Legislative & Regulatory Update

​Fraud attempts from CDFI impersonators; FFIEC targets lending discrimination; DakCU weighs in on NSF fees; study reveals the negatives of Big Box Bailout Bill; and more. 

by John Alexander, Director of Legislative & Regulatory Affairs

Beware of Fraud with CDFI Impersonators
The CDFI Fund is cautioning financial institutions and consumers to be aware of fraudulent social media profiles, email accounts, and phone numbers that attempt to impersonate or otherwise associate themselves with the CDFI Fund.

Although the platforms and messages vary, these imposters provide false CDFI Fund employee and contact information, false links to a website alleged to be the CDFI Fund website, and a false telephone number. One social media profile scam identifies a nonexistent grant program, tells the public that it can receive free federal government grant money, and even displays a fictitious monetary disbursement. Be cautious when clicking on links attributed to the CDFI Fund.

The correct CDFI Fund website is https://www.cdfifund.gov/.  The CDFI Fund has three official social media profiles: on the X platform; Instagram, LinkedIn, and YouTube. The main number to the CDFI Fund is (202) 653-0300. Other official phone numbers for the CDFI Fund can be found on their website.

FFIEC Targets Residential Lending Discrimination
In a significant development aimed at ensuring fairness in residential property valuations, the Federal Financial Institutions Examination Council (FFIEC), with the National Credit Union Administration (NCUA) as a participating member, unveiled a set of examination principles on Monday. These principles are designed to guide member entities in addressing potential discrimination and bias during consumer compliance and safety and soundness examinations.

This initiative represents a proactive measure to ensure that credit unions and other supervised institutions are equipped to identify and mitigate any form of discrimination or bias within their residential property valuation practices. The FFIEC's statement delineates distinct examination principles tailored to both consumer compliance and safety and soundness, emphasizing the importance of a robust compliance management system.

Despite the introduction of these principles, the FFIEC has clarified that this statement should not be perceived as new regulatory guidance or an indication of heightened scrutiny of appraisal practices. Instead, it aims to enhance transparency in the examination process and bolster risk-focused examination activities.

From a consumer compliance standpoint, the newly issued principles highlight the necessity for credit unions to develop and maintain a compliance management system that aligns with their specific risk profile. Such a system should be capable of identifying and addressing potential risks associated with bias and discrimination in property valuations and appraisals.

On the safety and soundness front, the focus is on the effectiveness of a credit union's risk management practices in detecting valuation bias and discrimination, ensuring that valuations are credible and support sound credit decision-making.

From a consumer compliance perspective, the statement underscores the importance of having a sound compliance management system that is tailored to a credit union’s risk profile and can identify and address risks of bias and discrimination in valuations and appraisals. The safety and soundness principles consider whether a credit union’s risk management identifies valuation bias and discrimination and fosters credible valuations underlying a credit decision.

DakCU Weighs in on CFPB Proposal to Ban NSF Fees on Instant Declines
The Consumer Financial Protection Bureau (CFPB)'s latest proposal, aiming to ban nonsufficient funds (NSF) fees on transactions instantly declined, has sparked a dialogue within the credit union community, particularly among members of the Dakota Credit Union Association (DakCU). The proposal, while targeting a practice not commonly employed by credit unions, necessitates a closer examination of fee structures, policies, and operational frameworks.

Key Concerns and Implications for Credit Unions
The CFPB's initiative is driven by a broader objective to curb practices deemed unfair, deceptive, or abusive. The proposal specifically targets NSF fees, which are incurred when a transaction is declined due to insufficient funds in a consumer's account. According to the bureau, the rationale behind this move is to protect consumers from unnecessary penalties for transactions that do not proceed.

For Dakota's credit unions, the proposition introduces a complex scenario. Although the direct impact of the proposed rule may be limited—given the rarity of NSF fees in the sector—it raises broader concerns regarding the CFPB's approach to regulatory oversight. The expansive interpretation of the bureau's authority under the guise of preventing unfair, deceptive, or abusive acts or practices (UDAAP) could herald a period of increased uncertainty.

Feedback on the proposal must be submitted by March 24. DakCU is actively working to ensure discussions with the CFPB reflect the interests of Dakota's credit unions, particularly concerning the potential overregulation of consumer-selected services. America's Credit Unions has a summary of the proposal here and will continue to engage with the CFPB against restrictions on regulated products and services to consumers.
 
New Study Reveals Detrimental Effects of Proposed Big Box Bailout Bill
A recent study commissioned by America's Credit Unions has thrown a spotlight on the potential repercussions of the controversial Big Box Bailout bill, a piece of legislation poised to overhaul the current credit card interchange system. The bill, according to credit union Advocates Greg Mesack and Jason Stverak of America’s Credit Unions, promises to inflict more harm than good on the very demographics it aims to protect.

The research, conducted by Glenn Grossman of Cornerstone Advisors, outlines six critical areas where the proposed bill would adversely affect American families and small enterprises, while inadvertently benefiting large retailers.

Key Findings from the Research:
Restricted Access to Credit: The bill threatens to limit the availability of unsecured credit from reliable financial institutions, pushing consumers towards riskier alternatives like payday loans.
Increased Credit Card Fees: Anticipated to raise annual fees on credit cards, the bill could erect financial barriers for individuals across all income levels, particularly those in dire need of credit.
Weakened Fraud Protections: By disrupting existing fraud detection mechanisms, the bill would likely increase the operational costs for card issuers, compromising consumer security.
Pressure on Community Institutions: Smaller financial bodies, including credit unions, face heightened strain as the costs of processing transactions are expected to surpass interchange revenues.
Unshared Merchant Savings: Although the bill may reduce operational costs for merchants, there's no mandate for these savings to be passed on to consumers, challenging the principle of fair benefit distribution.
Economic Downturn: With stricter credit card policies and diminished credit limits, consumer spending is predicted to decline, potentially destabilizing the economy.

These findings have fueled America’s Credit Unions' launching a campaign, including both short and long-form video content, to educate stakeholders about the bill's adverse impacts. Additional resources and information about the campaign are available through the Protect Interchange initiative, highlighting the commitment to preserving a fair, secure, and efficient payment ecosystem for all parties involved.
 
FinCEN Proposes New Rules for Residential Real Estate Transactions
The Financial Crimes Enforcement Network (FinCEN) is set to unveil a proposed rule aimed at enhancing transparency in residential real estate transactions. This rule mandates reporting and recordkeeping for certain property transfers to legal entities and trusts, excluding direct individual transfers.

The proposed rule describes when a report must be filed, who must file a report, what information must be provided, and when a report is due.

The initiative seeks to identify and mitigate money laundering risks, safeguarding the financial system. DakCU is reviewing the proposal, while feedback to FinCEN is due within 60 days following its publication in the Federal Register, with its anticipated launch on February 16.
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As always, feel free to contact John Alexander with any advocacy or regulatory concerns.