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Compliance Trifecta Overdraft FACTA Reg Z rules all in effect

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WASHINGTON (7/6/10)—In what Credit Union National Association (CUNA) Senior Vice President for Compliance Kathy Thompson calls the “compliance trifecta,” major rules went into effect July 1 that impact credit union operations. New standards under the Fair and Accurate Credit Transaction Act (FACTA), overdraft protection plan restrictions, and the Federal Reserve Board’s (Fed)Regulation Z changes for open-end credit became the rule of compliance land last Thursday. Regarding the new FACTA rules, Thompson reminds credit unions that they have to be prepared for handling direct disputes with members. “The new FACTA regulations not only require credit unions to establish and implement reasonable written policies and procedures to ensure the ‘accuracy’ and ‘integrity’ of the information that they furnish to credit bureaus,” noted Thompson, “but also require a credit union to investigate when a member formally complaints to the credit union about the accuracy of information the credit union has provided to a credit bureau.” The new Regulation E overdraft rules for ATM and one-time debit card transactions require credit unions to provide members with the right to opt in, or affirmatively consent, to a credit union’s overdraft service for ATM and one-time debit card transactions. “The requirement that notice of the opt-in right be provided and the member’s affirmative consent obtained before any fees or charges may be assessed is effective July 1 for new accounts,” Thompson reminds credit unions, “with credit unions having until August 15 to implement these requirements for existing accounts.” This regulation does not apply to overdraft fees related to check, ACH, or recurring debit transactions. And for the new Reg Z open-end lending rules, Thompson reminds credit unions that the new rules effective last week were the result of the melding of a January 2009 open-end final rule and modifications contained in the Credit Card Accountability, Responsibility and Disclosure (CARD) Act which Congress passed in May 2009. The Credit CARD Act modified certain requirements of the January 2009 final rule related to periodic statements, change-in-terms, and advertising provisions and changed their effective date to Feb. 22. On Jan. 12, when the Fed issued its Regulation Z final rule for the credit card provisions that were effective Feb. 22 it re-issued the remaining provisions of the January 2009 general open-end lending rule by incorporating those provisions into the new Card Act final rule. The new rules that became effective last week generally deal with formatting provisions, such as the new summary table in the account opening disclosures, the revised summary table for credit card applications and solicitations, a few changes to periodic statements, and some changes to advertising requirements.

Inside Washington (07/05/2010)

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* WASHINGTON (7/6/10)--Eligible taxpayers who contracted to buy a home and qualified for the first-time homebuyer tax credit before April 30 now have until Sept. 30 to close the deal, according to the Internal Revenue Service. The Homebuyer Assistance and Improvement Act of 2010, signed by President Barack Obama last week, extends the closing deadline to Sept. 30 from June 30. Those who entered into a purchase contract before or on April 30 but closed after that date should attach to their tax return a copy of the pages from the signed contract showing all parties’ names and signatures if required by local law, the property address, the purchase price and the date of the contract ... * WASHINGTON (7/6/10)--Senate leaders wrote to their colleagues in the House last week to clarify the intent of a derivatives provision in the financial regulatory reform bill (American Banker July 2). The House Wednesday approved the bill and the Senate plans to take it up when they return from Independence Day recess. The letter states that the legislation is intended to continue to allow end-users to use derivatives to hedge risks. The letter addresses concerns raised by Sen. Saxby Chambliss (R-Ga), who said the legislation could be interpreted as stopping end-users from hedging risk ... * WASHINGTON (7/6/10)--Regulators are requiring banks to list how many unfunded commercial and industrial loans they have (American Banker July 2). The information aims to show which banks use capital to work with commercial borrowers, and it will give investors more information about those loan categories. Banks began making such disclosures in first-quarter filings with the Federal Deposit Insurance Corp. However, analysts said more disclosures are needed to determine lending trends. Though the data is not “perfect information,” the transparency provides a better indication of what is going on at the banks rather than guesswork, Frank Barkocy, director of research at Mendon Capital Advisors Corp., told the Banker ... * WASHINGTON (7/2/10)--The U.S. Department of Energy is trying to expand a program started in California and intended to make it easier and cheaper for homeowners to improve energy efficiencies through the mortgages on their homes. The Obama administration has tagged $150 million in stimulus money for the program, which can help homeowners do such things as retrofit their homes for solar energy, while paying for it over time through their property-tax bills. However, the government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae may throw a huge monkey wrench into the government’s plan (The New York Times July 1). Freddie and Fannie both warned that they may not purchase loans for homes that have used the energy financing. As explained in the Times article, this is how the program, called Property Assessed Clean Energy (PACE), works: A local government issues bonds or borrows money through other means, and uses it for home loans that cover the upfront costs of solar installations or other energy improvements. The homeowner has 20 years to repay the loans through a special assessment included in the property tax--which stays with the home even if the house is sold. So far the program has limped along. Although available in 22 states, only a few thousand people reportedly have used it since it started in 2008. That poor showing may not change any time soon--despite the Energy Department’s plan for a push--if Fannie and Freddie step away from such loans. The articles says the GSEs are concerned about the potential burden on taxpayers if a homeowner defaults on a such a mortgage because, in most cases, property taxes must be paid first from any proceeds on a foreclosure. The GSEs’ concerns have unsettled homeowners and PACE programs alike. Some alarmed state officials have, at least for now, frozen their programs ...

CU reps to testify at Fed July HMDA hearing

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WASHINGTON (7/2/10)--A pair of credit union representatives will be among those testifying at a July 15 Federal Reserve Board public hearing on the Home Mortgage Disclosure Act (HMDA). The credit union representatives, who were recommended to the Fed by the Credit Union National Association, are American Airlines FCU’s Vice President and General Counsel Faith Anderson and State Employees CU Senior Vice President Phil Greer. The HMDA requires mortgage lenders to provide detailed annual reports of their mortgage lending activity to regulators and the public. The hearing will be held at the Federal Reserve Bank of Atlanta. The Fed has planned additional hearings San Francisco on Aug. 5, in Chicago on Sept. 16, and in Washington, D.C. on Sept. 24. The hearings, which were announced by the Fed earlier this year, are meant to evaluate whether the 2002 revisions to Regulation C, which required lenders to report mortgage pricing data, helped provide useful and accurate information about the mortgage market. The hearings are also aimed at helping the agency assess the need for additional data and other improvements and identify emerging mortgage market issues. Although additional information may improve the usefulness of the HMDA data, the Fed also has recognized that this would increase compliance burdens and costs and may pose risks to consumer privacy. In conjunction with these hearings, the Fed has requested public comment on the various issues that will be the subject of these hearings, and the Credit Union National Association will submit a comment letter. After the HMDA hearings, the Fed may issue a plan that incorporates changes addressed in these hearings and comments received.

National Flood Insurance extended to Sept. 30

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WASHINGTON (7/6/10)—The National Flood Insurance Program (NFIP) was given an extension to Sept. 30 when the President signed H.R. 5569 into law Friday. Also signed into law was H.R.5623, the Homebuyer Assistance and Improvement Act, which amends the Internal Revenue Code to extend eligibility for a first-time homebuyer tax credit until Sept. 30. The credit is for taxpayers who entered into a binding contract to purchase a principal residence before May 1. Regarding the flood insurance program, the Federal Emergency Management Agency's (FEMA) authority to extend flood insurance contracts under NFIP must be periodically reauthorized by Congress. That authority has lapsed three times this year, with lawmakers approving short extensions each time. The third lapse started June 1.

CUNA Small-amount loan plan needs to be flexible

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WASHINGTON (7/6/10)—Credit unions need more authority to offer short-term, small-amount (STS) loans to help combat predatory payday lending. If federal regulators go forward with a plan intended to support that goal, the rules must not be too prescriptive, the Credit Union National Association (CUNA) wrote in a comment letter Friday. The National Credit Union Administration (NCUA) at its April 29 board meeting proposed to enable federal credit unions to offer STS loans, with a number of conditions, including:
* An annual percentage rate (APR) that may not exceed 1,000 basis points above the Federal Credit Union Act interest rate ceiling. With the current ceiling at 18%, the maximum rate for the STS loan would be 28%. This higher APR would only be permitted for STS loans; * An application fee would be permitted, but may not exceed $20; * A minimum maturity of one month, with a maximum of six months. Rolling over the loan, a common feature of other types of payday loans, would be prohibited; * The loan amount must be a minimum of $200 and a maximum of $1,000; * The FCU would be permitted to make only one loan at a time to a member and no more than three in any rolling six-month period; * Late fees would be permitted, but terms and loan amounts should be based on the borrower's proof of recurring income so that the borrower is able to pay off the loan in a timely manner; and * FCUs must include a cap on the number and total dollar amount of STS loans, which is to be included in their written lending policies. FCUs must also implement appropriate underwriting criteria.
In its comment letter, CUNA expressed concern that the proposal may be too prescriptive and requested that the NCUA provide additional flexibility for those credit unions that want to offer these types of programs. Among its recommendations, CUNA said, credit unions should be able to choose between the proposed 28% APR, that also allows an application fee of $20, or an APR of 36% that incorporates other fees. CUNA also believes there should be flexibility with regard to the proposed prohibition on the member’s ability to “roll-over” the loan beyond the stated maturity date, and said federal credit unions should be able to provide loans less than the proposed $200 minimum if their members have such a need. CUNA also said that a $20 application fee may be too low to reflect the actual cost of processing the small-loan applications. Use the resource link below to read CUNA’s complete comments.