Oct. 9, 2020 NASCUS Report

THIS WEEK: NCUA Board to consider final corporate rule, more; CFPB suggests new policy on consent orders; New FAQs detail RESPA fees allowed; Report highlights key AML tools; FFIEC webinar looks at cyber, pandemic risks; NCUA webinar focuses on financial inclusion … While NASCUS education program moves forward; BRIEFLY: FDIC state panel sets agenda; ‘College credit cards’ losing favor; State-system champion leads NWCUA board; New name for Dakota association

Board to consider final corporate rule,
derivatives proposal, cybersecurity

A final rule on corporate credit unions will be considered by the NCUA Board when it meets next week in Arlington, Va., according to the agenda posted by the agency this week.

The three-member board will also consider a proposed rule on derivatives (Part 703), a request for information on supervisory guidance review and improvements in communications, and a board briefing on cybersecurity considerations for boards of directors during the COVID-19 pandemic.

Consideration of a final rule on corporate credit unions follows up on a proposal issued in March that would (among other things) clarify the treatment of an investment in a subordinated debt instrument of a natural-person credit union. The proposal also: would permit a corporate to invest minimally in a credit union service organization (CUSO) without being classified as a corporate CUSO and subject to heightened NCUA oversight; expand the categories of senior staff positions at member credit unions who would be eligible to serve on the corporate credit union’s board; and amend the “prescriptive experience and independence requirements” for a corporate credit union’s enterprise risk management (ERM) expert.

In its comment on the proposal submitted this summer, NASCUS wrote that the state credit union system generally supported it. For example, regarding the subordinated debt instruments, NASCUS wrote that it supported the proposal’s approach, particularly as NCUA is considering a proposal to permit credit unions to implement the capital-building device.

But NASCUS also offered a few reservations in its comments. On CUSO investments, the association noted that permitting corporates to make minimal investments in natural-person CUSOs will support innovation. However, NASCUS wrote that the association opposes incorporation by reference of its regulation on a credit union’s commercial loan policy to a corporate’s lending to CUSOs.

NASCUS also said it supported broadening corporate credit union board eligibility, but urged the agency to defer to state rules for state credit unions on board governance matters. NASCUS recommended further amending the agency’s ERM rules, in particular by allowing corporates to manage the ERM function internally, eliminating prohibitions in the rules related to supervision of the risk management expert at the corporate.

Removing approved corporate activities from the agency’s website, as proposed, was opposed by NASCUS. NCUA proposed incorporating the activities into the regulation as an appendix. But NASCUS wrote that the administrative process of doing so would add delay and hamper the ability of corporate credit unions to obtain timely determinations of proposed new activities.

The association also made some additional suggestions (including a comprehensive re-evaluation of the agency’s corporate rules to promote greater flexibility in serving credit unions), including:

  • Forming a task force with state regulators to review future adjustments to the corporate credit union rules;
  • Reintroducing meaningful dual chartering by eliminating unnecessary preemption of state rules, particularly with respect to corporate credit union governance; and
  • Enhancing the joint supervision of corporates and their risk to natural person credit unions by formalizing increased information sharing between NCUA and the state regulators supervising the corporate credit union’s natural person credit union members.

The board meeting is scheduled to get underway at 10 a.m. ET.

NASCUS – Comments on Proposed Rule, Corporate Credit Unions

NCUA Board October 2020 agenda

Bureau offers relief to entities from consent orders it issues

Companies, including credit unions and others, can earn an early way out of actions taken against them through consent orders by the CFPB under a new policy announced this week.

In a release, the bureau said its new policy on early termination of administrative consent order outlines the process for entities subject to a consent order with the agency and the “standards that the bureau intends to use when evaluating applications.”

“In order for a Consent Order to be terminated early, an entity should demonstrate that it meets certain threshold eligibility criteria, has fully complied with the terms of the Consent Order, and has a satisfactory compliance management system in applicable areas,” the agency stated. “These conditions are designed to minimize the risk of new violations of law by the company and to protect consumers.”

The bureau said an application for early termination should be submitted to the agency point of contact named in the consent order. “In general, an application should demonstrate that the entity has satisfied all of the conditions for granting early termination described in the policy statement,” the agency stated. “Bureau staff will review applications and make recommendations to the Director about whether to terminate a Consent Order. Under the policy, the sole authority to terminate a Consent Order remains with the Bureau’s Director and the termination decision is at their discretion.”

The new policy is available on the NASCUS “Latest CFPB updates” web pages (as well as other recent developments by the agency).

NASCUS Latest CFPB Updates

FAQs outline when fees are allowed under RESPA

A set of frequently asked questions (FAQs) on section 8 the Real Estate Settlement Procedures Act (RESPA) prohibitions on kickbacks and unearned fee arrangements, as well as provisions defining fees and arrangements that are not prohibited, was released this week by CFPB as a compliance aid.

The bureau said the FAQs give an overview of the provisions of RESPA section 8 and respective sections of Regulation X (the CFPB’s rule implementing RESPA). The agency also said the FAQs address the application of certain provisions to common scenarios described in bureau inquiries involving gifts and promotional activities, and marketing services agreements (MSAs).

Compliance Bulletin 2015-05, “RESPA Compliance and Marketing Services Agreements,” is rescinded, the bureau said, noting that the bulletin “does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X.”

“The Bureau’s rescission of the Bulletin does not mean that MSAs are per se or presumptively legal,” the bureau said in its announcement. “Whether a particular MSA violates RESPA Section 8 will depend on specific facts and circumstances, including the details of how the MSA is structured and implemented. MSAs remain subject to scrutiny, and we remain committed to vigorous enforcement of RESPA Section 8.”


CFPB provides clearer rules of the road for RESPA marketing service agreements

Report highlights key AML tools

Telling money launderers to “beware” that the Treasury’s anti-money laundering (AML) division has many ways to thwart criminals trying to hide illicit cash, the Government Accountability Office (GAO) this week published a digest of two recent reports from the law enforcement agency highlighting its crime-fighting efforts.

GAO said the two recent reports from Treasury’s Financial Crimes Enforcement Network (FinCEN) that focus on geographic targeting orders (GTO) and the costs of the AML-fighting Bank Secrecy Act (BSA) are examples of the “many ways of collection information on financial activities” by FinCEN, “making life harder for criminals.”

Noting FinCEN’s real estate GTO (started in 2016), which required title insurers to report information on shell companies used to buy homes in Manhattan or Miami costing $1 million or more (later expanded to a dozen areas around the country at lower property value thresholds), GAO said it has given the crime fighters “greater intelligence on the potential misuse of shell companies to launder money through real estate.”

On the BSA front, the GAO said its report in September found that nearly three-quarters (72%) of federal law enforcement agencies surveyed used BSA reports from 2015-18 for identifying new subjects to investigate or expand ongoing investigations.

However, this week’s report noted, GAO has also found that complying with BSA can be costly for credit unions and banks.

“We reviewed 11 banks varying in size and location and estimated that their costs for complying with the BSA ranged from about $14,000 to about $21 million in 2018,” the agency said, referring to a September report. “We also found that these costs generally tended to be proportionally greater for the smaller banks than for the larger ones.”

Fighting Money Laundering with the Bank Secrecy Act

NASCUS & CUNABSA/AML Certification eSchool

Exam council webinar looks at cyber, pandemic risks

The current operational risk environment of the financial services industry – including heightened cybersecurity concerns and the impact of the coronavirus pandemic — will be reviewed in an Oct. 29 “industry outreach” webinar sponsored by federal financial institution regulators.

The no-charge, online event (running from 1-2 p.m.), sponsored by the FFIEC and its task force on supervision, is intended for representatives from financial institutions, trade associations, third-party providers, and consultants, the exam council said. State and federal examiners may also participate in the event, the exam council said.

“2020 has brought several evolving risks to the forefront of the financial sector including operating in a heightened cyber risk environment and reviewing pandemic contingency plans,” the exam council said in announcing the event. “These risks have reinforced the need for the principles covered in the FFIEC Business Continuity Management (BCM) Booklet released in November 2019.” The exam council said the webinar will also address key elements of the latest update to its information technology (IT) handbook.

For more information, or to register, see the link below.

FFIEC Oct. 29 Industry Outreach event; information and registration

NCUA schedules Oct. 21 financial inclusion webinar

A webinar on financial inclusion and minority depository institutions will be hosted at 2 p.m. ET Oct. 21 by NCUA, the agency said this week, to focus on “expanding access to safe and affordable financial services in underserved communities.” The agency said the event – titled Pathways to Consumer Financial Well-Being: The Importance of Financial Inclusion and Minority Depository Institutions” – will run one hour, and is open to consumers, credit unions, and parties interested in working with credit unions. Speakers from the NCUA Offices of Consumer Financial Protection and Credit Union Resources and Expansion will discuss how MDIs can provide products and services to bring underserved communities into the financial mainstream, NCUA  said.

Registration, more info, on NCUA financial inclusion webinar

Education from NASCUS is full steam ahead

Three events – one underway and two upcoming – are highlights of the NASCUS educational calendar through October and into December.

This week, NASCUS – in conjunction with the Credit Union Natl. Assn. (CUNA) — opened up its NASCUS/CUNA Cybersecurity eSchool, which runs through Nov. 3. Presented on Tuesdays and Thursdays over the course of four weeks in virtual sessions, the school takes an in-depth look at trends shaping data security. Topics addressed include data privacy laws, top threats, targeted internal and independent audits, and practical applications of artificial intelligence (AI), machine learning and other tech applications.

On Oct. 19, NASCUS and CUNA team up yet again to present the BSA/AML Certification eSchool, which runs to Dec. 7. The school offers participants – in seven online sessions — the opportunity to boost their statuses as reliable, confident authorities on all things relevant to the Bank Secrecy Act (BSA). It also presents the chance for participants to earn or recertify their BSA Compliance Specialist (BSACS) designation.

On Dec. 3, in conjunction with the Michigan Department of Insurance and Financial Services (DIFS), NASCUS hosts the Michigan Industry Day (virtual), from 9 a.m. to noon. Intended for credit union board members, committee members, and management, the session looks at key issues affecting the industry both nationally and in Michigan, as well as segments focusing on financial literacy and succession planning.

See the NASCUS Education and Conferences “upcoming events” pages for more details on each.

Education and Conferences “upcoming events”

BRIEFLY: FDIC state regulators’ panel sets agenda; ‘College credit cards’ continue decline; Congrats to new chairman at NWCUA; new name in the Dakotas

A proposed voluntary certification program to promote new technologies is one of five items on the agenda for the Wednesday (Oct. 14) inaugural meeting of the advisory committee of state regulators assembled by FDIC. Also on the agenda for the Advisory Committee of State Regulators: Discussion of state banking conditions, community bank consolidation, state-federal consolidation, and an update on financial inclusion efforts … Agreements for credit cards, as well as the number of accounts, declined between the card issuers and universities and colleges in 2019, according to a report issued Thursday by the CFPB. The agency said the 2019 numbers continue a general trend of decline for the agreements, which had become a flashpoint among consumer protection advocates. The 2009 Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act) requires credit card issuers to submit to the bureau an annual report of information on their agreements with institutions of higher education, or some organizations affiliated with those colleges and universities … Congratulations to Kent Oram, president and CEO of Idaho Central CU in Boise (and a long-time NASCUS and state-system supporter) on his election as chairman of the Northwest Credit Union Association (NWCUA) Board … Looking up the premiere state association for credit unions in North and South Dakota? Check under “Dakota Credit Union Association,” the new name for the trade group that represents 71 credit unions across the Peace Garden and Mount Rushmore states. The group, headed by President and CEO Jeff Olson, was formerly known as the Credit Union Association of the Dakotas.

Agenda: Oct. 14 meeting of FDIC Advisory Committee of State Regulators

CFPB report on college credit card agreements

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