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Washington Bankers AssociationS.2155: Regulatory Reform 2018

Leah M. Hamilton, JD

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What You Will Learn• Summary of key impacts of S.2155

• Title I – Improving Consumer Access to Mortgage Credit• Title II – Regulatory Relief and Protecting Consumer Access to Credit• Title III – Protections for Veterancs, Consumers and Homeowners• Title VI – Protections for Student Borrowers

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S.2155: Regulatory Reform and Relief (S.2155; Pub.L. 115-174)

• On May 24, 2018, Economic Growth, Regulatory Relief, and Consumer Protection Act • Amends and eliminates certain requirements on community and regional financial

institutions• Not a complete reversal of Dodd-Frank• Does have significant impacts to consumer mortgages, credit reporting, and

protections for our servicemembers, students, and institutional staff – to name but a few

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Title I – Improving Consumer Access to Mortgage Credit

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Sec. 101. Minimum standards for residential mortgage loans

• A new qualified mortgage (QM) category created for insured depository institutions and insured credit unions that,

• together with their affiliates, • have less than $10 billion in total consolidated assets

• Subject to limited exceptions, new QM category • Prohibits interest-only and negative amortization features; • Is subject to ability-to-repay (ATR) prepayment penalty requirements; and • Must be maintained in portfolio (or transferred to another qualifying institution)• Institution will not be required to follow Regulation Z’s Appendix Q Standards for Determining

Monthly Debt and Income, but will be required to consider and document consumer’s debt, income and financial resources

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Sec. 102. Safeguarding access to habitat for humanity homes

• Truth-in-Lending Act (TILA) amended • Provides for an appraiser who voluntarily donates appraisal services to an

organization (e.g., Habitat for Humanity) that is eligible to receive tax-deductible charitable contributions• The voluntary donation is considered to be customary and reasonable

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Sec. 103. Exemption from appraisals of real property located in rural areas

• Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) amended • Excludes a loan made by a bank or credit union from the FIRREA requirement to

obtain an appraisal provided that certain conditions are met: • Property must be located in a rural area; • Transaction value must be less than $400,000; • Institution retains the loan in portfolio (subject to certain exceptions); and • Not later than three days after the Closing Disclosure is given to the consumer, mortgage originator

or its agent has:• Contacted not fewer than three state-licensed or state-certified appraisers, as applicable, and • Documented that no such appraiser, as applicable, was available within five business days beyond customary

and reasonable timeliness and fees for such services timeliness and fee standards for comparable appraisal assignments, as documented by the mortgage originator or its agent

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Sec. 104. Home Mortgage Disclosure Act adjustment and study

• Home Mortgage Disclosure Act (HMDA) amended• Exempt institutions from the new reporting categories added by Dodd-Frank and the

2018 HMDA requirements if institution or credit union originated:• Fewer than 500 closed-end mortgage loans in each of the preceding two calendar years• Fewer than 500 home equity lines of credit (HELOCs) in each of the preceding two calendar years

• HELOC threshold adjustment makes the BCFP’s temporary rule permanent

• But … • Neither exemption will apply if insured depository institution (not an insured credit union) received

a rating of: • "needs to improve record of meeting community credit needs" during each of its two most recent

Community Reinvestment Act (CRA) examinations, or • "substantial noncompliance in meeting community credit needs" on its most recent CRA examination

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HMDA Guidance• CFPB issued guidance

• Effective September 7, 2018• Institution challenges

• Collect or not to collect• If you collect one data point, you collect all

• Applications• Systems• Re-training• Updating policy, procedures

• Significant carve-outs include:• HMDA Section 304(b)(5) and (6)

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To qualify for the exemption• Must be an insured

• Insured depository institutions and insured credit unions • Loans counted toward partial exemptions' thresholds

• “closed-end loan” and “open-end line of credit” • Best interpreted to include only those closed-end mortgage loans and open-end lines of credit that

would otherwise be reportable under HMDA

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What is exempted (if qualify for partial exemption)Universal Loan Identifier (ULI) (1003.4(a)(1)(i)) 46 Interest Rate (1003.4(a)(21)) Manufactured Home Land Property

Interest (1003.4(a)(30))

Property Address (1003.4(a)(9)(i)) Prepayment Penalty Term (1003.4(a)(22))

Multifamily Affordable Units (1003.4(a)(32))

Rate Spread (1003.4(a)(12)) Debt-to-Income Ratio (1003.4(a)(23)) Application Channel (1003.4(a)(33))

Credit Score (1003.4(a)(15)) Combined Loan-to-Value Ratio (1003.4(a)(24))

Mortgage Loan Originator Identifier (1003.4(a)(34))

Reasons for Denial (1003.4(a)(16)) Loan Term (1003.4(a)(25)) Automated Underwriting System (1003.4(a)(35))

Total Loan Costs or Total Points and Fees (1003.4(a)(17)) Introductory Rate Period (1003.4(a)(26)) Reverse Mortgage Flag (1003.4(a)(36))

Origination Charges (1003.4(a)(18)) Non-Amortizing Features (1003.4(a)(27)) Open-End Line of Credit Flag (1003.4(a)(37))

Discount Points (1003.4(a)(19)) Property Value (1003.4(a)(28)) Business or Commercial Purpose Flag (1003.4(a)(38))

Lender Credits (1003.4(a)(20)) Manufactured Home Secured Property Type (1003.4(a)(29))

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What is not exemptMust continue to report these 22 data points in the manner currently specified in Regulation C

Application Date (1003.4(a)(1)(ii)) Census Tract (1003.4(a)(9)(ii)(C))

Loan Type (1003.4(a)(2)) Ethnicity (1003.4(a)(10)(i))

Loan Purpose (1003.4(a)(3)) Race (1003.4(a)(10)(i))

Preapproval (1003.4(a)(4)) Sex (1003.4(a)(10)(i))

Construction Method (1003.4(a)(5)) Age (1003.4(a)(10)(ii))

Occupancy Type (1003.4(a)(6)) Income (1003.4(a)(10)(iii))

Loan Amount (1003.4(a)(7)) Type of Purchaser (1003.4(a)(11))

Action Taken (1003.4(a)(8)(i)) HOEPA Status (1003.4(a)(13))

Action Taken Date (1003.4(a)(8)(ii)) Lien Status (1003.4(a)(14))

State (1003.4(a)(9)(ii)(A)) Number of Units (1003.4(a)(31))

County (1003.4(a)(9)(ii)(B)) Legal Entity Identifier (1003.5(a)(3))

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Sec. 105. Credit union residential loans• Federal Credit Union Act (FCUA) amended

• Provides that a 1-to-4 family dwelling that is not the primary residence of a member of a credit union will not be considered a member business loan under the FCUA

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Sec. 106. Eliminating barriers to jobs for loan originators• Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act)

amended• Provides a 120-day transitional license to a mortgage loan originator (MLO)

• Moving from a depository institution to a non-depository institution, or • A state-licensed lender in one state to the same or another state-licensed lender in another state

• MLO must meet certain conditions to obtain a transitional license, including that MLO: • Has not had an application for a loan originator license denied; • Has not had a loan originator license revoked or suspended; • Has not been subject to, or served with, a cease-and-desist order in any governmental

jurisdiction or under the SAFE Act; • Has not been convicted of a misdemeanor or felony that would preclude licensure under the

law of the applicable state; and • Has submitted a license application in the applicable state

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Sec. 108. Escrow requirements relating to certain consumer credit transactions

• Truth-in-Lending Act (TILA) amended• Excludes a consumer mortgage loan from its mandatory escrow account

requirements (subject to certain exceptions) if • Loan is made by an insured depository institution or insured credit union with assets of $10 billion

or less; • During the preceding calendar year, institution or credit union and its affiliates originated 1,000 or

fewer loans secured by a first lien on a principal dwelling; • Institution made a loan in a rural or underserved area within a specified timeframe; and • Institution does not otherwise maintain mortgage loan escrow accounts

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Sec. 109. No wait for lower mortgage rates• Truth-in-Lending Act (TILA) amended

• Amended to remove a new three business day waiting period if • Creditor extends to consumer • a second offer of credit • with a lower annual percentage rate (APR)

• Amendment was made to high-cost mortgages• May have been inadvertent to only apply this exception to high-cost mortgages

rather than all applicable consumer mortgages

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Sense of Congress• Act provides that BCFP should endeavor to • Provide clearer, authoritative guidance on:

• Applicability of TRID rule to • mortgage assumption transactions and • construction-to-permanent loans, • including the conditions under which those loans can be properly originated

• Extent to which lenders can rely on model disclosures without liability if recent changes to regulations are not reflected in sample TRID Rule forms

• Note this section is not a mandatory requirement• Even when a “sense of” provision is included as an amendment to a bill that becomes

law, they have no formal effect on public policy and are not considered a binding or enforceable part of the parent law

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Title II – Regulatory Relief and Protecting Consumer Access to

Credit

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Sec. 208. Application of the Expedited Funds Availability Act• Expedited Funds Availability Act

(EFTA) (Regulation CC) amended• Modifies definition of “state” to

include American Samoa, the Commonwealth of the Northern Mariana Islands, and Guam• Previously defined to include any U.S.

state, the District of Columbia, Puerto Rico, and the Virgin Islands

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Sec. 210. Examination cycle• Federal Deposit Insurance Act (FDIA) amended

• Section 10(d)(4)(A) threshold amended from $1 billion to $3 billion of total consolidated assets

• More small institutions eligible for 18-month examinations

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Sec. 212. Budget transparency for the NCUA• Federal Credit Union Act (FCUA) amended

• Requires NCUA to make publicly available and publish in Federal Register• A draft of its detailed budget• Hold a public hearing (with prior public notice of such) • Accept public comment on its budget • Address such comments

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Sec. 213. Making online banking initiation legal and easy• Under the Act, a financial institution may record personal information

• from a scan of the driver’s license or personal identification card of an individual that • initiates a request • through online services • to open a financial product or service account

• Any copies made to use during the verification of authenticity of the identification document and/or identity of the individual process, or to comply with legal requirements to record, retain or transmit such personal information related to opening such an account, must be later permanently deleted

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Sec. 215. Reducing identity fraud• Commissioner of the Social Security Administration (SSA) must take steps

to reduce prevalence of synthetic identity fraud • Disproportionately affects vulnerable populations, such as minors and recent

immigrants• Must develop and maintain a database that permitted financial

institutions, service providers, subsidiaries, affiliates, agents, subcontractors or assignees of a financial institution may use for validation

• Requests from individuals for use of such data will be subject to the Electronic Signatures in Global and National Commerce Act (E-SIGN Act)

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Sec. 216. Treasury report on risks of cyber threats• Secretary of the Treasury

• Must submit to the Committee on Banking, Housing and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on risks of cyber threats to financial institutions and capital markets within the US• Within one year (on or before May 24, 2019)

• Note: • States are already taking on cyber laws

• New York• California

• Regulatory agencies• Safety and soundness• Current federal laws on privacy

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Title III – Protections for Veterans, Consumers, and

Homeowners

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Sec. 301. Protecting consumers’ credit• Fair Credit Reporting Act (FCRA) amended

• Permits a consumer to place or remove a security freeze on his/her consumer credit report at no cost

• Limited exceptions for which freeze will not apply • e.g., child support agency, law enforcement, employment background checks

• Takes effect 120 days from the enactment date• Consumer reporting agencies (CRAs) already promoting new systems/practices coming in

September 2018

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Sec. 302. Protecting veterans’ credit• FCRA amended

• To rectify problematic reporting of medical debt included in a veteran’s consumer report due to inappropriate or delayed payment for medical care services provided outside of Department of Veterans Affairs (DVA) facilities and such payments have been submitted to the VA for payment• Amended to include a new process by which a veteran can dispute negative credit report

information by submitting notice along with proof of the DVA's liability for payment of the debt or documentation that the DVA is in the process of making payment for authorized medical services

• Additional amendments to include members of National Guard in definition of “active duty military consumer” with respect to credit monitoring

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Sec. 303. Immunity from suit for disclosure of financial exploitation of senior citizens

• Act provides protections for financial institutions and their employees, including Bank Secrecy Officers and Compliance Officers• Must receive prescribed training

• instruct any individual attending the training on how to identify and report the suspected exploitation of a senior citizen internally and, as appropriate, to government officials or law enforcement authorities, including common signs that indicate the financial exploitation of a senior citizen;

• discuss the need to protect the privacy and respect the integrity of each individual customer of the covered financial institution; and

• be appropriate to the job responsibilities of the individual attending the training• Shielded from any civil or administrative proceeding for disclosing the suspected exploitation of a senior

citizen • who is not younger than 65 years of age • provided that such disclosure is made • in good faith and with reasonable care

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Sec. 304. Restoration of the Protecting Tenants at Foreclosure Act of 2009

• Protecting Tenants at Foreclosure Act of 2009 Section 704 amended • Repealed the sunset provision• Reinstates federal requirement allowing renters to stay in a foreclosed property for at

least 90 days or until their lease expires (under certain conditions)• Restored and revived effective 30 days from the enactment date

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• Truth-in-Lending Act (TILA) amended • Consideration of underwriting requirements for Property Assessed Clean

Energy (PACE) financing• PACE financing is financing to cover the costs of home improvements that result in a

tax assessment on the consumer's real property• BCFP must write implementing regulations

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Sec. 307. Property Assessed Clean Energy financing

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Sec. 309. Protecting veterans from predatory lending• 38 USC 37 amended

• Requires lender refinancing a mortgage loan to a veteran to provide veteran with a net tangible benefit test and satisfies certain other conditions, the loan is not eligible for a VA guaranty or insurance• Requirements do not apply to cash-out refinancings

• NOTE: There are HUD requirements for net tangible benefits for refi’s, including IRRRL and Streamlines

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Sec. 310. Credit score competition• Federal National Mortgage Association Charter Act amended

• Establishes a validation and approval process for use of credit scoring models by Fannie Mae and Freddie Mac

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Sec. 313. Foreclosure relief and extension for servicemembers

• Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012 amended

• In turn, amends Servicemembers Civil Relief Act (SCRA)• Repeals sunset dates for period of time extended to servicemembers for protections

related to mortgages, mortgage foreclosure and eviction• Leaves the “within one year” for the stay of proceedings and foreclosure relief

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Title VI – Protections for Student Borrowers

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Sec. 601. Protections in the event of death or bankruptcy• Truth-in-Lending Act (TILA) amended

• Prohibits a creditor from declaring default on or accelerating a private student loan solely based on the death or bankruptcy of a cosigner, and

• Requires a holder of a private student loan to release a cosigner within a reasonable timeframe when notified of student obligor's death

• Applies to private student loan agreements entered into on or after 180 days after the enactment date

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Sec. 602. Rehabilitation of private education loans• Fair Credit Reporting Act (FCRA) amended

• Allows a consumer a one-time request per loan • Financial institution to remove from a consumer report a default that has been reported on a private

student loan if• financial institution offered a loan-rehabilitation program • that includes a requirement for the consumer • to make consecutive on-time monthly payments • in a number that demonstrates, in the financial institution's assessment, • a renewed ability and willingness to repay the loan, and • the borrower satisfied the program requirements

• A financial institution supervised by a federal banking agency must seek written approval of the rehabilitation program terms and conditions from its supervisory agency• Agency must respond within 120 days

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Sec. 603. Best practices for higher education financial literacy• Financial Literacy and Education Improvement Act amended

• Part of Fair and Accurate Credit Transactions Act of 2003 (FACTA)• Requires Federal Education and Literacy Commission to establish best

practices for institutions of higher education to • Teach financial literacy skills and • Provide useful and necessary information to assist students when making financial

decisions related to student borrowing• Best practices shall include methods to ensure each student

• Has a clear sense of his/her total borrowing and repayment options; • Frequency and timing of such education; • how to target different student populations and • ways to clearly communicate the importance of graduating on a student’s ability to

repay such student loans

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Questions