Saying he has “reinforced” his commitment to financial inclusion, NCUA Board Chairman Rodney Hood this week announced a new program sponsored by the agency to do just that, by launching the “Advancing Communities through Credit, Education, Stability, and Support” (ACCESS) initiative.
“As Chairman, I have consistently characterized financial inclusion as the civil rights issue of the 21st century,” Hood said in a statement. “There is a clear business case for credit unions to enhance their outreach to underserved and underbanked populations. The NCUA will dedicate resources from across its lines of business to bring more Americans into the financial mainstream and provide them with greater access to safe and affordable financial services.”
NCUA, in its release, said the ACCESS program is designed to assemble leaders within the agency to “refresh and modernize regulations, policies, and programs in support of greater financial inclusion within the agency and the credit union system.” The release stated that the program will build on earlier successes in financial inclusion by NCUA and address the financial services and financial literacy needs of underserved and diverse communities across the U.S, as well as expand opportunities for employment.
“Government agencies can make a vital contribution in terms of coordinating efforts, helping to set appropriate standards, and directing resources where they can make a real difference,” Hood said. “That’s certainly what we’ve been doing and will continue to do at the NCUA.”
Financial inclusion and diversity has lately run into some political headwinds. Last week, 150 business groups – including the U.S. Chamber of Commerce — sent a letter to the White House saying an executive order signed by President Donald Trump in September has had a chilling effect on legitimate diversity and inclusion training and causes confusion among employers. “We urge you to withdraw the Executive Order and work with the business and nonprofit communities on an approach that would support appropriate workplace training programs,” the letter from the group stated.
LINK:
Chairman Hood Reinforces Commitment to Financial Inclusion, Launches ACCESS Initiative
The role of “supervisory guidance” would be clarified as meaning it doesn’t have the force of law in a proposed rule issued this week by federal banking regulators, CFPB and, soon, NCUA.
The FDIC, Federal Reserve, OCC, CFPB and NCUA are all listed on the proposal, which was issued for a 60-day comment period by the FDIC Board at its open meeting this week. The proposed rule, according to its summary, would codify an interagency statement issued by all of the agencies in September 2018. That statement was intended to make clear that, unlike a statute or regulation, supervisory guidance does not have the force and effect of law. “Supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance,” the 2018 statement read.
However, apparently the statement was not enough for some. The American Bankers Association (along with the Bank Policy Institute), filed a petition in 2018 with the banking agencies and CFPB (but not NCUA) calling on them to institutionalize the statement by codifying it in a formal rulemaking. Specifically, according to ABA, the bankers’ groups urged their regulators to clarify that matters requiring attention, matters requiring immediate attention and other such supervisory actions may only be based on a violation of statute or regulation, and not on a failure to comply with supervisory guidance.
This week, the ABA said the proposed rule “codifying” the statement was in response to their petition.
Late Thursday, the NCUA Board scheduled a meeting for next week (Wednesday, Oct. 28 at 2 p.m.) to consider its own rule on “supervisory guidance” (even though the agency was already listed on the proposal issued by the FDIC and the other agencies).
Last week, Chairman Rodney Hood opened the board’s October meeting by announcing the members had agreed to remove from the agenda a proposed “request for information” regarding supervisory guidance review and “improvements in communications.” No reason was given for the removal of the agenda item.
LINK:
FDIC Proposed Rule on The Role of Supervisory Guidance:
A reference tool for HMDA data required to be collected and recorded in 2021 and reported in 2022 was published by CFPB late last week and is intended to help the mortgage lending industry understand, implement and comply with HMDA and Regulation C, the bureau said.
Displayed as a chart featuring key aspects of compliance with law, including filing instructions, the tool is intended to be used as a reference for data points required to be collected, recorded, and reported under Regulation C, the bureau said. It breaks down and describes, one by one, the data points required to be collected and reported by credit unions and other mortgage lenders in 2021 HMDA compliance, and provides filing instructions for each.
To that end, the chart includes all the data points required under Regulation C amendments issued Oct. 15, 2015, Aug. 24, 2017, Oct. 10, 2019, and April 16, 2020. It includes relevant regulation and commentary sections, incorporates information found in Section 4.2.2 of the 2021 Filing Instructions Guide (FIG), and provides when to report information as “not applicable” or “exempt.”
Filing instructions guide for HMDA data collected in 2021 (October 2020)
Information from the public on the best way to go about developing a rule on consumer access to financial records is being sought by CFPB in an advance notice of proposed rulemaking (ANPR) issued this week. The action follows up on a promise made by the agency in July, which followed a symposium on the subject in February.
In a release, the bureau said its ANPR on consumer access to financial records is aimed at fulfilling its obligations under a provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The proposal’s summary states that the provision (Sec. 1033) indicates the agency will issue rules prescribing that a consumer financial services provider must make available to a consumer information in the control or possession of the provider concerning the consumer financial product or service that the consumer obtained from the provider.
CFPB said the ANPR seeks comments and information on costs and benefits of consumer data access, competitive incentives, standard-setting, access scope, consumer control and privacy and data security and accuracy.
“When consumers use financial products and services, the providers of those products and services generally accumulate data about those consumers and their use of those products and services,” the bureau said in its release. “Consumer access to these data allow consumers to manage their financial accounts and can enhance consumers’ control of their financial matters.”
In late February, the bureau sponsored a symposium on the law’s requirement for consumer records access rules. The event featured panels discussing benefit and risks of consumer-authorized data access, as well as developments in the area of records access.
In July, the bureau gave a sort of “head’s up” that the ANPR was coming, saying that the call for information would help the agency understand and address “competing perspectives.”
A 90-day comment period is planned on the ANPR.
LINK:
CFPB ANPR: Consumer Access to Financial Records
The “government-sponsored enterprise” (GSE) patch – which gives mortgages guaranteed by Freddie Mac and Fannie Mae “qualified mortgage” (QM) status – will be extended until a final rule is approved that amends the general QM loan definition in Regulation Z, CFPB said this week.
In a release, the bureau said a final rule amending the QM loan definition would contain a “mandatory compliance date.” The GSE patch was scheduled to expire Jan. 10. The bureau also said it is not amending the provision in Regulation Z stating that the GSE Patch will expire if Fannie Mae and Freddie Mac exit conservatorship.
In June, CFPB issued a proposal to amend the general QM loan definition, which was also the day the bureau proposed to extend the GSE Patch. CFPB said it is now developing a final rule amending the general QM loan definition and is planning to issue it at a later date.
This week’s action came in the form of a final rule from the agency. CFPB said the rule represents the steps being taken by the bureau to “ensure a smooth and orderly transition away from the GSE patch and to maintain access to responsible, affordable mortgage credit upon its expiration.”
“Further, the Bureau is taking this action to ensure that responsible, affordable credit remains available to consumers who may be affected if the GSE patch expires before the mandatory compliance date of a final rule amending the general QM loan definition,” CFPB said.
Loans covered under the GSE patch are eligible for QM status even if the debt-to-income (DTI) ratio exceeds 43%, CFPB said. “Last year, the Bureau released an assessment of the ATR/QM Rule and found that GSE Patch loans represent a large and persistent share of mortgage originations,” the bureau stated. In fact, CFPB stated, absent regulatory action keeping the GSE patch intact (at least for now), an estimated approximately 957,000 mortgage loans would be affected by the expiration of the patch. The agency said that, after the GSE patch expires, some of these loans would either not be made or would be made but at a higher price.
(This development, as well as the bureau’s HMDA chart, is catalogued on NASCUS’ “Latest CFPB Updates” on the NASCUS website; see the link below to keep up with all of the latest developments, via NASCUS, from the bureau.)
LINKS:
Consumer Financial Protection Bureau Issues Final Rule Extending the GSE Patch
The forward motion to officially sideline LIBOR (London Interbank Offering Rate) as a reference rate for such financial products as adjustable mortgages and others continued this week with two top players in the mortgage market taking action.
Banking behemoth JP Morgan Chase unveiled a mortgage based on the new (and Federal Reserve-backed) Secured Overnight Financing Rate (SOFR), an alternative to LIBOR which is scheduled to be completely phased out by the end of next year. Meanwhile, secondary mortgage market giant Fannie Mae issued its first security backed by adjustable rate mortgages that use SOFR as a reference.
Also last week, the Financial Stability Board (FSB, an international group of central bankers and national regulators, which is chaired by Federal Reserve Board Vice Chair for Supervision Randal Quarles) unveiled a “global transition roadmap,” which sets out a timetable for a smooth transition away from LIBOR by year-end 2021. The FSB said the roadmap is intended to inform those with exposure to LIBOR benchmarks of steps they should take now through year-end 2021 to successfully mitigate these risks. “These are considered prudent steps to take to ensure an orderly transition by end-2021 and are intended to supplement existing timelines/milestones from industry working groups and regulators,” the group said.
Clearinghouses this month (and as recently as last week) have already begun making the switch from LIBOR to SOFR or other alternative rates, largely because of the impact on banks trading U.S. derivatives. The change affects trillions of dollars’ worth of transactions.
Last month, the Treasury’s Office of Financial Research (OFR) announced a new data tool focusing on repo data. According to OFR, the collection of repo data is expected to provide “a permanent and expanded source of data to support SOFR and reference rate transition.”
LINKS:
OFR Begins Publishing Repo Data, Unveils Short-term Funding Monitor
FSB publishes global transition roadmap for LIBOR
The state credit union system offered support for mitigating the day-one effect of the current expected credit loss (CECL) accounting standard on capital levels, but also offered a number of changes to the proposal by NCUA in a comment letter sent this week.
In July, NCUA proposed a rule to phase in the “day-one adverse effects” that could result from credit unions’ adoption of the CECL standard – set for most credit unions to begin no later than December, 2022 – that would be phased over a three-year period (or for 12 quarters).
The agency said the phase-in would only be applied to those federally insured credit unions (FICUs) that adopt the CECL methodology for fiscal years beginning on or after Dec. 15, 2022 (the deadline established by the Federal Accounting Standards Board (FASB) for CECL implementation).” In other words, those credit unions that choose to adopt CECL for fiscal years prior to the 2022 date, the agency said, will not be eligible for the proposed phase-in.
FICUs with less than $10 million in assets under the proposal would no longer be required to determine their charges for loan losses in accordance with generally accepted accounting principles (GAAP), but would instead be allowed to use any reasonable reserve methodology, “provided that it adequately covers known and probable loan losses.”
NASCUS’ letter outlined some changes to the provisions for the smaller credit unions, including that those which implement CECL should be given the option to phase in the day-one effect. NASCUS also argued that credit unions that reach $10 million in assets after Jan. 1, 2023 should be afforded the opportunity of a three-year phase in of the day-one effect.
“As NCUA notes in the Supplemental Material, many states have state specific rules that require compliance with Generally Accepted Accounting Principles (GAAP) for FISCUs with less than $10 million in assets,” NASCUS wrote. “State credit union supervisors in some of those states have statutory or regulatory authority to waive GAAP, or otherwise to pass the benefit of the proposed rule through to FISCUs with less than $10 million in assets. However, there are several states that require GAAP for all FISCUs regardless of size, with neither exception nor discretion for waiver or use of a federally prescribed alternate standard.”
NASCUS wrote that the agency’s final rule should make the proposed three-year phase in available to credit unions that must follow GAAP, regardless of the size of the credit union. However, for smaller credit unions whose state laws preclude them from using a non-GAAP measure “should be eligible for the three-year phase-in for their regulatory capital calculation.”
As for smaller credit unions that surpass the $10 million asset threshold during the transition period, NASCUS urged the agency to amend its rule to give those credit unions a full three-year phase in.
NASCUS made two other key points:
- Larger credit unions (those with assets of $10 million or more) should have the option of recognizing the full day-one effect of CECL immediately: “NCUA’s proposed rule and the federal banking authorities’ (FBAs’) final rules differ: the FBAs have provided covered banks the choice of whether to phase in the adverse day-one effect of CECL or to fully implement and recognize CECL cost on day one. NCUA’s proposal would require that all covered credit unions phase in the adverse effect of CECL,” NASCUS wrote. The association urged the agency to also allow credit unions “the choice of recognizing the full day-one effect of CECL immediately rather than phasing in the costs over the three-year period.”
- NCUA should consider how CECL will be incorporated into stress testing requirements after implementation: “It is our understanding NCUA has begun to address some of these issues with covered credit unions required to conduct stress testing,” NASCUS wrote. “We urge NCUA to continue these discussions, including with state regulators, to ensure the regulatory stress testing framework can incorporate CECL when appropriate.
“NASCUS, many state credit union regulators, and many state credit union system stakeholders remain concerned that the CECL methodology will be counter-productive when implemented for the credit union system,” NASCUS stated in concluding its letter. “We agree with the sentiments expressed and specific points raised by Chairman Hood in the Chairman’s April 30, 2020 letter to the FASB. We encourage NCUA to continue efforts to engage with the FASB to remediate this issue.”
LINK:
NASCUS Comments on Transition to the Current Expected Credit Loss Methodology