As the Consumer Financial Protection Bureau wraps up implementing its voluminous mortgage rules in January, credit unions should not expect any respite from the compliance burden.
That was the message from Jon Bundy, compliance manager, lending products for CUNA Mutual Group, who led a Webinar on the lending compliance pipeline during the company's recent online Discovery conference detailing what credit unions should be preparing for in the coming year.
"Where is the action? The CFPB is the clear answer," he said. "Credit unions first need to understand the CFPB's philosophy, which is driven by consumer protection. When Elizabeth Warren started the bureau she said there would be a new sheriff in town."
Even if one consumer is being harmed, the CFPB is willing to step in and regulate, Bundy said, adding this mindset often leads to regulations that are "overly precise, and therefore overly complex" and have unintended consequences.
"Expect this to continue," he predicted.
CUs and banks recently received a bit of relief from the CFPB when it repealed a requirement for a physical placard displaying fees on ATMs. FIs still must have an on-screen disclosure prior to completion of transaction.
There is continuing activity from three agencies that do not work together often, Bundy noted, HUD, CFPB and the Justice Department. This "Fair Notice on Fair Lending" concerns the possibility of disparate impacts of lending rules on protected classes. Bundy cautioned CUs they are responsible for Fair Lending examinations, and referred them to a guide on
"Beware of being outside the normal range for pricing, denials and withdrawals," he advised.
Although indirect auto lending does not necessarily fall in the CFPB's scope, Bundy said it is looking at CUs and other lenders that work with auto dealers. The key issue is how does a dealer decide who gets marked-up interest rates in exchange for compensation from lender.
"Credit unions need to review their policies and procedures, and consider ending the practice of allowing dealers to determine mark-up," he advised.
One more Fair Lending impact may be on mortgage programs. When lenders are originating qualified mortgages, or are following the CFPB's ability-to-repay underwriting guidelines, Bundy said they need to take into account fair lending when developing new policies and not making exceptions only for certain types of borrowers.
Though there are six final mortgage rules from CFPB with a mandatory compliance date on or shortly after Jan. 10, 2014, Bundy warned CUs a new combined RESPA/TILA disclosure is coming this month, and it is not clear how much time lenders will be given before implementation will be required.
"It cuts four disclosures to two," he said. "There will be a lot of heavy lifting for credit unions, as well as loan origination systems, so lobbyists have asked CFPB for at least one year. My hope is maybe 18 months or even two years, but we will have to wait and see."
The CFPB is looking to regulate electronic money transfers of more than $15 from the U.S. to a recipient in a foreign country. Bundy said new disclosures will be required for CUs that handle 101+ remittances in a 12-month period. Therefore, management will have to decide if the CU wants to be a remittance transfer provider, if it is important to the membership. Compliance date is Oct. 28, 2013.
"Know Before You Owe" is the CFPB's push to require disclosures. Bundy expects this program to apply to credit cards, student loans and mortgages. The philosophy is creditors have to take responsibility before borrowers take out a loan.
The CFPB is finalizing revisions to Regulation CC, the Expedited Funds Availability Act's implementing regulation, to accommodate an all-electronic interbank check collection and return process by the end of 2013.
"Reg CC will affect deposits," Bundy assessed. "The CFPB is working in conjunction with the Federal Reserve Board. Credit unions will need to recognize how long they hold funds electronically may have to change when final rule is released."
The CFPB also is moving into payday lending and payday alternative loans. Bundy told CUs if they are getting into these programs, they will need to "tread lightly and make sure you are dotting your Is and crossing your Ts."
Prepaid cards have become a popular alternative to deposit accounts. Bundy said the CFPB will be looking at this area in the next year.
Overdraft protection also has caught the eye of the CFPB, which has commissioned a study. It is not expected to prevent overdraft, Bundy said, but rather is concerned with the way opt-in programs vary so much between FIs.
"You can bet some sort of regulatory process will come out of this," he predicted, adding monthly checking account statements are expected to include a fee disclosure telling consumers how much they are spending on overdraft.
The Servicemembers Civil Relief Act has seen limited oversight so far, and as a result servicemembers have not been protected from predators, leading Bundy to state, "You can be sure Congress will put pressure on the CFPB, NCUA and other regulators to step in. Credit unions should err on the side of compliance to avoid reputational, examiner and litigation risk. No one wants their credit union in a newspaper headline alleging unfair treatment of service members. Make sure loan officers know about this."
With more regulations inevitable, Bundy counseled CUs to view them in the same manner as they do technology. He said he sees the current burden as akin to how credit unions thought of technology 20 years ago.
"Technology seemed like a pain then, but now it is seen as an opportunity that is planned and budgeted for," he said. "Know the challenges of compliance will be expensive. Know they will be time consuming and may take staff time from other projects. Know they will require skilled staff who are hard to find or train. Know they will be frustrating. You cannot just pick someone off the street to be a compliance officer."
There is a silver lining, he asserted-where there are challenges there usually are opportunities. Bundy said CUs should see there is a competitive advantage to being consumer friendly.
"Make compliance a reason why members rely on the credit union," he said.
