![]() by Amy Kleinschmit, Chief Compliance Officer NCUA’s 2022 Supervisory Priorities The annual supervisory priorities from the National Credit Union Administration (NCUA) were recently released in its Letter to Credit Unions 22-CU-02 and can be found here. This NCUA Letter is a “must read” as the credit union prepares for any upcoming examinations. In other words – forward the NCUA letter to all departments, start highlighting, review policies/procedures that are going to be requested ahead of time and see if anything needs to be updated and approved by the Board BEFORE your next exam. To highlight a few things, Credit Risk Management starts out the list for 2022 supervisory priorities. Credit unions should be prepared to provide their policies that address the use of loan workout strategies, risk-management practices, and new strategies implemented to provide funds to borrowers under distress, including programs authorized under the CARES Act and extended in the Consolidated Appropriations Act, 2021. Credit unions can also expect that NCUA examiners will be evaluating the credit union’s controls, reporting, and tracking of programs that assisted borrowers facing financial hardships. Information security/cybersecurity continues to be a supervisory priority. As previously discussed, credit unions can use the NCUA’s Automated Cybersecurity Evaluation Toolbox (ACET) application to determine and measure their cybersecurity preparedness. Credit unions can expect an increased focus by examiners regarding payment systems. Bank Secrecy Act (BSA) Compliance is another supervisory priority that continues year after year. Be sure to update policy/procedures when any regulatory changes are made which is anticipated to be made incrementally throughout 2022. Loan loss reserving will also be reviewed by examiners. Be prepared to provide your ALLL policy/procedures; documentation of an ALLL reserving methodology, including modeling assumptions and qualitative factor adjustments; adherence to GAAP; and independent reviews of credit union reserving methodology and documentation practices by the Supervisory Committee or by an internal or external auditor. Don’t forget, CECL is effective January 1, 2023. Be prepared to discuss the following consumer financial protection areas with your examiner - the COVID-19 pandemic; fair lending; Servicemembers Civil Relief Act; Fair Credit Reporting Act, and overdraft programs. What to expect, as detailed in the Letter to Credit Unions, “NCUA examiners will review mortgage forbearances and other loan accommodations credit unions have provided to their members during the COVID-19 pandemic, as well as the credit union’s reporting of these accommodations under the CARES Act amendments to the Fair Credit Reporting Act. Examiners will evaluate a credit union’s policies and procedures, as applicable, regarding the temporary COVID-19 Mortgage Servicing Rule (Regulation X). Examiners will identify fair lending policies and practices that indicate discrimination risk or loan portfolio and underwriting discrimination risk. In addition, examiners will assess whether a credit union has policies and procedures to evaluate the consistency, fairness, and accuracy of the appraisals it obtains. Examiners will request information about a credit union’s policies and procedures governing its overdraft programs and the monitoring tools and audit of its overdraft programs, as well as the communications it provides to consumers about such programs. We anticipate using this documentation for a fuller review of credit unions’ overdraft programs in 2023.” Interestingly, the supervisory priority letter includes a note on recording of official meetings. This was also discussed during last year’s virtual Hike the Hill with the NCUA. As noted in the NCUA’s Examiner’s Guide, “credit unions may record their meetings” (exit conferences and joint conferences). The officials should ask for the examiner’s concurrence before recording the meeting, a request to which the examiner should normally agree. Any rare cases of disagreement will be addressed at the regional management level. Credit unions should refer to local, state, and federal laws, and consult with legal counsel prior to recording conversations, especially as it relates to any requirements to obtain consent from the parties involved. As a reminder – this provision only applies to meetings with NCUA. North Dakota DFI does not allow recording of meetings at this time. Rulemaking Agendas Various agencies issued their rulemaking agendas late last year. Although the agendas are subject to change, and sometimes do, it is still a good idea to review what is on the horizon for regulatory agencies so credit unions can prepare for the upcoming year. NCUA’s rulemaking agenda can be found here. To highlight a few of the items on the agenda - compensation in connection with loans to members and lines of credit to members. There was an advanced notice of proposed rulemaking issued in 2019, so the next step would be a notice of proposed rulemaking, potentially in April. The NCUA is considering modernization of the NCUA's regulations governing compensation in connection with loans to members and lines of credit to members to provide more flexibility to credit unions and their employees. Another item for potential rulemaking is investment and deposit activities - the NCUA is considering issuing a proposed rule (perhaps in June) to amend Part 703 to modernize and improve the NCUA’s investment rule and to provide regulatory relief. The Board believes there may be certain provisions in part 703 that are overly restrictive and unnecessary from a safety and soundness perspective. A revised part 703 would provide federal credit unions with more flexible investment options. The Financial Crimes Enforcement Network’s (FinCEN) rulemaking agenda can be found here. FinCEN has a number of things on their docket following legislative changes made in 2021. As you may recall, on January 1, 2021, Congress enacted the FY2021 National Defense Authorization Act (NDAA), which included significant reforms to the U.S. anti-money laundering (AML) regime. The NDAA includes the Anti-Money Laundering Act of 2020 (AML Act) and, within the AML Act, the Corporate Transparency Act (CTA). To tie in the previously topic of NCUA Supervisory Priorities – remember, NCUA examiners will be looking to ensure that credit unions update their risk-based BSA and AML/CFT policies, procedures, and processes to reflect the new BSA requirements. A final rules is anticipated regarding requirements for certain transactions involved convertible virtual currency or digital assets. The proposed rulemaking stage includes: establishment of national exam and supervision priorities; pilot program on sharing of information related to suspicious activity reports within a financial group; corporate transparency act; and 314(b) voluntary information sharing among financial institutions. The Consumer Financial Protection Bureau’s (CFPB) agenda lists the regulatory matters that they plan to pursue during the period from November 1, 2021, to October 31, 2022, which can be found here. However, with regard to the CFPB’s agenda, it should be noted that this was submitted prior to the confirmation of the CFPB’s new Director, Rohit Chopra, so priories for the CFPB may look different in the Spring agenda that will be issued later this year. Of potential interest in the CFPB’s agenda includes the small business lending data under the Equal Credit Opportunity Act. As you will recall, Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Equal Credit Opportunity Act (ECOA) to require, subject to rules prescribed by the Bureau, financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses. Comments were due on this proposed rule earlier this month. The CFPB’s next action for the section 1071 rulemaking is to review and consider the comments submitted in response to the proposed rule. This Agenda does not provide a potential date for a final rule at this time. CFPB – Note on Credit Card Interest and Fees The CFPB recently posted a blog post titled “Americans pay $120 billion in credit card interest and fees each year” which can be found here. In the post, the CFPB notes that “Just eight big financial players control 70% of the total balances of the market—and the credit card business is often a significant contributor to their bottom line.” The article states that “credit cards have interest rates that are relatively expensive for consumers.” The blog post indicates that CFPB has plans to do something – “the CFPB is looking to ensure that there is robust and fair competition in the credit card market. Even small improvements in this market can have significant impacts on American families.” Some things to highlight from this article that we might be hearing more about in the future include as the CFPB is looking at the credit card market. The articles provides that the CFPB will look to “uncover unfair, anticompetitive practices.” The CFPB is also looking to make it simpler to compare, switch or refinance a credit card. Finally – the CFPB states that it will be scrutinizing junk fees. The CFPB notes that the credit card industry is still heavily dependent on fees. “The CFPB estimates that credit card companies assessed $14 billion in late fee penalties alone in 2019, which fall disproportionately on Americans with lower credit scores. In addition, credit card companies are levying billions in cash advance fees, balance transfer fees, foreign currency fees, and more.” As always, DakCU members may contact Amy Kleinschmit with any compliance related questions. Comments are closed.
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