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NDBA Legal Update • October 19, 2017                                                                   Page 3


         evaluation, if first loan had a maximum principal amount of   CFPB has also issued a notice of proposed rulemaking involving
         $500, the second loan had a principal amount that is one-third   the timing for servicers to transition to providing modified
         smaller than that of the first loan, and the third loan has a   or unmodified periodic statements and coupon books under
         principal amount that is two-thirds smaller than that of the   Regulation Z when a consumer has filed for bankruptcy.
         first loan. The exemption for sequential loans does not apply   Comments on the proposal are due 30 days after it is published
         to situations where a borrower would have, during a 12-month   in the Federal Register.  The proposal may be accessed at
         period, more than six short-term loans or be in debt from short-  https://www.consumerfinance.gov/policy-compliance/rulemaking/
         term loans for more than 90 days.                       rules-under-development/amendments-2016-amendments-2013-
         Lenders must periodically file information about short-term   mortgage-servicing-rules-under-real-estate-settlement-procedures-
         and lengthier balloon-payment loans with a “registered   act-regulation-x-and-truth-lending-act-regulation-z/.
         information system”: at loan consummation, while the loan
         is outstanding, and when the loan is paid off. A lender must   Feds Propose “Simplified”
         also retain the loan agreement and other documentation and
         origination calculations in the format of “electronic records in   Capital Rules for Small
         tabular format.”                                        and Mid-sized Banks

         The rule addresses repeated account debits and NSF fees by
         prohibiting withdrawal of payment from an account after   On September 27, bank regulatory agencies released a proposal
         two unsuccessful withdrawal attempts without a borrower’s   to “simplify” capital requirements for community and mid-
         authorization for additional debits to the account. The lender   sized banks. The proposal intends to simplify the treatment
         must notify the borrower when this prohibition has been   of assets subject to common equity tier 1 capital threshold
         triggered and follow specific procedures in obtaining new   deductions and limitations on minority interest and replace the
         authorizations. This provision applies to loans that are subject   definition of high-volatility commercial real estate exposures
         to the ATR requirements and also to longer-term installment   with a more straightforward measure.
         loans where the simple interest rate exceeds 36% and the bank    The proposal is to loosen the treatment of CET1 capital
         obtains a leveraged payment mechanism over the account.   threshold deductions for mortgage servicing assets, temporary
         Withdrawals by lenders that also hold the consumer account   difference deferred tax assets not eligible for carryback
         from which the transfer is attempted are exempt from the   and investments in the capital of unconsolidated financial
         withdrawal restriction if the financial institution’s loan or   institutions. It replaces a combined deduction limit of 15
         account agreement with the borrower does not allow a charge   percent of CET1 for MSAs and DTAs with a 25 percent limit
         or NSF or overdraft fee for an attempted withdrawal.    that applies to each category of asset. Capital investments
         The rule is to be effective 21 months after publication in the   in unconsolidated financial institutions receive a 25 percent
         Federal Register. CFPB has launched a web page where lenders   deduction limit, without regard for the significance of the
         can access compliance materials. Banks can access the final   investment. The proposed rule also replaces the definition of
         rule on the Bureau’s website. The implementation web page   for “high volatility commercial real estate (HVCRE) with
         is accessed here.                                       a definition for “high-volatility acquisition, development or
                                                                 construction loans” (HVADC). Loans to primarily finance or
                                                                 refinance ADC activities would have a 130 percent risk weight,
         CFPB Issues New Proposals                               rather than the 150 percent risk weight for HVCRE.

         for Mortgage Servicing                                  The proposal also would eliminate the current calculation for
                                                                 minority interests that may be included in regulatory capital.
         On October 4, CFPB issued an interim final rule about the   Minority interests would be allowed to count for up to 10
         timing of  modified written early intervention notices given by   percent of the parent banking organization’s CET1, tier 1 and
         mortgage servicers under Regulation X when borrowers have   total capital elements.
         invoked their cease communication rights under the Fair Debt   The FDIC has issued a community bank summary and an
         Collection Practices Act. Comments on the interim final rule   Excel-based tool for banks to use to estimate how regulatory
         will be due 30 days after publication in the Federal Register.   capital would change under the proposal. Comments on the
         Details on the proposed interim rule are found at https://www.  proposal are due 60 days after it is published in the Federal
         consumerfinance.gov/policy-compliance/rulemaking/final-rules/  Register. For access to the proposed rule, FDIC Estimator and
         amendments-2016-amendments-2013-mortgage-servicing-rules-  FDIC explanation for small banks go to https://www.fdic.gov/
         under-real-estate-settlement-procedures-act-regulation-x-and-  news/news/financial/2017/fil17045.html.
         truth-lending-act-regulation-z/.
                                                                 The proposal is sparking interest and some positive response,
                                                                 however, FDIC Vice-Chairman Thomas Hoenig, is not a
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