Regulatory Affairs Team · 29/09/2016 · National Association of Federal Credit Unions l Member Business Lending Effective January 1, 2017 (except personal guarantee requirement,

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


• Advocacy Update

• NCUA Update

• CFPB Update

• Other Regulators

• Department of Defense

• Department of Labor

• FHFA

• FCC

• FFIEC

• FASB

Regulatory Affairs Update Agenda


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


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


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 Credit Union Administration


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.


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


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


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


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


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


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!


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


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?


• 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


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.


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.


NCUA Cyber Examinations


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


Other NCUA Issues Ahead

RBC

Supplemental Capital

Asset Securitization

CDFI semi-automation


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


Consumer Financial Protection Bureau


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!

https://www.federalregister.gov/articles/2014/12/23/2014-27286/prepaid-accounts-under-the-electronic-fund-transfer-act-regulation-e-and-the-truth-in-lending-act


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.


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


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.


Company Response Survey

Amplification of reputational harm.

Coming early 2017…


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.


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.


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


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.


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.


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.


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.


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.


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


Marketplace & Non-Depository Lenders

Threat Opportunity


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


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.


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


Polling Question

• Is your credit union adequately prepared for

the October 3, 2016, MLA effective date?

• Yes.

• No.


Other Regulators


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


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.


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.


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.


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.


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.


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?


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.


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!).


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.”


FFIEC - Cybersecurity Tool


FFIEC - Cybersecurity Tool


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.


Questions


Polling Question

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Regulatory Affairs Division

Contact Information

Documents

Regulatory Affairs Team · 29/09/2016 · National Association of Federal Credit Unions l Member Business Lending Effective January 1, 2017 (except personal guarantee requirement,