NCCO Exam 1 Study Guide with complete solutions.

What is the difference between a preamble to a rule and the staff commentary? - ANSWER-A preamble is found in the official proposed rule or final rule issued in the Federal Register. Staff Commentary is often found as an appendix or supplement to a rule, rather than in a number section. Staff commentary can help explain and show examples of the rules in plain English. What is the difference difference between a final rule and an interim final rule? - ANSWER-Final rules are issued after the comment period is over and the agency has had enough time to consider all comments. An interim final rule is issued when the APA provides an exception to the public notice and comment prior to the promulgation of a rule when an agency "for good cause finds that notice and public procedure thereon are impracticable, unnecessary or contrary to the public interest" What is self-effectuating law? - ANSWER-Some laws are referred to as "Acts" meaning regulations are not needed to interpret the act or "bring it into effect" Where are the federal regulations codified? - ANSWER-They are codified in the Code of Federal Regulations (CFR). The regulations are indexed by titles, chapters, parts and sections. Titles are categorized by subject matter. Besides the rules and regulations, what other kinds of guidance are available? What are the purpose of these other kinds of guidance? - ANSWER-Interpretive Rulings and Policy Statements(IRPS) they are the NCUA's official interpretation of the FCU Act as it relates to a particular issue. Letters to Credit Unions and other Guidance these address policy issues, and are use to clarify NCUA exam expectations. Regulatory Alerts to notify CU's of changes to regulations. Risk Alerts. What are the three major titles of the FCU Act? - ANSWER-General Provisions, Share Insurance, and Central Liquidity Facility What is the purpose of the NCUA Board? What are some of its duties? What is its role in reviewing credit union charters? - ANSWER-The purpose of the NCUA board to keep credit unions safe and sound. The duties are administering NCUA's prompt correct action regime to ensure capital soundness. NCUA may also conserve or liquidate a credit union to protect share insurance fund. They approve, review and evaluate merger applications. Where does NCUA get its authority form? - ANSWER-The United States Federal Government How many regional offices does NCAU have? What are their duties? - ANSWER-The NCUA has 3 regional offices. Each office is responsible for oversight, examination and supervision of the federally insured credit union in its geographical region. How does the National Credit Union Share Insurance Fund (NCUSIF) remain funded? - ANSWER-By the participating federally insured credit unions. What are the different Offices (e.g., Office of Consumer Financial Protection, Office of Credit Union Resources and Expansion, etc.) within NCUA and what do they do or when would a credit union need to reach out to one of those Offices? - ANSWER-Office of Consumer Financial Protection - NCUA's heighten focus on consumer protection. CURE - is to support credit union growth and development, offering assistance to any credit union in the following areas: chartering; charter conversions; bylaw amendments; field of membership expansion requests; and low-income designations Does the CFPB have examination authority over all credit unions? What determines whether CFPB has supervisory and examination authority over a credit union? - ANSWER-Only CU's with more then $10 billion in assets. CU's with $10 billion or less in assets are examined and supervised by NCUA and, for state-chartered CU's, their state regulator. The CFPB's examination and supervision powers are generally limited to the consumer laws and regulations under its authority. NCUA will continue to examine all credit unions for safety and soundness. Dodd-Frank Are credit unions subject to the CFPB's Regulation DD? - ANSWER-The language of the CFPB's Regulations DD is clear that it does not cover credit unions, stating it "applies to depository institutions except for credit unions." How do the CFPB's authority and objectives impact credit unions? - ANSWER-The transfer of authority to the CFPB means that all credit unions need to comply with the bureau's regulations. This requirement applies regardless of the size of the credit union. A credit union with $15 million in assets is required to follow Regulation Z as well as a credit union with $250 million in assets. How does the NCUA's examination program differ from an audit? - ANSWER-Program conducts risk focused examinations to determine area of risk to the CU's operational and financial health. Audit will asses how a CU is operating to date; a financial audit verifies the CU financial statements. What are the seven types of risk that NCUA examines for? - ANSWER-Credit Risk, Liquidity Risk, Interest Rate Risk, Transaction Risk, Compliance Risk, Strategic Risk, Reputation Risk. What are the various administrative tools available to NCUA, when may they be utilized, and what is the severity of each? - ANSWER-Examiner's findings Document of Resolution Letters of Understanding and Agreement Cease and Desist Order Others: Civil Money Penalty, Prohibition Orders, Removal of Officer(s) What are the six components that make up the CAMELS system? - ANSWER-Capital Adequacy Asset Quality Management Earnings Liquidity and Asset Liability Management In what format can credit unions file quarterly call reports and profile data with NCUA? - ANSWER-Electronically using the NCUA's information management system or other electronic means specified by the agency. What is the difference between the NCUA and CFPB authority when it comes to examining credit unions? - ANSWER-NCUA - all federally insured CU's and the CFPB is empowered to examine federally insured CUs with assets greater than $10 billion and their affiliates. What are the benefits of the credit union membership? - ANSWER-Members own the credit union, members exercise democratic control of the CU, right to vote - each member has equal voting power: one share, one vote, Right to inspect - Members have right to inspect bylaws and charter and upon petition, members may inspect CU books and records, including board minute and accounting records. Can credit unions provide health insurance to directors during their time on the board? - ANSWER-Credit Unions may provide directors with reasonable health insurance. What is the basic structure of a federal credit union's board of directors? How often must they meet? - ANSWER-May consist of an odd number between 5 and 15, composition should reflect the CU's membership, term are for two or three years. Positions - Chair, One or more Vice Chairs, Financial Officer and Secretary. They should meet at least once a month. At least one in person, regular meeting each year must be held in person. What are the main responsibilities of the Supervisory Committee? - ANSWER-The committee should review the performance of the FCU, its officials and employees, and make recommendations to the board for improvements that can be made. Conduct annual audits and verify accounts, may suspend directors or members of the credit committee, may call a special meeting to consider compliance violation and fill in for the board if the world is on fire. Which reasonable expenses can a director submit for reimbursement? - ANSWER-Expenses incurred while performing their duties, including training and travel costs. Are credit unions required to fully adopt the standard bylaws each time NCUA provides updates? Can credit unions keep their own versions? - ANSWER-They are not required to adopt the bylaws. They can keep their own versions. What is the annual meeting process, including the notice requirements? How many members must be present to have aquorum? - ANSWER-Notice 30-75 days prior to the meeting - Sends notice, notice is placed on website, notice of meeting must be placed in offices. 15 members create a quorum. What are the eligibility requirements to run for the board? - ANSWER-The individual must be a member, the individual cannot be convicted of a crime of dishonesty or breach of trust; and the individual must meet any minimum age requirements provided in the bylaws (if any) What are the responsibilities of the board of directors? - ANSWER-The board is responsible for establishment and implementation of the CU's strategic plan and adopt operating policies. Directing the CU in accordance with laws, regulations, bylaws and sound business practices. establish program to achieve the cu's purpose, establish loan collection and charge off program, require training for board and volunteers, establish dividend periods, declare dividends. Who elects board members? Who presides over board meetings? - ANSWER-They are elected by members of the credit union. The chair of the board presides over the meetings. What is the special meeting processing, including who may call a special meeting and notice and quorum requirements? - ANSWER-Special Meetings can also be called by the Chair or a majority of the directors (by written request) Can board member be compensated for their duties? How many directors can be compensated? - ANSWER-The model bylaws allow credit unions to write in which officer, if any, maybe compensated. All others must be volunteers. How do NCUA's lending regulations interact with state law? - ANSWER-They preempt (override) state law Understanding the types of state laws that are preempted by NCUA's regulations. State laws that cap which types of fees would be preempted? - ANSWER-Lending - Rates, Terms of repayment and conditions of FCU Loan, Late fees, Closing and origination fees. State law inconsistent - then FCU doesn't have to comply What is the difference between a nonparticipation policy and a limitation of services policy? What are the requirements of each? Which one can be used again a member who has caused the credit union a loss? - ANSWER-Nonparticipation policy - is defined in the FCU Act as a member's failure to vote in elections or failure to purchase shares, obtain a loan, or lend to the FCU. Requirement- it must provide notice to the membership within 30 days of the effective date of the policy, once adopted, the policy may be enforced to expel members that do not participate in the CU. Limitation of Services - establishes certain behaviors exhibited by members that will lead to a limitation of certain services. The policy must be established by the board, in writing and communicated to the membership. Limitation of services can be used if a member has caused the cu a loss. How does a credit union impress it statutory lien? - ANSWER-There are 3 ways - Give notice with account opening documents, give notice with loan documents that are signed, and pass a bylaw amendment or policy and provide notice. How does a credit union enforce its statutory lien? How is this different for credit cards? - ANSWER-The lien can only be enforced when a member is in default on an outstanding financial obligation that is due and payable. It is different for credit cards you can not offset a credit card account with members funds. Review the express and incidental powers credit unions have. Be prepared to know what types of activities fall under each preapproved incidental power. - ANSWER-Express Powers - expressly authorized by the FCU Incidental Powers - Non-expressed powers in the FCU Act, but needed to support activities permitted by the FCU Act. What is the three-prong test for incidental powers? - ANSWER-Convenient or useful in carrying out the mission or business of FCUs under the FCU Act Functional equivalent or logical outgrowth of activities that are part of the FCU's mission or business Risks similar in nature to those already assumed as part of the business of credit unions What is the process for expelling a member, including the special meeting and voting processes? - ANSWER-Special Meeting - Rules are calling a special meeting are in the bylaws. At the meeting, no other business may be conducted and the individual must have an opportunity to be heard. Two-thirds of members present must vote to expel the member. Nonparticipation Policy - a policy must be adopted by the board. Notice must be given within 30 days of its effective date. Nonparticipation is failure to vote in elections or purchase shares, obtain a loan or lend to the FCU. Open adopted, members who do not participate may be expelled without a special meeting. What are the two fundamental rights for the credit union members? - ANSWER-1. Right to Vote 2. The right to maintain a share account Can a nonmember be a co-borrower? Guarantor? Cosigner? - ANSWER-Cannot be a co-borrower but they can be a guarantor and cosigner Where is the best place to look for the credit union's field of membership? - ANSWER-Chapter 5 of their bylaws will list the distinct field of membership How can a business or organizations qualify for membership? - ANSWER-Organizations of such persons a group which is 100% comprised of individuals who fall within the field of membership. It is located in the FOM's geographic boundaries for a community charter It is specifically listed in the FCU's charter The charter includes the phrase" organizations of such persons" and the organizations is made entirely of person with the FOM What does the "once a member, always a member" credo mean? - ANSWER-FCU's operate under the policy "once a member, always a member" such a policy provides that even if a person exits the field of membership, they may continue as a member until their membership is voluntarily terminated or they are expelled from membership. What may a federal credit union accept nonmember deposits? - ANSWER-When those nonmembers are public units (such as a state or county), political subdivisions thereof (such as school districts or port authorities) and nonmember credit unions. Credit Unions with a "low income credit union" designation may accept nonmember deposits with fewer restrictions. Can federal credit unions use advertisements that indicate membership in a federal credit union is "open to anyone"? - ANSWER-No what does the phrase "organizations of such persons" mean? Do all the individuals need to be within the field of membership or only a majority? - ANSWER-100% all need to be within the filed of membership Must a joint owner on a share account be a member? - ANSWER-Yes Which "other persons" may be eligible for membership and join the credit union? - ANSWER-Secondary member - Person qualifies for membership because they have close ties to the primary field of membership. Current and retired FCU employee, Volunteers who work at a sponsored group, spouses of those who died while in the FOM, business and legal entities in the charter, Honorably discharged vets of the US Armed forces, Immediate family or household members of someone within the FOM, or Organizations of such persons. What is the current standard maximum shares insurance amount (SMSIA) level? - ANSWER-$250,000 What are the different types of accounts for share insurance coverage purposes? Can an account be more than one type of account? - ANSWER-Individual accounts, Joint or multi owner accounts, trusts, revocable trusts, revocable trusts - single owner, revocable trust - joint owners, complex revocable trust, irrevocable trusts, retirement accounts, business accounts, custodial accounts, IOLTA and other escrow account. All accounts under truth in savings When is an account considered a revocable trust? - ANSWER-A revocable trust account is a share account owned by one or more people that identifies one or more beneficiaries who will receive the deposits upon the death of the owner(s). What are the main aspects of a joint account and how does each joint owner receive share insurance coverage? - ANSWER-Applies to accounts that have more than one owner (account types does not apply) Coverage is applied to each owner's interest in the account up to $250,000 - Eligible amount is $500,000 How long does share insurance coverage apply after the death of a member? - ANSWER-Share insurance coverage remains on a member's account for up to 6 months after the member's death. This allows the remaining owners of the account sufficient time to restructure the account to ensure continued share insurance coverage. However the grace period does not extend to the death of a beneficiary on a revocable trust account. In those situations, the share insurance coverage could be reduced. How is share insurance coverage determined for a revocable trust? A joint revocable trust? Complex revocable trusts will not be tested. - ANSWER-It is based off owners and beneficiaries. If a single owner has 3 beneficiaries coverage is $750,000 but if there are two owners and 1 beneficiary coverage is only $500,000 not $750,000 If a member has an IRA and a Roth IRA at your credit union, is the member's insurance coverage a combined $250,000 or $250,000 for each account ($500,000 total)? - ANSWER-A combined $250,000 What are the share insurance coverage rules for business accounts? - ANSWER-$250,000 applies for corporations, partnerships, and unincorporated associations. Sole Proprietorships and DBA's are aggregated under the individual account coverage limit. How is share insurance coverage determined in the event of a merger? How long is the grace period? - ANSWER-The accounts are eligible for separate coverage up $250,000 for a period of 6 months post merger. After 6 months, coverage is provided under the acquiring institution. What are the various maturity limitations found in the NCUA's lending requirements? - ANSWER-40 years, 20 years, 15 years - They do not apply to Line of Credits - Credit Card of Heloc 15 years - General limit that applies if it not eligible for 20 or 40 year limit. 20 years - First lien on a mobile home use as a member's residence, 2nd mortgage/nonpurchase money first mortgage secured by residential dwelling used a member's residence, repair/improvement of member's residence 40 years - residential real estate loan, Perfected first lien on a 1-4 family dwelling that is or will be the principal residence of the member. Standards loan application form or equivalent, standard/uniform security instrument and note. Do NCUA's lending requirements address loan incentive programs? If so, what are the limitations of such programs? - ANSWER-Yes they do. No FCU official (Member of the board or volunteer committee) or employee (or even the immediate family member of an official or employee), may receive commission, fee or other compensation in connection with any loan made by the CU Must FCU staff, management and officials receive the same loan rates, terms and conditions as all other members? Can FCUs offer preferential loan terms to employee's like the COO? - ANSWER-Yes the COO is an employee not an official. Officials can not receive preferential loan terms. Describe how the federal credit unions may interact with nonmembers in the lending context. - ANSWER-Nonmembers can be the guarantor, cosigner and authorized users on loans. What is a member business loan? Are there exceptions to the definition? What kinds of loans are there exceptions for in the definition? - ANSWER-MBL is any commercial loan. Except - (example - these are commercials loans not MBL's. Loans fully insured or guaranteed by a federal or state agency. Loans to non members or participation interest in loans to non-members. What are the "concentration limits" in NCUA's lending rules? - ANSWER-10% concentration limit - unimpaired capital and surplus. No loan or loc advance may be made to any member if the loan or advance would cause the member to owe the FCU an aggregate amount exceeding 10% of the credit unions total unimpaired capital and surplus How do the NCUA lending regulations limit loans and loan-related compensation to a credit union's board of directors and other officials? When is board approval required for loans made to the credit union officials? - ANSWER-Board approval is required when an official is a direct obligor, endorser, cosigner or guarantor if: A-B= $20,000A is the sum of: Amount of Application, outstanding balances of loans, including the used portion of an approved loc extended or endorsed, cosigned or guaranteed by the official, total unused portion of approved LOC extended to or endorsed, cosigned or guaranteed by the official. B is the sum of: The amount of shares pledged by the official on loans or lines of credits extended to or endorsed, cosigned or guaranteed by official, the amount of shares to be pledged by the official on the loan or loc applied for by the official What is considered an official under NCUA's rule? - ANSWER-Official is a member of the board of directors, supervisory committee or credit committee What measures must a credit union take when making loans to credit union officials (directors, supervisory committee member, etc.)? - ANSWER-Loans to officials in excess of $20,000 are subject to board review.