The Current and Future Regulatory Compliance Landscape

Transcription

1 The Current and Future Regulatory Compliance Landscape Wednesday, November 16, 2011 Presented by: Steve Van Beek, Esq., NCCO Dillon Shea, Esq. National Association of Federal Credit Unions

2 Agenda Consumer Financial Protection Bureau Readingthe Regulatory Tea Leaves Case Study on Regulatory Evolution NCUA Office of Inspector General Report

3 Agenda Section 1071 Business Loans Durbin Amendment Impact Free Checking Analysis Regulation Z Current Proposals

4 Dodd-Frank Creation of New Consumer Bureau (CFPB) Uncertainty for regulated entities How will CFPB regulate? What will CFPB focus on? TILA/RESPA Other Mortgage Disclosures Credit Card Disclosures Checking Account Disclosures Unfair or Deceptive (UDAAP)?

5 The CFPB s New Powers Dodd-Frank Dictated CFPB Structure Numerous Offices within CFPB Office of Servicemember Affairs Financial Protection of Older Americans Office of Financial Education Office of Fair Lending Divisions on Students; Community Affairs Office of Research, Markets & Regulation New offices looking to regulate

6 Enumerated Consumer Laws Dodd-Frank Transferred Authority to CFPB Enumerated Consumer Laws (Section 1002) Electronic Funds Transfer Act Equal Credit Opportunity Act (ECOA) Fair Credit Billing Act Fair Credit Reporting Act (FCRA) Home Owners Protection Act (HOPA) Fair Debt Collection Practices Act (FDCPA) Gramm-Leach-Bliley (Privacy Act)

7 Enumerated Consumer Law Enumerated Consumer Laws (Cont d) Home Mortgage Disclosure Act (HMDA) Home Ownership Equity Protection Act (HOEPA) Real Estate Settlement Procedures Act (RESPA) SAFE Mortgage Licensing Act (SAFE Act) Truth in Lending Act (TILA) Truth in Savings Act (TISA)

8 CFPB s Regulatory Authority CFPB Published List of Regulations under its Authority Federal Register 05/31/2011 These Regulations Transferred on 07/21/11 CFPB has regulatory authority to finalize proposed regulations by other regulators that were not finalized by July 21, 2011 The CFPB is not required to propose these again CFPB has hinted at Ability to Repay under Reg Z as being finalized in early 2012

9 Authority without Director Inspector General Report Treasury & Fed. Reserve CFPB s Authority Without Director Propose and finalize regulations Write guidance on enumerated consumer laws Conduct examinations of depository institutions over $10 billion in assets Background research and information collection on future actions/rulemakings New Regulator for Regulated Institutions

10 Authority without Director CFPB cannot exercise new powers granted by Dodd-Frank until Senate-confirmed Director Unfair, deceptive or abusive acts or practices Determining which nondepository institutions should be under the CFPB s authority CFPB has requested input rather than proposal Supervising and examining nondepository institutions (includes writing regulations) Payday lenders; mortgages; private student loans Larger participants in other markets

11 Consumer Focus CFPB Focused Solely on Consumer Protection Does not have safety & soundness mandate CFPB s Website Directed at Consumers A Cop on the Beat; Protecting Consumer CFPB Has a Large Megaphone CFPB can easily communicate its message Newspapers; blogs; TV are ready to carry message CFPB Will Increase Member Complaints Increased Focus Increased Complaints If CFPB identifies an issue; reputation risk for CUs

12 Pressure on CFPB President Obama mentioned CFPB Raj Date s Statement on Transparency: This isn t about any one fee from any one bank. The problem is that checking accounts often come with a wide variety of unexpected costs that can quickly add up for consumers. Ideally, consumers would have a simple way to evaluate checking account costs.

13 Pressure on CFPB Different banks charge different fees. Different fees are applied under different terms and conditions. Different banks give different names to the very same fee. These all hint toward uniformity, transparency and model disclosures in the future

14 Pressure from Institutions CFPB has portrayed itself as a smarter, more effective regulator CFPB and supporters have justified creation by pointing out the failures of existing federal regulators (dual mandate) CFPB has said the right things regarding regulatory burden and not needing army of lawyers CFPB is in a position to clarify confusing regulatory requirements and level the playing field What pace and how clear is unknown?

15 Section 1022(b)(2) Section 1022(b)(2) of Dodd-Frank CFPB mandated to consider the impact of its regulations on credit unions under $10 billion CFPB s regulations will need to have a Section 1022(b)(2) analysis section CFPB will argue that consumers need uniform disclosures from all financial providers. Credit unions will need to comment and explain the burden and impact of rules

16 Checking Account Changes? Numerous press stories and articles discussing the need for changes to checking account disclosures Consumer groups pushing for new model disclosures (Schumer Box for Checking) Durbin Amendment has put the focus on checking accounts and specifically fee transparency and disclosure

17 Example of Model Form

18 Matz on Guidance From September 19, 2011 speech: So where there are risks, there will be regulations. But we need to be honest with ourselves here. There are times when examiners have told credit union officials, You should really follow NCUA guidance on this.or best practices on that. And the credit union s response is: Show me where it is in the regulations. If it s not a regulation, we do not have to do it.

19 Evolution of ODP 2001: OCC Interpretive Letter You had formally requested a program evaluation/comfort letter in connection with [an overdraft protection program] (Program) offered by [ 3rd Party ]. We have reviewed the materials that were submitted along with your letter, and we are unable to provide such a letter. In our view, the Program presents a number of concerns, which we summarize below.

20 Evolution of ODP The marketing materials for the Program send a mixed message as to whether the bank is committing to pay overdrafts as long as the account meets the stated qualifications for the Program and also raise numerous ambiguities about or overstate the benefits of the Program In a number of places the materials make such statements as we will pay your checks... if you maintain your account in good standing. The back of the marketing materials, however, states that we may refuse to pay an overdraft for you and that this is being done as a non-contractual courtesy.

21 Evolution of ODP Your characterization of the product as something other than lending raises supervisory issues: It is possible that overdrafts would be paid for customers who would not qualify for loans under the prudent underwriting standards that the bank should use for all of its extensions of credit. This could increase a bank s credit risk profile (e.g., higher delinquency and loss rates) by extending credit to borrowers that may not have normally qualified for payment of overdrafts or overdraft protection.

22 Evolution of ODP The Program is designed to increase fee income by encouraging customers to write NSF checks. Although the Program may be valuable to customers who might inadvertently or infrequently write an NSF check, banks participating in the Program will, in essence, attempt to entice their customers to write NSF checks more frequently and on purpose in order to generate fee income. This use of the Program could promote poor fiscal responsibility on the part of some consumers.

23 Evolution of ODP 2005: LTCU 05-CU-03, Joint Guidance on ODP Voiced Concerns and Legal Risks for ODP Provided ODP Best Practices Provide Opt-in or Clearly Market Opt-Out Option Alert Consumers before Transaction triggers Fees Promptly Notify Consumers Each Time ODP Used Consider Daily Limits on Consumer Costs Monitor ODP Usage

24 Evolution of ODP 2005: FRB and NCUA Rule (effective 2006) Required CUs that promote ODP to disclose total fees on periodic statements (now required for all) Required specific disclosures in advertisements of ODP programs Did not rule out Regulation Z coverage of ODP in future

25 Evolution of ODP 2007: Representative Carolyn Maloney (D-N.Y.) announces plan to introduce legislation of ATM and debit card overdraft fees. Other bills are issued as well over the next few years Hearings are held In other words, Congress has its eye on ODP Which translates to added pressure on regulators

26 Evolution of ODP 2008: Fed issues 2 nd rule regarding overdraft programs and TiS disclosures (effective 2010) This is the rule we have in place now. Periodic statement disclosures of total fees required of everyone. Available balance disclosures through automated systems may not include ODP amounts. Advertising disclosure requirements still in place.

27 Evolution of ODP 2008: Fed issues proposed Reg E rule to regulate ODP and require opt-in 2009: This rule is finalized 2010: Reg E ODP Rule is effective. Conclusion: These rules didn t come out of nowhere. Guidance may be just guidance. But it may also be a sign of things to come.

28 Other Examples Loan Participation Nov NCUA issues Loan Participation Supervisory Letter, LTCU 08-CU NCUA recently announced plan for proposed rule on loan participations May require buyers of participations to monitor loan s progress on ongoing basis

29 Other Examples Third Party Due Diligence NCUA has issued numerous pieces of guidance over last few years Issued rule on Third Party servicing Issued proposed rule on CUSOs

30 NCUA OIG Report Review of NCUA s Document of Resolution Follow-Up Process September 29, 2011 Issued by NCUA s Office of Inspector General We determined that neither NCUA s Office of Examination nor Insurance (E&I) nor the five regional offices effectively monitored or followed up on unresolved DOR items.

31 NCUA OIG Report Specifically, we found that E&I performed limited DOR monitoring and that monitoring in each region varied based on their individual policy. Accordingly, NCUA is establishing a uniform credit union supervision process for all regions. NCUA missed opportunities to mitigate losses to the Share Insurance Fund (NCUSIF).

32 Section 1071 Business Loans Section 1071 of Dodd-Frank Will require the collection and reporting of information on business loans Minority-owned and women-owned businesses Similar to HMDA collection and reporting Definition of business loan is currently not aligned with NCUA s definition of a member business loan

33 Section Guidance CFPB has issued guidance on the start-date for collection of information for business loans Collection and reporting not required until regulations are finalized by the CFPB Motor vehicle dealers subject to regulation by the Federal Reserve (finalized a similar ok to wait regulation) If your credit union does business loans (even if no MBLs ) keep an eye on this issue

34 Durbin Impact Durbin Amendment Implementation Date October 1, 2011 for Fee Cap April 1, 2012 for two unaffiliated networks VISA/MasterCard Two Tiers Large banks adjusting business model Bank of America Wells Fargo Citibank JP Morgan Chase

35 Durbin Impact Credit Union Opportunity? Customers fed up with fees looking to other institutions; including credit unions Consolidation of accounts? More members making CU their primary FI What types of members switching? Younger Smaller dollar accounts Sick of being charged fees

36 The Future? Continued news stories about Durbin Impact Closed Branches New Fees Push for CFPB to step in and regulate Attempts to extend fee caps to credit cards Merchants pushing hard Congress probably unwilling to want to take a 3 rd vote on interchange Efforts to Repeal Durbin Amendment

37 Durbin Impact Two Unaffiliated Networks If currently affiliated CU may need to add an unaffiliated network (PIN or signature) Debit Card Requirement One signature; One PIN unaffiliated One signature; Two PIN unaffiliated Two signature; One PIN unaffiliated If change in ownership of network, 6 months to comply with requirement

38 Free Checking Analysis 12 C.F.R (a) Cannot advertise account as free if any maintenance or activity fee may be imposed on the account

39 Free Checking Analysis Staff Commentary to Truth in Savings Appendix C, comments 707.8(a)3-8 Comment 3: Maintenance/Activity Fees Minimum balance fee or for exceeding transaction limits Transaction/Service fees imposed on account regularly Flat fee (monthly service fee) Fees to withdraw, deposit, or transfer funds (percheck fee)

40 Free Checking Analysis Staff Commentary to Truth in Savings Comment 4: Not Maintenance/Activity Fees Fees not required to be disclosed in TIS disclosure 12 CFR 707.4(b)(4) Check printing fees, balance inquiry fees Dormant account fees, fees for obtaining checks ATM fees; fees for electronic transfer services not required to obtain account (bill-pay). Stop payment fees, return check fees

41 Free Checking Analysis Wire Transfer fee? Comment 4 Fees not required to be disclosed in TIS Wire transfer fees not required to be disclosed in TIS Per Comment 707.b(4)-2 Can advertise account as free

42 Free Checking Analysis 12 C.F.R (b)(4) Comments Must be disclosed at account opening Maintenance fees (monthly fees) Fees for deposits or withdrawals Fees to open or close an account Fees imposed upon dormant or inactive accounts

43 Free Checking Analysis Fees for Special Services Stop payment fees; balance inquiry Fees for checks returned unpaid Fees to access an overdraft line of credit (if charged against the share account) These fees must be disclosed

44 Free Checking Analysis Other Fees Need Not Disclose At Account Opening Travelers Checks Wire Transfers ACH Transfers Credit Card Cash Advances Savings Bonds Redemptions

45 Free Checking Analysis Incidental Fees Escheatment Fees Garnishment Fees Fee to Change Name on Account Fee to Wrap Loose Coins Fee for Photocopy Wrong/Bad Address Fee

46 Free Checking Analysis ODP Fee? Federal Reserve 2005 Reg DD final rule: Under Regulation DD, an institution may not describe an account as free (or use a similar term) if any maintenance or activity fee may be imposed on the account. As the Board noted in the proposal, fees for overdraft services are not considered maintenance or activity fees, because the fees do not relate to the use of the consumer s own funds in the account. Thus, institutions may impose overdraft fees in connection with free accounts. 70 Fed. Reg

47 Free Checking Analysis Advertising Free Debit Card? Does CU charge ATM fees? Free vs. No Monthly Debit Card Fee

48 Reg Z on the Radar Ability to Repay for Mortgages Raj Date of the CFPB has stated he expects a final rule early spring 2012 Would not apply to HELOCs, reverse mortgages, timeshares, or temporary loans General Ability to Pay Standard or QM Other protections such as prohibition on prepayment penalties

49 Reg Z on the Radar Ability to Pay Standard: Consider and Verify Income or assets Current employment status Monthly payment on mortgage and any simultaneous mortgage, and for mortgagerelated obligations Current debt obligations Monthly DTI, or residual income Credit history

50 Reg Z on the Radar Qualified Mortgage Proposal sought comments on two alternatives Alternative 1: Safe Harbor and include only requirements specified by Act Alternative 2: Presumption of Compliance and include requirements specified by Act plus additional requirements from general standard

51 Reg Z on the Radar Alternative 1 No negative amortization and cannot exceed 30 years No interest only or balloon payments Total points and fees can t exceed 3% of loan amount Income/assets relied upon verified Underwriting: 1) based on max interest rate in first 5 years; 2) uses fully amortizing payment schedule; and 3) takes into account any mortgage-related obligations

52 Reg Z on the Radar Alternative 2 Includes all criteria of Alternative 1 Plus CU must consider and verify: Employment status Monthly payment for any simultaneous mortgage Consumer s current debt obligations Monthly DTI or residual income Credit History

53 Reg Z on the Radar Refinancing Nonstandard Mortgage Balloon Payment QM Limitations on Prepayment Penalties Note: Proposal defines prepayment penalty to include a fee, such as a loan closing cost, that is waived unless the consumer prepays the covered transaction.

54 Reg Z on the Radar Escrow Proposed Rule Expand minimum period for escrows to 5 years Exempts condos when association has master policy Exempts certain lenders who lend mostly in rural or underserved areas and originate <100 loans/year Certain disclosures for all loans for which escrow account is established Certain disclosures for all loans for which no escrow account is established

55 Reg Z on the Radar 3 Rules Proposed by Fed but later tabled by Fed Could be picked up by the CFPB 2 proposals issued August 2009 Closed-End Loans HELOCs Proposal issues September 2010 Right to Rescind

56 Questions? Contact Info: Steve Van Beek, Esq., NCCO Dillon Shea, Esq