Amid the chaos following the economic downturn in 2008, Federal Credit Unions remained loyal to their lending standards. In response to the Dodd-Frank financial reform by the Consumer Financial Protection Bureau, the National Association of Federal Credit Unions wrote a proposal letter outlining their disagreements and appeals to the final ability-to-repay (ATR) rule created by the Frank-Dodd Act.
The ATR final rule underwrites the standards for creditors when determining a borrowers ability to repay a loan. Even though the ATR final rule includes a safe harbor providing certainty and clarity to credit unions, the NAFCU thinks the standards outlined are not sufficient enough for credit unions.
Ultimately the NAFCU would like the CFPB to rule that all covered transactions originated by a Federally Insured Credit Union be deemed compliant with the ATR final rule, according to the proposal.
The ATR final rule makes an exemption for community development financial institutions (CDFIs). The NAFCU would like the exception to also include low-income credit unions and credit unions operating in undeserved areas. The LICU and credit unions operating in undeserved areas already report to the National Credit Union Association (NCUA) and are held accountable to the NCUA standards.
In regards to the safe harbor, the NAFCU would like the CFPB to reconsider the portfolio requirements, the definition of Small Creditor, the debt-to-income ratio for qualified mortgages and the debt-to-income ratio accelerating with increase in income.
In the concurrent proposal by the CFPB, they state small creditors may be better at assessing their consumers ability to repay their loan since they are more likely to base their underwriting decisions on local knowledge due to their relationships with their customers.
The ATR states that the points and fees of a qualified mortgage generally may not exceed 3% of the loan amount. The NAFCU stated they do not want the affiliate fees to be counted against the threshold.
Also, the NAFCU stated that the one-size-fits all model included in the ATR final rule is counterproductive. The proposal asks that the ATR final rule tailor to the fact that each credit union forms itself to the market its serves in, and the one-size-fits-all approach would lead to undesirable results.
The CFPB’s ATR Final Rule will go into effect January 10, 2014 and until then the CFPB is reconsidering the rule and addressing potential problems.