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National Credit Union Administration (NCUA)
NCUA to Distribute $76 Million Under Corporate System Resolution Program
The NCUA announced a $76 million distribution to paid-in capital shareholders of the former U.S. Central corporate credit union.
As liquidating agent of the former corporate credit unions’ asset management estates, the NCUA has previously made six rounds of distributions. In 2020, 2021, 2022, and earlier in 2023, capital holders of Southwest, Members United, Constitution, and U.S. Central received distributions. This current distribution is scheduled to occur before the end of September 2023. With this seventh distribution, the NCUA will have returned $2.8 billion to former membership and paid-in capital shareholders and more than $360 million in dividends to shareholders.
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Consumer Financial Protection Bureau (CFPB)
Tuition Payment Plans in Higher Education
The CFPB published a report which highlights the risk some students may face when entering into agreements with colleges to spread the upfront cost of tuition into several, interest-free loan payments. The report, which looks at tuition payment plans offered by nearly 450 institutions, finds that many plans have inconsistent disclosures and confusing repayment terms, putting students at risk of missing payments, incurring late fees, and accumulating debt. The report also finds that many institutions withhold transcripts from students as a debt collection tool, a potentially illegal practice that can have severe consequences for students trying to begin their careers or finish their education.
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Internal Revenue Service (IRS)
To Protect Taxpayers from Scams, IRS Orders Immediate Stop to New Employee Retention Credit Processing
Amid rising concerns about a flood of improper Employee Retention Credit claims, the IRS announced an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program to protect honest small business owners from scams.
The IRS continues to work previously filed Employee Retention Credit (ERC) claims received prior to the moratorium but renewed a reminder that increased fraud concerns means processing times will be longer. On July 26, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS announced that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.
When properly claimed, the ERC – also referred to as the Employee Retention Tax Credit or ERTC -- is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order or they had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.
The ERC is a complex claim with precise requirements to help businesses during the pandemic, and the IRS has received approximately 3.6 million of these claims over the course of the program.
The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse financial position if it has to pay back the credit than if the credit was never claimed in the first place. This underscores the importance of taxpayers taking precautionary steps to independently verify their eligibility to receive the credit before applying through a promoter. Taxpayers should take particular precautions because a promoter can collect a contingency fee of up to 25% of the ERC refund.
Red Flags for Employee Retention Credit Claims; IRS Reminds Businesses to Watch Out for Warning Signs
The IRS continues to warn businesses to watch out for aggressive marketing by nefarious actors involving the Employee Retention Credit (ERC) and urged people to watch out for red flags that can signal trouble.
The credit, also called the Employee Retention Tax Credit or ERTC, is a legitimate pandemic-era tax credit but as time passes the credit has been increasingly the target of aggressive marketing to businesses that may not qualify for the credit.
Although promoters advertise that ERC submissions are "risk free," there are actually huge risks facing businesses as the IRS increases its audit and criminal investigation work. Hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.
The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse cash position if it has to pay back the credit than if the credit was never claimed in the first place. This underscores the importance of taxpayers taking precautionary steps and avoiding being pushed by a promoter, including instances where a promoter can collect contingency fees as much as 25%.
As a reminder, to property claim the ERC:
Employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:
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Financial Crimes Enforcement Network (FinCEN)
FinCEN Issues Compliance Guide to Help Small Businesses Report Beneficial Ownership Information
FinCEN published a Small Entity Compliance Guide to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule. Starting in 2024, many entities created in or registered to do business in the United States will be required to report information about their beneficial owners—the individuals who ultimately own or control a company—to FinCEN. The Guide is intended to help businesses determine if they are required to report their beneficial ownership information to FinCEN.
Among other things, the Guide:
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Describes each of the BOI reporting rule’s provisions in simple, easy-to-read language;
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Answers key questions; and
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Provides interactive checklists, infographics, and other tools to assist businesses in complying with the BOI reporting rule.
The requirements become effective on January 1, 2024, and companies will be able to begin reporting beneficial ownership information to FinCEN at that time. FinCEN will provide additional guidance on how to submit beneficial ownership information soon. Small businesses can continue to monitor FinCEN’s website for more information or subscribe to FinCEN updates.
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Not all Pre’s are equal
Prequalification, preapproval and prescreening. Three terms that many of us are guilty of using interchangeably. But, when it comes to regulatory compliance, depending on the context in which they are used, the three terms have distinct meanings and requirements.
You will only find the definition of prequalification in the Official Commentary for Regulation C.
Prequalification. A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective applicant would likely qualify for credit under an institution's standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate prequalification requests through a procedure that is separate from the institution's normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report prequalification requests on the HMDA/LAR, even though these requests may constitute applications under Regulation B for purposes of adverse action notices.
As the commentary mentions, while you do not have a HMDA reporting requirement for a prequalification, the information gathered may be considered an application under Reg B and trigger an adverse action notice if you determine the prospective applicant does not qualify for credit under your standards.
Preapproval is also defined in the Official Commentary section of Regulation C.
Requests for preapproval. To be a covered preapproval program, the written commitment issued under the program must result from a full review of the creditworthiness of the applicant, including such verification of income, resources and other matters as is typically done by the institution as part of its normal credit evaluation program. In addition to conditions involving the identification of a suitable property and verification that no material change has occurred in the applicant's financial condition or creditworthiness, the written commitment may be subject only to other conditions (unrelated to the financial condition or creditworthiness of the applicant) that the lender ordinarily attaches to a traditional home mortgage application approval. These conditions are limited to conditions such as requiring an acceptable title insurance binder or a certificate indicating clear termite inspection, and, in the case where the applicant plans to use the proceeds from the sale of the applicant's present home to purchase a new home, a settlement statement showing adequate proceeds from the sale of the present home.
One of the major differences between the prequalification and the preapproval is the written commitment. If you are providing your members with a written commitment after performing a review of their credit worthiness, you have issued a preapproval. Preapprovals are reportable on your HMDA/LAR. In fact, even denied preapprovals are reportable.
And then we get into the prescreened offers, which are governed by the Fair Credit Reporting Act (FCRA). Prescreening is the process by which a Credit Reporting Agency compiles a list of consumers who meet specific credit criteria, and then provides the list to the credit union. The most common version we know are the “You have been approved for a new VISA card…” Or sometimes, marketing even uses the term “You have been preapproved…” But, by definition, these are prescreened offers and have specific notice and screening requirements. The FCRA requires credit unions to:
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Provide special notices to members offered credit based on the prescreened list;
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Extend firm offers of credit to members who passed the prescreening, but allows credit unions to limit the offers to those who passed the prescreening;
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Maintain records regarding the prescreened lists; and
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The FRCA allows members to opt-out of prescreened offers, credit unions and the Consumer Reporting Agencies must scrub the list against the opt-outs.
The three Pre’s can cause a lot of confusion until you look at the context you are using the term in and think back to how the regulations differentiate between them.
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