Maryland Legal Alert for Financial Services

In This Issue:

NCUA Proposes Possible Rule Changes

The National Credit Union Administration (NCUA) seeks comments on a proposed four-year regulatory reform agenda.  This regulatory reform agenda, published in the August 22, 2017 Federal Register, reflects a comprehensive look at all of the NCUA’s existing regulations to determine if any might be eliminated, revised, improved, or clarified.  The report prioritizes recommended changes into three tiers based on the perceived “degree of impact” and “degree of effort”.  It envisions that first-tier recommendations would be accomplished within a two-year time frame and suggests a long list of changes including, among others: (i) clarifying and updating loan maturity limits and compensation in connection with loans; (ii) clarifying lending limits and rules concerning loans to one borrower; (iii) raising appraisal thresholds and relieving some appraisal burdens; (iv) establishing a single, comprehensive set of rules for third-party servicing of indirect vehicle loans; (v) modernizing corporate rules, including changes to standard bylaws provisions; (vi) updating some charter and field of membership rules, particularly for community charters; and (vii) adding flexibility, including in connection with fidelity insurance and supervisory committee requirements.  The second-tier recommendations, which are targeted for implementation during the third year of the proposed four-year time frame, include among other changes: (i) removing limits on the aggregate permitted amount of loan participations; (ii) removing, combining, and simplifying the authority to purchase loans and other assets; (iii) addressing some capital requirements; and (iv) easing restrictions on investment activities.  Finally, the third-tier recommendations, which are targeted for implementation during the last year in the four-year time frame, include among other changes: (i) implementing comprehensive third-party due diligence rules; (ii) enhancing federal preemption to reduce overlap with state laws and regulatory burdens; (iii) establishing a maximum interest rate based on a variable rate rather than using a fixed, temporary rate; and (iv) conducting a review of regulations pertaining to security programs, suspected crimes and transactions reporting, catastrophic acts, and Bank Secrecy Act compliance.  If any of these subjects are of interest to your credit union, consider commenting on the proposals.  Comments are due to the NCUA on or before November 20, 2017.

Contact Christopher R. Rahl

CFPB Issues Final Consumer Arbitration Rule

On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) released its final consumer arbitration rule.  The final rule, published in the July 19, 2017 Federal Register, largely follows the CFPB’s May 24, 2016 proposed arbitration rule by prohibiting the inclusion of class action waivers in most consumer arbitration agreements.  Arbitration agreements can still be used by financial institutions and other covered businesses, but when the CFPB's rule becomes effective, consumers can no longer be required to give up the right to bring or participate in a class action lawsuit.  The rule also requires the inclusion in consumer arbitration agreements of a specific disclosure concerning class action rights. Additional disclosures are required where a consumer arbitration agreement applies to multiple products/services and only some of the products/services are subject to the CFPB’s final rule.  The final rule takes effect on September 18, 2017, but will only apply to consumer arbitration agreements entered into (and new products/services obtained) 180 days after the effective date (March 19, 2018).  There is significant industry and legislative opposition to the final rule.  On July 25, 2017, The United States House of Representatives voted to repeal the CFPB’s rule and prohibit implementation of a similar rule in the future.  The repeal resolution is before the United States Senate, but a similar repeal vote in the Senate appears unlikely.  Unless implementation of the final rule is blocked, financial institutions and other covered businesses that currently include an arbitration agreement in their consumer agreements will need to evaluate whether they want to continue to use arbitration as the default dispute resolution method without the ability to cut off class action lawsuits and, if so, will need to adjust the terms of their agreements to comply with the rule and include required disclosures.  If you would like more information concerning the CFPB’s final arbitration rule, please contact Christopher Rahl.

Contact Christopher R. Rahl

Website Accessibility: Businesses Still Must Worry About ADA

The Department of Justice (DOJ) has categorized as “inactive” the Americans with Disabilities Act (ADA) website rulemaking.  However, this should not cause credit unions to delay making websites accessible to disabled individuals.  The ADA has not changed and this law mandates that "[n]o individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation …." 42 U.S.C. §12182(a).  There has been a significant increase in private lawsuits that claim websites violate the ADA.  Hundreds of cases have been filed – with many being filed in just the past three months.  In the absence of federal regulations, courts are making decisions, and nearly all of these courts have let the cases proceed past motions to dismiss.  The absence of DOJ regulations has not been an effective defense in the vast majority of cases.  Interestingly, in an amicus brief  filed July 19, 2017 by DOJ with the Supreme Court, DOJ seems to be taking a less aggressive view of ADA obligations than previously.  The amicus brief addressed ADA responsibilities of vending machine suppliers.  While the brief asserts that vending machines are not in and of themselves public accommodations and, therefore, not necessarily subject to ADA accessibility obligations, DOJ expressly recognized that questions “concerning [ADA] Title III’s application to non-physical establishments – including websites or digital services – may someday warrant this [Supreme] Court’s attention.”  Perhaps, under the current administration, the federal government will not aggressively pursue ADA website claims, but we predict the private lawsuits and demand letters will not stop any time soon.  An outline of action steps to improve a website’s accessibility for individuals with disabilities can be found here. 

Contact Christopher R. Rahl

Funds Availability Regulation CC Amendments

The Board of Governors for the Federal Reserve System recently finalized long-awaited amendments to FRB Regulation CC’s Availability of Funds and Collection of Checks provisions to address the reality that most checks are presented, collected, and paid electronically.  The final rules  take effect on July 1, 2018.  The rules, among other things, add new liability provisions concerning remotely deposited checks and require each financial institution that accepts a remotely deposited check (remote deposit financial institution) to indemnify any other financial institution that takes the underlying original check for deposit.  The new indemnity obligation is not absolute.  If an underlying original check has a restrictive endorsement (such as “for remote deposit only”), the financial institution that accepts the original check cannot make an indemnity claim against the remote deposit financial institution.  Also, if a financial institution that accepts the underlying original check has acted negligently or in bad faith, the remote deposit financial institution’s indemnity obligation will be reduced proportionately to the extent of such negligence/bad faith.  Financial institutions that offer remote deposit services should (1) examine their remote deposit agreements to ensure that customers have a duty to add a restrictive “for remote deposit only” type endorsement to all remotely deposited checks; and (2) discuss with the provider of their remote deposit platform any tools that the provider may have to examine incoming remote deposits for the specified restrictive endorsements (and reject checks without a proper restrictive endorsement).  Please contact Christopher Rahl to discuss this topic or for help reviewing/updating your remote deposit agreements.

Contact Christopher R. Rahl

Disaster Preparedness for Maryland Depository Institutions

The Maryland Commissioner of Financial Regulation updated the Emergency and Disaster Preparation Information for Maryland State-Chartered Banks, Credit Unions, and Trust Companies.  Originally made available in January 2012, this March 2017 version reflects current guidance from the Commissioner's office on what institutions should be prepared to do in light of a major storm or other disaster, the need for evacuation, closures due to emergencies, and similar events. The information is in a very helpful question and answer format.

Contact Christopher R. Rahl

CFPB Issues Pay by Phone Compliance Bulletin

On July 27, 2017, the Consumer Protection Financial Bureau (CFPB) issued a compliance bulletin addressing pay by phone fees.  Published in the August 2, 2017 Federal Register, the bulletin describes conduct that the CFPB views as an unfair act or practice: (a) failing to disclose the prices of all available pay by phone fees when different pay by phone options carry materially different fees (e.g., situations where the fees for phone payments are only disclosed by phone representatives at the time of payment and the phone representatives do not disclose lower cost options or inform consumers about the material price differences between options); (b) misrepresenting the available payment options or that a fee is required to pay by phone (e.g., situations where there are multiple pricing options to pay by phone and only the highest cost option is promoted); (c) failing to disclose that a pay by phone fee will be added to a consumer’s payment (creating the impression that there is no fee for the pay by phone method); and (d) failing to adequately monitor/supervise employees and service providers (potentially leading to misrepresentations to consumers and/or the failure to disclose available payment options/fees).  The bulletin also takes issue with any system of compensation that provides financial incentives for creditor/debt collector promotion of pay by phone options that carry a fee.  In addition, the bulletin notes that the CFPB views the following practice by debt collectors as prohibited under the Fair Debt Collection Practices Act: collecting a pay by phone fee where the underlying agreement does not specify the fee or state law does not expressly authorize the fee.  Please contact Christopher Rahl for questions concerning this topic.

Contact Christopher R. Rahl