The new Bureau of Consumer Financial Protection–which will be the driving force behind the writing and enforcement of a myriad of consumer regulations–isn’t scheduled to begin operating until July.
However, credit unions already have a general idea about some of the new requirements they will have to comply with on everything from credit card rules to mortgage disclosures.
Officials of the three largest credit union trade associations have met with Elizabeth Warren, who conceived of the new agency and is helping to set it up. While they won’t reveal the details of their conversations, CUNA and NAFCU officials have said Warren assured them she understands the positive contributions of credit unions and won’t make new regulations too onerous. NASCUS officials have said Warren plans to make use of the expertise of state regulators when formulating policies.
This is a case where the devil truly is in the details, and the bureau, which will be an independent agency housed in the Federal Reserve, doesn’t start with a blank slate.
The financial overhaul bill that created it has already mandated a series of new regulations. In addition, the bureau will also be empowered to enforce laws and regulations currently overseen by other agencies, including the Fed, the Treasury Department, the Department of Housing and Urban Development and independent regulatory agencies such as the NCUA. According to the Congressional Research Service, there are 20 sections of the law that require the bureau to issue new rules and there other provisions which allow the bureau to issue rules as "necessary." The bureau has responsibility for overseeing the enforcement of all or part of 18 different federal laws.
Translation: More work for credit unions.
"There will be a heavier burden because you will have to demonstrate in greater detail that you are following certain procedure, such as reducing prepayment penalties and not steering people to products they can’t afford," said Amy M. Salberg, an attorney with the Milwaukee firm Whyte Hirschboeck Dudek and a former state regulatory lawyer.
All credit unions have to comply with rules issued by the bureau but the bureau will only have primary enforcement power over those credit unions with assets of more than $10 billion: Navy FCU, Pentagon FCU and State Employees CU of North Carolina. However, the bureau can go on joint examinations with the NCUA if there is a practice that the agency is concerned about.
The bureau will enforce the change to the Truth in Lending Act that mandates that the measure’s provisions apply to loans of up to $50,000. This is an increase from $25,000 and that threshold will be adjusted annually based on the Consumer Price Index.
On mortgages, the bureau is mandated to work with the NCUA and other regulators to devise a format for credit unions and others on how to submit data when they sell their mortgages. In addition, the bureau will also enforce the rules banning mortgage issuers from steering consumers to products based on what kind of compensation the issuer would obtain.
The bureau has to write regulations that will result in more favorable treatment to qualified residential mortgages–loans that are deemed to be at less risk of default, with underwriting and product features such as full documentation and verification of income.
By January 2013, the bureau has to have regulations in place that require that the underwriting of these kinds of mortgages must be done in a way that the loan is fully amortized up front.
Salberg said credit unions that issue those kinds of mortgages will derive certain benefits, such as being exempt from risk-retention requirements. The financial overhaul bill requires that mortgage originators retain capital reserves equal to 5% of all but the safest loans.
Warren has said that a top priority will be consolidating duplicating and overlapping mortgage forms mandated by the Truth in Lending Act and the Real Estate Settlement and Procedures Act.
The bureau will also enforce the CARD Act, regulating credit card practices, which Congress passed in 2009. Warren said the agency will work to simplify credit card agreements but hasn’t given any additional details.
Richard Cordray, who has been named the bureau’s new enforcement chief, said financial institutions that operate properly and follow the rules won’t be hurt by the bureau’s actions.