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Two of Many Credit Union Issues in Washington, D.C.: PACE Loans and CTRs

Washington, D.C. has been a flurry of activity as of late, with multiple hearings addressing data collection, privacy, barriers to minority homeownership, and various budget and tax-related hearings in Congress. And that’s outside of the efforts by credit unions, Leagues and CUNA to engage on a regulatory front to ensure that credit unions have a positive environment to operate! Here’s a highlight of just two of the issues in play:

Seeking BSA Relief: On May 9th the House Financial Services Committee addressed multiple bills, including H.R. 2514, which had an amendment work for weeks in the making to draw attention to the need to increase the Currency Transaction Report (CTRs) and Suspicious Activity Reports (SARs) dollar threshold triggers, which have not been updated since the law was enacted in 1970.

Sound familiar to Georgia credit unions? This is a point that has resonated strongly with U.S. Rep. Barry Loudermilk (R-11) from Georgia. He and his office were instrumental in creating bipartisan support to pursue relief for financial institutions and publicly cited concerns from his discussions with Georgia credit unions in the debate. This was impressive as this was not expected to be addressed; however, thanks to the work of Georgia credit unions engaging with Rep. Loudermilk, GCUA and other state Leagues with their members of the House Financial Services Committee, the chairman changed her stance on this issue and an agreement was obtained. The bill ties the CTR threshold to inflation, which will take place upon enactment of the bill and then again every five years after that. The bill also directs a FinCEN study directed at reducing SAR compliance burden by potentially shortening the SAR form for seasoned customers of FIs, examining the effectiveness of SARs for law enforcement, improving the usefulness of SARs to law enforcement, and other issues. Credit unions support efforts to track money laundering and terrorist financing, but also believe it is important to strike the right balance between the compliance costs to financial institutions, like credit unions, and the benefits to the federal government. The bill passed the committee with the CTR amendment language, and our thanks to Congressman Loudermilk for working with all sides to create an avenue to pursue positive change for credit unions!

Addressing PACE Loans: CUNA wrote to the Consumer Financial Protection Bureau (CFPB) seeking stronger requirements for Residential Property Assessed Clean Energy (PACE) loans. The letter was sent in response to the Bureau’s Advance Notice of Proposed Rulemaking (ANPR) as credit unions are concerned with the impact that PACE financing programs could have on their members due to lack of proper disclosures, transparency and consumer protections, and the lack of identifying whether the consumer can repay this loan (which supersedes the lien priority of financial institutions). This push was to create a financing rule that subjects PACE programs to the Truth in Lending Act, plus additional disclosures in the communication on May 7th.

What’s PACE? PACE financing permits a property owner to finance the purchase of energy-efficiency improvements and pay for the purchase through an assessment on the property. And if you think it doesn’t matter to Georgia credit unions, think again. This past state legislative session GCUA was engaged in a heavy fight to oppose an attempt to expand PACE financing more broadly than any other state in the nation, something that would have had detrimental impacts (if it had passed) to credit unions that do mortgage lending, utilize the secondary mortgage market, or offer home equity/HELOC products. The CUNA letter illustrates why this is an issue: “[PACE] loan programs remain a serious concern for credit unions, consumer groups, and other entities participating in the housing market … the absence of conventional consumer protections and adequate safeguards have left homeowners vulnerable and could lead to undesirable effects on the housing market.” In general, CUNA recommends the CFPB’s PACE Financing Rule address:

  • Proper underwriting requirements for PACE financing, including an “ability-to-repay” (ATR) analysis based on verified and documented information about the borrower;
  • Clear, understandable disclosures of the key terms, repayment and potential impacts of a PACE lien provided to the homeowner prior to the execution of the contract;
  • Debt-to-income (DTI) ratios should not exceed the ratio established for traditional mortgage loans;
  • Its application to any type of residential PACE lending, regardless of brand name or how the program is marketed to the consumer; and
  • Pre-emption of state laws, unless a state has established a higher standard of consumer protection.
  • CUNA also recommends the CFPB continue to work with other relevant regulators and industry stakeholders during the development of a PACE financing rule.
  • And, although the Bureau is likely unable to address the issue of lien status, CUNA reiterated their concern with PACE lending’s first-lien status under several state laws and state our strong opposition to any type of lien priority that makes PACE loans preferable to other loan options.

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