What is the biggest compliance challenge CUs face?
August 14, 2017 8:35 AM
What is the biggest compliance challenge CUs face today?
Of all the regulations and challenges credit unions face, what is the biggest hurdle of the compliance burden today? Credit Union Journal consulted a variety of credit union executives, analysts and insiders to get a better understanding of what’s holding the movement back. Here are some of their responses.
Fabiana Burkett, chief risk officer for $958 million Xceed Financial Credit Union, El Segundo, Calif.
“In the end, what really concerns me is the regulatory burden overall being imposed on credit unions. We continue to see new regulations and scrutiny, which is putting us in a position of expending a lot of time and members’ money to keep up.”
Specifically, Burkett said, mortgage servicing rules are giving Xceed plenty of headaches.
“The one that really takes the cake, though, is the complexity of new mortgage servicing rules – that has turned to be such a massive burden we made the decision to outsource mortgage loan servicing to a third-party vendor,” Burkett said. “I would say everything we need to put in place we are putting in place, but it means we stop focusing on other things to keep up with compliance.”
Specifically, Burkett said, mortgage servicing rules are giving Xceed plenty of headaches.
“The one that really takes the cake, though, is the complexity of new mortgage servicing rules – that has turned to be such a massive burden we made the decision to outsource mortgage loan servicing to a third-party vendor,” Burkett said. “I would say everything we need to put in place we are putting in place, but it means we stop focusing on other things to keep up with compliance.”
Tim Mislansky, chief lending officer for $3.6 billion Wright-Patt Credit Union, and president of the myCUmortgage CUSO
The Consumer Financial Protection Bureau's July update to the TILA/RESPA Integrated Disclosures rule, "as published in the Federal Register, is 560 pages long. This is another example of how burdensome the regulations issued by the CFPB are,” he declared. “Why does it take 560 pages to fix something that took more than 1,000 pages to put in place the first time? It often is just too much for small- to medium-sized lenders to process and implement.”
Amy Moser, VP mortgage services for $6.7 billion Mountain America CU, West Jordan, Utah
Amy Moser, VP mortgage services for $6.7 billion Mountain America CU, West Jordan, Utah, noted a variety of sources in the mortgage industry have suggested dozens of clarifications and changes to TRID over the last two years. She said there were a variety of amendments and clarifications that the CFPB addressed in the amendment, some that were adopted as submitted, some that were modified and adopted, and some that were rejected.
Among the rules the CFPB addressed were: a clarification that a Loan Estimate must be issued after the interest rate is initially locked if the Closing Disclosure has not yet been issued, even if all of the terms and conditions remain the same; clarification that co-ops are covered under the Know Before You Owe rule, regardless of whether states consider them real property or not; a requirement to provide post-closing escrow cancellation and partial payment disclosures; how tolerance cures and principal curtailments should be disclosed; and additional information on construction loans and simultaneous subordinate lien transactions.
“This is in no way a comprehensive list of what the Bureau addressed in its recent TRID ‘fix’ but a sampling of the 560-page document released [in July],” Moser said. “Among these was an appeal to address the ‘black hole’ that prevents creditors from using the Closing Disclosure to reset tolerances except in a very limited number of circumstances. Instead of finalizing any of the proposed amendments, the CFPB instead issued a concurrent proposal to address the issue later.”
Among the rules the CFPB addressed were: a clarification that a Loan Estimate must be issued after the interest rate is initially locked if the Closing Disclosure has not yet been issued, even if all of the terms and conditions remain the same; clarification that co-ops are covered under the Know Before You Owe rule, regardless of whether states consider them real property or not; a requirement to provide post-closing escrow cancellation and partial payment disclosures; how tolerance cures and principal curtailments should be disclosed; and additional information on construction loans and simultaneous subordinate lien transactions.
“This is in no way a comprehensive list of what the Bureau addressed in its recent TRID ‘fix’ but a sampling of the 560-page document released [in July],” Moser said. “Among these was an appeal to address the ‘black hole’ that prevents creditors from using the Closing Disclosure to reset tolerances except in a very limited number of circumstances. Instead of finalizing any of the proposed amendments, the CFPB instead issued a concurrent proposal to address the issue later.”
Larry Palochik, SVP member solutions for the California and Nevada Credit Union Leagues
Another area causing headaches for credit unions is lawsuits related to compliance with the Americans With Disabilities Act. According to Larry Palochik, SVP member solutions for the California and Nevada Credit Union Leagues, California, Florida and New York are leading in complaints from attorneys regarding ADA website compliance.
“There is a law firm in California that has latched on to this issue and is sending out complaint letters in large numbers,” he said. “Businesses have to make sure their facilities are accessible to people with disabilities, and that includes websites. Title III only gives broad compliance directives. The Department of Justice was supposed to issue rules in 2018, but that is on hold. In some cases judges have dismissed cases, but more have leaned toward the plaintiff.”
According to Palochik, this issue can be cured only by a complete redo of each CU’s website.
“It is quite an onerous process; not just a quick fix,” he said. “We are telling credit unions they need to comply, comply, comply. The best defense against this is to make sure your website is available to people with disabilities.”
“There is a law firm in California that has latched on to this issue and is sending out complaint letters in large numbers,” he said. “Businesses have to make sure their facilities are accessible to people with disabilities, and that includes websites. Title III only gives broad compliance directives. The Department of Justice was supposed to issue rules in 2018, but that is on hold. In some cases judges have dismissed cases, but more have leaned toward the plaintiff.”
According to Palochik, this issue can be cured only by a complete redo of each CU’s website.
“It is quite an onerous process; not just a quick fix,” he said. “We are telling credit unions they need to comply, comply, comply. The best defense against this is to make sure your website is available to people with disabilities.”
Tina Estes, AVP of marketing for Ventura County CU
Tina Estes, AVP of marketing for Ventura County CU, said the credit union’s web-hosting service approached VCCU last year about updating the site for ADA compliance.
“It turned out to be a six-month project that took hundreds of hours,” she said. “Every page on our website had to have a different title. Our videos had to be taken down because most did not have closed captions. All PDFs had to be taken down. The website company sent us a spreadsheet with thousands of lines of text that had to be changed.”
In some cases attorneys are using robotic scanners to look at websites, which VCCU’s website company says are generating false positives. Those website owners then are receiving demand letters from the attorneys.
“I am sure there are a ton of credit unions that have not done this project yet just because it takes so much time,” Estes said. “Credit unions will have to put hours into this. All embedded images have to be redone. Because a website is a living, breathing thing, every time you create a new page you have to be cognizant. All pages have to have different names.”
“It turned out to be a six-month project that took hundreds of hours,” she said. “Every page on our website had to have a different title. Our videos had to be taken down because most did not have closed captions. All PDFs had to be taken down. The website company sent us a spreadsheet with thousands of lines of text that had to be changed.”
In some cases attorneys are using robotic scanners to look at websites, which VCCU’s website company says are generating false positives. Those website owners then are receiving demand letters from the attorneys.
“I am sure there are a ton of credit unions that have not done this project yet just because it takes so much time,” Estes said. “Credit unions will have to put hours into this. All embedded images have to be redone. Because a website is a living, breathing thing, every time you create a new page you have to be cognizant. All pages have to have different names.”
Bill Adler, a partner in the Glendale, Calif.-based law firm of Styskal, Wiese & Melchione, LLP
“Over the years, websites have been recognized as part of the ability to supply goods and services to the public. There is a question as to how this applies because there are no regulatory standards for allowing access to a website. There is a standard that is an ideal, a private standard, created by the World Wide Web Consortium created in 2008 and referred to as WCAG 2.0. It is a very high standard and website technology has not caught up.”
Joe Schroeder, CEO of Ventura County CU
Ventura County CU CEO Joe Schroeder said he is preparing for “Pretty much everything” coming his way in the next few years. In particular, he is concerned about regulations covering real estate lending and wealth management. To the latter he said there is “some gray area” on what is going to be put into play regarding the standard for the “best for the client.”
“I am concerned about courtesy pay, because I think the CFPB wants to come out with a new rule,” he said. “There is a desire to create a perfect regulatory environment where no one gets hurt, but with payday lending that is not possible. I do not think it is possible to fix all the aspects of payday lending from a regulatory perspective. Some people want convenience and they will pay for convenience. They want the money right now and they will pay more for it. Stuff costs more at 7-Eleven than at Costco, but people still go to 7-Eleven because it is convenient. They pay a $3 foreign ATM fee because it is convenient.
“Regulatory actions can help, but they are not a panacea. Washington is good at making sausage, and when you make sausage at the bowels of the worst financial crisis in 70 years the pendulum is going to swing too far — and that is what Dodd-Frank is.”
“I am concerned about courtesy pay, because I think the CFPB wants to come out with a new rule,” he said. “There is a desire to create a perfect regulatory environment where no one gets hurt, but with payday lending that is not possible. I do not think it is possible to fix all the aspects of payday lending from a regulatory perspective. Some people want convenience and they will pay for convenience. They want the money right now and they will pay more for it. Stuff costs more at 7-Eleven than at Costco, but people still go to 7-Eleven because it is convenient. They pay a $3 foreign ATM fee because it is convenient.
“Regulatory actions can help, but they are not a panacea. Washington is good at making sausage, and when you make sausage at the bowels of the worst financial crisis in 70 years the pendulum is going to swing too far — and that is what Dodd-Frank is.”
