Credit Unions: Metro 2 Laws and Regulations

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/.