Aug. 7, 2020 NASCUS Report

THIS WEEK: NASCUS offers broad range of ideas for NCUA reg review; Agency board nominee advances; It’s a host of summaries of issues from NCUA, CFPB; Exam council offers guidance on loan accommodations; Alert raises issues with fraud related to virus; CFPB provides answers on HMDA … FinCEN gives answers on CDD; Donations needed to bolster state programs; BRIEFLY: Welcome Launch CU to state system … FedNow timetable announced … Harper joins NeighborWorks board

Broad range of suggestions offered
by NASCUS for regulatory review

About a dozen recommendations in response to NCUA’s 2020 regulatory review are made by NASCUS in its comment letter, filed with the agency this week.

In the letter, submitted in response to the agency’s request for input made in February, NASCUS touches on eight separate areas. The NCUA comment call is part of the agency’s rolling review of its rules, made every year, to review one-third of its regulations. According to the agency, the goal of the review is to ensure all of the agency’s regulations are clearly articulated and easily understood. Comments were welcome on that aspect, as well as substantive suggestions for regulatory changes. NASCUS, in its letter, chose to comment on both.

NASCUS typically each year provides comments to the agency for its annual review. A key point in those comments – and again for this year — has been to urge the agency to consolidate and co-locate all National Credit Union Share Insurance Fund (NCUSIF) rules for federally insured, state-chartered credit unions (FISCUs) in one section (or series of consecutive sections). “Reorganizing the rules in this manner would provide significant regulatory relief to credit unions without increasing risk to the NCUSIF,” NASCUS wrote.

This year, NCUA asked for comments in 16 specific areas; NASCUS responded with comments focusing on eight of those areas, including: consolidation of the insurance rules, how the agency responds to  comments submitted for the review, credit union service organizations (CUSOs), fidelity bond and insurance coverage for federally insured credit unions (FICUs), member business loans, the Central Liquidity Facility (CLF), advertising and notice of insured status, and requirements for insurance.

Recommendations advanced by NASCUS included:

  • Reinstate the practice of responding to the annual Regulatory Review submissions, and renew the past practice of publishing responses to the Regulatory Review comments submitted by stakeholders on the agency’s website.
  • Make three changes to enhance the agency’s CUSO rule, which would: allow FCUs to make a de minimis investment in a FISCU-owned CUSO without the CUSO becoming subject to the FCU CUSO provisions of NCUA rules; clarify the rule to list expressly permitted lending activities, including originating, servicing, and holding loans as well as buying, selling, and otherwise participating in loans; reconsider its earlier finding that the agency lacks sufficient regulatory control over CUSOs to warrant registration of CUSO mortgage loan originators (MLOs).
  • Revisit the requirement that a board member sign the fidelity bond contract.
  • Issue formal guidance as to how state-specific member-business lending rule applications will be evaluated for their compliance with the NCUA rule.
  • Urged the agency to make its recent, substantial changes to the CLF permanent.
  • Issue an Advanced Notice of Proposed Rulemaking (ANPR) on credit union advertising of their insured status to solicit input from stakeholders specifically on whether amendments are needed in order for credit unions to fully leverage social media platforms in advertising.
  • Consider additional versions of the “shortened statement” of insured status for purposes of short, broadcast ads (e.g., “NCUA Insured” or “Member NCUSIF”).

Comment Letter: Regulatory Review (2020)

Nominee for NCUA Board advances

The nomination of Kyle Hauptman as a new member of the NCUA Board was recommended for confirmation by the Senate Banking Committee Wednesday, but only after receiving some opposition by the panel’s Democrat members.

The nomination of Hauptman, now a staff member for Sen. Tom Cotton (R-Ark.), was recommended on a split voice vote by the Banking Committee. No roll call was taken. However, during the voice vote, “nos” from some members of the committee were audible.

Earlier, the committee’s ranking Democrat, Sen. Sherrod Brown (Ohio) – after saying he would support two other nominees, also considered at the same hearing, for the Securities and Exchange Commission (SEC) – indicated his concern about Hauptman’s nomination before the vote was taken. He was the only Democrat on the committee to speak (following opening remarks by Chairman Mike Crapo [R-Idaho], the only Republican on the committee to speak).

“I’m concerned about his experience or lack of experience and qualifications or lack of qualifications, to be one of the top regulators of credit unions in this country,” Brown said in his statement. The Ohio Democrat asserted that in both Hauptman’s testimony and in written responses to the committee members, the nominee did not provide any detail about what types of policies he would advocate for as a member of the credit union regulator’s board.

Chairman Crapo, in his opening remarks, said simply of Hauptman that “NCUA plays a critical role in regulating chartering and supervising federally insured credit unions. Mr. Hauptman’s confirmation will ensure that the agency is able to continue to provide much needed flexibility for credit unions to manage liquidity and to lend to households and businesses.”

The nominees for the SEC seats were also approved by the committee, also by voice vote. During the vote, no “nos” were audible. The nominations of both were subsequently confirmed Thursday by the full Senate on voice votes.

Hauptman’s nomination is now pending before the full Senate for consideration; no date has yet been set for a vote.

Six summaries of issuances from NCUA, CFPB published

NASCUS is keeping pace with all of the proposals, requests for information and letters to credit unions that NCUA and other federal agencies have issued over the last two weeks, posting summaries of each on its website.

The six summaries are available to members only.

NCUA summaries address reg alert, letters to CUs

Half of the summaries address the latest issuances from NCUA, which are a regulatory alert and two letters to credit unions.

On July 28, NCUA issued its regulatory alert (20-RA-06) on treatment of certain COVID-19-related loss mitigation options under the Real Estate Settlement Procedures Act (RESPA). The long description essentially refers to how mortgage servicers can provide COVID-19-related forbearance based on their evaluation of limited information collected from a borrower. It outlines for credit unions the impact of an interim final rule issued by the CFPB in June. Under that rule, if certain criteria are met, a loan mortgage servicer is allowed to offer a borrower a loss mitigation option based on its evaluation of limited information collected from a borrower (rather than a “complete” application). NCUA noted the exception allows credit unions and their affiliates to align their loss mitigation programs with the criteria of the Federal Housing Finance Agency’s (FHFA) COVID-19 payment deferral or other comparable programs.

The first of the two letters summarized (20-CU-22) tackles NCUA’s updates to its supervisory priorities for the year. The letter, issued July 15, lists anti-money laundering efforts, use of aid to deal with the coronavirus crisis, credit risk management and LIBOR transition among the updated priorities. The agency said these items and more which were added to its list of priorities are those that “pose elevated risk to the credit union industry and the National Credit Union Share Insurance Fund given the current environment.”

The second of the two letters summarized (20-CU-23) looks at NCUA’s urging credit unions to complete the Annual Voluntary Credit Union Diversity Self-Assessment. The letter to credit unions, issued just this week, calls the diversity self-assessment a “small step” toward real changes in social justice. NCUA Board Chairman Rodney Hood, in the letter, said the agency’s annual diversity assessment “is a valuable tool for credit unions seeking to make a stronger commitment to diversity, inclusion, and equity – it helps industry leaders to see areas in which they can strengthen that commitment, for the benefit of your employees, your members, and your communities.” Also in the letter, the NCUA chairman said the data from the annual assessments (which was completed by 118 credit unions in 2019, up from 81 the previous year) is aggregated in order to generate an annual report on diversity, equity, and inclusion among credit unions. Based on the report, he said the agency creates and makes available resources for credit unions to help them address any issues identified in the data.

CFPB summaries outline two proposals, request for information

The other half of the items summarized are a two proposed rules and a request for information from the CFPB.

The first summary of proposed rules deals with extending the sunset date of the qualified mortgage (QM) definition under the Truth in Lending Act (TILA, Regulation Z). Proposed June 22, the proposal addresses the  Jan. 10, 2021 expiration of the so-called “GSE Patch” with two proposed rules – one establishing a “price-based approach,” and the other to extend the “patch” until a final rule on the first proposal is made. When issued, the CFPB said the pair of regulatory changes are intended to “ensure a smooth and orderly transition away from the temporary GSE QM loan definition and to maintain access to responsible, affordable mortgage credit upon its expiration.” Comments are due Aug. 10.

The second summary of a proposal focuses on higher-priced mortgage loan escrow exemption under Regulation Z. As proposed, credit unions and other financial institutions with assets of $10 billion or less and that originate 1,000 or fewer mortgage loans would be exempted from a requirement to establish escrow accounts for certain higher-priced mortgage loans (HPML). It would add a new provision that would exempt from the Regulation Z (loan originator compensation and steering regulation) HPML escrow requirement any loan made by an insured credit union or depository institution and secured by a first lien on the principal dwelling of a consumer, if the financial institution met three criteria. Comments are due Sept. 21.

The request for information (RFI) summary outlines the bureau’s effort, via a survey, to collect information about the one-time costs for preparing to gather and report data about applications for credit made by women-owned, minority-owned and small businesses. The bureau said the survey will gather information about the one-time costs of preparing to collect and report the information from institutions that offer small business credit products that could be covered by the rules implementing the Equal Credit Opportunity Act (ECOA). CFPB said it is beginning to develop the regulation required by the Dodd-Frank legislation – but that no policy decisions have been made about institutions and products to be covered, or the data points to be reported. (The law does allow CFPB to add data points to those required under statute.)


NCUA Summaries:

Summary: Regulatory Alert 20-RA-06 Treatment of Certain COVID-19-Related Loss Mitigation Options Under the Real Estate Settlement Procedures Act

Summary: Letter to Credit Unions 20-CU-23 Annual Voluntary Credit Union Diversity Self-Assessment

Summary: Letters to Credit Unions 20-CU-22 Update to NCUA’s 2020 Supervisory Priorities

CFPB Summaries:

Summary: Proposed Rule re: Qualified Mortgage Definition Under the Truth in Lending Act (Regulation Z): Extension of Sunset Date

Summary: Proposed Rule re: Higher Priced Mortgage Loan Escrow Exemption (Regulation Z)

Summary: CFPB Request for Information on the Equal Credit Opportunity Act and Regulation B

Guidance advises on loan accommodations nearing end

Prudent risk management and consumer protection principles for borrowers nearing the end of accommodation periods due to the impact of the coronavirus crisis were outlined in a joint statement issued this week by state and federal financial institution regulators – including NCUA – via the FFIEC.

The statement from the exam council also addresses issues relative to accounting and regulatory reporting, as well as internal control systems.

In explaining the statement, the FFIEC noted that the coronavirus crisis (which the council refers to as the “COVID event”) has had a “significant impact” on all corners of the economy and the financial system. It noted that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27, provided several forms of relief to businesses and borrowers. It notes that some states and localities have provided similar credit accommodations, and that many financial institutions have voluntarily offered other credit accommodations to their borrowers.

The FFIEC members encourage financial institutions to consider prudent accommodation options that are based on an understanding of the credit risk of the borrower; are consistent with applicable laws and regulations; and, that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate a financial institution’s ability to collect on its loans,” the statement said. “Such arrangements may mitigate the long-term impact of a financial challenge on borrowers by avoiding delinquencies or other adverse consequences.”

The exam council added that imprudent practices can adversely affect borrowers and expose their financial institutions to increased credit, compliance, operational, and other risks — as well as threatening a financial institution’s capital.

Among the key topics addressed in the statement: prudent risk management practices; “well-structured” and sustainable accommodations; consumer protection; accounting and regulatory reporting; and internal control systems.

Joint Statement on Additional Loan Accommodations Related to COVID-19

Alert sounds alarm on fraud related to virus

Risk of fraud associated with the financial impact of the coronavirus crisis is the emphasis of a new risk alert issued by NCUA late Thursday.

The alert (20-RISK-02) notes that persons out to commit fraud try to “take advantage of opportunities made possible through new or expanded large government programs arising from emergency situations, such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).” NCUA said the alert describes the increased risks associated with routine operations, outlines red flags of the fraud schemes, offers references and ways to report fraud or misconduct, and lists member education resources.

Among the specific fraud issues the alert pinpoints are those associated with: the Small Business Administration’s (SBA) Paycheck Protection Program (PPP); business tax credits; and unemployment insurance.

NCUA Risk Alert (20-RISK-02) COVID-19 Fraud Schemes

Got questions? CFPB’s got answers (on HMDA) …

Got questions for the CFPB about mortgage disclosures? The bureau has answers – including two more that it says address frequently ask questions (FAQs) it has been receiving lately about the requirements under the Home Mortgage Disclosure Act (HMDA).

The two FAQs, dated July 28 on the agency’s website, specifically discuss reporting when the information is not the dispositive factor in a credit decision. Briefly, the answers to the FAQs conclude that:

  • Financial institutions are required to report the credit score, debt-to-income (DTI) ratio, and combined loan-to-value (CLTV) ratio relied on in making a credit decision even if that data was not the dispositive factor in a credit decision.
  • When income and property value are factors in the credit decision but not the dispositive factors, they still need to be reported.

The CFPB also provides its analysis of the answers in the FAQs.

Bureau’s HMDA FAQs (click on the “multiple data points” bullet)

… FinCEN has answers too (on customer due diligence)

There are more answers out there – including three new FAQs from the Financial Crimes Enforcement Network (FinCEN) regarding financial institutions’ customer due diligence (CDD) obligations under Bank Secrecy Act/anti-money laundering (BSA/AML) rules.

The FAQs focus on obtaining customer information, establishing a customer risk profile, and performing ongoing monitoring of the customer relationship.

The first of the questions is fairly broad, focusing on how much information must be collected at account opening and on an ongoing or periodic basis, whether an institution must conduct media searches to get more information on customers, and whether it must collect information on underlying transacting parties when an institution offers correspondent banking or “omnibus” accounts to other institutions.

In brief, FinCEN’s answer to that question is that the institution need only collect enough information to develop a customer risk profile, conduct monitoring, and collect beneficial ownership information; and it isn’t specifically required to conduct media searches or collect information on other institutions that are serviced by the covered institution (generally speaking).

In answer to the second question, FinCEN wrote that covered financial institutions are not required to use a specific method or categorization to establish a customer risk profile, nor are they required or expected to automatically categorize as “high risk” products or customer types listed in government publications. To the third, it stated that there is no categorical requirement that financial institutions update customer information on a continuous or periodic schedule; rather, the requirement to update customer information is risk based and occurs as a result of normal monitoring. (The full answers address some the considerations.)

Frequently Asked Questions Regarding Customer Due Diligence (CDD) Requirements for Covered Financial Institutions

Donations needed to help states bolster training

With many state supervisory agencies facing significant budget constraints in 2020 and 2021 as a result of the financial impact of the coronavirus crisis – particularly as they strive to support and train their examination staffs – the National Institute for State Credit Union Examination (NISCUE) is seeking donations to help the agencies maintain examiner training.

In a letter to NASCUS members this week, President and CEO Lucy Ito urged them to consider a contribution to NISCUE, which helps to fund training programs designed specifically for state credit union examiners and regulators. “This will help ensure that state examiners can continue to receive valuable education and training during this challenging time – which is essential to maintaining successful and sound state credit unions now more than ever,” Ito wrote.

NISCUE, directed by a volunteer board of trustees including state supervisors and credit union leaders, is administered by NASCUS to provide funding to state regulators and examiners to attend training for educational programming provided by NASCUS and other organizations, such as the FFIEC and CUNA.

Ito noted that NISCUE funds are made available for NASCUS educational programming and other valuable professional development opportunities. “Over the past year, NISCUE funding has helped provide training in vital examination areas – BSA compliance, fraud detection, cybersecurity and hemp and cannabis banking, to name a few,” Ito said. “Last year, more than 100 regulators and examiners attended NISCUE-sponsored training events across the country while more than 600 examiners took advantage of the NASCUS Online University.” All, she added, through assistance from NISCUE.

She said that all credit unions and others that donate will be recognized as a NISCUE supporter to the state credit union system throughout the year, and that state regulatory agencies will be notified of the help extended by those institutions.

For more information, including a donation form, see the links below.

NISCUE Donation Form

More about National Institute for State Credit Union Examination (NISCUE)

BRIEFLY: Welcome Launch CU to state system; FedNow launch date three to four years out; Harper joins NeighborWorks board

Welcome to the state credit union system, Launch Credit Union of Brevard County, Fla., which Aug. 1 switched to a state charter. The credit union, formerly known as Kennedy Space Center FCU, holds about $870 million in assets … The Federal Reserve’s new round-the-clock payments service is now slated to debut, at least in its first stages, sometime in 2023 or 2024, the agency said this week. Those dates were set, the Fed said, following the board’s approval of the core features and functionality of the service. Initial services are expected to be fraud prevention tools, the ability to join initially as a receive-only participant, request for payment capability, and tools to support participants in their handling of payment inquiries, reconcilements, and certain exceptions. A fee schedule will be announced later, the Fed said … NCUA Board Member Todd Harper is now the agency’s representative on the board of NeighborWorks America, an affordable housing and community development advocacy group. NCUA Board Chairman Rodney Hood announced the appointment.

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