Federal Reserve Interim Final Rule

 Regulation D                                  

Part 204: Reserve Requirements of Depository Institutions

 Summary

Prepared by NASCUS Legislative & Regulatory Affairs Department

June 2020

The Board of Governors of the Federal Reserve System (Federal Reserve Board or ‘‘FRB’’) is amending its 12 CFR Part 204, Regulation D, to delete the numeric limits on certain kinds of transfers and withdrawals that may be made each month from ‘‘savings deposits.’’ The amendments are intended to allow consumers more convenience in accessing their funds and to ease administrative burdens for depository institutions.

The Interim Final Rule may be read here. The rule became effective April 24, 2020.

Comments are due to the Federal Reserve June 29, 2020.

Summary

Section 19(b)(2) of the Federal Reserve Act (FRA) authorizes the FRB to impose reserve requirements on certain types of deposits and other liabilities of depository institutions for the purpose of implementing monetary policy. Specifically, the FRA requires depository institutions to maintain reserves against its certain accounts, including transaction accounts, as prescribed by the FRB’s regulations. On March 26, 2020, the FRB set that reserve ratio for transaction accounts to zero percent.

Regulation D distinguishes between reservable ‘‘transaction accounts’’ and non-reservable ‘‘savings deposits’’ based on the ease with which the depositor may make transfers or withdrawals. Prior to issuing the Interim Final Rule (IFR) the FRB’s Regulation D limited the number of certain transfers or withdrawals that an account holder may make from a ‘‘savings deposit’’ to no more than six/month. Prior to the IFR, Regulation D also required depository institutions:

• to prevent transactions in excess of the regulatory limit (6/month)
• to monitor accounts for violations of the limit

When the FRB responded to the economic disruption of the pandemic by eliminating the reserve requirement on transaction accounts, the need to distinguish between reservable ‘‘transaction accounts’’ and non-reservable ‘‘savings deposits’’ became superfluous.

Therefore, the FRB subsequently is issuing the IFR to amend Regulation D by deleting the six transfer limit from the ‘‘savings deposit’’ definition as well as the provisions that require depository institutions to prevent transfers and withdrawals in excess of the limit or to monitor the accounts for violations when excess transactions were inadvertently allowed. The IFR makes conforming changes to other definitions in Regulation D that refer to ‘‘savings deposit’’ as necessary.

As a result, depository institutions are permitted, but not required, to suspend enforcement of the 6/month transfer limit. Furthermore, the IFR does not mandate any change to how depository institutions report deposits.

The IFR includes a series of FAQs to help explain the implications of the changes.

• FAQ #1 – Reiterates that the IFR permits depository institutions to suspend enforcement of the 6-transfer limit, but it does not require them to do so.
• FAQ #2 & #3 – Clarifies that depository institutions may continue to report accounts as ‘‘savings deposits’’ on their FR 2900 deposit reports even after they suspend enforcement of the limit on those accounts (#2) or may report that account as a ‘‘transaction account’’ on the FR 2900 reports (#3).
• FAQ #4 – Addresses Regulation D’s §204.2(d)(1) ‘‘reservation of right,’’ and confirms that the ‘‘reservation of right’’ continues to be a part of the definition of ‘‘savings deposit.’’
• FAQ #5 – The IFR interim final rule does not require a depository institution to change the way it calculates or reports interest on an account where the depository institution has suspended enforcement of the transfer limit.
• FAQ #6 – Notes that a depository institution with account agreements with its ‘‘savings deposit’’ customers requiring the depository institution to enforce the 6-transfer limit may, if it chooses, amend those agreements in any manner.
• FAQ #7 – Notes that the IFR does not require depository institutions to change the names of accounts if a depository institution chooses to suspend regardless of whether the 6-transfer limit is suspended.
• FAQ #8 – **The Federal Register notice is missing FAQ #8.
• FAQ #9 – Clarifies that depository institutions may suspend enforcement of the 6-transfer limit on a temporary basis, such as for six months.
• FAQ #10 – Noting that some depository institutions charges fees to savings deposit customers for transfers and withdrawals that exceed the Regulation D limit, the FRB clarifies that the IFR does not require or prohibit depository institutions from charging their customers fees for transfers and withdrawals in excess of the limit.

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Interagency Lending Principles for Offering Responsible Small-Dollar Loans

May 2020

NCUA and the federal banking agencies (Federal Reserve System, FDIC, and OCC) have published “principles” to encourage banks and credit unions to offer responsible small-dollar loans to both consumers and small businesses. The agencies noted the role small-dollar loans can play in helping borrowers manage short term credit needs during the pandemic, and suggest lenders

The agencies advise lenders they should:

• Offer “thoughtfully structured” loans
• Design repayment structures that work for borrowers
• Implement lending programs that are equitable reflections of the lender’s costs
• Utilize automation and other new technologies to lower lending costs

The agencies characterize responsible small-dollar loan programs as generally having the following characteristics:

• High percentage of customers repay loans pursuant to the original terms, indicating loans were affordable and appropriately underwritten
• Loan terms and pricing minimize debt cycles and debt rollovers
• Program design enhances a borrower’s financial capabilities

The guidance characterizes well managed programs as:

• In alignment with the financial institution’s overall business plans and strategies
• Including innovative technology or processes for customers who may not meet traditional underwriting standards
• Offering fair access to financial services and fair treatment of borrowers
• In compliance with applicable fair lending and consumer protection laws.

With respect to credit unions, NCUA notes that FCUs may offer PALs I and PALs II loans pursuant to § 701.21(c)(7)(iii) and (iv).

The agencies’ core lending principles for small-dollar loan products include:

• Loan products are consistent with safe and sound banking, treat customers fairly, and comply with applicable laws and regulations
• Financial institutions effectively manage the credit, compliance and operational risks associated with the products they offer
• Loan products are underwritten based on prudent policies and practices

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Letter to Credit Unions 20-CU-17 Update to Offsite Examination and Supervision Approach

May 2020

NCUA is updating its supervisory approach implemented in response to the COVID-19 crisis and originally announced in March in Letter to Credit Unions 20-CU-05, Offsite Examination and Supervision Approach. Notably, NCUA’s updated approach includes a return to issuing Reports of Examination (ROE).

Conducting Work Offsite

NCUA will continue to operate with its employees and contractors working offsite and will continue its general moratorium on new on-site exam work until further notice. However, NCUA may conduct onsite work at a credit union as necessary to address serious or time-sensitive matters. NCUA noted since March 16, 2020 NCUA examiners have conducted offsite examination work at over 100 credit unions. NCUA examiners will continue to be mindful of the impact exam information requests may have on a credit union experiencing operational and staffing challenges associated with the COVID-19 pandemic. NCUA Regional offices will continue to coordinate with SSAs on supervision efforts for FISCUs.

Issuing Examination Reports

NCUA will begin issuing ROEs for the examinations NCUA examiners complete off-site. NCUA reiterated that corrective actions issued to a credit union would consider the impact of the COVID-19 pandemic on the credit union’s operations and financial condition. In announcing this change, NCUA emphasized:

• Credit unions would not be criticized for efforts to provide prudent relief for members so long as those relief efforts are conducted in a safe and sound manner. NCUA examiners WILL consider whether a credit union’s relief efforts elevate, or reduce, a credit union’s risk exposure.
• Additional risk, even if prudently undertaken, may be reflected in NCUA’s CAMEL rating of the credit union.
• TO ensure consistent application of these concepts, NCUA has instituted an enhanced internal review process for all ROEs.

For more information on the CAMEL rating system, see NCUA’s Letter to Credit Unions, 07-CU-12, CAMEL Rating System.

This amended off-site approach became effective on June 1, 2020.

Letter to Credit Unions 20-CU-16 Low-Income Designations: Qualification of Military Personnel

May 2020

NCUA has announced it is changing the agency’s approach to determining whether a credit union qualifies for designation as a low income credit union (LICU) pursuant the

Federal Credit Union Act (FCUA) and Part 701.34 (applicable to FISCUs by reference in Part 741.204). The regulation generally defines a low-income member as a member whose family income is 80% or less than the median family income.

Prior to this change, NCUA’s determined LICU status by assigning incomes based on geocoding of members’ addresses. However, NCUA asserts that this methodology cannot account for military personnel with Army/Air Post Office (APO) or Fleet Post Office (FPO) mailing addresses and therefore excluded them from the analysis. The change of methodology announced by NCUA seeks to address that issue.

Based on a determination by NCUA’s Office of Chief Economist that a majority of military personnel would qualify as low-income members, NCUA is changing its methodology to include APO/FPO addresses in the LICU analysis with a percentage (designated by NCUA) included as low-income members.

NCUA’s geocoding approach is a assumption based methodology. However, some credit unions may have members that don’t adhere to the methodology’s models and assumptions. For those credit union, NCUA also provides an option to submit additional information to NCUA to demonstrate the credit union qualifies for a LICU designation. Credit unions may submit to NCUA’s CURE office the following:

• a list identifying members who are active-duty military personnel (no additional information is necessary) for NCUA to factor into their military methodology formulation discussed above; or
• granular data for military members, including active-duty and members of the Reserve and the National Guard. Data could include actual income, paygrade, years of service, or rank of its military members.

Credit unions also have the option of conducting their own analysis to demonstrate that all or some portion of military membership qualify as low-income.

Letter to Credit Unions 20-CU-15 Principles for Making Responsible Small-Dollar Loans

May 2020

NCUA issued LTCU 20-CU-15 to discuss interagency guidance issued together with the Federal Reserve System, FDIC, and OCC related to small dollar lending programs: Interagency Lending Principles for Offering Responsible Small-Dollar Loans. The interagency guidance (principles) follows NCUA’s issuance in March 2020 of LTCU 20-CU-04 Responsible Small-Dollar Lending in Response to COVID-19 and a March 2020 joint statement from the federal bank regulators: Joint Statement Encouraging Responsible Small-Dollar Lending in Response to COVID-19.

The principles described in the new interagency guidance apply to all credit unions that make small-dollar loans. NCUA, emphasizing that effectively managing the credit, operational, and compliance risks associated with small dollar loans is important for credit unions, identifies 4 essential elements:

• Credit unions should underwrite small-dollar loans based on prudent policies
• Credit unions should offer small dollar loans in a manner consistent with safe and sound practices
• Credit unions must comply with all applicable consumer protection and other laws and regulations
• Credit unions should treat members fairly

NCUA notes that FCUs have the option of providing PALs under § 701.21(c)(7)(iii) and

• 701.21(c)(7)(iv).

PALs I	PALs II
$1,000 maximum loan	$2,000 maximum loan
6-month maturity	12-month maturity

 

Regulatory Alert 20-RA-03 CFPB Issues Interpretive Rule on Waiver of TRID and TILA Waiting Periods

May 2020

NCUA’s Regulatory Alert discussed the CFPB’s interpretive rule clarifying when consumers can elect to modify or waive certain required waiting periods for some mortgage loans under the TILA-RESPA Integrated Disclosure (TRID) rule and the Regulation Z right of rescission rule (See 12 CFR 1026.15 and 1026.23). 

Under the interpretive rule, a borrower’s need to obtain funds and not delay closing for reasons related to the COVID-19 pandemic may be a “changed circumstance” or “bona fide personal emergency” which would permit borrowers to waive waiting periods under both rules, or permit a credit union to amend some TRID documents.

NCUA encourages credit unions to inform borrowers of their ability to forego the waiting periods.

The interpretive rule also designates COVID-19 to be a permissible “changed circumstance” under the TRID rule for revising fee disclosures to reflect higher costs for the transaction (such as increased appraisal fees).

NASCUS Note:

The CFPB also issued a FAQ regarding the waiving of the timing requirement under the ECOA Valuations Rule.

Regulatory Alert 20-RA-04 CFPB Increases Reporting Thresholds Under HMDA

May 2020

NCUA’s Regulatory Alert discusses the May 12, 2020 CFPB final rule amending parts of Regulation C which implement the Home Mortgage Disclosure Act (HMDA). The final rule:

• Effective July 1, 2020 the threshold for collecting and reporting data about closed-end mortgage loans is increased from 25 to 100, for calendar year 2020. It also increases the threshold for collecting and reporting
• Effective January 2, 2022 the threshold for collecting data about open-end lines of credit is increased from 100 to 200.
• The asset size foe collection of data remains unchanged: credit unions with total assets of $47m or less of December 31, 2019, are not subject to HMDA in 2020.

 What this means for credit unions:

NOTE: This rule change only applies to HMDA. Other regulations, such as  Regulation B (requiring collection of  information regarding ethnicity, race, sex, marital status, and age when credit is sought for purchase/refinancing of a primary residence dwelling that also secures the credit.

For calendar year 2021, a credit union is not required to collect HMDA data for closed-end mortgage loans if it originated fewer than 100 closed-end mortgage loans in 2019 or 2020.

The HMDA provisions may be found in Regulation C. CFPB will not update the current version of Regulation C until the effective dates of the amendments.

NCUA Final Rule: Part 722 Appraisals

Prepared by NASCUS Legislative & Regulatory Affairs Department
May 2020

NCUA has published a final rule amending Part 772 regarding appraisals for certain residential real estate related transactions. The final rule increases the threshold level below which appraisals are not required for residential real estate related transactions from $250,000 to $400,000. In transactions below the threshold, federally insured credit unions have the option of obtaining either an appraisal, or a written estimate of market value of the real estate collateral. In addition, the final rule explicitly incorporates the existing statutory requirement that appraisals be subject to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice (USPAP).

The Final Rule proposed rule may be read here. The rule became effective April 30, 2020.  

NCUA’s appraisal rules in § 722 apply to federally insured state credit unions by reference in § 741.203(b).

Summary

NCUA’s appraisal rule, Part 722, is promulgated pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI). The last time NCUA adjusted its appraisal threshold was in 2001 when the limit was raised to $250,ooo. NCUA notes that the $400,000 threshold for residential real estate related transactions would exempt about the same number of transactions as the $250,000 threshold when it was established in 2001.

• 722.3(b)(2) Appraisal Threshold

The final rule amended the appraisal threshold in § 722.3(b)(2) to raise the limit below which an appraisal is not required for a residential real estate transaction to $400,000. For residential real estate transactions less than $400,ooo, credit unions have the choice of obtaining either a waiver, or a written estimate of market value.

• 722.4(c) Uniform Standards of Professional Appraisal Practice

Part 722.4(c) will be amended to incorporate the existing statutory requirement that appraisals be subject to appropriate review for compliance with the Uniform Standards of professional Appraisal Practice (USPAP). The revisions also delete as unnecessary the additional requirements for the appraisal exemption for certain transactions in rural areas.

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Summary: CFPB Debt Collection Practices (Regulation F)

12 CFR Part 1006

The Consumer Financial Protection Bureau (CFPB)

Prepared by the Legislative and Regulatory Affairs Department

May 2020

The Consumer Financial Protection Bureau issued a supplemental notice of proposed rulemaking to amend Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA).  In May 2019, the Bureau issued a proposed rule that would prescribe Federal rules governing the activities of debt collectors as defined under the FDCPA.  This proposal supplements the May 201 proposed rule by proposing to require debt collection to make certain disclosures when collecting time-barred debts.

Comments must be received by August 4, 2020.  The proposed rule can be accessed here and here (date extension).

Summary:

The Bureau proposes to amend Regulation F, which implements the FDCPA, to require debt collectors to make certain disclosures when collecting time-barred debts.  Time barred debts are debts for which the applicable statute of limitations has expired.  The Bureau proposes to require a debt collector collecting a debt that the debt collector knows or should know is time barred to disclose:

• That the law limits how long the consumer can be sued for a debt and that, because of the age of the debt, the debt collector will not sue the consumer to collect it; and
• If the debt collector’s right to bring a legal action against the consumer to collect the debt can be revived under applicable law, the fact that revival can occur and the circumstances in which it can occur.

The Bureau proposes model language and forms that debt collectors could use to comply with the proposed disclosure requirements.

The Bureau proposes that the effective date of the final rule would be one year after the final rule is published in the Federal Register.

Comments Requested:

The Bureau is requesting comments on the following (among other things):

• The merits of using a “know or should know” standard versus a “strict liability” standard for determining when debt collectors must provide time-barred debt and revival disclosures.
• The merits of using, as an alternative, a “strict liability” standard with safe harbor for debt collectors who provide the disclosures when neither knew nor should have known the debt was time-barred.
• Whether knowing if a debt is time-barred affects or is likely to affect a consumer’s conduct relating to the debt
• The frequency with which debt collectors should be required to provide required disclosures, including the basis for requiring more or less frequent disclosures;
• Whether additional guidance is needed to address situations in which a validation notice might be reissued voluntarily because, for example, the consumer requests a copy or a translation;
• Debt collectors’ current practices with respect to disclosing whether a debt is time barred and the circumstances, if any, in which revival can occur;
• Debt collectors’ current practices with respect to revival, including whether and how frequently they sue to collect debts when the right to do so has been revived.
• The burden of making a time-barred debt determination for the debt collectors who do not sue to collect debts
• The burden of requiring all debt collectors to determine, when collecting debt that they know or should know is time barred, which State’s law applies and the circumstances, if any, under which the law would permit revival.
• The burden of making these determinations under a strict liability standard
• The knowledge standard that should apply for determining when disclosures would be required under the proposed rule
• Whether, if the first communication after a debt becomes time barred (or after the debt collector knows or should know that the debt is time barred) is oral, the debt collector should also be required to provide the disclosures in the first subsequent written communication.
• The conflict that might arise between the Bureau’s proposed model forms and other disclosures required by applicable law.
• Whether proposed model forms B-4 through B-7 would allow debt collectors to comply with other applicable law, including whether any jurisdictions require time-barred debt or revival disclosures to be included on the front of the validation notice and
• Whether, if so, it is possible for a debt collector to comply with both the Bureau’s proposal and any such State laws.
• Whether consumers who receive both Federal and State time-barred debt (and if applicable, revival) disclosures on a validation notice may be confused by the dual disclosures.
• Whether the two conditions described on the model forms – payment and written acknowledgement-capture all circumstances in which State law permits revival

Letter to Credit Unions 20-CU-14 Establishment of CLF Agent Memberships

May 2020

NCUA issued LTCU 20-CU-14 to announce that all 3,700+ credit union with assets less than $250 million may access the Central Liquidity Facility (CLF). This is because all 11 remaining corporate credit unions agreed to subscribe to CLF stock as agents for all their members with less than $250 million in assets. In addition, the corporate credit unions action has increased the CLF’s borrowing authority by over $13 billion.

NCUA’s LTCU 20-CU-08, Enhancements to the Central Liquidity Facility Membership and Borrowing Authority provided information on changes to the CLF  resulting from the (CARES) Act, including allowing corporate credit union to become agent members of the CLF for a subset of their NPCU members rather than for ALL of their NPCU members. This special “subset” membership authority sunsets on December 31, 2020.

Credit unions seeking loans from the CLF should contact their corporate credit union. The corporate credit union can process the request for the credit union on behalf of the CLF. For more information, NCUA has resources on the CLF website.

NCUA Interim Final Rule: Parts 702 & 723 PPP Loans & PCA and MBL

Prepared by NASCUS Legislative & Regulatory Affairs Department
May 2020

NCUA issued this interim final rule (IFR) to make conforming amendments to Part 702, Prompt Corrective Action (PCA) and Part 723, Commercial Loans, following the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and subsequent implementation of the Paycheck Protection Program (PPP).

The IFR makes the following changes to NCUA’s rules:

• Part 702.2 is amended to allow credit unions to exclude from the calculation of total assets when calculating net worth ratio any loans pledged as collateral for a non-recourse loan that is provided as part of the Federal Reserve Board’s Paycheck Protection Program Lending Facility
• Part 702.104 is amended to included PPP loans as low risk assets for the purposes of risk weighting under PCA
• Part 723.2 is amended to excluded PPP loans from accredit unions MBL cap calculation

The Interim Final Rule proposed rule may be read here. The rule became effective upon publication on April 27, 2020.

Comments are due to NCUA May 27, 2020.

Summary

Part 702 of the NCUA’s rules implements the risk-based net worth requirement for complex credit unions. Under § 702.103, a complex credit union is a credit union with   $50 million in assets and a RBNW requirement exceeding 6%. A credit union’s

RBNW is calculated by weighing 8 risk portfolios:

• long-term real estate loans
• member business loans (MBL) outstanding
• investments
• low-risk assets
• average- risk assets
• loans sold with recourse
• unused MBL commitments
• allowance

The NCUA’s MBL and Commercial Lending Rule limits the aggregate amount of MBLs that a credit union may make to the lesser of 1.75 times the net worth of the credit union or 1.75 times the minimum net worth required to be well capitalized under the Federal Credit Union Act (FCUA). The rule defines MBLs and commercial loans and distinguishes between the two with only MBLs counting toward the regulatory and statutory cap on loans. Note that while all MBLs are commercial loans, not all commercial loans are MBLs.

As part of the federal government’s response to the COVID-19 impact on the economy, the FRB authorized each of the Federal Reserve Banks to participate in the Paycheck Protection Program Lending Facility (PPPL Facility). Under the PPPL Facility, each of the Federal Reserve Banks will extend non-recourse loans to eligible financial institutions to fund PPP loans with the SBA guaranteed PPP loans pledged as collateral for the PPL Facility loans.

The Interim Final Rule

• PPP loans will risk weighted zero percent – The IFR amends the NCUA’s risk-based net worth rules as discussed above to include the PPP loans in the definition of low-risk assets (#4 above in the RBNW categories). Other low-risk assets include cash on hand, the NCUSIF deposit, and debt instruments guaranteed by the NCUA. Under §702.106(d), low-risk assets receive a 0% risk weight.
• PPP loans excluded from calculation of total assets – In order to participate in the PPPL Facility, credit unions will have to originate and hold PPP loans on the credit union’s balance sheet. This in turn could potentially subject credit unions to increased regulatory capital requirements. To facilitate use of the PPPL Facility, the IFR excludes PPP loans pledged as collateral to the PPPL Facility from the definition of total assets in §702.2 for purposes of calculating a credit union’s net worth ratio.
• PPP loans are not “commercial loans” – The interim final rule excludes PPP loans from the definition of “commercial loans” under § 723. Because the PPL loans would not be defined as “commercial loans” they would not be counted for purposes of calculating a credit union’s aggregate MBL cap.

Summary: CFPB Bulletin 2020-02 “Compliance Bulletin and Policy Guidance: Handling of Information and Documents During Mortgage Servicing Transfers”

12 CFR Part 1024

The Consumer Financial Protection Bureau (CFPB)

Prepared by the Legislative and Regulatory Affairs Department

May 2020

The Consumer Financial Protection Bureau (CFPB) is issued this compliance bulletin and policy to provide guidance to residential mortgage servicers regarding the transfer of mortgage loans.

The bulletin became effective on May 1, 2020 and can be access here.

Summary:

The Bureau issued the bulletin to provide guidance to mortgage servicers and sub-servicers considering potential risks to consumers that may arise in connection with transfers of residential mortgage servicing rights.  The bulletin covers (i) transfer-related policies and procedures and (ii) loan information and documents for ensuring accuracy.

In 2014, the Bureau issued CFPB Bulletin 2014-01 that highlighted the Regulation X mortgage servicing rule requirements.  In addition, the bulletin also addressed frequently asked questions; focus areas of Bureau examinations; and other Federal consumer financial laws applicable to servicing transfers. However, the Bureau has noted that it continues to find weaknesses in compliance management systems and violations of Regulation X related to mortgage servicing transfers. The bulletin highlights a number of examples of servicer practices that the Bureau may consider as policies/procedures that are reasonably designed to achieve the objectives of the transfer requirements such as general transfer-related polices/procedures and loan information and documents to be transferred/received.  Additionally, the bulletin’s “Appendix A” provides examples of information and documents grouped by subject area which the Bureau intends to use to assess compliance with Regulation X.

The Bureau does note that during the duration of the National Emergency and (120 days thereafter), it will consider the challenges entities may face as a result of the pandemic, including operational and time constraints related to the transfer, as well as being sensitive to good faith efforts designed to transfer the servicing without adverse impact to consumers. As such, the Bureau intends to focus supervisory feedback for institutions, if needed, on identifying issues, correcting deficiencies, and ensuring appropriate remediation to consumers.