LSCU Small Credit Union Workshops
March 22 and 23, 2011
Regulatory Update • • •
Garnishment Safe and Fair Enforcement (SAFE) for Mortgage Licensing Act ATM ADA Requirements
• • • • • • •
11-CU-01 11-FCU-02 Regulation CC Reorganization of BSA Risk Based Pricing Notice Health Tax Credit NCUA Assessments and Premiums
Garnishment The Treasury Department’s Financial Management Service (FMS) has issued Guidelines for Garnishment of Accounts Containing Federal Benefit Payments. The new FMS guidelines are for use by financial institutions when a garnishment order is received for an account into which federal benefit payments have been directly deposited. The guidelines will eventually be published as a new chapter in Treasury’s “Green Book, A Guide to Federal Government ACH Payments and Collections”. These Guidelines can be accessed at www.lscu.coop A link to the Green Book is http://www.fms.treas.gov/greenbook/index.html
Garnishment • The effective date for this is May 1, 2011 These guidelines apply to: • Social Security and Supplemental Security Income Benefits • Veterans Benefits • Federal Railroad Retirement Unemployment and Sickness Benefits • Civil Service Retirement Systems and Federal Employee Retirement Systems Benefits When these Benefits are paid by the appropriate federal agency
Garnishment • These guidelines only apply when the payments are made electronically via ACH. • The Treasury will encode an “XX” in Positions 54 and 55 of the “Company Entry Description” Field of the Batch Header Record for payments that are designated as Benefit Payments. • Timing of the review of garnishment orders is generally no more than two business days after receipt of the garnishment order.
Garnishment Upon receipt of a Garnishment order • Examine the order to determine if the United State or State Child support agency has attached or included a Notice of Right to Garnish Federal Benefits. – Yes, proceed with your normal garnishment procedures – No, your credit union will need to perform an account review that will include a Lookback.
Garnishment â€˘ The Lookback Period is a two month period that beings on the date preceding the date of account review and ends on the corresponding date of the month two months earlier, or on the last date of the month two months earlier if the corresponding date does not exist.
Garnishment Account Review: • Other funds from whatever source that may be commingled in the account with benefits • Co-owner(s) on the account • Benefits payments to multiple beneficiaries and/or multiple programs • Balance of the account • Instructions to the contrary in the order • Nature of the debt or obligation underlying the order
Garnishment Account Review • The credit union shall perform the account review separately for each account in the name of an account holder against whom a garnishment order has been issued. • If the account review shows no benefit payment was directly depository during the lookback period then follow your customary procedures for dealing with garnishments. • If the account review shows that a benefit payment was deposited your credit union will need to calculate and establish the protected amount for the account.
Garnishment • The protected amount is the lesser of all benefits payments posted to an account between the close of business on the beginning date of the lookback period and the open of business on the ending date of the lookback period, or the balance in an account at the open of business on the date of account review. • For more details, go to to www.lscu.coop – Governmental Affairs Tab – Compliance & Operational Support • Garnishment Guidelines
SAFE Act • The SAFE Act became effective October 1, 2010 at which point financial institutions were required to have a board approved policy. The national registration wasn’t open until January 31, 2011 ! • A sample policy was made available for Alabama and Florida credit unions and may be used to review and develop your own SAFE Act policy. • You will need a login and password to obtain this policy, our audio Compliance Conference Call, and other information. Go to www.lscu.coop – Governmental Affairs Tab – Compliance & Operational Support • SAFE Act Resources
• NMLS adds more training workshops The National Mortgage Licensing System & Registry (NMLS) has announced an additional round of training sessions in response to high demand. This is the link to these training sessions http://mortgage.nationwidelicensingsystem.org/news/events/Pages/ • These sessions are recorded and available if you are unable to attend one of their live training sessions. • If required, you will need to register by July 29, 2011.
SAFE Act â€˘ Will all lending department personnel have to register on the NMLS? No. Only employees who perform mortgage loan origination duties will be required to register on the NMLS. A mortgage loan originator (MLO) is an employee who takes a residential mortgage loan application; and offers or negotiates terms of a residential mortgage loan for compensation or gain. â€˘ Will members of the credit unionâ€™s credit committee have to register on the NMLS? For those credit unions that have a credit committee, at least one individual from the committee will be required to register under the system and obtain a unique identifier and maintain the registration if the committee engages in MLO activities.
SAFE Act • Our credit union only offers home equity loans. Will employees in our lending department who make these loans be required to register on the Nationwide Mortgage Licensing System & Registry? Home equity loans are covered by the SAFE Act; and if these employees fit the Act’s definition of mortgage loan originator (MLO) they will have to register on the NMLS. The following loans are covered by the SAFE Act’s requirements: first mortgages, second mortgages, home equity lines of credit, refinanced loans, reverse mortgages, and loans secured by land purchased for the construction of a residence.
SAFE Act • Does a credit union that offers mortgage loans have to register on the NMLS, even if none of its employees meet the SAFE Act’s de minimus threshold? The SAFE Act registration requirements do not apply to an employee of a credit union who has never been registered (or licensed) through the NMLS as a mortgage loan originator (MLO) if during the past 12 months the employee acted as an MLO for 5 or fewer residential mortgage loans. However, the credit union would still need to develop a SAFE Act policy that tracks the number of loans originated by the credit union’s employees and describing how the credit union would register its MLOs if it had too.
SAFE Act â€˘ Our credit union already obtains fingerprints and does background screening on prospective employees. Can we upload this information into the NMLS or do our employees have to be re-fingerprinted and go through another background check? The credit union employees who are identified as mortgage loan originators (MLOs) will have to be fingerprinted again and go through another background check. The SAFE Act requires MLOs to submit fingerprints to the NMLS for the purpose of conducting a criminal background check.
SAFE Act • The NMLS says that each institution should assign two account administrators. Since just about everyone in our lending department will register on the NMLS, can registered MLOs also serve as account administrators? Generally speaking, the answer is no. However, there is an exception for small institutions - a credit union with less than 10 employees can use the same employee as an administrator and MLO. • What are the steps credit unions should take to get their MLOs registered on the NMLS? – Determine if your institution is required to register with the NMLS (e.g., Does your credit union offer residential mortgage loans, including home equity loans?).
SAFE Act – Determine who at your credit union will serve as account administrators - account administrators have the primary responsibility for managing your institution’s account on the NMLS. – Determine how your institution will register MLOs – who will control the process, who will pay fees, etc. – Obtain two factor authentications for all institution users – all account administrators and other system users associated with the credit union’s NMLS account will be required to use a second authentication factor beyond user name and password provided by the NMLS before logging into the system. This second authentication factor must be obtained through http://www.verisign.com/ . – Gather the necessary data from your MLOs to create their accounts.
SAFE Act – Request an institution account on the NMLS. – Complete and submit the credit union’s Form MU1R (Form MU4R for MLOs may be submitted by the credit union or the individual MLO). – Begin registering your MLOs.
ATM ADA Requirements • •
ATMs that are installed or modified after March 15, 2012 must comply with the 2010 ADA standards. Clear floor or ground space. The minimum space is 30 inches (760mm) by 48 inches (1220mm), which allows a parallel approach by a wheelchair user. This standard isn’t applicable to drive-up ATMs. ATMs must be speech-enabled under Section 707.5 of the accessibility guidelines. This means operating instructions, visible transaction prompts, user input verification, error messages, and any other displayed information for full use of the machine must be accessible to and independently usable by individuals with vision impairments.
ATM ADA Requirements • Speech must be recorded or digitized human, or synthesized, and delivered through a mechanism that is readily available to all ATM users, such as through a telephone handset or a headset plugged into an audio jack. • ATMs must provide the opportunity for the same degree of privacy of input and output available to all individuals. • There is a safe harbor for ATMs that are in compliance with the original 1991 ADA accessibility standards. These ATMs won’t need to be modified unless they’re altered on or after March 15, 2012.
ATM ADA Requirements • ATMs that don’t comply with the 1991 standards must be modified to comply with either the 1991or 2010 standards before March 15, 2012. • By using your login and password you can listen to our audio Compliance Conference Call, and obtain other information. Go to www.lscu.coop – Governmental Affairs Tab – Compliance & Operational Support • ADA ATM Standards
10-CU-26 Evaluating Payment System Service Providers â€˘ As many corporate credit unions develop plans to consolidate or restructure in 2011, your credit union may need to make decisions about the critical payment systems you use to serve your members. â€˘ Your credit union should fully understand each payment service provided by your corporate credit union to make informed decisions before any changes are made to these services. Please review the checklist to this letter as you analyze these services and perform a due diligence review on your provider of choice.
10-CU-26 Evaluating Payment System Service Providers Credit unions accept, collect, and process a variety of payment instruments which may include, but are not limited to: • Share draft settlements, • ATM and debit settlements, • Credit card settlements, • Electronic funds transfer and direct deposit, and • Wire transfers.
10-CU-26 Evaluating Payment System Service Providers Risk Exposure • legal, • compliance, • strategic, • operational, • credit, and • liquidity risks
10-CU-26 Evaluating Payment System Service Providers • For credit unions temporarily receiving payment services from “Bridge” corporates, NCUA will be implementing a section within the online Credit Union Profile you can use to track progress in moving payment system services. The addition will be available starting with the June 30, 2011 call report cycle. • NCUA will be hosting a webcast in 2011 for all credit unions to review the Payment Systems Checklist. • In addition, the 2011 workshops hosted by NCUA’s Office of Small Credit Union Initiatives will contain a session designed for credit unions up to $50 million in assets to discuss the checklist. For workshop dates and locations, e-mail OSCUITraining@NCUA.Gov.
11-CU-01 Residential Mortgage Foreclosure Concerns Key problems identified in the mortgage industry related to foreclosures include: • Mortgage Electronic Registration System (MERS) challenges; • Missing or defective loan documents; • Documentation deficiencies related to “Robo-signing;” and • Contractual buy-back risks with serviced mortgages. • (MERS) is an electronic loan registration system designed to track the servicing rights and ownership of mortgages in the secondary market.
11-CU-01 Residential Mortgage Foreclosure Concerns â€˘ Some lenders failed to properly document and record mortgages. Fatal documentation flaws can prevent a mortgagee from foreclosing on the property and may result in an unenforceable claim. â€˘ Robo-signing is the practice of executing foreclosure affidavits without verifying whether the information supporting the foreclosure is accurate. Overwhelmed by the volume of foreclosure actions, personnel or agents of many of the largest lenders and mortgage servicers were found to be executing flawed or untrue affidavits to speed the foreclosure process.
11-CU-01 Residential Mortgage Foreclosure Concerns • Requiring the originating lender to repurchase a mortgage sold on the secondary market. Commonly referred to as “putbacks,” an investor or purchaser of a mortgage can by contract require a credit union, to repurchase the mortgage at face value if the loan did not conform to representations and warranties about the loan quality or documentation. A significant put-back requirement could materially impact a credit union’s net worth, earnings and liquidity.
11-CU-01 Residential Mortgage Foreclosure Concerns The board of directors and management of every credit union review the credit union’s foreclosure process to ensure that the following elements are in place: • Appropriate policies and procedures • Experienced and knowledgeable staff • Effective internal controls • Adequate oversight, due diligence, and control of thirdparty servicers • Legally compliant documentation • Appropriate reporting to the board of directors
11-FCU-02 Duties of FCU Boards of Directors Six Key Duties of Directors: • General direction and control • Carry out his or her duties in good faith • Administer fairly and impartially • Working familiarity with basic finance and accounting practices, including the ability to read and understand the credit union’s balance sheet and income statement and the ability to ask, as appropriate, substantive questions of management and auditors. This is the Financial Literacy Requirement. • Direct the operations of the FCU. • May rely on information prepared or presented if is believed to be competent.
Regulation CC • The Federal Reserve Board is requesting comment on proposed amendments to Regulation CC (Availability of Funds and Collection of Checks) to encourage institutions to clear and return checks electronically and shorten the “exception” hold periods on deposited funds. • The Dodd-Frank Act, increased the next-day availability requirement for certain check deposits to $200 as of July 21, 2011, eliminated all references to "non-local" checks, and makes many other substantive changes to the Reg CC. Comments are due June 3, 2011.
Reorganization of Bank Secrecy Act Regulations • The Financial Crimes Enforcement Network (FinCEN) issued a final rule on October 26, 2010, reorganizing and transferring FinCEN’s Bank Secrecy Act (BSA) regulations to a new chapter in the Code of Federal Regulations (CFR). • The regulations have been moved from 31 CFR 103 to a new, tenth chapter entitled “Title 31 Chapter X – Financial Crimes Enforcement Network.” March 1, 2011 was the effective date of the rule.
Risk-based pricing and adverse action notices â€˘ The Federal Reserve Board and the Federal Trade Commission have proposed regulations regarding the credit score disclosure requirements of the Dodd-Frank Act. The statute requires creditors to disclose credit scores and related information to consumers in risk-based pricing and adverse action notices under the Fair Credit Reporting Act if a credit score was used in setting the credit terms or taking adverse action.
Risk-based pricing and adverse action notices â€˘ The Fed also proposes to amend the Reg B model notice which combines the adverse action notice requirements for both Reg B and the FCRA. The proposed amendments would revise the model notices to incorporate the new credit score disclosure requirements.
Health Tax Credit Do all credit unions (even federally chartered credit unions) that wish to receive the small business health tax credit provided by the IRS have to request the credit by completing IRS Form 990-T? True. According to the IRS, tax exempt organizations should use IRS Form 8941 to determine the amount of their refundable credit and then document that credit on line 44f of IRS Form 990-T. The IRS has acknowledged that this will require certain tax-exempt organizations that are not normally required to file 990 forms to do so. However, the IRS is clear that such organizations would be required to complete the form to claim the credit.
NCUA Assessments and Insurance Premiums â€˘ The NCUA has stated that their assessment for the Corporates is a range of 20 to 25 basis points (bp). The NCUA is leaning towards 20 bp while CUNA and the LSCU are pushing them to spread the costs more evenly over the permissible time frame which would be nine or 10 bp. â€˘ The NCUA Premium for Natural Person Credit Union losses has been projected to be zero and it looks like it will be zero for 2011.
LSCU Small Credit Union Workshop Thank You! Please feel free to contact us with questions using the below information: William G. Berg, CCUE, CUCE, BSACS Vice President, Regulatory Affairs 866.231.0545 x1028 email@example.com or Scott Morris, CRCM Director of Compliance 866.231.0545 x2165 firstname.lastname@example.org