Proposed Regulations

Following on the heels of a proposed privacy regulation set forth by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Reserve Board, and the Federal Deposit Insurance Corporation, the National Credit Union Administration has issued a proposed privacy regulation for credit unions.

The proposal seeks comment on two different alternatives for setting debit interchange fees. The proposal similarly offers two alternatives for how the fraud adjustment might be calculated. The proposal also details two potential methods for how the Board should execute the network exclusivity and routing provisions.

The interim final rule makes three technical corrections to the September 2010 Final Rule. The corrections concern: the definition of “collateral debt obligation”; exemptions to the limitations on corporate investment authority; and a model form on perpetual contributed capital.

The proposal would apply fair value measurement (i.e., exit price) for loans that are held-tomaturity.

The proposed rule would make a number of important changes to NCUA's regulations governing corporates, but also those regulations governing natural person credit union (NPCU) membership in corporates.

Recently, the Board of Governors of the Federal Reserve System (the Board) issued an interim final rule (interim rule, or rule) regarding appraisal independence. The intent of the new rule is to protect against conflicts of interest that might lead an appraiser to overestimate the value of a home in order to justify the loan price. This is the third in a recent line of attempts aimed at appraiser independence.

The interim final rule amends the definition of “low-risk assets” in NCUA's PCA regulations to include “debt instruments unconditionally guaranteed by the National Credit Union Administration,” such as the NCUA Guaranteed Notes (NGNs) that NCUA, through a trust, is currently offering to public investors.

The proposal requires penalty fees to be “reasonable and proportional” to the violation, which would severely restrict the size of penalty fees.

Mortgage lenders are required to disclose, in a tabular format, the contract interest rate together with corresponding monthly payment, including any escrows for taxes and property and/or mortgage insurance.

The proposal would have two significant effects on depository institutions that wire funds across the border. First, depository institutions would have an affirmative duty to report all CBEFTs to FinCEN. Currently, institutions must make that information available upon a valid legal request from the Government, but there is no duty to report. Second, financial institutions would be required to file an annual report with a list of the TIN for each accountholder who transmitted or received a CBETF during that calendar year.

The proposal would make significant changes to reverse mortgage products and the borrower's right to rescind. It would also make several other changes to disclosures, advertising and other matters regarding home-secured credit.

Under the proposal, applicants must use specific forms and provide a range of information regarding the business plan of the prospective corporate, as well as biographical information about the directors and senior management.

The request for comment contains proposed fees that credit unions would pay for initial registration and renewal, and when a change of employment occurs.

The proposal would expand the scope of the Telephone-Initiated Entry (TEL) application to permit its use for recurring consumer transactions.

The proposal would eliminate four exemptions that currently exist for credit unions that qualify for the NCUA's Regulatory Flexibility (RegFlex) program.

Currently, under Regulation Z, a higher-priced mortgage loan is a consumer credit transaction secured by the consumer's principal dwelling with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a dwelling, or by 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling.

The NCUA proposed to amend the general lending rule to allow credit unions to offer short term, small amount loans (STS loans) as an alternative to pay day lenders.

Generally, a FICU that is insolvent, in conservatorship, rated CAMEL 4 or 5, or in an otherwise troubled condition would be prohibited from making golden parachute payments.

In January 2008, the National Credit Union Administration (NCUA) issued an Advance Notice of Proposed Rulemaking (ANPR) regarding fiduciary duties at federal credit unions, mergers of credit unions and conversions of credit unions to banks and insurance conversions.

The ANPR concerns RESPA's prohibition against requiring the use of affiliated businesses for settlement services.

This interim final rule is a technical clarification to Part 701 regarding the definition of “lowincome members”.