For many in the credit union COMmunity, the burden of compliance can be in the eye of the beholder.
For instance, credit unions are getting so used to being pounded by new regulations that run thousands of pages long, an 800-page rule from the Consumer Financial Protection Bureau on Home Mortgage Disclosure Act data collection doesn't seem so bad.
"At least for right now, the compliance picture has calmed down a little from recent years," said Gaye DeCesare, president and CEO of Compliance Assistance for Credit Unions, in Woodbridge, Va.
However, she warned, "There will be more rules coming up, but I cannot even begin to predict what. The CFPB is always adding to its list of what it is going to look at, but nothing is coming up, yet."
The biggest compliance issue credit unions will face in the immediate future is the Military Lending Act, according to DeCesare. She said defense CUs have the rule "on their radar," but the rest of the community seems to be unaware the rule applies to all credit unions.
"If they have any members in the military they need to know what the rules are," she advised. "The final rule is out, but there are some legal issues still being sorted out so some interpretations are being issued by the Department of Defense. Credit unions need to make sure they are informed."
DeCesare is also concerned that CUs continue to be complacent about long-standing rules such as fair lending.
"We are advising credit unions to go back and make sure their policies and procedures cover fair lending. There have been a couple of recent lawsuits against banks on redlining. In many cases the procedures that were put in place 10, 15 or 20 years ago no longer work."
Disparate Impact Initiative
Indeed, Paul Metry, VP of regulatory affairs for the National Automobile Dealers Association (NADA), sounded a warning about the CFPB's disparate impact initiative during a recent CU Direct webinar.
According to Metry, the CFPB developed statistical analyses over the last three years that the bureau believes demonstrates discrimination exists in indirect auto financing due to policies allowing dealer discretion.
"The CFPB is looking to constrain or eliminate this discretion," he said. And while some are opting for a quick fix of flat-fee programs, "NADA feels flat-fee programs will not eliminate liability exposure to disparate impact allegations."
Earlier this year, Ally Bank was ordered to pay $80 million in remuneration to alleged victims and an $18 million civil penalty. Metry said an independent study of the CFPB's method for determining the "discrimination" in the Ally loans found the bureau did not have any controls in place for "legitimate business factors," such as the presence of competing offers.
The study said the CFPB's method was "subject to significant bias and estimation error" and overstated the raw pricing disparities by not accounting for individuals' financial situations, Metry said.
"The CFPB has acknowledged its methodology could over count discrimination, but the bureau prefers that to underestimating bias," said Metry. "H.R. 1737 was proposed in April to reform the CFPB's indirect auto financing guidance. The bill would require the CFPB to make publicly available all studies, data, methodology, analyses and other information relied upon."
The bill has 155 co-sponsors and bi-partisan support, Metry said, but he warned CUs to be aware of the implications of being accused of discrimination. He noted Honda and Fifth Third Bank entered into consent orders earlier this year.
One option Metry suggested is a program NADA modeled on the Department of Justice's fair credit risk mitigation program. He said it establishes a standard dealer participation rate, with deviations only for seven legitimate business reasons.
"This program accounts for monthly payment constraint and consumers receiving a more competitive offer from another lender," he explained. "Credit unions need to remember that a pricing differential is not in and of itself unlawful, but the differential must be explainable based on legitimate business reasons."
New HMDA Data Fields
The Home Mortgage Disclosure Act (HDMA), enacted in 1975, requires lenders to report information about the mortgage applications they receive, originate or purchase. The rule's intent is to monitor whether financial institutions are serving the housing needs of their communities and to identify possible discriminatory lending patterns.
The CFPB recently finalized rules on expanding the number of data fields that must be collected from mortgages, including the applicant's debt-to-income ratio, the interest rate of the loan and the points charged. The revised rule will require the reporting of information on all applications and loans secured by dwellings, including reverse mortgages and open-end lines of credit, in addition to mortgages used for a home purchase.
DeCesare said on one hand it is good to finally see the final HMDA rule, but that does not make it easier to take.
"There were not any surprises, and lenders do not have to collect the new data until 2018, but credit unions should be getting ready now," DeCesare advised. "They need to lean on their forms providers and data processors because so many new fields need to be created to collect information that was not done before. There is a lot of ramp-up, so don't wait."
DeCesare said with TRID some of the data processors attempted to create the new forms at the last minute and ran into trouble.
One issue she sees with the new HMDA requirements relates to the age of the applicant. She pointed out fair lending rules prevent discriminating by age, so the applicant's age and/or birthday have never been collected.
"While we always watch efforts tolobby Congress on regulatory relief, we do not do heavy lifting until we have a final rule," said DeCesare. "It took five years from Dodd-Frank until the final rule on HMDA."
