Nov. 27, 2019 NASCUS Report

THIS WEEK: NCUA to court — reject FOM ruling review; FASB works to clarify CECL; Reports look at mortgage servicers, student loans; Bureau expects payday loan rule action next year; CFPB to assess TRID effectiveness; ’19 education agenda wraps up; plenty ahead in ’20; BRIEFLY: Transitions in MA; Happy Turkey Day

NCUA: ‘No reason’ to review FOM decision

There is no reason for the full circuit court of appeals to review an earlier court action about NCUA’s field of membership rules because Congress gave the agency the power for making those regulations, the agency has argued in a brief to the court.

In its response to an appeal by the American Bankers Association (ABA) to the full panel of judges of the U.S. Court of Appeals for the D.C. Circuit (an “en banc” appeal), NCUA said a ruling this summer by a three-judge panel of the court “presents no basis for a rehearing.” The agency argued that the Supreme Court has previously enabled agencies to use “effective and efficient administrative proxies” to administer general rules when implementing a statute.

The ruling in August by the three-judge panel found that the agency has broad authority in issuing rules governing fields of membership. However, the court also told NCUA it needs a better explanation of that part of its regulation stating credit unions may serve core-based statistical areas without serving the area’s urban core.

To that end, NCUA in October began what it called a “phase in” of the court’s ruling about its membership regulations, including efforts to clarify that part of its rules. The NCUA proposed to allow an applicant credit union to designate a combined statistical area (CSA), or an individual, contiguous portion of that area, as a well-defined local community (WDLC) provided that the chosen area has a population of 2.5 million or less.

FASB issues ‘narrow-scope’ CECL clarifications

Some “narrow-scope” clarifications of the new current expected credit losses (CECL) accounting standard were issued this week by the accounting industry’s standards board, which said it did so after receiving questions about “certain confusing areas” of the standard.

The Financial Accounting Standards Board (FASB) said that, among other “narrow-scope improvements,” the accounting standards update it issued (ASU 2019-11) clarifies guidance around how to report expected recoveries. Expected recoveries, FASB said, describes a situation in which an organization recognizes a full or partial write off of the amortized cost basis of a financial asset—but then later determines that the amount written off, or a portion of that amount, will in fact be recovered.

FASB noted that stakeholders had questioned whether expected recoveries were permitted on assets that had already shown credit deterioration at the time of purchase (also known as purchased credit deteriorated (PCD) assets).

“In response to this question, the ASU permits organizations to record expected recoveries on PCD assets,” FASB stated.

FASB said its ASU 2019-11 also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities

Accounting Standards Update 2019-11—Codification Improvements to Topic 326, Financial Instruments—Credit Losses

Reports look at small mortgage servicers, student lending

Research papers about small servicers in mortgage lending (including credit unions) and the experience of student loan borrowers in income-driven repayment (IDR) programs were issued by the CFPB late last week. The paper on small mortgage servicers, the bureau said, found that the smaller servicers, such as credit unions and community banks, play an “outsize role” in rural areas, that the loans they service are less likely to be sold to Fannie Mae or Freddie Mac or to be government-backed. The report also documented that, during the financial crisis, the smaller servicers experienced lower delinquency rates.

According to the CFPB report, 74% of borrowers with mortgages at small servicers said having a branch or office nearby was important to them in how they chose their mortgage lender, compared to 44% at large servicers. It also found that delinquency rates on loans at servicers of all sizes increased substantially starting in 2008, but peak delinquency rates were much lower for small servicers than for large and mid-sized servicers; and smaller servicers have a greater share of mortgages in non-metro or completely rural counties.

With regard to IDR plans on student loans (designed by the federal government to reduce financial distress for borrowers by setting payments for federal student loans based on borrowers’ incomes and family sizes), the CFPB report describes how borrowers fare on the plans. Among other things, the CFPB report details which types of student loan borrowers use IDR, how their delinquencies on student loans and other credit products evolve as they transition onto IDR and thereafter, and borrower experiences with the enrollment recertification process.

The report found that IDR borrowers include both those who obtain only temporary payment relief as well as those who will enroll for multiple years, and both those struggling with high delinquency rates as well as relatively affluent borrowers with high balances. “Income-driven repayment plans offer temporary relief for some borrowers and provide more sustained relief for others,” the report stated. “At the same time, a large share of borrowers continues to struggle while on an IDR plan, and many move in and out of forbearance.”

CFPB Data Point: Servicer Size in the Mortgage Market

CFPB Data Point: Borrower Experiences on Income-Driven Repayment

Bureau expects action on payday lending rule in April

Final action on mandatory underwriting requirements for CFPB’s payday lending rule are expected in April of next year, the agency said in last week’s fall rulemaking agenda.

According to CFPB, it is “carefully considering” the 190,000 comments it received about the issue during a comment period from earlier this year (closed in May) to reconsider the mandatory underwriting rules for its “Payday, Vehicle Title, and Certain High-Cost Installment Loans” regulation.

In February, the bureau issued a proposed rulemaking to eliminate the ability-to-repay provisions of its payday lending rule and to delay the implementation of those measures by 15 months – to Nov. 19, 2020. The implementation delay (which was finalized in June), the bureau said, would “permit an orderly conclusion to its separate rulemaking process to reconsider the mandatory underwriting provisions.”

In deciding to review the underwriting requirements (also known as “ability to repay” rules), CFPB has said the “the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions.”

CFPB fall 2019 rulemaking agenda

CFPB will assess TRID effectiveness

Addressing the effectiveness of integrated disclosures required under federal regulations for real estate transactions is the subject of an assessment to be conducted by the CFPB, the agency said last week.

In a release, the bureau said it is seeking public comment on its assessment of Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures (also known as TRID). Comments will be due Jan. 21.

The bureau said its assessment is aimed at gauging the TRID rule’s effectiveness in “meeting the purposes and objectives of Title X of the Dodd-Frank Act, the specific goals of the rule, and other relevant factors.” CFPB said it wants public comment on the feasibility and effectiveness of its assessment plan, recommendations to improve the plan, and recommendations for modifying, expanding, or eliminating the TRID rule, among other things.

The assessment is being conducted, the bureau said, in accordance with Section 1022(d) of the Dodd-Frank Act, which the agency said requires it to assess significant rules or orders adopted under federal consumer financial law.

The TRID rule implements the directive of Dodd-Frank to combine certain mortgage disclosures that consumers receive under TILA and RESPA and requires that all creditors use standardized forms for most transactions, CFPB said. Creditors are also required to provide loan estimates and closing disclosures within three business days, the bureau said.

The bureau also published a “request for information” (RFI) about its plan to assess the TRID rule.

Consumer Financial Protection Bureau to Assess Integrated Mortgage Disclosure Rule

Request for Information Regarding the TILA-RESPA Integrated Disclosures Rule Assessment

TN Directors’ College completes ’19 agenda; ahead in ‘20

NASCUS closes out its 2019 education agenda next week with the NASCUS Tennessee Directors College set for Dec. 3 in Nashville. The one-day session (open to credit union board and committee members, and management) looks at elder financial exploitation, indirect lending, national issues and more. The event is co-sponsored with the Tennessee Department of Financial Institutions; it will be held at the Tennessee Tower state offices.

The conclusion of the 2019 calendar opens the door for the 2020 NASCUS calendar, which includes:

  • National Meeting (regulators only); March 16-17, New Orleans;
  • Cybersecurity Conference (with Credit Union Natl. Assn. (CUNA)); June 1-3, San Diego;
  • Hemp and Cannabis Banking Symposium; June 17-18, Chicago;
  • State System Summit 2020; Aug. 9-12, New York, N.Y.

For registration and more information (including agendas), see the NASCUS “Upcoming Events” page on the association’s website.

NASCUS education upcoming events, 2019 and 2020

BRIEFLY: New CU chief director in MA; Happy Thanksgiving!

Chris Cook is the new chief director of the credit union unit at the Massachusetts Division of Banks, the agency said this week. The DOB supervises nearly 170 state-chartered banks and credit unions and more than 10,000 non-depository licensees doing business in Massachusetts … Happy Thanksgiving to all and here’s to a safe and sound holiday!

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