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National Credit Union Administration (NCUA)
Resumption of Federal Student Loan Payments
The NCUA issued Letter to Credit Unions 23-CU-08 to remind credit unions that the U.S. Department of Education’s COVID-19 relief for federal student loans is ending. Federal student loan interest resumed on September 1, 2023, and payments restart in October 2023. As federal student loan payments restart, some credit union members may have difficulty meeting their repayment obligations. The resulting increase in total repayment obligations may also negatively impact members’ ability to repay other outstanding loans. The NCUA encourages credit unions to work constructively with impacted borrowers and will not criticize a credit union’s efforts to provide prudent relief to borrowers when such efforts are conducted in a reasonable manner with proper controls and management oversight and consistent with consumer financial protection requirements.
The Letter to Credit Unions provides additional information on risk management strategies that credit unions should consider. The strategies focus on Risk Assessment, Borrower Outreach, Underwriting and Modifications, Portfolio Monitoring, and Allowance for Credit Losses.
Proposed Rule: Simplification of Insurance Rules
The NCUA Board approved proposed amendments to the share insurance rules. The proposed rule would:
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Simplify the share insurance regulations by establishing a “trust accounts” category that would provide for coverage of funds of both revocable trusts and irrevocable trusts deposited at federally insured credit unions (FICUs)
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Provide consistent share insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender; and
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provide more flexibility for the NCUA to consider various records in determining share insurance coverage in liquidations.
Proposed Rule: Fair Hiring in Banking
The NCUA Board approved a proposed rule to incorporate the “Second Chance” Interpretive Ruling and Policy Statement 19-1 and the Fair Hiring in Banking Act into its regulations. Section 205(d) of the Federal Credit Union Act (Section 205(d)) prohibits, except with the Board’s prior written consent, any person who has been convicted of certain criminal offenses involving dishonesty or breach of trust (a covered offense), or who has entered into a pretrial diversion or similar program in connection with a prosecution for such offense (program entry), from participating in the conduct of the affairs of an insured credit union.
The proposed rule would amend the NCUA’s policies and procedures governing an application to rescind a prohibition pursuant to Section 205(d), as currently reflected in IRPS 19-1 and consistent with both amendments made by the recent Fair Hiring in Banking Act and with comparable Federal Deposit Insurance Corporation regulations. Following the issuance of a final regulation, IRPS 19-1 would be rescinded.
The proposed rule would also amend the regulation governing the conditions under which federally insured credit unions that are newly chartered or in troubled condition must notify the NCUA of any proposed changes to the credit union’s board of directors, committee members, or senior executive staff and make other conforming changes.
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Consumer Financial Protection Bureau (CFPB)
CFPB Issue Guidance to Halt Large Banks from Charging Junk Fees of Basic Customer Service
The CFPB issued an Advisory Opinion regarding section 1034(c) of the Consumer Financial Protection Act (CFPA), which requires large banks and credit unions to comply in a timely manner with consumer requests for information concerning their accounts for consumer financial products and services.
As many large banks shift away from a relationship banking model that prioritizes high levels of customer service, the advisory opinion clarifies that people are entitled to get the basic information they need without having to pay junk fees.
Section 1034(c) provides that large banks and credit unions “shall, in a timely manner, comply” with consumer requests for information regarding their accounts for consumer financial products or services. Large banks and credit unions do not have to provide information in any particular manner or using particular means. According to the CFPB, large banks and credit unions will not comply with section 1034(c) if it imposes conditions or requirements that unreasonably impedes the consumers’ ability to request and receive account information. The CFPB also stated that requiring a consumer to pay a fee or charge to request account information may likely unreasonably impede the consumers’ ability to exercise their rights granted by section 1034(c).
The CFPB did further state that large banks and credit unions are not required to provide information related to:
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Confidential commercial information, including an algorithm used to derive credit scores or other risk scores or predictors;
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Information collected for the purposes of preventing fraud or money laundering, or detecting or making any report regarding other unlawful or potentially unlawful conduct;
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Information required to be kept confidential by any other provision of law; and
CFPB Supervisory Highlights Junk Fees Update Special Edition
The CFPB released Issue 31, Fall 2023 of its supervisory highlights. The Supervisory Highlights special edition covers junk fees in the areas of bank account deposits, auto loan servicing, and remittances found during examinations between February and August 2023. CFPB oversight has identified instances of companies charging a variety of junk fees, including for:
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Assessing multiple NSF fees for the same transaction: The CFBP highlighted charging consumers NSF fees with respect to re-presentments. Some financial institutions charged consumers re-presentment NSF fees without affording the consumer a meaningful opportunity to prevent another fee after the first failed representment attempt.
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Fake paper statements: Some institutions charge customers monthly fees for sending paper bank statements. CFPB examiners found instances where banks charged fees for statements they never actually printed or mailed.
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Worthless add-on products for paid-off auto loans: When people purchase cars, they sometimes have purchase loan add-on products, like guaranteed asset protection (GAP) insurance. In situations when borrowers paid off their loan early or had their vehicle repossessed, CFPB examiners found that loan servicers continued to charge fees for the add-on products, which no longer offered any value.
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Sloppy international money transfers: CFPB examiners found remittance providers charged hidden fees by taking money out of the funds consumers sent without properly disclosing them. In other instances, CFPB examiners found remittance providers failed to refund fees when the money consumers sent failed to arrive on time.
Vast Majority of NSF Fees Have Been Eliminated, Saving Consumers Nearly $2 Billion Annually
The CFPB released a Data Spotlight which analyzed the non-sufficient fund (NSF) fee practices at a number of banks and credit unions. NSF fees are charges that some financial institutions impose when they decline to make a payment from a consumer’s account, like a check or electronic authorization, after determining the account lacks sufficient funds. NSF fees are distinct from overdraft fees, which financial institutions charge when they pay, rather than decline, a payment when the account lacks sufficient funds. CFPB’s analysis found that—
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Nearly two-thirds of banks with over $10 billion in assets have eliminated NSF fees.
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Nearly three-fourths of the banks that earned the most in overdraft/NSF fee revenue in 2021, including 27 of the top 30 earners, have eliminated NSF fees.
CFPB and DOJ Joint Statement on Fair Lending and Credit Opportunities for Noncitizen Borrowers under the Equal Credit Opportunity Act
The CFPB and DOJ issued a joint statement to assist creditors and borrowers in understanding potential civil rights implications of a creditor's consideration of immigration status under the Equal Credit Opportunity Act (ECOA). The ECOA does not prohibit the consideration of an applicant’s immigration status when necessary to ascertain the creditor’s rights regarding repayment. However, creditors should be aware that overbroad reliance on immigration status in the credit decisioning process may run afoul of ECOA’s antidiscrimination provisions.
CFPB Proposed Rule on Personal Financial Data Rights
The CFPB released a proposed rule to implement section 1033 of the Dodd-Frank Act. The proposed rule would require depository and nondepository entities to make available to consumers and authorized third parties certain data relating to consumers’ transactions and accounts; establish obligations for third parties accessing a consumer’s data, including important privacy protections for that data; provide basic standards for data access; and promote fair, open, and inclusive industry standards.
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Internal Revenue Service (IRS)
Agency Finalizing Direct File Pilot Scope
As part of larger transformation efforts, the IRS announced details about the Direct File pilot for the 2024 filing season with several states planning on joining the innovation effort.
The IRS will conduct a limited-scope pilot during the 2024 tax season to further assess customer support and technology needs. Arizona, California, Massachusetts and New York have decided to work with the IRS to integrate their state taxes into the Direct File pilot for filing season 2024. Taxpayers in nine other states without an income tax – Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming -- may also be eligible to participate in the pilot. Washington has also chosen to join the integration effort for the state's application of the Working Families Tax Credit. All states were invited to join the pilot, but not all states were in a position to join the pilot at this time.
People in those 13 states may be eligible to participate in the 2024 Direct File pilot, a new service that will provide taxpayers with the choice to electronically file their federal tax return directly with the IRS for free.
Taxpayer eligibility to participate in the pilot will be limited by the state in which the taxpayer resides and will be limited to taxpayers with certain types of income, credits and deductions – taxpayers with relatively simple returns. The IRS today announced it anticipates specific income types, such as wages on a Form W-2, and important tax credits, like the Earned Income Tax Credit and the Child Tax Credit, will be covered by the Direct File pilot.
IRS Announces Withdrawal Process for Employee Retention Credit Claims; Special Initiative Aimed at Helping Businesses Concerned About an Ineligible Claim Amid Aggressive Marketing Scams
The IRS announced the details of a special withdrawal process to help those who filed an Employee Retention Credit (ERC) claim and are concerned about its accuracy.
This new withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that's still being processed can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible.
The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.
Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.
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 credit with precise requirements to help businesses during the pandemic, and since mid-September, the IRS has received approximately 3.6 million claims for the credit over the course of the program.
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Financial Crimes Enforcement Network (FinCEN)
FinCEN Proposal of Special Measure Regarding Convertible Virtual Currency Mixing
FinCEN issued a Notice of Proposed Rulemaking which would require domestic financial institutions and domestic financial agencies to implement certain recordkeeping and reporting requirements related to transactions involving convertible virtual currency (CVC) mixing.
CVC mixing entails the facilitation of CVC transactions in a manner that obfuscated the course, destination, or amount involved in one or more transactions. Because CVC mixing is intended to make CVC transactions untraceable, and anonymous, it is ripe for abuse and used for illicit purposes.
FinCEN Issues Alert to Financial Institutions to Counter Financing to Hamas
FinCEN issued Alert FIN-2023-Alert006 to assist financial institutions in identifying funding streams supporting Hamas. FinCEN is urging financial institutions to be vigilant in identifying suspicious activity relating to financing Hamas and reporting such activity to FinCEN. Financial institutions, including virtual asset service providers (VASPs), should identify and report suspicious transactions associated with Hamas’s financing as quickly as possible.
As part of a whole-of-government response, the U.S. Department of the Treasury (Treasury) is taking all steps necessary, including by issuing the Alert and engaging with foreign counterparts, to deny Hamas the ability to raise and use funds worldwide. FinCEN has identified several red flag indicators in the alert to help detect, prevent, and report potential suspicious activity related to Hamas’s financing activity. As no single red flag is determinative of illicit or suspicious activity, financial institutions should consider the totality of available facts and circumstances, such as a customer’s historical financial activity, whether the transactions are in line with prevailing business practices, and whether the customer exhibits multiple red flags, before determining that a behavior or transaction is suspicious.
FinCEN requests financial institutions reference this alert by including the key term “FIN-2023- TFHAMAS” in SAR field 2 (Filing Institution Note to FinCEN) and the narrative to indicate a connection between the suspicious activity being reported and this alert.
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