CUNA supports flood insurance changes, with tweaks

December 29, 2014

WASHINGTON (12/30/14)--A joint proposed rule dealing with loans in flood hazard areas is generally supported by the Credit Union National Association, but agencies involved should be mindful of additional regulations on credit unions, according to CUNA.

In a comment letter filed Monday, CUNA Assistant General Counsel Lance Noggle raised several concerns with the proposal.

The proposal was issued by the National Credit Union Administration, Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corp. and the Farm Credit Administration.

It would establish mandatory requirements to the escrow of flood insurance payments for loans made on or after Jan. 1, 2016, and includes exceptions to this requirement. For instance, credit unions with assets of less than $1 billion will not be subject to the rule. Also, the plan would create an exception for home equity lines of credit, which was a concern detailed in CUNA's comment to the 2013 proposed rule.

The proposal would also create an existing-loan escrow option requiring credit unions to offer the option to escrow flood insurance premiums and fees for loans that are outstanding as of Jan. 1, 2016. It also would incorporate an exemption for certain detached structures from the mandatory flood insurance purchase requirement.

"We request that the agencies be mindful of placing additional regulatory requirements on credit unions," CUNA's letter reads. "Some credit unions remain concerned that they do not have the capability to escrow flood insurance premiums on loans processed by their core processing systems. For these credit unions, upgrades to facilitate escrowing flood insurance premiums will be costly and time consuming, with these costs eventually borne by members."

CUNA recommends several additional requirements to the rule that would help financial institutions meet escrow requirements. These include: escrow details featured on the insurance declarations page; the reporting of changes in escrow status by lienholders to insurance companies; and required notification from insurance companies to lienholders once they are informed of changes in escrow status.

The proposal does not address a concern raised by CUNA in a December 2013 comment letter, a concern raised again in the current letter. CUNA urges the agencies to review the escrow requirements in Regulation Z, which implements Truth in Lending Act rules, to ensure as much consistency as possible between Regulation Z and changes the NCUA is contemplating.

"We fear that multiple escrow schemes will be created where credit unions will be required to deal with different escrow requirement for flood insurance, taxes and other related items," the letter reads.

While CUNA supports the detached structure exemption, it believes the NCUA should issue guidance to "ensure that credit union and consumer expectations as to the application of this exemption are met."

CUNA also urges the agencies to look for ways to add flexibility to the compliance date, as the current Jan. 1, 2016, date gives credit unions less than two years to comply with the escrow provisions in the rule.