Federal Update - July 2017

July is generally a very busy month for Congress as lawmakers work to make progress on legislation before they adjourn for the August recess or “district work period.” During this time, the Iowa Credit Union League (ICUL), in collaboration with our partners at the Credit Union National Association (CUNA), is engaging Congress to take action on several important pieces of legislation, including preservation of the credit union tax status and common sense regulatory reform. Below is an update on some of the top federal issues of interest to Iowa’s credit unions.

U.S. Treasury Releases Report on Financial Services

In June, the U.S. Treasury released an extensive report titled, “A Financial System That Creates Economic Opportunities: Banks and Credit Unions.” The report was issued in response to Executive Order 13772 which called for regulators to review the regulatory environment for financial institutions and make recommendations for potential changes. Though the report is still being reviewed by policymakers, many of the provisions in the report may lead to legislative action in Congress. Leading up to the report, CUNA staff met with Treasury officials to outline areas where regulatory burdens are harming the ability of credit unions to serve their members. Many of CUNA’s suggestions are reflected in the Treasury’s recommendations, including in the following areas:

National Credit Union Administration

• Recalibration of NCUA Regulations: NCUA regulations related to credit union capital and stress testing should be recalibrated.
• RBC: Revise Risk Based Capital to apply to $10 billion and over or eliminate requirements for those with 10 percent net worth.
• Stress Testing: Stress testing threshold raised from $10 billion to $50 billion.
• Supplemental Capital: Allow credit unions to rely on appropriately designed supplemental capital to meet a portion of their Risk Based Capital requirements.
• Call Reports: Recommends call reports be simplified and streamlined.
• Exam Thresholds: Thresholds for extended exam cycle (18-month) should be raised over the current $1 billion level or eliminated.
• Data Collection: Recommends better coordination and rationalization of examination and data collection procedures to promote accountability and clarity.
• Agricultural and Rural Credit Unions:  Regulators should tailor and give special consideration for agricultural and rural financial institutions.
• Board Duties: Recommends revisions for Boards of Directors to appropriately tailor duties recognizing the distinction between management and boards to restore the balance between regulators, Boards and management.

Consumer Financial Protection Bureau

Structural Reforms

• Make the CFPB Director removable “at-will” instead of “for cause”.
• CFPB funding through the appropriations process.

Increased Regulatory Certainty

• CFPB should issue rules or guidance subject to public notice and comment procedures before bringing enforcement actions in areas in which clear guidance is lacking or the CFPB’s position departs from the historical interpretation of the law.
• The CFPB should adopt regulations that more clearly delineate its interpretation of the UDAAP standard. The agency should seek monetary sanctions only in cases in which a regulated party had reasonable notice—by virtue of a CFPB regulation, judicial precedent or FTC precedent—that its conduct was unlawful. The CFPB could implement this reform administratively through issuance of a regulation limiting the application of monetary sanctions to cases that satisfy this notice standard.

Regulatory Review

• The CFPB should promulgate a regulation committing it to regularly reviewing all regulations that it administers to identify outdated or otherwise unnecessary regulatory requirements imposed on regulated entities.

Mortgage Issues

• Adjust and Clarify the ATR Rule and Eliminate the “QM Patch”: The CFPB should engage in a review of the ATR/QM rule and work to align QM requirements with GSE eligibility requirements, ultimately phasing out the QM Patch and subjecting all market participants to the same transparent set of requirements. These requirements should make ample accommodation for compensating factors that should allow a loan to be a QM loan even if one particular criterion is deemed to fall outside the bounds of the existing framework, such as when a borrower has a high DTI ratio with compensating factors.
• Modify Appendix Q of the ATR Rule: Appendix Q should be simplified and the CFPB should make much clearer, binding guidance for use and application. The CFPB should review Appendix Q standards for determining borrower debt and income levels to mitigate overly prescriptive and rigid requirements. Review of these requirements should be particularly sensitive to considerations for self-employed and non-traditional borrowers;.
• Revise the Points and Fees Cap for QM Loans: The CFPB should increase the $103,000 loan threshold for application of the 3 percent points and fees cap, which would encourage additional lending in the form of smaller balance loans. The CFPB should scale points and fees caps in both dollar and percentage terms for loans that fall below the adjusted loan amount threshold for application of the 3 percent points and fees cap.
• Increase the Threshold for Making Small Creditor QM Loans: Raising the total asset threshold for making Small Creditor QM loans from the current $2 billion to a higher asset threshold of between $5 and $10 billion is recommended to accommodate loans made and retained by small depository institutions. In order to maintain a level playing field across institution types, an alternative approach to this recommendation would be to undertake a rulemaking to amend the QM rule and related processes for all lenders regardless of type.
• Clarify and Modify TRID: The CFPB could resolve uncertainty regarding what constitutes a TRID violation through notice and comment rulemaking and/or through the publication of more robust and detailed FAQs in the Federal Register. The CFPB should allow a more streamlined waiver for the mandatory waiting periods, in consultation with all market participants, including both lenders and realtors. The CFPB should allow creditors to cure errors in a loan file within a reasonable period after closing;
• Improve Flexibility and Accountability of Loan Originator Compensation Rule: The CFPB should improve flexibility and accountability of the Loan Originator Compensation Rule, particularly in those instances where an error is discovered post-closing, in order to facilitate post-closing corrections of non-material errors. The CFPB should establish clear ex ante standards through notice and comment rulemaking, which will clarify its enforcement priorities with respect to the Loan Originator Compensation Rule.
• Delay Implementation of HMDA Reporting Requirements: The CFPB should delay the 2018 implementation of the new HMDA requirements until borrower privacy is adequately addressed and the industry is better positioned to implement the new requirements. The new requirements should be examined for utility and cost burden, particularly on smaller lending institutions. Consideration should be given to moving responsibility for HMDA back to bank regulators, discontinuing public use and revising regulatory applications.
• Place a Moratorium on Additional Mortgage Servicing Rules: The CFPB should place a moratorium on additional rulemaking in mortgage servicing while the industry updates its operations to comply with the existing regulations and transitions from HAMP to alternative loss mitigation options. In addition, the CFPB should work with prudential regulators and state regulators to improve alignment where possible in both regulation and examinations.

Small Business Lending

• Repeal the provisions of Section 1071 of the Dodd-Frank Act pertaining to small businesses to ensure that the intended benefits of Section 1071 do not inadvertently reduce the ability of small businesses to access credit at a reasonable cost.
• Simplify, adjust or change certain financial regulations for financial institutions serving small businesses.

The Financial CHOICE Act

In early June, the United States House of Representatives voted 233-186 to pass H.R. 10, the Financial CHOICE Act, which is a regulatory relief bill with several credit union-friendly provisions. The CHOICE Act was developed by House Financial Services Committee Chairman to be the replacement for Dodd-Frank. After the vote, CUNA President/CEO Jim Nussle thanked the House for their vote, and said CUNA will continue its engagement to get regulatory relief legislation across the finish line.

The CHOICE Act makes a number of CUNA-supported changes to the Consumer Financial Protection Bureau (CFPB), NCUA examination process and more.  Go here for a list of provisions in the bill that have been supported, opposed, or proposed for inclusion by CUNA.  The bill is now in the Senate, where it faces an uncertain future due to the partisan political nature of repealing Dodd-Frank. ICUL will continue to push Congress to pass the common sense regulatory reform provisions included in the CHOICE Act.

House Appropriations Financial Services Subcommittee Approves Budget Bill

Earlier this month, the House Appropriations Committee passed the Financial Services and General Government Fiscal Year Appropriations Act for Fiscal Year 2018.  The bill includes a number of provisions that were included in H.R. 10, the Financial CHOICE Act.  It includes significant regulatory relief and brings the CFPB under the appropriations process, reforms its UDAAP authority, and makes some of the other changes found in CHOICE that add more checks and balances to the CFPB rulemaking process.  Other relief provisions include the repeal of the CFPB Small Business Loan Data Collection program.  It also repeals the CFPB’s authority to write rules for arbitration. In addition, the draft provides for community financial institution mortgage relief as well as “safe harbor” for certain loans held on portfolio. The bill now heads to the full House of Representatives for further consideration.

Despite several positive components in the bill, it also includes several provisions of serious concern to credit unions.  First and foremost, it puts federal banking regulators, including the NCUA, under the appropriations process. CUNA opposes bringing the NCUA under the appropriations process for several reasons; 

• The money that funds the NCUA comes solely from credit unions and their members, not the taxpayers in general.
• Maintaining a separate, independent federal regulator and insurer is critically important to the credit union system, and the structural and mission-driven differences between credit unions and banks necessitate such a regulatory scheme.
• Subjecting NCUA to the appropriations process will adversely impact the independence of NCUA.  Also, credit unions and their members remain willing to pay for their own regulator provided there is sufficient transparency with respect to the agency’s budget and the overhead transfer rate.
• Finally, credit unions fear that in the future, credit union funds could be a piggy bank for the federal government’s general fund, resulting in more credit union dollars going to the government than they receive back in the form of examination and supervision services.

During the markup, Congressman Mark Amodei (R-NV) introduced an amendment that would strike this provision in the bill. He then withdrew his amendment after he announced that he and FSGG Chairman Tom Graves (R-GA), as well as House Financial Services Committee Chairman Jeb Hensarling (R-TX), had been in talks about how NCUA and the NCUSIF were different than banks and their Deposit Insurance Fund.  Further, he announced that he had the commitment of the two Chairmen to “work hard” with him in the coming weeks to craft a compromise that would give Congress more oversight over the NCUA, while at the same time allowing the agency and the insurance fund to maintain its independence. 

ICUL was in contact with the lone Iowan on the House Appropriations Committee, Congressman David Young (R – Van Meter), and urged him to support the Amodei amendment.

Community Development Financial Institutions Fund

The House bill, as currently drafted, includes a $58 million cut to the Community Development Financial Institutions Fund.  The CDFI Fund makes capital grants, equity investments and awards for technical assistance to community development financial institutions (CDFIs). CDFIs are required to provide a 1:1 match for most of the awarded funds, which are offered on a competitive basis. CDFIs finance community development initiatives such as small businesses, community facilities and low-income housing. CDFIs such as Community Development Credit Unions (CDCUs) are charged with supplying low-income, distressed communities with traditional banking services such as savings accounts and personal loans, and offering individuals the tools needed to become self-sufficient stakeholders in their own future. The CDFI Fund uses small amounts of federal dollars to leverage significant amounts of private and non-federal dollars, and has added a tremendous boost to the CDFI industry (which relies heavily upon private sector funds from corporations, individuals, religious institutions, and private foundations). As the bill moves forward CUNA and ICUL will work with Senate appropriators to address the cut in their version of the bill.

Shortened August Recess?

Traditionally, August is a recess month for Congress where federal policymakers can spend the month in their home district or state, meeting with and listening to their constituents. This year, however, may be different. Senate Majority Leader Mitch McConnell has indicated that he will push back the start of the recess by at least two weeks if the Senate is not able to pass a health care reform to replace the Affordable Care Act (ACA). The House, which passed the American Health Care Act (AHCA) several weeks ago, has not made similar plans.

Regardless of the length of the August recess, ICUL continues to work with our federal partners at CUNA to address priority concerns for Iowa’s credit unions.

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