(June 4, 2021) Credit unions should ensure their policies, procedures, and training materials promote compliance with federal equal credit opportunity laws, and Regulation B administered by the CFPB, in line with a 2020 U.S. Supreme Court ruling, NCUA said this week.
In a Regulatory Alert (21-RA-07), NCUA noted that the March 16, 2021 interpretive ruling published by CFPB clarified the prohibition against sex discrimination in the Equal Credit Opportunity Act (ECOA). The alert stated that the act and the rule encompass discrimination based on sexual orientation and gender identity discrimination. “The interpretive rule also covers discrimination based on actual or perceived nonconformity with sex- or gender-based stereotypes, and discrimination based on an applicant’s associations,” the alert states.
It notes that the law and rule cover discrimination against individuals, not merely groups. The alert also states that sex discrimination “includes discrimination motivated by actual or perceived nonconformity with sex- or gender-based stereotypes, such as discrimination based on a lender’s perception that a customer’s attire does not accord with the customer’s perceived gender.”
The rule is consistent, the agency said, with the 2020 high court ruling in Bostock v. Clayton County, Ga. That ruling held that the prohibition against sex discrimination in Title VII of the Civil Rights Act of 1964 encompasses sexual orientation discrimination and gender identity discrimination.
“Some state laws already prohibit discrimination in credit transactions based on sexual orientation or gender identity,” the alert notes. “Credit unions should ensure their policies, procedures, and training materials promote compliance with ECOA and Regulation B consistent with the interpretive rule. Credit unions should also review automated scoring, decisioning, and pricing models for variables that could be proxies for these prohibited bases.”
NASCUS will develop a (members only) summary of the alert.
LINK:
NCUA Reg Alert: Equal Credit Opportunity Act (Regulation B)
(June 4, 2021) All deposit, loan and investment accounts at financial institutions (including credit unions) for persons and businesses would be subject to a $600 “de minimus” gross inflow reporting threshold, according to the 2022 budget submitted late last week by the Biden Administration.
Under the provision – which is designed to increase taxpayer compliance with income reporting – Treasury would have broad power to issue regulations, which would take effect beginning in the 2023 tax year. The provision was included in the so-called “Green Book,” which outlines the specific tax provisions that the administration seeks to enact along with its budget.
The provision requires that reporting include a breakdown for cash, transactions with a foreign account, and transfers to and from another account with the same owner. Payment settlement entities would also be required to collect Taxpayer Identification Numbers (TINs) and file a revised IRS Form 1099-K expanded to all payee accounts (except de minimis amounts), which would report not only gross receipts but also gross purchases.
The entire budget proposal must be considered – and passed – by Congress before it takes effect. The budget proposal has a long way to go before a final version, as amended by the House and Senate, becomes law.
LINK:
Treasury Green Book for proposed 2022 federal budget
(June 4, 2021) Frequently asked questions (FAQs) about mortgage servicing were updated this week by the CFPB, concerning escrow account compliance under Regulations X and Z (RESPA and TILA, respectively). The new questions added 11 pages to the agency’s mortgage servicing queries list, covering an array of issues related to escrow accounts (including: a basic definition) … Written communication providing specific direction on use of alternative data at financial institutions – including credit unions — is required from regulators, the GAO indicated in reports it issued this week. Additionally, the GAO wrote, regulators should be collaborating on the specifics in that written communication. The GAO detailed an outstanding 2018 recommendation that has not yet been addressed by the Fed and the FDIC, asserting that “continued attention to this issue could improve (the agencies’) ability to more effectively oversee risks to consumers and the safety and soundness of the U.S. banking system.” The GAO did note that federal financial regulators (including NCUA) in late 2019 issued an interagency statement highlighting potential benefits and risks of using alternative data and encouraged financial firms to use it. However, GAO noted, that statement does not provide firms or banks with specific direction on the appropriate use of that data, including issues to consider when selecting types of alternative data to use.
LINKS:
Mortgage Servicing FAQs, last updated June 2, 2021.
Priority Open Recommendations: Federal Deposit Insurance Corporation
Priority Open Recommendations: Federal Reserve
(June 4, 2021) A “new and comprehensive” set of rules – but with concepts that are like existing regulations – to govern the Federal Reserve’s new round-the-clock instant payments service was proposed this week by the agency.
The new rules apply to the Fed’s upcoming “FedNow” service, expected to be available in 2023. The service, the Fed has said, will support instant payments in the U.S. (using concepts similar to existing provisions) 24 hours a day, seven days a week, 365 days a year.
In a release, the Fed said the rules it is proposing detail legal rights and obligations of Federal Reserve Banks and FedNow participants. Under the proposal, the Fed would amend its Regulation J (which governs funds transfers, particularly by check processing and Fedwire funds, among other things), establishing a new subpart C. That subpart would set up the new rules governing funds transfer using FedNow; the current subpart B (applying to Fedwire Funds Service) of the rule would no longer apply to transfers over FedNow.
Subpart B would be altered to reflect the fact that the reserve banks will be operating a second funds transfer service in addition to the Fedwire Funds Service, the Fed said. Some technical changes to subpart A, governing the check processing service, are also proposed.
The proposal was issued with a 60-day comment period.
(June 4, 2021) An increase in appropriations in 2022 for NCUA’s Community Development Revolving Loan Fund (CDRLF) was requested this week by agency Board Chairman Todd Harper in NCUA’s annual report to Congress on the fund’s 2020 activities.
Harper, however, sought no specific amount of dollar increases. However, in the report, he noted that the CDRLF was able to fund just about half of the $7.6 million in total requests for technical assistance grants and loans from low-income-designated credit unions last year,
To bolster his request, the NCUA chairman in the report noted that NCUA last year devoted nearly all of the fund’s efforts to help credit unions and their members meet the significant challenges posed by the COVID-19 pandemic. “Because demand regularly exceeds the amount of available funds for these grants, and because low-income credit unions are more likely to serve communities disproportionately impacted by COVID-19, I urge Congress to increase appropriations for CDRLF grants in 2022,” Harper stated. “With more funding, the agency could increase the number of credit unions receiving grants and increase the size of the grants it makes, deepening the program’s impact in underserved communities.”
Congress created the CDRLF to stimulate economic development in low-income communities served by credit unions; all appropriations go to eligible credit unions. The fund is administered by the NCUA.
LINK:
NCUA: CDRLF Funds Have Positive Impact on Communities, Credit Unions
(June 4, 2021) Steps that should be taken now and through the rest of the year by those with exposure to the soon-to-be-defunct LIBOR are outlined in a “roadmap” issued this week by the Financial Stability Board (FSB), an international group of financial regulators.
In its “Global Transition Roadmap for LIBOR,” FSB stated that continued reliance of global financial markets on the London Interbank Offered Rate reference rate “poses clear risks to global financial stability.” LIBOR has been a widely used reference rate for such financial products as adjustable-rate mortgages and student loans (especially at credit unions, according to NCUA). The FSB is made up of regulators from several countries, including the U.S. Federal Reserve. Board Vice Chair for Supervision Randal Quarles chairs the group.
The steps outlined in the roadmap (referred to as the GTR), the FSB said, are considered “prudent steps to take to ensure an orderly transition by end-2021” and are intended to supplement existing industry and regulatory timelines and milestones.
Among the steps that the roadmap recommends that firms should already have taken to prepare for LIBOR’s demise are:
- Identification and assessment of all existing LIBOR exposures, including understandings of which LIBOR settings place a continuing reliance on the firm after end-2021, by currency and tenor, and; what fallback arrangements those contracts currently have in place.
- Identification of other dependencies on LIBOR outside of its use in financial contracts – for example, use in financial modelling, discounting and performance metrics, accounting practices, infrastructure, or non-financial contracts (e.g. in late-payment clauses).
- Agreement on a project plan, including specific timelines and resources to address or remove any LIBOR reliance identified, to transition in advance of the end of 2021 including clear governance arrangements.
The steps also include those that should be taken by mid-year, by year-end and by June 2023 (for those firms that are winding down legacy contracts).
In addition to the GTR, FSB also released:
- A paper reviewing overnight risk-free rates and term rates;
- A statement on the use of the ISDA spread adjustments;
- A statement encouraging authorities to set “globally consistent expectations that regulated entities should cease the new use of LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked.”
LINKS:
Global Transition Roadmap for LIBOR
FSB issues statements to support a smooth transition away from LIBOR by end 2021
NASCUS’ Lucy Ito discusses achievements and NASCUS, and the outlook for credit unions, during her interview with Mike Lawson, CUBroadcast.com (click on the arrow to view the complete video)
(June 4, 2021) Bringing attention to the overhead transfer rate (OTR) policies of NCUA, and securing authority for credit unions to issue subordinated debt, are two of the achievements NASCUS President and CEO Lucy Ito cited as attained during her tenure as leader of the state system organization during a video interview this week.
In May, Ito announced that she would retire from her position at the association, effective at the beginning of 2022.
Responding to questions from Mike Lawson of CUBroadcast (a web-based video interview program) Ito said that raising awareness of the OTR – the rate at which the agency transfers funds from National Credit Union Share Insurance Fund (NCUSIF) to cover insurance-related operating costs of the agency – ultimately resulted in the agency making changes to the formula for determining the rate.
In 2017, the NCUA Board voted to adopt a “simplified approach” to setting the rate, reflecting that “safety and soundness is not the sole domain of the insurer.” Reform of the OTR methodology had been a target for NASCUS and the state system for more than 20 years.
She also noted as an achievement the new subordinated debt rule, which was finalized by NCUA in December and is scheduled to take effect at the beginning of 2022. The rule would allow well-capitalized, federally insured credit unions to count subordinated debt as capital for risk-based net worth purposes. It was long sought by the state system, which has argued that such a rule would bring regulation of federally insured credit unions in line with regulations of some states that already allow their credit unions to issue secondary capital, including in the form of subordinated debt.
However, in her interview this week, Ito said the state system continues to look for changes in the rule. She noted the benefit of having a rule in place, and that “that’s something we can work with.”
In other comments during the 20-minute interview, Ito:
- Noted the common denominators of people who work in credit unions as being “service and duty.”
- Reflected on the commonalities of state regulators and leaders of credit unions, as both groups are service oriented and really feel a responsibility to protect and help others.”
- Suggested that the best way for the credit union community to succeed and maintain relevancy to consumers — in the face of mounting competition from such things as digital currencies and players such as PayPal – is collaboration among themselves and their related organizations (including associations). “Where there are shared problems, and shared objectives, let’s work together to address both,” she said.