Compliance Matters

What will the new Consumer Financial Protection Bureau mean for CUs?

September 1, 2010

An Overview Of New Consumer Bureau

A key provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203), which President Obama signed in late July, creates the Consumer Financial Protection Bureau (CFPB). Here’s a brief overview.

The CFPB will be an independent organization “in” the Federal Reserve system. It will have its own director nominated by the president and confirmed by the Senate. The bureau’s expenses will be covered by the earnings the Fed makes on its Treasury securities portfolio. (The law stipulates that the bureau’s expenses can’t exceed about 10% of the expenses of the whole Fed system.) This structure means credit unions won’t have to pay fees to support the bureau.

The bureau will write consumer protection rules for banks, credit unions, and nonbank financial firms to ensure consumers are protected from unfair, deceptive, and abusive financial practices. The bureau will have rule-making authority for 18 consumer protection laws, including the Truth in Lending Act, the Electronic Funds Transfer Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Truth in Savings Act.

The Fed’s consumer affairs staff already are responsible for writing most of these rules. These staff members now will transfer to the new bureau and will form the core personnel even though staff from other federal agencies also will transfer. So don’t expect rules to radically change soon.

The National Credit Union Administration (NCUA) and other regulators can comment on any CFPB proposal. The Financial Stability Oversight Council—which includes NCUA and is charged with taking an overall view of the financial world—can set aside a CFPB regulation if it decides by a two-thirds vote that the bureau’s regulation would create a safety and soundness risk for the financial system.

Credit unions with $10 billion or less in assets (currently all but three credit unions) won’t be subject to examination by this new bureau, except on a “sampling basis” (which the law doesn’t define) where bureau staff might jointly participate in a regular examination. Protecting credit unions from separate bureau exams and additional paperwork were high priorities for CUNA during the legislative process.

The bureau will have access to all examination reports and track consumer complaints and agency responses. Enforcement remains with NCUA for all but the three largest credit unions.

CUNA will closely monitor the establishment of the CFPB during the next year, and will make sure it’s fulfilling its mission of protecting consumers without imposing unnecessary compliance burdens on credit unions.

Insurance Limits Now Permanent

The financial regulatory reform law also includes a provision permanently establishing the federal credit union insurance limit at $250,000.

This applies to the coverage both the National Credit Union Share Insurance Fund and the Federal Deposit Insurance Corp. provide.

Without this change, the insurance limit, temporarily raised in 2008 to $250,000 to address consumer concerns during the nation’s financial crisis, would have reverted to a $100,000 ceiling in 2014.

SAFE Act Update

NCUA issued a new Section 761 of its regulations to implement the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act).

While the SAFE regulations are effective Oct. 1, 2010, the registration database won’t be ready until late 2010.Credit union employees involved in residential mortgage loan originations will have 180 days to register once registration is possible.

The regulations provide information on:

  • Credit union staff who must register;
  • What information they’ll have to submit (including fingerprints and information for criminal background checks);
  • What information the credit union itself must provide to the registry; and
  • What policies and procedures the credit union must adopt to comply.

Appendix A also provides examples of what activities do and don’t make a person a loan originator subject to registration.

Although the registration procedures haven’t yet been announced, credit unions can start to identify who will need to be registered and consider the procedures that must be in place. Find the regs at “regulations & compliance”).

Look for more information once NCUA releases registration procedures, expected later this year.

Compliance Q&A

 Q Under Regulation Z that implements the Truth in Lending law, does a credit union have to provide members with a right to reject when the change involves an increase in the required minimum payment amount on a credit card account?

 A No, the right to reject significant changes to a credit card account doesn’t apply to an increase in the required minimum periodic payment amount. In addition, the member doesn’t have the right to reject an increase in the annual percentage rate, a change to the balance computation method, a change triggered by the account being 60 days delinquent, an increase in a fee as a result of the credit union’s revaluation of the costs incurred due to that type of violation, or an adjustment to the safe harbors for penalty fees as a result of changes in the consumer-price index.

 Q Does a credit union have to send a notice that a member’s credit report direct dispute is “frivolous and irrelevant” if the member has disputed the same information before?

 A Yes. Section 623(a)(8)(F)(i) of the Fair Credit Reporting Act deems a direct dispute to be “frivolous and irrelevant” if it lacks sufficient information to conduct an investigation, or a substantially similar dispute was previously submitted to the credit union or to a consumer reporting agency by or on behalf of a consumer. Since a duplicate dispute meets this definition, the credit union would have to provide the member with a notice no later than five days after determining that the direct dispute was frivolous or irrelevant. It wouldn’t have to conduct an investigation of the matter.