Removing Barriers Blog

CUNA's 360° Advocacy Scores Victory on Reg Z Small Creditor Exemption
Posted March 23, 2016 by CUNA Advocacy

Yesterday the CFPB issued an interim final rule broadening the exemption for Small Creditors under Regulation Z (Reg Z), which will allow more credit unions operating in Rural or Underserved areas to originate balloon mortgages, even though balloon mortgages are not otherwise allowed to be designated Qualified Mortgages.

This change also allows more credit unions to originate high-cost mortgages with balloon payments under the CFPB’s Home Ownership and Equity Protection Act (HOEPA) regulations.  Additionally, credit unions are no longer required to establish escrow accounts for higher-priced mortgages if they satisfy the other exemption criteria. 

This updated Small Creditor threshold applies to credit unions that have less than $2 billion in assets and who originate under 2,000 covered transactions.  Under existing rules, the credit union would have to demonstrate that 50% of a lender's total first-lien covered transactions lie on properties located in a rural or underserved area.  Under the new rule, the credit union only needs one  transaction to avail themselves of the exemption.

What is noteworthy in this rulemaking is that notwithstanding the passage of the FAST Act (which included the HELP Act), the CFPB still had a broad range of discretion to set the threshold somewhere between 1 transaction and 49% of covered transactions.  They chose CUNA’s advocated position of the minimum one (1) transaction.  This is in part due to our ability to quickly and seamlessly pivot from the passage of the FAST Act to engagement in the rulemaking process, long before any proposed rule was published. 

We are proud that our 360° strategy is resonating and achieving results with the CFPB.  Our legislative advocacy helped to secure passage of the FAST Act, and our regulatory advocacy used many channels to pressure the CFPB. This strategy included consistent messaging to urge the CFPB to use its exemption authority, promoting our regulatory burden studies, and both formal and informal meetings between the CFPB and CUNA, League partners, credit unions and others. We are glad to see that the CFPB is beginning to acknowledge the effect of its regulations and is now tailoring its rules accordingly. 

This latest Reg Z exemption is a clear victory for the entire advocacy system!