Advertising Compliance

Transcription

1 Advertising Compliance John Zasada Principal

2 Credit Union Compliance Practice Review websites and social media for compliance before CU release Ongoing Regulatory Compliance Assistance Service Fair lending testing Targeted compliance testing 2

3 Agenda General compliance environment Advertising compliance management Risks Compliance requirements Examples of violations E-SIGN 3

4 Compliance Changes Unprecedented Good for credit unions? Focus is on mortgage lending CFPB focus on consumers 4

5 Changes Early ,000+ pages Regs worse than Act Matching resources 5

6 Compliance Changes Remittance Transfers TILA/RESPA Mortgage Disclosure Integration Reg Z Requirements for Escrow Accounts Reg Z - Mortgage Originator Standards Reg Z Ability to Repay Reg Z and Reg X - Mortgage Servicing Reg Z - HOEPA High Cost Mortgage Loans Reg B - Appraisal Rules Reg Z - High Risk Mortgage Appraisal Rules 6

7 Top Compliance Violations Regulation Z RESPA TIS HMDA Flood 7

8 Information overload Summaries Updated commentary Checklists Videos Regulatory implementation page 8

9 Grand Plan Plenty of resources Some say the CFPB has a bigger plan than just mortgage changes Mortgage implementation team 9

10 Compliance Landscape Harder to staff More enforcement Subjective requirements Risk-based Could be worse? 10

11 Risk Based Compliance Program? Be careful Must have a risk assessment When the risk assessment identifies high risks 11

12 Context Top regulatory compliance risk? Not social media BUT 12

13 What to Comply With? Truth-In-Lending Act (Regulation Z) Truth-In-Savings Act (Part 707 of NCUA Rules and Regulations) Non-Deposit Investment Guidelines NCUA Privacy Regulation USA Patriot Act Equal Credit Opportunity Act (Regulation B) Home Mortgage Disclosure Act (Regulation C) Reserve Requirements (Regulation D) Expedited Funds Availability Act (Regulation CC) Real Estate Settlement Practices Act (Regulation X) Fair Credit Reporting Act Fair Housing Act Electronic Funds Transfer Act (Regulation E) Overdraft Protection Requirements 13

14 Website Compliance Study 99 percent of credit union websites contained advertisements violating consumer protection laws TIS and TIL 14

15 UDAAP Unfair, Deceptive or Abusive Acts or Practices Compliance with regulations not enough Please examiners and consumers Objective to subjective 15

16 UDAAP 4 Ps 3 rd party relationships Footnotes 16

17 UDAAP Look at ethical behavior versus legal requirements Something can be legal but is it ethical? That is what can get you into trouble 17

18 Clear as Mud Guidance? Hits every part of the product life cycle Tip of the iceberg 18

19 UDAAP Examples Police report CD renewal Increase in non-interest income sparks scrutiny Disclosures fair? 19

20 Recent UDAAP Cases Bancorp Discover American Express 20

21 Eyes and Ears Beyond technical violations to overall fairness Can one person do it? Each department Each staff person 21

22 Managing Advertising Compliance Wait and see Clean past exam New world CFPB Unfair, Deceptive or Abusive Acts or Practices 22

23 What s the big deal? Closer scrutiny Advertising is indicative of overall compliance An examiner can look at your advertisements and website and in a few minutes get a good idea of how firm a grasp you have on regulatory compliance 23

24 Compliance Integration Elevation of business line over the compliance function Get compliance involved Compliance over the long haul Risk/reward 24

25 Social Media Facebook, Twitter, LinkedIn Purpose can be different than other forms of advertising Product disclosures and advertisements More work 25

26 Identify and Train Who can post? What can they post? Train on compliance requirements 26

27 Social Media Guidance FFIEC Proposed Guidance Policy and procedures Applicable regulations UDAAP 27

28 Complaints What is your process? Who are they forwarded onto? Who manages complaints? CFPB s focus 28

29 Records Retention Incorporate into your overall records retention schedule Regulation B, Z, TIS 29

30 NCUA Official Advertising Statement NCUA R & R Part 740.5(b) -- official advertising statement This credit union is federally insured by the National Credit Union Administration. Federally insured by NCUA and/or Reproduction of the official sign Clearly legible 30

31 Changes to use of the Official NCUA Advertising Statement Radio and TV Ads are exempt if less than 15 seconds, no NCUA statement required Old rule was 30 seconds Must now also appear on annual report and statements of condition required to be published On all print and website promotions, the official statement must be the same font size as the minimum font used in the promotion 31

32 Problem: 32

33 Solution: This credit union is federally insured by the National Credit Union Administration. Federally insured by NCUA and/or 33

34 NCUA Official Insurance Statement Any web page where the member can conduct transactions All CU Internet sites that permit members to conduct transactions 34

35 Problem: Welcome to XYZ Credit Union s Home Banking Portal Please enter your Account ID and password Federally Insured by NCUA 35

36 Solution: Welcome to XYZ Credit Union s Home Banking Portal Please enter your Account ID and password 36

37 Equal Credit Opportunity Act- Regulation B Real estate-related loan advertisements must prominently indicate that the credit union makes such loans without regard to race, color, religion, national origin, sex, handicap, or familial status. Include a copy of the logotype with "Equal Housing Lender" or "Equal Housing Opportunity," Or use any other method reasonably calculated to satisfy the notice requirement 37

38 Problem: Which is correct? 38

39 Solution: No problem, either is correct! 39

40 Truth-in-Lending APR Must use Annual Percentage Rate or APR If it is variable, indicate as such 40

41 Problem: New Car Loans as low as 4% 41

42 Solution: New Car Loans as low as 4% APR 42

43 Truth in Lending Closed End Trigger Terms Advertising Trigger Terms: The amount or percentage of any down payment The number of payments or period of repayment The amount of any payment The amount of any finance charge 43

44 Truth in Lending Closed End Required Disclosures The amount or percentage of the down payment The terms of repayment The annual percentage rate, using that term, and, if the rate may be increased after consummation, that fact 44

45 Problem: Mortgage Loans up to 30 years to repay 45

46 Solution: Mortgage Loans up to 30 years to repay at 4.50% APR with 10% down payment would have monthly payments of $5.07 per $1,000 borrowed Click here for payment calculator 46

47 Truth-in-Lending Trigger Terms - HELOCs Any ad containing any terms from initial disclosure requires: Finance Charge APR, variable rate, maximum APR Membership or participation fee An estimate of fees for opening plan Balloon payment information Tax advisor information 47

48 Truth-in-Lending Trigger Terms - HELOCs Any term required to be disclosed under (a)(1) or (a)(2) set forth affirmatively or negatively in an advertisement for a home-equity plan subject to the requirements of triggers additional disclosures under this section 48

49 Problem: Our HELOCs have no annual fee and no points!!! 49

50 Solution 1: Our HELOCs have no annual fee and no points!!! Low variable rate of 5% APR with maximum rate of 18% APR Interest paid may be tax deductible, Please consult your tax advisor 50

51 Solution 2: We ve got really good deals on HELOCs; phone us for details 51

52 More Rules for HELOCs Minimum payment If it could, then state it will Discounted, premium rates, promotional rates Duration and current rate Close proximity 52

53 Truth-in-Lending Trigger Terms Open End Any ad containing terms from initial disclosure requires: Finance Charge APR, if variable rate Membership or Participation Fee 53

54 Truth-in-Lending Trigger Terms Open End Any lending term required to be disclosed initially, whether affirmatively or negatively, in an advertisement triggers additional disclosures 54

55 Problem: Our Credit Cards have no annual fee! 55

56 Solution 1: Our Credit Cards have no annual fee! 12.00% APR $25 cash advance fee. 1% Foreign Transaction fee. 56

57 Credit Card Application Disclosures Annual percentage rate for purchases, balance transfers, cash advances Penalty APR and when it applies How to avoid paying interest on purchases Minimum interest charge For credit card tips from the federal reserve board Fees Annual fee Transaction fees Penalty Fees Other fees How we will calculate your balance 57

58 Credit Card Application / Solicitation 58

59 Truth-in-Savings (TIS) Free Accounts NCUA Rules & Regulations - don t call it free if it isn t Maintenance and activity fees 59

60 Problem: We offer free checking accounts (as long as you maintain a minimum balance of $500 each month) 60

61 Solution: We offer low-cost checking accounts (as long as you maintain a minimum balance of $500 each month) 61

62 TIS Rate Disclosure Truth in Savings permits the abbreviation "APY" as long as the term "annual percentage yield" is stated at least once in the advertisement Dividend rate 62

63 Problem: Regular Shares 1.01% APY 63

64 Solution: Regular Shares 1.01% APY APY = Annual Percentage Yield 64

65 TIS Trigger Terms APY triggers: Variable rate information Time offered Minimum balance to earn the advertised annual percentage yield. Minimum opening deposit A statement that fees could reduce the earnings on the account For term share accounts: The term of the account. A statement that a penalty will or may be imposed for early withdrawal. 65

66 Problem: Share Certificates 3.25% APY APY = Annual Percentage Yield 66

67 Solution: Share Certificates 3.25% APY Minimum Balance to Open & Earn APY - $5,000 Minimum Term 18 Months Penalty for Early Withdrawal This Rate Accurate as of 03/01/13 APY = Annual Percentage Yield 67

68 TIS Links The Commentary to 12 CFR states you can use a link to more detailed disclosures but the link must clearly refer to the location 68

69 Problem: 3.50% APY Certificate Click here 69

70 Solution: 3.50% APY Certificate Click here for Truth in Savings Disclosures 70

71 Fair Lending NCUA Fair Lending Guide Periodic testing Avoid technical violations There is an app for that 71

72 Advertising Discrimination Indirectly discouraging persons from applying for credit based on a prohibited basis under Regulation B? Suppose an advertisement contains pictures of people. It is possible that someone could allege that by not including persons of a protected class in these pictures, the credit union is discouraging them from applying for credit. 72

73 Advertising Discrimination The commentary to Regulation B states: Practices prohibited by this section include: Use of words, symbols, models or other forms of communication in advertising that express, imply or suggest a discriminatory preference or a policy of exclusion in violation of the act. Consequently, credit unions should consider what pictures of people they include on advertisements in terms of Regulation B and fair lending 73 73

74 Common Fair Lending Deficiency Age-based deposit account with credit feature Senior accounts for those 50 and older 74

75 Problem: Super Seniors Club Members aged 55 and older receive a special newsletter, free travelers checks, and discounts on loan rates 75

76 Solution: Super Seniors Club Members aged 55 and older receive a special newsletter, and free travelers checks. OR Members aged 62 and older receive a special newsletter, free travelers checks, and discounts on loan rates. 76

77 Courtesy Pay Programs Advertisements for overdraft programs require: The fee or fees for the payment of each overdraft; The categories of transactions for which a fee for paying an overdraft may be imposed; The time period by which the member must repay or cover any overdraft; and The circumstances under which the credit union will not pay an overdraft. 77

78 Problem: Fee Schedule: Cashiers Checks $2.00 Money Orders $1.00 Copy of Quarterly Statement $3.00 Print out of account $3.00 Courtesy Pay Fee $

79 Solution: Fee Schedule: Cashiers Checks $2.00 Money Order $1.00 Copy of Quarterly Statement $3.00 Print out of account $3.00 Courtesy Pay Fee $28.00 Courtesy Pay Disclosures: Payment by the credit union is a discretionary courtesy and not a right of the member or an obligation of the credit union. This privilege for consumer share draft accounts will be limited to a maximum amount of $300 overdraft (negative) balance. Transaction types that are eligible for courtesy pay include and are limited to: ACH transactions, Drafts and On-Us Checks at the Teller Counter. You must bring your account balance to a positive balance within every thirty (30) day period for a minimum period of 24 hours. The credit union, in its discretion, can cancel this protection and cease paying overdrafts at any time without prior notice of reason or cause. 79

80 E-SIGN Several years since E-SIGN passed Still represents an opportunity to reduce expenses, enhance member convenience, but A lot of credit unions still don t do it right! But not required in some cases Do you know the difference? 80

81 E-SIGN Act Substitute Electronic Delivery for paper: If written delivery is a legal requirement, and Paper will be discontinued, and Credit union will transmit items electronically, then You have e-delivery or E-D! 81 81

82 E-SIGN Act There are two E-D models: Push Pull 82 82

83 E-SIGN Act Pull ED: Credit union sends an alert message that announces Your disclosure is posted on our web site URL or reference to location of disclosure Length of time disclosures will remain available Member Logs into web site Downloads, reads and saves/prints disclosures Keep disclosures in a secure area - online banking platform is usually most secure area 83 83

84 E-SIGN Act Push ED: Credit union sends an alert message that announces here are the disclosures use encryption for sensitive information The disclosures themselves can appear in the message of in an attached file Member Receives Opens message or attached file Reads and saves/prints disclosure 84 84

85 E-SIGN Act Requirements to Comply: Must Provide Disclosure to your members and Obtain consent (Opt-In) 85 85

86 E-SIGN Act Disclosures: E-D for current transaction or more? Availability of paper delivery Now Later, if member would like to go back to paper Fees for paper Necessary hardware/software How to withdraw consent at a later date How to notify credit union when address changes 86 86

87 E-SIGN Act Consent Need affirmative consent - DECLARE Must demonstrate electronic success - DEMONSTRATE Cannot automatically opt members in! Cannot opt members in over the phone, or through a paper disclosure, or in person! 87 87

88 E-SIGN Act Consent Declare - I want E-D ½ of consent process Can be done via paper or electronically Still must demonstrate success 88 88

89 Thank You John Zasada CliftonLarsonAllen, LLP