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Compliance Updates Effective Sept. 1 for Texas Credit Unions
Friday, September 1, 2017 7:00 AM

Please remember that most of the bills passed in the Texas Legislative Session become effective 9/1/17! The good news is, the session went well for credit unions. That said, there are a few issues you need to be aware of. If you missed the Texas legislative session webinar we ran in July, it has been archived here.

From a compliance perspective, the two issues you should focus on first are: 1) powers of attorney (mandatory acceptance), and 2) elder abuse (mandatory reporting to the state of Texas). 

Below, please find details on these two issues to ensure you are on the right track for compliance with the new laws. 

Gone are the days where Texas credit unions can deny acceptance of powers of attorney at will; the concept of "mandatory acceptance" from the uniform power of attorney act has worked its way into the Texas Estates Code.

HB 1974 filed by John Wray amended Texas law governing durable powers of attorney and their acceptance. The revised law implements "mandatory acceptance," a concept that has been embodied in the uniform act for many years. On a positive note, the language has been modified from the uniform act in an effort to address the concerns of financial institutions and other third parties that have legitimate reasons they may need to deny a power of attorney (POA).

The general rule is that a person must accept a power of attorney. However, prior to acceptance, a third party may request a certification from the agent, an opinion of counsel, and/or an English translation. If the certification, opinion of counsel, and/or translation is provided, the power of attorney must be honored by the third party no later than 7 days after receipt. If the requested certification, opinion, or translation is not provided, the third party may deny the POA after providing written notice of the reason for denial.

Despite the requirement for "mandatory acceptance," the law provides several grounds for refusal. Permissible reasons for refusing a POA include:

  1. Situations where the CU would not otherwise be required to engage in a transaction with the principal, such as opening an account for someone who is not yet a member or providing product or service not currently offered;
  2. Engaging in a transaction that would be inconsistent with another law, regulation, or a request from law enforcement;
  3. Situations where the CU would not engage in the transaction because the CU filed a suspicious activity report, the CU believes the principal or agent has a criminal history of financial crimes, or the agent caused the CU a material loss, exhibited financial mismanagement or is involved in litigation;
  4. The CU has actual knowledge of termination of the agent's authority;
  5. The agent refuses to comply with a request for certification, opinion of counsel, or translation; or if those are provided, the CU is unable to validate the POA or authority;
  6. Regardless of the certification/opinion/translation, the CU believes the POA is not valid, the authority is not valid, or the act would violate the terms of an agreement affecting the CU;
  7. Judicial proceedings have commenced to construe the POA or review the agent's conduct;
  8. A final judicial determination has been made declaring the POA invalid with respect to the intended purpose or that the agent lacked authority;
  9. The CU makes (or has knowledge of another making) a report to law enforcement or other federal or state agency, including Department of Family and Protective Services, stating a good faith belief that the principal may be subject to physical or financial abuse, neglect, exploitation, or abandonment by the agent or a person acting with or on behalf of the agent;
  10. The CU receives conflicting instructions or communications from co-agents (CU can refuse acceptance only on the matter in dispute); or
  11. The law of the jurisdiction that applies to the POA (another state) does not require acceptance or does not authorize the activity.

A person who refuses to accept a POA shall provide to the agent a written statement advising the reason(s) for refusal. The statement must be provided on or before the date the person would be otherwise required to accept the POA. 

If the reason for refusal is #2 or #3 above (such as a confidential SAR, acceptance would violate a law/regulation, criminal history of financial crimes, litigation, etc.), the credit union shall provide a written statement signed under penalty of perjury stating that the reason is described by the applicable subsections. In other words, you can cite the statutory language of those two subsections, and the credit union is not required to provide any additional explanation or detail. 

NOTE: A credit union MUST NOT specifically mention or in any way infer that a suspicious activity report has been filed; doing so would be a violation of federal law. 

The revised law provides several positive changes, addressing many of the issues and concerns that credit unions have raised over the years including clarifications regarding the validity of POAs (including those executed outside Texas), powers of co-agents, an agent's authority to make a gift or act in self-interest, an agent's ability to amend beneficiaries, etc. 

The new statutory power of attorney form is great; it is much clearer than the current form and addresses a lot of the "gray" areas that used to cause credit unions concerns in acceptance. Unfortunately, credit unions cannot require that anyone use the statutory form. You will end up having to deal with other formats, as well as POAs from other states. If for any reason you are unsure about the agent's authority, remember, you can always ask for an opinion of counsel (on the agent's dime).

Credit unions need to ensure that all staff are aware of these changes. It is recommended that you choose a credit union "point person" to handle powers of attorney. Credit unions should update policies and procedures regarding POAs and train staff accordingly; any blanket policy that denies all POAs is no longer acceptable! 

Most importantly, credit unions need to be prepared to deal with the "mandatory acceptance" provision, understand when grounds for denial may apply, and be prepared to provide written notice of denial of acceptance in the case of an exception.

Cornerstone has drafted sample "denial" letters for your use. A letter appropriate for general denials (not based on reasons 2 or 3 above) requiring an explanation can be found here. For letters where a refusal is based on reasons 2 or 3 above, use the letter found here.

The text of HB 1974 can be found here.

Credit unions know they need to report elder abuse on a suspicious activity report under the Bank Secrecy Act (BSA). However, many financial institutions in Texas were unaware that they also have an obligation to report suspected elder abuse (physical or financial) to the state of Texas as well. This state reporting requirement has been in place for years, the new law simply brings it to new light.

HB 3921 by Tan Parker adds a new Chapter 280 to the Finance Code requiring financial institutions to report financial exploitation of vulnerable adults (over 65 years old or disabled) to the Department of Family and Protective Services (DFPS). Although the provision in the Finance Code specific to financial institutions is new, the requirement to report is not. Current Human Resources Code Section 48.051 already requires all "persons" (including credit unions) to report abuse of the elderly or disabled to the DFPS.

The new law requires credit union employees who have cause to believe a member may be subject to financial exploitation to notify the credit union. The credit union is required to report suspected financial exploitation to DFPS. The report must be submitted not later than the earlier of: 1) the date the assessment is complete, or 2) the fifth business day after the date the credit union is notified of the suspected financial exploitation. In other words, a report should be filed with the state within 5 days or sooner, which is far earlier than the 30-day deadline for filing a suspicious activity report under the BSA.

A credit union that makes such a report under Finance Code Chapter 280 is not required to make an additional report of suspected abuse, neglect, or exploitation under the Human Resources Code Section 48.051 (the current law regarding reporting abuse).

Credit unions must adopt policies and procedures that require employees to identify financial abuse and exploitation and promptly notify the appropriate point person at the credit union. The credit union must investigate and timely file any necessary reports. The policies and procedures may authorize the credit union to report the suspected financial abuse to other appropriate entities such as the Office of the Attorney General, the Federal Trade Commission, and the appropriate law enforcement agency. As a reminder, financial exploitation triggers a requirement to file a suspicious activity report.

At the time of submitting a report to DFPS, the credit union is authorized to also notify a third party reasonably associated with the vulnerable adult (such as a family member) if that person is not a suspect.

If a credit union submits a report, it may place a hold on any transaction involving an account of the vulnerable adult suspected to be tied to financial exploitation. A mandatory hold on transactions may also be requested by DFPS or a law enforcement agency. A related hold expires on the tenth business day after the report is filed, but may be extended for up to 30 business days from the date of filing if requested by a state or federal agency or law enforcement investigating the matter. A credit union may also petition a court to extend a hold.

A credit union employee who makes a notification and a credit union that files a report or otherwise participates in judicial proceedings is immune from any civil or criminal liability unless acting in bad faith or with malicious purpose. A credit union is immune from civil or criminal liability or disciplinary action resulting from placing or not placing a hold on transactions.

Credit unions shall provide related documentation, on request, to the department, law enforcement, or a prosecuting attorney's office.

Credit unions will need to adopt policies and procedures and train staff accordingly. The policies and procedures should address training staff, identifying abuse, investigating abuse, reporting abuse, and placing holds on accounts.

DFPS has provided resources for submitting reports on its website here. Reports can be made by phone at 1-800-252-5400 (for urgent or emergency situations) or through DFPS's website here

The report should include the following information:

  • Name, age, and address of the elderly or disabled person;
  • The name and address of any person responsible for the care of the victim;
  • The nature and extent of the condition of the victim;
  • The basis of the reporter's knowledge; and
  • Any other relevant information.

The DFPS has a website focused on education regarding adult abuse and exploitation, and it can be found here.

A link to the new law can be found here