Letter to Credit Unions: NCUA Begins Phase 3 of Resuming Onsite Operations

Letter to Credit Unions 22-CU-11
NCUA to Begin Phase 3 of Resuming Onsite Operations

NASCUS Legislative and Regulatory Affairs Department
September 20, 2022

On September 20, 2022, the National Credit Union Administration (NCUA) issued Letter to Credit Unions 22-CU-11 announcing its resumption of onsite examination and supervision activity in all locations.  This letter represents the implementation of Phase 3 of the transition into a post Covid-19 onsite supervision environment, with previous actions of Phase 1 announced through Letter 21-CU-06 (July 2021) and Phase 2 through Letter 22-CU-06 (April 2022).

Summary

Implementation of NCUA’s Phase 3 response will include the resumption of examination and supervision activity in all locations.  The letter outlines the intent of the NCUA to continue to utilize appropriate offsite review processes developed during the pandemic when those processes can be completed efficiently and effectively as part of a hybrid examination process.

Further, NCUA outlines it will continue to consider challenges a credit union faces as they schedule examinations and scope the onsite and offsite portions of an examination.

The agency also outlined that the health and safety of agency and credit union staff will be paramount in its decision making and NCUA staff are generally expected to comply with credit unions policies to the extent they exceed the NCUA’s Phase 3 safety protocols and do not conflict with local, state, or federal laws, infringe on employee rights or restrict access to a credit unions books and records.  NCUA will continue to coordinate with State Supervisory Agencies when working onsite in FISCUs.

The agency also announced that while its offices are generally open to the public, they will continue to operate under heightened safeguards.  Finally, the letter states NCUA will continue to closely monitor the pandemic environment for further appropriate action to address any potential challenges that may arise and any changes to the NCUA’s stance will be publicly announced as enacted.

Letter to Credit Unions 22-CU-10
Simplified CECL Tool for Credit Unions

NASCUS Legislative and Regulatory Affairs Department
September 15, 2022

On September 14, 2022, NCUA issued Letter to Credit Unions 22-CU-10, Simplified CECL Tool for Credit Unions, to provide a tool to assist small credit unions with determining their allowance for credit losses (ACL) on loans and leases as required under Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses, referred to as Current Expected Credit Losses (CECL). The tool is designed for credit unions with less than $100 million in assets. NCUA notes the tool can be used by larger credit unions based on the discretion of their management and auditors. The CECL Tool includes functionality for a credit union to calibrate assumptions to its circumstances.

The CECL Tool and its supporting documentation are available on the NCUA’s CECL Resources page.

The letter includes links to the following resources:

Summary

The CECL Tool, which utilizes the Weighted Average Life Maturity (WARM) methodology, is one of many options available for credit unions to calculate the ACL as required under CECL.  The WARM methodology represents one acceptable approach for smaller, less complex pools of assets, however, NCUA states that each credit union should determine which approach best fits its portfolio.

The tool calculates the ACL for a loan portfolio category by multiplying the period-end loan portfolio balance, the average annual charge-off rate, and the WARM factor (Appendix A). Loan portfolio categories parallel those in the NCUA Call Report (Appendix B). The tool also provides the related WARM factor derived from loan-level data of like-sized credit unions and vetted to provide a relevant factor for each loan portfolio category. Credit unions are directed to Appendix C to adjust the charge-off rate and the WARM factor using qualitative factors.

The letter directs credit unions and their auditors to the Frequently Asked Questions and Model Development Documents for rationale, assumptions and other analyses that support the tool’s use for calculating the allowance for credit losses on loans and leases.

The CECL Tool’s data will be updated each quarter-end, beginning September 30, 2022, to provide updated WARM factors that reflect current market conditions.

NCUA stresses that the letter and tool do not constitute legal, or accounting advice and credit unions should consult with their accounting advisors in order to determine whether the tool is appropriate for use in determining the allowance for credit losses on loans and leases, due to the unique make up of each institution.

Letter to Credit Unions 22-CU-09 and Supervisory Letter 22-01 
NCUA Updates to Interest Rate Risk Supervisory Framework

NASCUS Legislative and Regulatory Affairs Department
September 3, 2022

NCUA has issued Letter to Credit Unions 22-CU-09 Updates to Interest Rate Risk Supervisory Framework to alert credit unions to guidance the agency provided its examination staff to regarding changes to NCUA’s interest rate risk (IRR) supervisory framework. The guidance issued to NCUA examiners, SL No. 22-01, discussed 4 primary changes to NCUA’s IRR supervisory framework:

  1. Revising the risk classifications by eliminating the extreme risk classification and modifying the high risk classification;
  2. Clarifying when a Document of Resolution (DOR) to address IRR is warranted, including removing any presumed need for a DOR based on an IRR supervisory risk classification and related need for a credit union to develop a de-risking plan;
  3. Providing examiners more flexibility in assigning IRR supervisory risk ratings; and
  4. Revising examination procedures to incorporate updated review steps when assessing how a credit union’s management of IRR is adapting to changes in the economic and interest rate environment.

NCUA’s new guidance amends the framework established in LTCU 16-CU-08, Revised Interest Rate Risk (IRR) Supervision, (January 1, 2017) and outlined in the Examiner’s Guide.

Acronym Glossary:

ENT = estimated NEV tool

IRR = interest rate risk

NEV = net economic value

NCUA’s rules for credit union management of interest rate risk are found in Part 741.3(b) and its Appendix A.

Summary

The revisions to the IRR framework of the NCUA Examiner’s Guide outlined in Supervisory Letter 22-01 apply to institutions over $50 million and include:

  1. Revising the risk classifications by eliminating the extreme risk classification and modifying the high risk classification;

Under the revised NEV test system only three classifications would be used:  Low, Moderate and High. The Extreme classification is being eliminated.  The three risk classifications will continue to determine the scope of examination review steps.

The proposed framework would eliminate the “Extreme” classification under the NEV Test by recognizing any Post-shock NEV less than 4% or any NEV Sensitivity greater than 65% as “High”.  Previously Post Shock NEV below 2% or NEV Sensitivity above 85% would have been classified as “Extreme”.

  1. Clarifying when a Document of Resolution (DOR) to address IRR is warranted, including removing any presumed need for a DOR based on an IRR supervisory risk classification and related need for a credit union to develop a de-risking plan;

The updated framework clarifies that a DOR is not required for any NEV Test or ENT risk classification alone (i.e. just because risk classification is considered high).  Similarly, a credit union would NOT be expected to have a plan of action based SOLELY on a “High” classification. Rather, the need for a DOR would be determined on a case-by-case basis.

NCUA provides several examples of situations that WOULD warrant a DOR:

  • The level of IRR represents an undue risk to the Share Insurance Fund, and the credit union is not taking appropriate and prompt action to address;
  • Lack of adequately updating an approach to managing interest rate, liquidity, and related risks for the current market conditions by high risk classified credit unions;
  • Material governance deficiencies are noted relating to the identification, measurement, monitoring and/or control of IRR by any credit union
  1. Providing examiners more flexibility in assigning IRR Supervisory risk ratings;

Assignment of the IRR rating will continue to be based on the quantitative NEV Test or ENT but may be improved, or worsened, by other factors.  The guidance points out that upgrading a rating would be unusual for an examiner and would most often result from borderline moderate- to high-risk classifications.

  1. Revising examination procedures to incorporate updated review steps when assessing how a credit union’s management of IRR is adapting to changes in the economic and interest rate environment.

Examiners will continue to use the IRR Workbook as a job aid when reviewing IRR.  However, a new resource table (High IRR Job Aid) will be used to mitigate the impact of the current IRR and economic volatility environments.  The new job aid will integrate with the current job aid when applicable and be used to help identify the specific source of the high IRR, risk management and controls weaknesses and measure the potential impact on earnings and capital.  Institutions over $10 billion will require all review steps in the IRR Workbook regardless of the risk classification category.

Additionally, the framework will include steps to assess the extent of a credit union’s use of third-party vendors and their ability to understand the information provided by such a vendor.

Joint Policy Statement Summary:
Prudent Commercial Real Estate Loan Accommodations and Workouts

NASCUS Legislative and Regulatory Affairs Department
August 4, 2022

The NCUA, FDIC, and OCC have published a joint policy statement on Prudent Commercial Real Estate Loan Accommodations and Workouts.  If finalized, the policy statement would address supervisory expectations related to commercial real estate risk management elements, loan classifications, regulatory reporting, and accounting considerations by updating existing interagency guidance, provide updated examples of classifications and income property valuation methodologies and address relevant accounting changes on loss estimates in Generally Accepted Accounting Principles (GAAP).

The deadline to submit a comment is October 3, 2022. The proposed rule may be read in its entirety here.

In the request for comments, the agencies seek responses to the following questions:

  • Question 1: To what extent does the proposed Statement reflect safe and sound practices currently incorporated in a financial institution’s CRE loan accommodations and workout activities? Should the agencies add, modify, or remove any elements, and, if so, which and why?
  • Question 2: What additional information, if any, should be included to optimize the guidance for managing CRE loan portfolios during all business cycles and why?
  • Question 3: Some of the principles discussed in the proposed Statement are appropriate for Commercial and Industrial (C&I) lending secured by personal property or other business assets.  Should the agencies further address C&I lending more explicitly, and if so, how?
  • Question 4: What additional loan workout examples or scenarios should the agencies include or discuss?  Are there examples in Appendix 1 of the proposed statement that are not needed, and if so, why not?  Should any of the examples in the proposed Statement be revised to better reflect current practices, and if so, how?
  • Question 5: To what extent do the TDR examples continue to be relevant in 2023 given that ASU 2022-02 eliminates the need for a financial institution to identify and account for a new loan modification as a TDR.

Summary

On October 30, 2009, the agencies along with the Board of Governors of the FRB, FFIEC State Liaison Committee, and the former Office of Thrift Supervision, adopted the Policy Statement on Prudent Commercial Real Estate Loan Workouts, which was issued by the FFIEC to help examiners and financial institutions understand risk management and accounting practices for CRE loan workouts.

The proposed updates incorporate recent policy guidance on loan accommodations and accounting developments for estimating loan losses.

  • Outlining principle-based supervisory expectations to facilitate and underscore the importance of working constructively, in a prudent manner with CRE borrowers who are experiencing financial difficulties.
  • Promote consistent examination treatment of related loans throughout the system.
  • Reflect changes in GAAP since 2009, including those in relation to current expected credit losses (CECL)
  • Distinguish the difference between GAAP credit loss measurement and Supervisory classifications.
  • Provide reference information on GAAP without providing guidance on a matter outside Regulator purview.

Proposed changes include:

  • A new section on short-term loan accommodations.
  • Distinguishing between short-term/less complex loan accommodations and longer-term/more complex accommodations.
  • Providing information resources related to accounting changes.
  • Providing new guidance on several methodologies to value income CRE collateral.

Further, the proposed Policy statement seeks guidance on the appropriateness of TDR guidance within the Statement given the upcoming implementation of ASU 2022-22 (12/23), eliminating the requirement for financial institutions to report TDRs, if the Policy Statement should also be applied to C&I loans or if additional loan workout examples or guidance would be helpful.

NASCUS note: The publication of the Statement seems to indicate regulatory agencies are preemptively addressing concerns that CRE loans (particularly collateral values) could become problematic, such as during the downturn in the late 2000s that precipitated significant financial institution failures.

NASCUS note: FCUs under $10 million are not required to comply with GAAP.  Some states also have similar provisions with a base of various asset sizes.

NASCUS note: While federal bank regulators clearly follow FFIEC loan classification standards of substandard, doubtful and loss staff are unaware of individual loss classifications methodology relating to NCUA and believes many state regulators also do not regularly perform loan classifications for loss.  The policy statement makes clear that losses for accounting treatment and regulatory capital purposes can and sometimes should be different.

Final Rule Summary: Asset Threshold for Determining the Appropriate Supervisory Office;
Office of National Examinations and Supervision (ONES)

NASCUS Legislative and Regulatory Affairs Department
August 3, 2022

The NCUA Board is amending its regulations to revise the $10 billion asset threshold used for assigning supervision of consumer federally insured credit unions (FICUs) to the Office of National Examinations and Supervision (ONES). The rule does not alter any regulatory requirements for covered credit unions. The rule only applies to FICUs whose assets are $10 billion or more. The rule provides that covered credit unions with less than $15 billion in total assets, referred to as Tier I credit unions, will be supervised by the appropriate NCUA Regional Office. Credit unions with $15 billion or more in total assets, considered Tier II and Tier III, will continue to be supervised by ONES.

The final rule is effective January 1, 2023, and can be found in its entirety here.

Summary

In 2012 NCUA established ONES and reorganized the central and field office structure. As part of this restructuring, NCUA transferred the responsibility for supervising covered credit unions to ONES from the respective regional offices. Initially, a covered credit union was transferred to ONES on January 1, 2014. Annually, thereafter, FICUs newly reporting assets of $10 billion or more on March 31 of a given calendar year are reassigned on the first day of the following calendar year.

As a requirement of NCUA Part 702 consumer credit unions of a certain size are subject to capital planning and stress testing requirements. A covered credit union for purposes of ONES is a FICU whose assets are $10 billion or more. Covered credit unions are then divided into three asset tiers:

Tier I – Less than $15 billion in total assets

Tier II – $15 billion or more in total assets, but less than $20 billion in total assets

Tier III – $20 billion or more in total assets

Under the final rule, credit unions considered Tier II or Tier III remain subject to ONES supervision. The final rule does not assign Tier I credit unions to ONES supervision. Tier I credit unions will remain subject to Regional Office supervision until they become a Tier II. Additionally, all covered credit unions remain subject to enhanced capital planning and stress testing.

Grandfathered Covered Credit Unions

 It is important to note, that under the proposed rule, Tier I credit unions that were supervised by ONES were grandfathered and remained subject to ONES supervision. The Board finalized the rule WITHOUT the grandfather clause for Tier I credit unions already supervised by ONES, stating this provision has become unnecessary. All credit unions currently supervised by ONES have reported assets of $15 billion or more as of March 31, 2022. Therefore, all credit unions assigned to ONES will be categorized as Tier II or Tier III effective January 1, 2023, and will remain with ONES under this final rule.

Data Collection and Coordination

As previously noted, under the final rule, all covered credit unions remain subject to enhanced capital planning and stress testing data collections. Data collection is part of NCUA’s strategic initiative to enhance supervision and issued to inform qualitative and quantitative assessments of covered credit unions The Board does not believe the data collection presents an undue burden to covered credit unions as the data is the type of information the Board expects covered credit unions to be analyzing and considering regardless of whether NCUA collects the information.

The final rule notes that ONES will manage the data collection process for all Tier I credit unions and that ONES will be the point of contact for resolving any data collection issues, in collaboration with the assigned Regional office.

Examinations

The Board intends for the coordination between ONES and the Regional offices to be ongoing. ONES is providing a capital plan training program to Regional offices to ensure consistency of review across NCUA. The scope of Regional office examinations will remain consistent with the scope of ONES’ examinations as both officers are subject to the same national examination standards, therefore, the Board does not expect the review of capital plans or general supervision of Tier I credit unions to be different under the Regional offices.

Reservation of Authority

The final rule addresses the Board’s existing reservations of authority under Part 702 and designates a FICU as subject to ONES or Regional office supervision, or a Tier I, II, or III credit union. For example, the Board may use this authority to subject a Tier I credit union that would otherwise be supervised by a Regional office to ONES supervision or exercise its authority by subjecting a Tier II to Regional office supervision. Independent of the authority to designate a supervisory office, the Board may also use this authority to designate a credit union as a Tier I, II, or III.

The final rule also states that the Board does not believe an express requirement to consult and cooperate with state regulators is necessary before transferring a Tier I federally insured state-chartered credit union (FISCU) to ONES, it expects consultation with state regulators would occur prior to exercising its authority under the final rule.

CFPB Summary re: Fair Credit Reporting: Permissible Purposes for Furnishing, Using, and Obtaining Consumer Reports

12 CFR Part 1022

The Consumer Financial Protection Bureau (CFPB) is issuing this advisory opinion to outline certain obligations of consumer reporting agencies and consumer report users under Section 604 of the Fair Credit Reporting Act (FCRA).  The opinion explains that the permissible purposes listed in FCRA Section 604(a)(3) are consumer specific, and it affirms that a consumer reporting agency may not provide a consumer report to a user under FCRA Section 604(a)(3) unless it has reason to believe that all of the consumer report information it includes pertains to the consumer who is the subject of the user’s request.  The Bureau notes that disclaimers will not cure a failure to have a reason to believe that a user has a permissible purpose for a consumer report provided pursuant to FCRA Section 604(a)(3). The advisory opinion also reminds consumer report users that FCRA Section 604(f) strictly prohibits a person who uses or obtains a consumer report from doing so without a permissible purpose.

The advisory opinion became effective on July 12, 2022 and can be found here.

Summary:

The FCRA regulates consumer reporting.  Congress enacted the statute to ensure fair and accurate credit reporting, promote efficiency in the banking system and protect consumer privacy.  A major purpose of the FCRA is the privacy of consumer data.

The FCRA protects consumer privacy data in multiple ways, including by limiting the circumstances under which consumer reporting agencies may disclose consumer information.  Section 604 identifies an exclusive list of “permissive purposes” for which consumer reporting agencies may provide consumer reports, including in accordance with the written instructions of the consumer to whom the report  relates and for purposes relating to credit, employment and insurance.  The statute states that a consumer reporting agency may provide consumer reports under these circumstances and no other. In addition, FCRA Section 607(a) requires that “every consumer reporting agency shall maintain reasonable procedures designed to…limit the furnishing of consumer reports to the purposes listed under Section 604.  Section 620 imposes criminal liability on any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency’s files to an unauthorized person.

In addition, the FCRA limits the circumstances under which third parties may obtain and use consumer report information from consumer reporting agencies.  FCRA Section 604(f) provides that “a person shall not use or obtain a consumer report for any purpose unless the consumer report is obtained for a purpose for which the consumer report is authorized to be furnished and the purpose is certified in accordance with the FCRA Section 607 by a prospective user of the report through a general or specific certification.  FCRA Section 619 imposes criminal liability on any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses.

NCUA Letter to Credit Unions 22-CU-08: Risk-Based Approach to Assessing Customer Relationships and Conducting Customer Due Diligence

NCUA has issued LTCU 22-CU-08  as part of a joint statement with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency and the U.S. Department of Treasury’s Financial Crimes Enforcement Network (collectively, the Agencies).

The joint statement clarifies NCUA’s position that credit unions must take a risk-based approach in assessing individual member risk.  It also reinforces the NCUA’s position that no single customer type automatically presents a high risk of money laundering, terrorist financing, or other illicit financial activity risk.  NCUA also advises against refusing or discontinuing service to an entire class of members based on perceived risk. The Joint Statement refers to the examples of customer (member) types listed in the CDD section of the Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act/Anti-Money Laundering Examination Manual, including, independent ATM owners or operators, nonresident aliens and foreign individuals, charities and nonprofit organizations, professional service providers, cash intensive businesses, nonbank financial institutions, and customers the bank considers politically exposed persons. The agencies reiterate that banks and credit unions should make their own business decisions on business relationships based on their own due diligence.

This statement does not include any changes to the Bank Secrecy Act (BSA) regulations but rather supports the long-standing approach to CDD outlined in the BSA as well as the Federal Financial Institution Examination Council’s BSA/AML Examination Manual.

 

 

CFPB Summary re: Advanced Notice of Proposed Rulemaking regarding Credit Card Late Fees and Late Payments
12 CFR Part 1026

The Consumer Financial Protection Bureau (CFPB) is seeking information from credit card issuers, consumer groups, and the public regarding credit card late fees and late payments, and card issuers’ revenue and expenses.  For example, the Bureau is seeking information relevant to certain provisions related to credit card late fees in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) and Regulation Z.  Areas of inquiry include: factors used by card issuers to set late fee amounts; card issuers’ costs and losses associated with late payments; the deterrent effects of late fees; cardholders’ late payment behavior; methods that card issuers use to facilitate or encourage timely payments, including autopay and notifications, harbor provisions in Regulation Z; and card issuers’ revenue and expenses related to their domestic consumer credit card operations.

Comments on the ANPRM are due by July 22, 2022.  The ANPRM can be found here.

Summary:

The Bureau is charged with monitoring for risks to consumers in the offering or provision of consumer financial products/services.  Specifically, Section 149(a) of the CARD Act provides that the amount of any penalty fee or charge that a card issuer may impose with respect to a credit card account (under an open-end consumer credit plan) in connection with any omission with respect to, or violation of, the cardholder agreement, including any late payment fee, over-the-limit fee or any other penalty fee or charge, must be reasonable and proportional to such omission or violation. Section 149(b) of the Act directs the Bureau to issued rules that establish standards for assessing whether the amount of any penalty fee or charge is reasonable and proportional to the omission or violation to which the fee or charge relates.  In issuing such rules, the Act requires the Bureau to consider: (i) the cost incurred by the creditor from an omission or violation; (ii) the deterrence of omissions or violations by the cardholder; (iii) the conduct of the cardholder; and (iv) such other factors that the Bureau may deem necessary or appropriate.

The Act authorizes the Bureau to establish different standards for different types of fees/charges and authorizes the Bureau (in consultation with other agencies) to provide an amount for any penalty fee or charge that is presumed to be reasonable and proportional to the omission/violation to which the fee relates.

Section 1026.52 of Regulation Z, which implements the CARD Act, states that a card issuer must not impose a fee for violating the terms or other requirements of a credit card account, including a late payment, unless the issuer has determined that the dollar amount of the fee represents a reasonable proportion of the total costs incurred by the issuer for that type of violation or complies with the safe harbor that is consistent with Section 1026.52.  This section sets forth a safe harbor of $30 generally  for a late payment, except that it sets forth a safe harbor of $41 for each subsequent late payment within the next six billing cycles.  The safe harbor dollar amounts are subject to an annual inflation adjustment.  A card issuer is not required to use the cost analysis to determine the amount of late fees if it complies with the safe harbor amounts.

Questions Asked

The questions in this notice cover several areas relating to the statutory and regulatory provisions, as well as areas relating more generally to the domestic consumer credit card market.  Areas of inquiry include: factors used by card issuers to set late fee amounts, including but not limited to statutory factors described above; card issuers’ costs and losses associated with late payments; the deterrent effects of late fees; cardholders’ late payment behavior; methods that card issuers use to facilitate or encourage timely payments, including autopay and notifications; card issuers’ use of the late fee safe harbor provisions in Regulation Z; and card issuers’ revenue and expenses related to their domestic consumer credit card operations.  In answering the questions, card issuer commenters should base their answers on information relevant to their domestic consumer credit card portfolios.  Other commenters should base their answers on information they have about the domestic consumer credit card market.

Questions are divided among the following categories:

  • Factors used by card issuers to set existing levels of late fees
  • Costs and Losses
  • Deterrence
  • Cardholder Behavior
  • Autopay
  • Notifications of Upcoming Due Date
  • Courtesy Periods and Fee Waivers
  • Staggered Late Fee
  • Safe Harbor Provisions
  • Cost Analysis Provisions
  • Revenue and Expenses

CFPB Summary re: Request for Information Regarding Employer-Driven Debt
Docket No. CFPB-2022-0038

The Consumer Financial Protection Bureau (CFPB) is charged with monitoring markets for consumer financial products and services to ensure that they are fair, transparent and competitive.  As part of this mandate, the CFPB is seeking input from the public on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement.  Areas of inquiry include prevalence, pricing and other terms of the obligations, disclosures, dispute resolution and the servicing and collection of these debts.

Comments to this Request for Information (RFI) must be received by September 7, 2022.  The RFI can be accessed here.

Summary:

The CFPB has identified a potentially growing market of debt obligations incurred by consumers through employment arrangements.  These debts appear to involve deferred payment to the employer or an associated entity for employer-mandated training, equipment and other expenses.  Usually they appear in the following form:

  • Training repayment agreements that require workers to pay their employers (or third-party entities) for previously undertaken training provided by an employer or an associated entity if they separate voluntarily or involuntarily within a set time period.
  • Debt owed to an employer or third party entity for the up-front purchase of equipment and supplies essential to their work or required by the employer but not paid for by the employer.

The Bureau is concerned that this employer-driven debt could pose risks to consumers, including overextension of household finances, errors in servicing and collection, default and inaccurate credit reporting.  In addition, errors and misinformation can create heightened risks of consumer harm at each stage of the debt life cycle, from origination through servicing and default or payoff.  The Bureau notes that consumers may not understand whether these arrangements involve an extension of credit, whether they have the ability to comparison shop for credit offered by others or whether entering into the debt agreement is a condition of employment.  Additional risks, specific to the employment context, may include whether default on the debt threatens continued or future employment, or whether the status of the debt is impacted by a decision to seek alternative employment.  These risks might limit competition and transparency in this market for consumer financial products and services.

The Bureau is seeking information on how employer-driven debt has impacted the public and has provided a number of question prompts focusing on a number of topics such as:

  • Pre-origination
  • Origination
  • Servicing and Collections
  • Disputes
  • Credit Reporting
  • Financial Health

The Bureau notes that the public is not required to respond to the questions provided and can feel free to provide any information that would assist it in better understanding the relationship between labor practices and the market for consumer financial products/services.

CFPB Summary re: Debt Collection Practices (Regulation F); Pay to Pay Fees
12 CFR Part 1006

The Consumer Financial Protection Bureau (CFPB) issued this advisory opinion to affirm that this provision prohibits debt collectors from collecting pay to pay or “convenience” fees, such as fees imposed for making a payment online or my phone, when those fees are not expressly authorized

This advisory opinion became effective on July 5, 2022 and the advisory opinion can be found here.

Summary:

Section 808(1) of the Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from collecting any amount (including any interest, fee, charge or expense incidental to the principal obligation) unless that amount is expressly authorized by the agreement creating the debt or permitted by law.  This advisory opinion also clarifies this limitation also applies to a debt collector that collects pay to pay fees through a third-party payment processor.

The FDCPA imposes various requirements and restrictions on debt collectors’ debt collection activity.  Relevant here is section 808, which provides that a “debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.” Section 808 then states that “without limiting the general application of the foregoing, the following conduct is a violation of this section” and enumerates eight specifically prohibited practices including the “collection of any amount (including any interest, fee, charge or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.

In 2017, the Bureau issued a compliance bulletin that “provides guidance to debt collectors about compliance with the FDCPA when assessing phone pay fees—a type of pay to pay fee.  The bulletin summarizes, under Section 808(1), that debt collectors may collect such pay to pay fees only if the underlying contract or state law expressly authorizes those fees.  CFPB examiners found that a debt collector “violated Section 808(1) when they charge fees for taking mortgage payments over the phone where the underlying contracts creating the debt did not expressly authorize collecting such fees and where the relevant State law did not expressly permit collecting such fees.

The advisory opinion applies to debt collectors as defined in Section 803(6) of the FDCPA and implemented in Regulation F.  Pay to pay fees, sometimes called convenience fees, refers to fees incurred by consumers to make debt collection payments through a particular channel, such as over the telephone or online.

FinCEN ANPRM: No-Action Letters
Prepared by NASCUS Legislative & Regulatory Affairs Department
June 2022

FinCEN has issued an advance notice of proposed rulemaking (ANPRM) soliciting public comment on questions relating to the implementation of a no-action letter process. The no-action letter process at FinCEN may affect or overlap with other forms of regulatory guidance and relief FinCEN currently offers, including administrative rules and exceptive or exemptive relief. Therefore, the ANPRM seeks input from the public on whether a no-action letter process should be implemented and, if so, how the no-action letter process should interact with those other forms of relief.

Comments are due to FinCEN by August 5, 2022.

Summary

Section 6305(a) of the Anti-Money Laundering Act of 2020 (the AML Act) requires FinCEN to assess whether a no-action letter process should be established in response to inquiries concerning AML or countering the financing of terrorism (CFT) laws and how regulations apply to specific conduct.

The “no-action” letter is “a form of an exercise of enforcement discretion wherein an agency issues a letter indicating its intention not to take enforcement action against the submitting party for the specific conduct presented to the agency.” Such letters “address only prospective activity not yet undertaken by the submitting party.”

FinCEN submitted a Report to Congress on June 28, 2021, as required under 6305(b) of the AML Act,  concluding that FinCEN should undertake a rulemaking to establish a no-action letter process to supplement the existing forms of regulatory guidance.

Regulatory Relief

FinCEN currently provides two forms of regulatory guidance. It may issue an administrative ruling that applies FinCEN’s interpretation of the Bank Secrecy Act (BSA), or it may provide exceptive/exemptive relief by granting an exception or exemption from BSA requirements in specific circumstances. An example of such a ruling/exception can be found here.

The no-action letter would provide a third form of guidance and would generally permit a submitting party to seek potential guidance from FinCEN indicating whether FinCEN would pursue or recommend enforcement action for specific conduct identified by the submitting party.

The AML Act and the No-Action Letter Report

The primary benefits of the no-action letter process identified in the 2021 Report include “promoting a robust and productive dialogue with the public, spurring innovation among financial institutions, and enhancing the culture of compliance and transparency in the application and enforcement of the BSA.”

Questions for Comment

The ANPRM consists of 48 questions. The questions include general questions related to the findings contained in the Assessment. In addition to the general questions, FinCEN is also seeking comment on several categories:

  • The contours and format of a FinCEN no-action letter process;
  • FinCEN jurisdiction and no-action letters;
  • Changed circumstances; revocation;
  • No-action letter denials and withdrawals; confidentiality; and
  • Consultation

NASCUS has highlighted some of those questions below.

  • While FinCEN has no legal authority to prevent another agency, including a Federal functional regulator or the DOJ, from taking an enforcement action under the laws or regulations that it administers, are there additional points FinCEN should consider in assessing the viability of a cross-regulator no-action letter process? What is the value of establish a FinCEN no-action letter process if other regulators with jurisdiction over the same entity do not issue a similar no-action letter?
  • Would a no-action letter process involving FinCEN only be useful? Why or why not?
  • To what extent would an institution be able to rely on a no-action letter from FinCEN if the institution is subject to oversight and examination for the same or similar matters by another agency?
  • What impact would a FinCEN-only no-action letter process or a cross-regulator no-action process have on State, local, or Tribal regulators?
  • Should FinCEN establish via regulation any limitations on which factual circumstances would be appropriate for a no-action letter? If yes, what should those limitations be?
  • Should FinCEN limit the scope of no-action letters so that such requests may not be submitted during a BSA or BSA-related examination—including when the subject of the request is already a matter under examination, or when it becomes a matter under examination while the no-action letter process is ongoing?
  • Would it be valuable for FinCEN provide to information from a no-action letter request to agencies with delegated examination authority under 31 CFR 1010.810 for the purpose of evaluating specific conduct addressed in a no-action letter request, including, among other things, to obtain information that may inform FinCEN’s response to the request?
  • How should the no-action letter process apply to agents, third parties, domestic affiliates, and foreign affiliates that may be conducting anti-money laundering or BSA functions on behalf of a financial institution either inside or outside the United States?
  • Should a change in the overall business organization, such as when two entities merge or one entity acquires another, cause a no-action letter to lose its effect? If so, under what circumstances? If not, how would such a no-action letter continue to apply?
  • Should FinCEN publicize standards governing the revocation of no-action letters, or should revocation be determined on a case-by-case basis?
  • If a no-action letter is revoked, how should FinCEN handle conduct that occurred while the no-action letter was active? In particular, would a rescission result in potential enforcement actions only for conduct after the rescission date, or would an entity also potentially be subject to liability for conduct that occurred while the now-revoked letter was active? Would the answer depend on the basis for the revocation?
  • Should FinCEN create an appeals or reconsideration process for no-action letter denials? What factors and procedures should this process involve?
  • Should FinCEN publish denials on its website? If so, what level of detail and type of information should be included? For example, should denials be anonymized?
  • Should FinCEN maintain the confidentiality of no-action letters for a period of time, or indefinitely, after granting them? Under what circumstances should FinCEN maintain confidentiality?
  • Should no-action letters be used as published precedents? If so, under what circumstances and conditions should they be precedential? Should no-action letters be applicable beyond the requesting institutions, and under what circumstances and conditions?
  • If no-action letters and their underlying requests are made public, how should FinCEN handle content that is confidential or sensitive, such as triggering mechanisms for suspicious activity report (SAR) reviews?
  • What procedures should be put in place for FinCEN to consult with other relevant regulators or law enforcement agencies regarding no-action letter requests?
  • How can FinCEN best balance the need to consult other regulators or law enforcement with the desires of submitting parties for confidentiality and expediency?
  • Should FinCEN require a submitting party that is seeking a no-action letter to identify all of its regulators? Should FinCEN require that institution to identify all of the regulators of its parent or subsidiary corporations?
  • Under what circumstances other than consultation should information FinCEN obtains through the no-action letter process be shared with other Federal, State, local, and Tribal agencies, including the U.S. Department of Justice?
  • What value or benefit does a no-action letter bring that is distinct from an administrative ruling, or from exceptive or exemptive relief?

CFPB Summary re: Request for Information Regarding Relationship Banking and Customer Service
Docket No. CFPB 2022 0040

The Consumer Financial Protection Bureau (CFPB) is seeking comments from the public related to relationship banking and how consumers can assert the right to obtain timely responses to requests for information about their accounts from banks and credit unions with more than $10 billion in assets, as well as from their affiliates.

Comments must be received by August 22, 2022.  The request for information (RFI) can be found here, https://www.govinfo.gov/content/pkg/FR-2022-06-21/pdf/2022-13207.pdf.

Summary:

Section 1034(c) of the Consumer Financial Protection Act (CFPA) gives consumers a legal right to obtain information from the approximately 175 largest banks and credit unions in the country with more than $10 billion in assets, as well as from their affiliates.  Through this statutory authority, consumers are able to gain valuable insight into their accounts by requesting certain account information from their depository institution.

This request for information seeks feedback from the public on what customer service obstacles consumers face in the banking market and, specifically, what information would be helpful for consumers to obtain from depository institutions pursuant to Section 1034 of the CFPA.  The Bureau encourages the public to submit stories, data and information related to this RFI.  To assist in the development of responses, the CFPB has provided the following prompting questions:

  • What types of information do consumers request from their depository institution? How are consumers using the information?
  • What types of information do consumers request from their depository institutions, but are often unable to obtain?
  • How does the channel (phone, in-writing, online, in-person) through which consumers request information impact their ability to obtain information?
  • How do consumers’ customer service experiences differ depending on the channel through which they interact with their depository institution (phone, in-writing, online, in-person)?
  • How are customer service representatives evaluated and compensated, and how might compensation structure and incentives impact the service provided?
  • What customer services obstacles have consumers experienced that have adversely affected their ability to bank?
  • What unique customer service obstacles do immigrants, rural communities, or older consumers experience?
  • What are typical call wait times?
  • How often are calls dropped or disconnected? How often do companies use automated and digital communication channels such as interactive voice response (IVR) systems and online chat functions?
  • Are there any fees associated with customer service or requests for information?
  • What are the most important customer service features or experiences that help produce satisfactory banking relationships between financial institutions and consumers?
  • Please explain the value of consumers having access to the following information pertaining to their accounts:
  • Internal or external communications about an account
  • A listing of all companies that are provided with information about an account.
  • The purposes for which information about a consumer’s account are shared.
  • Any compensation that a depository institution receives for sharing information about an account.
  • Any conditions placed on the use of information about an account.
  • A listing of all companies with authorization to receive automatic reoccurring payments from an account.
  • Information reviewed or used in investigating a consumer’s dispute about an account.
  • Any third-party information used to make account decisions about consumers, including but not limited to consumer reports and credit or other risk scores.
  • What information would be helpful for consumers to obtain from depository institutions in order to improve their banking experience?
  • How have methods of customer engagement changed as a result of the COVID-19 pandemic?