I’ve been writing about lending, operations, and regulatory compliance for Credit Union Magazine for almost 20 years. This is my last column. I am retiring.
Over the last 20 years, you’ve learned a little about my family, my views—and hopefully a few things you’ve been able to use in serving your members.
I will miss your comments, your camaraderie, and your passion about what we do. I will miss being told I am contributing to the downfall of Western civilization (I am all-powerful, apparently), and I will miss the feeling of satisfaction when I have helped someone at a credit union solve a particularly troublesome problem.
With that said, I have one last chance to bring out my crystal ball and look ahead to the regulatory challenges you will face in lending in 2015 and beyond. There is really only one theme: the Consumer Financial Protection Bureau (CFPB) has only begun to affect your business.
Here are just a few of the issues you will face:
1. New mortgage rules
Based on requirements created by the Dodd-Frank Act, CFPB has created seven rules revamping the way credit unions must make mortgages.
The first six dealt with things like qualified mortgages, escrow accounts, servicing requirements, high-cost and high-priced mortgages, and loan official compensation. The final rule revamps the disclosures required when a member applies for a loan or closes a loan under Truth in Lending and the Real Estate Settlement Procedures Act.
This last rule may be the most challenging of them all. The disclosures are lengthy and detailed. The rules are proscriptive and complex. Your data processor may not be able to help you complete disclosures, even if you can find a source for the documents.
The changes will likely force credit union staff to make decisions, especially regarding purchase money transactions held in portfolio and whether the credit union portfolio will even contain closed-end home equity loans at all.
Credit unions may decide to only offer home equity lines of credit (HELOC) loans changing the credit unions’ risk portfolio. Thus, CFPB’s activities may have a direct impact on your portfolio mix.
2. Potential new HELOC rules
Before CFPB was created, the Federal Reserve Board staff made a significant proposal to amend the rules for open-end HELOCs. When the Fed’s rulemaking authority was transferred to CFPB, these HELOC proposals were transferred to that agency.
While CFPB has not yet made it clear when, it is very likely at some point in the not too distant future CFPB will propose radical changes to the HELOC rules, akin in scope to the mortgage rules.
It is likely these proposed rules will be as sweeping in their changes as the mortgage rules, and will likely require massive changes to products, systems, and staff.
3. Potential new credit card rules
Similarly, CFPB has expressed concerns that the credit card rules that came out of the Credit CARD Act of 2009 were not sufficient to protect consumers.
The Fed took four separate rulemakings to implement the CARD Act rules in 2009, 2010, and 2011. Credit unions need to change their processes and disclosures again, based on CFPB rulemaking.
4. Data-driven examinations
CFPB’s focus in fair lending will continue to be on data-driven reviews under the “disparate impact” theory of lending discrimination.
A disparate impact analysis requires significant and sophisticated data review capabilities likely not held by most credit union staff. Thus, you will likely not have the skills necessary to do a review of your portfolio, processes, and procedures—but you’ll be exposed to the review of those same things by examiners who have that kind of sophistication.
What can you do to prepare and respond to these challenges?
5. Budgeting and staffing issues
Acknowledge that the relentless pace of regulatory change is not going to abate, but is the new normal. That means you must budget, staff, and organize for regulatory compliance changes.
You will need to hire and train staff that understand change and give you the tools needed to respond to regulatory compliance changes in a systematic, organization-wide fashion.
Such staff and processes are the new norm. Make sure you have the money and the staff you need to respond.
6. Staff training
Work with all parts of the credit union organization, from the board to frontline staff, to emphasize the need for focus and attention on the new rules and processes.
How tellers talk to members, for example, may have an impact on how members perceive how they were impacted in a loan transaction. Examiners may just be interested in those interactions.
Hold onto your hat. It’s going to be a bumpy ride.
One final thought: The sun is shining, my wife is beautiful, and my daughter is doing well in college. Life is good.