Thursday, October 18, 2012

CFPB publishes remittance rule guide for small businesses


The CFPB is seeking public feedback on a guide intended to help small firms understand and comply with the agency’s new rules for international money transfers.
The rules, scheduled to take effect on Feb. 7, 2013, implement new consumer protections under the Dodd-Frank Act. The rules require remittance transfer providers to disclose fees upfront, as well as the exchange rate and the amount to be received by the recipient. Disclosures must generally be provided when the consumer first requests a transfer and again when payment is made. The rule also provides consumers with error resolution and cancellation rights.
The CFPB said its guide may be helpful to any business that sends money internationally for consumers. The guide is intended to help institutions determine whether the transfers they send are regulated by the rule, and if so, what compliance obligations they face. For instance, the guide highlights that companies that send 100 or fewer remittance transfers a year do not qualify as remittance transfer providers and are not covered by the rule.
In determining whether a company’s remittance activities exceed the 100 transfer threshold, the CFPB said companies should remember remittances are often sent by various departments.
“You may need to identify and contact each department to determine how many remittance transfers you provide per year,” the agency wrote. The CFPB also said companies must count all types of remittance transfers covered under the rule together.
“If you sent 60 international wire transfers and 50 international ACH [automated clearing house] transactions last year, then you provided over 100 remittance transfers last year,” the agency explained.
The guide also sets forth key rule exceptions, including a temporary exception that allows insured depository institutions and credit unions to use estimates in certain disclosures.
Businesses seeking additional information on the remittance rule are encouraged to call the CFPB at: (202) 435-7700.
The CFPB asked industry participants to share their thoughts on the guide to ensure the publication is as helpful as possible.

© Copyright 2012 October Research LLC. This article is reprinted with permission from the October edition of Dodd Frank Update. Any copying or republication without the express written or verbal consent of the publisher is a violation of federal copyright laws. Daily updates concerning the Dodd-Frank Act can be accessed at www.doddfrankupdate.com.

Thursday, October 11, 2012

What do you know about Credit Scores?

Automated credit scoring has had a greater impact on how loan applications are considered than any other change since the beginning of credit bureaus. Many consumers can tell you what their credit score is, but fewer have an accurate understanding of what their credit score number really means.

Credit scoring is not new or recent idea. In early “scoring” lenders used manual systems whereby “points” were assigned to certain characteristics within a loan application. For instance, over five years employment might rate ten points, less than two years might be assigned only one point. Each thirty day delinquency might be given a negative two. Points were totaled. An application might be approved or declined, or an interest rate determined based on what total points indicated about the risk level.

Improvement in this idea of risk prediction became possible as credit reporting became a national system with huge credit databases. Fair Issac and Company, now known as FICO, was an innovator in the standardized credit scoring industry, and remains dominant.  It uses a model that draws information directly from the credit reporting repository to calculate a “score”, which has become a standard measure of the likelihood of loan default.

Consumers commonly misunderstand the meaning of their credit score. Perhaps because it’s called a “score”, they think it is a “report card” on their past behavior. While past payment history is a significant factor in determining a credit score, the score is actually predictive of future behavior.  In developing the model, FICO analyzed millions of credit reports, and then looked at those consumers status two years later. By this means they were able to assess what those who defaulted and those who paid well had in common when originally analyzed. They then built the scoring model around those commonalities.

Widespread misunderstanding that credit scores are predictive, not reactive, leads to misunderstanding about how consumers can improve their score. While it does improve a score over time to pay off delinquent accounts and collections, it may damage scores to close accounts or consolidate several credit cards onto one.  Other actions that can improve scores are keeping credit card balances below fifty percent of the maximum credit line, and being added as a borrower to a good account that a spouse or parent many have.

FICO and other scoring companies’ actual scoring models are proprietary and trade secrets, but they have provided insight into things consumers can do to improve their scores. Other businesses have developed credit score improvement plans based on analyzing the changes in scores relative to actions taken by consumers.  There are many sources offering “credit score improvement” assistance for a fee and, while some are legitimate, others take a fee and produce little or nothing in the way of results. Consumers should be very cautious before paying anyone to help them improve a credit score.

Credit scores are in widespread use because they work, and they are here to stay. In addition to loan rates and availability, insurance rates and even employment opportunities can be affected by credit scores. Consumers and lenders need to know and understand what they are, what they are not, and what they need to do to maintain a good credit score.

The CBAO does not offer or endorse any credit score improvement program, but we do have a partner that offers unsecured business credit lines to applicants with good credit. As part of this program, credit score improvement assistance may be offered free of charge.

Submitted by Kyle Moseman, CBAO Product and Service Manager

Wednesday, October 10, 2012

Senate President Tom Niehaus Indicates New Financial Institutions Tax Bill Will Likely Pass During Lame Duck Session

Ohio Senate President Tom Niehaus, (R-New Richmond), has indicated that the Ohio Senate will likely pass the new Financial Institutions Tax legislation after the November elections.  President Niehaus noted there would not likely be any major changes in the proposed bill. The Kasich administration drafted the bill earlier this year to close tax loopholes for out-of-state banks and bring fairness to Ohio’s community banking industry.  Senator Tim Schaffer, (R-Lancaster), who chairs the Ohio Senate Ways & Means & Economic Development Committee said, “We have some housekeeping updates to make, a few word changes-nothing substantive.”  CBAO believes the new FIT legislation will bring much needed tax relief to the community banking industry and looks forward to the bill being passed in its present form. CBAO will have community bankers testifying before the committee when the committee dates are confirmed.

Friday, October 5, 2012

Basel III’s Effect on Community Banks

In a piece for American Banker’s Bank Think blog, Shea Dittrich, a director at Sageworks, outlines the harmful effects that Basel III may have on community banks.  Dittrich carefully explains the dangers of raising capital requirements for community banks, including the potential effects on shareholders and the surrounding communities.

Read the full article here.

Wednesday, October 3, 2012

U.S. Senator Rob Portman Signs Letter to Support the Community Banking Industry

United States Senator Rob Portman has joined 50 other Senators in sending a letter to Chairman Ben Bernanke Chairman of The Federal Reserve System, Comptroller Tom Curry, Office of the Comptroller of the Currency and Acting Chairman Gruenburg at Federal Deposit Insurance Corporation on behalf of the community banking industry. The Senators strongly urge the Agencies to consider the impact that applying standards developed for large, complex institutions will have on the unique and vital role that community banks play within the U.S. financial system. The letter noted that, “Community banks are an important source of personal and business lending in communities across the country. In many areas, small institutions are the only ones that provide direct local services and have a stake in the success of their communities. These institutions are different from many larger institutions in size and scope, and we do not see the value in requiring them to adhere to regimes designed to manage larger and more complex risks.” CBAO appreciates Senator Portman’s understanding of how many new proposed regulations will harm community banks throughout Ohio and America.

Monday, October 1, 2012

Announcing The Community Banker Bulletin!


The Community Banker Bulletin is your source for up-to-date information regarding the community banking industry. Published by the Community Bankers Association of Ohio (CBAO), The Community Banker Bulletin provides current news about commercial and business loans and lending, bank regulation, mortgage lending, deposit services, credit lines, regulatory issues, insurance, and other issues affecting community banking.

Stay tuned for our next update!

Subscribe to The Community Banker Bulletin by entering your email in the field to the right and press submit.