Reading The Tea Leaves Of Regulation

Compliance dance card overflows in 2015 while credit union legal beagles see TRID and true changes in 2016.

A full-time work year is what, about 2,000 hours? That would be about a month less than what’s needed to keep up with compliance in 2016, according to Continuity.

The regulation technology provider says the 329 regulatory issuances contained in 4,309 pages of new documentation means the average community financial institution would have to devote 2,200 workforce hours to keep up.

There also were 712 enforcement actions against CFIs in 2015, a 15% increase over the year before. The floodgates aren’t closing, either.

The outlook forward is for more of the same. The regulatory agencies don’t look like they plan to slow down anytime soon. Some items being worked on now for 2016 such as those related to lending and same-day ACH payments have significant impact and will continue to compound the work, says Donna Cameron, Continuity’s director of regulatory I/0.

There are too many areas of regulatory interest to get to in one blog, but here’s what Pam Perdue, EVP of insight at Connecticut-based Continuity, points out as the supervisory focus this year for the NCUA:

  • Cybersecurity assessment Credit unions are encouraged to use the new FFIEC Cybersecurity Awareness tool to identify and manage cybersecurity threats, Perdue says. More on encouraged below.
  • Incident response programs These will be reviewed during 2016 examinations. Credit unions are expected to have an IR program in place to address unauthorized access to or use of member information, Perdue says.
  • Bank Secrecy Act The NCUA will be looking at credit union relationships with money service businesses (MSBs) to ensure that BSA and NCUA requirements are met, such as FinCEN registration and state licensing rules.
  • Interest Rate Risk The NCUA is updating its supervisory guidance (expected in 2016). Perdue notes that examiners will transition to the updated guidance during 2016. Credit unions with more than $50 million in assets must have a written policy on IRR management, and must establish a program to identify and manage IRR.
  • TRID compliance Exams will begin incorporating TRID requirements, Perdue notes.

Be Aware Of FFIEC Cybersecurity Awareness. The new assessment tool from the Federal Financial Examination Council of which the NCUA is a member is intended to help FIs appraise their own risk management strategies.

The NCUA and its sister agencies said in the Federal Register in December that the cybersecurity awareness assessment is actually voluntary, but CUNA has asked its credit unions to let the trade group know if their experience says otherwise.

NAFCU Regulatory Affairs Counsel Kavitha Subramanian reiterated that group’s concerns in a letter to regulators in January in which she thanked the FFIEC and its agencies for promised clarifications to come and also urged that the self-assessments not be made mandatory.

NAFCU members strive to ensure the security of their systems and sensitive consumer data as the cyberthreat landscape continues to evolve, Subramanian wrote. This voluntary self-assessment tool will be helpful for credit unions of all asset sizes to measure and assess their individual cybersecurity maturity and determine what changes should be implemented based on their internal risk appetite.

TRID And True: More On The Legal Front

Meanwhile, the credit union attorney team at Kaufman & Canoles in Virginia has again made its predictions for significant happenings on the legal front for the industry in 2016. Here is a quick look at its top six picks from the law firm’s members:

  1. Medallion Loans. Dustin DeVore recalls that until recently taxi medallion loans were considered one of the most secure and liquid asset classes a commercial lender could hold as collateral. Uber and others have changed all that, causing the value of medallions to plummet and imperiling the very existence of some credit unions.Credit unions and other lenders holding medallions will continue to see the value of their collateral decline and be forced to make difficult decisions related to these loans (including, in some instances, write-offs, modifications and other collection activities), DeVore predicts. (Here, The Street reports on one credit union seizure, and Credit Union Timesdiscusses the issue with the NCUA.)
  2. Class Action Against Overdrafts. Erin Deal predicts continued spikes in class-action lawsuits against credit union overdraft programs. As a result, Deal says, Credit unions will be forced to closely examine, and possibly revise, all overdraft disclosures, account agreements, and courtesy pay programs or risk governmental enforcement actions or member lawsuits.
  3. Foreclosures. Brian Dolan predicts foreclosure rates will continue to decline nationally but sees possible increases in such states as Florida, Nevada, Maryland, New York and Maryland. Dolan says that while subsequent modifications (including through HAMP and HARP) may help some members, the overall numbers of subsequent modifications and refinances are not expected to have any significant influence on the foreclosure rate.
  4. TRID.Hazel Wong notes that the grace period for the TILA/RESPA Integrated Disclosure (TRID) rule ended this week. We predict that 2016 will see the beginning of a trend towards the implementation of digital closing solutions to facilitate TRID compliance, Wong says.
  5. Mergers.AndyKeeney says the cost of compliance will continue to push credit unions to seek merger partners. The difference, however, will be that mergers in 2016 will be by and between strong credit unions with a mutual goal of improving member service and increased opportunities to members, Keeney says. We predict there will be hundreds of mergers in 2016.
  6. Employment Issues. John Bredehoft notes that the U.S. Equal Employment Opportunity Commission has ruled that discrimination on the basis of sexual orientation was unlawful.Even though federal law does not expressly say as much, in 2016, this theory will gain acceptance in the courts, Bredehoft says. Does this mean credit unions need to change their practices? Probably not, unless they fire folks based on their sexual orientation. But he does say that credit unions should pay attention to changing their equal employment statements in handbooks and hiring materials. Another pick? We also predict that more claims will be brought by transsexuals forced to use a men’s or women’s restroom and that some credit unions will consider unisex public facilities in the branches, Bredehoft says.
February 2, 2016

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