Credit Union Legal Hurdle Predictions for 2014
The Kaufman & Canoles Credit Union Team is once again revealing our top predictions for major legal challenges for credit unions in 2014. At Kaufman & Canoles we believe that legal fees for credit unions need to be better managed, controlled and hopefully even reduced. Our six legal predictions for 2014 are as follows:
1. Privacy Rights. Andy Keeney predicts that credit unions will spend substantial time and resources in 2014 to update their policies and procedures regarding members’ privacy rights. Although after the Target breach there has been considerable press, we predict that there will be no regulatory reforms in 2014.
Credit unions will need to protect their members in every way possible. They will need to address many legal issues, revise their policies and procedures, update their websites and review and investigate their insurance coverage. We predict that the endeavors the credit unions undertake to protect the privacy rights of their members will be costly but will ultimately be a significant enhancement to the reputation and brand of all credit unions.
2. Lending Changes. Ran Randolph predicts that legal opinions will return as a customary part of member business loans in 2014. Before the recession, some credit unions decided to forego requiring borrower’s counsel to render legal opinions on transaction fundamentals such as good standing and enforceability of loan documents. However, because of recent problems in MBLs, more and more credit unions likely will insist upon legal opinions to gain the comfort factor on those issues a legal opinion can provide.
3. Loan Participations. Dustin DeVore predicts that new mortgage regulations, servicing rules and loan originator compensation issues will present the greatest legal and compliance challenge for credit unions and CUSOs in 2014. The new rules have thousands of pages and credit unions and CUSOs will need to understand the implications of these regulatory changes, and move quickly to become compliant.
The CFPB and NCUA will be monitoring all financial institutions closely for compliance. The legal issues associated with the new rules are complex and require a great deal of expertise in navigating. We expect the mortgage regulations to be the most significant regulatory challenge for credit unions and CUSOs in 2014.
4. Credit Union Service Organizations. Erin Deal predicts that the implementation of the new regulations affecting CUSOs, effective June 30, will present a significant compliance challenge for CUSOs and credit unions in 2014. All written agreements between credit unions and those CUSOs they invest in or loan to must be amended to recognize the NCUA CUSO registry requirements. This is new to all credit unions and CUSOs, and other CUSO accounting requirements not previously applicable to federally insured, state-chartered credit unions.
Not only will 2014 be difficult as a result of the new rule, but we predict additional obstacles will arise when CUSOs must submit their information through the NCUA’s registration system, slated to begin in December 2015. Changes meant to mitigate risks and protect the credit union industry will increase costs to credit unions and could potentially encourage the use of non-CUSO vendors.
5. Class Action Litigation. Marc Darnell believes that consumer class-action litigation will continue to increase, particularly in the area of data breaches that involve the unauthorized access and theft of credit and debit card information. As merchants continue to lag behind in the implementation of Payment Card Industry Data Security Standards, they inevitably will experience breaches that compromise consumers’ card information stored in their point-of-sale systems and servers. Once they experience a breach, reporting obligations to state attorneys general offices and their merchant services providers will be triggered. The transparent reporting process will educate potential plaintiffs and plaintiffs’ counsel about the scope of the breach and the affected consumers.
Potential civil liability, including reimbursement for fraudulent transactions, costs associated with credit monitoring, the provision of identity theft insurance for consumers, and the likelihood of bearing the expense of attorney fees for plaintiffs’ counsel make this burgeoning area of civil litigation critically important for 2014.
6. Foreclosures. Brian Dolan predicts that the new mortgage servicing rules’ prohibition against making the first notice of foreclosure until a borrower is more than 120 days delinquent will increase the rate of foreclosures. The 120-day prohibition could encourage more borrowers to become delinquent and encourage delinquent borrowers to extend their delinquency up to 120 days. By the time borrowers seriously attempt to cure their deficiency, the deficiency might have become too large. Therefore, we predict the 120-day rule will cause a temporary but artificial reduction in the number of foreclosures, followed by a substantial increase in foreclosures.