Bruce Pearson, senior partner at Styskal, Wiese & Melchione
The NCUA always makes credit unions aware of its regulatory priorities, but Bruce Pearson says CUs need to read between the lines to determine what the federal regulator is “really” looking for.
Pearson, a senior partner with the Glendale, Calif.-based law firm of Styskal, Wiese & Melchione, spoke at the NCUCA conference on NCUA’s regulatory priorities, starting with the Bank Secrecy Act. He said a credit union receiving a document of resolution, which identifies issues found at the institution and outlines a corrective plan, is “not a big deal, but getting a repeat finding is.”
“BSA has been an NCUA focus for several years now,” he said. “As you are talking to examiners about last year’s DOR, you want to get those issues cleared.”
Besides wanting to ensure the safety and soundness of the credit union system, Pearson said NCUA is motivated partly by fear. With the closing of the regulator of thrifts, NCUA is the last “independent” regulator. He said it wants to avoid any possibility of money laundering on its watch, which could lead to Congressional oversight.
Similarly, NCUA has concerns regarding cannabis banking
, Pearson said. To avoid potential issues, CUs need to know their customers and comply with anti-money laundering rules.
Since adult recreational use was legalized in California, cannabis was the No. 1 cash crop in the state. Pearson said the cash is flowing through financial institutions via legitimate companies such as car washes, dry cleaners, laundromats and other cash-heavy businesses.
“Whether we acknowledge it or not, we are all handling cannabis cash,” he said. “In some cases we are pretending we don’t know, but we are not looking very hard. You are going to have to sort through how you service cannabis-related businesses, one way or another.”
The second NCUA priority for 2019 is lending concentration risks. Pearson said the next recession is near, and NCUA wants to be out front this time after learning a painful lesson.
Credit unions need to be looking at indirect loans, especially non-prime auto loans, along with taxi medallions and mortgages. In some cases credit unions have bought participations in taxi medallion loans, Pearson noted.
The third focus for NCUA in 2019 is consumer compliance. Between the collection and reporting of HMDA data, the Military Lending Act, the Equal Credit Opportunity Act and overdrafts, there is significant class action exposure. Pearson said CUs should examine their courtesy pay disclosures and program practices.
“If your disclosures are vague and those disclosures are posted on your website in an attempt to be transparent, know that plaintiffs’ law firms are shopping by reading your disclosures,” he warned. “I know this will not be popular with marketing, but get those disclosures off your website, please. They are not legally required to be there.”