Compliance Center: CFPB Proposes Amendment to Small Creditor, Rural or Underserved Areas Definitions

On Thursday January 29, 2015 the Consumer Financial Protection Bureau (CFPB) released a proposed Regulation Z to revise the regulatory definitions of small creditor, and rural or underserved areas.  If finalized, the proposed amendments would increase the number of financial institutions able to offer certain types of mortgages in rural and underserved areas.

The main impact of the changes would affect credit unions with the mandatory escrow requirements for higher priced mortgage loans and certain provisions for small creditor Qualified mortgages.

The proposed amendments would:

  • Expand the definition of “small creditor”: Under the proposal, the loan origination limit for small-creditor status would be raised from 500 first-lien mortgage loans to 2,000 and would exclude loans held in portfolio by the creditor and its affiliates.
  • Include mortgage affiliates in calculation of small-creditor status: The proposal would not change the current asset limit for small-creditor status, which is set at less than $2 billion (adjusted annually) in total assets as of the end of the preceding calendar year. However, the proposal would include the assets of the creditor’s mortgage-originating affiliates in calculating whether a creditor is under the limit.
  • Expand the definition of “rural” areas: In addition to counties that are considered to be “rural” under the CFPB’s current mortgage rules, the proposal would expand the definition of “rural” to include census blocks that are not in an urban area as defined by the Census Bureau.
  • Provide grace periods for small creditor and rural or underserved creditor status: Creditors that exceeded the origination limit or asset-size limit in the preceding calendar year would be allowed to operate, in certain circumstances, as a small creditor with respect to mortgage transactions with applications received prior to April 1 of the current calendar year. The proposal would create a similar grace period for creditors that no longer operated predominantly in rural or underserved areas during the preceding calendar year.
  • Create a one-year qualifying period for rural or underserved creditor status: The proposal would adjust the time period used in determining whether a creditor is operating predominately in rural or underserved areas, from any of the three preceding calendar years to the preceding calendar year.
  • Provide additional implementation time for small creditors: Eligible small creditors are currently able to make balloon-payment Qualified Mortgages and balloon-payment high-cost mortgages regardless of where they operate, under a temporary exemption scheduled to expire on January 10, 2016. Today’s proposal would extend that period to include balloon-payment mortgage transactions with applications received before April 1, 2016, giving creditors more time to understand how any changes will affect their status, and to adjust their business practices.

The proposal would make several additional minor or technical changes to the rules. The proposed rule will be open for public comment until March 30, 2015.

Compliance Question of the Week

We suspect that an individual has brought in a fraudulent check from the U.S. Treasury. Is there a way we can verify the legitimacy of the check?

Yes. The Treasury has a website that allows financial institutions to verify the check online.  In addition to the verification website, the Treasury also has a guide that explains the security features that should be visible on the check.

Resources

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA announced that it will hold a free webinar on the new TILA-RESPA disclosures on February 11, 2015. Credit unions can register for the webinar here.

The NCUA announced that it will host a webinar, “Opportunities in the Underserved Market” on February 18, 2015. Credit unions can register for the webinar here.

The NCUA, along with the other federal regulators, released guidance on Private Student Loans with Graduated Repayment Terms at Origination. The guidelines are aimed at ensuring that financial institutions appropriately underwrite student loans and provide clear disclosures that community the loan payments, terms, and features.

Consumer Financial Protection Bureau (CFPB)

The CFPB announced the publication of their Financial Well-Being report. The report details four main elements of individual financial well being: Feeling in control; Capacity to absorb financial shock; On track to meet goals; and Flexibility to make choices.

The CFPB released Compliance Bulletin 2015-01 which details the Treatment of Confidential Supervisory Information.

The CFPB and Financial Services Roundtable have announced a public-private initiative to promote financial education.

The CFPB issued another proposal that would impact the new mortgage regulations. The changes are geared towards lenders providing credit in rural and underserved areas. The proposal includes quite a few changes including raising the definition of a “small creditor” from 500 first lien mortgage originations to 2,000, expanding the definition of rural, and providing additional implementation time for small creditors. 

Federal Deposit Insurance Corporation (FDIC)

The FDIC announced the release of a second video in its series aimed at helping banks meet regulatory requirements. The second video addresses the Loan Compensation Rule.

U.S. Department of Housing and Urban Development (HUD)

HUD released new residential sales statistics for December 2014.

Federal Housing Finance Agency (FHFA)

The FHFA released Mortgagee Letter 2015-03 which provides guidance on postponing certain foreclosure proceedings (involving Home Equity Conversion Mortgages) triggered by the death of the last surviving borrower on a home loan.

Financial Crimes Enforcement Network (FinCEN)

FinCEN has posted the opening remarks from Treasury and DOJ Officials froms a MSB Roundtable held in early January. The remarks acknowledged the issues associated with providing financial services to MSBs as well as the necessity for such services to be provided for MSBs.

Federal Reserve Bank (FRB)

The FRB released a new paper, Strategies for Improving the U.S. Payment System, examining different strategies that the FRB, along with other stakeholders, can take to improve the payment system.

The FRB released an updated FAQ on Excess Balance Account (EBA) management in hopes that it will help explain the liabilities with EBAs.

The statement of the December meeting of the Federal Open Market Committee is now available.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of January 27, 2015. The last update prior to this was January 16, 2015.

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance.