Compliance Blog

Written by Steve Van Beek

Yesterday, we walked through NAFCU's comment letter to the CFPB on the proposed change to the definition of finance charge (and the subsequent impact on the annual percentage rate - APR).  Today, we'll look at a comment letter NAFCU sent to NCUA on the finance charge proposal and the potential impacts on credit unions.  

It is important to note that NCUA historically looked to the Federal Reserve Board (prior to Reg Z transferring to the CFPB) for interpretations of what is considered a "finance charge" - but they are not required to by law.  NCUA has the ability to make its own determinations - for usury ceiling purposes - of which fees are finance charges and which are not.  

From NAFCU's comment letter:

"The Federal Credit Union Act (FCUA) imposes a statutory limit on the interest rate that credit unions may charge.  Currently, the National Credit Union Administration’s (NCUA) regulations cap the APR at 18 percent, inclusive of all finance charges.  12 C.F.R. § 701.21(c)(7).  NAFCU is concerned that, if the CFPB moves forward with its proposal, the changes might prove problematic given the NCUA’s reliance on the definition of the finance charge in Regulation Z.  Specifically, under the new proposal, the precise finance charge, and what fees or charges should be included, will vary from product to product in a way that is not currently the case.  This will likely cause confusion as the NCUA’s regulations may not provide enough clarity regarding exactly how a credit union should calculate the finance charge for different products." (emphasis added).

Thus, it is very important for credit unions to consider not just the impact the CFPB's proposed change would have from a Regulation Z perspective - which will be huge - but also from a usury ceiling perspective.  

If the CFPB goes forward and finalizes their proposal, NCUA should take a good hard look at abstracting themselves from relying on the CFPB's interpretations of finance charge for purposes of the usury ceiling.  The NCUA has the ability to make their own determination and they should be prepared to take that step.  

"Accordingly, NAFCU requests that the NCUA begin examining options it might pursue if the CFPB moves forward with its proposal.  Specifically, NAFCU recommends taking steps to clarify how credit unions should calculate the finance charge for different products."

If your credit union was on the fence regarding sending a comment letter to the CFPB (and NCUA) prior to the November 6th deadline, this may be just the push you need.