The Kaufman & Canoles Credit Union Team is once againrevealing our top predictions for major legal challenges for creditunions in 2014. At Kaufman & Canoles we believe that legal feesfor credit unions need to be better managed, controlled andhopefully even reduced. Our six legal predictions for 2014 are asfollows:

1. Privacy Rights. Andy Keeney predicts thatcredit unions will spend substantial time and resources in 2014 toupdate their policies and procedures regarding members' privacyrights. Although after the Target breach there has beenconsiderable press, we predict that there will be no regulatoryreforms in 2014.

Credit unions will need to protect their members in every waypossible. They will need to address many legal issues, revise theirpolicies and procedures, update their websites and review andinvestigate their insurance coverage. We predict that the endeavorsthe credit unions undertake to protect the privacy rights of theirmembers will be costly but will ultimately be a significantenhancement to the reputation and brand of all credit unions.

2. Lending Changes. Ran Randolph predicts thatlegal opinions will return as a customary part of member businessloans in 2014. Before the recession, some credit unions decided toforego requiring borrower's counsel to render legal opinions ontransaction fundamentals such as good standing and enforceabilityof loan documents. However, because of recent problems in MBLs,more and more credit unions likely will insist upon legal opinionsto gain the comfort factor on those issues a legal opinion canprovide.

3. Loan Participations. Dustin DeVore predictsthat new mortgage regulations, servicing rules and loan originatorcompensation issues will present the greatest legal and compliancechallenge for credit unions and CUSOs in 2014. The new rules havethousands of pages and credit unions and CUSOs will need tounderstand the implications of these regulatory changes, and movequickly to become compliant.

The CFPB and NCUA will be monitoring all financial institutionsclosely for compliance. The legal issues associated with the newrules are complex and require a great deal of expertise innavigating. We expect the mortgage regulations to be the mostsignificant regulatory challenge for credit unions and CUSOs in2014.

4. Credit Union Service Organizations. ErinDeal predicts that the implementation of the new regulationsaffecting CUSOs, effective June 30, will present a significantcompliance challenge for CUSOs and credit unions in 2014. Allwritten agreements between credit unions and those CUSOs theyinvest in or loan to must be amended to recognize the NCUA CUSOregistry requirements. This is new to all credit unions and CUSOs,and other CUSO accounting requirements not previously applicable tofederally insured, state-chartered credit unions.

Not only will 2014 be difficult as a result of the new rule, butwe predict additional obstacles will arise when CUSOs must submittheir information through the NCUA's registration system, slated tobegin in December 2015. Changes meant to mitigate risks and protectthe credit union industry will increase costs to credit unions andcould potentially encourage the use of non-CUSO vendors.

5. Class Action Litigation. Marc Darnellbelieves that consumer class-action litigation will continue toincrease, particularly in the area of data breaches that involvethe unauthorized access and theft of credit and debit cardinformation. As merchants continue to lag behind in theimplementation 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 stateattorneys general offices and their merchant services providerswill be triggered. The transparent reporting process will educatepotential plaintiffs and plaintiffs' counsel about the scope of thebreach and the affected consumers.

Potential civil liability, including reimbursement forfraudulent transactions, costs associated with credit monitoring,the provision of identity theft insurance for consumers, and thelikelihood of bearing the expense of attorney fees for plaintiffs'counsel make this burgeoning area of civil litigation criticallyimportant for 2014.

6. Foreclosures. Brian Dolan predicts that thenew mortgage servicing rules' prohibition against making the firstnotice of foreclosure until a borrower is more than 120 daysdelinquent will increase the rate of foreclosures. The 120-dayprohibition could encourage more borrowers to become delinquent andencourage delinquent borrowers to extend their delinquency up to120 days. By the time borrowers seriously attempt to cure theirdeficiency, the deficiency might have become too large. Therefore,we predict the 120-day rule will cause a temporary but artificialreduction in the number of foreclosures, followed by a substantialincrease in foreclosures.

AndyKeeney is co-chair of the Kaufman & Canoles Credit UnionTeam in Norfolk, Va. Contact: [email protected] or (757)624-3153.