(Dec. 11, 2020) Two final rules related to “qualified mortgages” (QMs) – one installing a limit on lending based on a loan’s pricing, and the second creating a “seasoned QM” – were released Thursday by the CFPB.
The final rules, the agency said, will “support a smooth and orderly transition away” from the so-called “QM Patch,” which is slated to expire July 1, 2021. The patch covers loans issued by government-sponsored enterprises (GSEs) Federal National Mortgage Association, (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac), most of which are now considered QMs. After July 1, those loans will not automatically be given QM status.
In a release, CFPB said the first of the two rules will replace the current requirement for general QM loans that the borrower’s debt-to-income ratio (DTI) not exceed 43% with a new requirement of a limit based on the loan’s pricing. The second of the rules will establish the “seasoned QM,” which would apply to portfolio loans meeting certain performance requirements over a 36-month seasoning period, including having no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days.
The bureau said it adopted the price-based approach for limiting lending in replacement of the specific 43% DTI limit after determining that a loan’s price is a strong indicator of a consumer’s ability to repay. The bureau called it “a more holistic and flexible measure of a consumer’s ability to repay than DTI alone.” Additionally, CFPB said, conditioning QM status on a specific DTI limit “could impair access to responsible, affordable credit.”
The “seasoned QM” rule, CFPB said, creates a new category for first-lien, fixed-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements.
A loan becomes eligible as a seasoned QM, the bureau stated, when as a first-lien, fixed-rate loan it has no balloon payments and meets certain other product restrictions. As under the general QM final rule, the bureau said, the creditor must also consider the consumer’s DTI ratio or residual income, income or assets other than the value of the dwelling, “and debts and verify the consumer’s income or assets other than the value of the dwelling and the consumer’s debts,” the bureau said.
The loan must also “season” by meeting certain performance requirements at the end of the seasoning period, CFPB said. Specifically, according to the bureau, the loan can have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period. The creditor or first purchaser also generally must hold the loan on portfolio until the end of the seasoning period.
Both rules will take effect 60 days after publication in the Federal Register. The first rule (the general QM final rule) will have a mandatory compliance date of July 1, 2021. However: between the general QM final rule’s effective date and mandatory compliance date, the bureau said, there will be an optional early compliance period during which creditors will be able to use either the current general QM definition or the revised general QM definition.
The seasoned QM final rule will apply to covered transactions for which creditors receive an application on or after the effective date, the bureau said.
LINKS:
General QM final rule
Summary: Debt collection practices (members only)
(Dec. 11, 2020) Two new summaries were posted this week by NASCUS, outlining an NCUA final rule on corporate credit unions and an interagency proposal about codifying the use of “supervisory guidance” from federal agencies. Both are available to members only.
Corporate final rule clarifies provisions
The final rule on corporate credit unions, generally aimed at clarifying a number of provisions in NCUA’s rules, was adopted unanimously by the NCUA Board in October. The rule takes effect next week (Dec. 14), and addresses five key areas:
- permits a corporate credit union to make a minimal investment in a credit union service organization (CUSO) without the service organization being subjected to heightened agency oversight;
- expands the categories of senior staff positions at member credit unions eligible to serve on a corporate credit union’s board;
- removes the “experience and independence” requirement for a corporate CU’s enterprise risk management (ERM) expert;
- clarifies the definition of a collateralized debt obligation;
- simplifies the requirement for net interest income modeling.
Although the proposal did contain two provisions regarding proposed subordinated debt offerings by credit unions, the final rule leaves those out. NCUA decided to remove both of those provisions, noting that both sections would be addressed in a final rule on subordinated debt in the future. The agency added that it does not envision any changes to the proposed definition of a debt instrument included in the proposal.
‘Supervisory guidance’ would be codified
In late October, NCUA joined the federal banking agencies and the CFPB in proposing a rule (for a comment period ending Jan. 4) aimed at clarifying and codifying the role of supervisory guidance from federal financial institution regulators. Under the proposal, the meaning of “supervisory guidance” would be clarified as meaning, essentially, it doesn’t have the force of law. If finalized, the proposal 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 is not the same as statute or regulation. “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.
NCUA has maintained that the proposal will not create a burden for credit unions – partially because, the agency said, NCUA has followed the intent of the proposal for at least the last seven years. NCUA has noted that, at least since 2013, all “documents of resolution” for credit unions have been to specific statutory and regulatory citations – a practice, the agency has vowed, would not change under the proposed rule.
LINKS:
Summary: corporate rule (members only)
Summary: role of supervisory guidance (members only)
(Dec. 4, 2020) The CFPB’s proposal to develop a rule on consumer access to financial records has been summarized by NASCUS and is posted on the website; the summary – the latest in the association’s continuing series to shine a light on key regulatory developments – is available to members only.
In October, the bureau finally released its advance notice of proposed rulemaking (ANPR) on the issue of consumer access to financial records, following up on a promise it made in July, which in turn followed a symposium on the subject in February.
The bureau said in October that its ANPR 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) provides that 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.
The ANPR seeks comments and information, CFPB said, on costs and benefits of consumer data access, competitive incentives, standard-setting, access scope, consumer control and privacy and data security and accuracy.
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. Then 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.”
Comments are due on the ANPR Feb. 4.
LINK:
NASCUS summary: CFPB’s ANPR on consumer access to financial records (members only)
(Nov. 25, 2020) Model privacy forms from the CFPB that many credit unions and banks use to disclose their information-sharing practices to their members and customers should be updated, according to a report issued this week by the Governmental Accountability Office (GAO).
The report, requested by Senate Banking Committee Chairman Mike Crapo (R-Idaho), said the current model form provided under the Gramm-Leach-Bliley Act (GLBA) for required disclosures gives consumers only a limited understanding of institutions’ information sharing. The GAO specifically recommended that the CFPB update the model privacy form and consider including more information about third-party sharing.
Noting that the GLBA-related model privacy form, providing a safe harbor under the law, was created more than 10 years ago, the report states it thus provides a limited view of what information is collected and with whom it is shared. GAO said consumer and privacy groups interviewed by the GAO cited similar limitations.
The proliferation of data-sharing since the form’s creation in 2009 “suggests a reassessment of the form is warranted,” the report adds.
The bureau, in response to the report, said it would consider doing updating the form, adding that it would require a joint rulemaking with other agencies.
LINK:
CONSUMER PRIVACY: Better Disclosures Needed on Information Sharing by Banks and Credit Unions (GAO-21-36)
(Nov. 20, 2020) The threshold for exempting loans from special appraisal requirements applied to higher-priced mortgage loans under the Truth in Lending Act will remain at $27,200 in 2021, unchanged from this year’s threshold, according to an announcement this week by the CFPB and federal banking agencies.
The agencies said the threshold, effective Jan. 1, is based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2020. The higher-priced loan rules were added to the Truth in Lending Act (TILA) by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The act added special appraisal requirements for higher-priced mortgage loans, including a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan.
NASCUS posts all actions of the CFPB affecting the state credit union system on its “Latest CFPB updates” page of the NASCUS website.
LINK:
NASCUS ‘Latest CFPB updates’
(Nov. 20, 2020) NASCUS has posted a new summary of a “statement of policy” on applications for early termination of consent orders from the CFPB. The summary is available to members only.
In October, the bureau issued a new policy on early termination of administrative consent orders that outlines the process for entities subject to a consent order with the agency and the “standards that the bureau intends to use when evaluating applications.”
“In order for a Consent Order to be terminated early, an entity should demonstrate that it meets certain threshold eligibility criteria, has fully complied with the terms of the Consent Order, and has a satisfactory compliance management system in applicable areas,” the agency stated. “These conditions are designed to minimize the risk of new violations of law by the company and to protect consumers.”
The bureau said last month that an application for early termination should be submitted to the agency point of contact named in the consent order. “In general, an application should demonstrate that the entity has satisfied all of the conditions for granting early termination described in the policy statement,” the agency stated. “Bureau staff will review applications and make recommendations to the Director about whether to terminate a Consent Order. Under the policy, the sole authority to terminate a Consent Order remains with the Bureau’s Director and the termination decision is at their discretion.”
(Nov. 13, 2020) Last week’s election results – in which Democrat (and former vice president) Joseph R. Biden claimed more electoral votes than Republican (and incumbent) President Donald Trump, as well as more than 5 million more actual votes — will have an impact on federal regulation of credit unions, likely beginning with who sits in the top regulators’ seats.
For NCUA, the result could mean a change who leads the agency. The chairman of the NCUA Board is designated by the president (not confirmed by the Senate if already sitting on the board), and does not serve a set term in that role, other than their term as a member of the board. Current credit union regulator board Chairman Rodney Hood (appointed by Trump) could be displaced by Biden in favor of a Democrat, as early as January following inauguration. Hood’s term on the board runs to August 2023. Board members may not succeed themselves.
The only Democrat currently on the board is Todd Harper, whose own term ends in April. Biden could name Harper board chairman, and then nominate another Democrat to take his place sometime after April. Harper could remain on the board until his successor is confirmed by the Senate.
And there may be more opportunities for the new president. NCUA Board Member J. Mark McWatters (a Republican appointee) is serving in a holdover capacity (since his term ended in August 2019) until the Trump nominee for his seat, Kyle Hauptman, is confirmed by the Senate. Hauptman’s nomination is currently pending before the Senate, after a split vote by the Senate Banking Committee to recommend confirmation. (Senate Democrats, on a voice vote, voted no.)
But a vote on Hauptman’s nomination has not yet been scheduled by the Senate. If the Senate fails to act before the current session ends in early January (and the current Congress with it), his nomination will come to an end – and Biden will have another seat to fill on the board, likely with a Democrat. (However, there is still plenty of time between now and Jan. 2 for the Senate to take up and act on Hauptman’s nomination.)
Meanwhile, the CFPB director’s job, now held by Kathleen Kraninger, will be up for change under a Biden administration – thanks to a Supreme Court decision just this year which ruled the director of the agency holds the job “at will” of the president, and is not only subject to “for-cause” firing, despite the five-year term the director fills once confirmed. Kraninger’s term runs to 2023.
Democrats in both the House and Senate have been roundly critical of Kraninger’s performance as director, and will likely argue that the new administration should make a change.
(Nov. 13, 2020) The NCUA Board has scheduled a 2020 budget update and reprogramming, as well as an item on the agency’s rules and regulations, “Capitalization of Interest” as agenda items for its Nov. 19 regular monthly meeting. Other items on the agenda for the meeting, set to begin at 10 a.m. ET and to be streamed live via the Internet, are board briefings on the quarterly performance of the National Credit Union Share Insurance Fund (NCUSIF) and on the state of credit union diversity, including the 2019 Credit Union Diversity Self-Assessment … The FL Office of Financial Regulation recently approved Nov. 1 the conversion of Panhandle FCU of Panama City to a state charter; the institution holds more than $263 million in assets … Controversial Federal Reserve Board NomineeJudy Shelton – criticized by some for her past views on reinstituting the gold standard, questioning the effectiveness of federal deposit insurance, and the Fed’s independence from political influence – will receive a confirmation vote as early as next week. Sen. Lisa Murkowski (R-Alaska) said Thursday she would vote for Shelton, meaning there are now enough votes among Republicans to approve her confirmation; all Democrats have vowed to reject her nomination. A vote for fellow Fed Board Nominee Chris Waller has not been scheduled, although his nomination has received little if any opposition. There is no word, yet, on a vote for NCUA Board Nominee Kyle Hauptman … Actual payment “furnishing” (or information on payments sent to consumer credit reporting agencies from financial institutions) grew steadily for mortgage, auto and student loans between 2012 and 2020, according to a report issued Thursday by the CFPB, reaching more than 90% of credit accounts. On the other hand, over the same period, the bureau said payment furnishing for credit card and retail revolving loan accounts fell to 40% of accounts. The bureau said the information in its report is used to determine whether consumers are approved for credit and the interest rates and terms consumers receive. “Financial institutions’ decisions regarding which data elements within a consumer’s credit account to furnish to consumer reporting agencies have important implications for which factors lenders can use to evaluate potential and existing borrowers,” the report states. It added that “describing trends in furnishing practices can help deepen policymakers’ and market participants’ understanding of the consumer reporting system’s key role in consumer access to credit, especially in the wake of the COVID-19 pandemic when credit standards have tightened and there has been increased strain on consumer finances.”
LINK:
New report explores the prevalence of actual payment information in consumer credit reporting
(Nov. 13, 2020) NASCUS has posted a new summary of a proposal by federal financial institution regulators – including NCUA and CFPB – aimed at clarifying and codifying the role of supervisory guidance. The summary is available to members only.
Voting unanimously at a rare second monthly board meeting Oct. 28, the NCUA Board agreed to join the interagency proposal on the role of supervisory guidance issued by the agencies. Under the proposal, the meaning of “supervisory guidance” would be clarified as meaning, essentially, it doesn’t have the force of law.
If finalized, the proposal 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 is not the same as statute or regulation. “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.
But some in the financial services industry (most vocally, banks) wanted more than a statement. They developed a petition to the federal banking agencies and CFPB requesting that the statement be adopted by the agencies in the form of the rule. NCUA was not an initial target of the petition but, since the credit union regulator signed on to the original statement, it was obligated to consider signing on to the proposed rule.
When the board considered the proposal two weeks ago, staff asserted that it would not impose a burden on credit unions. That’s at least partially because, they said, the agency has followed the intent of the proposal for at least the last seven years. Staff pointed out that NCUA has, at least since 2013, tied all “documents of resolution” for credit unions to specific statutory and regulatory citations – a practice, the agency staff (and board members) vowed would not change under the proposed rule.
Comments on the proposal are due Jan. 4, following a 60-day comment period.
LINK:
Summary — Interagency Proposed Rule re: Role of Supervisory Guidance
(Nov. 6, 2020) The CFPB’s Credit Union Advisory Council (CUAC), along with the Consumer Advisory Board (CAB) and the Community Bank Advisory Council (CBAC), are scheduled to meet in a combined, public virtual session from 1 to 5:30 p.m. ET Nov. 18, according to bureau notices issued this week. The agenda, detailed on the agency’s website, includes discussion of:
- section 1071 of the Dodd-Frank Act, which revised the Equal Credit Opportunity Act (ECOA) to call for financial institutions’ collection and reporting of data regarding applications for credit for women-owned, minority-owned, and small businesses (the bureau began inviting public feedback on an outline of proposals in September);
- consumer access to financial records under section 1033 of Dodd-Frank (currently addressed in an advance notice of proposed rulemaking); and
- mortgage trends and themes specifically related to the impacts of the COVID-19 pandemic.
The meeting will be held virtually via the Internet, and is open to the public. Advance registration is required.
LINK:
Bureau advisory groups to meet Nov. 18
(Nov. 6, 2020) Two webinars – one on fair lending and consumer compliance and another on financial literacy and consumer financial protection for servicemembers – are on the horizon for NCUA (in partnership, for the latter, with CFPB).
On Nov. 17, the credit union agency hosts a “Fair Lending and Consumer Compliance Regulatory Update” at 3 p.m. ET, to run about one hour. According to the agency, the webinar will feature staff from the NCUA’s Office of Consumer Financial Protection discussing focus areas for consumer compliance exams in 2021, including a review of COVID-19-related loan modifications and credit reporting; fair lending policies and procedures; and findings from the 2020 consumer compliance exam reviews.
The following day (Nov. 18), NCUA and CFPB partner on a session covering servicemember financial literacy and consumer protection, which starts at 2 p.m. ET and runs for about 45 minutes, according to both agencies. The “Financial Readiness Resources and Information for Servicemembers, Veterans, and their Families” webinar, featuring NCUA’s Office of Consumer Financial Protection, is scheduled to highlight financial literacy resources for servicemembers and their families (on NCUA’s consumer-facing website, MyCreditUnion.gov), and provide a brief overview of servicemember consumer financial protection laws and regulations.
CFPB’s Office of Servicemember Affairs will highlight its own interactive learning tools and resources for servicemembers and their families, according to the agencies.
Advance registration is required for both; see the links below.
LINKS:
NCUA Hosting Webinar on Fair Lending and Consumer Compliance Updates
Registration Now Open for Webinar on Consumer Financial Protection for Servicemembers
(Nov. 6, 2020) A final rule focusing on communications between consumers and debt collectors under the Fair Debt Collection Practices Act (FDCPA) was released late last week by the CFPB, with that final rule scheduled to take effect one year following its publication in the Federal Register. (As of Thursday, the final rule had not yet been published.)
The bureau said the rule is intended to “restate and clarify” prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt.
Issued in May 2019 (and followed by a supplemental proposal this February), the proposal revised the bureau’s Regulation F, focusing on the timing and means of communications between consumers and debt collectors and clarifying how the protections of the FDCPA, enacted in 1977, apply to newer communication technologies, such as email and text messages.
Not included in the final rule is a safe harbor for debt collectors against claims that an attorney falsely represented the attorney’s involvement in the preparation of a litigation submission, the bureau said. “That provision was proposed to bring greater clarity to this issue but, after receiving questions and comments from many stakeholders concerning the proposal, the Bureau has decided not to finalize that provision,” the bureau said.
However, the final rule summary does note inclusion of a safe harbor for debt collectors from civil liability “for an unintentional third-party disclosure if the debt collector follows the procedures identified in the rule when communicating with a consumer by email or text message.”
Meanwhile, the bureau said it plans to issue a consumer disclosure-focused final rule in December to clarify the information that a debt collector must provide to a consumer at the outset of debt collection and to provide a model notice containing the information required by FDCPA section 809(a). It will also, the bureau said, address consumer protection concerns related to requirements prior to furnishing consumer reporting information and the collection of debt that is beyond the statute of limitations (i.e., time-barred debt, addressed in the above-noted supplemental proposal).
The final rule also contains provisions on disputes, and record retention, among other topics.