United States

CFPB’s final rule impacts small creditors and rural or underserved areas

COMPLIANCE NEWS  | 

The Consumer Financial Protection Bureau (CFPB or Bureau) issued a final rule making additional amendments to the 2013 mortgage rules pertaining to small creditors and rural and underserved areas. The rule revised the regulatory definitions of small creditor and rural and underserved areas relating to special provisions and exemptions in the mortgage rules. These changes are in line with earlier statements by the Bureau in which it indicated it would revisit these definitions. The proposed rule was published in the Federal Register on Feb. 11, 2015, and is adopted with some clarifications and technical corrections. The final rule is effective Jan. 1, 2016.

The final rule makes the following changes:

  • Increases the number of covered transactions secured by a first lien that are allowed to be eligible for small lender status from 500 to 2000. Loans held in portfolio by the creditor and its affiliates are not included in the 2000 loans. (1026.35(b)(2)(iii)(B))
  • Establishes a grace period that allows a creditor that exceeded the origination limit in the preceding calendar year (but did not exceed the limit in the calendar year before the preceding year) to operate as a small creditor for applications received before April 1 of the current calendar year. Certain other conditions must be met for the grace period to apply.
  • Includes the assets of the creditors' affiliates that regularly extend covered transactions in the $2 billion asset limit for small creditor status. (1026.35(b)(20(iii)(C))
  • Establishes a grace period to the annual small creditor asset limit test for a creditor that exceeded the test in the preceding calendar year (but did not exceed the limit in the calendar year before the preceding year) in certain circumstances for applications received before April 1 of the current calendar year.
  • Changes the time period used to determine whether a creditor operated predominantly in rural or underserved areas (greater than 50 percent of its first lien covered transactions were made in rural or underserved areas) from "any of the three preceding calendar years" to the "preceding calendar year." (1026.35(b)(2)(iii)(A))
  • Establishes a grace period for creditors not meeting the "operating predominantly in rural or underserved areas" requirements in the preceding calendar year (but which met the requirements in the calendar year before the preceding year) to continue operating as if the threshold was met for applications received before April 1 of the current calendar year in certain circumstances.
  • Amends the current exemption for small creditors that operate predominantly in rural or underserved areas from establishing escrow accounts for higher-priced mortgage loans (HPML) to Jan. 1, 2016. This enables creditors that only established escrows to comply with the current rule to continue to be eligible for the exemption if they meet the new requirements. (1026.35(b)(2)(iii)(D)(1))
  • Expands the definition of rural by adding census blocks that are not in an urban area to the current county-based definition.
  • Makes conforming changes to the definition of underserved.
  • Adds two new safe harbors related to the rural or underserved definition for creditors that rely on automated tools provided on the Bureau's or U.S. Census Bureau's website. The current safe harbor is retained, but with technical changes.
  • Adds commentary clarifying when U.S. territories will be included on the rural or underserved lists.
  • Extends the current transition period that allows certain small creditors to make balloon-payment qualified mortgages (QMs) and balloon-payment high cost mortgages regardless of whether they operate predominantly in rural or underserved areas from covered transactions consummated on or before Jan.10, 2016, to applications received before April 1, 2016.

In addition to sections of Regulation Z impacted by this final rule, the changes in the manner in which small creditor status is determined will impact other sections of Regulation Z that provide small creditor exemptions.