Compliance Update with Amy K

​Phase 1 of NACHA micro-entry rule starts next month; and be sure to update your policies for CFPB General QM Loan Amendments before effective date of October 1. 

by Amy Kleinschmit, Chief Compliance Officer

Upcoming Regulatory Changes
September 16 – NACHA
Phase 1 of NACHA’s micro-entry rule is effective September 16, 2022 (Phase 2 will be March 17, 2023). This rule defines “Micro-Entries” as ACH credits of less than $1 and any offsetting ACH debits, used for the purpose of verifying a Receiver’s account. This rule also standardizes the Company Entry Description and Company Name requirements for Micro-Entries and establishes other Micro-Entry origination practices. The rule requires application of risk management requirements to the origination of Micro-Entries.

A Micro-Entry would be “a credit or debit Entry used by an Originator for the purpose of verifying a Receiver’s account or an individual's access to an account.” A credit Micro-Entry must be in the amount of less than $1.00. One or more debit Micro-Entries must not exceed, in total, the amount of the corresponding credit Micro-Entries. This definition accommodates the existing practices of offsetting the amounts of credit Micro-Entries with one or more debits, which nets the total verification practice to $0; and permits a debit offset to be greater than $1.00 only to offset the amounts of credit Micro-Entries.

As noted above, the rule standardizes formatting for Micro-Entries. In the Company Entry Description field, the Rule will require the use of “ACCTVERIFY.” A standard description will make Micro-Entries more easily identifiable, and better enable ODFIs to apply any desired processing routines or other controls. Like other rules for the standardized use of the Company Entry Description, ODFIs will not be required to review, validate or correct an Originator’s formatting. The Company Name must be readily recognizable to the Receiver and be the same or similar to the Company Name that will be used in future Entries; permitted to have minor variations to accommodate processing needs. This mirrors the Company Name requirement from the recently approved rule on Reversals.

Additional information on this rule change, including a scenario chart for additional information on return handling can be found here.

October 1 – CFPB, General QM Loan Amendments.
Just a reminder - The Consumer Financial Protection Bureau (CFPB) issued a final rule in 2020 that amended the General QM definition. The effective date of the amendment General QM category was March 1, 2021; however, compliance was not initially mandatory until July 1, 2021. The CFPB subsequently delayed the mandatory compliance date to October 1, 2022.  So, if your credit union has not implemented these changes yet, be sure to update policy/procedure and processes! A model policy is available in your CU policy pro manual – specifically Policy 7350.

For applications received on or after March 1, 2021 but before the mandatory compliance date of October 1, 2022, creditors that seek to originate General QM loans have the option of complying with either the revised, price-based General QM loan definition or the original, total monthly debt to total monthly income (DTI)-based General QM loan definition. Only the revised, price-based General QM loan definition is available for applications received on or after the October 1, 2022 mandatory compliance date.

The CFPB did issue a small entity compliance guide that can be found here, in addition to other resources here.
As discussed in the final rule, the CFPB is amending the General QM loan definition “because retaining the existing 43 percent DTI limit would reduce the size of the QM market and likely would lead to a significant reduction in access to responsible, affordable credit when the Temporary GSE QM definition expires.”

The final rule removes the General QM loan definition's 43 percent DTI limit and replaces it with price-based thresholds.

The rule provides that a loan would meet the General QM loan definition only if the APR exceeds APOR for a comparable transaction by less than 2.25 percentage points as of the date the interest rate is set. The final rule provides higher thresholds for loans with smaller loan amounts, certain manufactured housing loans, and for subordinate-lien transactions. For instance, with regard to a first-lien covered transaction secured by a manufactured home with a loan amount less than $110,260 (indexed for inflation), the threshold is 6.5 or more percentage points.

The final rule also removes Appendix Q. However, the rule will still require the consideration of the consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, debt obligations, alimony, child support, and monthly debt-to-income ratio or residual income. The final rule requires verification of consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan using third-party records that provide reasonably reliable evidence of the consumer’s income or assets, in accordance with the provisions of the regulation. It also requires verification of consumer’s current debt obligations, alimony, and child support using reasonably reliable third-party records in accordance with the regulation.

The General QM definition will retain all the existing product requirements and points/fees restrictions.
As always, DakCU members may contact Amy Kleinschmit with any compliance related questions. 

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