As discussed here, in a recent letter, the Chairman of the National Credit Union Administration (NCUA) outlined the agency’s supervisory priorities for 2024. In this post, we delve deeper into the area of consumer protection oversight.
While the agency will continue to assess federal credit unions’ compliance with all applicable federal consumer financial protection laws and regulations, it identified three areas of supervisory focus: overdraft programs; fair lending; and indirect auto lending.
In 2024, NCUA examiners will conduct an expanded review of credit unions’ overdraft programs, including website advertising, balance calculation methods, and settlement processes. Notably, examiners will also evaluate adjustments made to overdraft programs to address consumer compliance risk and potential consumer harm from unexpected overdraft fees.
As for fair lending, examiners will review policies and practices for redlining, marketing, and pricing discrimination risk factors.
For auto lending, examiners will review disclosures and policies to ensure compliance with the Truth in Lending Act (TILA) as implemented by Regulation Z. Examiners will also review policies regarding Guaranteed Asset Protection (GAP) insurance.
In relation to indirect auto oversight, the NCUA has stated that in 2024, it will perform fair lending examinations at certain federal credit unions meeting the following conditions: total assets of at least $500 million; a ratio of indirect auto loans/total loans greater than 48%; permitted discretionary dealer mark-ups of greater than 125 bps; and no recent NCUA fair lending exam. However, this does not preclude NCUA examiners from reviewing indirect auto lending for fair lending compliance during other examinations.
Separately in the Interagency Fair Lending webinar in December 2023, NCUA outlined specific expectations for supervised federal credit unions in managing and monitoring discretionary dealer mark-ups:
- Credit unions should communicate compliance expectations to auto dealers, which may include sending written communications to participating dealers explaining the credit union’s Equal Credit Opportunity Act (ECOA) compliance expectations and articulating the credit union’s expectation that interest rates will be marked up in a non-discriminatory manner.
- Credit unions should conduct regular analyses of indirect loan pricing data for potential disparities on a prohibited basis.
- Credit unions should take action such as restricting or eliminating discretionary mark-ups from a dealer’s compensation structure, or excluding dealers from future transactions, when analyses identifies unexplained disparities on a prohibited basis.
As we move into 2024, it is clear that the NCUA is continuing a strong focus on the types of consumer protection compliance that we have seen the CFPB focus upon. Credit unions should take heed of these supervisory priorities and ensure their practices align with NCUA expectations and regulatory requirements.
Importantly, the NCUA appears to be picking up where the CFPB left off in 2018 when it curtailed auto finance supervisory and enforcement actions based on disparities in discretionary dealer mark-up after Congress rescinded the Bureau’s fair lending bulletin. In the past two years, we have also seen the FDIC make public statements and the NYDFS take enforcement actions against indirect auto lenders based on a theory of discriminatory dealer mark-ups. This turn of events is surprising when we thought the issue was dead after the CFPB’s attempt to crack down on discretionary dealer mark-ups failed, but indirect auto lenders supervised by the NCUA, FDIC, or NYDFS should take note of these attempts to resurrect the issue. We will continue to monitor any developments in this area.