Indiana General Assembly Racing Toward an Early Finish
The first half of this year’s session of the Indiana General Assembly was relatively quiet as legislators quickly passed bills seeking to address some concerns loudly voiced by 15,000 teachers last fall (impact of student testing and newly required teacher training) while not addressing another issue (teacher pay). Legislators also passed a few bills during the first half seeking to address skyrocketing healthcare costs, but none appear able to make a significant impact.
With only 100 teachers attending a more recent Statehouse rally, the second half of session is proceeding even more quietly than the first. It looks like Governor Holcomb’s top priority bill that would require hands-free cell phone use while driving is gaining momentum but nothing much else is making news. While session is required to end by March 14, early talk was that session would conclude on March 11. Now it is looking possible that session could end on March 9 with Speaker of the House Brian Bosma (R-Indianapolis) making good on his announcement to retire and formally handing off the gavel to Speaker Elect Todd Huston (R-Fishers) to close out the session. Stay tuned.
As the session quietly proceeds, the League continues to work on several important bills impacting credit unions.
Credit Report Problem Clean-Up Bill (HB 1109)
One bill that is very important to credit unions appears to be on a fast track to the Governor. HB 1109 is designed to fix a major problem that arose as an unintended consequence of legislation passed in 2019 that aimed to help consumers avoid identity theft but instead created serious problems for creditors trying to get credit reports on borrowers. When the law went into effect last summer, suddenly credit bureaus began providing no credit report for a borrower if there was any kind of mismatched data, which often occurred when a borrower had recently moved or married. This change impacted lenders of all kinds as well as realtors, apartment owners, insurance agents, and others. The significant negative impact of last year’s legislation on the credit reporting process led to the development of HB 1109 that will effectively repeal last year’s bill and, hopefully, return the credit reporting process to how it functioned in Indiana prior to July 1, 2019.
HB 1109 flew through the House earlier this session and is now moving rapidly through the Senate. The bill is schedule for a final Senate vote on February 24 and, if passed as expected, would go straight to the Governor for his signature.
Consumer Lending Issues (SB 395)
The League continues to work closely on SB 395 that would make additional improvements to Indiana’s Uniform Consumer Credit Code (UCCC). The legislation passed the Senate in early February 40-9. Originally, it was hoped that SB 395 might make major improvements to modernize Indiana’s consumer credit laws, in the form it ultimately passed the Senate the bill would offer only modest improvements for state-chartered credit unions (and others) subject to this law.
As the League sought feedback on the UCCC from state-chartered credit unions, one problem area was a recurring response – calculating refunds on prepaid finance charges for loans that pay off early is a significant challenge and area of frustration. Finding a way to improve or eliminate the required refunding process has become a top priority for the League this session and, fortunately, is a key component of SB 395. Today, a lender can charge a non-refundable prepaid finance charge of $50. The lender may charge a higher prepaid finance charge than that, but anything over $50 must be reflected in the finance charge/interest rate and, if the loan pays off early, is subject to refunding based on a complicated formula that often trips up lenders and results in regulatory findings by the DFI.
As the bill passed the Senate, it traded out the $50 non-refundable fee with anything charged over $50 subject to refunding for a new graduated scale for the allowable nonrefundable prepaid charge - $75 on loans up to $2,000; $150 on loans up to $4,000; and $250 on loans over $4,000. The fee would be capped, which would eliminate the need for calculating refunds in the case of prepayment. This would simplify the process and increase the nonrefundable fee, but also could limit lenders who would be interesting in collecting a higher fee and be willing to be subject to refunding. The House Financial Institutions Committee held a hearing on SB 395 on Feb. 18 but did not entertain amendments or vote on the bill. This is expected to happen on Feb. 25.
At this point, the League is working with the Indiana Bankers Association and
Financial Institutions Committee Chairman Woody Burton
(R-Whiteland) to develop an amendment that would allow a lender to charge a defined non-refundable prepaid finance charge but also continue to allow a lender to charge above that amount but continue to be subject to refunding. It is not yet clear what form that amendment will take but it appears that it could set the non-refundable finance charge dollar amount at $200 but allow amounts charged in excess of $200 be subject to refunding. While this would not eliminate the challenges involved with calculating refunds, it would significantly lower the instances the calculation would be needed because up to $200 would be non-refundable. There are other issues involved in SB 395 that could derail the legislation or create other trade-offs, especially if consumer advocate groups take a more aggressive stance on the bill. For now, though, SB 395 still offers the chance for modest improvements to the UCCC and the League will continue to treat the bill as a top priority.
Department of Financial Institutions Bill (HB 1353)
HB 1353, which passed the House 92-0, was heard in the Senate Insurance and Financial Institutions Committee on Feb. 19. As mentioned in the
Feb. 3 Advocacy in Action
message, this year’s Department of Financial Institutions bill, HB 1353, contains a section that is intended to clarify the Credit Union Act’s provisions related to loans to credit union directors and officers by more directly apply Regulation O, which has been the practice since these provisions went into place 15 years ago.
In addition to these changes, the League has worked with the DFI to develop an amendment to HB 1353 that would address a potential parity problem related to the appraisal threshold. Right now, appraisals are required for real estate loans of $250,000 or greater. However, the NCUA has a proposed rule under consideration that would raise that threshold to $400,000 for federally insured credit unions. This would match what the other federal financial regulators adopted last fall. Instead of simply amending the Credit Union Act to reflect a $400,000 threshold, we have developed an amendment that would simply tie the Act’s appraisal requirement to the NCUA appraisal rule so that it would change whenever NCUA’s rule changes rather than having to wait on a legislative change. The League made the case for the amendment to the committee during the Feb. 19 hearing and the committee is expected to approve the amendment and vote out the bill at its next hearing on Feb. 25.