Regulatory Compliance Weekly Roundup: Aug. 25, 2023

Happy Friday, everyone! Time for a quick recap of some recent happenings in the regulatory compliance world!

NCUA: New Bylaws

Today the NCUA's Final Rule on member expulsion becomes effective. This means credit unions can begin to amend their bylaws to include the new language to Articles II and XIV, which contains the new process for a Board of Directors to vote to expel a member for cause.

We have a detailed breakdown of the Final Rule here on the blog in 4 parts. (Part 1, Part 2, Part 3, Part 4)

Additionally, I recently recorded a podcast with former NCUA Executive Director Mark Treichel discussing the Rule and how credit unions can prepare to implement it. Feel free to reach out to us here at the League with any questions.

CFPB: Litigation Updates

First - a quick update on some litigation against the CFPB. We wrote a couple of weeks ago about the Texas Court case against the CFPB regarding their small business data collection rule. In that case, the Court issued an injunction, ruling that the CFPB could not enforce this rule until the Supreme Court addressed the issue of the Constitutionality of their funding. However, the injunction only applies to Plaintiffs in the case and their members - the Texas Bankers Association, the American Bankers Association, and a bank in Texas. After the ruling, CUNA, the Cornerstone League, and an individual credit union in Texas filed a motion to join the case. That's where we left off.

Since then, that motion has been granted. Now that they are parties to the case, the next step is a motion to be included in the injunction. If that motion is granted, the CFPB will also have to hold off enforcement of their rule against any credit union that is a member of CUNA or the Cornerstone League.

Speaking of the CFPB, this week the Bureau filed suit against Heights Finance Holding Company and several of their subsidiaries for "illegal-loan churning practices." The CFPB alleges that the defendant company - whose trade names include Covington Credit, Southern Finance, and Quick Credit - targeted customers who were likely to refinance and marketed them refinances as fresh starts. However, CFPB argues, that their main goal was to get customers to refinance early and often, driving fee revenue from borrowers caught in this cycle. Additionally, staff were incentivized to push borrowers into refinancing. According to the complaint, more than 70 percent of the $250 million in loans the company made each year were refinanced loans.

While not an action against a credit union, there are always things we should take note of when CFPB exercises its enforcement authority. What immediately jumped out to me was how CFPB highlighted the company's incentive structure. We've seen this in other CFPB actions. In a recent action against Bank of America for opening fake credit card accounts, CFPB also emphasized how staff were incentivized and rewarded for the number of accounts they opened. This goes to show how with CFPB it's not just about the business practice, but also about the overall business model.

What this action also illustrates is that even with their Supreme Court case pending, the CFPB is not letting up on their enforcement actions. The Supreme Court will hear oral arguments on the case in October, with a decision coming next year.