Filed under: Current Issues in Credit Unions | Tags: CFPB, Credit Union Times, garnishment, mortgage lending, remote capture
Sarah Snell Cooke, editor of Credit Union Times joins Brian, Hal, Katherine & Rob for this month’s show! Here are the topics:
–What it takes to cover CU news in 2011.
–CFPB update
–Making Remote Capture More Appealing to Credit Unions
–New Federal Garnishment Rules
–Mortgage Lending Update
–Big K Roundup.
Sound editing by Victor Khaze
The CIiCU hosts are:
Brian Witt
Hal Scoggins
Farleigh Wada Witt,
Attorneys at Law
121 SW Morrison Street, Suite 600
Portland, Oregon 97204
Telephone: 503-228-6044 Fax: 503-228-1741
http://www.fwwlaw.com
Guy Messick
Katherine Weber
Messick & Weber P.C.
211 North Olive Street
Media, PA 19063
Telephone 610-891-9000 Fax 610-891-9008
http://www.cusolaw.com
Faith Anderson
American Airlines Credit Union
P.O. Box 619001
MD 2100
DFW Airport, TX
75261-9001
(800) 533-0035
https://www.aacreditunion.org/default.asp
Anthony Demangone
AFCU Director of Regulatory Compliance
NAFCU – National Association of Federal Credit Unions
3138 10th Street North
Arlington, VA 22201-2149
Telephone: 703-522-4770 Toll-Free: 800-336-4644 Fax: 703-524-1082
http://www.nafcu.org/
Robert Rutkowski
Shareholder
Weltman, Weinberg & Reis Co., L.P.A.
323 W. Lakeside Avenue, Suite 200
Cleveland, Ohio 44113
Telephone: 216-739-5004 Fax: 216-739-5642
http://www.thatcreditunionblog.com
http://www.weltman.com
Subcribe to the show via iTunes Music Store:
http://phobos.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=151785964&s=143441
Direct download: CIICU_58_Final.mp3
Filed under: title issues, Uncategorized | Tags: estate, power of attorney, real estate loans, title
Our credit union member is refinancing his home, and his daughter claims to have power of attorney. Should I be concerned?
Yes. You should be concerned at the time of the first contact. There are many types of documents giving individuals powers of attorney. Powers can be limited, unlimited, for healthcare, specific, general, durable or springing. Of importance to the loan officer is whether the specific authority to refinance the property is contained in the document. Once you know that there is a document called a Power of Attorney, obtain a copy and show it to us at the title agency. The Attorney in Fact is the person obtaining the power. The Power of Attorney is the title of the document as well as the power itself. The document must give specific powers to refinance or sell the home. The Power of Attorney must be filed with the county recorder before any deed or mortgage from an attorney-in-fact. Here is a simple example of the type of language the title insurance agent would be looking for to approve a sale, purchase or refinance by the member of the credit union:
Power of Attorney
That the undersigned Joe Smith, does hereby make, constitute and appoint as his lawful attorney in fact Sally Smith, whose address is _________________________________ for him and in his name and stead to purchase, close and finance, relative to the purchase of the property described as follows:
See legal description attached hereto and made a part hereof as Exhibit A
Parcel: 111-11-111
Address: 111 Main Street, Nicetown, OH 44444
The attorney in fact is hereby authorized to execute and deliver all documents in connection with the closing including, without limiting the generality hereof, purchase agreement, mortgage deeds, promissory notes, closing statements, waivers, truth in lending statements, affidavits, check endorsements and Federal Housing Administration and Veteran’s Administration closing documents if appropriate, giving and granting unto said attorney in fact full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully to all intents and purposes as I might or could do if personally present, with full power of substitution and revocation; hereby ratifying all that my attorney in fact shall do, or cause to be done, by virtue hereof.
This power shall not be affected by my disability. This power shall terminate upon the closing of the transaction pertaining to the purchase of the premises described above.
The above document gives specific power to refinance or sell to a definite person. It mentions the real estate involved. Finally, it grants those powers even if the grantor later becomes disabled.
How do I notarize the signature of an Attorney in Fact?
The document must indicate that it is being given by the person granting the power and that the person signing it is an Attorney in Fact. When you fill out the acknowledgment form it should look something like this:
Executed on this 15th day of June, 2011.
Sally Smith, Attorney in Fact for Joe Smith
Joe Smith
STATE OF OHIO
COUNTY OF Cuyahoga)
Before me a Notary Public in and for said State, personally appeared the above named Sally Smith, Attorney in Fact for Joe Smith, who acknowledged that she did sign the forgoing document and that the same is her free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my name and official seal at Cleveland, Ohio, this 15th day of June, 2011.
Joe Notary Notary Public
My Commission Expires________
I have been approached by a credit union member whose husband still appears as the homeowner on the tax duplicate. The credit union member is deceased. Will this be a problem?
If the decedent is the last owner of record, there may be problems in clearing title before the sale or refinance. The decedent may have been a joint owner with the right of survivorship given to the member. Or the member may be a beneficiary of a Transfer on Death Affidavit. In either case proper documentation must be filed with the county before the sale or refinance.
If there was no survivorship aspect to the ownership, a case might not be opened yet in probate court,a case may be opened and pending or, the case might be closed without the completion of all of the work necessary before the transfer of the property.
In some cases, a title company will not be able to insure a new owner or the lender without funds being held or indemnification from your customer. Money may need to be held in escrow pending completion of the estate.
Estates may be complex and recognizing the problem early and bringing it to the attention of the title agent can save time when it is time to close the loan.
Remote capture is hot. For those of you who have not heard about this, it’s the process where your member would take a picture of a check and then email the image to you and you would treat this as a deposit. The member then destroys the check. Credit unions have been squeamish about adopting it because of the obvious fraud problems. If the member decides to deposit the check image to multiple financial institutions or if it’s not the member trying to deposit the check, you can see what can happen.
On the way home from Iowa a few weeks ago, I had an idea that I thought I would share with you. What about creating a homebrew form of remote capture using Skype and a webcam? Give your teller who mans your drive up window a computer with Skype and a webcam and give your members that station’s Skype ID. Your members could call that station using their own PC, Skype and a webcam. The teller would then be able to see the member and would use his or her webcam software to take a picture of the member with the check and then the front and back of the check and use that for deposit purposes. The member could then destroy the check on camera in front of the teller. The beauty of it is that it has the potential to cut down on fraud while letting the credit union use an advanced piece of technology that members would appreciate. Each transaction would probably take less time than a member visit. Plus, the start-up costs would be very low. Credit unions that already have a video based teller system could adopt something like this easier than most.
This might be the way for credit unions to jump into remote capture. Your members want it, that’s for sure. Assuming no intellectual property barriers, you could quickly get into remote capture on your own, with or without a vendor, promote it to your membership and go with it probably within 60 days. Just a thought, but why not check it out?
Filed under: collections, garnishment | Tags: attachement, collections, garnishment
By John B.C. Porter
Effective May 1, 2011, financial institutions will have to do much more by way of analysis when in receipt of garnishment orders than simply forwarding all but $425 to the court. The Department of the Treasury recently released its interim final rule to implement statutory restrictions on the garnishment of Federal benefit payments (Social Security benefits, Supplemental Security Income (SSI) benefits, VA benefits, Federal Railroad retirement benefits, Federal Railroad unemployment and sickness benefits, Civil Service Retirement benefits, and Federal Employee Retirement System benefits). The rule establishes procedures that financial institutions must follow when they receive a garnishment order against an account holder who receives Federal payment benefits by direct deposit. This rule can be found in part 212 to Title 31 of the Code of Federal Regulations.
The new procedure will look something like this: Within two business days of receiving a garnishment order, the financial institution will need to ascertain whether the United States or a State child support enforcement agency has attached or included a Notice of Right to Garnish Federal Benefits. If this Notice of Right to Garnish Federal Benefits is included in the garnishment order, then the financial institution will follow its otherwise customary procedures for handling the order. If a Notice of Right to Garnish Federal Benefits is not included with the garnishment order then the financial institution must perform an account review. If the account review demonstrates that a Federal benefit payment was not direct deposited into the account during the “lookback period,” then the financial institution shall follow its otherwise customary procedures for handing the garnishment order. The “lookback period” is defined as the two month period that begins on the date before the date of the account review and ends on the corresponding date of the month two months earlier. For example, if the financial institution receives a garnishment order on Thursday, March 17, and performs the account review the same day, the lookback period begins on Wednesday, March 16, and ends on Sunday, January 16.
If the account review demonstrates that a Federal benefit payment was direct deposited into the account during the lookback period, then the financial institution must ascertain the “protected amount.” The “protected amount” is defined as the lesser of the sum of all Federal benefit payments posted to an account between the close of business on the beginning date of the lookback period and the open of business on the ending date of the lookback period, or the balance in an account at the open of business on the date of account review. The financial institution shall immediately calculate and establish the protected amount for an account. The financial institution shall ensure that the account holder has full and customary access to the protected amount, which the financial institution shall not freeze in response to the garnishment order. For any funds in an account in excess of the protected amount, the financial institution shall follow its customary procedures for handing garnishment orders. Further, the financial institution may not charge or collect a garnishment fee against the protected amount. For example, a financial institution receives a garnishment order against an account holder for $8000 on December 2. The date of account review is the same day, December 2, when the opening balance in the account is $5000. The lookback period begins on December 1, the date before the date of account review, and ends on October 1, the corresponding date two months earlier. The account review shows that three Federal benefit payments were direct deposited to the account during the lookback period totaling $4500, one for $1500 on December 1, another for $1500 on November 1, and a third for $1500 on October 1. Since the $4500 sum of the three benefit payments posted to the account during the lookback period is less than the $5000 balance in the account at the open of business on the date of account review, the financial institution establishes the protected amount at $4500 and seizes the remaining $500 in the account consistent with State law. The financial institution could then assess its garnishment fee on the $500 amount in excess of the protected amount.
As if this isn’t burdensome enough (especially in light of all the other regulatory burdens recently heaped upon financial institutions), the financial institution shall also issue a notice to the account holder named in the garnishment order. The notice must be sent in cases where: (1) a Federal benefit payment was direct deposited into the account holder’s account during the lookback period; and (2) the balance in the account on the date of account review was above zero dollars and the financial institution established a protected amount. The financial institution shall notify the account holder named in the garnishment order of the following facts and events in readily understandable language: (a) the financial institution’s receipt of an order against the account holder; (b) the date on which the order was served; (c) a succinct explanation of garnishment; (d) the financial institution’s requirement under Federal regulation to ensure that account balances up to the protected amount are protected and made available to the account holder; (e) the account subject to the order and the protected amount established by the financial institution; (f) the financial institution’s requirement pursuant to State law to freeze other funds in the account to satisfy the order and the amount frozen; (g) the amount of any garnishment fee charged to the account; (h) a list of the Federal benefit payments exempt from garnishment; (i) the account holder’s right to assert against the creditor that initiated the order a further garnishment exemption for amounts above the protected amount, by completing exemption claim forms, contacting the court of jurisdiction, or contacting the creditor; (j) the account holder’s right to consult an attorney or legal aid service in asserting against the creditor that initiated the order a further garnishment exemption for amounts above the protected amount; AND (k) the name of the creditor, and, if contact information is included in the order, means of contacting the creditor. There is a model notice provided in Appendix A to Part 212. Use of this model notice is recommended as proper use of the model notice is deemed to be in compliance with the notice requirement of Part 212. This notice must be sent by the financial institution to the account holder within three business days from the date of account review.
Part 212 would not, however, prevent a financial institution from honoring an account holder’s express written instruction, that is both dated and provided by the account holder to the financial institution following the date on which it has been served a particular garnishment order, to use an otherwise protected amount to satisfy the order.
This is an interim final rule. The rule’s effective date is May 1, 2011, but the comment period is open until May 24, 2011. Take advantage of this timeframe to inform the Department of Treasury how this new burdensome rule will affect your financial institution. Determining the exempt status of funds on deposit with financial institutions should be the province of the courts, not of individual financial institutions.
Filed under: Equal Credit Opportunity Act, underwriting | Tags: ECOA, loans, underwriting
By Shari Storm
Editor’s note: I’m giving this post a plutonium disclaimer. We are not advocating doing underwriting using the studies that Shari describes below. She is calling these studies to our attention in the underwriting context being fully aware that to use them would probably be illegal. It’s just a thought provoking blog post on the internet, folks.
A few months ago, I wrote a post about Dr. Robert Manning’s suggestion that financial institutions consider cash flow, along with credit score, when granting credit.
Since then, I have come across two fascinating articles on this topic.*
The first reports on a study in which researchers showed photos of faces to a group of people (workers from the Mechanical Turks, to be precise). The participants were asked to answer the question “Would you lend money to this person?” The participants looked at the faces in quick succession and pushed a button for yes or a button for no, depending on their knee jerk reaction to whether or not they would lend them money.
Two incredible things happened. The first is that most of the participants rated the pictures of the faces the same. Secondly, the people behind the faces’ scores were statistically similar to the actual credit scores of the people who were being rated. So, for example, if the study had a photo of a man with big ears, most of the people who saw the photo of the man with the big ears said they would not lend him money. Turns out, the man with the big ears also had bad credit in real life. The study also controlled for other variables – from beauty to race to obesity.
The second article discussed a study that suggested that people who don’t have a firm grasp of mathematics are more likely to default on their loans. In this study, they gave a pool of people a math test and over time, the people who did well on the test, paid back more of their debts whereas the people who did poorly on the test had higher default rates. Want to take the test?
While visually sizing people up for shiftiness or giving quizzes for math comprehensive before granting credit breaks all fair lending regulations, it is something interesting to think about. It makes me wonder what credit granting in the far future will hold. Perhaps some day they will find a DNA strand associated with creditworthiness and we will all give saliva samples instead of filling out loan applications.
* Articles: “Physiognomy and economics: About face”, The Economist, March 7th, 2009 (page 86)
“Subprime borrowing and innumeracy: The fear of all sums”, The Economist, May 15th, 2010 (page 84)
Shari Storm is Senior Vice President and Chief Marketing Officer of Verity Federal Credit Union and is the author of the book ‘Motherhood is the New MBA”, available here.
Filed under: Dodd-Frank Act | Tags: CFPB, consumer financial protection bureau, Durbin Amendment, Electronic Fund Transfer Act
By David Brown, Esq.
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). This article discusses two of the most notable aspects of the Dodd-Frank Act: The creation of the Consumer Financial Protection Bureau (CFPB) and The Durbin Amendment, a short but controversial amendment to the Electronic Fund Transfer Act (EFTA) which establishes new restrictions to govern debit card transaction interchange fees.
The Creation of the CFPB
The CFPB was created by Title X of the Dodd-Frank Act. Its mission is to protect consumers in the financial services sector of our economy by preventing unfair, deceptive and abusive practices by financial institutions.[1] The idea behind the CFPB is explained in an article titled “Making Credit Safer” by Elizabeth Warren and Oren Bar-Gill – the leading advocates for a new agency focused on consumer credit.[2] That article suggests that, “[c]onsumer credit products . . . pose safety risks for consumers. Credit cards, subprime mortgages, and payday loans can lead to financial distress, bankruptcy and foreclosure.” Warren and Bar-Gill argue that government should regulate credit products, just as it regulates ordinary products such as toasters, to make them safer for consumers.[3]
The CFPB is expected to become the primary enforcer of the Dodd-Frank Act. Additionally, the CFPB will regulate the offering and provision of any consumer financial product or service under the enumerated “Federal Consumer Financial Laws” of the United States.[4] These include:
- The Alternative Mortgage Transaction Parity Act of 1982
- The Consumer Leasing Act of 1976
- The Electronic Fund Transfer Act
- The Equal Credit Opportunity Act
- The Fair Credit Billing Act
- The Fair Credit Reporting Act
- The Home Owners Protection Act of 1998
- The Fair Debt Collection Practices Act
- Certain sections of the Federal Deposit Insurance Act
- Certain sections of the Gramm-Leach-Bliley Act
- The Home Mortgage Disclosure Act of 1974
- The S.A.F.E. Mortgage Licensing Act of 2008
- The Truth in Lending Act
- The Truth in Savings Act
- The Interstate Land Sales Full Disclosure Act
To get an idea of the CFPB’s intended size, its initial budget of $550 million is larger than that of the Consumer Protection Safety Commission, the Federal Trade Commission, and the Equal Employment Opportunity Commission.[5]
The CFPB has been granted broad investigatory powers to investigate all matters relating to “fair lending”.[6] Specifically, it can conduct joint investigations with HUD or with the Attorney General and issue subpoenas.[7] Additionally, before commencing litigation, the CFPB can serve document requests, requests for tangible items, interrogatories and notices of depositions.[8] All evidence obtained by the CFPB will be kept confidential.
The CFPB has also been granted broad powers to conduct hearings and proceedings to enforce any Federal law regarding consumer finance. Proceedings may be brought by the CFPB against any “covered person” or “service provider” as these terms are defined by the Dodd-Frank Act – basically anyone involved in consumer lending.[9] After a hearing, or if the defendant defaults, the CFPB may order the defendant to cease and desist from any illegal activities, and/or may order the defendant to take affirmative action to correct the conditions that lead to the proceeding.[10] The CFPB can also issue temporary restraining orders prior to the final resolution of a proceeding.[11]
Under the Dodd-Frank Act, there is no private right of action to assert any violations. In other words, all actions must be commenced by the CFPB.[12] If the CFPB chooses to act, it must initiate a civil action within three years from the date that the violation is discovered.[13] Civil money penalties can be assessed and come in three tiers: (1) up to $5,000/day for any violation; (2) up to $25,000/day for a reckless violation; and (3) up to $1,000,000/day for a knowing violation.[14] All criminal prosecutions must be coordinated with and brought by the Attorney General.[15]
In addition to its investigatory and prosecutorial powers, the CFPB will write rules as “necessary and appropriate” to implement and enforce the enumerated Federal Consumer Financial Laws. It will also prescribe disclosure rules and model forms; research, analyze and report trends in consumer finance; monitor consumer usage of specific financial products; and collect and track consumer complaints.[16] President Obama has not yet appointed anyone to oversee the CFPB, but is expected to do so within the next few months.
The Durbin Amendment
The Durbin Amendment is an amendment within the Dodd-Frank Act that establishes new restrictions for governing debit card transaction interchange fees. For those who don’t know, interchange fees are fees that an issuing bank deducts from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant.[17] Typically, these fees are set by the credit card networks such as Visa and MasterCard and represent about 2% of the total sale.[18]
Unlike credit cards, where the user borrows money from a creditor and pays it back at the end of the month, debit cards are directly tied to money in the cardholder’s bank account.[19] The Durbin Amendment empowers the CFPB to cap interchange fees charged by banks during a debit card transaction by requiring that any interchange transaction fee must be reasonable and proportional to the cost incurred by the issuer with respect to the transaction.[20] The Durbin Amendment only applies to lending institutions with assets worth more than $10 billion. In other words, the CFPB cannot cap interchange fees between lenders with less than $10 billion in assets, or 99% of U.S. Banks.[21] Government-administered payment programs and reloadable prepaid cards are also exempt from the Durbin Amendment.[22]
In theory, the Durbin Amendment is a way to reduce costs to the consumer by limiting the amount that banks can charge merchants for debit transactions. In reality, though, the Durbin Amendment may cause more harm than good. First, there is no evidence that indicates merchants are willing to pass along any savings realized to consumers. Second, the credit card networks are responding by creating rate schedules that may significantly hamper competition. Specifically, Visa recently indicated that it will introduce a dual interchange rate schedule for issuing banks and credit unions based on the Dodd-Frank Act.[23] In other words, Visa will implement one rate for large institutions governed by the Dodd-Frank and a different rate schedule for those institutions that are exempt from the Act, because they fall below the threshold of $10 billion in assets. Many think that this will lead merchants to only accept cards from the largest banks. After all, those cards will have lower interchange rates which will translate to larger profits for the merchant.[24] As a result, community banks and other smaller lending institutions will be injured as their cards will not be accepted by merchants looking to increase profit margins. Consumers will also be hurt as they will be unable to shop at stores that refuse to accept the card that they have in their wallet.
Although still unknown, the impact that the Dodd-Frank Act and the Durbin Amendment will have on the financial sector promises to be substantial. Certainly, increased regulation appears to be imminent.
David S. Brown is an Associate in Commercial Collections based in the Cleveland office. He can be reached at (216) 685-1062 or dbrown@weltman.com.
—–
[1] Bishop, Martin J., CFPA Q&A: How Big Will The Bureau Be?, The CFSL Bulletin, Aug. 24, 2010,
http://www.cfslbulletin
.com/2010/08/articles/bureau-of-consumer-financial-p-1/cfpa-qa-how-big-will-the-bureau-be/
The Consumer Financial Protection Board: Insights from Elizabeth Warren’s “Making Credit Safer”, September 16, 2010,
http://www.pymnts.com/the-consumer-financial-protection-board-insights-from-elizabeth-warren-s-making-credit-safer-2/
[2] The Consumer Financial Protection Board, supra.
[3] Id.
[4] CFPA Q&A, supra.
[5] Id.
[6] Elkind, Thomas, Enforcement of the new Consumer Financial Protection Act, The CFSL Bulletin, September 1, 2010,
http://www.cfslbulletin
.com/2010/09/articles/consumer-financial-protection-4/enforcement-of-the-new-consumer-financial-protection-act/
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Javelin Strategy & Research, Financial Regulatory Reform 2010: Why the Dodd-Frank Act is Only the Starting Point for Reshaping Consumer Protections and Interchange,
https://www.javelinstrategy.com/lp/Financial-Regulatory-Reform-2010
[17] Interchange fee, Wikipedia,
http://en.wikipedia.org/wiki/Interchange_fee
[18] Mitchell, Stacy, Soaring Credit Card Transaction Fees Squeeze Independent Businesses, The New Rules Project, May 5, 2009, www.newrules.org
[19] 2010 Financial Reform and Debit Interchange Rates,
http://interchangerate.com/?p=45
[20] The Consumer Financial Protection Act, supra.
[21] Admin, Wall Street Reform: The Consumer Financial Protection Bureau, Americans for Financial Reform, June 30, 2010, http://our financialsecurity.org/2010/06/
[22] The Consumer Financial Protection Act, supra.
[23] VISA to Offer Two-Tier Interchange Pricing, GBA e-Bulletin, http://www.gabankers.com/e-Bulletin/gba_bulletinJan142011.htm
[24] Id.
