Compliance Update with Amy K

​NCUA letter on resumption of student loan payments and risk management; “Junk Fee” update; and CFPB advisory opinion on information request requirements. 

by Amy Kleinschmit, Chief Compliance Officer 
 
NCUA Letter to Credit Unions 23-CU-08
The National Credit Union Administration (NCUA) recently issued Letter to Credit Unions 23-CU-08 regarding the resumption of federal student loan payments and identification of risk management principles that credit unions should consider. The letter directs that, “To ensure your credit union operates in a safe, sound, and fair manner, please consider the following strategies when evaluating your credit union’s exposure to borrowers facing payment stress associated with their federal student loans, and the adequacy of your credit union’s related policies, procedures, and practices.” These strategies include completing a risk assessment to assess aggregate exposure to borrowers with federal student loans. Conducting borrower outreach by contacting borrowers facing potentially large federal student loan repayments, as well as other high-risk federal student loan borrowers, to inform them about the credit union’s eligibility standards and processes for requesting loan modifications.

The Letter also discusses underwriting and modifications, noting that credit unions should apply prudent underwriting and loss mitigation strategies for borrowers experiencing financial difficulty and struggling to make their loan payments. 

The Letter provides that credit unions should identify and monitor higher-risk portfolio segments with student loan payment stress exposure. Higher-risk segments could include related loan types or sections of the portfolio with multiple layers of risk. Examples include, but are not limited to, borrowers with:

• Private student loans;
• Credit card balances or other debt obligations that materially increased while federal student loan payments were paused or that begin to increase following the resumption of federal student loan payments;
• Adjustable-rate loans that have similar payment reset timeframes—for example, adjustable-rate mortgages or home equity lines of credit; or
• Elevated debt-to-income ratios or low credit scores.

Finally, the Letter reminds credit unions to consider whether the risk associated with the resumption of federal student loan payments is adequately captured within the Allowance for Credit Losses.
 
CFPB Supervisory Highlights – “Junk Fee” Update
The Consumer Financial Protection Bureau (CFPB) recently issued a special edition – “Supervisory Highlights Junk Fee Update” report, which can be found here. The findings included in this report cover examinations in the areas of deposits, auto servicing, and remittances that generally were completed between February 2023 and August 2023.

Some areas noted in this edition of supervisory highlights include the continued focus on representment NSF fees. Interestingly - examiners concluded that, in the offering and providing of core service platforms, core processors engaged in an unfair act or practice by contributing to the assessment of unfair NSF fees on re-presented items. Also noting that - injurious fees were foreseeable in light of the system limitations, as the core processor platforms did not allow financial institutions to refrain from charging more than one NSF fee per item without discontinuing NSF fees altogether or manually waiving individual fees.

The CFPB reiterated its position that account disclosures do not cure the issue of representment fees finding that the “assessment of re-presentment NSF fees caused substantial monetary injury to consumers... These injuries were not reasonably avoidable by consumers, regardless of disclosures in account-opening documents, because consumers did not have a reasonable opportunity to prevent another fee after the first failed presentment attempt.”

Another area of continued focus for the CFPB was authorize positive settle negative (APSN) overdraft fees. Again, the CFPB noted that account opening disclosures cannot cure this issue, noting that “Supervision has identified tens of millions of dollars in injury to thousands of consumers that occurred whether supervised institutions used the consumer’s available or ledger balance for fee decisioning. Consumers could not reasonably avoid the substantial injury, irrespective of account opening disclosures.”

Statement fees were discussed in the report – specifically, institutions charged fees for the printing and delivery of paper statements, including additional fees when they mailed a statement that was returned undelivered. The CFPB found that institutions engaged in an unfair act or practice by assessing paper statement fees and returned mail fees for paper statements they did not attempt to print and deliver. Assessing such delivery-related statement fees for undelivered statements caused substantial injury to consumers.

Returned deposit fees - fees assessed to consumers when an institution returns as unprocessed a check that the consumer attempted to deposit into his or her checking account. CFPB has previously stated that - it is likely an unfair act or practice for an institution to have a blanket policy of charging return deposit item fees anytime that a check is returned unpaid, irrespective of the circumstances or patterns of behavior on the account.

Moving on to auto servicing, the CFPB took issue with servicer practices related to add-on product charges where loans terminated early through payoff or repossession. CFPB Examiners found auto servicers engaged in unfair acts or practices because consumers suffered substantial injury when servicers failed to ensure they received refunds for add-on products following early loan termination; consumers were essentially required to pay for services they could no longer use, as the relevant products (including vehicle service contracts, GAP, or credit life insurance) terminated either when the loan contract was terminated or provided no possible benefits after the consumer lost use of the vehicle.
 
Information Request Requirements (CUs over $10 Billion)
The Consumer Financial Protection Bureau (CFPB) recently issued this Advisory Opinion regarding section 1034(c) of the Consumer Financial Protection Act (CFPA), which requires large banks and credit unions to comply in a timely manner with consumer requests for information concerning their accounts for consumer financial products and services, subject to limited exceptions.

Section 1034(c) applies to insured depository institutions and credit unions that offer or provide consumer financial products or services and that have total assets of more than $10 billion, as well as their affiliates. Furthermore, Section 1034(c) states that, subject to certain enumerated exceptions, large banks and credit unions “shall, in a timely manner, comply with a consumer request for information in the control or possession of [a large bank or credit union] concerning the consumer financial product or service that the consumer obtained from [the large bank or credit union], including supporting written documentation, concerning the account of the consumer.”

It should be noted that Section 1034(c) is a current legal obligation that became effective on July 21, 2011, however, this is the first “guidance” issued by the CFPB on the subject. The Advisory Opinion interprets the various provisions of Section 1034(c) including the directing that the covered financial institutions cannot unreasonably impeded consumers’ ability to request and receive account information. It is the CFPB’s position that requiring a consumer to pay a fee or charge to request account information, through whichever channels the bank uses to provide information to consumers, is likely to unreasonably impede consumers’ ability to exercise the right granted by section 1034(c), and thus to violate the provision. The CFPB goes on to explain that some consumers cannot afford to pay even a small fee to obtain information about their accounts. Even for consumers who can afford such fees, the fees can operate as a significant deterrent to making an information request.

The CFPB cites to several specific fee categories that would be prohibited, including charging fees (1) to respond to consumer inquiries regarding their deposit account balances; (2) to respond to consumer inquiries seeking the amount necessary to pay a loan balance; (3) to respond to a request for a specific type of supporting document, such as a check image or an original account agreement; and (4) for time spent on consumer inquiries seeking information and supporting documents regarding an account.

However, the CFPB’s interpretation would allow fees in certain situations – one such scenario is a fee for a consumer who repeatedly requested and received the same information regarding their account (e.g., repeatedly asked for a copy of the same document). In that context, the large bank or credit union would have already met its obligation under section 1034(c) by complying with the consumer’s earlier requests.

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