REGular Blog Weekly Roundup: September 13th

Happy Friday the 13th! Before we dive into this week's happening in regulatory compliance, a few fun trivia items for your next dinner party! Did you know…

• Fear of the number 13 is known as triskaidekaphobia.
• Of all the buildings in New York City with over 13 stories, only 13.5% of them have a unit with a 13th floor address, according to data from the New York City Department of Finance
• A 2007 Gallup poll found that 13% of people said it would bother them to be given a hotel room on the 13th floor.

Ok that's enough 13's for now - let's dive into some news.

NCUA

The NCUA has published their agenda for their September board meeting with three items:

Board Briefing, Share Insurance Fund Quarterly Report:

The quarterly share insurance briefing is always an interesting report. In addition to providing financial performance data on the share insurance fund and a look at how NCUA ladders its investments, the report is also the only public data on CAMELS codes. We get an aggregate picture on how many credit unions are CAMELS code 3 and how many are CAMELS code 4/5, as well as some info on the asset sizes of those credit unions. In the last few quarters we've seen trends of more credit unions and larger credit unions falling into those categories. I will be interested to see where those numbers fall this quarter.

During his opening remarks during the July 2024 Board meeting, Chairman Harper states that the midyear budget update, which usually takes place during the July Board meeting, would occur in conjunction with the September update on the performance of the Share Insurance Fund, so we will look forward to that as well.

Final Rule, Part 745, Simplification of Insurance Rules

The Board will vote on and issue a final rule to simplify the share insurance rules related to trust accounts. This rule was proposed in October of last year. The proposed rule would establish a trust accounts category in the share insurance regulations and would provide coverage to funds in both revocable and irrevocable trusts. These changes would keep the NCUA's structure consistent with the FDIC, who adopted similar changes earlier this year.

Final Rule, Parts 701, 741, 746, 748, and 752, Fair Hiring in Banking

The Board will also vote on and issue a final rule on fair hiring in banking. This proposed rule was also proposed in October of 2023. This proposed rule would allow people convicted of certain minor offenses to work in the credit union industry without applying for the Board’s approval. Currently, NCUA Board consent is required if a person who has been

convicted of certain criminal offenses involving dishonesty or breach of trust wishes to participate in the affairs of the credit union. The proposed rule would ease that restriction, allowing some of these individuals a second chance to work in the credit union industry without having to gain the consent and approval of the NCUA Board.

During Wednesday's Quarterly Compliance Roundtable, I noted the ebbs and flows of the compliance cycle and that we had not seen a lot of final rules in recent months. Well the tide is certainly turning as the agency will want to issue these rules

Last week we also saw some industry data from NCUA's Second Quarter 2024 Credit Union Data Summary. Some highlights include:

• Total loans outstanding increased $56.1 billion, or 3.6 percent, over the year to $1.62 trillion.
• Interest income rose $19.9 billion, or 21.6 percent, over the year to $112.3 billion annualized. Non-interest income rose $2.6 billion, or 10.6 percent, to $27.1 billion annualized, largely reflecting an increase in other non-interest income.
• The credit union system’s provision for loan and lease losses or credit loss expense increased $3.8 billion, or 41.4 percent, over the year to $13.0 billion at an annual rate in the first half of 2024.
• Insured shares and deposits rose $36 billion, or 2.1 percent, to $1.76 trillion, from one year earlier. Total shares and deposits rose by $49.0 billion, or 2.6 percent, over the year to $1.93 trillion in the second quarter of 2024. Regular shares declined by $50.0 billion, or 8.1 percent, to $564.1 billion. Other deposits increased by $105.8 billion, or 12.0 percent, to $985.7 billion, led by share certificate accounts, which grew $123.8 billion, or 30.6 percent, over the year to $528.2 billion.
• The credit union system’s net worth increased by $13.3 billion, or 5.6 percent, over the year to $249.0 billion. The aggregate net worth ratio — net worth as a percentage of assets — stood at 10.84 percent in the second quarter of 2024, up from 10.62 percent one year earlier.

CFPB

This week the CFPB issued an enforcement action and a $28 million fine against TD Bank related to their credit reporting practices. The Bureau found that the bank "repeatedly furnished to consumer reporting agencies information containing numerous systemic errors and that it knew of many of these inaccuracies for a year or more before fixing them. In addition, the Bureau found that, for years, TD Bank failed to conduct reasonable and timely investigations of consumer disputes, including sometimes by not conducting any investigation at all." The bank also failed to maintain sufficient policies and procedures related to its credit reporting and error resolution processes.

Credit reporting and resolving inaccuracies has been a point of emphasis for the bureau recently. This is no doubt in part driven by complaint volume. The CFPB publishes data on the complaints they receive from consumers. In the data we see not only the total volume of complaints, but what and who consumers are complaining about, as well as some other insights. The vast majority of complaints are related to credit reporting. For example - of the 195,773 complaints filed in June 2024, 170,916 of them identified "credit reporting or other personal consumer reports" as the product in the complaint. That's over 87 percent. The next closest product - debt collection - had only 10,530 complaints. Unsurprisingly, the three major credit reporting bureaus - Equifax, Experian, and TransUnion topped the list of complaint recipients.

It's important for credit unions to not only have a strong and sound compliant management system, but also policies and procedures for investigating when members state that their credit reporting information is inaccurate. As we have seen with this enforcement action and others, not having these systems can be costly.

FinCEN

This week FinCEN issued a Financial Trend Analysis (FTA) (link: Financial Trend Analysis, August 2024 (fincen.gov)) on mail theft-related check fraud. The report states that in the last 6 months, 15,147 BSA reports from 841 financial institutions cited mail-theft related check fraud, with over $688 million in suspicious activity. Even in 2024, fraudsters are still stealing checks from the mail. In its analysis, FinCEN noted three primary outcomes of stolen checks:

• 44 percent were altered and then deposited;
• 26 percent were used as templates to create counterfeit checks; and
• 20 percent were fraudulently signed and deposited.

Most of the reports came from banks. Of the 15,147 BSA reports, only 882 came from credit unions, and of the 841 financial institutions filing these reports, only 165 were credit unions. The FTA also contains some state-level data. Virginia had 5.434 reports filed per 100,000 residents, which is the 10th highest rate in the country.

That's all for this week! I hope everyone has a great week - we'll be back again next week with a post on the NCUA's board meeting, including some analysis of the share insurance briefing as well as the two final rules.