Determining the Loan Purpose:  The New Challenges [Part 1]

By Cathy Brown, Wolters Kluwer

One of the common threads running across the new Uniform Residential Loan Application (“URLA”), the disclosure requirements of Regulations X and Z (“TRID”), and the reporting requirements of Regulation C (“HMDA”) is the requirement that the lender identifies the loan purpose.[1]  It is possible for the loan purpose to be the same for the new URLA and under TRID and HMDA.  This blog examines the need to recognize that the loan purpose may be different for each and what lenders can do to prepare for that eventuality.

Can there be more than one loan purpose choice for a single-purpose loan?

Consider the following single-purpose loan.  A prospective borrower takes title to a dwelling with an existing loan as a successor-in-interest.  The loan is assumable with the lender’s approval but the prospective borrower only seeks approval after taking the title.  The prospective borrower selects “Purchase” for the loan purpose on the new URLA. But is that it—is the loan purpose “Purchase” for the URLA and under TRID and HMDA?

In order to answer the question with certainty, lenders may wish to start with a review of the possible choices.  Those choices vary.  The bare choices follow.

It is also helpful to recognize why the loan purpose choices are different between TRID and HMDA.  The choices under TRID are intended “to aid consumers’ understanding of their loan transactions.”  See Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z).
Notice that the new URLA no longer contains choices for Construction or Construction-Permanent.  Also, there are two new choices under HMDA; those new choices are “Cash-Out Refinancing”[2] and “Other.”

By contrast, the choices under HMDA are intended to aid regulatory agencies and the public when analyzing the mortgage market.  An obvious difference is that “Construction” is a loan purpose choice under TRID, but not under HMDA.  “Construction” is an important category from a customer perspective.  For covered loans under HMDA, “Construction” is primarily absorbed into the “Home Purchase” and “Home Improvement” choices.  Presumably, that approach aids analysis and it does avoid double-counting when there are separate construction and permanent loans.

Going back to our example, there is a prospective borrower seeking approval to assume an existing loan after taking title to the property, and that prospective borrower selects “Purchase” on the URLA.  See the following analysis showing how one single-purpose loan may have three different loan purposes.

Although the example transaction may not occur with great frequency, it is just one loan purpose question that lenders should be prepared to answer.

The first question above was whether there can be more than one loan purpose choice for one loan.  The answer is a qualified yes for the example given, but an unqualified yes for other loans because the available choices are different between the URLA, TRID, and HMDA.

In Part Two of this blog series, Wolters Kluwer discusses the HMDA Loan Purpose “waterfall” methodology and other requirements your credit union needs to know. They also share hidden requirements and next steps.

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[1] For purposes of this article and for simplicity, use of the regulatory acronyms URLA, TRID, and HMDA include the full regulations when applicable. [2] References to a lender’s separate cash-out refinancing product includes those products that are intended to meet investor guidelines.

Equifax Data Breach: What to do now to Safeguard Your Information and Avoid Being Scammed

By: April Lewis-Parks, Director of Education and Corporate Communications, KOFE

The latest big data breach has been reported all over the news and you might be wondering what to do or how it may affect you.

Equifax has been breached and it’s said that 143 million U.S. consumers could be affected.  Cybercrime is becoming more prolific and you need to protect yourself.  We strongly suggest that you consider freezing your credit as a precaution.  Contact each of the credit reporting agencies individually. Their contact information is:

Equifax — 1-800-349-9960 or

Experian — 1-888-397-3742 or

TransUnion — 1-888-909-8872 or

You’ll have to provide your personal information and pay a small fee, except from Equifax who is providing the freeze for free since they were breached.

After they receive your freeze request, each agency will send you a confirmation letter containing a unique PIN (personal identification number) or password. Keep the PIN or password in a safe place as you will need it if you choose to lift the freeze, for example, to refinance your mortgage or take out an auto loan, etc.

By freezing your credit, you will block anyone from accessing your credit, which should prevent thieves from taking out credit cards in your name.

Freezing your credit will not prevent all identity theft.  You may also want to consider subscribing to a trusted company that specializes in protecting identity. For example, LifeLock is currently offering a 10% discount in addition to a 30 day trial on their Identity Protection products.

Precaution is the best way to approach these uncertain times and it is important to take control of what you can.

And be wary of scams connected to the Equifax breach.  People have been calling consumers trying to trick them into giving them their personal information. Here are tips for recognizing imposter scams and things to do if you are called:

  • Don’t give out personal information. Don’t provide any personal or financial information unless you have initiated the call and it’s a phone number you know is correct.
  • Don’t trust caller ID. Scammers can spoof their numbers so it looks like they are calling from a particular company, even when they’re not.
  • If you get a robocall, hang up. Don’t press 1 to speak to a live operator or any other key to take your number off the list. If you respond by pressing any number, it will probably just lead to more robocalls.
  • If you’ve already received a call that you think is fake, report it to the FTC.

The KOFE financial wellness portal has additional information to help you prevent identity theft and learn how to protect yourself.

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KOFE (Knowledge of Financial Education) is the NAFCU Services Preferred Partner for Financial Literacy. More educational resources and contact information are available at


A Layered Approach to Fraud

By Mick Oppy, VP Financial Institution Products at Vantiv

What we know to be true today is not going to change – and that is growth in fraud and attacks on the payments system are not going away. When attempting to combat fraud, think about layers – of people, technology, and processes that have to be in place to keep up the good fight.

Though there continues to be a forecast that card present (CP) fraud will decrease significantly through 2018, we anticipate that card not present (CNP) fraud will continue to grow, with some estimating as much as a 50% increase in incidents. Why?  Well, fraudsters are getting more sophisticated, improving their technology and keeping in step with the security we’re all trying to put in place.

I get asked all the time, what about EMV? Wasn’t that supposed to stop CNP fraud? The short answer is yes. We have seen a significant slow-down in fraud with the continued adoption of EMV on both the issuer and merchant side. EMV definitely mitigates CNP fraud and we reap those benefits; the counter to that is that we continue to see more attacks on CNP payment scenarios.

But it can’t just be EMV. There is Tokenization, 3D Secure, and others. You need to think in terms of “and” instead of “or” when considering the players and layers needed to help combat fraud. Tokenization and 3D Secure are both needed in your fraud strategies.

Tokenization can be used to encrypt a card number so that it’s obscured in the payment stream. Cards at rest and cards swiped through POS systems at merchants are immediately tokenized through to that redemption on the issuing side. It’s the same with EMV – as long as both sides have a tokenized payment system, we can leverage that to hide primary account numbers (PANS) and magnetic stripes so they can’t be duplicated or stolen.

Some will agree, 3D Secure used to be tricky in terms of enrollment and how it worked. New mandates and technologies for 3D have really begun to allow for a more seamless cardholder experience. It will take about 18 months, but with use of 3D we will see upwards of 5-8% of transactions being triggered as a possible fraudulent event. That might feel like a low number, but again, fraud prevention is a layered process.

Cardholders want instant gratification and engagement and it’s difficult to limit them in the ways they want to use their cards. So when we look at fraud prevention, we need to look across all payment channels and say ‘okay, in this channel, here are the 4 to 5 ways we’re going to minimize that risk’ – but you have to understand that you’re also going to need to take some of that risk.

As many of these payment options are still in the adoption phase (and used at a relatively low percentage compared to the number of all consumers) now is the time to take risks in fraud prevention strategy. I don’t think any single channel will over-expose a financial institution – security remains at the forefront for both merchants and issuers. I’m excited about where the industry is going in terms of securing these new channels!

Hear more from Mick in our three-part podcast series, starting with “Close the Gap on Credit Card Fraud.” Listen as Mick sheds light on what’s being done to combat fraud currently and what’s on the boards for the future. It’s a topic you won’t want to miss!

Vantiv, LLC
Vantiv is the NAFCU Services Preferred Partner for ATM, Debit Card & Gateway Processing; Credit Card Processing & Servicing. More information and educational resources are available at


HSAs: The Medical IRA

By: Steve Christenson, EVP, Ascensus.

When I travel around the country and speak with organizations about health savings accounts (HSAs), there is a fairly clear divide between those that see the longer-term value and those that see HSAs simply as a spending account with little value to consumers and no opportunity to cross-sell. It is the latter viewpoint that requires a respectful challenge.

Let’s start with some basic assumptions.

  • Not everyone is eligible for an HSA. When someone critiques an HSA, one of the first arguments is that it does not work for everyone. It is true that those who are receiving medical assistance or other forms of subsidized care will not likely benefit from an HSA, as they do not have money to set aside for medical expenses. But if someone is HSA-eligible and pays any level of federal income tax, that person is a strong candidate to benefit from using an HSA as a long-term savings tool.
  • Individuals automatically get an HSA when their employer offers a qualifying high deductible health plan (HDHP). Unfortunately, recent surveys show that is not true. The surveys reflect that roughly 50 percent of employers (most of which have 200 or more employees) offer a paired HSA with the HDHP. Further, the data reflects that for those employers that do offer the HSA through payroll deduction, only half of the employees take advantage of it. This means that for employees who purchase an HDHP through their employer, only one out of four actually contribute. That leaves 75 percent of employees in this category plus those who purchase individual plans on the exchanges to understand HSA benefits on their own—and then find a financial organization that offers HSAs.
  • HSAs are spending accounts. In the beginning, most of them were, but through use and education, HSAs can become a key savings tool alongside an IRA or a 401(k) plan. They evolve into a savings tool, then an investment account in a few years’ time.

The reality is that use of HDHPs by employers and insurance exchanges will continue to increase. For the employer, it is simply a matter of economics to offer affordable benefits for its employees. For the HDHP to function as a benefit, an HSA is a necessary part of the equation.

The recent NAFCU webinar, we took these topics into greater depth and provided ways to use HSAs as a key tool to increase and retain your member base. You will see the evolution of HDHPs and HSAs and how HSAs have grown in a similar fashion as IRAs.  Our webinar explains how an HSA can provide triple-tax benefits and become a long-term tool for a more secure retirement while providing benefits now. Watch it now On Demand

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When is the Right Time to Start Vendor Contract Negotiations

By: Russ Bourne, Executive Vice President of Client Management, Strategic Resource Management. 

The typical financial institution has dozens of contracts in place with numerous vendors that support its operations (both member-facing and internal). As a result, staying on top of the expiration dates for all of those agreements to maintain an effective renewal process can present a significant challenge. At a minimum, doing so is simply best practice, but in other cases, such due diligence may also be a regulatory requirement or a board mandate.

So how long before a contract’s expiration should the negotiation process begin? The answer depends on many factors, including the service in question and the length of time moving to a different (new) vendor would require. One factor that should not come into play, however, is the level of satisfaction with your incumbent. The deck is stacked in favor of the vendor in many ways, so financial institutions (FIs) must seek out leverage points wherever they can.

In many cases, considering a replacement of an incumbent vendor is a non-starter as it would require a protracted process encompassing both internal disruption and detailed customer communication. Swapping out a core system can easily require two years, not including the additional year that’s typically necessary to carry out an effective Request for Proposal (RFP) process. Any vendor worth their salt is going to have its own tickler list, and an FI should expect to hear from them (on average) roughly 18 months prior to a contract expiration date if the institution hasn’t already initiated conversations. This timing is by design – if negotiations haven’t begun at least two years before the contract expires, an FI’s leverage is limited as the incumbent is quite aware of what an alternative will require. For a more in-depth conversation, listen to our podcast series about best practices for credit union vendor contract negotiations. 

Practice Your Poker Face

This isn’t to say that bankers should always orchestrate an RFP, spending everyone’s time in the process, if they are satisfied with their current supplier. There are other ways to foster an appropriately competitive environment. It’s always a good idea to begin with the incumbent – particularly if you are pleased with the existing relationship. Merely doing the necessary analysis of options often offers an ideal opportunity for a frank, constructive exchange regarding the relationship and pricing.

With so many contracts in play, it’s also advantageous to take a more holistic approach to a contract renewal strategy. Given the ongoing trend of industry consolidation, it’s quite possible an institution has multiple contracts with a single vendor – all with various expiration dates. Moving these deals to a coterminous state both helps to clarify the relationship and improve the bank’s leverage to obtain the best possible deal. Similarly, non-incumbents may already have contractual relationships for adjacent products – again improving an FI’s leverage.

Embrace the Educational Moment

While it can be time-consuming, vendor evaluation can also serve as a valuable education process as an opportunity to better understand a rapidly evolving market. This is where a contract management partner can be of great value in facilitating the process – whether it’s for a full RFP or a more tactical due diligence. A subject matter expert negotiating numerous contracts in a year will certainly know more about industry nuances than an in-house resource diving into the topic once every 3-5 years. With the connections in place to arrange meaningful conversations with properly positioned contacts, such partners can also save time compared to an internal project manager who has a full-time job of a different sort most of the time.

Because switching costs for financial services applications are typically very high, this creates a significant barrier that favors the incumbent. This underscores the importance for FIs to make the best decision – and strike the best possible deal – when vendor relationships are first initiated. Incumbents have various strategies to deter financial institutions from the starting early and doing a comparative review of their position.  Although such proposals are not inherently bad, they’re an implicit acknowledgment that a vendor values your relationship at a rate higher than its stated terms. Armed with that data point, it’s only logical for a financial institution to research the true value of its business.

Continue the conversation by listening to our recent podcast series “Best Practices for Credit Union Vendor Contract Negotiations Part 1 & 2,” where we discuss important best practices for navigating your vendor contract negotiations including the renewal process and how to effectively utilize RFPs to your credit union’s advantage.

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Strategic Resource Management (SRM) is the NAFCU Services Preferred Partner for vendor cost benchmarking and contract negotiation services. More educational resources and contact information are available at