From the Archives: October 2012

Mortgage Service Proposals, Change-in-Terms Notice Deadline, FinCENís Proposed Rule, GAO on Mortgage Costs, Interchange Study 

MCUL Comments on Mortgage Servicing Proposals
MCUL & Affiliates submitted comment letters in response to the Consumer Financial Protection Board’s mortgage servicing proposals under Regulation Z (Truth in Lending) and Regulation X (Real Estate Settlement Procedures Act). 

The proposed rules covered nine of the following servicer obligations:

  1. Providing periodic statements;
  2. Providing rate adjustment notices;
  3. Correcting errors asserted by mortgage loan borrowers;
  4. Providing information requested by mortgage loan borrowers;
  5. Ensuring that a reasonable basis exists to obtain force-placed insurance;
  6. Establishing reasonable information management policies and procedures;
  7. Providing information about mortgage loss mitigation options to delinquent borrowers;
  8. Providing delinquent borrowers access to servicer personnel with continuity of contact about the borrower’s mortgage loan account; and
  9. Evaluate borrowers’ applications for available loss mitigation options.

MCUL opposed much of the provisions of the rule, though all but the last three listed above are mandated by the Dodd-Frank Act. Specifically, MCUL opposed enabling consumers to assert errors orally; opposed the timing requirements on the rate adjustment notices; urged the CFPB to allow credit unions to send combined periodic statements for different types of a mortgage loans that a borrower may have with the credit union; urged the CFPB to grandfather existing adjustable rate mortgages from the new rules; and urged the CFPB to provide as much time to comply with the Dodd-Frank Act mandates as possible.

In light of the multitude of mortgage-related regulations scheduled to take effect on Jan. 21, 2013, as well as the difficulty in determining the cost of compliance with such regulations, MCUL strongly urged the CFPB to delay the effective date of the mortgage servicing rules for a 12-month period permitted under the Dodd-Frank Act in order to allow credit unions sufficient time to adopt or revise existing software, create new policies and procedures, train staff, budget for the substantially increased costs, and otherwise ensure compliance. 
MCUL Comment Letters can be found on the Home page of in the “Operation Grassroots” section.

Change-in-Terms Notice Deadline Approaching for Credit Card Disclosures
Effective Jan. 1, 2013, the Consumer Financial Protection Bureau will be the entity that must be shown in the credit card tabular account-opening disclosure. Because this information is required to be in the account-opening table per Regulation Z §1026.6(b)(2)(xiv), the credit union must provide a 45-day change-in-terms notice under Regulation Z §1026.9(c)(2) to reflect that the CFPB is the agency to consult to learn more about credit cards.

In order to meet this deadline, credit unions will be required to ensure the change-in-terms notice is sent by mid-November. Per Regulation Z §1026.7(b)(7), the change-in-terms notice may be contained on or with the periodic statement, but must be in line with the format requirements provided in §1026.9(c)(2)(iv)(D), and §1026.9(g)(3)(ii). See Forms G–18(F) and G–18(G) in Appendix G to the Regulation for specific details.

For more information on credit cards, visit the Credit Cards page found in the Loans and Leasing channel of InfoSight, which can be found here.

FinCEN’s Proposed Rule May Change Customer Due Diligence Practices
The Financial Crimes Enforcement Network (FinCEN) held a public hearing in Chicago on Sept. 28 to solicit information from the financial services industry on the development of new customer due diligence requirements. The proposed rulemaking on Customer Due Diligence Requirements for Financial Institutions will amend 31 CFR Chapter X, expand customer due diligence requirements and define requirements for beneficial ownership of accounts.

The proposed rule defines beneficial ownership as an individual who has a level of control over, or entitlement to, the funds or assets in the account that enables the individual, directly or indirectly, to control, manage or direct the account. FinCEN stressed that the definition of beneficial ownership was targeted at direct and indirect control of an account, and not beneficiary interest in an account in the future, which would lack an element of control. Under existing FinCEN regulations, there are two situations which expressly require beneficial ownership information to be obtained: if the financial institution offers private banking accounts, or correspondent accounts for foreign financial institutions. This amendment would extend the requirements to obtain beneficial ownership information on all accounts. 

The greatest impact of the proposed rule for credit unions will be at account opening for business and trust accounts. In the case of legal entities (businesses and trusts) the rule would require identifying either: Each individual(s) who, directly or indirectly (through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise) owns more than 25% equity interests in the entity; or if there is no individual(s) who owns more than 25% equity, the individual who, directly or indirectly (through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise) has at least as great an equity interest in the entity as any other individual, and the individual with greater responsibility than any other individual for managing or directing the regular affairs of the entity.

FinCEN is currently investigating and gathering information through additional public hearings on several additional considerations of the proposed rulemaking which include: verification requirements for beneficial ownership information; a determination if the rule will apply on a going-forward basis, or if a look-back period will be instituted; and, possible exemptions to the rule, which could include publically traded corporations. The implementation of this rule will align the United States with other leading financial centers that have customer due diligence regulations. Currently the United States, Australia and Canada are the only leading financial countries that do not have CDD requirements. 

The proposed rule can be found here. Note: the comment period has already expired. A copy of MCUL’s Comment Letter in response to this proposal can be found here.

Dodd-Frank Could Mean Mortgage Costs for CUs: GAO
While the majority of the Dodd-Frank Wall Street Reform Act's regulatory changes are aimed at large, complex financial institutions, portions of the act addressing mortgage reforms "may impose additional requirements and, thus, costs" on credit unions and other financial institutions, the U.S. Government Accountability Office (GAO) has said.

The impact of these mortgage reforms, though, depends on the results of future rulemakings, the GAO said. The GAO report, entitled "Community Banks and Credit Unions: Impact of the Dodd-Frank Act Depends Largely on Future Rule Makings," found that finance industry representatives are particularly concerned that Dodd-Frank regulatory changes imposed by the Consumer Financial Protection Bureau may force firms to exit certain lines of business.

The additional time, resources, and effort it would take their institutions to address new regulatory requirements was a chief concern. Some also said the standardization of processes through CFPB regulations could reduce the ability of community banks and credit unions to offer differentiated products to better serve their communities.

The GAO noted that some regulators and industry representatives expected the potential cumulative effect of CFPB mortgage reforms to decrease lending practices. The mortgage reforms could also reduce community banks' and credit unions' advantages in rural communities and other niche markets.

However, some of these regulatory burdens could be relieved if the CFPB used its full exemption authority, the GAO said. In addition, several Dodd-Frank provisions, including deposit insurance reforms, Sarbanes-Oxley Act exemptions, and the CFPB's pending supervision of nonbanks, "could reduce costs and/or help level the playing field for community banks and credit unions," the GAO said.

The CFPB and the NCUA generally agreed with the report, the GAO said.

The GAO report can be found here.

Interchange Cap not Helping Consumers: CUNA, Trades
With the one-year anniversary of debit interchange fee cap implementation approaching on October 1, the CUNA and finance industry partners in a letter to Congress noted that "there is no evidence that consumers are seeing lower prices" on retail goods, a direct contrast from what they were promised by merchants.

"Despite promises by retailers, and despite a realized $8 billion windfall by these retailers over this past year, consumers have yet to see discounts for using their debit cards at the register," the letter said.

Credit unions and community banks are also being harmed by the regulation. The letter noted a U.S. Government Accountability Office study released last week which found smaller community banks and credit unions, which were supposed to be "exempted" from the fallout of this legislation, have instead seen interchange revenue decreases of 5% in the first three months following interchange fee cap implementation.

Community banks and credit unions are struggling to maintain viable debit programs, and have had to raise their fees in some cases, the letter noted. "The GAO further concludes that even more harm to community banks and credit unions is likely as the marketplace evolves," the letter added.

The Federal Reserve Board's final rule implementing the interchange law capped large issuer debit interchange fees at 21 cents. An additional five basis points per transaction may be charged to cover fraud losses, and an extra penny may be charged by financial institutions that are in compliance with established fraud prevention standards. Most credit unions are exempt from the fee cap.

The letter, which was sent to Senate Majority Leader Harry Reid, D-Nev.; Senate Minority Leader Mitch McConnell, R-Ky.; Speaker of the House John Boehner, R-Ohio, and House Minority Leader Nancy Pelosi, D-Calif., was co-signed by the American Bankers Association, Independent Community Bankers of America and the NAFCU.
The full letter can be found here.

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