Special Alert


January 29, 2016

This Special Alert provides a comprehensive analysis by Farleigh Wada Witt of the regulatory and compliance outlook for credit unions for 2016. Our analysis looks at the broad landscape of impacts on credit unions from federal and state regulatory developments, federal regulatory enforcement actions, court decisions and announcements of future regulatory and legislative actions. The regulatory and compliance impact on credit unions will continue to be significant, especially at the federal level.

Our Special Alert is organized into current and forward looking developments affecting credit unions and CUSOs for 2016:
  • Current regulations and implementation impacts
  • New regulations to expect
  • Examination priorities and expectations
  • FWW's issues Watchlist for 2016
Based on our regulatory and compliance analysis we see distinct regulatory and compliance trends in the credit union industry for 2016 as follows:
CFPB. The CFPB will continue to be very active with consumer protection regulations and enforcement across the board. The CFPB's 2016 agenda includes a carryover of issues from 2015 and remains an aggressive mix of enforcement, studies and new consumer regulations. In 2016, the CFPB plans to issue a series of consumer protection regulations to address abuses in overdraft programs, debt collection, payday and student lending. Credit unions are not the targets, but will still be directly impacted by requirements in the regulations.
NCUA. NCUA's 2015 regulatory actions provided less actual relief than promised or declared relief. In 2016, we expect more of the same. Credit unions will be affected more by NCUA examination scrutiny and less by NCUA regulations. NCUA examinations will address a number of stated priorities including cybersecurity, incident response programs, interest rate risk, BSA compliance, TRID compliance and CUSO reporting. Examinations will also continue to focus on other (unstated) priorities including MBL administration, credit risk management and certain executive compensation plans.
Other Forces. Class-action lawsuit activity involving credit unions has increased significantly. Plaintiff attorneys have become more aware of credit unions as potential targets for both individual and class action litigation, especially in connection with overdraft practices, mortgage lending and servicing. Also, member complaints are increasing through the solicitous online complaint portals of the CFPB and the NCUA. These factors point to an increased need to formalize and expand member response management and overall credit union risk management programs.
The following is an overview of the regulatory and supervisory landscape for credit unions in 2016.
Topic Area
Regulatory Action
1.  Current Regulations and Implementation Status
Reg H Biggert - Waters Flood Insurance Reforms
CFPB & NCUA Proposed RegulationsJanuary 1, 2016
CUSO National RegistrationNCUA Part 712February 1, 2015
Military Lending RulesMilitary Lending Act (MLA)  DoDEffective - October 31, 2016
HMDA Data CollectionNCUA Reg Alert 16-RA-01Data collection 2016; Submit to FRB 2017
Risk Based Capital RuleNCUA Proposed Rule Part 702Effective - 2018 
IRS Form 1098New 1098 forms revisionsJanuary 1, 2017
2.  New Regulations To Expect
Overdraft Protection
CFPB Announced Proposed Rulemaking to address consumer "opt in" consent, coverage limits, fee structures and account closures.
Prerule announcement 
Expected February 2016
Member Business Lending (MBL) 
Part 723
NCUA Final Rules
State MBL Rule updates to follow
Expected by March 2016
Payday & Auto Title LendingCFPB Published Research & Announced Proposed Rules to address ability to repay (ATR) requirements, limits on loan rollovers, restricting payment collection practices by requiring prior notice before accessing deposit accounts and limiting the number of such transactions.Prerule announcement
First Quarter 2016
Debt Collection RulesCFPB issued an ANPR to address: excessive/inconvenient collection calls, misleading representations or threats regarding collection litigation, prohibited disclosures to third parties, & false/misleading debt collection representations.
Prerule announcement
First Quarter 2016
Prepaid CardsCFPB finalizing a 2014 proposed rule to bring prepaid account products under Reg E and to regulate prepaid accounts with overdraft and credit features under Reg E & Reg Z.
Expected Spring 2016
Mortgage Servicing CleanupFinalize Proposed RulesExpected Spring 2016
Field of Membership for FCUsNCUA Chartering and FOM Manual -
minor revisions
Expected mid-2016
Arbitration ProvisionsCFPB has issued a report to Congress, issued an outline of proposals and convened panel for future analysis.Expected action in 2016
3.  Regulatory Agenda & Supervisory Priorities
CFPB Supervision & Enforcement
Student Loan Servicing
Mortgage Origination & Servicing
Consumer Reporting
Debt Collection
Fair Lending

CFPB Complaints

CFPB Studies, Information Collection & Reports (i.e. future rulemaking)
Women & minority owned and small business data collection; CFPB outreach and research stage - (revised credit application requirements).

ECOA & TILA Collection of Information.
Mobile Financial Services.
Web based Quantitative testing of POS/ATM overdraft disclosure forms - information collection (Sept 2015).
Credit Cards - Report of Terms of Credit Card Plans.
Financial Well-being - National Survey for Financial Literacy.
Credit Reporting - CFPB conducting market research.
Fair Lending - revised Supervision & Examination Manual.
Adoption of FFIEC Interagency Fair Lending Exam Procedures.

Supervisory Priorities

Cybersecurity Assessment (use of FFIEC Cybersecurity Assessment Tool 2nd).
Incident Response Management Programs.
BSA - Money Service Business (MSB) Relationships.
Interest Rate Risk.
TRID Compliance.
CUSO Reporting.
NCUA 16-CU-01 2016 Supervisory Priorities
January 2016
2016 Regulatory Review
NCUA conducts rolling review of one-third of its existing regulations with opportunity for public comment. This process allows credit unions to make recommendations for regulatory improvements. NCUA will be reviewing its Regulations Part 711 thru Part 747. Comments on NCUA's 2016 regulatory review are due to NCUA by August 8, 2016.
Summary of Regulations
711 Management Official Interlocks - Applies to FISCUs.
712 Credit Union Service Organizations (CUSOs) - Applies to FISCUs.
713 Fidelity Bond and Insurance Coverage - Applies to FISCUs.
714 Leasing - Applies only to FCUs.
715 Supervisory Committee Audits and Verifications - Applies primarily to FCUs.
717 Fair Credit Reporting - Applies only to FCUs.
721 Incidental Powers - Applies only to FCUs.
722 Appraisals - Applies to FISCUs.
723 Member Business Loans - Applies to FISCUs. NCUA's 2015 proposed MBL changes- expect final by mid-2016.
724 Trustees and Custodians of Certain Tax-Advantaged Savings Plans - Applies only to FCUs.
725 NCUA Central Liquidity Facility - Applies to FISCUs.
740 Accuracy of Advertising and Notice of Insured Status - Applies to FISCUs.
741 Requirements for Insurance -Applies to FISCUs.
745 Share Insurance and Appendix - Applies to FISCUs.
747 Administrative Actions, Hearings, Rules of Practice and Procedure, and Investigations - Applies to FISCUs.
Washington DFI
Supervisory Priorities
Cybersecurity & IT Exams (DFI Bulletin B-15-13)
Consumer Protection Law Compliance
Compliance Exams
Collection Agency Fees
Reg E Investigation & Crediting Practices
NCUA Priorities
Potential Rulemaking
Supervisory Committee/Board Governance
MBL Rule updates based on NCUA changes
Oregon DCBS
Board & Supervisory Compensation Rule
OAR 441-710-0305 Compensation of Boards of Directors and Supervisory Committee Members.
January 1, 2016
Supervisory Priorities
Potential MBL Rule updates based on NCUA changes
Information Security
Vendor Management
Marijuana related business policies

The following is Farleigh Wada Witt's Watchlist of the critical legal and compliance issues for credit unions in 2016.
Critical Legal & Compliance Issues & Impacts
1. Overdraft Practices - The chokehold on overdraft services will tighten. In addition to the threat of individual and class action lawsuits on the completeness or accuracy of overdraft service disclosures, the CFPB will add another layer of regulation restrictions and requirements in 2016.
2. Electronic Services - As credit unions expand into mobile, text and new forms of electronic service delivery, the necessary contract and disclosure for such services must be properly drafted and provided. Do not rely on one-size fits all vendor templates or you can add electronic services to the compliance litigation risk list with overdrafts. 
3. Executive & Board Compensation - Compensation draws a spotlight from regulators and members. Whether it is Board compensation or the newest form of SERP for an executive, Board due diligence is a threshold requirement to be conducted, documented and provided at exam time. 
4. Collection Agency Fees Practices (Washington) - Washington DFI's concern over the practice of charging collection agency fees was well founded and a reasonable "self-examination" process was implemented. Credit unions need to prepare for the exam and more importantly identify and mitigate their risk exposure.
5. Member Complaints & Response Management - Member complaints continue to grow through the convenient access and solicitation of online complaint portals. Credit unions' member response programs must be robust to handle the complaint growth and to effectively resolve complaints within the myriad of applicable compliance requirements.
6. Consumer Lending Practices & Abuses - The CFPB will continue its mission to root out consumer lending abuses and plaintiff attorneys will continue their microscopic search for compliance defects. With the ever increasing regulatory requirements on consumer lending, the compliance focus for credit unions must be comprehensive and risk based. 
7. TCPA - The law never keeps up with technology but the FCC's Declaratory Order was a step backward. Until the laws are updated, credit unions must carefully examine their member communication processes and practices and start filling the gaps where member consent is expressed not implied.
8. Member Business Loan Administration - Credit unions of all sizes are serving business members with commercial loans. Sound business loan documents are only one component in an effective MBL program - sound administration is the key to its long term success.
9. Vendor Management - Outsourcing to third party vendors is necessary for credit unions to expand their products, services and delivery channels. Effective management of third party vendors requires a comprehensive management program, commitment and expertise. However, vendor management duties are part of nearly every new major regulation.
10. Due Diligence for Loan Participations - Just because loans are for sale and the demand is high does not mean they are always a good buy. For loan participations, buy them with the same diligence as you would make them.

This Special Alert, 2016 Regulatory & Compliance Outlook (January 2016) is part of the compliance resources Farleigh Wada Witt regularly provides its credit union clients in addition to its compliance management program, Compliance Smart.
Compliance Smart is a comprehensive compliance management program for credit unions to organize the credit union's compliance process from understanding the impact of new regulations through the implementing necessary operational changes for the credit union. Today's regulatory challenges require advanced solutions that are Compliance Smart.  Learn how your Credit Union can realize "More Oversight, Less Overhead" for your compliance management. Call or email Brian Witt, Farleigh Wada Witt, 503.228.6044, bwitt@fwwlaw.com for more information about the Compliance Smart program.
Brian represents credit unions and CUSOs on corporate, operational, compliance, executive compensation and financial service delivery matters. Practicing law for more than 30 years, Brian has vast experience working with credit unions at all levels from the teller line to the Board room. Brian has developed extensive compliance resources for member response management, vendor management and contract reviews, information security programs, security response guidelines, online delivery of financial services, and credit union consumer and business lending.
Brian Witt

Hal has been providing legal advice to credit unions since 1991, focusing on state and federal regulatory compliance, deposit and lending operations, contract and business matters, corporate governance, CUSOs, and all other aspects of financial service delivery. He frequently conducts seminars on legal matters for the Northwest Credit Union Association, Credit Union National Association councils, local chapters, and other trade groups.
Hal Scoggins

With a background in banking and business, Kelley brings considerable experience and working knowledge in the areas of consumer and commercial law relevant to assisting financial service providers on matters related to legal compliance. She monitors consumer regulatory changes and legislation in Oregon and Washington that affects financial service providers.
Kelley Washburn


503.228.6044 | www.fwwlaw.com
The contents of this publication are intended for general information only and should not be construed as legal advice or opinion on specific facts and circumstances. 

Copyright 2016 Farleigh Wada Witt