Last week, members of the Senate Banking Committee announced that they had reached bipartisan agreement on “legislative proposals to improve our nation’s financial regulatory framework and promote economic growth.” Following the announcement, Committee members released a draft of a bill (S. 2155), the “Economic Growth, Regulatory Relief, and Consumer Protection Act.” A markup of the bill is scheduled for December 5, 2017. Many observers believe that due to its bipartisan support, there is a strong likelihood that the bill will be enacted as part of a regulatory relief package.
Provisions of the bill relevant to providers of consumer financial services include the following:
Small Depository Qualified Mortgage (Section 101). For an insured depository institution or insured credit union, the bill would create a qualified mortgage loan entitled to the safe harbor under the ability to repay rule. In general, the depository institution or credit union would need to hold the loan in portfolio, and the loan could not have an interest-only or negative amortization feature and would need to comply with limits on prepayment penalties. While the creditor would need to consider and document the debt, income and financial resources of the consumer, it would not have to follow Appendix Q to the ability to repay rule.
Appraisal Exemption for Rural Areas (Section 103). The bill would provide an exemption from any appraisal requirement for a federally related transaction involving real property if (1) the property is located in a rural area, (2) the loan is less than $400,000, (3) the originator is subject to oversight by a federal financial institution regulator, and (4) no later than three days after the Closing Disclosure under the TRID rule is given to the consumer, the originator has contacted at least three state certified or licensed appraisers, as applicable, and has documented that no state certified or licensed appraiser, as applicable, is available within a reasonable period of time. The applicable federal financial institution regulator would determine what constitutes a reasonable period of time. The exemption would not apply to high-cost loans under the Truth in Lending Act (TILA), or when the applicable federal financial institution regulator requires the financial institution to obtain an appraisal to address safety and soundness concerns.
Home Mortgage Disclosure Act Triggers (Section 104). The bill would increase the loan volume trigger to be a reporting company under the revised Home Mortgage Disclosure Act (HMDA) rule from 25 closed-end mortgage loan originations in each of the preceding two calendar years to 500 such loans in each of the two preceding calendar years. The 25 closed-end loan trigger went into effect in 2017 for depository institutions, and goes into effect on January 1, 2018 for non-depository institutions.
The bill also would make permanent under the revised HMDA rule a trigger of 500 open-end mortgage loan originations in each of the preceding two calendar years. As reported previously, the revised HMDA rule provided for a trigger effective January 1, 2018 of 100 open-end mortgage loan originators in each of the preceding two calendar years, and in August 2017 the CFPB temporarily raised the trigger for 2018 and 2019 to 500 open-end mortgage loans in each of the preceding two calendar years. The bill includes a requirement for the Comptroller General of the United States to conduct a study after two years to evaluate the impact of the amendments on the amount of data available under HMDA, and submit a report to Congress within three years.
Loan Originator Transition Authority (Section 106). Subject to various conditions, the bill would establish temporary transition authority for an individual loan originator to conduct origination activity for up to 120 days from when the individual submits an application to be licensed in a state in cases in which the individual is (1) registered and then becomes employed by a state-licensed mortgage company or (2) licensed in a state and then seeks to conduct loan origination activity in another state.
TRID Rule Provisions (Section 110). The bill includes a provision that apparently is intended to eliminate the need for a second three business day waiting period under the TILA/Real Estate Settlement Procedures Act Integrated Disclosure (TRID) rule in cases in which the annual percentage rate decreases and becomes inaccurate after the initial Closing Disclosure is provided, thus triggering the need for a revised Closing Disclosure. Currently, the TRID rule requires both a revised Closing Disclosure and a new three business day waiting period before consummation may occur. As drafted, however, the bill would amend the TILA timing requirements for high-cost mortgages under the Home Ownership and Equity Protection Act. The TRID rule timing requirements are set forth in Regulation Z and not TILA. Thus, revisions to the bill are necessary to achieve the intended goal.
The bill also includes a sense of Congress provision with regard to the TRID rule, which provides that the CFPB should endeavor to provide clearer, authoritative guidance on (1) the applicability of the rule to mortgage assumptions, (2) the applicability of the rule to construction-to-permanent home loans, and the conditions under which such loans can be properly originated, and (3) the extent to which lenders can, without liability, rely on the model disclosures published by the CFPB under the rule if recent changes to the rule are not reflected in sample TRID rule forms published by the CFPB.
Credit Report Alerts (Section 301). The bill would amend the Fair Credit Reporting Act (FCRA) to require consumer reporting agencies to keep a fraud alert requested by a consumer in the consumer’s file for at least one year and allow a consumer to have one free freeze alert placed on his or her file every year and remove that alert free of charge. Consumer reporting agencies would also have to provide free freeze alerts requested on behalf of a minor and remove such alerts free of charge.
Credit Reports of Military Veterans (Section 302). The bill would amend the FCRA to require consumer reporting agencies to exclude from credit reports certain information relating to medical debts of veterans and would establish a dispute process for veterans seeking to dispute medical debt information with a consumer reporting agency.
Protection of Seniors (Section 303). The bill would, subject to certain conditions, provide immunity from civil or administrative liability to individuals and financial institutions for disclosing the suspected exploitation of a senior citizen to various government agencies, including state or federal financial regulators, the SEC, or a law enforcement agency.
Cyber Threats (Section 501). The bill would require the Secretary of the Treasury to submit a report to Congress on the risks of cyber threats to financial institutions and U.S. capital markets that includes an analysis of how the appropriate federal banking agencies and the SEC are addressing such risks. The report must also include Treasury’s recommendation on whether any federal banking agency or the SEC “needs additional legal authorities or resources to adequately assess and address material risks of cyber threats.” (We note that for several years, the FTC has been calling for such additional authority, specifically in the form of rulemaking authority. Due to the limitations of the Banking Committee’s jurisdiction, the bill’s provision focuses exclusively on the federal banking agencies, and gives no recognition to the important role of the FTC—which is under the Senate Commerce Committee’s jurisdiction–in addressing cyber threats.
We will be publishing another blog post in the near future about other provisions of the bill that may be of interest to our blog readers.
