Written by Brandy Bruyere, Director of Regulatory Compliance
It has been over six months since the CFPB finalized its overhaul of HMDA and we blogged a bit about this first issue a couple of months ago, but I wanted to tease out some of the details today. Most of the rule goes into effect on January 1, 2018 and while that may seem far away, HMDA bases reporting on the “final action” date. Here is the excerpt from section 1003.4(f):
(f) Quarterly recording of data. A financial institution shall record the data collected pursuant to this section on a loan/application register within 30 calendar days after the end of the calendar quarter in which final action is taken (such as origination or purchase of a covered loan, sale of a covered loan in the same calendar year it is originated or purchased, or denial or withdrawal of an application).
This is written in English in the CFPB’s Small Entity Compliance Guide for HMDA:
A financial institution collects, records, and reports the new and modified data points under the 2015 HMDA Rule for applications on which final action is taken on or after January 1, 2018.
Credit unions could receive an application in late 2017, but if the “final action” does not occur until January 1, 2018 (or later) then the new HMDA data collection provisions will apply to that loan/application. The CFPB was very aware of this, and addressed the issue in footnote 441 in the preamble of the final rule:
The Bureau understands that final action taken on an application may not occur until a few months after the application date. A financial institution may receive an application at the end of a calendar year but may not determine the final disposition of the application until the following calendar year.
Depending on your credit union’s situation, it will be important to have systems that can collect the new HMDA data points several months before January 1, 2018.* While many loan pipelines might be 45 to 60 days, some loans can go 90 or 120 days between application and closing. In other words, while we are just over 18 months away from this deadline, credit unions may want to be testing new systems in a little over a year. Unfortunately, we are still waiting on more information from the CFPB in terms of instructions to replace the coding in current Appendix A, which will be available on this website sometime in the not so distant future (hopefully).
*There is a narrow transition period for certain data related to ethnicity, race and sex, discussed briefly in this NAFCU blog post.
HMDA Universal Loan Identifier LEI Component
I know what you’re thinking, what do those flower necklaces from Hawaii have do to with HMDA?
Well unfortunately, the answer is….nothing. If your credit union is subject to HMDA reporting, but does not have a “Legal Entity Identifier,” or LEI, you’ll need one.
Revised section 1003.4(a)(1)(i) requires credit unions that are “financial institutions” subject to HMDA reporting to provide a “universal loan identifier” or ULI for covered loans and applications. This number must “begin with the [credit union’s] Legal Entity Identifier (LEI)…issued by a utility endorsed by the LEI Regulatory Oversight Committee or a utility endorsed…by the Global LEI Foundation…” Some credit unions have been asking us, what’s an LEI?
According to the LEI Regulatory Oversight Committee (LEI ROC), an LEI is a 20-character alpha-numeric code that uniquely identifies legal entities that engage in financial transactions. The movement towards using LEIs stemmed from the financial crisis and some of the collaboration of the G-20 nations, and is addressed in the International Organization for Standardization’s (ISO) ISO 17442:2012. LEIs are issued by “local operating units” endorsed by the LEI ROC. So how does a credit union go about obtaining an LEI?
First, some credit unions already have an LEI, so if you’re not sure if your credit union has one, it is worth checking to see. The Global LEI Foundation has a search function that includes all LEIs issued to date.
If your credit union seems to need an LEI, the GMEI Utility is endorsed by the Global LEI Foundation and also has a search function. There are some frequently asked questions on their website, here are a few highlights derived from those FAQs.
Who can register the credit union: You must currently be an employee of the credit union you are registering, and be authorized by the credit union to register for an LEI. Alternatively, credit unions may use a third party through an assisted registration process. The person registering the credit union will need a user account, which created here.
What information is needed to register: The basic information listed in the ISO 17422 such as the credit union’s legal name, registered address, headquarters address, legal form, etc.
How much does the registration cost: GMEI Utility charges $200 for a registration request, with a $19 surcharge. To maintain the LEI moving forward, the fee is $100 with a $19 surcharge. For more information, here are the FAQs specific to payment.
How long does this process take: Once payment is processed, the GMEI will validate the credit union using public sources. Once this process is complete, it takes about three business days for an LEI to be issued in the GMEI database. Overall, GMEI Utility’s FAQs say most requests are “cleared” within three to five business days.