REGular Blog Weekly Roundup: July 12, 2024

 

Happy Friday everyone! It's been a HOT week in Richmond that may finally break with some much needed rain today. As we head into the weekend, let's take a look at some of the key regulatory compliance items we saw this week.

 

NCUA

On Thursday the NCUA released the agenda for their July 2024 Board Meeting, which will be held on Thursday, July 18th. You may recall the Board skipped their June meeting, so they have a full agenda. There are three items on the agenda:

1. Proposed Rule, Succession Planning, 12 CFR Parts 701 and 741.
2. Proposed Rule, Incentive-Based Compensation Arrangements, 12 CFR Parts 741 and 751.
3. Federal Credit Union Loan Interest Rate Ceiling.

 

Succession Planning

The NCUA last proposed a rule on succession planning in January of 2022. That proposed rule would have required FCU Boards to establish and implement succession plans to ensure the credit union had plans to fill key positions. The rule also would have required directors to be knowledgeable about the FCU's succession plan. The 2022 proposed rule would have applied only to federally chartered credit unions.

Many of the comments received by the agency agreed with the importance of succession planning, but urged the agency to issue guidance on the issue rather than a more formal "one-size-fits-all" regulatory requirements. The rule never made it to the final rule stage of the rulemaking process.

Earlier this week, the NCUA, along with other agencies, released their rulemaking agenda as part of the Spring 2024 Unified Agenda. The NCUA Board listed a second NPRM on Succession Planning on the Agenda. In the Abstract, they wrote:

The Board has reviewed the comments on the proposed rule and intends to issue a second proposal to require succession plans for both FCUs and federally insured, state-chartered credit unions. In doing so, the Board intends to offer assistance and guidance to streamline the planning process for small credit unions.

So it appears that rather than pulling back and considering guidance rather than regulation, the Board will be going further and expanding the scope of the regulation to state-chartered credit unions as well. We will be reviewing the new proposed rule when it is released, how it's different from the 2022 version, and providing information to credit unions as we prepare comments.

 

Incentive-Based Compensation Arrangements

In another "it's back again" proposed rule, the NCUA will vote on a proposed rule on incentive-based compensation arrangements. The history on this topic is longer - the first proposed rule on this issue was issued in April of 2011. A second proposed rule was issues in June of 2016. Neither advanced to the final rule stage. We now will have a third proposed rule.

This is a joint rulemaking - the Dodd-Frank Act requires the federal banking regulators (NCUA, FDIC, OCC, and FHFA) to jointly issue regulations or guidelines "(1) prohibiting incentive-based compensation arrangements at covered financial institutions that encourage inappropriate risks by providing excessive compensation or that could lead to material financial loss; and (2) requiring those covered financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate Federal regulator."

Usually, when a proposed rule is on the agenda, we don't get the text of it until the morning of the Board meeting. However, with this joint NPRM, we already have the text. Interestingly, the actual language of the proposed rule is identical to the 2016 proposed rule, with a new preamble. We expect the Board to vote to approve the NPRM at Thursday's meeting, and we will have the opportunity to provide comments.

 

Federal Credit Union Loan Interest Rate Ceiling

The Federal Credit Union Act sets a cap on the interest rate that FCUs can charge of 15%. However, the NCUA Board has discretion to raise that limit for 18-month periods. The FCU Act requires the Board to consult with "the appropriate committees of the Congress, the Department of Treasury, and the Federal financial institution regulatory agencies," and it also must determine that money market interest rate levels have risen over the preceding six-month period and that prevailing interest rate levels threaten the safety and soundness of individual credit unions as evidenced by adverse trends in liquidity, capital earnings, and growth.

The 18% cap has been in place since May of 1987. The 18% cap does not apply to state-chartered credit unions, nor does it apply to Payday Alternative Loans (PALs)

The Board last voted on the interest rate cap at their January 2023 Board meeting. That vote was to keep the cap at 18% for the 18-month period covering March 11, 2023 through September 10, 2024. On Thursday, the Board will vote on the cap for the 18-month period beginning September 11, 2024.

In January 2023, there was some pressure from industry stakeholders for the NCUA to explore the legality of a floating interest rate ceiling. In the April 2023, NCUA staff presented a legal opinion that it is "reasonable to interpret the Federal Credit Union Act to permit a floating interest rate ceiling, provided the conditions in the Act are met. However, no further action was taken at that meeting, and it's very unlikely the Board would take such a step at this time. All Board member expressed concerns over a floating cap during the questions portion of the Board meeting.

The League will be on site in Alexandria for the NCUA Board Meeting and we'll have a recap here at REGular blog.

 

FFIEC

On Thursday, the FFIEC published 2023 HMDA data, which provides information on how financial institutions are serving the mortgage needs of their communities. The 2023 dataset contains reported transactions from 5,113 US financial institutions, including banks, savings institutions, credit unions, and mortgage companies.

In its press release, the FFIEC highlightes several key observations from the Snapshot National Loan-Level Dataset, which contains the national HMDA datasets as of May 1, 2024. The key observations noted in the press release include:

• For 2023, the number of reporting institutions increased by about 14.6 percent from 4,460 in the previous year to 5,113.
• The 2023 data include information on 10 million home loan applications, a decrease from the 14.3 million reported in 2022. Among them, 7.7 million were closed-end (e.g., a home mortgage loan) and 2.1 million were open-end (e.g., a home equity line of credit). Another 266,000 records are from financial institutions making use of statutory partial exemptions and did not indicate whether they were closed-end or open-end.
• The share of mortgages originated by non-depository, independent mortgage companies accounted for 68.8 percent of first lien, one- to four-family, site-built, owner-occupied home-purchase loans in 2023, up from 60.2 percent in 2022.
• In terms of borrower race and ethnicity, the share of closed-end home purchase loans for first lien, one- to four-family, site-built, owner-occupied properties made to Black or African American borrowers rose slightly from 8.1 percent in 2022 to 8.2 percent in 2023. The share made to Hispanic-White borrowers increased from 9.1 percent to 9.9 percent, and the share made to Asian borrowers increased slightly from 7.6 percent to 7.7 percent.
• In 2023, Black or African American and Hispanic-White applicants experienced denial rates for first lien, one- to four-family, site-built, owner-occupied conventional, closed-end home purchase loans of 16.6 percent and 12.0 percent respectively. Denial rates for Asian and non-Hispanic-White applicants were 9.0 percent and 5.8 percent respectively.

 

CFPB

On Wednesday, the CFPB announced a proposed rule to streamline mortgage servicing for borrowers experiencing payment difficulties. In a press release, the CFPB highlighted key elements of the proposed rule:

• Stop dual tracking and limit fees: The proposed rule would require servicers to try to help borrowers first, before foreclosing, when they request assistance. Servicers would generally only be allowed to move ahead with foreclosure after all possibilities for assistance are exhausted or the borrower has stopped communicating with the servicer. The proposal would also limit the fees a servicer can charge a borrower while the servicer is reviewing possible options to help the borrower. This is intended to create strong incentives for servicers to act quickly and fairly when reviewing borrowers' requests for help.
• Reduce delays by streamlining paperwork requirements: Currently, a servicer cannot evaluate whether a borrower is eligible for assistance without a “complete application” that includes all information needed to assess eligibility for all available options. This can delay assistance offers, hurting both homeowners and servicers. Under the proposal, servicers would have more flexibility to review borrowers for each option individually, potentially enabling quicker assistance. Studies show streamlined loan modifications with fewer paperwork requirements lead to more homeowners receiving modifications and ultimately staying in their homes.
• Improve borrower-servicer communications: The proposed rule would require servicers to provide more tailored notices to borrowers, so they know what actions they can take if they want to. This includes changing the notices that borrowers get shortly after missing a payment to include information about who the loan investor is and how to get information about available assistance.
• Ensure borrowers receive critical information in languages they understand: Under the proposal, borrowers who received marketing materials in another language could request mortgage assistance communications in that same language. The proposed rule would also require servicers to provide the improved notices in both English and Spanish to all borrowers, as well as make available oral interpretation services in telephone calls with borrowers.

The rule contains a small servicer exemption - servicers who service 5,000 or fewer mortgage loans, all of which the services or affiliates own or originated - are exempt from all new requirements under the proposed rule. We are reviewing and analyzing the proposed rule and will be providing additional information as we prepare comments.

 

That's all for this week! Be sure to check out our posts from during the week, where we go into more detail on the Unified Rulemaking Agenda as well as FinCEN's proposed BSA rule. We'll be back again next week with more hot topics in the world of credit union regulatory compliance. If there's a topic you'd like to see covered, please feel free to email me at jblau@vacul.org, or leave a comment on one of our social media REGular Blog posts.