CUNA Regulatory Advocacy Report

CUNA Regulatory Advocacy Report: December 28, 2012

Good afternoon. Here is an update on the issues that CUNA’s Regulatory Advocacy group has been pursuing in recent days.

  • Small Issuer Concerns Remain Despite FTC Interchange Report
  • CFPB Upcoming Mortgage Regulations
  • CFPB Issues Final Rule on When Its Rules Are Considered “Issued”
  • CFPB Adjusts HMDA Asset Size Exemption
  • Appeals Court Reverses Part of Bank Overdraft Fee Decision
  • Upcoming Payment Regulations
  • CUNA Chart of Current Rulemakings: Updated 12/21/12
  • Small Issuer Concerns Remain Despite FTC Interchange Report

Concerns Remain Despite FTC Interchange Report

We are well aware that the concerns of credit unions and other small issuers of debit cards remain despite a newly released Federal Trade Commission (FTC) report claiming small issuers have been unharmed by new interchange laws. The FTC report was ordered by the U.S. Congress last year. The agency was charged with assessing the impact of the debit fee interchange cap set by the Dodd-Frank Act. Although there is a carve-out for small issuers under $10 billion in assets, credit unions and other small issuers have been concerned that the big-issuers’ interchange cap would have adverse impact on their own debit card services.

CUNA has repeatedly warned that merchants may collude with larger banks to steer payments through the lower-cost, fee-capped interchange systems and the FTC report does nothing to dispel that concern, or any other concern, long-term. The conflicting information in the September Government Accounting Office (GAO) report highlights that the jury is still out on this issue and that small issuer concerns cannot be dismissed. The GAO study showed that for credit unions and smaller community banks, supposedly “exempted” from the fallout of the legislation, interchange revenue dropped by 5% in just the first three months of implementation – even before the network exclusivity and routing provisions took effect in April 2012.

In fact, CUNA recently conducted a survey of credit unions offering debit card access. The survey found that per-transaction interchange revenue has declined in five of the six quarters since implementation. Because of these declining rates, total interchange revenue growth slowed considerably from pre-amendment rates right after implementation, and actually declined in the quarter ending in September 2012. That’s the first full quarter since implementation of the routing and network exclusivity provisions of the rule. CUNA is concerned that as the routing provisions take hold, there could be further declines not only in per-transaction rates, but also total interchange revenue.

We believe all aspects of the interchange cap law must continue to be monitored and assure credit unions that CUNA’s work on these issues will continue. The GAO report also noted that while the interchange cap shifted $8 billion from financial institutions to the retailers, so far there is no evidence that consumers are seeing lower prices as a result – a stark contrast from what merchants claimed.

Developed with CUNA’s NewsNow, Lisa McCue

CFPB Upcoming Mortgage Regulations

Over both 2011 and 2012, the Federal Reserve Board (Fed) and the Consumer Financial Protection Bureau (CFPB) have proposed many regulations covering the mortgage industry, but none have yet been finalized. Starting next month – likely in conjunction with the field hearings on mortgage policy set for January 10 in Baltimore and January 17 in Atlanta — this will change, and we wanted to give you a snapshot of the regulations that we expect to be finalized in 2013.

  1. Ability-to-Repay/Qualified Mortgages – Proposed by the Fed in April, 2011; required to be finalized by the CFPB not later than January 21, 2013. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan. If the loan is a Qualified Mortgage, the creditor may presume that the ability to repay test has been met. This rule has the ability to reshape the mortgage industry in the years to come, and many have argued that this is the most important rule under consideration by the CFPB at present.
  2. Loan Originator Compensation – The CFPB issued a proposed rule in August of this year. The proposed rule includes a requirement that a creditor may not impose any points and fees unless it makes available a comparable, alternative loan with no points and fees. (This requirement would not apply if the consumer is unlikely to qualify for the alternative loan.) The proposal also contains clarifications for what is a proxy for purposes of loan originator compensation and implements new requirements on loan originator qualifications. The final rule is required to be issued not later than January 21, 2013.
  3. Home Owner’s Equity Protection Act (HOEPA) – In July of this year, the CFPB issued a proposed rule that implements Dodd-Frank Act changes regarding the definition of a high-cost mortgage under HOEPA. The Dodd-Frank Act lowers the APR trigger and fee amounts for HOEPA coverage, and the CFPB proposed two alternatives in this area, including a substitute transaction coverage rate (TCR) for the APR to compare the average prime offer rate. Additionally, prior to extending a high-cost mortgage loan, the proposal contains a requirement that a creditor would have to receive certification that the consumer has obtained counseling from a HUD-approved counselor. The proposal also implements changes to the points and fees trigger and includes a requirement to provide a list of homeownership counselors (not just high-cost borrowers) within 3 business days of application. The final rule must be issued by January 21, 2013.
  4. Escrow – In early 2011, the Fed proposed new disclosure and additional requirements for escrow accounts under the Truth in Lending Act (TILA, Regulation Z). The rule would also implement new escrow account requirements for certain mortgages and establish disclosures relating to mandatory escrow accounts, as well as escrow waiver disclosures for consumers who so elect, all of which are mandated by the Dodd-Frank Act. The CFPB is expected to finalize this rule in early 2013.
  5. Mortgage Servicing – Earlier this fall, the CFPB issued two separate proposals addressing mortgage servicing: One for Regulation Z, and one for Regulation X, the Real Estate Settlement Procedures Act (RESPA). Included are new periodic billing statement requirements for all closed-end residential mortgages, advance ARM notice disclosures, prompt payment crediting requirements, new error resolution and information request disclosures, and loss mitigation procedures. The CFPB is required to finalize both of these rulemakings not later than January 21, 2013.
  6. Appraisals – The CFPB also issued a proposed rule (along with other Federal banking agencies) concerning appraisal requirements for higher-risk mortgages – a new category of mortgages created under the Dodd-Frank Act. Under this proposal, a creditor may only extend a higher-risk mortgage if it obtains a written appraisal performed by a licensed or certified appraiser which includes a physical inspection of the property’s interior, the applicant is given a statement with certain information regarding the appraisal, and the consumer is provided a free copy of any written appraisals at least three business days before closing. A separate proposal would implement an amendment to the Equal Credit Opportunity Act (Regulation B) to require creditors to provide free copies of all appraisals or valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling upon completion and not later than three days prior to closing. The proposal would also require creditors to notify consumers of the right to receive a copy of each appraisal or valuation at no additional cost. The CFPB is required to finalize both of these rulemakings not later than January 21, 2013.
  7. TILA/RESPA Disclosure Integration – The CFPB issued a massive 1100 page proposed rule in July of this year, and will continue to conduct quantitative testing on the proposed new TILA and RESPA disclosures in the first quarter of 2013. While the proposed rule and forms were required by the Dodd-Frank Act to be issued not later than July 21, 2012, the Dodd-Frank Act did not mandate a date by which the CFPB must issue a final rule and forms for purposes of this rulemaking. CUNA expects the CFPB to finalize this rule by mid-year 2013.

CUNA continues to meet with the CFPB and urge improvements in all of these proposals and will keep you posted as the new rules are issued.

CFPB Issues Final Rule on When Its Rules Are Considered “Issued”

The CFPB has adopted a final rule, published in the Federal Register (Register) today, that is designed to “clarify” when its rules are “issued.” While it is positive that the agency is making an effort to explain when it considers a rule to be “issued,” the CFPB did not provide any opportunity for stakeholders, other than other federal regulators, to comment, and the rule is effective starting today. Under the CFPB’s procedure, a rule will generally be considered “issued” when it is posted to the agency’s website.

The CFPB’s procedure is a departure from the one generally used by other agencies, such as NCUA, under the Administrative Procedure Act. Other agencies generally consider a rule “issued” when it is published in the Register (this can often be a week or much longer after an agency actually adopts a rule). This is important because the effective date of a regulation, frequently different from the date it was issued, is often tied to the date of issuance (such as sixty days from the date of publication in the Register). The CFPB’s rule further “clarifies” that if a final rule is not posted to its website, or it appears in the Register prior to being posted, the issuance date will be date it is published in in the Register. While we have a number of other priorities we are pursuing with the agency, we do plan to raise questions and concerns with appropriate CFPB staff on the handling of this clarification. Also, other agencies may want to adopt a similar approach to the “issuance” of rules.

CFPB Adjusts HMDA Asset Size Exemption

Earlier today, the CFPB issued a final rule adjusting the asset-size exemption threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA).
As contained within today’s final rule, institutions with assets of $42 million or less as of December 31, 2012, will be exempt from collecting HMDA data in 2013. Previously, the exemption amount was $41 million. A credit union’s exemption from collecting HMDA data in 2013 does not affect its responsibility to report the data it is required to collect during 2012.

HMDA requires the CFPB adjust this threshold yearly by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The rule will be effective upon publication next week in the Federal Register. A copy of the final rule can be found by clicking here.

Appeals Court Reverses Part of Bank Overdraft Fee Decision

The U.S. Court of Appeals for the Ninth Circuit has reversed in part the lower district court’s order that would require Wells Fargo Bank to cease charging overdraft fees based on the high-to-low posting order for all debit-card transactions. The Appeals Court held that “federal law preempts state regulation of the posting order as well as any obligation to make specific, affirmative disclosures to bank customers” and that the Bank’s decision to post payments in a particular order is a “federally authorized pricing decision.” However, the Appeals Court held that federal law does not preempt California law regarding fraudulent or misleading representations on posting. Also, the lower court’s order regarding the $203 million in restitution that the Bank would have to pay to its customers was reversed. In August 2010, the district court found that the Bank’s overdraft fee practices based on the high-to-low posting order were unfair and fraudulent business practices under California law. CUNA continues to monitor developments with overdraft fee litigation and financial institutions.

Upcoming Payment Regulations

As reported last week, the CFPB continues to focus on the international remittance transfers regulation, refining certain aspects of the final rule under a new porposal. The agency also issued an advance notice of proposed rulemaking (ANPR) that would extend Regulation E to prepaid cards earlier this year. While most of the CFPB’s rules so far have been related to mortgages and Dodd-Frank Act requirements, the CFPB continues to be interested in payment cards, consumer complaints, and data collection, and has also issued a request for information on overdraft practices. We will provide additional updates in these areas next year. Further, the CFPB is interested in the payment activities by large financial institutions, as well as “larger participants” and nonbanks that are now under its supervsion.

The Federal Reserve Board and the Reserve Banks continue to monitor and study payments data and systems. The Fed released data from its survey on debit interchange fees, and we continue to analyze and monitor the effects of the debit interchange rules, as well as the impact from the proposed interchange settlement on credit unions. We also expect additional updates on the Fed’s Regulation CC proposal on check clearing in the upcoming year.

Regarding the automated clearinghouse (ACH) network, NACHA did not proceed with the Expedited Processing and Settlement proposal earlier this year, citing operational and risk management concerns that CUNA and a number of financial institutions raised. NACHA did move forward with additional proposals on healthcare payments, ACH security, person-to-person (P2P) payments, and in other operational areas; we expect additional developments from NACHA in 2013. In addition, the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) has focused on its customer due diligence ANPR, and the conversion to electronic filing of Bank Secrecy Act (BSA) reports and BSA risks will remain a major FinCEN concern.

CUNA continues to advocate for credit union interests on payments regulations and developments in comment letters, working groups, and meetings. We encourage regulators to support payments innovation and to reduce regulatory burdens, so that credit unions can offer a variety of payment methods to meet their members’ needs.


As always, we appreciate the positive comments we continue to receive about this report and suggestions for items you would like us to cover are always welcome. For any questions about this week’s report please feel free to contact Eric Richard, Mary Dunn, or me.

Best regards,
Bill Cheney

Posted in Events, Financial Education.