Washington Bankers Association S.2155: Regulatory Reform 2018 Leah M. Hamilton, JD 2- What You Will Learn Summary of key impacts of S.2155 Title I Improving Consumer Access to Mortgage Credit Title II Regulatory Relief and Protecting Consumer Access to Credit Title III Protections for Veterancs, Consumers and Homeowners Title VI Protections for Student Borrowers -1- -2-
3- S.2155: Regulatory Reform and Relief (S.2155; Pub.L. 115-174) On May 24, 2018, Economic Growth, Regulatory Relief, and Consumer Protection Act Amends and eliminates certain requirements on community and regional financial institutions Not a complete reversal of Dodd-Frank Does have significant impacts to consumer mortgages, credit reporting, and protections for our servicemembers, students, and institutional staff to name but a few Title I Improving Consumer Access to Mortgage Credit -3- -4-
5- Sec. 101. Minimum standards for residential mortgage loans A new qualified mortgage (QM) category created for insured depository institutions and insured credit unions that, together with their affiliates, have less than $10 billion in total consolidated assets Subject to limited exceptions, new QM category Prohibits interest-only and negative amortization features; Is subject to ability-to-repay (ATR) prepayment penalty requirements; and Must be maintained in portfolio (or transferred to another qualifying institution) Institution will not be required to follow Regulation Z s Appendix Q Standards for Determining Monthly Debt and Income, but will be required to consider and document consumer s debt, income and financial resources 6- Sec. 102. Safeguarding access to habitat for humanity homes Truth-in-Lending Act (TILA) amended Provides for an appraiser who voluntarily donates appraisal services to an organization (e.g., Habitat for Humanity) that is eligible to receive tax-deductible charitable contributions The voluntary donation is considered to be customary and reasonable -5- -6-
7- Sec. 103. Exemption from appraisals of real property located in rural areas Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) amended Excludes a loan made by a bank or credit union from the FIRREA requirement to obtain an appraisal provided that certain conditions are met: Property must be located in a rural area; Transaction value must be less than $400,000; Institution retains the loan in portfolio (subject to certain exceptions); and Not later than three days after the Closing Disclosure is given to the consumer, mortgage originator or its agent has: Contacted not fewer than three state-licensed or state-certified appraisers, as applicable, and Documented that no such appraiser, as applicable, was available within five business days beyond customary and reasonable timeliness and fees for such services timeliness and fee standards for comparable appraisal assignments, as documented by the mortgage originator or its agent 8- Sec. 104. Home Mortgage Disclosure Act adjustment and study Home Mortgage Disclosure Act (HMDA) amended Exempt institutions from the new reporting categories added by Dodd-Frank and the 2018 HMDA requirements if institution or credit union originated: Fewer than 500 closed-end mortgage loans in each of the preceding two calendar years Fewer than 500 home equity lines of credit (HELOCs) in each of the preceding two calendar years HELOC threshold adjustment makes the BCFP s temporary rule permanent But Neither exemption will apply if insured depository institution (not an insured credit union) received a rating of: "needs to improve record of meeting community credit needs" during each of its two most recent Community Reinvestment Act (CRA) examinations, or "substantial noncompliance in meeting community credit needs" on its most recent CRA examination -7- -8-
9- HMDA Guidance CFPB issued guidance Effective September 7, 2018 Institution challenges Collect or not to collect If you collect one data point, you collect all Applications Systems Re-training Updating policy, procedures Significant carve-outs include: HMDA Section 304(b)(5) and (6) To qualify for the exemption Must be an insured Insured depository institutions and insured credit unions Loans counted toward partial exemptions' thresholds closed-end loan and open-end line of credit Best interpreted to include only those closed-end mortgage loans and open-end lines of credit that would otherwise be reportable under HMDA -9- -10-
What is exempted (if qualify for partial exemption) Universal Loan Identifier (ULI) (1003.4(a)(1)(i)) 46 Property Address (1003.4(a)(9)(i)) Interest Rate (1003.4(a)(21)) Prepayment Penalty Term (1003.4(a)(22)) Manufactured Home Land Property Interest (1003.4(a)(30)) Multifamily Affordable Units (1003.4(a)(32)) Rate Spread (1003.4(a)(12)) Debt-to-Income Ratio (1003.4(a)(23)) Application Channel (1003.4(a)(33)) Credit Score (1003.4(a)(15)) Reasons for Denial (1003.4(a)(16)) Total Loan Costs or Total Points and Fees (1003.4(a)(17)) Origination Charges (1003.4(a)(18)) Discount Points (1003.4(a)(19)) Lender Credits (1003.4(a)(20)) Combined Loan-to-Value Ratio (1003.4(a)(24)) Loan Term (1003.4(a)(25)) Mortgage Loan Originator Identifier (1003.4(a)(34)) Automated Underwriting System (1003.4(a)(35)) Introductory Rate Period (1003.4(a)(26)) Reverse Mortgage Flag (1003.4(a)(36)) Open-End Line of Credit Flag Non-Amortizing Features (1003.4(a)(27)) (1003.4(a)(37)) Business or Commercial Purpose Flag Property Value (1003.4(a)(28)) (1003.4(a)(38)) Manufactured Home Secured Property Type (1003.4(a)(29)) What is not exempt Must continue to report these 22 data points in the manner currently specified in Regulation C Application Date (1003.4(a)(1)(ii)) Census Tract (1003.4(a)(9)(ii)(C)) Loan Type (1003.4(a)(2)) Loan Purpose (1003.4(a)(3)) Preapproval (1003.4(a)(4)) Construction Method (1003.4(a)(5)) Occupancy Type (1003.4(a)(6)) Loan Amount (1003.4(a)(7)) Action Taken (1003.4(a)(8)(i)) Action Taken Date (1003.4(a)(8)(ii)) State (1003.4(a)(9)(ii)(A)) County (1003.4(a)(9)(ii)(B)) Ethnicity (1003.4(a)(10)(i)) Race (1003.4(a)(10)(i)) Sex (1003.4(a)(10)(i)) Age (1003.4(a)(10)(ii)) Income (1003.4(a)(10)(iii)) Type of Purchaser (1003.4(a)(11)) HOEPA Status (1003.4(a)(13)) Lien Status (1003.4(a)(14)) Number of Units (1003.4(a)(31)) Legal Entity Identifier (1003.5(a)(3)) -11- -12-
3- Sec. 105. Credit union residential loans Federal Credit Union Act (FCUA) amended Provides that a 1-to-4 family dwelling that is not the primary residence of a member of a credit union will not be considered a member business loan under the FCUA 4- Sec. 106. Eliminating barriers to jobs for loan originators Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) amended Provides a 120-day transitional license to a mortgage loan originator (MLO) Moving from a depository institution to a non-depository institution, or A state-licensed lender in one state to the same or another state-licensed lender in another state MLO must meet certain conditions to obtain a transitional license, including that MLO: Has not had an application for a loan originator license denied; Has not had a loan originator license revoked or suspended; Has not been subject to, or served with, a cease-and-desist order in any governmental jurisdiction or under the SAFE Act; Has not been convicted of a misdemeanor or felony that would preclude licensure under the law of the applicable state; and Has submitted a license application in the applicable state -13- -14-
Sec. 108. Escrow requirements relating to certain consumer credit transactions Truth-in-Lending Act (TILA) amended Excludes a consumer mortgage loan from its mandatory escrow account requirements (subject to certain exceptions) if Loan is made by an insured depository institution or insured credit union with assets of $10 billion or less; During the preceding calendar year, institution or credit union and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling; Institution made a loan in a rural or underserved area within a specified timeframe; and Institution does not otherwise maintain mortgage loan escrow accounts Sec. 109. No wait for lower mortgage rates Truth-in-Lending Act (TILA) amended Amended to remove a new three business day waiting period if Creditor extends to consumer a second offer of credit with a lower annual percentage rate (APR) Amendment was made to high-cost mortgages May have been inadvertent to only apply this exception to high-cost mortgages rather than all applicable consumer mortgages -15- -16-
Sense of Congress Act provides that BCFP should endeavor to Provide clearer, authoritative guidance on: Applicability of TRID rule to mortgage assumption transactions and construction-to-permanent loans, including the conditions under which those loans can be properly originated Extent to which lenders can rely on model disclosures without liability if recent changes to regulations are not reflected in sample TRID Rule forms Note this section is not a mandatory requirement Even when a sense of provision is included as an amendment to a bill that becomes law, they have no formal effect on public policy and are not considered a binding or enforceable part of the parent law Title II Regulatory Relief and Protecting Consumer Access to Credit -17- -18-
9- Sec. 208. Application of the Expedited Funds Availability Act Expedited Funds Availability Act (EFTA) (Regulation CC) amended Modifies definition of state to include American Samoa, the Commonwealth of the Northern Mariana Islands, and Guam Previously defined to include any U.S. state, the District of Columbia, Puerto Rico, and the Virgin Islands 0- Sec. 210. Examination cycle Federal Deposit Insurance Act (FDIA) amended Section 10(d)(4)(A) threshold amended from $1 billion to $3 billion of total consolidated assets More small institutions eligible for 18-month examinations -19- -20-
1- Sec. 212. Budget transparency for the NCUA Federal Credit Union Act (FCUA) amended Requires NCUA to make publicly available and publish in Federal Register A draft of its detailed budget Hold a public hearing (with prior public notice of such) Accept public comment on its budget Address such comments 2- Sec. 213. Making online banking initiation legal and easy Under the Act, a financial institution may record personal information from a scan of the driver s license or personal identification card of an individual that initiates a request through online services to open a financial product or service account Any copies made to use during the verification of authenticity of the identification document and/or identity of the individual process, or to comply with legal requirements to record, retain or transmit such personal information related to opening such an account, must be later permanently deleted -21- -22-
3- Sec. 215. Reducing identity fraud Commissioner of the Social Security Administration (SSA) must take steps to reduce prevalence of synthetic identity fraud Disproportionately affects vulnerable populations, such as minors and recent immigrants Must develop and maintain a database that permitted financial institutions, service providers, subsidiaries, affiliates, agents, subcontractors or assignees of a financial institution may use for validation Requests from individuals for use of such data will be subject to the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) 4- Sec. 216. Treasury report on risks of cyber threats Secretary of the Treasury Must submit to the Committee on Banking, Housing and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on risks of cyber threats to financial institutions and capital markets within the US Within one year (on or before May 24, 2019) Note: States are already taking on cyber laws New York California Regulatory agencies Safety and soundness Current federal laws on privacy -23- -24-
Title III Protections for Veterans, Consumers, and Homeowners 6- Sec. 301. Protecting consumers credit Fair Credit Reporting Act (FCRA) amended Permits a consumer to place or remove a security freeze on his/her consumer credit report at no cost Limited exceptions for which freeze will not apply e.g., child support agency, law enforcement, employment background checks Takes effect 120 days from the enactment date Consumer reporting agencies (CRAs) already promoting new systems/practices coming in September 2018-25- -26-
7- Sec. 302. Protecting veterans credit FCRA amended To rectify problematic reporting of medical debt included in a veteran s consumer report due to inappropriate or delayed payment for medical care services provided outside of Department of Veterans Affairs (DVA) facilities and such payments have been submitted to the VA for payment Amended to include a new process by which a veteran can dispute negative credit report information by submitting notice along with proof of the DVA's liability for payment of the debt or documentation that the DVA is in the process of making payment for authorized medical services Additional amendments to include members of National Guard in definition of active duty military consumer with respect to credit monitoring 8- Sec. 303. Immunity from suit for disclosure of financial exploitation of senior citizens Act provides protections for financial institutions and their employees, including Bank Secrecy Officers and Compliance Officers Must receive prescribed training instruct any individual attending the training on how to identify and report the suspected exploitation of a senior citizen internally and, as appropriate, to government officials or law enforcement authorities, including common signs that indicate the financial exploitation of a senior citizen; discuss the need to protect the privacy and respect the integrity of each individual customer of the covered financial institution; and be appropriate to the job responsibilities of the individual attending the training Shielded from any civil or administrative proceeding for disclosing the suspected exploitation of a senior citizen who is not younger than 65 years of age provided that such disclosure is made in good faith and with reasonable care -27- -28-
9- Sec. 304. Restoration of the Protecting Tenants at Foreclosure Act of 2009 Protecting Tenants at Foreclosure Act of 2009 Section 704 amended Repealed the sunset provision Reinstates federal requirement allowing renters to stay in a foreclosed property for at least 90 days or until their lease expires (under certain conditions) Restored and revived effective 30 days from the enactment date 0- Sec. 307. Property Assessed Clean Energy financing Truth-in-Lending Act (TILA) amended Consideration of underwriting requirements for Property Assessed Clean Energy (PACE) financing PACE financing is financing to cover the costs of home improvements that result in a tax assessment on the consumer's real property BCFP must write implementing regulations -29- -30-
1- Sec. 309. Protecting veterans from predatory lending 38 USC 37 amended Requires lender refinancing a mortgage loan to a veteran to provide veteran with a net tangible benefit test and satisfies certain other conditions, the loan is not eligible for a VA guaranty or insurance Requirements do not apply to cash-out refinancings NOTE: There are HUD requirements for net tangible benefits for refi s, including IRRRL and Streamlines 2- Sec. 310. Credit score competition Federal National Mortgage Association Charter Act amended Establishes a validation and approval process for use of credit scoring models by Fannie Mae and Freddie Mac -31- -32-
3- Sec. 313. Foreclosure relief and extension for servicemembers Honoring America s Veterans and Caring for Camp Lejeune Families Act of 2012 amended In turn, amends Servicemembers Civil Relief Act (SCRA) Repeals sunset dates for period of time extended to servicemembers for protections related to mortgages, mortgage foreclosure and eviction Leaves the within one year for the stay of proceedings and foreclosure relief Title VI Protections for Student Borrowers -33- -34-
5- Sec. 601. Protections in the event of death or bankruptcy Truth-in-Lending Act (TILA) amended Prohibits a creditor from declaring default on or accelerating a private student loan solely based on the death or bankruptcy of a cosigner, and Requires a holder of a private student loan to release a cosigner within a reasonable timeframe when notified of student obligor's death Applies to private student loan agreements entered into on or after 180 days after the enactment date 6- Sec. 602. Rehabilitation of private education loans Fair Credit Reporting Act (FCRA) amended Allows a consumer a one-time request per loan Financial institution to remove from a consumer report a default that has been reported on a private student loan if financial institution offered a loan-rehabilitation program that includes a requirement for the consumer to make consecutive on-time monthly payments in a number that demonstrates, in the financial institution's assessment, a renewed ability and willingness to repay the loan, and the borrower satisfied the program requirements A financial institution supervised by a federal banking agency must seek written approval of the rehabilitation program terms and conditions from its supervisory agency Agency must respond within 120 days -35- -36-
7- Sec. 603. Best practices for higher education financial literacy Financial Literacy and Education Improvement Act amended Part of Fair and Accurate Credit Transactions Act of 2003 (FACTA) Requires Federal Education and Literacy Commission to establish best practices for institutions of higher education to Teach financial literacy skills and Provide useful and necessary information to assist students when making financial decisions related to student borrowing Best practices shall include methods to ensure each student Has a clear sense of his/her total borrowing and repayment options; Frequency and timing of such education; how to target different student populations and ways to clearly communicate the importance of graduating on a student s ability to repay such student loans Questions -37- -38-