A federal small business advocacy office is urging the Consumer Financial Protection Bureau to reconsider a proposal that would change the way finance charges are calculated under the Truth in Lending Act.
The Office of Advocacy of the U.S. Small Business Administration is concerned the proposal could force small lenders and banks to curtail their mortgage lending.
The
The CFPB’s new approach would increase the annual percentage rate. As a result, more loans would fall into a higher-cost category and become subject to the Home Ownership and Equity Protection Act. HOEPA requires lenders to escrow taxes and insurance.
The chief counsel of advocacy, Winslow Sargeant, notes in the letter that many community banks and small lenders don’t have the capacity to manage escrow accounts. And creating escrows would require extensive changes to their processing systems and retaining of staff.
The Independent Community Bankers of America has raised this issue with the CFPB, Sargeant points out. And ICBA claims banks won’t able to make the higher-cost loans if they don’t have escrow accounts.
“Advocacy encourages the CFPB to give full consideration to the concerns of small banks and settlement service providers regarding the proposed changes,” Sargeant says.
The CFPB-proposed rule would merge the disclosures required by the Real Estate Settlement Procedures Act and TILA. The comment period on the
