Filed under: compliance
By Matthew D. Urban, Attorney
Ever since the enactment of the Dodd-Frank Act and the creation of the Consumer Financial Protection Bureau (CFPB), compliance related issues have increasingly impacted credit unions’ day-to-day operations. Tasks that used to be handled internally by one or a small group of employees and management, now requires the hiring of additional staff, including but not limited to third party vendors. Not surprisingly, this additional devotion of time has also meant an additional allocation of resources. However, while this increase can easily be measured in terms of money allocated, what often gets overlooked is that these “costs” ultimately trickle down to the member whether it be through an increase in fees or a loss of services or products.
Recently, the CFPB indicated an interest in determining how much it costs financial institutions to comply with the regulations that are issued. Specifically in a March 20, 2013 blog post on its website (www.consumerfinance.gov), the CFPB indicated that their Research, Markets and Regulations team was going to study the costs of the rules that are issued as they “hope to become better and smarter regulators.” While this promise may seem laughable to those closely following the progress of the CFPB, perhaps their acknowledgement of the issue may offer a sliver of hope to credit unions that are already well aware of the costs the CFPB is pledging to look into. However, instead of waiting for a CFPB report to be issued, I solicited opinions and information from several CEO’s of credit unions of varying sizes in Pennsylvania in order to better understand the exact nature of the impacts of recent regulations.
Not surprisingly, all of the credit unions surveyed specifically mentioned the increase in employee costs as the main impact of the increased emphasis on compliance issues. While the larger credit unions typically have hired additional employees for newly created compliance positions, the smaller credit unions have not been able to absorb those costs, but rather, have relied on the cross-training of existing employees or otherwise re-assigning employees from one job within the credit union to a compliance position. No matter how they have gone about increasing their compliance staff, those CEO’s surveyed all indicated that in order to compensate for the rapid growth in their personnel costs, they have been looking for ways to generate new sources of revenue through an increase in existing member fees or the creation of new fees such as application fees where they may have not existed in past. While many of these fees may not be overwhelming to the membership at large, the inclusion of the new fees are serving to further create a competitive disadvantage between credit unions and other financial institutions such as banks that may be better situated to absorb those additional costs. However, it should be noted that not only does this disadvantage exist between credit unions and banks; it has also created similar disadvantages between small and large credit unions.
Perhaps the more subtle impact of growing compliance costs is the impact on services and products offered. Although each CEO questioned indicated they had no intention of eliminating any existing products, all acknowledged that member services such as courtesy pay have already or may have to be eliminated. Additionally, the CFPB’s new one-size-fits-all regulations governing mortgages have led CEO’s, particularly those at smaller credit unions, to re-consider whether or not they will be able to offer affordable and competitive mortgage products to their membership due to issues such as SAFE Act certification for staff and new requirements for the establishment and maintenance of escrow accounts. However, most troubling was the suggestion by the CEO’s queried that while they are hopeful that they will not have to eliminate any products, any credit union that is not already offering a product to it’s members may not be able to financially justify the risk and exposure required to add anything new, such as mortgage and home equity loans, that in the past helped to increase income but also attract new members which in turn have helped sustain and even grow many small and mid size credit unions.
As member owned financial institutions, credit unions have always held a unique position within our financial system. Being member owned, the focus has naturally always been on serving the diverse financial needs of their members and by tailoring their products and services to a specific membership base which represents all levels of the economic ladder. While direct and measureable impacts of new regulations include an increase in employee costs, elimination or reduction in services, increase in fees, elimination of products or an unwillingness to offer new products, there are many indirect impacts that credit unions and the economy at large will experience that will never show up in a CFPB study on the issue. Ultimately, the pathway to a modern economy and economic freedom is the availability of credit. Unfortunately, as credit unions endure the current compliance environment and the associated costs, those members at the lower end of the credit market will be made to suffer as their local credit union, which they have always relied upon for credit, may not have the resources necessary to be there to offer that credit in the future.
Matthew Urban is the managing attorney of the Credit Union Group in the Pittsburg office of Weltman, Weinberg & Reis Co., LPA (WWR) who can be reached at 412.338.7134 and murban@weltman.com.
By Matthew M. Young, Esq.
Last year, I wrote an article on the Americans with Disability Act (ADA) Automated Teller Machines (ATM) Compliance deadline. At that time, there was confusion surrounding the accessibility requirements for ATMs. Was the deadline for compliance March 2011 or March 2012? Of course, that question is now moot as both deadlines have since passed. Despite the passing of this compliance deadline, confusion remains surrounding the new compliance standards – many credit unions are still not compliant with the new ADA requirements. If your credit union is among those out of compliance, there are several factors you should consider in moving toward compliance.
Much of the existing confusion relates to certain ATMs being exempted from the new requirement. Indeed, certain mobile ATMs may be excluded from these new ADA standards. If the ATM is not a fixture, meaning attached to the credit union’s building, the new standards may not apply to that ATM. I contacted the Department of Justice (DOJ), who enforces the ADA, to get clarification regarding the extent of an exemption from the new requirements. The DOJ advised that any ATM that is fixed to the floor is subject to the new ADA requirements. According to the DOJ, “If you were to turn your building over and the ATM would fall to the floor” it is not covered by the ADA’s requirements. So, if you have a mobile ATM that is bolted down, it is covered by the new requirements. Similarly, exterior ATMs that are within their own outbuildings would be subject to the new requirements.
As it relates to enforcement, the new regulations will be enforced by private right of action or in instances where a complaint is filed with the DOJ. In the near term, expect most enforcement to occur by private right of action. In fact, in Ohio, one visually impaired person has filed a lawsuit against a number of large financial institutions based upon purported violations of the ADA’s new requirements. In the instance where the DOJ receives a complaint, it will look to the reasonableness of a plan provided by a credit union that is not 100% compliant. “Reasonableness” is key. Asset size and the number of ATMs that need to be retrofitted/replaced will be considered. A court will likely consider similar factors when addressing lawsuits filed by consumers.
If you are not compliant but are putting a compliance plan together, you should prioritize which ATMs should be addressed first, considering the number of ATMs in a particular geographic area and the amount of traffic each ATM receives. Having zero compliance will likely not be reasonable. One exception relates to provider delay. For example, if your ATM provider is on a scheduling delay, that would be accounted for in the DOJ’s assessment. Ideally, your credit union is already compliant, however at a minimum, you must have a plan in place to get there. That way, if you are subject to claim by a consumer or the DOJ, you have a basis to defend the credit union.
Matt is an attorney in the Credit Union Group of Weltman, Weinberg & Reis Co., LPA located in the Brooklyn Heights office. He can be reached at 216.739.5726 and myoung@weltman.com.
Filed under: compliance, Regulation Z, Truth in Lending Act | Tags: challenge, compliance, Regulation Z, truth in lending
Things are slow at Anthrax Research Federal Credit Union, so the CEO, Hugo Bostonian, decides to start an indirect lending program. He enters into an agreement with Ray Slick, owner of Crazy Ray’s Used Cars in Anthrax County. Ray agrees that he will write the loans on credit union paper and do all the member identification checks at his dealership (which is on the lot of an old 24 hour photo building). Ray takes pride in being a master of add-ons. That is, he makes money on getting car purchasers to pay more for extra items on cars and other products.
One afternoon, Stanley Sewer, happens into Ray’s dealership and sees a used Buick that really appeals to him. “It’s a classic!” Ray says to Stanley as he sees him admiring the car. “This ’78 Buick was owned by a little old lady here in town who almost never drove it!” Sewer is so taken with the car that Ray soon has him signing loan documents. Ray asks Stanley if he would like to add a special plastic spray-on coating to protect the car against rust. “It’s a must have,” Ray says, “for these terrible Anthrax County winters!” Sewer signs up for the coating and then Ray says: “And here’s some paperwork for some optional Credit Life Insurance, you want to protect your family, don’t you? In case something happens to you?” Sewer, who happens to be single, signs the paperwork for the insurance too. As Sewer putters away in the Buick, Ray sends the loan paperwork to the credit union.
Six months later, Sewer defaults on his payments and the credit union places the account for collection and ultimately sues Stanley. As luck would have it, Sewer knows a lawyer and she files a counterclaim against the credit union and also makes Crazy Ray’s a party to the action. Sewer alleges that the credit union violated Truth-in-Lending because neither the plastic coating nor the credit life insurance is included in the APR on the note.
Does Sewer have a case? Are there any other issues? How would a strong indirect lending agreement help here?
Filed under: compliance, credit unions, Uncategorized | Tags: Americans with Disabilities Act, ATMs
By Matthew M. Young, Esq.
March, 2011 or March, 2012? There has been significant confusion and varied opinions concerning the deadline for compliance with the Americans with Disabilities Act (ADA) new accessibility requirements for Automated Teller Machines (ATMs). Some industry experts suggest this deadline is not until March, 2012 while others indicate this deadline already passed and compliance was required as of March, 2011. The actual answer to this question is both dates are correct.
Two sections of federal regulation govern changes to ATMs in the next year. The structural elements requirement entitled “removal of barriers” governs, among other things, changes to height and reach requirements for ATMs. Under this section, elements of your existing ATMs that are not compliant with 1991 standards must be modified by March 15, 2012. Within this section, there is a safe harbor providing that elements that comply with the requirements as set forth in the 1991 standards do not need to be modified. However, this safe harbor only applies to the structural elements.
Speech enable requirements entitled, auxiliary aids and services, must have been compliant as of March 15, 2011. These auxiliary aids and services include all “speech enabled” functions including those that you referenced (voice guidance, blank screens for privacy and brail indicator for audio jack). Since no safe harbor exists under this section of the Code, the deadline was March 15, 2011.
To clarify this issue, the Department of Justice- the enforcer of the ADA- has weighed in noting:
The Department consistently has taken the position that the communication-related elements of ATMs are auxiliary aids and services, rather than structural elements. See 28 CFR part 36, app. B at 728 (2009). Thus, the safe harbor provision does not apply to these elements. The Department believes that the limitations on the effective communication requirements, which provide that a covered entity does not have to take measures that would result in a fundamental alteration of its program or would cause undue burdens, provide adequate protection to covered entities that operate ATMs.
Moreover, I contacted the Department of Justice seeking further clarification on this issue and they confirmed the Department’s position that the deadline for auxiliary aids and services is March 15, 2011.
If you have not met this March, 2011 deadline, do not panic. While the deadline for compliance with the “auxiliary aids and services” component has passed, the Department of Justice noted that many smaller financial institutions, and in particular Credit Unions, may have significant financial hardship with bringing all of its ATMs into compliance by that time. Accordingly, it is recommended by the Department to develop a compliance plan to meet these new requirements. If you have not already developed such a compliance plan you should do so immediately. Elements to consider include the following:
- Determine the number of existing ATMs at the Credit Union
- Determine if each of these ATMs meet 1991 ADA Standards and/or 2010 ADA Standards
- Get quotes from ATM providers to determine the cost to comply with these new requirements, as necessary
- Set a plan, budget and schedule to implement changes to your ATMs
The Credit Union’s budget and strategic plan should be reasonable in relation to the Credit Union’s size, the number of ATMs it has and the respective financial burden that the Credit Union bears for complying with the ADA’s new requirements. By developing and adhering to such a plan, which the Credit Union should revisit annually, the Credit Union lessens its exposure to liability with respect to complying with the ADA’s new requirements.
Matthew M. Young is an associate in the Credit Union Group located in the Brooklyn Heights office of Weltman, Weinberg & Reis co., LPA. He can be reached at 216.739.5726 or myoung@weltman.com.
Filed under: compliance, credit unions | Tags: arbitration agreements, Consumer Rights, model disclosures, Remittance Transfer Rules, small business loans, TILA, Truth in Lending Act
Compliance—it can quite possibly make or break credit unions. In recent months, Congress and Statehouses have teamed up to roll out a myriad of new legislation creating new and burdensome requirements applicable to many financial institutions including credit unions. In particular, the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) is certain to produce a large volume of new regulations and reporting burdens[1]. The by-product of such massive legislation will undoubtedly increase regulatory costs and competitive pressures. Without effective and efficient compliance programs in place, credit unions will either fare poorly in the periodic safety and soundness examinations and/or become financially overburdened by the inability to control costs associated with inefficient compliance programs.
This new era of regulation will require many credit unions to revolutionize their compliance programs. Unlike larger banks, credit unions do not have a large amount of resources to dedicate to large and involved compliance programs[2]. Accordingly, credit unions must consider new and cost effective approaches for navigating through such legislation as the Dodd-Frank Act. Failure to establish an efficient and cost-effective compliance program will likely result in the diversion of too many resources to compliance related issues rather than meeting members’ needs.
The goal of this Article is to demonstrate the need to evaluate your compliance program and determine whether it is capable of handling the new financial services regulations. If you are not convinced and/or believe that your current compliance program will suffice, please consider the significant regulatory and legal consequences that will stem from the Dodd-Frank Act. A brief explanation of the reach and the volume of regulations that will result from the Act will illustrate the importance of an efficient and competent compliance program.
The Dodd-Frank Act is over 2,300 pages in length and was originally designed to address the issues related to the financial meltdown[3]. The Act, as passed, reaches far beyond its original purpose. What is known is that there are more than 60 studies to be performed, more than 50 committees to be formed, and more than 5,000 pages of regulations still to be written[4]. Accordingly, much uncertainty still remains as the Act leaves an extraordinary number of matters to be addressed through rulemaking and other regulatory action.
Highlights of the key provisions of the Act are as follows: (1) A new risk-based approach to financial services regulation; (2) new regulation of systemically risky institutions; (3) increased bank supervision; (4) limits on bank investment and related activities; (5) heightened regulation of mortgages; and (6) heightened focus on consumer protection.
The heightened focus on consumer protection is one area of the Act sure to burden credit unions’ compliance departments. One of the sections of the Act that focuses on consumer protection is Title X. Title X creates the Bureau of Consumer Financial Protection (Bureau), which is housed within the Federal Reserve System[5]. The Bureau’s primary supervisory and enforcement powers extend to depository institutions with over $10 billion in assets and certain non-depository institutions[6]. With regard to depository institutions with assets of $10 billion or less, prudential regulators are vested with exclusive authority to enforce the provisions of federal consumer financial law[7]. The Bureau, however, maintains a secondary role in supervising depository institutions with assets of $10 billion or less[8]. For example, the Bureau may require reports from smaller insured depository institutions. In the event of a material violation, the Bureau has the authority to notify the prudential regulator and recommend appropriate action[9].
The Bureau is tasked with enforcing new and existing federal consumer financial protection laws and rules to ensure that the markets for consumer financial products and services are fair, transparent and competitive. Therefore, the Bureau is granted exclusive authority to issue regulations, orders, and guidance implementing federal consumer financial law[10]. Below is a list and a brief explanation of the legislative changes implemented under Title X that the Bureau is responsible for enforcing. Each of these legislative changes is applicable to depository institutions with assets of $10 billion or less and may be enforced by prudential regulators and monitored by the Bureau:
1. Tracking Provisions for Small Business Loans: Title X amends the Equal Credit Opportunity Act, requiring financial institutions to inquire whether a business applying for credit is a small business, a women or minority owned business, and to maintain a record of responses to those inquires. The Bureau is required to issue guidance to facilitate compliance with this requirement[11].
2. Limitations on Arbitration Agreements: The new rule allows the Bureau to impose conditions or limitations on the use of arbitration agreements if the Bureau finds that such conditions or limitations are in the interest of the public and for the protection of consumers[12].
3. Model Disclosures: The Bureau has the authority to issue rules regarding information that must be conveyed in disclosures for consumer financial products or services. The Bureau may promulgate model disclosures for financial institutions, which will provide a safe harbor for those using such a model disclosure. The Act does not require prudential regulators to accept any promulgated model disclosures. Accordingly, whether or not depository institutions with assets under $10 billion can rely on the safe harbor is to be determined[13].
4. Consumer Rights to Accessing Information: Title X requires that consumers are provided with information concerning any financial product or service that the consumer has obtained from the financial institution. Such information must be made available electronically and must include information such as costs, charges, and usage data[14].
5. Remittance Transfer Rules: Title X amends the Electronic Funds Transfer Act. The new rule applies to transfers of currency where the designated recipient is in a foreign country. It requires disclosures about the amount of currency being transferred, all fees charged for the transfer, and the exchange rate used to the nearest 1/100th of a point. The rule also requires that the transferor receive a receipt at the time of transfer listing basic information about the transfer (i.e. intended recipient, promised date of delivery, and contact information). The new rule also establishes a dispute resolution if the transferor contacts the financial institution within 180 days of the transferor and claims an error[15].
6. Truth in Lending Act: The Act amends the Truth in Lending Act (TILA). TILA now applies to credit transactions and consumer leases below $50,000.00[16].
As briefly demonstrated above, the Dodd-Frank Act, specifically Title X, must be confronted with innovative/cost-effective compliance strategies. Without a plan to handle this new era of financial reform, the administrative costs to credit unions will likely diminish their ability to provide valuable customer service by diverting too many resources to compliance related issues rather than meeting members’ needs.
W. Cory Phillips is an Associate in Consumer Collections; Healthcare Collections and Governmental Collections Groups. He can be reached at (216) 685-1157 or wphillips@weltman.com.
_________________
1
http://www.ilbanker.com/Adobe/GR/Dodd_Frank_Bill.pdf
.
2 Id.
3
http://www.bkd.com/docs/industry/webinar/FS/Dodd-Frank.pdf
4 Id.
5 SS038 ALI-ABA 397.
6 Id.
7 SS038 ALI-ABA 397.
8 Id.
9 Id.
10 Id.
11 The New Consumer Financial Protection Bureau Will Impact Community and Regional Banks, Susan B. Zaunbrecher, National Law Review.
12 Id.
13 Id.
14 Id.
15 Id.
16 Id.
Filed under: compliance, credit unions | Tags: CFPB, consumer financial protection bureau, cost cutting, innovation, rob rutkowski
By: Rob Rutkowski, Esquire
I recently gave a presentation on “Preventing Credit Union Failure Given the Passage of Regulatory Reform” for NAFCU and will be presenting material to other credit unions on the new Consumer Financial Protection Bureau (CFPB) in the coming months. At the end of the day, I think that this new Act boils down to two things that credit unions must work harder on: cost-cutting and innovation. My thoughts:
Cost Cutting
Traditionally, a credit union doesn’t run as lean as possible, that is, just short of the point of employee discomfort. With member service being such an important focus, sometimes this means having more than enough tellers and loan officers to handle member needs. Unfortunately, as compliance costs increase, credit unions will be forced by the market to run as lean as possible, merge with other credit unions or cease to exist. Therefore, it makes sense to have a contingency plan concerning layoffs. A credit union can do a reduction in force and create a plan whereby it reduces its labor force to the minimum possible number of employees to operate as a business. Moreover, there are ways that the credit union can pick up some of the lost labor resources via outsourcing and through volunteers.
This will take planning. Credit unions are already great at forming CUSO’s to provide anything from accounting services, to back office services, to BSA compliance, to data processing. Some credit unions even outsource aspects of lending with 24-hour loan application and review services. There is room for more. If a credit union’s very existence is threatened, it can start eliminating all types of overhead including brick and mortar. If a credit union can move from a brick and mortar model to an Internet or virtual model, the cost savings can be significant– perhaps enough to save a credit union’s existence. An Internet-based credit union can take in checks via remote capture and distribute funds via ATMs and checks. It can also have a bill pay system via ACH to move money around as well. There are already examples of this in the marketplace. REALTORS Federal Credit Union is a virtual credit union and there are also quite a few virtual banks. The point is that if the credit union cannot do business because of the increased costs of compliance then everything needs to be on the table.
Can this affect morale? Certainly. However, if the question is finding funds to handle compliance burdens, then tough choices may need to be made. If a credit union needs to free up funds but is not in a make-it-or-break-it situation, some of these concepts can be integrated without turning into an Internet credit union.
Another more traditional resource is utilizing volunteers. When I was a director at a credit union, we had a supervisory committee that functioned as the credit union’s auditing entity. In other words, volunteers spent their time auditing the financial records of the credit union. This is entirely permissible under NCUA Regulations (assuming qualified people are involved). Historically, credit union volunteers have taken on very tough jobs for no remuneration. This sort of resource drive can be undertaken by a credit union especially if it is do or die. It may take some persuasion, but there are vast resources in terms of cognitive surplus in any given credit union’s membership. Certainly, with the media’s focus on the graying of America and the large number of retirees from the baby boomer demographic, this cognitive surplus is both more talented and more productive than ever before. In terms of motivating people to volunteer, there need not be financial rewards involved. The Tom Sawyer effect from Mark Twain’s novel has been discussed in many popular business books. The idea is that someone can be motivated by recognition and by glamorizing the task in question. This doesn’t have to be a false whitewashing; simply disclosing how important the particular task is to the perpetuation of the credit union is sometimes all it takes to encourage volunteers. For example, let’s take BSA testing. A credit union must test its BSA policies and procedures by law. Volunteers can be mobilized to conduct this testing at the credit union and in every aspect of the BSA process at little cost. Volunteers can play a role in every part of the credit union’s functions. There have been credit unions that have used volunteers for tellers and loan officers and even CEOs. I’ll grant you that these were small credit unions at the time but it just depends on whether the person has the interest and motivation and is qualified and bondable.
Other resources available to credit unions include collaborative Internet-based efforts. These include compliance collectives like the cob web list serve and cob web forum, FTP sites that are associated with the Credit Union National Association. Moreover, NAFCU’s Compliance Blog is the industry leader among compliance-oriented credit union blogs and provides free compliance information and a place to discuss compliance issues in the comments. More can be done. Internet forums can be setup to provide compliance information among credit unions free of charge. Credit union compliance officers know what applies and what doesn’t and that expertise can be shared on a nationwide basis. Another thing that can be done in terms of drilling down on each particular compliance obligation is assessing the risked-based aspect of the statute. Many of the large compliance burdens such as BSA and FACTA have risked-based components to them. Identifying the minimal level of compliance is important in allocating resources to meet the compliance burden.
Finally, ultimately, the regulator is not the enemy. Open communication with the regulator in the compliance field is helpful. If we don’t communicate with the regulator, the regulator will not understand what challenges the credit union faces. Don’t get me wrong, this will be tough. Regulators are notoriously slow in understanding how credit unions make money. The costs of the compliance burden versus the actual value of the consumer protections provided are seldom compared by regulators. It is up to the credit unions to speak out loudly or at least identify issues that appear and take them to the regulators directly and via the trade associations.
Innovation
The credit union movement has a long history of using a model that works. Formed during the Great Depression, arguably the credit union model hits its stride in environments such as the one we are living in today. However, during the Depression, credit unions could help members without dealing with the onerous regulations that they now face. There were actually some different regulations then that we don’t have now, but certainly nothing like the Bank Secrecy Act or RESPA or Regulation Z existed in the 1930’s. One thing that credit unions need to keep in mind is that problem solving leads to innovation. If we have large looming issues in the compliance arena that seem insurmountable, then brainstorming over the specific problems can lead to innovative solutions. Credit union think tanks already exist, I3 comes to mind. However, these think tanks and other great minds in the credit union movement cannot be utilized if the people experiencing the issues don’t talk about them. In other words, when credit unions encounter significant compliance problems or changes, they need to survey the industry. They need to talk to each other and talk to consultants, talk to experts and even regulators so that all these minds are thinking about the specific problems at hand.
You know we have in the red flag regulation, this Appendix J from the government that describes all of these red flag examples from the complicated to the mundane. What we need, though, is an Appendix J of opportunity. We need a list of all of the credit union opportunities to review on a case-by-case basis. We need a checklist of escape paths and innovative revenue creating ideas that fit in the credit union model. A lot of these ideas exist but they are not widely disseminated. We need a list of all the products from indirect lending to shared branching to the types of CUSOs available, to student loans, to trade association preferred partners and on the flip side, credit unions need to be open-minded about trying new methods of generating revenue. The only way to beat a dramatically increasing compliance burden is to run faster than the regulators. Credit unions need to cut costs brutally while at the same time exploring any and all opportunities for growth and revenue that fit in the particular credit union’s business model. With the advent of the CFPB, the wolf is at the door. Either pursue cost cutting, compliance management, innovation and growth or explore merger partners, conservatorship or liquidation.
July 15, 2008
By John L. Day, Jr., Esq.
On Monday, July 14, 2008, the Federal Reserve Board approved a final rule for home mortgage loans to “better protect consumers and facilitate responsible lending”. The rule is designed to prohibit unfair, abusive or deceptive home mortgage lending practices and restrict certain other mortgage practices.
The final rule, which amends Regulation Z (Truth in Lending) and was adopted under the Home Ownership and Equity Protection Act (HOEPA), largely follows a proposal released by the Board in December 2007.
The rules adopt the following protections for ALL loans secured by a consumer’s principal dwelling:
- Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value
- Servicers are prohibited from pyramiding late fees
- Servicers are required to credit consumer’s loan payments as of the date of receipt
- Servicers are required to provide a payoff statement within a reasonable time of request, generally five days from receipt
- Creditors must provide a good faith estimate of the loan costs within three days after a consumer applies for any mortgage loan, even where the debtor is refinancing
- Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumers’ credit histories
The final rule established new requirements for “higher-priced mortgage loans”, intended to capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the “average prime offer rate”, based on a survey currently published by Freddie Mac. A loan is “higher-priced” if it is a first mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems with the original proposal, which was 3% over prime for first mortgages and 5% over prime for subordinate-liens, but the expected market coverage is similar.
For “higher-priced mortgage loans” there are new consumer protections:
- Prohibits a lender from making a loan without regard to a consumer’s ability to repay the loan from income and assets other than the home’s value.
- A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan
- To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a “pattern or practice”
- A creditor must consider a “piggyback” second-lien transaction of which it has knowledge that is used to finance part of the down payment on the house
- Prohibits a creditor from extending credit to a consumer based on the value of the consumer’s collateral without regard to the consumer’s repayment ability
- Requires creditors to verify the income and assets they rely upon to determine repayment ability
- Bans any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years
- Requires creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans
The new rules take effect on October 1, 2009, except for the new escrow requirement, which will be phased in during 2010.
If you have any questions on this information, please contact Mr. John L. Day, Jr., Esq.
Mr. Day is a partner in the Bankruptcy Department of the Real Estate Default Group at Weltman, Weinberg & Reis Co., L.P.A. in Cincinnati, Ohio. Mr. Day can be reached at (513) 723-2206 or via e-mail at jday@weltman.com.
Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation. The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship. Contact any of our offices or visit our website at realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles.(c)2008
Filed under: bank secrecy act, compliance, contracts, credit unions, currency transaction reports, discrimination, Equal Credit Opportunity Act, Fraud Prevention, lending, marketing, mortgages, negotiation, Regulation B, seminars, suspicious activity reports, trust accounts, Truth in Lending Act, Truth in Savings Act, Uncategorized, vendors
Summer and fall are shaping up to be a very busy seminar season for Rob! Below is a list of venues where he will be presenting through the end of the year as well as information on how to sign up to attend these seminars.
July 16, 2008: Rob will be teaming up with CU Conferences for their Annual Credit Union Strategic Lending Conference in Williamsburg, VA. He will be presenting a seminar on “Regulations in Lending” which will give a general overview of Regulation Z and offer advice on how to keep in compliance and what traps to avoid. The types and timing of disclosures in open-end and closed-end lending will be discussed. Rob will also focus on common mistakes made in lending documents concerning Regulation Z as well as covering new developments such as the bankruptcy legislation that amended Truth in Lending. If you are interested in attending this seminar, please click here.
August 7, 2008: Rob will be presenting an audio conference for the Illinois Credit Union League on “Regulation Z,” covering the same topics as listed above. To sign up for this seminar, please click here.
September 9, 2008: Rob will be teaming up with the MD/DC Credit Union Association to present a seminar on “Fortifying Your Frontline: Account Options, Compliance Issues & Fraud Prevention” in Columbia, MD. For a member to have faith in their credit union, expertise needs to start at the front line. A member who doesn’t have confidence in a credit union’s member service staff may not trust other departments to handle their additional financial needs. Taking care of members at the front line takes care of the bottom line. This seminar will review issues concerning account options, compliance and fraud prevention and is meant to help front line employees make a good first impression on new members and keep existing members faithful full service users. If you are interested in attending this seminar, please click here.
September 16, 2008: Rob will be presenting a seminar on “Marketing Compliance and Negotiating and Reviewing Vendor Contracts” for the Wisconsin Credit Union League Marketing Conference in Milwaukee, WI. This seminar will help marketing professionals and other credit union employees avoid the traps and pitfalls associated with marketing credit union products so that they can confidently get their message across to credit union members. Rob will review advertising rules for share accounts and related products, what trigger terms are under TISA and what constitutes full disclosure, what constitutes and advertisement under TILA and differences between disclosures. This seminar will also cover negotiating and reviewing vendor contracts. The audience will learn about preparing for contract negotiation, debating the terms of a contract and making proposals and counter proposals. Click here for more information as the seminar gets closer:
September 17 & 18 2008: Rob will be presenting a seminar on “Trust Accounts” as part of the 2008 CUNA/OCUL Mini-Seminar Series. This seminar is designed to cover trusts from the credit union’s perspective. Attendees will learn about the various types of trusts, how trusts are set up with the credit union and related operational issues. Click here for more information on the September 17 seminar in Dublin and here for more information on the September 18 seminar in Toledo:
September 24, 2008: Rob will be attending the 2008 CUNA Attorney’s Conference in Charleston, SC to speak on “Credit Unions and New Media Issues.” More informaton is soon to come. To find out more about the CUNA Attorney’s Conference, please click here.
October 17, 2008: Rob will be presenting a seminar on “Advertising Compliance” and “Dealing With the Death of a Member” for NAFCU’s Regulatory Compliance Seminar in San Francisco, CA. The Advertising Compliance portion will cover the topics mentioned in the September 16 seminar above, while Dealing With the Death of a Member will cover the issues that a credit union must be aware of when dealing with a member’s death. For more information on this seminar, please click here.
November 4, 2008: Rob will be presenting a seminar on the “Bank Secrecy Act” at the CUES Network Conference in Las Vegas, NV. Credit unions are increasingly caught between stricter regulations concerning member data and increasingly broad powers of government to acquire this data. Rob will review how to stay in compliance when filing Suspicious Activity Reports and Currency Transaction Reports by walking through the Bank Secrecy Act. For more information on this seminar, please click here.
November 5, 2008: Rob will be presenting a seminar on “Lending Compliance” to the West Virginia Credit Union League. See the seminar description for July 16 above for more information. The information on the seminar is not yet available on the West Virginia Credit Union League website.
November 12, 2008: Rob will be presenting a seminar on “Mortgage Lending Regulations” to the Washington Credit Union League in Seattle, WA. See the September 16 seminar description above for more information on the content of this seminar. This page should have more information on the seminar as it gets closer.
November 13, 2008: Rob will be teaming up with the Kansas Credit Union Association to present a webinar on “Director and Officer Liability.” This seminar will prepare directors and officers for their legal responsibilities in the roles they play at the credit union. Rob will identify potential liabilities directors and officers face under federal and state law including FIRREA. The implications of the Sarbanes Oxley Act will also be discussed. As the seminar gets closer, more information should be available here.
December 2, 2008: Rob will present an audio conference on “Regulation B” to the Illinois Credit Union League. Guarding against unlawful discrimination in the lending process is still very important today even though other regulations seem to be getting more press. Rob will discuss the elements of unlawful discrimination under Regulation B and the Equal Credit Opportunity Act and offer tips as to how to guard against it. He will also discuss recent cases where financial institutions have run into trouble and the consequences of violating Regulation B. To sign up for this seminar, please click here.
Filed under: compliance, credit unions, marketing, vendors | Tags: advertising, credit unions, due diligence, intellectual property, IP
When I do seminars for credit unions, leagues and vendors, there are always follow-up questions. Recently, I did a marketing compliance seminar for EverythingCU. In all my years of public speaking I don’t think I’ve ever received so many follow-up questions.
I have used the blog previously as a vehicle to respond to seminar follow-up questions. I think it works well for that. That way, everyone can see my responses. Some of the questions are of such a detailed nature that a true answer would require a formal legal opinion. Of course, while I can give out information relating to topics and cite legal resources, I cannot give a legal opinion on the blog.
Some of these questions require a blog post unto themselves. With that in mind it’s going to take many blog posts to get through all of the questions. The first question is:
“During the webinar the topic of rounding up debit card purchases was brought up by you. I just need to clarify whether I interpreted your information correctly or not. From what I understand, no institution can round up purchases because another institution has patented the process, correct? So, even if we offered this product with a different name and possibly different qualifications, we still cannot offer it to our membership?”
I think this question needs a little more explanation before I answer it. The marketing compliance seminar I gave had a section on trademarks and copyright. One of my ongoing messages to credit unions is to protect their intellectual property be it a name, a service or a program. Vendors protect their IP with all the legal power that they can muster. Consider overdraft services for example. Everyone in that industry has trademarked the names and processes involved. With respect to a newly emerging service such as this, you can bet that this is patented and that the name is a registered trademark. Does this mean you can never do it? No. You may have to obtain a license from a patent holder to do it or you may have to figure out a different way to do it (and then be sure to patent that yourself). Moreover, and really the whole point of bringing it up is: you need to do an IP analysis whenever you do something new. You need to do some due diligence as to whether or not that new product or service that you are launching violates someone else’s IP. If you are working with a vendor, ideally that vendor owns its IP and will cover you if there are any problems. You need to look for that language in the vendor’s contract and put it in there if it is not already there.
So that’s the first Q&A blog from the seminar. I have a ton of material to go. It should mean that I’ll be blogging more than usual over the next few weeks and that’s good.
Rob Rutkowski will be teaming up with the Alabama Credit Union League on May 22, 2008 in Birmingham, AL to present a seminar on “Credit Union Accounts”, “Compliance” and “Identity Theft”. This seminar will cover various types of saving and share draft accounts, a review of non-personal accounts, and operations for account ownership. The seminar will also cover issues surrounding trust accounts, how to properly set up accounts, deposit account regulations including the Truth in Savings Act, handling accounts after the owner’s death and processes for handling abandoned property. Finally, Rob will cover various issues surrounding identity theft and will talk about how credit unions can protect their members’ sensitive information. If you are interested in attending this seminar, please visit this page:
http://www.acul.com/portal/page/portal/ACUL/edusvc/calendar/ACUL%20CALENDAR%20CONTENT/Front%20Line%20Teller%20Boot%20Camp.pdf
