Remember this very important point interpreted from Regulation Z by the Federal Reserve.  There are strict rules in place that prevent charging multiple fees when based upon the same transactional occurrence.  Some credit unions could charge an NSF fee on returned credit card payments and also charge a delinquency fine.  If that is your practice, I urge you to review your processes and consider the commentary made by the Federal Reserve.   My interpretation is that you can charge one fee for that one occurrence.  For example you may charge the NSF fee for a returned payment but it’s not permissible to then charge a delinquency fine in addition to that NSF fee.

FinCEN recently released feedback regarding the 2009 CTR Exemption Rule which took effect on January 5, 2009. The purpose of this amendment is to simplify the Designation of Exempt Persons (DOEP) process which in turn will reduce the number of CTRs filed. So has this rule assisted in reducing the amount of CTRs filed?  Yes—CTRs have declined almost 12% over the 2008 to 2009 time period. The benefits of this rule are: 

• Decreased cost and time in preparing and reviewing DOEPs
• Decrease cost and time in preparing CTRs,
• Increased benefits of CTRs by allowing the value of CTRs to surface for law enforcement review 

FinCEN used a bifurcated process to analyze the data. The two groups were; Small-Asset-Institution and Large-Asset-Institution. With 82% of the Small-Asset-Institution population being credit unions I would say this category relates to “us.” The report states Small-Asset-Institutions unnecessarily continued to file biennial renewal DOEPs … and unnecessarily continued to file amended DOEPs” (Pg 23 & 24). The word ‘unnecessarily’   makes me wonder if Small-Asset-Institutions really understand the amendment. Perhaps the decline in CTR filings in this group is due to something unrelated to regulations…maybe a poor economy? My point is this; if your credit union is still filing biennial renewal and amended DOEPs maybe you should ask yourself—is it necessary?

Read the entire Fincen report here.

Note: It appears that only CUNA Mutual is requesting the following changes.  If your credit union is using another MFOEL lending platform, please contact Jim Vilker with your provider’s specific changes, if required.

Three weeks ago, a few credit unions began to receive instructions from CUNA Mutual Group (CMG) regarding the requirements which Regulation Z has placed on the use of the Multi-Featured Open-End Lending (MFOEL) product line.

Last week the floodgates opened up and many of you have now begun to analyze the implications of CMG’s recommended changes. A number of changes are forthcoming regarding the advance request voucher, underwriting style, open-end plans disclosures, and last but not least the member’s periodic statement.

Although much of the buzz is around the use of CMG’s open-end program, we fully expect that other forms providers will be following suit. According to CMG, the deadline for the forms, disclosures, and underwriting guidelines changes is July 1, 2010. The deadline for the periodic statement changes takes effect with the July month-end statement run.

Forms

From a forms perspective, CMG stated in a conference call last week that they will be contacting CU*Answers directly with a list of all credit unions using MFOEL plans and doing a mass change.

To date we have not heard from CMG. The Lender*VP forms team will contact you directly once we receive the required changes and assess the time required to complete them.

IMPORTANT:  The new form files must come directly from your forms provider and be received no later than April 23, 2010, to make the July 1^st deadline.

We will not be contacting your forms provider on your behalf and this process must be managed by your lending team like any other custom forms change.

Process

From the perspective of underwriting and processing new loan requests and advances on existing loans, there are no recommended changes to the CU*BASE GOLD software by CMG.

However, there are numerous changes required within your credit union regarding the manner in which you process, underwrite, and advance funds. In essence, the changes precipitated by Regulation Z will require that you actually begin using the open end system in the manner in which it was designed, by:

• Holding to the requirement that you cannot fully underwrite each time an advance is made
• Disburse funds on open-end loans which in the past you may have considered to be closed-end, such as automobiles

CMG stated that they expect many credit unions to begin using closed-end forms for their automobile and hard collateral loans and use open-end programs for lines of credit and overdraft protection loans, possibly even the credit card disclosures as well.

Loan Contract Screen

Remember that CU*BASE has supported open-end plan-type lending for over 12 years. The Open End Loan Contract screen (MNLOAN #1, Action Code LC) allows loan staff to electronically store the plan elements at the membership level. It was designed to identify that the member is enrolled in a plan for the future lending needs and has served our clients very well over the years.

The Loan Contract screen is intended to be informational only. It has never been necessary that any controls be placed on the member’s lending requests based on the limits entered into this screen. Controls remain at the loan suffix level and must be audited against the Loan Contract screen manually. Whether this will change because of the new Regulation Z changes has yet to be seen, and currently no clients have ever requested that these types of controls be put in place.

It is also important to understand that the CU*BASE loan system only supports the member being enrolled in one plan. This has been the way credit unions typically use the LoanLiner platform, but we remain concerned that someone out there has a member with multiple plans.

If that credit union is you, please contact me directly as soon as possible!

Periodic Statements

One section of the CMG’s document makes a recommendation that deals with their changes to periodic statements for MFOEL. These recommendations are based on their interpretation of the regulation and how it relates to the layout of the standard periodic statement.

CMG’s recommendations place the same requirements on regular statements that the credit card statements had to follow, including the aggregation of fees, interest, and placement of sub-accounts in close proximity to each other.

There are two major challenges from a programming perspective:

• The first challenge will be the work related to identifying which members have a plan, and then tying the all the loans which fall into a plan together with some type of identifying data element.
• The second challenge it then to aggregate these loans on a statement, combine the interest charges associated with them all, and pull the fees out of the transaction information and list them separately.

Let’s start with the effort to identify which members have a plan and which loans on the member’s account are tied to the plan. From a programming perspective we could take one of two paths: 

1. The software would need to be changed to either allow you to tie the suffixes to the Loan Contract screen, where the data lives on the Loan Contract file (OPENDLF) itself, or

2. Allow you to identify at the loan account (MEMBERxx) level which ones belong to a MFOEL plan, one sub-account at a time.

Aggregation of the accounts on the statement, the associated interest and fees, and reformatting of the statement could potentially follow two paths as well:

1. Actually change the format of the existing periodic statement. The format and recommended aggregation remain in debate as the regulation and CMG’s document are open to interpretation and contain numerous ambiguities.

2. Generate a separate statement just for MFOEL programs and leave the existing statement alone.

Audit Duties For Your Team

From a credit union perspective, there are a couple of audit duties related to these recommendations which will simply require brute force to accomplish. This would include a review of every account on CU*BASE, comparing the information to the physical loan file. Staff would need to start a spreadsheet of the suffixes tied to the plan and be prepared to enter the cross reference once the programming has been completed.

This would also include verification that the Loan Contract screen contains the information required to identify the MFOEL plan under which the member falls.

On a side note, we do not anticipate changing the software to allow multiple MFOEL plans for any one member.

How Should We Proceed?

As you can see, like so many of the other regulatory mandates that have hit us lately, this latest change is no small endeavor. There remains a bit of debate on how far or close our credit unions will require us to take the current CMG recommendations.

What will be vital is that we communicate our wishes and understand the effort and costs involved in making these changes. These changes will dwarf the other ones we recently made for credit card and periodic statements—which were no small feat themselves!

As members of this CUSO, we need your voice!

Tell Us How We Should Proceed!  

We will be making our final decision on how we will attack these changes no later than May 7, 2010, and will post our plans on the Kitchen. So if you have a preference on any points, or ideas or concerns you want to pass along, speak up now!

 Post your ideas, preferences, and concerns on the Advisor Reg. Z / Credit CARD Act Open forum:

http://advisor.cuanswers.com/

Or contact Jim Vilker directly:

jvilker@cuanswers.com

Heartland’s breach was an external attack that stole over 130 million credit and debit card transactions.  In turn, this data was sold to criminals from all over the globe.  This is the largest known security breach in history, netting the primary perpetrator of the crime at least 2.8 million dollars, and forcing financial institutions to spend monstrous amount of dollars to notify consumers, close accounts, and reissue credit and debit cards.    

Even though the primary perpetrator of the breach has already plead guilty and been sentenced to 20 years in prison, victimized institutions continue to see fraudulent activity on member accounts.  With a data breach of the size and scope of Heartland’s, institutions can and will continue to suffer attacks for years to come.  Any financial institution that had credit cards processed through Heartland will need heightened vigilance against further fraud.  Cybercrime remains common because criminals face relatively low risk against detection and can gain high yields of illicit profits.

While not affected by the Heartland disaster, CU*Answers can help clients protect themselves against data breaches.  CU*Answers offers Compromised Credit Card Processing through the Gividends program.  CU*Answers allows a victimized credit union to build new cards, close or Hotcard affected accounts, and notify affected members.  This inexpensive protection can go a long way to reducing the costs a credit union might face as a result of data breaches.

The sky is not falling, but let any more legislation like this go through Congress and things just might get a little tight…

 During the last 3 months we have all been anxiously awaiting the Federal Reserve’s final interpretation of the Credit CARD Act. In the middle of January the third interpretation of the Act came through as a revision of the January 2009 proposed Regulation Z change. The proposed Unfair and Deceptive Practices Act has since been rescinded and NCUA’s version is expected to hit the skids as well in the near future. New interpretations of the regulation by compliance attorneys and subsequent advice pieces from the Federal Reserve appear on our radar almost daily.

Where does that leave us? With a new 1,155 page document to interpret, analyze, and turn into meaningful software specifications and a solid recommendation for credit unions to use in loan configurations. We have completed 100% of our review to date. We continue to receive new interpretations of the regulation such as the variable rate floor as well as allowing a grace period on partial payments.

As a resource for you, I would encourage all clients that use CU*BASE Online Credit Cards to:

• Review the changes and recommendations we published on January 29^th in a special announcement.
• Review the recorded one hour web conference from February 5^th that can be downloaded from the Audit Link Advisor site.
• Go to the Audit Link Advisor site, which allows you to send your strategies, concerns, and even policies so we can share with others in the network.

What did we do for the end of February?

• Statement changes (examples sent to all clients on February 22):
• New late payment warning with late fees
• All three minimum payment warnings
• Consumer counseling number
• Coordinating with Sage, CoWWW, and eDOC for graphical presentation
• Discussed the changes you should be making if you are printing up-front disclosures from the CU*BASE system.

 There are a couple of nuances of these changes that you should understand:

Late fees, if configured as a percentage, will always display as a calculated dollar amount, as outlined in the regulation. They are always rounded to the nearest full dollar. Remember these are estimates based on the balance at the time the statement is created.

Minimum payment warnings have amortization calculations in them that follow the guidelines of the regulation. Remember the only time your members will see both the length of time that it will take to pay off the balance and the amount of time it will take to pay off the balance is when amortizations are both in excess of 2.5 years. To fully understand all the rounding requirements we would encourage you to read the regulation as it is extensive and it is simply not possible to describe all the possible scenarios in this document.

What’s Coming Next?

Here is a list of the additional changes that we are working now:

• Addressing when payment dates fall on a day the credit union is closed expected to be in production by the end of April. (We had originally anticipated this being done for March statements but need a little more time to complete the required work, test, and coordinate with all print and e-statement vendors.)
• Altering the interest calculation to understand when there is a grace period on partial payments. This change will affect the interest your members pay during the next statement cycle. This change is expected to go into production at the end of March. 
• Although there are very few fees being charged on credit cards, the regulation does state that they must now be broken out by type and annual total. At this time we are evaluating all potential fees which clients have been charging and we will begin programming for that change including the statement changes. Also included in this change will be the addition of total year-to-date interest charges. This change is expected to be implemented for the end of March cycle. 

 Nuances of these changes that you should understand:

• When evaluating payment dates against dates on which your branches are closed, we will be looking at the standard Federal holidays and/or any holidays you have entered into your Non-Business Days configuration (MNCNFD #23). If you have not done so already, make sure you have reviewed and updated this configuration (see the instructions in the January 29^th announcement). Remember that when the due date falls on a day your branches are closed, the system treats the account as if the due date is instead the next date on which you are open.  This change will process interest calculations at the end of the month as if the payment was made on the due date.
• As another side note, we discovered loans that had a 5% repayment calculation, where the minimum payment was actually more than the required payment to pay off the loan in 36 months. Your staff must understand that the minimum payment amount each month decreases in accordance with the outstanding principal balance. However, the amount required to pay off the balance in three years is simply an amortized amount calculated as of the time the statement is generated.
• Grace period on partial payments is a whole different animal and it will impact the yield on your portfolio. The best way to explain the workings of this change is by example:

Mr. Member has paid his credit card purchase balance off every month. During the current cycle he makes a purchase of $600. On the next cycle he also pays off his purchases from the prior cycle. On the billing cycle in which his $600 is tested for a grace period he only pays $500. The regulation states that the excess amount over his minimum payment must be applied to the purchases and backed off the average daily balance calculation. 

Also remember in the above example that if you have another bucket with a higher interest rate and it has a balance, the payment must be applied to that bucket first, and in this case no grace period would apply. The application of payments to the highest interest rate bucket supersedes this rule.

What’s Left?

What remains on the plate for our product development team is to make program changes that allow the transfer of funds from one bucket to another when the credit union has configured the product as a fixed rate (or variable rate with a floor). I would encourage you to read our January 29^th announcement to better understand the nuances of that change and when it is going into production. 

What Should You Be Doing Now?

Here are the things you should be evaluating in your configurations for online credit cards right now:

• Change your credit card category configurations to make sure that the bucket with the highest interest rate has the highest priority. Ninety percent of our clients have similar rates for all buckets but it is worth the time to review those configuration screens one more time.
• Delete your over-limit fee from the configuration. Even American Express has removed their over-limit fee. There is absolutely no way to monitor for these even if you got creative and sent out the opt-in notices.
• If you charge a penalty rate, set your default rate change date out far enough that you can get a 45-day advance notice that meets the minimum 60-day requirement. Utilize the delinquency notice configuration to update the verbiage on the notice to meet the requirements of the regulation. The exact verbiage is published in Appendix G of the regulation. Also remember that it is now required that you set the rate to be monitored. Set the flag on the configuration screen to verify if timely payments are made for six months that the rate should go back to the normal rate.
• If you have variable rates with floors and the rate is currently sitting at the floor, you now have a fixed rate card. You have a number of choices but every one requires a new disclosure moving forward. I would encourage you to speak to Lender*VP on your options and implications of your decisions as it relates to the configuration of the system.
• Update your agreements and disclosures. The format for your agreements has been outlined in the regulation as well. Use them, copy them, and then get them completed as soon as possible. Share them on the Audit Link Advisor site http://advisor.cuanswers.com/ so others in your peer group can compare notes.

Stay Tuned

With these apparently never-ending changes and the continuous flow opinions, we fully expect our programming efforts will not end in a few months. We would like you to continue to feed us what you are hearing and seeing on the street. Please send us your legal opinions, your comments from other partners, and any other details you gather. Our strategy moving forward will be to communicate these findings back into the network.

There continues to be a great deal of interpretation and reinterpretation going on and with final rules now published we will continue making enhancements to our tools. Over the next year we will all continue to look at best practices for evaluating and maximizing our credit card programs as a positive part of our credit union loan portfolio.

Contribute! 

Post your ideas and concerns on the
Advisor Credit CARD Act Open forum:

http://advisor.cuanswers.com/category/credit-card-act-open-forum/

 Also, the Q&A resulting from Navigating the Credit CARD Act webinar featuring Jim Vilker will be posted here. Please take advantage of this opportunity to contribute and gain knowledge of the Credit CARD Act of 2009.

Navigating the Credit CARD Act

The Truth-in-Savings regulatory changes, found in the update to the NCUA Regulation 707, seemed relatively easy to understand for this first round.  NCUA patterned their changes from the Federal Reserve in most respects, but not all.

A tip from Audit Link’s Jim Vilker:  Credit unions are required to follow those regulations as published by the NCUA and I would caution those who believe they must try and blend the Federal Reserves Regulation with the NCUA’s.  It almost never works.  Keep your compliance eye on our regulatory body only.   Blending these two will only lead to analysis for the sake of analysis.

Breaking It Down

There were two well-defined sections to the upcoming changes.  The first describes available balance requirements at points where a member may inquire on their accounts or where available balances are displayed, such as ATM terminals and online banking.

c) Disclosure of account balances. If a credit union discloses balance information to a member through an automated system, the balance may not include additional amounts that the credit union may provide to cover an item when there are insufficient or unavailable funds in the member’s account, whether under a service provided in its discretion, a service subject to part 226 of this title (Regulation Z), or a service to transfer funds from another member account.  The credit union may, at its option, disclose additional account balances that include such additional amounts, if the credit union prominently states that any such balance includes such additional amounts and, if applicable, that additional amounts are not available for all transactions.

The second section describes changes to the format of member periodic statements related to the fees charged for overdraft and NSF fees ONLY.

(a) Disclosure of total fees on periodic statements.

(1) General. A credit union must separately disclose on each periodic statement, as applicable:

(i) The total dollar amount for all fees or charges imposed on the account for paying checks or other items when there are insufficient or unavailable funds and the account becomes overdrawn; and

(ii) The total dollar amount for all fees or charges imposed on the account for returning items unpaid.

(2) Totals required. The disclosures required by paragraph (a)(1) of this section must be provided for the statement period and for the calendar year-to-date.

(3) Format requirements. The aggregate fee disclosures required by paragraph (a) of this section must be disclosed in close proximity to fees identified under § 707.6(a)(3), using a format substantially similar to Sample Form B–10 in appendix B.

Let’s take this on one section at a time and try to clear the fog a bit.

Clearing the Fog: Account Balance Disclosures

CU*Answers has already sent an announcement concerning the amendments to Regulation DD on 12/11/09.  You can be assured that It’s Me 247 and CU*TALK supported by our CU*Network Partners are already in compliance.  Balances displayed on these systems are based on available balances only.

Now, let’s talk about ATM switches.  The provisions of Regulation DD require that balances provided to cardholders through automated systems (including ATMs) exclude any additional funds available through overdraft protection programs. Or, if the balances provided do include amounts through overdraft protection programs, they must be disclosed as such. Because there is no assurance that all ATM terminals provide this disclosure, you want to understand what balances are submitted to your ATM vendor and how they are using those balances. This will require a conversation with your vendor and an understanding of how your interface works (online versus batch, PBF formats, etc.)

When you have completed your checklists of how balances are displayed at ATM machines (whether through an online platform or through a batch processing positive balance file or PBF), the next step is to make sure your statement disclosures are set up.

Clearing the Fog: Fee Disclosures On Periodic Statements

CU*BASE has supported the NSF and Non-Return Fee disclosure on periodic statements since 2006. Until now, they were only required based on the way credit unions marketed their Overdraft Privilege offerings. Beginning January 1, 2010, it will be required for all credit unions who offer overdraft programs.

There are two steps to print the fee disclosure on your member statements:

1.  Choose Which Activity is Tracked
Modify your NSF Configuration (MNCNFA #9, then #1) to indicate which origin codes will be counted in the fee totals.

2. Change Statement Print Configuration
Contact a Client Service Representative and request the statement print flag be turned on (we need your request in writing). Self Processors can activate this flag using the Member Statement Config. feature via OPER #10, then #5.

So will there be a box around the fees?  The regulation does not say we must; it simply states the disclosure should be “substantially similar” to the one proposed.  The regulation does not even speak to the intent of the box or gridlines.  Is the intent to draw attention to the data?  Is the intent to make it clear from a member’s reading perspective?

Our first inclination is to forget the box altogether and trust we have all invested in displaying the data according to the intent of the regulation.  However, this is not the final say, as you will see in the separate “Boxes, boxes…” sidebar in this issue of the Advisor.

Remember there are multiple ways a member can view a statement, including a printed format as well as e-Statements.  In some cases credit unions may be printing their own statements or using third party statement providers who are not familiar with the upcoming changes.  There is also the additional complexity of the new statement flat file format versus the “old” print format that is still used by many third-party print vendors.

Changing print formats might seem simple but it is definitely not.  Any change we make to the way a statement appears must be made individually to each and every one of the output formats and delivery channels and viewing applications.  So we are reviewing our options and will declare our direction in separate communications during the month of January.  

The Truth-in-Savings regulatory changes, found in the update to the NCUA Regulation 707, seemed relatively easy to understand for this first round.  NCUA patterned their changes from the Federal Reserve in most respects, but not all.

A tip from Audit Link’s Jim Vilker:  Credit unions are required to follow those regulations as published by the NCUA and I would caution those who believe they must try and blend the Federal Reserves Regulation with the NCUA’s.  It almost never works.  Keep your compliance eye on our regulatory body only.   Blending these two will only lead to analysis for the sake of analysis.

Boxes, boxes…who has the boxes?

Based on inquiries from several credit unions after a recent CUNA press release, we are currently analyzing the process of modifying all of the different statement formats that would be affected by a change such as putting border lines around the existing fee disclosure table.  Remember that as with any change to statements, some credit unions may incur custom programming fees to a third-party vendor in order to also incorporate a similar change. 

• Current e-Statements through CoWWW (until the transition to CU*SPY  through eDOC is complete), which are presented via multiple formats:
  • XML format
  • PDF format
  • HTML/text format
• Printed statements via the existing print file format (still used by many third-party print vendors as well as self processors who still print their own statements)
• Printed statements via the new flat file format (used by Sage Direct)
• New e-Statements through eDOC (which will also include multiple formats similar to current e-Statements through CoWWW)
• CU*CD (archived e-Statements on CD-ROM)

As you can see, it is impractical to make a blanket statement that “statements” will be changed—each of these delivery channels and formats must be evaluated separately and a decision made as to which formats will change and which will not.  We are contacting all of the involved vendors now, including CoWWW, eDOC, and Sage Direct, to determine options.

The end result might even be a call for an early end to support for the old print file format, forcing all credit unions and their print vendors to move to the flat file processing with all the resulting coordination, timelines, and change fees. 

Stay tuned for more updates after the first of the year!

 Barb Cooper
VP Professional Services
CU*Answers

To comply with Red Flag requirements to monitor things like address changes, a new Red Flag monitoring feature has been added to CU*BASE. This tool provides alerts to both the credit union and the member when changes are made to a member’s personal information to provide an extra layer of security against fraudulent activity.
When changes are made to a member’s name, email address, home phone or mailing address, CU*BASE records these changes for a rolling 30 days. If configured, warning messages are presented to both the member and the credit union employee. Before credit union employees enter selected screens (such as Teller, Inquiry, and Phone Operator), they will receive a warning message nothing how many changes have been made to these items in the last 30 days (this number is configurable based upon credit union preference). Members will also receive notification of the change in the form of a secure home banking message in It’s Me 247. If the change is to a member’s email address, the member will also receive an email notification to both the new and old email address, unless the old address was marked as a wrong address.
Each time a change is made to the member personal information, a Tracker entry is made on the Audit Tracker that records the old and new values. The Member Tracker system in CU*BASE is a helpful and easy-to-use tool to help credit union staff keep on top of important requests and issues. Tracker records can contain reminders to contact a member, follow-up on payments due, schedule and appointment and more. These records remain attached to a member’s account until manually purged; therefore serve as excellent documentation about an issue for future reference. For this reason, Trackers are used to document member activity related to compliance. Each time a compliance related event such as an OFAC scan, FIDM scan occurs, the CU*BASE system automatically adds a conversation to the member’s audit tracker – these ongoing conversations are recorded, and at a later date can be reviewed as a record of activity on the account.
The addition of this tool is one of many that CU*Answers, the CUSO providing CU*BASE, has implemented in the last year to enable credit unions to remain compliant with increasing regulations.

For more information contact:
Scott Page, EVP
800-327-3478 x103
spage@cuanswers.com

“Our goal at CU*Answers is to provide the tools necessary for our credit unions to succeed. In 2008 we made a promise to our credit unions that by utilizing CU*BASE, they will have the lowest cost of compliance in the industry,” says Jim Vilker –VP of Professional Services, and Manager of Audit Link. “As a 100% credit union-owned CUSO we are naturally tuned in to the wants and needs of our clients, because ultimately, their success is our success. This commitment is evident, and proves that it pays to partner with a data processor owned by its users.”

About CU*Answers
CU*Answers was founded over 35 years ago and is a 100% Credit Union owned CUSO located in Grand Rapids, Michigan. CU*Answers offers a wide variety of services for credit unions including its flagship CU*BASE Processing System in both an Online (ASP) and In-house environment, Internet Development Services featuring the It’s Me 247 Online Banking product, Member Check Processing and Direct Deposit processing services. CU*Answers provides combined services to 165 credit unions nationally representing nearly 1.5 million members and $10 billion in credit union assets. For more information about how “We Make Credit Unions Go” please visit CU*Answers at www.cuanswers.com.
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