S. 2155 – Setting the Record Straight
Written by Brandy Bruyere, Vice President of Regulatory Compliance, NAFCU
With all the information circulating about recent regulatory relief from Congress, there has been some confusion on parts of S. 2155. Some news outlets have called this a "repeal" of Dodd-Frank, which is an overstatement. We have gotten many questions on the new law from credit unions, and we covered one in detail on Friday but there are a few areas that I wanted to clarify today.
HMDA – The Definition of "Financial Institution" is Unchanged
We have blogged before about the definition of "financial institution" under HMDA and NAFCU members can find a more detailed article here (although it predates an amendment that raised the threshold for open-end loans from 100 to 500). S. 2155 does not amend this definition. Rather, it adds a threshold for which financial institutions will be required to collect and report the data points that Dodd-Frank added to HMDA. In other words, if your credit union is a "financial institution" as defined by HMDA, some data collection and reporting is still required – specifically, the data that was required prior to January 1, 2018.
Why? S. 2155 amends 12 U.SC. 2803(i), which previously contained the asset threshold exemption. As amended, a credit union that is a financial institution but does not originate 500 closed-end mortgage loans or 500 open-end lines of credit would not need to follow "the requirements of paragraphs (5) and (6)" of 12 U.S.C. 2803(b). These requirements are the data points added to HMDA by Dodd-Frank, including: total points and fees paid; the APR/APOR rate spread; value of the real property; introductory rate information; negative amortization; a "unique identifier,"; credit score; and "such other information as the Bureau may require." In other words, a credit union that is a "financial institution" would still be subject to 12 U.S.C. 2803(b)(1) through (4) – which represent the data points that were required prior to January 1, 2018. NAFCU members can find a chart comparing "old" HMDA to "new" HMDA data points here.
Of note, S. 2155 requires the Comptroller General to conduct a study to evaluate the HMDA amendments and submit a report on the results to Congress.
MBL Relief – the Cap, Not Maturity Limits
Many credit unions have asked whether S. 2155 changes the maturity limit for certain loans. Section 105 of the bill removes certain loans from the statutory Member Business Loan (MBL) cap – loans that are fully secured by a lien on a 1 to 4 family dwelling that is not the primary residence of the member. SB 2155 does not raise the maturity limit for these loans which is generally 15 years under the Federal Credit Union Act. While some loans can have a 20 year or even up to 40 year maturity limit under section 701.21 of NCUA's regulations, at this time these exceptions have certain conditions, including the home being the "member-borrower's residence" for 20 year maturities and the "principal residence of the member-borrower" for up to 40 year maturities.
On Friday, NCUA approved a rule amending its commercial lending rule to reflect this, which will become effective once the rule publishes in the Federal Register.
QM – Portfolio Loans
Dodd-Frank added a requirement for credit unions to consider a borrower's ability to repay (ATR) for certain residential mortgage loans, while loans meeting specified conditions are "qualified mortgages" with a presumption of compliance with ATR requirements. Section 101 of S. 2155 adds another safe harbor category of QMs to the applicable section of the Truth in Lending Act. This additional QM applies to loans made by insured depository institutions with under $10 billion in assets when certain conditions are met. Specifically, the loan must:
- Be originated and retained in portfolio by the credit union;
- Comply with existing provisions in the ATR/QM rule relating to prepayment penalties;
- Meet the 3% points and fees limitation; and
- Not have negative amortization or interest-only features.
Additionally, the credit union will be required to consider and document "the debt, income, and financial resources" of the member.
S. 2155 goes on to clarify that this last requirement "shall not be construed" to require compliance with Appendix Q to Regulation Z, but rather "shall be construed to permit multiple methods of documentation." So stay tuned for possible regulatory clarification.
Servicemembers Civil Relief Act – Foreclosure Time Period
There is one sentence in section 313 of S. 2155 that impacts the SCRA:
This references the provision of the SCRA that provides protection to servicemembers from foreclosure for a year following active duty service. While the original SCRA provided for 9 months of protection, Congress had extended this to a year but with an expiration date that periodically was extended by law. Rather than continually reconsidering whether to extend this provision, section 313 deletes the expiration language.
Elder Abuse – Training Required
Section 303 of S. 2155 carves out immunity from a civil or administrative proceeding for individuals who disclose suspected exploitation of a senior citizen to certain entities if specific conditions are met, including receiving particular training. While section 303 does discuss content requirements for such training, this seems to be an area where regulatory guidance will be needed to provide a clearer pathway.
Implementation and Effective Dates
While NCUA was rather quick to finalize an amendment to the MBL rule, the agency was able to assert that this change did not require the notice and comment period typically required before rules can be finalized. Other changes from S. 2155 are not as clear and will need to be implemented by regulators. Also, some provisions have specific and varied effective dates – for example, amendments to the SAFE Act are effective 18 months after enactment.
Overall, the law provides regulatory relief that should help credit unions. However, NAFCU supports continued efforts to secure further regulatory relief for credit unions by continuing to work on our advocacy priorities.
Speaking of clarifying the record, NAFCU's Regulatory Compliance team received several questions in response to Wednesday's blog highlighting a Conflicting Management Positions table housed in NCUA's Examiner's Guide. Some of the prohibited combinations which the chart states are prohibited by law, regulation or bylaw have been difficult to track down in the text of the law and regulation. Others could seem prohibited in a technical sense by the bylaws, but are commonly collapsed together - like the CEO serving the functions of the Treasurer and reporting directly to the board, as one eagle eye reader pointed out. NAFCU has raised these questions to NCUA and will report back on what we hear.