SAN FRANCISCO — The flurry of regulations coming out of CFPB were expected to drive some credit unions right out of the mortgage business, but the "big dog" of mortgage regulation is yet to come, and that one might finally do the trick, according to one compliance expert.
Jon Bundy, regulatory compliance manager for CUNA Mutual Group and a former attorney at a firm that worked with a number of credit union clients, said that if the first six mortgage rules from the Consumer Financial Protection Bureau weren't enough, the seventh one — the upcoming TILA/RESPA Integrated Disclosure rule — just might be.
"It is the big dog of the new mortgage rules," Bundy told the audience at CUNA's America's Credit Union Conference. "A lot of people speculated the first six regulations would drive credit unions out of mortgages, but this one might drive a number of credit unions out of mortgages."
The purpose of the TILA/RESPA rule is to create disclosures that are easier to understand and use for the consumer. Bundy noted this will affect documents for most closed-end consumer credit transactions secured by real property, including first mortgages and closed-end home equity, but not HELOC.
On the bright side: the rule isn't effective until Aug. 1, 2015. On the not-so-bright side, that is expected to be a "hard deadline" without the flexibility CFPB has afforded in some of its previous rules, Bundy said. Moreover, credit unions will actually have to use two different sets of forms for a number of months.
"These are very different disclosures than before. Credit unions will need help from their providers," he said. "If the providers are not working on it now, they are in a little bit of trouble."
CU executives will need to know if the credit union has a system that can handle dynamic documents, as well as other system changes to accommodate third parties. Further, they will have to do a lot of training of staff.
Feel The Burn
One of the reasons rules being issued by the CFPB can be more painful than those by other regulatory agencies is that CFPB has a different mission and, therefore, a different approach than most other financial regulators, Bundy explained. "Regulations used to be about balancing the lending space, but the CFPB looks for even one consumer being harmed and implements regulations."
The result, he said, is the Bureau is "using a sledgehammer to solve a small problem."
And it's a powerful sledgehammer. Despite CFPB only having direct oversight over the three largest credit unions, many of its rules do still apply to credit unions of all shapes and sizes, Bundy noted.
On the Radar
Bundy said a number of non-mortgage-related topics are on CFPB's radar including:
Expedited Funds Availability Act, Reg CC. Final rule scheduled June 2015. Recognizes most checks are cleared electronically.
Business Lending Data, Reg B. Will collect information on applications for business loans to ensure women and minorities are not being discriminated against. Bundy said to expect a Notice of Rulemaking by end of 2014, with a final rule sometime in 2015.
Home Mortgage Disclosure Act, Reg C. Expanding scope of information relating to mortgage applications. Also coming in 2015.
Another non-mortgage issue CFPB will be scrutinizing is indirect auto lending — this despite the fact that auto dealers lobbied to be exempt from CFPB's authority. And so they are, but the agency is tackling this via the financial institutions that work with those auto dealers.
CFPB's first order of business: "buy rates," or dealer discretion on interest rate setting that might be discriminatory.
"As people see the writing on the wall, a lot of the competition is going to get out of buy rates," he said. "BMO Harris Bank already announced it no longer will use them. CFPB recommends a flat rate per transaction."
Another area of CFPB focus is the Servicemembers Civil Relief Act, or SCRA. This deems active duty servicemembers must get their interest rates reduced to 6% and financial providers cannot take action against them during their duty period.
Because of some complaints, NCUA will be reviewing for SCRA compliance on exams. Bundy's advice is to err on the side of caution, even if a servicemember did not submit copy of orders and make request for reduction. "The CFPB is expecting good behavior," he said.
Private student lending also is in the regulatory spotlight. CFPB is suing ITT, Student CU Connect and the CUSO's six member credit unions for alleged unfair and deceptive practices. "This is another example of how the CFPB can have a real impact on credit unions."
How To React To CFPB
Bundy said there are three "bad ideas" for how CUs should react to the CFPB: one, hope for a new administration; two, hope for repeal of Dodd-Frank; and three, ignore the CFPB and hope for the best.
"The CFPB is probably not going away no matter the administration," he said, adding the National Labor Relations Board appointment decision by the Supreme Court will not overturn CFPB Director Richard Cordray's appointment by President Obama. "The CFPB is the animal we are stuck with, so we need to figure out how to react."
The first step may be to start budgeting for compliance-related costs in much the same way a credit union budgets for technology upgrades. The second step may be to dust off the proverbial "white hat."
The CFPB views the world in the manner of an old Western movie, with good guys and bad guys, Bundy said, and the bureau has acknowledged that CUs typically "wear the white hats." To leverage that, CUs need to continue to teach the bureau about the credit union difference and participate in the comment process of every new rule.
