Good News for BOA, and for Credit Unions; SAFE Act
On Monday, the California Supreme Court ruled in favor of Bank of America in an extremely important case involving the ability of a California institution to offset overdraft and other fees on an account with incoming social security benefits.Â
In short, the plaintiff would take his account into the negative. BOA would then apply his Social Security deposit to cover the account deficit. The plaintiff cried foul - saying this was an unfair collection of his protected Social Security funds. BOA countered that it wasn't a collection effort - but rather account balancing. The court agreed with BOA.
Here's a snippet from the Reuter's Article:
In 1974, the California Supreme Court had ruled that a bank may not satisfy a credit card debt by deducting fees owed from a separate checking account containing deposits that "derived from unemployment and disability benefits."
But in Monday's unanimous ruling, the court distinguished the current case by saying the transactions at issue occurred "within a single account" rather than in multiple accounts.
It said policy concerns about setting off independent debt, such as the importance of providing people "with a stream of income to defray the cost of their subsistence," were not present in this case.
"We do not agree with plaintiffs that there is no meaningful difference between satisfying a debt external to an account and recouping an overdraft of an account from funds later deposited into that same account," Justice Carlos Moreno wrote for the court.
Again, this is great news for the financial industry. Credit unions have struggled on how to handle accounts that have social security deposits. If the member in such accounts took their account negative, credit unions had worried that offsetting the losses with the next Social Security deposit would be seen as impermissible. Had the court gone the other way, many financial institutions may have dramatically changed how they serve consumers who receive SS benefits. The California decision certainly makes sense from our point of view. But keep in mind this: while this decision will make noise across the nation, the court's jurisdiction stops at the Oregon, Nevada, Arizona and Mexico borders. It remains to be seen whether the decision will spur consumer groups to seek protections via other avenues.
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NCUA, along with other financial regulators, has issued a proposed rule to implement registration requirements for mortgage lenders. The rule was mandated by the S.A.F.E. Act. Access a NAFCU Today article here. Access the proposed rule here. Here's a snippet from the proposal:
The OCC, Board, FDIC, OTS, FCA, and NCUA (collectively, the Agencies) are proposing amendments to their rules to implement the Secure and Fair Enforcement for Mortgage Licensing Act (the S.A.F.E. Act). The S.A.F.E. Act requires an employee of a bank, savings association, credit union or other depository institution and their subsidiaries regulated by a Federal banking agency or an employee of an institution regulated by the FCA (collectively, Agency-regulated institutions) who acts as a residential mortgage loan originator to register with the Nationwide Mortgage Licensing System and Registry (Registry), obtain a unique identifier, and maintain this registration. This proposal implements these requirements. It also provides that Agency-regulated institutions must require their employees who act as residential mortgage loan originators to comply with the S.A.F.E. ActâÂÂs requirements to register and obtain a unique identifier and must adopt and follow written policies and procedures designed to assure compliance with these requirements.
Comments are due 30 days after this proposal finds its way into the Federal Register. Will the requirements take effect this year? I think it is doubtful. The regulators will need to read the comments, and then issue a final rule. And that will have a good date that is somewhere out in the future. I may be wrong, but using the FACT Act rulemaking process as a guide, I again state my belief that we're looking at a 2010 compliance date.