Welcome back, readers. We are five months into 2019, and the year is flying by. For me personally, May is vacation month, so I am excited. This blog post snuck up on me, but I am quite fortunate to be surrounded by helpful colleagues here at the Ohio Credit Union League. At the beginning of the month, one of my colleagues suggested that I take a stab at the most pressing regulatory and legal issues, similar to the famous ones put forth by Buzz Feed (I am currently making my way through this Buzz Feed list).
So this month, the blog is taking a break from our favorite sections: Miriah’s Take, Miriah’s Hot Topic, and Miriah’s Tip. Instead, read below to learn more about what regulatory and legal issues are worth a little bit of extra focus right now.
Miriah’s May Top 10 List of the Current Regulatory and Legal Issues (presented in no particular order)
1. Overdraft Disclosures: Recently, we focused on litigation surrounding violations of Regulation E, which typically applies to one-time debits and ATM transactions. Class action members and their attorneys just secured a $24.5 million settlement against Navy Federal for this type of allegation. However, as you are likely aware, there are overdraft transactions that fall outside of Regulation E, like checks and ACH transactions. Plaintiffs and their attorneys allege that the account agreement and/or overdraft disclosure does not clearly define how and when overdraft fees will be assessed for those transactions that fall outside of Regulation E. Read your account agreement and ask yourself, “Do I understand when and how overdraft fees will be assessed?” If it is not clear to you, you have work to do, as the plaintiff’s lawyers are already doing this work.
2. Small Dollar Lending (Payday Loans): Small-dollar lending remains a hot topic. In Ohio, the state’s Short Term Loan Act compliance date came and passed in April. There has even been licenses awarded under the new act. While financial institutions generally are excluded from the Ohio’s law, there are federal laws to be aware of, like the Consumer Financial Protection Bureau’s (CFPB) Small Dollar Loan Rule. The CFPB’s Small Dollar Rule has been receiving much attention under the Trump Administration. The agency is currently accepting public comments on its Notice of Proposed Rule Making (NPRM) to rescind the mandatory underwriting provisions of the rule. Comments are due May 15. Since the CFPB expressed its interest in revising the Small Dollar Loan Rule, Congress, of course, has taken interest in the topic. Just last month, the Consumer Protection and Financial Institutions Subcommittee convened a hearing entitled “Ending the Debt Traps in the Payday and Small Dollar Credit Industry.” And last year, the National Credit Union Administration (NCUA) proposed allowing more flexibility to its Payday Alternative Loan rule. Even though the small dollar loan space is fluid, you should make yourself aware of any developments, as there are a lot of rules within to navigate.
3. Military Lending Act Compliance: At the beginning of the year, NCUA published its Supervisory Priorities for 2019 highlighting consumer compliance topics, including the Military Lending Act (MLA), in which the agency stated it will evaluate “credit unions’ efforts to comply with the MLA.” Fast forward to April. Director Kraninger asked Congress to pass legislation explicitly granting the CFPB more authority over the MLA; Director Kraninger believes the CFPB currently lacks the power to monitor violations of the statute. It appears Congress is hesitant to make revisions to the MLA as interested parties would request the expansion of carve-outs. Consumer and military advocates suspect that the suspension of compliance exams will have a negative impact on servicemembers, but they await the data that will tell a story. Check out this Politico Story for a larger glimpse at the controversy which will play out this year.
4. Servicemembers Civil Relief Act Compliance: At the beginning of the year, the U.S. Department of Justice announced it obtained a settlement of $750,000 from PHH Mortgage Corp to resolve allegations the company violated the Servicemembers Civil Relief Act (SCRA) by unlawfully foreclosing on six homes owned by servicemembers. For an overview of SCRA and the legal and financial protections it provides to active servicemembers, check out the CFPB’s fact sheet. In addition, Ohio has its own state-version of SCRA, which is more expansive than its federal counterpart, including an interest rate cap (O.R.C. 1343.031). Unlike federal law, Ohio’s SCRA provides a cap of 6% interest on obligations, regardless of when they were incurred (before and after active duty). Ohio law also covers the servicemember and his/her spouse. It is important to periodically refresh one’s understanding with this law, as the requirements under the state law differ from the federal law. Additionally, the federal law allows for monetary penalties and/or imprisonment. This is a law you do not want to end up on the wrong side of.
5. Marijuana Related Business Banking: Thirty-three states and the District of Columbia have passed laws broadly legalizing marijuana in some form. “So what?” you say. Legitimate state-businesses are cropping up, including in Ohio where we have a medical marijuana regime overseen mainly by the Department of Commerce. “Well my financial institution is not going to bank those businesses, so we do not have to worry about that,” some folks may say. Wrong, wrong, and wrong. If you are not going to provide services to marijuana related businesses (MRBs), you should still be aware of the regulatory arena. The Department of Commerce, Ohio Division of Financial Institutions most recent Credit Union News highlighted this very topic, stating, “whether an institution opts to work with MRBs, it should be prepared for MRB-related questions during the examination process.” Specifically, the state regulator will focus on MRB risk assessment, board policies and procedures, and how the financial institution is ensuring MRB accounts do not go under-the-radar.
6. Remote Notarization: In 2018, Ohio passed a remote, online notarization law, which will become effective September 20, 2019. This is an example of how government can work in favor of both consumers and businesses. Remote notarization will provide convenience for both the consumer and business. But like with many things, there must be proper research and due diligence completed, which is what the Ohio Secretary of State is working on right now through the rules process. Check out the draft rules and submit comments by May 15 (a popular deadline for comments this month). If you would like to utilize remote notarization once it becomes effective, start thinking through what that internal process will look like for your financial institution. While this new landscape is exciting, begin your due diligence so you can ensure documents executed with remote notarization comply with state law and will be enforceable.
7. Debt Collection: As you are aware, debt collection has been on the CFPB’s rulemaking agenda for some time now. In its Fall 2018 Semi-Annual Regulatory Agenda, the agency highlighted the possibility it will engage in formal rulemaking on how to apply the 40-year Fair Debt Collection Practices Act to modern collection practices. Yesterday, the agency released its long-anticipated rule proposal to amend Regulation F, which implements the Fair Debt Collections Practices Act. The rule proposal is over 500 pages long, so we have a lot to dig into before formal comments are due. Today, the agency hosted a CFPB Debt Collection Town Hall in Philadelphia aimed to stimulate a dialogue to assist the CFPB in its policy development, including future rulemakings. Debt collection isn’t just a hot topic at the federal level, either. In Ohio, effective March 20th, financial institutions are required to send out statutory notices informing consumers that debt tied to a second mortgage (or junior lien) is in default before the financial institution can attempt to collect or collect the debt (We are all struggling with what that means.). Written notice to the debtor, O.R.C. 1349.72, was passed last year. Since its effective date, there has been much confusion as many crucial terms were not defined in the law. It would be a mistake to overlook state law as written notice to the debtor provides the ability for the consumer to recover damages.
8. Mergers: Do you remember when the government was shut down earlier this year? One of the offices affected was the Federal Trade Commission’s Bureau of Competition, which seeks to prevent anticompetitive mergers and other anticompetitive business practices in the marketplace. Due to the shutdown, there was a delay in announcing the 2019 Hart-Scott-Rodino minimum thresholds for premerger reporting, which was later announced in March. The minimum size of transaction threshold is $90 million, meaning that a deal valued at $87 million is not reportable, because it is below the new minimum size of transaction threshold. As mergers have been on the rise, it is important to understand your reporting requirements. There is a wide variety of federal agencies, and your prudential regulator is not the only federal agency you may have to interface with. Speaking of your prudential regulator, as you are aware, NCUA’s voluntary merger rule is effective (October 1, 2018). This rule applies to all federally-insured credit unions and has created an obligation for member-to-member communication (more here). Make sure all “i”s are dotted and “t”s are crossed if you are moving forward with a merger this year.
9. TCPA: The Telephone Consumer Protection Act (TCPA) rules touch a swath of consumers and businesses, because the act generally prohibits calls to cell phones without a consumer’s consent. It is a popular topic on this blog (check out last month’s post). In addition to TCPA litigation making waves, the topic of robocalls has remained a constant in the press and Congress. The good news is that traction is being made on the topic of TCPA broadly, because folks are focused on robocalls. The bad news is, that with the focus on robocalls, there is less focus on looking holistically at the TCPA rules structure. So far, it seems any regulatory or legislative amendment to TCPA would be narrowly tailored to address robocalls. This leaves consumers and the industry in the dark on how to navigate TCPA and interpret an autodialer, leaving the courts to interpret the issues and resulting in a circuit split.
10. CECL: The Current Expected Credit Losses (CECL) accounting standard has been delayed, but that doesn’t mean your obligations under CECL have evaporated. As the effective date (January 1, 2022) looms for most credit unions, examiners are identifying CECL as a top supervisory priority. Both NCUA and the Ohio Division of Financial Institutions have identified CECL as a top examination concern for 2019. Recently, the Ohio Division of Financial Institutions stated its examiners will be focused on what credit unions are doing to prepare for CECL, reviewing any actions plan that credit union created for CECL implementation, and ensuring credit unions are appropriately preparing for the effective date. Don’t let your examiner catch you off guard this year; be prepared to address the examiner’s CECL concerns.
Even though we diverged from our normal layout, the mailbox is always open for reader feedback. Send your funny regulatory stories, reader feedback, and future topics ideas to firstname.lastname@example.org.