Volume 28, Number 12 June 30, 2008
Volume 28, Number 12 June 30, 2008
HEADLINE NEWS
Preliminary Escheat Report Due August 1, 2008
All credit unions are required to make a preliminary report to the Delaware State Escheator at the Bureau of Unclaimed Property by August 1, 2008. The report lists unclaimed property, which refers to various types of personal property of Delaware residents that has been abandoned for five years or more, including share and share draft accounts, uncashed share drafts, dividends, etc.
Every Delaware CU, regardless of whether it holds unclaimed property, must file a copy of Form AP-1 (Report Verification), which provides a summary of the CU’s report and which must be signed and verified by a CU officer. An additional itemized form must be completed if you hold unclaimed property. The preliminary report is due in August, and the final report and remittance of monies in any such accounts are due by November 10, 2008. During that three-month interval, CUs need to advertise the existence of these abandoned accounts.
Unclaimed property forms and a booklet describing the process for submitting unclaimed property is available at www.state.de.us/revenue (click on “unclaimed property”). The League will send out a full packet of escheat information, including those materials, to each CU manager/CEO.
Remember, amounts in excess of $25 must be reported to the state of the member’s last known address. You will need to contact each applicable state to obtain the correct filing forms, deadlines and dormancy periods (which vary state to state). For example, in Maryland and most recently in New York, the dormancy period has dropped to three years before abandoned property must be turned over to those states.
Contact Susan Fallon if you need contact information for other states or if you need more detailed escheat reporting information. The League also has sample letters that can be sent to members who have a dormant account.
House Passes CU Regulation Relief Bill: Senate Next Stop
On the evening of June 24, the House of Representatives passed the Credit Union, Bank and Thrift Regulatory Relief Act bill (CUBTRRA, H.R. 6312), in which membership and member business lending (MBL) restrictions will be relaxed.
The bill passed by a voice vote after it was placed on the House Suspension Calendar. Such action is reserved only for non-controversial legislation.
As its name suggests, the bill contains measures that would benefit credit unions, as well as banks and thrifts. Key credit union benefits brought from H.R. 6312 are the following:
With both the House and Senate adjourning this Friday and not returning to session until July 7, H.R. 6312 will continue to face a long road to acceptance and success. The next step is passage through the Senate.
Despite the positive developments, CUNA President/CEO Dan Mica emphasized CUNA and the leagues are not finished in seeking more flexibility for credit unions serving their members.
Mica also said the association would pursue – both in this Congress and the next – provisions contained in the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537), which propose a higher cap on member business lending, as well as prompt corrective action reform.
“We will continue to push for risk-based capital through reform of prompt corrective action (PCA) requirements,” he said. “And we strongly believe credit unions should have the power to offer more business loans to their members.”
A section-by-section summary of CUBTRRA can be found at the following website:
http://www.cuna.org/download/secxsec_HR6312-110.pdf.
Help Support CULAC by Hosting “Dress Down” Days
Summer is here, and everyone likes to dress more casually to ward off the heat. The League Governmental Affairs Committee would like you to help in this effort and raise money for credit union political action by giving your employees the opportunity to “dress down” for casual comfort during the months of July and August.
Credit unions are encouraged to participate in this event by allowing staff to make a suggested donation to the Credit Union Legislative Action Council (CULAC) for the privilege of wearing casual dress for an entire week or designated days. Each CU will define what casual dress constitutes, but the overall concept is to raise not only money but also awareness of CULAC with employees and members.
A packet containing instructions on how to participate will be emailed and mailed to all CUs, along with a form which will indicate that your CU wishes to participate. Please email or fax this form back to Alice Smith (alice@dcul.org) at the League office as soon as possible.
The money raised during Dress Down Days will be forwarded to CULAC, credit unions’ national PAC, which collects funds from individuals to support credit union friends in federal election campaigns.
Dress Down Days is part of the Governmental Affairs Committee’s efforts to raise $5,346.89 this year to help the national CULAC contribution campaign. This is also a good activity for Credit Union Week, the third week in October.
COMPLIANCE RECAP
Upcoming Changes in ACH Rules
As more transactions migrate to the electronic ACH environment, credit unions need to be aware of the changes impacting payment transactions and act on them. The new ACH regulatory requirements will be in the form of an amendment to the NACHA Operating Rules. They will impact every Receiving Depository Financial Institution (RDFI) and every Originating Depository Financial Institution (ODFI). A brief overview of the ACH changes appears below.
Effective March 20, 2009, NACHA rules will require that every ACH payment entering or exiting the United States be identified and formatted as an international ACH item, and each item must be reviewed for OFAC compliance.
This new ACH rule applies to all U.S. financial institutions, including credit unions. Even if you currently do not send international ACH payments, you could potentially receive an international ACH payment, so you must be compliant.
The new international ACH transaction identifier is IAT. Its use will be effective on March 20, 2009. You must understand how this new ACH rule will impact your financial institution and your ability to comply with this new requirement. This new rule will involve:
Financial institutions that are non-compliant with OFAC’s regulations will incur severe penalties.
For additional information, contact your ACH processor or ACH regional association. More information is available on these websites:
NACHA: http://www.nacha.org/IAT_Industry_Information/
Electronic Payments Network: http://www.electronicpayments.org/in.home.php
OFAC:http://www.treas.gov/offices/enforcement/ofac/
NCUA Letters to Credit Unions
The following letters can be found on NCUA’s website at http://www.ncua.gov/letters/letters.html.
Letter 08-CU-10: Mortgage Loan Fraud Report. The Financial Crimes Enforcement Network (FinCEN) recently updated its November 2006 mortgage fraud assessment, which addresses several areas of interest to credit unions related to mortgage loan fraud. These include vulnerabilities, fraudulent activities and red flags, protective measures, and trends in mortgage fraud.
Letter 08-CU-11: NCUA Website Enhancements. The enhancements to the NCUA website provide a centralized location for NCUA fraud-related issuances, information on reporting fraud, and links to other anti-fraud resources. They include:
• A prominently placed link on NCUA’s homepage to the new “Fraud Information Center;”
• Links to other sources of information on common types of fraud;
• Links to other federal agencies with whom to file complaints, depending on the type of fraud; and
• A webpage listing all NCUA issuances related to fraud.
Letter 08-CU-12: Suspected Money Laundering in the Residential Real Estate Industry Report. This letter highlights a recent FinCEN report based on Suspicious Activity Report (SAR) filings.
Letter 08-CU-13: Managing Risks of Environmental Liability. This letter informs credit unions of potential liability to your members and possibly to the credit union, when environmental contamination is discovered on real property financed by the credit union. All credit unions granting real estate-secured loans need to be aware of this issue, and credit unions granting member business loans secured by real estate should establish policies and procedures to help ensure liability in this regard is minimized.
Letter 08-CU-14: Interagency Illustrations of Consumer Information for Hybrid Adjustable Rate Mortgage Products. These illustrations were issued to assist institutions in implementing the consumer information recommendations of the interagency statement on subprime mortgage lending.
CU SYSTEM NEWS
DCUL Organizes Reverse Mortgage Member Seminar
Executive vice president Jane Bailey announces that the League is coordinating a Reverse Mortgage Seminar on July 23, 2008. The seminar will be held from 6:30 to 8:00 p.m. at the League office.
Credit unions are urged to advertise this session to your members aged 62 or older. The seminar, facilitated by Academy Mortgage, will provide older home owners with information on reverse mortgages. This product allows them to borrow against their home’s equity without having to repay the money until the home is sold or the borrower moves out or passes away.
Jane is providing each credit union with a flyer, session agenda, and registration sheet to post in your credit union’s lobby. Credit unions are asked to enroll their own members and then report the number of attendees to Jane no later than July 18.
More Delaware Credit Unions Offer Scholarships
In the last issue of Together, four credit unions were listed that awarded academic scholarships recently: DEL-ONE (Delaware FCU) – two $1000 scholarships; DEXSTA FCU – three $1000 scholarships; DPL FCU – two $1000 scholarships; and LOUVIERS FCU – four scholarships totaling $3500.
The League has since learned of several other scholarship programs. DELAWARE ALLIANCE FCU just made its first contribution to the “Mitchell Fellows Program for Civil Rights and Social Justice,” named after Littleton Mitchell, who serves on the CU board. The credit union made an initial contribution of $2000 and plans to make annual contributions of up to $1000.
Rather than offer individual scholarships, DOVER FCU sponsored Caesar Rodney and Lake Forest High Schools in the Challenge Program. This program awards $250 to students that excel in the following categories: attendance, highest grade point average, improved grades, and community involvement. The CU awarded $3000 through this program. In addition, DOVER FCU continues to sponsor a $500 scholarship awarded through the Military Officers Association of America.
DEXSTA FCU scholarship winners (left to right): Manasa Sridhar, Jerry King, President/CEO, DEXSTA Federal Credit Union; Michael Klemens; Elizabeth Bartels
Louviers FCU 2008 Gladys R.
Duling Memorial Scholarship recipients (left to right): Timothy Skinner, Eric Baker, Kerry Ferber and Anthony Fortunato
Dover honors Lake Forest H.S. Challenge Program award winners
Caesar Rodney H.S. Challenge Program honorees
Conference to Explore Reaching Out to Low-Wealth Individuals, Immigrants, and Youth
Discover what low-wealth individuals, immigrants, and youth need from financial institutions and how credit unions can reach out and serve these important markets during a conference presented by the Credit Union National Association (CUNA) in cooperation with the National Credit Union Foundation (NCUF).
The “Reach Out! Conference: Strategies for Serving Low-Wealth, Immigrants, and Youth,” October 12-15 in San Francisco, will empower attendees to leverage the credit union “People Helping People” philosophy into an actionable plan for their CUs. The conference will provide an in-depth exploration of each of the three target groups, including demographics, financial services needs, challenges, and best practice ideas.
Additionally, CU professionals will hear why it is a business imperative for Wal-Mart to enter the financial services arena and how they can respond to this potential business threat. Wal-Mart’s technology to offer attractive products and services to low-wage families will be discussed.
Finally, attendees will learn about the NCUF’s role in helping CUs serve low-wealth and modest income households through its REAL Solutions® program. The latest information from the Real Solutions Impact Center will be provided to learn new market trends in serving these untapped and underserved markets.
For more information or to register, go to www.training.cuna.org and type “LWILA08” in the event finder search engine or call (800) 356-9655, ext. 4249.
CUNA Mutual Helps Flood Victims
CUNA Mutual Group has placed 60-day moratoriums on company-initiated cancellations and non-renewals of any in-force insurance policies for policyholders in the states of Illinois, Indiana, Iowa, and Wisconsin – four states hardest hit by June floods. The company announced it is also waiving any penalties for late-premium payments for policyholders in these states for the same period of time. Other states that experience widespread and damaging floods may be added in the future. The moratoriums only apply to policies underwritten by CUNA Mutual.
DELAWARE NOTES
Two credit unions recently held grand openings for their new branches. SEAFORD FCU cut the ribbon at its new Millsboro branch on Route 113 south at the Millsboro/Dagsboro line on Tuesday, June 10. DELAWARE FIRST FCU opened the doors of its newly constructed branch in Middletown on Saturday, June 21. More information about both these events will appear in an upcoming Delcu News.
Congratulations to SEAFORD FCU programs and systems manager Kathy Greenwood on her recent marriage to Marc Decker.
DEL-ONE (Delaware FCU) honored several staff members at the credit union’s annual meeting on May 13. The employee of the year was CU trainer Caryn Shetzler, and the community outreach volunteer award went to member service representative Elsie Maher. President/CEO Duke Strosser, who was also recognized for 15 years of service, received the bridge builder award for his advocacy efforts on behalf of Del-One and the credit union movement as a whole. Del-One also paid special homage to its 40 “Founding Members.” More than 400 members attended the event and won various prizes from entertainment books to Visa gift cards.
Sharee Coleman, vice president of marketing, announced at the recent marketing council that DEL-ONE’s “Easy Guide to Membership” earned a Golden Mirror Award of Merit from the Credit Union Executive Society (CUES). The guide was created in partnership with Visions, Ink. Previously the CU won another marketing award from NAFCU for a SEG informational CD.
DEXSTA FCU was able to make a generous donation to the Delaware Nature Society as a result of youth account deposits made during National Credit Union Week. The donation will help fund the Society’s 300 different environmental programs, as well as the agency’s efforts in preserving Delaware’s significant natural areas.
DEXSTA FCU marketing administrator Karen Terry presents the CU's donation to Michael Riska, executive director, Delaware Nature Society. (Pictured at the Society’s Ashland Nature Center in Hockessin)
| CU POSITION AVAILABLE |
|---|
Marketing/Business Development Assistant. This position requires strong writing skills and the ability to meet and deal effectively with members, prospective members, and management level individuals representing the CU’s business partners. Strong Word and Excel skills and the ability to work independently are also required. An MSR background is a strong plus. Send resume to Sussex County FCU, P.O. Box 1800, Seaford, DE 19973 or fax to (302) 629-2583 - Attention: HR.
EDUCATIONAL OPPORTUNITIES
July QuickBites Teleconferences
One-hour sessions run from 11 a.m.-noon:
• 7/01 Employee Record Keeping
• 7/16 Robbery Awareness
• 7/22 Auto Lending in a Soft Market
• 7/31 The Youth Market
The two-hour session runs from 11 a.m.-1 p.m.
• 7/09 Teller Regulations
The fee for the one-hour session is $99; the two-hour session is $169. The deadline to register with Bernadette Hines is one week prior to the session.
CU Volunteer Program: Board Officer Roles. Two opportunities: Wednesday, July 16, from 4:30-6:30 p.m. at Del-One (Delaware FCU) at 270 Beiser Boulevard in Dover, and Thursday, July 17, from 5:30-7:30 p.m. at the League office in New Castle. The roles and responsibilities of the board chair, vice-chair, treasurer, and secretary will be reviewed by League president Patrick Mahaney. Fee: $95 per participant. A light meal will be served one-half hour before the presentation. Regis. deadline: 7/9.
CU Members’ Reverse Mortgage Information Seminar – Wednesday, July 23, from 6:30-8 p.m. at the League office. The seminar, facilitated by Academy Mortgage, will provide older home owners with information on reverse mortgages. Credit unions are asked to enroll their own members and then report the number of attendees to Jane Bailey at the League no later than July 18.
The League office will be closed in honor of the Fourth of July.
Recent Legal Opinions from NCUA
The following is a brief summary of the legal opinions published by the National Credit Union Administration’s Office of General Counsel during the first half of 2008. The number in parentheses after the subject is that given to the letter by NCUA, as well as the date of issuance, and can be used when requesting copies of the letters. NCUA opinion letters are available on NCUA’s website (www.ncua.gov) or by calling Susan Fallon at the League office.
Multiple Names for Credit Unions (08-0543 – June 3, 2008)
In a letter directed to Mattel FCU, El Segundo, California, NCUA said it is acceptable for a federal credit union to use the names of its sponsor’s subsidiaries to name its branch offices. However, NCUA noted, there are a few conditions that must be met. The credit union must take “reasonable steps to ensure members are fully apprised of the use of different names.” The agency referred to its Letter No. 99-CU-17 and noted a list of several steps a federal credit union must take to ensure its advertising in such cases is not inaccurate or deceptive, as prohibited by NCUA regulations.
In particular, NCUA said, credit unions should ensure signage used at a branch office under a different name clearly reflects the branch office is a division or branch of the same insured credit union. Also, the credit union should obtain written permission from its sponsor before using the names or trademarks of the sponsor's subsidiaries. A copy of Letter No. 99-CU-17, referred to above, can be found online at http://www.ncua.gov/letters/1999/99-CU-17.pdf.
Allotment of Space in Federal Buildings (08-0447 – June 3, 2008)
In response to a query by NLRB Federal Credit Union, Washington, D.C., NCUA clarified a rule that allows federal agencies to grant free space for credit union use. A federal agency may allot building space to a credit union at no charge for rent or services if at least 95% of the membership of the credit union to be served by the allotment of space are or were at the time of admission to membership federal employees or their family members, according to the Federal Credit Union Act. NLRB also asked if the 95% condition is properly applied to the credit union's total membership or only the number of members who actually use the allotted space. The NCUA answered that the 95% is applied to the number of members who actually use the allotted space.
Conflict of Interest Under Member Business Loan MBL Rule (08-0302 – May 1, 2008)
A credit union executive asked NCUA if an inherent conflict of interest exists that prevents credit unions from using the services of a particular Credit Union Service Organization (CUSO) to satisfy the Member Business Lending (MBL) rule’s direct experience requirement. If an inherent conflict of interest exists, the credit union executive also asked what changes or modifications the CUSO would need to make to be considered an independent third party. Generally, there is not an inherent conflict of interest where a credit union uses a CUSO to meet its MBL direct experience requirement, provided the CUSO is independent as to each transaction. Preamble language, among other things, can be used to clarify a rule’s compliance requirements.
The MBL rule, NCUA responded, allows credit unions to use a third party to meet the minimum two-year direct experience requirement if the third party is independent from the transaction. Generally, a third party is considered to be independent from the transaction if, with respect to a loan it is responsible for reviewing, it does not have a participation in the loan or an interest in the collateral securing the loan. Additionally, credit unions are able to use a third party to meet the experience requirement when:
• the third party provides the credit union with a service related to the transaction, for example, loan servicing;
• the third party provides the required direct experience for and purchases a loan or participation interest in a loan originated by the credit union that the third party reviewed; or
• the third party, though not independent from the transaction, is a CUSO in which the credit union has a controlling financial interest as determined under Generally Accepted Accounting Principles.
Permissibility of Borrowing Funds to Purchase Investments (08-0139 – April 18, 2008)
This letter answered the question: May a federal credit union (FCU) borrow funds to purchase investments? NCUA confirmed that an FCU may borrow funds to purchase investments, subject to the general limits on borrowing and the general statutory and regulatory investment provisions that apply to all investments. Under the FCU Act, FCUs have the express power to borrow from any source, limited to 50% of paid-in and unimpaired capital and surplus. While NCUA’s regulation on maximum borrowing authority does not restrict how an FCU can use borrowed funds, FCUs are subject to limitations on permissible investments.
Evaluation of Third Party Relationships by In-house Counsel (08-0417 - April 18, 2008)
NCUA specified that a credit union’s in-house counsel may perform the legal review recommended by NCUA for a credit union's third-party arrangements and contracts. The answer is intended to eliminate any confusion that could have been caused by the agency's December 2007 Letter to Credit Unions 07-CU-13: Evaluating Third Party Relationships. That guidance included a discussion of due diligence considerations for third-party relationships and, among other recommendations, suggested credit unions have qualified external legal counsel review prospective third-party arrangements and contracts. NCUA’s Office of Examination and Insurance confirmed that the reference to external legal counsel was intended to recommend that legal counsel reviewing these relationships should be independent of the third party. The guidance, by referring to “external” counsel, was not intended to suggest that in-house counsel should not perform the recommended legal review.
Federal Credit Unions (FCUs) Are Depository Institutions (08-0232 – April 14, 2008)
NCUA confirmed that FCUs are depository institutions. As defined in the Federal Credit Union Act, an FCU is “a cooperative association organized … for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes. FCUs fulfill this purpose by accepting deposits,” noted NCUA.
Benefits for Employees of CUSOs (08-0218 – April 4, 2008)
Regarding benefits for CUSO employees, NCUA said that a federal credit union may obtain and administer benefits for the employees of a CUSO that is wholly-owned or majority-owned by the FCU, but only the CUSO may pay for them. However, the letter noted, a joint arrangement is subject to certain conditions. For instance, it must be “accomplished in a manner that will not affect the legal separateness of the FCU and CUSO, preserving the corporate veil; the CUSO pays in advance for its share of the cost of the benefits attributable to its employees or reimburses the FCU within a reasonable time after the fact; and the CUSO complies with state insurance and other applicable law.”
Reclassifying Construction and Development Loans (08-0132 – March 17, 2008)
When is it appropriate and permissible for a credit union to reclassify a construction and development loan (C&D loan) – which is a type of member business loan (MBL) – simply as an MBL? Reclassification can be beneficial for credit unions due to the additional loan requirements and regulatory limits imposed on C&D loans under NCUA’s MBL rule, 12 C.F.R. §723.3. According to NCUA, reclassification as a simple MBL is appropriate “when the level and kind of risks for which those limits are in place are no longer present, meaning, if the loan were refinanced at that point, it would not be classified as a C&D loan.” To follow up on that, however, NCUA noted that there is no bright-line test or formula for determining when reclassification is appropriate. Credit unions will need to assess each C&D loan individually in order to determine when and if it can be appropriately reclassified as simply an MBL.
An MBL is essentially a loan or line of credit to be used for commercial, corporate, other business investment property or venture, or agricultural purposes [12 C.F.R. §723.1(a)]. A C&D loan falls within the definition of an MBL. Basically, a C&D loan is a financing arrangement for acquiring property or rights to property, including land or structures, with the intent to convert it to income-producing property such as residential housing for rental or sale; commercial use; industrial use; or similar uses [12 C.F.R. §723.21].
C&D loans tend to be the riskiest type of MBLs and therefore carry additional loan requirements and regulatory limits. The risk of these loans flows from the uncertainty of success of a project; it is often difficult to gauge the outcome of construction and development projects—especially in today’s financial climate. It is imperative that a credit union not reclassify a C&D loan as an ordinary MBL unless the loan no longer poses the risks associated with C&D loans. There are certain factors the NCUA may look at when determining whether reclassification is permissible:
• Whether the speculative project tied to the loan has been completed and has stabilized to the point where 1) the project is a viable ongoing business concern with sufficient cash flow to service the debt on an ongoing basis, or 2) can be sold for an amount sufficient to fully repay the loan; and
• If the loan were refinanced, whether it would still be classified as a C&D loan under the MBL rule.
As with most important decisions regarding the operation of a credit union, the issue of reclassification comes back to safety and soundness concerns. Therefore, it is important that credit unions analyze each possible C&D loan reclassification on a case-by-case basis.
Member Business Loans: Two Years Direct Experience Requirement (08-0128 – February 8, 2008)
This letter clarified whether a credit union must use the services of a third party underwriter to satisfy the Member Business Loan’s (MBL) experience requirement. In its letter, NCUA stated that while a credit union “may use the services of an outside party, it also may use the direct experience of its own employees.” NCUA further noted that the MBL rule simply requires that such an individual possess the requisite experience, irrespective of whom that individual works for. Lastly, NCUA indicated that the underwriting individual need not have the required experience at his/her date of hire, but may obtain such experience over time.
Real Estate Appraisal Requirements and Guidance (08-0129 – February 8, 2008)
This letter clarified NCUA’s requirements for the appraisal process of real estate. In its letter, NCUA stated that its “appraisal regulation does not require a credit union to have a checklist or narrative to document its review of a real estate appraisal.” NCUA does note, however, that such a documentation process is recommended in interagency guidance. "NCUA’s appraisal regulation, among other things, identifies real estate transactions requiring appraisals, the types of appraisals required for certain categories of real estate transactions, and minimum standards for the performance of real estate appraisals.” The language in the regulation sets minimum requirements, allowing credit unions to conduct a more thorough appraisal – within limits – at their option.
Electronic Retention of Records (07-0812 – January 11, 2008)
NCUA issued this opinion clarifying its policy on the retention of records. Specifically NCUA addressed whether a credit union must retain the original loan documents for outstanding loans to its members. NCUA stated that its policy does not require any specific method of retaining records. “Under federal law and NCUA’s record retention regulation, records can be preserved in any format that can be used to reconstruct the records, including in an electronic format.” NCUA does caution, however, that records should be able to be reproduced in a manner that would be acceptable as evidence in a legal proceeding. Such a standard may vary by state, and NCUA urges credit unions to consult with their legal counsel in order to ensure compliance with state requirements.
TOGETHER is published on the 15th and 30th of each month by the Delaware Credit Union League, 4 Quigley Boulevard, New Castle, DE19720. Information to be published should be sent or phoned into the League no later than the Monday of the week preceding the publication date. Telephone: (302) 322-9341 or (800) 292-7875. This newsletter can also be found on the League website: www.dcul.org. Hard copies of the newsletter will be mailed to each credit union CEO/manager for distribution to those without computer access. Readers can receive a reminder when the newest edition is posted to the Web by emailing susan@dcul.org. Editor: Alice Smith (alice@dcul.org).