of its subdivisions.

CFPB Advisory Opinion – FCRA

The Consumer Financial Protection Bureau (CFPB) recently issued an advisory opinion regarding Fair Credit Reporting – Name Only Matching Procedures, which can be found here.

This relates to stemming inaccuracies in consumer reports. The CPFB reports that “Consumer complaints received by the Bureau reflect significant consumer concern about inaccuracies in consumer reports. Complaints about ‘incorrect information on your report’ have represented the largest percentage of consumer complaints received by the Bureau regarding credit or consumer reporting each year for at least the last five years. In 2020 alone, companies provided responses to more than 191,000 such complaints, which represents approximately 68 percent of credit or consumer reporting complaints responded to by companies that year.”

The advisory opinion notes that “name-only matching” is particularly likely to lead to inaccuracies in consumer reports. As its name suggests, name-only matching is a process where the consumer reporting agency only uses first and last name to determine whether a particular item of information relates to a particular consumer, without using other personally identifying information such as address, date of birth, or Social Security number.

The advisory opinion concludes that “consumer reporting agencies that use name-only matching violate FCRA section 607(b).”

Leading to the CFPB to also observe, “in preparing consumer reports, consumer reporting agencies may obtain information from a data broker, database, or other source that does not have or use identifying information other than consumers’ names. It is not a reasonable procedure for the consumer reporting agency to simply include information from such sources in a consumer’s report without taking additional steps to match the information to the consumer who is the subject of the report, such as consulting other databases or sources of information that contain additional identifying information.”

FinCEN – Advisory on Ransomware

The Financial Crimes Enforcement Network (FinCEN) has issued an updated advisory on ransomware that can be found here. This updated advisory identifies new trends and typologies of ransomware and associated payments, including the growing proliferation of anonymity-enhanced cryptocurrencies (AECs) and decentralized mixers.

Credit unions should review this advisory to be aware of red flags that are discussed to be able to detect, prevent and report these suspicious transactions. Processing ransomware payments is typically a multi-step process that involves at least one depository institution and one or more entities directly or indirectly facilitating victim payments, including money services businesses.

As stressed in the updated advisory - It is critical that financial institutions identify and immediately report any suspicious transactions associated with ransomware attacks. For purposes of meeting a financial institution’s SAR obligations, FinCEN and law enforcement consider suspicious transactions involving ransomware attacks to constitute “situations involving violations that require immediate attention.” Financial institutions wanting to report suspicious transactions related to recent or ongoing ransomware attacks should contact FinCEN’s Financial Institution Hotline at 1-866-556-3974. Financial institutions must subsequently file a SAR using FinCEN’s BSA E-filing System, providing as much of the relevant details around the activity as available at that time.

A good read - Compliance Outlook Newsletter

The newest issue of the Compliance Outlook newsletter has been posted by the Federal Reserve and can be found here.

These newsletters provide nice summaries and reminders on various compliance topics. Leading this issue is a discussion on mortgage servicer’s obligations under Regulation X to respond to notices of error and requests for information. The article includes a couple nice visuals to help with compliance – one listing all the “covered errors”; another table discussing investigation time frames; and finally a breakdown of completing the investigation.

Another good article to review in the newsletter is the discussion of federal consumer privacy and security laws. Obviously, member privacy is a top priority for all credit unions. This is a nice discussion of the layers of different privacy and security regulations that exist so credit unions can make sure they stay compliant.

Attorney Conference for the Non-Attorney

Thank you to everyone who have tuned in for the first two sessions of the Attorney Conference for the Non-Attorney webinars. The final webinar is scheduled for Tuesday, January 11, 2022 and registration can be found here.

Credit unions face many regulatory changes and are burdened with the challenges of maintaining compliance with these changes. This session explores several hot button regulatory issues. Several of the topics include: Cannabis banking; Regulation E – Electronic payment: Who is liable?; Consumer privacy and data; and Cybersecurity.

This series is made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance Update

Fri, 05 Nov 2021 00:00:00 GMT

by Amy Kleinschmit, Chief Compliance Officer

The Occupational Safety and Health Administration (OSHA) has issued an interim final rule relating to vaccine and testing requirements for large employers (100 or more employees). The interim final rule was published today, November 5, 2021. It is effective when published, however, the compliance date is December 6, 2021, for everything but COVID-19 testing for employees who are not fully vaccinated. The compliance date for COVID-19 testing is January 4, 2022.

Comments are due by December 6, 2021.

The interim final rule can be found here.

Supporting resources from OSHA regarding this emergency temporary standard (ETS) can be found here. These tools/resources include fact sheets, policy templates, a webinar, and FAQs.

Briefly highlighting some key points of the ETS:

Covered Employer – the requirements under this interim final rule apply to employers with a total of 100 or more employees at any time this ETS is in effect.

The count should be done at the employer level (firm- or corporate-wide), not the individual location level. Therefore, for a single corporate entity with multiple locations, all employees at all locations are counted. For example, if a single corporation has 50 small locations (e.g., kiosks, concession stands) with at least 100 total employees in its combined locations, that employer would be covered even if some of the locations have no more than one or two employees assigned to work there.

Part-time employees do count towards the total number of employees. For example, a company with 75 part-time employees and 25 full-time employees would be considered to have 100 employees and would be within the scope of this standard. Independent contractors do not count towards the total number of employees.

Policy requirements. Covered employers must establish, implement and enforce a written mandatory vaccination policy. Alternatively, the employer may establish, implement and enforce a written policy allowing any employee not subject to a mandatory vaccination policy to choose either to be fully vaccinated against COVID-19 or provide proof of regular testing for COVID-19 and wear a face covering.

However, if the worker requesting a reasonable accommodation cannot be vaccinated and/or wear a face covering because of a disability, as defined by the ADA, the worker may be entitled to a reasonable accommodation. In addition, if the vaccination, and/or testing for COVID-19, and/or wearing a face covering conflicts with a worker’s sincerely held religious belief, practice or observance, the worker may be entitled to a reasonable accommodation.

Vaccination Status. The ETS requires that the employer must determine the vaccination status of each employee. This determination must include whether the employee is fully vaccinated. The employer must require each vaccinated employee to provide acceptable proof of vaccination status, including whether they are fully or partially vaccinated. The ETS specifies what is acceptable proof, which includes a copy of the COVID-19 Vaccination Record Card.

Time off to get vaccinated. A covered employer must provide a reasonable amount of time to each employee for each of their primary vaccination dose(s) and provide up to 4 hours paid time, including travel time, at the employee’s regular rate of pay for this purpose. Additionally, the employer must provide reasonable time and paid sick leave to recover from side effects experienced following any primary vaccination dose to each employee for each dose.

Required Testing. The employer must ensure that each employee who is not fully vaccinated be tested. For an employee who reports at least once every 7 days to a workplace where other individuals such as coworkers or customers are present the requirement is that they: Must be tested for COVID-19 at least once every 7 days; and must provide documentation of the most recent COVID-19 test result to the employer no later than the 7th day following the date on which the employee last provided a test result. Different rules apply to employees that do not report during a period of 7 or more days to the workplace.

Positive COVID-19 test. For both vaccinated and unvaccinated workers, each employee is required to promptly notify the employer when they receive a positive COVID-19 test or are diagnosed with COVID-19 by a licensed healthcare provider. Furthermore, they are to be immediately removed from the workplace and kept removed until the employee: (i) Receives a negative result on a COVID-19 nucleic acid amplification test (NAAT) following a positive result on a COVID-19 antigen test if the employee chooses to seek a NAAT test for confirmatory testing; (ii) meets the return to work criteria in CDC’s “Isolation Guidance”; or (iii) Receives a recommendation to return to work from a licensed healthcare provider.

Please note - this section does not require employers to provide paid time to any employee for removal as a result of a positive COVID-19 test or diagnosis of COVID-19; however, paid time may be required by other laws, regulations, or collective bargaining agreements or other collectively negotiated agreements.

Face Coverings. The employer must ensure that each employee who is not fully vaccinated wears a face covering when indoors and when occupying a vehicle with another person for work purposes. The interim final rule does include a number of exceptions.

Employee Notice Requirements. The employer must inform each employee, in a language and at a literacy level the employee understands, about: (1) The requirements of this section as well as any employer policies and procedures established to implement this section; (2) COVID-19 vaccine efficacy, safety, and the benefits of being vaccinated, by providing the document, “Key Things to Know About COVID-19 Vaccines,” available at https://www.cdc.gov/coronavirus/2019-ncov/vaccines/keythingstoknow.html; (3) The requirements of 29 CFR 1904.35(b)(1)(iv), which prohibits the employer from discharging or in any manner discriminating against an employee for reporting a work-related injuries or illness, and section 11(c) of the OSH Act, which prohibits the employer from discriminating against an employee for exercising rights under, or as a result of actions that are required by, this section. Section 11(c) also protects the employee from retaliation for filing an occupational safety or health complaint, reporting a work-related injuries or illness, or otherwise exercising any rights afforded by the OSH Act; and (4) The prohibitions of 18 U.S.C. 1001 and of section 17(g) of the OSH Act, which provide for criminal penalties associated with knowingly supplying false statements or documentation.

Reporting Requirements to OSHA. Employers must report each work related COVID-19 fatality and each work related COVID-19 in-patient hospitalization to OSHA.

Availability of Records. If requested by the Assistant Secretary of Labor for Occupational Safety and Health, U.S. Department of Labor, the employer must provide the written policy, employee vaccine documentation and COVID-19 test results.

COMMENTS - OSHA is also seeking comments/feedback on a number of other issues, such as whether or not portions of the rule, such as face coverings, apply to fully vaccinated persons. Should OSHA impose a strict vaccination mandate (i.e., all employers required to implement mandatory vaccination policies as defined in this ETS) with no alternative compliance option?

Small Employers - OSHA is seeking comments on potentially imposing similar requirements on small employers, or those with less that 100 employees. OSHA seeks information about the ability of employers with fewer than 100 employees to implement COVID-19 vaccination and/or testing programs. Some of the questions posed by OSHA include - Have you instituted vaccination mandates (with or without alternatives), or requirements for regular COVID-19 testing or face covering use? What have been the benefits of your approach? What challenges have you had or could you foresee in implementing such programs? Is there anything specific to your industry, or the size of your business, that poses particular obstacles in implementing the requirements in this standard? How much time would it take, what types of costs would you incur, and how much would it cost for you to implement such requirements?

Compliance Update with Amy K

Fri, 05 Nov 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

FedLine – Attestation Due December 31, 2021

In 2020, the Reserve Banks announced the implementation of a new information security program for FedLine Solutions, which provides financial institutions direct electronic access to the Reserve Banks’ payment services. As part of this new program, financial institutions that use FedLine Solutions must conduct an annual assessment of their compliance with the Reserve Banks’ FedLine security requirements and submit an attestation that they have completed the assessment. To the extent any deficiencies or gaps are identified in the self-assessment, institutions must develop a remediation plan to address such deficiencies.

As noted above, this Security and Resiliency Assurance Program requires financial institutions that use Fedline Solutions to conduct an assessment of their compliance with the Federal Reserve Banks’ FedLine security requirements and submit an attestation that they have completed the assessment. Additional information, including FAQs, can be found here.

CFPB Resources for Preventing Elder Financial Abuse

The Consumer Financial Protection Bureau (CFPB) recently issued Guide for family and friends of people living in nursing homes and assisted living communities, which can be found here. The guide discusses steps to protect friends and family from financial abuses, including how to prevent it from happening. This and additional resources can be found here including how to order bulk copies for free.

Beware of Data Mining Memes

A good reminder from the Oregon FBI’s Tech Tuesday segment was recently posted about building a digital defense against data mining memes and can be found here.

Those fun questions on social media are not as innocent as one might think. As explained in the post, “How old would you be if the digits in your age were flipped? What was your first car? What street did you grow up on? Well, the first question obviously gives your age. A quick review of your feed will tell the scammer when your birthday is thanks to those generous friends who wished you well on your special day! Now, he knows your exact DOB… an important piece of personally identifiable info. The other questions can give a scammer the answer to your password reset challenge questions that you set up on your credit cards or bank account or, maybe, even your kids’ school portal.”

Some quick tips from the article for protecting yourself online:

Use an authenticator app to generate a one-time code that you use to confirm that it’s you logging into a device, website, or service.

Make sure you are using the highest security settings possible on your devices and on all your accounts.

Use multi-factor authentication whenever possible. That includes something you know (such as a passphrase or PIN), something you have (such as a token or smart card), and something you are (such as a fingerprint).

AND - Don’t respond to social media memes asking for info!

Reg Z Annual Threshold Updates

The Consumer Financial Protection Bureau (CFPB) recently issued its final rule to update various Regulation Z thresholds. The CFPB is required to calculate annually the dollar amounts for several provisions in Regulation Z. This final rule reviews the dollar amounts for provisions implementing TILA and amendments to TILA, including under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

The final rule can be found here and is effective January 1, 2022.

For open-end consumer credit plans under the CARD Act amendments to TILA, the adjusted dollar amount in 2022 for the safe harbor for a first violation penalty fee will increase to $30 and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will increase to $41.

For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2022 will be $22,969. The adjusted points-and-fees dollar trigger for high-cost mortgages in 2022 will be $1,148.

For qualified mortgages (QMs) under the General QM loan definition in § 1026.43(e)(2), the thresholds for the spread between the annual percentage rate (APR) and the average prime offer rate (APOR) in 2022 will be: 2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $114,847; 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $68,908 but less than $114,847; 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $68,908; 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $114,847; 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $68,908; or 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $68,908.

For all categories of QMs, the thresholds for total points and fees in 2022 will be 3 percent of the total loan amount for a loan greater than or equal to $114,847; $3,445 for a loan amount greater than or equal to $68,908 but less than $114,847; 5 percent of the total loan amount for a loan greater than or equal to $22,969 but less than $68,908; $1,148 for a loan amount greater than or equal to $14,356 but less than $22,969; and 8 percent of the total loan amount for a loan amount less than $14,356.

CU Policy Pro – Start Preparing for 2022!

Here are four things from CU Policy Pro that you can do today to ensure you’re ready to hit the ground running in 2022!

Log in. Take a few minutes to log in, especially if it’s been a while since you have visited CU PolicyPro. Each credit union has a unique URL to access CU PolicyPro. If you have trouble locating your URL, you can use the client look up utility. If you have any trouble logging in, contact policysupport@cusolutionsgroup.com for assistance.

Add Staff. Admin-level users have the ability to set up additional users such as other credit union staff members, members of your board of directors, legal counsel, examiners, etc. You can choose from various levels of access, from Limited-level read-only access to full Admin-level access. If there are other members on your Compliance or Policy team, be sure they have access and know this resource is available. The Managing Users Quick Guide and the Admin Level Training video can help you with creating users and setting appropriate access. Both are found in the Support area of CU PolicyPro.

Get Trained. CU PolicyPro is fairly intuitive and easy to use; however, as with any system, simple training can go a long way to help you learn the easiest and most efficient ways to use the system. Log in to CU PolicyPro and visit the Support area for information on getting started, Quick Guides, and in-depth video training for all areas of the system.

Ask Questions. Need help getting started? Need more information on user access levels, or how to publish your manual? We have a full suite of Frequently Asked Questions on our support site ranging from Editing and Formatting Policies to Printing, User Management and more! Log in to CU PolicyPro and click on the Support link to view our FAQs! Still not finding the answers you need? Contact our support staff at policysupport@cusolutionsgroup.com. We welcome your questions and are happy to assist!

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance Update

Fri, 29 Oct 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

LIBOR Transition

The National Credit Union Administration (NCUA) joined on a joint statement concerning managing LIBOR transition. Supervisory Letter 21-01 can be found here.

As previously noted, the NCUA strongly advises that institutions stop using LIBOR in new financial contracts as soon as possible, but no later than December 31, 2021.

The Supervisory Letter identifies potential LIBOR exposure - credit unions use LIBOR in a variety of products, including derivatives, business loans, consumer loans, variable rate notes, and securitizations, such as mortgage-backed securities. Credit unions may have LIBOR exposure in these types of transactions as well as Federal Home Loan Bank (FHLB) borrowings and various other member share products that use a variable interest rate.

The letter also discusses LIBOR replacement alternatives – noting that the NCUA does not endorse a specific replacement rate for USD LIBOR.

Emergency Capital Investment Program Participation

A last minute reminder that the NCUA issued a Supervisory Letter 21-02, which can be found here. This letter addresses the NCUA’s position on participation by low-income credit unions in the U.S. Department of Treasury’s Emergency Capital Investment Program (ECIP). The ECIP is a congressionally appropriated program administered by Treasury with the sole purpose of addressing the financial hardships created by the COVID-19 pandemic, particularly in low- and moderate-income communities.

The letter notes that, “Effective immediately, the agency permits LICUs to issue 30-year subordinated debt notes under the ECIP. A LICU may receive secondary capital treatment for a 30-year subordinated debt ECIP note, in accordance with the NCUA’s regulations, provided that any LICU receiving secondary capital treatment has an NCUA-approved secondary capital plan by December 31, 2021.”

The letter, dated October 20, 2021, directs that:

In accordance with NCUA Letter to Credit Unions 21-CU-11, LICUs that have already had their secondary capital plans approved for issuances under the ECIP must notify their respective state supervisory authority and/or NCUA regional office, in writing, to include the following information no later than 30 days from the date of this letter:

1. The stated maturity of the ECIP subordinated debt note (choose 15 years or 30 years);

2. The length of regulatory capital treatment for the ECIP issuance; and

3. A statement that the credit union will not materially deviate from the strategies outlined in its previously approved secondary capital plan. If a credit union chooses a maturity that is longer than the maturity used in its originally approved secondary capital plan and the longer maturity will cause the credit union to materially deviate from the strategies documented in the approved plan, then the credit union must submit a revised secondary capital plan in accordance with 12 C.F.R. §701.34(b), for federally chartered credit unions, or 12 C.F.R. §741.204(c) for federally insured, state-chartered credit unions.

NCUA – CUSO Final Rule

At its recent Board meeting the NCUA approved, by a 2-1 vote, a final rule to amend the credit union service organization (CUSO) regulations. This final rule can be found here and is effective November 26, 2021.

The final rule will permit CUSOs to originate any type of loan that an FCU may originate and grants the NCUA additional flexibility to approve permissible CUSO activities and services outside of notice and comment rulemaking.

In approving this rule, the NCUA noted that it “now believes that permitting FCUs to invest in or lend to CUSOs that originate any type of loan that an FCU may originate may better enable FCUs to compete effectively in today’s marketplace and better serve their members.”

Therefore, 12 CFR 712.5, “What activities and services are preapproved for CUSOs?” is revised to remove existing subpart (c), (d), (n) and (s) which specified business loan origination, consumer mortgage loan origination, student loan origination, and credit card loan origination respectively, which were previously the only forms of a lending a CUSO could engage in.

New subsections (q) and (r) are added 12 CFR 712.5 to read as follows:

(q) Loan origination, including originating, purchasing, selling, and holding any type of loan permissible for Federal credit unions to originate, purchase, sell, and hold, including the authority to purchase and sell participation interests that are permissible for Federal credit unions to purchase and sell; and

(r) Other categories of activities as approved in writing by the NCUA and published on the NCUA’s website. Once the NCUA has approved an activity and published that activity on its website, the NCUA will not remove that particular activity from the approved list or make substantial changes to the content or description of that approved activity, except through formal rulemaking procedures.

Risk Mitigation Webinar

Don’t miss the upcoming Attorney Conference for the Non-Attorney webinar – risk mitigation, on November 10, 2021, 9:30 a.m. – 12:00 p.m. (CT). Registration can be found here.

Attendees will hear about Cuna Mutual Group claims update, presented by Cheryl Guthrie-Swarztrauber and Christa Loger with CMG; HR/Employer Risks presented by Carlos Molina with CMG; arbitration clauses presented by attorneys at Husch Blackwell; and Remote Capture update presented by attorneys at Husch Blackwell.

Most credit unions do not have in-house counsel or access to the type of information provided at events like CUNA’s Attorney Conference. The Attorney’s Conference for Non-Attorneys can provide this information to you, along with risk mitigation strategies to help protect your credit union from liability.

Each session is only $25 – be sure to reserve your seat now! You’ll learn from lawyers with expertise in working with credit unions.

This series is made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League.

Compliance Solution Highlight

What can help your credit union meet compliance challenges in a proactive and cost efficient manner? Take a three minute break from reading and learn how AffirmX can help you: http://youtu.be/27TLDXcjETE

AffirmX Risk Intel Center helps credit unions adhere to government regulations in a proactive and cost efficient manner through a patented, cloud-based platform that is customized and branded for your institution.

The platform draws on internal and external data sources to develop risk-based priorities to help you quickly identify issues, reduce costs, and streamline compliance management practices.

Unlike checklist-based systems that place the burden for understanding compliance requirements on your team, Risk Intel Center combines easy-to-use workflows with expert analysis and a risk-based dashboard to help your team stay on top of compliance issues ranging from BSA and IT Security to Fair Lending and Enterprise Risk.

Don’t forget AffirmX can be tailored to meet the needs of your credit union including offering individual audits – such as BSA Independent Audit, Annual ACH Independent Audit, Annual SAFE Act Independent Audit and Website Compliance Review. Pick just one or bundle the four audits together and save!

For Questions or Quotes – contact Amy Kleinschmit akleinschmit@dakcu.org.

Compliance Update

Fri, 22 Oct 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Risk Mitigation Webinar

Don’t miss the upcoming Attorney Conference for the Non-Attorney webinar – risk mitigation, on November 10, 2021, 9:30 a.m. – 12 p.m. (CT). Registration can be found here.

Attendees will hear about CUNA Mutual Group claims update, presented by Cheryl Guthrie-Swarztrauber and Christa Loger with CMG; HR/Employer Risks presented by Carlos Molina with CMG; arbitration clauses presented by attorneys at Husch Blackwell; and Remote Capture update presented by attorneys at Husch Blackwell.

Most credit unions do not have in-house counsel or access to the type of information provided at events like CUNA’s Attorney Conference. The Attorney’s Conference for Non-Attorneys can provide this information to you, along with risk mitigation strategies to help protect your credit union from liability.

Each session is only $25 – be sure to reserve your seat now! You’ll learn from lawyers with expertise in working with credit unions.

This series is made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League.

NCUA 21-RISK-01 – Business Email Compromise

The NCUA has issued 21-RISK-01 regarding business email compromise through exploitation of cloud-based email services, which can be found here. Review this alert in its entirety as it discusses prevention of business email compromise fraud, prevention of wire transfer fraud, and reporting and recovery of funds from business email compromise fraud.

“While several Business Email Compromise (BEC) scam variants exist, one of the most effective types is initiated through phishing emails designed to steal email account credentials. Cybercriminals use phishing kits that impersonate popular cloud-based email services. Many phishing kits identify the email service associated with each set of compromised credentials, allowing the cybercriminal to target victims using cloud-based services. Upon compromising victim email accounts, cybercriminals analyze the content of compromised email accounts for evidence of financial transactions. Often, the actors configure mailbox rules of a compromised account to delete key messages. They may also enable automatic forwarding to an outside email account.”

FinCEN Update – Ransomware

The Financial Crimes Enforcement Network (FinCEN) recently issued a report on ransomware trends for the first half of 2021, which can be found here. Ransomware is malicious software that encrypts a victim’s files and holds the data hostage until a ransom is paid.

As found by FinCEN, “In the first six months of 2021, FinCEN identified $590 million in ransomware-related SARs, a 42 percent increase compared to a total of $416 million for all of 2020.” The report discusses variants of ransomware and how a majority of reported ransomware related payments was Bitcoin. FinCEN also reviewed ransomware related money laundering typologies.

The barrier to ransomware is detection, mitigation and reporting by financial institutions. As stated in the report, “Financial institutions play an important role in protecting the U.S. financial system from ransomware-related threats through compliance with BSA obligations.”

FinCEN recommends the following detection and mitigation steps:

1. Incorporate IOCs from threat data sources into intrusion detection systems and security alert systems to enable active blocking or reporting of suspected malicious activity.

2. Contact law enforcement immediately regarding any identified activity related to ransomware, and contact OFAC if there is any reason to suspect the cyber actor demanding ransomware payment may be sanctioned or otherwise have a sanctions nexus. Please see contact information for the Federal Bureau of Investigation (FBI), Cybersecurity and Infrastructure Security Agency (CISA), OFAC, and U.S. Secret Service at the end of this report.

3. Report suspicious activity to FinCEN, highlighting the presence of “Cyber Event Indicators.” IOCs, such as suspicious email addresses, file names, hashes, domains, and IP addresses, can be provided in the SAR form. Information regarding ransomware variants, AECs requested for payment, or other information may also be useful to law enforcement and for trend analysis in addition to virtual currency addresses and transaction hashes associated with ransomware payments.

4. Review financial red flag indicators of ransomware in the “Advisory on Ransomware and the Use of the Financial System to Facilitate Ransom Payments” issued by FinCEN in October 2020.45

For additional resources, CISA’s StopRansomware.gov offers a one-stop-shop for government resources containing alerts, guides, fact sheets, and training all focused on reducing the risk of ransomware. CISA and the Multi-State Information Sharing and Analysis Center’s (MS-ISAC’s) Ransomware Guide provides high-level prevention best practices and a response checklist while the National Institute of Standards and Technology’s (NIST’s) Data Integrity: Detecting and Responding to Ransomware and Other Destructive Events offers a comprehensive focus on detailed methods and potential tool sets that can detect, mitigate, and contain data integrity events in the components of an enterprise network.

Bias in Home Appraisals and the Racial Homeownership Gap Webinar

Join the National Credit Union Administration (NCUA) on October 27 for a free webinar on homeownership, the wealth gap, and bias in home appraisals. Per the NCUA, the webinar will highlight how systemic and institutionalized discrimination in the U.S housing system has created a wide wealth gap between races. Experts will share strategies on closing the homeownership gap and eliminating appraisal bias, due to its direct impact on wealth accumulation for minority homeowners. The broadcast will also explore the collaborative efforts of federal agencies and other stakeholders to initiate valuation and housing policy reforms for more equitable outcomes in communities of color. Registration for this webinar can be found here.

Cybersecurity Evaluation Toolbox Webinar

The National Credit Union Administration (NCUA) will be hosting a free webinar on October 28 to explain the NCUA’s Automated Cybersecurity Evaluation Toolbox (ACET). Registration and more details can be found here.

The Toolbox is a downloadable self-contained application developed for credit unions as a holistic cybersecurity resource. The Toolbox guides credit unions through the ACET Maturity Assessment, which is aligned with the Federal Financial Information Examination Council’s Cybersecurity Assessment Tool (CAT). Using the ACET Maturity Assessment allows institutions of all sizes to determine and measure their own cybersecurity preparedness over time.

As always, DakCU members may contact Amy Kleinschmit with any compliance related questions.

Compliance

Fri, 15 Oct 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Cybersecurity Awareness Month Continues

As discussed last week, October is Cybersecurity Awareness Month. Although this issue is important throughout the year, this is an opportunity to bring some additional attention to this very important topic and to help educate staff and members about #BeCyberSmart!

In case you missed it, the Cybersecurity & Infrastructure Security Agency (CISA) has a number of resources to help you spread the word about the importance of cybersecurity.

The CISA provides weekly tip sheets. Tip for this week – phight the phish. “Phishing attacks use email or malicious websites to infect your machine with malware and viruses to collect personal and financial information. Cybercriminals attempt to lure users to click on a link or open an attachment that infects their computers, creating vulnerabilities for criminals to use to attack. Phishing emails may appear to come from a real financial institution, e-commerce site, government agency, or any other service, business, or individual. The email may also request personal information such as account numbers, passwords, or Social Security numbers. When users respond with the information or click on a link, attackers use it to access users’ accounts.” Find simple tips here to “phight the phish.”

Homeland Security has a number of very informative and useful resources as well that can be found here, including a number of short videos to help educate folks on social privacy settings, using public Wi-Fi, issues when posting that vacation selfie, password management and other important topics. Share on your social media to remind your members, family and friends to #BeCyberSmart.

If anyone needs convincing as to why cybersecurity awareness is important, here are some facts as provided by Homeland Security:

1 in 3 Home with computers are infected with malicious software.

65% of Americans who went online received at least one online scam offer.

47% of American adults have had their personal information exposed by cyber criminals.

600,000 Facebook accounts are hacked every single day.

The #1 cybercrime is the imposter scam with 1 in 5 people reporting a financial loss.

Remember - #BeCyberSmart!

NCUA DEI Summit

The National Credit Union Administration (NCUA) is hosting a virtual Diversity, Equity and Inclusion Summit November 2-4. Registration and the agenda can be found here.

As noted by the NCUA, “the business case for diversity in credit unions is simple: diversity is a good investment. Diversity leads to better service, greater innovation, financial performance and profitability, improved solutions, higher levels of employee satisfaction and engagement, and increased membership. These things make credit unions resilient and sustainable, which ultimately leads to greater strength for the entire credit union system.”

Risk Mitigation Webinar – November 10

Don’t miss the second part of the Attorney’s Conference for Non-Attorneys covering Risk Mitigation on Wednesday, November 10. Registration can be found here.

Many credit unions look to an arbitration program to help minimize legal risks, and some credit unions are considering the implementation of arbitration clauses as a dispute resolution technique in resolving legal disputes. Learn more about adopting an arbitration clause in this session. This session will also provide general risk mitigation strategies to help protect credit unions along with more specific strategies related to employer HR risks in a changing workplace. The following topics will be covered: Cuna Mutual Group Bond Claims Update; HR/Employer Risks; Arbitration clauses; and Remote Capture update.

Each session is only $25 – be sure to reserve your seat now! You’ll learn from lawyers with expertise in working with credit unions.

Random Compliance Reminder

As you are aware (since you have been following these weekly compliance articles), I have been including random compliance reminders on a variety of topics lately. Nothing new compliance wise with these reminders – just inspired by something I may have heard on a TV commercial or saw online snooping on websites or received as a question. With new regulatory changes and updates constantly coming out, credit unions can’t forget about the “old stuff” that perhaps hasn’t changed in a while but remains quite relevant (and audited for).

SAFE Act – registration renewals and updates. Back in 2008 the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) was passed. This mandated a federal registry for credit unions (along with other financial institutions) and their employees who are Mortgage Loan Originators (MLOs). Initially, credit unions relied on the NCUA’s rules and regulations which implemented SAFE Act and were effective back in 2010. Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred rulemaking authority for a number of consumer financial protection laws (which included the SAFE Act regulations) to the CFPB as of July 21, 2011. Regulation G, 12 CFR 1007, implements the SAFE Act’s requirements for credit unions.

We are already halfway through October, which means the renewal period for the SAFE Act is just around the corner. The annual renewal period runs November 1 through December 31 of each year. Reg G requires that a registered MLO must renew the registration during the annual renewal period, confirming their responses remain accurate and complete, and updating information as appropriate.

However, the MLO must update the registration within 30 days if any of the following events occur - a change in the name of the registrant; the registrant ceases to be an employee of the covered financial institution; or certain information required under the regulations becomes inaccurate, incomplete, or out-of-date. Information that must be updated within 30 days includes:

Convictions of any criminal offense involving dishonesty, breach of trust, or money laundering against the employee or organizations controlled by the employee, or agreements to enter into a pretrial diversion or similar program in connection with the prosecution for such offense(s);

Civil judicial actions against the employee in connection with financial services-related activities, dismissals with settlements, or judicial findings that the employee violated financial services-related statutes or regulations, except for actions dismissed without a settlement agreement;

Actions or orders by a state or Federal regulatory agency or foreign financial regulatory authority that: Found the employee to have made a false statement or omission or been dishonest, unfair or unethical; to have been involved in a violation of a financial services-related regulation or statute; or to have been a cause of a financial services-related business having its authorization to do business denied, suspended, revoked, or restricted; Are entered against the employee in connection with a financial services-related activity; Denied, suspended, or revoked the employee's registration or license to engage in a financial services-related activity; disciplined the employee or otherwise by order prevented the employee from associating with a financial services-related business or restricted the employee's activities; or Barred the employee from association with an entity or its officers regulated by the agency or authority or from engaging in a financial services-related business;

Final orders issued by a state or Federal regulatory agency or foreign financial regulatory authority based on violations of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct;

Revocation or suspension of the employee's authorization to act as an attorney, accountant, or state or Federal contractor; or

Customer-initiated financial services-related arbitration or civil action against the employee that required action, including settlements, or which resulted in a judgment.

Another annual requirement under the SAFE Act – an independent test. 12 CFR 1007.104 requires that the covered financial institution, which includes credit unions, must adopt policy and procedures that provide for independent testing for compliance with this part to be conducted at least annually by covered financial institution personnel or by an outside party.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance

Fri, 08 Oct 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Cybersecurity Awareness Month

October is Cybersecurity Awareness Month! Now in its 18th year, government agencies and private companies continue to raise awareness about the importance of cybersecurity, ensuring that all Americans have the resources they need to be safer and more secure online. The Cybersecurity & Infrastructure Security Agency (CISA) has a number of resources and is promoting the theme “Do Your Part. #BeCyberSmart” with the National Cyber Security Alliance (NCSA). The CISA resources include partner toolkit, tip sheets and even translated resources.

This is an excellent time to spread awareness to both staff and your members.

One of the CISA tips for week 1 reminds us that - Businesses face significant financial loss when a cyber-attack occurs. In 2020, a sharp increase was reported in cyberattacks that target businesses using stolen logins and passwords. Cybercriminals often rely on human error—employees failing to install software patches or clicking on malicious links—to gain access to systems. From the top leadership to the newest employee, cybersecurity requires the vigilance of everyone to keep data, customers, and capital safe and secure. #BeCyberSmart to connect with confidence and support a culture of cybersecurity at your organization.

The FBI also as a number of tips and resources to promote cybersecurity awareness month, which can be found here. Among them, the FBI’s Safe Online Surfing program is aimed at helping keep kids safe online.

Cannabis eSchool

For credit unions interested in learning more about providing financial services to the cannabis and hemp industry, be sure to check out the upcoming CUNA eSchool which will run November 12 to December 10. Topics will include Cannabis Banking 101; Anatomy of a compliance centric CRB deposit services program; HR related issues; and lending issues. Find additional information and registration here.

Debt Collection Final Rule FAQs

The Consumer Financial Protection Bureau (CFPB) issued frequently asked questions relating to its Debt Collection Final Rule that is set to take effect on November 30, 2021. These FAQs, along with the small entity compliance guide, can be found here.

As a reminder - the Debt Collection Rule covers debt collectors and debts, as those terms are defined in the Fair Debt Collection Practices Act (FDCPA). Thus, the Rule does not alter which debt collectors and debts are covered under the FDCPA. For example, the Rule does not expand coverage to first-party debt collectors that are not debt collectors under the FDCPA.

Therefore, an officer or employee of a creditor while the officer or employee that is collecting debts for the creditor in the creditor’s name, is excluded from the definition of “debt collector.” However, the term debt collector includes any creditor that, in the process of collecting its own debts, uses any name other than its own that would indicate that a third person is collecting or attempting to collect such debts.

CU PolicyPro Updates

The following policies have been updated/revised within CU Policy Pro. The redlined documents related to this update can be found in the Resources area of CU PolicyPro (under Content Update Archives > September 2021).

Remember – updates are only made to the model policies. Credit unions should review these updates and tailor your adopted policies as necessary. A video tutorial that reviews the best practices for updating policies and provides tips for documenting the updates for auditing purposes is available on the Training Videos page of the Support area in CU PolicyPro.

Policy 1515 – Families First Coronavirus Response Act (FFCRA) Policy. This policy was revised to reflect the extension of the availability of the FFCRA tax credits, as extended by the American Rescue Plan Act of 2021. If the Credit Union is not taking advantage of the tax credits, this policy can be retired. (Revision Recommended)

Policy 2225 – Digital Banking. **Policy Name Change** This policy was revised to take into consideration the new guidance issued by the FFIEC related to “Guidance on Authentication and Access to Financial Institution Services and Systems.” Note: while a redlined version of this policy is provided, the changes are very extensive. Credit unions may find it easier to re-import the policy and re-customize it rather than using the redlined version. (Revision Recommended)

Policy 4120 – Information Security. This policy was revised to take into consideration the new guidance issued by the FFIEC related to “Guidance on Authentication and Access to Financial Institution Services and Systems.”(Revision Recommended)

7250 – Truth-in-Lending Disclosure for Open-Ended Credit. This policy was reviewed and Section #2(D) was revised to provide clarity that when a consumer accesses a credit card application or solicitation electronically, the card issuer must provide the disclosures in electronic form in order to meet the requirement to provide disclosures in a timely manner on or with the application or solicitation. (Revision Recommended)

9120 – Fair Debt Collection Practices Act. This policy was completely rewritten to comply with the significant amendments to the Fair Debt Collection Practices Act that become effective on November 30, 2021. Note: while a redlined version of this policy is provided, the changes are very extensive. Credit unions may find it easier to re-import the policy and re-customize it rather than using the redlined version. (Revision Required for Credit Unions using this policy after November 30, 2021)

9600 – TCPA, JFPA and CAN-SPAM. **Policy Name Change** This policy was revised to include the provisions of the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM). Additional definitions and clarity were added along with coverage and applicability of requirements for commercial email communications. (Revisions Recommended)

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance Update

Fri, 01 Oct 2021 00:00:00 GMT

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.

Legislative Update

Wed, 29 Sep 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Tick tock, tick tock, the government funding clock is ticking.

Much of our recent focus has been on the IRS Reporting Proposal which is part of the Build Back Better Act and budget reconciliation process. However, a government shutdown looms unless Congress can come to an agreement on a Continuing Resolution (CR) prior to midnight on Thursday, September 30^th. Senate Democrats are facing Republican opposition after linking a debt-ceiling hike with stopgap government funding. Republicans have indicated they will back a clean CR that focuses on government funding, and Democrats seem likely to decouple the debt ceiling from the CR, ensuring the government remains funded at least temporarily.

All eyes will continue to be on the Senate this week as they race to fund the government, consider a debt-ceiling increase, and continue markup of the Build Back Better Act that will likely be passed through the budget reconciliation process toward the middle of October.

What does this all mean for credit unions?

It means we need to keep up our opposition efforts on the IRS Reporting Proposal. It is not dead! Check out how Senator Thune is leading the opposition charge in the Senate in today’s Memo here.

Everything is still in play. The $3.5 trillion Build Back Better Act (BBB) is likely to shrink in size in order to increase its odds of passing through the Senate. While this might seem like a good thing, eliminating the need for the intrusive IRS Reporting Proposal as a “pay-for,” the IRS Proposal is now also being linked to a repeal of the “SALT cap.” The SALT cap is the $10,000 limit or “cap” on federal tax deductions for State And Local Taxes paid. If this SALT cap is repealed, taxpayers who itemize deductions would not be limited to the amount of state and local taxes paid they could write off on their federal tax return, thus passing the tax bill on to the federal government.

As of early this week, over 300,000 messages have been sent to Congress though CUNA’s national Action Alert! That includes 9,573 coming out of the state of South Dakota and 543 out of North Dakota. Have you considered activating your members through CUNA’s Member Activation Program (MAP)? There is still time to ask them to make their voices heard! If you’re not subscribed to the MAP program, you can learn more about it and opt in here to share this Action Alert with your members. If you have any questions about how to best utilize the MAP program, don’t hesitate to contact me. Let’s continue to sound the alarm and put this IRS Reporting Proposal in its grave in time for Halloween!

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 24 Sep 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

FinCEN Notice – Online Child Sexual Exploitation Crimes

The Financial Crimes Enforcement Network (FinCEN) recently issued FIN-2021-NTC3 to call attention to online child sexual exploitation (OCSE) crimes. Crimes related to OCSE, including the funding, production, and distribution of child sexual abuse materials, have increased during the COVID-19 pandemic, according to multiple law enforcement authorities. Be sure to review this notice in its entirely as it includes specific suspicious activity reporting filing instructions as well as financial trends related to OCSE.

As discussed in the notice, FinCEN has found that between 2017 and 2020, there was a 147 percent increase in OCSE-related SAR filings, including a 17 percent year-over-year increase in 2020. The notice also notes that OCSE offenders are increasingly using convertible virtual currency (CVC - some of which provide anonymity), peer-to-peer mobile applications, the darknet, and anonymization and encryption services to try to avoid detection.

Ten-Digit Dialing Coming in October for Some Areas

The Federal Communications Commission (FCC) recently released the following information on ten-digit dialing. Heads up – this will impact South Dakota, in addition to other states.

What is Ten-Digit Dialing?

A ten-digit dialed telephone call requires entering both the three-digit area code and the seven-digit telephone number to complete the call, even if the area code is the same area code as your own. When an area code transitions to ten-digit dialing, you will no longer be able to dial seven digits to make a local call.

Transitioning to ten-digit dialing will not affect your current telephone number. Your phone number, including your area code, will not change. In California and in Illinois area code 708, you may be required to dial the number "1" before the area code and seven-digit phone number for local calls.

Upcoming Transitions to Ten-Digit Dialing: Where and When?

There are 82 area codes in 35 states and one U.S. territory that currently use "988" as their local exchange and allow seven-digit dialing. A local exchange, also known as a central office code, is the first three numbers of a seven-digit telephone number. To prepare for implementation of a quick way to dial the National Suicide Prevention Lifeline – using only "988" to connect callers to the Lifeline – these area codes must transition to ten-digit dialing for all calls, including local calls. The North American Numbering Plan Administrator has a list of the states and area codes that will be affected. You can check the list to find out if your area code is one that will be transitioning.

If you have one of these area codes, beginning on October 24, 2021, you must dial ten digits (area code + telephone number) for all local calls. On and after this date, local calls dialed with only seven digits may not connect, and a recording will inform you that your call cannot be completed as dialed.

What Changes Will Businesses Need to Make?

If your company uses a PBX or VoIP phone system, you may need to update or reprogram it for ten-digit dialing. Because ten-digit dialing became available in April 2021 in the areas where seven-digit dialing will be phased out in October 2021, reprogramming of PBX or VoIP systems can begin at any time. You should plan to complete any needed reprogramming and test your system before October 2021.

Why Is Ten-Digit Dialing Necessary?

In 2020, the FCC established "988" as the new, nationwide three-digit phone number for the National Suicide Prevention Lifeline. The new three-digit dialing code will be available nationwide by July 16, 2022 and will provide an easy to remember and easy to dial three-digit number to reach suicide prevention and mental health counselors, similar to "911" for emergencies and "311" for local government services. To help facilitate the creation of "988", area codes that use "988" as a local exchange, or the first three digits of a seven-digit phone number, will need to use 10-digit dialing.

NCUA MDI Mentoring Grant Round Reopens Oct. 11

National Credit Union Administration (NCUA) recently announced that federally insured credit unions with both the minority depository institution and low-income designations are eligible to apply for the National Credit Union Administration’s MDI mentoring grants between Oct. 11 and Oct. 29.

This grant round will provide approximately $100,000 to low-income credit unions with the MDI designation to support mentoring relationships that allow larger, experienced credit unions the opportunity to provide guidance to other MDIs.

Grant requirements, application instructions and other details can all be found on the NCUA’s Grant Page. Credit unions with other questions about these grants may contact the NCUA’s Office of Credit Union Resources and Expansion at CUREAPPS@ncua.gov

NCUA Request for Information – Due Monday, September 27

The National Credit Union Administration’s (NCUA) has an open request for information and comment regarding digital assets and related technologies. This Request for Information and Comment can be found here - AG20210722Item1b.pdf (ncua.gov). Comments must be received by Monday, September 27.

The NCUA hopes to learn how the credit union community is using Decentralized Finance (DeFi) and Distributed Ledger Technology (DLT) technologies and gain additional feedback as to the role the NCUA can play in safeguarding the financial system and consumers in the context of these emerging technologies. The NCUA stresses that “the request for information does not speak to the permissibility or impermissibility of any specific activity.” Further, this request for information does not modify any existing requirements applicable to FICUs and does not grant FICUs any new authorities or limit any existing authorities.

Decentralized Finance (DeFi) is the broad category of applications adopting peer-to-peer networks, Distributed Ledger Technology (DLT), and related uses, such as smart contracts, to create digital assets like cryptocurrency and crypto-assets, clearing and settlement systems, identity management systems, and record retention systems.

Questions posed by the NCUA range from usage and marketplace to operational considerations. The NCUA also solicits feedback on risk and compliance management issues along with supervision and activities. Finally, the NCUA seeks feedback on share insurance and resolution concerns.

Some of the questions for which the NCUA is seeking information include:

How are those in the credit union system currently using or planning to use DLT and DeFi applications?

In terms of the marketplace, where do those in the credit union system see the greatest demand for DeFi application services, and who are the largest drivers for such services?

What are the advantages and disadvantages of FICUs developing DLT and DeFi projects through third-party relationships versus through a credit union service organization (CUSO)?

What unique or specific risks are challenging to measure, monitor, and control for various DLT and DeFi applications? What unique controls or processes are or could be implemented to address such risks?

Are there any unique aspects the NCUA should consider from a supervisory perspective?

Are there any areas in which the NCUA should clarify or expand existing supervisory guidance to address these activities?

Are there any steps the NCUA should consider to ensure FICU members can distinguish between uninsured digital asset products and insured shares?

FREE Webinar: Money Laundering from Environmental Crime

The Financial Action Task Force has announced it will conduct a webinar on Money Laundering from Environmental Crime on September 30, 2021 from 7:00–8:00 a.m. EDT. An international panel will discuss important aspects of the FATF Report on the topic, including how to identify red-flag information to help detect and trace the illicit finances of criminals engaged in environmental crimes. Participants will also debate how to overcome challenges, such as the lack of governmental or institutional prioritization, limited awareness and data, de-risking, and limited domestic and international co-ordination. Online registration is open.

As always, DakCU members may contact amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update

Wed, 22 Sep 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning,

Returning to Washington after the long September recess, both the Senate and House are back in session this week as negotiations and markup continues on the Build Back Better Act, including the very intrusive IRS Reporting Proposal. So, as Jeff Olson stated earlier this week in his President’s Perspective, “Put the pedal to the metal – IRS Reporting Proposal is not dead!” The entire Dakota’s congressional delegation is on our side in opposing this proposal; however we cannot say the same about the White House and Senate Democrats.

Let’s take a little closer look at the proposal, because as they say, “the devil is in the details.” The White House and Treasury believe this proposal is necessary to not only help pay for the $3.5 trillion price tag the legislation carries, but also to “increase the visibility of gross receipts and deductible expenses to the IRS.”

Supporters of this proposal argue that it is a minor change and will pose minimal new requirements on the financial institutions – but this is simply not true. As the proposal reads, “Financial institutions would report data on financial accounts in an information return. The annual return will report gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner.” In reality, this proposal will require the reporting institution to provide EIGHT new boxes of information on this new “information return.”

Perhaps one of the most concerning details, buried at the end of the proposal, would also give the Treasury “broad authority” to issue any additional regulations they deem necessary for implementation. We believe this could open the door for them to implement any additional rules down the road without proper oversight.

You can read through the full Build Back Better Act including the IRS Reporting Proposal which begins on page 94 here.

Dakotans Are Responding – But We Need More!

As of last Friday, over 170,000 credit union advocates have already told Congress to oppose this controversial IRS Reporting provision. Here in the Dakotas, we have had more than 9,000 credit union advocates respond, as many Dakota credit unions have engaged their members directly through the Member Activation Program (MAP) resources.

This truly is a “moment of truth” issue for credit unions and all financial institutions. We continue to encourage every Dakota credit union to act now and keep the “pedal to the metal” on this important issue. If you’re not subscribed to the MAP program, you can learn more about it and opt in here to share this action alert with your staff and members. If you have any questions about how to best utilize the MAP program, don’t hesitate to contact me. Finally, if you already haven’t done so, please make sure to use our Action Center to send a message.

Dakota Senators Taking Action

I want to end by sending a huge shout out and “thank you” to our South Dakota Senators Thune and Rounds, as well as Congressman Dusty Johnson, for stepping up in strong opposition of this IRS Reporting Proposal. Senator Thune is currently leading the Republican charge in the Senate and working on a “Dear Colleague” sign-on letter that will be circulated through the Senate. This will be somewhat similar to the Emmers letter that circulated through the House last week. Also, Senator Rounds is a cosponsor, along with ND Senator Cramer, of the Tax Gap Reform and Internal Revenue Service (IRS) Enforcement Act, which is bicameral legislation to protect taxpayers against Democrats’ campaign to monitor Americans’ bank accounts, place taxpayer finances in a surveillance dragnet, and provide additional mandatory funding to increase the number of IRS agents.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Legislative Update

Wed, 08 Sep 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Happy Wednesday and belated Labor Day! While Labor Day pays tribute to American workers it also symbolizes the end of summer, so I hope everyone enjoyed a relaxing summer day on Monday that involved absolutely zero labor, in the spirit of the holiday, of course!

Both the House and Senate are still at recess this week; however, House committee work continues with the scheduled markups on portions of reconciliation legislation. The Ways and Means Committee is unofficially expected to begin their markup on Thursday which will likely include a proposal by the Biden Administration and Treasury Department to require financial institutions to report additional account holder information including the inflows and outflows of funds to accounts that hold more than $600.

Tell Congress to Oppose New IRS Reporting Provisions

Along with CUNA, we are issuing an Action Alert calling on credit union advocates to oppose new IRS reporting provisions requiring financial institutions to provide additional detailed account holder information. We encourage you to share this action alert with your staff, your board, and your members.

While we are asking you to support this Action Alert reaching out to our Dakota Congressmen Dusty Johnson (R-SD) and Kelly Armstrong (R-ND), we have also reached out to both offices to ask for their support and signatures for a “Dear Colleague” Letter addressed to Speaker Pelosi, Ways and Means Chairman Neal, Treasury Secretary Yellen, and IRS Commission Rettig, which also opposes these new proposed IRS reporting provisions. I am happy to report the Congressman Johnson has agreed to sign on to the letter, and while we are still waiting to hear back on a decision from Congressman Armstrong, we do believe he also supports our position on this issue.

As negotiations around the partisan $3.5 trillion “human infrastructure” package heat up, the Biden Administration has proposed this new IRS requirement of reporting account inflows and outflows as a “payfor,” with the hopes the IRS would be able to use this enormous data grab to identify unreported taxable income, which would then be used to cover the huge $3.5 trillion price tag the package carries. This reckless proposal is not clear as to how the IRS plans or thinks it can use this data to accomplish its goal, on top of the fact the IRS and federal government in general doesn’t have a stellar track record of protecting taxpayer data.

The Background

Let me give you a little history on this Administration’s proposal that dates all the way back to April of this year. That is when the White House and President Biden unveiled the American Families Plan which is where this proposal to require the reporting of additional account holder information to the IRS was first introduced. To follow up on this proposal, CUNA wrote a letter in May to the Senate Finance Subcommittee expressing our concerns.

Fast forward to August, when CUNA wrote in strong support of an amendment offered by Sen Mike Crapo (R-ID) to the Senate Budget Resolution that would have blocked expanding taxpayer information reporting requirements for financial institutions. This amendment was in direct response the Administration’s IRS reporting proposal but was unfortunately voted down along party lines on a 50-49 vote. Now this provision has the potential to become reality as negotiations in both the Democrat lead House and Senate begin this week and continue into next.

We will continue to stay active on this issue as negotiations continue, however I am confident the entire Dakotas Congressional Delegation is on our side regarding this issue. Again, we urge you to share this Action Alert with your staff, your board, and your members.

Take Action and contact your members of Congress today!

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 03 Sep 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

CFPB – Small Business Lending Data Collection Proposed Rule

The Consumer Financial Protection Bureau (CFPB) has issued its proposed rule to implement Section 1071 of the Dodd-Frank Act which will require data collection for small business lending. The 918 page proposed rule can be found here and comments must be received within 90 days after the proposed rule is published in the Federal Register.

The CFPB has issued a number of support documents to this proposed rule, including a summary and a chart of the proposed data points which can be found here.

A few highlights (more to come as we review this proposed rule) as explained by the CFPB, “rule would create the first comprehensive database of small business credit applications in the United States. This would include critical information about women-owned and minority-owned small businesses to help regulators and the public identify and address fair lending concerns. The database would also enable a range of stakeholders to better identify business and community development needs and opportunities for small businesses, including women-owned and minority-owned small businesses.”

The general rule/requirement is that a “covered financial institution” shall compile and maintain data regarding “covered applications” from small businesses. On or before June 1 following the calendar year for which data are compiled and maintained, a covered financial institution shall submit its small business lending application register in the format prescribed by the CFPB.

“Covered financial institution” means a financial institution that originated at least 25 “covered credit transactions” for small businesses in each of the two preceding calendar years. For purposes of this definition, if more than one financial institution was involved in the origination of a covered credit transaction, only the financial institution that made the credit decision approving the application shall count the origination.

This definition includes - but is not limited to, banks, savings associations, credit unions, online lenders, platform lenders, community development financial institutions, lenders involved in equipment and vehicle financing (captive financing companies and independent financing companies), commercial finance companies, organizations exempt from taxation pursuant to 26 U.S.C. 501(c), and governments or governmental subdivisions or agencies.

A financial institution qualifies as a covered financial institution based on total covered credit transactions originated for small businesses, rather than covered applications received from small businesses. For example, if in both 2024 and 2025, Financial Institution B received 30 covered applications from small businesses and originated 20 covered credit transactions for small businesses, then for 2026, Financial Institution B is not a covered financial institution.

A “covered credit transaction” includes all business credit, including loans, lines of credit, credit cards, and merchant cash advances. This would include credit transactions for agricultural purposes and those that are also covered by the Home Mortgage Disclosure Act (HMDA). The proposal excludes several types of transactions from this, such as an extension of credit that is secured by 1-4 individual dwelling units that the applicant (or one or more of the applicant’s principal owners) does not, or will not, occupy.

In the discussion of the proposed rule, “the Bureau is proposing to define a “small business,” about whose applications for credit data must be collected and reported, by reference to the definitions of “business concern” and “small business concern” as set out in the Small Business Act and Small Business Administration (SBA) regulations. However, in lieu of using the SBA’s size standards for defining a small business concern, the Bureau’s proposed definition would look to whether the business had $5 million or less in gross annual revenue for its preceding fiscal year. The Bureau is seeking SBA approval for its alternate small business size standard pursuant to the Small Business Act.”

The rule includes a prohibition on access to certain information that is obtained from the applicant. The proposed rule provides that an employee or officer of a covered financial institution or a covered financial institution’s affiliate shall not have access to an applicant’s responses to inquiries that the financial institution makes regarding whether the applicant is a minority-owned or a women-owned business, and regarding the ethnicity, race, and sex of the applicant’s principal owners, if that employee or officer is involved in making any determination concerning that applicant’s covered application. There is an exception when the financial institution determines that it is not feasible to limit that employee’s or officer’s access to an applicant’s responses to the financial institution’s inquiries AND the financial institution provides a notice required under the proposed rule to the applicant.

The proposed compliance date would be 18 months after the final rule is published in the Federal Register.

There are 21 data point categories, however, some categories require multiple fields. The reportable data includes: a unique identifier; application date; application method; and application recipient. For the category of credit type, the following information would be required: credit product; guarantees; and loan terms. Additional data points include: amount applied for; amount approved or originated; action taken (originated; approved but not accepted; denied; withdrawn by applicant or incomplete); action taken date; denial reasons; and pricing information. Interest rate would be required to be reported including if the rate is adjustable the margin, index value and index name that is applicable. Total origination charges (paid directly or indirectly by applicant and imposed directly or indirectly by financial institutions) must be reported. Other fees that must be reported include: broker fees; initial annual charges; additional cost for merchant cash advance or other sale-based financings; prepayment penalties. The census tract; gross annual revenue of the applicant; NAICS code; number of workers; time in business; and minority-owned business status or women-owned business status are additional data fields that will be reported. Finally, ethnicity, race and sex of the principal owners and number of principal owners is required to be reported.

Attorney Conference for the Non-Attorney

Don't have an in-house counsel and don't have the time or resources to keep up with the latest litigation trends? Join us for the “Attorney’s Conference for Non-Attorneys” on September 28, November 10, and January 11. This three-part litigation webinar series will address some of the most pressing legal and compliance risks for credit unions along with overall risk mitigation strategies to help protect credit unions. Each session is only $25, be sure to reserve your seat now.

You’ll learn from lawyers with expertise working with credit unions, made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League.

The first session on Tuesday, September 28, 2021, will focus on class actions. Registration is now open and can be found here:

Attorney Conference for the Non-Attorney: Session 1 - Class Actions

Litigation and class actions can have a harmful impact on credit unions. This session provides an overview of trending class action developments along with information on how credit unions can protect themselves from the latest legal theories being asserted by plaintiffs, lawyers, and regulators. The following class action trends will be discussed: Overdraft/non-sufficient fund (NSF) fees; Guaranteed asset protection (GAP) insurance; Telephone Consumer Protection Act; and Foreign transaction fees.

Infosight Highlight

The following RISK Alerts were added to the Resources area during the month of August:

Labor Shortage Leads to Currency Shipment Delay (8/17/2021)

Requiring Employee Vaccinations? (8/17/2021)** (highlighted below)

Catalytic Converter Thefts: A Growing Trend for Credit Unions (8/10/2021)

Wage and Hour Regulations Motivate Class Action Lawsuits (8/10/2021)

*With the spread of variants of COVID-19, a unique situation has been created for businesses that have begun the transition back to in-person work. Employers are considering whether they should require the vaccinations for their staff.

The Equal Employment Opportunity Commission (EEOC) has issued guidance stating that employers are allowed to mandate COVID-19 vaccinations for in-person employees (barring medical or religious reasons), but it can be a sensitive issue. Credit union leaders should follow key communication fundamentals when sharing their decision about getting vaccinated.

Many RISK Alerts are also added to applicable channels (e.g., COVID-19 – Coronavirus, Employment, Security), so you can find them there as well.

CU Policy Pro Highlight

Reminder – there were two content updates this summer (June and August), so now is a great time to take a look if you haven’t reviewed those changes yet. Log in to CU PolicyPro and access the Support or Resources areas to find more information on which policies were impacted and what your credit union needs to do next. There is also a recorded video webinar, available in the Training Videos section of the Support area, that walks through the entire content update process.

Also, there are new publishing features in CU policy pro! A new publishing option at the policy level allows users to choose the “Current” or “Last Published Version” of a policy for their published manuals. There is also a new multi-policy selection option allows users to select the publishing option for multiple policies at one time. When publishing, an indicator icon will show which policies are set to “Use Last Published Version.” Additional text can be added to the title page and the table of contents at the beginning of each chapter can be hidden. Finally, deleted published manuals can now be restored.

Find more details on how to use these updated features here: Publishing InfoSight Updates

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update

Wed, 01 Sep 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning,

It’s another slow week in Washington D.C. with both the House and Senate back in-district on recess. The Dakotas’ congressional delegation is back making the rounds across North and South Dakota meeting with constituent groups and local chambers. Keep an eye out for an “Inside Washington” or similar congressional update taking place in your area over the next few weeks. While both the House and Senate are in recess, several committees in both chambers have scheduled hearings. There are two hearing taking place later today that I plan to monitor.

First, the House Armed Services Committee will begin its markup of the National Defense Authorization Act (NDAA) for fiscal year 2022 at around 9:00 a.m. this morning. We continue to oppose any proposed language that would further expand on-base branch access to for-profit banks. We have successfully prevented the inclusion of this reoccurring and unneeded provision in previous years and will be paying close attention today as NDAA markup begins.

Also occurring at 12:00 p.m. CT today, the House Small Business Committee will be holding a hearing entitled, “What Comes Next? PPP Forgiveness.” The hearing will update members on the loan forgiveness phase of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). Members will also learn about legislative and administrative efforts to continue streamlining the forgiveness process for borrowers and lenders. Among the witness for the hearing is Ms. Leslie Payne, Assistant Vice President of Commercial Lending at Affinity Federal Credit Union in Basking Ridge, NJ, who is testifying on behalf of the National Association of Federally Insured Credit Unions.

Virtual Hike the Hill – It’s not too late!

If you haven’t already, there is still time to register for our upcoming regulatory hike the hill. This is a great opportunity to let the NCUA and CFPB know about any concerns or questions you may have, or to simply listen in and become more familiar with the important credit union issues at hand - especially as we have new leadership at both agencies.

Best of all, attendance is free! Please register here so we can provide the regulatory agencies with a list of attendees. The deadline to register is Tuesday, September 7. Also, be sure to share with Amy Kleinschmit or me any topics or issues you would like brought to the attention of the NCUA and/or CFPB. Amy will be providing the agenda to the agencies in advance of these meetings, so please submit your preferred topics to us prior to September 7th.

September 14

9:15 AM (CT) NCUA Chairman Todd M. Harper

12:00 PM (CT) Representatives from the Consumer Financial Protection Bureau

2:00 PM (CT) NCUA Vice Chairman Kyle S. Hauptman

September 15

9:00 AM (CT) NCUA Board Member Rodney E. Hood

Since these meetings are virtual there is no limit on the number of attendees, so feel free to register others in your credit union! We hope you are able to join us for these very important virtual events. It is vital that Dakota credit unions continue to voice their concerns and issues to our regulators to help them understand how their decisions are affecting credit union members in the Dakotas.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 27 Aug 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Streamlined CDFI Application Opening Soon

The National Credit Union Association has announced that its streamlined CDFI application will open September 12. This is for federally insured, low-income credit unions seeking a Community Development Financial Institution (CDFI) certification.

CDFI-certified credit unions can apply for the CDFI Fund’s training and competitive award program that can enhance credit unions’ capacity to provide underserved communities with access to safe, affordable financial services. Links to the online application, along with instructions and additional details on CDFI can be found at the above link.

FinCEN – 2020 SAR Data Available

The Financial Crimes Enforcement Network’s (FinCEN) recently announced that its Interactive SAR Stats webpage has been updated to include Suspicious Activity Report (SAR) data by industry through the 2020 calendar year. Interactive SAR Stats is an application that enables users to view FinCEN’s trend data for aggregated counts of defined suspicious activities that financial institutions file with FinCEN as required by the Bank Secrecy Act. The new downloadable data is arranged by industry type, includes rankings by states/territories and suspicious activities, and is available here.

Not surprisingly there was an increase in SAR filings last year, including here in the Dakotas. In 2020 ND depository institutions filed 2,123 SARs, compared to 1,717 SARs filed in 2019. FinCEN reported that SD depository institutions filed 31,623 SARs in 2020 which was an increase of 6,503 SARs compared to 2019. Use the “Interactive SAR Stats” found at the above link to drill down by regulator, suspicious activity category/type or other data points. Filtering by regulator type, SD credit unions filed 392 SARs in 2020, up from 248 SARs in 2019. ND credit unions filed 203 SARs in 2020, up from 116 SARs filed in 2019.

Looking at SARs filed in 2020 by all depository institutions (not limited to the Dakotas), the top three types of suspicious activity selected were (1) transaction(s) below CTR threshold (319,981); (2) Suspicion concerning the source of funds (309,937); and transaction with no apparent economic, business or lawful purpose (271,138). For the most part ND and SD credit unions were in line with the national trend regarding suspicious activity type. SD top three suspicious activity types were: (1)transaction(s) below CTR threshold (169); suspicion concerning the source of funds (88); and check (51). ND credit unions’ top three selections for suspicious activity were transaction with no apparent economic, business or lawful purpose (47); transaction(s) below CTR threshold (47); and “other suspicious activities” (37). Remember – some SAR filings may list multiple suspicious activities.

Obviously elder abuse continues to be a concern nationally, but also in the Dakotas. In 2020, SD credit unions filed 18 SARs relating to elder financial exploitation, compared to five in 2014. In total 310 SARs were filed relating to elder financial exploitation as reported by all SD depository institutions in 2020, which an increase of 96 compared to 2019.

Interestingly, ND credit unions filed 15 SARs relating to elder financial exploitation in 2020, which is down from 19 SARs in 2019. However, the overall SARs filed relating to elder financial exploitation as reported by all ND depository institutions remained the same at 91 from 2019 to 2020.

Another area of concern is human trafficking and human smuggling. In 2020 a total of 30 SARs identified human smuggling or trafficking as a suspicious activity as reported by all Dakota depository institutions (ND – 12; SD – 18).

ACH fraud as a suspicious activity category/type took a jump last year among Dakota credit unions. This was selected as a suspicious activity 76 times by Dakota credit unions (ND – 33; SD – 43) in 2020. Compared to just 12 times in 2019 by Dakota credit unions (ND – 4; SD – 8).

CFPB – Credit Card Agreement and Data Submissions

The Consumer Financial Protection Bureau (CFPB) has announced new technical specifications for complying with certain submission requirements for credit card agreements and data to the CFPB under the Truth in Lending Act (TILA) and the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). Going forward, credit card issuers will make required submissions through the CFPB’s “Collect” website. Collect will be the mandatory vehicle for the Terms of Credit Card Plans (TCCP) Survey, quarterly credit card agreement submissions, and annual reports related to college credit card marketing agreements and data. These technical specifications include registration information and the URL for the website at which issuers (or their designees) can submit the required information.

The CFPB’s credit card agreements and surveys webpage can be found here.

Scam Targeting Employees

The Federal Trade Commission (FTC) recently posted a notice regarding a phishing scheme that is targeting millions of people nationwide with texts aimed at stealing personal information, unemployment benefits, or both.

As explained by the FTC, “The phishing texts try to dupe the recipient to click a link to “make necessary corrections” to their unemployment insurance (UI) claim, “verify” their personal information, or “reactivate” their UI benefits account. The link takes you to a fake state workforce agency website that may look very real. There, you’re asked to input your website credentials and personal information, like your Social Security number. Fraudsters can use the information to file fraudulent UI benefits claims or for other identity theft.”

State agencies do not send text messages asking for personal information.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update

Wed, 25 Aug 2021 00:00:00 GMT

Good Morning!

Work hard, play hard – that’s our plan over these next two days in Bismarck! Today, we are hosting our DakCU Professional Forum and Town Hall and luncheon with several special guests. This evening, we will punctuate the day with some social events, including a sunset cruise on the Lewis & Clark Riverboat. Early tomorrow, we have 16 teams ready to tee off at Apple Creek Country Club for the 5th Annual Dakota Credit Union Foundation Golf Scramble and fundraiser.

Today is our “work hard” day, in which we plan to discuss a wide range of topics covering all angles of credit union operations and advocacy during our Professionals Forum. This attendee-driven meeting provides a great opportunity to bounce ideas and issues around a group of your peers with the only requirement being a willingness to ask questions and engage in conversation. I am also looking forward to getting some feedback from attendees on upcoming legislative issues popping up in both the state and at the federal level, including cryptocurrency and cannabis banking.

Attendees will hear from CUNA President/CEO Jim Nussle over lunch, including a Q&A session, as well as our US Senator from North Dakota, Kevin Cramer. We are very excited to welcome Mr. Nussle to our great state, and it’s a special occasion to have Senator Cramer with us to discuss some very pertinent credit union legislative advocacy issues. We are planning for an open dialogue today, and I’m sure the topics of interchange and infrastructure legislation will be discussed with both of our special guests, in addition to the budget reconciliation process that is currently kicking off in the Senate.

Be sure to check out the Memo and our social media pages for more updates and details on today’s meetings as well as Thursday’s “Play Yellow” Foundation Golf Scramble which will also benefit the Sanford Children’s Miracle Network Hospital in Fargo this year. I’m looking forward to connecting with many of you in person over the next two days in Bismarck!

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Legislative Update

Wed, 18 Aug 2021 00:00:00 GMT

Good Morning,

Happy Wednesday, I hope everyone is having a great week! Things in Washington are a little more quiet this week with both the Senate and House in recess following last week’s bipartisan infrastructure vote and budget reconciliation “vote-a-rama.” The “vote-a-rama” included more than 14 hours of continuous amendment votes and was the third amendment marathon that has taken place this year.

One such amendment that filed 49-50 along party lines, was an amendment in response to an administration proposal that would require financial institutions to report additional accountholder information to the Internal Revenue Service, which was offered by Sen. Mike Crapo (R-ID). CUNA sent of letter of support for the amendment detailing, “Banks, credit unions, and other entities would be required to annually report to the IRS the gross inflows and outflows of account holders (businesses and individuals) with a breakdown for cash, transactions with a foreign account, and transfers to and from another account with the same owner,” also pointing out our major concern, “Privacy and data security are paramount issues…CUNA remains doubtful that such data will be safe and private.”

We also have major concerns about how this proposal could likely have a greater burdensome effect on small credit unions due to increased costs of software upgrades and staff training that would most certainly be necessary. We will keep a close eye on this issue and continue to engage with both Congress and the IRS to find a solution and avoid any unintended consequences.

Register for Regulatory VIRTUAL Hike the Hill Today!

Let’s find the positives! While we are disappointed that newly implemented restrictions in Washington have forced us to cancel the in-person portion of our annual fall Hike the Hill, we are excited to have the opportunity to once again open-up attendance for our Virtual Regulatory meetings to all DakCU members. These meeting will be taking place on September 14th and 15th. You don’t want to miss this great opportunity to express your concerns with the NCUA and CFPB to give them feedback on what is working and what they could possibly improve on to strengthen their relationship with the institutions they regulate and examine – this is especially important this year with new leadership in charge at both agencies.

I urge every credit union to consider sending at least one representative to our virtual meetings. To find out more detail about all four confirmed NCUA and CFPB meetings and to register, check out today’s Hike the Hill update in the Memo here.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 13 Aug 2021 00:00:00 GMT

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.

Legislative Update

Wed, 11 Aug 2021 00:00:00 GMT

Good Morning!

There is excitement in Washington today following the successful passage of President Biden’s $1 trillion-plus bipartisan infrastructure bill through the Senate Tuesday. Nineteen republican senators, including Senate Minority Leader Mitch McConnell (R-KY), joined with Senate Democrats to pass the legislation that will now head over to the Democrat controlled House for their consideration.

However, final passage is far from a slam dunk as Speaker Pelosi insists she will not touch the infrastructure bill unless it is paired with a partisan $3.5 trillion “human infrastructure and investment” bill that has yet to be considered in the Senate. We will continue to keep an eye on both the House and Senate as negotiations begin regarding this larger human infrastructure package.

Interchange Offensive

The CUNA/League System continues to be on the offensive as proposals have been discussed in Congress that would expand the interchange cap for debit and credit cards, a change we very strongly oppose. Interchange is the method that financial institutions, card networks and payments processors use to recover expenses for credit/debit cards. Some examples of expenses interchange covers include losses due to fraud and theft, fraud monitoring, issuing and reissuing cards, and administrative costs.

Last week, CUNA's Chief Advocacy Officer, Ryan Donovan, wrote to all 535 congressional offices reminding them that the credit card system works, and plays an integral role in the U.S. economy. In the letter Ryan points out, “Millions of people across the country rely on their credit union’s credit card services to guarantee that their everyday purchases can be made, like putting food on the table and making sure the back-to-school shopping is done. The credit card payment system works. Consumers have a safe, reliable credit payment system; Merchants are made whole at time of sale; and Financial institutions and card servicers are subject to privacy standards under GLBA.”

While the exact language of any proposed interchange legislation has yet to be released, this is far too important of an issue for consumers and financial institutions alike. Legislation will not solve the interchange dispute as evidenced by the continuing fight over Sen. Durbin’s 2011 debit price controls, proving some retailers will not be happy until interchange is at zero.

Last Call: Share Your Concerns

We need credit unions to share their concerns on proposed changes to debit card routing requirements with the Federal Reserve. This is a slightly different from the Congressional action detailed above, however these proposed changes to Regulation II could also lead to decreased debit interchange and increased compliance costs. Linked is a letter template available via CUNA’s Action Alert Center that your credit union can easily send to the Federal Reserve that details your concerns.

Please note: The Subject in the action alert should not be changed. This will ensure that the comments are being properly filed with the Fed.

TAKE ACTION

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 06 Aug 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Regulatory “Hike-the-Hill” Going Virtual

Once again, we have had to pivot our annual Regulatory and Legislative Hike the Hill event in response to the direction the pandemic is trending. We made the difficult decision to cancel the September 14 and 15 in-person event and switch to a virtual platform for our meetings with the NCUA and CFPB. We wanted to ensure we are being good stewards of our resources and respectful of our attendees’ time and resources for those who were planning to make the trip to Washington, DC.

There is a silver lining to all this. If you were unable to attend the in-person event you can now attend these regulatory meeting virtually, hear from our regulators, and submit topics and questions you would like addressed. This is a great opportunity to let the NCUA and CFPB know about any concerns or questions you may have – especially as we have new leadership at both agencies.

We hope you will be able to join us for this very important virtual event. It is vital that Dakota credit unions continue to have a voice with our regulators. Sharing the stories of how the decisions made in Washington impact your members is needed for a strong advocacy front.

Watch for the registration link to be launched very soon to save your spot for these meetings.

Debt Collection Rules

Last week the Consumer Financial Protection Bureau (CFPB) confirmed that its Fair Debt Collection Practices Act rules will take effect November 30, 2021, as originally planned. As you may recall, earlier this year the CFPB proposed an extension of its two final rules relating to debt collection, but now has determined the extension is not necessary.

CU Policy Pro Updates

The regulatory environment continues to change pretty rapidly and to keep CU PolicyPro content up-to-date, CU Policy Pro has added a Content Update (August 2021) outside of the regular quarterly cycle. This content update includes 3 policy updates:

Policy 2150 – Signing Authority

Policy 3165 – Loan Workouts and Nonaccrual Standards

Policy 7362 – Temporary Policy for Loan Modifications and Reporting due to COVID-19.

There were changes made by the CFPB related to the Real Estate Settlement Procedures Act (RESPA) which provides for temporary procedural safeguards to help borrowers with an opportunity to be reviewed for loss mitigation before the servicer can make the first notice or filing required for foreclosure on certain mortgages. The rule also permits mortgage servicers to offer certain loan modifications made available to borrowers experiencing COVID-19 related hardships based on the evaluation of an incomplete application. The Federal Housing Administration (FHA) also made some announcements impacting COVID-19 Recovery Options. In addition, the NCUA provided some relief related to the Prompt Corrective Action (PCA) regulations.

Additionally, effective on July 30, 2021, the NCUA amended regulations to remove the prohibition on the capitalization of interest in connection with loan workouts and modifications. Please note this revision only impacts Federal Credit Unions as the North Dakota Administration rules still has this prohibition.

Finally, policy 2150 – signing authority, was revised to update terminology to be more inclusive for different credit union’s forms/processes.

Important note: All documentation related to this update can be found in the Resources area of CU PolicyPro (under Content Update Archives – August 2021).

Consumer Compliance Outlook – New Issue Published

The Federal Reserve has released the second issue of the Consumer Compliance Outlook for 2021. The first article is a greater refresher on Reg E and Z error resolution. Page 6 of the newsletter has a nice table that illustrates the Reg E error resolution coverage and notice requirements for EFTs.

The article discusses examiner insights and common violations and gives suggestions for enhancing compliance management related to EFT errors – in other words, review what others are doing wrong and make sure your credit union doesn’t have the same issues going on. Common violations discussed in the article include: failing to apply the limitations on liability properly; failure to promptly initiation an investigation; issues with provisional credit; not conducting a reasonable investigation; issues when denying claims; issues when correcting alleged errors; and issues with making investigations final.

The article also discusses Reg Z error resolution and includes more lovely tables on page 10 and 11 illustrating these requirements. In addition, the article discusses examiner concerns relating to Reg Z requirements and includes issues with late notices and receiving notices.

Another article to draw your attention to is “Error Resolution and Liability Limits for Prepaid Accounts and Foreign Remittance Transfers.” As you may recall, the CFPB issued rules in 2016 and 2018 relating to prepaid accounts. The prepaid account rule applies a modified version of Regulation E’s limits on the consumer’s liability for unauthorized transactions (§1005.6) and error resolution procedures (§1005.11) to certain prepaid accounts.

COPPA FAQs

The Federal Trade Commission (FTC) recently updated and streamlined the “Complying with COPPA: Frequently Asked Questions” which can be found here. The FTC has a number of other compliance resources on the topic which can be found here.

As a reminder, the regulation provides that “It shall be unlawful for any operator of a Web site or online service directed to children, or any operator that has actual knowledge that it is collecting or maintaining personal information from a child, to collect personal information from a child in a manner that violates the regulations prescribed under this part.” 16 CFR 312.3

In general, this rule requires that notice be provided on the Web site or online service of what information is collected from children, how it uses such information, and its disclosure practices for such information (§312.4(b)). Further, COPPA requires that verifiable parental consent is obtained prior to any collection, use, and/or disclosure of personal information from children (§312.5). A reasonable means must be provided for a parent to review the personal information collected from a child and to refuse to permit its further use or maintenance (§312.6). COPPA provides that a website cannot condition a child's participation in a game, the offering of a prize, or another activity on the child disclosing more personal information than is reasonably necessary to participate in such activity (§312.7). Finally, COPPA requires website operators to establish and maintain reasonable procedures to protect the confidentiality, security, and integrity of personal information collected from children (§312.8).

The revised FAQs incorporate guidance reflecting technologies like connected toys and the Internet of Things, the FTC’s Enforcement Policy Statement on COPPA and audio recordings, the YouTube case, the inMobi case, and new methods of verifiable parental consent approved by the FTC. FAQs also answered some questions FTC heard about age gates.

Violating COPPA can have significant consequences – a court can hold operators who violate the Rule liable for civil penalties of up to $43,792 per violation. The amount of civil penalties the FTC seeks or a court assesses may turn on a number of factors, including the egregiousness of the violations, whether the operator has previously violated the Rule, the number of children involved, the amount and type of personal information collected, how the information was used, whether it was shared with third parties, and the size of the company.

Therefore, take the opportunity to review these revised FAQs and other compliance material to make sure your website and other online services are being offered in line with COPPA requirements.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update

Wed, 04 Aug 2021 00:00:00 GMT

by Jay Kruse, Chief Advocacy Officer

Good Morning!

It’s another busy week in Washington, D.C. – at least for the Senate, with the House out on recess through the end of August. The Senate has begun action on bipartisan infrastructure legislation that was unveiled Sunday. As of Tuesday afternoon, Senators had filed nearly 300 amendments to the $1 trillion package that could come up for vote as early as this weekend. As you could guess members on both sides of the aisle are spending as much time on defense against concerning amendments as they are spending pushing for new amendments. While the legislation would provide hundreds of billions of dollars in infrastructure related funding for roads and bridges, passenger and freight rail, public transportation, and broadband upgrades, there is plenty of pork barrel spending with little or nothing to do with “infrastructure,” which is unfortunately quite typical in large spending packages like this.

Senate Banking Committee Hears from Regulators

On Tuesday, the Senate Banking, Housing and Urban Affairs Committee held a hearing entitled: "Oversight of Regulators: Does our Financial System Work for Everyone?" The witnesses testifying in front of the committee included: The Honorable Todd M. Harper, Chairman, National Credit Union Administration; The Honorable Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation; and Mr. Michael J. Hsu, Acting Comptroller, Office of the Comptroller of the Currency.

DakCU did submit a few questions to Senator Rounds (R-SD) in anticipation of the hearing which included:

“Chairman Harper, in your view, did NCUA have all the tools it needed to help credit unions navigate the impact this crisis had on their financials and, importantly, their members’ financial well-being? What should Congress do to ensure that the agency has appropriate tools in its toolbelt for the next crisis?”

FOLLOW-UP: “Credit unions entered the crisis very well capitalized but they have experienced downward pressure on their capital as a result of the economic impact payments sent to Americans, slower than normal loan growth, and faster than normal deposit growth. The Federal Credit Union Act is very prescriptive that NCUA must make a credit union take prompt corrective action if their net worth ratio drops below 5%. Would you support legislation that gives NCUA flexibility to forbear prompt corrective action on a case-by-case basis for otherwise health credit unions negatively impacted by a federally declared disaster or emergency?”

In-Person Fall Hike the Hill Cancelled

I have some disheartening news to report today as well. Unfortunately, due to the direction the COVID-19 pandemic is trending in response to the Delta variant, especially in the D.C. area, and the newest restrictions put in place for travel and meetings, we have made the difficult decision to cancel our in-person Fall Regulatory/Legislative Hike the Hill event that was scheduled for September 14 – 15.

We want to ensure we are being good stewards of everyone’s resources and provide the best value proposition to our attendees. We are also questioning what legislators’ availability may look like in September with the recent COVID diagnosis of ranking and vaccinated GOP Sen. Lindsey Graham (R-SC) earlier this week. Therefore, we believe it is in everyone’s best interest to pivot and make some changes to this event to ensure we are able to host the most effective and meaningful meetings with both regulators and our congressional delegation.

The NCUA and CFPB meetings will all be converted to virtual events, and we will follow up very shortly with details regarding how to register and join these meetings. The congressional meetings will be postponed to potentially late October or November. However, we are also exploring the possibility of conducting these meetings in-district.

While we were looking forward to getting back to conducting in-person meetings with our industry partners in Washington, we are excited for the opportunity to once again open attendance up to these virtual regulatory meetings to all DakCU members. We appreciate your continuing support of our regulatory and legislative advocacy efforts.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance

Fri, 30 Jul 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Interchange Proposed Rulemaking – Submit Your Comments Now

CUNA has posted a sample comment letter in their Grassroots Action Center to provide credit unions with an easy tool to send in their comments, which can be found here.

Feel free to add any details specific to your credit union to supplement the sample comment letter. However, please do not change the Subject Line of the sample comment letter as the Federal Reserve Board is very particular about what needs to be included – we want your comment letter received and reviewed.

As a reminder, the Federal Reserve Board (Board) issued a proposed rule regarding Regulation II (Debit Card Interchange Fees and Routing) to “clarify” that debit card issuers should enable, and allow merchants to choose from, at least two unaffiliated networks for card-not-present debit card transactions, such as online purchases. The Board considers this a “clarification” but when you really into the details this would be a substantive change for debit card issuers.

The proposed rule can be found here, and comments must be received by August 11, 2021 (deadline was extended to allow for more data collection and responses).

As many will recall, the Board issued their final rule in July 2011 regarding prohibitions on network exclusivity and routing restrictions for debit cards as required by the Dodd-Frank Act. Regulation II requires that merchants or their acquirers can choose from at least two unaffiliated networks when routing debit card transactions.

At the time of the 2011 final rule, for card-not-present transactions, such as online purchases, the market had not developed solutions to broadly support multiple networks over which merchants could choose to route those transactions. The Board has found that currently merchants are often not able to choose from at least two unaffiliated networks when routing card-not-present transactions.

Therefore, the Board is proposing revisions to the commentary to Regulation II that will require the applicability of the prohibition on network exclusivity to card-not-present transactions. These proposed revisions to the commentary will direct that card-not-present transactions are a particular type of transaction for which two unaffiliated payment card networks must be available.

Also, the Board is proposing changes to “clarify” the responsibility of the debit card issuer in ensuring that at least two unaffiliated networks have been enabled to comply with the regulation’s prohibition on network exclusivity. In other words, the rule will place the burden on the issuer in configuring its debit cards to ensure that at least two unaffiliated networks have been enabled to comply with the regulation’s prohibition on network exclusivity.

Regulation II with the proposed amendments would provide that an issuer satisfies the regulation’s prohibition on network exclusivity only if, for every particular type of transaction (as well as every geographic area, specific merchant, and particular type of merchant) for which the issuer’s debit card can be used to process an electronic debit transaction, the issuer has enabled at least two unaffiliated payment card networks to process the transaction.

The proposed changes do not affect other parts of Regulation II that directly address interchange fees for certain electronic debit transactions, however, the Board notes that it may propose additional revisions in the future.

NCUA RFI & Comment

At the National Credit Union Administration’s (NCUA) recent meeting, the Board approved a notice and request for information and comment regarding digital assets and related technologies. This Request for Information and Comment can be found here and comments must be received within 60 days.

DeFi is the broad category of applications adopting peer-to-peer networks, DLT, and related uses, such as smart contracts, to create digital assets like cryptocurrency and crypto-assets, clearing and settlement systems, identity management systems, and record retention systems.

Military Lending Act

A fun new compliance resource to add your toolbox was recently released by the CFPB: A Military Lending Act Applicability flow chart which can be found here. But wait there’s more! Not only is there a flow chart, but also a checklist for (most) violations. I am kind of a geek for compliance tools, and this gives a nice visual/Q&A process to determine if MLA is triggered. Happy compliancing!

InfoSight Content Updates

New RISK Alerts are now available from CUNA Mutual Group and are found on the Resources area.

Scams Target Victims Via Text or Email Appearing to Be from State Agencies (7/13/2021)

Automated Teller Machine "Smash and Grab" Attacks on the Rise (7/6/2021)

Transaction Reversal Fraud Targets ATMs (7/6/2021)

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update

Wed, 28 Jul 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

If you have been paying attention to The Memo and your emails over the last few weeks you are well aware of the multiple advocacy efforts taking place to combat retailers attempts to avoid accepting responsibility for losses due to fraud and theft, by capping or reducing interchange fees charged by financial institutions or card issuers. Interchange regulation and caps are nothing more than government price controls, where legislation sets the fees that one private industry can charge another industry. Many retailers and other interchange opponents focus on the cost of electronic payments while ignoring the convenience they provide, and the problems related to only accepting cash payments. Electronic payments are safer, more efficient, and lead to customers spending more money.

Legislators are actively discussing the possibility of changes to credit interchange in addition to the proposed changes to debit card routing requirements, also known as Regulation II, by the Federal Reserve. Legislation will not solve the interchange dispute as evidenced by the continuing fight over Senator Durbin’s (D-IL) debit price controls which were controversially passed by Congress in 2010. But will retailers be happy until interchange is at zero?

The proposed changes in Reg II and the yet-to-be released legislation could lead to a sizeable decrease in interchange income combined with increased compliance costs which could have a considerable effect on credit unions’ net income and their members spending power. Quantifying the costs and return on credit card programs and understanding the impact of potential regulations on credit unions and their members is critical to our proactive advocacy efforts.

We have requested and urged all DakCU members to participate in a CUNA led survey, sharing their interchange related data, that will be kept confidential and shared in aggregate with Congress and leveraged during our Fall Hike the Hill. We definitely understand that this request will likely require some additional work for you to collect this important data from your systems, and we appreciate your willingness to put in some extra time to protect your members and their credit union. Begin the Survey.

We also have an active “Call to Action” regarding the Fed’s proposed changes to Reg II, asking members to reach out to the Fed expressing their concerns over the central bank’s proposal, which aims to place additional limitations on payment card network restrictions. While the Fed Board asserts that these proposed amendments are merely “clarifications,” we strongly disagree. We believe the changes are extremely substantive, and if finalized, will result in significant additional regulatory burdens being placed on credit unions and other financial institutions. This “Call to Action” posted in CUNA’s Grassroots Action Center includes a sample comment letter to provide credit unions with an easy tool to send in their comments.

It is highly recommended to add any details specific to your credit union to supplement the talking points contained in the letter. However, please do not change the Subject Line of the sample as the Federal Reserve Board is very particular about what needs to be included, and we want your comment letter received and reviewed. Finally, be sure to check out Amy Kleinschmit’s Friday Memo article for more in-depth details on this proposal and subsequent “Call to Action.” Please help us by reaching out to the Federal Reserve Board here: Call to Action!

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 23 Jul 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Risk Based Capital

At their recent meeting, the National Credit Union Administration (NCUA) Board issued a proposed rule to provide a simplified measure of capital adequacy for federally insured, natural-person credit unions classified as complex (those with total assets greater than $500 million). This proposed rule can be found here and is open for a 60-day comment period.

As a reminder RBC is scheduled to become effective January 1, 2022.

As explained by the NCUA – “This proposed rule would primarily provide a simple measure of capital adequacy for credit unions classified as complex based on the principles of the community bank leverage ratio (CBLR) framework. The complex credit union leverage ratio (CCULR) would relieve complex credit unions that satisfy specified qualifying criteria from having to calculate the risk-based capital ratio. In exchange, the credit union would be required to maintain a higher net worth ratio than is otherwise required for the well-capitalized classification for risk-based capital purposes. This is a similar trade-off to the decision qualifying community banks make under the CBLR. After the initial phase in period, a qualifying complex credit union that has a net worth ratio of 10 percent or greater will be eligible to opt into the CCULR framework.”

In general, the qualifying criteria that a complex (over $500 million) credit union would need to meet include:

(1) Has a CCULR (net worth) of 10 percent or greater, subject to an initial transition period;

(2) Has total off-balance sheet exposures of 25 percent or less of its total assets;

(3) Has the sum of total trading assets and total trading liabilities of five percent or less of its total assets; and

(4) Has the sum of total goodwill, including goodwill that meets the definition of excluded goodwill, and total other intangible assets, including intangible assets that meet the definition of excluded other intangible assets, of two percent or less of its total assets.

Among the items the NCUA is seeking comment on includes these qualifying criteria. What are the advantages and disadvantages of each qualifying criterion? What is the burden associated with determining whether a complex credit union meets the proposed qualifying criteria? What other criteria, if any, should the Board consider in the proposed definition?

The proposed rule would also make several amendments to update the NCUA’s October 29, 2015, risk-based capital final rule, including addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, deducting certain mortgage servicing assets from a complex credit union’s risk-based capital numerator, updating several derivative-related definitions, and clarifying the definition of a consumer loan.

Money Smart for Older Adults

The Consumer Financial Protection Bureau (CFPB) recently announced that it has released an enhanced version of the financial education curriculum – Money Smart for Older Adults. The enhanced version includes a new section to help people avoid “romance scams” and an updated resource guide.

Money Smart for Older Adults is a free curriculum that includes an instructor guide with presentation content, speaker tips, hands-on activities, presentation slides, and a resource guide for participants. The resource guide can also serve as a stand-alone handout for distribution to libraries, senior centers, senior housing centers, and at senior information fairs and other events. All materials are provided free of charge and can be ordered in bulk for community-wide distribution.

Find all the material and directions on how to order this material at the above link.

Beware of Romance Scams

Earlier this year the Federal Trade Commission (FTC) released data on scams in 2020, which can be found here. In 2020, reported losses to romance scams reached a record $304 million, up about 50 percent from 2019, as reported by the FTC. As discussed in the FTC article, increased use of online dating sites/apps and social media have contributed to this increase. “While many people report losing money on romance scams that start on dating apps, even more say they were targeted on social media. These social media users aren’t always looking for love, and report that the scam often starts with an unexpected friend request or message.”

The common theme with all these scams – money. “What many of the largest reported dollar losses have in common is that people believe their new partner has actually sent them a large sum of money. Scammers claim to have sent money for a cooked-up reason, and then have a detailed story about why the money needs to be sent back to them or on to someone else. People think they’re helping someone they care about, but they may actually be laundering stolen funds. In fact, many reported that the money they received and forwarded on turned out to be stolen unemployment benefits.”

Protect your members and their money with education.

*Never send money or gifts to someone you haven’t met in person – even if they send you money first.

*Talk to someone you trust about this new love interest. It can be easy to miss things that don’t add up. So pay attention if your friends or family are concerned.

*Take it slowly. Ask questions and look for inconsistent answers.

*Try a reverse-image search of the profile pictures. If they’re associated with another name or with details that don’t match up, it’s a scam.

The link ftc.gov/romancescams has a lot of resources that your credit union can use to help educate members about these scams. From the lies romance scammers tell and how to avoid losing money, to how to detect a romance scammer. Online love interest has asked for money = scam!

NACHA - Unemployment Benefits Return Opt-In Program

NACHA has announced the creation of an Opt-In Program to better facilitate the return and recovery of potentially fraudulent unemployment benefits originally paid by ACH credits (i.e., Direct Deposit), including partial amounts. This announcement and the instructions for participating in this program can be found here.

The program allows for a Participating RDFI to send funds back to a state unemployment agency via a “Program Return” for less than the amount of the original ACH credit (partial amount); or also for the full amount of the original entry. Program Returns are treated as an ODFI Request for Return under the Nacha Rules, in which the ODFI indemnifies the RDFI for the return of funds. Program Returns (CCD and R06), in accordance with Program Rules, may be sent for two years after the settlement date of the original ACH credit.

Procedural Notice on PPP Guarantee Purchases and Charge-Offs

The Small Business Administration has issued Procedural Notice 5000-812316, "PPP Guaranty Purchases, Charge-Offs, and Lender Servicing Responsibilities," on how lenders can apply to have SBA purchase and charge off Paycheck Protection Program loans for which the borrower has not applied for forgiveness or made payment on the loan. The notice became effective July 15, 2021 and expires July 1, 2022.

Happy Birthday CFPB

Ten years ago on July 21, the Consumer Financial Protection Bureau (CFPB) opened. The CFPB announced the occasion and provided some stats on what they have accomplished including fielding 3.1 million consumer complaints. The CFPB has also ordered that $1.7 billion be paid in civil penalties as a result of CFPB enforcement work. $692 million in consumer relief was ordered as a result of fair lending enforcement and supervisory actions, per the CFPB.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update

Wed, 21 Jul 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning!

Both the House and Senate are back in session in Washington this week with legislators beginning consideration of infrastructure legislation and possible changes to credit interchange. Over the last few weeks there has been hope that democrat and republican negotiations are heading closer to a compromise regarding an infrastructure plan. However, we could be looking at a potential hiccup in the process today as Senate Majority Leader Schumer plans a procedural vote on the legislation even though the bill’s final text has yet to be released. This forced vote on legislation that doesn’t yet exist is sure to cause some angst with republicans, which will most likely be the reason the vote fails to receive the required 60 senators needed for passage.

Have you filled out your Interchange Survey?

Discussions are still occurring behind the scenes between legislator and interested parties regarding potential changes to credit interchange. We believe the potential changes which could result in additional interchange caps will have a huge effect on credit union profitability and the ability to effectively serve members. However, we need your help to aggregate interchange related data not included on the call report. Quantifying the costs and return on credit card programs and understanding the impact of potential regulations on credit unions and their members is critical to our urgent and proactive advocacy efforts.

I know this is very sensitive information, but all data will be kept confidential and only reported in the aggregate as we continue our discussions with Senator Cramer (ND-R) who is considering cosponsoring this legislation. We will also hope to utilize and leverage this survey data during our Fall Legislative/Regulatory Hike the Hill taking place in Washington DC this September. Thank you in advance for your cooperation and support!

Adverse Market Refinance Fee Eliminated

Late last week, “to help families reduce their housing costs,” the Federal Housing Agency (FHFA) announced the elimination of the Adverse Market Refinance Fee charged by Fannie Mae and Freddie Mac. If we jump in the time machine back to August 2020, DakCU along with other industry advocates pointed out the detrimental effects Fannie Mae and Freddie Mac’s new .5% Adverse Market Refinance Fee would have on both borrowers and financial institutions in the Dakotas as they tried to navigate their way through the nationwide pandemic.

Also back in August 2020, we pointed out that both consumers and financial institutions felt blindsided by the decision and Senator Rounds (R-SD) led a congressional sign-on letter to FHFA Director Calabria reinforcing our concerns, which the rest of the Dakota congressional delegation also joined in on. The 50 basis point fee will be eliminated beginning with loan deliveries effective August 1, 2021. DakCU applauds the FHFA for acknowledging the need to eliminate this fee which will help to reduce the cost of credit to consumers.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 16 Jul 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Interchange Proposed Rulemaking

As previously brought to your attention, the Federal Reserve Board (Board) issued a proposed rule regarding Regulation II (Debit Card Interchange Fees and Routing) to “clarify” that debit card issuers should enable and allow merchants to choose from at least two unaffiliated networks for card-not-present debit card transactions, such as online purchases. The Board considers this a “clarification” but when you really into the details this would be a substantive change for debit card issuers.

The Board also issued a biennial report summarizing information on debit card transactions in 2019 which can be found here.

The proposed rule can be found here, and comments must be received by August 11, 2021. (The deadline was extended to allow for more data collection and responses.)

NCUA Request for Comment - NOL

The National Credit Union Administration (NCUA) is seeking feedback on its policy for setting the Normal Operations Level (NOL). The request for comment can be found here and comments must be received by July 26, 2021.

Normal operating level means an equity ratio not less than 1.2 percent and not more than 1.5 percent, as established by action of the NCUA Board. As explained in the discussion of the request for comments, “the current economic landscape and pending events related to the corporate asset management estates and NGN Program warrant a re-evaluation of the current Normal Operating Level policy. The current policy objectives include ensuring the Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.2 percent over a five-year period. The economic conditions posed by the pandemic, including industry-wide, unprecedented share growth resulted in an equity ratio of 1.26 percent as of December 31, 2020. These issues have forced the NCUA to consider the ongoing feasibility of using a moderate recession and a five year performance period as the basis for stressing the equity needs of the Insurance Fund.”

The NCUA proposed nine questions in its request for comment, however, it is also encouraging comments on any other relevant issues that the NCUA Board should consider.

A few of the proposed questions include –

Should a moderate recession be the basis for evaluating the Insurance Fund performance during an economic downturn, or should the NCUA change the policy to consider a severe recession?

What data source(s) should the NCUA use for determining the characteristics of a potential moderate or severe recession - the Federal Reserve scenario, an independent source, or the NCUA’s judgment?

Should the NCUA continue modeling the performance of the Insurance Fund over a five year period or a longer or shorter period?

How should the NCUA utilize the modeled potential decline in value of the Insurance Fund’s claims on the corporate asset management estates going forward until the estates are fully resolved?

FREE Webinar

As part of Military Consumer Month, the National Credit Union Administration is partnering with the Consumer Financial Protection Bureau and the Federal Trade Commission to raise awareness on important consumer financial protection issues related to servicemembers and their families during a webinar that will take place on July 28, beginning at 2 p.m. Eastern.

Staff from the NCUA’s Office of Consumer Financial Protection, the CFPB, and FTC will highlight federal resources that help servicemembers, veterans, and their families manage their finances and shield themselves against frauds and scams. Registration for this 45-minute event is now open.

OFAC: Do Not Forget Your Blocked Property Report

OFAC has posted Guidance on Filing the Annual Report of Blocked Property and emailed a reminder that holders of blocked property under OFAC regulations must provide OFAC a comprehensive list of all blocked property held as of June 30 of the current year by September 30 of each year. Persons that do not hold blocked property as of June 30 do not need to file an Annual Report of Blocked Property (ARBP).

As always, feel free to contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update with Jay Kruse

Wed, 07 Jul 2021 00:00:00 GMT

Good Morning!

I hope everyone had a great 4th of July, waving the red, white, and blue loud and proud! There seems to be a growing trend of congressional lawmakers and others on social media to attack America and focus on the more negative parts of our country’s history. The truth is, this country is not perfect, but in our quest for perfection we continue to evolve and continue to serve as a model of freedom for the rest of the world. Thousands of people risk their lives every day to get into the United States in search of freedom and human rights. I’m proud to be an American and believe we live in the greatest country in human history!

Recess in Washington

Both the House and Senate are in recess this week allowing legislators to return home for the 4th of July holiday and an in-district work period. The Senate will be back in session next week and the House will return for committee work. Keep an eye out for one of our members of congress in a city near you as they tour the state during this in-district work period.

Midwestern Legislative Conference

Next week, Rapid City, South Dakota will be hosting the Council of State Governments (CSG) Midwestern Legislative Conference which will be celebrating its 75th year. I will be in attendance along with hundreds of legislators and industry experts from North and South Dakota and our surrounding states.

According to their bio, CSG is the nation’s only nonpartisan association of state officials serving all three branches of government in all 50 states and the U.S. territories. CSG is a region-based, national organization that promotes excellence in state government. CSG fosters the interstate exchange of insights and ideas to help state officials shape public policy, and it offers unparalleled regional, national and international opportunities to network, develop leaders, collaborate and create problem-solving partnerships.

CSG Midwest focuses on meeting the needs of state policymakers and leaders in 11 Midwestern states: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin. In addition, the four Canadian provinces of Alberta, Manitoba, Ontario and Saskatchewan are also members or affiliate members of CSG Midwest’s Midwestern Legislative Conference.

During this four-day conference, presenters will cover a wide range of topics ranging from education to economic development, including keynote and breakout sessions focusing on “post pandemic challenges.” I look forward talking about the good work we continue to do in our local communities while representing North and South Dakota credit unions at this conference next week. You can find out more about the CSG Midwestern Legislative Conference here.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Wed, 30 Jun 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

NCUA 3rd Distribution

Earlier this week, the NCUA announced an $865.5 million distribution to the 1,800 membership capital account holders of the former Members United, Southwest Corporate, and U.S. Central corporate credit unions. Scheduled to occur before the end of September 2021, this is the third round of distribution from the former corporate credit unions’ asset management estates.

Information on the Corporate System Resolution Program, including projections for the Corporate Asset Management Estates Recoveries and Claims and the process for determining when distributions are made to member capital account holders, can be found on the NCUA’s website.

NCUA DEI Summit

The National Credit Union Administration (NCUA) announced it will be hosting credit union leaders, credit union trade and support organizations, and diversity and inclusion professionals during the NCUA’s second Diversity, Equity, and Inclusion (DEI) Summit. This FREE three-day event will take place virtually Nov. 2–4, 2021.

Chairman Harper, along with Vice Chairman Kyle Hauptman, Board Member Rodney Hood, and other prominent keynote speakers will address attendees. Summit topics include: How to Get Started in the DEI Journey; How to Increase Gender Diversity in the C-Suite; Facilitating Courageous Conversations Around Tough Topics; Diversity in the Boardroom; and Economic Equity and Justice.

HMDA Data

The FFIEC released the 2020 HMDA data reported by 4,475 U.S. financial institutions. Some quick stats – the total number of originated closed-end loans increased by about 5.3 million between 2019 and 2020, or 67.1 percent. Refinance originations for 1-4 family properties increased by 150.0 percent from 3.4 million, and home purchase lending increased by 6.7 percent from 4.5 million. A variety of reports with this data can be found here.

Additionally, the FFIEC recently announced the release of a HMDA Data Browser feature – the HMDA Maps tool. It allows those interested in exploring HMDA data to filter subsets by popular variables and display them in an illustrative format. Once users have displayed their desired data, they have the option to download the data as a CSV, copy and share the page URL, or save the summary report as a PDF. The HMDA Maps tool contains data for the years 2018, 2019, and the most recent, 2020 data. Find this new tool here.

CFPB Mortgage Servicing Rule

The Consumer Financial Protection Bureau (CFPB) issued their final rule revising Regulation X to provide for additional protections for borrowers affected by the COVID-19 pandemic. This final rule is effective on August 31, 2021. The CFPB provided an executive summary of the rule which can be found here.

Briefly, this final rule establishes temporary special COVID-19 procedural safeguards that must be met for certain mortgages before the servicer can make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process because of a delinquency. Also, the final rule permits servicers to offer certain streamlined loan modification options made available to borrowers with COVID-19-related hardships based on the evaluation of an incomplete loss mitigation application. The final rule amends the early intervention obligations to help ensure that servicers communicate timely and accurate information to borrowers about their loss mitigation options during the current crisis. Another revision under the final rule is to clarify servicers’ reasonable diligence obligations when the borrower is in a short-term payment forbearance program made available to a borrower experiencing a COVID-19-related hardship based on the evaluation of an incomplete application.

Finally, the final rule defines COVID-19-related hardship to mean a financial hardship due, directly or indirectly, to the national emergency for the COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on March 1, 2020) and continued on February 24, 2021, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C.1622(d)).

Of note, section 1024.41(f) prohibits a servicer from referring a borrower to foreclosure in several circumstances. Specifically, § 1024.41(f)(1) prohibits a servicer from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process (“first notice or filing” or “foreclosure referral”), unless the borrower’s mortgage loan obligation is more than 120 days delinquent, the foreclosure is based on a borrower’s violation of a due-on-sale clause, or the servicer is joining the foreclosure action of a superior or subordinate lienholder. (Reminder that 1024.41(f)(1) applies to small servicers.)

You may recall from the proposed rule, that the CFPB had proposed a special COVID-19 Emergency pre-foreclosure review period that generally would have prohibited servicers from making a first notice or filing because of a delinquency from the effective date of the rule until after December 31, 2021.

As explained in the preamble to the final rule, “the Bureau recognized that, if adopted as proposed, the special pre-foreclosure review period could have prevented a servicer from making the first notice or filing even in circumstances where additional time would merely delay rather than prevent avoidable foreclosure.”

Instead, the final rule adds § 1024.41(f)(3) which will temporarily provide a more tailored procedural protection to minimize avoidable foreclosures in light of a potential wave of loss mitigation-related default servicing activity during a period when borrowers are also likely to need extra assistance. Final § 1024.41(f)(3) does not apply to small servicers. This is because small servicers are exempt from the requirements in § 1024.41, except with respect to § 1024.41(f)(1). The final rule’s temporary procedural safeguards are in § 1024.41(f)(3) and not § 1024.41(f)(1).

Final § 1024.41(f)(3) generally requires a servicer to ensure that one of three temporary procedural safeguards has been met before making the first notice or filing because of a delinquency: (1) the borrower submitted a completed loss mitigation application and § 1024.41(f)(2) permits the servicer to make the first notice or filing; (2) the property securing the mortgage loan is abandoned under state law; or (3) the servicer has conducted specified outreach and the borrower is unresponsive. The temporary procedural safeguards are applicable only if (1) the borrower’s mortgage loan obligation became more than 120 days delinquent on or after March 1, 2020; and (2) the statute of limitations applicable to the foreclosure action being taken in the laws of the State where the property securing the mortgage loan is located expires on or after January 1, 2022.

CU Policy Pro Updates

The June 2021 Content Update is now available. These changes include 17 policy updates and the consolidation of several optional policies related to Credit Union Culture. Please note that all documentation related to this update can be found in the Resources area of CU PolicyPro (under Content Update Archives > June 2021).

Using the Update Overview document along with the tracked-changes information, review the changes and for each policy decide if you want to:

Do nothing and leave your policy as is (usually only if the update does not apply to your credit union, or you are not currently using the policy)

Remove the policy from your CU Policies Manual and bring in the updated policy in its entirety (usually if your CU Policies Manual version has little or no customization, or if our updates were very extensive and it would be easier to start with the updated content and re-customize for your credit union)

Use the redlined version as a guide and manually incorporate the updates into your CU Policies Manual version (usually if the updates were very minor, or if your CU Policies Manual version is heavily customized and it would be less work to manually add the updates rather than re-customize the policy).

A brief summary of the impacted policies is listed below.

Policy 1100 – Credit Union Culture (**new title**). This policy was updated to include Policy 1110, Policy 1120, Policy 1130 and Policy 1140. Wording was revised to be more inclusive of all these parts of the credit union’s culture. Key fields remain relevant and in place.

Policy 1110 – Mission Statement (*DELETED*) This policy was deleted, and the key field incorporated within Policy 1100.

Policy 1120 – Vision Statement (*DELETED*) This policy was deleted, and the key field incorporated within Policy 1100.

Policy 1130 – Credit Union Values (*DELETED*) This policy was deleted, and the key field incorporated within Policy 1100.

Policy 1140 – Credit Union History (*DELETED*) This policy was deleted, and the key field incorporated within Policy 1100.

Policy 1170 – Equal Opportunity Statement. This policy was updated to be more comprehensive and in-line with current industry standards.

Policy 1200 – Organization. This policy was reviewed and updated to reference other governance documents that the Credit Union Board may maintain.

Policy 2110 – BSA AML Program. Policy 2110 was updated to change the FinCEN website link that was used to determine whether an MSB has registered appropriately. The new website is: https://www.fincen.gov/msb-registrant-search. (Required)

Policy 2112 – Bank Secrecy Act: Servicing Marijuana-Related Accounts. Minor change was made to this policy to clarify that the credit union will comply with “All applicable Federal laws.” This change was suggested based on examiner scrutiny. The policy also added references to the accounts and “services” the Credit Union will offer.

Policy 2310 – Telephone Inquiries (**new title**). This policy was revised to amend terminology and provide clarification on escalation and reporting.

Policy 2605 – International Remittance Transfers. Clarity was added to the Estimates section under section B regarding which specific amounts on the prepayment disclosure can be estimated based on the particular scenario mentioned.

Policy 4120 – Information Security. This policy was updated to add content regarding threat intelligence and information sharing. The update is intended to meet examiner expectations regarding credit unions who share information through federally sponsored organizations.

Policy 4125 – Incident Response. This policy was also updated to add content regarding threat intelligence and information sharing. The update is intended to meet examiner expectations regarding credit unions who share information through federally sponsored organizations.

Policy 5205 – Small Asset Liquidity Risk Management. Updated to provide clarity on the credit unions who should be utilizing this policy (under $50 million). In addition, Section references were corrected.

Policy 6215 – Derivative Transactions (**new title**) This policy was updated to reflect the most recent changes to the NCUA regulation in Part 703. Significant changes were made to the policy to comply with the amendments. (Required if Offered)

Policy 7302 – Real Estate Appraisals. This policy was updated to remove the reference to the rural exemption since it is no longer needed with the threshold increase for appraisals moved to $400,000. The policy was also updated to cross-reference different applicable areas within the policy and to generally strengthen content and remove commentary language.

Policy 7303 – Real Estate Appraisals – Appendices. Similar to the above, this policy was updated to remove the reference to the rural exemption since it is no longer needed with the threshold increase for appraisals moved to $400,000. Clarification was also added to clarify these appendices as a tool to be used in conjunction with Policy 7302 for an effective program.

Policy 7320 – Home Equity Loans. This policy was updated to remove duplicative content and reference the applicable policy (appraisals) and add consistent terminology across other policies.

Policy 7330 – Residential Real Estate Loans. This policy has been revised to capture the expanded exemption for establishing escrow accounts for higher-priced mortgage loans that became effective on February 12, 2021. The policy was also revised to cross reference additional policies, be clearer on the determination of “value” and corresponding LTV limits, and to better place the consideration and requirements for Private Mortgage Insurance (PMI). Additional notes: Key Field 7330-8 has been removed from this policy because it is duplicative. Instead, Key Field 7320-11 has been added to this policy - It is also used in Policy 7320, Home Equity Loans, so this Key Field may already be defined for your credit union. An additional instance of Key Field 7330-14 has been added to this policy.

Policy 7362 – Temporary Policy for Loan Modifications and Reporting due to COVID-19. This policy was amended to reflect the expiration date of two COVID concessions from the CFPB. Statements previously issued by the CFPB covering these accommodations were rescinded effective on April 1, 2021. One provision related to forbearance will expire on June 30, 2021. At that time, it will be up to the credit union to consider retiring this policy.

Policy 9420 – Regulation D: Monetary Control Act. Policy 9420 was updated to reflect the Federal Reserve Board’s reporting changes which ended the quarterly collection of the FR 2900 effective on January 1, 2021 and reduced the number of items collected weekly from 12 to 5, effective for the report as-of-date April 12, 2021.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update

Wed, 30 Jun 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning!

It was great seeing many of you last week at the SE605 Annual Charity Golf Tournament in Sioux Falls! We were blessed with some great weather and were able to raise over $10,000 once again this year for some great causes. The generosity of our Dakotas credit union professionals and industry partners who help sponsor this great event never cease to amaze me. Also, a big shout out to Joey Rotert, Sioux Falls FCU, and Tim Ingalls, CU Mortgage Direct, for all their hard work and dedication in putting together such a great tournament every year!

Don’t miss out on our next credit union charity golf event being sponsored by your Dakota Credit Union Foundation taking place August 26th at Apple Creek Country Club in Bismarck, ND! This event is being held in conjunction with our 2021 Dakota Credit Union Professionals Forum and Nussle Town Hall Meeting. We hope you are all able to join us for some meetings and some fun!

Washington DC

The Senate is back in-district on recess this week, however the House Financial Service Committee did hold a markup on one bill of interest to credit unions earlier this week. H.R. 3958, the Central Liquidity Facility (CLF) Fairness Act, passed through committee 28-22. This legislation aims to protect credit unions from unexpected liquidity issues by making some changes included in the CARES Act permanent:

Increasing the CLF’s borrowing authority to 16 times the capital paid in (up from 12 times), meaning that, for every $1 of capital and surplus, the CLF can now borrow $16.

Making it easier for credit unions to join the CLF through their corporate credit union. These enhancements were originally set to expire in December 2020 but were extended through the end of 2021 through the Consolidated Appropriations Act of 2021.

Let the Annual Appropriation Process Begin

In his budget request for Fiscal Year 2022, President Biden included $320 million for the Community Development Financial Institutions (CDFI) Fund and $2 million for the Community Development Revolving Loan Fund (CDRLF). The CDFI Fund makes capital grants, equity investments and provides technical assistance to CDFIs. The CDRLF funds revolving loan and technical assistance programs aimed to assist credit unions serving low-income communities.

CUNA recently wrote to the Senate Appropriations Subcommittee in strong support of the President’s budget requests. This will something we will be clearly advocating for during our upcoming Fall Legislative/Regulatory Hike the Hill in Washington DC taking place in early September. This is just the beginning of the appropriation process which will continue over the next few months. Stay tuned for more details.

June Economic Update Released

CUNA’s Senior Economist, Jordan van Rijn, just introduced June’s Economic Update video answering a few valuable questions as credit unions attempt to help members rebound from the COVID-19 pandemic, such as: What explains the recent disappointing job creation figures? Will credit union portfolio quality continue to perform well? Should we expect the first quarter jump in earnings to continue? You can check out the June CUNA Economic Update here.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 25 Jun 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

NCUA Board Meeting

The National Credit Union Administration (NCUA) met yesterday and approved two final rules and extended the 18 percent interest rate ceiling for loans made by federal credit unions for a new eighteen-month period from September 11, 2021, through March 10, 2023.

One of the final rules the NCUA approved was to remove the prohibition on the capitalization of interest in connection with loan workouts and modifications. This final rule can be found here and is effective 30 days after it is published in the federal register. 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 final rule added policy requirements should a credit union permit capitalization of unpaid interest. The policy must require:

The final rule added policy requirements should a credit union permit capitalization of unpaid interest. Among the policy requirements include, compliance with all applicable federal and state consumer protection laws and regulations and 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. The policy must also require the credit union to provide borrowers with written disclosures. The credit union must appropriately report the loan status for modified loans in accordance with applicable law and accounting practices. Furthermore, 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.

Please note that North Dakota administrative rules continue to prohibit the capitalization of interest under 13-03-28-02(1)(e) for North Dakota state chartered credit unions.

CECL

The NCUA also approved a final rule, found here, to assist with transition of federally insured credit unions (FICUs) to the current expected credit loss (CECL) methodology required under Generally Accepted Accounting Principles (GAAP). This rule is effective 30 days after it is published in the federal register.

The final rule adds a new subpart G to the PCA regulations in 12 CFR part 702, captioned “CECL Transition Provisions.” New subpart G applies to FICUs that meet the eligibility criteria specified in the final rule. Notwithstanding the CECL transition provisions, all other aspects of part 702 would continue to apply.

The final rule provides that, for purposes of determining a FICU’s net worth classification under the prompt corrective action (PCA) regulations, the NCUA will phase in the day-one adverse effects on regulatory capital that may result from adoption of CECL.

FICUs that have not adopted CECL prior to their first fiscal year beginning after December 15, 2022 (the implementation date established by FASB) are eligible for the phase-in. Furthermore, the NCUA notes that eligibility for the transition provision is limited to those FICUs for which the phase-in is truly necessary—that is, they will experience a reduction in retained earnings as a result of CECL.

BSA/AML Examination Manual Updates

The Federal Financial Institutions Examination Council (FFIEC) recently released updates to four more sections of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual (Manual).

As you may recall updates were previously made in April 2020 and February 2021. Among these prior updates were revised content in the Customer Identification Program, Currency Transaction Reporting, and Transactions of Exempt Persons sections under Assessing Compliance with BSA Regulatory Requirements.

The recent updates relate to revised content in the Purchase and Sale of Monetary Instruments Recordkeeping, Special Measures, Reports of Foreign Financial Accounts, and International Transportation of Currency or Monetary Instruments Reporting sections under Assessing Compliance with BSA Regulatory Requirements.

The revisions were made to ensure language clearly distinguishes between mandatory regulatory requirements and considerations set forth in guidance or supervisory expectations. Further, the revisions incorporate regulatory and other changes since the last update of the Manual in 2014. These updated sections provide further transparency into the BSA/AML examination process and do not establish new requirements. The FFIEC revised the sections in close collaboration with Treasury’s Financial Crimes Enforcement Network (FinCEN).

CFPB and MLA

Consumer Financial Protection Bureau (CFPB) recently issued an Interpretative Rule on its authority to resume examinations regarding the Military Lending Act (MLA).

As some credit unions may recall, the CFPB had previously discontinued MLA-related examination activities, based on its stated belief that Congress did not specifically confer examination authority on the CFPB with respect to the MLA.

As stated in the press release, the current CFPB leadership does not find those prior beliefs persuasive and the CFPB will now resume MLA-related examination activities.

NACHA FAQs – Returning PPP ACH credit

NACHA recently updated its FAQs to include guidance on returning a suspected fraudulent PPP ACH credit.

Question: If an RDFI is returning a Paycheck Protection Program (PPP) ACH credit entry because the RDFI believes the entry is fraudulent, what Return Reason Code should the RDFI use?

Answer: If an RDFI makes the decision to return an ACH credit entry related to the Paycheck Protection Program because the RDFI believes the entry was initiated due to fraud, the RDFI should select the Return Reason Code that most closely approximates the reason for the return. In this scenario, Return Reason Code R03 (No Account/Unable to Locate Account), R17 (File Record Edit Criteria/Entry with Invalid Account Number Initiated Under Questionable Circumstances), or R23 (Credit Entry Refused by Receiver) may be acceptable options. Please note that this use of R17 requires “QUESTIONABLE” to be inserted in the first twelve positions of the Addenda Record. RDFIs can make a business decision to return these credit entries outside of the standard return timeframe. Due to the circumstances and the lenders’ desire to recoup the funds, it is unlikely that the return of credits will be dishonored as untimely.

Contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update

Wed, 23 Jun 2021 00:00:00 GMT

Good Morning!

I hope everyone is having a great week and enjoying a little break from the recent extreme heat. I just returned from a quick trip to Bismarck after spending some time visiting some credit unions and rubbing shoulders with North Dakota legislators and lobbyists at a fundraising event benefitting the ND House GOP. Tomorrow we will be teeing off at Elmwood Golf Course in Sioux Falls for the SE605 Chapter’s Annual Charity Golf Tournament, and with 94 golfers registered, I look forward to seeing many of you there!

Are You Ready?

In Washington neither the House or Senate will be considering any legislation of particular interest to credit unions this week, but work continues behind the scenes on some particularly concerning legislation that aims to lower or eliminate debit/credit card interchange fees. As Jeff Olson has been reporting over the last month in his President’s Perspective, retailers are urging Senator Cramer to support government-sponsored price controls on interchange fees.

Credit unions and banks are adamantly opposed to any efforts that would lower or eliminate debit card or credit card interchange fees. And as we witnessed back in 2010, government overreach in the form of price controls and caps on these fees only rewarded merchants. Data shows the billions of dollars in savings rewarded to retailers and merchants were never passed along to consumers as promised. Yet, here we are again, having a similar debate, but this time with a more unlikely source, in Senator Cramer, a member of the Republican Party which typically supports free market capitalism and opposes government overreach and price caps. Merchants seem to be taking advantage of the COVID shutdowns to distort the competitive landscape further by restricting credit union members' and consumers freedom to use the convenient, safe, affordable, and innovative payment options that they choose.

While legislation has yet to be officially introduced, now is the time to prepare and review your credit union’s interchange related data to determine the potential impact additional price caps could have on your membership and operations. This will also help you prepare for our future ACTION ALERTS that are already in the works!

Please keep an eye on The Memo, your email, and our Grassroots Action Center on the DakCU website for more information on how to participate in these very important ACTION ALERTS.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update with Amy K

Mon, 21 Jun 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

Juneteenth and “Business Day”

While the day has long been celebrated in many states for numerous years, this past weekend, America celebrated its first official national Juneteenth as the new federal holiday was signed into law on Thursday by President Biden.

The Juneteenth National Independence Day Act added “Juneteenth National Independence Day, June 19” to Section 6103(a) of title 5, United States Code, as a legal public holiday. As you are no doubt familiar, already on the list are: New Year’s Day, January 1; Birthday of Martin Luther King, Jr., the third Monday in January; Washington’s Birthday, the third Monday in February; Memorial Day, the last Monday in May; Independence Day, July 4; Labor Day, the first Monday in September; Columbus Day, the second Monday in October; Veterans Day, November 11; Thanksgiving Day, the fourth Thursday in November; and Christmas Day, December 25.

Regulation Z cross references Section 6103(a) of title 5, United States Code, in its definition of “business day.” As credit unions are more than aware, the meaning of “business day” is very important as the timing of various aspects of the lending process hinges on what is a “business day” per the regulation.

Regulation Z provides that business day means a day on which the creditor's offices are open to the public for carrying on substantially all its business functions.

However, for purposes of rescission, reverse mortgage disclosures, the TRID Loan Estimate and Closing Disclosures, Escrow account cancellation notice for certain mortgage transactions, disclosures for high cost mortgages; and disclosures for private education loans, the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. And, as of last Thursday Juneteenth National Independence Day.

Accordingly, without further action (such as amending Regulation Z), June 19 is no longer a “business day” for the purposes of the right of rescission, etc., detailed above. The Juneteenth National Independence Day is now the fifth federal legal holiday identified by a specific date as described in commentary below.

Regulation Z commentary to 1026.2(a)(6) details:

Rule for rescission, disclosures for certain mortgage transactions, and private education loans. A more precise rule for what is a business day (all calendar days except Sundays and the Federal legal holidays specified in 5 U.S.C. 6103(a)) applies when the right of rescission, the receipt of disclosures for certain dwelling- or real estate-secured mortgage transactions under §§ 1026.19(a)(1)(ii), 1026.19(a)(2), 1026.19(e)(1)(iii)(B), 1026.19(e)(1)(iv), 1026.19(e)(2)(i)(A), 1026.19(e)(4)(ii), 1026.19(f)(1)(ii), 1026.19(f)(1)(iii), 1026.20(e)(5), 1026.31(c), or the receipt of disclosures for private education loans under § 1026.46(d)(4) is involved. Four [now five] Federal legal holidays are identified in 5 U.S.C. 6103(a) by a specific date: New Year's Day, January 1; Juneteenth National Independence Day, June 19; Independence Day, July 4; Veterans Day, November 11; and Christmas Day, December 25. When one of these holidays (July 4, for example) falls on a Saturday, Federal offices and other entities might observe the holiday on the preceding Friday (July 3). In cases where the more precise rule applies, the observed holiday (in the example, July 3) is a business day.

Unfortunately, as of the writing of this article, the Consumer Financial Protection Bureau has not issued any guidance or provided any flexibility regarding implementation of this new federal holiday and its impact on lending. Concerns are high regarding the litigation risks and rescission rights when the regulatory timing requirements are not followed. Therefore, as emphasized above, remember that June 19 was no longer a “business day” for the purposes of the Regulation Z.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance Update with Amy K

Fri, 18 Jun 2021 00:00:00 GMT

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.

Legislative Update

Wed, 16 Jun 2021 00:00:00 GMT

Good Morning!

As the summer heats up, so do the events taking place across the Dakotas! We are less than a week away from the big SE605 Chapter of Credit Unions Annual Charity Golf Tournament – and there are nearly 90 golfers registered to participate – the highest turnout in the history of the event! I look forward to connecting with many of you next week in Sioux Falls. I will also be on the road next week to Bismarck to attend some political fundraisers and then then returning home through Fargo to make some credit union visits. Things are finally getting back to normal and I love it!

Advocacy Workshop Targeting Young Professionals

CUNA will be hosting a virtual advocacy training targeted and designed for young professionals, taking place August 4th-6th. Advocacy is vital in bettering the state of our credit unions, as raising voices means raising awareness. The program will teach future leaders about the benefits of advocacy; how to build strong relationships with members of Congress; best ways to use data and social media to tell their story; provide a review of CUNA’s political programs; and best practices for in-person or virtual district meetings with their state and federal lawmakers.

This three-day program will take place in the afternoons and includes guest speakers, congressional staff panel, and updates from CUNA and League personnel (like me) from states across the country. Here are all the details, including the link to register:

Date: Wednesday, August 4 – Friday, August 6th

Time: 12:00 pm – 3:00 pm CT

Cost: $199 for CUNA Members

Platform: Virtual program conducted on Zoom

DakCU Joins Sign-On Letter Supporting PCA Relief

DakCU has joined CUNA and other state leagues to sign on to a letter encouraging the NCUA Board to pursue additional Prompt Corrective Action (PCA) relief. We believe the NCUA lacks the statutory authority it truly needs to help credit unions with capital concerns caused by a public health crises or other emergency. The economic crisis caused by the recent pandemic and subsequent government economic assistance payments has and will continue to put stress on credit union capital and net worth ratios.

The letter reads, “We encouraged the Senate Banking Committee to include language to provide temporary flexibility to the NCUA to offer forbearance from PCA for credit unions impacted by the pandemic that were otherwise healthy prior to the onset of the crisis. While such language ultimately was not adopted, we believe it is critical that Congress provide the agency additional authority to adjust capital requirements or forbear prompt corrective action for credit unions impacted by the current crisis and future crises.”

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 11 Jun 2021 00:00:00 GMT

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.

Legislative Update with Jay Kruse

Wed, 09 Jun 2021 00:00:00 GMT

Good Morning!

The heat is on! I think it is safe to say summer is official here. I hope everyone is able to get away and use some vacation time to relax near some water or shade! While the weather is hot, work on financial issues in Washington DC this week is not. The House is in recess this week, but committee meetings will continue, and the Senate is focusing on Endless Frontier Act which deals with scientific technology and innovation.

This morning, I wanted to highlight a piece of legislation in the House entitled the Expanding Financial Access for Underserved Communities Act which is receiving strong industry support.

This Act provides a market-based solution to encourage credit unions to further serve underserved and abandoned communities and promote financial inclusion by making three changes to the Federal Credit Union Act.

Would allow all FCUs to add underserved areas to their field of membership (FOM). Currently only multiple common bond credit unions can do this.

Exempts business loans made to businesses in low-income areas from the member business lending cap.

Expands the definition of “underserved area” to include any area more than 10 miles away from the nearest financial institution branch.

Credit unions have proven their commitment to expanding financial access in these underserved communities by adding more than 1,400 since 2004, while during this same time period 7,000 bank branches were closed nationally. A decrease in access to branches has been shown to harm local businesses, residents, and consumers due to reduced access to credit and affordable loan interest rates.

This legislation has a long road ahead before it makes to the finish line, but we believe this is a great first step to expanding financial access and eliminating banking deserts to help the country successfully emerge from the recent pandemic.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update with Amy K

Fri, 04 Jun 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

ACH Rules Effective June 30

Two NACHA rules are effective at the end of the month which relate to warranty claims and reversals. With regard to warranty claims, NACHA’s final rule will limit the length of time in which an RDFI will be permitted to make a claim against the ODFI’s authorization warranty. More information, including FAQs, can be found here. Note that the effective date applies to an RDFI’s ability to make a claim, and not to the settlement dates of entries.

NACHA’s reversal final rule, which can be found here addresses improper uses of reversals and establishes formatting requirements for reversals. It also expands the permissible reasons for a reversal to include a “wrong date” error: 1) the reversal of a debit Entry that was for a date earlier than intended by the Originator; or 2) a credit Entry that was for a date later than intended by the Originator.

NCUA Request for Comment - NOL

The NCUA proposed nine questions in its request for comment, however, it is also encouraging comments on any other relevant issues that the NCUA Board should consider.

A few of the proposed questions include:

Should a moderate recession be the basis for evaluating the Insurance Fund performance during an economic downturn, or should the NCUA change the policy to consider a severe recession?

Should the NCUA continue modeling the performance of the Insurance Fund over a five year period or a longer or shorter period?

How should the NCUA utilize the modeled potential decline in value of the Insurance Fund’s claims on the corporate asset management estates going forward until the estates are fully resolved?

FTC Warning on Scammers

The Federal Trade Commission (FTC) recently posted this blog “More money is coming to families…and scammers are ready.” The article contains good reminders to help protect members.

Only the IRS will be sending these payments from the American Rescue Plan Act. Anyone trying to “help” you get your child tax credit is really after your money.

The government will NEVER call, text, email, or DM you out of the blue, asking for money or information. Keep your money — and your Social Security, bank account, debit and credit card numbers — to yourself.

Nobody legit will ever demand that you pay by gift card, wire transfer through companies like Money Gram or Western Union, or cryptocurrency. That’s a scam, every time.

CU Policy Pro

The new CU Policy Pro system has launched. Here is a list of FAQs regarding this new platform - CU PolicyPro New System FAQs.pdf

Also – be sure to check out the series of live webinars to introduce you to (or reacquaint you with) CU PolicyPro. The webinar sessions are FREE, but registration is required. Please click here to find a listing of available webinars. All webinars will be recorded and added to the Support area of CU PolicyPro for on-demand viewing. The first webinar in the series, All About Policies, is now available for viewing!

AffirmX

What can help your credit union meet compliance challenges in a proactive and cost-efficient manner? Please take a three-minute break from reading and learn how AffirmX can help you: http://youtu.be/27TLDXcjETE.

AffirmX Risk Intel Center helps credit unions adhere to government regulations through a patented, cloud-based platform that is customized and branded for your institution.

The platform draws on internal and external data sources to develop risk-based priorities to help you quickly identify issues, reduce costs, and streamline compliance management practices.

Don’t forget AffirmX can be tailored to meet the needs of your credit union including offering individual audits – such as BSA Independent Review, Annual ACH Independent Audit, Annual SAFE Act Independent Audit and Website Compliance Review.

For Questions, a free demo or pricing – contact Amy Kleinschmit at akleinschmit@dakcu.org.

Compliance Update with Amy K

Fri, 28 May 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

New North Dakota Laws

As follow-up from coverage that Kayla Pulvermacher, DakCU State Legislative Director, provided, here are some additional summaries on a few of the laws that will be going into effect in North Dakota later this summer that may be of interest to credit unions.

HB 1368 relates to tracking devices on motor vehicles and can be found here - https://www.legis.nd.gov/assembly/67-2021/documents/21-0852-03000.pdf

This bill added a new section to Title 51, Sales and Exchanges. The new NDCC 51 - 07 - 28.1 provides that a lender may not require a person to install or maintain a global tracking or positioning system or device on a motor vehicle for the purpose of locating or tracking the vehicle to repossess the vehicle in case of loan default, unless certain criteria are met. If the lender wants to install a GPS on a motor vehicle it must include within the financing contract, in a clear and conspicuous manner, information on the installation or placement of the system or device. If a system or device is installed it has to be at no cost to the buyer. Finally, the system or device must be removed within sixty days of the loan for the motor vehicle being paid in full at the expense of the seller or lender; and at a location agreed upon by the seller or lender and buyer.

A lender who violates this section is subject to a $500 fine. If a lender continues to violate this provision, the fine increases to not less than $1,000 nor more than $2,000.

HB 1366 amended provisions for repairman’s liens under NDCC 35-13-01 and can be found here - https://www.legis.nd.gov/assembly/67-2021/documents/21-0191-06000.pdf

A repairman, which includes any blacksmith, machinist, farm equipment dealer, construction equipment dealer, welder, garage keeper, mechanic, or aviation operator, in North Dakota who makes, alters, or repairs any automobile, truck, engine, combine, tractor, farm equipment, construction equipment, well machine, aircraft, or watercraft at the request of the owner or legal possessor of the property has a lien on that property until charges are paid. The lien amount includes reasonable charges for work done, materials furnished, storage fees, and transportation costs. Storage fees may not begin to accrue until 15 days after the owner is requested to take possession of the property.

If the repairman wants the entire bill to have lien priority, notice must be provided to other lienholders. The notice must include the estimated cost of repair and the estimated value of the property in its repaired condition. If the repairman fails to notify the other lienholders of record, or if such notice was given and the lienholder, within five days after receiving such notice, communicated in writing to the repairman an objection to all the proposed repair costs becoming a lien, then only that portion of the repairman's lien up to $6,000 or 30%, ($15,000 or 30% for property used for agricultural or construction purposes) of the retail value, whichever is greater, in the property's repaired condition, has priority over the lien of record.

A person entitled to a lien under this chapter who retains possession of the property made, altered, or repaired is not required to file any statement with the state to perfect the lien.

Notice before foreclosure – the repairman, holding a lien under this chapter, shall give ten days' written notice of their intention to foreclose the lien. This notice is to be provided to the lienholders of record and the owner of the property.

Any lienholder may pay the amount due on the repairman’s lien at any time before a sale upon the foreclosure of the property. Upon payment of the lien by a lienholder, the holder of the lien shall assign it to the lienholder, and the lienholder then is entitled to all the rights which the person filing the lien had before the lien was paid.

The repairman holding a lien under this chapter has the rights of a secured party under Article 9 of the Uniform Commercial Code for purposes of nonjudicial disposition of the property. A person holding a lien under this chapter who chooses to use nonjudicial disposition of the property shall dispose of the property in the manner prescribed for security interests under Article 9 of the Uniform Commercial Code.

HB 1175 relates to business immunity from COVID-19 liability claims and can be found here –

https://www.legis.nd.gov/assembly/67-2021/documents/21-0247-06000.pdf

This new chapter to Title 32, Judicial Remedies, provides that a person may not bring or maintain a civil action alleging exposure or potential exposure to COVID - 19 unless the civil action involves an act intended to cause harm or an act that constitutes actual malice. This applies retroactively to January 1, 2020 and was declared to be an emergency measure.

Among the provisions, this bill provides that a person is immune from civil liability for an act or omission resulting in damage or injury sustained from exposure or potential exposure to COVID - 19 if the act or omission was in substantial compliance or was consistent with a federal or state statute, regulation, or order related to COVID - 19 which was applicable to the person or activity at issue at the time of the alleged exposure or potential exposure.

SB 2048 enacts the Revised Uniform Unclaimed Property Act and can be found here - https://www.legis.nd.gov/assembly/67-2021/documents/21-0167-06000.pdf

This bill repeals current NDCC 47-30.1 Uniform Unclaimed Property Act and then enacts the Revised Uniform Unclaimed Property Act which will be found under NDCC 47-30.2.

Transitional provisions were included that provide, a holder of property with a duty that arose before July 1, 2021, must still report, pay, or deliver property. A holder that fails to comply with the law in effect before July 1, 2021, is subject to the applicable enforcement and penalty provisions that existed before July 1, 2021, and the applicable provisions are continued in effect for the purpose of this subsection.

The initial report filed under this revised law for property that was not required to be reported before July 1, 2021, but which is subject to this chapter must include all items of property that would have been presumed abandoned during the ten-year period preceding July 1, 2021, as if this chapter had been in effect during that period.

A few highlights from this rule of when property is presumed abandoned, unless there is an “indication interest in property by the apparent owner” (which is explained below).

Money order – presumed abandoned seven years after issuance (unless “indication of interest”). "Money order" means a payment order for a specified amount of money. The term includes an express money order and a personal money order on which the remitter is the purchaser.

A cashier's check or certified check – presumed abandoned two years after issuance (unless “indication of interest”). "Cashier's check" means a check that: Is purchased by a remitter and made payable to a designated payee; Is signed by an officer or employee of the financial organization; Authorizes payment of the amount shown on the check's face to the payee; Is a direct obligation of the financial organization; and Is provided to a customer of the financial institution or acquired from the financial institution for remittance purposes.

Uniform Transfers to Minors Act (UTMA) Account – presumed abandoned three years after the later of: the date a second consecutive communication sent by the holder to the custodian of the minor on whose behalf the account was opened is returned undelivered to the holder by the United States postal service; or the date on which the custodian of the minor is required to transfer the property to the minor or the minor's estate in accordance with UTMA state laws. (Unless “indication of interest”).

Accounts - A payroll card or a demand, savings, or time deposit, including a time deposit that is automatically renewable, five years after the date of maturity of the time deposit or the date of the last indication of interest in the property by the apparent owner, whichever is earlier, provided a time deposit that is automatically renewable is deemed matured on its initial date of maturity unless the apparent owner has consented in a record on file with the holder to renewal at or about the time of the renewal. If an apparent owner has another established account with the credit union and has “demonstrated interest” in any account, then all accounts must be considered active.

If there is “an indication of an apparent owner's interest in property” this would determine when the property is presumed abandoned (it is the later of either - the number of years or the “indication of interest”). "Apparent owner" means a person whose name appears on the records of a holder as the owner of property held, issued, or owing by the holder.

Indication of interest includes a record communicated by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held. This also includes an oral communication by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held, if the holder or its agent contemporaneously makes and preserves a record of the fact of the apparent owner's communication.

Indication of interest includes the presentment of a check or other instrument of payment of a dividend, interest payment, or other distribution, or evidence of receipt of a distribution made by electronic or similar means, with respect to an account, underlying security, or interest in a business association. Also, included is activity directed by an apparent owner in the account in which the property is held, including accessing the account or information concerning the account, or a direction by the apparent owner to increase, decrease, or otherwise change the amount or type of property held in the account.

“Indication of interest” also can be a deposit into or withdrawal from an account at a financial organization, including an automatic deposit or withdrawal previously authorized by the apparent owner other than an automatic reinvestment of dividends or interest.

There is also the very broad - any other action by the apparent owner which reasonably demonstrates to the holder that the apparent owner knows that the property exists, which is considered an indication of interest under this rule.

New section NDCC 47-30.2-31, addresses dormancy charges. A holder may deduct a dormancy charge from property required to be paid or delivered to the administrator (State) if the following criteria are met. There must be an enforceable written contract between the holder and the apparent owner authorizing imposition of the charge for the apparent owner's failure to claim the property within a specified time. Also, the holder must regularly impose the charge and regularly does not reverse or otherwise cancel the charge. Charges authorized under this rule may only be charged until the respective property is deemed abandoned.

There continues to be a notice requirement for abandoned property. The holder of property presumed abandoned shall send to the apparent owner notice by first-class United States mail not more than one hundred twenty days before filing the report if: the holder has a valid address for the apparent owner and the value of the property is twenty-five dollars or more.

If an apparent owner has consented to receive electronic mail delivery from the holder, the holder shall send this notice both by first-class United States mail to the last-known mailing address and by electronic mail, unless the holder believes that the apparent owner's electronic-mail address is invalid.

This notice must include the heading - "Notice. The State of North Dakota requires us to notify you that your property may be transferred to the custody of the North Dakota unclaimed property administrator if you do not contact us before (insert date that is thirty days after the date of this notice)." New NDCC 47-30.2-27 details what needs to be included in this notice.

The holder’s report to the administrator (state) must be filed before November 1st of each year and cover the 12 months preceding July 1st of that year.

SB 2098 revised provisions relating to abandoned vehicles and can be found here - https://www.legis.nd.gov/assembly/67-2021/documents/21-8090-02000.pdf

Generally, when an abandoned motor vehicle is more than seven model years of age, is lacking vital component parts, and does not display a license plate currently valid in North Dakota or any other state or foreign country, it is immediately eligible for disposition and must be disposed of to a scrap iron processor licensed, and is not subject to the notification, reclamation, or title provisions under the state law.

SB 2098 revised provisions regarding notice requirements to owner and law enforcement of abandoned vehicles. If the provisions for immediate disposition do not apply (discussed above) the unit of government or commercial towing service taking the abandoned motor vehicle into custody shall give notice of the taking within ten days.

Among other details, the notice informs the owner and any lienholders/secured parties of their right to reclaim the vehicle, and must state that failure of the owner or, lienholders, or secured parties to exercise their right to reclaim the vehicle within thirty days is deemed a waiver by the owner, lienholders, or secured parties of all right, title, and interest in the vehicle and a consent to the disposal of the vehicle.

The new provisions add an option to place the notice on an official website if it is “impossible to determine with reasonable certainty the identity and address of the registered owner and all lienholders.” Otherwise, the notice must be sent by certified mail, return receipt requested, to the registered owner, if any, of the abandoned motor vehicle and to all readily identifiable lienholders or secured parties of record.

If it is impossible to determine with reasonable certainty the identity and address of the registered owner and all lienholders, the notice must be published once in a newspaper of general circulation in the area where the motor vehicle was abandoned OR placed on the official website for the unit of government that initiated the impound process from public property. Failure of the owner, lienholders, or secured parties to exercise the right to reclaim the vehicle by the end of the public notice period is deemed a waiver by the owner, lienholders, or secured parties of all right, title, and interests in the vehicle and a consent to the disposal of the vehicle.

SB 2292 relates to mortgage modifications and can be found here - https://www.legis.nd.gov/assembly/67-2021/documents/21-1009-02000.pdf

NDCC 35-03 sets forth requirements for a real property mortgage. Among the provisions is NDCC 35-03-14 which discusses expiration of real estate mortgages and NDCC 35-03-15 which provides for extensions of mortgage and delays to the expiration.

New section NDCC 35-03-15.1 was added to address modification of mortgages. “Mortgage modification" means a written instrument amending at least one term of an original mortgage which: references the original mortgage by recording date and document number; AND is signed by the mortgagor, or the mortgagor's successor in interest, and the owner of the mortgage.

The new provision provides that the expiration of a real estate mortgage under NDCC 35-03-14 does not occur if before the date the expiration would become effective a mortgage modification is recorded in the office of the recorder. A modified mortgage expires as provided under NDCC 35-03-14, unless the modified mortgage is extended under NDCC 35-03-15 or subsequently modified.

If a modified mortgage is extended or subsequently modified, the mortgage expires as follows:

a. If the final maturity date is ascertainable from the record of the mortgage modification, the lien of the mortgage expires ten years after the final maturity date.

b. If the final maturity date of the mortgage is not ascertainable from the record of the original mortgage or a mortgage modification, the lien of the mortgage expires ten years after the date the last mortgage modification is filed for record in the office of the recorder.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update with Jay Kruse

Wed, 26 May 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning!

With the House in recess this week, legislative activity has slowed down a bit in Washington. However, late last week the House Financial Services Committee held a hearing with prudential regulators entitled, “Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions.” This hearing included five-minute testimony from NCUA Chairman Todd Harper and addressed a variety of proposed legislation including the Expanding Financial Access for Underserved Communities Act and the NCUA Oversight of Third Party Vendors Act.

The Expanding Financial Access for Underserved Communities Act expands the definition of an “underserved area” to any area more than ten miles away from a financial institution and allows all FCUs to add underserved areas to their field of membership. This Act would also exempt business loans made in underserved areas from the MBL cap. The NCUA Oversight of Third Party Vendors Act would grant the NCUA oversight of all credit union service organizations (CUSOs) and other service providers.

Chairman Harper also addressed the NCUA’s response to the COVID-19 pandemic and how he expects the industry to respond over the next few years. He responded to Chairwoman Waters’ concern over credit unions offsetting stimulus payments, stating he believes credit unions have been responsive and stepping up to eliminate the problems related to garnishments and offset.

Marijuana Interim Study Committee Meets Today

This morning, the Marijuana Interim Study Committee, a special legislative committee made up of 24 members, will hold their first meeting of the 2021 interim followed by another tomorrow. The meeting is being conducted virtually at 9:30 a.m. in Room 414 of the State Capitol in Pierre, to allow for both remote and in-person participation.

The committee will study both recreational and medical marijuana use with its scope reading, “We in the legislature will be seeing this product in all its forms and uses in the not distant future. Let’s get unbiased (or both sides) sources of information to create the best system that works for our state.”

These discussions are crucial as the state looks to implement a safe and effective medical marijuana program and awaits the SD Supreme Courts ruling on Amendment A which would also legalize the recreational use of marijuana.

Those presenting to the committee will include the National Conference of State Legislatures, SD Municipal League, Flandreau Santee Sioux Tribe, state medical associations, state Department of Health and Revenue, and law enforcement officials. You can follow along with both meetings online here.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update with Amy K

Thu, 20 May 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

FREE WEBINARS

May 24 – Emergency Capital Investment Program. Registration can be found here.

Eligible credit unions interested in applying for the Emergency Capital Investment Program now have until July 6 to submit their applications. Under the Emergency Capital Investment Program, Treasury will provide up to $9 billion in capital directly to depository institutions that are certified Community Development Financial Institutions or minority depository institutions. This funding may be used to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers—especially those in low-income and underserved communities—that may be disproportionately impacted by the economic effects of the COVID-19 pandemic.

May 26 – NCUA, CISA Cybersecurity Webinar. Registration can be found here.

Staff from the NCUA and the Cybersecurity and Infrastructure Security Agency will discuss: Identifying risks to products, services, and assets; Monitoring the security of networks; Managing third-party cyber risks; Implementing controls to protect and, if necessary, recover data; and Monitoring and protecting against malware attacks.

May 27 – CDFI Small Dollar Loan Program. Registration can be found here.

Staff from the NCUA and the CDFI Fund will describe the program and discuss eligibility and permissible uses of these funds. A question-and-answer session will follow the presentation. Credit unions should review the CDFI Fund’s Small-Dollar Loan Program, including information about the application process and timeline.

LIBOR Transition

The NCUA recently issued Letter to Credit Unions 21-CU-03 regarding LIBOR transition. As stressed in the letter, “the NCUA encourages all federally insured credit unions to transition away from using the U.S. dollar LIBOR settings as soon as possible, but no later than December 31, 2021.”

The NCUA also attached Supervisory Letter SL No. 21-01 that discusses potential LIBOR exposure and replacement alternatives. Credit unions use LIBOR in a variety of products, including derivatives, business loans, consumer loans, variable rate notes, and securitizations, such as mortgage-backed securities. Credit unions may have LIBOR exposure in these types of transactions as well as Federal Home Loan Bank (FHLB) borrowings and various other member share products that use a variable interest rate.

CFPB – TRID FAQs

The Consumer Financial Protection Bureau (CFPB) recently added FAQs to the list to help clarify certain aspects of the TILA-RESPA Integrated Disclosure Rule (TRID) regarding the impact the BUILD Act had for certain housing assistance loans. All CFPB TRID FAQs can be found here and the recently adds questions can be found under “housing assistance loans.”

As discussed in the FAQs - To meet the criteria for the partial exemption from the Loan Estimate and Closing Disclosure requirements under the BUILD Act, the transaction must meet all of the following criteria: The loan must be a residential mortgage loan; The loan must be offered at a 0 percent interest rate; the loan must only have bona fide and reasonable fees, and the loan must be primarily for charitable purposes by an organization described in Internal Revenue Code section 501(c)(3) and exempt from taxation under section 501(a) of that Code. However, those partial exemptions do not affect other required disclosures, such as the Escrow Closing Notice.

Interchange Proposed Rulemaking

The Federal Reserve Board (Board) issued a proposed rule regarding Regulation II (Debit Card Interchange Fees and Routing) to clarify that debit card issuers should enable, and allow merchants to choose from, at least two unaffiliated networks for card-not-present debit card transactions, such as online purchases.

The Board also issued a biennial report summarizing information on debit card transactions in 2019 which can be found here.

The proposed rule, which can be found here, and comments must be received by July 12, 2021.

At the time of the 2011 final rule, card-not-present transactions, such as online purchases, the market had not developed solutions to broadly support multiple networks over which merchants could choose to route those transactions. Board found that currently merchants are often not able to choose from at least two unaffiliated networks when routing card-not-present transactions.

Therefore, the Board is proposing revisions to the commentary to Regulation II that clarify the applicability of the prohibition on network exclusivity to card-not-present transactions. These proposed revisions to the commentary clarify that card-not-present transactions are a particular type of transaction for which two unaffiliated payment card networks must be available.

Also, the Board is proposing changes to clarify the responsibility of the debit card issuer in ensuring that at least two unaffiliated networks have been enabled to comply with the regulation’s prohibition on network exclusivity. In other words, the rule will emphasize the issuer’s role in configuring its debit cards to ensure that at least two unaffiliated networks have been enabled to comply with the regulation’s prohibition on network exclusivity.

NCUA Final Rule – Derivatives

The NCUA finalized their Derivative’s Rule at yesterday’s board meeting. This Final rule can be found here - AG20210520Item3b.pdf (ncua.gov) and will become effective 30 days after it is published in the Federal Register.

As explained by the NCUA, “this final rule will modernize the NCUA’s Derivatives rule and make it more principles-based, while retaining key safety and soundness components. The changes contained herein will provide more flexibility for federal credit unions (FCUs) to manage Interest Rate Risk (IRR) through the use of Derivatives.”

The NCUA finalized the rule largely as proposed with a few regulatory changes. The NCUA also clarified a few items in the discussion of the final rule.

While commenters disagreed with the proposed $500 million asset size threshold to qualify for an exemption from the requirement to submit an application for Derivatives authority, the NCUA board did not make any changes and this threshold was adopted in the final rule. However, the final rule does not bar FCUs under $500 million from receiving Derivatives authority as an FCU may receive Derivatives authority after completing an application that demonstrates it can safely manage a Derivatives program.

With regard to the requirement for a credit union to submit notification to the NCUA within five business days of entering into its first Derivatives transaction, several commenters sought modifications.

However, the NCUA kept the requirement in the final rule and stated that “replacing the application requirements for a qualified FCU with a required notification within five days after entering into its first Derivative transaction is a reasonable compromise. Derivatives can be complex and risky transactions, and a prompt notification will allow the applicable Regional Director to efficiently manage examination resources.” Also note, that this notification requirement found under 741.219 extends to all federally insured credit unions.

In the proposal, the NCUA noted the rule could be simplified by creating one collateral requirement for both cleared and Non-cleared Derivatives. However, in the final rule, based on comments and further analysis, the NCUA will not implement collateral requirements for cleared Derivatives. Rather, the final rule only requires specific collateral types for Non-cleared Derivatives, otherwise collateral requirements for cleared derivatives are subject to the clearinghouse requirements. The collateral requirements for Non-cleared Derivatives are the same requirements included in the proposed rule.

Another change from the proposed rule relates to Counterparties. The NCUA is declining to finalize the proposed change that would require all Counterparties to be domiciled in the United States. As such, the current Counterparty requirements will be effective for the final rule.

As explained in the discussion of the final rule, “while the proposed rule moved toward a principles-based approach, the Board explicitly proposed to prohibit an FCU from using written options.” After consideration of the comments and further analysis, the Board is removing the proposed prohibition on written options. As such, this final rule permits an FCU to enter into written options, but only if such options are used to manage IRR. As a result of removing the prohibition on written options and for increased clarity in the rule text, the Board is adding a new § 703.103(a)(1) restating a mandatory characteristic in that Derivatives can only be used for the purpose of managing IRR. The Board is adding this characteristic to reinforce the principle that all Derivatives, including written options, must only be used for the management of IRR. The NCUA stresses that the FCU must be able to demonstrate how the written option, on its own or combined with other Derivatives, is being used to manage interest rate risk.

The final rule retained the proposed provisions of § 703.103 for requirements related to the characteristics of permissible IRR Derivatives, including the provision that a Derivative contract must be based on Domestic Interest Rates or the USD London Interbank Offered Rate (LIBOR). Since publication of all USD LIBOR rate settings will cease by June 30, 2023, the NCUA notes that it will consider revisions to this subpart after the cessation of the USD LIBOR.

As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Compliance Update with Amy K

Fri, 30 Apr 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

All New CU Policy Pro!

CU PolicyPro is the perfect complement to InfoSight, providing model policy content for over 230 credit union-specific operational policies. We are pleased to announce the completion of a complete rebuild of CU PolicyPro! The new system includes a beautiful, modern, and easy-to-navigate design to help all users easily find, view and print both model policies and the credit union’s own customized policies. System admins and policy editors now have a whole new toolbox to create, maintain and distribute policies, assign and track policy updates and reviews, upload and share additional documents, view and confirm relevant model policy updates, and manage user access to the policy level. Welcome emails have been emailed to all users and we have already received some great feedback on the new site!

Current clients can get more information on the League InfoSight website

CFPB – QM Rule Extension

The Consumer Financial Protection Bureau (CFPB) issued a final rule to delay the mandatory compliance date for the December 10, 2020 QM final rule. The General QM Final Rule amended Regulation Z to remove the General QM loan definition’s DTI limit (and appendix Q) and replace it with limits based on the loan’s pricing. The General QM Final Rule had an effective date of March 1, 2021, and a mandatory compliance date of July 1, 2021. However, with this recent final rule the mandatory compliance date is delayed until October 1, 2022.

This April 2021 Final Rule also affects the expiration of the Temporary GSE QM loan definition or “Patch.” Under the April 2021 Final Rule, the Temporary GSE QM loan definition will expire on October 1, 2022 or the date the applicable GSE exits conservatorship, whichever comes first.

HOWEVER, as was discussed in the April 16 Memo article – Fannie Mae recently issued Lender Letter (LL-2021-09) which can be found here and Freddie Mac issued a similar letter (Bulletin 2021-13) found here, which requires that acquired loans meet the revised General Qualified Mortgage (QM) loan definition in the CFPB’s rule that became effective March 1, 2021 (Revised QM Rule). The letter notes that they will no longer acquire loans that are GSE Patch loans that do not meet the Revised QM Rule unless they fall include specific dates detailed in the letters.

Exam Prep

Earlier in the Memo (April 19) you read about ways to prepare for your next exam, which provided helpful tips like designating a point-person, reviewing past exams and member complaints, and performing internal control audits – for example.

As follow-up to those useful tidbits, here are some additional tips to follow as you head into your next exam (to make sure the process goes better than passing a kidney stone):

If you prepare everything requested, the exam will be much smoother.

Expect examiners to ask for other things after the exam starts. Questions will arise.

If you have trouble preparing or have questions, then ask the Examiner-in-Charge. If you don’t prepare, the exam will likely be much more intrusive as they will be asking for things often, and they might need to extend the examination.

If you have concerns with how the exam progresses, then talk to the Examiner-in-Charge about it. If you still have concerns, then contact the Supervisory Examiner.

To ensure you receive the most effective exam communicate often with the Examiner-in-Charge. Daily meetings are a good idea. This is even more important for remote exams since communication is more difficult.

Finally, think of the exam as a collaborative effort. Examiners want the credit union to be successful!

As always, DakCU Members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

ND Legislative Update

Mon, 26 Apr 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

The North Dakota Legislature is fully expected to wrap up their work this week. While many appropriation bills have yet to be finalized, things should begin to fall into place midweek.

So what’s next?

Redistricting will begin soon, starting with creating a committee made up of Republicans and Democrats. The committee will most likely meet several times this summer and fall, and a special legislative session will follow later this year to pass the plan. Redistricting occurs every 10 years, using census data.

Although the special session is being held expressly to consider a redistricting plan, the Legislature can address other issues, too. Because COVID-19 dollars are still rolling into the state, it is likely they will address where those dollars are to be spent.

The Department of Financial Institutions plans to look at administrative code. Although no major overhaul is expected for credit unions, there are some plans to look at derivatives. The Department will also be holding a virtual “Day with the Commissioner” event on May 12. They will cover the legislative session and the bills that affect the financial industry, the state of the financial industry and will answer questions.

Finally, I want to thank you for following along during my first legislative session with the Association. I have thoroughly enjoyed getting to know the issues that affect credit unions, and most importantly, getting to represent you—the members! I continue to feel honored to represent an organization with such an important mission in North Dakota. I look forward to meeting many of you at the Summit next week.

Compliance Update with Amy K

Fri, 23 Apr 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

NCUA – PCA Rule

The National Credit Union Administration (NCUA) recently issued an interim final rule, found here, to provide temporary regulatory relief as it relates to prompt corrective action (PCA). This interim final rule is very similar to the May 2020 interim final rule approved on the same topic in response to COVID.

As explained in the press release announcing this interim final rule, “We get it. We understand what’s happening right now,” said Vice Chairman Kyle S. Hauptman. “As credit unions continue to support their members during this difficult time, many are concerned with the challenges they will face if their net worth ratio drops below the well-capitalized level. While the latest round of stimulus is good news for many Americans, these payments accelerate the trends of unprecedented share growth in the last year. Temporarily providing relief from prompt corrective action requirements will allow credit unions to stay focused on serving members.”

This interim final rule will remain in place until March 31, 2022 and was effective April 19, 2021. Comments must be received on or before June 18, 2021.

Section §702.201(b) sets forth prompt corrective action for “adequately capitalized” credit unions. Specifically, providing that upon written application received no later than 14 days before the quarter end, the NCUA Board, on a case-by-case basis, may permit a credit union to increase the dollar amount of its net worth and quarterly transfer an amount that is less than the amount required under this section. As discussed in the summary of this rule, “In response to the COVID-19 pandemic and resulting economic conditions, the Board has determined that it is appropriate to temporarily amend § 702.201 to provide the Board express regulatory authority to issue a single order waiving the earnings-retention requirement for all FICUs classified as adequately capitalized while this temporary rule is in effect.”

The order will be applicable to adequately capitalized FICUs and will grant relief from the earnings-retention requirement without requiring those FICUs to submit applications and receive individual waiver approvals, subject to the qualification previously noted in this section.

Section §702.206(c) sets forth the contents for net worth restoration plans (NWRP). The interim final rule provides that a Federally Insured Credit Union (FICU) may submit a significantly simpler NWRP to the applicable Regional Director noting that the FICU became undercapitalized as a result of share growth. As explained in the interim final rule, “Specifically, a FICU would be required to attest that its reduction in capital was caused by share growth and that such share growth is a temporary condition due to the COVID-19 pandemic and congressional actions to provide stimulus through direct payments to taxpayers. Federally insured, state-chartered credit unions must comply with applicable state requirements when submitting NWRPs for state supervisory authority approval.”

CFPB – Debt Collection Interim Final Rule

The Consumer Financial Protection Bureau (CFPB) issued this interim final rule and additional compliance resources, found here, to address certain debt collector conduct associated with an eviction moratorium issued by the Centers for Disease Control and Prevention (CDC) in response to the global COVID-19 pandemic. The interim final rule requires that debt collectors provide written notice to certain consumers of their protections under the CDC eviction moratorium and prohibit misrepresentations about consumers’ ineligibility for protection under such moratorium. The effective date of this interim final rule is May 3, 2021.

This interim final rule applies to debt collectors, as that term is defined in the Fair Debt Collection Practices Act. The FDCPA generally provides that a debt collector is “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”

CFPB – Debt Collection Rules Proposed Delay

The CFPB has also issued a proposed rule to delay the effective date of their two rules related to Debt Collection Practices (Regulation F). This proposed rule can be found here and comments are due May 19, 2021.

Both Debt Collection Practices rules have an effective date of November 30, 2021, and the proposal would delay these rules until January 29, 2022.

As summarized by the CFPB, the first debt collection final rule, released on October 30, 2020, addresses, among other topics, communications in connection with debt collection and prohibitions on harassment or abuse, false or misleading representations, and unfair practices in debt collection. The first final rule also addresses the use of newer communication technologies in debt collection and establishes record retention requirements.

The second debt collection final rule, released on December 18, 2020, focuses on debt collection disclosures and addresses, among other topics, the information that debt collectors must provide consumers at the outset of collections communications. The second final rule also prohibits debt collectors from bringing or threatening to bring a legal action against a consumer to collect a time-barred debt and prohibits debt collectors from furnishing information about a debt to a consumer reporting agency before the debt collector takes certain actions to contact the consumer about the debt.

The Debt Collection Rule covers debt collectors and debts, as those terms are defined in the FDCPA. Thus, the Rule does not alter which debt collectors and debts are covered under the FDCPA. For example, the Rule does not expand coverage to first-party debt collectors that are not debt collectors under the FDCPA.

Coming Soon – the all new CUPolicyPro!

For many years, CU PolicyPro has been an industry leader in providing model policy content. Their compliance content team is second to none! Now they are going to let their programming team take the spotlight as they work on a complete rebuild of the CU PolicyPro system. The all-new CU PolicyPro will continue to provide the great model policy content you’ve come to expect but will now offer a fully redesigned policy management system!

The new system includes a beautiful, modern, and easy-to-navigate design to help all users easily find, view and print both model policies and the credit union’s own customized policies. System admins and policy editors will now have a whole new toolbox to create, maintain and distribute policies, assign and track policy updates and reviews, upload and share additional documents, view and confirm relevant model policy updates, and manage user access to the policy level.

CU Policy Pro will be contacting credit union users directly in the coming weeks regarding the conversion process and what comes next.

As always, feel free to contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update with Jay Kruse

Wed, 21 Apr 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning!

The 2021 Summit is less than two weeks away and Silent Auction items and gift card donations for our GAC/Hike the Hill fundraiser continue to pop up on our new ClickBid auction website. Thank you to all of you that have already submitted your donations, we sincerely appreciate your support and assistance in getting your items posted on the website for bidders to check out in anticipation of the event.

You can check out a preview of the items and gift cards that have already been submitted as well as register for bidding at https://dakcu.cbo.io. And don’t forget, you can bid on items from your couch or wherever you are, even if you not planning to attend the Summit this year! If anyone needs help submitting your donation or bidding on items, just let me know.

SAFE Banking Act Passes House

Great news! Monday night, the House was able to pass the CUNA/DakCU supported Secure and Fair Enforcement (SAFE) Banking Act. The SAFE Banking Act received bipartisan support, including yes votes from both of our Dakotas’ Congressmen Kelly Armstrong (R-ND) and Dusty Johnson (R-SD), and passed on a final vote of 321-101. Congressman Armstrong was also one of the cosponsors of the legislation. We appreciate them for understanding that the cannabis activity is expanding in both our states and that there needs to be a way to operate these legal businesses safely.

We take no position on legalizing or decriminalizing medicinal or recreational cannabis at either the state or federal level. However, credit unions operating in states where it is legal have members and member businesses involved in the cannabis market who need access to traditional depository and lending services, the absence of which creates a significant public safety issue.

The bill would provide protection to credit unions and other financial institutions that serve state legal cannabis-related businesses. Specifically, it would provide a safe harbor for financial institutions accepting deposits from, extending credit, or providing payment services to an individual, or business engaged in legal marijuana-related commerce; and credit unions and their employees who are not aware if their members or customers are involved in such businesses.

The SAFE Banking Act was also recently introduced in the Senate by a group of 30 Senators which includes North Dakota Senator Kevin Cramer. The legislation will likely face a more difficult struggle in the Senate, but we are hopeful that with more states continuing to legalize both medical and recreational use of cannabis, we will be able to push it through to the finish line.

As always, don’t hesitate to contact me at jkruse@dakcu.org with any questions or comments.

North Dakota Legislative Update

Mon, 19 Apr 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

Coming from an agricultural background and lobbying for ag issues for over 15 years, I was really looking forward to learning about credit unions and spending time in different committees this session. Boy, was I surprised with how much time I ended up spending in the ag committee after all! And as you read on, you’ll see the bills mostly dealt with insolvencies and mediation.

During the 2019 Legislative Session, grain insolvencies was probably the biggest topic the House and Senate Agriculture Committees worked on; the result was moving the authority to inspect and bond grain elevators from the Public Service Commission to the Agriculture Department. This session, HB 1026 made changes to the Agriculture Department’s authority on intervening on a suspected insolvency. The original bill made changes to the assets that may be seized and included real property; the financial community suggested changes that narrowed their ability to seize all assets to just the grain that is still on the premises.

HB 1172 didn’t have as successful of a story. The bill sought to make changes to Agricultural Mediation and Negotiation Services. This service, ran by the Agriculture Department, has a variety of mediations that it will perform. But one of the most used is between a producer and a financial institution in hopes that a deal can be reached that helps keeps the farmers on the farm and the financial institution whole. Most importantly, it is completely voluntary for both sides.

At one point, the bill sponsor offered amendments to change the bill to require banks and credit unions to go through mediation. DakCU opposed this, offering other solutions like more funding for farm management education so that issues can be addressed sooner. The bill eventually went to a subcommittee and ultimately received a “do not pass.” It failed on a vote of the House.

Finally, a bill that we’ve talked about many times: SB 2223. This bill began as a bill that made changes to the Deed In Lieu of Foreclosure process. Before the bill even had its hearing, it received amendments that changed it into a bill to affect those farmers who had federal debt management plans from 2006. It received another set amendments before the bill was voted on, but ultimately, those amendments were not taken up. The bill received a “do not pass” from the Senate Political Subdivisions committee and failed the Senate.

Today marks Legislative Day 68 and we’re getting dangerously close to the end. How many days are left? I’m not one to make bets, but I think they’ll put in another 5 to 7 days. Send me your best guesses!

You may contact Kayla Pulvermacher at kpulvermacher@dakcu.org with any advocacy concerns.

Prepare for Next Exam

Mon, 19 Apr 2021 00:00:00 GMT

by Melia Heimbuck, CU Risk Intelligence

A few effects of the COVID-19 global pandemic remain for credit unions, such as offsite exams and a larger remote workforce, but some aspects of running a credit union are getting back to normal. One of those aspects is consumer financial protection and the expectation that credit unions fully comply with regulations. Effective April 1, 2021, the Consumer Financial Protection Bureau (CFPB) rescinded each of its policy statements issued in 2020 that provided temporary flexibilities related to mortgages, appraisals, credit reporting, credit cards and prepaid cards.

Now that a “best efforts” approach to consumer regulatory compliance will no longer meet examiner expectations, here are a few ways you can be prepared for your next exam without a lot of stress.

#5 – Designate a point-person. Each year NCUA publishes a list of their Supervisory Priorities, including Consumer Financial Protection (NCUA Letter 21-CU-02). Designate someone who understands your credit union’s compliance efforts regarding these priorities to gather information and communicate with applicable staff, management, board and regulators. Information gathered should highlight policies and procedures implemented/modified, potential issues identified, corrective actions taken, training provided and any other relevant actions. The key is having someone responsible for documenting your efforts.

#4 – Review past exams and member complaints. Prior identified weaknesses related to consumer protection will usually receive a higher level of review. Additionally, complaints can uncover a variety of consumer compliance violations as well as policy, procedure and training weaknesses. Be sure that you have addressed and documented your efforts to take corrective action when necessary.

#3 – Get your electronic life in order. With many examinations occurring offsite, this is a must for 2021 and beyond. A larger remote workforce and operational disruption of 2020 has placed pressure on credit unions to ensure the most up-to-date policy and procedures have been saved to the proper internal network locations and that all applicable staff are referring to them for guidance. It is also important to make sure that your credit union has created a workable scanning and storage system for key documents, as this will facilitate the sharing of information for exams.

#2 – Perform internal control audits regularly. No, you do not need to perform this using internal human resources, and in many cases outsourcing to experts is the best approach. While a full array of internal control audits is ideal, for most credit unions this is not feasible. Not to worry, something is better than nothing! Start with your higher risk items or look to the supervisory priorities for ideas. One hint – make sure all applicable staff have received the training provided for in your policies.

#1 – Know your risk. The most important aspect of compliance operations today, is understanding your regulatory risk. Identify the risks of your products, services, membership, delivery channels and environment. Define your risk tolerance. Put controls in place to meet your members’ needs, carry an acceptable level of risk and ensure adequate compliance. Maintaining an updated risk assessment is one of the best ways to show your regulator that you are serious about consumer financial protection.

Combining the knowledge and expertise of industry leaders AffirmX and CU Solutions Group, CU Risk Intelligence's approach to governance, risk and compliance (GRC) management is to provide affordable solutions to credit unions of all sizes and sophistication. With countless years of combined experience, our solutions are continually innovated by credit unions, for credit unions, in direct response to the pain points and challenges facing today’s financial services industry.

CU Risk Intelligence is a consortium of credit union leagues and credit union service organizations including AffirmX, League InfoSight, CU Solutions Group, CU Resources (Cornerstone Credit Union League's service corporation), the Mountain West Credit Union Association, Maryland & DC Credit Union Association, Indiana Credit Union League and Credit Union League of Connecticut.

Compliance Update with Amy K

Fri, 16 Apr 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

FinCEN Proposed Rulemaking – Beneficial Ownership Requirements

The Financial Crimes Enforcement Network recently issued an Advanced Notice of Proposed Rulemaking (ANPR) to implement provisions of the Corporate Transparency Act which was included in the recent National Defense Authorization Act.

This ANPR, which can be found here, has an open comment period until May 5, 2021.

Provisions of the Corporate Transparency Act require reporting companies (corporations, limited liability companies (LLCs), and similar entities, subject to certain statutory exemptions) to submit to FinCEN specified information on their beneficial owners—the individual natural persons who own or control them—as well as specified information about the persons who form or register those reporting companies.

As credit unions are aware, FinCEN issued final rules in 2016, which became effective in 2018, that require financial institutions to collect beneficial ownership information at the time they open new accounts for legal entity customers, including corporations and LLCs.

This particular rulemaking relates to how FinCEN can best implement the reporting requirements of the Corporate Transparency Act as well as FinCEN’s maintenance and disclosure of reported information.

The Corporate Transparency Act also mandates that the final rule on customer due diligence requirements for financial institutions be revised, however, FinCEN notes that this will be the subject of a separate rulemaking.

CFPB Proposed Rulemaking – Regulation X

The Consumer Financial Protection Bureau (CFPB) has issued proposed rulemaking to amend provisions of Regulation X regarding loss mitigation requirements prior to foreclosure. This proposed rule can be found here and comments are due May 10, 2021.

CFPB also prepared a Fast Fact Summary and “unofficial” redline document for the proposed rulemaking which can be found here.

As summarized by CFPB, “The proposed amendments would establish a temporary COVID-19 emergency pre-foreclosure review period until December 31, 2021, for principal residences. In addition, the proposed amendments would temporarily permit mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-19-related hardship based on the evaluation of an incomplete application. The Bureau also proposes certain amendments to the early intervention and reasonable diligence obligations that Regulation X imposes on mortgage servicers.”

Among the proposed amendments noted above, the CFPB seeks to establish a temporary COVID-19 emergency pre-foreclosure review period that would generally prohibit servicers from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after December 31, 2021.

Currently, 1024.41(f)(1) provides that a servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless: (i) A borrower's mortgage loan obligation is more than 120 days delinquent; (ii) The foreclosure is based on a borrower's violation of a due-on-sale clause; or (iii) The servicer is joining the foreclosure action of a superior or subordinate lienholder.

The proposed rule would amend 1024.41(f)(1)(i) and add a new subsection (3), thus requiring that …(i) A borrower’s mortgage loan obligation is more than 120 days delinquent and paragraph (f)(3) does not apply;… Proposed (f)(3) would provide, “Special COVID-19 Emergency pre-foreclosure review requirements. A servicer shall not rely on paragraph (f)(1)(i) to make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after December 31, 2021.”

It should be noted that per the discussion of the CFPB to this proposed rulemaking, this amendment would not apply to small servicers. “The proposed special pre-foreclosure review requirements would generally apply to the same mortgage loans that are subject to the pre-foreclosure review period in § 1024.41(f)(1). However, unlike the pre-foreclosure review period in § 1024.41(f)(1), the proposed special pre-foreclosure review period would not apply to small servicers. This is because small servicers are exempt from the requirements in § 1024.41, except with respect to § 1024.41(f)(1), and the Bureau is proposing to add the special pre-foreclosure review period to § 1024.41(f)(3) instead of to § 1024.41(f)(1).”

NCUA/FinCEN Request for Information

The National Credit Union Administration (NCUA), along with FinCEN and other federal banking agencies have issued a request for information (RFI) relating to Bank Secrecy Act (BSA) compliance.

The Joint Statement, found here, was included with the NCUA press release but technically it was only issued by the Federal Reserve Board, FDIC, and OCC, “in consultation with” the NCUA. This statement addresses how the risk management principles described in the agencies’ “Supervisory Guidance on Model Risk Management” relate to systems or models used by banks in complying with the requirements of BSA and regulations. This particular interagency statement does not apply to credit unions, however, it is referenced in the RFI which NCUA is a party to.

The RFI, found here, the model risk management guidance found in the above joint statement lays out principles for a “model risk management” in three key areas - (1) model development, implementation, and use; (2) model validation; and (3) governance, policies, and controls. The guidance describes different responsibilities for different parties within a bank, based on their roles, including those building the models, those independently reviewing the models, and those providing a governance framework for model risk management.

The RFI includes several questions for commenters to consider, including a request for, “Specific discussion of any suggested changes to guidance or regulation, including, in as much detail as possible, the nature of the requested change and supporting data or other information on impacts, costs, and benefits.” Also, “Specific identification of any aspects of the agencies’ approach to BSA/AML and OFAC compliance as it relates to MRMG that are working well and those that could be improved, including, in as much detail as possible, supporting data or other information on impacts, costs, and benefits.”

Fannie & Freddie Letters

Fannie Mae recently issued Lender Letter (LL-2021-09) which can be found here and Freddie Mac issued a similar letter (Bulletin 2021-13) found here, which requires that acquired loans meet the revised General Qualified Mortgage (QM) loan definition in the CFPB’s rule that became effective March 1, 2021 (Revised QM Rule). The letter notes that they will no longer acquire loans that are GSE Patch loans that do not meet the Revised QM Rule unless they fall include specific dates detailed in the letters.

The Fannie Mae letter also adds that they are continuing to assess the impact of the Revised QM Rule and PSPA on their policies and operations. Anticipate additional changes in eligibility and underwriting requirements in the following areas: The documentation and verification requirements for loans originated under the high LTV refinance option will be updated in light of the Revised QM Rule; The calculation of the qualifying payment amount and annual percentage rate (APR) for ARMs with an initial fixed-rate period of five years or less will be updated to require consideration of the maximum rate that may apply in the first five years of the loan; and all covered loans will be required to comply with the APR to average prime offer rate (APOR) spreads as required by the Revised QM Rule.

REMINDER:

As you may recall, at the end of 2020, the CFPB issued a final rule to amend the General QM definition. The final rule, along with additional compliance resources, that amends the General QM category can be found here and was effective March 1, however, the mandatory compliance date is July 1, 2021.

As discussed in the final rule, the CFPB amended the General QM loan definition “because retaining the existing 43 percent DTI limit would reduce the size of the QM market and likely would lead to a significant reduction in access to responsible, affordable credit when the Temporary GSE QM definition expires.”

The final rule amends Regulation Z to remove the current 43 percent DTI limit and provides that a loan would meet the General QM loan definition only if the APR exceeds APOR for a comparable transaction by less than 2.25 percentage points as of the date the interest rate is set. The final rule provides higher thresholds for loans with smaller loan amounts, certain manufactured housing loans, and for subordinate-lien transactions. For instance, with regard to a first-lien covered transaction secured by a manufactured home with a loan amount less than $110,260 (indexed for inflation), the threshold is 6.5 or more percentage points.

The final rule also removes Appendix Q. However, the rule will still require the consideration of the consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, debt obligations, alimony, child support, and monthly debt-to-income ratio or residual income. The final rule requires verification of consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan using third-party records that provide reasonably reliable evidence of the consumer’s income or assets, in accordance with the provisions of the regulation. It also requires verification of consumer’s current debt obligations, alimony, and child support using reasonably reliable third-party records in accordance with the regulation.

The General QM definition will retain all the existing product requirements and points/fees restrictions.

Last year the CFPB also issued a final rule to extend the sunset date of the Temporary GSE Qualified Mortgage (QM) loan definition. Originally set to expire January 21, 2021, this final rule provides that the temporary GSE QM loan definition will be available only for covered transactions for which the creditor receives the consumer’s application before the mandatory compliance date of final amendments to the General QM loan definition in Regulation Z – which as noted above is July 1, 2021. This final rule can be found here.

To create even more confusion on this topic though – earlier this year the CFPB issued a proposed rule to delay the mandatory compliance date of the General QM loan definition recent final rule. This proposed rule can be found here and comments were due April 5 and as of the writing of this article it has not been finalized yet.

Their March 2021 proposal, the CFPB sought to delay the mandatory compliance date of the General QM Final Rule until October 1, 2022. If this proposal is finalized, for covered transactions for which creditors receive an application on or after March 1, 2021 and before October 1, 2022, creditors would have the option of complying with either the revised General QM loan definition or the General QM loan definition in effect prior to March 1, 2021. Under the proposal, the revised regulations would apply to covered transactions for which creditors receive an application on or after October 1, 2022.

This proposed delay, if finalized, of the mandatory compliance date would also impact the Temporary GSE QM loan definition. The Temporary GSE QM loan definition would expire upon the earlier of October 1, 2022 or the date the applicable GSE exits Federal conservatorship (rather than on the current mandatory compliance date of July 1, 2021 or the date the applicable GSE exits Federal conservatorship). HOWEVER, circling back to the Letters Fannie and Freddie issued discussed at the beginning of this article, it appears they will be obligated to only accept loans meeting the Revised QM rule definition – even if the CFPB extends the mandatory compliance date.

This proposal did not make other changes to the General QM loan definition, however, as discussed in the summary of the proposed rule, the CFPB “plans to evaluate the General QM Final Rule’s amendments to the General QM loan definition and will consider at a later date whether to initiate another rulemaking to reconsider other aspects of the General QM Final Rule.”

As always, feel free to contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

ND Legislative Update

Mon, 12 Apr 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

Today is Legislative Day 63, and the deadline for bills and resolutions to be reported out of committees in second house today. I’ve heard many accounts of how many days leadership would like to keep at their disposal, but I think somewhere around 5 is the most likely.

Today I want to go more in depth on the Department of Financial Institutions’ bills.

Department budget bills are usually the last bills to be passed during a legislative session. The Department of Financial Institutions’ budget, SB 2008, is currently waiting for a House conference committee to be appointed as the Senate has refused to concur with their amendments. Major highlights for this bill include appropriations for state employee salary and benefit increases, reductions in funding for travel, and increases in operating expenses for the financial literacy program.

SB 2101 is being called the department’s “modernization” bill. The bill amends Century Code relating to credit union loans, the regulatory fund, assessment of civil money penalties, appointment of receivers, supervision and examinations, assessments, real estate loans, bank mergers, bank branches, bank investments, trust branches, credit union powers, credit union board notice, and sale or purchase of banking institutions or holding companies. Section 12 of the bill includes parity language between banks and credit unions in how to handle “other real estate owned” by credit unions. This will allow for a credit union to set up an LLC in order limit its liability if something were to happen with the property, much like banks are currently allowed to do. DakCU worked to secure an emergency clause for this bill so that credit unions would be able to utilize this section of the bill once it is filed with the Secretary of State.

SB 2102 deals with bank and credit union failures. First, it makes the procedures around such a situation administrative rather than judicial. Second, the bill would put the authority to take over a financial institution with the commissioner rather than the State Banking Board or State Credit Union Board. Third had to deal with the appeals process in the bill. DakCU had issues with no appeals process being offered in the emergency receivership process as outlined in the bill, and one was added in the House. The bill has passed both houses and is now awaiting the Governor’s signature.

Finally is SB 2197. This bill has to do with keeping financial documents that have been obtained by the department. Although there are general laws that are in place to keep such documents confidential, there are exceptions in Century Code that would allow or require the commissioner to furnish the information. SB 2197 would protect confidential bank information obtained by DFI, including confidential banking information and customer data.

Next week, we’ll talk about some of the agriculture bills we worked on this session. Have a great week, and don’t hesitate to contact me at kpulvermacher@dakcu.org with any questions or comments about our North Dakota advocacy efforts.

North Dakota Legislative Updatse

Wed, 07 Apr 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

Today marks Day 60 for the 2021 North Dakota Legislative Session. We are still waiting on a couple of bills to get their final passage; but for the most part, our major legislative work has finished.

Here’s a few interesting stats for you coming out of this session. Lawmakers started the session with 847 bills and 61 resolutions. As a legislative team, we monitored 32 bills this session, we testified on your behalf 15 times, we secured 1 emergency clause on a bill important to credit unions, and we helped created amendments for 6 bills that eventually went on to be passed. And probably most important: When we asked for our members to write emails to their legislators, they responded. Members wrote over 100 emails to legislators this session. Pretty impressive!

I’ve had many people ask me what our major issues have been this session, and I don’t hesitate to tell them one word: Liens! A close second for us was abandoned property. I would like to spend a little time this week going into more detail on these bills.

We spent a fair amount of time on HB 1366. In its original form, the bill allowed a repair shop to charge unlimited fees and transportation costs, on top of any repairs, to their priority lien against a vehicle or equipment. The financial community offered amendments that required repairman to follow provisions and protections that are required under Uniform Commercial Code, which the bill lacked.

SB 2223 was probably the strangest piece of legislation that I’ve worked on as a lobbyist, mostly because I’ve never seen a bill take on so many forms. It began as a bill that made changes to the Deed In Lieu of Foreclosure process. Before the bill even had its hearing, it received amendments that changed it into a bill to affect those farmers who had federal debt management plans from 2006. It received another set of amendments before the bill was voted on, but ultimately, those amendments were not taken up. The bill received a “do not pass” from the Senate Political Subdivisions committee and failed the Senate.

The abandoned property bills streamlined language in the Century Code to make it easier to remove abandoned property from homes, roadways, and self-storage facilities.

SB 2191 follows the adoption of SB 2205 last session to streamline the foreclosure process for abandoned property without negatively affecting consumers or the integrity of title. Last session, personal property left abandoned on the real property was inadvertently missed in that bill and is now causing some delays in the foreclosure of real property that has been abandoned.

The changes in SB 2098 will streamline the administrative workload for the North Dakota Highway Patrol and other law enforcement agencies. They will also provide a mechanism for tow companies to seek reimbursement to recover their costs for removing abandoned vehicles from the state’s roadways. The bill also allows for the posting of property on the official website for the unit of government that initiated the impound process.

We worked with the bill sponsors of SB 2330 to ensure that the process included notifying possible lienholders of where property was going to be placed. The bill modernizes the state’s lien laws regarding self-storage units and brings it in line with the many sates that have improved their laws over the past 15 years.

If you have any questions about these bills or others that we have talked about in past Memo articles, drop me an email at kpulvermacher@dakcu.org. Next week, we will go into the bills regarding the ND Department of Financial Institutions.

Compliance Update with Amy K

Fri, 02 Apr 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

CFPB Rescinds more Policy Statements

As we brought to your attention in the March 19 Memo article, the CFPB rescinded a policy statement issued January 24, 2020 relating to how the agency was exercising its supervisory and enforcement authority to address abusive acts or practices.

This week the CFPB rescinded seven more policy statements issued between March 26 through June 3, 2020, that provided temporary flexibilities to financial institutions in consumer financial markets including mortgages, credit reporting, credit cards and prepaid cards. The press release and links to all the rescinded policy statements can be found here.

The CFPB announces its intent to exercise its supervisory and enforcement authority consistent with the Dodd-Frank Act and with the full authority afforded by Congress consistent with the statutory purpose and objectives of the Bureau.

March 26, 2020 Policy statement RESCINDED – this statement related to quarterly HMDA reporting. The CFPB instructs all financial institutions required to file quarterly to do so beginning with their 2021 first quarter data, due on or before May 31, 2021, for all covered loans and applications with a final action taken date between January 1 and March 31, 2021. The Bureau does not intend to cite in an examination or initiate an enforcement action against any entity that did not make the quarterly filing for data collected in 2020.

March 26, 2020 Policy Statement RESCINDED – the statement related to information collection requirements for credit card and prepaid card accounts. The CPFB now provides the following directions:

Annual submission concerning agreements between credit card issuers and institutions of higher education - The CFPB now directs that credit card issuers required to submit information under Regulation Z relating to agreements in effect in calendar year 2020 should do so by March 31, 2021. Issuers should also submit all delayed submissions for agreements in effect in calendar year 2019. The Bureau does not intend to cite in an examination or initiate an enforcement action against any entity who submits requisite information relating to agreements in effect in calendar year 2019 and 2020 by April 30, 2021.

Quarterly submission of consumer credit card agreements - Credit card issuers required to submit information should do so by April 30, 2021 beginning with the submission relating to the first calendar quarter of 2021 and also include all delayed submissions from all cycles during which the Statement was in effect (i.e., all four quarters of 2020). The Bureau does not intend to cite in an examination or initiate an enforcement action against any entity who makes any requisite delayed submissions by April 30, 2021.

Submission of prepaid account agreements and related information required by Regulation E - Prepaid account issuers required by Regulation E to submit agreements and related information should ensure, by April 30, 2021, that any such information on file with the Bureau is current and complete through March 31, 2021. Thereafter, issuers must resume making submissions on a rolling basis in accordance with the regulation. The Bureau does not intend to cite in an examination or initiate an enforcement action against any entity who makes any requisite submissions by April 30, 2021.

March 26, 2020 Policy statement RESCINDED - the Statement had provided that the Bureau would take into account staffing and related resource challenges confronting financial institutions as it relates to supervisory activities and enforcement actions.

April 7, 2020 Policy Statement RESCINDED with respect to the CFPB. This was an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID.

April 14, 2020 Policy Statement RESCINDED with respect to the CFPB. This was also an interagency statement relating to appraisals and evaluations for real estate related financial transactions affected by COVID.

April 1, 2020 Policy Statement portion RESCINDED – this statement related to Fair Credit Reporting Act/Regulation V enforcement practices. CFPB rescinds the portion of the Statement that sets forth the Bureau’s flexible supervisory and enforcement approach during the pandemic regarding compliance with FCRA and Regulation V and announces its intent to exercise its supervisory and enforcement authority consistent with the Dodd-Frank Act and FCRA and with the full authority afforded by Congress consistent with the statutory purpose and objectives of the Bureau.

April 27, 2020 Policy statement RESCINDED – related to annual reports of activity and financial statements by land developers who are subject to the Interstate Land Sales Full Disclosure Act.

May 13, 2020 Policy statement RESCINDED – related to compliance with the maximum timeframe for billing error resolution set forth in Regulation Z.

June 3, 2020 Policy Statement RESCINDED – in regard to a credit card issuer that during a phone call does not obtain a consumer’s E-Sign consent to electronic provision of certain written disclosures required by Regulation Z (12 CFR part 1026), so long as the issuer during the phone call obtains both the consumer’s oral consent to electronic delivery of the written disclosures and oral affirmation of his or her ability to access and review the electronic written disclosures.

FINCEN – Beneficial Ownership Rule ANPR

The Financial Crimes Enforcement Network (FinCEN) has issued an advanced notice of proposed rulemaking (ANPR) regarding implementation of the Corporate Transparency Act (Act). The ANPR can be found here and comments are due May 5. Section 6403 of the Act requires reporting companies (corporations, limited liability companies (LLCs), and similar entities, subject to certain statutory exemptions) to submit to FinCEN specified information on their beneficial owners—the individual natural persons who own or control them—as well as specified information about the persons who form or register those reporting companies.

The Act further requires FinCEN to maintain this information in a confidential, secure, and non-public database, and it authorizes FinCEN to disclose the information to certain government agencies for certain purposes specified in the CTA, and to financial institutions to assist in meeting their customer due diligence obligations.

A final rule on customer due diligence requirements for financial institutions will be revised via a separate rulemaking.

BSA Webinar

The NCUA will be hosting a BSA webinar on April 14 at 1:00 p.m. (CT). Registration can be found here. Staff from the NCUA’s Office of Examination and Insurance will be joined by Cathryn Martin, BSA compliance officer at Tower Federal Credit Union in Laurel, Maryland, to cover topics that include: Updates on recently issued BSA statements; Actions for managing high-risk accounts; and Highlights of the Anti-Money Laundering Act of 2020. Participants can submit questions during the presentation or in advance: email WebinarQuestions@ncua.gov with subject line “BSA Update.”

EIP3

The IRS recently issued additional FAQs relating to the third economic impact payments (EIP) which can be found here. Some highlights include:

Deceased individuals - A payment won’t be issued for someone who has died before January 1, 2021. If you filed a joint return in 2020 and your spouse died before January 1, 2021, the decedent will not be included in the calculation of the third payment. You as the surviving spouse, if eligible, will be issued up to $1,400 for you and $1,400 for any qualifying dependents.

Incarcerated individuals - Individuals will not be denied Economic Impact Payments solely because they are incarcerated. An incarcerated individual may be issued a payment if all eligibility requirements are met and the individual filed a 2020 or 2019 tax return that was processed by the IRS.

Transferring money from EIP Card to bank/credit union account - The limit on ACH transfers to a bank account is $2,500 per transaction. You can easily transfer the money from your EIP Card to an existing bank account online at EIPcard.com or by using the Money Network Mobile App. You will need the routing and account number for your bank account. To transfer funds: Call 800-240-8100 (TTY: 800-241-9100) to activate your card. Register for online or mobile app access by going to EIPCard.com or the Money Network Mobile App and click on “Register.” Follow the steps to create your user ID and password. Be sure to have your EIP Card handy. Select “Move Money Out” and follow the steps to set up your ACH transfer. Transfers should post to your bank account in 1-2 business days.

Directions for returning a paper check or debit card can be found here.

Remember - The IRS doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information - even related to the economic impact payments. Watch out for websites and social media attempts that request money or personal information and for schemes tied to Economic Impact Payments.

The IRS urges taxpayers to visit IRS.gov – the official IRS website – to protect against scam artists. The IRS has issued a warning about coronavirus-related scams.

Request for Information – AI

The National Credit Union Administration (NCUA) along with several other regulatory agencies recently issued a Request for Information (RFI) regarding financial institutions’ use of ratification intelligence (AI), including machine learning. This RFI is open for a 60 day comment period and can be found here.

The RFI summarizes some benefits and risks of AI. The agencies recognize that AI has the potential to offer improved efficiency, enhanced performance, and cost reduction for financial institutions, as well as benefits to consumers and businesses. In this RFI, the agencies are seeking information on credit unions’ risk management practices related to the use of AI; barriers or challenges facing credit unions when developing, adopting, and managing AI and its risks; and benefits to financial institutions and their customers from the use of AI. The RFI also solicits respondents’ views on the use of AI in financial services, which will help the agencies determine whether any clarification would be helpful for financial institutions’ use of AI in a safe and sound manner and in compliance with applicable laws and regulations, including those related to consumer protection.

As always, DakCU members may contact Amy Kleinschmit with any compliance related questions at akleinschmit@dakcu.org.

Legislative Update with Jay Kruse

Wed, 31 Mar 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning!

The 2021 South Dakota Legislative Session has ended after a busy “Veto Day” on Monday. “Veto Day” is normally a rather quiet day to end the session, but on Monday legislators tackled two separate vetoes from Governor Noem. The House first voted to reject the Governor’s “Style & Form” veto/changes to HB 1217, an act to promote continued fairness in women’s sports 67-2 late Monday morning. They then followed up with a vote to override the resulting veto of HB 1217 in its original form which earlier passed through both chambers, which fell 2 votes short of the required 2/3rds majority needed to pass it over to the Senate. Following the failed votes, both chambers gaveled out, signaling the end of the 2021 legislative session. However, a special legislative session is anticipated to take place in the next 2-3 months to further discuss the issue along with how the round of federal COVID funds will be used.

Governor Noem is also interested in making changes to the medical marijuana provisions passed as a part of Initiated Measure 26, the ballot initiative that legalized its medical use after receiving 70% of the vote. It was another quiet session for credit unions, with much of the legislature’s focus this year revolving around the legalization of both medical and recreational marijuana. Constitutional Amendment A which legalized the recreational use of marijuana is still tied up in a court battle, however both chambers were able to agree on legislation governing medical use. There was a bill passed that directs the South Dakota Department of Banking to write cannabis banking rules that would only apply to state-chartered banks in the state. We continue to advocate for federal legislation (SAFE Banking Act) to allow our FCUs in the state to also serve the industry.

This session we tracked and monitored 22 industry-related bills, testifying once on SB 193 which updated our remote notary statues. After testifying I was invited to sit on the South Dakota Electronic Recording Commission which will be working on addition legislation this summer to further modernize our remote notary statutes during the 2022 session. While we originally believed the bill could do more to clear up some ambiguities in the statute, we ultimately supported passage of SB 193 after testifying in opposition during its first Senate hearing.

You can find a full list of all the bills that I, along with our South Dakota GAC, tracked during this session, as well as the final action taken on each at https://www.dakcu.org/bill-tracking.html.

As always, don't hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update

Fri, 26 Mar 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

NCUA – Interim Final Rules

Last week the NCUA issued two interim final rules relating to the Central Liquidity Facility (CLF) and Asset Thresholds for large credit unions.

CLF

The NCUA’s interim final rule (IFR) regarding the CLF is effective when published in the Federal Register and comments must be submitted within 60 days after publication. This IFR reflects relevant changes made by the Consolidated Appropriations Act (CAA). The CAA, among other things, extended the sunset date of the CLF enhancements in the CARES Act to December 31, 2021.

Among the revisions made, the IFR provides that credit unions that join the CLF between January 1, 2021 and December 31, 2021, regardless of percentage amount of stock subscription, may withdraw from membership in the Facility after notifying the NCUA Board in writing on the sooner of: (A) Six months from the date of its written notice to the NCUA Board; or (B) December 31, 2021. Any credit union that joins the Facility during the aforementioned period and remains a member after December 31, 2021, may immediately withdraw from membership in the Facility upon notifying the Board in writing of its intent to do so. Such immediate withdrawal period will expire on December 31, 2022. On January 1, 2023 the immediate withdrawal period will cease, and all members will be subject to the termination provisions in effect before April 29, 2020.

Asset Thresholds – Large Credit Unions

The NCUA also issued an IFR to temporarily allow federally insured credit unions to use asset data as of March 31, 2020, to determine the applicability of certain regulatory asset thresholds during calendar years 2021 and 2022. This IFR is also effective when published in the Federal Register and is open for a 60-day comment period.

As explained in the IFR the NCUA, “does not believe that the balance sheet growth related to the COVID-19 Pandemic has significantly increased the general risk profile of the affected FICUs.” As discussed previously, FICUs’ growth is largely due to the extraordinary growth in insured shares held by FICUs. Therefore, the Board feels it prudent to offer FICUs relief with respect to certain regulatory requirements being triggered by the unprecedented balance sheet growth.

This IFR impacts regulations for determining when a credit union is subject to capital planning and stress testing requirements and supervision from the Office of National Examinations and Supervision.

NCUA Administrative Order

The National Credit Union Administration recently issued an Administrative Order against a smaller ($69M) Michigan federal credit union and several of the provisions that the credit union consented to are on the topic of its marijuana-related business (MRB) accounts. Marijuana has been a hot topic this legislative session in South Dakota. North Dakota has obviously had medical marijuana on the books for a while. Therefore, any credit union contemplating serving this industry need to do their homework with enhanced due diligence and ensure it has the appropriate safeguards in place.

Learning from the mistakes of others, the Administrative Order requires the credit union to take several actions, including to implement an automated system to effectively monitor and identify all transactions for suspicious activity. The automated compliance and suspicious activity monitoring system must include functions to support compliance with FinCEN requirements for MRB. The Order expands on what is the system needs to be able to do, including: reconciliation of MRB Point of Sale, METRC, or accounting system data relative to member deposits; ongoing monitoring of adverse public information affecting MRBs; timely verification of changes in licensure status, including notification of a lapse in an MRB's state licensure; systematic monitoring of unusual Automated Clearing House or wire activity for MRB accounts; and monitoring of FinCEN "Red Flags" outlined in FIN-2014-G001, "BSA Expectations Regarding Marijuana-Related Businesses."

The Order also requires the credit union to engage a third party to validate the credit unions automated compliance and suspicious activity monitoring system simultaneously with the implementation of this system. The credit union is directed to immediately file all Suspicious Activity Reports which includes continuous and initial MRB SARs and develop and implement a system to ensure all SARs are filed accurately, completely, and on time by March 31, 2021. The credit union must immediately develop and implement a system to ensure all Currency Transaction Reports are filed accurately. The order directs that the credit union must immediately cease opening new MRB accounts.

The Order also touches on Money Services Businesses and directs the credit union to cease Money Services Business program by March 15, 2021, which includes suspending transactional activity on existing MSB accounts. The credit union must engage a qualified third party to perform a retrospective review of their MSB activity to determine the existence of suspicious activity warranting a SAR. At a minimum, the review must evaluate the criteria outlined in FIN- 2019-A003, "Advisory on Illicit Activity Involving Convertible Virtual Currency."

NCUA – Guaranteed Notes Program Update

The NCUA Board was also briefed on the Guaranteed Notes Program and Asset Management Estate which included an announcement that in April of 2021, membership capital account holders from the U.S. Central Federal Credit Union, Members United Corporate Federal Credit Union, and Southwest Corporate Federal Credit Union, will receive a partial distribution.

U.S. Central, Members United, and Southwest member capital holders of record with the liquidating agent will receive member capital account distributions. After accounting for mergers, purchases and assumptions, and liquidations, over 1,800 active credit unions will receive a distribution.

Additional information on the distribution along with FAQs can be found here -Corporate Capital Distribution Process | National Credit Union Administration (ncua.gov).

NACHA

Last week, the NACHA WEB Debit Account Validation Rule became effective. The Nacha Operating Rules now require that businesses initiating consumer ACH debits via the internet or mobile devices verify the consumers’ account information for the first payment. NACHA issued a number of FAQs on the topic which can be found here.

This rule is intended to help prevent fraud on the ACH Network and protect financial institutions from posting fraudulent or incorrect unauthorized payments. Merchants and billers (and their processing partners) are in the best position to detect and prevent fraud related to payments they are initiating.

Interagency Q&A – Private Flood Insurance

The NCUA, along with the OCC, Board of Governors of the Federal Reserve System, FDIC and FCA, issued a proposed supplement for the Interagency Questions and Answers Regarding Flood Insurance. This proposal can be found here and comments must be submitted by May 17, 2021.

Flood insurance requirements has had a long history beginning with the National Flood Insurance Act of 1968 which created the National Flood Insurance Program (NFIP). This was expanded with the Flood Disaster Protection Act of 1973 which made purchase of flood insurance mandatory in connection with loans made by federally regulated lending institutions when the loans are secured by improved real estate or mobile homes located in a special flood hazard area. Revisions came in 1994 with the National Flood Insurance Reform Act. The Biggert-Waters Flood Insurance Reform Act of 2012 added escrow, force placement, and private flood insurance provisions. In 2014 the Homeowner Flood Insurance Affordability Act amended the Biggert-Waters Act’s requirements regarding the escrow of flood insurance premiums and fees and created a new exemption from the mandatory flood insurance purchase requirement for certain detached structures.

Since 1997, the Interagency Questions and Answers regarding flood insurance have provided the lending industry with guidance addressing a wide spectrum of technical flood insurance-related compliance issues. These Q&As have been revised and updated several times since 1997, and the NCUA (along with other agencies) are seeking comment on 24 proposed Q&A regarding the most recent regulatory changes for private flood insurance.

The questions fall into three categories/sections: Mandatory Acceptance (9 questions); Discretionary Acceptance (4 questions); and General Compliance (11 questions).

Infosight Updates

Required Compliance Training

Check out the Required Compliance Training information that has been added under the Resources area of InfoSight! This document provides an overview of the compliance training requirements and the associated citation for that requirement.

RISK Alerts for March

New RISK Alerts now available from CUNA Mutual Group including: New! Don’t Let Staff Commit Fouls During March Madness (3/16/2021); Planning for the Vaccination (3/9/2021); and ACH Booster Payment Fraud Grows with Transactional Services Offerings (3/2/2021).

All RISK Alerts from CUNA Mutual Group are listed and summarized on the RISK Alerts and Resources page.

Contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.

Legislative Update with Jay Kruse

Wed, 24 Mar 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning,

The South Dakota Legislature remains in recess this week, as they await action from Governor Noem on a few more bills before they return on Monday. As of this morning Governor Noem has style/form vetoed one bill, HB 1217, an act to promote continued fairness in women’s sports, with 42 more bills waiting on her desk.

Senator Cramer Sponsors SAFE Banking Act

North Dakota Senator Kevin Cramer joined a group of 29 of colleagues to sponsor and introduce the Secure and Fair Enforcement (SAFE) Banking Act earlier this week, after a similarly bipartisan bill was also introduced in the House last week. The legislation aims to provide federal safeguards and protection to credit unions and other financial institutions serving legal cannabis business in their states. We appreciate Senator Cramer’s leadership on the issue, which has gained much more attention in the Dakotas with the recent legalization of medical marijuana in both states. South Dakota also awaits a State Supreme Court decision on the validity of Constitutional Amendment A, which would legalize the recreational use of cannabis for those 21 and over.

The SAFE Banking Act would prevent federal banking regulators from: Prohibiting, penalizing or discouraging a financial institution from providing financial services to a legitimate state-sanctioned and regulated cannabis business, or an associated business; Terminating or limiting a financial institution’s federal deposit insurance solely because it is providing services to a state-sanctioned cannabis business or associated business; Recommending or incentivizing a financial institution to halt or downgrade providing any kind of banking services to these businesses; or Taking any action on a loan to an owner or operator of a cannabis-related business.

Credit union professionals from both states advocated in support of this legislation during our virtual Hike the Hill meetings which took place over the last two weeks.

We look forward to continuing to work with Senator Cramer to gain support from the entire Dakota congressional delegation to help get this very important legislation passed and signed into law. However, there is still a long road ahead even though similar bills have been introduced in the prior session. The SAFE Banking Act did pass through the House in 2019 but couldn’t find similar support in the Senate.

As always, don’t hesitate to contact me with any comments or questions at jkruse@dakcu.org.

North Dakota Legislative Update

Mon, 22 Mar 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

Greetings, and happy spring!

Today we are staring down Legislative Day 49, and we’re hoping that as the weather gets nicer, it’ll put an extra spring in the North Dakota Legislature’s step as they race to get through their bills.

This week the House and Senate Appropriations Committees took in revenue projection presentations from IHS and Moody’s. The revenue forecasting process is an interesting one; the Legislature receives their first forecast before the Legislative Session Begins, and they receive a revised one during the Session. It starts with the Revenue Advisory Committee, created by the Office of Management and Budget, and consists of private sector members, legislators, and other public officials. The committee meets before each forecast to review the economic projections to ensure they are on par for the state. This information is then given to Moody’s and they adjust their forecasts as needed. In addition, this information becomes the basis of our state’s budget. In recent years, the Legislature has brought on a second firm, IHS, that provides a second analysis. Usually the numbers the Legislature ends up using falls somewhere in the middle.

The forecasts predicted a nearly 30 percent increase in oil prices than what the Legislature began with at the beginning of the year—that’s nearly a billion more than they started to budget with in January. It will be interesting to see how this impacts the budget from here on.

Our bills are moving fast and haven’t seen any huge bumps in the road (knock on wood). The Department of Financial Institutions had their bill go through the House IBL Committee without any dissenting votes; the same with their modernization bills. Once these bills hit the floor and pass we’ll have one bill that will need a confirmation vote due to amendments and we will still need to monitor the work of the Legislature. But I would say we are on the fast track to be done in early April. That said, I still won’t be putting any money down on that bet. Have a great week and don't hesitate to contact me with any advocacy questions.

Compliance Update with Amy K

Fri, 19 Mar 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

NCUA Proposed Rule – CUSOs

Comments for the National Credit Union Administration’s (NCUA) proposed rule regarding credit union service organizations (CUSO) are due March 29 and can be found here.

As discussed earlier in the Memo, in an effort to reduce regulatory burden the NCUA issued a proposed rule to update the list of permissible CUSO lending activity, specifically to permit CUSOs to originate any type of loan that an FCU may originate. The proposal would also grant the NCUA additional flexibility to approve permissible CUSO activities and services outside of notice and comment rulemaking.

Of note, the American Bankers Association have taken notice of this proposed rulemaking and filed a comment requesting an extension of the comment deadline, stating “ABA as well as all interested parties need adequate time to read, understand, analyze, and evaluate the Proposal and the nature and extent of its impact and the risks imposed upon consumers, communities, and the financial services industry.” At the time of writing this article no such extension has been granted.

Looking for feedback – what are your thoughts?

Directions for submitting your comments directly to NCUA can be found at the link above in the proposed rule, however, feel free to give your two cents on this proposed rulemaking to me, Amy Kleinschmit, as I draft our comment letter.

At this point, the NCUA has only granted CUSOs lending authority for four types of loans, namely: business; consumer mortgage; student; and credit cards.

As discussed in the proposed rule, “The NCUA historically has been reluctant to grant CUSOs general lending authority for all loans for several reasons. First, the NCUA has been hesitant in granting CUSOs authority to provide consumer loans as it may be perceived as a dilution of the FCU common bond requirement. Specifically, because CUSOs may serve people that are not members of a FCU, the NCUA has been concerned about FCUs benefiting from CUSO profits generated from non-members. Second, the NCUA has also expressed concern that if member loans were being made by CUSOs, the NCUA would have a duty to examine such loans and that would lead to stricter NCUA examination authority over CUSOs. Finally, the NCUA has also limited CUSO lending authority due to concerns that permitting CUSOs to engage in a core credit union function could negatively affect affiliated credit union services.”

However, the NCUA is reassessing its stance on permitted CUSO lending activity “noting that recent technological developments have further increased the benefits of allowing CUSOs to engage in expanded loan originations.” Nonbank firms constitute a significant share of the consumer lending market and are increasingly targeting lending products traditionally provided by credit unions, including auto finance, small-dollar consumer lending, and unsecured consumer credit. The proposed rule noted that “to compete effectively in a market with a rising prevalence of these technology-based lenders, FCUs may need to rely increasingly on pooling their resources to fund CUSOs and to build the necessary infrastructure. The costs for research and development, acquisition, implementation, and specialized staff capable of managing these new technologies may be prohibitive for all but a very few of the largest FCUs. CUSOs may provide the means for FCUs to address these challenges and may enable FCUs to collaboratively develop technologies that better serve their members.”

The NCUA included several questions within its proposed rule and welcomes feedback on all aspects of the proposal. Some of the questions posed include:

Would the proposed rule enable FCUs to offer additional technology-based lending services that FCUs may otherwise be unable to offer their members?

The Board is also considering whether permitting CUSOs to originate additional types of loans would facilitate FCUs’ access to securitization markets. It may be cost prohibitive for FCUs to securitize loans because securitizations are most cost effective with a large volume of loans. FCUs may also have difficulty aggregating loans to complete a securitization due to restrictions on purchasing loans and market concerns relating to varying underwriting standards. Therefore, the Board solicits comment on whether a CUSO could serve as an aggregator of loans to allow FCUs better access to securitization markets.

Does the proposed rule expose FCUs to unnecessary safety and soundness risks? If so, are there steps the Board should consider to mitigate such risks?

Would permitting CUSOs to engage in any type of lending as FCUs lead to additional reputational risk for FCUs? Loans from affiliated CUSOs may not comply with the same consumer protection limits as FCU loans, for example FCUs are subject to usury restrictions and a regulatory structure for issuing payday alternative loans (referred to as PALs).

Does expanding CUSO lending authority to include additional core FCU lending categories create unnecessary competition for FCUs, particularly small FCUs?

Instead of adopting a provision similar to the corporate CUSO provision that allows the NCUA to add additional categories of permissible activities for all CUSOs on its website, should the Board require individual FCUs to petition the Board for permission to lend to or invest in CUSOs that do additional activities or services not already listed in § 712.5?

Should the Board publish on its website any conditions imposed on activities permissible through the approval process?

Should the Board consider additional changes to the permissible activities list for CUSOs?

Be sure to contact Amy Kleinschmit at akleinschmit@dakcu.org with any questions or comments.

Compliance Update with Amy K

Fri, 19 Mar 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

CFPB & UDAAP

The Consumer Financial Protection Bureau (CFPB) recently announced that it is rescinding a policy statement issued January 24, 2020 relating to how the agency was exercising its supervisory and enforcement authority to address abusive acts or practices. The January 2020 policy statement included three principals that the CFPB would follow, including that the CFPB would focus on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the CFPB concluded that the harms to consumers from the conduct outweighed its benefits to consumers. Another of the principles included that the CFPB generally did not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.

The CFPB is now rescinding this statement and the principles stated in January 2020. Among the reasons include, “In particular, the policy of declining to seek certain types of monetary relief for abusive acts or practices—specifically civil money penalties and disgorgement—is contrary to the Bureau’s current priority of achieving general deterrence through penalties and other monetary remedies and of compensating victims for harm caused by violations of the Federal consumer financial laws through the Bureau’s Civil Penalty Fund.” [Emphasis added]

Current leadership at the CFPB has determined that it should exercise the full scope of its supervisory and enforcement authority to identify and remediate abusive acts or practices. Section 1031(d) of the Dodd-Frank Act provides the CFPB with its authority to declare when something is an abusive act or practice. Specifically, section 1031(d) states that the CFPB shall have no authority under this section to declare an act or practice abusive in connection with the provision of a consumer financial product or service, unless the act or practice: (1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of: (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

EIP3

Round three of the economic impact payments (EIP3) is well underway. As credit unions are aware the first wave of direct deposits made their way to accounts earlier this week. A second wave of EIP3s is slated to be transmitted on March 19 with effective and settlement dates of March 24, 2021.

Taxpayers may qualify for the full amount of the EIP3 if they have an adjusted gross income of up to $75,000 for singles and married persons filing a separate return, up to $112,500 for heads of household and up to $150,000 for married couples filing joint returns and surviving spouses. Payment amounts are reduced for filers with incomes above those levels. Those eligible will automatically receive an Economic Impact Payment of up to $1,400 for individuals or $2,800 for married couples, plus $1,400 for each dependent.

Remember, if an account is closed, according to information in the U.S. Treasury’s Green Book (page 4-2), the RDFI should return the payment. The Green Book states in Chapter 4 that all ACH payments must be returned in accordance with the Nacha Operating Rules and Guidelines, including when an account is closed or does not exist. Most ACH returns to the IRS will result in a paper check being issued; therefore, RDFIs must make appropriate use of Return Reason Codes.

When the checks do start coming, which it is estimated check volume is approximately 5 to 7 million checks per week, the check symbol will be 40447 and will be displayed in the MICR line. Fiscal Service encourages financial institutions to verify the security features of a U.S. Treasury check, and to determine the status of EIP checks by using the Treasury Check Verification System (TCVS). More information the EIP Treasury Checks can be found here.

Your member may also receive the EIP debit cards; once activated, the EIP Card can be used anywhere Visa® Debit Cards are accepted in-store, online or by phone. In addition, there are multiple ways to transfer the funds from an EIP Card to an existing bank/credit union account at no cost to the recipient. Please refer to the EIP Card FAQs for more information on ways consumers can transfer the funds from their EIP Cards to their credit union accounts.

NACHA has issued several FAQs with regard to EIP3 which you can find here.

The IRS also provides a number of FAQs and fact sheets available here.

CFPB & EIP3

The CPFB also issued a statement on Wednesday to encourage financial institutions to allow EIP3 to reach the consumer. CFPB Acting Director Dave Uejio stated: “The Consumer Financial Protection Bureau is squarely focused on addressing the impact of the COVID-19 pandemic on economically vulnerable consumers and is looking carefully at the stimulus payments that millions are now receiving through the American Rescue Plan. The Bureau is concerned that some of those desperately needed funds will not reach consumers, and will instead be intercepted by financial institutions or debt collectors to cover overdraft fees, past-due debts, or other liabilities.”

The CFPB also issued this consumer advisory that provides guidance to consumers on how to ensure the “full benefit of those funds [EIP3] by protecting them from bank and credit union setoff if your account is overdrawn.”

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Just looking for a specific audit? AffirmX is completely customizable for your credit union including offering stand-alone audits such as: BSA Independent Audit, Annual ACH Independent Audit; Annual SAFE Act Independent Audit, or Website Compliance Review.

Schedule a free demo with Amy Kleinschmit today!

Legislative Update with Jay Kruse

Wed, 17 Mar 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning!

Our virtual spring Hike the Hill meetings continue this week as we connect with South Dakota Senator John Thune and Congressman Dusty Johnson later today and Senator Mike Rounds on Friday morning.

We kicked off our North Dakota congressional meetings last week, meeting with Senator Hoeven and his staff, but unfortunately were forced to postpone our meeting with Congressman Armstrong due to a last-minute conflict in Washington. This is nothing new or out of the ordinary for this time of year, as both chambers of Congress normally have a full slate of issues to tackle, especially this year with the Biden administration now in control of the White House. We definitely recognize and appreciate our Dakota congressional delegation for doing all they can to fit us into their tight schedules.

While these virtual meetings generally serve as more of a congressional update from our delegation, we do cover a wide range of issues that are top of mind for credit union leadership in both states. As you can imagine, a large part of our discussions will focus on the effect of the COVID-19 pandemic on credit union operations and capital levels. However, this week we will also be discussing some ongoing issues that are back in the spotlight, such as data privacy and security, financial fraud, and cannabis banking. These topics can be very state specific; however, we believe the need for national data security and privacy standards and a federal solution to cannabis banking has never been greater. The current patchwork of various state regulations is only causing more confusion on these issues.

While all our South Dakota spring Hike the Hill meetings will be taking place virtually this week, we still hope to get meetings scheduled with both Senator Cramer and Congressman Armstrong in the coming weeks. Stay tuned to The Memo and your inboxes for more details as they are available

We appreciate the ongoing support of our advocacy efforts and hope you consider joining us for a conversation with your Dakotas’ Congressional Delegation! As always, don’t hesitate to contact me at jkruse@dakcu.org with any questions or comments.

Compliance Update with Amy K

Mon, 15 Mar 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

EIP3

The third round of Economic Impact Payment (EIP3) is here, which was part of the American Rescue Plan Act signed into law last week by President Biden. The IRS announced that the settlement date for the initial wave of tens of millions of economic impact payments by Direct Deposit will be Wednesday, March 17. The Nacha Rules require the banks and credit unions to make the funds available to the account holders by 9:00 a.m. local time on the settlement date.

As the IRS explained in their Friday press release, no action is needed by most taxpayers. The payments will be automatic and, in many cases, similar to how people received the first and second round of Economic Impact Payments in 2020. People can check the “Get My Payment” tool on IRS.gov to see the payment status of the third stimulus payment.

The EIP3 will be based on the taxpayer’s latest processed tax return from either 2020 or 2019. This includes anyone who successfully registered online at IRS.gov using the agency’s Non-Filers tool last year, or alternatively, submitted a special simplified tax return to the IRS. If the IRS has received and processed a taxpayer’s 2020 return, the agency will instead make the calculation based on that return.

In addition, the IRS will automatically send EIP3 to people who didn’t file a return but receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI) or Veterans Affairs benefits. This is similar to the first and second rounds of Economic Impact Payments, often referred to as EIP1 and EIP2.

EIP3 eligibility.

U.S. citizens or U.S. resident aliens are generally eligible for the full amount of the EIP3 if the individual (and spouse if filing a joint return) are not a dependent of another taxpayer and have a valid Social Security number (exception when married filing jointly) and the adjusted gross income (AGI) on their tax return does not exceed:

$150,000 if married and filing a joint return or if filing as a qualifying widow or widower

$112,500 if filing as head of household or

$75,000 for eligible individuals using any other filing statuses, such as single filers and married people filing separate returns.

Payments will be phased out or reduced above those AGI amounts. This means taxpayers will not receive a third payment if their AGI exceeds:

$160,000 if married and filing a joint return or if filing as a qualifying widow or widower

$120,000 if filing as head of household or

$80,000 for eligible individuals using other filing statuses, such as single filers and married people filing separate returns.

As discussed in the IRS FAQs if the individual’s credit union/bank information is invalid or the account has been closed, the credit union/bank will return the payment to the IRS and the IRS will mail it to the taxpayer by check at the address the IRS has on file.

ND Legislative Update

Mon, 15 Mar 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

We’re already halfway through March and today is Legislative Day 44. We are seeing things move through committees quickly now as they go through their second hearings. Once we’re through this second round of hearings, we’ll see conference committees begin and budgets start to be passed. It’s all downhill from here, folks!

Last week we had two major bills heard. HB 1366 was heard in the Senate and was passed out later that same day. No amendments were offered and the bill will stay the same as it was passed out of the House. It’s not likely to see opposition on the floor.

SB 2008, the Department of Financial Institutions budget bill, was heard the same day. DakCU testified in favor of the bill. Although it was not passed out of the committee that day, it’s likely to come out of committee without much opposition or change.

This week, the Senate and House Appropriations committees will receive budget forecasts. These forecasts look at state revenues, agriculture and oil markets, and the nation’s economy and help the state set what it believes are appropriate revenue numbers on which to use for the state’s budgeting purposes. This is an important step; if legislators are budgeting too high, we could see state budgets get slashed. If they are budgeting low, we could see more dollars freed up to use.

DakCU will be monitoring unclaimed property bills this week, and will testify on SB 2101, a bill that modernizes state credit union regulations regarding supervision and examinations, assessments, and real estate loans.

On a personal note, it was great to see so many of your faces on the call with Senator Hoeven last week during our virtual Hike the Hill! We’re looking forward to visiting with Congressman Armstrong this week and Senator Cramer in the near future.

Compliance Update with Amy K

Fri, 12 Mar 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

CFPB Final Interpretive Rule – Regulation B

As credit unions are aware, the Equal Credit Opportunity Act (ECOA) as implemented by Regulation B, makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction,” on several enumerated bases, including “on the basis of . . . sex . . .” The CFPB recently announced an interpretive rule to address any regulatory uncertainty that may still exist under ECOA and Regulation B as to the term “sex” so as to ensure the fair, equitable, and nondiscriminatory access to credit for both individuals and communities and to ensure that consumers are protected from discrimination.

The interpretative rule provides that with respect to any aspect of a credit transaction, the prohibition against sex discrimination in the ECOA and Regulation B, which implements ECOA, encompasses sexual orientation discrimination and gender identity discrimination, including discrimination based on actual or perceived nonconformity with sex-based or gender-based stereotypes and discrimination based on an applicant’s associations.

As stated in the accompanying press release, “In issuing this interpretive rule, we’re making it clear that lenders cannot discriminate based on sexual orientation or gender identity,” said CFPB Acting Director David Uejio. “The CFPB will ensure that consumers are protected against such discrimination and provided equal opportunities in credit.”

FinCEN Notice

The Financial Crimes Enforcement Network (FinCEN) recently issued notice FIN-2021-NTC2 relating to trade in antiquities and art. The Notice alerts financial institutions, which includes credit unions, to be aware that illicit activity associated with the trade in antiquities and art may involve their institutions. Crimes relating to antiquities and art may include looting or theft, the illicit excavation of archaeological items, smuggling, and the sale of stolen or counterfeit objects. This notice goes on to detail how to complete a SAR should it become necessary include tips for completing the narrative portion of the SAR.

NCUA FREE Webinar – Credit Risk Related to COVID-19

The NCUA will be hosting a free webinar on March 24 about potential areas of credit risk resulting from the COVID-19 pandemic. Online registration for the “Pandemic-Related Credit Risks for Credit Unions” webinar can be found here. The webinar is scheduled to begin at 2 p.m. Eastern and run approximately for 60 minutes. Topics that will be covered during the webinar include: Credit markets’ status; Current federal regulations; What NCUA examiners look for; Suggestions on reporting risk to a credit union’s management and board; and Advice for proactively managing credit risks.

As you will recall, the 2021 NCUA Supervisory Priorities include credit risk management – so this might be a good webinar to catch. Per the supervisory priorities letter to credit unions, “NCUA examiners will continue to place emphasis on the review of credit unions’ loan underwriting standards and credit risk-management procedures. NCUA examiners will focus on any adjustments credit unions made to lending programs to address borrowers facing financial hardship because of the COVID-19 pandemic. NCUA examiners will also focus on reviewing policies that address the use of loan workout strategies, risk-management practices, and new strategies implemented to provide funds to borrowers impacted by the COVID-19 pandemic, including programs that were authorized under the CARES Act and extended in the Consolidated Appropriations Act, 2021. In particular, NCUA examiners will evaluate credit unions’ controls, reporting, and tracking of these programs.

NCUA examiners will also verify that credit unions evaluated the potential impact their COVID-19 response and relief efforts will have on their capital position and financial stability. Credit unions must demonstrate they understand and are continually evaluating credit risks specific to this crisis.

Credit unions’ risk-monitoring practices should be commensurate with the level of complexity and nature of their lending activities. Credit unions should maintain safe and sound lending practices and comply with consumer disclosure and regulatory reporting requirements.”

UMACHA Virtual Symposiums

UMACHA has two upcoming virtual symposiums designed to bring timely information to credit union professionals on fraud and compliance.

March 16 – Fraud Symposium in conjunction with WesPay.

UMACHA and Wespay have partnered to bring you the 2021 Fraud Symposium, a one-day virtual conference. Bringing together leading industry experts and professionals to discuss the timely trends in payments fraud and ways to mitigate risk, especially in a faster-payments environment. Sessions will cover combatting synthetic identity theft; romance scams; fraud and real-time payments – just to name a few. Visit umacha.org to see the complete Fraud Symposium agenda, speakers, session descriptions and to register today!

March 25 – Compliance Symposium.

This full-day special event focuses on ACH Rules compliance and the broader regulatory landscape related to electronic payments. Join UMACHA staff and industry experts covering topics that include: Common ACH and Risk Findings; Debit Card Fraud; Risk Lessons Learned from the Pandemic; and the New Normal for Upcoming ACH Rules. The full agenda can be found here and registration information is found here.

CU PolicyPro’s New Look!

CU PolicyPro can help your credit union manage today’s ongoing compliance and operational challenges thanks to its more than 230 detailed model policies. Together with InfoSight, you have at your disposal a comprehensive suite of policies and regulatory compliance guidance written especially for credit unions by legal and financial experts. And, coming soon are some major updates to CU PolicyPro! The all-new CU PolicyPro will continue to provide the great model policy content you’ve come to expect but will now offer a fully redesigned policy management system!

The new system includes a beautiful, modern, and easy to navigate design to help all users easily find, view and print both model policies and the credit union’s own customized policies. System admins and policy editors will now have a whole new toolbox to: create, maintain and distribute policies; assign and track policy updates and reviews; upload and share additional documents; view and confirm relevant model policy updates; and manage user access to the policy level.

Here is a short video with more information about the upcoming changes to CUPolicyPro.

Visit the DakCU Compliance Page to submit questions directly to Amy Kleinschmit.

Legislative Update with Jay Kruse

Wed, 10 Mar 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning,

Tomorrow is legislative day 36 which is also the final day of South Dakota legislative session before legislators head home for a two week recess. They will then return to Pierre on March 29^th to override any of Governor Noem’s vetoes and complete any last-minute business. As you can imagine these next few days in the Capitol are going to jammed packed!

A major topic of discussion will surely be House Bill 1100, which institutes the state’s medical marijuana program as a result of the passage of Initiated Measure 26. The Senate passed the legislation on Monday with an added amendment from Sioux Falls Republican Blake Curd that would allow for the recreational use of cannabis for adults 21 years and older. With the added amendment expanding the scope of the legislation from only medical use to both medical and recreational use, the bill now heads back to the House for consideration in its amended form. The House originally approved the bill on February 25^th 40-28.

Senate Bill 193 also recently passed both the House and Senate and is awaiting Governor Noem’s signature. This legislation would allow notarial officers in this state, while located in this state, to perform a notarial act with a person not in the physical presence of the notarial officer but observed by the notarial officer through means of video communication technology. While more modernizations of our remote notary laws will be needed next year to provide some more clarity, we believe this legislation is a step in the right direction. We plan to collaborate with the electronic recording commission and the governor’s office to continue to make the needed updates to these statutes in 2022.

You can see the full list of bills we are tracking, including links and details, on our website at: https://www.dakcu.org/bill-tracking.html. Be sure to select South Dakota in the “Key Legislation” drop down box to display the state-specific bills we are tracking.

Virtual Hike the Hill Meetings

Our first virtual congressional Zoom meeting with North Dakota Senator Hoeven is tomorrow at 11:30 a.m. CT. In addition to the registration on our website, which you can find here, Jeff also sent calendar invites to all credit union CEOs which included the links to attend your state’s meetings. If you have accepted the calendar invite, don’t worry about going through the registration process on our website.

Due to the busy schedule in Washington, we have had to shuffle our meetings around a little bit to accommodate a couple of the congressional offices. Below is an updated schedule of both our North and South Dakota meetings:

North Dakota

March 11, 2021 at 11:30 a.m. CT – Virtual Meeting with Senator Hoeven

March 11, 2021 at 1:00 p.m. CST – Virtual Meeting with Congressman Armstrong

South Dakota

March 17, 2021 at 1:30 p.m. CST – Virtual Meeting with Senator John Thune

March 17, 2021 at 3:30 p.m. CST – Virtual Meeting with Congressman Johnson

March 19, 2021 at 9:00 a.m. CST – Conference Call with Senator Mike Rounds

We appreciate the ongoing support of our advocacy efforts and hope you consider joining us for a conversation with your Dakotas’ congressional delegation!

As always, feel free to contact me with any questions or comments.

North Dakota Legislative Update

Mon, 01 Mar 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

How is it already March? It seems like just yesterday it was December 1^st, and I was starting my first day with the organization. As of today, I’ve been at Dakota Credit Union Association for three months and already have half a legislative session under my belt. Time sure does fly by when you’re having fun! I’ve really enjoyed learning the vast landscape of issues that affect credit unions, and I can confirm that I’m still learning new things every day.

During the 2021 Legislative Session, DakCU has been tracking around 30 bills that have an impact on credit unions. Of those 30, we have placed a significant emphasis on 10 bills. The following is a short recap on the bills that saw the most action from the organization, so that you can get a feel for what the 2021 Legislative Session has been focused on.

This session we have spent quite a bit of time on issues involving agriculture; these bills mostly dealt with insolvencies and mediation. HB 1026 made changes to the Agriculture Department’s authority on intervening on a suspected insolvency. The original bill made changes to the assets that may be seized and included real property; the financial community suggested changes that narrowed their ability to seize all assets to just the grain that is still on the premises. The bill has passed the House and has already been heard in the Senate where it received a “do pass” recommendation from the Senate Agriculture Committee. HB 1172 didn’t have as successful of a story. The bill sought to make changes to Agricultural Mediation and Negotiation Services. At one point, the bill sponsor offered amendments to change the bill to require banks and credit unions to go through mediation. The bill eventually went to a subcommittee and ultimately received a “do not pass.” It failed on a vote of the House.

Finally, I want to update you on HB 1366, as it has received the most attention from our association. In its original form, the bill allowed a repair shop to charge unlimited fees and transportation costs, on top of any repairs, to their priority lien against a vehicle or equipment. The financial community offered amendments that required repairmen to follow provisions and protections that are required under Uniform Commercial Code, which the bill lacked. However, because of last minute amendments attached to the bill, repairmen would now be able to add up to 60% more in repair costs on a piece of property because they would have to notify any lienholders. DakCU worked hard and legislators received about 100 (!) emails from our members, opposing the changes and ultimately the legislation. Unfortunately, the House did pass the legislation and we will be again working on it in the Senate.

To see the full list of priority bills we’re tracking, please visit the Advocacy Page on DakCU’s new website.

Before I sign off this week, I want to give a heartfelt thank you to every member that took the time to write an email to their local legislator. You have no idea how much impact this has! As a grassroots organization, we get to work as a team, and to know that you have so many people that have your back and are ready to work when called upon, it makes all the difference in the world. Thanks for all you do!

Compliance Update with Amy K

Fri, 26 Feb 2021 00:00:00 GMT

Compliance Update with Amy K

by Amy Kleinschmit, Chief Compliance Officer

National Consumer Protection Week

National Consumer Protection Week (NCPW), February 28 to March 6, 2021, is a time to help people understand their consumer rights and make well-informed decisions about money. There are a number of virtual events planned throughout the week which will cover a range of topics, including avoiding coronavirus scams, government imposters, and cyber fraud.

The FTC has a list of events found here, and also has a number of shareable social media images to help educate members about scams and frauds that are circulating. These images can be found here.

FinCEN Advisory – Financial Crimes Targeting COVID-19 Economic Impact Payments

The Financial Crimes Enforcement Network (FinCEN) issued advisory FIN-2021-A002 regarding crimes targeting COVID-19 Economic Impact Payments (EIP). This advisory contains descriptions of EIP fraud, associated red flag indicators, and information on reporting suspicious activity.

There are a number of fraudulent activities and theft of EIPs. Some examples include fraudulent checks; altered checks; counterfeit checks; phishing schemes; inappropriate seizure of EIP. The advisory goes on to list red flags related to each of these activities. It is important for credit unions to review these red flags, and to be aware of fraudulent activities. Some of the red flags include:

An existing account receives, or an account holder makes, multiple EIP-related deposits for individuals other than the account holder(s), and the individuals named on the checks reside outside the geographic region of the account holder, or do not have a history at the account holder’s purported address. This may be indicative of funnel account activities in which multiple EIPs are deposited or transferred throughout the United States into one account, which may be held by a fraudster or a money mule working for the fraudster.

A customer opens a new account with an EIP check or debit card, and the name of the potential account holder is different from that of the depositor or the payee of EIP.

An account receives several EIP-related deposits and almost immediately thereafter (a) disburses funds for large purchases at merchants that offer cash back as an option, in amounts not typical of this type of merchant, or (b) has funds transferred onto prepaid debit or gift cards.

Deposits of one or more EIP checks or electronic deposits are made into a nursing home or assisted living facility’s business account and those payments have not been returned to the resident. This may be an indication that the business is inappropriately withholding residents’ EIP funds.

FinCEN also issued a consolidated COVID-19 SAR Key Terms and Filing Instructions which can be found here. As credit unions are aware, there have been several FinCEN advisories related to scams and fraudulent activity related to COVID-19. Each of those advisories included filing instructions and keywords that were to be used when filing an SAR in response to this activity. This notice consolidates all these filing instructions and key terms for fraudulent activities, crimes, and cyber and ransomware attacks related to Coronavirus Disease 2019 (COVID-19). Make sure the individual responsible for completing SARs at your credit union has a copy of this notice.

CFPB – QM Final Rules

The Consumer Financial Protection Bureau (CFPB) has updated their small entity compliance guides related to the Qualified Mortgage (QM) rules. These updated resources can be found here. As you may recall, in 2020 the CFPB issued the GSE Patch Extension Final Rule, General QM Final Rule, and Seasoned QM Final Rule. The new General QM rule and Seasoned QM rule are set to take effect March 1. Mandatory compliance of the new General QM rule is July 1.

However, this is probably not the last we will see of rulemaking affecting the QM definitions. The CFPB also issued a statement, found here, that provides “The Bureau is considering whether to initiate a rulemaking to revisit the Seasoned QM Final Rule. If the Bureau decides to do so, it expects that it will consider in that rulemaking whether any potential final rule revoking or amending the Seasoned QM Final Rule should affect covered transactions for which an application was received during the period from March 1, 2021, until the effective date of such a final rule.”

Furthermore, with regard to the General QM final rule, “The Bureau also expects to issue shortly a proposed rule that would delay the July 1, 2021 mandatory compliance date of the General QM Final Rule.” The Statement concludes with “The Bureau will consider at a later date whether to initiate another rulemaking to reconsider other aspects of the General QM Final Rule.”

InfoSight FAQs (Continued!)

InfoSight is a FREE resource included with your DakCU membership. Login today to take advantage of this fantastic resource! If you’re new to InfoSight, here are some more frequently asked questions.

Q: How do I view information from other states?

A: Go under the Resources area in the top navigation and click the InfoSight Listing by State option.

Q: How can I view all the information for a topic at one time without opening the orange bars for each section?

A: Click the View/Print All button in the upper right-side corner (just below the blue navigation bar). This will give you a fully expanded view of all the content. The content can be printed from this screen as well.

Q: There is so much information on InfoSight. How can I quickly find what I am looking for?

A: The search feature, found in the upper right corner of site (click the magnifying glass icon!) can help pinpoint what you are looking for in InfoSight. We also have an A-Z Index under the Resources area in the top navigation which many credit unions find very useful to get them to the right spot.

Have a question not on the list above? Contact Amy Kleinschmit for assistance.

Legislative Update with Jay Kruse

Wed, 24 Feb 2021 00:00:00 GMT

Legislative Update with Jay Kruse

by Jay Kruse, Chief Advocacy Officer

Good Morning!

I hope everyone is enjoying this last week of February. I know it’s not quite spring yet, but it sure feels like it here in Sioux Falls with temperatures reaching above 50 degrees just a few days after we suffered through some ridiculously frigid lows! Things are also heating up in the South Dakota Legislature, with Crossover Day occurring tomorrow.

“Crossover,” is the deadline for bills and resolutions to pass the house they were originally introduced in and move across the capitol into the other chamber. This also means that many of the one-sentence, empty vehicle bills, often referred to as “title bills,” are also being amended to populate the legislative language that was originally left blank. This process is known as “hoghousing” a bill. As a result, many House and Senate committees have begun to gavel in earlier than normal this week to tackle the increased workload.

Many of the bills being “hoghoused” have to do with the topic of marijuana. Again, prior to this week, most of these bills had been left blank as discussions were occurring behind the scenes between legislators and lobbyists, with strong input from Governor Noem’s office. While as credit unions, we don’t take a stance regarding the legalization of cannabis, we do believe those legally engaging in business with the cannabis industry should have equal access to safe and secure banking options just as other legal business. However, legal uncertainty between state and federal law must be resolved to bring cannabis related businesses out of the black market and into mainstream financial services. This means legislation and guidance is still needed on the federal level.

In addition to bills defining the rules and regulations surrounding the legalization of both recreational and medical marijuana, there is a bill, HB 1203, which aims to allow South Dakota’s state banking institutions to serve the cannabis industry. We continue to closely monitor this legislation and the associated conversations as it moves through the legislative process, however, we did not feel comfortable at this time testifying either in support or opposition to state legislation that only applies to banks. Federally chartered credit unions in the state of South Dakota are exempt from these proposed changes, and we continue to advocate for the needed changes on the federal level to open the door for expanded financial services to the cannabis industry.

The Dakota Credit Union Association, along with the South Dakota Governmental Affairs Committee, continues to track and monitor multiple industry related bills. You can see the full list of bills, including links and details, on our website at: https://www.dakcu.org/bill-tracking.html. Be sure to select South Dakota in the “Key Legislation” drop down box to display the state-specific bills we are tracking.

Spring Virtual Hike-the-Hill – North and South Dakota.

I wanted to give everyone a quick update on our “spring” hike-the-hill meetings that normally occur in conjunction with the CUNA GAC, which is taking place next week. We are still in the process of scheduling and finalizing virtual meetings with the entire Dakota Congressional Delegation to occur during the middle to later part of March. This is typically a very busy time in Washington DC, especially after adding in the fact our elected officials are required to continue to try to navigate an ongoing pandemic. However, we do hope to have these meetings finalized and get the details out to you in the very near future, so please keep an eye on your email and The Memo for more details on how to register and take part in these Important virtual meetings with our federal lawmakers.

North Dakota HB 1366 Passes House.

Yesterday, the North Dakota House passed HB 1366 with the increased lien threshold amendments we opposed. As the Senate receives the bill, DakCU will continue to work to make this bill better for both consumers and credit unions. Watch for Kayla Pulvermacher’s ND Legislative Updates in The Memo on Mondays to continue to follow along with this bill.

As always, feel free to contact me at jkruse@dakcu.org with any questions or comments.

North Dakota Legislative Update

Mon, 22 Feb 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

The highly anticipated week of Crossover is here! This occasion marks the first major deadline for the North Dakota Legislature; all bills passed by the house of origin are sent to the other house for consideration and final passage. Legislators also get a brief break at this time.

Here’s a quick update on a few of our priority bills this session:

HB 1172 makes changes to Agricultural Mediation and Negotiation Services. Last week, the bill sponsor offered amendments to change the bill to requiring banks and credit unions to go through mediation. The bill failed on the House floor.

HB 1175 creates immunity for businesses against COVID-19 claims if the businesses had followed state law and state orders. The bill was heard this week and garnered broad businesses support. The bill has yet to be voted on by the House at this time.

SB 2223 originally made changes to the Deed In Lieu of Foreclosure process. The bill sponsor offered amendments to change the bill to affect those who had a debt management plans from 2006; these amendments were adopted, but the bill received a “do not pass” from the committee. It ultimately failed on the Senate floor.

To see the rest of our priority bills, check out our tracking list here.

Action Alerts Show Grassroots Efforts Work!

HB 1366, the repairman lien bill, will be voted on by the House this week and DakCU is asking for a NO vote.

In preparation for the hearing, Dakota Credit Union Association, along with the North Dakota Bankers Association, Independent Community Bankers Association and Farm Credit Services, met to discuss how the financial community could make this legislation work for all parties affected. The agreed upon amendments dealt with provisions and protections that are required under Uniform Commercial Code, which the bill lacked.

However, because of last minute amendments attached by the Autodealers Association, repairmen would now be able to add up to 60% more repair costs onto a piece of property before they would have to notify any other lienholders. These changes should have been presented during the bill's hearing.

DakCU sent out an alert on Friday, and within an hour, we had garnered over 60 emails to legislators. This is amazing grassroots work at its finest! We’re hopeful that this work by you, the members, helps us obtain a better position as the bill reaches the Senate.

If you have not yet weighed in on this important legislation, be sure to do so now! It only takes a minute or two to voice your opinion through our Grassroots Action Center. If you have any questions, don’t hesitate to contact me at kpulvermacher@dakcu.org for assistance.

Compliance Update with Amy K

Fri, 19 Feb 2021 00:00:00 GMT

Compliance Update with Amy K

By Amy Kleinschmit, Chief Compliance Officer

Free NCUA Webinar - Tax Time Resources for Credit Unions and Consumers

The NCUA and IRS will be co-hosting a free webinar on the Earned Income Tax Credit and Volunteer Income Tax Assistance (VITA) programs. The NCUA and the IRS encourage credit unions, their members, and others to participate in the webinar to learn more about the benefits of these tax programs. The presentation will include information on credit union Call Report data, Earned Income Tax Credit resources, and stakeholder partnerships. Both agencies will discuss their financial literacy efforts regarding the Earned Income Tax Credit and VITA, geared to low- and moderate-income families, and highlight the resources available to consumers at MyCreditUnion.gov and other websites. A Q&A segment will follow.

Date: February 23 at 1:00 p.m. (CT). Register here.

NCUA Final Rule – Joint Ownership Share Account

The National Credit Union Administration (NCUA) approved a final rule at their recent board meeting relating to insurance requirements for joint ownership share accounts, which can be found here. This rule is effective 30 days after it is published in the Federal Register.

Briefly, the final rule provides an alternative method to satisfy the membership card or account signature card requirement necessary for insurance coverage. However, this rule only relates to insurance coverage of joint accounts. Obtaining the member’s signature is needed beyond merely account insurance. As the NCUA stressed, “the Board strongly emphasizes that this final rule only affects a requirement in the NCUA’s regulations that must be satisfied for a share account to be separately insured as a joint account; it does not affect any other legal requirements applicable to FICUs. FICUs may, and likely will, for legal or other reasons, find it appropriate or necessary to continue collecting customers’ signatures.”

The final rule amends § 745.8(c) Qualifying joint accounts and provides: “(1) A joint account is a qualifying joint account if each of the co-owners has personally signed a membership or account signature card and has a right of withdrawal on the same basis as the other co-owners. The signature requirement does not apply to share certificates, or to any accounts maintained by an agent, nominee, guardian, custodian or conservator on behalf of two or more persons if the records of the credit union properly reflect that the account is so maintained. (2) The signature card requirement of paragraph (c)(1) of this section also may be satisfied by information contained in the account records of the federally insured credit union establishing co-ownership of the share account, including, but not limited to, evidence that the institution has issued a mechanism for accessing the account to each co-owner or evidence of usage of the share account by each co-owner.”

This final rule does not introduce any new requirements for an account to be insured as a joint account and would not reduce or affect insurance coverage for any account for which the existing joint account requirements are satisfied.

Federal Reserve System Final Rule - Reg D

The Federal Reserve Board (Board) adopted as a final rule its March 24, 2020, interim final rule. This final rule can be found here and is effective March 12, 2021. As you may recall, the Board issued an interim final rule in March of last year that amended Regulation D to lower all transaction account reserve requirement ratios to zero percent, thereby eliminating all reserve requirements.

As explained by the Board, “In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.”

Previously, the Board had also issued its final rule to amend Regulation D to reflect the annual indexing of the reserve requirement exemption amount and the low reserve tranche for 2021. The annual indexation of these amounts is required notwithstanding the Board’s action in March 2020 setting all reserve requirement ratios to zero. This final rule can be found here and was effective January 11, 2021.

For 2021 the final rule assigned the reporting panels (weekly reporters, quarterly reporters, annual reporters, or nonreporters) as follows:

“Those depository institutions with net transaction accounts over $21.1 million (the reserve requirement exemption amount) or with total transaction accounts, savings deposits, and small time deposits greater than or equal to $2.633 billion (the reduced reporting limit) are subject to detailed reporting, and must file a Report of Transaction Accounts, Other Deposits and Vault Cash (FR 2900 report) either weekly or quarterly. Of this group, those with total transaction accounts, savings deposits, and small time deposits greater than or equal to $1.262 billion (the nonexempt deposit cutoff level) are required to file the FR 2900 report each week, while those with total transaction accounts, savings deposits, and small time deposits less than $1.262 billion are required to file the FR 2900 report each quarter.

Those depository institutions with net transaction accounts less than or equal to $21.1 million (the reserve requirement exemption amount) and with total transaction accounts, savings deposits, and small time deposits less than $2.633 billion (the reduced reporting limit) are eligible for reduced reporting, and must either file a deposit report annually or not at all. Of this group, those with total deposits greater than $21.1 million (but with total transaction accounts, savings deposits, and small time deposits less than $2.633 billion) are required to file the Annual Report of Deposits and Reservable Liabilities (FR 2910a) report annually, while those with total deposits less than or equal to $21.1 million are not required to file a deposit report. A depository institution that adjusts reported values on its FR 2910a report in order to qualify for reduced reporting will be shifted to an FR 2900 reporting panel.”

InfoSight Highlight – FAQs

InfoSight is a FREE resource included with your DakCU membership. Login today to take advantage of this fantastic resource! If you’re new to InfoSight, here are some frequently asked questions that can help you get started.

Q: I don’t know if I have a login. What should I do?

A: Visit the DakCU website to access InfoSight. Once you are on the login screen, click the “Forgotten Password” link. If you have a login, your information will be emailed to you. If you do not have a login, you can register for one on the login page.

Q: What if my login is not working?

A: If you are getting an “invalid login” message, try the “Forgotten Password” link – you would be surprised how many people forget their user name or password! If you are getting any other type of error message, or still cannot login, please take a screenshot of the onscreen message and email to info@leagueinfosight.com for assistance.

Q: How do I customize the dashboard?

A: There are two areas that can be customized on the InfoSight dashboard – the Topics of Interest and Recently Updated. To customize, click on the gear icon in the upper right corner of the orange header for each area. For Topics of Interest, choose up to seven channels and/or specific topics to create quick links to those you’ll be visiting most. Under Recently Update, choose from any (or all!) of the Channels or RISK Alerts and receive a news feed of updates for those items right on your dashboard.

As always, DakCU members may contact Amy Kleinschmit with any compliance related questions at akleinschmit@dakcu.org or 701-250-3964.

North Dakota Legislative Update

Wed, 17 Feb 2021 00:00:00 GMT

ND Legislative Update

by Kayla Pulvermacher, State Legislative Director

HB 1366 Update

HB 1366, the repairman lien bill, had its hearing on Thursday.

In testimony, DakCU President/CEO Jeff Olson testified that HB 1366 is not good for consumers, businesses, or lenders, and introduced the amendments. “While it may be swifter and cheaper to conduct a sale under the proposed language of HB 1366 instead of proceeding with a judicial sale, we believe the protections afforded the consumer and other lienholders under UCC should not be ignored,” Olson said.

The bill was not immediately passed out of committee and will continue to be worked on in committee this Thursday. DakCU, along with the North Dakota Bankers Association, Independent Community Bankers Association and Farm Credit Services, plan to meet with The Pioneer Equipment Dealers Association in the coming days. Stay tuned.

DakCU Members Put Pressure on Committee with Action Alert!

Before the hearing of HB 1366 in the House, DakCU sent out a member action alert asking for concerned credit union advocates to send emails to committee members, and boy—did our members deliver! We believe this grassroots advocacy has contributed to the Chairman’s willingness to work with the financial institutions. We thank you for your responses and we will be sending additional action alerts in the future.

As always, don’t hesitate to contact me regarding our North Dakota advocacy efforts.

Legislative Update with Jay Kruse

Wed, 17 Feb 2021 00:00:00 GMT

Legislative Update with Jay Kruse

By Jay Kruse, Chief Advocacy Officer

Good morning,

The South Dakota legislative session continues in Pierre this week, even with 17 members forced to participate remotely on Tuesday due to COVID-19 precautions. Today is legislative day 23 of 37, and the countdown to Crossover Day continues with only six legislative days remaining for bills and resolutions to be passed by their house of origin and “crossover” to the other chamber. As you can imagine with the deadline quickly approaching, committee work has picked up with most committees tackling a larger number of bills each day.

Dakota Credit Union Association along with the South Dakota Governmental Affairs Committee is currently tracking and monitoring 22 industry-related bills. You can see the full list of bills, including links and details, on our website at: https://www.dakcu.org/bill-tracking.html. Be sure to select South Dakota in the “Key Legislation” drop down box to display the state-specific bills we are tracking.

We are paying special attention to several bills this week:

HB 1091 – Adds a new section to the SD "Property" statutes addressing virtual currency and the perfection of security interests in digital assets as well as custodial serviced provided by banks. A House Commerce and Energy Committee hearing will take place today at 10:00. We do not believe this is the most well written legislation and anticipate both the bankers and SD Division of Banking to testify in opposition. I will also be in attendance for the hearing this morning to monitor the developments.

SB 193 – This legislation would allow notarial officers in this state, while located in this state, to perform a notarial act with a person not in the physical presence of the notarial officer but observed by the notarial officer through means of video communication technology. We are working with the bill sponsor to clean up some language referencing “personal knowledge” of notaries. We believe this will help avoid any confusion in the way the rule is interpreted.

HB 1203 – Authorizes state regulated banks to engage in business with industrial hemp or marijuana and associated persons. This legislation changes SDCL section 51A which only applies to state banks. Federal credit unions are exempt from this legislation; however, we are monitoring discussions on the topic of cannabis banking and will keep a close eye on this bill. The House Commerce and Energy Committee will be hearing this bill today at 10:00am.

As always, feel free to contact me with any questions or comments.

Compliance Update with Amy K

Fri, 12 Feb 2021 00:00:00 GMT

Compliance Update with Amy K

By Amy Kleinschmit, Chief Compliance Officer

IRS Notice – SBA Loans.

The IRS issued Announcement 2021-2 relating to the correction of forms 1099-MISC for certain CARES Act subsidized loan payments.

This announcement notifies lenders who have filed with the IRS, or furnished to a borrower, a Form 1099-MISC, Miscellaneous Information, reporting certain payments on loans subsidized by the Administrator of the U.S. Small Business Administration as income of the borrower that the lenders must file and furnish corrected Forms 1099-MISC that exclude these subsidized loan payments.

As noted in the announcement, if a lender has already furnished to borrowers Forms 1099-MISC that report these loan payments, whether before, on, or after December 27, 2020, the lender must furnish to the borrowers corrected Forms 1099-MISC that exclude these loan payments. In addition, if a lender has already filed with the IRS Forms 1099-MISC that report these loan payments, whether before, on, or after December 27, 2020, the lender must file with the IRS corrected Forms 1099-MISC that exclude these loan payments.

NCUA Regulatory Alert 21-RA-03

The National Credit Union Administration (NCUA) recently issued a risk alert regarding submission of 2020 Home Mortgage Disclosure Act (HMDA) data. This data must be submitted to the Consumer Financial Protection Bureau (CFPB) by March 1, 2021. The risk alert includes helpful links to the 2020 HMDA institutional coverage chart along with data submission tools and resources. This risk alert and the included resources can be found here.

Message from CFPB Acting Director

The Acting Director of the CFPB, Dave Uejio, has issued a number of policy statements since being appointed by President Biden. It is helpful to review these policy statements to understand what direction the CFPB might take in certain areas.

Initially, the Acting Director issued this policy statement regarding supervision and enforcement priorities. The statement notes, “One thing we can do immediately is focus our supervision and enforcement tools on overseeing the companies responsible for COVID relief.” The Acting Director cites findings from prior examinations including mortgage servicers giving incomplete and inaccurate information about CARES act to consumers; misreported accounts to credit bureaus which violated CARES Act protections under the Fair Credit Reporting Act; and findings that some banks set off stimulus payments and unemployment insurance benefits in order to cover bank fees and other debts.

This statement directs that the CFPB will be reversing policies of the last administration that weakened enforcement and supervision. “As of today, it is the official policy of the CFPB to supervise lenders with regard to the Military Lending Act. And we are planning to rescind public statements conveying a relaxed approach to enforcement of the laws in our care.”

The Acting Director also emphasized that fair lending enforcement is a top priority.

Last week, the Acting Director Uejio, released his vision for the Division of Research, Markets and Regulations (RMR), which can be found here. Among the work he is asking the RMR to do is to “resume data collections paused at the beginning of the pandemic, including HMDA quarterly reporting and the CARD Act data collection, as well as the previously completed 1071 data collection and the ongoing PACE data collection.”

The Acting Director has also directed the RMR to focus rulemaking on the pandemic response and to preserve, where possible, maximum policy flexibility for the president’s nominee once confirmed. Specifically, directing the RMR to: Focus the mortgage servicing rulemaking on pandemic response to avert, to the extent possible, a foreclosure crisis when the COVID-19 forbearances end in March and April; and explore options for preserving the status quo with respect to QM and debt collection rules.

This week the Acting Director issued a statement of his vision for the Division of Consumer Education and External (CEEA), which can be found here. In it he stated that, “One of my top priorities is making sure that consumers who submit complaints to us get the response and the relief they deserve. Consumer complaints are our lifeblood; our direct connection to consumers in distress, and they are at an all-time high right now.”

The CEEA is being directed to: Target Bureau resources to reach and help struggling homeowners in delinquency or at risk of foreclosure and renters at risk of eviction to ensure they know their rights. Ramp up our coordination efforts with other agencies to provide help and information to at-risk homeowners and renters. Collaborate with coalitions of stakeholders, including consumer advocates, civil rights groups, grassroots, community-based organizations, and individual consumers to get these messages to homeowners in languages and terminology they understand. Help ensure homeowners and renters can access HUD-approved housing counseling organizations to help them manage the challenges they face due to financial hardships brought on by COVID.

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A comprehensive, on-demand suite of New User Training videos are available to easily learn how to use the system. A Resources area includes an archived history of changes made to the model policies, newsletters and other tools to help make managing policies a little easier.

Stay on top of regulatory changes with CU PolicyPro. Model policies are updated quarterly to keep current with changing laws and regulations.

Existing credit union policies can also be added to and maintained within the system. The secure, web-based platform allows authorized staff to securely access, view, print and update policies from any internet connection at any time. A robust policy management tool allows easy maintenance of policies all in one place.

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Legislative Update with Jay Kruse

Wed, 10 Feb 2021 00:00:00 GMT

Legislative Update with Jay Kruse

By Jay Kruse, Chief Advocacy Officer

Good Morning!

I hope everyone is in where it’s warm, with a hot cup of coffee this morning!

The final days for the introductions of bills has passed and week eight of South Dakota legislative session is underway. Legislators put in their only five-day week of sessions last week, which gave them extra time to submit any last-minute bills and resolutions ahead of the bill introduction deadline. This session a grand total of 477 bill and 32 resolutions/commemorations were introduced between both chambers: 283 bills and 15 resolutions/commemorations in the House and 194 bills and 17 resolutions/commemorations in the Senate.

We are currently tracking numerous bills, but I want to draw your attention to these priority bills this week, some of which will receive committee hearings.

Priority Bills:

HB 1015 – Would grant authority to the Department of Labor to create an “appraiser experience training program” under which licensees may obtain requisite experience hours, passed through the House and will next receive a hearing in the Senate Commerce and Energy Committee. We believe this legislation will help new appraisers enter the profession and expand the availability of appraisers across the state. This has passed the House and is on to the Senate Commerce and Energy TBD.

HB 1046 – Limit Liability for certain exposures to COVID-19. This bill has passed the House and Senate Judiciary Committee. It will next receive a full vote on the Senate floor at a date TBD.

SB 193 – This legislation would allow notarial officer in this state, while located in this state, to perform a notarial act executed on a tangible document by a person not in the physical presence of the notarial officer but observed by the notarial officer through means of video communication technology. We are working with the bill sponsor to add a small amendment to the bill that would specifically include federally regulated credit unions in the list of businesses that have “personal knowledge” of those they serve. We believe this will help avoid any confusion in the way the rule is interpreted. Senate Judiciary Committee hearing scheduled for February 11, 2021 at 8:00 a.m.

You can find a full list the SD GAC is tracking including details on all the bills on our website: www.dakcu.org/bill-tracking.

As always, feel free to contact me with any questions or comments.

ND Legislative Update

Mon, 08 Feb 2021 00:00:00 GMT

ND Legislative Update

By Kayla Pulvermacher, State Legislative Director

This week is shaping up to be cold, but busy! While a lot of work has been done on our priority bills, we have one priority bill this week that deserves all our attention. Read on to learn more!

Bill Update

HB 1172 makes changes to Agricultural Mediation and Negotiation Services. The bill sponsor offered amendments to change the bill to requiring banks and credit unions to go through mediation. The subcommittee did not adopt those amendments, and instead adopted language closer to the bill’s original form. The bill now exempts Farm Credit Services as they must follow similar federal code.

The bill received a “Do Pass” from the Subcommittee but must be voted on by the entire Agriculture Committee before being heard on the floor.

SB 2223 originally made changes to the Deed In Lieu Of Foreclosure process. The bill sponsor offered amendments to change the bill to affect those who had a debt management plans from 2006; these amendments were not adopted. The bill received a “Do Not Pass” and will be heard on the Senate Floor.

To see the rest of our priority bills, check out our tracking list here.

Action Alert!

HB 1366 has been scheduled for a hearing this week, and your legislators need to hear from you!

HB 1366 is anti-consumer, anti-business bill that allows the repair shop to charge unlimited storage fees and transportation costs, on top of any repairs, to their lien against a vehicle or equipment. Additionally, the bill would:

1. Authorize the sale of the vehicle or piece of machinery to be sold to cover the repair, storage and transportation costs, regardless of other liens.

2. Create an unclear lienholder notice period that allows the repair shop to charge those costs for up to 20 days.

3. Open the door for predatory repairmen to eliminate existing recorded liens.

4. Increase the cost of credit for ND borrowers.

This legislation will likely result in North Dakota credit unions taking additional precautions to protect the credit union’s and member’s security interest in collateral pledged for vehicle and machinery loans.

Visit DakCu’s Grassroots Advocacy Center to send an email to legislators.

As an engaged credit union advocate, we hope we can count on YOU to take action!

Ask the House Transportation Committee/House to VOTE NO on 1366!

If you have any questions about these priority bills or our advocacy efforts in North Dakota, don’t hesitate to contact me.