Lending Recap 7/13/2020

It seems like proposals, final rules, guidance, etc., have been coming at us in full force lately.  Here is a quick recap of some noteworthy items related to your lending function.

Supreme Court Ruling on Sexual Orientation

Recently, in Bostock v. Clayton County, Georgia, the U.S. Supreme Court ruled that firing an employee based on sexual orientation constitutes discrimination based on the employee’s “sex” and that the protections found in Title VII of The Civil Rights Act of 1964 extend to LGBTA employees.  Under Title VII, it is unlawful for an employer to refuse to hire, discharge or otherwise discriminate against any individual because of race, color, religion, sex, or national origin.

In the credit arena, The Equal Credit Opportunity Act (ECOA) makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract)….  The Fair Housing Act (FHA) makes it unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.

The Bostock decision further supports that ECOA and/or FHA discrimination prohibitions on the basis of “sex” include discrimination based on sexual orientation.

HPML Escrow Exemption Proposal

The CFPB recently issued a Proposal that seeks to expand eligibility for the Higher-Priced Mortgage Loan (HPML) escrow exemption.  It proposes that insured institutions meeting the following criteria would be allowed to originate HPMLs without being required to escrow:

  • Had an asset size of no more than $10 billion (adjusted annually) as of the previous December 31st (or as of either of the two prior year-ends for applications received prior to April 1st);
  • Together with any affiliates, originated no more than 1000 first-lien, closed-end loans secured by a principal dwelling in the previous calendar year (or in either of the two prior calendar years for applications received prior to April 1st);
  • During the previous calendar year (or in either of the two prior calendar years for applications received prior to April 1st) originated one closed-end transaction secured by a first lien on a dwelling that’s located in a rural or underserved area; and,
  • Neither the institution or any affiliates maintain escrow accounts other than those for HPMLs or to help distressed borrowers.  To maintain eligibility, an institution is allowed to have established HPML escrows for applications received on or after April 1, 2010, as long as it stops establishing those escrow accounts for applications received after a final rule is published in the Federal Register.  An institution would need to stop establishing HPML escrow accounts for applications received before 90 days have passed after a final rule is issued in the Federal Register.  For example, if a final rule is published in the Federal Register on September 1, 2020, an institution could only establish escrow accounts for applications received before November 30th.

This additional HPML escrow exemption eligibility criteria is a result of The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).  It’s proposed the existing exemptions would also remain in place, with the revised dates for establishing HPML escrows as noted above.

The proposal still requires that an escrow account be established for any first-lien HPML subject to a “forward commitment” at or before closing.  In other words, when an institution has entered into an agreement to transfer or sell an HPML to an entity that doesn’t qualify for an exemption, an escrow account must be established.

We’ll bring you more once a Final Rule is issued.

Payday Lending Final Rule

On July 7, 2020, the CFPB issued a Final Rule revoking the mandatory underwriting provisions found in the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule (Payday Rule).  If you recall, back in February 2019, the CFPB issued a proposal to delay the compliance date and ultimately revoke the underwriting provisions in the Payday Rule.  Essentially, while the other portions of the Payday Rule were to technically go into effect on August 19, 2019, the underwriting provisions did not.  This Final Rule definitively ends the mandatory underwriting provisions.

The rest of the Payday Rule remains unchanged by the Final Rule.  Institutions making covered loans that do not fall into one of the exceptions under the 2019 Payday Rule must comply with the remaining provisions.  Keep in mind; however, there is still a court-ordered stay in effect which restricts the Payday Rule from going into effect but that stay could be lifted at any time.

If you are unsure about whether the Payday Rule affects you, we have a half-hour “flash webinar” laying out the coverage rules to help you determine whether or not it applies to your institution.  We also addressed the coverage rules in our May 2019 Magazine!


Amy Kudlacek

Amy brings many years of banking and compliance experience to Banker’s Compliance Consulting. She has worked for both large and small financial institutions and spent time working in every area of a bank. She started out as a teller in college and eventually became a branch manager. Her love, however, was always compliance. Amy began her career with Banker’s Compliance Consulting in 2000. Her knowledge and experiences have allowed her to develop a well-rounded and practical approach to regulatory compliance. Amy is CRCM certified, has a Bachelors Degree in Business Administration and is a graduate of the ABA Compliance School. Amy & her husband have two children at home and stay busy following their activities. They spend a lot of time in the bleachers!

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