Legislators are hitting the halfway point of the 2020 session of the Indiana General Assembly this week in a short session that has been dominated by education and health care issues. Nearly 15,000 teachers rallied at the Statehouse in November guaranteeing that legislators would focus on at least a few issues important to them, and health care costs top public opinion polls as the most important issue to voters. With consequential elections looming, the session is scheduled to end on March 11, a few days ahead of the constitutional deadline of March 14.
Even with education and health care taking up a lot of attention, there are a few issues impacting credit unions that are working their way through the process.
Consumer Lending Issues (SB 395)
As we have the last few years, the League has been actively engaged in efforts to improve or modernize Indiana’s Uniform Consumer Credit Code (UCCC), which governs consumer lending by state-chartered credit unions and banks and licensed lenders like consumer finance companies and buy-here-pay-here car dealers. During last year’s session, we were able to make modest improvements including the end of the “current installment rule” and an increase in permitted delinquency charges. Following a summer study committee hearing focused on other potential improvements, we worked with legislators, the Department of Financial Institutions (DFI), and other interested parties to develop legislation for this session that we hoped would bring more positive changes.
This effort became SB 395 that, when introduced, would have increased the current flat interest rate limit from 25% to 36% and eliminated the existing optional graduated rate scale (36% on the first $2,000; 21% on the next $2,000; and 15% on anything over $4,000). It also would have increased the allowable nonrefundable prepaid finance charge from $50 to $150 but would have capped the charge at $150. Today, a lender can charge more than $50 as a prepaid charge but it must be disclosed in the finance charge and is subject to refund in the event of prepayment. The process of refunding in the event of prepayment has been a top area of concern for state-chartered credit unions and the League so we have been working on the prepaid fee section of the bill to help diminish or eliminate the need to calculate refunds.
After two committee hearings, which included consumer advocate groups strongly opposing the elimination of the graduated rate scale and an overall 36% rate, SB 395 was amended in the committee to remove the 36% flat rate and return to the current framework – 25% flat rate or the graduated rate scale (36-21-15). In response to our concerns that capping the prepaid charge at $150 might be a problem in certain kinds of loans, the bill also was amended to introduce a 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 remain capped, which would eliminate the need for calculating refunds in the case of prepayment. The legislation also includes language intended to clarify that a lender could increase the delinquency charge up to $25 on loans originated prior to July 1, 2019, if the wording of a loan contract allows it. A prior DFI advisory opinion concluded the fee on loans prior to July 1, 2019, could not be raised. SB 395 is open for amendments on the Senate floor today (Feb. 3), and the League will be working to insure that potential harmful amendments are defeated or not offered.
Department of Financial Institutions Bill (HB 1353)
Each year the DFI has legislation updating the various Indiana Code cites that it oversees. As introduced, this year’s legislation, HB 1353, includes a section that is intended to clarify the Credit Union Act’s provisions related to loans to credit union directors and officers. In 2005, the Act was changed to effectively apply Regulation O (which has applied for decades to banks and thrifts) to state-chartered credit unions. When that language was added to the Act, wording was pulled from Reg. O and put into the Code rather than having the Code simply reference Reg. O. The Act includes wording that says the DFI may utilize Reg. O in implementing the requirements, which is what it has done in practice. Over the years, the DFI indicates that there has been some confusion with the way the Act is worded so HB 1353 seeks to clear up the confusion by removing the specific Reg. O-like provisions in the Act and replace them with a cleaner reference to Reg. O.
In addition to these changes, the League is working 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 are working on 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.
Credit Report Problem Clean-Up (HB 1109)
Last year, the League worked on legislation designed to help prevent identity theft related to credit reporting issues. At the time, the national association representing the large credit reporting agencies offered compromise legislation that it suggested would not change the credit reporting process. Once the law went into effect July 1, 2019, the reality proved to be very different. When a credit inquiry was made to a credit bureau prior to then with mismatched information (typically due to a recent marriage or move), the report was usually provided perhaps with a notation that there was mismatched information. After the law went into effect, credit bureaus suddenly began sending back information like “no file” or “no credit” when there was a situation with mismatched data. Of course, this caused major problems for credit unions and many others who utilize credit reports. In response to strong encouragement from credit unions, banks, insurance companies, realtors, and apartment owners HB 1109 includes language that would repeal the legislation enacted last year and, hopefully, return the credit reporting process back to the way it operated prior to July 1, 2019. HB 1109 quickly passed the House 95-0 and is expected to be fast-tracked in the Senate.
In addition to these issues, the League is engaging on other legislation potentially impacting credit unions including protecting credit union lien rights; exploring options for improving notice requirements for tow yards towing abandoned vehicles; monitoring bills impacting credit unions as employers; and following bills related to Indiana’s framework for regulating hemp. At the end of this message is a link for more details on many of the bills we are following. Please take some time to review them and let us know if there are any that impact you in a positive or negative way.