THIS WEEK: CFPB lists action for 2020; ‘QM rule’ will have new threshold; ‘FedNow’ comments under review, digital payments too; Banks look to states to block bank buys; BRIEFLY: Two join NASCUS
Bureau plans several actions in year ahead
At least five rulemaking activities are ahead in 2020 for the CFPB, according to its semiannual report of bureau activities published this week.’
While the semiannual report is mostly a backward-looking document that wraps up activities and initiatives of the agency during the middle six months of 2019, it also lists some items of what’s ahead for the agency. The report provided plans on future rulemakings, including:
- A proposed rule this year (by the end of the fiscal year in September) that would exempt from the higher-priced mortgage loan escrow requirement (Regulation Z, Truth in Lending Act) loans made by certain creditors with assets of $10 billion or less and meeting other criteria (as provided in the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, or EGRRCPA, S.2155).
- A notice of proposed information collection related to Property Assessed Clean Energy (PACE) financing (also under EGRRCPA, and following last year’s advance notice of proposed rulemaking; the bureau is considering next steps for a proposed rule).
- A proposed, limited extension of the GSE patch under the Regulation Z (Truth in Lending Act) qualified mortgage (QM) provisions in the ability-to-repay mortgage rules. The QM rules currently consider certain loans eligible for purchase or guarantee by two housing government-sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac – as meeting the ATR requirements. However, this “patch” is set by statute to expire Jan. 10, 2021. The bureau says it will allow this to expire but will issue a proposed rule to revise the general QM definition; it also plans to propose a “limited extension” of the expiration date only as needed for a smooth, orderly transition.
- A proposed rule in July on various aspects of a 2015 final rule revising requirements under Regulation C (Home Mortgage Disclosure Act, or HMDA). The bureau sought comments last May on the costs and benefits of collecting and reporting the data points in the 2015 rule and certain preexisting data points that the rule revised.
- A proposed rule, also in July, regarding public release of HMDA data (following a December 2018 policy guidance on modifications affecting the release of loan-level HMDA data).
The bureau’s report also notes that the agency has delayed the compliance deadline for its payday rule provisions (the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule) until Nov. 19, 2020; a proposal was issued last February reconsidering the rule’s underwriting of covered short-term and longer-term balloon payment loans.
CFPB Semiannual Report (Fall 2019)
QM rule will ‘move away’ from 43% DTI
Following up on the semiannual report Thursday, CFPB Director Kathleen (“Kathy”) Kraninger told the House Financial Services Committee that the “qualified mortgage” (QM) rule will be amended by moving away from the 43% debt-to-income (DTI) ratio requirement to a new threshold. Kraninger said that the bureau, instead, will propose amending the QM rule with an alternative, such as a pricing threshold, to “better ensure that responsible, affordable mortgage credit remains viable for consumers.”
Although the agency is proceeding with the proposal, Kraninger said, the bureau would also “welcome legislation through which Congress could weigh the important policy objectives at issue.”
In other comments, Kraninger told the committee that the bureau intends to cite or challenge abusive conduct when the harm to consumers exceeds the benefits. Last month, the CFPB announced a “framework” on how to apply the abusiveness standard in supervision and enforcement matters. “For too long, this has been a gray area creating uncertainty and hampering consumer-beneficial innovation,” she said.
Now, Kraninger said, the bureau will “clearly demonstrate the nexus between cited facts and our legal analysis in a way that supports development of the metes and bounds of abusive acts and practices as distinguished from unfair or deceptive acts and practices.” She also said the bureau will seek “certain types of monetary relief” only when the entity has failed to make a good-faith effort at compliance. “Restitution for consumers will be the priority in such cases,” she said.
‘FedNow’ comments still under review; digital payments on radar
Comment letters on the proposed “FedNow” digital payments system continue to be analyzed by the Federal Reserve, but the central bank governor overseeing the planned system gave no indication when the results of that review will be publicly released.
Late last summer (and ending in early November) the Fed collected comments on the development of the round-the-clock, real-time payment settlement service, designed to speed up payments across financial, retail and other systems. The Fed has said, in the past, that the FedNow system could be available by about 2023 or 2024.
However, Federal Reserve Gov. Lael Brainard, in remarks this week at the Symposium on the Future of Payments, in Stanford, Calif., gave no indication of a timetable of the next action on the system. She did suggest that Congress should review how retail payments are regulated, and that the Fed is studying the benefits (or drawbacks) of the Fed issuing its own digital currency.
Brainard expressed optimism for the future of payments during her remarks. “FedNow will facilitate end-to-end faster payment services, increase competition, and ensure equitable and ubiquitous access to banks of all sizes nationwide,” Brainard said. She added that, together with the new “Real Time Payments” (RTP) system established by the Clearing House (a banking association and payments company that is owned by the largest commercial banks), FedNow should significantly increase the speed and efficiency of the U.S. payment system.
Regarding digital currencies issued by the Fed, Brainard said it was “essential that we remain on the frontier of research and policy development” regarding a central bank digital currency (CBDC). “Like other central banks, we are conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC. We are collaborating with other central banks as we advance our understanding of central bank digital currencies.”
Regarding congressional review of the retail payments system, Brainard said it could be helpful to “identify important gaps.” “A good place to start may be contrasting the U.S. oversight framework for retail payment systems with other jurisdictions,” she said. “Many foreign central banks, for example, have explicit authority for general retail payments oversight.”
Banks cite state rules as key to blocking CU bank buys
Bank trade groups in Washington are ramping up their opposition to credit union acquisition of banks, with one group urging bankers to use state laws and regulations to challenge the credit union purchases of community banks.
The Independent Community Bankers of America (ICBA) said this week it has developed an analysis for bankers to review when working to block the acquisitions. While the analysis is secret (available to bankers only), the group has pointed to the recent decision by Colorado regulators to deny a credit union bid to buy a bank in the state as a guideline. In that case, according to the bank group, the Colorado State Banking Board voted to reject the transaction, citing state law that requires banks be sold to other banks.
In a related development week, NCUA Board Chairman Rodney Hood published a column in the Credit Union Journal (a trade publication) defending credit union acquisition of banks (which, he clarified, is really the purchase of a bank’s assets – but not the bank’s stock, which credit unions may not invest in).
Hood wrote that “in instances where a credit union and bank transaction leads to continued or improved financial services for an underserved community, these transactions should be welcomed as a needed boost to financial inclusion efforts.” He added that the question of financial inclusion and access to financial services is critical. “There needs to be a recognition that these transactions are occurring at a time when options for financial services are dwindling in far too many of our communities.”
NCUA is considering a proposed rule (now out for public comment) on “combination transactions with non-credit unions; credit union asset acquisitions.” The proposal, according to NCUA, is intended to clarify requirements for a federally insured credit union (FICU) when it proposes to acquire or merge with a bank or other financial institution.
NASCUS has urged the agency to confine its proposal to safety and soundness issues with regard to states and credit union bank acquisitions – and not governance of credit unions. The association has noted that a credit union makes a business decision when deciding whether to acquire a bank, and the role of state regulators and NCUA is to ensure that the resulting entity from a credit union’s acquisition of a bank is safe and sound and adequately capitalized. For state-chartered credit unions, NASCUS has noted, NCUA’s authority should be limited to safety and soundness concerns and should not extend to governance questions which are the purview of state regulators.
BRIEFLY: Welcome new members in IL, KY
Welcome to NASCUS membership BCU in Vernon Hills, Ill., and the Kentucky Credit Union League in Louisville, Ky. BCU holds $3.9 billion in assets; its CEO is Mike Valentine. Debbie Painter is CEO of the Kentucky League, which represents the interests of credit unions throughout the state.