Aug. 21, 2020 NASCUS Report

Virtual Summit next Wednesday; Legal opinions summarized; Cybersecurity response focus of training; Comment date set for CECL effects proposal; Bureau sets triggers for TILA … and proposes ‘seasoned’ QM; Violations of law, rules will guide BSA enforcement; BRIEFLY: CU grows employee roster; Agency charters first FCU of 2020; Welcome to new CEO

Virtual Summit set for next week
with look at readiness for future

A virtual version of the NASCUS 2020 State System Summit gets underway Wednesday, beginning at 10 a.m. ET, featuring the NASCUS annual meeting and a presentation on readiness for the future.

The up-to two-hour session is entirely pre-recorded and will be available for viewing at 10 a.m. ET next Wednesday. The session offers timely educational content but also an opportunity for state system stakeholders to gather in one place – virtually, via the Internet – to consider the key issues facing state-chartered credit unions.

The event is being held in lieu of the Aug. 11-14 Summit, originally scheduled for New York City. The rising rate of COVID-19 cases around the country prompted NASCUS to convert the meeting from the distinctive in-person event to one celebrated on-line.

The NASCUS Annual Meeting offered during the Summit features comments by NASCUS President and CEO Lucy Ito, Regulator Board Chairman John Kolhoff and Credit Union Advisory Council Chairman Rick Stipa. That part of the Virtual Summit kicks off the event and runs for about 45 minutes.

The second half of the meeting features a presentation by long-time credit union analysts and leaders John Lass and C. Alan Peppers. That event will provide attendees with tools to plan for the future despite the uncertain impact of the COVID-19 pandemic. Dubbed “The Future Has Arrived Early – Are We Ready for It” the session immediately follows the Annual Meeting and is expected to run up to 60 minutes.

In particular, the session is intended to shine a spotlight on the essential role of scenario planning to set up contingencies that ensure credit unions brave the economic upheaval fostered by the pandemic and be ready to “raise the bar” for member service and support. The session will also show how the pandemic is acting as a catalyst accelerating themes and trends that might otherwise have taken many years to unfold.

John Lass is president of Lass Advisory Services LLC; C. Alan Peppers is founder of CAP Advisory Services. Lass is a former senior executive for strategy and business development at CUNA Mutual Group (CMG); Peppers served as a credit union CEO for four decades.

There is no cost for attending the virtual Summit; advance registration, up to next Tuesday (Aug. 25), is required (see the link below).

“The virtual Summit will provide the state system with a venue to connect and learn without sacrificing the personal health and safety of participants,” NASCUS’ Ito said. “While of course meeting face to face would have been a rewarding occasion for all, this method gives us a chance to continue the annual tradition of the state credit union system of gathering and sharing ideas and views.”

NASCUS State System Summit — Virtual (Aug. 26, 10 a.m. – 1 p.m. ET); registration, more (no charge)

Summaries look at pair of legal opinions

Summaries have been published by NASCUS of two recent NCUA legal opinion letters– the first dealing with “reasonable proximity” and the second with automated loan underwriting systems (ALUS).

In the first letter, NCUA wrote that the “reasonable proximity” requirement under the Federal Credit Union Act doesn’t set a maximum distance between the location of a group that wants to be served and the location of the credit union that would serve it. The letter states that, consistent with the statute and legislative history, NCUA has always viewed “reasonable proximity” as including a geographic component, “but the NCUA will continue to assess this geographic component on a case-by-case basis free of a mileage limit.”

In the second letter, the agency contemplates whether an FCU member service representative is barred by the FCU Act from inputting data into the institution’s ALUS and then disbursing funds if the ALUS, not the member rep, approves the loan. With the right controls and safeguards in place, the FCU Act “does not prohibit such a scenario,” the letter notes.

The summaries are available to members only.

Summary: Legal Opinion Reasonable Proximity Analysis

Summary: Legal Opinion Automated Loan Underwriting System – Segregation of Duties for Loan Officers

Event offers cybersecurity response training

Eager for the chance to learn more about how to work through a cybersecurity event? There’s opportunity next week, with the “Cybersecurity Response Exercise for Credit Unions with More Than $250 million in Assets” webinar on Aug. 28 (next Friday).

Sponsored by NASCUS in conjunction with the U.S. Treasury Department and the Credit Union Natl. Assn. (CUNA), the four-hour event offers executive-level credit union professionals and examiners the venue to work through a plausible, simulated cybersecurity event. Credit union participants will be testing their current processes and procedures while credit union examiners will be determining how they would identify, analyze and fine-tune their supervisory approaches.

Specifically, participants will:

  • Test their ability to mitigate a cyber disruption using current cybersecurity measures
  • Detect areas for improvement in cybersecurity preparedness
  • Identify opportunities for cooperation between credit unions and credit union examiners.

All participants will receive a confidential after-action report (AAR) that shares findings to highlight opportunities for improving general readiness.

See the link for more information, including registration (which closes Wednesday, Aug. 27).

Cybersecurity Response Exercise for Credit Unions with More Than $250 million in Assets

Comments due Oct. 19 on CECL effects proposal

Comments are due Oct. 19 on an NCUA proposal to phase in over three years the “day one” adverse effects on credit unions’ regulatory capital under the “current expected credit losses” (CECL) accounting standard, and exempting small credit unions from using the standard to figure loan loss reserves.

The proposal was published in the Federal Register just this week.

Issued last month by the NCUA Board, the proposed rule would phase in the day-one effects on a federally insured credit unions’ (FICUs) net worth ratio over 12 quarters. The phase-in applies to all FICUs that adopt the CECL methodology for fiscal years beginning on or after Dec. 15, 2022, without exception. Credit unions adopting the methodology earlier would not qualify for the phase-in.

Additionally, FICUs having less than $10 million in assets (1,291, or roughly one-fourth of all FICUs, based on March 31 call report data) would no longer be required to determine their charges for loan losses in accordance with generally accepted accounting principles (GAAP). They “may instead use any reasonable reserve methodology (incurred loss), provided that it adequately covers known and probable loan losses,” according to the proposed rule summary.

FICUs would still be required, under the proposal, to calculate their net worth in accordance with GAAP (as generally required under the statutorily required prompt corrective action [PCA]) system); and would continue to be required to account for CECL for all other purposes, such as call reports.

Proposed CECL transition

Some changes for 2021 in amounts triggering TILA regs

Dollar amount triggers for Truth in Lending Act (TILA) regulations affecting consumer credit loans are unchanged for open-end credit plans in 2021, but will rise a fraction of a percentage point for high-cost and qualified mortgages under a final rule from CFPB published this week. The rule takes effect Jan. 1.

The 2021 amounts, determined based on the annual percentage change in the Consumer Price Index (CPI) are:

Open-end consumer credit: The threshold that triggers Truth in Lending Act (TILA) requirements to disclose minimum interest charges will remain unchanged at $1. For open-end consumer credit plans under the CARD Act (Credit Card Accountability, Responsibility and Disclosure Act, added to TILA in 2004), the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $29; the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will also remain unchanged at $40.

High-cost mortgages: The adjusted total loan amount threshold for high-cost mortgages in 2021 (under the Home Ownership and Equity Protection Act (HOEPA), added to TILA in 1994) will be $22,052. The adjusted points-and-fees dollar trigger for high-cost mortgages in 2021 will be $1,103. The revised commentary to the CFPB rule states that a loan is considered a high-cost mortgage if the total loan amount for a transaction is $22,052 or more, and the points-and-fees amount exceeds 5% of the total loan amount; or if the total loan amount is less than $22,052, and the points-and-fees amount exceeds the lesser of the adjusted points-and-fees dollar trigger of $1,103 or 8% of the total loan amount.

Qualified mortgages (QMs): For loans receiving the QM “safe harbor” protections from liability under the Reg Z ability-to-repay provisions, the maximum thresholds for total points and fees in 2021 will be 3% of the total loan amount for a loan greater than or equal to $110,260; $3,308 for a loan amount greater than or equal to $66,156 but less than $110,260; 5% of the total loan amount for a loan greater than or equal to $22,052 but less than $66,156; $1,103 for a loan amount greater than or equal to $13,783 but less than $22,052; and 8% of the total loan amount for a loan amount less than $13,783.

Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA, and Qualified Mortgages)

Also: bureau proposes ‘seasoned’ flavor of QM

Meanwhile, also this week, the bureau unveiled what it called the “seasoned” qualified mortgage (QM) that would apply to portfolio loans meeting certain performance requirements over a three-year period, including having limited delinquencies.

The CFPB said mortgages considered “seasoned” under the proposal are first-lien, fixed-rate covered transactions that have met certain performance requirements over a 36-month “seasoning period.” Further, the agency said, a seasoned QM would only be available for covered transactions that have no more than two 30-day delinquencies and no delinquencies of 60 or more days at the end of the seasoning period.

Transactions covered by the proposal would also have to be: held on a creditor’s portfolio during the seasoning period; comply with general restrictions on product features and points and fees; and meet certain underwriting requirements.

The agency said that for a loan to be eligible to become a seasoned QM, the proposal also requires that the creditor consider and verify the consumer’s debt-to-income ratio (DTI) or residual income at origination.

Comments will be due 30 days after the proposal is published in the Federal Register.

Consumer Financial Protection Bureau Proposes New Category of Qualified Mortgages to Encourage Innovation and Access to Affordable Mortgage Credit

BSA law, rules violations will guide FinCEN enforcement

A violation of law BSA-based laws and regulations will trigger enforcement action, but noncompliance with standards outlined in guidance alone will not be treated as a law violation, FinCEN said this week.

In its “Statement on Enforcement of the Bank Secrecy Act (BSA)”, the Treasury’s financial crimes law enforcement arm said it was describing its approach as administrator of BSA to enforcing the law. “When FinCEN takes an enforcement action, it will seek to establish a violation of law based on applicable statutes and regulations,” the agency wrote. “FinCEN will not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of law.”

It added that regulated parties will have an opportunity to respond to and contest factual findings or legal conclusions underlying any FinCEN enforcement action.

The agency statement also outlines six enforcement actions it has the power to take (which are: no action, warning letter, “equitable remedies” (an injunction or equitable relief to enforce compliance), settlements, civil money penalties (CMPs), or criminal referral.

It also lists 10 factors it considers when evaluating “an appropriate disposition upon identifying actual or possible violations” of anti-money laundering statutes when considering enforcement. Those include:

  • Pervasiveness of wrongdoing within an entity, including management’s complicity in, condoning or enabling of, or knowledge of the conduct underlying the violations.
  • Financial gain or other benefit resulting from, or attributable to, the violations.
  • Presence or absence of prompt, effective action to terminate the violations upon discovery, including self-initiated remedial measures.
  • Quality and extent of cooperation with FinCEN and other relevant agencies, including as to potential wrongdoing by its directors, officers, employees, agents, and counterparties.

Financial Crimes Enforcement Network (FinCEN) Statement on Enforcement of the Bank Secrecy Act

BRIEFLY: CU grows employee ranks during pandemic; First new FCU of year chartered in OK; Welcome to new Alliant CU CEO

While many businesses are struggling to keep employees during the economic slowdown in the wake of the coronavirus crisis, NASCUS-member VyStar CU of Jacksonville, Fla., is adding workers to meet rising demand for services via the Internet or the phone. According to President and CEO (and NASCUS Credit Union Advisory Council Member) Brian Wolfburg, the credit union is adding up to 50 full-time contact center workers. “We remain dedicated to doing everything possible to make a positive impact by creating these positions and offering future opportunities for advancement as part of our team,” he told Credit Union Times, a trade publication … A new name was added to the roster of active federal credit unions this week – and for the first time this year — after NCUA announced it had approved the charter for Growing Oaks FCU of Goldsby, Okla. The new credit union will serve persons who live, work, worship, or attend school in, and businesses and other legal entities located in Canadian, Cleveland, McClain, and Oklahoma counties in the Sooner state. The new cooperative is expected to begin operations in December … Welcome to Dennis Devine as the new president and CEO of Alliant Credit Union in Chicago; best regards and thanks to the retiring David Mooney.

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