Oct. 2, 2020 NASCUS Report

THIS WEEK: FCUs reminded of new FOM rules; Summary recaps AML rule for PICUs … while other outlines joint statement on BSA; More using online banking; CA regulator gets new law, name; StateFocus touches on top issues in CA, ID, PA, SC; Advisories warn of ransomware; BRIEFLY: TRID rule assessment released; SCOTUS nominee ruled on CUs; Get those coins in circulation

Letter reminds FCUs
new membership rules coming

With an impending date of changes to membership rules coming in two weeks, federal credit unions were reminded by their NCUA this week that they may use a new definition of a service area for expanding the group of who can belong to their institutions.

In a letter to FCUs, the NCUA said, as of Oct. 14, prospective and existing federal credit unions seeking a community charter may use a “Combined Statistical Area” (CSA) or portions of that areas defined in federal rules as the basis for defining their proposed service area without documenting how a CSA’s residents interact or share common interests.

In July, the NCUA Board adopted a final rule (in a unanimous vote) that would once again allow a federally chartered credit union to seek to serve CSA as a “well-defined” local community if that area has a population no greater than 2.5 million persons. That rule was adopted following a long court battle over a lawsuit brought by the banking industry challenging the agency’s membership rules for credit unions. The lawsuit ended earlier this year when the U.S. Supreme Court declined to review an appeals court ruling upholding NCUA’s rule.

NCUA said the final regulation that takes effect next month is meant to clarify the agency’s membership rules, which NCUA said “will facilitate greater access to safe and affordable financial services for all Americans.”

In the letter (20-FCU-03), NCUA said the final rule will also clarify that an applicant credit union must provide the NCUA with the business rationale used to define a CSA or Core-Based Statistical Area (CBSA) “if the defined area does not include an area’s largest county or named city.”

Applicants should outline the rationale in the submitted business and marketing plan,” the letter states. “The new provision ensures federal credit unions avoid potentially discriminatory practices when establishing a proposed service area.”

Amended Field of Membership Application Requirements for Combined Statistical Area and Core-Based Statistical Area

Summary looks at AML rule for PICUs, others

A new rule imposing federal anti-money laundering standards on privately insured credit unions (PICUs) and other financial institutions lacking a “federal functional regulator” is summarized by NASCUS and posted on the association website.

The final rule, issued this month by the Treasury’s Financial Crimes Enforcement Network (FinCEN) and which takes effect Oct. 15, sets the minimum standards for anti-money laundering (AML) requirements for the non-federally supervised financial institutions, requiring them to establish and implement anti-money laundering programs. Those programs must include policies and procedures, a dedicated compliance officer, employee training and an independent audit function. Compliance is required no later than 180 after the effective date.

PICUs, state-chartered non-depository trust companies and private banks will also be subject to customer identification program requirements and beneficial ownership requirements.

FinCEN has said the rule is meant to “ensure that all banks, regardless of whether they are subject to federal regulation and oversight, are required to establish and implement anti-money laundering programs, and extends customer identification program requirements and beneficial ownership requirements to those banks not already subject to these requirements.”

Even in the absence of a formal FinCEN rule, states generally require credit unions and other non-federally supervised (or insured) institutions to have in place the same programs as their federally insured peers.

Summary: FinCEN Final Rule — BSA, CIP, BSA Programs, and Beneficial Owner Rules for PICUs (members only)

Joint statement on BSA enforcement recapped

NASCUS has summarized a statement from NCUA and other federal banking regulators that is intended to clarify and provide transparency on how regulators evaluate enforcement actions required by law in response to Bank Secrecy Act/anti-money laundering (BSA/AML) violations.

The summary is available to members only.

The statement, issued in late August, explains that isolated or technical violations or deficiencies “are generally not considered the kinds of problems that would result in an enforcement action,” according to the joint statement.

Imposing no new requirements, the statement updates and supersedes the Interagency Statement on Enforcement of BSA/AML Requirements issued on July 19, 2007, to promote a consistent approach to the application of Section 8(s) of the Federal Deposit Insurance Act and Section 206(q) of the Federal Credit Union Act, the agencies said when they issued the statement.

However, the statement does address how the agencies evaluate violations of individual components – “pillars” – of the BSA/AML compliance program. It also describes how they incorporate customer due diligence (CDD) regulations and recordkeeping requirements issued by Treasury as part of the internal controls pillar of an institution’s BSA/AML compliance program.

Summary: Federal Banking Agencies Issue Joint Statement on Enforcement of Bank Secrecy Act/Anti-Money Laundering Requirements (members only)

More use online banking (but branches still pertinent)

Use of online banking has increased slightly over a three-year period ending on 2019, while use of paper checks declined over the same time, according to study results released by the Federal Reserve this week. However, members and customers of credit unions and banks continued to use the physical branches of their institutions, despite their use of online services.

In its triannual Survey of Consumer Finances (SCF), the Federal Reserve said it found that just under 80% of families responding to the survey participated in online banking services at their financial institution; that’s up from just more than 70% three years before (in 2016).

However, even though families said they are using online banking, they also said they continue to use some physical financial services, such as visiting local bank branches, which did not differ much from those who said they did not use Internet-based services. According to the survey, 79% of online banking customers said they visited their checking account branch – and 67% visited their savings account branch.

Among non-online banking services users, 85% said they visited their main checking account branch and 81% visited their savings account branch.

“Online banking appears to be an imperfect substitute for at least some physical financial services, including visiting a local bank branch,” the Fed report stated.

The report also indicates that financial services consumers continue to use paper checks, although at a lesser rate than they used to. In 2016, the report indicates, just more than 70% reported writing a paper check in the past 12 months. By 2019, about 65% were saying the same thing.

In another aspect of the report, the Fed said that the Internet has become “an increasingly important source of information over time” for families shopping for financial services. (Families with higher income tend to shop for financial services, while those in lower income brackets tend not to shop as much, the report indicates.)

Federal Reserve Survey of Consumer Finances (SCF)

With new law, CA regulator gets new name

“Department of Financial Protection and Innovation (DFPI)” is the new name for California’s credit union and financial regulator, the result of legislation (AB 107) signed into law this week by Gov. Gavin Newsom (D), and effective immediately.

The name change for the department (formerly the CA Department of Business Oversight) comes in tandem with sweeping legislation that takes effect Jan. 1 that restructures the agency. Under that legislation (the California Consumer Financial Protection Law (CCFPL, AB 1864), the authority of the regulator is expanded with additional enforcement powers.

According to the agency, the additional powers will “protect California consumers from pandemic-inspired scams, promote innovation, clarify regulatory hurdles for emerging products and increase education and outreach for vulnerable groups.” In a release, the agency also said the revamped department will have new regulatory powers to protect consumers from unfair, deceptive or abusive practices committed by currently unlicensed financial services or products, including credit reporting bureaus and credit repair agencies.

Additionally, the law creates a new Division of Consumer Financial Protection, which the agency said will feature a market monitoring and research arm to keep pace with emerging financial products. The agency said the division will also expand consumer outreach to target vulnerable populations, such as students, new Californians, military servicemembers and senior citizens.

Department of Business Oversight Prepares to Become Department of Financial Protection and Innovation

StateFocus outlines top issues in CA, ID, PA, SC

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 CA, ID, PA and SC.

Among other things, the new issue of StateFocus reports on mortgage forbearance and eviction legislation, civil immunity law, strengthening a state agency, and reducing credit unions’ regulatory burden.

StateFocus is published monthly, or as-needed, to report on state activities in regulation and law; it is available to members only.

September 30, 2020 State Focus: What’s Happening in the States?

Advisories seek to combat rising rate of ransomware

Assisting U.S. individuals and businesses in efforts to combat the increasing incidence of ransomware scams and attacks is the aim of a pair of advisories issued this week by the Treasury Department.

The advisories were released in conjunction with National Cybersecurity Awareness Month, which began Thursday.

Issued by Treasury’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), the advisories look at two issues. The advisory from the first agency (FinCEN), “Advisory on Ransomware and the Use of the Financial System,” provides information on the role of financial intermediaries in payments, ransomware trends and typologies, and related financial red flags. It also provides information on effectively reporting and sharing information related to ransomware attacks, according to Treasury.

The advisory from the second agency (OFAC), “Advisory on Potential Sanctions Risks for Facilitating Ransomware Payments,” highlights the sanctions risks associated with facilitating ransomware payments on behalf of victims targeted by malicious cyber-enabled activities, Treasury said.

“Efforts to detect and report ransomware payments are vital to prevent and deter cyber actors from deploying malicious software to extort individuals and businesses, and to hold ransomware attackers accountable for their crimes,” Treasury said in a statement.

Meanwhile, the Cybersecurity and Infrastructure Security Agency (CISA) and Multi-State Information Sharing and Analysis Center (MS-ISAC) have released a joint ransomware guide meant to be what the agencies termed a “one-stop resource for stakeholders on how to be proactive and prevent these attacks from happening and also a detailed approach on how to respond to an attack and best resolve the cyber incident.” In a release, CISA and MS-ISAC said “there are vast products and resources available, but very few that have them all in one place.” The groups also released a “cybersecurity essentials” toolkit in conjunction with cybersecurity awareness month.

Treasury Department Issues Ransomware Advisories to Increase Awareness and Thwart Attacks

Joint Ransomware Guide

Cybersecurity essentials toolkit


BRIEFLY: Report – TRID rules actually do as intended; Supreme Court nominee ruled in CU case; Get your coins out of the jar

Consumers’ have improved their ability to locate key mortgage information, compare terms and costs between initial and final disclosures and compare terms and costs across mortgage offers through TRID real estate transaction disclosure rules, according to a report issued Thursday by CFPB. The assessment of the TILA-RESPA Integrated Disclosure rule (TRID), CFPB said, found that the rule has made progress toward several of its goals. In addition to improving consumers’ ability to find key information, the bureau said in a release, the report found either no change (or relatively short-lived changes) in such measures as interest rates and origination volumes around the rule’s effective date … In the spirit of “six degrees of separation,” it turns out U.S. Supreme Court Nominee Amy Coney Barrett has a legal link to credit unions – in the form of a 2018 ruling about access to a credit union website, according to press reports. Barrett was the author of a decision that dismissed a lawsuit against Aurora (Ill.) Policemen Credit Union claiming its website violated the Americans with Disabilities Act (ADA). In her ruling, she agreed with a lower court that the plaintiff had no standing to bring the case against the credit union … Got a mason jar in your closet full of coins? The Federal Reserve and the U.S. Mint want you to pull those coins out and get them back into circulation – to resolve a growing problem for businesses to get the coin they need to support cash transactions. The coronavirus crisis has played a role in the shortage, with consumers have increased their use of debit and credit cards in transactions, and reduced the use of cash. That has led, the Fed and Mint say, to coin “pooling in change jars, in car cup holders and in shuttered businesses,” according to a release.

Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) Rule Assessment

Working to Recharge Coin Circulation in the United States

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