Monumental Moment for the CFPB

This past week was one of monumental precedence. The Consumer Financial Protection Bureau (CFPB) proposed several changes that will increase the number of banks that will be able to benefit from the CFPB rules defining small creditor and rural or underserved area exemptions related to its mortgage rules. Both the Independent Community Bankers of America and the American Bankers Association, as well as their respective state affiliates, had been meeting with the CFPB to explain the problems related to its current definitions.

Specifically, CFPB has put out for public comment through March 30 a proposed rule that covers the following areas:

  1. Expands the “small creditor” definition. From the current threshold of 500 first-lien mortgages per year, the definition increases to 2,000 first-lien mortgages per year, excluding mortgages held in portfolio. This is available to banks with less than $2 billion in assets.
  2. Expands exceptions for rural lenders. The proposal would change the definition of “rural” mortgage lenders to include any census tracts that are not in urban areas, as defined by the Census Bureau.
  3. Exempts more banks from escrow requirements. Changing the small creditor definition increases the number of banks that are exempt from mandatory escrowing requirements.
  4. Extends balloon-payment loans. With the change in the small creditor definition, the number of banks that can make balloon-payment loans as Qualified Mortgages increases substantially.

Bear in mind that these are proposed changes being released for public comment. Because some consumer advocacy groups may not want these exemptions to be increased, it will be very important that banks, particularly those that are affected by this proposal, provide the CFPB with comment letters. These letters should be specific as to the effect these proposals will have on customers, communities and banks’ ability to serve these constituencies. More will be forthcoming in the next few weeks regarding content of these letters.

This is a major breakthrough for the CFPB. Its charge is to protect consumers from financial abuse. This is one of the first times that banks and the CFPB have agreed on where the line between consumers and credit providers, in this case small banks, should be drawn. While it remains early in the process, it provides some optimism that the voice of bankers will be heard as issues unfold in the future.

– S. Joe DeHaven

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