Bulletin 2022-06: Unfair Returned Deposited Item Fee Assessment Practices

Summary re: CFPB Bulletin 2022-06: Unfair Returned Deposited Item Fee Assessment Practices  

12 CFR Chapter X 

A returned deposited item is a check that a consumer deposits into their checking account that is returned to the consumer because the check could not be processed against the check originator’s account.  Blanket policies of charging Returned Deposited Item fees to consumers for all returned transactions irrespective of the circumstances or patterns of behavior on the account are likely unfair under the Consumer Financial Protection Act (CFPA).  The CFPB is issuing this bulletin to notify regulated entities how the Bureau intends to exercise its enforcement and supervisory authorities on this issue.   

The bulletin is effective as of November 7, 2022, and can be found here. 

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Summary:  

The CFPA prohibits covered persons from engaging in unfair acts or practices.  Congress defined an unfair act or practice as one that (i) causes or is likely to cause substantial injury to consumers which is not reasonably avoidable and (ii) such as substantial injury is not outweighed by countervailing benefits to consumers or to competition. Blanket policies of charging “Returned Deposited Item” fees to consumers for all returned transactions irrespective of the circumstances of the transaction or patterns of behavior on the account are likely unfair.   

In addition, fees charged for Returned Deposited Items cause substantial injury to consumers.  In many instances in which fees are charged for these returned items, consumers would not be able to reasonably avoid the substantial monetary injury imposed by the fees.  An injury is not reasonably avoidable unless consumers are fully informed of the risk and have practical means to avoid it.  However, a consumer depositing a check would normally be unaware of and have little to no control over whether a check originator has funds in their account; will issue a stop payment instruction; or has closed the account.  Nor would a consumer normally be able to verify whether a check will clear with the check originator’s depository institution before depositing the check or be able to pass along the cost of the fee to check originator.   

The Bureau notes that it is unlikely that an institution will violate the prohibition if the method in which fees are imposed are tailored to only charge consumers who could reasonably avoid the injury.   

CFPB Summary re: Advisory Opinion on Fair Credit Reporting; Facially False Data
12 CFR Part 1022

The Consumer Financial Protection Bureau (CFPB) issued this advisory opinion to highlight that a consumer reporting agency that does not implement reasonable internal controls to prevent the inclusion of facially false data, including logically inconsistent information, in consumer reports it prepares is not using reasonable procedures to assure maximum possible accuracy under Section 607(b) of the Fair Credit Reporting Act (FCRA).

This advisory opinion became effective on October 26, 2022, and can be found here.

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Summary:

The FCRA regulates consumer reporting.  The statute was designed to ensure that “consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information.”  The FCRA was enacted “to protect consumers from the transmission of inaccurate information about them and to establish credit reporting practices that utilize accurate, relevant, and current information in a confidential and responsible manner.”

The Bureau is issuing this advisory opinion to highlight that the legal requirement to follow reasonable procedures to assure maximum possible accuracy of the information concerning the individuals about whom the reports related includes, but is not limited to, procedures to screen for and eliminate logical inconsistencies to avoid including facially false data in consumer reports. The opinion provides a non-exhaustive list of examples of inconsistent account information/statuses and illogical information relating to consumers that could be considered problematic. Finally, the advisory opinion applies to all consumer reporting agencies as defined in FCRA Section 603(f).

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.

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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.

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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.

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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.

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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.

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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.

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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.”

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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

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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.

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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?

 

 

 

 

 

 

Joint Proposed Rule Summary: Rules of Practice and Procedure

NASCUS Legislative and Regulatory Affairs Department | May 14, 2022

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The NCUA, OCC, FDIC, and Federal Reserve have published a joint Notice of Proposed Rulemaking: Rules of Practice and Procedure. If finalized, the proposal would amend the Uniform Rules of Practice and Procedure to “recognize the use of electronic communications in all aspects of administrative hearings and to otherwise increase the efficiency and fairness of administrative adjudications.”

In addition, the OCC, Federal Reserve, and FDIC are proposing to modify each of their respective administrative practice and procedure rules. Occ also intends to integrate its rules with the Uniform Rules so that only one set of rules would apply to national banks and Federal savings associations.

The deadline to submit a comment is June 13, 2022. The proposed rule may be read in its entirety here.

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Summary

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) required NCUA, the federal banking agencies (FBAs) to develop uniform rules and procedures for administrative hearings. In August 1991, NCUA and the FBAs each adopted final Uniform Rules as well as agency specific rules. Amendments to those rules were made in 1996, but otherwise the rules have remained generally unchanged.

Prior to 2005, NCUA and the FBAs only accepted paper pleadings. However, beginning in 2005, the Office of Financial Institution Adjudication (OFIA) established a dedicated electronic mailbox to accept electronic pleadings and service and, by 2006, paper pleadings were virtually eliminated in administrative hearings. Without rules in place to address electronic pleadings, the Administrative Law Judges (ALJs) opted to dictate procedures pertaining to electronic filing and other items on an ad hoc basis.

The changes proposed by this rule would modify the Uniform Rules to accommodate electronic pleadings and communications in administrative hearings and make other improvements based on NCUA’s and the FBA’s experience gained over the past years. References to the Office of Thrift Supervision (OTS) would be removed as OTS was abolished in 2011. In addition, the OCC, Federal Reserve, and FDIC propose to amend certain sections of their Local Rules that they believe should be updated, improved, or clarified and the OCC proposes to consolidate its uniform and local rules.

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Proposed changes include:

• Terminology and Nomenclature – Gender specific references would be replaced with gender neutral terminology consistent with Federal Register drafting guidelines (see https://www.archives.gov/federal-register/write/legal-docs/clear-writing.html). The word “shall” will be replaced by the terms ‘‘must,’’ ‘‘will,’’ or other appropriate language and the abbreviation ‘‘ALJ’’ will be used for ‘‘administrative law judge.’’
• Civil Money Penalties & HOLA – the list of civil money penalties will be updated to include §5, §9, and §10 of the Home Owners’ Loan Act (HOLA).
  This update does not affect credit unions as the relevant sections of HOLA are applicable to Federal savings associations now supervised by the OCC, State-chartered savings associations now supervised by the FDIC, and savings and loan holding companies supervised by the Federal Reserve Board.
• References to OTS will be deleted.
• Electronic Signatures – a definition of the term ‘‘electronic signature’’ will be added in the definitions section to align with proposed changes allowing electronic signatures to be used to satisfy good faith certification requirements.
• Administrative Law Judges – the term ‘‘other orders’’ would be added to the list of specific orders an ALJ is authorized to issue, quash, or modify to clarify that the authority of the ALJ to issue orders is not limited to subpoenas, subpoenas duces tecum, and protective orders. To improve clarity, the term ‘‘presiding officer’’ would be replaced by ‘‘ALJ.’’
• Appearances in Person – changes would simplify this section to make clear that an individual may appear on their own behalf. Another change would require a notice of appearance include a written acknowledgment that the individual has reviewed and will comply with the Uniform Rules and Local Rules.
• Good Faith Certification – proposed changes would require that the counsel of record, including an individual who acts as their own counsel, include a mailing address, an electronic mail address, and a telephone number with every certification. Other changes would permit electronic signatures to satisfy the signature requirements of the certification.
• Ex Parte Communications – changes would clarify that upon the occurrence of ex parte communication, the ALJ or the Agency Head must determine whether any action in the form of sanctions should be taken concerning the ex parte communication. To better align the Uniform Rules with §5 of the Administrative Procedure Act, language would be added stating that the ALJ may not consult with a person or party on a fact in issue without giving all parties notice and an opportunity to participate and may not be responsible to or subject to the supervision or direction of an employee agent engaged in the performance of investigative or prosecuting functions for any of the Agencies. Finally, terminology would changed to refer to “administrative” or “judicial” proceedings rather than “public” proceedings.
• Filing of Papers – this section would be updated to remove outdated references to transmission by electronic media and replace it with a section stating that filing may be accomplished by electronic mail or other electronic means designated by the Agency Head or the ALJ. Furthermore, references to specific carriers and names mail delivery services would be changed to generic references. Changes to the section related to the filing of papers would require inclusion of:
  • mailing address
  • electronic mail address
  • telephone number of the counsel or party making the filing.

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The provision requiring copies to be filed will be deleted.

• NCUA would delete from its rules references to change-in-control proceedings from part 747 which do not apply to credit unions.
• Service of Papers – proposed changes would provide for electronic filing and simplify and update the descriptions for other, non-electronic, means of filing. Additional changes would mandate that any papers required to be served by the Agency Head or the ALJ upon a party that has appeared in the proceeding will be served by electronic mail or other electronic means. Non-electronic methods of service will be preserved as an option for parties that do not appear in person.
• Construction of Time Limits – changes would establish that papers transmitted electronically are deemed filed/served upon transmittal by the serving party. Existing times for non-electronic methods of filing and service would be retained. In the case of service by electronic mail or other electronic means, the time limits for responding would be calculated by adding one calendar day to the prescribed period. In the case of overnight mail service, the rule would provide for the addition of two calendar days, rather than one, and the addition of three calendar days for service made by mail.
• Witness Fees and Expenses – the proposal would clarify that all witnesses, including an expert witness who testifies at a deposition or hearing, will be paid the same fees for attendance and mileage as are paid in US District court proceedings when US is a party. Additional changes would clarify that NCUA and FBAs are not required to pay witness fees/mileage for testimony by a party.
• Opportunity for Informal Settlement – this provision would be amended to clarify the existing rule that an offer or proposal for informal settlement may only be made to Enforcement Counsel.
• Commencement of Proceeding and Contents of Notice Section – proposed changes related to service of notice to the proceedings include:
  • Enforcement Counsel may serve the notice upon counsel for the respondent, rather than the respondent
  • Clarification that notice pleading applies in administrative
  • Change “a statement of the matters of fact or law showing the [Agency] is entitled to relief’’ to simply ‘‘matters of fact or law showing that the [Agency] is entitled to relief.’’
• Answer – proposed amendment will establish an unappealable default judgment in favor of the Agency if a respondent fails to request a hearing as required by law within the applicable time frame.
• Scope of Document Discovery – proposed change would update the definition of the term ‘‘documents’’ in § ll.24(a)(1) to include not only writings, drawings, graphs, charts, photographs, and recordings, but electronically stored information and data or data compilations stored in any medium from which information can be obtained. Additional proposed changes would clarify the list of privileges applicable to otherwise discoverable documents:
  • attorney-client privilege and the work-product doctrine
  • bank examination privilege
  • law enforcement privilege

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Furthermore, the proposal would require that document discovery, including all responses to discovery requests, completed by the date set by the ALJ and no later than 30 days prior to the date scheduled for the start of the hearing.

• Request for Document Discovery by Parties- under the proposal, this section would be reorganized and renamed ‘‘Document requests.’’ In addition, proposed changes would add a paragraph stating that a party may serve another party a request to not only produce discoverable documents but to permit the inspection or copying of discoverable documents. New language would also allow a party responding to a request for inspection to produce electronically stored information instead of permitting inspection and would require that, unless a particular form is specified by the ALJ or agreed upon by the parties, the producing party must produce copies of documents as they are kept in the usual course of business. The producing party would pay its own costs to respond to a discovery request unless otherwise agreed by the parties. Finally, the proposal would specify the following privileges related to document production requests:
  • attorney-client privilege and work product doctrine,
  • bank examination privilege
  • law enforcement privilege
  • government deliberative process privilege
  • and any other privileges of the Constitution, any applicable act of Congress, and other principles of common law
• Document Subpoenas to Non-Parties – proposed amendment would allow a person subpoenaed for documents to file a motion to quash or modify such subpoena with the ALJ.
• Deposition of Witness Unavailable for Hearing – the proposed changes would require that the application for a subpoena state the manner in which the deposition is to be taken, in addition to the time and place, and provide explicitly that a deposition may be taken by remote means. Additional changes provide that a court reporter or other person authorized to administer an oath may administer the oath remotely without being in the physical presence of the deponent and provides for obtaining court ordered compliance with issued subpoenas.
• Summary Disposition – proposed changed would require that a request for a hearing on a motion be made in writing. This change will formalize the process of requesting a hearing and increase the clarity of the process.
• Scheduling and Prehearing Conferences – changes would clarify that a prehearing conference must be set within 30 days of service of the notice, or an order commencing a proceeding and eliminate the option in the current rule for the parties to agree on another time. References to telephone conferences would be eliminated to make the provision technology neutral.
• Prehearing Submission – the time for a party to file prehearing submissions with the ALJ would be extended from 14 days to 20 days before the start of the hearing. Additional changes would require the submission of a prehearing statement that states the party’s position with respect to the legal issues presented, the statutory and case law upon which the party relies, and the facts the party expects to prove at the hearing. Also, final witness lists, must include the name, mailing address, and electronic mail address for each witness. Further clarifications would make clear the witness list need not identify the exhibits to be relied upon by each witness.
• Conduct of Hearings – new rules would the ALJ to establish procedures for the use of electronic presentations.
• Evidence Section – the proposal would replace the terminology ‘‘direct interrogation” with the term “direct questioning.”

NCUA Risk Alert: 22-RISK-01 Heightened Risk of Social Engineering and Phishing Attack

March 2022

The on-going conflict in Ukraine has raised concerns about potential cyberattacks in the U.S., including those against the financial services sector. All credit unions and vendors, regardless of size, are potential targets for cyberattacks, like social engineering and phishing attacks, and must remain vigilant. Credit unions should report any cyber incidents to the NCUA, your local FBI field office or the Internet Crime Complaint Center, and the Cybersecurity and Infrastructure Security Agency (CISA).

Phishing is a technique that uses email or malicious websites to solicit personal information or to get victims to download malicious software by posing as a trustworthy entity. Another variant of phishing, known as smishing, uses SMS or other text messaging applications to get victims to click on malicious links to achieve similar goals to email phishing. NCUA’s Risk Alert outlines common indicators to watch out for along with tips to avoid being a victim of phishing.

The NCUA encourages credit unions to review CISA’s Shields-Up website, which provides information about cybersecurity threats, including several resources and mitigation strategies. The NCUA recently created the Automated Cybersecurity Evaluation Toolbox or ACET, a free tool for federally insured credit unions to use when evaluating their levels of cybersecurity preparedness. The ACET is a downloadable, standalone app developed to be a holistic cybersecurity resource for credit unions.

Additional cybersecurity resources are also available at www.ncua.gov/cybersecurity.

LTCU: (21-CU-16) Relationships with Third Parties that Provide Services Related to Digital Assets

December 2021

NCUA’s LTCU was issued to provide clarity about the already existing authority of federally insured credit unions (FICUs) to establish relationships with third-party providers that offer digital asset services to the FICUs’ members, provided certain conditions are met. While the authority for federal credit unions (FCUs) to establish these relationships is described in the letter, the authority for federally insured, state-chartered credit unions (FISCUs) to establish these relationships will depend upon the laws and regulations of their states.

Authority

FCUs may continue to act as a finder to bring together their members and providers of third-party services, including services related to digital assets. Introducing members to third parties that may provide members with services related to digital assets is permissible as it: (1) is useful in carrying out an FCU’s business because it facilitates member services that allow an FCU to serve as their members’ primary financial institution; (2) is the logical outgrowth of an FCU’s business, including its role in serving as its members’ primary financial institution; and (3) involves risks similar in nature to those FCUs already assume in serving their members, including referring members to various third-party service providers of other non-deposit financial products and services.

Further Guidance and NCUA’s Examination of Federally Insured Credit Unions
FICUs must act in accordance with all applicable laws, including those designed to ensure safety and soundness; comply with consumer financial protection, investor protection, and anti-money laundering/terrorism finance laws; and protect cybersecurity. General guidelines include:

Due Diligence:  FICUs should take care to select an appropriate third-party service provider before entering into an arrangement that allows for the provision of digital asset services to the FICUs’ members.

Credit Union Policies, Procedures and Agreements:  The FICU’s written policies, procedures, and contracts should at least address the following:

• The features of the program
• A description of the responsibilities of the FICU and the third party
• Indemnification by the third party
• The roles of the FICU and the third party
• The location of non-deposit sales
• The use of disposition of FICU member information
• Termination of the contract
• Ongoing compliance with the requirements of all applicable law

Advertising and Conduct in Third-Party Arrangements:  When selling, advertising, or otherwise marketing uninsured digital assets to members, members should be informed that the products offered:

• Are not federal insured
• Are not obligations of the FICU
• Are not guaranteed by the FICU
• Are or may be heavily speculative and volatile
• May have associated fees
• May not allow member recourse
• Are being offered by a third party

These disclosures should be made in writing and in a location and type size that are clear and conspicuous to the member. Oral disclosures should also be made as part of any oral presentation or customer support. In addition, to avoid confusion, third parties should not offer products with a product name that is intentionally similar to a FICU’s name.

Supervisory Considerations

The NCUA recognizes third-party relationships may be valuable to FICUs in facilitating member access to the new and emerging digital asset services currently evolving within the marketplace. However, FICUs are responsible for safeguarding member assets and ensuring sound operations irrespective of whether delivery of services is accomplished internally or through a third-party relationship. Accordingly, when assigning supervisory risk and CAMELS ratings as part of the supervisory process, examiners will evaluate the rigor with which FICUs execute compliance and risk oversight of third-party relationships established to deliver member access to digital asset services.

21-RA-10 2022 Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA, and Qualified Mortgages)
December 2021

The  CFPB has published its Truth in Lending (Regulation Z) Annual Threshold Adjustments (for credit cards, HOEPA, & QM). The thresholds adjustments are based on the annual percentage change reflected in the Consumer Price Index (CPI) in effect June 1, 2021. The adjusted thresholds are effective January 1, 2022.

Credit card/Open-end Annual Adjustments

• Minimum Interest Charge Disclosure – For all open-end consumer credit plans under the TILA, the threshold to disclose minimum interest charges will remain unchanged at $1.00.
• Safe Harbor Penalty Fees – For open-end consumer credit plans under the CARD Act amendments to TILA (§ 1026.52(b)(1)(ii)(A)), the adjusted dollar amount for the safe harbor for a first violation penalty fee will increase to $30 for the year 2022. The adjusted dollar amount for the safe harbor for a subsequent violation penalty fee (§ 1026.52(b)(1)(ii)(B)) will increase to $41 for the year 2022.

HOEPA Adjustments

• HOEPA – For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages for the year 2022 will be $22,969, an increase from $22,052 in 2021. The adjusted points and fees dollar trigger for high-cost mortgages (§ 1026.32(a)(1)(ii)(B)) for the year 2022 will be $1,148, an increase from $1,103 in 2021.

Qualified Mortgages – To determine consumers’ ability to repay mortgage loans, the maximum thresholds for total points and fees for qualified mortgages in 2022 will be:

Qualified Mortgage Amounts