April 17, 2020 NASCUS Report

THIS WEEK: CORONAVIRUS RESPONSE – More NASCUS summaries made available … States take on garnishments of pandemic payments … Insights from teleconferences … StateFocus looks at state PPP guidance … NCUA eases up on loan participations … approves appraisal deferrals … adopts appraisal rule … Ito on state flexibility, appraisals … Changes to CLF rules OK’d … Alert spells out remote work risks … Prepaid card rules relaxed … BSA/AML manual revised; Rule raises HMDA reporting thresholds; TRANSITIONS: in ID; BRIEFLY: CDRLF committed to coronavirus crisis

CORONAVIRUS RESPONSE

NASCUS publishes more publicly available summaries …

NASCUS published three more summaries this week, including of NCUA letters to credit unions (LTCU), focusing on the agency’s actions regarding the impact on credit unions of legislation providing relief for the effects of the coronavirus crisis, and the paycheck protection program (PPP).

The association also published a summary of recent Financial Crimes Enforcement Network (FinCEN) guidance on both Bank Secrecy Act and anti-money laundering (BSA/AML) procedures in the face of the crisis, as well as frequently asked questions about the PPP.

NCUA LTCU 20-CU-06 (Small Business Administration Loan Programs to Help Small Businesses and Members During the COVID-19 Pandemic, issued April 7), noted that loans made through the PPP (which is administered by the Small Business Administration (SBA)) are 100% guaranteed and will not count against a credit union’s member business loan cap. The letter also points out that the program, offered through SBA’s 7(a) loan program, operates differently in several respects (including that PPP loans are 100% guaranteed, meaning there is no credit risk to a credit union if it complies with the applicable lender obligations set forth in the interim final rule).

The PPP was created by the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The second summary of an agency letter focuses on NCUA’s LTCU 20-CU-07, which outlines how the CARES Act affects credit unions. That letter notes eight key portions of the legislation that affect credit unions. Those include: providing temporary relief for troubled debt restructurings (TDRs); providing optional, temporary relief from the current expected credit losses (CECL) accounting standard issued by the Financial Accounting Standards Board (FASB); imposing a moratorium on single-family mortgage foreclosures and establishing a right for consumers to request forbearance; and providing up to 90 days’ forbearance for borrowers with a federally backed, multifamilty mortgage loan experiencing a financial hardship.

In a third summary, NASCUS outlined various guidance issued by FinCEN related to BSA/AML requirements and the coronavirus crisis. The summary looks at three separate items – issued March 16 (telling financial institutions they should tell regulators if they expect delays in BSA report filing due to coronavirus), April 3 (updating the March 16 notice and noting the agency’s commitment to facilitating “expeditious disbursal of CARES Act funds,” including those related to the PPP), and April 13 (offering “frequently asked questions” regarding PPP).

Typically, NASCUS summaries of LTCUs (as well as guidance and proposed and final rules from NCUA and other federal regulators, such as FinCEN) are available only to association members. However, in an on-going effort to best serve the entire credit union system during the coronavirus crisis, NASCUS is making these summaries available to the public at large.

LINKS:
NASCUS Summary, LTCU 20-CU-06: Loan Programs to Help Small Businesses and Members During the COVID-19 Pandemic

NASCUS Summary, LTCU 20-CU-07: Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

States take on CARES Act payment garnishments …

While millions of Americans began receiving this week federal economic impact payments or stimulus checks to assist them in coping with coronavirus crisis, states began working to shield those payments from garnishment.

Unlike other government benefits payments, such as Social Security or disability, these payments may be garnished by creditors to cover unpaid debts,” NASCUS’ Lucy Ito noted. “States are taking the lead now to prevent those garnishments so that consumers obtain the relief they were promised.”

This week, 25 state attorneys general wrote to Treasury requesting the department issue guidance designating CARES Act payments as “benefit payments” exempt from garnishment.

Other states, in the meantime, have taken individual actions, issuing orders and guidance shielding consumers against the seizure of these funds. Among them:

  • Connecticut: Department of Banking Commissioner Jorge Perez issued guidance strongly urging state financial institutions not to use a stimulus payment to satisfy account overdrafts. Noting that the payments are to assist residents with basic necessities, the Commissioner encouraged institutions with systems that automatically applied a stimulus payment to an account overdraft, promptly reverse the application.
  • Illinois: Gov. J.B. Pritzker (D) announced he is suspending laws that permit wage garnishment. The state Department of Financial and Professional Regulation also issued best practices to Illinois financial institutions recommending an array of steps institutions can take to assist borrowers, including deferring collection measures.
  • Washington: Gov. Jay Inslee (D) also issued a proclamation suspending garnishments, the collection of judgments for consumer debt and the accrual of post judgment interest judgments.
  • Ohio: Citing state law, Ohio Attorney General Dave Yost (R ) issued a statement asserting that stimulus payments are exempt from garnishment because the payments are “emergency support” to help Ohioans with basic needs.

LINKS:
Attorneys’ general letter to Treasury Secretary Mnuchin

Connecticut guidance

Illinois announcement

Illinois best practices

Washington proclamation

Ohio statement

Teleconferences present insights to CARES Act, PPP, more …

A transcript and an audio recording of two teleconference about the impact of the CARES Act on credit unions is available now to NASCUS members only as exclusive benefits.

The transcript and recording are of two teleconferences held April 10 and Wednesday, respectively, hosted by the NASCUS Legislative and Regulatory Committee, and featuring attorneys from the Washington law firm Venable LLP to answer questions from state regulators, credit unions, and state leagues related to operating during the COVID-19 crisis. Moderated by NASCUS Executive Vice President and General Counsel Brian Knight, subject matters broached during the events included the CARES Act, PPP loans, distribution of coronavirus stimulus payments, forbearance on mortgages and workplace re-integration.

“In light of the national pandemic and crisis, we believe it is critical that NASCUS members have the opportunity to understand the impact of recent legislative and regulatory actions on the credit union system, and to benefit from the insights of a respected and experienced law firm such as Venable,” said NASCUS President and CEO Lucy Ito.

A transcript of the Wednesday teleconference will be available by early next week.

LINK:
NASCUS L&R Committee CARES Act Teleconferences Recordings and Transcripts (members only)

Report offers state-by-state look at PPP loan guidance …

An overview of various state guidance on application of the Small Business Administration’s Paycheck Protection Program (PPP) loans is the focus of a special issue of NASCUS’ StateFocus newsletter, sent to all members this week.

The publication notes that credit unions, both state and federally chartered, are among PPP qualified lenders. As such, state supervisory agencies have been quick to issue guidance for state-chartered credit unions to issue loans. The issue looks at PPP loan guidance issued by Connecticut, Iowa, Illinois, Massachusetts and New York.

StateFocussent directly to members, but available to the entire state system via the NASCUS website — is typically published monthly. However, due to the increased volume of state credit union guidance related to the COVID-19 pandemic, NASCUS will publish special editions of the publication as warranted.

LINK:
April 16, 2020 StateFocus: State Paycheck Protection Program Guidance

Rule (for now) eases up on loan participations …

The maximum aggregate amount of loan participations that a federally insured credit union (FICU) may purchase from a single originating lender without seeking a waiver from NCUA was raised in action by the agency board Thursday in a temporary final rule that runs until year’s end.

In its open meeting (held entirely via teleconference – a first for the agency), the board unanimously agreed to issue the temporary rule as regulator relief in response to the COVID-19 crisis. Under the key provision of the temporary rule (which will be effective through the end of the year), no waiver is required from an NCUA regional director for loan participations for loan participations of $5 million or 200% of the FICU’s net worth, whichever is greater.

“The COVID-19 pandemic has created uncertainty for FICUs and their members,” the agency said in background materials about the rule (which will become effective upon publication in the Federal Register).

In general, NCUA said, the rule will expand the authority of FICUs to purchase loans and participations in loans, thereby enhancing the credit unions’ ability to meet liquidity needs. Noting the key terms (that the rule temporarily raises the maximum aggregate amount of loan participations that a FICU may purchase from a single originating lender to the greater of $5,000,000 or 200% of the credit union’s net worth), the agency asserted that the increase will help safeguard the stability of FICUs during the crisis, without undue additional risk to the safety and soundness of the credit union system.

However, once the temporary rule runs out at year’s end, NCUA said, a FICU must return into compliance with the current limitation (that is, the greater of $5,000,000 or 100% of its net worth) by either ceasing to purchase loan participations from the originating lender or requesting a waiver as provided in the regulation.

LINK:
Final rule: Temporary Regulatory Relief in Response to COVID-19

… as board approves deferrals on appraisals …

Joining actions by the federal banking agencies, the NCUA Board also Thursday approved temporary deferrals on real estate-related appraisals and evaluations for up to 120 days.

In a joint release this week, the agencies said they were providing the relief to allow regulated credit unions, banks, thrifts, and other firms to extend financing to creditworthy households and businesses “quickly” in the face of the coronavirus crisis.

The rule will take effect upon publication in the Federal Register (scheduled for today).

The agencies said they were deferring certain appraisals and evaluations for up to 120 days after closing of residential or commercial real estate loan transactions. “Transactions involving acquisition, development, and construction of real estate are excluded from this interim rule,” they said.

These deferral provisions will expire on Dec. 31, 2020, unless extended by the federal banking agencies, they said in the release.

Meanwhile, the agencies — plus the Consumer Financial Protection Bureau (CFPB), in consultation with state supervisory authorities –  also said they were issuing a joint statement outlining “other flexibilities” intended to address appraisal and evaluation challenges in real estate transactions affected by the crisis.

The agencies said the statement describes temporary changes in Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corp. (Freddie Mac) appraisal standards. The agencies said the changes “can assist lenders during this challenging time.”

LINK:
Federal Banking Agencies to Defer Appraisals and Evaluations for Real Estate Transactions Affected by COVID-19

… and adopts final rule (with higher thresholds) on appraisals …

Meanwhile, on a 2-1 vote (with Board Member Todd Harper dissenting), the board adopted an increase in the real estate appraisal threshold from $250,000 to $400,000, effective upon the final rule’s publication in the Federal Register. The proposal was first issued last November; banking regulators adopted a similar provision last year.

Under the final rule, NCUA said, if property involved in a residential real estate transaction is below the threshold, federally insured credit unions will be required to obtain written estimates of the market value of the real estate, consistent with safe and sound practices.

The agency also noted that 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). Additionally, NCUA said, the final rule aligns the agency’s appraisal rule with the requirements of the Federal Reserve, the FDIC and the OCC.

In its comment letter filed in January, NASCUS supported the proposal to raise the threshold, but urged the agency to consider an even higher threshold level. “NASCUS would support an even higher threshold and believes there is merit to considering $500,000 as a threshold,” the association wrote. Doing so, NASCUS asserted, would not compromise safety and soundness, would not adversely affect consumer protection, and might result in a benefit to consumers.

The agency staff recommended, and the board ultimately approved, the same threshold level of $400,000 below which appraisals would not be required for residential real estate-related transactions.

LINKS:
NCUA final rule: Real estate appraisals

NASCUS Comments on Proposed Rule: Real Estate Appraisals

Ito: States committed to flexibility, support appraisal threshold …

NASCUS’ Lucy Ito noted that, with regard to regulatory relief in response to the virus crisis that, like NCUA, state regulators are committed to providing credit unions with flexibility to serve their members during these unprecedented times. “NASCUS and state regulators are closely examining the temporary final rule to determine the next steps to ensure parity and uniformity between state and federally chartered credit unions.”

On the final appraisal rule, Ito said the state system applauds the NCUA Board increasing the threshold for mandatory evaluations. “Increasing the threshold creates parity between credit unions and banks, which is consequential for competitiveness and safety and soundness. Credit unions have historically taken a conservative approach to lending and voluntarily seek appraisals for transactions below the thresholds to mitigate risks to both their members and their operations.”

Board makes changes to CLF – moves welcomed by states

Earlier in the week (and in a notation vote prior to its Thursday meeting), the NCUA Board eliminated the six-month waiting period for new members to receive a loan from the Central Liquidity Facility. The action was one of several “enhancements” for the facility, putting to work provisions contained in the CARES Act. Others included: Making temporary amendments to the waiting period for a credit union to terminate its membership; Easing collateral requirements on some assets, and; Allowing, temporarily, for an agent member to borrow for its own liquidity needs.

NASCUS’ Ito noted that the state system has long held that liquidity is essential to preserving the credit union system and safeguarding members. “Early on, NASCUS encouraged NCUA to take swift action to enable the CLF to meet credit union system liquidity needs as the effects of the COVID-19 pandemic unfolded,” she said. “We commend the board for heeding our call.”

Ito said NASCUS shares the opinions of Board Members Todd Harper and Mark McWatters that, due to the unknown liquidity needs of credit unions and the likelihood of an extended economic recovery, the sunset date of the CLF provisions in the CARES Act should be extended through Dec. 31. “At a minimum the provisions should be extended through Dec. 31, 2022,” she said. “In fact, we would argue that because of the vital nature of liquidity, there is a need for a robust liquidity facility in non-crisis times, as well, and thus the CLF provisions should not sunset.”

‘Alert’ looks at remote work security risks …

In only the second “risk alert” it has issued in seven years, NCUA this week warned of cybersecurity risks associated with the increasing incidence of remote work, conference calls, and video meetings during the coronavirus crisis.

The alert, issued to all federally insured credit unions, noted that common cybersecurity risks for credit union and other remote workers include malware attacks, phishing and “other social engineering” attacks, and advanced persistent threat attacks (in which groups gain unauthorized access to a computer network and remain undetected for an extended period).

“Credit union employees working remotely should adhere to their organizations’ information security- and privacy-related policies and procedures,” the alert stated. “Policies and procedures should effectively address remote work by preparing employees to prevent security incidents and including provisions for responding to any incidents that do occur. Controls over remote work and use of personal devices should be based on an institution’s risk assessment, and commensurate with the size and complexity of the institution.”

Among other things, the alert urged credit unions to adopt or update policies to prepare employees to prevent security incidents and to respond to security incidents.

In prevention of security incidents, the alert provides a long list of items that should be addressed in policies and procedures, including: ensuring family members (or others) do not use devices used at home intended for work; keeping devices physically secure and increasing wireless security “to the strongest encryption option.”

NASCUS has been a leader in promoting cybersecurity within the state credit union system, annually hosting (with the Credit Union National Assn. (CUNA)) a cybersecurity symposium where state regulators, credit union practitioners and others supporting the system can come together to discuss the latest security challenges and practices.

LINK:
NCUA Risk Alert (20-Risk-01): Cybersecurity Considerations for Remote Work

Bureau relaxes prepaid card rules for pandemic payments …

Certain coronavirus relief payments from the government will not be considered “government benefits” and thus may be issued to consumers via prepaid cards, according to an interim final rule issued this week by the CFPB.

Under the interim final rule – which takes effect as soon as it is published in the Federal Register (which, as of Thursday afternoon, is not yet in the publication pipeline) – certain pandemic-relief payments are not “government benefits” for purposes of Regulation E, and those payments are not subject to the compulsory use prohibition in the Electronic Funds Transfer Act (EFTA) and Regulation E, the bureau said.

The bureau said, specifically, that government benefits do not include payments from federal, state, or local governments if those payments: (1) are made to provide assistance to consumers in response to the COVID-19 pandemic or its economic impacts; (2) are not part of an already-established government benefit program; (3) are made on a one-time or otherwise limited basis; and (4) are distributed without a general requirement that consumers apply to the agency to receive funds.

LINK:
Consumer Financial Protection Bureau (CFPB) paves way for consumers to receive economic impact payments quicker

Updates, revisions made to BSA/AML manual

Updates and revisions to the manual used to guide examinations of credit unions’ and banks’ compliance with BSA/AML requirements – to promote transparency but setting no new requirements – were released this week by state and federal financial institution regulators through the FFIEC.

The updates and revisions, the agencies said, provide instructions to examiners for “risk-focusing” BSA/AML examinations and assessing an institution’s BSA/AML compliance program. Revisions were made by the regulators, they said, “in close collaboration” with the Treasury Financial Crimes Enforcement Network (FinCEN).

“The agencies are aware of the uncertainty faced by financial institutions during this unprecedented time,” the regulators said through an FFIEC release announcing the changes. “The manual update, which supports tailored examination work, has been in process for an extended period and should not be interpreted as new instructions or as a new or increased focus.”

In a joint statement, the agencies said many of the revisions were designed to emphasize and enhance their risk-focused approach to BSA/AML supervision. “For example, revisions to the updated sections emphasize the need for examiners to evaluate a bank’s BSA/AML compliance program based on its risk profile for money laundering, terrorist financing, and other illicit financial activities.”

LINK:
Federal and State Regulators Release Updates to BSA/AML Examination Manual


Final rule raises thresholds for HMDA data reporting

The permanent threshold for collecting and reporting data about closed-end mortgage loans will be 100 loans – up from 25 loans — as of July 1, under a final rule issued by the CFPB Thursday. The final rule also increases the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200, effective Jan. 1, 2022, when the current temporary threshold of 500 of open-end lines of credit expires, the agency said.

In announcing the final rule, the bureau said it recognized “operational challenges confronted by institutions due to the current COVID-19 pandemic.” It said it anticipated that the final rule, once effective, would “reduce regulatory burden on smaller institutions to help those institutions to focus on responding to consumers in need now and in the longer term.”

Nearly a year ago (May 2, 2019), the bureau proposed the higher thresholds for Home Mortgage Disclosure Act (HMDA) reporting, saying it was doing so to provide relief to smaller lenders (such as credit unions and community banks) from HMDA’s data reporting requirements. At the time, the agency said the proposal would also clarify partial exemptions from certain disclosure requirements enacted in last year’s regulatory relief legislation, the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155).

With regard to the open-end lines of credit, CFPB noted that last October it extended the temporary open-end threshold until Jan. 1, 2022. “Absent today’s final rule, the open-end threshold would have reverted to 100 open-end lines of credit upon the expiration of the temporary threshold,” the agency said.

LINK:
Final rule: Home Mortgage Disclosure (Regulation C)

TRANSITIONS: In ID, filling key positions

Anthony Polidori has been named deputy director of the Idaho Department of Finance (DOF), it was announced this week. A long-time (17-year) professional with the agency, he was most recently consumer finance bureau chief. Patricia R. (“Patti”) Perkins remains as director of the ID DOF. Meanwhile, Salvador Cruz is the new financial institutions bureau chief at DOF. A veteran of more than eight years (including as the supervising senior examiner on the bank side), he has previous experience with the OCC. Meanwhile, Rick Sherrick remains as the supervising senior examiner over the credit union team at the agency.

BRIEFLY: Most of CDRLF committed to coronavirus relief

Most of NCUA’s congressional appropriation for community development – more than $1.37 million – will be committed to assisting credit unions in dealing with the coronavirus crisis, the agency said this week. NCUA said it made the move to commit the Community Development Revolving Loan Fund (CDRLF) resources to coronavirus response needs out of recognition of the “immediate needs of credit unions and their members in the COVID-19 pandemic.”

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