From the Archives: May 2013

Regulatory Roundup 

The groundbreaking news in the regulatory arena over that past month was issued by the CFPB. After almost two years in limbo, the final International Remittance Rule was issued on April 30. The finalized rule limits a credit unions liability for a member’s errors in providing account and routing numbers, but still contains liability for not being able to accurately meet receipt requirements.

The difficulty we have faced with the CFPB in implementing its rules and regulatory changes is exemplified in the IRT rule. The rule was originally transferred to the CFPB in July 2011. That same month, a new rule and a corresponding amendment to that rule were proposed by the CFPB. In August 2012, an amendment allowing an exemption for financial institutions that completed fewer than 100 IRTs a year provided regulatory relief to smaller credit unions, however shortly following that action the CFPB proposed another amendment in November 2012; which was followed by an additional amendment in January 2013 when the rule was delayed until further notice from the CFPB. 

Constantly changing the regulatory requirements credit unions must implement makes the regulatory burden even more unbearable and is a waste of valuable credit union resources, time and effort. Click here to read the final International Remittance Transfer Rule.

Higher-Priced Mortgage Loan Escrow Requirements

On Jan. 10, the CFPB issued the Escrows Final Rule under the Truth in Lending Act, which among other things, lengthens the time for which a mandatory escrow account established for higher-priced mortgage loans must be maintained. The Escrows Final Rule also established an exemption from the escrow requirement for certain creditors that operate predominately in “rural” or “underserved” areas. On April 12, the CFPB published a proposal clarifying and providing technical amendments to the determination method for the “rural” and “underserved” designations and to keep in place certain existing protections for HPMLs that were inadvertently removed in the final rule issuance. A copy of the MCUL Comment Call can be found here.

Agency Surveys Credit Card Issuers
On Jan. 30, the CFPB sent a letter to 160 credit card issuers, including 20 credit unions, requesting information for their credit card survey. The request indicated that the responses needed to be returned in ten business days. Many financial institutions disagreed with the short turn-around time to provide the mandatory reporting. The CFPB is now requesting input on this credit card survey process.  The request stems from the Fair Credit and Charge Card Disclosure Act of 1988 which requires a credit card survey. The first survey and report was published in 1990. The panel of respondents consists of the 25 largest issuers of credit cards and an additional 125 card issuing institutions that are chosen based on outstanding amount of revolving credit reported on the CALL Report. A copy of the MCUL Comment Call can be found here.

Ability-to-Repay and Qualified Mortgage Standards
In January 2013, the CFPB issued final rules regarding Ability to Repay and Qualified Mortgage Standards under the Truth in Lending Act (TILA – Regulation Z). and Mortgage Servicing Rules which amend the Real Estate Settlement Procedures Act (RESPA – Regulation X) and TILA. On April 19, the CFPB published several proposed amendments to those rules. The proposed amendments clarify or correct provisions on:

Credit union input will be important to protect and further define the small servicer exemption. The MCUL Request for Comment is available here.

Click here to read CFPB published several proposed amendments.

MCUL Comments on CFPB’s Request to Promote Student Loan Affordability
Based on a request for comment from the CFPB on the Initiative to Promote Student Loan Affordability, the MCUL responded on April 8, describing the credit union difference and special ability credit unions have to assist members with affordable student loan options when they have exhausted federal student loan options. The MCUL pointed out that private student loan delinquency nationwide is 5.4%, but only 1.46% for credit unions. In part, this is due to the fact that private student loans are underwritten by credit and other risk criteria prior to being funded, similar to other credit union loans. The MCUL strongly discouraged the CFPB from implementing a regulation or guidance that would require the financial services industry to comply with private student loan modification requirements; stating because credit unions private student loan modification plans are based on a member service model and are unique and specific to individual situations and any such regulation would be restrictive and burdensome.

CFPB TILA Ability-to-Repay Rule

On April 29, the CFPB issued the amendment to Truth in Lending §1026.51 and the official interpretations to the regulation to address concerns that, in light of the statutory framework established by TILA, the independent ability to repay may have unduly limited the ability members aged 21 or older, including spouses or partners who do not work outside the home, to obtain credit.

The final rule has four main elements. First, the final rule removes references to an “independent” ability-to-pay standard. As a result of this change, card issuers are no longer required to consider whether members age 21 or older have an independent ability to pay; instead, card issuers are now required to consider the member’s ability to pay. Second, in determining a member’s ability to pay, the final rule permits credit unions to consider income or assets to which a member, who is 21 or older, has a reasonable expectation of access. Third, the final rule continues to require that members under the age of 21 without a cosigner have an independent ability to pay. Lastly, the final rule clarifies that application of the independent ability-to-pay standard to consumers under 21 does not violate the Regulation B prohibition against age-based discrimination.

CFPB publishes effective date of Oct. 28 for Foreign Remittance Transfer Rule
On April 30, the CFPB published an effective date for its Foreign Remittance Transfer Rule which amends Regulation E and the official interpretations. The CFPB indicates on its website that it will release a summary of the full final rule “shortly” since there have been numerous modifications and amendments to the rule since the release of the rule and concurrent proposal to amend it on Jan. 20, 2012.

The final amendments to the rule make two significant changes that affect a credit union’s liability. First, the disclosure of foreign taxes and fees imposed by a recipient institution has been made optional, if a disclaimer that such fees and taxes may apply is disclosed. Second, when funds are deposited to an incorrect account because of an error in the routing or account number supplied by the sending member, the credit union will have to attempt to recover the funds but would not be accountable for funds that could not be recovered.

As a reminder, a credit union may fit under the safe harbor (which would provide it an exemption from the rules) if it provided fewer than 100 international remittance transfers in the previous calendar year and provide 100 or fewer international remittance transfers in the current calendar year. Credit unions should consider how they will comply with the new requirements to the rule if they do not fit under the safe harbor. For more information, credit unions can visit the CFPB’s website addressing the remittances transfer rule located here. The new rule will be effective Oct. 28.

NCUA Issues Supervisory Letter 13-CU-03 on Reporting TDR Loans

During the first week of April the NCUA offered additional guidance to credit unions on troubled debt restructured loans by publishing NCUA Letter to Credit Unions 13-CU-03. The guidance was established to ensure that NCUA policies allow credit unions to prevent members from defaulting, if they are willing to agree to viable loan workout terms. The Supervisory Letter focuses on examiner reviews of TDR loans and provides guidance for evaluating whether credit unions are following applicable regulatory requirements in administering sound loan workout programs. The guidance establishes a uniform examination approach to reviewing loan workouts, nonaccruals, and regulatory reporting of troubled debt restructured loans.

FASB delays Request for Comment on Financial Instruments – Credit Losses

FASB announced in April that it was delaying the due date for comments on the proposal to revise standard accounting practices for credit losses. The main objective of the change is to provide more accurate information about the expected credit losses of financial assets and other commitments. The changes FASB has proposed are vast and will lead to greater reserves and estimations in an already subjective calculation along with a definition change that will require additional reserves on unfunded loan commitments. The new comment deadline is May 31.

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