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COMPLIANCE Q&ACompliance CornerBy Bill Berg, CCUE, CUCE, FCUL VP of ComplianceBill BergIf you havequestions onadditional topics,visit InfoSight atwww.fcul.org, call800.342.1266,or 850.576.8171ext. 1028, fax to850.558.1029, oremail billb@fcul.org.Q: With the new interagency “red flag”regulations and guidelines, do we need to startfrom scratch or can we incorporate our currentfraud prevention procedures into ID theftprevention programs?A: When appropriate, credit unions may incorporateexisting fraud prevention policies and procedures intoits ID Theft Prevention Program.The National Credit Union Administration(NCUA), Federal Trade Commission (FTC) and thefederal banking agencies issued final guidelines andregulations to implement Section 114 of the Fair andAccurate Credit Transaction Act (FACTA).Section 114 defines the identity theft “red flags,”and in this case:• NCUA’s regulations will apply to federal creditunions;• FTC’s regulations will apply to state-charteredcredit unions.The rules are substantially similar and have amandatory compliance date of November 1, 2008.The interagency “red flag” regulations requireinstitutions to develop and implement a written“Identity Theft Prevention Program,” which isdesigned to “detect, prevent, and mitigate identitytheft in connection with the opening of a coveredaccount or any existing covered account.”The regulation defines covered accounts as:• Offered or maintained primarily for personal,family, or household purposes that involveor are designed to permit multiple paymentsor transactions such as a credit card account,mortgage, loan, automobile loan, checkingaccount or share account; and• Any other account the credit union offersor maintains for which there is a reasonablyforeseeable risk to members or to the safety andsoundness of the federal credit union from IDtheft, including financial, operational, compliance,reputation, or litigation risks.The regulations’ accompanying guidelines makeclear that a credit union may incorporate existingfraud prevention policies and procedures into the IDTheft Prevention Program, as appropriate.According to the supplemental information,this will avoid duplication and allow credit unionsto benefit from existing policies and procedures.However, the credit union may only incorporateexisting policies, procedures, and arrangements thatcontrol reasonable foreseeable risks to members orto the safety and soundness of the credit union fromidentity theft.Q: Do our members incur tax liability if weforgive a portion of the mortgage debt?A: In certain circumstances, the answer will be no.The Mortgage Forgiveness Debt Relief Act of 2007became Public Law (PL) number 110-142 when theact, was signed into law December 20, 2007. Thislaw is intended to provide temporary tax relief tohomeowners who might lose their home to foreclosureor who negotiate a loan modification.Previously under our tax code, if a lender(voluntarily or involuntarily) forgave a portion of aborrower’s mortgage debt, the forgiven amount hadto be treated as taxable income. Credit unions andother lenders had to file Form 1099-C, “Cancellationof Debt,” to report to the IRS any debt of $600 ormore, cancelled or forgiven.The new law allows the discharge of indebtednesson loans up to $2 million and secured by the borrower’sprincipal residence not to trigger federal incometaxation. PL 110-142 covers only discharges madebetween January 1, 2007 and December 31, 2009.1099-C filing requirements have not disappearedfor other types of debts that are not fully repaid.We expect, in the future, to receive guidancefrom the IRS on how to handle information returnsduring this temporary period.For upcoming compliance education andtraining as well as other League complianceresources, see page 19.Spring 2008 7