Regulatory Alert Summary

Prepared by NASCUS Legislative & Regulatory Affairs Department

May 2016

16-RA-05 Amendments Relating to Small Creditors and Rural or Underserved Areas under the Truth in Lending Act

NCUA published guidance to alert credit unions of 3 final rules issued by the CFPB amending Regulation Z. The CFPB’s final rules might allow more credit unions to qualify as small creditors or as lending in rural or underserved areas. Meeting these thresholds provides credit unions flexibility pursuant to the Truth in Lending Act (TILA). Benefits include:

  • Loans a small creditor holds in portfolio can be QMs, even if the borrower’s debt-to-income ratio is higher than the general 43 percent limit for QMs.
  • Small creditors operating predominantly in rural or underserved areas may originate loans with balloon payments that meet QM requirements, even though balloon payments are otherwise not allowed under QM requirements.
  • Small creditors can originate high-cost mortgages (HOEPA) with balloon payments.
  • Under CFPB’s escrow requirements, eligible small creditors operating predominantly in rural or underserved areas need not establish escrow accounts for higher-priced mortgage loans (HPMLs).

The amendments apply to credit unions that originate or service closed-end mortgages secured by a dwelling, including small creditors operating in rural or underserved areas. 

Changes made by the final rules include:  

  • Revisions to the definition of "small creditor" that:
    • Increase the number of mortgage loans that may be made within the definition
    • Count the assets of mortgage-originating affiliates towards the asset limit for small creditor status;
  • Revisions to the definition of "rural area" to include a census block that is not in an urban area;
  • Establishment of a process for applying to CFPB to have an area designated as "rural";
  • Providing that creditors operate in a rural or underserved area if they make one loan in such an area, rather than having to make more than 50% of loans in rural or underserved areas.