Compliance Update with Amy K
by Amy Kleinschmit
Chief Compliance Officer
4/12/2018

CFPB. The Consumer Financial Protection Bureau (CFPB) recently issued its semi-annual report which can be found here. An interesting intro to the report from Acting Director Mick Mulvaney,  “As has been evident since the enactment of the Dodd-Frank Act, the Bureau is far too powerful, and with precious little oversight of its activities. Per the statute, in the normal course the Bureau’s Director simultaneously serves in three roles: as a one-man legislature empowered to write rules to bind parties in new ways; as an executive officer subject to limited control by the President; and as an appellate judge presiding over the Bureau’s in-house court-like adjudications.” The Acting Director went on to quote James Madison that, “[t]he accumulation of all powers, legislative, executive, and judiciary, in the same hands … may justly be pronounced the very definition of tyranny.”

The Message from Mick Mulvaney concluded with his four recommendations for statutory changes to the CFPB. “Accordingly, I request that Congress make four changes to the law to establish meaningful accountability for the Bureau:

1. Fund the Bureau through Congressional appropriations;

2. Require legislative approval of major Bureau rules;

3. Ensure that the Director answers to the President in the exercise of executive authority; and

4. Create an independent Inspector General for the Bureau.

Needless to say, that was a very interesting opening for a CFPB semi-annual report. The report goes on to discuss problems faced by consumers shopping for or obtaining consumer financial products or services; an analysis of complaints received; along with a number of other topics. But the “plan for upcoming rules” on page 19 drew my attention as we plan for 2018 and 2019. Below is what is proposed and anticipated final rules – let the fun begin.

Upcoming proposed rules:

  • Payday, Vehicle title, and Certain High-Cost Installment Loans: the Bureau announced in January 2018 that it intends to open a rulemaking to reconsider its 2017 rule titled Payday, Vehicle Title, and Certain High-Cost Installment Loans. Lenders would not need to comply with most provisions of the 2017 rule until August 2019.
  • The Expedited Funds Availability Act (Regulation CC): the Bureau will work with the Board of Governors of the Federal Reserve System to issue jointly a rule that includes provisions within the Bureau’s authority.
  • Debt Collection Rule: the Bureau will work towards releasing a proposed rule concerning FDCPA collectors’ communications practices and consumer disclosures.
  • Home Mortgage Disclosure (Regulation C): the Bureau announced in December 2017 that it intends to open a rulemaking to reconsider various aspects of the Bureau’s 2015 rule titled Home Mortgage Disclosure Act (Regulation C), which could involve issues such as the institutional and transactional coverage tests and the rule’s discretionary data points.

Upcoming final rules:

  • Gramm-Leach-Bliley Act (GLBA) (Regulation P): the Bureau is working towards finalizing an amendment to Regulation P concerning annual notice requirements.
  • Amendments Relating to Disclosure of Records and Information: This rule will include procedures used by the public to obtain information from the Bureau under the Freedom of Information Act, the Privacy Act of 1974, and in legal proceedings. It will also address the protection and disclosure of confidential information that the Bureau obtains in connection with the exercise of its authorities under Federal consumer financial law.
  • Amendment to the Federal Mortgage Disclosure Requirements under the Truth in Lending Act (Regulation Z): the Bureau intends to finalize a proposed amendment related to the use of Closing Disclosures to determine good faith disclosure of estimated closing cost.

New Seal. The CFPB also announced a new seal, shown above. Per the CFPB, “the seal depicts an eagle with its wings raised across a blue field. Three stars above its head stand for the bureau’s three pillars: to serve, lead, and innovate. The eagle’s breastplate is a shield symbolizing protection. The scale on the seal represents the traditional symbol of justice. The key represents consumers’ financial security. And the beacon of fire symbolizes transparency in the financial marketplace, along with vigilance and the revelation of knowledge.” You can find more information about the CFPB’s new seal here.

CU Policy Pro updates. The first quarterly update for CU Policy Pro has been released. The tracked changes version of each update can be found in the Resources Area of CU PolicyPro (under the “Updates” tab). It is important to note that when updates are made to the Model Policies Manual, these updates do not automatically go into your CU Policies Manual.

The following policies were amended with this recent update.

Policy 2110 – Bank Secrecy Act / Anti-Money Laundering Program Added more detail regarding identifying beneficial owners and the process for ongoing monitoring and clarified the provision in the new rule to require identification/verification of the beneficial owners of a legal entity at the time a “new account” (as opposed to membership) is opened.

Policy 2300 – Share Draft Accounts. This policy is being revised to slightly amend the language associated with “excessive overdrafts.”  According to industry guidance, credit unions are responsible for monitoring “excessive” usage for overdrafts.  While there isn’t much guidance out there, we can find evidence that the financial industry considers a member who overdraws his/her account on more than six occasions where a fee is charged in a rolling twelve month period to be “excessive.”  In looking further, an “occasion” is considered each time an overdraft transaction generates a fee, regardless if the overdrafts take place over multiple days.  Therefore, the language indicates excessive overdrafts “on different days” is being removed as unnecessary.

Policy 2400 – Funds Availability. In addition to minor changes to allow for easier interpretation, Policy 2400 was updated to remove content associated with subparts C (Collection of Checks) and D (Substitute Checks) within Regulation CC.  With this update, Policy 2400 will only include content related to subpart B (Availability of Funds and Disclosure of Funds Availability Policies), which was not impacted by the recent amendments to Regulation CC that become effective on July 1, 2018.  As noted below, Policy 2401 was developed to include the revised content associated with the regulatory changes.

New Policy**Policy 2401 – Collection of Checks Procedure. The Federal Reserve Board published substantial amendments to Regulation CC that become effective on July 1, 2018.  The amendments impacted subparts A (General), C (Collection of Checks) and D (Substitute Checks), essentially modifying current check collection and return requirements to reflect the electronic environment.    These changes also apply to existing (and a few new) check warranties and indemnities to checks that are collected and returned electronically and to electronically-created items. 

The new policy content of Policy 2401 was previously included in Policy 2400.  However, we wanted to maintain only the Funds Availability provisions within Policy 2400.  The intent in creating Policy 2401 was to provide credit unions either a resource to develop appropriate procedures or to adopt this new policy if they previously relied on the content within Policy 2400.  These provisions do not become effective until July 1, 2018. 

Policy 2610 – ACH Operations. On March 16, 2018, Phase 3 of the Same Day ACH changes became effective for credit unions.  This final stage requires credit union Receiving Depositary Financial Institutions (RDFIs) to make funds available from ACH credits and process debits for their members by 5:00pm their local time.  This required a policy change from the Phase 2 requirement, which only required same day ACH credits and debits to be processed by the end of their processing day.

Policy 2611 – ACH Management. On March 16, 2018, Phase 3 of the Same Day ACH changes became effective for credit unions.  This final stage requires credit union Receiving Depositary Financial Institutions (RDFIs) to make funds available from ACH credits and process debits for their members by 5:00pm their local time.  This required a policy change from the Phase 2 requirement, which only required same day ACH credits and debits to be processed by the end of their processing day. 

Policy 2612 – ACH Audit. On March 16, 2018, Phase 3 of the Same Day ACH changes became effective for credit unions.  This final stage requires credit union Receiving Depositary Financial Institutions (RDFIs) to make funds available from ACH credits and process debits for their members by 5:00pm their local time.  This required a policy change from the Phase 2 requirement, which only required same day ACH credits and debits to be processed by the end of their processing day. 

Policy 2620 - Remote Deposit Capture. As noted under the revisions for Policy 2401, the Remote Deposit Capture policy has been updated to reflect the changes within Regulation CC that provide for indemnity protection in the case of restrictive indorsements and language in agreements that allocate liability back to the member when a check was deposited via RDC and losses are incurred as a result of subsequent deposits of the same check.

Policy 7360 – Mortgage Servicing Rules implemented by Regulation Z (TILA) and Regulation X (RESPA), were updated with changes effective on both October 19, 2017 and April 19, 2018.  While the policy was previously updated to include the changes effective in October of last year, the changes to the policy in this update reflect the changes necessary for the April 19, 2018 effective date. 

Policy 7361 – Small Servicer Mortgage Servicing Rules implemented by Regulation Z (TILA) and Regulation X (RESPA), were updated with changes effective on both October 19, 2017 and April 19, 2018. While the policy was previously updated to include the changes effective in October of last year, the changes to the policy in this update reflect the changes necessary for the April 19, 2018 effective date.

Policy 10011 – Member Account Records. The record retention policy is being updated based on a response from Kenmark Financial Services, who manages the Medallion Signature Guarantee program. They indicated that the Medallion Program does not set any guidelines for record retention.  Instead, it is up the institution's own internal policies and procedures. A claim can be made up to six years AFTER the date of discovery. Therefore, as a conservative approach the record retention guidelines are being updated to reflect 6 years for retention.

 

 

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