WASHINGTON—NAFCU has told the CFPB it does not support proposed amendments relating to Small Creditors and Rural or Underserved Areas under the Truth in Lending Act (Regulation Z).
While both CUNA and NAFCU have indicated support for “appropriately defining” a small creditor, NAFCU said it cannot support aspects of the amendments as proposed.
“We firmly believe that all credit unions are small by nature of their structure and organization as not-for-profit, member-owned institutions,” said NAFCU in its comment letter. “Accordingly, NAFCU urges the Bureau to exempt all credit unions as ‘small’ under the CFPB’s rulemakings.”
NAFCU said it believes the Bureau has failed to exercise its authority to provide meaningful exemptions for credit unions, and cited section 1022 of the Dodd-Frank Act, which grants the CFPB broad authority to provide exemptions for small institutions from various rulemakings.
“Given the unique member-owner nature of credit unions and the fact that credit unions did not participate in many of the questionable practices that led to the financial crisis and the creation of the CFPB, subjecting credit unions to rules aimed at large bad actors only hampers their ability to serve their members,” NAFCU said. “We strongly encourage the CFPB to fully utilize Section 1022 of the Dodd-Frank Act and exempt all credit unions from the Bureau’s mortgage rules designed to address the abuses in the lending marketing that led to the recent financial crisis.”
The CFPB’s current 2013 mortgage rules provide several exceptions and special provisions available only to small creditors, including loosened or alternative requirements to meet the definition of a qualified mortgage; an exemption for credit unions in rural and underserved areas from the requirement to establish escrow accounts for certain higher-priced mortgage loans; and an exemption from the prohibition on balloon-payment features for certain high-cost mortgages. As NAFCU noted, however, to qualify as a small creditor, the credit union must, among other things, have originated 500 or fewer covered transactions secured by a first lien mortgage in the proceeding calendar year and have had less than $2 billion in assets at the end of the preceding year.
“Since the introduction of the 2012 mortgage rules, NAFCU has consistently maintained that the current 500 origination threshold is disadvantageous to small creditors. The vast majority of credit unions of the $2 billion asset size, and even those significantly smaller, typically originate more than 500 mortgages a year,” the association said. “NAFCU’s research indicates that a large number of credit unions with less than $2 billion in assets that have small mortgage operations would not qualify for the exemption. Specifically, NAFCU’s review of credit unions’ call report data as of Dec. 31, 2014, indicates that there are 737 credit unions with an asset size of less than $2 billion that consummate at least 100 mortgages per year. Of these, 122 extended 500 or more mortgages per year. Of the 122, 85 exceeded the 500 threshold in the past seven years and their total origination increased by an aggregate 144%.”
NAFCU urged the CFPB to increase the origination threshold to 2,000 first mortgages per year. In addition, NAFCU welcomes the proposed inclusion of loans held in portfolio towards the origination threshold.
NAFCU further noted that in its current form the asset threshold for Regulation Z’s “small creditor” exemptions only considers the assets of the lender.
“The proposal, however, seeks to include affiliates’ assets in the threshold calculation. Accordingly, the proposed rule would require a credit union to include the assets of its affiliates that originate mortgage loans towards the $2 billion asset threshold,” NAFCU said. “NAFCU is deeply concerned about this aspect of the proposal because credit unions, unlike other lenders, can only utilize credit union service organizations as a subsidiary. CUSOs, are corporate entities owned by credit unions. Unlike other affiliate structures used by the traditional banking industry, CUSOs are limited in scope and purpose. In particular, credit unions may only invest or make a loan to CUSOs that primarily serve credit unions and credit union members. Also, CUSOs are the only subsidiaries that credit unions are allowed to have under the Federal Credit Union Act. NCUA further restricts federal credit unions’ aggregate investment in CUSOs to a maximum of 1% of their assets. For example, a $100-million credit union may only invest a total of $1 million in all the CUSOs that it utilizes.
“Given these statutory and regulatory restrictions, it would be difficult, if not impossible for a credit union to create a subsidiary relationship in order to restructure its portfolio for the purposes of staying under the ‘small creditor’ thresholds,” NAFCU continued. “Accordingly, NAFCU requests that the CFPB exclude CUSOs from the calculation of ‘small creditor’ asset threshold.”