Credit CARD Act

In the last few days the final interpretations of the Credit CARD Act have been hitting the desks of many of our clients. This was signed into law last month and to everyone’s surprise had some very aggressive dates for compliance. The most immediate deadline is August 20th. According to the law financial institutions must mail credit card statements at least 21 days prior to the payment due date.

The number of stipulations doesn’t allow us to completely cover them in this newsletter. More information will be shared as the work proceeds.  Please remember to follow the progress at:

www.cuanswers.com/resources/kitchen/

The time to act is now because the timeline for complying with this new 21-day rule is not going to change.  Statements must be mailed to members 21 days prior to the payment due date. Credit unions with CU*Answers online credit cards, payment due dates are set to the 25th of the month.  Note that this rule applies to some open end loans, other than credit cards. The determining factors that cause open end loans to fall under this designation are subject to interpretation.  Confused yet?  Help is on the way. 

CU*Answers recently published an announcement that served as a pre-cursor to the Web Conference to be broadcast this week.  The announcement can be read in its entirety here:  http://www.cuanswers.com/kitchen/CreditCARDActJuly09.pdf

Event: The Credit CARD Act— Overview of the CU*Answers Network Response

Date:  Friday, July 31st

Time:  10:00 am—11:00 am

Hosted by: Jim Vilker

Cost:  This event is offered free of charge to all CU*Answers Clients

Topics you will learn about from the web conference and from tracking the evolution of the project in motion include these, and more:

• Statement Processing and the 21-day rule
• If you have CUBASE Online Credit Cards
• LOCs and other open-end loans
• Loan categories & what they mean
• Adjusting Loan Due Dates—batch or not
• Disclosures— changes required
• What about AFTs
• Oh so much more . . .

February 2010—Requirements

These are factors you need to be aware of while planning your compliance strategy.

• Rates on outstanding balances may only be increased if the rate increase is due to the change in an index, if a promotional rate ends,  if the consumer fails while in an existing workout plan, or  if minimum payment is made more than 60 days late.
• If rates are increased due to late payment, card issuers are required to end the increase after six months if the cardholder pays on time during that period.
• If a card issuer increases the prospective rate because of credit risk, market conditions, or other factors, the creditor must review the conditions leading to such increased rates at least every six months and assess whether the rate can be decreased.
• Card issuers must provide account-specific information showing, among other things, the amount of time to pay off a balance if only minimum payments are made and the total amount of interest that will be paid in the process.
• Any fees charged must be reasonably related to the omission or violation. The Fed is directed to promulgate rules to establish standards for assessing reasonableness.
• The method of assessing interest (commonly called “double-cycle” or “two-cycle” billing) that retroactively assesses interest on the balance for days in the preceding billing cycle when the balance is not fully paid within the grace period is prohibited.
• When a cardholder’s account has APRs that apply to different balances on the card such as balance transfers versus new purchases, the cardholder’s payment must be allocated to the balance with the highest interest rate first and in a way to minimize finance charges.
• Card issuers must provide account disclosures to consumers upon renewal of a card if the terms have changed and disclose an annual fee at least 30 days before it will be assessed.
• When opening an account, the card issuer must consider the consumer’s ability to repay.
• Card companies are required to post card agreements on the Internet and provide the same to the Federal Reserve Board to be posted on its website.
• Institutions are prohibited from increasing the interest rate within the first year of the account, and any promotional rates must last for at least six months.
• Over-limit fees can be charged only if the consumer has expressly permitted transactions in excess of the amount of credit authorized. Card companies may not charge over-limit fees more than once in the billing cycle and only once in each of the two subsequent billing cycles.
• You may not charge a fee to allow a cardholder to pay a credit card debt, no matter what method is used to pay either by phone or other electronic systems except for live services to
  expedite payments.
• Consumers must be granted a “reasonable amount of time to make payment,” and billing statements must include payment due dates and late penalties.
• Mailed payments received by 5:00 PM on the due date have to be considered timely. Payments made at local branches must be credited the same day.
• Card issuers cannot charge a late fee if the company had made a material change in its contact information and that change caused a delay in the crediting of a payment made within 60 days of the date of change of contact information.
• The term “fixed rate” can only be used to refer to an interest rate or an APR that will not change for any reason, and this must be clearly specified in the agreement.
• Card companies are required to give 45 day notice of any significant change in terms of a card agreement and to notify consumers of a right to close the account.
• Card companies soliciting consumers under 21 years old must obtain either the signature of a parent or guardian who assumes joint liability or information showing the applicant has independent means of paying balances, and approval of the joint owner is required before increasing the line.
• Agreements between universities and card companies must be publicly disclosed, and card issuers may not offer any free gifts to induce students to apply for a credit card.

Regulation Z

The new Credit CARD Act uncovers a very important regulatory item often ignored by credit unions. Regulation Z has always required that open end credit loans receive a monthly statement.  Be sure you are following the proper standard.  Your statement generation configurations should not be a mystery. Use your auditor’s toolbox:  MNAUDT option 26; verify that one of the “Application” Types is set to OC.

CU*Answers maintains a high level of research and communication with authoritative legal firms, industry leaders and our clients concerning this Act.  We also study correspondence from NAFCU and other articles of an explanatory
nature posted by regulation experts. We’ll keep you posted and request that you reciprocate by informing us of discussions you’ve learned from.

 Recent BSA Changes

The latest CU*BASE release introduced automated writing of shared branching transactions to the BSA monitoring system.  This means transactions types coming from FSCC and Xtend shared branching, configured on CU*BASE, will be recorded in your BSA audit log.  So how does this affect you? One aspect is policies and procedures.  Now is a good time to review the contract you have with shared branching switches.  Here’s why.

There could be disparities among shared branching vendors.  To illustrate:  When a transaction requires a CTR, Xtend Shared Branching mandates that the CTR be filed by the credit union processing the transaction. Another vendor, such as FSCC or CUSC may not.  So to help you forge a path through this new, uncharted territory, we’re suggesting a few questions to get you started.

•  How will you audit these transactions?
• How will you verify that the CTR actually was filed by your shared branching partner?
• How will you update the audit tracker for your members who completed the transaction at another credit union?
•  What activity will now show up on your SAR’s report?

I encourage you to answer those and other questions bring this process into focus.  Spend the time to understand the characteristics this change.  Your daily operating procedures may need to be updated to accommodate this very important software change.

Shared Branching Affects on  BSA Monitoring

With the introduction of this new CU*BASE functionality,  viewing activity of your members and tracking transactions for BSA reporting at shared branching locations or national branch locations will greatly improve. While the only transactions shown in inquiry and on reports were from your own branches, this enhancement allows you to see shared branch activity.

Dig into your Auditor’s Toolbox in CU*BASE Monitor this activity.  MNAUDT is a menu you and your auditors on staff should be well aware of.

Use these resources as a starting point to gain BSA Monitoring expertise and track transaction activity of your members:

MNAUDT # 1-Audit Daily BSA Activity

MNAUDT #2-Print BSA/SAR Activity Report

Report LBKSC3— Bank Secrecy Act Cash Reporting by SSN Number

A new “SB” column in the detail view of BSA inquiry and on the reports indicate transactions that took place at a shared branching location, even national shared branch locations, if applicable to your credit union.

Keep this in mind when reviewing reports.  Members from other credit unions will be shown on the report.  Transactions are monitored and grouped by SSN/TIN. If a company has the same Tax ID as another member’s Social Security number, or if the same person belongs to two different shared branch credit unions and performs transactions at both of them, or if a member has used their own Social Security number on a child’s account, the combination of these otherwise unrelated accounts may exceed BSA requirements.  The result may cause accounts to appear on the report that otherwise would not.  Careful analysis of both the inquiry and report detail will help determine if BSA rules require further action.

JUNE 16TH – REQUIREMENT

National shared branch networks were to be in compliance with these new rules and able to provide this data for shared branch transactions.

NEW NCUA SHARE INSURANCE REPORT

It’s here.  If you are one of those credit unions where the NCUA has asked for proof of how you report insured and uninsured funds the tool is at your disposal.    Over the last year our west coast clients have been pushing for a new report to avoid federal regulators from requiring you have 1% of all member deposits insured.    This will however require you to evaluate how you are setting up trust accounts.   It is very important for you to understand “Member Designation” as it relates to insured accounts.    This will also bring to light accounts which are classified as joint owner but no social security number exists.

If you have been putting off the clean up of your joint owner accounts now is the time to revisit this area again and obtain that vital piece of information.

HANDLING OTHER REAL ESTATE OWNED

I was a young kid when I got my first job as a loan supervisor in the late 80’s. My responsibilities ranged from writing loans to working collections with management of other real estate loans (OREO) tossed in.  Both Randy and I were working at a North Dakota credit union with $1.3 million dollars in OREO’s on the books.  Experiencing the devastating effects of the oil bust we learned some valuable lessons that reinforce our knowledge of best practices today.  This includes the accounting end of the equation as well as daily management of these situations.

Let’s profile a few of those lessons here:

• Insurance—While in foreclosure monitor hazard insurance as if you own the property. Monitor for hazard insurance even if you were lenient while the loan was current.  Contact your insurance company and find out what  your options are. Don’t ignore this safeguard.
• Property Management—Do a drive by every month.  Has the property been abandoned? Knock on the door.  Is anyone living there? Document your findings.
• Utilities—Are the lights are on?  Request that utility companies notify you if the power or water is turned off.   Believe me!  One broken pipe in the middle of the winter can totally destroy a home.
• Occupancy—Is the house being rented out by the member/owner? Renters have unique rights associated with eviction. Be knowledgeable about these rights to assure you can reclaim your house in a timely manner.
• Asset valuation—Obtain a market valuation and properly move the assets from a loan status, to assets in process, to assets owned.  Now is the time to become infinitely knowledgeable about write-down requirements of the NCUA and state regulatory agencies.
• Status—Monthly status reports are critical.  Create a list if you have to and at a minimum make sure these dates are on it.  a) foreclosure papers filed; b) sheriff sale; c) last tax payments; d) declared delinquency status;
  e) last inspection; f) final disposition; g) write-down date.  Need more?  Also record concerns on property maintenance, utility contact information, and member conversations.

What tools does CU*Answers offer?   A tracker type just for property in foreclosure is your best solution.    Configure a tracker type FC for foreclosure and attach it to the members base share account.   Document your activity and schedule the appropriate follow up dates including all those mentioned above.