Compliance Blog

As we continue to blog every business day, NAFCU is touching on credit union concerns caused by the COVID-19 pandemic.

First, after many questions from FCUs and advocacy by NAFCU, NCUA issued Letter to Federal Credit Unions 20-FCU-02. This letter allows FCUs to adopt the following bylaw amendment in order to hold annual meetings virtually in certain circumstances:

"Section 6. Emergency exception to in-person quorum requirement. This credit union may hold its annual meeting of the members, and special member meetings for authorized purposes other than member expulsion under Article XIV of these bylaws, virtually and without an in-person quorum if all of the following conditions apply and are certified in meeting minutes by a resolution of the majority of a quorum of the board of directors:

• At least one of the following is located in an area where a federal, state, or local authority has declared a state of emergency or major disaster:
  • a. all or part of a community the credit union serves; or
  • b. the credit union’s headquarters.
• The credit union has the technological capacity to facilitate virtual meeting attendance, voting, and participation.
• Members receive at least seven days’ advance notice of the change to a virtual meeting format and appropriate instructions for how to join, participate, and vote during the virtual meeting."
• The NCUA has issued general or specific guidance notifying the credit union that it is appropriate to invoke this bylaw provision. (Emphasis added.)

FCUs wishing to adopt this bylaw amendment can do so with a two-thirds vote of its board of directors, ensuring that any cross-citations conform to their particular bylaws.

NCUA also reminded FCUs that they can postpone or delay their annual meeting, which may require amending the "fill-in-the-blank" provision that states the timing requirement of their meeting. 

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As credit unions switch to remote work and expand their online presence, many are considering the options for validating member’s identities, reducing the risk of fraud, and keeping operations running smoothly. Credit unions are also prompting members to update their phone numbers and email addresses and to give E-SIGN consent to receive electronic documents. Some credit unions would like to enroll all members in e-statements, regardless of consent, and begin sending all communications electronically.

So what are the risks involved with enrolling all members for electronic disclosures, regardless of their consent? In short, sending required documents electronically without first obtaining members’ E-SIGN consent is like not sending the documents at all.

The Electronic Signatures in Global and National Commerce Act (E-SIGN) contains requirements for delivering required disclosures electronically. Required documents are documents that are required to be delivered “in writing”, such as loan disclosures and periodic statements. Many regulations specify that in order to deliver disclosures electronically, E-SIGN compliance is required. This includes but is not limited to:

• Account opening, change in terms, and periodic statement disclosures under NCUA’s Truth in Savings rule;
• Disclosures under Regulation B like adverse action notices;
• Account opening, change in terms, periodic statement, overdraft, prepaid product, and remittance disclosures under Regulation E;
• Affiliate marketing opt-out notices under Regulation V;
• Disclosures provided under Regulation X;
• Most disclosures under Regulation Z with different specifications for open-end credit versus closed-end credit, and certain mortgage disclosures.

In Regulatory Alert 01-RA-03, NCUA indicated that before a credit union could send required disclosures electronically, two things had to happen. First, the credit union must provide members with certain disclosures such as the scope of the consent to receive disclosures electronically and what hardware or software is needed to access disclosures. Second, after the member receives this information, he or she must voluntarily consent to receive electronic disclosures. That is, the member needs to reasonably demonstrate that member can access the records and disclosures the credit union will provide in electronic form. This means the member’s consent should evidence that they can then access information in the form that will be used to provide the information the member is consenting to receive. In short, the E-SIGN Act creates an “opt-in” system for consumers.

Some credit unions have asked whether it is appropriate to automatically enroll all members into electronic delivery and provide an “opt out” for members who do not want electronic disclosures. E-SIGN requires an affirmative action from the member that demonstrates consent, so only an “opt in” system is compliant with the Act.

During this time of branch closures and greater reliance on online operations, credit unions might try sending prompts and alerts to members encouraging them to log into the online banking platform and agree to E-SIGN. E-SIGN prohibits the credit union from requiring a member to comply with E-SIGN or penalizing a member for not consenting to E-SIGN; however, credit unions may provide incentives for consenting and strongly encourage members to consent. For example, credit unions may reduce fees for members that give E-SIGN consent. It may be the case that members are feeling particularly cooperative these days and just need a reminder or an easily accessible link to their credit union’s website to provide E-SIGN consent.

In order to make online processes and transactions simpler, NAFCU has proposed changes to the E-SIGN Act that would create a presumption of consent if a member uses an online service to initiate a transaction that involves or requires the exchange of electronic records. This way, credit unions would be able to rely on the idea that members who make electronic transactions are also willing and ready to receive electronic disclosures. However, this is only a proposal that we hope may one day change the landscape of E-SIGN.

Until a change is made to E-SIGN requirements, credit unions may want to consult local counsel about the risks of sending documents electronically that may be subject to dispute later. Some FAQs on E-SIGN can be found here and credit unions may also find this Consumer Compliance Outlook article from the Philadelphia Federal Reserve helpful.

NAFCU is here to help, our members can reach us at compliance@nafcu.org for assistance with federal regulatory issues.