RegWatch - CUNA Technology Council

CUNA Regulatory Affairs (edited by the CUNA Technology Council Industry Involvement Committee)
November 11, 2008 | COMMENTS

Regulatory Issues of Interest to CUNA Technology Council Members

In This Issue:

• NCUA’s Budget Briefing: Board Will Consider 15% Increase
• Agencies Approve “Red Flags” Exam Guidance; FTC Delays Enforcement for State-Chartered Credit Unions
• CUNA Asks Regulator to Reconsider New Appraisal Code
• CUNA Comments on Proposal for Reimbursement of Financial Records
• Prepaid Visa Cards Soon Reloadable at Participating ATMs

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NCUA'S BUDGET BRIEFING: BOARD WILL CONSIDER 15% INCREASE

NCUA held its 2009 budget briefing last week. The budget for 2009 is expected to increase 15% to $182.9 million and add 85 additional staffers to accommodate program modifications “necessary to address the current turbulent economic environment,” said NCUA Executive Director Len Skiles. During 2009, the overhead transfer rate is projected to be 55% and the operating fee is expected to increase 10% to oblige increased expenditures, according to Skiles.

The most significant NCUA program changes under consideration would add additional staff, implement a 12-month examination cycle, develop a national examiner team to conduct high-risk exams, and centralize credit union chartering in 2009.

NCUA said it believes it is “imperative to expand its examiner staff and develop a cadre of well-trained experts as credit unions are faced with unprecedented liquidity pressures, increased interest rate risk, due diligence efforts, concentration risk, and additional governmental requirements.”

NCUA's proposed budget includes $12.8 million to hire and train:

• 100 additional examiners;
• Five problem case officers;
• Five risk management officers; and
• Additional support staff.

Pay and benefits for the entire staff are projected to increase $14.5 million or 12.3%. Travel expense is expected to increase $6.9 million or 44.7% to accommodate a 12-month examination cycle and expected inflation pressures, according to Skiles.

Tom Gaines, Tennessee League President and CEO, who is the Chairman of CUNA's Examination and Supervision Subcommittee, commented at the briefing. Gaines noted that credit unions do not want to micromanage NCUA, just as NCUA should not micromanage credit unions. However, NCUA should utilize existing resources carefully and consider greater use of contracted help rather than hiring new employees in some cases, Gaines stated.

Gaines also urged NCUA to consider creating temporary relief programs for credit unions, in light of the economic downturn.  He indicated that NCUA should work with CUNA and Treasury to ensure credit unions also have access to Treasury's programs, if necessary.

The NCUA Board is scheduled to consider the budget at its November 20 meeting.

- Mary Dunn, SVP and Deputy General Counsel

 

AGENCIES APPROVE “RED FLAGS” EXAM GUIDANCE; FTC DELAYS ENFORCEMENT FOR STATE-CHARTERED CREDIT UNIONS

NCUA and the banking regulators recently approved guidelines that examiners will use to determine compliance with the identity theft “red flags” and the address discrepancy and change of address rules that were issued under the Fair and Accurate Credit Transactions (FACT) Act. The “red flags” rules require financial institutions and other creditors to develop a program designed to detect and prevent identity theft in connection with certain accounts. The address discrepancy and change of address rules require a user of consumer reports to develop reasonable policies and procedures to confirm that the report relates to the consumer whose report was requested when there is an address discrepancy and require credit and debit card issuers to develop policies to verify a change of address when there is a request for an additional or replacement card.

Compliance with these rules is required by November 1, 2008, and examiners will include an evaluation of a financial institution's compliance with these provisions during the next regularly scheduled examination. Click here for the guidelines for the identity theft rules, and click here and here for the guidelines for the address discrepancy and change of address rules.

In a related matter, the Federal Trade Commission (FTC) recently announced that it is postponing for six months enforcement of the red flag rules for entities under its jurisdiction, which includes state-chartered credit unions. FTC's action was primarily directed at non-financial institution creditors, such as automobile dealers and utility companies, which were unaware of these rules until recently. The FTC's suspension of its enforcement of the red flag rules will not apply to the address discrepancy or change of address rules that were issued along with the red flags rule.

Through a number of conversations with NCUA staff, the agency clarified that it has no plans to delay the effective date for enforcement of the identity theft red flags rule for federal credit unions, primarily because FTC's rationale for delaying enforcement for non-financial institution creditors does not apply to credit unions. The position of federal banking agencies is likely to be consistent with NCUA's. These agencies expect federal credit unions and banks to be in compliance as scheduled and have emphasized earlier that an institution's current policies and procedures on information security and fraud prevention can form the foundation of the required identity theft program, which should help to minimize compliance burdens.

- Jeff Bloch, Senior Assistant General Counsel

 

CUNA ASKS REGULATOR TO RECONSIDER NEW APPRAISAL CODE

In light of recent developments in which both Freddie Mac and Fannie Mae were placed into government conservatorship, CUNA recently submitted a letter to their new regulator, the Federal Housing Finance Agency (FHFA), requesting a review of the recent appraisal code that will soon be imposed on lenders who sell loans to Freddie Mac and Fannie Mae.  The letter specifically requests removal of the requirement that lenders maintain a telephone hotline and email address for purposes of receiving and investigating complaints with regard to the appraisal process.

Earlier this year, the New York Attorney General, Fannie Mae, Freddie Mac, and their regulator entered into agreements requiring Fannie Mae and Freddie Mac to buy loans only from lenders that meet new standards designed to ensure independent and reliable appraisals.  These agreements establish the New Home Valuation Protection Code (Code).  In addition to the requirements for maintaining the telephone hotline and email address, the significant provisions of the Code also include: (i) prohibiting mortgage brokers from selecting appraisers; (ii) prohibiting lenders from using “in-house” staff appraisers to conduct initial appraisals; and (iii) prohibiting lenders from using appraisal management companies that they own or control. 

These new standards will apply to loans originated after January 1, 2009.  Click here or more information about the new appraisal code, and click here for CUNA's letter to the FHFA.

- Jeff Bloch, Senior Assistant General Counsel

 

CUNA COMMENTS ON PROPOSAL FOR REIMBURSEMENT OF FINANCIAL RECORDS

In a recent comment letter to the Federal Reserve Board (Fed), CUNA supported the proposed rule to amend Regulation S, the Right to Financial Privacy Act, which determines the rates and conditions in which a government agency must reimburse a financial institution for costs incurred in producing financial records in response to government requests.  These amendments update and increase the fees that may be charged by financial institutions and incorporate recent advances in electronic document productions.

In the letter, CUNA supported these changes to update and modernize the costs incurred in producing financial records, although the fees for microfiche duplication should not be eliminated at this time.  CUNA also suggested additional changes that may avoid the need to amend these rules in the future.

Click here for more information about these rules, and click here for a copy of CUNA's comment letter.

- Jeff Bloch, Senior Assistant General Counsel

 

PREPAID VISA CARDS SOON RELOADABLE AT PARTICIPATING ATMS

Visa will be expanding its reloading capabilities on eligible prepaid cards within the next few months by enabling consumers to add funds to certain cards at participating ATMs that accept envelope-free deposits.

Offering reload capabilities at different locations is not a new product. Merchants across the country have implemented this prepaid reload Network, called Visa ReadyLink, since it first launched in 2006. It enables consumers to reload funds at participating retail locations, such as supermarkets and convenience stores, and have instant access to their funds.

Expanding this capability to participating envelope-free ATMs, would further support the growth of prepaid products and target the financially underserved community. Envelope-free ATMs, which are not widely used at this time, enable consumers to insert cash or paper checks directly into a financial institution's ATM without an envelope.

These transactions would be processed the same as a Visa transaction, and as with any authorized and approved transaction, funds are guaranteed by the ATM acquirer to the card issuer.

-  Lilly Thomas, Assistant General Counsel