• Any right or option to have the record provided or made available on paper;
• The right to withdraw consent and any related conditions, consequences, or fees;
•  Whether the consent applies only to this particular transaction or to "identified categories of records” that may be provided or made available during the course of the parties’ relationship;
• The procedures the consumer must use to withdraw consent, and the information needed to contact the consumer electronically;
• How the consumer may, upon request after the consent, obtain a paper copy of an electronic record, and whether any fee will be charged for such copies; and
• A statement of hardware and software requirements for the access and retention of electronic records.

Interest Rate on Accounts for Members in the Military Service

Question:
Our member with a credit card account was on military active duty until recently. When the member went on active duty, the Annual Percentage Rate (APR) on the credit card account was lowered to 6%. Now that the member is no longer on active duty, does the credit union have to send the member a notice before increasing the APR on the account to the level that existed prior to active duty? 

Answer:
Yes, when the Servicemember Civil Relief Act (SCRA) ceases to apply, Regulation Z Section 1026.9(c) generally requires the credit union to provide 45 days advance notice of any increase in the APR. The right to reject does not apply to rate increases, but Section 1026.55(b)(6) limits the ability of a credit union to increase the rate that applies to the existing balance on a credit card account. Paragraph (b)(6) provides that, if the SCRA requires a credit union to reduce an interest rate on an existing balance when a borrower enters military service, the rate applied to that balance when the borrower leaves military service cannot exceed the rate that applied prior to military service. In other words, borrowers may not be charged higher rates once the SCRA ceases to apply than they were before the SCRA began to apply.  

RESPA’S Servicing Rule on Forced Placed Insurance

Question:
Under the CFPB’s RESPA Servicing Final Rule, a credit union may assess a borrower a charge related to force-placed insurance when the credit union has a reasonable basis to believe the borrower has failed to maintain hazard insurance. During what time period may the borrower be responsible for payment of forced-place insurance? 

Answer:
The Mortgage Servicing Final Rule requires a credit union to provide two written notices to the borrower. The first notice must be mailed or delivered at least 45 days before a borrower may be charged for forced place insurance. The second notice must be mailed or delivered at least 15 days before a charge is assessed. However, the rule doesn’t prohibit a credit union from adding force-placed insurance the instant it learns that the borrower has failed to maintain the required coverage; the credit union just can’t charge the borrower prior to the provision of the two notices and the expiration of 45 days from the date of the first notice. 

As the following text from the RESPA Commentary indicates, a credit union may purchase force-placed insurance retroactive to the first day of any time period the borrower failed to maintain the required coverage: 

Paragraph 37(c)(1)(i).  Assessing premium charge or fee. Subject to the requirements of § 1024.37(c)(1)(i) through (iii), if not prohibited by State or other applicable law, a servicer may charge a borrower for force-placed insurance the servicer purchased, retroactive to the first day of any period of time in which the borrower did not have hazard insurance in place.   

New NCUA Investment Rule on the Use of Credit Ratings

Question:
Is my credit union still allowed to rely upon credit ratings in determining acceptable investments? Does the rule apply to federally insured state chartered credit unions?

Answer:
Yes, as a factor in the new requirement that a credit union determines the "investment grade” of a security. So what’s changed? 

Credit rating agencies put a lot of questionable high ratings on investment products before the "Great Recession.” In the Dodd-Frank Act in 2010, Congress required NCUA (and the federal banking agencies) to remove all references to credit ratings in their regulations and substitute another standard. Effective June 11, 2013, NCUA substitutes "investment grade” wherever a specific credit rating appears in Section 703 of its regulations. 

This means that the credit union is required to analyze and be comfortable in concluding that the risk of default by the issuer is low and timely repayment of principal and interest is expected. The regulations suggest a list of eight factors a credit union may consider in its analysis. Although NCUA can’t rely on a credit rating, there is nothing that prohibits a credit union from using credit ratings in its analysis. 

NCUA’s Section 703 regulation on investments only applies to federal credit unions. However, if a federally insured state chartered credit union (FISCU) holds an investment not permissible for an FCU, it may be subject to special reserving on that investment. In it new regulation (Section 741.3), NCUA points out that if an FISCU relies upon a ratings-based investment permissible under state law, the FISCU should go through the same "investment grade” analysis that an FCU is now required to do.

This letter to credit unions covers recent additions to the agency's fair lending examination program, including new fair lending educational and compliance tools for federal credit unions. The letter also states that selected credit unions will receive advance written notice prior to further contact from NCUA on fair lending.

NCUA's guidance in the letter provides:

• An overview of fair lending law and regulations;
• Credit union operational requirements;
• Issues to consider when developing fair lending compliance policies; and
• Checklists for testing compliance with laws and regulations, or developing a fair lending policy for compliance.

CUNA has announced that they plan to follow up with the agency on this issue to provide more information to the credit union system on fair lending issues.

The NCUA also announced an April 4 webinar on fair lending.

• MBL waiver types;
• MBL "blanket" waivers;
• Existing loans not subject to need for waiver request;
• Borrower personal guarantee requirements and the type of guarantee required based on different business ownership structures;
• Associated borrower definition;Waiver documentation requirements; and
• Procedures to streamline the process for obtaining waiver for credit unions buying a participation-interest in an MBL.

• Effective dates;
• Exemptions and exceptions;
• Significant definitions; and
• What the new rule will change.

• The first summarizes key requirements in each of the CFPB's mortgage loan final rules;
• The second defines the type of mortgage loans covered by each of the final rules; and
• The third provides links to the CFPB's final rules and summaries of the rules.

1. Are there other types of social media, or ways in which financial institutions are using social media, that are not included in the proposed guidance but that should be included?
2. Are there other consumer protection laws, regulations, policies or concerns that may be implicated by financial institutions’ use of social media that are not discussed in the proposed guidance but that should be discussed?
3. Are there any technological or other impediments to financial institutions’ compliance with applicable laws, regulations, and policies when using social media of which the Agencies should be aware?
   

View CUNA's summary and comment call (pdf). CUNA is asking to send comments to them by March 20, 2013.

No-doc loans and loans with points and fees that exceed three percent of the loan amount also will not qualify. 

The compliance date is Jan. 10, 2014.

High Cost Mortgages and Homeownership Counseling Rules
This final rule amends Regulation Z (Truth in Lending) by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revising and expanding the tests for coverage under HOEPA, and imposing additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement. The final rule also amends Regulation Z and Regulation X (Real Estate Settlement Procedures Act) by imposing certain other requirements related to homeownership counseling, including a requirement that consumers receive information about homeownership counseling providers. 

The compliance date is Jan. 10, 2014.

Escrow Requirements Rules
This final rule implements statutory changes made by Dodd-Frank that lengthen the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained. The rule also exempts certain transactions from the statute’s escrow requirement, including mortgage transactions extended by creditors that operate predominantly in rural or underserved areas, originate a limited number of first-lien covered transactions, have assets below a certain threshold, and do not maintain escrow accounts on mortgage obligations they currently service. 

The compliance date is June 1, 2013. 

Mortgage Servicing Rules
These rules, implementing statutory provisions of Dodd-Frank, deal with both Regulation Z (Truth in Lending Act) and Regulation X (Real Estate Settlement Procedures Act), and set forth new requirements for servicers of mortgage loans. 

The rules:

• address servicers’ obligations to correct errors asserted by mortgage loan borrowers and to provide certain information requested by such borrowers;
• provide protections to such borrowers in connection with force-placed insurance;
• provide information about mortgage loss mitigation options to delinquent borrowers;
• establish policies and procedures for providing delinquent borrowers with continuity of contact with servicer personnel capable of performing certain functions;
• evaluate borrowers' applications for available loss mitigation options;
• modify and streamline some existing servicing-related provisions of Regulation X, such as provisions relating to mortgage servicers’ obligation to provide disclosures to borrowers in connection with transfers of mortgage servicing, and mortgage servicers’ obligation to manage escrow accounts, including restrictions on purchasing force-placed insurance for certain borrowers with escrow accounts and requirements to return amounts in an escrow account to a borrower upon payment in full of a mortgage loan;
• provide guidance on notices required by Regulation Z regarding interest rate adjustments and requirements to respond to borrower inquiries on payoff balances.

The compliance date is Jan. 10, 2014.

Appraisals for Higher-Priced Mortgage Loans & Appraisals under Regulation B
These rules, implementing statutory provisions of Dodd-Frank, require creditors making "higher-risk” loans or, under the Reg B rule, loans secured by a first lien on a dwelling, to obtain appraisals meeting certain standards, notify applicants of the use of the appraisal, and provide applicants a copy of the written appraisal. 

The mandatory compliance date is Jan. 18, 2014.

Loan Originator Compensation
This rule:

• clarifies existing requirements for loan officer compensation;
• implements additional requirements imposed by the Dodd-Frank Act concerning proper qualification and registration or licensing for loan originators;
• implements restrictions on mandatory arbitration and the financing of certain credit insurance premiums;
• provides additional guidance and clarification under the existing regulation's provisions restricting loan originator compensation practices. 

The compliance dates are June 1, 1013, for the prohibition on arbitration and certain credit insurance premium provisions and Jan. 10, 2014, for the remaining provisions. 

What is the Impact on Credit Unions
The rules impact credit unions with closed-end mortgage programs (with a few exceptions for open-end mortgage programs).

1. The High Cost Mortgages and Counseling, Escrow and Appraisal rules generally apply to loans subject to HOEPA or to higher cost mortgages, depending on the rule.

2. The Ability to Repay rule applies to almost all closed-end mortgage loans, with some exceptions for smaller institutions that keep loans in portfolio.

3. The Servicing Rules generally apply to closed-end mortgage transactions but some provisions (e.g. prompt crediting of payments and requests for payoff amounts) apply to both closed-end and open-end mortgage loans.

4. The Loan Originator Compensation rules apply to "residential mortgage transactions” (generally; first lien, purchase money transactions.) money transactions.) 

For questions please contact Jerel Wright at 1-800-362-2076, ext. 3102

What is "Initial Detection" for purposes of filing a SAR?

Question: Does "initial detection" mean: When we flag a transaction for review or when we determine that the activity may involve illegal activity?

Answer: The suspicious activity reporting rules require that a SAR be filed no later than 30 calendar days from the date of the "initial detection” of facts that may constitute a basis for filing a SAR. If no suspect can be identified, the time period for filing a SAR is extended to 60 days.

According to the FFIEC Bank Secrecy Act/Anti-Money Laundering Examination Manual, the phrase initial detection should not be interpreted as meaning the moment a transaction is highlighted for review:

"There are a variety of legitimate transactions that could raise a red flag simply because they are inconsistent with an accountholder’s normal account activity. For example, a real estate investment (purchase or sale), the receipt of an inheritance, or a gift, may cause an account to have a significant credit or debit that would be inconsistent with typical account activity. The bank’s automated account monitoring system or initial discovery of information, such as system-generated reports, may flag the transaction; however, this should not be considered initial detection of potential suspicious activity. The 30-day (or 60-day) period does not begin until an appropriate review is conducted and a determination is made that the transaction under review is "suspicious” within the meaning of the SAR regulation.”

FinCEN’s 2006 SAR Activity Review also provides useful guidance:

"Upon identification of unusual activity, additional research is typically conducted, and institutions may need to review transaction or account activity for a customer to determine whether to file a SAR. The need to review a customer’s account activity, including transactions, does not necessarily indicate the need to file a SAR, even if a reasonable review of the activity or transaction might take an extended period of time. The time period to file a SAR starts when the institution, in the course of its review or as a result of other factors, reaches the conclusion in which it knows, or has reason to suspect, that the activity or transactions under review meets one or more of the definitions of suspicious activity.”

So, the red flag alone doesn’t trigger the SAR filing; but the red flag plus your investigation may trigger a SAR filing if all the facts taken together form the basis for filing a SAR.

What should be considered when advertising Open-End Loans on billboards?

Question: The marketing department at a credit union wants to advertise its Visa credit cards on billboards that are located along a very busy four-lane highway. The credit union has never advertised on billboards, so the marketing department asked the credit union’s compliance officer for help in determining the minimum advertising requirements for a billboard ad. Is the compliance officer correct if they respond that the credit union only needs to indicate on the billboards its name and the amount of finance charge in terms of the Annual Percentage Rate (APR) associated with credit union’s credit cards?

Answer: No, the compliance officer’s response is not correct. While there is actually no "minimum" disclosure requirement for a Visa billboard advertisement, there is also no exception from the advertising requirements for advertisements appearing on billboards either. The compliance officer has suggested that the ad use a triggering term without stating the other disclosures that are required if a triggering term is used. This would not comply with the advertising requirements in Regulation Z for open-end loans.

The advertising requirements for open-end loans can be found in Reg. Z Section 1026.16 and the Reg. Z Commentary to that same section. If an ad states a triggering term (such as the finance charge that may be expressed in terms of the APR or states the amount of any other charge that may be imposed as part of the plan) then certain other disclosures will be required.

These other disclosures are:

1. Any minimum, fixed, transaction, activity, or similar charge that could be imposed;
2. The APR; and
3. Any membership or participation fee that may be charged.
   

If the credit union is careful not to state any "triggering terms,” the ad could simply state: "Apply for a Visa Account Today at ____ credit union." In addition, the credit union should make sure the ad is not misleading, and does not state any credit terms that are not actually available.

Here are a few of the questions posed to CUNA compliance staff in November 2012.

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FCRA  |  counterfeit currency  |  non-interest bearing transaction account insurance  | 
call report changes

• Civil penalties of up to $100,000 for each violation;
• Criminal penalties of up to $250,000 and/or imprisonment not to exceed five years; and/or
• Civil money penalties resulting from anti-money laundering program deficiencies (i.e., internal controls, training, etc.) that led to the SAR disclosure. Such penalties could be up to $25,000 per day for each day the violation continues.

Credit unions should contact FinCEN if they receive a subpoena or other request for a SAR from anyone other than an authorized government authority (e.g., law enforcement agencies, credit union’s regulator); or if the credit union becomes aware of an unauthorized disclosure of a SAR.

• Do not return it to the passer.
• Delay the passer if possible.
• Observe the passer's description, as well as that of any companions, and the license plate numbers of any vehicles used.
• Contact your local police department or United States Secret Service field office. These numbers can be found on the inside front page of your local telephone directory.
• Write your initials and the date in the white border areas of the suspect note.
• Limit the handling of the note. Carefully place it in a protective covering, such as an envelope.
• Surrender the note or coin only to a properly identified police officer or a U.S. Secret Service special agent.
  

Call Report Changes


Q: NCUA Letter to Credit Unions 12-CU-12: Changes Planned for Upcoming Call Reports states that, effective with the June 2013 Call Report Cycle, the delinquency categories will be changed from months to days. One of the new delinquency categories listed in the letter is "1-59 days.” Is this is typo, or will credit unions really need to report delinquencies of less than one month?

A: NCUA has assured CUNA that this was just a typo. The online version of the letter has been corrected and now reads "30-59 days,” i.e., no reporting of delinquencies of less than 30 days.

See below:

June 2013 Call Report Cycle
Effective June 2013, we are revising the delinquent loan schedules on pages 7 and 8.
Specifically, we clarified reporting requirements by changing delinquency categories from "months” to "days.”

Current Categories	June 2013 Delinquency Categories
1 to <2 months	30-59 days
2 to <6 months	60-179 days
6 to <12 months	180-359 days
12 months and over >	360 days

• a refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the credit union makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered;
• a termination of an account or an unfavorable change in the terms of an account that does not affect all or a substantially all of a class of the credit union's accounts; or
• a refusal to increase the amount of credit available to an applicant who has made an application for an increase.

Adverse action does not include:

• a change in the terms of an account expressly agreed to by an applicant;
• any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;
• a refusal or failure to authorize an account transaction at a point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or a substantial portion of a class of the credit union's accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account; 
• a refusal to extend credit because applicable law prohibits the credit union from extending the credit requested; or 
• a refusal to extend credit because the credit union does not offer the type of credit or credit plan requested.