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. 

  • Conversation with Consumer Financial Protection Bureau’s Director Richard Cordray
  • NCUA Issues Legal Opinion Letter on MFL
  • FHFA Seeks Comment on Use of Eminent Domain
  • CFPB Proposes Rule on Appraisals & Valuations
  • Joint Agencies Propose Rule on Appraisal Requirements for “Higher-Risk” Mortgage Loans
  • CUNA Seeks Clarification on Low Income State-Chartered Credit Unions
  • CUNA Participates in CFPB Roundtable Meeting On TILA/RESPA/HOEPA Proposals
  • CUNA Comments on CFPB Senior Financial Exploitation Request for Information
  • CUNA Comments on CFTC Swaps Clearing Exemption for Cooperatives Proposal
  • NACHA Expedited Processing and Settlement (EPS) Update
  • NACHA Proposals on Person-to-Person (P2P) Payments, Compliance And Operations, and International ACH Transactions

Conversation with Consumer Financial Protection Bureau’s Director Richard Cordray 

I discussed CUNA’s concerns about the Consumer Financial Protection Bureau’s (CFPB) pending remittances rule and qualified mortgage proposal with CFPB Director Richard Cordray in a Tuesday conversation. 

During the discussion I noted that the implementation costs of the CFPB’s remittances rule would make it unworkable for some credit unions, possibly causing them to stop providing a valued service to their members. 

The CFPB’s final remittance transfer rule, which is scheduled to take effect on Feb. 7, would require remittance transfer providers to disclose the exchange rate, all fees associated with a transfer, and the amount of money that will be received on the other end. Remittance transfer providers also will be required to investigate disputes and correct errors.

 The CFPB last week announced that financial institutions that provide 100 or fewer remittance transfers per year would be exempted from the terms of the rule. The CFPB has estimated that this exemption would protect 80% of credit unions, but credit unions that are not exempted are very concerned about the rules.

I emphasized that the remittance rules have not taken effect yet, and asked Director Cordray to discuss remittance concerns with credit unions.

I also reiterated CUNA supports adding a safe harbor to the CFPB’s pending qualified mortgage regulations.  Director Cordray indicated he would work with CUNA and credit unions on this issue going forward. CUNA is also developing a list of best overdraft practices and wants to work with the CFPB, but credit unions are concerned that reasonable overdraft programs will be overregulated.

We had a productive discussion, and I appreciate the outreach from the CFPB director. 

NCUA Issues Legal Opinion Letter on MFL

NCUA has issued a legal opinion letter (11-0620) again addressing multi-featured lending plans (MFL).  The letter reinforces earlier guidance from NCUA issued to federal credit unions in NCUA Letter (12-FCU-02, July 20, 2012). The legal opinion provides:

  • MFL plans, under which sub-accounts are established that are either open-end or closed-end, are permissible under Regulation Z, Truth-Lending, if certain conditions are met.
  • The key conditions are that all required Regulation Z disclosures must be provided at the required times and new advances under open end sub-accounts may not be underwritten prior to extending the advance.
  • Multi-featured open end lending (MFOEL) plans are also permissible under Reg Z if the legal requirements, including proper disclosures are provided.

The letter also notes that these MFL plans may not be permissible under state law. That is because Regulation Z requires certain disclosures when a loan is “consummated.” When a loan is consummated is not determined under Regulation Z, however, but under state law. As noted by NCUA in a footnote in the letter, if state law defines consummation in way that makes a multi-featured lending plan illegal or impractical, than an “FCU may not use a MFL (including MFOEL, parenthesis added) in that state.”

CUNA is working with CUNA Mutual Group to provide greater clarification on this state law issue.

FHFA Seeks Comment on Use of Eminent Domain 

Last week, the Federal Housing Finance Agency called for comments on the use of eminent domain to restructure existing home loans.  Comments are due on September 7, 2012.  FHFA states in a recent press release that the agency has significant concerns about the use of eminent domain to revise existing financial contracts, and that action may be necessary on the agency’s part to avoid a risk to safe and sound operations of its regulated entities and to avoid taxpayer expense.  Additionally, FHFA has concerns that such programs could negatively affect the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.  CUNA will be submitting its own comment letter on this topic, and we would like to hear feedback from credit union mortgage lenders relating to this issue.  If you have any comments, please send them to Mary Dunn at mdunn@cuna.com, or Jared Ihrig at jihrig@cuna.com at your earliest convenience.

CFPB Proposes Rule on Appraisals & Valuations

Earlier this week, the Consumer Financial Protection Bureau (CFPB) proposed a new rule on appraisals and valuations.  General comments are due by October 15, 2012, and the CFPB is required to finalize the rule not later than January 21, 2013.  The proposed rule would amend Regulation B, which implements the Equal Credit Opportunity Act and would apply to applications for credit where the loan would be secured by a first lien on a dwelling. 

The rule would require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of written appraisals and valuations developed in connection with their loan application.  Additionally, creditors would be required to provide applicants with copies of all written appraisals and valuations promptly after receiving them, but in no case later than three business days prior to closing on the mortgage, and prohibit creditors from charging fees for providing a copy of such appraisals and valuations.  

Creditors would remain able to charge applicants a reasonable fee to reimburse the creditor for the cost of the appraisal or valuation unless prohibited by law.  Applicants would also be permitted to waive the timing requirement to receive copies of appraisals and valuations prior to consummation, as long as copies of all written appraisals and valuations are provided at or prior to closing.  

CUNA will be posting a comment call on the new proposed rule soon, and we will be coordinating with CUNA’s Consumer Protection Subcommittee, the Housing Finance Reform Task Force, the Lending Council and the AACUL Regulatory Advisory Committee, as well.  For a link to the proposed rule, click here.

Joint Agencies Propose Rule on Appraisal Requirements for “Higher-Risk” Mortgage Loans 

On the same day as the CFPB proposed its own rule on appraisals and valuations discussed above, the joint federal banking regulators, including NCUA and the CFPB, proposed a separate rule concerning the appraisal requirements relating to “higher-risk” mortgage loans.  General comments on this rule are also due on October 15, 2012, and this rule is also required to be finalized by the agencies by January 21, 2013. 

Under the rule, a creditor could not make a higher-risk mortgage loan unless it obtains a written appraisal based on a physical inspection of the property’s interior by a qualified appraiser.  Creditors would have to provide the consumer with a free copy of the appraisal at least three days before closing on the mortgage, and if the property was last sold within 180 days at a lower price, the proposed rule would require the creditor to obtain an additional appraisal at no cost to the consumer. 

The proposed rule would not apply to reverse mortgage loans, loans secured only by residential structures (such as mobile homes), or open-end lines of credit.  Additionally, the rule would not apply to Qualified Mortgages, which the CFPB is currently in process of defining.  For purposes of what constitutes a “higher-risk” mortgage loan, the Dodd-Frank Act defines the term as a closed-end consumer credit transaction secured by a principal dwelling with an APR exceeding certain statutory thresholds.  These rate thresholds are substantially similar to what are currently in place for “higher-priced” mortgage loans under current Regulation Z § 1026.35.  

Loans are “higher-risk” mortgage loans under the proposed rule if the APR exceeds the Average Prime Offer Rate by 1.5% for first-lien loans, 2.5% for first-lien jumbo loans, and 3.5% for subordinate-lien loans.

CUNA will be preparing a comment call on this proposed rule soon, and we will be coordinating with CUNA’s Consumer Protection Subcommittee, the Housing Finance Reform Task Force, the Lending Council and the AACUL Regulatory Advisory Committee, as well.  For a link to the interagency proposed rule, click here.

CUNA Seeks Clarification on Low Income State-Chartered Credit Unions

CUNA will be working with the leagues to obtain further clarifications on the designation of low income state-chartered credit unions.  As I have mentioned, we appreciate NCUA’s recent actions to alert about 1,000 federal credit unions on their eligibility for the low income credit union designation.  State-chartered credit unions may also qualify for a low income designation based on their state regulator’s approval with the concurrence of the appropriate NCUA Regional Director.  While the low income designation is helpful for some credit unions, we continue to vigorously pursue legislative changes that would provide expanded authority in credit union member business lending (MBL) and supplemental capital for all credit unions

CUNA Participates in CFPB Roundtable Meeting On TILA/RESPA/HOEPA Proposals

On Wednesday, CUNA staff and Sherry Joseph, Chief Compliance Manager from SECU Credit Union participated in the Consumer Financial Protection Bureau (CFPB)’s roundtable meeting to discuss the proposed rule and forms to combine certain disclosures required under the Real Estate Settlement Procedures Act (RESPA) with disclosures required under the Truth in Lending Act (TILA), as well as the proposed rule to implement recent changes to the Home Ownership and Equity Protection Act (HOEPA).  At the meeting, participants shared their concerns and questions on the proposed rules with CFPB staff attorneys.  Ms. Joseph shared concerns from her credit union on the proposed threshold triggers and potential impact on the availability of credit under the HOEPA proposal, as well as concerns with the TILA/RESPA proposal, including the revised definition of “application” and compliance costs associated with the proposed machine-readable record retention requirements.     

CUNA urges the CFPB to minimize the compliance costs and impact of these proposed mortgage rules and continues to work closely with the CFPB in all aspects related to these and other mortgage rulemakings required by the Dodd-Frank Act.   We also continue to work with the CUNA Consumer Protection Subcommittee, the CUNA Housing Finance Reform Task Force, the CUNA Lending Council, Leagues, and credit unions on these issues.

CUNA Comments on CFPB Senior Financial Exploitation Request for Information

On Monday of next week, CUNA will submit a comment letter to the CFPB on its request for information on senior financial exploitation.  In our comment letter, CUNA supports efforts by the CFPB to help seniors avoid financial exploitation and to encourage responsible decisions regarding financial management.  Credit unions offer a broad range of financial services to meet the needs of all consumers, including for seniors and their families.  Credit union employees are often on the front line to assist in detecting and preventing financial fraud and exploitation of their senior members.  We also encourage the CFPB to coordinate efforts to minimize compliance burdens on credit unions.  CUNA has met with and continues to work with the CFPB Office for the Financial Protection of Older Americans on senior financial exploitation and other issues.

CUNA Comments on CFTC Swaps Clearing Exemption for Cooperatives Proposal 

On Thursday, CUNA submitted a comment letter to the Commodity Futures Trading Commission (CFTC) regarding its proposal to provide a clearing exemption for certain swaps entered into by cooperatives.  Under the proposed exemption, the CFTC would permit cooperatives with $10 billion or more in assets to elect not to clear swaps in connection with originating loans for members or that hedge or mitigate risks associated with member loans, if the cooperative’s members are either: 1) non-financial entities; 2) financial entities to which the small financial institution exemption applies; or 3) cooperatives themselves.  This proposed exemption would supplement the final rule on the end-user exception to the clearing requirement for swaps, which exempts credit unions and other financial institutions with $10 billion or less in assets.  In our comment letter, CUNA supports the proposed clearing exemption for credit unions and believes that all well managed credit unions, consistent with safety and soundness, should be able to elect not to clear swaps that are for the purpose of hedging interest rate risks.  We believe the proposed exemption would help minimize the additional costs and fees associated with mandatory clearing and provide flexibility for credit unions to use non-cleared swaps.

NACHA Expedited Processing and Settlement (EPS) Update

CUNA has confirmed with NACHA – The Electronic Payments Association earlier this week that they will not proceed with the Expedited Processing and Settlement (EPS) proposal, after the balloting process at NACHA.  The EPS proposal would have required a new premium same-day, network-wide service on the Automated Clearing House (ACH) network.  

CUNA, leagues, and credit unions did not support the EPS proposal.  CUNA has participated on the NACHA EPS Industry Support Group and has raised concerns about the proposal with NACHA other ACH participants.  In December 2011, we submitted a comment letter that emphasized that not all receiving financial institutions should be required to receive and post same-day ACH payments because of significant implementation and risk management concerns, especially for smaller credit unions and other financial institutions.  Instead, we recommended an opt-in or a pilot program approach.  We will continue to work with NACHA, the CUNA Payments Policy Subcommittee, and credit unions on ACH processing and settlement and other proposals.

NACHA Proposals on Person-to-Person (P2P) Payments, Compliance And Operations, and International ACH Transactions

On Wednesday, NACHA released three new proposed ACH rules that would modify the NACHA Operating Rules.  The first proposed rule would standardize the use of the ACH Network for person-to-person (P2P) payments, which are not currently addressed under the Operating Rules.  The second proposed rule addresses certain compliance and operational topics that relate to the (1) proof of authorization for non-consumer debit entries; (2) stop payments; (3) reversals resulting in a receiver being re-credited twice; and (4) notifications of change for single entries.  The third proposed rule is on amendments related to IAT (International ACH Transaction) entries.  We will be reviewing these proposals with the CUNA Payments Policy Subcommittee and will provide Regulatory Comment Calls shortly. 

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 Business Solutions.