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News Now: October 21, 2014

NEW: Fed. regulators approve final QRM rule

WASHINGTON (10/21/14 Updated 12:05 p.m.)--Federal regulators have approved a final qualified residential mortgage (QRM) rule, which requires investment banks to hold at least 5% of a loan's risk on their books when securitizing loans unless the loans meet the definition of a QRM. The rule also more closely aligns the definition of QRM with the Consumer Financial Protection Bureau's (CFPB) qualified mortgage (QM) definition, an alignment for which the Credit Union National Association strongly advocated.

"CUNA has advocated strongly for the important step of aligning the Qualified Residential Mortgage with the existing Qualified Mortgage definition," said Mary Dunn, CUNA's deputy general counsel and senior vice president. "Doing so encourages lenders to work with creditworthy borrowers to make home loans that will continue to drive the country and our economy forward."

Thomas Curry, Comptroller of the Currency, said the rule is an important milestone.

"The rule we are approving today will require lenders to retain some of the risk for the loans that go into securitized pools except for home mortgages that meet the standards necessary under the qualified residential mortgage, or QRM, exception," he said. "Under this rule, QRM is equivalent to QM, that is, the qualified mortgage rule approved by the Consumer Financial Protection Bureau."

Federal Housing Finance Agency (FHFA) Director Mel Watt called it "a major step forward" to providing certainty to the housing market.

"Aligning the qualified residential mortgage standard with the existing qualified mortgage definition also means more clarity for lenders and encourages safe and sound lending to creditworthy borrowers," he said.

CUNA supported aligning the definition of a QRM more closely with the definition of a QM in commenting on the proposal last year. However, CUNA does not support the 43% debt-to-income ratio a borrower must meet for a QM.

The rule also states that regulators will review the QRM standards in four years.

"By then, we should have enough experience with the standards to know whether they strike the right balance between long-term financial stability and the home-financing needs of American families, and we can adjust them if necessary," Curry said.

The joint rule was proposed by the Federal Reserve Board, Federal Deposit Insurance Corp., U.S. Department of Housing and Urban Development, FHFA, Office of the Comptroller of the Currency and the Securities and Exchange Commission.

Use the resource link below to access the complete rule.

Crapo: Bold reg. reforms could help small FIs survive

WASHINGTON (10/21/14)--Small financial institutions are disappearing from America's financial landscape due to "an ever-increasing regulatory burden," says Sen. Mike Crapo (R-Idaho). In a letter published in American Banker , Crapo, the ranking member of the Senate Banking Committee, lamented that small financial institutions are not failing, but voluntarily closing due to increased compliance costs.

"We have lost more than 3,000 small banks and more than one-half of credit unions since 1990," he wrote.

In a September Senate Banking Committee hearing, legislators expressed concern with the effects of over-regulation. Dennis Pierce, chair of the Credit Union National Association board, testified on behalf of CUNA, saying credit unions were under "regulatory assault."

"Congress and regulators ask a lot of small, not-for-profit, financial institutions when they tell them to comply with the same rules as JPMorgan, Bank of America and Citibank, because the cost of compliance is proportionately higher for smaller-sized credit unions than these behemoth institutions," Pierce said.

In his letter, Crapo called for "a frank discussion about what regulatory burdens mean for financial institutions and the communities they serve."

CUNA has expressed support for numerous regulatory relief bills in both houses of Congress in the past few months. These bills would do everything from simplifying privacy notifications to removing a limit on automated transfers from savings accounts.

From a regulatory perspective, CUNA has written to the National Credit Union Administration, the Consumer Financial Protection Bureau and the Federal Housing Finance Agency to urge proposed rules take into account the burdens that might be placed on small financial institutions.

"In light of the imperative need to reduce credit unions' regulatory obligations, we urge NCUA to add new or expand existing rules only if required to do so by law, or doing so is clearly warranted based on a compelling safety and soundness reason that can be satisfactorily addressed in no other manner," wrote CUNA Senior Vice President and Deputy General Counsel Mary Dunn in a letter to the NCUA in August.

Compliance burdens and costs are a growing concern for financial institutions. Last week one survey indicated that compliance costs were up 30% in the past year, and since January 2013, more U.S. financial institutions are reporting compliance concerns ( News Now Oct. 16).

These concerns include transferring staff from revenue-generating roles to managing increased risk and compliance requirements.

Use the resource links for more information.

FIs can post privacy notices online under new CFPB rule

WASHINGTON (10/21/14)--A rule allowing financial institutions that meet certain requirements to post annual privacy notices online has been finalized by the Consumer Financial Protection Bureau (CFPB).

The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to send annual privacy notices to customers, describing whether and how it shares consumers' nonpublic personal information. If the institution does share this information, it must notify consumers of their right to opt out and inform them how to do so.

Under the CFPB's new rule, requirements that allow financial institutions to post privacy notice online include:
  • The financial institution does not share data in ways that would trigger consumers' opt-out rights;
  • Consumers are informed annually about the availability of the disclosures; and
  • A notice is included on a regular consumer communication, such as a monthly billing statement for a credit card, letting consumers know that the annual privacy notice is available online and in paper by request at a provided telephone number.
If an institution chooses not to use the new disclosure method, it will need to continue to deliver annual privacy notices to its customers using other delivery methods.

The new rule applies to all financial institutions within the CFPB's jurisdiction under the GLBA. Institutions that choose to rely on this new method of delivering privacy notices will be required to use the model disclosure form developed by federal regulatory agencies in 2009.

Use the resource link below to access the final rule. The rule is effective upon publication in the Federal Register.

Debit card use wanes due to security fears: TSYS report

CU System
COLUMBUS, Ga. (10/21/14)--Consumer fears about security are leading to a drop in debit-card use, according to a new report from TSYS.

Despite the drop, debit cards remain the most popular form of payment, according to the study. Forty-three percent of respondents preferred debit as their overall payment type, while 35% indicated their preferred payment type was credit. There are roughly 51 million debit cards and 15 million credit cards issued by credit unions.

Those percentages represent a decrease in respondents who preferred debit from TSYS' 2013 study, in which 49% indicated they preferred debit.

"Consumers, concerned about the security of their cards and payments, are both demanding and accepting of market changes," the study said. "Consumers have a heightened awareness of security, due to both the media and their own experiences. We found that consumers are interested in tools such as transaction authorization controls, instantly viewable transactions and text message alerts to help them protect their accounts."

Consumers are interested in new card security features, but are familiar with some features more than others, according to the study. About 48% of respondents said they have heard of chip cards, and 14% indicated that they have already received a card with a chip.

Tokenization is also gaining interest as a fraud- and risk-protection tool. The Credit Union National Association fully backs advancements in card data security technology, but until these take hold nationwide, CUNA's leaders say, credit unions and other financial institutions will still be at risk to suffer significant losses as a result of data breaches.
Meanwhile, only 47% of businesses expect to have their payment terminals updated with EMV chip technology by the end of next year, according to the Payments Security Task Force.
Although industry participants understand tokenization and how it will help to reduce payment risk, not as many consumers are familiar with the technology. Only 8% of respondents indicated they had heard of tokenization, and 16% said they would be willing to take the steps necessary to request a token.
The report also explored consumer sentiment toward mobile payments. "Fraud prevention and risk reduction tools are the most important features to consumers when they consider incorporating mobile into their payments process," the report said. "When asked about the use of smartphones in conducting different types of payment transactions, we saw that consumers were very interested in taking part in protecting their accounts by using mobile tools to monitor and track payments."
Use of rewards or offers continues to be the biggest controllable factor of influence on which card a consumer uses to pay. However, even with rewards, some consumers chose to use debit cards to closely manage their daily spend or budget, while other consumers use multiple cards and can be more easily influenced to change.

Other Resources

CUNA Attorneys Conference: Where CUs stand on data breaches, RBC, legal cases

DANA POINT, Calif. (10/21/14)--Speaking to a packed house, Credit Union National Association Executive Vice President and General Counsel Eric Richard opened CUNA's Attorneys Conference with a update on some of the most pressing regulatory issues facing credit unions.

Of primary legal concern to financial regulators is a case the Supreme Court will hear in December. It involves the issuing of guidance versus regulations, which requires a public notice and comment period. The Washington, D.C., Federal Court of Appeals ruled that an agency cannot change its interpretation of a rule without engaging in notice-and-comment.

Richard called the case "one of the most important ones to watch for regulated industries such as credit unions." The decision could articulate a standard as to when a regulated entity is expected to follow guidance, which could have implications on the examination and supervision process.
Click to view larger image Credit Union National Association Executive Vice President and General Counsel Eric Richard (at podium) speaks to the audience at the CUNA Attorneys Conference Monday about the latest regulatory and legal issues facing credit unions. (CUNA Photo)

"If the Supreme Court upholds the D.C. court's decision, credit unions could have more opportunity to participate in the process, on the other hand, agencies might decide not to use guidance, for fear of locking themselves into a position," Richard said. "However, if the Supreme Court rejects the D.C. court, agencies will more confidently issue interpretations."

In his update on the National Credit Union Administration's risk-based capital proposal, Richard outlined CUNA's efforts over the past six months, which included meeting with stakeholders around the country, preparing a library of material to help credit unions see how they might be affected, speaking to members of Congress and helping to generate a record 2,056 comment letters on the proposal.

He also said the process has likely been a learning process for the NCUA and credit unions. Since the proposal deals with wide-ranging topics such as interest-rate risk, concentration risk, examiner power, capitalization requirements and more, Richard said the agency might be better served breaking those down into individual proposals.

"In the future, we encourage the agency to tackle areas of concern one at a time, rather than putting out a single huge proposal," he said. "It causes less heartburn to the industry and ultimately it is in the agency's interest to take things in small bites."

Other lessons learned during the risk-based capital proposal process include:
  • The 2,056 letters have been distilled to about 50 individual issues the agency is considering;

  • The unprecedented credit union reaction to the rule "must have made a huge impression on NCUA board members," and that it is just as important that those efforts be continued during the second comment period; and

  • A negotiated rulemaking or Advance Notice of Proposed Rulemaking could have involved stakeholders at an earlier stage, making sure credit union voices were heard.
Data breaches are another topic that has filled the headlines recently, with a significant cost coming to credit unions and other financial institutions. According to CUNA's survey on the Target data breach, it cost credit unions roughly $30 million to re-issue credit and debit cards, as well as other costs.

Richard said a layered approach to payment security is needed, with an ultimate goal of bringing merchants to the table to discuss ways to implement appropriate security standards.

"We feel like a national standard is appropriate here, rather than a patchwork of differing state laws and regulations, but we don't want Congress to set the standard, the technology develops too quickly," he said. "We'd also like merchants to be required to reimburse credit unions for the costs they incur as a result of data breaches."

Other points he made include:
  • While litigation is not a "silver bullet," it is an important tool for credit unions. Some credit unions must serve as named plaintiffs if they want to sue. CUNA is working with plaintiffs firms and connecting credit unions and lawyers. A number of credit unions must serve as named plaintiffs if the industry wants to pursue class action;
  • For the Target breach, there are at least 30 cases directly related to financial institutions under way, with at least 10 credit unions serving as named plaintiffs. Target is trying to have the case dismissed, saying it does not owe a duty of care to financial institutions;
  • For the Home Depot breach, cases are just starting, including at least three involving credit unions; and
  • Visa and MasterCard also have procedures used to negotiate to create compensation funds for those affected.
Also during the Monday sessions at the conference was a presentation from NCUA Senior Associate General Counsel John Ianno and staff attorneys Sarah Chung and Pamela Yu. Watch News Now Wednesday for details.

Other sessions at this week's conference include "Social Media: Compliance Challenges and Opportunities for Credit Unions," presented today by CUNA Mutual Group's Ross Hansen, associate general counsel, and Jennifer Kraus, lead attorney; and "New Developments in the Bank Secrecy Act," presented by T. Wayne Hood, senior vice president/general counsel, ORNL FCU, Oak Ridge, Tenn., with $1.5 billion in assets. Wednesday features "ID Theft Response--How to Do It Right," presented by Christopher Gerety, general counsel, APCO Employees CU, Birmingham, Ala., with $2.4 billion in assets.

Other Resources

Candidates in Calif., Fla. get strong CU backing

WASHINGTON (10/21/14)--Credit union-friendly candidates in tight races in California and Florida are the latest to receive Credit Union National Association support this election season.

Click to view larger image Click for larger view
In California, CUNA and the California Credit Union League have started a partisan communication campaign in support of Rep. Ami Bera (D), who is running for re-election to represent California's 7th Ddistrict.

Bera, who is a medical doctor, served on the board of American River HealthPro CU, Rancho Cordova, Calif., which is now part of $.21 billion-asset SAFE CU, Folsom. He is a past associate dean of admissions for the University of California, Davis School of Medicine and chief medical officer for the County of Sacramento.

In October 2013, Bera was one of 11 representatives to sign a letter supporting credit unions' tax status.

"We're excited to engage on his behalf in this race, which is one of the closest in the country," said Trey Hawkins, CUNA's vice president of political affairs.

Click to view larger image Click for larger view
Bera is being challenged by Republican Doug Ose, who served as representative for California's 3rd District from 1999 to 2003. According to Roll Call , the district leans slightly Democratic, but it listed him just outside the "Top 10 Most Vulnerable House Members."

In Florida's 2nd District, incumbent Rep. Steve Southerland (R) is facing another close race against challenger Gwen Graham, a school administrator and daughter of Bob Graham, a former senator and governor.

The Credit Union Legislative Action Council has made a $176,000 independent expenditure for television advertisements between now and election day.

Southerland is another supporter of maintaining credit unions' tax status, and he signed a letter in May, along with 323 other representatives outlining concerns with the National Credit Union Administration's risk-based capital proposal.

Other Resources

Calif. CUs meet with CFPB advisor on HMDA proposal, more

CU System
SAN DIEGO, Calif. (10/21/14)--In a meeting with roughly 15 credit union leaders here, Jennifer Stockett of the Consumer Financial Protection Bureau (CFPB) said her agency might need to look more deeply into its Home Mortgage Disclosure Act (HMDA) proposal for a full understanding of the potential impact on small creditors.

The proposed rule is intended to improve information reported about the residential mortgage market by requiring more data fields in the reports. The Credit Union National Association and state credit union associations are concerned the plan would increase the burden on some credit unions and has asked for an exemption for credit unions and other community financial institutions.

Stockett, the CFPB's senior advisor for the office of financial institutions and business liaison, met with the credit union leaders at $1.8 billion-asset California Coast CU, San Diego. She requested the meeting as a follow-up to a successful initial meeting with the California and Nevada Credit Union Leagues in Washington, D.C., in September during the leagues' annual Hike the Hill event.

At the California meeting, the CFPB's senior advisor spoke about where the CFPB needs feedback from credit unions.

Specifically, Stockett said the bureau is looking for credit union comment on the following proposals:
  • Qualified mortgages, particularly in the areas of small creditor and rural definitions, disadvantages for self-employed borrowers and potential risks for credit unions offering nonqualified mortgages;

  • The Truth in Lending Act-Real Estate Settlement Procedures Act combined disclosures rule, particularly about whether third-party vendors will be ready for the Aug. 1, 2015, implementation date; and

  • HMDA, particularly the potential impact on small creditors, which Stockett said the bureau might need to delve more deeply into.
Credit unions still have time to comment on the HMDA proposal through PowerComment, which was created by the California and Nevada Credit Union Leagues, in partnership with the Credit Union National Association.

Use the resource link below to access PowerComment.

Other Resources

Will shoppers avoid data-breached retailers this holiday season?

CU System
AUSTIN, Texas (10/21/14)--Nervous over recent data breaches that have compromised tens of millions of pieces of personal and personal payment data in recent months, a poll has found that nearly half of credit and debit card users will be leery to shop this holiday season at those stores where attacks have occurred.

About 45% of respondents to the survey, released Sunday, said they would either definitely or probably avoid one of their go-to stores when holiday shopping if that store was recently hacked.

Broken down, 16% said they definitely would not shop at a store that had been breached, and 29% said they would probably not shop there.  

Only one in eight respondents said they are actually more likely to shop with cards this year. The study, which randomly selected 865 U.S. consumers, was conducted in early October by Princeton Survey Research Associates International for the Austin, Texas-based .

Consumers first react to a data breach with fear, but then they may become numb, David Just, professor of applied economics management and director of graduate studies at Cornell University in Ithaca, N.Y., told . "I'm guessing a lot of people have the initial emotional reaction of, 'Wow, I don't want to shop there anymore if they're going to be that loose with the data.'"

The question then becomes, what does it take for a consumer to return?

That may hinge on what other options are available, according to Jeff Foresman, information security compliance lead at Rook Security in Indianapolis ( ).

For retailers such as Target, where customers have other options for shopping, it may lead to the long-term loss of that consumer, Foresman said. However, if a building contractor has a business account with a retailer such as Home Depot, for example, he or she may not look somewhere else.

The Credit Union National Association continues to press national lawmakers to pass legislation that would require merchants to meet the same strict payment data security standards imposed upon financial institutions. Credit unions nationwide saw 4.6 million of their cards compromised as a result of the Target breach, leading to about $30.6 million in breach-related costs.

CUNA also is collecting information on the financial and operational impact the Home Depot breach has had on credit unions. Completed surveys from credit unions affected by that breach are due Friday.

For more information on the comprehensive campaign CUNA has put together to fight for tougher regulations on data security for merchants, visit

Additional findings from the survey include:
  • The wealthiest cardholding households are the least likely to stop patronizing recently breached stores, with only 31% of those in households earning $75,000 or more annually saying they would either definitely or probably shop elsewhere during the forthcoming shopping season;
  • Respondents with high levels of education are also less likely to spurn recently hacked stores, with 33% of college graduates citing they would either probably or definitely not shop at such stores, compared with 55% of those with a high school education or less; and
  • Forty-eight percent of cardholders said they are more likely to pay for purchases in cash this year, though that number falls the higher the income level of the household.
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