ercs DAY 1 - February 24 th

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1 Credit Union National Association Regulatory Compliance School 2015 Introduction April 16 & 17, 2015 Tyler F. Parker 8003 Sand Point Way NE B21 Seattle, Washington (206) DAY 4 ercs DAY 1 - February 24 th Law of Check and Share Drafts - UCC Articles 3 & 4 A. Introduction to the Uniform Commercial Code s (UCC) Articles 3 & 4 1. Background - Where Checks Came From & the Need for Uniform Law B. Negotiable Instruments in General: What is a Check? (Page 1) C. Stage 1: The Contract of Deposit = Account Card & Agreement D. Stage 2: Issuance of the Check (Issue = First Delivery of Check by Drawer to Payee) (Page 2) 1. Issuance Creates First Holder-PETE 2. How the Code Addresses the Problems E. Stage 3: Negotiation of the Check (Post-Issuance Holders) - Transferring Checks in Commerce 1. How the Code Addresses the Problems (Page 3) a. Non-Payment: Contract Liability = Sue the Drawer and Indorser(s) for Nonpayment on the Contract (Signature) b. Wrongdoing: Warranty Liability = Recourse Against Transferors Under Transfer Warranties for Alterations, Forged Endorsements and Forged Drawer s Signatures F. Stage 4: Presentment, or Collection and Presentment, of the Check (Page 4) 1. How the Code Addresses the Problems a. Non-Payment: Contract Liability = Sue the Drawer and Indorser(s) for Nonpayment on the Contract (Signature) b. Wrongdoing: Warranty Liability = Recourse Against Presenter and Transferors Under the Presentment Warranties for Alterations and Forged Endorsements 2. Upon Presentment (Stage 4) Only 1 of 2 Events Can Occur - Stage 5 or Stage 6 G. Stage 5: Payment (Honor) of the Check by Payor-Drawee (Hat 3) (Page 5) 1. Why Pay? Signed and Authorized (Properly Payable Rule)! 2. Only Payor-Drawee Bank can Pay Check = Make Final Payment a. Two Ways to Make Final Payment 1) Cash & Expiration of Deadline before Return of Check b. Result of Final Payment = End of Contract Liability for the Drawer and Indorser(s) 3. How the Code Addresses the Problems a. Wrongdoing: Warranty Liability = Recourse Against Presenter and Transferors Under Warranties for Alterations and Forged Endorsements Copyright 2015 Tyler F. Parker. All Rights Reserved. 1

2 H. Stage 6: Non-Payment (Dishonor) and Return of the Check by Payor-Drawee (Page 6) 1. How the Code Addresses the Problem a. Non-Payment: Contract Liability = Sue the Drawer and Indorser(s) for Nonpayment on the Contract (Signature) I. Stage 7: Wrongdoing (Page 7) 1) Happens Fast (Within Days or Weeks) 1. How the Code Addresses the Problem a. Wrongdoing: Alterations, Forged Indorsements & Forged Drawer s Signatures 1) Resolved by Warranty Liability 2) (Happens within Days, Weeks, Months, Years) 2. Statutes of Limitation 3-118, J. Two Problems with Checks - 2 Questions to Ask K. Nonpayment Problems - Problems Caused by Nonpayment of Check 1. Stop Payment Orders (Members Checks Only!) a. 3-Part Test for Effective Stop Payment Order 2. Stale Dated Checks (Members Checks Only!) 3. Post-Dated Checks (Members Checks Only!) L. Wrongdoing Problems - Problems Caused by Intentional Wrongdoing 1. Alterations a. Two Defenses (Negligence & Timeliness) 2. Forged Indorsements - Unauthorized Signatures Other Than Drawer s 3. Forged Checks - Unauthorized Drawer s Signature a. Two Defenses M. Back to the beginning (lbtc) V ercs DAY 2 - February 26 th V Expedited Funds Availability Act & Regulation CC A. Purpose of EFAA and Regulation CC (Page 4-2) 1. Reduce holds on checks and expedite the check return process a. Congressional Rationale: Most Checks get Paid! B. Requirements - Chronological not Logical 1. Disclosures - Telling the Members About the Holds You ll Place on Their Deposits 2. Hold Periods - Placing a Hold on a Member s Deposits 3. Uniform Indorsement Standards 4. Expedited Return of Dishonored (Unpaid) Checks Copyright 2015 Tyler F. Parker. All Rights Reserved. 2

3 C. Specifics of Each Requirement - Logical not Chronological 1. Hold Periods - Placing a Hold on a Member s Deposits a. Next Business Day Funds Availability (Page 4-2) Copyright 2015 Tyler F. Parker. All Rights Reserved. 3 1) US Treasury checks to payee and on us checks, and if deposited in person, cash, State and local government checks, cashier s and teller s checks payable to depositor (second day availability if not deposited in person). (Page 4-3) a) Fail Test? First $200 of Deposit Ava Next Business Day (Page 4-4) b. Deposits Not Subject to Next Business Day Availability 1) Local Checks - Second Business Day Availability (Page 4-6) a) First $200 of Deposit Available Next Business Day (Page 4-6) b) Third Business Day for Irrevocable Payment 2) Non-Proprietary ATMs Funds Availability (Page 4-7) c. Exceptions to Funds Availability Schedules (Page 4-8) 1) Rationale for Exceptions - Not All Checks Get Paid 2) Exceptions (2+5 = 7) [let s look at 4-42] a) New Accounts: Next Day & + $5000 9th business day availability, Exceptions for 30 Days + after Account Established (Page 4-12)* b) Large Deposits by Check - amounts above $5,000 on a single banking day (Page 4-9) c) Returned Checks (dishonored & redeposited checks) (Page 4-9)* d) Overdrafted Accounts (Page 4-10)* e) Reasonable Cause to Doubt Payment of Check (Page 4-10)* f) Emergency Conditions (Page 4-12)* g) * First $200 of Deposit Rule Does Not Apply 3) Notice Upon Invoking an Exception (Page 4-18) d. What s Better than a Hold? If in Doubt, Don t take the Check! 2. Disclosures - Telling the Members About the Holds You ll Place on Their Deposits a. Contents of Disclosures (Page 4-15) b. Two Options for Disclosures (Page 4-16) 1) Option 1: Specific Funds Availability Policy based on the Regulations 2) Option 2: Case-by-Case Policy - Funds Available Next Business Day with Right to Impose Delays on Case-by-Case Basis (Page 4-17) c. Timing for Disclosures - When Disclosures Must be Made 1) New Accounts - Disclosures Prior to Account Opening (Page 4-16) 2) Member Requests - Upon Oral or Written Request (Page 4-17) 3) Policy Changes - 30 Days Notice Prior to Changes (Page 4-17) a) Exception: Expedited Availability, 30 Days After

4 d. Form of Disclosures - Clear, Conspicuous, in Writing, in a Form the Member may Keep (Page 4-15) e. Notices on Account Slips (Page 4-20) f. Notices Posted on ATMs (Page 4-20) 1) Proprietary ATMs 2) Non-Proprietary ATMs 3. Uniform Indorsement Standards - Signing the Check So the Payor-Drawee or Drawer Knows Who to Return the Check To in the Event of Non-Payment (Page 4-30) a. Depositary Institution Indorsements - Black Ink b. Subsequent Collecting Indorsers - Black Ink 4. Expedited Return of Dishonored Checks - Returning the Check Upon Non-Payment to the Depositary Bank Hopefully Before the Depositary Bank Releases the Hold on the Funds D. Enforcement (Page 4-38) E. Liability (Page 4-33) a. Paying Bank s Responsibility for Expeditious Return of Checks (Page 4-22) 1) 2 day Test (Page 4-23) 2) Similarly Situated Financial Institution Test/FCT (Page 4-24) b. Notice of Non-Payment of Checks of $2,500 or More (Page 4-28) F. Back to the beginning (lbtc) Electronic Fund Transfer Act & Regulation E A. Introduction (Page 3-2) 1. Purpose: To encourage the use of EFT systems and provide protection to consumers who use those EFT systems (Page 3-2) 2. Coverage: Applies to any EFT that authorizes a financial institution to debit or credit a consumer s account through the use of an access device such as debit cards, personal identification numbers (pins), telephone transfer and telephone bill payment codes. (Page 3-2) B. Requirements 1. Requirement 1: Initial Disclosures (Page 3-5) a. Content of Disclosures (Page 3-5) b. Disclosures Must be Given when Consumer Contracts for EFT Services (Page 3-5) 2. Requirement 2: Issuance of Access Devices (Debit Cards, Personal Identification Numbers (PINs), Telephone Transfer and Telephone Bill Payment Codes) (Page 3-3) 3. Requirement 3: Receipts at Electronic Terminals (Page 3-8) 4. Requirement 4: Preauthorized Transfers (Page 3-10) 5. Requirement 5: Periodic Statements (Page 3-9) [Requirement 6: Reminder Error Resolution Notice (3-8)] 6. Requirement 7: Change in Terms Notice (Page 3-8) 7. Requirement 8: Procedures for Resolving Errors - Error Resolution (Page 3-12) Copyright 2015 Tyler F. Parker. All Rights Reserved. 4

5 8. Requirement 9: Liability of Consumer (Page 3-14) a. Preconditions to Impose Consumer Liability for Unauthorized Electronic Fund Transfers (Page 3-15) b. Limitations on Amount of Consumer Liability 1) Loss or Theft of Access Device (Page 3-15) 2) Periodic Statement (Page 3-16) 9. Requirement 10: Prohibition Against Compulsory Use of EFTs for Loan Payments (Page 3-25) 10. Requirement 11: Opt in for Overdrafts on ATM & one-time debit card transactions (Page 3-19) 11. Requirement 12: Remittance Transfers to Consumers (& Bus) in Foreign Countries (Page 3-25) C. Back to the beginning (lbtc) Truth in Savings Act & NCUA TISA Regulations A. Purpose (Why the Thing was Enacted) (Page 1-2) 1. Pay Dividends Each Day on Balance in the Account 2. Disclose Rates and Fees to Consumers (Uniform Comparison) B. Congress Enacted the Law & NCUA Promulgated the Regulations - Part NCUA Official Staff Interpretation (Page 1-2) C. Applicability: Federal & State Chartered Credit Unions (Page 1-2) 1. Consumer Accounts (Accounts for Consumer Purposes) (Page 1-2) D. Nine Major Compliance Requirements 1. Substantive Changes to Dividend Calculation (Page 1-4) a. Pay Each Day with DBM or ADBM Calculation Method (Page 1-6) 2. General Disclosure Requirements (Page 1-8) a. Clear, Conspicuous, Writing, in a Form the Consumer can Keep 3. Disclosures for New Accounts and Upon Request (Page 1-9) [ODP 1-15] a. You Get to Know About APY, Dividend Rate, Minimum Balance & Fees 4. Rate Inquiries and Oral Responses to Rate Inquiries (Page 1-7) a. You Get APY, Dividend Rate, Date & Phone Number 5. Disclosures for Periodic Statements (Page 1-13) [ODP 1-16] a. You Get APYE, Dividends Earned, Fees Imposed & Days in Period 6. Disclosures for Term Share Accounts (Certificate Accounts) (Page 1-18) 7. Change in Terms Disclosures (for Reduction of APY or Adverse Affect) (Page 1-19) a. 30 Calendar Days 8. Advertising Disclosures (Page 1-20) Copyright 2015 Tyler F. Parker. All Rights Reserved. 5

6 9. Record Retention: Retain Evidence of Compliance for 2 Years after Disclosure (Page 1-25) E. Enforcement (Page 1-25) F. Penalties (Page 1-25) G. Back to the beginning (lbtc) Monetary Control Act & Regulation D A. Reserve Requirements (Page 2-2) 1. Calculating Reservable Liabilities and Required Reserves (Page 2-5) a. Transaction Accounts (Page 2-6) 1) Non-Transaction Accounts 2. Reserve Accounts (Page 2-6) B. Filing Reports (Page 2-6) C. Back to the beginning (lbtc) a) Savings Accounts (Only 6 Preauthorized Transfers) (Page 2-7) b) Time Deposits (Certificates) - Penalties for Early Withdrawal (Page 2-9) DAY 5 ercs DAY 3 - March 10 th Bank Secrecy Act & Treasury BSA Regulations A. Introduction (Page 3-2) B. Background (Page 3-2) C. Requirements 1. Reporting Requirements 2. Recordkeeping Requirements D. Specifics of Requirements 1. Reporting Requirements (Page 3-5) a. International Transportation of Currency and/or Monetary Instruments in Excess of $10,000 on any One Occasion (Page 3-11) b. Foreign Financial Accounts (Page 3-12) c. Deposits, Withdrawals, or Exchanges of Currency that Exceed $10,000 in any One Business Day (Page 3-5) 1) Currency Transaction Reporting Requirements a) Identification Requirement (Page 3-6) b) Aggregation Requirement c) Prohibition on Structuring Transactions Copyright 2015 Tyler F. Parker. All Rights Reserved. 6

7 2) Exemptions from the Currency Transaction Reporting Requirements (Page 3-6) d. Special Order Geographic Area Reporting (Page 3-8) e. Reports by Credit Unions of Suspicious Transactions (Page 3-9) 2. Recordkeeping Requirements (Page 3-12) a. Verification & Retention of Account Owner Identification - THE MIP (Page 3-17) b. Purchases of Checks, Drafts, Cashier s Checks, Money Orders and Traveler s Checks With $3,000 to $10,000 in Currency (Page 3-13) c. Funds Transfers of $3,000 or More (Page 3-14) d. All Other Recordkeeping Requirements (Page 3-15) 5 YEARS (Page 3-21) 3. Bank Secrecy Act Compliance Program (Page 3-4) - Insight at Bottom of Page 10. E. Violations (Page 3-21) F. Enforcement G. Back to the beginning (lbtc) V ercs - DAY 4 - March 12 th V Right to Financial Privacy Act A. Introduction (Page 2-2) B. Applicability 1. What Members Does the Act Protect? 2. What Government Authority Must Comply With the Act? C. Requirements 1. The General Prohibition Against Disclosure (Page 2-2) 2. Recordkeeping Requirements (Page 2-10) D. Specifics of Requirements 1. The General Prohibition Against Disclosure a. Exceptions to the General Prohibition Against Disclosure (Page 2-3) 1) Automatic Exceptions to the General Prohibition: Information and Records Not Protected by the Act (Page ) a) Violations of any Statute or Regulation (Page 2-3) b) Records Concerning Lending and Debt Collection Activities (Page 2-3) c) The RTFPA General Exceptions 2) Procedural Methods Used by Federal Agencies and Departments to Access Financial Records: Records Protected by the Act (Page 2-5) a) Member Authorizations (Page 2-5) b) Administrative Subpoenas or Summonses (Page 2-5) Cert of Comp (Page 2-11) c) Search Warrants (Page 2-5) Certificate of Compliance (Page 2-11) d) Judicial Subpoenas (Page 2-6) Certificate of Compliance (Page 2-11) Copyright 2015 Tyler F. Parker. All Rights Reserved. 7

8 e) Formal Written Requests (Page 2-7) 3) Cost Reimbursement (Page 2-8) 2. Requirement Two: Recordkeeping a. General Record Creation and Retention Considerations (Page 2-10) FOREVER E. Violations (Page 2-10) F. Back to the beginning (lbtc) IRS Information Returns & Backup Withholding A. Step 1: Soliciting TINs (Page 4-13) 1. Solicit and Obtain TINs and Certifications from Members when They: a. General Rule 1) Apply for Membership b. Specific Rules 1) Open Accounts 2) Apply for Real Estate Loans 2. Solicit TINs from All Members (Page 4-15) a. Unless They are Exempt 1) Corporations, Federal and State Governments, Financial Institutions 2) Obtain Form W-8 from Nonresident Aliens (Page 4-15) (3 Year Renewal Required) b. Members Without TINs: Don t Open the Account or Open Non-Dividend Bearing Account! B. Step 2: Reporting Information: Information Returns and Statements (Page 4-2) 1. Types of Information Returns to be Reported a. The Big Two: 1099-INTs and 1098s 1) 1099-INTs (Page 4-5) 2) 1098s (Page 4-3) 3) 1099-Cs (Page 4-5) 2. Member Statements: by January Reports to IRS: by February 28 a) Manner of Reporting to IRS 1) Filing Paper Forms: Less Than 250 2) Filing by Magnetic Media: 250 or More C. Step 3: Backup Withholding (Page 4-10) 1. Three Types of Backup Withholding (Page 4-11) a. Credit Union Initiated = Post-1983 Accounts (Please don t do this) Copyright 2015 Tyler F. Parker. All Rights Reserved. 8

9 b. IRS Initiated 1) B-Notice (Page 4-11) 2) C-Notice (Page 4-13) 2. Reporting and Depositing D. Step 4: Penalties 1. Information Returns (Page 4-9) a. Waiver: Reasonable Cause 1) Responsible Manner + Events Beyond Credit Union s Control 2. Backup Withholding (Page 4-16) E. Back to the beginning (lbtc) Part Privacy of Consumer Financial Information A. Introduction - Consumer Protection from Dinnertime Marketing Phone Calls (Page 5-2) 1. Exceptions, Initial Notice, Opt Out, Annual Notice, Prohibition on Sharing Account Numbers B. General Requirements 1. Exceptions - Marketing Partners, Servicers, Consent and Law (Page 5-9) 2. Initial Notice (Page 5-4) a. Opt Out - Disclosures beyond the Exceptions (Page 5-8) 3. Annual Notice (Page 5-6) (the new goofy box notice) 4. Prohibition on Sharing Account Numbers (Page 5-12) C. Back to the beginning (lbtc) Electronic Signatures in Global and National Commerce Act (ESIGN) A. Introduction - Electronic Signatures and Records are as Valid as Anything on Paper (Page 7-2 & 7-3) B. General Requirements 1. Validity of Electronic Signatures and Records (Page 7-5) a. Exceptions - Oral Communications, Wills, Court Documents, Checks, Etc. (Page 7-4) 2. Consumer Disclosures (Page 7-5) 3. Consumer Protection Requirements - Consent (Page 7-5 & 7-6) 4. Record Requirements (Page 7-6) C. Back to the beginning (lbtc) Office of Foreign Assets Control A. Introduction - No Dealing with Naughty Countries (Page 6-2) B. General Requirements Copyright 2015 Tyler F. Parker. All Rights Reserved. 9

10 1. Identifying and Blocking Transactions (Page 6-3 & 6-5) 2. Reporting Blocks to OFAC (Page 6-5) 3. Violations (Page 6-6) and Records = 5 Years (Page 6-8) C. Back to the beginning (lbtc) Bank Bribery Act A. Introduction (Page 1-2) B. Applicability: Does the Bank Bribery Act Apply to the Credit Union? (Page 1-2) C. Requirements 1. The General Prohibition (Page 1-2) 2. NCUA s IRPS 87-1 (Page 1-3) D. Specifics of the Requirements 1. The General Prohibition: the Corrupt Giving, Offering or Promising, or Soliciting, Demanding, Accepting, Agreeing to Accept Anything of Value (Page 1-2) a. Exceptions (Page 1-4) 2. The NCUA s IRPS 87-1: Bank Bribery Act Code of Conduct or Written Policy Guidelines (Page 1-3) E. Violations (Page 1-5) F. Sample Bank Bribery Act Code of Conduct or Written Policy (Page 1-7) FYI on POLICY & PROCEDURE Policy It is our policy to comply with all applicable requirements of the Bank Secrecy Act. Procedures for Compliance with the Bank Secrecy Act 1. Compliance Program to Comply with Reporting and Record Keeping Requirements Who s our person and his or her responsibilities (procedures, training, testing) 2. Reporting Requirements How we handle CMIRs How we handle CTRs How we handle SARs 3. Recordkeeping Requirements How we comply with the MIP How we hang onto everything for at least 5 years 4. MDD Opening (BSA, IRS, OFAC) Maintenance (BSA, IRS, OFAC) Copyright 2015 Tyler F. Parker. All Rights Reserved. 10

11 Credit Union National Association Regulatory Compliance School Introduction Quiz April 16 & 17, 2015 Tyler F. Parker 8003 Sand Point Way NE B21 Seattle, Washington (206) tylerfrankparker@hotmail.com UCC Articles 3 & 4 - Law of Checks and Share Drafts The two major problems that occur with checks are and. The primary purpose of the Uniform Commercial Code s Articles 3 & 4 (the law of checks and drafts) is to: a. protect consumers against check liability b. encourage commerce (people and businesses) to use and rely on checks c. help Ty ( the reptile ) Parker earn a living (he lacks the moral courage to find honest work) The properly payable rule: a. provides commerce with recourse against the member-drawer for nonpayment of the check b. protects the member-drawer against alterations c. protects the member-drawer against forged indorsements d. protects the member-drawer against forged drawer s signatures e. incents member-drawers to use and rely upon checking or share draft accounts f. all the above A check made payable to John Doe, Jane Doe without and or or between the names is payable to either party. True False Question 5. If you endorse a check made payable to you in blank (i.e., just your name on the back of the check) anyone who obtains possession of that check is in rightful possession of the check. True False Question 6. The UCC s Articles 3 & 4 require a credit union to return a check or share draft that it will not pay by its midnight deadline, which means the check must be returned by midnight of the next banking day after the banking day the item is received. True False Question 7. Simply by looking at their checking or share draft account statements, member-drawers can (and should) notify the credit union about Alterations Forged Indorsements Forged Drawer s Signatures Counterfeit Checks Question 8. How long do members have to report their checks with: Alterations? 0 hours 24 hours 33 days 60 days 1 year 3 years Forged Indorsements? 0 hours 24 hours 33 days 60 days 1 year 3 years Forged Drawer s Signatures? 0 hours 24 hours 33 days 60 days 1 year 3 years Question 9. How long do credit unions have to return members checks with: Alterations? 0 hours 24 hours 33 days 60 days 1 year 3 years Forged Indorsements? 0 hours 24 hours 33 days 60 days 1 year 3 years Forged Drawer s Signatures? 0 hours 24 hours 33 days 60 days 1 year 3 years Copyright 2015 Tyler F. Parker. All Rights Reserved. 11

12 Question 10. When the credit union encodes a check it warrants (promises by law) to all other financial institutions that take the check after it that the check has been encoded correctly. True False Question 11. Writing paid in full on a check to a creditor for an amount less than owed for a debt in hope that the creditor won t notice the language will fail to discharge the drawer s obligation because such payment is not made in good faith. True False Question 12. When a member loses your cashier s or teller s check, once he or she makes a claim for a refund for the lost check the credit union must immediately give him or her a replacement check. True False Question 13. A credit union must pay a member s check that is more than six months old upon presentment. True False Expedited Funds Availability Act & Regulation CC The primary purpose of the Expedited Funds Availability Act (EFAA) and Regulation CC is to require depositary financial institutions to speed up (expedite) the availability of funds to consumers from their deposited checks. True False The Congressional rationale to enact the EFAA is that most checks get. The major requirements of the Expedited Funds Availability Act and Regulation CC are: a. disclosing funds availability policies b. adhering to funds availability hold periods c. indorsing checks in designated areas in black ink d. expediting the return of unpaid checks to the depositary financial institution e. all the above When Bill deposits a $1,000 share draft into his checking account at a nonproprietary ATM at the convenience store, generally under Regulation CC the funds must be made available on the fifth business day. True False Question 5. The Congressional rationale to provide exceptions to the EFAA s funds availability hold periods is that not all checks get. Question 6. When one of the exception holds is placed on a deposit, the credit union s hold notice must contain the current account balance with the held amount deducted. True False Question 7. One test for the repeated overdrafts exception is having a negative balance on six or more banking days in the last six months. True False Question 8. When a credit union invokes an exception hold on a deposit, the member must be notified of this hold. True False Question 9. When a credit union invokes the reasonable cause exception hold on a deposit, the notice to the member need only state the time period of the hold (and no additional information (like the specific reason) is necessary). True False Copyright 2015 Tyler F. Parker. All Rights Reserved. 12

13 Question 10. An on-us check must be given next-day availability unless it is deposited at a non-proprietary ATM at a nearby convenience store. True False (Reminder: Per Q4., the general funds availability rule for checks deposited in non-prop ATMs is 5 business days.) Question 11. Generally a credit union can place holds on local checks deposited into new accounts for a period of time up to the credit union s discretion (i.e., generally Regulation CC would not apply to all local checks deposited for 30 days). True False Question 12. Like the UCC s Articles 3 & 4, the Expedited Funds Availability Act and Regulation CC help resolve the two major problems that occur with checks: nonpayment and wrongdoing. True False Question 13. Financial institutions are required by law to take checks for deposit that are drawn on other financial institutions. True False (This may be the most important insight of the day!) Question 14. Credit unions are required to provide their funds availability policy prior to opening an account, and those disclosures must be given in a clear and conspicuous manner, in writing, and in a form the member can keep, and must describe the credit union s specific policy on the availability of all deposited funds. True False Question 15. Regulation CC requires credit unions to post their funds availability policy or provide a notice regarding their policy at proprietary ATMs they own or operate. This notice may be printed on the member s receipt. True False Question 16. Explain why the EFAA & Reg CC changed the indorsement standards for all depositary and collecting financial institutions? Question 17. Explain why the EFAA & Reg CC changed the check return requirements for all payor-drawee financial institutions? Question 18. If Ty deposits $120 in cash into his share draft account at your credit union s night depository Monday night, and on Tuesday deposits another $100 in cash with a teller, he can withdraw $220 cash on Thursday. True False Question 19. Credit unions are required to send a notice to all members explaining the members rights under Check 21. True False Question 20. When a new account is opened by mail, the initial funds availability disclosures must be mailed to the member within one (1) day after the account is opened. True False Question 21. Under Check 21 a substitute check can be generated (created) by a financial institution in any size. True False No giant lottery-winner sized substitute checks, please. Thank you! Electronic Fund Transfer Act & Regulation E The primary purpose of the Electronic Fund Transfer Act and Regulation E is to a. protect consumers against electronic fund transfer (EFT) liability b. encourage consumers to use and rely on electronic payment systems, EFTs and access devices c. both a. and b. (but more a. than b.) Copyright 2015 Tyler F. Parker. All Rights Reserved. 13

14 Telephone transfers are considered electronic fund transfers under Regulation E. True False a. Reg E requires that initial disclosures be given to a member when he/she contracts for an EFT service at any time. b. The initial disclosures must include the location of the credit union s ATMs. True False a. A receipt for a transaction completed at an electronic terminal must disclose the account balance after the transaction. True False b. If a surcharge will be imposed on nonmembers for using an ATM operated by your credit union, the only notice requirement is to post that fee on their transaction receipt. True False Question 5. There is no requirement under Regulation E for a financial institution to send a periodic statement to a consumer if no electronic fund transfer (EFT) has been debited or credited to the consumer s account. True False Question 6. A consumer has days from the receipt of the periodic statement to notify an institution of an EFT error. No resolution 10 days after error notification? You must provisionally recredit the member s account. True False Question 7. A financial institution can require consumers to notify it of EFT errors in writing. True False Question 8. A financial institution can require consumers to confirm all notices of EFT errors in writing. True False Question 9. An access device is an accepted device when the member requests and receives an ATM card, or the member calls the credit union to validate an unsolicited ATM card, or the member receives a replacement ATM card for his or her broken original. True False (f.y.i., cash deposits at drive throughs, check deposits at ATMs & transactions with tellers aren t access devices!) Question 10. Once the financial institution has determined there is an EFT error with respect to the consumer s account, it has business day(s) to correct the error, and business day(s) to report the results of its investigation (correction of the error) to the consumer. Question 11. There are possible tiers of liability that consumers may be responsible for when unauthorized EFTs are debited against their accounts at a financial institution. Question 12. If a consumer has a debit card, and writes his or her PIN on the debit card, and the card is subsequently stolen and unauthorized EFTs are made to the consumer s account, the consumer s negligence affects his or her liability for unauthorized EFTs. True False Question 13. a. If a consumer notifies his or her financial institution within two business days after learning of the loss or theft of his or her ATM or debit card, his or her liability for unauthorized EFTs is: $0 $50 $500 $1,000 unlimited b. If a consumer notifies his or her financial institution after two business days after learning of the loss or theft of his or her ATM or debit card, his or her liability for unauthorized EFTs is: $0 $50 $500 $1,000 unlimited Copyright 2015 Tyler F. Parker. All Rights Reserved. 14

15 Question 14. a. If a consumer notifies his or her financial institution of unauthorized EFT debits made to the consumer s account (that occurred without an access device) that appear on his or her statement within 60 days of the transmittal of the statement, his or her liability for the unauthorized EFTs is: $0 $50 $500 $1,000 unlimited b. If a consumer notifies his or her financial institution of unauthorized EFT debits made to the consumer s account (that occurred without an access device) that appear on his or her statement after 60 days of the transmittal of the statement, his or her liability for the unauthorized EFTs that occur after that 60 day period is: $0 $50 $500 $1,000 unlimited Question 15. a. Under Regulation E a non-beneficial change in terms (such as increased or new fees) requires 21 days advanced notice to your members. True False b. Regulation CC and TISA require 30 days advanced notice for non-beneficial changes in terms to members (which does make a lot of sense given the answer in a. (until you remember who is writing all these rules)). True False Question 16. Before Regulation E disclosures can be provided to members electronically, a credit union must receive affirmative consent from a member to receive electronic disclosures, inform the member of her rights regarding electronic disclosures, and provide details to the member on the hardware and software requirements for receiving electronic disclosures. True False f.y.i., ESIGN Question 17. If a member has given her affirmative consent to receive Regulation E disclosures electronically, the credit union is not responsible for resending an electronic disclosure that is returned as undeliverable. True False Question 18. While preauthorized insurance payments, debit card and point of sale transactions come under Regulation E, automatic transfers from a member s share account to pay his or her loan by agreement are not covered by Regulation E. True False Question 19. As of July 1, 2010 your credit union is required to provide members with a notice and have them opt in before your credit union can pay overdrafts on ATM and one-time debit card transactions. True False Truth in Savings Act & NCUA TISA Regulations The two key requirements of the Truth in Saving Act and regulations are to 1. disclose account and and, 2. pay on the balance in the account each day. True False Under the Truth in Saving Act credit unions must orally disclose account rates upon request. True False The daily balance method of dividend calculation involves dividing the sum of the daily balances in the period by the number of days in the period. True False When a member inquires about account rates over the telephone, and credit union discloses the rate, TISA requires that the rate be stated as the APY. True False Question 5. The APYE must be included in the initial account opening disclosures. True False Copyright 2015 Tyler F. Parker. All Rights Reserved. 15

16 Question 6. If TIS disclosures are available to members electronically (via the credit union s web site), the credit union must first obtain affirmative consent from the member before they are sent, and members must be able to access the TIS disclosures prior to opening the account. True False f.y.i., ESIGN Question 7. The TIS clear and conspicuous standard does not apply to TIS electronic disclosures. True False Question 8. In account disclosures, a 3.154% annual percentage yield (APY) must be disclosed as 3.15%. True False Question 9. When opening a dividend-bearing term share account (certificate account) or other interest bearing account (for state chartered credit unions), the annual percentage yield (APY) and dividend rate (or interest rate) disclosed must be the rate that was offered on the date the account is opened. True False Question 10. For ODP, TISA requires the transactions offered, fees and time to repay to be disclosed in marketing pieces. True False Question 11. The TISA does not require overdraft disclosures (concerning your ODP) on your credit union s ATM receipts. True False Question 12. Members must be given the TISA disclosures each time they open a new account. True False Question 13. If a member requests the TISA account disclosures by phone or by mail, the credit union has ten days to get around to sending the member those disclosures. True False (Notice the dif between this and Reg CC (Q.20. (Don t they work in same bld?))) Question 14. The Truth in Saving Act requires credit unions to send periodic statements. True False Question 15. The change in terms notice required under the Truth in Savings rule does not apply to variable-rate accounts. True False Question 16. The Truth in Saving Act requires credit unions to disclose rates in all account advertisements. True False Question 17. Could the following checking accounts be advertised as free under TISA rules? Under a special seniors program, the $ minimum balance requirement on your no interest checking account is waived for members over 65 years of age. Our classic checking account has no minimum balance, no per check charge, and no monthly service charge. However, you do have a $20.00 NSF fee and a $10.00 stop-payment fee. Yes No Question 18. When an advertisement mentions an APY, it must also disclose the period for which the APY is offered. True False Question 19. While minimum balance(s), balance computation method (DBM/ADBM), and the date dividends will be computed must be disclosed, the method used to decide minimum balance requirements is not part of the initial disclosures. True False Question 20. The TISA requires credit unions to pay dividends on members inactive (a.k.a. dormant) accounts. True False Copyright 2015 Tyler F. Parker. All Rights Reserved. 16

17 Question 21. A credit union is required to disclose periodic and year-to-date overdraft fees and returned item fees it its periodic statements, whether it promotes the payment of overdrafts in advertising or not. True False Monetary Control Act & Regulation D Transaction accounts are subject to the Regulation D reserve requirements. True False A share or savings account may have up to, but no more than, 6 transfers per month. True False Online (HB) transfers from savings to checking count toward the limit of 6 for savings and Money Mkt accounts. True False If the early withdrawal penalty on a time deposit (certificate account) exceeds the dividends earned on the deposit, the balance of the penalty must be paid from the principal in the account. True False Question 5. Limiting the number of transactions on a deposit account is the feature that makes a deposit account a non-reservable liability. True False Regulation J and UCC Article 4A Consumer transactions such as those made at ATMs and point of sale terminals are not covered by Regulation J & UCC 4A. True False When members are allowed to make wire transfers from their savings accounts those transactions have no impact on credit union operations. True False A credit union that fails to notify a member that he or she is liable for errors in the account and routing numbers provided with respect to a wire transfer is liable for such errors. True False Credit unions are advised to establish a cutoff time for processing funds transfers because they must execute payment orders on the business day received. True False DAY 5 Bank Secrecy Act & Treasury BSA Regulations The two major requirements of the Bank Secrecy Act and regulations are the requirements. and the When a member conducts a currency transaction that exceeds $10,000, the credit union has no duty to notify the member that it must file a Currency Transaction Report (CTR). True False Copyright 2015 Tyler F. Parker. All Rights Reserved. 17

18 Multiple same day currency transactions conducted by or on behalf of the same person must be added together and reported on a CTR if the transactions exceed $10,000. True False CTRs must be e-filed within 15 days. True False When a credit union looks at a member s government issued picture ID to verify the member s identity that satisfies the MIP s requirement that the credit union has a reasonable belief that it knows the true identity of the person. True False Question 5. Under the MIP the credit union is required to obtain the physical address of a new member opening an account. True False NO PO BOX ADDRESSES! (THANK YOU!) Question 6. In order to receive a payroll customer exemption from CTR reporting requirements, a company must have maintained a transaction account at the credit union for at least two months, regularly withdraw over $10,000 in currency to pay employees, and be incorporated under U.S. or state laws. True False This exemption can be used for deposits as well. True False Question 7. a. The special order geographic reporting requirement of the Bank Secrecy Act (a section 5326 order), is nothing more than an order from Treasury requiring the filing of Currency Transaction Reports (CTRs) at a specified currency transaction threshold of $10,000 or less. True False b. When the Treasury Department orders geographic targeting the dollar threshold for filing CTRs may be lower than the normal threshold amount, the notice of the special order will be directed to the credit union s CEO, and the notice will outline the types of transactions that are subject to the order. True False Question 8. A Suspicious Activity Report (SAR) should always be filed in the case of a robbery. True False Burglary? True False Question 9. When a member wishes to pay cash for an instrument such as a cashier s check or a money order in amounts from $3,000 to $10,000, the credit union must keep a record of the member s name, date of the sale, amount, serial number and type of instrument. True False Question 10. The credit union s Bank Secrecy Act compliance program must a. be in writing and approved by the Board of Directors, b. have ongoing training on the BSA for the credit union s employees, c. have independent testing for the credit union s compliance with the BSA s requirements, d. all of the above. Question 11. The NCUA Rules and Regulations Section dealing with the bank secrecy requirements for federal credit unions requires the credit union to file an annual report with NCUA. True False Right to Financial Privacy Act The Right to Financial Privacy Act applies to a. all members of the credit union True False, and b. federal government authorities, but not state and local government authorities. True False The two major requirements of the Right to Financial Privacy Act are the General Prohibition Against and the Requirements. Copyright 2015 Tyler F. Parker. All Rights Reserved. 18

19 a. If a member requests the release of his or her financial information, that request must be made in and by the credit union to avoid liability. b. If a member grants a federal agency permission to examine her financial records, the permission form that she signs must include a provision for financial compensation for any inconvenience to the member. True False c. If a member authorizes the release of her records to a federal agency in writing, the statement must specify the purpose for the release of information, the name of the agency to receive the information, and that the member has the right to receive a copy of the records that are released. Additionally, the member can revoke the authorization. True False CTRs, SARs, 1099s and bankruptcy claims are exempt from the RTFPA & may be disclosed to Uncle Sam. True False Question 5. If the credit union receives an administrative subpoena, the credit union should not release any records until it receives a certificate of compliance. True False The same would be true if the cu received a judicial subpoena. True False Question 6. If federal agents present the credit union with a search warrant, the credit union should release only the information described in the warrant. True False (f.y.i., If the feds ever assert a RTFPA exception, tell them you ll need to talk to your lawyer first!) Question 7. A federal agency can reimburse a credit union for expenses incurred when complying with the RTFPA under the FRB s Regulation S. True False Question 8. Under the RTFPA records must be retained forever. True False BSA = 5 Years. OFAC = 5 Years. IRS Information Returns & Backup Withholding When you sign an account card (a substitute W-9) you are certifying to the IRS that your name and SSN match, that you re not subject to backup withholding, and that you are a US person. True False The IRS considers the misspelling of a member s first name an inconsequential error on an information return. True False NOT LAST NAME (SURNAME OR FAMILY NAME)! THANK YOU! If you started backup withholding on a member s account because he failed to give you a SSN or a signed W-9, you can stop backup withholding on the account when you receive either a SSN or a signed W-9 from that member. True False IRS information returns (1099-INTs or 1098s) sent to members can include the credit union s current newsletter. True False (Filing 1099-INTs require earning interest of $10 or more, & filing 1098s require payment of mortgage interest of $600 or more.) Question 5. The purpose of Form 1099-C is to report forgiveness of a debt of more than $600, where the debt forgiven was a) due to an agreement between the credit union and the member, b) per the credit union s decision to discontinue collection activity on the account, or c) recorded on the credit union s records for business or investment purposes and was discharged in bankruptcy. True False Question 6. Once a member completes an IRS Form W-8 BEN, the form is good for three years. indefinitely. Copyright 2015 Tyler F. Parker. All Rights Reserved. 19

20 Question 7. A credit union that is required to apply backup withholding must notify the member within fifteen days after withholding begins. True False Part Privacy of Consumer Financial Information The NCUA s privacy regs define a member as an individual with a continuing relationship at the credit union. True False If a credit union does not anticipate disclosing information to affiliates or nonaffiliated third parties for marketing purposes, the credit union is completely exempt from the NCUA privacy regulations (Ty said we can ignore it & get a beer!). True False Verbal privacy notices are OK if the member signs a statement acknowledging the receipt of the verbal notice. True False If your credit union provides nonpublic personal information with a nonaffiliated third party vendor for marketing purposes your credit union must provide your members with the opportunity opt-out of that information sharing. True False Question 5. If a credit union does not anticipate disclosing information to affiliates or nonaffiliated third parties for marketing purposes, the credit union can provide a shortened, simplified notice (oh yeah, that s what Ty said (but did tell us to get a beer!). True False Question 6. A member must send the credit union a written letter requesting to opt out of information sharing. True False Question 7. How a service provider safeguards members information is not a concern for the credit union. True False Question 8. The Privacy Regulation prohibits credit unions from disclosing member account numbers to a local insurance agent to market insurance programs not offered through the credit union. True False Question 9. There are significant civil liability provisions for your credit union for violating the NCUA privacy regulations. True False Question 10. a. Under the NCUA s requirement for a credit union s member information security program, staff training on the security program is not a requirement but is a good practice. True False b. The NCUA requires the credit union s board of directors not only to assist in writing the policy for the credit union s member information security program, but also to conduct an annual audit of the program as well. True False c. A credit union is required to include the electronic protection of member information in its member information security program, which includes developing and monitoring policies and procedures, and identifying any reasonably foreseeable internal and external threats based on the IT environment and the products and services it provides. True False d. NCUA guidance provided to credit unions concerning electronic authentication programs includes developing a process that is consistent and supports the credit union's overall security and risk assessment program, that is periodically reviewed, and that includes auditing and monitoring features. True False Question 11. To avoid problems with pretext calling and identity theft the NCUA recommends that the credit union only give account information to the primary member on the account. True False Copyright 2015 Tyler F. Parker. All Rights Reserved. 20

21 Question 12. The NCUA regulations require an insured credit union to have a Data Security Response Program to address when there is unauthorized access to (i.e., a breach of) member information. Such a program includes assessing the nature and scope of the breach (i.e., what information systems and member information was accessed), notifying the NCUA Regional Director or relevant state agency of the breach, if warranted filing a SAR, and providing notice to members of the breach. True False Question 13. While the required notice to members as part of the Data Security Response Program must include a description of the type of member information that was accessed and a phone number for members call for further information and assistance, it does not need to include the name of the person who or group that (i.e., the crooks) accessed that information. True False Duh! Question 14. Under its Data Security Response Program a credit union may contract with its service provider (such as its data processing vendor) to notify all of its members and regulator(s) that its information system has been breached. True False Question 15. The Children s Online Protection Program Act (COPPA) is a federal law enacted to prohibit unfair or deceptive internet acts or practices in connection with the collection, use and/or disclosure of personal information from and about children under the age of thirteen who can access websites via the internet. True False Question 16. a. The COPPA applies to a credit union whose website can be (merely) accessed by children under age 13. True False b. The COPPA does not require parental consent if a credit union collects an address from a child to respond to a request for information that it receives from that child. True False c. If your credit union plans to collect, use and disclose personal information from children under the age of 13, the COPPA requires your credit union to have a website notice, a parental notice and obtain parental consent. True False Electronic Signatures in Global and National Commerce Act (ESIGN) Save time - save money - consummate business transactions through the internet (online)! If a member wants to transact business electronically, then under the ESIGN Act the credit union can take the member s consent to transact business electronically verbally (no need to confirm online). True False Prior to a member conducting business electronically, the ESIGN statute requires the credit union to provide the member with a disclosure statement informing the member of his or her rights, as well as a description of hardware and software needed to complete the transaction and to retain electronic records. True False Under the ESIGN Act the member must affirmatively consent or opt in to conduct business electronically, & electronic signatures & records have the same legal validity & enforceability as paper records & handwritten signatures. True False a. ESIGN not only mandates the type of technology to use, but requires that e-commerce be used for services. True False b. Prior to a member conducting business electronically, the ESIGN Act mandates that the member be given an error resolution notice and procedures. True False Question 5. The ESIGN contains no obligation for credit unions to notify their members if there is a change in the hardware or software requirements for conducting business electronically. True False Question 6. Under the ESIGN s record retention provisions the records must remain accessible to all parties legally entitled to access them, the records must be in a form that can be accurately reproduced for later reference, and the electronic record must accurately reflect the information in the paper contract or other record. True False Copyright 2015 Tyler F. Parker. All Rights Reserved. 21

22 Question 7. Many credit unions replicate ESIGN by requiring confirmation of online transactions with a PIN. True False Question 8. A credit union must submit a request form detailing its compliance with ESIGN to the NCUA or FRB before it can accept and rely on electronic signatures or engage in transactions sanctioned by the Act. True False Office of Foreign Assets Control (OFAC) The Office of Foreign Assets Control (OFAC) is a department of the U.S. Treasury Department that enforces economic and trade sanctions against targeted hostile foreign countries and their agents. True False When a person wants to join the credit union and open an account the credit union should consider the OFAC requirements and check the Specially Designated Nationals and Blocked Persons list. True False Credit unions can become involved with OFAC requirements when members want to wire money overseas. True False If a member comes into the credit union s office and wants to wire a large sum of money to a bank account overseas the credit union should check the current list of OFAC blocked countries, place a block or freeze on the funds if the country appears on the list, and file a report of the block within 10 days. True False Question 5. If a credit union uses OFAC software it will have no liability under OFAC. True False Question 6. If the credit union files an OFAC report it must retain the report indefinitely. True False HANG ONTO RECORDS FOR 5 YEARS! (THANK YOU!) Question 7. If a credit union violates the OFAC requirements it can lose its NCUA insurance coverage. True False Question 8. Only credit unions doing international wires or transactions are subject to OFAC. True False Question 9. OFAC requires credit unions that have filed reports to conduct annual audits and file annual reports of blocked property. True False OFAC provides a website and a toll free compliance hotline to answer questions. True False Bank Bribery Act Waiving part of a loan applicant s fee in return for a favor would likely be a violation of the Bank Bribery Act. True False The NCUA has established specific guidelines for the dollar amount that is appropriate business-purpose entertainment or gifts. True False Credit union officials are allowed to accept something of value in connection with credit union business if, after reviewing a full disclosure of the fact, the credit union approves acceptance of the gift in writing. True False Credit union volunteers and employees can accept discounts or rebates on merchandise from vendors for personal use, provided that the same offers are available to other members. True False Question 5. If a credit union volunteer or employee is a close friend of a vendor who wants to do business with the credit union, the NCUA recommends that the volunteer or employee should disclose the friendship to upper management or the board. True False Copyright 2015 Tyler F. Parker. All Rights Reserved. 22