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National Credit Union Administration (NCUA)
NCUA Releases Q33 2023 State-Level Data Report
The NCUA released the latest quarterly U.S. Map Review which shows that federally insured credit unions experienced growth in loans, positive net income, and an increase in delinquencies in the third quarter of 2023. Credit Unions also experienced a decline in assets, shares, and deposits.
NCUA Issues Technical Corrections for the CECL Transition Amount
The NCUA released Accounting Bulletin 23-12 to alert credit unions about a technical correction with the calculation of the Current Expected Credit Loss (CECL) transition amount in NCUA regulations, §702.703(b)(2). Credit unions that adopted the CECL accounting standard in 2023 should use the method described below to calculate and report on the Call Report their CECL transition amount.
The Transition to the CECL Methodology (Transition Rule) recognized the need to phase in the CECL day-one adjustment on the net worth ratio. As a result, the Transition Rule phased in the day-one effects of adopting the CECL accounting standard over a three-year transition period (12 quarters).
To ensure computation alignment with the Transition Rule’s intent, credit unions should calculate the CECL transition amount for quarters 4 through 12 as the difference between:
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the credit union's retained earnings as of the beginning of the fiscal year in which the credit union adopts CECL, adjusted for any restatement of the initial CECL adoption amount; and
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the credit union's retained earnings as of the closing of the fiscal year immediately before the credit union’s adoption of CECL.
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Consumer Financial Protection Bureau (CFPB)
CFPB Releases Annual HMDA Asset Size Exemption Threshold
The CFPB released the annual exemption threshold adjustment for the Home Mortgage Disclosure Act (Regulation C). The exemption threshold for small credit unions from HMDA reporting increases to $56 million from the current $54 million threshold.
CFPB Releases Annual Regulation Z Adjustment to Asset-Size Exemption Threshold
The CFPB released the annual asset-size thresholds to exempt certain credit unions from the requirement to establish an escrow account for a higher-priced mortgage loan. For certain first-lien higher-priced mortgage loans, the exemption threshold is adjusted to increase to $2.640 billion from $2.537 billion.
CFPB Orders U.S. Bank to Pay $21 Million for Issues Related to Unemployment Benefits During the COVID-19 Pandemic
The CFPB ordered U.S. Bank to pay nearly $21 million for keeping out-of-work consumers from accessing unemployment benefits at the height of the COVID-19 pandemic. U.S. Bank froze tens of thousands of accounts. However, it failed to provide people a reliable and quick way to regain access. The bank also failed to provide provisional account credits, while investigating potentially unauthorized transfers.
The CFPB found that U.S. Bank violated the Consumer Financial Protection Act and the Electronic Fund Transfer Act. Specifically, the bank harmed consumers by withholding:
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Access to state benefits: Expanded anti-fraud controls, implemented by U.S. Bank, resulted in tens of thousands of frozen accounts. However, U.S. Bank did not provide consistent, accurate instructions to consumers on how to unfreeze their accounts quickly. That left consumers unable to access unemployment funds.
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Provisional account credits: When accountholders report unauthorized transfers, banks must provide provisional account credits if their investigations take more than 10 days. In thousands of cases, U.S. Bank failed to provide provisional credits. The bank failed to provide the credits because it improperly required additional written confirmation about the suspected unauthorized transfers from consumers. These actions left consumers unable to spend the funds they had reported as unauthorized transfers.
CFPB Issues Report Showing Many Americans Are Surprised by Overdraft Fees
The CFPB released a report which shows many consumers are still being hit with unexpected overdraft and nonsufficient fund (NSF) fees. Key findings from surveyed households and consumers in the report include:
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Households frequently incurring overdraft and NSF fees are more likely to struggle to meet their financial obligations: Among households that frequently incurred overdraft/NSF fees, 81% reported difficulty paying a bill at least once in the past year. This drops to 25% for households that were not charged a fee.
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Many consumers do not expect overdraft fees: Among consumers in households charged an overdraft fee in the past year, 43% were surprised by their most recent account overdraft, 35% thought it was possible, and only 22% expected it. Consumers who overdraft infrequently are more likely to be surprised by a fee: 15% of consumers from households charged 1 to 3 overdraft fees expected their most recent transaction to overdraft; among households charged more than 10 overdraft fees, 56% expected their most recent overdraft.
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Most households incurring overdraft fees had available credit on a credit card: Among households charged 1-3 overdraft fees in the past year, 68% had credit available on a credit card, while 62% of households charged 3-10 overdraft fees had credit available on a credit card. In households charged more than 10 fees in the past year, 51% still had credit available on a credit card.
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Households face a substantial overlap in being charged overdraft and NSF fees: Among consumers in households charged an NSF fee in the past year, 85% were also charged an overdraft fee. Among consumers in households charged an overdraft fee in the past year, 72% were also charged an NSF fee.
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Low-income households are hit the hardest Overdraft and NSF fees: While just 10% of households with over $175,000 in income were charged an overdraft or an NSF fee in the previous year, the share is three times higher (34%) among households making less than $65,000.
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U.S. Congress
President Biden Vetoes S.J. Res 32
President Biden vetoed a resolution to disapprove the CFPB rule which would enact section 1071 of the Dodd-Frank rule and require financial institutions to collect and report lending data for small businesses.
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Internal Revenue Service (IRS)
New Voluntary Disclosure Program Lets Employers Who Received Questionable ERCs Pay Them Back at a Discounted Rate
The IRS released a new Voluntary Disclosure Program to help businesses who want to pay back the money they received after filing ERC claims in error. The new disclosure program is part of a larger effort at the IRS to stop aggressive marketing around ERC that misled some employers into filing claims. The special disclosure program runs through March 22, 2024, and the IRS added provisions allowing repayment of 80% of the claim received.
Interested employers must apply to the ERC Voluntary Disclosure Program by March 22, 2024. Those that the IRS accepts into the program will need to repay only 80% of the credit they received. If the IRS paid interest on the employer's ERC refund claim, the employer doesn't need to repay that interest. Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, available on IRS.gov, and all required supporting documentation.
To apply, the employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. This form must be submitted using the IRS Document Upload Tool.
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Financial Crimes Enforcement Network (FinCEN)
FinCEN Issues Final Rule Regarding Access to Beneficial Ownership Information
FinCEN issued the final rule which establishes the framework for access to and protection of beneficial ownership information (BOI). The Access Rule does not create a new regulatory requirement for credit unions to access BOI from the BO IT System or a supervisory expectation that they do so. Therefore, the Access Rule does not necessitate changes to Bank Secrecy Act (BSA)/anti-money laundering (AML) compliance programs designed to comply with the existing Customer Due Diligence rule (the “current CDD Rule”) and other existing BSA requirements, such as customer identification program requirements. However, any access to and use of BOI obtained from the BO IT System must comply with the requirements of the Access Rule.
FinCEN may disclose BOI to financial institutions using BOI to facilitate compliance with customer due diligence requirements under applicable law, provided the financial institution requesting the BOI has the relevant reporting company’s consent for such disclosure. Financial institutions that obtain BOI from FinCEN must develop and implement administrative, technical, and physical safeguards reasonably designed to protect the information. Financial institutions will be able to satisfy this requirement by applying to BOI the same security and information handling procedures they use to protect customers’ nonpublic personal information in compliance with section 501 of the Gramm-Leach-Bliley Act and its implementing regulations. For each BOI request that it makes, a financial institution will have to certify that the request satisfies applicable criteria. Certain geographic restrictions will also apply.
The Access Rule will become effective on February 20, 2024. Starting in 2024, FinCEN will begin to provide access to BOI in phases to authorized government agencies and financial institutions that meet the requirements of the final rule. Credit unions will be in the fifth phase, which is expected to be around December 2024.
U.S. Beneficial Ownership Information Registry Now Accepting Reports
FinCEN began accepting beneficial ownership information reports yesterday.
The bipartisan Corporate Transparency Act, enacted in 2021 to curb illicit finance, requires many companies doing business in the United States to report information about the individuals who ultimately own or control them.
Filing is simple, secure, and free of charge. Companies that are required to comply (“reporting companies”) must file their initial reports by the following deadlines:
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Existing companies: Reporting companies created or registered to do business in the United States before January 1, 2024 must file by January 1, 2025.
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Newly created or registered companies: Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective.
Beneficial ownership information reporting is not an annual requirement. A report only needs to be submitted once, unless the filer needs to update or correct information. Generally, reporting companies must provide four pieces of information about each beneficial owner:
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name;
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date of birth;
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address; and
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the identifying number and issuer from either a non-expired U.S. driver’s license, a non-expired U.S. passport, or a non-expired identification document issued by a State (including a U.S. territory or possession), local government, or Indian tribe. If none of those documents exist, a non-expired foreign passport can be used. An image of the document must also be submitted.
The company must also submit certain information about itself, such as its name(s) and address. In addition, reporting companies created on or after January 1, 2024, are required to submit information about the individuals who formed the company (“company applicants”).
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Regulators Release Updated Rulemaking Agendas
The Federal Financial Regulators recently released the Fall update to their rulemaking agendas.
CFPB
The Consumer Financial Protection Bureau (CFPB) has twelve items listed on its rulemaking agenda. Several of the items listed have implications for credit unions.
Credit Card Penalty Fees – As part of the White House’s Junk Fee Initiative, the CFPB is considering revised Credit Card Act rulemaking related to penalty fees and the Safe Harbor limits the CFPB established. The CFPB is considering capping the Safe Harbor limit for credit card late payments at $8.00. The Unified Agenda shows this rule to be in the final rule stage.
Availability of Electronic Consumer Financial Account Data – The CPFB published a Proposed Rulemaking concerning Section 1033 Dodd-Frank Act requirement which addresses the availability of consumer financial account data in electronic forms. The rulemaking would require credit unions to make data available to members and authorized third parties through both a consumer interface and a developer interface.
Property Assessed Clean Energy (PACE) Financing – Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 requires the CFPB to issue regulations relating to PACE financing. Unlike traditional financing, PACE loans are secured by the real property and are paid through special property tax assessments. The CFPB is proposed to move any residential real estate loan that is secured by a consensual tax lien under the Regulation Z requirements.
Standards for Automated Valuation Models (AVMs) – The CFPB and other federal financial institution regulators are working to implement the Dodd-Frank Act requirement concerning automated valuation models (AVMs). The amendments require rules for quality control standards for AVMs. These quality control standards are designed to ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews, and account for any other such factor that the Agencies determine to be appropriate. The CFPB released a proposed rule in June 2023, and is looking to possibly have the final rule out by June 2024.
Overdraft and NSF Fees – In the prerule stage, the CFPB has 2 items related to Overdraft and NSF fees. Prerule activity is slated to continue through November.
Fair Credit Reporting Act Rulemaking – The CFPB is considering whether to amend Regulation V.
NCUA
The National Credit Union Administration (NCUA) has fifteen items listed on its rulemaking agenda. Some of the ones that stand out include:
Simplification of Share Insurance Rules – The proposed rule is intended to simplify the share insurance regulations by establishing trust accounts category that governs the coverage of shares of both revocable and irrevocable trusts using a common calculation. The NCUA published a proposed rule November 2023.
Digital Assets and Related Technologies – The NCUA issued a Notice of Proposed Rulemaking in 2021 to gather information on a wide range of issues pertaining to decentralized finance and cryptocurrencies as they relate to the credit union industry. The NCUA will review the comments and determine if any proposals should be forthcoming. According to the Unified Agenda, the NCUA is expected to publish a proposed rule around July 2024.
Overdraft Policy – The NCUA issued a proposed rule which would remove the requirement for federal credit unions to include in their overdraft policies that a member must either deposit funds or obtain an approved loan from the FCU within 45 calendar days of their account becoming overdrawn. Otherwise, the account must be charged off after that time period. The NCUA is expected to publish the final rule in June 2024.
Incentive-Based Compensation Arrangements - The NCUA, along with the other federal financial institution regulators, are looking to issue a third proposed rule to implement section 956 of the Dodd-Frank Act. Section 956 requires the regulators to issue regulations and guidelines prohibiting incentive-based compensation arrangements which encourage inappropriate risks.
Automated Valuation Models – As mentioned under the CFPB rulemaking, the various federal financial institution regulators are working on a rule to implement the Dodd-Frank Act requirement concerning automated valuation models (AVMs). The amendments require rules for quality control standards for AVMs. These quality control standards are designed to ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews, and account for any other such factor that the Agencies determine to be appropriate.
Investment and Deposit Activities – The NCUA is considering issuing a proposed rule to modernize and improve the NCUA’s investment rule and provide regulatory relief. The NCUA believes there may be certain provisions in part 703 that are overly restrictive and unnecessary from a safety and soundness perspective.
Procedures for Monitoring Bank Secrecy Act Compliance - NCUA, along with the other federal financial regulators, plans to seek comment on a NPRM to amend its BSA Compliance Program rule consistent with the Anti Money Laundering Act of 2020.
Incorporation of Existing Statement of Policy Regarding Exceptions to Employment Restrictions– The NCUA issued a proposed rule in November 2023 which would incorporate Interpretive Ruling and Policy Statement IRPA 19-1 into its regulations.
Fintech – The NCUA board plans to issue a final rule which would amend the NCUA’s rules regarding the purchase of loan participations and the purchase, sale, and pledge of eligible obligations and other loans (including notes of liquidating credit unions) to clarify the requirements applicable to such transactions and provide additional flexibility for federally insured credit unions to make use of advanced technologies and opportunities offered by the financial technology sector.
Implementation of Financial Data Transparency Act – The NCUA, along with the other federal financial institution regulators, are coordinating efforts on a proposed rule to establish data standards for the collection of information reported to the agencies.
ACCESS Initiative: Chartering and Field of Membership (FOM) Regulations – The NCUA’s Advancing Communities through Credit, Education, Stability, and Support (ACCESS) initiative is designed to refresh and modernize regulations, policies, and programs in support of greater financial inclusion within the NCUA and the credit union system. The NCUA is considering issuing a proposed rule to amend its chartering and FOM regulations. The proposed amendments would remove outdated requirements, simplify the charter approval process, and clarify regulatory language. The final rule is expected to be released in February 2024.
FinCEN
The Financial Crimes Enforcement Network has two major rulemaking items on its agenda that credit unions should be aware of.
Revisions to Customer Due Diligence Requirements for Financial Institutions – Part 3 of the BOI changes. The rulemaking is scheduled to come out in June 2024, and would update the CDD requirements for credit unions in light of the other 2 pieces of rulemaking.
Establishment of National Exam and Supervision Priorities – FinCEN intends to issue a proposed rule to implement Section 6101 of the Anti-Money Laundering Act of 2020 (AML Act). Section 6101 of the AML Act (1) requires financial institutions to establish countering the financing of terrorism (CFT) in addition to AML programs; (2) requires FinCEN to establish national AML/CFT priorities and, as appropriate, promulgate implementing regulations within 180 days of the issuance of those priorities (Priorities issued on June 30, 2021); and (3) provides that the duty to establish, maintain, and enforce a Bank Secrecy Act AML/CFT program remains the responsibility of, and must be performed by, persons in the United States who are accessible to the appropriate Federal functional regulator. In addition, FinCEN intends to propose other changes, including regulatory amendments to establish that all financial institutions subject to an AML/CFT program requirement must maintain an effective and reasonably designed AML/CFT program, and that such a program must include a risk assessment process. The Unified Agneda shows a March 2024 date for the issuance of the proposed rule.
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