(July 2, 2021) Pennsylvania credit unions are applauding the passage of state legislation prohibiting the transfer of monies from the state’s Banking Fund to pay for state government operations other than that of the state financial institution supervisor (including examinations) or for the resolution of troubled institutions.
The CrossState Credit Union Association (CrossState, which represents Pennsylvania credit unions) said the legislation strengthens the state charter and provides for “consistent safety and soundness of the banking industry” in the state. CrossState worked with Pennsylvania banking trade groups to enact the bill.
In Pennsylvania, CrossState pointed out in a release, state-chartered credit unions and banks pay semi-annual assessments to the PA Department of Banking and Securities (DoBS), which are then deposited into the Banking Fund to pay for the operations of the department and examination and regulation of state-chartered institutions. If needed, the fund can also be used to liquidate a financially distressed, non-federally insured institution using the fund’s Institution Resolution Restricted Account (IRRA).
According to CrossState, over the last two years two transfers were made from the Banking Fund to the state’s General Fund to supplement the budgets of other governmental agencies.
“As a result of Act 39 of 2021 (the legislation signed into law), future transfers out of the fund are prohibited if the intent of the transfer is unrelated to the regulation of financial institutions and the protection of their customers,” the association stated.
CrossState President and CEO Patrick Conway said the legislation was strongly supported by the state’s credit unions. “We join our colleagues at other financial institutions in recognizing the need to fund the activities of DoBS, and this new law ensures that member funds will only be used for that stated purpose going forward,” he said.
NASCUS President and CEO Lucy Ito thanked the Pennsylvania association and acknowledged the leadership of Banking Secretary Richard Vague of DoBS on behalf of state credit union supervisors. “What Pennsylvania has accomplished is a terrific example for other states to protect their exam and resolution funds for the credit unions and banks that have paid into them. Congratulations to CrossState, the state banking trade associations, and DoBs for their effective collaboration.”
(July 2, 2021) A “no-action letter” process – a form of regulatory enforcement discretion in which an agency states, in writing, that will not take an enforcement action against a party for particular actions – would be “a useful complement” to FinCEN’s toolbox, the agency said in a statement this week.
NASCUS was one of the organizations that provided information to the agency to help it reach that conclusion, FinCEN acknowledged in an accompanying report.
“FinCEN looks forward to continuing to engage with our government partners and the public during a future rulemaking process to ensure all constructive feedback is considered on this important issue,” said agency Acting Director Michael Mosier in a statement.
The agency said that, after conducting an assessment on the use of the no-action letters (which are employed by both the CFPB and, the report notes, the Idaho Department of Finance, among others), FinCEN concluded that it should plan a rulemaking to create a process for issuing no-action letters “in addition to its current forms of regulatory guidance and relief, with the timing subject to resource limitations and competing priorities.”
FinCEN was required to conduct the assessment by the 2020 Anti-Money Laundering (AML) Act. The result, the agency said, was that a rulemaking for a no-action letter process should be started. However, FinCEN added, it believes that a no-action letter process “would likely be most effective and workable if it is limited to FinCEN’s exercise of its own enforcement authority, as opposed to also addressing other regulators’ exercise of their distinct enforcement authorities.”
According to FinCEN, a “no-action letter” is a form of enforcement discretion in which an agency issues a letter indicating its intention not to take enforcement action against the submitting party for the specific conduct presented to the agency. Generally, FinCEN asserted, such letters address only prospective activity not yet undertaken by the submitting party.
In the report the agency issued, it noted that NASCUS (among others) “assisted in facilitating consultation with the various … state credit union supervisors” while FinCEN was making its assessment. “All State Bank and State Credit Union Supervisors were notified of the Assessment and given an opportunity to consult individually with FinCEN,” the agency stated.
LINK:
FinCEN Completes Assessment on the Use of No-Action Letters
(July 2, 2021) Rules described as designed to help prevent a surge of foreclosures as federal protections expire were finalized this week – to become effective Aug. 31 – by the CFPB, effectively putting an end to an extension of a foreclosure moratorium by the agency at the end of this month.
The bureau said its amendments to federal mortgage servicing regulations would help protect mortgage borrowers from “unwelcome surprises” as they exit forbearance following the end of the federal foreclosure moratorium, set to end July 31. The rules cover loans on principal residences and generally exclude small servicers.
The protections only apply to first legal or first notice between the effective date of Aug. 31, 2021 and the sunset of Jan. 1, 2022.
Under the new rules, borrowers will have at least three options to bring mortgages current and avoid foreclosure: Resume regular mortgage payments; lower their monthly mortgage payments or; sell their homes, the bureau said.
The agency noted that the rules announced this week will establish “temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes.”
According to the bureau, the rules will:
- Give borrowers a meaningful opportunity to pursue loss mitigation options. “As borrowers exit forbearance, they need time to process their current options and consider next steps,” the agency stated. “As such, to ensure that borrowers can pursue foreclosure avoidance options, servicers must meet temporary special procedural safeguards before initiating foreclosures for certain mortgages through the end of the year.”
- Allow mortgage servicers to help borrowers faster. “Under the new temporary rule, servicers can offer streamlined loan modifications to borrowers with COVID-19-related hardships without making borrowers submit all the paperwork for every possible option,” the agency stated. “These streamlined loan modifications cannot increase borrowers’ payments and have other protections built into them. With this flexibility, servicers can get borrowers into affordable mortgage payment plans faster, with less paperwork for both the servicer and the borrower.”
- Tell borrowers their options. “Servicers will be required to increase their outreach to borrowers before initiating foreclosure and tell borrowers key information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments,” CFPB said.
Not all foreclosures are avoidable, CFPB said, noting such action can start if the borrower: has abandoned the property; was more than 120 days behind on their mortgage before March 1, 2020; is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days; or has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure.
LINKS:
Final rule, federal mortgage servicing regulations
(July 2, 2021) NCUA’s final rule permitting federally insured credit unions (FICUs) to extend financing of interest in connection with loan workouts and modifications is set to take effect July 30, according to the notice published this week in the Federal Register. Adopted last week by the NCUA Board, the final rule also sets documentation requirements to help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan, the notice states, and makes technical changes … Meanwhile, a final rule permitting FICUs to phase in over three years the day-one adverse effects on net worth of the current-expected-credit-loss (CECL) accounting methodology is set to take effect Aug. 2, according to a notice in Thursday’s Federal Register … The list of jurisdictions with strategic money laundering, and financing of terrorism and weapons of mass destruction proliferation risks has been updated by FinCEN. Haiti, Malta, the Philippines, and South Sudan were added to the list; Ghana was removed, FinCEN said … Elissa McCarter LaBorde is the World Council of Credit Unions’ (WOCCU) new president and CEO, succeeding Brian Branch who announced his retirement earlier this year. LaBorde, according to WOCCU, has more than 20 years’ experience in leading organizations that deliver financial services to underserved communities world-wide … Have a terrific (and safe) Independence Day holiday!
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Capitalization of Interest in Connection With Loan Workouts and Modifications
(July 2, 2021) A new tool aimed at helping smaller banks calculate their allowances under the new current expected credit loss (CECL) accounting standard was announced by the Federal Reserve this week.
The Fed said the spreadsheet-based tool — dubbed the “Scaled CECL Allowance for Losses Estimator” (SCALE) — draws on publicly available regulatory and industry data to aid community banks with assets of less than $1 billion.
The CECL accounting standard took effect for most public financial institutions in 2020; smaller banks (as with most credit unions) are not required to meet the standard until 2023.
SCALE will be officially launched July 15 in conjunction with a webinar, the Fed said, when it will also answer questions about the new tool. The event is geared to community banks and will feature representatives from the Financial Accounting Standards Board (FASB, the group that established the accounting standard) and the Conference of State Bank Supervisors (CSBS).
The Fed said registration instructions are available at the link below.
(July 2, 2021) Four types of violations during 2020 of federal consumer protection and anti-discrimination laws – including those involving student lending and mortgage lending disclosures — are branded “particularly concerning” in a report issued this week by the CFPB.
The bureau, in its summer 2021 Supervisory Highlights noted that the violations are generally from 2020. They reflect, the agency said, findings that arose in connection with exams of supervised entities (and resolved without specific enforcement action).
The findings, the CFPB said, are:
- Violations of mortgage servicing rules in Regulation X, including: instances of some servicers making the first notice or filing for foreclosure when it was prohibited (for example, filing before they had evaluated borrowers’ appeals; in some cases failing to notify their foreclosure counsel to stop all legal filings at the time that the servicer received a completed loss mitigation application). Examiners also found that some servicers engaged in a deceptive act or practice when they told borrowers foreclosure would not occur until a specific date but initiated foreclosures prior to that date.
- Servicers misleading consumers about the program to forgive the balance of certain federal student loans after 10 years of payments on a qualifying repayment plan if the consumer works in certain public service jobs (the Public Service Loan Forgiveness (PSLF)). CFPB said there are additional requirements consumers need to satisfy to access the program, and borrowers frequently request information from their servicers about their eligibility. Agency examiners reportedly found a number of ways that student loan servicers gave incorrect information to borrowers, resulting in missteps that could cost consumers thousands of dollars.
- Discouragement of people in minority neighborhoods from applying for credit was observed through, among other things, locating offices in almost exclusively majority-white neighborhoods, only using pictures of white people in direct mail marketing campaigns, and publishing loan officer headshots of almost exclusively white people. Examiners noted these practices lowered the number of applications from minority neighborhoods relative to other comparable lenders. (The bureau noted its lawsuit filed a year ago alleging redlining by Townstone Financial, Inc., specifically through violations of the Equal Credit Opportunity Act and Regulation B, which implements the act, and the Consumer Financial Protection Act.)
- Information accepted by consumer reporting companies from companies that furnish consumer data despite “ample signs” that these furnishers were unreliable. Examiners found that this violates the Fair Credit Reporting Act.
LINK:
CFPB Report Highlights Supervisory Findings of Wide-Ranging Violations of Law in 2020
(July 2, 2021) The NASCUS 2021 State System Summit (S3) is coming up Aug. 17-18 as a virtual event again this year, with the agenda for the event now coming together. Registration for the event also opened up this week.
Two days of learning and networking with friends, colleagues, and industry leaders from across the country are featured in the annual event, which is the state system’s annual conference. S3 is a unique event that brings together credit union regulators and practitioners for a mutual exchange of dialog, problem-solving, and shared resources within the state credit union system.
In addition to state system leaders – including NASCUS President and CEO Lucy Ito, NASCUS Regulator Board Rose Conner, and NASCUS Credit Union Advisory Council Chairman Mike Williams – the agenda also includes presentations by economist Thomas Siems, Ph.D., senior economist and director of research for Conference of State Bank Supervisors (CSBS) in Washington, and by Tracy Jean Ashfield, president of Ashfield & Associates, a Madison, Wis.-based consulting and training firm that assists credit unions with mortgage lending strategic planning and consulting.
For more details on this year’s S3 – including registration (which is open to Aug. 16) – see the link below.
LINK:
NASCUS 2021 State System Summit, Aug. 17-18 (virtual); registration, agenda, more
(July 2, 2021) More than $865 million will be distributed by September to credit unions that were account holders at three failed corporate credit unions as NCUA closes its program to resolve the institutions, the agency said this week.
In a release, NCUA said the distribution of $865.5 million would be made to 1,800 credit union capital account holders of the former Members United, Southwest Corporate and U.S. Central corporate credit unions.
The three corporate credit unions were initially taken over by NCUA in 2010. Between then and now, the agency set up what it called the “Corporate System Resolution Program,” which issued notes guaranteed by the agency to investors to help the credit union system resolve the failures of those corporates and two others: Western Corporate (also known as WesCorp) and Constitution Corporate.
Also this week, NCUA announced the termination of the NCUA Guaranteed Notes (NGN) program, the financial program which stood behind the resolutions. The agency said that it will “continue to effectuate its plan to orderly liquidate the remaining post-securitized assets and make further distributions when possible.”
In its release, NCUA noted that, to date, it has previously made two rounds of distributions: The first, in July 2020, to the former credit union capital holders of Southwest Corporate; the second, in April of this year, to the former credit union capital holders of Southwest Corporate, Members United, and U.S. Central.
The agency said the former capital holders of those three corporates will also receive the latest round of distributions.
The third distribution will mean a total $1.3 billion will have been distributed to the former account numbers, NCUA said.
LINK:
NCUA to Distribute $865.5 Million Under Corporate System Resolution Program
(July 2, 2021) Expanded guidance on assessing the risk profile and adequacy of a credit union’s or other financial institution’s technology architecture, infrastructure and operations for federal examiners is provided in a new booklet issued this week by the FFIEC.
The exam council said the booklet replaces the “Operations” booklet issued nearly 17 years ago (in July 2004). According to the FFIEC, the booklet provides examiners with “fundamental examination expectations” on architecture and infrastructure planning, governance and risk management, and operations of regulated entities.
The agency said the booklet discusses the “interconnectedness” among a financial institution’s assets, processes, and third-party service providers along with “the principles, processes, potential threats, and examination procedures to help examiners assess whether a financial entity’s management adequately addresses risks and complies with applicable laws and regulations.”
The booklet updates, the exam council said, reflect the “changing technological environment and increasing need for security and resilience, including architectural design, infrastructure implementation, and operation of information technology systems.” They also highlight the importance of providing current information to examiners reviewing an entity’s information management practices pertaining to safety and soundness, consumer protection, and provision of secure and resilient business services to customers, according to the agency.
(July 2, 2021) Plans for future Bank Secrecy Act (BSA) rule changes to incorporate just-issued national priorities for combatting money laundering and financing of terrorism were outlined this week in an interagency statement from NCUA and other federal financial regulators. NCUA also issued a “letter to credit unions” (21-CU-05) on the topic.
The priorities, issued by Treasury’s Financial Crimes Enforcement Network (FinCEN), describe “the most significant AML/CFT (anti-money laundering and countering the financing of terrorism) threats currently facing the United States,” according to the agency. The priorities outlined by FinCEN include corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing.
FinCEN said the priorities are meant to assist covered institutions in their AML/CFT efforts and enable them to prioritize the use of their compliance resources. It said the priorities highlight key threat trends as well as informational resources that can help institutions in managing their risks.
NCUA (as stated in its letter to credit unions) and bank regulators said that while not required to do so, the agencies plan to propose changes to their own BSA rules addressing the priorities. Banks and credit unions (as well as nonbanks, the target of a separate FinCEN statement) are not required to make any changes in their risk-based BSA compliance programs, and examiners will not review institutions for incorporation of the AML/CFT priorities into those programs, until the effective date of a final rule, the agencies and FinCEN said.
In its letter, NCUA said credit unions “may wish to start considering how they will incorporate the AML/CFT Priorities into their risk- based BSA compliance programs.” The banking agencies advised the same for their supervised entities, noting that incorporation could include assessing the “potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.”
No target date for a proposed rule was offered by any of the regulators. However, FinCEN pointed out that the AML Act requires that the agency promulgate rules to implement the priorities within 180 days of their publication.
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