Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) on May 22, 2018. The bill was signed by President Trump on May 24. While the Act is now law, many of its provisions require implementation from the Federal banking agencies in order to be effective. The Act provides some direct regulatory relief, but also serves as an acknowledgement of a need for change in the realm of deregulation. It passed by a bipartisan vote of 258-159 and represents a step in the right direction. What follows is not a comprehensive review of the Act, but a summary of key provisions related to the banking industry.
Title I. Improving Consumer Access to Mortgage Credit
Creates a new category of qualified mortgage (QM) for purposes of meeting the Truth in Lending Act’s (TILA) ability to repay requirements. This QM is available to financial institutions less than $10 billion in assets that originate and retain the loan in portfolio. To obtain QM status under this rule the loan must meet certain requirements:
- Restrictions on prepayment penalties;
- Total points and fees less than or equal to 3% of the loan amount;
- No negative amortization or interest only features; and,
- Fully amortized for fixed rate loan.
While this QM status is available as a matter of law, some clarification is still required by the Consumer Financial Protection Bureau (CFPB). For instance, CFPB must clarify the relationship between the new QM category and the existing small creditor QM.
Provides an exception from appraisal requirements in rural areas. An appraisal for a federally-related mortgage loan is not required if the following criteria are met:
- Loan is under $400,000;
- Real property located in a rural area (under TILA);
- Within 3 days after providing the Closing Disclosure, contact at least 3 State certified appraisers;
- These appraisers must not be available within 5 business days, and the financial institution must document this fact; and,
- Loan is held in portfolio.
- May be sold or transferred under limited circumstances.
This relief is not available for high cost mortgage loans (under TILA) or, for loans where an appraisal would otherwise be required for safety and soundness reasons under other federal regulatory requirements.
Exempts certain small-volume loan originators from the new HMDA reporting requirements. Financial institutions that originate fewer than 500 closed-end mortgage loans in each of the two preceding calendar years may revert to pre-January 2018 HMDA reporting requirements. Similarly, financial institutions that originate fewer than 500 open-end lines of credit in each of the two preceding calendar years may revert to pre-January 2018 reporting requirements. Thus, for HELOCs there is an:
- Exemption from HMDA reporting for HELOCs during 2018-2019 period; and,
- Limited HELOC reporting for post 2019 period.
None of the Section 104 exemptions apply to any bank that has received a “needs to improve” CRA rating during each of the last 2 most recent exams or a “substantial non-compliance” rating on its most recent exam. CFPB. The CFPB will need to implement, or rewrite, the existing HMDA rule to clarify Section 104’s relation to current reporting requirements.
Creates a new exemption from escrow requirements for residential mortgage loans (under TILA) for financial institutions that:
- Have assets of $10 billion or less;
- Originated 1,000 or fewer first lien mortgages secured by a principal dwelling in the preceding year;
- Originated at least one covered transaction in a rural or underserved area (under TILA); and
- Do not maintain an escrow account for real estate secured loans other than when required for HPML or distressed customers. however, an HPML must continue to meet the covered transaction, extension, and asset threshold tests under 1026.35(b)(2)(iii).
This exemption is created in addition to the existing escrow exemption available under TILA. This exemption is not immediately effective. The CFPB must write implementing regulations in order for the exemption to become available. The Act does not give a timeline that CFPB must follow for implementation.
Eliminates the 3-day waiting period required by the TILA/RESPA integrated disclosure rules when a consumer receives a second offer for credit by the same lender. Meaning, if the APR becomes inaccurate, by changing more than 1/8th of a 1% that results in a lower rate, a corrected Closing Disclosure is still required, but does not require a 3 day waiting period before closing.
Title II. Regulatory Relief and Protecting Consumer Access to Credit
Simplifies the capital calculations for community banks that have less than $10 billion in assets by requiring the Federal banking agencies to establish a specified Community Bank Leverage Ratio between 8% and 10%. This specified ratio is designed to provide relief from Basel III capital standards for community banks. Financial institutions that maintain this ratio are presumed to be well capitalized an in compliance with risk based capital and leverage requirements.
Exempts banks with less than $10 billion in assets from the Volcker Rule.
Requires the federal banking agencies to implement regulations raising the eligibility for reduced Report of Condition and Income (short form call reports) from $1 billion to $5 billion in assets.
Increases the asset threshold for the 18 month instead of 12 month examination cycle from $1 billion to $3 billion in assets.
Permits the collection and use of certain information, such as a copy of a customer’s driver’s license, in connection with online banking.
Other Sections to Consider
As discussed above, this article does not provide a comprehensive analysis of S. 2155. It is designed to highlight certain portions of select sections within the Act. There are other sections in each title above, as well as titles not discussed above. Some of those titles not discussed that readers should be aware of are:
- Title III – Protections for Veterans, Consumers, and Homeowners;
- Title IV – Tailoring Regulations for Certain Bank Holding Companies;
- Title V – Encouraging Capital Formation; and,
- Title VI – Protections for Student Borrowers.
Readers are encouraged to consult S. 2155 to review the sections above in full, as well as those sections not discussed. The Act can be found here: https://www.congress.gov/bill/115th-congress/senate-bill/2155
In addition, if you missed the WBA webinar, Everything You Need to Know About S.2155 All Member Call, you can access its recording here: https://gsb.adobeconnect.com/pumj4imny6uh?proto=true
By, Ally Bates