Senate Joint Resolution 57 Passed by Congress

The Resolution applies to Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.

5/15/18

Picture of the US Capitol RotundaThe U.S. House of Representatives recently passed Senate Joint Resolution 57 (S.J. Res 57), which had been passed by the U.S. Senate in late April. S.J. Res 57 provides congressional disapproval under chapter 8 of title 5 USC of the rule submitted by the Consumer Financial Protection Bureau (CFPB) relating to “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act” (CFPB Bulletin 2013-02). S.J. Res 57 is now on President Trump’s desk awaiting his signature. The White House has indicated that the President intends to sign the resolution.

According to the press release from the CFPB when the Bureau issued Bulletin 2013-02, the bulletin provides guidance for indirect auto lenders on ways to limit fair lending risk. The ECOA makes it illegal for a creditor to discriminate in any aspect of a credit transaction on prohibited basis including race, color, religion, national origin, sex, marital status, and age. The CFPB recommends that indirect auto lenders within its jurisdiction take steps to ensure that they are operating in compliance with fair lending laws as applied to dealer markup and compensation policies. These steps may include, but are not limited to:

  • Imposing controls on dealer markup, or otherwise revising dealer markup policies
  • Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program
  • Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction

While S.J. Res 57 removes the bulletin from the CFPB, credit unions will still need to closely monitor their indirect lending relationships.

The NCUA issued their supervisory priorities for 2018 which includes:

Automobile Lending

Examiners will apply additional scrutiny to credit unions with material exposure to higher risk forms of auto lending. Specifically, examiners will focus on portfolios with the following concentrations:

  • Extended loan maturities of over 7 years
  • High loan-to-value
  • Near-prime or subprime
  • Indirect lending programs

And credit unions would want to review the guidance from the NCUA regarding Indirect Lending and Appropriate Due Diligence. NCUA Letter to Credit Unions 10-CU-15.

The NCUA is not the only regulatory that has highlighted continued focus on indirect lending programs. The Washington State Department of Financial Institutions Division of Credit Unions highlighted their supervisory priorities for 2018 which includes:

Effective Due Diligence and Program Management Over Indirect Lending Programs

In accordance with DCU Bulletin B-16-18, titled Indirect Lending and Credit Tier Exceptions, and NCUA Letter to Credit Unions 10-CU-15, titled Indirect Lending and Appropriate Due Diligence, examiners will closely review a credit union’s policies, procedures, and practices over its indirect lending programs to determine whether risks are being properly managed and controlled. Additionally, examiners will closely evaluate whether satisfactory due diligence (both new and ongoing relationship) is performed on the indirect lending dealerships (usually an auto dealership).

Credit unions engaged in indirect lending must have clear underwriting practices that take into account objective factors such as a borrower’s creditworthiness, the age and value of the collateral, and the terms of the transaction, and must be able to demonstrate effective monitoring and control over the indirect lending program and its dealerships. Credit unions must be proactive, rather than being reactive, should problems occur.

Indirect lending provides important financing for many new credit union members, but credit unions will want to continue to monitor their programs to ensure compliance with the appropriate regulations.

Question of the Week

Is flood insurance required for mobile homes that are in mobile home parks when the mobile home is not affixed to a permanent foundation?

Yes. According to the NCUA’s AIRES Questionnaire, the applicability of the rule includes:

In the case of mobile homes, the criteria for coverage turns on whether the mobile home is affixed to a permanent foundation. A permanent foundation includes mobile home parks where a mobile home is connected to utilities. An institution does not have to obtain a security interest in their underlying real estate in order for the loan to be covered by the requirements of the national flood insurance program.

If the mobile home is connected to utilities, it is subject to the flood requirements under the NCUA’s regulation.

Resources

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA announced that the FFIEC issued new Customer Due Diligence and Beneficial Ownership Examination Procedures.

The NCUA also announced that the FFIEC released loan-level HMDA data for 2017 lending activating submitted by financial institutions on or before April 18, 2018.

Consumer Financial Protection Bureau (CFPB)

The CFPB announced that it has posted its Spring 2018 rulemaking agenda in the Unified Agenda.

Federal Reserve Board (FRB)

The FRB released its April 2018 Senior Loan Officer Opinion Survey on Bank Lending Processes.

Financial Crimes Enforcement Network (FinCEN)

FinCEN issued a reminder to financial institutions regarding the transition to CTR Batch XML from ASCII, which is scheduled to cutoff on June 1, 2018.

Office of the Comptroller of the Currency (OCC)

The OCC announced that it has issued the Military Lending Act Booklet of the Comptroller’s Handbook, which replaces its Handbook on Limitations on Terms of Consumer Credit Extended to Servicemembers and Dependents.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of May 10, 2018. The last update prior to this was May 7, 2018.

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