regulatory and compliance issues and considerations

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In conducting your assessments regarding forms in light of recent CARD Act and pending TILA/Z changes, there is much being written on what Credit Unions should do with regard to forms. I have noted many issues that do not appear to be addressed consistently, or with an appreciation as to how Credit Unions actually conduct business day-to-day. Since I make no more and no less regardless of which systems of forms my Credit Union clients use I have prepared the following table to clarify some of these considerations; and to provide you with some guidance in the assessments you will be making between now and next Spring. NOTE: Although not required, as with the recent CARD Act, I believe there will be significant individual assessments Credit Unions will be making in preparing for the February and July 2010 changes. Thus, as with CARD, individual conference calls to discuss legal and compliance issues, impacts, options, etc., may be the best course of action. I found these individual assessments to be illuminating for Credit Union and myself. Issue/Considerations and some Statements by Others – Clarified / Fully Addressed to Insure you have all the facts needed to make proper decisions. Open-End Lending Closed-end Lending Costs / Expenses Which Vendor Simplicity Flexibility This is an operational issue; and as a lawyer I have no input into such matters. However, in conducting your due diligence it may be considered appropriate to address this query to three quality vendors to likely assess a combination of OE and CE forms; or to conduct a cost/operations assessment of OE vs. CE. You may find an option that suits your assessment; and also saves the Credit Union a great deal of money. “Yo No Sé !” – “I Do Not Know.” Pick a good one that addresses your due diligence assessment concerns; has good answers to questions such as those that follow; and provides a good value to your Credit Union. OE is complex; Requires multiple documents; and many systems require follow up documents or “Proceeds Checks” with proper payees and must be properly endorsed to protect a Credit Union’s Security Interests The main advantage of OE Lending was its flexibility. That has been curtailed (if not entirely diminished) by recent laws and regulatory changes. CE is simple; requires on document; and you do not have the follow up concerns of OE plan documents. CE loans we never flexible (they did not need to be). They are one-time “deals.” They are intended to be simple. Periodic Statements Mandatory and Costly Never required; and thus much less costly to administer. A coupon book is not required. It is sometimes provided by a lender as a payment remainder or processing tool. Copyright©1994-2010 by Credit Union Resources & Educational Services, LLC. All rights reserved. Revised February 2010 42
Underwriting Advertising In July 2010, any loan where the Credit Union engages in underwriting – requires “closed-end” disclosures. This may be in connection with an OE plan – which means it is an OE Plan Subaccount with a CE feature (what we call “Clopen-ended”). Contrary to recent webinars/call-ins which have been brought to our attention by individual Credit Unions – Underwriting is a broad and encompassing concept. Verification (not in connection with a request, but periodic reviews such as a VISA Credit Card LOC) is not underwriting. Assessing an application for a 60-month car loan subaccount and/or pulling a beacon score for the risk based pricing of the subaccount is underwriting and CE disclosures are required. OE rules apply to OE loans. What rules is the Credit Union to apply to a “Clopen-end” loan? It is not clear as Truth in Lending and its basic principles provide for OE and CE. TILA does not provide for “Clopen.” If your Credit Union provides such lending – then you will need to provide special disclosures to explain the contradictions (example “60-month” car loan – that is Open-ended – but not other Credit Union’s always have the right to evaluate credit without being concerned that they will convert a CE loan to some other loan type. CE is always simple. CE rules apply to CE loans advances are allowed). Special Training Training is always required. Training is always required. Also, most Credit Unions already offer CE loans (via indirect lending, real estate or other). Thus, statements that a Credit Union will have to be “retrained” to use CE lending appear to be somewhat uninformed. Obtain Signatures with Each Loan or Advance Sometimes. It depends on whether a new security interest is being given. In such a case the Credit Union has to create a Security Generally, yes. However, Credit Union’s may use technology (scan/email // fax // e-signatures // etc) to facilitate CE loans as the applicable Copyright©1994-2010 by Credit Union Resources & Educational Services, LLC. All rights reserved. Revised February 2010 43
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Compliance Update - I REGULATORY AN
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Introductory Notes: Basic Obligatio
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performed by boards of directors. T
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What if an applicant “volunteers
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Please answer the following questio
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MULTIPLE ISSUES AND RESOURCES - SOM
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• Review of the negative shares r
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illustrates how certain provisions
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SAMPLE CREDIT UNION BUSINESS PLAN M
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EMPLOYMENT AGREEMENT Revise to addr
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13. Evaluate the job performance of
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2. By Employer For No Cause. Employ
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Vendor Due Diligence II Security As
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Vendor Due Diligence VII TERM AND T
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Vendor Due Diligence XII Backgroun
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Page 37 and 38: PRIVACY - INFORMATION SECURITY Priv
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Page 41 and 42: Compliance Update - II REGULATORY A
Page 43 and 44: Introductory Notes: Knowing if you
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Page 67 and 68: A Review of ‘Red Flags’ and wha
Page 69 and 70: Business Depositors: Understanding
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Page 75 and 76: Union Assessment 33. Identity Theft
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Page 85 and 86: 135-2009 Community Notice // OE/CE
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