Latest CA and NV Reg Issues in Focus as CUs Serve Members

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This week, the commissioner of the California Department of Business Oversight (DBO) issued proposed amendments that seek to modernize credit union regulations to reflect changes to related state and federal laws; streamline the application process for out-of-state credit unions that apply to operate in California; and to allow credit unions a greater choice of permissible investments.

The proposed rules:

  • Update references to sections of the Financial Code and National Credit Union Administration regulations.
  • Require out-of-state credit unions to specifically address each statutory factor regarding their eligibility to operate in California.
  • Repeal obsolete application requirements for out-of-state credit unions.
  • Repeal an exhaustive list of permissible investments, and instead provide credit unions with broader discretion in making investment choices, thus eliminating the requirement to obtain the DBO’s prior approval for routine investments.

The proposed regulations will be available in PowerComment soon. In the meantime, you can access the notice, text, and initial statement of reasons for the proposed regulations here. The comment deadline is Aug. 10.

FID to Promulgate SB 311 Implementation Regulations
The Nevada Financial Institutions Division (FID) is preparing to promulgate regulations to implement Senate Bill 311. As part of the process, the FID sent a notice and a “Request for Information from Small Businesses” regarding draft regulations.

SB 311 is the bill that required, upon request, that a creditor must deem an applicant’s credit equal to his or her current or former spouse in situations in which the applicant has no credit history and meets specified criteria. The Nevada Credit Union League entered into a lawsuit, along with the Nevada Bankers Association and the American Financial Services Association, on behalf of member credit unions to challenge the legality of this bill as it conflicts with federal laws, such as the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). The lawsuit has been delayed, and no new court date has been set at this time.

In discussions with the League’s legal counsel and plaintiff counsel for the lawsuit, the League does not believe this is sufficient to protect credit unions. The draft regulations do not resolve the issue of placing a creditor in the position of either violating state law or federal law. The draft regulations protect a credit union from regulatory enforcement, but not from a private right of action.

Before moving forward with proposed regulations, the FID must conduct a small business impact study; thus, the questionnaire that Nevada licensees received. In anticipation of a formal proposed regulation, the Nevada League has prepared thoughts to consider as credit union leaders make their own decision on how, or if, to answer the questions in the best interests of their credit union.

Please click here for more information.

SBA Launches Tool for Small Businesses and Small Lenders
The U.S. Small Business Administration announced the launch of a dedicated online tool for small businesses and nonprofits to be matched with Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), Certified Development Companies (CDCs), Farm Credit System lenders, microlenders, and traditional smaller asset size lenders in the Paycheck Protection Program (PPP). SBA’s Lender Match is an additional resource for pandemic-affected small businesses that have not applied for or received an approved PPP loan to connect with lenders. The PPP deadline is June 30, which gives just a few more days to help businesses apply for PPP loans.

SBA Issues 19th PPP Interim Final Rule to Revise Third and Sixth Rules
The SBA has issued another interim final rule to implement amendments to the PPP made by the Paycheck Protection Program Flexibility Act (PPP Flexibility Act). On June 17, the SBA issued the Business Loan Program Temporary Changes; Paycheck Protection Program – Revisions to the Third and Sixth Interim Final Rules (PPP IFR 19). This interim final rule revises SBA's third interim final rule on Additional Eligibility Criteria and Requirements for Certain Pledges of Loans posted on the SBA's website on April 14 (the third interim final rule) and SBA's sixth interim final rule on Disbursements posted on the SBA's website on April 28 (the sixth interim final rule) by changing provisions to conform to the PPP Flexibility Act. Click here to learn how PPP IFR 19 revises SBA’s third interim final rule and sixth interim final rule.

Interagency Examiner Guidance on Consistency and Flexibility
The four federal banking agencies, in conjunction with state bank and credit union regulators, issued examiner guidance to promote consistency and flexibility in the supervision and examination of financial institutions affected by the COVID-19 pandemic. No action on the part of supervised institutions is required. The interagency guidance instructs examiners to consider the unique, evolving, and potentially long-term nature of the issues confronting institutions due to the COVID-19 pandemic and to exercise appropriate flexibility in their supervisory response.

CFPB Interim Final Rule: COVID-19 Loss Mitigation Under RESPA and Reg X
The Consumer Financial Protection Bureau has issued an Interim Final Rule to address the treatment of certain COVID-19 related loss mitigation options under RESPA and Reg X. The interim final rule amends Regulation X to temporarily permit mortgage servicers to offer certain loss mitigation options based on the evaluation of an incomplete loss mitigation application. In granting this flexibility, the bureau explained that borrowers facing only temporary hardships might benefit from a more efficient application process that leads to a temporary solution without exhausting the loss mitigation protections under Regulation X (§ 1024.41) that are determined as of the date a complete application is received. This interim final rule is effective on July 1. A 45-day comment period will start once the rule is published in the Federal Register.

CFPB Addresses GSE Patch Expiration (PowerComment Summary Available Soon)
With certain exceptions, Regulation Z requires creditors to make a reasonable, good faith determination of a consumer’s ability to repay (ATR) any residential mortgage loan, and loans that meet Regulation Z’s requirements for “qualified mortgages” (QM) obtain certain protections from liability. The CFPB completed an ATR/QM rule that established a general QM standard for loans where the consumer’s debt-to-income (DTI) ratio is 43 percent or less and the loan meets the other statutory QM requirements.

A second category of QMs is loans that are eligible for purchase or guarantee by either Fannie Mae or Freddie Mac (the GSEs). This category of QMs is referred to as the Temporary GSE QM Loans (or GSE Patch). These Temporary GSE QM loans are eligible for QM status even if the DTI ratio exceeds 43 percent. The GSE Patch is scheduled to expire in January 2021 or when the GSEs exit conservatorship, whichever comes first.

The CFPB estimates that, absent regulatory action, approximately 957,000 mortgage loans would be affected by the expiration of the GSE Patch. They further estimate that after the Patch expires many of these loans would either not be made or would be made but at a higher price. To create an orderly transition away from the Temporary GSE QM loan definition and to maintain access to responsible, affordable mortgage credit, the CFPB has issued two proposed rules to address the impending expiration of the GSE Patch.

First, the CFPB proposes to amend the General QM definition in Regulation Z to replace the DTI limit with a price-based approach. The CFPB is proposing a price threshold for most loans as well as higher price thresholds for smaller loans, which is particularly important for manufactured housing and for minority consumers. The proposal would also require lenders take into account a consumer’s income, debt, and DTI ratio or residual income and verify the consumer’s income and debts.

Second, the CFPB proposes to amend Regulation Z to extend the GSE Patch to expire upon the effective date of a final rule regarding the first proposed rule’s amendments to the General QM loan definition in Regulation Z. 

A summary of the proposals will be available soon in PowerComment.

CFPB: Interpretive Rule on Method for Determining Underserved Areas
The CFPB issued an interpretive rule to provide guidance to creditors and other persons involved in the mortgage origination process about the way in which the bureau determines which counties qualify as “underserved” for a given calendar year. You can read more here. The list of rural and underserved counties, using the Home Mortgage Disclosure Act (HMDA) data described in the interpretive rule, can be found here; and the interpretive rule can be found here.

NCUA Extends MDI Mentoring Grants Application Deadline
Credit unions eligible to apply for the National Credit Union Administration’s minority depository institutions mentoring grants now have until Friday, July 31, to submit their applications. The NCUA will make grants of up to $25,000 to help small institutions establish mentoring programs with larger, low-income-designated credit unions to provide expertise and guidance in serving low-income and underserved populations. Interested credit unions can apply through the agency’s CyberGrants online portal. Application guidelines are available online here. Staff from the NCUA’s Office of Credit Union Resources and Expansion will be available to answer questions about the program through July 29. Credit unions should submit questions to staff by email to CUREAPPS@ncua.gov.

Weekly Update: CA and NV Credit Union COVID-19 Relief
According to weekly survey data collected by the California and Nevada Credit Union Leagues from late March to late June, credit unions in both states have accomplished the following for their members:

  • Nearly 587,000 members have been provided financial relief.
  • Over 573,000 extensions made on nearly $15.7 billion in member loans.
  • More than $76 million provided in emergency loans to members.
  • Over 3.1 million fees waived for members.
  • Nearly $1.4 billion employee/business loans made via the Paycheck Protection Program (PPP) loans from the Small Business Administration and Treasury Department’s federal relief program.

While credit union data in both states is still being gathered every week, the Leagues' ongoing COVID-19 Impact Survey continues to track how credit unions are assisting consumers during the economic fallout from the Coronavirus pandemic and which ones are participating in the SBA’s PPP funding efforts.

The data represents a great majority of credit unions in California and Nevada, but not all. The Leagues are encouraging credit unions at the beginning of each week to complete the survey by sending CEOs a link. The numbers continue helping the Leagues tell a powerful, compelling story about the impact credit unions are making in their communities.

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