CUNA Regulatory Advocacy Report

Good afternoon. It has been another hectic week, and here is an update on some of the issues that we worked on this week.

CFPB ISSUES: CUNA’s CHART and Advocacy

We know credit unions and leagues are very concerned about the number, scope, and heft of current and developing CFPB regulations. We share those concerns. 

To help get a better handle on what can be expected from the CFPB, CUNA’s Regulatory Advocacy group has developed this chart which lists the issues the public is aware of, summarizes their substance, and provides the date for when further action is expected, based on our discussions with the CFPB senior staff or the agency’s publications.

While we are engaging with the CFPB on every issue of significance to credit unions, a present focus is the improvement of the remittance transfer rule and achieving a workable safe harbor threshold that will actually provide relief to credit unions offering remittance transfer services to their members. CUNA is prepared to pursue a favorable outcome on this matter as far as we need to go, including increased interaction with Congress and appealing to the Financial Oversight Stability Council (FSOC) if necessary once we see the final rule on the safe harbor.   That rule is expected shortly. The FSOC is authorized to overturn rules of the CFBP, which is why CUNA successfully advocated to Congress that NCUA be included on the Council. CUNA has briefed NCUA on the problems that the remittances regulation will create.

Proposed rules on mortgage servicing and mortgage loan origination compensation are expected very soon as well. We will keep you posted on all developments from the CFPB on these and other regulations that affect credit unions.  

NCUA Letter to FCUs In the Works on Low-Income Designation

The National Credit Union Administration (NCUA) soon will be sending letters to nearly 1,000 credit unions indicating they are eligible for low-income designation, a status whose benefits include the ability to accept supplemental capital and an exemption from the small business lending cap under certain circumstances, NCUA Chairman Debbie Matz told League presidents last week attending the American Association of Credit Union Leagues (AACUL) summer meeting in Chicago.
“Almost 1,000 credit unions would meet the LICU designation but don’t have it,” Matz said. “I know with some credit unions there’s a stigma to a low income designation. I hope you will help them get over that,” she told the League presidents.
An NCUA letter to these eligible credit unions is expected soon. NCUA is providing the list of the credit unions to CUNA before the agency letter goes out and as soon as CUNA has the list we will share it with Leagues.
NCUA’s action will give eligible credit unions a greater awareness of their options and will help them make a more informed decision.  Many credit unions that desire more MBL authority or supplemental capital will not qualify as LICUs, so the agency’s action should have no bearing on the need for Congress to pass these two very important pieces of legislation. – NewsNow

NCUA Holds Final Listening Session

Chairman Matz addressed a number of issues at NCUA’s sixth and final listening session in Denver earlier this week, such as concerns over examination practices. She was accompanied by NCUA Executive Director Dave Marquis, Director of Examination and Insurance Larry Fazio, Region 5 Director Elizabeth Whitehead, General Counsel Mike McKenna, and Director of the Office of Small Credit Union Initiatives Bill Myers.

Chairman Matz spent a few minutes discussing the recently announced NCUA Office of National Examinations and Supervision. Matz said that the agency is reorganizing its existing resources to create the office in order to enhance oversight of the corporate credit unions and natural person credit unions with $10 billion or more in assets. Matz stated that this will reallocate examination resources from smaller, less risky credit unions, to the largest, most complex, and potentially risky credit unions. While the transition for the new office will begin in January of 2013, credit unions will not be moved into the office until January of 2014. NCUA has provided a list of Q&As regarding the new office.

Chairman Matz noted that the agency is still working on its CUSO proposal, which CUNA does not support. Matz went on to explain the importance of the agency having greater information on credit unions’ involvement with CUSOs and on the CUSOs themselves.

In addition, there was much discussion of the Central Liquidity Facility (CLF) and the agency’s recently proposed emergency liquidity rule. In response to a question regarding the fate of the $2 billion of CLF stock held by the US Central Corporate Bridge, Director of Examination and Insurance Fazio described how the $2 billion, which is currently held in US Treasury securities, will be redeemed and then paid out by US Central Bridge to the corporates and natural person credit unions that are entitled to it. Fazio also explained that the CLF’s borrowing authority, which is 12 times its capital base, will be reduced in the coming months (with the exit of US Central Bridge) from approximately $50 billion at its peak down to around $2 billion. The $2 billion borrowing authority will be based on capital that will remain in the CLF that has been contributed by the CLF’s roughly 90 direct credit union members (as well as some retained earnings of the CLF).

Executive Director Marquis clarified that US Central Bridge has been acting as an agent of credit unions to allow them to access the CLF, and noted that only members may borrow directly from the CLF. Fazio noted that natural person credit unions may become members of the CLF by contributing one-quarter of 1% of their assets. Fazio mentioned that the landscape of available liquidity is about to change, and this is one reason for emergency liquidity proposal.

Questions Remain Regarding MFOEL

A number of credit unions remain concerned about multi-featured open-end lending following the issuance of NCUA’s letter to federal credit unions last month (NCUA Letter No. 12-FCU-02). While designed to provide additional guidance (and basically to correct a previous letter the agency sent to federal credit unions in 2010 on MFOEL), credit unions that want to continue offering open-end credit to their members under the MFOEL program have raised questions.   

To respond to the need for more information on MFOEL, CUNA and CUNA Mutual Group are partnering to offer a webinar August 15 through CUNA’s CPD. Click here for information about the webinar.

“Finance Charge” Changes Under CFPB’s RESPA/TILA Proposed Rule

As part of the Consumer Financial Protection Bureau’s (CFPB) 1099-page proposed RESPA/TILA rule, the CFPB is proposing some significant changes to Section 1026.4 of Regulation Z which defines the “finance charge.”  Importantly, these proposed changes will result in a more inclusive finance charge, which, absent further action by the CFPB, will increase the number of closed-end mortgage loans that will be classified as high-cost mortgages (HOEPA loans), higher-priced mortgage loans (which will require escrow accounts for those that are first lien loans), and will also reduce the number of “qualified mortgages” under the Dodd-Frank Act’s ability-to-repay requirements since the points and fees test that is part of the QM standards begins with the annual percentage rate (APR).  Currently, Regulation Z provides for exclusions of certain charges from the finance charge and associated APR calculations. 

Under the proposed rule, certain charges would continue to be excluded, such as fees or charges paid in comparable cash transactions, late fees and delinquency fees or default charges, fees for exceeding a credit limit, seller’s points, amounts required to be paid into escrow accounts (if the amounts would not otherwise be included in the finance charge), and premiums for property and liability insurance under certain circumstances.  However, under the proposed rule, the finance charge would now include fees that have traditionally been excluded as “real-estate related” fees under Regulation Z.   These fees would include fees charged by closing agents (including fees of other third parties hired by closing agents to perform certain services), fees for title examinations, abstracts of title, title insurance and property surveys, document preparation fees for items such as deeds, mortgages, and reconveyance or settlement documents, notary and credit report fees, appraisal fees and fees associated with pest-infestation, and flood-hazard determinations. 

One other proposal being considered by the CFPB would provide that, for disclosure purposes, a finance charge is “accurate” if it does not vary from the actual finance charge by more than $100 or is greater than the amount required to be disclosed.

CUNA is currently seeking comments on this aspect of the proposed rule, and comments are due to the CFPB by September 7.  Click here for CUNA’s Comment Call.  We will be reaching out to our Consumer Protection Subcommittee and Housing Finance Reform Task Force to obtain additional input for our comment letter in advance of this due date.  For the remainder of the proposed rule, comments are due to the CFPB by November 6, and CUNA will be releasing a second comment call in the next few days on these remaining sections of the proposed rule.

FinCEN Public Hearing on the Customer Due Diligence ANPR

On Tuesday, the U.S. Treasury Financial Crimes Enforcement Network’s (FinCEN’s) held a public hearing on the customer due diligence (CDD) Advance Notice of Proposed Rulemaking (ANPR) that was issued in March 2012.  The hearing included participants from the U.S. Treasury, FinCEN, financial regulators, financial service trade associations, and members of the law enforcement community.  Many hearing attendees and participants shared concerns regarding the potential expansion of the “beneficial ownership” requirements, which would likely impose significant burdens and costs.  FinCEN plans to engage in additional outreach regarding the ANPR at the regional level in the upcoming weeks.  CUNA continues to emphasize that credit unions would face significant compliance challenges and costs if FinCEN proceeds with its ANPR, as outlined in our May 2012 comment letter.  We continue to work to minimize BSA compliance burdens on credit unions, including with our participation on the U.S. Treasury Bank Secrecy Act Advisory Group (BSAAG) and other forums.

Conclusion

I hope you find this information useful. In the meantime, if you have any questions or comments about this report, please feel free to contact Mary Dunn, Bill Hampel, or me. I hope you all have a great weekend!

Best regards,

Bill Cheney

Posted in Strategic Link.