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May 25, 2018

Trump enacts reg relief bill with White House signing

President Donald Trump on Thursday signed into law legislation that gives credit unions more business lending flexibility, and subjects the annual NCUA budget to public comment and review. The bill (S.2155), passed by the Senate in March, was approved by the House this week on a vote of 258-159.

In a statement following the bill signing, the White House said the legislation provides “commonsense regulatory relief for community banks, mid-sized banks, regional banks, and credit unions” that will “better tailor regulations to the risks posed by these institutions improving the safety and soundness of the regulatory system.” The statement added that the legislation “removes certain regulations that impede the ability of these institutions to serve the financial needs of consumers.”

For credit unions, S.2155 (the “Economic Growth, Regulatory Relief, and Consumer Protection Act”) includes provisions that:

  • Reclassify one-to-four unit, non-owner occupied residential loans as real estate loans, so the loan would not count against the member business lending cap.
  • Require NCUA to make public a draft of its proposed budget, hold a hearing with public notice at which the draft would be discussed; and solicit and consider public comment about the draft budget.
  • Rescind additional data points required under the Home Mortgage Disclosure Act (HMDA) for insured credit unions that originate fewer than 500 closed-end and/or 500 open-end lines of credit.
  • Remove a three-day wait period required for the combined TILA-RESPA Integrated Disclosure (TRID) mortgage disclosure if a creditor extends to a consumer a second offer of credit with a lower annual percentage rate.
  • Establish a safe harbor from certain requirements for a loan to be considered a Qualified Mortgage.
  • Provide a safe harbor for properly trained financial employees who report alleged elder financial abuse.

The bill also:

  • Eases compliance for community banks with less than $10 billion in assets under the “Volcker rule,” which bars financial institutions from making certain kinds of speculative investments for their own account and which do not benefit their customers.
  • Allows small banks to file shorter financial reports with regulators, with some to be examined less often and be released from some capital rules as long as they maintain a relatively high ratio of equity to assets.
  • Requires credit reporting agencies Equifax, Experian and TransUnion to freeze and unfreeze Americans’ credit reports for free.
  • Bars student lenders from declaring that a student loan is in default when a co-signer dies or declares bankruptcy.

The legislation also clarifies that the consumer protections in place with respect to mortgage lending are nonexistent for “Property Assessed Clean Energy” loans, and requires the Treasury Department to study the risks cyber threats pose to financial institutions.

The bill was lauded by industry trade groups as “historic” and “monumental.” However, the groups called for more regulatory relief from Congress, including remaking the structure of the BCFP (from oversight by a single director to a bipartisan commission).

LINKS:
White House statement: President Donald J. Trump Supports Regulatory Reforms For Community Banks, Credit Unions, and Consumers

S. 2155 summary and bill text


HOUSE PANEL OKS PROVISION TO DELAY RBC RULE BY TWO YEARS

Credit unions would receive an additional two-year reprieve from NCUA’s risk-based capital rules under legislation marked up and reported out by the House Financial Services Committee this week. H.R. 5841, the Foreign Investment Risk Review Modernization Act of 2018 (approved unanimously by the committee) focuses on reforming the Committee on Foreign Investment of the United States (CFIUS), a federal government committee that reviews national security implications of foreign investments in U.S. companies or operations.

The two-year delay contained in the bill for the RBC rule (approved in 2015) delays implementation from Jan. 1 of next year to 2021. The rule revises the agency’s “prompt corrective action” rules, replacing the current risk-based net worth requirement with a new risk-based capital ratio for federally insured, natural person credit unions. (A similar provision is also contained in an appropriations bill considered in subcommittee this week; see below.)

NCUA, in issuing the final rule in 2015, said the RBC requirement is more consistent with the agency’s risk-based capital measure for corporate credit unions and more comparable to regulatory risk-based capital measures used by FDIC, the Federal Reserve System and the OCC. The original effective date was intended to coincide with a full phase-in of FDIC risk-based capital measures in 2019.

H.R. 5841 was introduced May 16 and referred to five House committees: Foreign Affairs, Financial Services, Energy and Commerce, Intelligence (Permanent Select), and Oversight and Government Reform.

H.R. 5841, the Foreign Investment Risk Review Modernization Act


INSURANCE FUND DISTRIBUTION COULD COME AS EARLY AS JULY

Federally insured credit unions will receive a $735.7 million “distribution” as early as July, the NCUA Board was told Thursday, the result of a distribution from the federal insurance fund following the closure of the fund (and merger with the insurance fund) that dealt with trouble corporate credit unions.

In a report to the NCUA Board at its regular monthly meeting, staff told the board the agency remains on track to the pay the dividend in the early part of the third quarter (that is, after June 30), which was declared by the agency board in February. The distribution will be paid to those credit unions insured by the National Credit Union Share Insurance Fund (NCUSIF) for the year ending Dec. 31, 2017. The payment will leave the NCUSIF at an equity ratio of 1.39%, which is the fund’s normal operating level (NOL), set by the board last fall.

The dividend became possible after the board’s decision last October to close the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) and merge its remaining assets into the NCUSIF. As part of that decision, board agreed to distribute any funds left over in the insurance fund above the 1.39% NOL to credit unions.

At Thursday’s meeting, in response to NCUA Board Chairman J. Mark McWatters about the timing of the dividend distribution, staff also noted that it is now testing the processes and systems changes to make the dividend payment, with a goal of “zero defects” in the dividend payment.


ALTERNATIVE PAYDAY LOANS PROPOSED; ‘SAFE HARBOR’ SOUGHT

Also at Thursday’s meeting: the board proposed for federal credit unions a second payday loan option – and perhaps even a third -- that will lead to, it hopes, a “safe harbor” from BCFP (formerly known as the CFPB) from its rules on the loan products. The payday loan products (which are typically defined as a small dollar, short-term loan products) would be distinct, the agency said, from an existing product now allowed under agency rules. The notice was issued with a 60-day comment period.

“This product would have features to help federal credit unions meet specific needs of certain payday loan borrowers that are not met by the current program and provide those borrowers with a safer, less expensive alternative to traditional payday loans,” the agency said in a release.

Called “PALsII,” (for “Payday Alternative Loans II”), the agency said it would include features of its current payday loan rules (PALs), but with four changes:

  • Sets the maximum loan amount at $2,000 and eliminates the minimum loan amount.
  • Sets the maximum term of the loan at 12 months.
  • Does not require a minimum length of credit union membership.
  • Does not include a time restriction on the number of loans a federal credit union may make to the borrower in a six-month period, provided the borrower has only one outstanding loan at a time.

In issuing the notice, the board members said they were also seeking comment on a possible third loan option; they asked for opinions on interest rates, maximum loan amounts, terms and application fees.

The board members noted the complicated nature of the proposals – and particularly that any payday loan product it issues must be compliant with rules established by the Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB). However, Chairman McWatters pointed out that a “safe harbor” will be needed for the new, proposed alternatives (if adopted) to reduce the level of compliance for credit unions. To obtain that safe harbor (“grandfathering” the new proposals within the CFPB rules), McWatters recommended that he and NCUA Board Member Rick Metsger jointly sign a letter to BCFP Acting Director Mick Mulvaney, urging him to grant the “safe harbor.”

LINK:
Notice of Proposed Rulemaking, Part 701, Payday Alternative Loans


JUNE 4 OPENS ‘STREAMLINED’ CDFI PROCESS

A “streamlined” application process opens June 4 for low-income federally insured credit unions considering becoming community development financial institutions (CDFIs); the period closes on June 22, NCUA said this week. In the “streamlined” application process, NCUA said, the agency performs an analysis of credit union loan origination data (submitted by the credit union) to determine likelihood for certification. If the results of the NCUA’s analysis suggest a credit union is a strong candidate for the streamlined process, the agency provides the credit union with the application materials. The credit union then completes and submits to the Community Development Financial Institutions Fund, which makes the final determination on the certification.

The agency said in a release that if credit unions do not meet specific eligibility criteria for the streamlined application process, they can still apply through CDFI using the standard form. “Credit unions that obtain CDFI certification can take advantage of training and competitive award programs provided by the CDFI Fund,” the agency said. “These resources enhance credit unions’ capacity to provide underserved communities with access to safe and affordable financial services.”

LINK:
NCUA’s CDFI Streamlined Application Period Opens June 4


OPINION LETTER SETS BOUNDARIES FOR USE OF WORD ‘BANK’

“Bank” as a verb to generally refer to provision of financial services is permissible for a credit union to use in its advertising, and federal law supersedes state statutes that would block the use of the word by the financial cooperatives, the federal credit union regulator has opined.

However, use of “bank” as a noun to refer to a credit union is not permissible in Wisconsin, the agency stated in a legal opinion letter, and which has been summarized by NASCUS.

In its May 11 opinion letter, the NCUA’s Office of General Council (OGC) stated that use of the word “bank” by a credit union as a verb – as well as “derivative terms” such as “banking,” “mobile banking,” or “online banking -- to generally refer to the provision of financial services is permitted under the Federal Credit Union (FCU) Act. “For example, under the FCU Act and the NCUA’s advertising rule, a federally insured credit union would be permitted to state ‘Members who bank with us receive free mobile banking services,’” the agency’s OGC said in its letter.

But that view does not extend to the use of the word “bank” as a description for a credit union, at least in Wisconsin, which is where the issue arose. “We do not believe, however, that either the FCU Act or the NCUA’s advertising rule would permit a federally insured credit union in Wisconsin to refer to itself as a ‘bank’ or a ‘banking organization,’” the agency’s legal office stated.

The letter is outlined in a NASCUS members-only summary.

LINK:
Opinion letter for WI outlines how term 'bank' may be used (members only)


AGENCY APPEALS COURT’S RULING ON FOM REGULATION

NCUA this week filed its appeal of a March 29 federal district court ruling vacating two provisions of the agency’s chartering and field-of-membership (FOM) rule for FCUs. The agency, in a notice last month, told the court it will not grant any new federal community charters under the vacated rule provisions while the order is in effect, and that it has instructed affected credit unions not to accept any new members who would only be eligible for membership under those provisions. However, the agency has said it will not require FCUs to de-list members who became members on or before April 4, 2018

LINK:
NCUA notice of appeal


WITH SIGNATURE, BCFP GUIDANCE ON INDIRECT LENDING DEFUNCT

Legislation removing 2013 guidance issued by the federal consumer financial protection agency – which was in December deemed a “rule” by the congressional Government Accountability Office (GAO)  – was signed into law Monday by President Trump.

The legislation, S.J. Res. 57, overturns 2013 guidance from the Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB) on indirect auto lenders’ compliance with federal fair lending requirements. The Congressional Review Act (CRA), which gives Congress power to overturn or eliminate regulations passed by federal agencies within a certain window (typically, within 60 legislative business days after the rule has taken effect), was the statutory vehicle used to overturn the rule.

The enactment of the resolution by presidential signature marks the first time Congress has successfully used to the CRA to block an agency action taken years ago and outside of the window provided by law.


ACTING DIRECTOR SIGNALS REVIEW FOR ECOA, OTHER ‘GUIDANCE’

Shortly after the president this week signed the resolution making the indirect auto lending guidance defunct, the BCFP announced an upcoming reexamination of Equal Credit Opportunity Act (ECOA) requirements and a look at what other “guidance” documents of the bureau merit congressional review.

“Given a recent Supreme Court decision distinguishing between anti-discrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor, and in light of the fact that the Bureau is required by statute to enforce federal consumer financial laws consistently, the Bureau will be reexamining the requirements of the ECOA,” the bureau said in a release.

The release additionally noted that the revocation of the indirect auto-lending guidance “also clarifies that a number of Bureau guidance documents may be considered rules for purposes of the CRA, and therefore the Bureau must submit them for review by Congress.” The release stated that the bureau “welcomes such review, and will confer with Congressional staff and federal agency partners to identify appropriate documents for submission.”

LINKS:
Statement by BCFP on Signing of S.J.Res. 57


APPROPRIATORS CONSIDER CHANGES FOR CONSUMER BUREAU

Several provisions for reforming the BCFP reflecting proposals made by the acting director of the agency, and delaying “risk-based capital” rules for credit unions, are included in a financial services appropriations bill marked up Thursday. The fiscal year 2019 financial services and general government appropriations bill includes at least three items to reform the consumer bureau: funding the agency through the appropriations process, establishing an independent inspector general for the agency and establishing a procedure for approving major rules issued by the agency (the proposal also includes a provision for congressional disapproval of non-major rules). It was marked up by the financial services and general government subcommittee.

The bill also includes its own provision to delay, by two years (to 2021), NCUA’s “risk-based capital” rule, now set to take effect in 2019.

LINK:
Appropriations Committee Releases Fiscal Year 2019 Financial Services Bill 


ON THE ROAD: Discussing cannabis in TX; talking issues in CA

NASCUS Executive Vice President and General Counsel Brian Knight told members of the CUNA CFO Council in Austin this week that federal classification of cannabis as a prohibited, “schedule 1” narcotic has created “an untenable uncertainty in the banking system,” especially since 30 states and the District of Columbia have legalized some form of cannabis, and 400 U.S. financial institutions provide accounts for marijuana-related businesses … NASCUS President and CEO Lucy Ito sat down with leadership (including CEO Rudy Pereira) of $2.5 billion Premier America CU in Chatsworth, CA, to discuss current issues.


BRIEFLY: New FDIC Chairman confirmed; have a terrific holiday!

The Senate Thursday confirmed Jelena McWilliams to be the new chairman of the FDIC Board, for a five year-term ending in 2023, on a vote of 69-24. She replaces holdover Chairman Martin Gruenberg, whose term ended in November; he continues to serve on the board as a member (until December) … Hard to believe that the Memorial Day holiday weekend is beginning – but it is, and here’s to a terrific holiday to all!

Information Contact:
Patrick Keefe, pkeefe@nascus.org