Regulations on Lending: Top Bêtes Noires
Regulatory fallout from the housing crash, the Credit Card Act of 2009 and the new Consumer Financial Protection Bureau are making the daily duties of a loan officer look increasingly more like those of a compliance officer. Below are the most burdensome, difficult and confusing current regulations and proposed rules facing credit union lending officers today.
Credit Card Look Back
The CFPB released a compliance bulletin April 17 stating the agency will apply the disparate impact doctrine to the institutions it regulates, which includes the three largest credit unions, when assessing if they violate the Equal Credit Opportunity Act. The NCUA has jurisdiction over most credit unions when it comes to fair lending auditing, but the Department of Justice has said it will actively investigate discrimination complaints it receives from CFPB or any source, like consumer groups.
One potential form of discrimination the Federal Reserve has warned its supervised institutions about is related to maternity leave. Some lenders refuse to consider a woman’s employment status or income if she applies for credit while on maternity leave. Such a policy may violate the ECOA on the basis of sexual discrimination and may also violate Regulation B, which prohibits using assumptions related to the likelihood that any person would receive interrupted or diminished income as a result of raising children.
The Federal Reserve’s most common regulation citation in 2011 was a violation of Regulation B that prohibits a lender from requiring the signature of a spouse, unless the applicant does not qualify for credit and the spouse chooses to provide credit support.
Equal Housing Lender
During its March board meeting, the NCUA created a new requirement for credit unions to display a new equal housing lender poster that updated the NCUA’s address from the Office of Examination and Insurance to the NCUA’s Office of Consumer Protection. The new poster was declared effectively immediately but added a caveat for compliance “within a reasonable amount of time” because the NCUA had not yet created a new poster. This has left many credit unions wondering about the NCUA’s definition of reasonable amount of time and when the posters will be available.
The most mind-bending proposed regulation is the CFPB’s efforts to consolidate Truth in Lending and Real Estate Settlement Procedures Act disclosures. NAFCU President/CEO Fred Becker called the proposal is a step in the right direction but said conflicting requirements inherent in the two statutes might make the task impossible.
When it was formed, the CFPB inherited regulations from seven other agencies, and republished them in its section of federal code. That means 13 regulations now have different code designations, which requires credit unions to make changes to their policy manuals, training, and verbiage.
Fair and Accurate
The Fair and Accurate Credit Transaction Act of 2003 primarily provides the right for consumers to obtain a free copy of their credit report once each calendar year and guards against identity theft. However, a provision requires lenders to provide a disclosure to borrowers if they do not qualify for the advertised as low as rate.
According to the Department of Justice, the Service Members Civil Relief Act mandates that lenders must provide active duty service members, which include National Guard members deployed for 30 days or more, with credit payment flexibility if they are unable to make regular payments. Additionally, lenders may not change the terms of an existing credit arrangement or file adverse reports relating to creditworthiness.
Credit unions don’t typically offer the kind of products that would be regulated by Department of Defense, but “it should be on the radar screen for those with members on active duty,” Klewin said.