Filed under: credit unions | Tags: compliance, directors, relief, testing, volunteers
As part of my CFPB presentation, I talk about how credit unions can better leverage volunteers as a cost cutting tool. I figured that I could put some more meat on the concept and perhaps get a decent post out of it, so here goes.
At one time in the movement, there were examples among credit unions of volunteers filling every role at the cooperative. We had volunteer CEOs and member service reps in addition to volunteer directors and committee members. What has happened to that spirit? Is it a sign of the times as to how people want to spend their time? Is it a failure of marketing to people by credit unions to get more people to volunteer?
If Clay Shirkey is at all right, people still have volunteer time available or as he calls it: “cognitive surplus.” If that is true, perhaps it is just a matter of wanting more volunteers and then marketing to members to become volunteers.
What can volunteers do? I propose that volunteers can be rounded up into task force assignments in order to handle various regulatory requirements cheaply rather than by hiring a vendor. At a baseline, they need to be at least 18 years old, bondable and a member of the credit union.
Three areas I want to focus on include vendor due diligence, risk analysis and compliance testing. All three of these functions have been required by NCUA and all three are resource intensive. Here’s how it would work:
Vendor due diligence. The board chair would appoint a task force of volunteers to pick 3 vendors for the particular service (say core processing) and then review their financial statements, reputation, experience and other attributes required by NCUA. The task force would then report it’s findings back to the Board of Directors after an appropriate time and make a recommendation (which the board is free to follow or not). This would take a great deal of pressure off staff and the directors themselves in meeting NCUA due diligence requirements at a cost of zero.
Risk analysis. Most compliance requirements at the credit union are risk based. This means that NCUA would prefer that you assigned risk values to every vulnerability and then build your policy around that. Put another way, you could spend a billion dollars on a BSA policy and it would still not be perfect. We don’t have billions to spend on policies so it helps to document the risks we have and put what resources we have around them. Therefore, the task force could meet, take various credit union compliance policies, document the particular risks that the credit union has on a 1 to 10 scale along with the credit union’s experience with the particular risk and then make a recommendation to the Board and to Management as to any changes that need to be made. This report could then be placed in the file with the particular policy (BSA, Disaster Recovery, Social Media, etc.) to be shown to the examiner later.
Compliance testing. Most material credit union policies need to be reviewed and tested annually. Volunteers can be trained to do ECOA testing (see how members are treated, review past applications and look for discrimanatory effects of policies), Disaster recovery (table-top testing or even creating a mock disaster), BSA (review of cash data versus CTR filings, review of SAR quality, review of OFAC compliance) and a host of other things. What is either a time consuming task for staff or an expensive task to hire a vendor to complete can be done quite effectively at no cost by volunteers.
The new compliance burden is real. 700 credit unions no longer exist since the passing of the Dodd Frank act. Volunteers are a credit union’s secret weapon. It is time for credit unions to reach out to volunteers again to meet these increasing compliance demands.
Filed under: credit unions | Tags: "credit union", collections, legacy trusts
Ohio did it. A year or so ago, one of our compliance lawyers gave me an article describing how Ohio’s legislature was looking to make Ohio like the Cayman Islands. Effective March 27 of this year, Ohioans can create their own legacy trusts including spendthrift trusts. Oh, you say? So what does that mean? Before I read that article, a year ago I had no idea either.
Prior to Ohio’s Legacy Trust Act, a person or persons could put assets into a revocable trust and have complete control over the assets as the grantor. The trouble is that such a trust is easily reached by creditors. Under Ohio law, it offers little by way of protection from being attached by creditors to satisfy a debt. Certainly, a person or persons could create an irrevocable trust and transfer assets into that and assuming no fraudulent transfers, the assets would not be attachable by creditors. However, the grantors creating the trust would also divest themselves of ownership of the assets and be subject to the whims of the trustee.
Ohio’s Legacy Trust Act changes all that. Now, a person can set up a trust for his or her own benefit and while it needs to have a qualified trustee, the grantor can receive income from the trust and even take some of the principal out of the trust, as much as 5% per year.
Let’s look at an example. Benny Bumbles buys a house for $200,000 and gets a 12 year first mortgage from Anthrax Research Federal Credit Union in 2011. In February of 2013, Benny inherits $500,000 from his Uncle (Milty). In April of 2013, Benny establishes the Bumbles Family Trust and funds it with the money he inherited, naming ABC bank as Trustee. Things go swimmingly for a few years until Benny is let go from his job as virus containment specialist at the local research center. All is not lost however as Benny still makes about $25,000 a year from the investments held by his trust. However, Benny, last year, also financed a Corvette from the credit union as well as a Harley Davidson motorcycle six months later. After a few months of realizing that $25,000 a year doesn’t go as far as it used to, Benny stops paying ARFCU on all three loans. When the collector calls Benny, he tells her: you can’t do a darn thing to me because Ohio has my back! To emphasize this to her, Benny rides his motorcycle to the credit union and does wheelies in the parking lot until he is arrested by the Anthrax County Sheriff.
Assuming ARFCU gets the Harley from the Sheriff and picks up the Corvette, sends the proper notices and sells them at auction, it presumably will have a deficiency balance. Let’s say this comes to $25,000. The credit union also forecloses on the house and because Benny decides to move in with his mother, he does nothing to stop it and the credit union ends up with a deficiency balance on the house of $60,000. Can the credit union do anything to attach the $500,000 in the Bumbles Family Trust to collect Benny’s debt?
You might think that because the mortgage pre-dates the trust, that the credit union could do something, but that’s not the way the new statute works. An existing creditor has 18 months to bring an action to avoid a transfer into the trust from the time the asset is transferred to the trust or 6 months after the creditor could have discovered the transfer to the trust (and Ohio has a recording requirement that constitutes constructive notice) or the creditor may extend this by 3 years by sending a demand letter alleging a fraudulent transfer in funding the trust (and I am paraphrasing). See ORC 5816.07 for the exact language.
Thus the answer is no. The credit union can liquidate Benny’s property and proceed against Benny personally, but the statute of limitations has expired with respect to the trust.
Will credit unions start seeing these types of trusts? Possibly. There is some question as to whether this is worthwhile for smaller amounts of money given that you still need a qualified trustee. But it is hard to say. In any event, Ohio is now in the asset protection business. If nothing else, this means more trust work for the banks. I wonder if a trust CUSO in Ohio catering to this sort of thing would be viable?
Filed under: Uncategorized | Tags: complaint solution leadership empowerment
by: Rob Rutkowski
Last year, our new Managing Partner-elect, Scott Weltman, appointed various lawyers throughout our firm to be Office Managing Attorneys (OMAs) to handle local issues that may arise in are particular campuses. Yours humbly became the OMA for our Brooklyn Heights, Ohio campus. One of the duties the OMA has is to address employee complaints. At our holiday party this year, I told the 450 or so employees in my group that they should feel free to email me with any issues with two caveats: they must offer a solution to the issue in question and that they cannot advocate violence as part of that solution.
I certainly didn’t invent that concept, and I’ve read enough self-improvement books to know that it borders on the trite at this point, but it still holds up. It is one thing to vent or complain about something that bothers a person, it is quite another to address that issue with logic and reasoning. I have to say I had a dozen or so excellent suggestions right off the bat.
If a person is to be empowered, that person must feel that he or she will be treated with respect and that his or her contributions will be valued and if not adopted, at least reviewed with meaningful consideration. A leader, then, it seems to me, needs to be able to consider ideas not in line with his or her own preferences.
Efficiency in business is often cruel. Even in the credit union movement, a product line that starts out strong can weaken over time and ultimately be eliminated– along with the jobs of the people supporting the program. It is up to the leadership to be as human as possible in dealing with these harsh circumstances. But it is also human nature to avoid problems and to try to prop up unsuccessful endeavors. Some may even double-down on failure. However, the economy does not care about opinion. It is what it is and cheese, such that it is, periodically gets moved.
The credit union movement today is very mixed in terms of those that are thriving and those that are suffering. In my own practice, I see this every day and I also read about it in CU Times and all of the other various trade blogs and news aggregators. If I can offer any advice from this and from my own attempts at leadership, I can say this: when a problem arises, please address it head-on. Do not bury it or, heaven help you, manufacture documents in the vain attempt to hide the issue. Deal with it immediately even if you feel (at the moment) that it may mean the end of the credit union.
Humans are lousy fortune tellers. In my opinion, the best you can do is look at the probabilities and rely on the facts before you and your experience in dealing with issues. Even the best get blind-sided. None of us has perfect information, but we can all have integrity if we choose to. Pursuing a course of action directly, with integrity and with all the resources available will ensure that even if the outcome is undesirable, that the outcome is the best available under the circumstances.
Filed under: Current Issues in Credit Unions
The gang took the month off so our intrepid producer Victor put together a “best of” show for your listening enjoyment. Download or play it here.
Suspicious Activity Reports are unique documents among all the paperwork that a credit union must process. No other document comes to mind that has the protections and ability to affect other laws than the SAR. Few other documents carry the heavy civil and criminal penalties that the SAR does if the document is not timely and properly filed. Moreover, no other document must be kept secret at the credit union with the degree of intensity that the SAR requires.
Sound intriguing? Perhaps it is from the law enforcement side. However, most folks on the credit union side of the world never imagined that they would cross into the realm of law enforcement and yet that’s really what BSA is. All editorials aside, a client recently asked me whether or not credit union directors needed to look at the actual SAR documents every month or would just giving a report as to how many SARs were filed in a given month suffice? The answer is that no one at the credit union should look at a SAR unless he or she has a legitimate business purpose to so view it. This includes directors. Unless a director is part of a BSA audit team or has some other legitimate “need-to-know” basis, he or she should not see the actual SAR documents or paperless versions thereof.
Section 748.1 of the NCUA Regulations states that the management of the credit union must notify the board of SARs filed by the credit union. The NCUA has further explained that this means notifying the board every 30 days as to when SARs are filed. FinCEN has also stated:
Additional risk-based measures to enhance the confidentiality of SARs could include, among other appropriate security measures, limiting access on a “need-to-know” basis, restricting areas for reviewing SARs, logging of access to SARs, using cover sheets for SARs or information that reveals the existence of a SAR, or providing electronic notices that highlight confidentiality concerns before a person may access or disseminate the information.
See FIN-2012-A002. See also FIN-2010-A014.
It is also important to remember that the person upon whom the SAR is being filed can never be told about it. This applies to directors, officers and employees as well. SARs are, in effect, legal plutonium and must be handled with extreme caution. If this sounds wrong or alien or counter-intuitive, understand where this is coming from. SARs are a law enforcement tool. The rules surrounding them sound more in the secret side of law enforcement than in the open and caring environment one normally finds in the credit union.
Filed under: Current Issues in Credit Unions
This month, Hal, Guy, Katherine & Rob bring you the following:
–CFPB Update. CIDs, etc.
–True or False: CU capital is just an extension of the share insurance fund.
–Mortgage statements and E-Sign.
–Financing cars bought online as a category killer.
–Low compliance products: what happens when credit unions drop products based on the cost of compliance? What are some desirable products that don’t have the same burdens as real estate lending.
–Federal law making it a criminal violation to photocopy a U.S. government ID.
–Big K Roundup.
Listen to the episode here or subscribe on iTunes Podcast App.
Filed under: Uncategorized
By: Sarah Stevenson.
Oftentimes when I am asked my educational background and I respond with; “Well, I have a Bachelor of Fine Arts…” I am stopped short with the following question; “How on earth did you end up in Compliance and what does Art have to do with Compliance?”
I have been pondering this question after mulling through 2000+ pages of proposed mortgage regulation and came up with the following conclusion.
Compliance involves a significant amount of research as we all know. Whether researching Regulation Z, Subpart F for specific rules on private education loans or Regulation CC for how long you can place a hold on a check a significant amount of a compliance professional’s time is spent on research. The same is true for an artist. As artists, art historians and curators, research is always involved. Before starting a new painting I may study and research another artist’s technique or use of mediums to get my desired outcome. In curating a show or writing a report on a particular movement or artist significant research is involved before one can even begin to explain a particular artist’s technique or why they painted this particular image or perhaps why an artist repeated a color in much of their work, such as Johannes Vermeer and his use of lapis lazuli or natural ultramarine in his paintings when really no other artists of his time were.
While ever frustrating at times art and regulatory compliance are open to interpretation. One may spend hours observing and studying a particular piece wondering what the artist meant and interpreting the piece as a struggle the artist may have had or sense a feeling of anger based on the use of red, when another may feel the use of red was a feeling of passion the artist wished to portray.
The CFPB continues to push out proposals with the purpose of making disclosures easier for consumers to understand while we on the other hand sit at our desks sifting through the outpouring of words and documents trying to make sense of it all and really not interpreting these changes as consumer friendly. We all can read a regulation but we can all interpret it differently.
Artists and compliance professionals must be able to take criticism and accept it for what it is and if unable to accept it, be able to defend our position. Artists face critiques from their peers on opening night of their new gallery show. Critics who attend the show may despise their work expressing their distaste in their formal review or they may grill the artist as to what the “meaning” behind their exhibit or a particular piece is even after reading the artist’s statement about the exhibit. Art students displaying their Senior Exhibitions are faced with potentially harsh critiques from professors and their fellow classmates after spending four years working towards their Senior Exhibition. An artist will stand behind their work, however difficult it may be, taking the criticism and facing it head on defending their position and possibly even using some of the criticism in preparation for their next exhibition.
Compliance professionals face similar criticism. After spending countless hours researching, reading and interpreting a regulation we must then present it to various business units in order to implement appropriate changes based on the requirements of the regulation. Compliance professionals are often not the most “popular” person in the credit union and we must accept that. We meet with the department heads presenting the regulatory changes; changes to documents, time limits, disclosure requirements, tracking requirements and the list goes on. We are often met with resistance and are often criticized because we are the messengers but we must defend our positions in knowing that we are presenting what is required of us as a credit union.
Artists and compliance professionals are often told we are too literal or too abstract in our thinking and that is okay. I have discovered whether you are an artist, a compliance professional or both, like me, we can all be considered a “compliance artist”.
Sarah Stevenson is the Compliance Manager for a Michigan based credit union. She can be reached at email@example.com
Filed under: Frivolous Friday
When I teach the legal aspects of social media, I usually ask the audience what the hardest part of doing a credit union blog is. The answer? Generating the content. You would not think that slapping up 400 words worth of blah blah would be that hard a couple of days a week. But there’s a catch. It’s not 400 words of blah blah, it’s 400 words that are either informative, entertaining or both. Otherwise no one comes back.
Since this is a Frivolous Friday post, I can feel free to reach a little bit and that’s what I am going to do. I am taking my wife to see Dennis DeYoung tonight. Those of you who know music are probably laughing. To music aficionados, Styx is no longer thought of as a cool band and many of you might be thinking: “were they ever?” Yes, there was a time in small town America during the late ’70s and early ’80s when Styx was highly regarded. In fact, that time period was their heyday before people began rejecting all those synthesizers and dramatic vocals. Nonetheless, Styx remains in popular culture occasionally popping up in commercials or cartoons. Styx was over the top even by ’70s band standards, with not just one but two talented lead singers. Today those singers are touring separately the one I’m seeing tonight is definitely the more theatrical of the two.
Which brings us to the tie-in. Are credit unions cool still? Were they ever? If not, when was their heyday? I would say that credit unions might have come into a little bit of coolness with the whole bank transfer day thing last year. That is, until people see that your typical credit union is often made up of hard working people who wear a lot of hats, focus on member service, and try their best to keep costs down. In my opinion, credit unions aren’t cool in that James Dean style benchmark, credit unions are awesome in the bring-value-to-the-world sort of way. Are they in their heyday? That’s a tougher question. Many might say that in America, credit unions had their heyday in the 1930s when Ed Filene, Dora Maxwell and Louise Herring were expanding the Credit Union Movement into a national force.
Today, there are few new credit unions being minted and much has been made about how credit union assets as a group are increasing but the number of credit unions are declining. I blame increased regulatory compliance but there are also market factors and competition making this happen as well. So to tie all this together, are credit unions like the band Styx with their heyday over and the two lead singers touring separately and capturing ticket sales from aging Gen Xers? Not at all. It is entirely frivolous to compare the awesomeness of the Credit Union Movement to a band from the 70s. But I have written more than 400 words on Friday so my job here is done. Have a great weekend.
As promised, last week, here is the upload of CIiCU #75 we did at the NAFCU Compliance Conference. Thanks to Steve Van Beek for participating on the panel and to NAFCU for making the live show possible.
Hal, Katherine & I discuss the following: BSA miscellany, Credit union asset growth and shrinking number of CUs, green CUs, MBL update, CU social media issues, new disclosure requirements in 2013 and Obamacare for credit unions.