Following the Credit Card Act of 2009 and the creation of theConsumer Financial Protection Bureau, lending officers findthemselves spending more time than ever crossing compliance T's anddotting regulatory I's. The CFPB's “Know Before You Owe” initiativeis creating a number of proposed regulations that would apply tomortgages, credit cards and student loans. What has been put outfor comment so far is already making lending officers' headsswim.

Here are some of the most burdensome, difficult and confusingregulations and proposed rules facing credit union lending officerstoday.

Mortgage Disclosure Consolidation

Leading the pack is an effort to consolidate Truth in Lending and Real Estate Settlement ProceduresAct disclosures. NAFCU President/CEO Fred Becker called theproposal a step in the right direction, but said conflictingrequirements inherent in the two statutes might make the taskimpossible.

The proposed consolidation could require credit unions to fillout the RESPA portion of the settlement document, which would beproblematic because most credit unions lack expertise when it comesto the back end of residential real estate transactions.

CUNA Mutual Director of Compliance Bill Klewin said thedisclosure consolidations will cause credit unions “to spend quitea bit of time understanding the rules,” as well as creating a lotof new work for data processors and documents providers.

In addition to the consolidation, the CFPB is overhauling theappearance of mortgage disclosures, implementing the so-called“tabular” format that has already been applied to credit carddisclosures. Tabular forms require that items of most interest toconsumers be published in a table or box, separated from other textin the disclosure.

“The Federal Reserve did consumer testing on this form and itshowed it was easier for consumers to see the information in atabular format,” said NAFCU Director of Compliance Steve Van Beek.“But, I don't think they tested how long it will take for creditunions to get their systems to convert these disclosures to thetabular format.”

Van Beek said the process will be similar to changes made incredit card disclosures two years ago, when tabular formats weremandated for late payment warnings. Credit unions had to undergomajor system changes to meet the requirement, and had to put a lotof marketing projects on the backburner until new forms werecreated. Ambiguity is a problem, he said.

“There's really no instruction manual that comes with thesedisclosures—usually just a 500-page regulation,” Van Beek said.“The Federal Reserve and CFPB have model forms, but publishing amodel form and providing information on how to replicate the modelare two different things.” For example, he said, there is no clearmandate on the exact font size expected by the CFPB.

Six-Month Credit Card Look Back

The Credit Card Act of 2009 required institutions tocontinuously review and monitor the business reasons behind raisinga cardholder's interest rate, or the institution's overall interestrates. For example, if a member's credit score decreases due to ajob loss or other event, and the credit union raises his or herinterest rate, regulations require a review of the member's creditscore six months later to see if it has improved. If it has, thecredit union must lower the rate accordingly. Additionally, if acredit union increases its credit card APRs across the board or inany risk-based category, it would have to document the businessreasons for the increase, and re-evaluate the decision after sixmonths to ensure the business reasons are still valid.

“One big issue is there's no end time, so theoretically, thesereviews will go on indefinitely into the future,” Van Beek said.

Fair Lending

The CFPB released a compliance bulletin April 17 stating theagency will apply the disparate impact doctrine to the institutionsit regulates, which includes the three largest credit unions, whenassessing if they violate the Equal Credit Opportunity Act. TheNCUA has jurisdiction over most credit unions when it comes to fairlending auditing, but the Department of Justice has said it willactively investigate discrimination complaints it receives fromCFPB or any source, like consumer groups.

Disparate impact occurs when a lender's practices or policiesare facially neutral but have discriminatory effects. Basically, itlowers the standard of proof to enforce lending discriminationlaws. If the NCUA follows suit, it could create problems for creditunions that have fields of membership that restrict lending to alimited geographical area or a specific group that may not reflectthe diversity fair lending laws require.

Many are familiar with the Department of Justice's suit againstformer mortgage giant Countrywide, but Klewin said the DOJ's Civil Rights Divisionalso pursued discrimination charges against the $69 million NixonState Bank of Nixon, Texas.

“It doesn't matter how large or small you are, if you areviolating ECOA, the Justice Department will look at you,” hesaid, adding that litigation could be “extremely destructive” to acredit union's reputation.

Maternity Leave

One potential form of discrimination the Federal Reserve haswarned its supervised institutions about is related to maternityleave. Some lenders refuse to consider a woman's employment statusor income if she applies for credit while on maternity leave. Sucha policy may violate the ECOA on the basis of sexualdiscrimination, and may also violate Regulation B, which prohibitsusing assumptions related to the likelihood that any person wouldreceive interrupted or diminished income as a result of raisingchildren. The Fed suggests lenders mitigate risk by not assuming awoman won't return to work after childbirth, and to ensure thatunderwriting standards treat maternity leave applicants equal toother applicants on leave.

Spousal Discrimination and CreditRestrictions

The Federal Reserve's most common regulation citation in 2011was a violation of Regulation B, which prohibits a lender fromrequiring the signature of a spouse, unless the applicant does notqualify for credit and the spouse chooses to provide creditsupport. Adding to the confusion about credit and spouses is amandate from the Credit Card Act, which prohibits credit cardissuers from considering household income when a non-working spouseapplies. Under the rule, which went into effect Oct. 1, 2011, onlyan individual's own income can be considered. That meansstay-at-home parents without significant outside income can nolonger qualify for credit cards or establish their own credithistory independent from their spouses.

It could get even more confusing. The CFPB may look at the rulebecause it affects consumer access to credit and may bediscriminatory.

Equal Housing Lender poster

During its March board meeting, the NCUA created a newrequirement for credit unions to display a new Equal Housing Lenderposter that updated the NCUA's address from the Office ofExamination and Insurance to NCUA's Office of Consumer Protection.The new poster was declared effective immediately, but the agencyadded a caveat of compliance “within a reasonable amount of time”because the NCUA had not yet created a new poster. This has leftmany credit unions wondering about the NCUA's definition ofreasonable amount of time and when the posters will be available.NCUA spokesman John Zimmerman said the new posters are expected inearly May.

CFPB Republishing of Inherited Regulations

When it was formed, the CFPB inherited regulations from sevenother agencies, and republished them in its section of federalcode. That means 13 regulations now have different codedesignations, which requires credit unions to make changes to theirpolicy manuals, training and language. Additionally, the CFPB hasmade technical changes to applications, disclosures and otherrequired information for consumers; for example, required creditcard disclosures used to refer consumers to the Federal Reserve formore information regarding how to effectively manage debt.Consumers should now be referred to the CFPB. Credit unions haveuntil Jan. 1, 2013 to make the changes, but there are severaltweaks to be made in several areas.