Center for Responsible Lending President Mike Calhoun called on the Financial Accounting Standards Board to delay the implementation of the current expected credit loss, or CECL, accounting standard for all market participants in order to study its likely impact, particularly for low-wealth borrowers.
Calhoun urged the FASB to further study alternative measures to provide for loss reserves without unnecessarily harming borrowers.
"As proposed, CECL creates a significant disincentive for lenders to originate loans to low- and moderate-income families and communities of color, since the up-front charge will be relatively larger than for 'prime' loans, even when the lender charges an interest rate that will fully cover the expected risk of loss," Calhoun said in a statement. "This problem is particularly acute for long-term assets like mortgages."
Recently, the American Bankers Association recommended "a full and indefinite delay" of the CECL accounting standard for all companies to provide for adequate opportunity for the FASB, the SEC and the federal banking agencies to perform and evaluate a Quantitative Impact Study on the impact of CECL implementation on the general economy, the banking industry, and borrowers across an economic cycle.
CECL introduces a new accounting method for recording projected loan losses by requiring companies to reserve against them at origination, as opposed to the current standard that requires companies to record provisions for loan losses only when a loss becomes likely.