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Regulatory Compliance Update. Heather Line, Utah League of Credit Unions April 16, 2010. Agenda . Recently Implemented: Mortgage Disclosure Improvement Act Credit Card Act Phase I New Regulation Z Mortgage Loan Rules Real Estate Settlement Procedures Act Overdraft Protection Disclosures

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regulatory compliance update

Regulatory Compliance Update

Heather Line, Utah League of Credit Unions

April 16, 2010

  • Recently Implemented:
  • Mortgage Disclosure Improvement Act
  • Credit Card Act Phase I
  • New Regulation Z Mortgage Loan Rules
  • Real Estate Settlement Procedures Act
  • Overdraft Protection Disclosures
  • Credit Card Act Phase II
  • Expedited Funds Availability
  • Higher Education Opportunity Act
  • Coming Soon:
  • Internet Gambling
  • Overdraft Program Restrictions
  • Open-end Loan Revisions
  • Privacy
  • Still waiting . . .
  • SAFE Act
  • Credit Card Act Phase III – Final Rules
  • Home Equity Line of Credit Revisions
  • Closed End Lending Revisions
  • Oldies, but goodies:
  • Bank Secrecy Act
  • Third Party Risk Management
  • Disaster Planning
mortgage disclosure improvement act
Mortgage Disclosure Improvement Act
  • New restrictions on Mortgage Loans:
  • Good Faith Estimate must be given before any fees are collected
  • Early disclosures required for all consumer purpose, dwelling secured loans (i.e. 2nd homes)
  • Creditors must wait seven business days after they provide early disclosures before closing the loan
  • Creditors must provide new disclosures with a revised annual percentage rate (APR), and wait an additional three business days before closing the loan, if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance.
credit card act phase i
Credit Card Act Phase I
  • First Round of Changes:
  • Written notice to consumers 45 days before an APR increase or significant changes to the terms of a credit card account.
  • Consumers have the right to cancel the credit card account before the increase or change goes into effect.
  • Periodic statements must be mailed at least 21 days before payment is due.
new regulation z mortgage loan rules
New Regulation Z Mortgage Loan Rules
  • Higher Priced Mortgage Loans:
  • New category of mortgage loans with new disclosure requirements intended to catch nearly all subprime loans.
  • HPMLs are a first-lien mortgages loans that have an annual percentage rate that is 1.5 percentage points or more above the Federal Reserve Board’s "average prime offer rate," or subordinate lien mortgages that are more than 3.5 percentage points above this rate.
new regulation z mortgage loan rules1
New Regulation Z Mortgage Loan Rules
  • Higher Priced Mortgage Loans:
  • Lenders must consider the borrower’s ability to repay the loan from income and assets other than the home’s value.
  • Ability to repay is based on the highest scheduled payment in the first seven years of the loan.
  • Creditors must verify income and assets
  • Bans prepayment penalties if the payment can change in the first four years
  • Requires escrow accounts for property taxes and insurance for all first lien mortgage loans.
new regulation z mortgage loan rules2
New Regulation Z Mortgage Loan Rules
  • All Mortgage Loans:
  • Prohibited from coercing an appraiser to misstate the home’s value.
  • New fair servicing requirements regarding charging late fees, accepting loan payments and providing payoff statements.
  • New advertising rules.
real estate settlement procedures act
Real Estate Settlement Procedures Act
  • Major revisions
  • Ensures estimates of settlement costs are more accurate
  • Facilitates better comparisons among lenders
  • Revised Good Faith Estimate
  • Revised HUD-1 Settlement Statement
  • New tolerances between the GFE and HUD-1
overdraft protection disclosures
Overdraft Protection Disclosures
  • Expands existing rules that applied only to financial institutions that advertised courtesy overdraft program to all financial institutions
  • Requires monthly and year-to-date overdraft and return items fees paid to be disclosed on periodic statements
  • Restricts “padded” balance amounts disclosed on ATMs, online banking and VRUs
credit card act phase ii
Credit Card Act Phase II
  • Extensive changes to Regulation Z credit card rules
  • Prohibitions and restrictions on rate increases
  • Special underwriting rules for consumers younger than 21
  • Over-the-limit fee opt-in
  • New subprime card fee restrictions
  • Prohibition against abusive billing practices and payment allocation practices
expedited funds availability
Expedited Funds Availability
  • Changes prompted by the consolidation of the Federal Reserve check processing regions
  • Uniform hold times for all checks, no matter where in the US the paying financial institution is located
higher education opportunity act
Higher Education Opportunity Act
  • Applies to “private education loans”
  • Any loan used for secondary education expenses is covered (except for credit cards)
  • Requires extensive new disclosures for covered loans at application, approval and consummation
  • Restrictions on using school insignia to promote loans.
internet gambling
Internet Gambling
  • New Regulation
  • Prohibits gambling businesses from accepting payments in connection with unlawful Internet gambling.
  • U.S. financial firms must have policies and procedures to prevent covered payments
  • Operational controls will prohibit some card payments
  • Due diligence at account opening will be required to stop transactions on other payment systems
overdraft program restrictions
Overdraft Program Restrictions
  • New consumer opt-in required before for credit unions may assess overdraft fees in connection with ATM and one-time debit transactions.
  • Overdraft coverage for checks, ACH and reoccurring debit transactions is unchanged.
open end loan revisions
Open-end Loan Revisions
  • New disclosures required for all open-end consumer loans: Application and solicitations, account opening, periodic statements and change in terms.
  • Policy and procedure changes for credit unions that offer multi-feature open-end lending (MFOEL).
  • New guidelines for furnishing information to credit bureaus
  • New regulations regarding responding to consumer disputes
  • New uniform privacy disclosures
safe act
  • Credit union mortgage loan originators will have to register with a national registry
  • Financial institution employees do not have to be licensed with the state
credit card act phase iii
Credit Card Act Phase III
  • Prohibits credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer's violation
  • Bans inactivity fees
  • Prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms
  • Requires credit card issuers to inform consumers of the reasons for rate increases
  • Requires rate change evaluations
home equity line of credit revisions
Home Equity Line of Credit Revisions
  • New uniform disclosures
  • Will prohibit terminating an account for payment-related reasons unless the consumer is more than 30 days late making a payment
  • Will provide additional protections related to account suspensions, credit-limit reductions, and reinstatement of accounts.
closed end lending revisions
Closed-end Lending Revisions
  • Account disclosure changes:
    • Will change the APR calculation to capture most fees and settlement costs paid by consumers
    • Will require lenders to show how the consumer's APR compares to the average rate offered to borrowers with excellent credit
    • Will require lenders to provide final TILA disclosures at least three business days before loan closing
    • Will require lenders to show consumers how much their monthly payments might increase for adjustable-rate mortgages
closed end lending revisions1
Closed-end Lending Revisions
  • Additional rules:
  • Would prohibiting payments to a mortgage broker or a loan officer that are based on the loan's interest rate or other terms
  • Would prohibit a mortgage broker or loan officer from "steering" consumers to transactions that are not in their interest in order to increase the mortgage broker's or loan officer's compensation.
bank secrecy act
Bank Secrecy Act
  • No new rules expected this year
  • Close examiner oversight to continue
third party risk management
Third Party Risk Management
  • Expect increased focus
  • CU’s must have a process to:
    • Assess how outsourcing arrangements support objectives & strategic plans
    • Understand the risks associated
    • Ensure contract provisions for effective oversight
    • Implement an oversight and monitoring program
disaster planning
Disaster Planning
  • Remains a high priority
  • NCUA requirements include:
    • Business impact analysis
    • Risk analysis to determine critical systems
    • Comprehensive, written plan
    • Internal controls for reviewing and revising the plan at least annually and conducting annual testing