Compliance Update with Amy K

FinCEN proposed rule; NCUA proposed rule; and “What You Should Know about Home Equity Lines of Credit” updated booklet from CFPB is available now. 

by Amy Kleinschmit, Chief Compliance Officer
 
FinCEN Proposed Rule
The Financial Crimes Enforcement Network (FinCEN) has issued a proposed rule, found here, that would allow access by authorized recipients to beneficial ownership information (BOI) that will be reported to FinCEN pursuant to Section 6403 of the Corporate Transparency Act (CTA). Comments are due February 14.

Per FinCEN, the intent of the proposed rules is to “ensure that: (1) only authorized recipients have access to BOI; (2) authorized recipients use that access only for purposes permitted by the CTA; and (3) authorized recipients only re-disclose BOI in ways that balance protection of the security and confidentiality of the BOI with furtherance of the CTA's objective of making BOI available to a range of users for purposes specified in the CTA.”

The CTA authorizes FinCEN to disclose BOI to five categories of recipients. Of relevance here are financial institutions using BOI to facilitate compliance with CDD requirements under applicable law, provided the FI requesting the BOI has the relevant reporting company's consent for such disclosure. Also, Federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity assessing financial institutions for compliance with CDD requirements. These agencies may access the BOI information that financial institutions they supervise received from FinCEN.

FinCEN anticipates that a financial institution, with a reporting company's consent, would submit to the system identifying information specific to that reporting company, and receive in return an electronic transcript with that entity's BOI.

To highlight a few of the provisions under the proposed rule, a credit union would be responsible for obtaining a reporting company's consent. This reflects FinCEN's assessment that financial institutions are best positioned to obtain and manage consent through existing processes and by virtue of having direct contact with the reporting company as a customer/member.

The proposed rule would require credit unions to develop and implement administrative, technical, and physical safeguards reasonably designed to protect BOI as a precondition for receiving BOI.

As noted above, proposed regulations would require credit unions to obtain and document a reporting company's consent before requesting that reporting company's BOI from FinCEN. FinCEN believes financial institutions are well-positioned to obtain consent—and to track any revocation of such consent—given that they maintain direct customer relationships and are able to leverage existing onboarding and account maintenance processes to obtain reporting company consent.

 Finally, the proposed rule would require the credit union to certify in writing for each BOI request that it: (1) is requesting the information to facilitate its compliance with CDD requirements under applicable law, (2) obtained the reporting company's written consent to request its BOI, and (3) fulfilled the other requirements of the section. FinCEN anticipates that an financial institution would be able to make the certification via a checkbox when requesting BOI via the beneficial ownership IT system. FinCEN expects that financial institutions will establish protocols to direct authorized staff to ensure that the requirements are satisfied and that appropriate records are maintained for the purposes of audit and oversight. FinCEN further expects financial institutions to provide training on these protocols and to require system users from financial institutions to complete FinCEN-provided online training about the system and related responsibilities as a condition for creating and maintaining system accounts.

FinCEN is proposing an effective date of January 1, 2024.

NCUA Proposed Rule
The National Credit Union Administration (NCUA) has proposed issued a proposed rule, found here, to amend rules regarding the purchase of loan participations and the purchase, sale, and pledge of eligible obligations and other loans (including notes of liquidating credit unions). The proposal would also make Page 2 of 100 conforming amendments to the NCUA’s rule regarding loans to members and lines of credit to members by adding new provisions about indirect lending arrangements and indirect leasing arrangements. Comments are due February 28.

As discussed by the NCUA, “Removing the current prescriptive limitations and other qualifying requirements will allow federal credit unions (FCUs) additional flexibility to engage with the advanced technologies and other opportunities offered by the fintech sector. The greater flexibility and individual autonomy will also allow FCUs to establish their own risk tolerance limits and governance policies for these activities, while codifying due diligence, risk assessment, compliance and other management processes that are consistent with the Board’s long-standing expectations for safe, sound, fair and affordable lending practices.”

Updated HELOC booklet
The Consumer Financial Protection Bureau (CFPB) has announced an update to the “What You Should Know about Home Equity Lines of Credit,” also known as the HELOC booklet, required by the Truth in Lending Act/Regulation Z.

As explained by the CFPB – “The Bureau is updating the HELOC booklet so that it aligns with the Bureau's educational efforts, to be more concise, and to improve readability and usability. New features include clear instructions on how consumers can use the pamphlet to explore their options, and a comparison table with examples of loans that utilize home equity and other sources of financing consumer might consider, including closed-end credit. To encourage consumers to understand the terms of their HELOC and to shop for the most advantageous offer, the booklet expands the tables for consumers to compare three estimates. The design of the HELOC booklet has a look and feel similar to “Your Home Loan Toolkit: A Step-By-Step Guide,” and the “Consumer Handbook on Adjustable-Rate Mortgages,” other consumer disclosures that the Bureau is responsible for producing.”

The HELOC brochure can be found here under “Compliance resources and certain required disclosures.”

CU Policy Pro Updates
It’s a new year and with it brings several annual threshold updates to a number of regulations – meaning, if you haven’t already, make sure your policies are updated as well. The CU Policy Pro December 2022 update includes 10 policies that were revised to reflect these annual regulatory changes. As a reminder, updates are only made to the Model Policy Manual, these updates do not automatically go into your credit union’s adopted policies. This is to ensure that your content is not overwritten or content that may not apply to your credit union is not added. Therefore, the credit union will need to ensure that it takes the necessary steps to update and then adopt the revised policies.

Policy 2210.14 – Health Savings Accounts. Each year the IRS changes the contribution limits that can be made to health savings accounts for both individual and family plans. Those changes for 2023 are reflected in the revisions.

Policy 7302 – Residential Real Appraisals. This policy was revised to reflect the higher priced mortgage loan appraisal exemption threshold. The threshold changes each year based on the consumer price index and increased to $31,000 for 2023. 

Policy 7330 – Residential Real Estate Loans. This policy was revised to adjust the asset-based threshold for determining if a credit union is a small creditor under the rules.

Policy 7350 – Ability to Repay. Policy 7350 was revised to comply with the annual changes made to the points and fee thresholds to determine if a mortgage is considered a qualified mortgage under the rules, based on the Consumer Price Index.  These changes become effective on January 1, 2023. Changes were also made to reflect the price-based thresholds for the general qualified mortgage definition, also effective on January 1, 2023.  In addition, the temporary qualified mortgage option (or GSE patch) was also removed, that option expired on October 1, 2022.

Policy 7351 – Small Creditor Ability to Repay. Policy 7350 was revised to comply with the annual changes made to the points and fee thresholds to determine if a mortgage is considered a qualified mortgage under the rules, based on the Consumer Price Index. These changes become effective on January 1, 2023. In addition, the temporary qualified mortgage option (or GSE patch) was also removed, that option expired on October 1, 2022.

Policy 7370 – HOEPA Rule Requirement. The thresholds for determining if a loan is covered under HOEPA were also adjusted for January 1, 2023 and these amounts were updated in the policy accordingly.

Methodology 7715.10 - Allowance for Credit Losses. The methodology was revised to include considerations for Qualitative Factor Adjustments, and to include information on the Simplified CECL Tool (CECL Tool), which is a resource for credit unions under $100 million in assets or those that have less complex financial asset pools. The CECL Tool uses the Weighted Average Remaining Maturity (WARM) method. *Note: this update was published on December 8, 2022, ahead of the full 2022-4 update. 

Policy 9200 – Home Mortgage Disclosure Act. This policy was updated to reflect the annual threshold change to determine asset size coverage for the rule, which has increased to $54 million.  Credit unions below this asset size, will not be required to report HMDA data.  Also impacting this policy change is reporting closed-end loans which was decreased back down to 25 from 100. Credit unions that have originated more than 25 closed-end loans in the preceding two calendar years will be required to report HMDA data.

Policy 9220 – Home Ownership and Equity Protection Act. Similar to the changes made to Policy 7370, this policy was also revised to adjust the thresholds for determining if a loan is covered under HOEPA, effective January 1, 2023.

Policy 9420 – Regulation D – Monetary Control Act. Even though the reserve requirements are still set at zero, the reserve requirements thresholds amounts are updated each year. These changes are now reflected within the policy.
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As always, DakCU members may contact Amy Kleinschmit with any compliance related questions. 

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