NEW HAVEN, Conn.-It is not your imagination; credit unions ARE spending more and more time dealing with new regulations.
According to financial technology provider Continuity Control, there were 120 new enforcement actions in the first quarter alone. During a recent Regulatory Compliance Briefing for Financial Institutions webinar, Pam Perdue, chief compliance strategist, said if an average FI dealt only with the new regulations released in Q1, it would need 919 hours to address 5,001 pages. The cost, calculated at $30 per hour, equals $27,570.
"The climate is even more burdensome than the S&L crisis in 1990s thanks to the volume of material that has to be processed," she said, noting that examiners are increasingly focused on risk management practices within financial institutions.
Troubled CU Condition Rules
NCUA has issued Troubled Condition Rules, which updated the definition of "troubled condition" for purposes of changes in CU officials. Perdue said the new rules allow NCUA, not just the state authority, to designate a credit union as being in troubled condition. "There also were net worth and IRR rules for credit unions, to avoid small entities from facing prompt corrective action designations solely due to net worth requirements, and to exempt small entities from administering interest rate risk policies and programs that are too complex for their institution profile," she said.
Continuity Control now has an automated compliance platform known as "Comprehensive Compliance Management System." Perdue said clients include CUs and banks of all sizes. Another new initiative is the company's "Bank Compliance Index," which she described as a quarterly index that will track the incremental burden on FIs.
Q1 Highlights...or Lowlights
Perhaps the most burdensome new regulations were mortgage and mortgage servicing rules from the Consumer Financial Protection Bureau that will take full effect in January 2014. Perdue said the Ability to Repay Rule is particularly irksome to community FIs, as they "have pretty much always figured out if the borrower could pay back a loan before it was made."
"Some lenders created products that did not do so, and now everyone has to pay for this abuse," she said. "We estimate it will take more than 200 hours of work to interpret, plan and execute compliance with this rule."
New appraisal standards are another issue, Perdue said, explaining that certain types of loans will require a second appraisal to prevent consumer "confusion and abuse." To trigger the new rule, she said the APR must exceed the Average Prime Offer Rate (APOR) by 1.5% or more for a first lien, 2.5% for first lien jumbo loans, 3.5% or more for subordinate lien. And it's easy to exceed these guidelines, so CUs should not assume they're in the clear without devising a method to double-check their loans.
The new mortgage servicing rules are "poorly written," Perdue stated bluntly. Yet another group that takes effect next January, the new regs call for changes to nine major areas of servicing.
"The force placed insurance rules may be difficult to comply with due to multiple standards," she assessed. "There is a lot of detail involved in the new mortgage servicing rules."
