National Association of Federal Credit Unions l www.nafcu.org
PRESENTED BY:
Alexander Monterrubio, Director of Regulatory Affairs
Michael Emancipator, Senior Regulatory Affairs Counsel
Ann Kossachev, Regulatory Affairs Counsel
Andrew Morris, Regulatory Affairs Counsel
What’s New and What’s Next with NAFCU’s
Regulatory Affairs Team
National Association of Federal Credit Unions l www.nafcu.org
• Advocacy Update
• NCUA Update
• CFPB Update
• Other Regulators
• Department of Defense
• Department of Labor
• FHFA
• FCC
• FFIEC
• FASB
Regulatory Affairs Update Agenda
National Association of Federal Credit Unions l www.nafcu.org
NAFCU’s 2016 Regulatory Advocacy
• Obtain Field of Membership &
Chartering modernization
• Achieve regulatory relief from
NCUA’s Member Business Lending
rules and waiver process
• Ensure that CFPB does not
implement harmful Overdraft
regulations
• Engage with Treasury regarding
the impact of the online
marketplace lending on credit
unions
• Monitor CFPB’s potential
rulemaking on first-party debt
collection
• Monitor the CFPB’s enforcement
of UDAAP
• Participate in industry discussions
about faster payment systems
and cybersecurity best practices
• Monitor any developments from
FHFA impacting the GSEs and
Housing Finance Reform
National Association of Federal Credit Unions l www.nafcu.org
Recently Proposed or Finalized
NCUA CFPB Others
Annual Privacy Notice Fiduciary Duty OTR
Arbitration Flood Insurance Overtime Pay
Bank Notes FOM Partial Occupancy
CC Rating System Front-End CRT Payday Lending
CECL HMDA Prepaid Cards
Consumer Complaint IBC QM adjustments
CSP IOLTA RBC
CDD MBL Student Lending
Cybersecurity MLA TCPA
Debt-Collection Mortgage Servicing TRID Fix
Duty to Serve Op Fee Methodology
FHLB Membership
National Association of Federal Credit Unions l www.nafcu.org
Polling Question
• What regulatory issue is your credit union most concerned about?
– Overdraft Rulemaking
– First-Party Debt Collection Rulemaking
– HMDA Implementation
– MLA Implementation
– Consumer Complaint Database Expansion
National Association of Federal Credit Unions l www.nafcu.org
National Credit Union Administration
National Association of Federal Credit Unions l www.nafcu.org
NCUA Board Composition
• NCUA Board has continued to function as normal with only two members.
• However, for a rule or action to be passed, the board vote must be
unanimous. A 1-1 vote would fail to constitute agency action.
• On July 13, 2016, President Obama announced John Herrera as the nominee to
serve as the third member of the Board, filling Matz’s seat for the remainder of an
open six-year term.
• Herrera is the Senior Vice President for Latino and
Hispanic Affairs at Self-Help CU
• Board Member McWatters was nominated to fill seat on
the Ex-Im Bank Board.
• Increasingly unlikely McWatters or Herrera will be
confirmed prior to the November general election.
National Association of Federal Credit Unions l www.nafcu.org
Chairman’s Agenda
• Enterprise Solution Management Program (ESMP) and
Continual Quality Improvement (CQI)
• Modernize the agency’s technical infrastructure, and
thereby enabling relief for CUs and cost-savings for
NCUA
• Introduction of Board Briefings
• Upcoming budget briefing
• IRR and “S” discussion
• Cybersecurity Update
• Creation of working groups
• Exam Flexibility Initiative
• Call Report Modernization
National Association of Federal Credit Unions l www.nafcu.org
Exam Flexibility Initiative
Increase the efficiency of the
examination process
Common Concerns •Examiners’ overreliance on guidance
and best practices;
•Absence of sufficient notice;
•Lack of consistency
Solutions •Statistical reporting of findings, DORs
and LUAs
•Appeals Process
•18-month Exam Cycle
•Remote Monitoring
Goal
NAFCU Advocacy
National Association of Federal Credit Unions l www.nafcu.org
Call Report Modernization
Goals
NAFCU Advocacy • Prioritize burden
reduction
• Leverage technology to
streamline data entry and
submission; and
• Eliminate data fields that
are not related to safety
and soundness concerns
Streamlining the Call Report in
preparation of implementing
technological updates into the
Call Report
National Association of Federal Credit Unions l www.nafcu.org
IRR and ‘S’
• The new tool sets a baseline of IRR
exposure based on a CU’s NEV
• New IRR supervisory exam will
utilize a risk-based scoping
approach
• results are categorized into
low, moderate, high and
extreme risk.
• will drive whether there is an
increase or decrease in the
number of required review
steps
• NCUA will focus most supervisory
attention on the extreme category.
• The agency believes that a large
majority of credit unions will fall
under the low or moderate risk
category
National Association of Federal Credit Unions l www.nafcu.org
Member Business Lending
Effective January 1, 2017 (except personal guarantee requirement, already effective
as of May 13, 2016)
• Current rule: Prescriptive limitations, including: LTV requirements, guarantee
requirements, and multiple concentration limitations
• New rule: Principles based rule. Defines “commercial loans” separately form
“member business loans,” separating underwriting concerns from the statutory
cap
• Commercial Loans: Establishing commercial lending policies and program
responsibilities for making commercial loans which are risk-weighted for
RBC purposes.
• Member Business Loans: Rule discusses the statutory limit on member
business loans as defined by Congress.
• Credit union’s board of directors will be required to adopt policies and procedures
and provide oversight to the MBL program
National Association of Federal Credit Unions l www.nafcu.org
MBL: Litigation
• Recently, the Independent Community Bankers of America (ICBA) sued
NCUA in the U.S. District Court for the Eastern District of Virginia (EDVa)
regarding the Member Business Loan rule.
– The complaint alleges that “[t]his rule violates the plain terms of the Federal Credit
Union Act…which strictly limits the amount of commercial loans and interests in such
loans” that a credit union may hold.
– ICBA also argues that the “rule puts consumers, taxpayers and the financial system at
risk by jeopardizing the safety and soundness of federally insured credit unions.”
• NAFCU supports the NCUA’s MBL regulation and supports their position
in the lawsuit. ICBA is threatening to file another lawsuit on the FOM
rule.
• The EDVa is known as the “Rocket Docket,”
so expect things to move quickly!
National Association of Federal Credit Unions l www.nafcu.org
Field of Membership
• Allow Combined Statistical Areas (CSAs) designated by the Office of Management and Budget (OMB) to count as a “well-defined, local community.”
• Recognize congressional districts as a Single Political Jurisdiction.
• Increase the population limit for a Rural District from 250,000 to 1 million persons.
Community
• Allow “Reasonable Proximity” through Online Access to Services
• Permit the addition of contracts for the sponsor of the Select Employee Group (SEG), provided there is a “strong dependency relationship.”
Multi-Common
Bond
• Expand the definition of TIP to include employees of entities that have a strong dependency relationship on, and whose employees work directly with employees of, other entities within the same industry.
TIP
National Association of Federal Credit Unions l www.nafcu.org
Occupancy Rule
• NCUA issued a proposal on April 27, 2016, that would
eliminate the full occupancy requirement and related planning
requirements in the current rule (formerly known as “fixed
assets” rule).
• The proposal would also clarify that partial occupancy means
the use, on a full-time basis, of at least fifty percent of the
premises by the credit union or the credit union and its
CUSO.
• Seeking additional
clarity: • What is a controlling
interest in a CUSO?
• How are common
areas treated?
National Association of Federal Credit Unions l www.nafcu.org
• Section 956 of the DFA requires NCUA to propose joint-rule prohibiting IBC
arrangements from encouraging excessive risk-taking
• The proposed rule applies to financial institutions with total assets of $1 billion or
more.
• No IBC arrangements that encourage inappropriate risks, either by:
– Providing a covered person with excessive comp, fees, or benefits, or
– That could lead to a material financial loss.
• Directors must conduct oversight, approve IBC arrangements for senior execs,
and approve material exceptions
• Levels 1 & 2 IBC plans would need to account for clawback, deferral, and
forfeiture provisions (NCUA reserves the right to require a Level 3 CU with
more than $10b to comply with more onerous requirements).
Incentive Based Compensation
Level 3 Level 2 Level 1
$1b-$50b $50-$250b Greater than $250b
National Association of Federal Credit Unions l www.nafcu.org
NCUA Budget Briefing
• NCUA is scheduled to hold a public briefing on its proposed 2017-2018 budget on Thursday, October 27, 2016, from 2 – 4 p.m. ET.
• NAFCU agrees with some of the points NCUA Board Member McWatters made in his September 7 editorial, including: (1) an extended exam cycle and new exam appeals process, and (2) eliminating the current two-year budget process for an annual budget review.
• Increased transparency and efficient expenditure of credit union dollars should be critical elements of NCUA’s efforts. This is especially true in light of the recent loss of over 200 credit unions and an ever-increasing NCUA budget. NAFCU will continue to monitor the budget review process and advocate for an efficiency, transparency, and accountability.
National Association of Federal Credit Unions l www.nafcu.org
NCUA Cyber Examinations
NCUA Board Meeting 9/15/16 • Staff emphasized programmatic, interagency efforts to improve
credit union cybersecurity in light of new hacking capabilities and
financial sector disruption caused by FinTech competitors.
• Key themes:
• The need to develop competent examination procedures for
assessing risk.
• NCUA’s desire to promote best practices.
• The importance of protecting the reputation of credit unions
as safe places for storing and preserving member accounts.
• Cybersecurity exam component will cover touchpoints during
each cycle, with the goal of developing a full assessment after
several cycles.
• The depth and specificity of the exam would be determined
according to several factors, including NCUA’s capacity to deploy
experts or specialist examiners, and whether or not a credit union
has launched a new type of service.
National Association of Federal Credit Unions l www.nafcu.org
NCUA Cyber Examinations
National Association of Federal Credit Unions l www.nafcu.org
Cybersecurity Focus 2017
• Cybersecurity : Information Sharing
• Information sharing organizations (ISAOs) for credit unions.
• FS-ISAC (Financial Services Information Sharing & Analysis Center)
• NCU-ISAO (National Credit Union Information Sharing & Analysis
Organization)
• Founders Federal Credit Union
• Baxter Credit Union
• Government Platforms
• DHS National Cybersecurity Exercise and Planning Program (NCEPP)
• NCEPP conducts and supports cyber exercises for and with Federal, State,
Local, Tribal, and Territorial (SLTT), and sector partners to bolster cyber
preparedness, resilience, and information sharing across stakeholder groups.
• NIST National Vulnerability Database (NVD)
• The NVD is the common vulnerabilities and exposures (CVE) dictionary
augmented with additional analysis, a database, and a fine-grained search
engine. The NVD is a superset of CVE. The NVD is synchronized with CVE
such that any updates to CVE appear immediately on the NVD
National Association of Federal Credit Unions l www.nafcu.org
Other NCUA Issues Ahead
RBC
Supplemental Capital
Asset Securitization
CDFI semi-automation
National Association of Federal Credit Unions l www.nafcu.org
Polling Question
• Which NCUA initiative is the most important
to your credit union?
• Field-of-Membership Rulemaking
• Exam Flexibility
• Call Report Modernization
• MBL Implementation
• NCUA Budget Transparency
National Association of Federal Credit Unions l www.nafcu.org
Consumer Financial Protection Bureau
National Association of Federal Credit Unions l www.nafcu.org
Prepaid Accounts
• The CFPB issued a proposal in December 2014 that would establish new federal
consumer protections for the prepaid products.
– Prepaid cards are the fastest growing financial
product in the market.
• RushCard failure resulted in increased
scrutiny of the prepaid card market.
• The rule would dramatically broaden prepaid account regulations by bringing
prepaid accounts within scope of Reg E and Reg Z.
• Proposed Definition of a “Prepaid Account”
– Card, Code, or Device w/ 3 Characteristics:
1. Capable of being loaded with funds
2. Not already an account under Regulation E (deposit accounts)
3. Redeemable at multiple, unaffiliated merchants for goods/services
• CFPB is expected to finalize this rule ANY DAY NOW!
National Association of Federal Credit Unions l www.nafcu.org
Regulation P
• In October 2014, the CFPB issued a final rule amending Regulation P to permit
credit unions to post their annual privacy notices on their website if they met
certain conditions.
• Last year, the Fixing America’s Surface Transportation Act (FAST Act), Section
750001, amended the Gramm-Leach Bliley Act (GLBA) to require that
consumers receive privacy notices after opening a new account and after their
providers’ privacy policies change.
• This summer, the CFPB proposed an amendment to implement the GLBA’s
newly added Section 503(f) exception to the annual notice requirement.
National Association of Federal Credit Unions l www.nafcu.org
Mortgage Servicing
• On November 20, 2014, the CFPB issued a proposed rule to
encompass the prior revisions and further amend the rules. Most
recently, on August 4, 2016, the CFPB issued its final rule amending the
2013 Mortgage Servicing Rules to provide corrections and clarification
and better align it with Regulation X and Regulation Z. In its final rule,
the CFPB made key changes in the following areas:
1. Successors in Interest
2. Definition of Delinquency
3. Requests for Information
4. Force-Placed Insurance
5. Early Intervention
6. Loss Mitigation
7. Prompt Payment Crediting
8. Periodic Statements
9. Small Servicer
National Association of Federal Credit Unions l www.nafcu.org
Debt Collection
• On July 28, 2016, the CFPB released its Outline of Proposals Under
Consideration and Alternatives Considered on third-party debt collection
practices. The Outline listed the following three key interventions to address
consumer complaints:
• Requiring debt collectors substantiate their claims that a consumer owes a
particular debt;
• Requiring that certain information the consumer provided in the collection process
with one collector be passed on and reviewed by subsequent collectors; and
• Requiring improved Fair Debt Collection Practices Act (FDCPA) validation notice
and Statement of Rights to provide consumers with critical information necessary
to help them determine whether they owe a particular debt and allow them to
better navigate the collection process.
• This Outline was provided to the SBREFA Panel during their August hearing.
The Panel’s report has not yet been released. A second SBREFA Panel will be
convened to discuss first-party debt collection sometime this fall.
National Association of Federal Credit Unions l www.nafcu.org
Company Response Survey
Amplification of reputational harm.
Coming early 2017…
National Association of Federal Credit Unions l www.nafcu.org
Disclosure of Confidential Info
• On August 30, 2016, the CFPB released a request for comments on its
proposed rule “Relating to Disclosure of Records and Information.”
• Generally, the rule would substantially enhance the CFPB’s discretion to
release confidential supervisory or investigative material with new
entities, such as service providers, foreign governments, and other
agencies exercising governmental authority.
• The CFPB does not describe exactly what type of cooperation it seeks to
enable with its new rule that did not exist previously.
National Association of Federal Credit Unions l www.nafcu.org
Arbitration
• On May 24, 2016, the CFPB’s arbitration rule was published in the Federal
Register.
• What does the proposal say?
– The proposal restricts pre-dispute arbitration clauses from blocking consumer
class actions, requires providers to alter their contracts to reflect this rule, and
establishes certain monitoring requirements for arbitration claims and awards.
• NAFCU submitted its comment letter on the proposed rule on August
22, 2016.
– NAFCU has long supported voluntary arbitration, but is concerned that this
proposed rule is the CFPB’s first step in eliminating arbitration as a means of
dispute resolution in the financial industry.
– NAFCU will continue to monitor this rulemaking and set up meetings with the
CFPB to discuss credit unions’ concerns.
National Association of Federal Credit Unions l www.nafcu.org
Arbitration
ARBITRATION LITIGATION
TIME 2 – 4 weeks 2 – 5 years
RULES Limited rules, customizable by the parties
Rules of procedure – governed by state/federal law
COSTS Fee for arbitrator, attorneys
Court costs, attorney fees
DECISION-MAKER Arbitrator, selected by the parties
Judge, appointed by the court without party input
FORMALITY Informal Formal
APPEALS Usually binding – no appeal possible
Appeal possible
TYPE OF PROCEEDING Civil - private Civil and criminal
DISCRETION Confidential Public
National Association of Federal Credit Unions l www.nafcu.org
Payday Lending
• On July 22, 2016, the CFPB released its proposed rule for “Payday,
Vehicle Title, and Certain High-Cost Installment Loans.”
• Generally, the proposed rule would define two different classes of covered
loans:
– “Short-term loans” – loans with a maturity of 45 days or less.
– “Longer-term loans” – loans with a maturity of greater than 45 days
which have a cost of credit over 36 percent per annum and the lender
has obtained a leveraged payment mechanism.
• For covered loans, the lender would need to undertake enhanced ability-
to-repay (ATR) requirements and limit the number of allowable
subsequent loans. The rule would specify that failure to perform ATR
requirements would constitute an abusive and unfair practices for lenders
originating covered loans.
National Association of Federal Credit Unions l www.nafcu.org
Payday Lending
Areas of Concern:
• Ability to Repay
• Major financial obligations & basic living expenses
• Lenders may encounter difficulty obtaining information about medical
debts depending on what state laws are applicable to the transfer of
protected health information. Likewise, obtaining accurate information
about living expenses will necessitate extensive inquiry.
• Registered Information Systems
• Lenders making covered, non-exempt loans will need collect and report
loan information to registered information systems to determine a
customer’s ability to repay. By doing so, lenders will be subject to the
FCRA as users and furnishers of consumer reports.
• Limits on statutory lien authority:
• Consecutive attempts to withdraw payment from a consumer's account in connection
with a covered loan (including PAL type loans) would constitute an unfair and abusive
act when the lender's second consecutive attempt to withdraw payment from the
account has failed due to a lack of sufficient funds.
• These rules conflict with the FCU Act’s provisions on statutory liens.
National Association of Federal Credit Unions l www.nafcu.org
TRID “fix” Proposal
• On July 29, 2016, the CFPB issued a proposal to amend its Truth in Lending Act (TILA) and Real
Estate Settlement Procedures Act (RESPA) Integrated Disclosures (TRID) Rule.
• NAFCU was heavily involved in discussions with the Bureau during the process to develop this
proposal.
• The proposal would codify the Bureau’s previously-issued informal guidance on the rule and
provide additional technical clarifications.
• In addition, the proposal would make adjustments to a number of substantive issues in the rule,
including but not limited to:
• Amending the tolerance provisions for the total of payments;
• Clarifying that recording fees and transfer taxes may be charged in connection with housing
assistance lending transactions without losing eligibility for the existing partial exemption;
• Extending the rule’s coverage to include all cooperative units rather than just transactions
secured by real property; and
• Clarifying how a creditor may provide separate disclosure forms to the consumer and the
seller.
• Comments are due to the Bureau on October 18, 2016.
National Association of Federal Credit Unions l www.nafcu.org
Overdraft
• The CFPB has consistently marked overdraft as an area the Bureau is monitoring
and studying – with an eye toward a formal rulemaking.
• NAFCU expects any rulemaking to potentially address:
– How consumers “opt in” to overdraft coverage,
– Overdraft coverage limits,
– Transaction posting order practices,
– Fee structures,
– Involuntary account closures.
• The CFPB would be required to convene a Small Business Review Panel
prior to any proposed rule, which we expect to take place in early-2017.
National Association of Federal Credit Unions l www.nafcu.org
Student Lending
• The CFPB has held public hearings on the student loan servicing market
and has been collecting information related to student loan servicing
practices that create repayment challenges for distressed borrowers.
• Specifically, the CFPB has sought information related to:
– (1) student loan repayment,
– (2) the applicability of consumer protections from other consumer
financial product markets, and
– (3) the impact of limited available data on student loan servicing.
• The CFPB’s main focus has been disclosure and consumer awareness,
as evidenced by the Student Payback Playbook.
• The CFPB is only in the preliminary stages and no rule is expected
until 2017 or 2018.
National Association of Federal Credit Unions l www.nafcu.org
Small Business Lending
Dodd-Frank Section 1071:
Requires credit unions to
collect additional information
when women- or minority-
owned, or small businesses
apply for loans:
• Type and purpose of loan
• Amount of credit
• Census tract
• Race, sex and ethnicity
• “Any additional data that the
Bureau determines…”
Opportunities for Advocacy:
• Rulemaking is still 1+ year
out
• Possible flexibility in how to
define “small business” or
• Bureau is looking for safe-
harbor ideas
National Association of Federal Credit Unions l www.nafcu.org
Marketplace & Non-Depository Lenders
Threat Opportunity
National Association of Federal Credit Unions l www.nafcu.org
CFPB Enforcement Actions
• The CFPB has been very active lately in the arena of enforcement
actions; covering everything from unauthorized accounts to student
lending.
• Most notably, on September 8, 2016, the CFPB issued an enforcement
action against Wells Fargo Bank, N.A.
– Fined $100 million for secretly opening unauthorized deposit and
credit card accounts
– Wells Fargo will also pay an additional $35 million penalty to the
Office of the Comptroller of the Currency (OCC) and another $50
million to the City and County of Los Angeles
– In addition, ordered to refund consumers $2.5 million
– Affected roughly 2 million consumers
National Association of Federal Credit Unions l www.nafcu.org
CFPB Reform: UDAAP Authority
• On January 29, 2014, the CFPB issued an administrative proceeding against PHH Corp. and its affiliates for harming consumers through an illegal mortgage insurance kickback scheme.
• Director Cordray issued a final order that requires PHH disgorge $109 million and bars PHH from engaging in the allegedly illegal kickbacks.
• PHH then filed suit in the U.S. Court of Appeals for the D.C. Circuit. The Court heard oral arguments on April 12, 2016. Legal commentators seem to think that PHH has a good chance of winning.
• Why is this important? – Because PHH is challenging the constitutionality of the CFPB itself! PHH claims that the
structure of the CFPB and the extent of its authority, especially to prosecute claims through enforcement actions, is unconstitutional.
– Also, the Court will interpret Section 8 of RESPA and potentially resolve the
CFPB’s unprecedented interpretation of the fair notice requirement as well as
some ambiguities in the statutorily required penalties.
National Association of Federal Credit Unions l www.nafcu.org
CFPB Reform
• On September 6, 2016, House Financial Services Committee Chairman
Jeb Hensarling (R-TX) revealed the details of the Financial CHOICE
Act.
• It was marked-up and passed by the Financial Services Committee by a
vote of 30-26 on September 13, 2016.
• Contains a number of provisions impacting credit unions including:
– Repeal of Durbin Interchange Amendment
– Off-ramp from various regulatory and capital requirements for those institutions
holding at least 10% capital and meeting other requirements
– Reforms at the CFPB: move from a single director to a board, require better tailoring
of regulations, greater Congressional oversight
– Examination reforms for financial institutions
– Reforms to NCUA including expanding NCUA Board from 3 to 5 members and
subjecting the agency to the Congressional appropriations process
• Won’t be enacted this Congress, but sets up debate on these issues if it
comes up in next Congress
National Association of Federal Credit Unions l www.nafcu.org
Polling Question
• Is your credit union adequately prepared for
the October 3, 2016, MLA effective date?
• Yes.
• No.
National Association of Federal Credit Unions l www.nafcu.org
Other Regulators
National Association of Federal Credit Unions l www.nafcu.org
Dept. of Defense - MLA
• Military Lending Act Final Rule
• July 2015 - DoD issued a final rule, which made several substantive changes to the MLA
regulation, including:
• Expands the definition of “consumer credit” to extend the protections of the MLA to a
broader range of financial products, including closed-end and open-end credit
products.
• Amends the safe harbor process by which institutions may conduct covered borrower
checks.
• Adds a number of additional required disclosures that need to be provided when a
lender extends a covered loan.
• Implementation:
• Compliance deadline is October 3, 2016.
• Credit card accounts are exempt until October, 3, 2017.
• The Defense Department’s MLA compliance guidance was released in mid-September
National Association of Federal Credit Unions l www.nafcu.org
Dept. of Labor Overtime Rule
• On May 18, 2016, the Department of Labor finalized their rule on overtime exemptions for salaried employees under the Fair Labor Standards Act. Key aspects of the proposal include:
1. Allowing full-time salaried employees making less than $913 per week or $47,476 annually, to be eligible for overtime protections;
2. Setting the highly compensated employee annual compensation level to $134,004; and
3. Establishing a mechanism to automatically update the salary and compensation levels every three years in response to inflation.
• The rule is effective on December 1, 2016. For more details, please review NAFCU’s Final Regulation.
National Association of Federal Credit Unions l www.nafcu.org
Dept. of Labor Overtime Rule
• Litigation:
– Since the proposal, Texas, Oklahoma, and 19 other states have filed suit in
federal court claiming the rule violates the Tenth Amendment (the federal
government cannot force or commandeer states to act against their will).
– Many states say this rule will impose huge additional costs, forcing them to
reclassify many employees as hourly and limit the amount of hours they
work.
– Although the states are unlikely to win this legal battle, they may be
successful in blocking the rule’s automatic increases in the wage base.
• NAFCU will continue to monitor this litigation and other developments.
National Association of Federal Credit Unions l www.nafcu.org
Dept. of Labor – Fiduciary Duty Rule
• Persons who provide investment advice or recommendations for a fee or
other compensation with respect to assets of an employee benefit plan or
an individual retirement account will be considered fiduciaries in a wide
array of advice relationships.
• The rule may precipitate industry movement away from retail investor
accounts to investment advisory accounts. A key regulatory challenge will
be overseeing advisory services following this shift.
• Regulators will need to consider how to oversee “robo-advisors,”
computer services providing automated investment advice.
• FINRA’s guidance for digital advice states that firms must "govern and
supervise the algorithms they use in digital advice tools" and "should
also establish governance and supervision structures and processes
for the portfolios digital investment tools may present to users. See
Report on Digital Investment Advice.
• The rule is effective on April 10, 2017.
National Association of Federal Credit Unions l www.nafcu.org
FHFA - Common Securitization Platform
• In 2014, the Federal Housing Finance Agency (FHFA) outlined its goal of
developing a new securitization infrastructure for Fannie Mae and Freddie Mac
for single-family properties.
• In late 2014, Fannie and Freddie formed Common Securitization Solutions
(CSS) to facilitate the design and implementation of a single GSE bond. CSS is
developing the technology and operational structure of the Common
Securitization Platform (CSP). The CSP will be rolled out in two phases:
– Release 1 in 2016: Freddie Mac will use the CSP modules for current
single-class, fixed-rate securities and certain underlying mortgage loans;
– Release 2 in 2018: both Fannie and Freddie will use the modules and issue
Single Securities.
National Association of Federal Credit Unions l www.nafcu.org
FHFA - Common Securitization Platform
Source: Common Securitization Platform and Single Security: What’s at Stake for GSEs and our Mortgage Market, Booz
Allen Hamilton, Inc., 2015.
National Association of Federal Credit Unions l www.nafcu.org
FHFA - Front-End Credit Risk Transfer
• The FHFA has been working on developing a strategic plan for Fannie Mae and
Freddie Mac to develop a program for sharing credit risk with private investors.
Fannie and Freddie have been working on creating different transaction
structures, including: (1) credit risk debt issuance; (2) insurance/reinsurance
transactions; (3) senior subordinate securities; and (4) collateralized lender
recourse transactions.
• This June, the FHFA issued a Request for Input to evaluate proposals for front-
end credit risk transfer transactions not currently available. The FHFA is also
looking for help developing a deeper mortgage insurance structure.
• But wait, what is front-end credit risk transfer?
National Association of Federal Credit Unions l www.nafcu.org
FHFA - Front-End Credit Risk Transfer
Risk Transfer Type Front-end or Back-end Arrangement
Level of Reimbursement Risk
Debt Issuance (STACR/CAS) Back-end Low, fully collateralized
Credit linked notes Back-end Low, fully collateralized
Pool level insurance/reinsurance (CIRT/ACIS)
Back-end Medium, partially collateralized
Additional loan level insurance (deeper MI)
Front-end Medium, under evaluation for the adequacy of PMIERs, MI ratings, and the use of collateralization
Lender risk sharing transactions (collateralized recourse)
Front-end Low, if fully collateralized, or Medium, if partially collateralized
Senior-sub Front-end Low, fully collateralized
Source: FHFA Single-Family Credit Risk Transfer Request for Input, June 2016.
National Association of Federal Credit Unions l www.nafcu.org
TCPA
• The Telephone Consumer Protection Act (TCPA) is an antiquated telecommunications regulation that was initially intended to protect consumers from pestering telemarketers…25 years later, its vague language and failure to account for new technologies actually works to prevent consumers from receiving valuable financial information.
• The Federal Communications Commission’s (FCC) July 2015 Omnibus Declaratory Ruling and Order attempted to propose updates to the TCPA, but has only caused more confusion and problems.
• What’s the problem?
– Credit unions are afraid of contacting their members, even to share important financial information, because their communication may violate the TCPA!
– A recent study showed that from 2010 through 2015, the number of TCPA-related lawsuits has increased by 948% (most are class actions!).
National Association of Federal Credit Unions l www.nafcu.org
Cybersecurity – FFIEC Tool
• FFIEC member agencies (including NCUA) released a voluntary Cybersecurity
Assessment Tool (Assessment), which can be used by credit unions to identify
their individual risks and assess their cybersecurity preparedness.
• The Assessment has two parts: Inherent Risk Profile and Cybersecurity Maturity.
• NCUA plans to train its examiners at the annual examiner conference in 2016 on
how to use the Assessment to help the agency collect information about the
industry’s cybersecurity preparedness as a whole.
Risk level is based on five
categories.
Maturity level is based on
five “domains.”
National Association of Federal Credit Unions l www.nafcu.org
FFIEC - Cybersecurity Tool
National Association of Federal Credit Unions l www.nafcu.org
FFIEC - Cybersecurity Tool
National Association of Federal Credit Unions l www.nafcu.org
FASB - Credit Losses
Credit Losses
• The FASB is the designated organization in the private sector for establishing the U.S.
generally accepted accounting principles (GAAP) that govern the preparation of financial
reports by nongovernmental entities.
• In December 2012, the FASB issued a proposal that would establish a “current expected
credit loss” (CECL) model for all nongovernmental entities.
• Under this model, the Allowance for Loan and Lease Loss (ALLL) would reflect the
credit union’s current estimate of the contractual cash flows that the credit union does
not expect to collect, based on its assessment of credit risk as of the reporting date.
• On June 16, 2016, the FASB issued its final accounting standard update, which will be
effective for credit unions beginning for fiscal years after Dec. 15, 2020.
• In addition, certain disclosure requirements in the CECL ASU are optional for “non-
public business entities,” including credit unions.
National Association of Federal Credit Unions l www.nafcu.org
Questions
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National Association of Federal Credit Unions l www.nafcu.org
Regulatory Affairs Division
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