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Tags: Credit Unions
CREDIT UNIONS: METRO 2 LAWS AND REGULATIONS
By: Esteban Santana
Feb 3, 2023
Share:
Credit Unions, just like banks, have a myriad of laws, regulations, and rules
they need to adhere to. With so many applicable compliance laws, how does a
credit union determine which ones to focus on?
The short answer is – all of them; but realistically, it will depend on your
current organizational priorities. Budget constraints, personnel, updated and
new regulations, the National Credit Union Administration (NCUA), and other
uncontrolled factors play a pivotal role in what credit unions can concentrate
their efforts on.
A credit union, facing a myriad of compliance issues, could start with an
independent examination to assess strengths and deficiencies – a self-initiated
audit. An audit affords a credit union the opportunity to determine whether
compliance programs are functioning properly, are up-to-date, address any issues
and, if needed, seek a more robust solution.
While working with the Federal Deposit Insurance Corporation, as a Senior
Special Agent, I was fortunate to have had numerous interactions with NCUA
examiners, which allotted me the opportunity to learn a great deal about the
inner workings of credit unions and legislation pertinent to them. Below, we
will cover guidelines and legislation, such as:
* Metro 2 Guidelines
* CCPA
* FCRA
* FCBA
* TILA
* ECOA
METRO 2 GUIDELINES
There has always been a great deal of discussion, confusion, and debates over
Metro 2 guidelines. It is an important compliance issue for financial
institutions.
In layman’s terms, Metro 2 is the standard format for financial institutions to
electronically send data about their loan customers to the major credit
reporting agencies. Metro 2 was created in 1997 by the Consumer Data Industry
Association. The format is available to companies that furnish data to consumer
reporting agencies. Metro 2 format ensures the four major credit bureaus
(Equifax, Experian, TransUnion, Innovis) receive all the information (consumer
or commercial) they need from the data furnishers.
Metro 2 Compliance uses e-OSCAR, which is a web-based system developed by
Equifax, Experian, TransUnion and Innovis, to verify consumers’ credit reports.
This enables banks and credit unions to meet compliance standards set by the
Fair Credit Reporting Act and the Equal Credit Opportunity Act which require
data to be verified as true, correct, complete and timely.
Federal regulators place prominence on the completeness and accuracy of the data
transmitted to and reported by credit reporting agencies.
CONSUMER CREDIT PROTECTION ACT (CCPA)
The CCPA protects consumers from harm by financial institutions and credit card
companies. These include creditors, banks, and credit unions.
It mandates disclosure requirements that must be followed by consumer lenders,
such as a total cost of a loan or credit, to conclude how interest is calculated
and fees involved. Furthermore, it prohibits discrimination in loan applications
and bans misleading advertising.
The CCPA requires banks and credit unions, among other financial institutions,
to explain finance terminology in easy-to-understand terms. The Fair Credit
Practice Rule, 12 CFR 706 et seq., ensures fairness of consumer credit, late
charge accounting, and cosigner practices of financial institutions.
FAIR CREDIT REPORTING ACT (FCRA)
The FCRA, 15 U.S.C. §1681 et seq., promotes the accuracy, fairness, and privacy
of consumer information, contained in the files of consumer reporting agencies.
Credit reports with inaccurate information have a negative impact on the U.S.
banking system. Furthermore, unfair credit reporting undermines the confidence
of the American people in banks and credit unions. 12 CFR 717 et seq. provides
guidance on reasonable policies and procedures and, in particular, to users of
consumer reports to be alert in addressing discrepancies and identity theft,
which can pose risks to members and the institution.
The FCRA provides both civil and criminal penalties. A consumer can recover
actual damages, in addition to attorney’s fees (15 U.S.C. § 1681o). In the case
of willful noncompliance, a consumer may be awarded punitive damages, actual
damages, and attorneys fees (15 U.S.C. § 1681n(a)).
Criminal penalties apply to a person who “knowingly and willfully” obtains
information on a consumer from a consumer reporting agency under false
pretenses (15 U.S.C. § 1681q). Violators can be subject to a fine, imprisonment
for up to two years, or both (15 U.S.C. § 1681r).
Enforcement is subject to the jurisdiction of the National Credit Union
Administration Board, among other agencies.
FAIR CREDIT BILLING ACT (FCBA) AND
TRUTH IN LENDING ACT (TILA)
In order to protect consumers, the FCBA requires prompt written recognition of
consumer billing complaints and billing errors by creditors. The FCBA is an
amendment to the Truth in Lending Act (TILA), refer to 15 U.S.C. § 1601 et seq.
The FCBA covers open-end credit accounts (i.e. credit cards).
An important component of the FCBA is Section 1666, which allows individuals to
dispute unauthorized charges and undelivered goods or services. Consumers are
protected from unfair billing practices such as:
* Unauthorized charges;
* Wrong date or amount on charges;
* Undelivered goods or services or not as described;
* Delivery of statement to an incorrect address;
* Errors in calculation and charges needing an explanation.
Creditors are prohibited from taking adverse action until an investigation is
completed. Creditors also need to promptly, post payment, refund overpayments or
credit the consumer’s account.
Under 15 U.S.C. § 1640 (a) and (c), a private right of action to obtain civil
damages can be raised against a creditor under FCBA and TILA. Actual damages,
plus twice the amount of any finance charge, in addition to attorneys, can be
recovered.
A creditor may also face criminal charges for willfully or knowingly giving
false or inaccurate information or failing to provide the information required
to be disclosed under TILA. A fine of up to $5,000, imprisoned for up to one
year, or both can be imposed. Class action suits may be filed against a creditor
for failing to comply with TILA. Total recovery may not exceed $500,000 or 1% of
the creditor’s net worth.
TILA is enforced, in part, by the National Credit Union Administration Board
depending on the transaction involved.
EQUAL CREDIT OPPORTUNITY ACT (ECOA)
The ECOA (15 U.S.C. § 1691 et seq.) makes it unlawful for any creditor to
discriminate against an applicant based on race, color, religion, national
origin, sex, marital status, or age. The law applies, in addition to other
parties, to banks and credit unions.
If any creditor fails to comply with the ECOA, an applicant may recover actual
damages, punitive damages up to $10,000, and attorney’s fees, 15 U.S.C. § 1691e.
REGULATORY MANAGEMENT
In order to minimize risk exposure from regulatory mismanagement, credit unions
may want to leverage new technology solutions that are scalable and easy to
implement. These purpose-built solutions help you monitor applicable regulatory
change, upcoming legislation, align policies and processes to organizational
goals, and test your compliance readiness in one place.
When reviewing a solution provider, you may want to ask if the following
features are available:
* Consolidated law library;
* Advanced search capabilities;
* Automated regulatory change tracking;
* Tailored alerts to minimize regulatory update noise;
* Risk and control mapping;
* Interactive data dashboards for exportable reports;
* Compliance review.
If you want to learn more about regulatory intelligence solutions or see how it
works, please contact us by clicking here or visiting
https://regology.com/industries/credit-unions/.
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