Compliance Update with Amy K

​Free webinar on elder abuse today! Plus, CFPB issues circular on reopening accounts; and highlights from SD legislative session that could impact credit unions. 

by Amy Kleinschmit, Chief Compliance Officer
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Free Webinar – Elder Abuse
As a reminder, the National Credit Union Administration (NCUA) will be hosting a free webinar today, Thursday, May 18, titled “Reframe the Shame: A Conversation About Financial Crimes Against Older Adults.” Speakers from NCUA, CFPB and AARP will discuss how society views and talks about financial crimes against older adults. The webinar starts at 12:00 p.m. (CT) and registration can be found here.
 
CFPB Circular 2023-02
The Consumer Financial Protection Bureau (CFPB) recently issued Circular 2023-02 in which it discusses the issue of reopening deposit accounts that consumers previously closed. This circular can be found here.
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CFPB Circulars are issued to all parties with authority to enforce federal consumer financial law, such as state attorneys general and state regulators, and prudential regulators which includes the National Credit Union Administration.

In this Circular 2023-02, CFPB discusses the question, “After consumers have closed deposit accounts, if a financial institution unilaterally reopens those accounts to process a debit (i.e., withdrawal, ACH transaction, check) or deposit, can it constitute an unfair act or practice under the Consumer Financial Protection Act (CFPA)?”
The CFPB responds affirmatively, “Yes.” After consumers have closed deposit accounts, if a financial institution unilaterally reopens those accounts to process debits or deposits, it can constitute an unfair practice under the CFPA.

The CFPB goes on to explain in the Circular that, after a consumer has closed a deposit account, a financial institution’s act of unilaterally reopening that account upon receiving a debit or deposit may cause monetary harm to the consumer. Financial institutions frequently charge fees after they reopen an account. For example, consumers may incur penalty fees when an account that they closed is reopened by the financial institution after receiving a debit or deposit. Since financial institutions typically require a zero balance to close an account, reopening a closed account to process a debit is likely to result in consumers incurring penalty fees.

In addition to fees, reopening a consumer’s account to accept a deposit increases the risk that an unauthorized third party may gain access to the consumer’s funds (e.g., a person with the consumer’s account information who pulls funds from the account without the consumer’s authorization).

The CFPB warns that government enforcers should consider whether a financial institution has violated the prohibition against unfair acts or practices in the CFPA if they discover that a financial institution has unilaterally reopened accounts that consumers previously closed.

In 2019, CFPB brought an enforcement action against USAA Federal Savings Bank in response to several issues, including the bank’s process of reopening closed accounts. This enforcement action resulted in the bank paying $12 million in restitution to certain consumers who were denied a reasonable error resolution investigation, and also paying $3.5 million civil money penalty.

In the USAA case, when USAA received certain types of debits or credits to accounts previously closed by the account holders, the Bank reopened the accounts without obtaining consumers’ prior authorization and providing timely notice to consumers informing them when their accounts had been reopened.

The CFPB found that USAA’s practice of reopening accounts potentially impacted, among others, consumers who had closed their accounts because the stop payment order or error resolution process was ineffective. When USAA processed a credit through an account that USAA had reopened, those funds became available to entities attempting to debit funds from that account, including any entity related to a previous dispute or stop payment request.
 
South Dakota Session Recap
This year we saw 241 House bills and 210 Senate bills in South Dakota’s 2023 legislative session. Governor Noem signed 209 (99 house bills/110 senate bills) and 5 bills were vetoed by the Governor, including proposed amendments to the Uniform Commercial Code (UCC). These amendments were introduced in 24 states and so far have passed five.

To highlight a couple of the changes that may have some impact on South Dakota credit unions, from an employer perspective, HB 1011 revised employer unemployment contribution rates. The revisions cut unemployment insurance employer contributions by 0.5%, reducing unemployment rates by $18 million for South Dakota businesses.

HB 1108 revised provisions related to abandoned mobile or manufactured homes. This falls under Chapter 21-54 relating to foreclosure of personal property liens. In situations where a mobile home or manufactured home has been abandoned and left on leased real property, the owner of real property has had to the power to sell the mobile or manufactured home under existing statutory language. HB 1108 added the option of “dispose” in addition to “sell.”

The owner of real property is required to send the owner of the mobile home or manufactured home and any lienholder with a lien properly noted, written notice of intent to sell or dispose of the home if the home is not removed from the real property owner's property within thirty days.

Language was added to clarify that if the County treasurer has not issued a distress warrant and informed the owner and any lien holder of real property of such issuance within thirty days of the notice, or the mobile home or manufactured home has not been removed by its owner or any lien holder within thirty days of the notice, the owner of real property may proceed with the sale or disposal.

HB 1108 added new language to require that if the owner of the real property intends to dispose of the mobile or manufactured home in lieu of sale, the owner of the real property must first obtain an abandoned title after paying any taxes owed on the home.

HB 1240 amends provisions addressing guardianship and conservatorships in South Dakota, which these revisions may indirectly affect credit unions in terms of receiving a court order to access certain financial information on a protected person. This bill added language that the court must grant an interested person access to some or all of a protected person's medical or financial records if, on the motion of the interested person, the court finds access is in the best interest of the protected person.

A number of amendments were made to SDCL 51A-17 which covers money transmission by SB 43. However, SDCL 51A-17-3 remains and lists all the entities exempt from this chapter – which includes credit unions. SDCL 51A-17-3. Entities exempt from chapter. This chapter does not apply to: (4) Banks, bank holding companies, credit unions, building and loan associations, savings and loan associations, savings banks, or mutual banks organized under the laws of any state or the United States, and any subcontractor, agent, or independent contractor that sells payment instruments issued by any such entity or sells such entity's money transmission services on behalf of such entity. However, if the credit union were to issue a letter of credit to an entity covered by this Chapter, there are very specific requirements that the letter of credit must satisfy to be incompliance with the amended provisions.

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