A congressional repeal of the rule banning use of arbitration agreements for most financial products was formally signed into law by President Donald Trump Wednesday, following a close vote in the Senate and a personal appeal by Consumer Financial Protection Bureau (CFPB) Director Richard Cordray to Trump to veto the legislation.

Earlier in the week, Cordray wrote to Trump in a personal appeal to veto the repeal of the CFPB rule, which would have allowed consumers to join in class actions over disputes about financial products, including credit cards and bank accounts. The Senate on Oct. 24 passed the repeal resolution by a one-vote margin (51-50), cast by Vice President Mike Pence; the House passed the resolution earlier this year. The repeal was passed under the auspices of the Congressional Review Act (CRA).

“I think you really don’t like to see American families, including veterans and service members, get cheated out of their hard-earned money and be left helpless to fight back,” Cordray wrote. “I know that some have made elaborate arguments to pretend like that is not what is happening, ” he wrote. “But you are a smart man, and I think we both know what is really happening here.”

Despite Cordray’s plea, Trump signed the repeal bill; the White House issued no statement about his action.

However, Acting Comptroller of the Currency Keith Noreika – who publicly challenged the CFPB’s data supporting the rule – issued a statement, saying he applauded Congress and the president for vacating the rule. “The rule would have harmed consumers even as it provided no benefit in deterring bank misbehavior or preventing customer abuse,” Noreika said, noting that the regulation likely would have significantly increased the cost of credit for hardworking Americans and “taken away a valuable tool for resolving differences among banks and their customers.”

Under the CRA, once a rule is repealed it may not be reissued in substantially the same form – nor may a new rule that is substantially the same be issued – “unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original,” according to the statute, passed in 1996.

Proposed changes to NCUA rules regarding voluntary mergers are opposed by NASCUS, primarily because of the proposal’s lack of deference to state law, the association for the state credit union system wrote in its official comment letter to the agency.

In addition, NASCUS pointed out several other problematic areas and asserted that the agency should have issued the proposal as an advance notice of proposed rulemaking (ANPR) rather than a proposed rule, given the uncertainty of the rule’s application to FISCUs.

The proposed rule, as presented by NCUA, would revise the procedures a federally insured credit union must follow to merge voluntarily with another credit union. At its meeting in May (when the proposal was issued), NCUA staff noted that the proposal addresses concerns of the agency that “merger packets” presented to members in advance of merger decisions are not “serving members’ needs.” The proposal is also aimed, staff said, at clarifying contents and format of the member notice of the merger “so that members of merging federal credit unions have better information about the merger transaction.” Further, the proposal would require merging FCUs to disclose all merger-related compensation for certain employees and officials of the merging FCU.

In its comment letter, NASCUS made clear that the proposal should not apply to FISCUs. “With respect to a FISCU, NCUA’s sole concern should be mitigating risk to the National Credit Union Share Insurance Fund (NCUSIF),” NASCUS Executive Vice President and General Counsel Brian Knight wrote. “In the absence of any clear and compelling nexus between the activity being regulated and risk to the NCUSIF, NCUA should defer to state law. Nowhere in the preamble to the proposed rule does NCUA articulate an NCUSIF risk that would compel extension of this proposal to FISCUs.”

NASCUS also pointed out that FISCUs are already subject to more extensive disclosure requirements than are FCUs. For example, the NASCUS letter noted, all FISCUs must complete annual Internal Revenue Service Form 990 filings, which require disclosure of any compensation paid to directors and officers, the compensation paid to “key employees” (employees earning more than $150,000.00 in reportable compensation, and “highly paid” employees (the top 5 employees earning more than $100,000.00 in reportable compensation)

In other areas, NASCUS asserted that the proposal – especially with respect to FISCUs – should have been issued as an ANPR. “On its face, the proposal as published is unclear as to what exactly NCUA proposes to apply to FISCUs,” NASCUS wrote. “This lack of clarity in the proposal puts the state system at a disadvantage evaluating the rule.”

Other problematic areas of the proposal, NASCUS wrote, include:

• Definitions of “covered persons” and scope of compensation, which NASCUS described respectively as dubious (since there is no asset threshold set – which could result in modest-sized credit unions required to report all their employees) and “too broad.”
• The requirement that 24 months of board minutes which reference a merger is “overly broad,” noting that federal and state supervisors already have unlimited access to a credit union’s board minutes, books and records.
• “Member to member” communication requirements (in disseminating information about a proposed merger) raises concern about “practical operation” of the provision. “NCUA should more carefully consider whether the potential for acrimony among members is outweighed by the marginal benefit of compelling the credit union to send unsolicited member communications to other members,” NASCUS wrote. “Ultimately, it is the credit union’s reputation at risk in member-to-member communications. Disclaimers aside, members receiving an unwanted communication will lay blame on the credit union as the transmitter of the communique.”

 

Comments are due next week (Monday, July 31) about revised thresholds for reporting open-end lines of credit, proposed by the Consumer Financial Protection Bureau (CFPB), as noted in a summary posted by NASCUS today.

The summary notes that CFPB is looking for comments in two key areas:

• Whether or not the bureau should temporarily increase the open-end transactional coverage threshold. If so, whether to raise the threshold to 500 or to a larger or smaller number.
• Whether, if the bureau elects to increase the open-end transactional coverage threshold, it should do so for a period of two years or a longer/shorter period of time.

“The Bureau has engaged in industry outreach regarding the final rule and has been advised that the current open-end line of credit transactional threshold (less than 100 originated) is too low,” the NASCUS summary states. “As a result, the Bureau is now proposing to increase the exemption threshold for two years—calendar years 2018 and 2019.”

The summary notes that, under the proposed rule, institutions that originate fewer than 500 open-end lines of credit in either of the two preceding calendar years would not be required to collect and report data for a temporary, two year period.  The open-end line of credit reporting threshold will return to the previous standard effective January 1, 2020.

Four key changes to the methodology for determining the “overhead transfer rate” (OTR) of funds from the National Credit Union Share Insurance Fund (NCUSIF) to cover a percentage of the annual NCUA budget are outlined in a new summary published by NASCUS.

In late June, the NCUA Board issued a proposed rule designed to enhance the “transparency” of the OTR by, the agency stated, simplifying the rate’s methodology. Last year, the board set the OTR at 67.7% — meaning that funds from the insurance fund would cover a little more than two-thirds of the agency’s operating budget. The summary points out that NCUA is proposing four key changes for setting rate in the future:

• Time spent examining and supervising federal credit unions would be allocated as 50% insurance related;
• All time and costs that the agency expends in supervising or evaluating the risks posed by federally insured, state-chartered credit unions (or other entities, such as vendors or CUSOs) will be allocated as 100% insurance-related;
• Time and costs related to NCUA’s role as charterer and enforcer of consumer protection and other non-insurance-based laws governing the operation of credit unions (such as field of membership requirements) are allocated as 0% insurance related;
• Time and costs related to NCUA’s role in administering federal share insurance and the Share Insurance Fund are allocated as 100% insurance related.

“NCUA would use the above principles to categorize hours allocated in its budget in order to formulate a portion of the OTR,” the NASCUS summary points out.

A 60-day comment period has been set by the agency for the proposed rule; comments are due Aug. 29.

LINK:
NASCUS Summary: Proposed rule, NCUA Revised Overhead Transfer Rate Methodology

Condensing 14, three-column Federal Register pages into essentially four typewritten pages, the NASCUS summary of NCUA’s recently proposed rule on its appeal procedures gets down to the meat of the proposal while making clear that the proposal does not cover supervisory actions taken by state regulators – only those taken by federal supervisors.

But the proposal does “homogenize” appeals processes covered in eight separate rules, in cases in which a decision rendered by a regional director or other program office director is subject to appeal to the Board. These kinds of decisions are regarded as “informal” decisions by NCUA. They include:

• Part 709 Claims of a Creditor of an Insolvent FICU under an NCUA Alternative Resolution Dispute Process;
• Payment of Claims Regarding Federally Insured Shares or Deposits;
• Chartering and Field of Membership (which apply solely to federal credit unions);
• Community Development Loans;
• Golden Parachutes;
• Investment Authority;
• Change of Officials for Troubled or Newly Chartered Credit Unions;
• Conversions and Mergers.

“Formal” agency determinations are not covered under the proposal, the NASCUS summary points out. Those formal determinations include Administrative Procedure Act (APA) adjudications, formal NCUA enforcement actions, prompt corrective action (PCA) orders, matters under jurisdiction of NCUA’s Supervisory Review Committee, creditor claims in liquidation, delegated final agency actions, others (such as FOIA requests).

The summary also notes that the proposal includes a new, recommended appeals rule, which establishes six new areas under section 746 of NCUA rules, covering such items as “request for consideration,” “appeal to the board,” and “procedures for an oral hearing.”

Comments on the proposal are due Aug. 7.

Link:

Summary: NCUA Appeal Procedures

A summary of final rules governing non-federally insured credit union membership in the Federal Home Loan Bank (FHLB) system, and outlining procedures for non-federally insured CUs to join, has been published by NASCUS.

According to the summary, the final rule (published by the Federal Housing Finance Agency (FHFA)) makes substantive change from the proposed rule: it allows non-federally insured credit unions to submit their request to their state regulator for a share insurance determination at the same time as it submits its initial application to the FHLB. This starts the six-month default timetable if the state regulator is unwilling to make the determination.

The rule is effective July 5, 2017.

A rule aimed at enhancing transparency of mergers between federal credit unions – but that could be applied to mergers between federally insured, state chartered credit unions — was proposed today for a 60-day comment period by the NCUA Board, among other things.

As the agency noted in its overview of the proposal, the rule would amend the “procedures and timeframes that a federal credit union (FCU) must follow for voluntary mergers with another credit union.” In particular, staff noted during the meeting, the proposal addresses concerns of the agency that “merger packets” presented to members in advance of merger decisions are not “serving members’ needs.” The proposal is also aimed, staff said, at clarifying contents and format of the member notice of the merger “so that members of merging federal credit unions have better information about the merger transaction.

Further, the proposal would require merging FCUs to disclose all merger-related compensation for certain employees and officials of the merging FCU.

NCUA Board Acting Chairman J. Mark McWatters expanded on all of those points, noting that the proposal pushes credit unions to “tell the story” about why a merger is being proposed.

Board Member Rick Metsger said that the proposal is “important to me; (credit union) management has a responsibility to tell members a merger is being proposed,” noting that “full transparency” is necessary.

Metsger also said that, during the comment period, he hoped that stakeholders would weigh in on whether federally insured, state chartered credit unions should be included under the proposal (rather than only FCUs).

“I’m prepared to entertain requests to not pre-empt state laws or rules if they provide substantially similar, or stronger, disclosures and communication opportunities for the members of federally-insured state chartered credit unions,” Metsger added.

NASCUS President and CEO Lucy Ito, following the board meeting, said that while some state supervisors may share NCUA’s concerns over transparency and member interests, states may also view this as a credit union governance issue and business decision as opposed to an insurance matter.

“Under this view, application of merger rules should properly be left to state supervisors to decide as the chartering agency of state-chartered credit unions,” she said. “This view, among others, will be reflected in our comments.”

In other action, the NCUA Board today:

• Issued a proposed rule to set up procedures for appeals directly to the NCUA board of agency regulations that now have their own embedded appeals provisions; a comment period of 60 days was set.
• Issued a proposed rule to codify the process for appealing material supervisory determinations to the NCUA Supervisory Review Committee – with the aim of being more consistent with the practices now used by federal banking agencies; the proposal was issued for a 60-day comment period.
• Heard a first quarter 2017 report of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), which showed the fund with net income of $43.8 million in the first quarter, and total assets of $1.58 billion (up from $1.53 billion at YE’16).

LINKS:
Lucy Ito statement on merger rule proposal

Proposed rule: Voluntary Mergers of Federal Credit Unions

Proposed rule: Appeals Procedures

 

Comments regarding the small business lending market, in response to the CFPB’s recent “request for information,” are due July 14, according to a new summary posted by NASCUS.

Earlier this month, the bureau announced it was seeking information about the small business lending market. Section 1071 of the 2010 Dodd-Frank Act requires financial institutions to “compile, maintain, and report information concerning credit applications made by women-owned, minority-owned, and small businesses.” According to the bureau’s public notice announcing the request, the information will assist it in the development of a business lending data collection rulemaking to implement Section 1071.

The NASCUS summary outlines five areas of focus in the bureau’s information request, with the aim  of learning more about the small business financing market, including the products offered to small businesses (such as women/minority-owned small businesses) and the institutions that offer such credit.

LINK:
NASCUS Summary: Request for Information Regarding the Small Business Lending Market

An advisory council of federally insured credit unions intended to provide NCUA with advice and guidance about issues related to credit union federal share insurance regulation and supervision is supported by NASCUS, the result of action taken by the association’s board this week.

In a policy adopted at its quarterly meeting (in concurrence with the NASCUS Credit Union Advisory Council, a group of directors elected by NASCUS-member state-chartered credit unions from around the country), the NASCUS Board stated that a council of federally insured credit unions would provide NCUA with advice and guidance on issues related to insurance regulation and supervision. “Such an advisory council should consist of equal numbers of state chartered and federally chartered credit unions and should convene at least twice annually with the NCUA board in public meetings,” the resolution states.

The NASCUS policy echoes a proposal made by Acting NCUA Board Chairman J. Mark McWatters earlier this year. McWatters, in outlining 15 areas for reducing the regulatory and supervisory burden on credit unions, called for a Credit Union Advisory Council at the agency in order to hear – and learn – directly from the credit union community “as we work collaboratively to identify needless regulatory burden and create cost-effective solutions.”

In a letter to McWatters in February, NASCUS President and CEO Lucy Ito urged the acting chairman to consider an advisory council. She wrote that establishment of a “Credit Union Advisory Council” at the agency would follow what 22 out of 45 states have already done, and which, she noted, generate “common sense solutions that simultaneously assure appropriate safety measures and foster credit union growth.”

In its policy statement this week, NASCUS also noted that “properly balanced regulation and supervision considers not just the risk to be mitigated,” but should also take into account the burden of compliance and the need for business flexibility and innovation. “To help achieve that proper balance, there should robust dialogue between the regulator and the regulated,” the association’s leadership agreed.

An advisory council of federally insured credit unions intended to provide NCUA with advice and guidance about issues related to credit union federal share insurance regulation and supervision is supported by NASCUS, the result of action taken by the association’s board this week.

e regulated,” the association’s leadership agreed.

Up to 13 different areas of comment are being sought by the CFPB as the agency seeks comment about the credit card marketplace, according to a new NASCUS summary.

Comments are due June 8, the summary notes.

In March, CFPB published a “notice and request for information” regarding the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act or Act), which requires the bureau to conduct a review of the consumer credit card market, within the limits of the market’s existing resources available for reporting purposes.

Specifically, the summary points out, the CFPB is seeking information about how the credit card market is functioning, and is seeking comment on consumer experiences and the overall health of the market.

Among the 13 items the bureau seeks comment on are: terms of credit card agreements and practices of credit card issuers; effectiveness of disclosure of terms, fees, and other expenses of credit card plans, and; adequacy of protections against unfair or deceptive acts or practices or unlawful discrimination relating credit card plans.

LINK:
NASCUS Summary: CFPB Request for Information Regarding Consumer Credit Card Market

Conversions of federally chartered credit unions to state charters is continuing in 2017, with larger credit unions converting to the state charter, resuming a four-year trend going back to 2012 (but interrupted in 2016).

According to the latest charter conversion figures compiled and analyzed by NASCUS, three federally chartered credit unions, with combined assets of $1.4 billion, have made the switch to a state charter so far this year (through February). From 2012 on, the NASCUS compilation shows, 47 credit unions have switched from federal to state charters, with combined assets of $28.7 billion.

Over the same period, only 15 state credit unions (with combined assets of $2.8 billion) have made the move to a federal charter, the NASCUS analysis shows.

However, in 2016 five state charters (with assets of $530 million) moved to a federal charter, while only four federals switched to state (with assets of $251 million), the only year in the period 2012-17 that state-to-federal conversions outdistanced federal-to-state.

A six-month delay of the effective date of the CFPB’s final rule on pre-paid accounts, to April 1, 2018, is supported by the state credit union system because it will ensure credit unions and other industry participants have the time to prepare for the rule, NASCUS has written to the bureau.

In the association’s official comment letter, NASCUS pointed out that the bureau’s final rule regarding Prepaid Accounts under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) has raised concerns about the lack of sufficient time to implement the changes to policies and procedures that are needed in order to comply with the current effective date of the final rule (now Oct. 1).

“NASCUS believes it is important to strike a balance between enforcing reasonable regulation while not stifling institutions’ ability to provide the products and services that are beneficial and desired by consumers,” wrote NASCUS Vice President and Legislative and Regulatory Counsel Nichole Seabron.

“State regulators are often required to balance ensuring the safety and soundness of the state banking system with the need to not quell or stifle innovation and delivery of products/services,” she added. “We believe that extending the time institutions will have to implement regulatory compliance changes in this instance strikes the right balance between ensuring proper consumer protections are in place and making certain that institutions have adequate time to respond to new regulatory requirements.”

LINK:
NASCUS Comments: CFPB Proposal to Delay the Effective Date of the Prepaid Accounts Final Rule