Compliance Update with Amy K

​Proposed rules seem more like a trick than a treat. Plus, CFPB issues fair lending statement; FTC proposed “June Fees” rule; financial data privacy; and much more. 

Trick or treat! With the sudden barrage of proposed rules from several regulatory agencies it seems more like a trick than a treat. Here’s hoping your actual Halloween provides loads of treats – it might make reading these proposals more manageable. Before the rundown of proposed regulations, a fair lending statement from CFPB.

Fair Lending Joint Statement
The Consumer Financial Protection Bureau (CFPB) recently issued a joint statement with the Department of Justice relating to noncitizen borrowers which can be found here. The statement reminds, “while Regulation B describes certain conditions under which creditors may consider immigration status, creditors should remain cognizant that ECOA and Regulation B expressly forbid discrimination on the basis of certain protected characteristics, including race and national origin….Creditors should therefore be aware that if their consideration of immigration status is not ‘necessary to ascertain the creditor’s rights and remedies regarding repayment’ and it results in discrimination on a prohibited basis, it violates ECOA and Regulation B.”

The Joint Statement expands discussion to include that of 42 U.S.C. § 1981, which provides, “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens.” Creditor must comply with both ECOA, Regulation B and Section 1981.

The statement includes several examples of possible policy/procedures that, if a creditor has in place, may violate one of the above cited statutes. For example, if a creditor has a blanket policy of refusing to consider applications from certain groups of noncitizens regardless of the credit qualifications of individual borrowers within that group, that policy may risk violating ECOA and Regulation B.

Be sure to carefully review this joint statement against the credit union’s processes to ensure compliance.

FTC Proposed Rule – Junk Fees
The Federal Trade Commission (FTC) recently issued a proposed rule on “Unfair or Deceptive Fees.” The FTC is proposing to prohibit hidden fees and misleading fees. With regard to hidden fees, the FTC’s proposed rule would provide that, “It is an unfair and deceptive practice and a violation of this part for any Business to offer, display, or advertise an amount a consumer may pay without Clearly and Conspicuously disclosing the Total Price.” Furthermore, “In any offer, display, or advertisement that contains an amount a consumer may pay, a Business must display the Total Price more prominently than any other Pricing Information.”

The term “business” is very broad to include, “an individual, corporation, partnership, association, or any other entity that offers goods or services, including, but not limited to, online, in mobile applications, and in physical locations.” The phrase “clearly and conspicuously” would require disclosure that is difficult to miss and easily understandable. It goes on to provide a number of examples as to what would meet this definition, such as, “an individual, corporation, partnership, association, or any other entity that offers goods or services, including, but not limited to, online, in mobile applications, and in physical locations.”

As noted above, misleading fees would also be prohibited. The FTC proposes that “It is an unfair and deceptive practice and a violation of this part for any Business to misrepresent the nature and purpose of any amount a consumer may pay, including the refundability of such fees and the identity of any good or service for which fees are charged.”

This proposed rule is open for a 60 day comment period.

NCUA proposed rule – Fair Hiring
At its recent board meeting, the National Credit Union Administration (NCUA) issued a proposed rule to incorporate Interpretive Ruling and Policy Statement 19-1 and the Fair Hiring in Banking Act into regulation. The proposed rule can be found here and is open for a 60 day comment period. The Fair Hiring in Banking Act amends Section 205(d) of the Federal Credit Union Act to expand employment opportunities for those with a previous minor or older criminal offense, among other provisions. In general, Section 205(d) provides that any person who has been convicted of any criminal offense involving dishonesty or breach of trust, or has agreed to enter into a pretrial diversion or similar program (program entry) in connection with a prosecution for such offense (collectively, covered offenses), may not become, or continue as, an institution-affiliated party (IAP) of an insured credit union; or otherwise participate, directly or indirectly, in the conduct of the affairs of any insured credit union without the prior written consent of the NCUA.

The proposed rule would add new Part 752 to the NCUA’s rules and regulations. The new regulations would address who is covered by the rule, what offenses are covered, what constitutes a conviction, the application process, de minimis offenses and what happens if the NCUA denies the consent application.

NCUA proposed rule – Share Insurance
The NCUA also issued a proposed rule to simplify the share insurance rules. This proposed rule can be found here and is also open for a 60 day comment period. The proposed amendments target share insurance coverage for funds held in member accounts at FICUs in connection with trusts. As summarized by the NCUA - the proposed amendments are intended to: (1) provide FICUs, FICU employees, and those with member accounts at FICUs with a rule for trust account coverage that is easier to understand; (2) provide parity with changes adopted by the FDIC in January 2022; and (3) facilitate the prompt payment of share insurance in accordance with the FCU Act, among other objectives.

Under the current regulations, there are distinct and separate sets of rules applicable to shares of revocable trusts as opposed to irrevocable trusts. Each set of rules has its own criteria for coverage and methods by which coverage is calculated. To help clarify insurance limits, the proposed amendments would further simplify insurance coverage of trust accounts (revocable and irrevocable) by harmonizing the coverage criteria for revocable and irrevocable trust accounts and by establishing a simplified formula for calculating coverage that would apply to these funds deposited at FICUs.

The NCUA is proposing to use one streamlined calculation to determine the amount of share insurance coverage for funds of both revocable and irrevocable trusts. The proposed rule would provide that a grantor’s trust funds are insured in an amount up to the SMSIA (currently $250,000) multiplied by the number of trust beneficiaries, not to exceed five beneficiaries. This would, in effect, limit coverage for a grantor’s trust funds at each FICU to a total of $1,250,000; in other words, maximum coverage would be equivalent to $250,000 per beneficiary for up to five beneficiaries.

The proposed rule would aggregate a grantor’s informal and formal revocable trust accounts, as well as irrevocable trust accounts. For example, all informal revocable trusts, formal revocable trusts, and irrevocable trusts held for the same grantor at the same FICU would be aggregated, and the grantor’s insurance limit would be determined by how many eligible and unique beneficiaries were identified among all of their trust accounts.

Consistent with the current revocable trust rules, the proposed rule would continue to require the beneficiaries of an informal revocable trust to be specifically named in the account records of the FICU. Also, if the co-owners of an informal or formal revocable trust are the trust’s sole beneficiaries, funds held in connection with the trust would continue to be treated as a joint ownership account under § 745.8.

CFPB Proposed Rule – Personal Financial Data Rights
The Consumer Financial Protection Bureau (CFPB) has issued this proposed rule to implement Section 1033 of the Consumer Financial Protection Act (CFPA) of 2010. Comments must be received by December 29, 2023.

CFPA section 1033(a) and (b) provide that, subject to rules prescribed by the CFPB, a covered person shall make available to a consumer, upon request, information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person, subject to certain exceptions. The information must be made available in an electronic form usable by consumers.

The proposed rule would cover the following consumer financial products or services, as defined at proposed § 1033.111(b)(1) through (3)—generally, Regulation E asset accounts, Regulation Z credit cards, and products or services that facilitate payments from a Regulation E account or a Regulation Z credit card. The latter category—products or services that facilitate payments from a Regulation E account or a Regulation Z credit card—would be intended to clarify that the proposed rule would cover all consumer-facing entities involved in facilitating the transactions the CFPB intends to cover.

A “data provider” means (1) a financial institution, as defined in Regulation E, 12 CFR 1005.2(i); (2) a card issuer, as defined in Regulation Z, 12 CFR 1026.2(a)(7); or (3) any other person that controls or possesses information concerning a covered consumer financial product or service the consumer obtained from that person. The requirements of this part do not apply to data providers that are depository institutions that do not have a consumer interface – which means an interface through which a data provider receives requests for covered data and makes available covered data in an electronic form usable by consumers in response to the requests.

The mandatory compliance dates would be staggered based on asset size. Compliance would be required approximately two and a half years after the date of publication of the final rule in the Federal Register, for depository institutions that hold at least $850 million in total assets but less than $50 billion in total assets. Approximately four years after the date of publication of the final rule in the Federal Register, for depository institutions that hold less than $850 million in total assets.

The proposed rule would require, among other things, that a data provider must make available to a consumer and an authorized third party, upon request, covered data in the data provider’s control or possession concerning a covered consumer financial product or service that the consumer obtained from the data provider, in an electronic form usable by consumers and authorized third parties.

Covered data includes transaction information, account balance, information to initiate payment to or from a Regulation E account; terms and conditions; upcoming bill information; basic account verification information – name, address, email address, and phone number. As a continuing theme of the CFPB, a data provider would not be able to impose any fees or charges for requests for covered data.

The proposed rule includes several specifications relating to requirements for a data provider subject to the requirements of the proposed rule to maintain a consumer interface and must establish and maintain a developer interface.
 
FinCEN Proposed Rule
The Financial Crimes Enforcement Network (FinCEN) recently issued this proposed rule, with comments due 90 days after publication in the Federal Register. This proposed rule is aimed at requiring domestic financial institutions and domestic financial agencies to implement certain recordkeeping and reporting requirements relating to transactions involving convertible virtual currency (CVC) mixing.

The proposed rulemaking would define “covered transaction” as a transaction as defined in 31 CFR § 1010.100(bbb)(1) in CVC by, through, or to the covered financial institution that the covered financial institution knows, suspects, or has reason to suspect involves CVC mixing within or involving a jurisdiction outside the United States.

A “covered financial institution” would be required to report certain information and maintain records demonstrating compliance as specified in the proposed regulation.  The reports required under the new proposed sections must be filed with FinCEN 30 calendar days from the date of detection.

The information required to be reported would include - (A) the amount of any CVC transferred, in both CVC and its U.S. dollar equivalent when the transaction was initiated; (B) the CVC type; (C) the CVC mixer used, if known; (D) CVC wallet address associated with the mixer; (E) CVC wallet address associated with the customer; (F) transaction hash; (G) date of transaction; (H) the IP addresses and time stamps associated with the covered transaction; and (I) narrative.

As always, DakCU members may contact Amy Kleinschmit with any compliance related questions.