THIS WEEK: A CHALLENGING TIME – Special message from NASCUS’ Lucy Ito; Chairman Hood focuses on inclusion at credit unions; Other federal regulators weigh in; CORONAVIRUS RESPONSE – Four new summaries from NASCUS … Credit card disclosure relief offered … FAQs on remittances … PPP reform bill moves forward … Guidance on forbearance offered; First CU of 2020 fails; BRIEFLY: NCUA argues no high court review of FOM rules needed
A CHALLENGING TIME
To our readers: A profound impression
This time of civil unrest and national self-introspection has made a profound impression on the entire NASCUS team. We deeply value the diverse experiences and voices of our staff and members. We stand in solidarity with the Black community in mourning the deaths of George Floyd, Breonna Taylor, Ahmaud Arbery and the countless others who have been subjected to violence due to police brutality and systemic racism. NASCUS believes that Black lives matter and we are committed to fostering an environment free of racism where everyone is seen, heard and respected.
–Lucy Ito, NASCUS President and CEO
… And from NCUA’s Rodney Hood, a message of inclusion …
“Abuse of authority and violence against a black man” prompted NCUA Board Chairman Rodney Hood this week to release a pointed statement, urging “true inclusion” among regulators, financial institutions and their communities.
“As the first African-American to lead a federal banking agency, I feel compelled to speak following the tragic death of George Floyd,” said Hood wrote. “Over the past few months, communities across the country have been overwhelmed with challenge and uncertainty. Besides being on the heels of a global pandemic, we are also experiencing heightened levels of strife following yet another instance of abuse of authority and violence against a black man.”
Hood was the first federal financial institution regulator to issue a public comment about the death of George Floyd, an African-American man in Minneapolis, Minn. Floyd died during a police apprehension May 24. A Minnesota medical examiner has ruled Floyd’s death a homicide.
Hood indicated that discussions about racial division are personal to him. “In my banking career, I’ve attended conferences and professional events where I was the only man of color in the room,” he said. “I’ve arrived early to speak on a panel discussion, and people were surprised to learn that I was a participant.”
Hood said that, as an African-American man, he was both shocked and appalled and that he shared what he called “the heartbreak” of many in the black community.
He said that one of his top priorities as NCUA chairman is financial inclusion. “True inclusion within our financial regulators, financial institutions and communities is a goal we all must strive towards,” he said. “Diversity is important, but without cultural change that encourages true inclusion, it risks being little more than checking the right boxes.”
… Other federal regulators weigh in
This morning, the members of the Federal Financial Institutions Examination Council (FFIEC) released their own, joint comment on the latest events: “We, the prudential and consumer financial protection regulators of the U.S. financial system, are committed to financial inclusion. Racism and discrimination must not be tolerated. Everyone deserves the opportunity to participate in our financial mainstream. We remain steadfastly dedicated to ensuring that the financial institutions which we regulate provide fair access and fair treatment to everyone in America.”
Four new summaries of NCUA actions, letters posted …
NASCUS published four new summaries this week of letters and actions taken by NCUA, addressing smaller dollar lending, how to count military members for “low income” designation and the latest about the agency’s off-site exam program.
The summaries include:
Interagency principles for small-dollar lending:
Last month, NCUA joined with federal banking regulators in issuing a set of interagency lending principles to encourage credit unions and banks to offer responsible small-dollar loans to customers “for consumer and small business purposes,” noting the important role of such lending in periods of economic stress and other circumstances “such as the public health emergency created by COVID-19.”
The list of principles was in follow-up to a joint statement issued March 26 encouraging credit unions, banks and savings associations to offer responsible small-dollar loans to consumers and small businesses in response to COVID-19.
NCUA letter to credit unions on interagency principles (LTCU 20-CU-15):
Letter outlining, from credit union perspective, key issues of principles.
NCUA letter to credit unions on new methodologies for counting military as “low-income” members (LTCU 20-CU-16): NCUA’s May announcement that military personnel would be designated as “low-income members” requires a methodology change to how the agency calculates the number of low-income members of the institution for determining the “low-income credit union” (LICU) designation from the agency.
NCUA letter to credit unions on its offsite exam program (LTCU 20-CU-17):
Notes that the agency’s offsite exam policy, adjusted in March to reflect the coronavirus crisis, for all workers and contracted support staff will remain in effect until further notice. “However, the NCUA may conduct onsite work at a credit union if necessary to address serious or time-sensitive matters,” the letter states.
Furthermore, in addressing the issuance of reports of examination, the letter states,” NCUA examiners will not criticize a credit union’s efforts to provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight. However, examiners will consider whether such efforts elevate, or reduce, a credit union’s risk exposure. If a credit union has taken on additional risk, even if done prudently, this may be reflected in the credit union’s applicable CAMEL and risk ratings.”
Bureau offers credit card disclosures relief …
Some required consent and affirmation requirements for credit card disclosures could be satisfied orally by phone call under a statement released by the CFPB this week. The agency said it was providing temporary, targeted flexibility during the coronavirus crisis for credit card issuers regarding the electronic provision of certain disclosures under truth-in-lending laws that are required to be provided in writing.
“The Bureau understands that during the pandemic, some credit card issuers are receiving far more phone calls from consumers than usual and may be operating with reduced staffing or servicing capability,” according to the statement. “Consumers may reach out to issuers seeking relief that issuers may not be able to provide without first providing certain written disclosures required by Regulation Z.”
In light of this, the CFPB said, it will take a “flexible supervisory and enforcement approach” during coronavirus pandemic regarding oral telephone interactions where a card issuer may seek to open a new credit card account for a consumer, to provide certain temporary reductions in annual percentage rates (APRs) or fees applicable to an existing account, or to offer a low-rate balance transfer. This will apply only under provisions of Reg Z governing non-home secured, open-end credit, the agency said.
The bureau’s statement also says issuers are expected to take reasonable steps during phone calls to verify consumers’ electronic contact information.
FAQs address pandemic impact on remittances …
No error arises under the remittance rule (contained in Regulation E) when funds aren’t delivered on time because of certain government-mandated closures of commercial activity, three frequently asked questions (FAQ) published this week by the CFPB indicate. But that conclusion involves several factors present at the time of the transfer, according to the details of the FAQs.
A remittance provider’s failure to deliver funds by the disclosed availability date would not be a remittance rule error “if the provider could not have reasonably anticipated the closure,” the first of the three FAQs explains “In general, the Remittance Rule requires a remittance transfer provider to disclose the date on which funds will be available in the foreign country to the designated recipient, and provides that the provider’s failure to deliver or transmit a remittance transfer by the disclosed date of availability is an error,” the bureau wrote. “However, the Rule also states that such a failure is not an error if it resulted from extraordinary circumstances outside the remittance transfer provider’s control that the provider could not have reasonably anticipated.”
The FAQs provide examples of government-mandated closures that could (and could not) be reasonably anticipated by a remittance transfer provider. These examples boil down to timing: when the transfer was initiated, when a closure was announced, if the closure treated remittance transfer providers as “nonessential” businesses, and the disclosed funds availability date.
The bureau said it is aware that some foreign governments have mandated closures of commercial activity due to the pandemic and that these closures may prevent remittance providers from delivering or transmitting by the disclosed date of availability.
PPP reform bill heads for president’s signature …
Both the Senate and the House have now adopted legislation reforming the Paycheck Protection Program (PPP), established only two months ago, which gives business owners more flexibility and time to use loan money and still qualify for loan forgiveness as part of the PPP. The bill now heads to the desk of President Donald Trump for his signature.
The legislation, the Paycheck Protection Program Flexibility Act (H.R. 7010), introduced by Reps. Dean Phillips (D-Minn.) and Chip Roy (R-Texas), according to the bill’s summary, establishes a minimum maturity of five years for a paycheck protection loan with a remaining balance after forgiveness. The bill also extends the covered period during which a loan recipient may use such funds for certain expenses while remaining eligible for forgiveness. The bill also raises the non-payroll portion of a forgivable covered loan amount from the current 25% up to 40%.
Further, the bill extends the period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan. However, according to the bill summary, the forgivable amount must be determined without regard to a reduction in the number of employees under one of two circumstances: the recipient is unable to rehire former employees and is unable to hire similarly qualified employees, or; the recipient is unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.
Additionally, the bill revises the deferral period for PPP loans, allowing recipients to defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness would have 10 months from the program’s expiration to begin making payments.
The bill also eliminates a provision that makes a PPP loan recipient who has such indebtedness forgiven ineligible to defer payroll tax payments.
The Senate passed the measure Wednesday on voice vote; the House had previously passed the bill on a vote of 417-1. Since the establishment of the PPP loans, more than $600 billion has been advanced through the program, which is administered by the Small Business Administration (SBA).
… Guidance offered on mortgage forbearance
Guidance to mortgage servicers, specifically helping them comply with a right to forbearance for consumers affected by the COVID-19 pandemic, was issued this week by the CFPB.
The guidance lays out responsibilities of mortgage servicers as provided under the Coronavirus Aid, Relief and Economic Security (CARES) Act provisions granting a right to forbearance to consumers impacted by the COVID-19 pandemic. The CARES Act was enacted March 27.
According to the bureau, the guidance notes that servicers of federally-backed mortgages, such as Fannie Mae or Freddie Mac, and the loans provided through the departments of Housing and Urban Development (HUD), Veterans Affairs, or Agriculture, must grant forbearance to borrowers with pandemic-related hardships that may last as long as two consecutive 180-day periods. It also notes that additional interest, fees, or penalties beyond the amounts scheduled or calculated should be waived with no negative impact to the borrower’s mortgage contract during the forbearance.
“Mortgage servicers could violate the CARES Act or other applicable law and potentially cause consumer harm if they were to require documentation from borrowers to prove financial hardship, if they did not grant the forbearance once properly requested, or if they steered borrowers away from forbearance or misled them.
The CFPB guidance was issued jointly with the Conference of State Bank Supervisors (CSBS).
First credit union of 2020 fails
The first credit union failure in 2020 was announced late last week as NCUA took action to shutter a $7.7 million Pennsylvania institution. The agency said it had closed IBEW Local Union 712 Federal Credit Union (FCU) of Beaver, Pa.; West Penn P&P FCU (also of Beaver) assumed IBEW Local’s assets, member shares, and loans.
The agency said IBEW Local, according to its most recent call report, had 2,935 members and assets of about $7.7 million. The credit union was chartered in 1964 and served members of the local IBEW union. The agency did not provide an estimate of a cost to the National Credit Union Share Insurance Fund (NCUSIF).
The assumption of IBEW Local’s assets by West Penn will increase the latter’s assets by 50% and more than double its membership. NCUA said, according to its most recent call report, West Penn counted 2,150 members and held assets of about $14.8 million.
Prior to the credit union failure, two banks were pronounced failures earlier this year by the FDIC in separate announcements. Both banks were much larger than the Pennsylvania credit union: The First State Bank of Barboursville, W.V. (closed April 3) with $152.4 million in assets, and Ericson State Bank of Ericson, Neb. (Feb. 14) with nearly $101 million in assets. FDIC estimated that the closure cost its Deposit Insurance Fund (DIF) $46.8 million for the West Virginia bank; the Nebraska bank was estimated to cost the DIF $14.1 million.
BRIEFLY: NCUA says ‘no’ to banks’ Supreme Court appeal of FOM ruling
The American Bankers Association has filed its petition – and now NCUA its response – for a writ of certiorari from the U.S. Supreme Court to consider the bankers’ lawsuit against the agency over its field of membership (FOM)regulations adopted in 2016. The agency told the high court, among other things, that ABA’s request for certiorari should be denied. In August 2019, a federal appeals court overturned a lower court ruling that invalidated half of the membership regulations. The appeals court ruled, instead, that NCUA holds “vast discretion to define terms because Congress expressly has given it such power.” The high court has yet to consider the ABA’s petition.