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January 8, 2016Consumer Financial Protection Bureau Attention: PRA Office1700 G Street, N.W. Washington, DC 20552 Re:OMB review of Agency Information Collection Activities Home Mortgage Disclosure (Regulation C) 12 CFR 1003OMB Control Number 3170-0008Docket No.: CFPB-2015-0047Dear Sir/Madam:The Credit Union National Association (CUNA) appreciates the opportunity to submit comments concerning the Office of Management and Budget (OMB) review of the Agency Information Collection Activities concerning the Home Mortgage Disclosure Act (Regulation C) (HMDA). CUNA represents America’s credit unions and their more than 100 million members.On numerous occasions the Consumer Financial Protection Bureau (CFPB) has indicated its willingness to revisit rules that contained errors or that were not working as intended. In fact, the CFPB demonstrated this with numerous rules including the Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act (Reg Z), and with the Amendments Relating to Small Creditors and Rural or Underserved Areas under Reg Z. We greatly appreciate the CFPB’s openness and willingness to discuss and amend rules that have been finalized. In that spirit, the purpose of this letter is to discuss our analysis of the recent Final Rule under the HMDA and its impact on credit unions.Background of HMDA and Community Reinvestment ActHMDA was originally passed by Congress in 1975 to provide the citizens and public officials with sufficient information to enable them to determine whether depository institutions are filling their obligations to serve the housing needs of the communities and neighborhoods in which they are located and to assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment. It was originally only applicable to large depository institutions and was enacted due to concerns that credit shortages in certain areas were leading to the decline of some geographic areas, particularly urban areas. As articulated in the Federal Register Notice on the new HMDA Rule, the CFPB’s summary thoroughly walks through the evolution of HMDA’s purpose. In particular we note the addition by the Board of Governors of the Federal Reserve System’s (Board) addition of the third purpose under HMDA of identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes codified in 12 CFR 1003.1(b)(1). This purpose was not originally included in the statutory purposes of HMDA.The release of HMDA data to the public began when Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) in 1989 leading to the public release in 1991 (for 1990 data) of outcome data by financial institutions. After the release of the 1990 HMDA data, a wave of fair lending mortgage litigation and regulatory enforcement actions commenced. That trend of litigation and enforcement activity continues to this day.The Community Reinvestment Act (CRA) similarly came into existence shortly after the enactment of HMDA with its underlying purpose dovetailing on the HMDA law. CRA is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 228). The regulation was substantially revised in May 1995 and updated again in August 2005. The CRA was intended to reduce credit-related discrimination, expand access to credit, and shed light on lending patterns. Importantly, it needs to be noted that credit unions did not, and have not participated in the type of discriminatory lending that lead to the imposition of CRA on banks. Credit Unions are not and have never been subject to the provisions of CRA. This is the case in part due to credit union’s history of responsible lending practices. Banks were actively engaged in redlining and thus subjected to CRA requirements.Legislation that addressed discrimination in lending explicitly includes the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). With this final HMDA rule, the CFPB has now made the link between HMDA, ECOA, FHA, and CRA quite explicit, without regard for their individual purposes or applicability to a particular industry. In fact, the CFPB has acknowledged publicly that credit unions do not engage in the types of activity for which many of these laws attempt to protect:“The Consumer Bureau is well aware that credit unions were not one of the causes of the recent financial crisis. You were not underwriting the bad loans that brought down the housing market. Instead, you were sounding the alarm bells well before the sinking of the economy. And you were upholding sound underwriting standards even though you lost customers and market share to the financial predators.” (Emphasis Added).Despite the lack of applicability of CRA to credit unions and the lack of any evidence that credit unions engage or have engaged in the types of practices sought to be corrected by the relevant statutes, the CFPB has cast a broad net with the new HMDA regulation and attempted to apply a remedial statute to an industry that requires no remedy. HMDA DATA CANNOT ESTABLISH DISCRIMINATIONMost notably, however, is that the HMDA data under the old regime and under the new rule still cannot establish discrimination. While it may provide trends that may warrant further investigation by the public or a regulator, HMDA data is only “outcome” data and does not contain pertinent and critical information on how those outcomes were determined. It does not contain credit history (although it does now contain the credit score), employment history, the applicant’s assets, nor does it consider other key elements of pricing including market factors, supply and demand, and other items. With credit unions specifically, it does not contain individual field of membership restrictions that can affect a lending decision. It is precisely these limitations on the data which illuminate why the data collection is thus overbroad and not reasonably tailored to allowing the CFPB to accomplish its oversight function. Since the data cannot establish discrimination, the CFPB has clearly overstepped the boundaries of what is necessary for it to accomplish its oversight function and protect the public.More specifically, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) outlined only 17 data points that Congress intended for the CFPB to collect as part of its HMDA collection. While Congress did authorize the CFPB to collect “such other information as the Bureau may require”, it is unlikely this grant is an unbridled delegation to the CFPB to more than double the amount of express data points that Congress had indicated for the Bureau to collect. Under the doctrine of Ejusdem Generis, the CFPB should have limited itself to only those items that either directly related to the class of items that were similar in nature to those specifically enumerated in the statute. The doctrine of Ejusdem Generis is a rule of statutory construction established by the courts used to give effect to what Congress intended when it enacted a statute. This is particularly prescient when there is a list of items and the last item is meant as a “catch all”. Clearly that was the case with the HMDA grant of authority to the CFPB in Dodd-Frank. Courts generally look at the additional item to determine if it is within the class of items listed before it. To go beyond the list is essentially ignoring what Congress chose to allow for expressly. Although Congress did provide for the CFPB to collect other information, the CFPB went far beyond the Dodd-Frank specifically itemized data points and now requires a staggering 48 data fields to be collected by a covered financial institution. Many of the additional items are not related to those specifically itemized in the Dodd-Frank grant of authority (i.e. Automated Underwriting System, Introductory Rate Period, Manufactured Home Type and Interest, etc.). Therefore, it appears that the CFPB far exceeded what Congress intended for it to collect.CFPB HAS FAILED TO ARTICULATE WHAT HMDA DATA WILL BE PUBLICDodd-Frank in HMDA sections 304(h)(1)(E) and 304(h)(3)(B) requires CFPB to issue standards for requiring modification of information that would be made available to the public for the purpose of protecting the privacy interests of mortgage applicants and borrowers for any data that is or will be available to the public. This section of Dodd-Frank also explicitly directed CFPB to develop regulations, in consultation with other banking regulatory agencies, to determine which data points will be public. In the HMDA rulemaking, the CFPB fell well short of this mandate and only adopted a “balancing test” to balance the importance of releasing the data to accomplish HMDA’s public disclosure purposes against the potential harm to an applicant or borrower’s privacy interest that may result from the release of the data without modification. While the balancing test may be useful by the agency as a step in determining what should be made public, it does not inform the industry of what data points will actually be made public or in what format the data will be public. In fact, the balancing test gives no insight whatsoever as to anything that will be made public as the application of the balancing test by the CFPB cannot be known. The CFPB has indicated that they “intend to provide a process for the public to provide input on the application of the balancing test to determine the HMDA data to be publicly disclosed;” however, this still does not allow for notice and comment on the most important aspect of the disclosure which is the actual data that will be disclosed. Input solely on a nebulous balancing test is in fact a blatant disregard of the statutory requirement to provide regulations, in consultation with other banking regulatory agencies, to determine which data points will be public. It is further a clear attempt to avoid the APA rulemaking process as well.This is not simply a technical oversight. For purposes of being able to adequately assess the impact of the rule, it is a key component to know what information will be made public. The CFPB dismisses any notion that a financial institution could be held liable under with Gramm-Leach Bliley Act (GLBA) or the Right to Financial Privacy Act (RFPA). It simply says “The Bureau does not believe a financial institution could be held legally liable for the exposure of data due to a breach at a government agency or for reporting data to a government agency if the institution was legally required to provide the data to the agency.” This is an astonishing statement and does not recognize the current litigious society in America. A person who has his identity stolen can sue anyone and everyone if there is any inkling that their individual data was leaked. It is even further more astonishing since the CFPB has not identified which data will be public, only the balancing test. There is no way to fully evaluate the risks or the impact until this is known.On a related issue, the CFPB acknowledges that its own ability to protect the privacy of the data it collects was resoundingly criticized by the Government Accountability Office (GAO) in a recent report. In the Federal Register publication, the CFPB acknowledges that remedial actions to correct these deficiencies are still “under development” or are in process. To date, we do not know if these items are in progress, how far along they are, or if they will be completed prior to the effective date of the rule. It is critical that these items are addressed prior to the CFPB collecting HMDA data as the information contains private personal information of a consumer.More fundamentally, the data that will be made public (either intentionally or unintentionally) will most certainly be utilized by those members of the trial bar for purposes of bringing law suits attempting to allege discrimination by a financial institution for violations of either ECOA or FHA. The CFPB does not address this potentiality at all in its consideration of the impact of the HMDA rule. All the CFPB needs to do is look at the litigation history since 1990 when HMDA data became readily available to the public. It is not our assertion that all litigation in this area is frivolous; however, since many of these laws contain attorney’s fees provisions, the inherent incentive for lawyers to file an action, regardless of the merits of the case, has always been present and will increase at a significant pace with the additional data. The CFPB has not considered this potential and the impact on financial institutions at all in its rulemaking process. Again, the CFPB must clearly articulate the data points and the format that they will be made available to the public and how it will adequately protect the privacy of this data so the public can have the ability to comment in an informed manner and properly evaluate the impact of the rule.OMB Request for CommentsThe OMB requests comments on the following areas: 1. Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information will have practical utility; The collection of information is not necessary for the CFPB to carry out the functions of the Bureau. The CFPB went well beyond the statutory framework for the amount of data necessary for it to conduct its oversight function. It does not need the 48 data points for determining whether it needs to investigate an entity for potential violations of HMDA, ECOA, or FHA. Since the data it is collecting cannot establish discrimination on its own, the CFPB can really utilize far less data for purposes of identifying trends that might warrant further investigation. In order for it to bring an administrative action for a violation, it will need to conduct further investigation. Thus, the practical utility of the overbroad collection is minimal.2. The accuracy of the Bureau’s estimate of the burden of the collection of information, including the validity of the methods and the assumptions used; The Bureau failed to consider key elements of the rule in evaluating its impact. In particular, it failed to consider potential litigation that might arise from the release of HMDA data to the public. It further failed to consider the privacy ramifications of the release of individual consumer mortgage data. Even worse, it failed to comply with the statute and did not identify the data that will be made available to the public. As such, there is no way to evaluate the full effect of the rulemaking. The CFPB should be required to start the rulemaking process again and complete its statutory duty. Specifically for credit unions, the bureau chose to include HELOCs as part of the mandatory reporting. Previously, for credit unions this reporting was voluntary. There was little or no discussion in the rulemaking as to the financial impact on credit unions for this new requirement. Many credit unions process HELOCs on separate systems from regular mortgages and the financial impact for having to modify systems, reporting, and other checks and balances was not considered in the financial impact. This will disproportionately impact small credit unions at a much greater level than large credit unions. Therefore, the CFPB’s estimate of the impact has been greatly understated.3. Ways to enhance the quality, utility, and clarity of the information collected; and The quality and utility of the data collected could be greatly enhanced by returning to only the Dodd-Frank required data points for collection.4. Ways to minimize the burden of the collection of information on respondents.The burden could be greatly minimized by returning to the Dodd-Frank required data points. These are the only points necessary for the CFPB to perform its oversight function. Also, in a letter from 19 Representatives to the CFPB concerning the HMDA rule, dated December 15, 2015, the Representatives requested an analysis of increasing the thresholds for required reporting for open-end and closed-end mortgages to higher levels. We strongly agree and believe an increase to 500 covered closed-end loans and 1000 covered open-end loans is warranted and would provide much needed relief to smaller credit unions.Furthermore, as has been the experience with the recent implementation of the TILA/RESPA Integrated Disclosures rule, the regulatory burden on credit unions has been tremendous. By the CFPB’s own statements, they acknowledge that such complex changes require the involvement of many parties and a substantial effort on behalf of financial institutions to implement such change. For the TILA/RESPA rule, the CFPB directed regulatory restraint for good faith efforts to comply with the rule. The CFPB should provide a similar safe-harbor for the implementation of the HMDA rule. Particularly for credit unions where HELOCs are often processed on different systems than mortgages, it will require substantial effort and costs to revise operating systems to track the increased data collections required by the rule. To that end, an extended compliance period to January 1, 2018 with reporting commencing January 1, 2019 is certainly warranted. TILA/RESPA Integrated Disclosures provided a 22 month implementation period. For HMDA, it is really only 12 months since data will need to be collected January 1, 2017 for reporting January 1, 2018. Systems must be in place in order to collect the data. Having already been sidled with a substantial overhaul by the CFPB with TRID, Ability-to-Repay, QM, etc..., financial institutions are now being faced with yet another task to revise their systems. This is an untenable situation which requires relief.As noted earlier, credit unions have not been engaged in the practices to which the HMDA law seeks to remedy. They have never been subject to CRA and the CFPB acknowledges credit unions’ stellar underwriting history. As such, an exemption for credit unions (which is clearly within the statutory authority of the CFPB as provided by Dodd-Frank), is worthy of serious consideration.Thank you for the opportunity to express these views to the CFPB. If you have further questions or would like to discuss CUNA’s comments in more detail, please feel free to contact me at 202-508-3630.Sincerely,Andrew T. PriceSenior Director of Advocacy & Counselaprice@cuna.coop ................
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