NAFCU Compliance Blog

CFPB's Authority Without a Director - Redux

Written by Steve Van Beek

A ruling by the U.S. Court of Appeals for the District of Columbia (WashingtonPost.com) on the recess appointments of 3 National Labor Relations Board (NLRB) appointments caused quite a stir on Friday afternoon.  Especially, considering CFPB Director Richard Cordray was appointed at the same time.

You are probably going to read quite a bit in the upcoming weeks (and months) about what this means for Cordray's appointment and - more importantly - the CFPB's recently released final mortgage regulations (and, the remittance transfer regulation).  For credit unions, I want to point you back to one of my blog posts from June 2011 on the CFPB's Authority Without a Director.  In that post, I looked at what the CFPB could do if it did not have a "Senate-confirmed director:"

Even without a Director, the CFPB can (among other powers):

• Write rules, orders and guidance regarding any of the consumer laws that transfer to the CFPB.  This includes proposing new regulations as well as finalizing regulations (both its own and proposals it inherits from other agencies);

• Conduct examinations of and issue and enforce orders against banks, savings associations or credit unions with assets of greater than $10 billion; and

• Take over consumer protection issues related to RESPA and certain consumer rules previously under the authority of the Federal Trade Commission. 

That post relied on a January 11, 2011 joint letter from the Inspector Generals of the Federal Reserve and Treasury Department - especially Question & Answer #5.  

***

So, What Should Credit Unions Do?  Continue working on understanding and complying with the CFPB's regulations.  The CFPB had authority to issue regulations under Regulation Z (TILA), Regulation X (RESPA) and Regulation E (EFTA - remittance transfers) even without the Senate-confirmed Director.  Thus, if Cordray's recess appointment were overturned - the new requirements would still be mandatory.  Now, there would likely be numerous nuances and intricacies that would pop up - but the best course of attack is to continue to work toward understanding and complying with the CFPB's regulations.  

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Ironically, nonbank mortgage originators and servicers would be in a slightly different boat (as would nondepository providers of remittance transfers) as the CFPB wouldn't have authority over those entities without a proper Director.  Of course, that isn't to say they would get off scot-free (in fact, it could turn out worse) - but it is a different analysis than for banks and credit unions who were already regulated at the federal level. 

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Now is also a good time to remind readers of this blog's legal disclaimer:

LEGAL DISCLAIMER

This website is intended to provide general compliance information in regard to the subject(s) covered. It is provided with the intent and understanding that the publisher is not engaged in the act of rendering legal, accounting or any other professional advice. The information provided in this website is not intended nor should be used as a substitute for legal advice or other expert opinions and services in specific situations. NAFCU is not responsible for the content of comments and reserves the right to delete or block comments that it finds inappropriate.

Ah, that feels better.  Have a great week everyone!

Cordray Nominated for Full 5-Year CFPB Term; Scope of Mortgage Servicing Exemptions; NAFCU Mortgage Reform Webcast Series

Written by Steve Van Beek

Cordray Nominated.  Yesterday, President Obama nominated current CFPB Director Richard Cordray for a full 5-year term as Director of the CFPB.  Under Cordray's current recess appointment, his term expires at the end of 2013.  This full appointment - if confirmed by the Senate - would result in Cordray having a full 5-year term.  For additional information, check out the NAFCU Today (you can sign-up for the NAFCU Today here).    

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Mortgage Servicing Exemptions.  Last Friday, we blogged a little bit on the mortgage servicing exemptions.  Today, I wanted to help clarify which of the new requirements the 5000 or less mortgages exemption will apply to and, more important, which will not be eligible for the exemption

There are nine major requirements in the new mortgage servicing requirements (and tons of minor requirements).  Of the nine, the "small servicer exemption" will apply to five (and, only in limited situations, to a sixth):

• Mortgage Periodic Statements - Eligible for Small Servicer Exemption

• Interest Rate Adjustment Notices (for ARMs) - Not Eligible

• Prompt Crediting of Payments & Payoff Statements- Not Eligible 

• Force-Placed Insurance - Not Eligible (except in very limited situations)

• Error Resolution Procedures & Information Requests - Not Eligible

• General Servicing Policies & Procedures - Eligible for Small Servicer Exemption

• Early Intervention with Delinquent Borrowers - Eligible for Small Servicer Exemption

• Continuity of Contact with Delinquent Borrowers - Eligible for Small Servicer Exemption

• Loss Mitigation Procedures - Eligible for Small Servicer Exemption (but there are certain requirements that still apply)

Additionally, keep in mind that the "small servicer exemption" only applies to the CFPB's mortgage servicing regulations.  The other six regulations do not have similar exemptions.  

***

NAFCU's February 13th Webcast.  On Wednesday, February 13th, I'll be presenting a 2-hour webcast on The CFPB's Final Mortgage Regulations.  Specifically, I'll be providing an overview of the scope and applicability of each of the new regulations and how your credit union's products will be impacted.  I'll run through which requirements apply to first mortgages, which to just principal dwellings, which to subordinate liens, which to HELOCs.  I'll also go in more detail about the mortgage servicing exemptions above and explain which transactions you need to consider when you "count to 5000."  You can find the additional key takeaways here.

For the full description and information on registering, click here.

***

NAFCU's Mortgage Reform Webcast Series.  Also, be sure to check out our full listing of webcasts for our Mortgage Reform Webcast Series.  My February 13th webcast will be followed by Andy Keeney's March 6th webcast on the CFPB's Qualified Mortgage/Ability-to-Repay regulation (registration will be available soon - if you want to be notified when registration is open, just shoot us an email).   

Resources for the CFPB's International Remittances Regulation

Written by Steve Van Beek

A Wild Ride.  The evolution of the CFPB's international remittances regulation has been confusing to everyone.  First, we had the rule proposed by the Federal Reserve.  Then, the CFPB took over on July 21, 2011.  The CFPB finalized the rule but also proposed amendments to the rule at the same time.  Then, realizing the rule was not workable, the CFPB issued a delay of the effective date while it proposed additional changes.  So, that is where we are - trying to figure out where we are at.  And, how your credit union will be able to comply.  The CFPB has indicated the new effective date will likely be 90 days after they finalize the latest proposed changes (although they are taking comments).  That doesn't leave much time if your CU has made a business decision to continue offering remittance transfers to your members.

Below are a variety of resources that may be helpful to understand the new requirements and what steps your credit union will need to take to comply.

• The CFPB's Main Remittance Regulation Webpage

• Small Entity Compliance Guide

• Safe Harbor Countries List

• The CFPB's October 2012 Webinar on the Remittances Rule (also available here)

• Presentation Slides from October 2012 Webinar

• CFPB Bulletin 2012-08 Announcing Delay of Implementation Date

• Proposal to Amend Certain Provisions of Remittance Rule (but not the 100 transaction safe harbor level)

NAFCU also has these resources available to NAFCU-member credit unions:

• Regulatory Alert on Latest Remittance Proposal (13-EA-01) - Covers the Latest Proposed Changes

• Final Regulation on Remittance Requirements (12-EF-10) - Covers the Rules after the Concurrent Proposal was Finalized

• Final Regulation on Remittance Requirements (12-EF-02) - Covers the First Remittance Regulation Finalized by the CFPB

Throughout the process NAFCU has sent numerous comment letters to the CFPB on the remittance requirements.  Recently, we sent a letter urging the CFPB to further delay the requirements to ensure the rules do not unnecessarily burden credit unions trying to comply:

“First, NAFCU requests that the CFPB further extend the 90-day delay of the effective date to allow credit unions sufficient time to comply with the proposed rule and to make the required disclosures of fees, taxes, and exchange rates. Second, NAFCU continues to believe that the CFPB should exempt federally regulated credit unions, or, alternatively, small entities consistent with the Small Business Regulatory Enforcement Fairness Act, from the purview of the final remittance transfer rule. The regulatory burden that the remittance transfer rule places on credit unions will lead to a significant reduction in consumers’ access to remittance transfer services. Many credit unions already facing an enormous compliance burden have or will be forced to discontinue their remittance programs, and those that continue to offer remittances will be forced to significantly increase their members' fees.  

Further, NAFCU would like to reiterate the necessity for the CFPB to respond to credit union concerns during the rulemaking process, rather than implementing remedial measures after the fact. Although NAFCU appreciates the CFPB’s responsiveness to reconsider the remittance rule, proactive efforts by the CFPB to address potential problems and reduce the future compliance costs and regulatory difficulties faced by credit unions would be far more effective when conducted prior to and during the rulemaking process.”  (Emphasis added).

The last paragraph is especially important.  The process this regulation has taken has left everyone's head spinning.  The CFPB had opportunities to listen to industry feedback and make changes upfront.  Instead, they finalized the rules and only then did they realize they were not workable.  Unfortunately, the lack of operational experience and background at the CFPB was on full display.  They had a rule and were going to finalize it no matter what the consequences.  

***

NAFCU Remittances Webcast Today.  We also have a webcast on the Remittances Webcast today at 2:00 p.m. EST.  Be sure to tune in.  We've extended the early-bird deadline indefinitely, so you can purchase the webcast at any time (including after today) at the early-bird price.  To learn more about the webcast, click here.  

Effective Dates for New Mortgage Regulations: The CFPB and "Issue Dates"

Written by Steve Van Beek

With all the new regulations, I thought it would be useful to list the effective date of each new regulation along with a link to the corresponding regulation page on the CFPB's website.

• June 1, 2013 - Escrow Requirements for Higher-Priced Mortgage Loans

• June 1, 2013 - Prohibition on Mandatory Arbitration and Financing of Credit Insurance Premiums (from MLO Compensation Regulation)

• January 10, 2014 - Qualified Mortgage and Ability-to-Repay Requirements

• January 10, 2014 - Mortgage Servicing Requirements - Reg Z (TILA) and Reg X (RESPA)

• January 10, 2014 - Loan Originator Compensation and Training, Certification and Identifier Disclosure

• January 10, 2014 - High-Cost/HOEPA Mortgage Loans and Homeownership Counseling Disclosures

• January 18, 2014  - Disclosure and Delivery of Free Copies of Appraisals - Regulation B

• January 18, 2014 - Appraisals for Higher-Priced Mortgage Loans

***

CFPB and "Issue Date."  The CFPB likes to make up its own rules.  Including their recent announcement that their rules are considered "issued" when they are posted on the CFPB's website rather than the normal Administrative Procedure Act timeframe of when the rules are published in the Federal Register.  

Well, as chance would have it, the CFPB's mortgage rules are slated for publication in the Federal Register for the following dates:

• January 22nd for Escrow Final Rule (link goes to actual Federal Register document)

• January 30th for Qualified Mortgage/Ability-to-Repay Final Rule (link goes to Public Inspection Desk)

• January 30th for High-Cost/HOEPA and Homeownership Counseling Disclosures (link goes to Public Inspection Desk)

The other regulations will be in the Federal Register at an even later date.  

Why does this matter?  The CFPB gave 12 months (and sometimes less) from the "issue date" to implement the majority of the new requirements.  Because the CFPB considers the "issue date" as the date of publication on the CFPB's website - rather than publication in the Federal Register - your credit union will have less time to comply with the final rules.  

Summary.  If the CFPB would have followed the normal Administrative Procedures Act process, your credit union would have 12 months - from the date of publication in the Federal Register - to comply.  

Unfortunately, Dodd-Frank gave the CFPB very strict deadlines for issuing their final regulations and the CFPB chose to alter long-standing rulemaking practices instead of using its exemption authority (like it did for other Dodd-Frank requirements) to ease the impact of these regulations.    

Economic Census Forms; Upcoming Webinars & Webcasts

Written by Steve Van Beek

Economic Census.  Your credit union may have gotten an Economic Census form (the forms were sent between October and December).  The deadline for completion is February 12th.  To help facilitate understanding of this form and the requirement, the Office of Business Liaison at the Department of Commerce has put together information, numerous FAQs and is hosting a webinar on Wednesday, January 24th at 1:00 p.m. EST.  Note: There was a prior webinar on October 11th, 2012.  The slides from that presentation are here (very large PPT file) and a transcript is available here.

There are additional help resources available here.  

The FAQs include specific information for different industries - including credit unions.  The credit union FAQs are here and forms are here.  Remember, the deadline is February 12th, 2013.  

Note:  Not every credit union will receive a form.  But, be sure to check with folks and see if your CU has and make sure it is completed by February 12th. 

***

There are also numerous other webinars and webcasts this week.  

NCUA Webinar on Serving Low-Income Members.  NCUA is hosting a free webinar on Strategic Issues for Servicing Low-Income Members.  This webinar is Wednesday, January 23rd at 2 p.m. EST.  If your credit union recently received your low-income designation, this might be a useful webinar.  Here is from the announcement:

"Staff from [NCUA's] OSCUI and NCUA’s Office of Consumer Protection will discuss ways low-income designated credit unions may improve and increase service to low-income members. In addition, the staff will present sample products and services designed to meet the needs of these members."

You can register here. 

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NCUA HMDA Webinar.  NCUA will also be offering a free webinar entitled HMDA: Accuracy and Timeliness.

The webinar will be Thursday, January 24th at 2 p.m. EST.  You can register for the webinar here and you can also send any questions to [email protected].  

NCUA also recently issued Regulatory Alert 13-2 which highlights the March 1, 2013 deadline for submitting HMDA data.  Earlier, they had sent Regulatory Alert 13-1 which discusses the $42 million asset threshold for 2013 HMDA reporting.

Does anyone know how these Regulatory Alerts are delivered?  Why don't they go through NCUA Express?  Another one they buried on their website was Regulatory Alert 12-4 on the CFPB's Remittance Rule. 

***

Upcoming NAFCU Webcasts.  NAFCU will be offering a very full slate of webcasts in 2013.  And, you can be assured that quite a few will be focusing on compliance - especially the new mortgage requirements.  Below are our next couple webcasts:

• The CFPB's International Remittance Transfer Disclosure Rules - Thursday, January 24th from 2:00 - 3:30 p.m. EST.  Mary Lou Heighes will walk attendees through the final rule as well as aspects of the proposed rule that you need to know.  Mary-Lou has been very involved in the remittance transfer rule from the start and gave a great presentation at our Compliance Seminar in October.  And, because of the importance of this rule - we are extending the early-bird registration price indefinitely.  You can sign-up for this webcast any time and receive the early-bird price.  

Remember: All of NAFCU's webcasts are available on-demand as well.  If you can't make the live webcast (perhaps because you need to watch the HMDA webinar or the Census webinar live), you can always watch the on-demand webcast at a later date.

• Top HR Compliance Issues Affecting Credit Unions in 2013 - Wednesday, February 6th from 2:00 - 3:30 p.m. EST.  Margaret Fiester from the Society of Human Resource Management (SHRM) will discuss how credit unions will be impacted by various future reforms - including tax reform and health care reform.  Register by January 30th to Save $100.  

NCCOs:  Both of the webcasts above will earn credits toward renewing your NAFCU Certified Compliance Officer (NCCO) designation.  If you see this logo -  - you'll be sure the webcast will be offering NCCO credits.

New NCCO Affidavit Process:  We also have a new, streamlined NCCO affidavit.  You can find the fillable-form located here.  If you are an NCCO and attend a NAFCU webcast with this symbol -   - be sure to use this form.   

Reg B Appraisal Final Out; CFPB Summary of Higher-Risk Appraisals; More on Mortgage Servicing Rules

Written by Steve Van Beek

A couple of additional items before the weekend.  Reminder: NAFCU's offices will be closing early today and will be closed until Tuesday.  

Regulation B Appraisal Finalized.  The CFPB released their final rule for free copies of appraisals under Regulation B.  The press release is here.  There is a consumer summary as well as a detailed summary.    

The special page for the Regulation B final rule is located here.   

Effective Date:  January 18, 2014.  

***

Appraisals for Higher-Risk Mortgages.  As expected, the CFPB issued their own information regarding the interagency final rule on appraisals for higher-risk mortgages.  Their press release is here.  They also released a consumer summary as well as a detailed summary.  Effective Date: January 18, 2014.    

The special page for the Appraisals for Higher-Priced Mortgages* is located here.

*Note: The final rule adopts the term "higher-priced" for these loans to help align the rule with the existing "higher-priced" mortgage loan requirements (including escrows).  

NCUA also issued a press release and a link to the final rule on their website.  

So where will credit unions need to look for this requirement?  NCUA's rule or the CFPB's?

Here is from the final rule:

"The NCUA and FHFA adopt the rules as published in the Bureau’s Regulation Z at 12 CFR 1026.35(a) and (c), by cross-referencing these rules in 12 CFR 722.3 and 12 CFR Part 1222, respectively."

Thus, after the rules are in the Electronic Code of Federal Regulations, credit unions will need to use 12 CFR 1026 - Regulation Z - as NCUA's rule will simply tell them to go find the requirements in 12 CFR 1026.35. 

Just for fun, here is the wonderful legalese that will be located in 12 CFR 722.3(f):

"(f)  Higher-priced mortgage loans.  A credit union may not extend credit to a consumer in the form of a “higher-priced mortgage loan” as defined in 12 CFR 1026.35(a)(1), without meeting the requirements of section 129H of the Truth in Lending Act, 15 U.S.C. 1639h, and its implementing regulations in Regulation Z, 12 CFR 1026.35(c)."

Say that five times fast.  

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More on Mortgage Servicing.  There has been quite a bit of discussion in the news about the 5000 transaction exemption for mortgage servicing.  Unfortunately, some of it has the potential to cause confusion.  When you are reading news stories or summaries of the mortgage servicing rule, remember that the 5000 transaction exemption does not cover all the new requirements.  For example, the requirements for error resolution and information requests procedures will apply to all credit unions performing mortgage servicing.  And, it looks like the force-placed insurance requirements will apply as well.  

"The Bureau agrees that additional exemptions are appropriate for certain of the rulemakings.  As discussed in more detail below, the Bureau has determined not to implement these additional exemptions to those regulations that principally implement requirements set forth in the Dodd-Frank Act.  These include the requirements in §§ 1024.35 (Error Resolution Procedures), 1024.36 (Information Requests), and 1024.37 (Force-Placed Insurance).  With respect to error resolution procedures and information requests, those provisions build upon the existing Qualified Written Request procedures, which are currently applicable to the servicers discussed above.  Providing an exemption to these requirements would have removed a currently existing consumer protection."  Page 90-91 of the Reg X/RESPA Mortgage Servicing Final Rule.

There could be more.  For now, if a colleague starts celebrating that you are under 5000 transactions and not subject to the mortgage servicing rule - just remind them of these six words that compliance officers know too well: "the devil is in the details."

Note: NAFCU's Mortgage Reform Webcast Series will feature a May 15 webcast on the error resolution and information request requirements.  

What is a Transaction?  We'll have more on this in a future blog post, but the periodic statement requirement covers all closed-end loans secured by a dwelling.  This would include closed-end home equity loans.  Open-end loans (i.e., HELOCs) are excluded.  Again, expect additional information next week on this issue (I have a weekend reading date with the devil to discuss the details).  

***

Final Rule for Mortgage Loan Originator Compensation?  I haven't seen it yet, but it is likely to come out today as well.  

The best place to check is the CFPB's main regulation page.  We'll also post the information on this blog post (yes, the one you are reading) after it is out.  Just click this link and you'll go to the compliance blog itself and will be able to see any updates.

Update at 4:30 p.m. on 01/18/2013.  Cordray's remarks on mortgage loan originator compensation are here.  Our NAFCU Today story is here.  Additional information on the rule - including the full regulatory text - is not expected until Sunday.    

Update at 6:45 a.m. on 01/19/2013.  The CFPB's press release is available as is their summary of the rule.  The full rule will come out Sunday, January 20th.  

Update at 2:00 p.m. on 01/20/2013.  The CFPB's special regulation page for the MLO rule is here.  The full MLO compensation rule is available here (541 pages).

Effective Date:  The press release indicates the effective date for the majority of the new requirements will also be January 10, 2014.  However, two provisions - prohibition on mandatory arbitration and the prohibition on financing credit insurance - will be effective June 1, 2013.

Have a great weekend!

CFPB Sharing Complaint Data; Unverified Complaints; Feedback on NCUA Process

Written by Steve Van Beek

Back in mid-December, the CFPB announced it would be sharing consumer complaint data with state regulatory agencies.  They also note that this is just the beginning:

"In the future, we’re planning on building ways to accept complaints and information from the agencies as well, and to make the data available to other federal agencies, state attorneys general, local agencies, congressional offices as appropriate, and other governmental organizations like the California Monitor (a program of the California Attorney General) and the Office of Mortgage Settlement Oversight."

The announcement then goes on to provide a summary of the CFPB's complaint process:

"What happens when I file a complaint?

When a consumer files a complaint, we screen it to make sure that it’s complete and not a duplicate of another complaint we’re already working on for that consumer. Next, we send it to the company in question and ask them to reply to the complaint within 15 days and expect them to close all but the most complicated complaints within 60 days. After the company responds, we publish a selection of the data (with information identifying the consumer removed) in our public Complaint Database."

You'll easily notice that there is no verification process.  And, the Complaint Database's disclaimer doesn't exactly jump off the page.  Of course, this is an issue we've discussed over and over on the blog - so much so that we have a Member Complaints category.  

***

Initially, it is important to remember that credit unions under $10 billion are not included in the Consumer Complaint Database.  The CFPB will forward any complaints from these credit unions to NCUA and credit unions will need to follow NCUA's procedures for responding to member complaints (more on this at the end of the blog post).  

Unverified Complaints.  So, what is the big deal with unverified complaints?  The reputation risk issue is one that cannot be ignored.  In this age of viral media - where a simple complaint or issue can fly through blogs, Facebook, Twitter - it is much harder to correct inaccurate information.  Sometimes, once the story is out there, it is....well, out there.  

But, there is another angle that could be even more dangerous.  The CFPB's Annual Report on Student Loans and the companion report - The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform - both use consumer complaints as a focal point to help show the current regulations or enforcement is insufficient.  

The latter quotes directly from consumer complaints, for example:

        
That comes from page 5 of the Report.  An earlier quote includes this footnote:  "This report cites information from specific complaints submitted to the CFPB. In these cases, the consumers have provided consent to include the details of their complaints."

Again, there is no mention of verification of the complaints.  I'm interested, was the rate incorrect?  We don't know.  But, the CFPB is implying it was by including one side of the story.  Remember:  The institution - whichever institution this was from - is prohibited by privacy laws from providing any information about the member's account.  So, we have the one side of the story.

Of course, I'm not saying these complaints are not true.  I'm just saying they are unverified (if they were verified, the CFPB should include that information).  

And, I'm not saying that institutions always do everything correctly.  For example, if this complaint is accurate - the institution has a lot of work to do:

"According to a complaint received by the CFPB, one borrower had six loans with a servicer, two of which had interest rates above six percent and four of which had interest rates below six percent. Instead of reducing the interest rate on the two higher-rate loans to six percent and leaving the four lower-rate loans untouched, the servicer simultaneously increased the interest rate on the lower-rate loans up to six percent."

Or, it could have been a mistake that was quickly corrected by the institution.  We just don't know.

***

The New Cycle?  The reason I bring this up is that this seems to be the start of a new type of regulating that credit unions need to be aware of.  Or, at the least it is a new type of justifying the need for new regulation.  

Think about it.  The CFPB is soliciting consumer complaints (remember the flashing red "complaint button" on their first website?)  Then, they write a report (usually to Congress) using the complaints to argue there are issues that need to be corrected.  There might also be testimony to explain the report and what they've found.  After that?  Well, it might just be that the reports help build the case for a new regulation (or a new law from Congress).  All with unverified consumer complaints.  

At this point, we don't know.  But, the CFPB seems to be falling short of their data-driven analysis goal:

"The CFPB is a data-driven agency. We take in data, manage it, store it, share it appropriately, and protect it from unauthorized access. Our aim is to use data purposefully, to analyze and distill data to enable informed decision-making in all internal and external functions."

And, remember - the new requirements that come from these new regulations or laws will not be limited to credit unions with more than $10 billion in assets.  The new requirements will apply to everyone.  

***

NCUA Complaint Process.  Taking a little different angle here.  We've detailed the NCUA Complaint process a couple of times on the blog.  Most recently here and here.  What we are interested in from blog readers is if there are areas NCUA could improve?  If so, please let us know.  We'll be sure to raise the issues with NCUA and see if some of the issues can be smoothed out.  

CFPB Finalizes First Three Mortgage Regulations: Qualified Mortgages; Escrows; & HOEPA

Written by Steve Van Beek

Did you hear that?  No worries, it was just the sound of thousands of dying trees after the CFPB's first three mortgage regulations were finalized.  If you heard a second noise, it was probably your printer dying. 

***

Now, on to the good stuff.  Initially, it is good idea to overview which rules were finalized and which are coming next.

Which Three Regulations?  Yesterday, the CFPB finalized the qualified mortgage rule (AKA the ability-to-repay rule), the escrow rule for higher-priced mortgages, and the HOEPA/High-Cost/Section 32 mortgage rule.  

What is Left?  It is expected that the CFPB will finalize the remaining regulations on January 17th at their field hearing in Atlanta.  Which ones?  Mortgage servicing (both Reg Z and Reg X), mortgage loan originator compensation (and much more - including SAFE Act angles), appraisals for higher-risk mortgages, and Regulation B appraisal disclosure requirements.  Yikes! 

Of course, it is always possible the CFPB waits on one or two of these - especially given that neither the higher-risk appraisals or Reg B appraisals are listed on the CFPB's latest Regulatory Agenda.  But, be prepared for all of these to be coming out soon.  

What about TILA/RESPA Integrated Disclosures?  The new disclosure forms will be finalized later in 2013.  Dodd-Frank mandated that the CFPB propose new regulations by July 21, 2012 but it did not mandate a timeframe for the final regulation.  

***

Qualified Mortgages - Ability-to-Repay.  This is the one that got all the press yesterday.  There was the field hearing, the press release, Cordray's prepared remarks, the blog post, the Fact Sheet, the Summary and.........finally, the final rule (804 pages).  

The CFPB created a special page for each new final rule and you can find the Qualified Mortgage/Ability-to-Repay page here.

This page includes the full final rule and it also takes a page out of this blog's playbook and breaks the new rule down by preamble, regulatory text and official interpretations.  

Effective Date:  The final rule contains an effective date of January 10, 2014.

Concurrent Proposal:  The CFPB also proposed changes to the just finalized regulation.  The proposal can be found here.  Including the preamble, regulatory text and the official interpretations.   

Of course, we'll have more on this final rule and the proposed rule in the future.

***

Escrow Final Rule - Higher-Priced Mortgages.  To much less fanfare, the CFPB also finalized a rule on escrow requirements for higher-priced mortgages (the original proposal was from the Federal Reserve way back in March 2011).  The CFPB released a consumer guide on this rule (where is the compliance officer guide?)  There is also a one-page summary here.

The CFPB's special page for the escrow final rule is here.

The full final rule is here (116 pages).  There are also separate documents with the preamble, regulatory text and the official interpretations.

Effective Date:  This final rule is effective June 1, 2013.     

***

HOEPA/High-Cost Mortgage - Final Rule.  The CFPB also finalized a rule implementing changes to high-cost mortgages.  A consumer guide for this rule is also available.  A three-page summary is here.     

The CFPB's special page for the HOEPA/High-Cost final rule is here.

The full final rule is here (431 pages).  There are also separate documents with the preamble, regulatory text and the official interpretations.

Effective Date:  This final rule is effective January 10, 2014.

Importantly, this final rule did not include a decision on whether to expand the definition of finance charge.  That decision will be made as part of the TILA/RESPA Integrated Disclosure final rules.   

***

Adding It Up.  So, that is 804 + 116 + 431 = 1351 new pages.  And, more to come next week.

And, silly me, I thought I'd be able to finalize the third Game of Thrones book prior to the show starting back up.  

Bonus:  While there are many resources above, I wanted to share my personal favorite.  Have a great weekend!  

NAFCU's Meeting with CFPB Director Cordray

Written by Steve Van Beek

A couple of weeks ago, the NAFCU Board of Directors along with our senior staff met with Director Cordray and a few key players on the CFPB's rulewriting team.  You can read a news recap of the meeting here.  However, today I wanted to give you a brief rundown of some of the issues that NAFCU discussed with the CFPB.    

• Qualified Mortgages and the Ability to Repay Rule.  NAFCU indicated the CFPB needs to provide a safe harbor for qualified mortgages (rather than a rebuttable presumption).  NAFCU also discussed the difficultly of tying the qualified mortgage determination to metrics (debt-to-income ratio, etc.) because the metrics cannot take into account non-quantitative factors.   

• Proposal to Change Definition of Finance Charge.  NAFCU discussed the CFPB's proposal to amend the definition of finance charge - which would alter how the annual percentage rate (APR) is calculated.  We argued this change was not required by Dodd-Frank and the CFPB shouldn't add this large compliance burden to credit unions.  We have previously blogged on this issue here (drop the APR proposal), here (NAFCU's official comment letter) and here (potential impact on FCU usury ceiling).  

• Points & Fees.  NAFCU discussed how CFPB's proposed points and fees tests have the potential to hurt credit unions that have CUSOs.  The CFPB's proposals might treat fees from affiliates differently than fees from non-affiliates and this could make a credit union's mortgage look less competitive.  

• Remittances.  NAFCU provided an overview of the challenges facing credit unions as they try to comply with this new rule.  Credit unions are facing a huge compliance burden and many are working with third parties to find a solution.  But, that also brings with it third-party due diligence costs and considerations.  Many credit unions will be forced to stop offering remittances and those that continue to offer remittances will see a large fee increase passed along to their members.  

• Providing Formal Opinion Letters or Other Guidance.  NAFCU urged the CFPB to provide an avenue for credit unions to obtain a formal opinion from the CFPB.  A prior example was the CFPB's unwillingness to provide a formal opinion on the Change-In-Terms Notice issue that we blogged about in mid-October.  If the CFPB would have provided formal guidance, it would have saved credit unions lots of time and money (not to mention the reduction in headaches).  

Quick Tidbits.  The CFPB seemed interested in the issues NAFCU was raising.  Unfortunately, it did not seem they had the time or inclination to make the changes.  The CFPB pointed back to Dodd-Frank repeatedly to indicate that their hands were tied by Congress.  However, they did indicate they are looking at 12 month implementation period for the majority of the mortgage rules.  And, they are looking at how to improve their communication of the final rules to regulated entities (including a "plain English" guide of the mortgage changes).   

***

NAFCU Offices Closing.  Just a heads up that NAFCU's offices will be closed next week and through the beginning of the year.  We won't be blogging during this period.  Of course, we don't need to tell anyone that 2012 has been a challenging year on the compliance front.  And, 2013 promises to bring many additional challenges as well.  We'll be charging our batteries and getting ready for 2013 and we hope you are able to as well.   

A Look to 2013; December Compliance Monitor; Notice to GPS Users

Written by Steve Van Beek

I wanted to highlight a couple of useful resources as the year winds down.  

Look Back at 2012.  The first is a free webinar tomorrow by the Philadelphia Federal Reserve's Consumer Compliance Outlook:

• Consumer Compliance Hot Topics - 2012 Year in Review

Member Call-In.  On Thursday, December 6th, NAFCU will have its final Member Call-In.  The call is free to NAFCU members but you must register, which you can do at the link below:

• NAFCU Member Call-In - December 6th at 3:30 p.m. EST

CFPB Webcast.  Additionally, NAFCU will be hosting a webcast on the CFPB on December 12th.  Suzanne Garwood from Venable LLP will provide an overview of the CFPB's expected actions in 2013:

• NAFCU Webcast:  CFPB Update - Credit Union Expectations for 2013

***

NAFCU's December Compliance Monitor.  The latest issue of NAFCU's Compliance Monitor is now available (NAFCU log-in required).  This issue includes articles on the CFPB's Potential Plans for 2013 as well as a detailed article on the proposed rule addressing Appraisals for Higher-Risk Mortgage Loans.

New:  We've also added a new feature this month - our Pending Regulations Chart.  This chart highlights proposed rules issued by various regulatory agencies that have not yet been finalized.  The Pending Regulations Chart is attached to the back of our Compliance Calendar (it will also be included in each Compliance Monitor).  The Compliance Calendar is open to everyone - so take a look today.   

***

Notice to GPS Users.  There was a change to the Electronic Code of Federal Regulations last week which caused many links in the NAFCU Credit Union Compliance GPS to stop working.  We are aware of the issue and are working to update the links.  When we are finished, we'll send around an email to everyone who has purchased the GPS (or received the GPS at NAFCU's 2012 Regulatory Compliance School) with information on how to download an updated GPS with corrected links.  Thanks for your patience.  

CFPB Delays Certain Disclosures Related to TILA/RESPA Integrated Disclosures

Written by Steve Van Beek

On November 16th, the CFPB announced it was finalizing a rule to formally delay the effective date of certain new disclosures.  The new disclosures are related to the CFPB's TILA/RESPA Integrated Disclosure rulemaking and the CFPB reasoned that the new disclosures should be delayed until there is a final rule for the new Integrated Disclosures.  NAFCU wholeheartedly agrees.  Here is from the final rule (published in last Friday's Federal Register):

"The Bureau of Consumer Financial Protection (Bureau) is amending Regulation Z (Truth in Lending) to, in effect, delay implementation of certain new mortgage disclosure requirements in title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act that would otherwise take effect on January 21, 2013. Instead, to avoid potential consumer confusion and reduce compliance burden for industry, the Bureau plans to implement these disclosures as part of the integrated mortgage disclosure forms proposed earlier this year, which combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Accordingly, this rulemaking exempts persons from complying with these mortgage disclosure requirements and provides that such exemptions are intended to last only until the integrated mortgage disclosure forms take effect."

Here is a listing of the new disclosures mandated by Dodd-Frank that will be delayed:

• Warning regarding negative amortization features. Dodd-Frank Act section 1414(a); TILA section 129C(f)(1).
• Disclosure of State law anti-deficiency protections. Dodd-Frank Act section 1414(c); TILA section 129C(g)(2) and (3).
• Disclosure regarding creditor's partial payment policy prior to consummation and, for new creditors, after consummation. Dodd-Frank Act section 1414(d); TILA section 129C(h).
• Disclosure regarding mandatory escrow or impound accounts. Dodd-Frank Act section 1461(a); TILA section 129D(h).
• Disclosure prior to consummation regarding waiver of escrow in connection with the transaction. Dodd-Frank Act section 1462; TILA section 129D(j)(1)(A).
• Disclosure of monthly payment, including escrow, at initial and fully-indexed rate for variable-rate residential mortgage loan transactions. Dodd-Frank Act section 1419; TILA section 128(a)(16).
• Repayment analysis disclosure to include amount of escrow payments for taxes and insurance. Dodd-Frank Act section 1465; TILA 128(b)(4).
• Disclosure of aggregate amount of settlement charges, amount of charges included in the loan and the amount of such charges the borrower must pay at closing, the approximate amount of the wholesale rate of funds, and the aggregate amount of other fees or required payments in connection with a residential mortgage loan. Dodd-Frank Act section 1419; TILA section 128(a)(17).
• Disclosure of aggregate amount of mortgage originator fees and the amount of fees paid by the consumer and the creditor. Dodd-Frank Act section 1419; TILA section 128(a)(18).
• Disclosure of total interest as a percentage of principal. Dodd-Frank Act section 1419; TILA section 128(a)(19).
• Optional disclosure of appraisal management company fees. Dodd-Frank Act section 1475; RESPA section 4(c).

These are the "Affected Title XIV Disclosures" and they, along with the Post-Consummation Escrow Cancellation Disclosure, are delayed until the CFPB finalizes the TILA/RESPA Integrated Disclosure:

"The final rule implements the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure in § 1026.1(c) of Regulation Z and provides for a temporary exemption for persons from these statutory disclosure requirements. The Bureau is issuing this final rule implementing the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure prior to the statutory provisions becoming self-effectuating on January 21, 2013. Accordingly, persons will not be required to comply with these statutory disclosure requirements until such time as the Bureau removes the exemption, which it plans to do in the final rule for the TILA-RESPA integrated disclosures, and such removal takes effect."

The above is from the Summary of the Final Rule.  

***

Other Disclosures Not Delayed.  Keep in mind that in the same announcement, the CFPB did not delay the following disclosures:

• Disclosure regarding notice of reset of hybrid adjustable rate mortgage. Dodd-Frank Act section 1418(a); TILA section 128A(b).
• Loan originator identifier requirement. Dodd-Frank section 1402(a)(2); TILA section 129B(b)(1)(B).
• Consumer notification regarding appraisals for higher-risk mortgages. Dodd-Frank Act section 1471; TILA section 129H(d).
• Consumer notification regarding the right to receive an appraisal copy. Dodd-Frank Act section 1474; ECOA section 701(e)(5).

These disclosures are not included in the "Affected Title XIV Disclosures."  Thus, the final rules for these new disclosures will still be issued prior to January 21, 2013.  For more on these requirements, check out NAFCU's On-Demand Mortgage Webcast Series.      

What is a Civil Investigative Demand?

Written by Steve Van Beek

With a new regulator (the CFPB), come new regulatory powers.  One of these new powers is the Civil Investigative Demand (CID) which acts like a subpoena request for information.  In short, Dodd-Frank authorizes the CFPB "to conduct investigations to ascertain whether any person is or has been engaged in conduct that, if proved, would constitute a violation of any provision of Federal consumer financial law."  

The CFPB has issued a final regulation that govern their investigations - 12 CFR 1080.  

The CFPB's ability to issue a CID is not limited solely to institutions under its primary enforcement powers.  Even if your credit union is less than $10 billion in assets - the CFPB could issue you a CID.  Here is from a September CFPB blog post:

"The mission of the CFPB is to ensure compliance with federal consumer financial laws through effective enforcement of those laws. When the Office of Enforcement needs to gather information, it may issue a Civil Investigative Demand (CID) to people and institutions that may have materials relevant to an investigation. The law that created the CFPB gives us the authority to gather information this way, and several other federal agencies have similar processes.

We carefully consider what to request in each Civil Investigative Demand. A recipient of a CID may challenge a CID by petitioning the CFPB’s Director. The Director can respond in three ways: he can reaffirm our decision to obtain the information, modify the demand, or set it aside altogether."

As indicated in the quote above, there is a process to appeal a CID.  Unfortunately, the ultimate decision-maker is the Director of the CFPB.  As you can imagine, the current track record for appeals is not good.  The first two have been denied by Richard Cordray and you can find that information here.  

***

If your credit union receives a CID - call your attorney.  Quickly.  

Timing.  The CFPB's timeframe only allows 10 days for the credit union to meet, in person, with the CFPB.  12 CFR 1080.6(c).  Additionally, you only have 20 days to petition the CFPB to modify or set aside the CID.  12 CFR 1080.6(d).  And, the petition cannot be a general objection to the CID:  "[s]uch petition shall set forth all factual and legal objections to the civil investigative demand, including all appropriate arguments, affidavits, and other supporting documentation. The attorney who objects to a demand must sign any objections."  Further, if you do not have the "10 day meeting" the CFPB will not allow your petition to modify or set aside the petition to go forward.  Which is what occurred when Next Generation Debt Settlement appealed the CFPB's CID.  

More on the CFPB's Strategic Plan for 2013-2018

Written by Steve Van Beek

Last Friday, we blogged on the CFPB's Strategic Plan for 2013 through 2018.  Today I wanted to review a couple aspects of the plan.  Initially, it makes sense to take a step back and look at the structure of the Strategic Plan:

• 4 strategic goals that outline what we aim to achieve
• 11 desired outcomes in support of our goals
• 25 strategies that state the actions we will take to accomplish our outcomes
• 27 performance measures that we will track against specific targets in order to assess our progress toward achieving our outcomes
• 4 performance indicators that we will track and use to assess progress toward achieving our outcomes. Unlike performance measures, indicators do not reflect targets

***

Consumer Complaint Volume.  We blogged numerous times about the CFPB's Consumer Complaint Database and the lack of verification of complaints (as well as the CFPB's ineffective disclaimer).  

With this in mind, it was very disheartening to see this performance measure regarding consumer complaints:

"COMPLAINT VOLUME:  Number of consumer complaints handled"

Not to beat a dead horse, but why should the performance measure be quantitative rather than qualitative.  Shouldn't the measure relate to whether or not the submitted complaints were, in fact, valid?  Are consumers protected if the complaint volume increases?  Or are consumers protected if valid complaints are submitted and addressed?  

***

Regulation Reviews.  Another interesting performance measure is the CFPB's completion of their review of existing regulations:

"% OF ON-SCHEDULE REGULATION REVIEWS:  The percentage of five-year regulation reviews completed on schedule"

If the CFPB's current streamlining initiative is any indication, the CFPB has put reducing regulatory burden very low on their priority list.  Hopefully they will place a greater focus on this issue in the future.  After all, credit unions (and the super-majority of other entities offering financial products and services) want to comply.  However, they are often faced with extremely complex or severely outdated regulations which make the process much harder than it needs to be.  

***

Of course, there is much more information in the Strategic Plan and I encourage you to share this with your management teams and Boards.  

CFPB's Strategic Plan for 2013 through 2018

Written by Steve Van Beek

In late September, the CFPB issued a draft version of their Strategic Plan for 2013-2018.  As part of process, the CFPB solicited public comment on their plan.

NAFCU issued a comment letter imploring the CFPB to focus on nonbanks and payday lenders rather than create additional regulatory hurdles for credit unions:

"At the outset, NAFCU would like to reiterate our support for efforts to wheel in deceptive and unscrupulous practices. Credit unions, as CFPB officials have acknowledged numerous times, do not engage in these unscrupulous practices, are consumer-friendly entities, and did not cause the financial crisis that triggered the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Due to their cooperative structure, tradition and mission, credit unions are guided by principles that focus on the well-being of their membership and operate in a manner that confers great benefits to their approximately 94 million members. Thus, it is unnecessary for the CFPB to impose greatly burdensome regulations on credit unions.

NAFCU believes the CFPB’s strategic plan fails to place adequate focus on unregulated entities, such as nonbanks and payday lenders. The mission that Congress delineated to the agency is to "help protect consumers from unfair, deceptive, and abusive acts that so often trap them in unaffordable financial products." See Senate Report No. 111-176, at 11 (2010). The failure of the strategic plan to focus on predators, and instead signaling that it would continue to impose unnecessary regulatory burden on consumer-friendly and highly regulated credit unions, simply misses the target that Congress set for the agency. This misguided approach, we believe, can foreseeably lead to results that will hurt consumers, such as drying of credit and exiting of credible market participants from the various markets the agency is regulating."

The comment letter continues by explaining how the CFPB's current approach - including their inadequate exemptions for credit unions - are forcing credit unions to alter their business plans even though credit unions where not the institutions harming consumers:

"Since its inception, the CFPB has taken a uniform approach to regulation, including regulations that apply to credit unions. While many of the agency’s regulations implementing the Dodd-Frank Act are still in the proposal stage or not yet effective, the anticipated impact on credit unions is already being felt as credit unions begin to plan ahead. Unfortunately, it is becoming apparent for many that the agency’s regulations will cause them to take drastic action to offset the resulting costs or, in some cases, discontinue programs. For example, the agency’s final rule on remittance transfers has proved to be so unworkable that many credit unions plan to leave the market altogether. Thus, with shrinking options and loss of such reliable market participants, the final rule on remittances will likely have a net negative impact on consumers absent a market-based competitive solution that will enable credit unions to continue to provide this product in a cost-effective manner."

Hopefully the CFPB takes a hard look at how their first final regulation (on remittances) and their future mortgage regulations are impacting the market and drastically increasing the operating and compliance costs for credit unions.  And, importantly, how their regulations may result in less competition in the financial services market and less choice for consumers as credit unions do not have "an army of lawyers" to keep up with regulatory changes.  

***

NAFCU's Office Closed on Monday.  We'll be back blogging on Tuesday. 

Mortgage Periodic Statements: Combined Statements; NAFCU Member Call-In

Written by Steve Van Beek

This week we've been discussing the possibility of sending electronic mortgage periodic statements.  There are also quite a few other issues related to mortgage statements that credit unions need to be ready for.  One, in particular, is whether or not combined statements are a viable option after the mortgage servicing proposals are finalized.

The issue with combined statements comes down to timing.  In fact, this issue was brought up by credit unions prior to the proposed rule and the CFPB solicited comments:

"Based on industry outreach, the Bureau understands that some institutions provide a combined statement for mortgage loans and other financial products. For example if a consumer has both a checking account and a mortgage with a credit union, the consumer may receive a single combined statement. The Bureau seeks comment on how servicers would actually combine statements. In particular, the Bureau notes that difficulties may arise when different disclosures have different timing requirements, and when multiple disclosures have requirements that information be presented on the first page of the statement. For example, if both mortgage loan disclosures and credit card disclosures are required to be on the first page of a statement, how would these statements be combined?"

Of course, NAFCU addressed this issue in our comment letter and asked the CFPB for flexibility so that credit unions would not be required to drastically change their current business practice given the fact that the benefit to members was not proven.

"The timing requirements of the proposed periodic statements will pose tremendous problems for both credit unions and their members. For example, many credit unions service mortgages with due dates throughout the month, and would have to mail statements each day in order to comply with the proposed requirement that a statement be sent within 4 days after the close of the grace period of the previous cycle.

Many credit unions currently provide combined statements at the beginning of each month. The combined statements contain a vast majority of the information that the proposed periodic statement contains. Borrowers are not only used to this format, but prefer it because they are not receiving multiple statements from their credit union throughout the month, but rather, a single combined statement that contains information about their loan, checking, share (savings) and other appropriate accounts. The proposed timing requirements would make this tried and true credit union practice virtually impossible to continue. Accordingly, NAFCU strongly urges the agency to carve out exceptions from the proposed timing and other requirements that would allow credit unions to provide combined statements, and provide a sample form of such combined statement. As the CFPB finalizes the rule, it should reach out to credit unions that currently provide combined statements to construct its final rule and NAFCU would be pleased to assist the agency in this endeavor."

If your credit union currently provides mortgage information on your other statements, be sure to keep an eye on this issue when the final rule comes out.  

***

Member Call-In.  NAFCU’s last member-only call-in of the year will take place December 6, 2012 at 3:30 p.m. (EST). Join NAFCU President and CEO Fred Becker and senior staff for an important briefing on current legislative developments and regulatory challenges affecting credit unions. 

The call is free and a NAFCU-member exclusive benefit, but you must register to participate.

Mortgage Periodic Statements & The E-SIGN Act: Part 3

Written by Steve Van Beek

Yesterday we blogged further on mortgage periodic statements and the E-SIGN Act.  We noted that the CFPB's mortgage servicing proposal could change when it is finalized.  In fact, the CFPB specifically asked for comments on the delivery of mortgage statements electronically.  As we noted yesterday, NAFCU supported electronic delivery in our comment letter.

Well, this section of the CFPB's proposed rule is actually a very interesting read - including this portion:

"The Bureau seeks comment as to whether additional requirements should be placed on when a consumer consents to receiving electronic statements. For example, must consent be obtained or confirmed electronically in a manner that demonstrates that the consumer is able to access information electronically? The Bureau also seeks comment on whether consumers who already receive electronic statements should be deemed as having consented to receive statements electronically. Additionally, the Bureau seeks comment on whether consumers who have auto-debit set up to deduct payments from their bank account should be deemed as having consented to receive statements electronically."  (Emphasis added).

As this paragraph indicates, the CFPB is looking at a wide range of options and solicited comments from interested parties.  The CFPB is looking for comments on whether the full E-SIGN Act consent process should apply regardless of the plain language of Dodd-Frank and TILA.  They are also seeking comments on whether a member's past consent to electronic statements - such as for their credit card or checking account statements - should be sufficient evidence to allow credit unions to send the mortgage periodic statement to existing members.  Additionally, that last option of electronic payments equaling consent for electronic statements is certainly an interesting approach.   

Again - it will be very interesting to see how the CFPB analyzes the comment letters from all interested parties and what the final rule will look like.  We'll know by January 21, 2013.  

Mortgage Periodic Statements & The E-SIGN Act: Part 2

Written by Steve Van Beek

A couple of weeks ago we blogged on the CFPB's mortgage servicing proposal and the ability to send mortgage periodic statements electronically - if the proposal is adopted as proposed - without following the full E-SIGN Act consent process.  Here was a snippet from that post:

"Thus, if the CFPB's proposal is adopted as is - credit unions would have flexibility to send mortgage periodic statements electronically without following the full E-SIGN Act consent process.  A member's authorization - properly documented by the CU - would be sufficient."

NAFCU's comment letter showed strong support for this ability to have member's sign up for mortgage statements without following the full E-SIGN Act process:

"NAFCU does support allowing credit unions to be able to send notices electronically without following the E-SIGN Act. Under the proposal, the periodic statement may be transmitted in writing or electronically; thus, a credit union would not need to obtain a person’s signature as required by the E-SIGN Act. NAFCU strongly supports this proposal and urges the CFPB to pursue legislation that would amend the E-SIGN Act to remove the outdated and onerous requirement of obtaining the borrower’s signature in order to transmit communications electronically."

The next question is - what about members with existing mortgages?  How does the credit union obtain a member's authorization or opt-in for electronic periodic statements?  

Here is from NAFCU's comment letter:

"NAFCU requests that the CFPB develop a model opt-in form that credit union can send to their members to facilitate member acceptance of electronic statements. This is especially important considering the new periodic statement requirement would apply to existing mortgages as well as new mortgages."

A model opt-in form that credit unions could send to existing members would help both credit unions and their members.  Members would be able to simply agree to "go paperless" in response to the monthly statement they are sent.  They could also opt-in for electronic periodic statements by providing the indication inside the CU's online banking platform.  

***

Of course, this is still a proposal and the final rule could differ.  Additionally, keep in mind that this flexibility for member agreement for electronic delivery of statements without the full E-SIGN Act consent process does not necessarily extend to other proposed notices that are being added to Reg Z and RESPA.  

New Head of NCUA's OCP; Matz Town Hall; NCUA Report; LCU 12-CU-12

Written by Steve Van Beek

This morning we'll just mention a couple short NCUA tidbits from the past week or so.  

Director of NCUA's Office of Consumer Protection.  NCUA announced Gail Laster as the new Director of NCUA's Office of Consumer Protection.  Laster has direct experience in consumer protection regulations - including helping to draft Dodd-Frank.  She will begin her new role on November 19th.  She replaces Kent Buckham who will be retiring at the end of 2012.  For additional details, check out NCUA's announcement or the NAFCU Today.    

***

Matz Town Hall.  The October 4 Town Hall Webinar is now available online.  The archived webinar is available here.   

***

NCUA Report.  The October NCUA Report is also available.  This month's issue covers:

• Board Moves to Lessen Small Credit Union Regulatory Burdens
• Chairman Matz's Corner: Regulatory Modernization Initiative Delivers Results 
• Board Actions:  NCUA Board Advances Regulatory Relief for Credit Unions
• Board Perspectives (Fryzel): Supercalifragilisticexpialidocious
• Director's Report: Office of the Chief Economist
  Macroeconomic Trends Gradually Benefit Credit Union Performance
• Office of Consumer Protection Report: If It Is Too Good To Be True...Then It Could Easily Be A Ponzi Scheme
• Region II Report:  What Credit Unions Should Know About Private Student Loans
• Hyland Leaves NCUA Board After Seven Years of Accomplishments
  
• 623 Federal Credit Unions Opt In For The Low-Income Credit Union Designation

***

NCUA Letter on Call Report Changes.  NCUA also recently announced Letter to Credit Unions 12-CU-12 which highlights changes to the Call Report - including troubled-debt restructuring (TDR) reporting.  Be sure to pass this Letter along to the appropriate person(s) at your credit union.     

The Federal Credit Union - Compliance Central; Extended Early-Bird Pricing for Mortgage Webcast

Written by Steve Van Beek

The latest issue of NAFCU's The Federal Credit Union (TFCU) is now available.  Included in each issue is a Compliance Central article that might be useful to pass along to your management team and Board.  We usually try to identify issues that are coming up next and highlight areas of potential concern.  

In this month's issue we've looked at the Upcoming Regulatory Changes to the Mortgage Market.  In the article, I examine the CFPB's mortgage servicing proposals as well as their high-cost/HOEPA proposal.  Again, these are meant as higher-level overviews of the regulatory environment.  If you'll indulge me, I'll quote myself:

"Dodd-Frank and More

Many of the CFPB’s proposed changes are mandated by the Dodd-Frank Act. For example, Dodd-Frank requires the CFPB to amend the thresholds for determining whether a mortgage loan is high-cost or not. However, the CFPB is also proposing numerous additional requirements that are not mandated by Dodd-Frank.  In the majority of cases, the CFPB is proposing that all mortgage servicers or lenders comply with these additional requirements. NAFCU has urged the CFPB to focus solely on the changes required by Dodd-Frank and conduct additional due diligence — including reviewing whether exemptions are appropriate for credit unions — before finalizing any non-Dodd-Frank requirements on credit unions."

The article goes on to provide an overview of the mortgage servicing and high-cost/HOEPA proposal - including an analysis of the potential change to the definition of "finance charge" and how this would impact credit unions:

"For example, the CFPB is required to amend the annual percentage rate (APR) threshold for determining high-cost loan status. While this change seems innocuous, the CFPB has also proposed amending the definition of “finance charge,” which would have a direct impact on the high-cost APR threshold test. If the CFPB finalizes its proposed changes to the definition of finance charge, the APR on credit union mortgage loans would drastically increase and could result in numerous loans being classified as high cost. 

The CFPB has proposed softening the impact of its proposed action by creating a new metric — the transaction coverage rate (TCR) — that credit unions would need to calculate to determine whether or not a particular mortgage loan is high cost. The CFPB claims this additional metric would decrease the compliance burden on credit unions. However, the opposite is more likely as credit unions would need to calculate the new APR for disclosure purposes and the new TCR for determining whether a loan is considered high cost. To make things more confusing, the new APR would only apply to closed-end mortgages. Credit unions would still need to use the “old APR” for all other loans, such as closed-end auto loans. Thus, contrary to the CFPB’s claims, it’s clear the ongoing regulatory burden from the proposed three calculations would be an increase from the one calculation under the current regulations."

You can find the full article here.  The full issue of the TFCU is here.  Or, via PDF if you prefer.  

***

Extended Early-Bird Pricing.  We've extended the deadline for registering for our November 7th webcast (next Wednesday!) on the CFPB's Latest Mortgage Proposals.  

Register today (November 2nd) to Save $100!    

Have a great weekend!

CFPB Report on Private Student Loans; CFPB Remittances Webinar; NAFCU's Offices Closed

Written by Steve Van Beek

We'll keep this blog post brief as we’ll have additional information on the CFPB reports in future blog posts.

***

Private Student Loan Report.  On October 16th, the CFPB issued a report on private student loans.  Here is from the press release:

"Today’s report, which was mandated by Congress, analyzed approximately 2,900 private student loan complaints, comments, and other submissions and input from borrowers. The report found that roughly 95 percent of the complaints are about loan servicing – when borrowers try to pay back their debt or are unable to pay."

The report is available here.  A fact sheet is available here.   

***

Student Loans and Servicemembers.  On October 18th, the CFPB issued a report on student loans and servicemembers.  Prominent in the report were discusses of student loans and the SCRA:

"Many servicemembers navigate hurdles that may be unnecessary in order to receive the SCRA interest rate cap. Once a borrower has qualified for this interest-rate cap, the SCRA requires the servicer to continue to provide this benefit for the duration of the servicemember’s time on active duty, as reflected in the servicemember’s orders. We have received complaints from servicemembers, on active duty for multiple years, who reported that they were told that their interest-rate cap would expire annually, and were subsequently required to submit  additional orders in order to retain this benefit."

The report is available here.  The CFPB also released a Guide for Servicemembers with Student Loans.  

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CFPB Remittances Webinar.  If you missed the CFPB's webinar on remittances, you can view the archive here (slides are here).  The Small Entity Compliance Guide is also available.

***

NAFCU Closed.  NAFCU follows the Federal Government Operating Status and our offices will be closed today due to Hurricane Sandy.  NAFCU Members:  If you have compliance questions, please email us at [email protected].  If you call, please leave a voicemail and we'll get back to you as soon as we can.   

For those in and around the Hurricane area, be safe!

Change in Terms Required for Change to CFPB Website on Credit Card Disclosures?

Written by Steve Van Beek

Over the past weeks and months many credit unions, their vendors, their attorneys, their trade associations and many others have been struggling with trying to determine whether a 45-day change-in-terms notices is required solely due to a technical change to Regulation Z.  This blog post will try to provide an overview of this situation and where things stand.  Unfortunately, there is not a perfect answer as the CFPB will not provide formal guidance on this situation.  

Devil is in the Details.  The Dodd-Frank Act transferred authority for Regulation Z from the Federal Reserve to the Consumer Financial Protection Bureau.  This meant that the CFPB has authority for interpreting Regulation Z as well as providing information to consumers regarding credit cards.  To implement its authority under Reg Z, the CFPB republished Reg Z under 12 CFR 1026.  During this republishing, the CFPB indicated it was making solely technical changes and there would be no substantive changes.  However, as we all know - the devil is in the details.  

CFPB Website.  One of the changes during the republishing is that the CFPB website needs to be used by credit unions in their credit card disclosures after January 1, 2013.  This requirement comes from 12 CFR 1026.6(b)(2)(xiv) of Reg Z:

"(xiv) Web site reference. For issuers of credit cards that are not charge cards, a reference to the Web site established by the Bureau and a statement that consumers may obtain on the Web site information about shopping for and using credit cards. Until January 1, 2013, issuers may substitute for this reference a reference to the Web site established by the Board of Governors of the Federal Reserve System."

Ok, this seems simple.  In fact, we blogged on this as early as January 10th of 2012.  Credit unions have been making these updates throughout the year and most are ready to go on their disclosures for new credit card disclosures.    

Complicated, Interconnected Regulations.  However, this simple change also potentially triggered a change-in-terms notice - to existing credit cardholders - because of the complexity of Regulation Z.  Here is the requirement for when a change-in-terms notice is triggered - from 12 CFR 1026.9(c)(2):

"(2) Rules affecting open-end (not home-secured) plans. (i) Changes where written advance notice is required. (A)General. For plans other than home-equity plans subject to the requirements of § 1026.40, except as provided in paragraphs (c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v) of this section, when a significant change in account terms as described in paragraph (c)(2)(ii) of this section is made, a creditor must provide a written notice of the change at least 45 days prior to the effective date of the change to each consumer who may be affected." (Emphasis added).

Thus, the analysis needs to jump to 1026.9(c)(2)(ii) to determine which changes are "significant changes in account terms":

"(ii) Significant changes in account terms. For purposes of this section, a “significant change in account terms” means a change to a term required to be disclosed under § 1026.6(b)(1) and (b)(2), an increase in the required minimum periodic payment, a change to a term required to be disclosed under § 1026.6(b)(4), or the acquisition of a security interest."  (Emphasis added).

So - this is where things get weird.  The disclosure of the CFPB's website is required by 1026.6(b)(2)(xiv) which would bring it under the definition of a "significant change in account terms."  This is even though the credit union did not make the change and the disclosure of the CFPB website is not actually a "term" of the account that impacts members (rather, it is a mandated disclosure).  

Is There an Applicable Exception?  Thus, a strict reading of Regulation Z indicates that this switch to the CFPB's website would be a "significant change in account terms."  But, does this trigger the change-in-terms notice?  It doesn't seem like it would as the credit union didn't make this change.  Congress did.  Dodd-Frank transferred authority to the CFPB and this required the CFPB to change Regulation Z and include their website - rather than the Federal Reserve's - under 1026.6(b)(2)(xiv).  Why should credit unions have to send notices to their existing cardholders of this change?  Further, this disclosure of the CFPB's website is only required in the application/solicitation and account opening disclosures - why would it need to be disclosed to existing members when it is changed?

Well, there is an exception in the official staff commentary that has been pointed out by quite a few credit unions, vendors, attorneys, and others as indicating the change-in-terms notice would not be required.  It comes from the staff commentary of 1026.9(c)(2)(v):

"9(c)(2)(v) Notice not Required

1. Changes not requiring notice. The following are examples of changes that do not require a change-in-terms notice:

i. A change in the consumer's credit limit except as otherwise required by § 1026.9(c)(2)(vi).

ii. A change in the name of the credit card or credit card plan.

iii. The substitution of one insurer for another.

iv. A termination or suspension of credit privileges.

v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car."  (Emphasis added).

This sounds great.  The argument is that the change to the CFPB's website is a "change arising merely by operation of law."  Dodd-Frank transferred authority to the CFPB and that is the only reason why this technical change occurred.  Done deal, right?

Informal Agreement.  I've talked with CFPB staff on this issue (as have many others) and CFPB staff agrees that this "operation of law" exception applies and credit unions do not need to send the change-in-terms notice in this situation.  Unfortunately, the CFPB staff is unwilling to put their opinions in a formal writing.  This means that credit unions are left with an informal agreement that a change-in-terms notice is not required.

***

Documentation is Key.  Because the CFPB will not put their opinion in writing, it is important that credit unions document their decision-making as to why they did not send the change-in-terms notice in this situation.  Remember, the CFPB staff is not examining and auditing your credit union - so be sure to have documentation of your decision not to send the notice in case this issue comes up.    

Notice Already Sent.  Of course, if your credit union has already decided to send the notice - you are in a great position as you can move on to many other compliance issues facing your credit union.  Additionally, if you have the wheels in motion to get the notice out to your members in the near future - there is nothing wrong with sending the notice.  

Risk-Averse.  If your credit union decides it doesn't feel comfortable relying on an informal (2nd-hand) agreement from the CFPB staff - by all means send the notice.  And, then document why you sent the notice and the burden caused by the CFPB's unwillingness to put their opinion in writing.     

***

Legal Disclaimer.  Now is a very good time to remind blog readers of the blog's legal disclaimer:

"LEGAL DISCLAIMER

This website is intended to provide general compliance information in regard to the subject(s) covered. It is provided with the intent and understanding that the publisher is not engaged in the act of rendering legal, accounting or any other professional advice. The information provided in this website is not intended nor should be used as a substitute for legal advice or other expert opinions and services in specific situations. NAFCU is not responsible for the content of comments and reserves the right to delete or block comments that it finds inappropriate."

Remittances Webinar; Fair Lending Webinar; Archived Nonaccrual/TDR Webinar

Written by Steve Van Beek

Remittances.  The CFPB recently opened their Remittances Webinar to everyone - without the need to register (the webinar is free).  The webinar will be available on this page beginning at 2:30 p.m. Eastern.  The webinar will last 90 minutes.

That is TODAY at 2:30 p.m. Eastern.  Be sure to tune in.    

NOTE - The CFPB issued their small entity compliance guide yesterday.  

*** 

Fair Lending.  The Philadelphia Federal Reserve's Consumer Compliance Outlook will be hosting a Fair Lending Webinar tomorrow - October 17th from 2:00 - 3:30 p.m. Eastern.  You can register here.   

The presentation slides are already available here.  Topics to be discussed are:

• Recent Fair Lending Enforcement Actions
• Risk Assessments
• Fair Lending Compliance Management
• Data Reporting and Analysis
• FHA LGBT Rule, Disability Discrimination, Maternity Leave Discrimination
• Loss Mitigation and Loan Modification
• Redlining

Remember - TOMORROW at 2:00 p.m. Eastern.  Register here.   

***

Nonaccrual and TDR Webinar.  NCUA's webinar on Workouts, Nonaccrual and TDRs is now archived and available.  The webinar can be watched here.  A transcript is also available inside the webinar (or at this link).       

Mortgage Periodic Statements & The E-SIGN Act

Written by Steve Van Beek

We've written about the proposed mortgage periodic statement quite a few times already.  One angle we haven't blogged about is how you send the periodic statement.  The CFPB's proposal agrees with the plain language of Dodd-Frank which would allow credit unions to send mortgage periodic statements electronically if the member provides authorization.  Because of the language of Dodd-Frank, the full E-SIGN Act consent process would not be required.  Here is the CFPB's proposal:

"Electronic distribution. TILA section 128(f)(2) provides that periodic statements “may be transmitted in writing or electronically.” Consistent with this provision, proposed § 1026.41(c) would allow statements to be provided electronically, if the consumer agrees. As discussed above, the requirement to transmit a periodic statement to the consumer may be met by sending the consumer an e-mail notification that the statement is available, rather than e-mailing the statement itself in light of information security concerns. This paragraph would require only affirmative consent by the consumer to receive statements, not compliance with E-Sign verification procedures. The Bureau does not believe E-Sign consent is required by the statute. E-Sign is designed to provide an electronic alternative to required writings. The statute, however, requires only periodic “statements” as opposed to “writings” to be transmitted to consumers. Additionally, the statute contemplates electronic statements, as TILA section 129(f)(2) provides that the Bureau shall prescribe a standard form, taking into account that the statements required may be transmitted in writing or electronically. Thus, the Bureau believes that Congress did not intend to require E-Sign verification procedures."  (emphasis added).

Thus, if the CFPB's proposal is adopted as is - credit unions would have flexibility to send mortgage periodic statements electronically without following the full E-SIGN Act consent process.  A member's authorization - properly documented by the CU - would be sufficient.

This flexibility also has the potential to cause confusion in your credit union's procedures and training.  Your staff and colleagues will naturally ask why the E-SIGN Act process is required for share, checking and credit card statements but not for mortgages. 

***

We'll be blogging about a few other similar issues in the upcoming weeks as well, so stay tuned.  

Q&A on Finance Charge Following Cordray's Senate Testimony; Swamp People

Written by Steve Van Beek

Last Wednesday we examined NAFCU's comment letter to the CFPB regarding the proposed change to the finance charge definition.  The comment letter questions whether the CFPB has the legal authority to change the plain language of a law - namely the Truth in Lending Act - through regulation.  

Well, NAFCU isn't the only ones inquiring about the CFPB's legal authority.  Back on September 13th, CFPB Director Cordray appeared before the Senate Banking Committee to provide prepared testimony and answer Questions from Senators on both sides of the aisle.  The archive of the hearing is available here.  

Of particular interest is this back and forth between Ranking Member Richard Shelby (R-AL) and Cordray (starting at the 48:07 point of the archived hearing):

Ranking Member Shelby:  Mr. Cordray, let me ask a further question.  In other words, I assume you believe the Bureau’s authority to write rules includes the authority to exempt and modify statutory requirements.  That is troubling.  If a statute is clear, I don’t believe you can change that by a rule.  Do you disagree with that?  Do you disagree that if the statute is clear, unambiguous – that you cannot change the statute by rule?  

CFPB Director Cordray:  This is one provision of our statute.  Truth in Lending has other provisions – some of those are more explicit that this.  What is clear is that Congress intends for us here to write rules around disclosures and clarify and interpret the laws that Congress has provided with us.  In terms of ignore, I absolutely believe we should not ignore statute, nor can we, and we’ll be subject to judicial review if we do.  Interesting enough, there are many requests for us to consider our exemption authority or our modification authority to consider how provisions of law actually apply in a practical manner to different banks or other institutions.  Part of our rulewriting function is to take comment from individuals and stakeholders across the spectrum and to consider how best to apply the law to the rules because we have that delegated rulemaking authority.  I would absolutely agree with the tenor of your question which is – don’t consider that you as a Consumer Bureau can ignore or rewrite the law.

Ranking Member Shelby:  I hope you won’t.  I hope you will not. [Cordray: We do not believe we have that authority].  It seems like that is what you are doing.  I hope that is not what you are doing.  If you do, we will hold you accountable.

CFPB Director Cordray:  And, you should do so.  I fully welcome that.        

A very interesting back and forth, to say the least.  To view the exchange, watch from 48:07 to 50:20 of the archived hearing. 

***

Swamp People.  Erin and I took advantage of the long weekend to head down to New Orleans.  If you've seen the show Swamp People, you'd know that we are not likely to be added to the cast for next season.  

NCUA Report - September 2012; Fraud Information Center

Written by Steve Van Beek

Welcome back - we'll keep this nice and easy on your return from the holiday weekend.  

NCUA Report.  NCUA issued their September 2012 NCUA Report a little while back and it is a very useful read.  The Report includes the following articles:

• NCUA Alerts 1,000 Credit Unions to Low-Income Designation Opportunity

• Chairman Matz's Corner: Dual Regulatory System Works Well for Troubled Credit Unions

• Office of General Counsel Report: Navigating Multi-Featured Open-End Lending

• Board Member Hyland:  Board Perspectives: A "Small" Change Would Get the Big Results

• Board Member Fryzel:  Board Perspectives: ZzZzZzZ

• Office of Consumer Protection Report: Unclaimed Deposits Website Draws Thousands of Hits

• Office of Minority and Women Inclusion Report: Dodd-Frank Act Requires Regulators to Develop Diversity Standards and Assessments

• Region I Report: Working Together on Fraud

• Office of General Counsel Report: Agencies Issue Higher-Risk Mortgage Appraisal Proposed Rule

Fraud Information Center.  I was excited when I saw this mentioned in the Region I Report regarding fraud as I thought NCUA had developed a new way to inform credit unions of potential fraud.  

"Take advantage of NCUA’s online Information Center (http://go.usa.gov/r9H4). This webpage includes an update of current fraudulent schemes being aimed at credit unions, contains details about the agency’s fraud hotline (all reports remain confidential), offers background on phishing schemes where email are purportedly coming from NCUA, links to suspicious activity report (SARs) forms and guidance, and connects credit unions with other resources readily available, including the FBI, U.S. Postal Service, and the President’s Identity Theft Task Force, to name a few."  (emphasis added).

Unfortunately, the bolded language looks to be a landing page with past Fraud Alerts and Letters to Credit Unions.  Hopefully, there is an update or futher enhancements going on behind the scenes as well.  

NAFCU's Comment Letter - to NCUA - on the Finance Charge Proposal and Credit Union's Usury Ceiling

Written by Steve Van Beek

Yesterday, we walked through NAFCU's comment letter to the CFPB on the proposed change to the definition of finance charge (and the subsequent impact on the annual percentage rate - APR).  Today, we'll look at a comment letter NAFCU sent to NCUA on the finance charge proposal and the potential impacts on credit unions.  

It is important to note that NCUA historically looked to the Federal Reserve Board (prior to Reg Z transferring to the CFPB) for interpretations of what is considered a "finance charge" - but they are not required to by law.  NCUA has the ability to make its own determinations - for usury ceiling purposes - of which fees are finance charges and which are not.  

From NAFCU's comment letter:

"The Federal Credit Union Act (FCUA) imposes a statutory limit on the interest rate that credit unions may charge.  Currently, the National Credit Union Administration’s (NCUA) regulations cap the APR at 18 percent, inclusive of all finance charges.  12 C.F.R. § 701.21(c)(7).  NAFCU is concerned that, if the CFPB moves forward with its proposal, the changes might prove problematic given the NCUA’s reliance on the definition of the finance charge in Regulation Z.  Specifically, under the new proposal, the precise finance charge, and what fees or charges should be included, will vary from product to product in a way that is not currently the case.  This will likely cause confusion as the NCUA’s regulations may not provide enough clarity regarding exactly how a credit union should calculate the finance charge for different products." (emphasis added).

Thus, it is very important for credit unions to consider not just the impact the CFPB's proposed change would have from a Regulation Z perspective - which will be huge - but also from a usury ceiling perspective.  

If the CFPB goes forward and finalizes their proposal, NCUA should take a good hard look at abstracting themselves from relying on the CFPB's interpretations of finance charge for purposes of the usury ceiling.  The NCUA has the ability to make their own determination and they should be prepared to take that step.  

"Accordingly, NAFCU requests that the NCUA begin examining options it might pursue if the CFPB moves forward with its proposal.  Specifically, NAFCU recommends taking steps to clarify how credit unions should calculate the finance charge for different products."

If your credit union was on the fence regarding sending a comment letter to the CFPB (and NCUA) prior to the November 6th deadline, this may be just the push you need.

NAFCU's Comment Letter on the Proposed Change to the Definition of Finance Charge

Written by Steve Van Beek

Yesterday, we highlighted the various comment deadlines for the CFPB's mortgage proposals - including the extended deadline, now November 6, 2012, to comment on the CFPB's proposed change to the definition of finance charge.  

Today, I wanted to highlight NAFCU's comment letter on this issue - which has already been sent to the CFPB.  This comment letter is in addition to the joint comment letter sent on September 10th asking the CFPB to drop the APR proposal.      

Opening Comments.  Here is the part of the introduction from our comment:

"NAFCU respectfully requests that the Bureau reconsider this proposal.  Given the host of regulatory changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Bureau should not use its authority to require still more changes for credit unions.  The cost of this proposal will be extraordinary.  Those costs, not just in terms of money, but also in terms of time, are particularly difficult for lenders to bear as the industry struggles to comply with all of the Dodd-Frank Act.  At the same time, the benefits are modest given that the proposal will, at best, only marginally improve a disclosure that consumers do not use.  Further, the proposal would completely disregard the statutory scheme, and require a broad interpretation of the Bureau’s authority under the Truth in Lending Act (TILA).  Finally, the changes will be particularly problematic in light of all of the other consumer protection laws that are tied to the finance charge."

Focus on Dodd-Frank Mandates.  The letter asks the CFPB to focus on their Dodd-Frank mandates and not compound those burdens by adding new regulatory changes not required by law.

"NAFCU believes that the CFPB’s resources should be directed towards finalizing regulatory changes that are required by the Dodd-Frank Act.  Proposing dramatic new changes to the regulatory framework that are not required by Dodd-Frank only exacerbates the already heavy burden being borne by credit unions and other small lenders.  The CFPB is currently working on promulgating at least eight different rules that will have a dramatic impact on the mortgage market.......Given the enormous challenges presented by the Dodd-Frank Act and the tremendous strain lenders will be under to comprehend the rules, update systems and processes, train staff, and ultimately comply, the CFPB should reconsider this proposal.  There is no pressing need to make changes to the finance charge calculation and consequently, NAFCU does not support such changes at this time.  Our position on this issue is part of a broader policy that the CFPB should not, at this time, add to the regulatory burden for mortgage lenders by promulgating rules that are outside the scope of the requirements of the Dodd-Frank Act."

Cost-Benefit Analysis.  The letter goes on to argue that the benefits of the proposed change are negligible while the costs are very, very real.  

"As the Bureau discusses in the proposed rule, the Federal Reserve Board (the Board) conducted consumer testing on the APR which revealed that the figure is not widely used by consumers and is, generally poorly understood..........Given that consumers still do not understand the APR and still confuse it with the interest rate, forty years after it was introduced, the value of the proposal is somewhat speculative.   The costs, however, associated with reconfiguring systems to calculate the newly defined finance charge, updating processes and training staff will be considerable."

Easier to Calculate?  The CFPB's proposal posits that the proposed changes would reduce costs for lenders - including credit unions - because the APR determination would be easier to calculate.  NAFCU disagrees.  

"First and foremost, while the APR calculation is imperfect, lenders have existing procedures and processes in place to ensure the figure is accurately disclosed.  Even if the Bureau’s proposed changes to the finance charge make it easier to calculate in the long term, those benefits must still be weighed against the substantial, initial set-up costs required to implement changes........Currently, lenders must calculate one APR for closed-end and open-end loans.  Under the proposals advanced by the Bureau, lenders would be required to calculate an APR for closed-end [mortgage] loans for disclosure purposes and a transaction coverage rate (TCR) for closed-end [mortgage] loans for coverage purposes......Replacing one rate for disclosure and coverage purpose, with two rates that are calculated differently hardly simplifies the mortgage lending process."

The Plain Language of the Truth in Lending Act.  NAFCU also questions whether the CFPB has the authority to change the definition of finance charge when the plain language of the Truth in Lending Act clearly articulates which fees should be finance charges and which should be excluded.

"The Bureau has noted the need to make broad use of its “exception authority” to implement the proposed changes in this rulemaking.  The proposal would discard the current statutory list of inclusions and exclusions in the finance charge.........Section 105(a) of TILA and § 1405(b) of Dodd-Frank are broadly written and provide the Bureau considerable authority to modify certain requirements as it sees fit.  However, Congress did not give the Bureau power to modify or change relevant, and unambiguous, sections of TILA.  Furthermore, the Supreme Court states that “[i]f the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”  Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 842-43 (1984).  Here, the intent of Congress is clear: Congress specifically created a statutory list of inclusions and exclusions in the term “finance charge.”  Thus, NAFCU questions whether the Bureau has the authority to amend the statutory list."

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NAFCU's Comment Letters.  You can find the full September 21st letter here.  The prior joint letter is here.  

***

Credit Union Comment Letters.  While NAFCU is certainly making these arguments for credit unions - it is still vitally important that individual credit unions make their voices heard on this issue.  You don't need to detail each issue in a comment letter - just explain the details of what your credit union would need to do to adjust your existing systems, train staff, set up new audit procedures, explain the issue to your members, etc.  I have a feeling the CFPB is vastly underestimating the compliance burden of this change.  Vastly.  

Tracking the Comment Deadlines for the CFPB's Mortgage Proposals

Written by Steve Van Beek

With all the various mortgage proposals from the CFPB, it can be quite hard to track the proposals - including the comment deadlines.  We've highlighted the actual Federal Register notices in a past blog post (now updated with the Mortgage Servicing proposals), but we also wanted to highlight the comment deadlines for you as it is extremely important that credit unions make their voices heard to the CFPB about the magnitude of these proposed changes and, more specifically, the costs and operational changes that the proposals would require.  

Comment Deadlines.  Below are the comment deadlines for submitting comments to the CFPB.  

• September 7, 2012:  High-Cost/HOEPA Proposal

• October 9, 2012:  Mortgage Servicing Proposals

• October 15, 2012:  Mortgage Loan Originator Proposal

• October 15, 2012:  Higher-Risk Appraisal Proposal

• October 15, 2012:  Regulation B Appraisal Proposal

• November 6, 2012:  TILA/RESPA Integrated Disclosure Proposal

• November 6, 2012:  Proposed Change to Definition of Finance Charge 

***

NAFCU Regulatory Alerts.  NAFCU's regulatory affairs team has produced Regulatory Alerts for NAFCU members on each of these proposals.  You can view the Regulatory Alerts by clicking here (or download the PDFs directly from the links below):

• 12-EA-20: CFPB: Mortgage Disclosures (TILA/RESPA Integrated Disclosures)

• 12-EA-19: CFPB: Mortgage Disclosures (Finance Charge)

• 12-EA-21: CFPB: Proposed Rule to Amend HOEPA Regulations

• 12-EA-24: CFPB: Mortgage Servicing

• 12-EA-28: CFPB: MLO Compensation

• 12-EA-27: CFPB: Appraisals for Higher-Risk Mortgages

• 12-EA-26: CFPB: Free Access to Appraisals

***

NAFCU Webcasts.  In addition to the alerts above, we are also explaining the proposed rules in webcasts.  Below are two that may be of interest:

• Inside the CFPB's Mortgage Proposals - On-Demand Webcast - Special 3-hour webcast which highlights the Mortgage Servicing proposals, the High-Cost/HOEPA proposal as well as the TILA/RESPA Integrated Disclosure proposal (including a thorough discussion of how the proposed change to the definition of "finance charge" will impact your credit union).

• The CFPB's Latest Mortgage Proposals - November 7, 2012 - NAFCU's compliance team will highlight the impacts from the mortgage loan originator proposal, the higher-risk appraisal proposal and the Regulation B appraisal proposal.  Sign up by October 31st and Save $100.

We'll also be discussing the TILA/RESPA Integrated Disclosures and the Mortgage Servicing Disclosures at our 2012 Regulatory Compliance Seminar in Seattle.  Remember, NAFCU's webcasts and conferences are open to everyone - regardless of NAFCU membership.    

NCUA Board Meeting; Boardmember Hyland; Cordray Testimony; Video Contest

Written by Steve Van Beek

We'll try to keep it short and sweet for Friday.  

NCUA Board Meeting.  NCUA held a busy Board Meeting yesterday.  A good resource for an overview of NCUA's actions is their Board Action Bulletin.  The NAFCU Today also has additional details: Small CU; Payday Alternative Loans and Treasury Inflation Protected Securities (TIPS) and rural district definition.

Boardmember Hyland.  After the Board Meeting, Boardmember Hyland announced it would be her last as a NCUA Boardmember.  She will officially leave the NCUA Board on October 5th.  Hyland's official term ended in August 2011 but she remained on the Board to ensure NCUA had a three-person Board to lead the agency.  More in the NAFCU Today.

Director Cordray.  Yesterday, Director Cordray testified before the House Financial Services Committee.  This is after testifying before the Senate Banking Committee last week.   

Additionally, the CFPB announced the first meeting of their Consumer Advisory Board:  September 27th in St. Louis.  Attendance is open to the public but RSVPs are required.  

***

NAFCU Member Video.  Back in July we blogged on our NAFCU Member Video Contest.  Check out the winning video here.  After a long week, it is a real good laugh.  Well done Baylands FCU!!

CFPB By the Numbers; BSA Webcast for Directors and Supervisory Committee

Written by Steve Van Beek

Last week was NAFCU's Congressional Caucus - which is a great event for credit leaders to discuss their issues with their representatives, Senators and regulators.  As part of Caucus, I put together a short presentation and accompanying fact sheet in an attempt to quantify the burden on credit unions from the CFPB's actions (so far).  

Ultimately, the fast-paced schedule of Caucus did not allow the time for me to give the presentation.  Fear not, I'm sharing the information with you today in hopes that you will share with your senior management and Boards to show them the impact the CFPB is having on credit unions.   

• Consumer Financial Protection Bureau - By the Numbers Presentation
• Consumer Financial Protection Bureau - By the Numbers Fact Sheet

***

BSA Webcast.  On October 10, 2012, NAFCU will be hosting a BSA Webcast designed for Board of Directors and Supervisory/Audit Committee members.  Of course, you do not need to attend for the live viewing and can use the webcast at your next Board or Supervisory Committee meeting to fulfill your training requirements.  Sign up by October 3rd and Save $100. 

 

Agenda for NCUA's September Board Meeting; Mortgage Servicing Proposals in Federal Register

Written by Steve Van Beek

The agenda for NCUA's September 20th Board meeting is now available.  The agenda includes:

1. Proposed Rule – Part 703 of NCUA’s Rules and Regulations, Permissible Investments – Treasury Inflation Protected Securities.
2. Proposed Rule – Parts 702 and 741 of NCUA’s Rules and Regulations and Interpretive Ruling and Policy Statement 12-2, Regulatory Relief for Small Credit Unions.
3. Proposed Rule – Section 701.1 of NCUA’s Rules and Regulations, Expanded Definition of “Rural District” for Field of Membership.
4. Advanced Notice of Proposed Rulemaking – Section 701.21 of NCUA’s Rules and Regulations, Payday-Alternative Loans.

NCUA will also be meeting in closed session for a few additional agenda items.  

***

Mortgage Servicing.  Back in our September 7th blog post, we linked to the CFPB's mortgage proposals as they were published in the Federal Register.  At that time, the Reg Z and Reg X mortgage servicing proposals had not yet been published.

Today, those mortgage servicing proposals have been published in the Federal Register.  The links are below.

• Regulation Z (TILA) Mortgage Servicing Proposal
• Regulation X (RESPA) Mortgage Servicing Proposal

Note:  Even though the proposals were published in today's Federal Register (September 17th), the CFPB is sticking with their October 9th deadline for comments.  

Remember, the CFPB is required by Dodd-Frank to finalize the mortgage servicing rules by January 21, 2013.  In order to meet that deadline, the CFPB is providing very limited timeframes for comments - especially on a proposal that would require 20 new notices.  

The CFPB's Mortgage Servicing Proposals: 20 New Notices

Written by Steve Van Beek

20 Notices.  If you are looking for an example of increased regulatory burden, you need not look any further than the CFPB's mortgage servicing proposed rules. The proposals, taken together, will require at least 20 notices by credit unions.  Below I've included a listing of these proposed notices along with the proposed section number.  Oh, and a majority of these notices have their own unique timing requirements.  

Of course, this is an unofficial number but it does give you an idea of the CFPB's mortgage proposal changes.  

Regulation Z

• Rate Adjustment Notice - 1026.20(c)
• Initial Rate Adjustment Notice - 1026.20(d)
• Periodic Statement Requirement - 1026.41

Regulation X

• Written Acknowledgment of Member's Notice of Error - 1024.35(d)
• Response to Member's Notice of Error - 1024.35(e)
• Notification to Member if Error is Excludable from Error Resolution Process - 1024.35(g)(2)
• Written Acknowledgment of Member's Request for Information - 1024.36(c)
• Response to Member's Request for Information - 1024.36(d)
• Notification to Member if Information Request is Unreasonable - 1024.36(f)(2)
• First Notice for Force-Placed Insurance - 1024.37(c)(2)
• Version 1 - Reminder Notice for Force-Placed Insurance - 1024.37(d)(2)(i) 
• Version 2 - Reminder Notice for Force-Placed Insurance - 1024.37(d)(2)(ii) 
• Renewal Notices for Force-Placed Insurance - 1024.37(e) 
• Provision of Member's Servicing File Upon Request - 1024.38(c)(2)
• Oral Notice to Delinquent Borrowers - 1024.39(a)
• Written Notice to Delinquent Borrowers - 1024.39(b) 
• Notice to Member of Incomplete Loss Mitigation Application - 1024.41(b)(2)(ii)
• Notice of the Decision on a Member's Loss Mitigation Application - 1024.41(c)(2)
• Notice of the Decision on a Member's Appeal of the Initial Loss Mitigation Application - 1024.41(h)(4)
• Notification to Other Servicers Holding Liens - 1024.41(j)

Wow - that is quite a few proposed notices for financial institutions who did not cause the financial crisis and who did not use servicing practices that lead to the National Mortgage Settlement.  

What About Small Servicers?  The CFPB's own analysis in their discussion of the proposed periodic statement exemption indicates that small servicers have a completely different business model:

"Where small servicers already have incentives to provide high levels of customer contact and information, the Bureau believes that the circumstances may warrant exempting those servicers from complying with the periodic statement requirement. In particular, small servicers that make loans in their local communities and then either hold their loans in portfolio or retain the servicing rights have incentives to maintain “high-touch” customer service models. Affirmative communications with consumers help such servicers (and their affiliates) to ensure loan performance, protect their reputations in their communities, and market other consumer financial products and services.  Because those servicers have a long-term relationship with the borrowers, their incentives with regard to charging fees and other servicing practices may be more aligned with borrower interests. These motivations to ensure a good relationship incentivize good customer service, including making information about upcoming payments, fees charged and payment history, and information for distressed borrowers easily available to consumers by other means." (underlining added, italics in original).

It would seem reasonable that the same rationale would apply to the other new notices proposed by the CFPB to correct the errors of large servicers.  

Comments Needed.  If you are wondering what action your credit union can take, consider commenting on the proposed rules and letting the CFPB know how difficult it will be to comply with 20 new notice requirements.  NAFCU members can view our Regulatory Alert here (12-EA-24), comments are due to NAFCU by September 18, 2012.  If you comment directly to the CFPB, comments are due October 9, 2012.  

Tracking the CFPB's Mortgage Proposals - Federal Register

Written by Steve Van Beek

With the various mortgage proposals from the CFPB, I thought a good Friday blog post would be one that linked to the various proposals in the Federal Register so that credit unions had the proposed rules in one place.

Initially, here is a link to the CFPB's section of the Federal Register.  Below are links to the CFPB's mortgage proposals.

• High-Cost Mortgages and Housing Counseling Amendments Note: The comment period for the finance charge portion has been extended until November 6th.  
• Equal Credit Opportunity Act (Regulation B) - Appraisals
• Integrated Mortgage Disclosures under TILA/RESPA Note:  The comment period for the finance charge portion was also extended until November 6th.
• Appraisals for Higher-Priced Mortgage Loans
• Loan Originator Compensation (Regulation Z)

Update (10/01): The Mortgage Servicing proposals can be found here (Reg Z) and here (Reg X).  It doesn't appear that the Mortgage Servicing proposed rules have been published in the Federal Register yet (the comment period ends October 7th for those proposals).  Those proposals can be found here:  Reg Z and Reg X.  Our August 23rd blog post also has a recap of our mortgage servicing blog posts to date.

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NAFCU Seminar.  We'll be discussing both of the Mortgage Servicing proposals as well as the TILA/RESPA Integrated Mortgage Disclosures in breakout sessions in Seattle (October 23-26th).  We'll also be discussing the other proposals in our CFPB Update sessions.  

On-Demand Webcast.  If you missed the 3-hour marathon webcast on Wednesday, you can still purchase the on-demand version in order to get a detailed update of the CFPB's proposals on mortgage servicing and high-cost mortgages (including the impact on HELOCs).  I also provided an overview of the proposed Integrated Disclosures.

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Football Season.  I'll admit we've been a little slow on the football talk lately.  With that being said:  Go Blue!

Have a great weekend!

A Recap of Recent Mortgage Servicing Blog Posts

Written by Steve Van Beek

We've been blogging on the CFPB's mortgage servicing proposals quite a bit recently.  And, naturally, quite a few of those blog posts have been lengthy.  I wanted to take a bit to consolidate some of those blog posts in a central location (with links) to help keep everyone organized.

CFPB Issues Mortgage Servicing Proposal.  This blog post announces the CFPB's mortgage servicing proposals, links to the actual proposals, summaries and additional resources.  

Summaries of Three TILA Proposed Changes.  This blog post includes the summaries of the CFPB's three main proposed changes to Regulation Z (TILA).  The post includes links to the preambles, regulatory text, official staff commentary and any model forms.  

Summaries of the First Three RESPA Proposed Changes.  This blog post includes the summaries of the CFPB's first three main proposed changes to Regulation X (RESPA).  The post also includes links to the preambles, regulatory text, official staff commentary and any model forms.

Summaries of the Last Three RESPA Proposed Changes.  This blog post includes the summaries of the CFPB's last three main proposed changes to Regulation X (RESPA).  The post also includes links to the preambles, regulatory text, official staff commentary and any model forms.

Proposed Exemption for Credit Unions that Service 1000 of Fewer Mortgages.  This blog post reviews the CFPB's proposal to exempt - from the mortgage periodic statement requirement - credit unions that service 1000 or fewer mortgage loans.  

Proposed Coupon Book Exemption.  This blog post reviews the CFPB's proposed implementation of the "coupon book exemption" which would allow credit unions to send coupon books in lieu of periodic statements for their fixed-rate mortgage loans if they followed the proposed requirements.      

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Just the Beginning.  Don't worry - there will be plenty of additional issues that come out of the CFPB's proposed mortgage rules.  We'll do our best to keep everyone up to date on these issues.  If you are interested, we'll be covering the CFPB's proposed mortgage rules in depth during our September 5th webcast as well as our Regulatory Compliance Seminar in Seattle, Washington (October 23-26).  

Note:  The early-bird pricing for both of these events is rapidly approaching (Wednesday, August 29th for the webcast and Friday, August 31st for Seminar).  Additionally, the main hotel for Seminar is completely booked - although there are numerous other hotels within short walking distance.  

Mortgage Periodic Statement Requirement - Coupon Book Exemption

Written by Steve Van Beek

Yesterday's blog post looked at the CFPB's proposed exemption for mortgage servicers who service 1000 or fewer mortgages.  Today, we'll look at the "coupon book exemption" that was mandated by Dodd-Frank and how the CFPB plans to implement this exemption.  

Initially, here are the three pages of the CFPB's TILA mortgage servicing proposal that discuss the proposed coupon book exemption.

Dodd-Frank Exemption.  The beginning step for reviewing the "coupon book exemption" is to review the underlying statutory text from Dodd-Frank - Section 1420.  Section 1420 of Dodd-Frank adds paragraph (f) to Section 128 of the Truth in Lending Act (TILA) and mandates periodic statements for mortgages.  Importantly, subsection (f)(3) provides the coupon book exemption:

‘‘(3) EXCEPTION.—Paragraph (1) shall not apply to any fixed rate residential mortgage loan where the creditor, assignee, or servicer provides the obligor with a coupon book that provides the obligor with substantially the same information as required in paragraph (1).’’

First, it is clear the coupon book exemption is only available for fixed rate residential mortgage loans.  Any adjustable-rate mortgages would need to be provided the periodic statement (assuming the CU services over 1000 mortgages).  

Second, the "coupon book exemption" applies when the credit union provides the borrower with "substantially the same information as required in paragraph (1)."  So, what is required by paragraph (1)?

‘‘(1) IN GENERAL.—The creditor, assignee, or servicer with respect to any residential mortgage loan shall transmit to the obligor, for each billing cycle, a statement setting forth each of the following items, to the extent applicable, in a conspicuous and prominent manner:

‘‘(A) The amount of the principal obligation under the mortgage.

‘‘(B) The current interest rate in effect for the loan.

‘‘(C) The date on which the interest rate may next reset or adjust.

‘‘(D) The amount of any prepayment fee to be charged, if any.

‘‘(E) A description of any late payment fees.

‘‘(F) A telephone number and electronic mail address that may be used by the obligor to obtain information regarding the mortgage.

‘‘(G) The names, addresses, telephone numbers, and Internet addresses of counseling agencies or programs reasonably available to the consumer that have been certified or approved and made publicly available by the Secretary of Housing and Urban Development or a State housing finance authority (as defined in section 1301 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989).

‘‘(H) Such other information as the Board may prescribe in regulations." (Emphasis added).

Thus, Congress indicated what information must be included in the coupon book to qualify for the exemption - but also gave the CFPB the ability to require additional items as well.  

CFPB's Coupon Book Exemption Proposal.  Fast forward to the CFPB's proposed "coupon book exemption" and it is clear the CFPB does not like the "static" nature of coupon books.  Here is the CFPB's explanation:

"The Bureau recognizes the value of the coupon book as striking a balance between ensuring consumers receive important information, and providing a low burden method for servicers to comply with the periodic statement requirements.  As such, the Bureau seeks to effectuate the coupon book exemption. The nature of a coupon book (both its smaller size and static nature) creates difficulties in including substantially similar information as would be on a periodic statement.  The main problem is the static nature of a coupon book.  Because a coupon book may cover an entire year or more, it cannot include information that changes on a monthly basis.  By contrast, a periodic statement can provide dynamic information that changes on a monthly basis.  To address this problem, the Bureau is proposing to modify the coupon book exception permitted by TILA section 128(f)(3) to apply the exception where the coupon book contains certain static information and other dynamic information is made accessible to the consumer."  (Emphasis added).

Thus, the CFPB is utilizing its authority to require additional information be provided before a coupon book would qualify for an exemption from the mortgage periodic statement requirement.  

Providing Information Upon Request.  The CFPB's proposal would require credit unions that offer members coupon books to also provide information to members upon request.  Here is the explanation:

"Information made available.  As discussed above, due to the static nature of the coupon book, certain dynamic information that is required to be included on periodic statements cannot be included.  To use the coupon book provision, the proposed rule would require that the dynamic information be made available upon the consumer’s request.  The servicer could provide the information orally, or in writing, or electronically, if the consumer consents.  Thus, proposed paragraph (e)(3)(iii) would require the following dynamic information be made available to the consumer upon request: the monthly payment amount, including a breakdown showing how much, if any, will be allocated to principal, interest, and any escrow account; the total of fees or charges imposed since the last payment period; any payment amount past due; the total of all payments received since the beginning of the payment period, including a breakdown of how much, if any, of those payments was applied to principal, interest, escrow, fees and charges, and any partial payment suspense accounts; the total of all payments received since the beginning of the calendar year, including a breakdown of how much, if any, of those payments was applied to principal, interest, escrow, fees and charges, and how much is currently in any partial payment or suspense account; and a list of all the transaction activity (as defined in proposed comment 41(d)(4)-1) that occurred since the payment period.

The Bureau seeks comment on whether requiring servicers to make this information available would impose significant burden or costs that exceed consumer benefits.  In particular, the Bureau seeks comment on whether providing the past payment breakdown information would impose greater burden then benefits."  (Emphasis added).

Ultimately, this requirement for "dynamic information" clearly diminishes the benefit of the "coupon book exemption" and whether it is a useful avenue for credit unions to pursue.

For reference, the proposed regulatory text - 12 CFR 1026.41(e)(3) - is available here.  The preamble to the proposed exemption is available here.    

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Comments.  As with many of the other issues, credit union comments on their current practices and how the CFPB's proposed exemption impacts their practices are extremely important.  If you have stories, information or data on your current practices that you would like to share with NAFCU - please pass it along and we'll make sure the CFPB is aware of how their proposal will impact credit unions.  

Mortgage Periodic Statement Requirement - Exemption Proposed at 1000 Loans Serviced

Written by Steve Van Beek

Last Tuesday we highlighted the three main TILA proposed changes from the CFPB's mortgage servicing proposal.  Today I wanted to delve into the mortgage periodic statement requirement a bit deeper - especially the proposed exemption for small servicers.

Proposed Exemption.  The CFPB has proposed an exemption from the mortgage periodic statement for mortgage servicers that service 1000 mortgages or fewer that they originated and retained either the ownership or servicing rights.  Importantly, the proposed exemption is not 1000 mortgages originated per year.  Rather, it is 1000 mortgages that the CU services - which could include mortgages originated many years ago.  

CFPB Assumptions.  The CFPB readily admits that it "lacks the data necessary to precisely calibrate the amount of burden that would be imposed by the periodic statement requirement on servicers of different sizes."  Despite this, the CFPB believes the 1000 mortgage exemption is the right level.  The CFPB's explanation indicates that most loans are refinanced about every five years - which would work out to 200 mortgage originations per year to come under the proposed exemption of 1000 (5 years of 200 originations).  

Based on Refinances in 5 Years.  The CFPB's assumptions have some serious issues.  The CFPB assumes that consumers only refinance loans with other entities.  If a CU's member refinances their loan at the credit union (due to decreasing rates), that mortgage would still count toward the 1000 mortgages.

Additionally, what happens to refinance activity in an increasing interest rate market?  Does the CFPB's assumption take into account that your members will not refinance or prepay their loans when rates are increasing?  I think it is pretty clear the CFPB hasn't thought about that angle.  While the CFPB's five year assumption was designed to reflect the current market - does it reflect the past history?  Is it a workable exemption for a changing market?  Does it provide relief for small servicers in both increasing and decreasing interest rate markets?   

Proposed Exemption - Comments Requested.  Given the above, it is very important to remember the CFPB will be accepting public comments on their proposed exemption.  The CFPB specifically requests comments on the small servicer exemption for periodic statements:

"The Bureau seeks comment on all aspects of the proposed exemption, particularly whether the regulation should exempt small servicers, and, if so, whether the proposed scope and definition of a small servicer is appropriate.  Specifically, should the test be the one proposed regarding origination, and is 1,000 or less the appropriate size threshold?  The Bureau particularly requests data on implementation costs and the level of general activity by small servicers.  The Bureau also seeks comment on whether it would be appropriate to exempt small servicers from other elements of the proposed servicing rules under TILA and RESPA." (Page 97).

NAFCU's Regulatory Affairs team will be issuing a Regulatory Alert to NAFCU members highlighting the proposed changes and soliciting comments - including on the proposed exemption - to pass along to the CFPB.  Now is the best time to analyze this issue and provide your comments as it is very difficult to get exemptions increased or altered after the regulations are finalized.  

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Special 3-Hour NAFCU Webcast.  On September 5th, I'll be doing a 3-hour webcast "Inside the CFPB's Mortgage Proposals" where we'll look at the proposed mortgage periodic statement requirement (including the proposed exemption) in more detail.  Sign up by August 29th to Save $100.  

CFPB Issues Regulation B Appraisal Proposal

Written By JiJi Bahhur, Regulatory Compliance Counsel

Last Wednesday, the Consumer Financial Protection Bureau (CFPB) released a proposed rule that would amend the Equal Credit Opportunity Act (ECOA)’s Regulation B by requiring mortgage lenders to provide home loan applicants with copies of written appraisals and other home value estimates developed in connection with the application. The rule would ensure that consumers receive information prior to closing about how the property’s value was determined.

Under the proposal, consumers would receive disclosures of their right to receive a free copy of appraisal reports and home value estimates within three days of applying for a loan. Creditors would then be required to provide the reports to consumers as promptly as possible, but in no case later than three days before closing, regardless of whether credit is extended, denied, incomplete or withdrawn.

Also under the proposal, creditors could still charge reasonable fees associated with conducting appraisals and home value estimates.  However, the rule prohibits creditors from charging consumer fees for obtaining the reports.  This is a change from current practices where consumers must request an appraisal report from the creditor and may be charged a fee to obtain the report.   

The CFPB plans to finalize this rule in January 2013.  For more details on the proposal, you can view the proposal here and a summary of the CFPB’s proposal here. 

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Importantly, the CFPB's proposal would remove the long-standing exemption from the appraisal requirements in Regulation B - 12 CFR 1002.14:

"(b) Credit unions. A creditor that is subject to the regulations of the National Credit Union Administration on making copies of appraisal reports available is not subject to this section."

Federal credit unions have historically been able to follow 12 CFR 701.31(c)(5) of NCUA's regulations but the CFPB's proposal would force CUs to comply with Regulation B for appraisals - including the new requirements.  

Is this What a Level Playing Field Looks Like?; 2996 Pages in Six Weeks

Written by Steve Van Beek

Proponents of Dodd-Frank and the Consumer Financial Protection Bureau tried to tell credit unions that Dodd-Frank and the CFPB would be good for credit unions.  The playing field would be leveled and the regulatory burden would be lowered on small institutions.

Here is a snippet from Elizabeth Warren's testimony before the House on May 24, 2011:

"A significant part of our mission will also be to help level the playing field for smaller lenders, such as community banks and credit unions. We recognize that the regulatory pressures on banks have increased substantially over time. While regulatory costs may be manageable on a per-account basis for the largest financial institutions, for smaller businesses, all the complicated rules, extensive paperwork, and expensive compliance reviews can be daunting. If we continue on our current regulatory trajectory, traditional banks and credit unions will be put at a further disadvantage that could push many out of business.

American consumers are best served by a strong and diversified financial services industry. Many community banks and credit unions embrace relationship lending, and they often work in partnership with the families they serve. Some smaller institutions provide a banking presence in otherwise-underserved communities, both in our cities and in rural areas. If community banks and credit unions continue to face competitive pressures triggered by a complex regulatory system, then those institutions will not be as able to serve American families. In that case, not only do the banks lose, but families lose as well.

The CFPB is committed to working with smaller institutions to reduce regulatory costs. We have already begun that work, and we are pleased to report to Congress that the spirit of openness and cooperation expressed by community banks and credit unions has been extraordinary. The mortgage disclosure integration project is one area in which we are seeking to reduce regulatory burdens, and we expect that it will serve as an excellent test case as we design our ongoing processes for how the consumer bureau and smaller institutions can work together to increase the ability of these institutions to spend less time on regulations and more time serving America’s families."  (Emphasis added).

Now, I want to ask a question to credit unions:  Does what is stated above match what the CFPB has done in the past 6 weeks as indicated below?  

• TILA/RESPA Proposed Rule (1099 Pages)
• HOEPA/High-Cost Mortgage Proposed Rule (293 Pages)
• August Final Rule on Remittances (168 Pages) which Amends the February Final Rule (417 pages)
• Mortgage Servicing Proposed Rules - TILA (313 Pages) - RESPA (442 Pages)
• Higher-Risk Appraisals Proposed Rule (211 Pages) - New!
• Regulation B Proposed Rule - Free Copies of Appraisals (53 Pages) - New!

So, here is my question to the CFPB:  Is proposing 2996 pages of new regulations - within a six week period - how you envisioned "working with smaller institutions to reduce regulatory costs"?

And now a question for proponents of Dodd-Frank and the CFPB:  Is this what a level playing field looks like? 

More on the CFPB's Mortgage Servicing Proposals - RESPA (Part 2 of 2)

Written by Steve Van Beek

Today's blog post continues our series of looking at the "nine proposed changes" under the CFPB's mortgage servicing proposals.  

Past mortgage servicing blog posts are available here:

• CFPB Issues Mortgage Servicing Proposals - Friday, August 10th.
• More on the CFPB's Mortgage Servicing Proposals - TILA - Tuesday, August 14th.
• More on the CFPB's Mortgage Servicing Proposals - RESPA (Part 1 of 2) - Wednesday, August 15th.

Below are the final three "proposed changes" under RESPA followed by the preamble, regulatory text, official staff commentary and any model forms. 

Regulation X (RESPA)

(7) Early intervention with delinquent borrowers (RESPA proposal): Servicers would be required to make good faith efforts to notify delinquent borrowers of loss mitigation options.  If a borrower is 30 days late, the proposal would require servicers to make a good faith effort to notify the borrower orally and to let the borrower know that loss mitigations options may be available.  If the borrower is 40 days late, the servicer would be required to provide the borrower with a written notice with certain specific information, including examples of loss mitigation options available, if applicable, and information on how to obtain more information about loss mitigation options.  The notice would also provide information to the borrower about the foreclosure process.  The rule contains model language servicers could use for these notices.

• Preamble for Early Intervention with Delinquent Borrowers
• Proposed Regulatory Text for Early Intervention with Delinquent Borrowers
• Proposed Official Staff Commentary for Early Intervention with Delinquent Borrowers
• Proposed Model Forms for Early Intervention with Delinquent Borrowers 

(8) Continuity of contact with delinquent borrowers (RESPA proposal):  Servicers would be required to provide delinquent borrowers with access to personnel to assist them with loss mitigation options where applicable.  The proposal would require servicers to assign dedicated contact personnel for a borrower no later than five days after providing the early intervention notice.  Servicers would be required to establish reasonable policies and procedures designed to ensure that the servicer personnel perform certain specified functions where applicable, such as 6access the borrower’s records and provide the borrower with information about how and when to apply for a loss mitigation option and about the status of the application.

• Preamble for Continuity of Contact with Delinquent Borrowers
• Proposed Regulatory Text for Continuity of Contact with Delinquent Borrowers
• Proposed Official Staff Commentary for Continuity of Contact with Delinquent Borrowers 

(9) Loss mitigation procedures (RESPA proposal):  Servicers that offer loss mitigation options to borrowers would be required to implement procedures to ensure that complete loss mitigation applications are reasonably evaluated before proceeding with a scheduled foreclosure sale.  The proposal would require servicers to exercise reasonable diligence to secure information or documents required to make an incomplete loss mitigation application complete.  In certain circumstances, this could include notifying the borrower within five days of receiving an incomplete application.  Within 30 days of receiving a borrower’s complete application, the servicer would be required to evaluate the borrower for all available options, and, if the denial pertains to a requested loan modification, notify the borrower of the reasons for the servicer’s decision, and provide the borrower with at least a 14-day period within which to appeal the decision. 

The proposal would require that appeals be decided within 30 days by different personnel than those responsible for the initial decision.  A servicer that receives a complete application for a loss mitigation option could not proceed with a foreclosure sale unless (i) the servicer had denied the borrower’s application and the time for any appeal had expired; (ii) the servicer had offered a loss mitigation option which the borrower declined or failed to accept within 14 days of the offer; or (iii) the borrower failed to comply with the terms of a loss mitigation agreement.  The proposal would require that deadlines for submitting an application for a loss mitigation option be no earlier than 90 days before a scheduled foreclosure sale.

• Preamble for Loss Mitigation Procedures
• Proposed Regulatory Text for Loss Mitigation Procedures
• Proposed Official Staff Commentary for Loss Mitigation Procedures

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Remember:  The CFPB intends to issue final rules on the mortgage servicing requirements by January 21, 2013.  And, the indications are there will only be 12 months for implementation after that date (the CFPB can provide longer timeframe for new requirements that are not mandated by Dodd-Frank).  Now is the time to start reviewing these proposed requirements and how they will impact your credit union's mortgage lending operations.

To get a more depth understanding, consider attending NAFCU's 3-hour webcast covering the CFPB's Mortgage Proposals.  Additionally, NCCOs will earn 3 CEUs for attending.    

TILA/RESPA Forms Under Review; 1099 Pages to Propose a Three-Page Disclosure?

Written by JiJi Bahhur, Regulatory Compliance Counsel

TILA/RESPA Forms Under Review.  Last Wednesday, the CFPB’s Director, Richard Cordray, attended the House Small Business Committee hearing as the sole witness.  The purpose of the hearing was to examine the impact of the CFPB’s mortgage disclosure rules on small businesses, including credit unions.  Due to concerns raised by small entities, including credit unions, the CFPB is inviting comments and seeking input on issues about proposed combined disclosures under the TILA/RESPA proposal.  Cordray's written testimony can be found here. 

Based off of concerns received from small entities, here are some of the issues the CFPB is soliciting comment on:

• The CFPB incorporated extensive commentary in the proposal which provides detailed guidance on how to complete the integrated forms.  The guidance also provides samples of completed forms for a variety of loan transactions.

• TILA and RESPA provide differing timing requirements.  The CFPB proposal allows certain specific changes to be made following the settlement disclosure (i.e., require disclosure three days prior to settlement) and seeks comment on whether more exceptions are appropriate. 

• Some small entities believe that certain statutory disclosures would be difficult to calculate and would not help consumers.  The CFPB seeks comment on whether it should use its authorities to remove the disclosures from the integrated forms.

NAFCU published two Regulatory Alerts on the TILA/RESPA proposal – 12-EA-19 and 12-EA-20 – which are available to members only.  Comments are due back to NAFCU by August 20 for 12-EA-19 (regarding the potential changes to the definition of finance charges) and September 21 for 12-EA-20 which reviews the remaining disclosure changes.  

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1099 Pages to Propose a Three-Page Disclosure?  The CFPB recently blogged on an inquiry as to why the TILA/RESPA proposal is 1099 pages in length when the outcome of it was a three-page mortgage disclosure.  In summary, the CFPB explains:

“We are not proposing 1,099 pages of new regulations. That page count is for the notice of the proposed rule, not the rule. Like notices of proposed rulemaking issued by other agencies (particularly the Federal Reserve Board), our proposal consists of three basic parts: (1) the preamble explaining the proposal; (2) the text of the proposed regulations; and (3) guidance on how to comply with those regulations.

In terms of pages, the new regulations are only a small part. Most of the pages explain what we are doing and why we are doing it. As required by law, we analyze the costs and benefits of the proposal for consumers and industry. We also provide thorough guidance on how to comply including samples of completed forms, which the industry requested during our outreach and Small Business Review Panel process. Because of the variability of mortgage loan and real estate transactions, industry wanted specific guidance for many different potential scenarios. This added to the page count.”

If you’d like to view the CFPB’s blog post in its entirety, go here.  The CFPB also posted two brief summaries of the proposal - one for consumers and one that is more technical in detail.   

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Happy Friday to you all! 

CFPB Releases Semiannual Regulatory Agenda - Spring 2012; Seminar in Seattle

Written by Steve Van Beek

CFPB Regulatory Agenda.  Yesterday, the CFPB posted its Semiannual Regulatory Agenda - for spring 2012.  The previous Semiannual Regulatory Agenda was released in February 2012.  The latest release follows the same format and includes a listing of regulations in the various rulemaking stages: prerule stage, proposed rule stage, final rule stage, long-term actions and completed actions.  

Below is a listing of the various future regulations - organized by rulemaking stage.  Keep in mind the agenda is current as of April 13, 2012 and the CFPB has taken numerous actions since putting this agenda together.    

Prerule Stage:

• Registration of Certain Nonbank Covered Persons
• Supervision of Larger Depository Institutions and Affiliates
• Home Mortgage Disclosure Act (Regulation C)
• Requirements for Prepaid Cards (Regulation E) 

Proposed Stage:

• Amendments to TILA and FIRREA Concerning Appraisals
• Disclosure Rules and Substantive Protection for Certain High Cost Mortgage Loans (Regulation Z)** (proposed on July 9th)
• Mortgage Originator Standards (Regulation Z)
• Mortgage Servicing (Regulation X; Regulation Z)
• TILA/RESPA Mortgage Disclosure Integration (Regulation X; Regulation Z)** (proposed on July 9th)
• Credit Card Pre-Opening Account Fees (Regulation Z)
• Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination
• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 2) 
• Copies of Appraisals or Other Valuations To Be Furnished by Creditor (Regulation B)

Final Rule Stage:

• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 1)** (finalized on July 16th)
• Disclosure of Records and Information
• State Official Notification Rule
• Rules Relating to Investigations
• Rules of Practice for Adjudication Proceedings
• Restatement of Federal Consumer Financial Law Regulations
• Requirements for Escrow Accounts (Regulation Z)
• TILA Ability to Repay (Regulation Z)
• Confidential Treatment of Privileged Information
• Disclosure Rules for Remittance Transactions (Regulation E)

Long-Term Actions:

• Alternative Mortgage Transaction Parity (Regulation D)
• Business Lending Data (Regulation B)
• TILA Mortgage Amendments (Regulation Z) 

Completed Actions: 

• Disclosure Rules for Remittance Transactions (Regulation E)

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Only 27 potential rulemakings!!  The Regulatory Agenda also includes a short summary of each rulemaking that is useful for providing a quick overview of what will be covered by the rulemaking.  However, as last Monday's proposed rules show - a short summary doesn't do much when the proposals are 1099 pages and 293 pages.  

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NAFCU's 2012 Regulatory Compliance Seminar.  Luckily, you don't have to read and understand all 27 potential rulemakings on your own.  We'll be covering quite a few of them at our 2012 Regulatory Compliance Seminar in Seattle, Washington - October 23-26.

The program-at-a-glance is available here (and we'll be including additional sessions as the proposals continue to flow).  We already have a session on the TILA/RESPA mortgage disclosures, the upcoming mortgage servicing proposal (including the periodic statement requirement) as well as a session on the remittances final rule.  Detailed session descriptions can be found here.

Remember - you do not need to be a NAFCU member to attend.  And, Save $100 if you Register by August 31st!

Mortgage Periodic Statement Requirement; NAFCU Video Contest

Written By JiJi Bahhur, Regulatory Compliance Counsel

Earlier this week, the CFPB issued its lengthy proposals on TILA/RESPA Combined Disclosures and HOEPA, which we briefly blogged about.  I’m almost sure that was enough to put most compliance officers in a frenzy.  But that’s not all we have to look forward to this year!  In fact, there are quite a few other issues that the CFPB has in the works, mainly due to mandates prescribed by the Dodd-Frank Act.  Today, I will focus on the mortgage servicing mandate – specifically, the periodic mortgage statement. 

The Dodd-Frank Act requires creditors or mortgage servicers to provide most mortgage borrowers with periodic statements containing certain information.  The periodic statement must include the principal loan amount, the current interest rate, the date on which the interest rate may next reset, a description of any late payment and penalty fees, information about housing counselors, and a telephone number and email address that may be used to contact the mortgage servicer/creditor.  The idea is to make it easier for homeowners to understand their loans and avoid unnecessary costs and fees. 

If you noticed my usage of the word “most” when referring to what borrowers must receive the periodic statements, it’s because Dodd-Frank provides an exception to the mortgage statement requirement.  A mortgage servicer or creditor that provides coupon books to its borrowers is excepted from the requirement to provide mortgage statements if the mortgage has a fixed rate and the coupon book contains substantially the same information as required to be on the monthly statement. 

On February 13, 2012, the CFPB published a prototype monthly mortgage statement to solicit general feedback from the public.  However, the draft statement was not accompanied by a proposed rule.  We are expecting a proposed rule to be released sometime this summer since Dodd-Frank requires a final rule by January 21, 2013.  The mortgage statement requirement comes from Section 1420 of Dodd-Frank and will become part of Regulation Z once the rule is finalized. 

We have blogged on mortgage servicing and the periodic statement requirement a few times.  These blogs can be found here, here, and here.  I also wanted to bring to your attention the CFPB’s Fact Sheet on Mortgage Servicing, as it contains very valuable information and does a great job summarizing the items that are being considered for the mortgage servicing proposal.

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NAFCU Video Contest – Members Only.  Enter for the chance to win a flip video camera and a free registration for anyone at your credit union to our advocacy event of the year – NAFCU's 2012 Congressional Caucus.  In 3-minutes or less, tell us what benefits, experiences or connections you enjoy most as a NAFCU member.  It’s easy to enter – just grab your smart phone or video camera, upload your video to You Tube and send us your link.  Click here for more info.

CFPB Proposes (1) TILA/RESPA Combined Disclosures & (2) HOEPA Changes

Written by Steve Van Beek

The First Shoe.  Well - the initial mortgage proposals from Dodd-Frank are out.  The initial verdict:  1099 pages and 293 pages.  And, keep in mind that this is only the beginning.  There are numerous other mortgage proposals required by Dodd-Frank that will be proposed soon (and finalized within a short period of time after that).

Today's post will not attempt to provide an overview of the two proposals (we'll do that in our webcast tomorrow).  Instead, we'll link to various documents and information released by the CFPB yesterday.   

• Director Cordray's Speech - No Más: Restoring Trust in Home-buying
• CFPB's Press Release - CFPB Proposes "Know Before You Owe "Mortgage Forms
• CFPB's July 5th Blog Post - Preparing for New Mortgage Disclosures: A Look Back at Know Before You Owe
• CFPB's July 6th Blog Post - Know Before You Owe: How We Learned to Build a Better Mortgage Disclosure
• CFPB's July 9th Blog Post - Know Before You Owe: Introducing our Proposed Mortgage Disclosure Forms
• CFPB's 5-Page Mortgage Fact Sheet - Restoring Trust in the Mortgage Market
• TILA/RESPA Disclosure Proposed Rule (1099 Pages)
• HOEPA/High-Cost Mortgage Loans Proposed Rule (293 Pages)
• CFPB's Know Before You Owe webpage with resources and additional information.  

Quite a day for the Consumer Financial Protection Bureau.  It is probably a good thing the CFPB doesn't have a Board and doesn't hold public meetings prior to proposing regulations - who has the time anyway when there is so much regulating that needs to be done??

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No Más.  Director's Cordray's speech didn't hold back when it came time to summarize the existing mortgage market:

"I am here today to say about the mortgage market: “No Más.” No more costs and risks buried in the fine print that do not become clear until it is too late. No more mortgages designed to fail – mortgages that benefit originators but not borrowers. No more last-minute shocks at the closing table that leave consumers stuck with fees they did not know about or plan for. And no more costly surprises and runarounds by mortgage servicers that leave people with nowhere to turn when they need help the most."

The CFPB's Fact Sheet carries this theme as well as it highlights future changes to (1) Shopping for a Mortgage; (2) Closing on a Mortgage; and (3) Paying Off a Mortgage.  

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Regulatory Burden is in the Details.  Not surprising, the CFPB's press release and blog posts do not mention the current and future burden that is placed on financial institutions trying to understand and comply with these future changes.  Unfortunately, while just reading through the proposals themselves seem like a momentous task - the actual regulatory burden is in the details as credit unions and other mortgage lenders will need to alter almost every aspect of their mortgage lending practices.  Oh, and retrain all their staff.    

Consumer Compliance Resources; NAFCU’s Comment Deadline for NCUA’s 2012 Review

Written By JiJi Bahhur, Regulatory Compliance Counsel

I don’t know about you all, but the break in the middle of the week for Independence Day just made me want the weekend to come even faster!  And so here we are…it’s finally Friday.  Let’s keep it simple but informative today. 

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Consumer Compliance Resources.  As Steve mentioned in a blog post earlier this week, the Federal Reserve's 2nd Quarter Consumer Compliance Outlook is now available.  There are some really great articles in this issue, but I wanted to point you to the very handy section called Consumer Compliance Resources.  This particular page of the Consumer Compliance Outlook gives you the ability to link to very valuable consumer compliance resources – a Compliance Officer’s dream come true! 

Give it a try!  The page provides updated links to an array of resources, including but not limited to:

• CFPB’s Official Website (plus 7 other related links)
• Dodd-Frank Act (plus 3 other related links)
• Federal Reserve’s Consumer Compliance Handbook
• FFIEC Guidance on Electronic Banking
• Payment Cards Center
• Regulation B (plus 13 other Fair Lending-related links)
• Reg C/HMDA (plus 5 other related links)
• Reg E/EFTA (plus 2 other related links)
• SCRA (plus 6 other related links)

And it goes on and on.  It wouldn't be a bad idea to save that resource page in your favorites. 

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NAFCU’s Comment Deadline for NCUA’s 2012 Review.  Today is the deadline for submitting comments to NAFCU on our Regulatory Alert regarding NCUA’s 2012 review of its regulations.  Comments can be submitted by answering the questions in the Regulatory Alert (accessible to members only) or you can send an email to Tessema Tefferi, Regulatory Affairs Counsel, at [email protected].

ATM Fee Disclosures; CFPB Challenged; July 11 NAFCU Compliance Webcast

Written by Steve Van Beek

Tomorrow, the House Financial Services Committee will mark-up H.R. 4367.  The bill would repeal the dual disclosure requirement and, hopefully, put an end to the cottage industry of individuals driving around the country suing financial institutions.  For additional information, check out the NAFCU Today.    

For NAFCU Resources on complying with the existing ATM fee disclosure requirement, check out our April 18 blog post.

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CFPB & FSOC.  A community bank from Texas, the Competitive Enterprise Institute and the 60 Plus Association have challenged the constitutionality of the creation of the Consumer Financial Protection Bureau, Director Cordray's appointment and the creation of the Financial Stability Oversight Council (FSOC).

An overview of the arguments can be found in an op-ed published in the Wall Street Journal:  Why Dodd-Frank is Unconstitutional.   

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NAFCU Webcast.  Don't forget - on July 11 Carrie Hunt, NAFCU's General Counsel and VP of Regulatory Affairs, and I will be doing a Regulatory Update webcast.  You can find additional details and registration information here.  

Sign up by July 5th and Save $100.  

CFPB Launches Consumer Complaint Database; Final Regulation; Comment Letters

Written By JiJi Bahhur, Regulatory Compliance Counsel

Consumer Complaint Database.  The Consumer Financial Protection Bureau (CFPB) has launched a Consumer Complaint Database on credit cards.  The database is available to the public and can be accessed here. 

The idea behind the Consumer Complaint Database is to allow the public access to information such as what is being complained about, when it was complained about, why it was complained about, and the company that the complaint concerns.  Also, if action has been taken on the complaint, the database will hold information as to whether the company’s response was timely, how the company responded, and whether the consumer disputed the company’s response.  The consumer’s identity will be withheld. 

The database will include only those credit card complaints received by the CFPB on or after June 1, 2012.  The complaints will be uploaded only after the company verifies that it has been correctly identified by the complainant, but the company will only have 15 days to make the verification. 

It should be noted that the database will only contain information of credit unions directly supervised by the CFPB - those with over $10 billion in assets. 

As of now, the database’s focus is on credit cards, but this will eventually be expanded to other consumer issues as well.  As a head start, the CFPB has also released a snapshot of the complaints it has received on credit cards, mortgages, private student loans, and bank products through June 1, including six stories of success. These can be located here. 

Final Regulation.  NAFCU’s Regulatory Affairs Team has issued its Final Regulation on Loan Workouts and TDR Reporting.  It can be located here (12-EF-05) and is available to NAFCU members only.

Comment Letters.  Yesterday, NAFCU submitted two comment letters, one on Overdraft Protection Programs and the other on Information Collections.  NAFCU’s Comment Letters are available to the public. 

CFPB Investigation Rules

Written By JiJi Bahhur, Regulatory Compliance Counsel

The Consumer Financial Protection Bureau (CFPB) recently published three final rules addressing procedures and practices for enforcement of federal financial consumer laws.  The final rules deal with the Bureau’s investigative and adjudicative processes and interactions with state law enforcement authorities.

A recent NAFCU Today story provided brief descriptions of each of the three final rules:

• “Investigations: This rule, which affects only credit unions with more than $10 billion in assets (the three largest), describes the CFPB’s procedures for investigating whether persons have engaged in conduct that violates federal consumer financial law. Similar to rules used by other regulators, it describes the bureau’s authority to conduct investigations, procedures for issuing civil investigative demands and the rights of those from whom the CFPB seeks to compel information. 

• Adjudication proceedings: The rule explains that the CFPB can conduct administrative adjudications, or hearings, to ensure or enforce compliance with federal laws and regulations.  The bureau drew on the experiences of other regulators and reviewed the public comments in setting the final provisions. The CFPB says the final rule should ensure a streamlined adjudication process that protects parties’ rights to fair and impartial proceedings. 

• State official notification rule: This rule is to help the bureau stay informed about state-level legal developments relating to the Dodd-Frank Act, [t]he goal being to help the bureau ensure the act is enforced in a consistent manner.” 

An interim final rule to implement the Equal Access to Justice Act (EAJA) was also issued by the CFPB.  Under the EAJA, certain prevailing parties in administrative proceedings can recover attorney fees and expenses. There will be a 60-day comment period once the interim rule is published in the Federal Register. 

The above-mentioned rules will become effective immediately upon their publication in the Federal Register.

Credit CARD Act's Ability to Pay Provisions Revisited

Written By JiJi Bahhur, Regulatory Compliance Counsel

 

On Wednesday, the Financial Services Subcommittee held a hearing to examine the ability to pay provisions of the Credit CARD Act (specifically, section 1026.51 and the corresponding Official Commentary from Regulation Z).  Gail Hillebrand, the Associate Director for Consumer Education and Engagement at the CFPB, represented the CFPB’s position at the hearing.  

 

The hearing focused on the rule as it was issued by the Federal Reserve Board last April, and inherited by the CFPB on July 21, 2011. 

 

Under the rule, as currently written, lenders are required to consider individual rather than household income when determining whether someone qualifies for a credit card.  This has raised a significant concern, as it has the potential to disproportionately impact non-working spouses. 

 

On behalf of the CFPB, Gail Hillebrand testified:

 

“Concerns have been raised that for consumers in some States, one element of the ability to pay regulation we inherited could have unintended negative impacts on stay at home spouses. The CARD Act says that a credit card issuer cannot open an account for a consumer unless the issuer “…considers the ability of the consumer to make the required payments….” (2) In February 2010, the Board of Governors of the Federal Reserve System issued regulations to implement this provision. In April 2011, the Board amended those regulations to specify that when a consumer applies individually for a credit card account, the issuer must consider the consumer’s “independent ability” to make the payments. (3) The Federal Reserve Board’s amendment was accompanied by Official Staff Commentary, which interprets the regulation. That Commentary states that in determining ability to pay, a card issuer may not rely on income or assets of a person who is not liable for the debt on the account unless a Federal or State statute or regulation grants a consumer who is liable for the debt an “ownership interest” in the income or assets of the other person. (4)

 

Even before responsibility for this regulation was formally transferred to the Consumer Bureau last July, we heard concerns about the impact this rule could have on the availability of credit to some individuals. In some families, all of the adults are employed outside the home. In others, someone stays at home or works part time. This is often, although not always, a woman.

 

Concerns have been voiced that the ability to pay rule could have the effect of limiting access to credit for the
spouse or partner who is not employed outside the home (or who is employed part time) and who wants to open an individual credit card account rather than opening a joint account.” (Emphasis added). 

 

The CFPB is currently in the process of evaluating the regulation and reviewing responses and input it has received from individuals who have petitioned the Bureau to express their concerns about this issue.  The goal is to ensure access to credit to those that do have the ability to pay, but without having potentially negative consequences.  The CFPB will continue to move forward on addressing the issue during the course of this summer.

 

For more information on the CFPB’s review of the Credit Card Ability to Pay rules, check out this Press Release and a recent NAFCU Today story.  Also note, NAFCU's Comment Letter can be accessed here. 

 

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Happy Friday to you all!  

 

Fair Lending FAQs - Future HMDA Changes; NAFCU Member Call-In

Written by Michael Coleman, Regulatory Compliance Counsel

The Federal Reserve’s Consumer Compliance Outlook for the First Quarter 2012 contained a section on the most frequently asked questions from the Federal Reserve Board’s November 2, 2011, webinar entitled “Fair Lending Issues and Hot Topics.” Question #7 focused on how Dodd-Frank changed HMDA requirements and indicated that Section 1094 of Dodd-Frank amended HMDA to require financial institutions to collect and report new data for mortgage loans in the future.  The new data will include:

• Origination channel (retail, broker, or other)
• Applicant's age
• Applicant's credit score
• Property value
• Loan term
• Term (in months) of any introductory interest rate period
• Rate spread for all loans
• Total points and fees payable at origination
• Term (in months) of any prepayment penalty
• Negative amortization
• Loan originator unique identifier, universal loan identifier, and parcel loan number (as the CFPB may determine appropriate)

Dodd-Frank transferred authority over HMDA and Regulation C to the CFPB. The CFPB has not yet issued rules to implement the changes to HMDA and revise Regulation C, nor did it specifically mention the rule revising Regulation C in its "Semi-Annual Regulatory Agenda." However, the CFPB's Agency Rule List indicates that revisions to Regulation C are in the “prerule” stage.

Note: Dodd-Frank did not mandate a deadline for a final rule, but keep this issue on your radar, as we'll see amendments to HMDA at some point in the future.

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Free Member Call-In.  On Thursday, June 14 at 3:30 p.m. EDT, NAFCU will hold its mid-year Member Call-In.  The call is open to all NAFCU members but registration is required.  The call will feature NAFCU President and CEO Fred Becker and the association's government affairs team discussing latest developments in Washington affecting credit unions, including MBL, overdrafts, interchange, housing finance reform, CFPB, NCUA and more.  As always, you will have the ability to ask questions directly to NAFCU staff during the call.  

Don't miss out - register now for the June 14th NAFCU Member Call-In.  If you can't make the live call, the archived version is usually made available within a short period of time.  

Upcoming Hearings, Webcasts, and Comments

Written By JiJi Bahhur, Regulatory Compliance Counsel

Upcoming Hearings. On Wednesday, June 6, there are two hearings that you may find of interest.

From 10am to 12pm, the Senate Banking Committee plans a hearing on "Implementing Wall Street Reform: Enhancing Bank Supervision and Reducing Systemic Risk," with Consumer Financial Protection Burean Director Richard Cordray among the witnesses. Although credit unions aren't affected by this part of Dodd-Frank, NAFCU is monitoring developments in this area for its market impact on cooperatives.

Then, from 2pm to 3pm, the Committee on Financial Services plans a hearing on "An Examination of the Federal Reserve's Final Rule on the CARD Act's 'Ability to Repay' Requirement."  This issue was discussed in NAFCU's Comment Letter to the CFPB on Regulatory Streamlining (see page 3).

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Upcoming NAFCU Webcasts. NAFCU has several compliance webcasts on the horizon that might be of interest:

• June 13, 2012 - Building an Effective Enterprise Risk Management Program

• June 20, 2012 - The Impact, Expectations and the Future of the CFPB on Credit Unions

• June 27, 2012 - Bank Secrecy Act Compliance for Experts

• July 11, 2012 - Mid-Year Regulatory Update with NAFCU

Note that these webcasts are open to all credit unions, regardless of membership or charter type.

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NAFCU Members. NAFCU's Regulatory Alert on NCUA's 2012 Regulatory Review is available. The NCUA conducts a review of one-third of its existing regulations on an annual basis and NAFCU is closely reviewing these regulations in order to select sections that have proved especially problematic for credit unions in recent years. Comments are due to NAFCU on July 6, 2012. NCUA is accepting comments until August 3rd.