Aug. 14, 2020 NASCUS Report

THIS WEEK: Sub debt, diversity highlight video session; Summary looks at CDD questions; Limits for BSA/AML enforcement clarified; FAQs on payday loans issued … also, a reg alert on same subject; ND 1-year appraisal waivered gets green light; Finlit webinar to look at pandemic; StateFocus highlights issues in CO, CT, GA, VA; CO Executive Forum Sept. 15; ON THE (virtual) ROAD: Managing in a pandemic

Sub debt final rule by year’s end,
diversity top issues for video session

Diversity and inclusion, the impact on the credit union system of the coronavirus crisis, the Supreme Court’s rebuffing of bankers’ challenge to field of membership (FOM) rules, and a final rule for subordinated debt were all on tap for discussion during a panel discussion of credit union system leaders that included NASCUS President and CEO  Lucy Ito and streamed via the web this week.

Presented as a video recording during the virtual CUNA Mutual Discovery Conference, the panel featured NASCUS President and CEO Lucy Ito, NCUA Board Chairman Rodney Hood, CUNA Mutual Group (CMG) President and CEO Bob Trunzo, Credit Union Natl. Assn. (CUNA) President and CEO Jim Nussle and Natl. Assn. of Federally insured Credit Unions (NAFCU) President and CEO B. Dan Berger.

During the discussion, Hood made some news: a long-awaited final rule on subordinated debt will be coming from NCUA by year’s end. Following comments from Ito thanking the agency for moving forward on the final rule (and noting NASCUS’ 20-year commitment on the issue), Hood reminded the group that he has been looking at a “holistic” approach to capital adequacy, and expects action on a number of issues in that domain over the remainder of this year.

Subordinated debt is just one of many rulemakings we hope to have by the end of the year,” Hood said. He said that subordinated debt “is just another tool we need for low-income-designated credit unions to help serve their members.”

In other comments during the event – which was broadcast via the web beginning Thursday by CMG as part of its conference — Ito applauded the agency on its field of membership (FOM) modernization, and particularly the Supreme Court deciding not to hear a bankers’ challenge to the rules. “We think innovation on the state side of field of membership did influence NCUA and we are really glad that NCUA’s modernization of its rules puts pressure on states” to do the same, she said.

Pointing to credit unions that had memberships acutely affected by shutdowns during the pandemic (such as casino workers in Las Vegas), she also shared that she views FOM and common bond as safety and soundness issues. She indicated that credit unions having a diverse membership can help them withstand something like the coronavirus pandemic when an entire employee group is affected.

“I’d really like to see us in future from the regulatory side look at field of membership, common bond and make sure credit unions can be diverse enough to withstand the next surprise, and  not be a victim because of too narrow of a common bond, field of membership.”

The group also discussed the impact of the coronavirus crisis on the operations of their organizations, and the credit system at large. In a lengthy discussion, the system leaders also discussed the impact of the murder of George Floyd and the nation’s focus on social justice in the wake of that tragedy, the stress that placed on credit unions in addition to the pandemic, the role credit unions and their leaders have in addressing social injustice.

Ito noted the impact of the Floyd killing on NASCUS staff members, a number of whom are of African American descent. “It broke us emotionally,” she said. “It all led to us looking at ourselves at a staff level and a leadership level.” She said credit union leaders are increasingly recognizing they are at a “tipping point of awareness,” and that credit unions and regulators are acknowledging doing something about it that is sustainable.

(Click on the image to view a short video from the conference featuring Ito and NCUA’s Hood discussing the George Floyd murder, its impact on credit unions, and the need for diversity among credit union leadership.)

Summary outlines CDD questions

NASCUS has published a summary on new “frequently asked questions” (FAQs) covering customer due diligence (CDD), issued by the Treasury’s Financial Crimes Enforcement (FinCEN) agency last week (and published, last week, in NASCUS Report).

The summary is available to members only.

The FinCEN FAQs cover requirements for obtaining customer information, establishing a customer risk profile, and performing ongoing monitoring of the customer relationship. Issued Aug. 3, the law enforcement agency said the three latest FAQs were issued in addition to those it published in 2016 and 2018.

NASCUS Summary: FinCEN Guidance FIN-2020-G002 (members only)

Agencies clarify bounds of enforcement for BSA/AML

Isolated or technical violations or deficiencies of Bank Secrecy Act/anti-money laundering (BSA/AML) obligations are generally not considered the kinds of problems that would result in an enforcement action, NCUA and the federal banking agencies said Thursday in a joint statement.

The statement, the agencies said, updates existing enforcement guidance “to enhance transparency regarding how (the agencies) evaluate enforcement actions required  by statute. It updates and supersedes a 2007 interagency statement on enforcement of BSA/AML requirements, the agencies said.

It also addresses how the agencies evaluate violations of individual “pillars” of compliance programs for BSA/AML. It also, the agencies said, describes how they incorporate customer due diligence (CDD) regulations and recordkeeping requirements issued by the Treasury Department “as part of the internal controls pillar of the financial institution’s BSA/AML compliance program.”

Simultaneously, the agencies said, Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a “Statement on Enforcement of the Bank Secrecy Act” setting forth that agency’s approach to enforcement in circumstances of non-compliance with the BSA.

Federal Banking Agencies Issue Joint Statement on Enforcement of Bank Secrecy Act/Anti-Money Laundering Requirements

Bureau has 34 answers to payday loan FAQs …

A list of 34 frequently asked questions (FAQs) — with answers — regarding the CFPB’s payday lending rule is out publicly,  addressing covered loans, payment transfers, and payment notices, the bureau said in a notice this week.

Eleven of the FAQs deal with covered loans, meaning loans subject to the payday rule (titled “Payday, Vehicle Title, and Certain High-Cost Installment Loans” rule, and also known as the small-dollar lending rule).

The rule provides two exemptions – one for “alternative” loans, and another for “accommodation” loans. In brief, the FAQs note that a loan can be exempted as an alternative loan if it meets certain loan term, borrower history, and income documentation conditions. To be exempted as an accommodation loan, the loan must meet both a volume condition and a receipts condition.

Of particular note is that a federal credit union loan that complies with the conditions set for the NCUA’s PAL I program (“PAL” being payday alternative loan) is not subject to the bureau’s payday rule because it meets the rule’s conditions for an alternative loan. Whether a loan conforming with the NCUA PAL II program is covered, however, depends on the terms.

PAL I loans are limited to $1,000; PAL II, $2,000. To qualify for the CFPB payday rule’s definition of alternative loan, the FAQs show that loans must, among other things, be capped at $1,000; carry a rate not higher than that allowed under PAL I (28%, currently); and amortize fully over the life of the loan, not to exceed six months.

The FAQs also note the rule’s specific exclusion for eight types of loans, provided they meet certain conditions: purchase money security interest loans; real-estate-secured credit; credit card accounts; student loans; non-recourse pawn loans; overdraft services and overdraft lines of credit; wage advance program loans; and no-cost advances.

The rule changes adopted last month revoked mandatory underwriting provisions addressing a consumer’s ability to repay.

CFPB Payday Lending Rule FAQs

… NCUA has more to say about payday loans rule too

Following up on the bureau’s FAQs on the payday lending rule, NCUA this week issued a regulatory alert noting the impact of the final rule on credit union payday loans.

At the outset, the agency highlighted that compliance with the rule – which went into effect in 2018 – is essentially on hold until a federal court in Texas lifts a stay it issued that same year.

In the meantime, the NCUA alert (20-RA-07) pointed out the impact of the final rule on loans known as NCUA “payday alternative loans” (PALs) and non-PALs.

More specifically:

  • For PALs I, the rule provides a safe harbor for a loan made by a federal credit union in compliance with the NCUA’s conditions for a PALs I loan; thus, those loans are not subject to the bureau’s rule. A PALs I loan is defined as a small-dollar, short-term loan that can be from $200 to $1,000 and can have a term from one to six months.
  • For PALs II, the agency said that, depending on the loan’s terms, the loan made by a federal credit union may be a conditionally exempt alternative loan or accommodation loan under the CFPB Payday Rule. (A PALs II is any amount up to $2,000, and fully amortized over a term of one to 12 months.) “A federal credit union should review the conditions in 12 CFR 1041.3(e) of the CFPB Payday Rule to determine if its PALs II loans qualify for the aforementioned conditional exemptions,” the alert states. “If so, such loans are not subject to the CFPB’s Payday Rule.”
  • The agency also noted that a loan that complies with all PALs II requirements and has a term longer than 45 days is not subject to the CFPB Payday Rule, which applies only to longer-term loans with a balloon payment, those not fully amortized, or those with an APR above 36%. The PALs II rules prohibit all those features, the agency stated.

The alert also outlines how federal credit union non-PALs can be exempt from the CFPB final rule.

Other areas touched on by the alert: conditional exemptions of other categories of loans from the rule and other key provisions of the rule affecting credit unions.

CFPB Issues Amendments to Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule

Exam council OKs ND appraisal waiver – with conditions

The FFIEC late last week gave thumbs up to a one-year extension of appraisal credentialing requirements in North Dakota for federally related commercial real estate transactions under $1 million.

The extension continues a previous one-year waiver until Aug. 7, 2021. The exam council, in approving the extension, followed the July recommendation from its Appraisal Subcommittee (ASC).

The waiver extension has some conditions, however, set by the exam council:

  • During the additional one-year period, requesters are expected to continue efforts to develop, through continued dialogue with the state’s Appraiser Board and other North Dakota stakeholders, a plan to identify potential solutions to address appraiser scarcity and appraisal delays.
  • The ASC (pursuant to 12 CFR 1102.7) may terminate the waiver order on a finding that significant delays in the receipt of appraisals for federally related transactions no longer exist or that the terms and conditions of the order are not being satisfied.

FFIEC approval of the North Dakota temporary waiver extension approved by the ASC on July 29, 2020

Agencies plan finlit webinar focusing on pandemic

NCUA and two other federal regulators are scheduling a webinar late this month on financial literacy and its importance during the coronavirus pandemic.

In a release, NCUA, the CFPB and the FDIC said they are hosting the Aug. 27 webinar, titled “Back to School: Financial Education and Consumer Financial Protection Information Resources for Educators and Parents,” to help “educators, parents, financial institutions, and other stakeholders” to “learn about the financial literacy and consumer financial protection resources” available to them. The agencies said they will also discuss approaches to financial literacy education during the COVID-19 pandemic.

The event is set to begin at 2 p.m. ET and will run for about 45 minutes. Agency staff will address: CFPB resources to aid parents with managing finances; FDIC’s Money Smart for Young People education program; and NCUA’s financial literacy and consumer financial protection resources.

Registration for the event, the agencies said, is now open.

Register Now for Back to School Financial Education Webinar on Aug. 27

StateFocus looks at key issues in CO, CT, GA, VA

The latest issue of StateFocus – NASCUS’ communications vehicle which aims to shine a light on the key legislative and regulatory developments – is making its way to NASCUS members this week, focusing on actions in CO, CT, GA and VA.

Among other things, the new issue of StateFocus offers reports on interstate branching legislation, workers’ compensation, coronavirus liability immunity and workplace safety standards.

StateFocus is published monthly, or as-needed, to report on state activities in regulation and law.

Aug. 11 issue of StateFocus (and 2020 past issues)

CO Executive Forum (Virtual!) set for Sept. 15

Credit union board members, committee members, and management are all invited to attend the 2020 NASCUS Colorado Executive Forum Virtual, set for Sept. 15. Sponsored by NASCUS in partnership with the Colorado Department of Regulatory Agencies (DORA) Division of Financial Services and the Mountain West Credit Union Association, the program runs for three hours, featuring in-depth discussion of key issues including anti-money laundering and Bank Secrecy Act (AML/BSA) requirements, and cannabis banking. Among the speakers:

  • Commissioner Mark Valente, DORA
  • Mike Williams, President and CEO, Colorado Credit Union and chairman-elect, NASCUS Credit Union Advisory Council
  • Jim Vilker, VP Professional Services, CU*Answers
  • Laura McFaddon, Mountain West Credit Union Association
  • Rebecca Laurie, Stakeholder and Innovations Strategist, DORA

For more information, including registration (and fees) see the link below:

NASCUS Colorado Executive Forum (Virtual), Sept. 15; more information and registration

A Q and A based on the Shelton Roulhac-led session at the AACUC virtual event was the focus of a feature this week by

ON THE (virtual) ROAD: Managing through a pandemic

Moderating a discussion about how credit union CEOs are leading their institutions during the coronavirus pandemic was the job of NASCUS Communications Vice President Shelton Roulhac during a webinar hosted this week by the African American Credit Union Coalition (AACUC). The session was part of AACUC’s week-long “Commitment to Change” series. Roulhac posed questions to four credit union CEOs during the session, which also touched on dealing with racial justice and inclusion, and helping employees with their concerns about a faltering economy. Participating in the virtual session with Roulhac were: Lynette Smith of True Energy FCU, Deborah Fears of Chicago Post Office Employees CU, Max Villaronga of El Paso Area Teachers FCU, and Timothy L. Anderson of United States Senate FCU.

LINK: Commitment to Change Coverage: 4 CEOs Talk Strategies For Leading During a Crisis

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