Final RBC and HMDA Rules Unveiled
Written by Alicia Nealon, Director of Regulatory Affairs
While NAFCU has long championed coordination amongst the financial regulators, yesterday was not quite what we had in mind. (Note to self, drop footnote in future comment letters defining coordination to not include publishing 1300+ pages of regulations within 45 minutes of each other). Nevertheless, the CFPB and NCUA finalized two major rulemakings on Thursday- RBC and HMDA. To start your Friday morning off the regulatory way, NAFCU is going to give you a high-level summary of both (and a high five for when you make it through both sets of rules).
After much anticipation, the NCUA Board finalized its risk-based capital (RBC) rule yesterday. The rule amends the agency's current regulations regarding prompt corrective action (PCA), makes the following key changes to Part 702:
- Replaces the current risk-based net worth (RBNW) ratio with a new risk-based capital (RBC) ratio for federally insured natural person credit unions with over $100 million in assets;
- Changes the definition of complex credit union, for the purposes of capital requirements, to include credit unions greater than $100 million in assets;
- Establishes a risk-based capital ratio of 10 percent for well-capitalized credit unions;
- Establishes a risk-based capital ratio of 8 percent for adequately-capitalized credit unions;
- Revises existing risk weights to reflect recent changes made by other banking regulators under the Basel System;
- Requires higher minimum levels of capital for credit unions with concentrations of assets in real estate loans, commercial loans or non-current loans; and
- Sets forth how NCUA, through its supervisory authority, can address a credit union that does not hold capital that is commensurate with its risk.
These changes are effective on January 1, 2019.
Since the NCUA Board initially proposed RBC in January 2014, NAFCU and our member credit unions have continually advocated for significant changes. This final rule includes the following key changes:
- Removes Individual Minimum Capital Requirement;
- Removes interest rate risk (IRR) from consideration in the RBC calculation;
- Raises the threshold for determining complex credit union, for the purposes of capital requirements, from $50 million to $100 million in assets;
- Drops the 1.25 percent Allowance for Loan and Lease Losses (ALLL) cap from the risk-based capital ratio numerator;
- Revises a number of risk-weights, including those for Member Business Loans, CUSOs, corporate credit unions, real estate loans and investments; and
- Provides for an extended implementation period until January 1, 2019.
- Incorporates a Non-Significant Equity Exposure risk-weight of 100 percent for non-consolidated investments in CUSOs, perpetual paid in corporate capital, among other, when the total of equity exposures is less than 10 percent of the credit union's capital elements of the risk-based capital numerator;
- Adds a section for Charitable Donation Accounts, assigning it a risk weight of 100 percent;
- Clarifies that excluded goodwill and excluded other intangible assets applies to mergers or combinations completed on or before 60 days after publication of the final rule in the Federal Register, and extending the expiration of this definition to January 1, 2029.
NAFCU will be hosting a webcast on Monday October 26, 2015, with Larry Fazio, NCUA's Director of Examination and Insurance and architect of the final rule. This free webcast will provide a closer look at the final rule, and offer NCUA's outlook for implementing this rule through its examination and supervision process in 2019.
HMDA Final Rule
In other news, the Consumer Financial Protection Bureau (CFPB) released its final rule ushering in sweeping changes to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). Did you enjoy negotiating with your vendors during the TRID implementation? Good news, you get to do it again!
Although you can expect a more substantive blog post on the final rule in the near future, I wanted to highlight a few noteworthy changes to Regulation C:
- Transactional Coverage Test
- The final rule requires credit unions to report HMDA data on all covered loans. A covered loan is defined as any closed-end mortgage loan or open-end line of credit, unless the transaction is specifically excluded under 003.3. As a result, reporting HELOC data is now mandatory.
- Institutional Coverage Test
- The final rule maintains the current exclusions while adding a prong to the institutional coverage test. Assuming the institution does not fall into one of the current exclusions; the final rule adds a minimum loan volume threshold that requires lenders that originated 25 closed-end mortgage loans or at least 100 open-end lines of credit in each of the two preceding calendar years to report. Credit unions falling under these thresholds are exempt from reporting.
- Data Points
- While the final rule adopts the majority of the proposed data points, four of the proposed data points were dropped. The eliminated data points include the QM flag, the initial draw on line of credit, the requirement to report the relevant MSA, and the risk adjusted pre-discounted interest rate.
- Quarterly Reporting
- The final rule also adopted a quarterly reporting requirement for institutions that report more than 60,000 covered loans in the previous calendar year. Institutions meeting these criteria will be required to submit their information in chunks over the course of the year, as opposed to an annual submission of all relevant data on a one-off basis.
The majority of the final rule goes into effect January 1, 2018, and credit unions will begin recording the new data points after that date so that they may be reported to the Bureau in 2019. However, there are two exceptions to this general effective date. The new institutional coverage test will become effective on January 1, 2017, and the quarterly reporting requirement for large-volume filers will become effective on January 1, 2020.