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Inside Washington (12/28/2007)

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* WASHINGTON (12/31/07)--An association for the brokerage industry has issued guidance this month regarding the supervision and review of electronic communications for brokers. The Financial Industry Regulatory Authority’s guidance requires firms to monitor all of their electronic communications used to conduct business, including e-mail, text and instant messaging, blogs, podcasts, message boards and e-faxes, and work-related messages from personal accounts. Communications must be recorded and documented, supervised and monitored, and firms are required to give their representatives and brokers guidance on what is permitted in electronic messages (Money Management Executive Dec. 28) … * WASHINGTON (12/31/07)--Electronic payments association Nacha is gaining ground on its three major initiatives to reform automated clearing house (ACH) rules. The initiatives would fight fraud, use the ACH network for online transactions and clear checks over the network (American Banker Dec. 28). Last month, a Network Enforcement Rule was passed. Its first phase was deployed two weeks ago. The rule allows higher fines, up to $500,000, for financial institutions that allow unauthorized debits. The rule also allows Nacha to suspend an originator. The second phase, effective in March, will authorize more reporting requirements for financial institutions with high levels of return. The rule is considered a rebound from Nacha’s Network Entry Fee proposal, which was rejected in 2004 because critics said it was too tough for minor infractions …

A copy of a substitute check Is it legal

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WASHINGTON (12/31/07)—If a substitute check created under CHECK 21 is the legal equivalent of an original check, should a photocopy of the substitute also be accepted also as equivalent, asks the December Compliance Challenge from the Credit Union National Association (CUNA). The Challenge quizzes compliance experts on the following situation: If a member writes a share draft to a nonmember, and the nonmember’s bank converts it to a substitute check under Check 21, can a photocopy of the substitute be used to collect the funds from the credit union if the original or substitute are lost or destroyed? The answer, CUNA’s compliance folks advise, is no--a credit union should not cash the photocopy because it is not the legal equivalent of a check. Accepting a photocopy of a check as a valid check and cashing it could expose the credit union to liability and a potential lawsuit by the member. Under Check 21 a substitute check is the legal equivalent of an original check, if the substitute check:
* Accurately represents all of the information on the front and back of the original check as of the time the original check was truncated; and * Bears the legend: “This is a legal copy of your check. You can use it the same way you would use the original check.”
“Clearly, a photocopy of a substitute check might appear the same as a substitute check, but is only a ‘copy’ and would not be considered the legal equivalent of the original check. Therefore, a photocopy would not be considered a negotiable instrument and could not be cashed,” says the Challenge. To see what actions are advised and to test your compliance acumen, use the resource link below to take CUNA’s Compliance Challenge.

Mortgage Forgiveness is now law

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WASHINGTON (12/31/07)--The Mortgage Forgiveness Debt Relief Act of 2007 became Public Law (PL) number 110-142 with the stroke of President George W. Bush's pen just before/after Congress adjourned for 2007. The act, signed into law Dec. 20, is intended to provide temporary tax relief to homeowners who might lose their home to foreclosure or who negotiate a loan modification. Previously under the country's tax code, if a lender--voluntarily or involuntarily--forgave a portion of a borrower's mortgage debt, the forgiven amount had to be treated as taxable income. Credit unions and other lenders had to file Form 1099-C, "Cancellation of Debt," to report to the Internal Revenue Service any debt of $600 or more cancelled or forgiven. The new law allows the discharge of indebtedness on loans up to $2 million and secured by the borrower's principal residence not to trigger federal income taxation. PL 110-142 covers only discharges made between Jan. 1, 2007 and Dec. 31, 2009. Kathy Thompson., SVP for compliance for the Credit Union National Association, reminds credit union that 1099-C filing requirements haven't disappeared for any discharge of indebtedness of $600 or more. Credit unions are expected to file their 1099C forms as usual. "Also, we will be watching for guidance I assume the IRS will release on how to handle information returns in these situations for this temporary period," Thompson said. In a statement issued at the bill's signing, the President noted the serious strains on the country's housing market. "Home values have fallen in many parts of our country. At the same time, many homeowners with adjustable rate mortgages have seen their monthly payments increase faster than their ability to pay. And now some homeowners face the prospect of foreclosure," he said. He noted recent steps taken by his administration meant to address the problems, included increased flexibility for the Federal Housing Administration to refinance loans for struggling homeowners and the assemblage of a private sector group of lenders, loan servicers, investors, and mortgage counselors called the HOPE NOW Alliance.
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