(Jan. 8, 2021) The election of two Democrats from Georgia to the U.S. Senate this week – giving the Democrats a slim majority and therefore control — means some changes ahead in policy and, likely, to at least two regulatory agencies.
Once newly elected Sens. Raphael Warnock and Jon Ossof are seated (following certification of their elections, likely late this month), the Democrats will take control of the Senate. That will open the door to Democrats capturing the chairs of Senate committees – including the Senate Banking Committee, which writes the laws affecting credit unions and other financial institutions. Sen. Sherrod Brown (Ohio) is now the ranking Democrat on the committee and will likely be elected chair.
Brown, over the last several years as ranking minority party member of the committee, has been sharply critical of financial institution regulatory relief efforts. This week, for example, he vilified in a press release the recommendations of the CFPB’s task force on consumer law. “From the outset, it was clear that the CFPB’s Taskforce on Federal Consumer Law was just a pretext to gut regulations and protections for consumers,” he stated. “The Taskforce members have a history of undermining the CFPB and work at law firms representing payday lenders, banks, and other corporations with a direct, financial interest in rolling back consumer protections.”
The Democrats’ control of the chamber likely also dooms the nominations for a Federal Reserve governor and a permanent comptroller of the currency. On Jan. 3, President Donald Trump (with 17 days left in office) re-nominated Judy Shelton as a Fed governor, and Brian Brooks as comptroller (Brooks now serves as acting comptroller). Those nominations are unlikely to be considered between now and Jan. 20, when President-elect Joe Biden will be inaugurated, as the Senate is in recess through Jan. 19. Biden will likely withdraw the nominations after taking office – and, even if he didn’t, the Democrat-led Senate is unlikely to ever take them up.
(Jan. 8, 2021) Small Business Administration (SBA) and Treasury Department officials will provide an overview of the new Paycheck Protection Program (PPP) features associated with the recently passed Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act during a webinar Monday (Jan. 11), at 2 p.m. ET. Registration is now open; see the link below. The presentation — co-sponsored by NCUA and the federal banking agencies — is open to all SBA lenders who participated in the SBA PPP lending program … Credit unions and banks should be alert to COVID-19 vaccine-related scams and cyberattacks, FinCEN said last week. That includes fraud, ransomware attacks, or similar types of criminal activity related to COVID-19 vaccines and their distribution, Treasury’s financial crimes unit said. The agency also provided specific instructions for filing SARs regarding suspected fraud related to COVID-19 vaccines and their distribution.
Registration for SBA/Treasury Jan. 11 (2 p.m. ET) PPP webinar
FinCEN Asks Financial Institutions to Stay Alert to COVID-19 Vaccine-Related Scams and Cyberattacks
(Dec. 23, 2020) A 2021 budget of $341.4 million – with an overhead transfer rate (OTR) of 62.3% — was approved by the NCUA Board on a split vote of 2-1 at its meeting late last week, with barely two weeks to go until that budget takes effect for the new year.
The agency’s budget for next year is down about 1.7% from the 2020 budget, but the OTR went up by 100 basis points. Board Chairman Rodney Hood and (now) Vice Chairman Kyle Hauptman voted for the 2021 budget; Member Todd Harper against it.
The OTR represents money that is transferred from the National Credit Union Share Insurance Fund (NCUSIF) to the operating budget of the agency to cover “insurance-related” expenses of the agency. The remainder of the operating budget is covered by the operating fee paid by federal credit unions, resulting in a split of 62.3% (from the OTR) and 37.7%, respectively.
NASCUS President and CEO Lucy Ito said the OTR increase for next year is a sign of the need for NCUA to reconsider how it allocates expenses.
In a press statement following last Friday’s board meeting, Ito said what appears counterintuitive to the state system in the 2021 NCUA budget is that the projected increase in workload for state exams is not matched with an at least equal if not greater increase in workload for federal credit union exams. She noted that assets between state and federal CUs are approximately equal, yet FCUs outnumber FISCUs by more than 1,000 (3,213 FCUs versus 1,920 FISCUs as of the end of the 2020 third quarter).
Further, she said, the 1-point OTR increase will essentially mean there will be $3.3 million less to cover losses by the National Credit Union Share Insurance Fund should those materialize as the result of an economic downturn due to the financial impact of the coronavirus pandemic
“NASCUS will continue to work with NCUA to allocate expenses to the OTR in a way that safeguards balance and equity, and that ensures that the insurance fund has the resources necessary to protect the savings of credit union members,” she said.
Along those lines, she added, NASCUS welcomes the formation of an OTR working group comprised of NCUA, state regulators, and NASCUS to assure transparency in and reasonableness of cost allocation assumptions to foster equity between federal and state credit unions.
LINKS:
Notice: Overhead transfer rate
Board action memorandum — 2020-2021 budget
NCUA 2021-2022 budget justification (Dec. 18, 2020)
(Dec. 23, 2020) A new title has been bestowed on the newest member of the three-member board for the NCUA, who is now “vice chairman,” according to a release from the agency late last week.
Kyle S. Hauptman, who was confirmed by the Senate to a seat on agency’s board Dec. 2 – and who joined his first two meetings of the board last week (on Dec. 17 and 18) – was, late in the day Friday, tapped as vice chairman of the panel. The title — while indeed an honor — is largely honorific: other than sitting in for the board chairman in that individual’s absence, and taking a role in some appeals for Freedom of Information Act (FOIA) request decisions (under part 792.28 of agency regulations), there are few specific duties, responsibilities or benefits attached to role, other than those assigned by NCUA Board Chairman Rodney Hood.
The new vice chairman, in a press statement, said that in his role he looks forward to “working with credit unions, my fellow Board Members, and Congress on solutions that provide regulatory relief for the credit union community and expand the use of technology to reach underserved communities.”
This week, Hauptman named veteran credit union service organization (CUSO) and state league executive Sarah Canepa Bang as his senior adviser. The agency, in a release Monday, said Bang has broad experience in the credit union industry that includes serving as executive vice president of industry relations and president and chief strategy officer at CO-OP Financial Services. Previously, she was (among other things) chief executive officer at Financial Service Centers Cooperative, Inc., and executive vice president of the Oregon Credit Union League and Affiliates.
In other agency personnel developments this week, NCUA officially announced the retirement of J. Owen Cole, associate director of the policy and markets division in the NCUA’s Office of Examination and Insurance at the end of this month. NCUA said Cole served in various roles during his 27-year tenure, including senior investment officer, director of the division of risk management, associate regional director of operations, deputy executive director, and acting chief of staff. Most recently he had also served as president of the NCUA Central Liquidity Facility, which addresses potential credit union system liquidity risks.
LINKS:
NCUA Board Designates Hauptman as Vice Chairman
Sarah Canepa Bang Appointed Senior Advisor to Vice Chairman Hauptman
Owen Cole, Associate Director for Policy and Markets, Announces Retirement
(Dec. 23, 2020) Debt collectors must provide, at the outset of collection communications, detailed disclosures about the consumer’s debt and rights in debt collection, along with information to help consumers respond, under a final rule issued late last week by the CFPB.
The rule, the CFPB said, requires debt collectors to take specific steps to disclose the existence of a debt to consumers, orally, in writing, or electronically, before reporting information about the debt to a consumer reporting agency (CRA).
It also prohibits debt collectors from making threats to sue, or from suing, consumers on time-barred debt.
“Before a collector furnishes information about a debt to a consumer reporting agency, the final rule generally requires the collector to take one of several actions to contact the consumer about the debt,” the bureau said of its new rule in a release. The actions, the bureau said, include speaking with consumers about their debts by telephone, mailing a letter to the consumer, or sending an electronic message about the debt to the consumer.
“If mailing a letter or sending an electronic message to the consumer, the collector must wait a reasonable period of time to receive a notice of undeliverability, such as 14 days, before furnishing information to a CRA and must not furnish if a notice of undeliverability is received unless the collector takes additional steps,” the bureau said. “Collectors are also prohibited from, and will be strictly liable for, suing or threatening to sue a consumer to collect a time-barred debt, which is defined as a debt for which the applicable statute of limitations has passed.”
According to CFPB, the final rule is the product of a seven-year process that included a notice of proposed rulemaking (NPRM) in 2019, a supplemental NPRM in February and what the agency described as “extensive consumer disclosure testing.” It also follows a CFPB regulation issued in October focusing on communications between consumers and debt collectors under the Fair Debt Collection Practices Act (FDCPA). The bureau said that rule was intended to “restate and clarify” prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt.
Regarding the rule issued Friday, CFPB said that, under it, debt collectors will be also be required to provide “readily understandable” disclosures that contain more information than consumers now receive when the collector first begins to communicate with the consumer to collect the debt.
(Dec. 23, 2020) All three federal banking agencies late last week jointly released a proposal requiring banks and banking organizations they supervise to promptly notify their primary federal regulator in the event of a computer security incident.
The joint release follows the individual adoption of the proposal by each agency (such as by the FDIC Board) earlier in the week.
Under the proposal, notification (or alerts) would be required for incidents that could result in a banking organization’s inability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of a banking organization, or impact the stability of the financial sector.
The agencies said the proposed rule is intended to provide the agencies with an early warning of significant computer security incidents and would require notification as soon as possible and no later than 36 hours after a banking organization determines that an incident has occurred.
NCUA did not join in the proposal.
In addition, the agencies said, the proposal would require service providers to notify affected banking organizations immediately when the service provider experiences computer security incidents that materially disrupt, degrade, or impair certain services they provide.
LINK:
Joint Release/Agencies Propose Requirement for Computer Security Incident Notification
(Dec. 23, 2020) NASCUS 2021 membership invoices
NASCUS credit union and associate members were sent their 2021 membership renewal invoices Tuesday from [email protected]. Please contact NASCUS member relations staff if you did not receive an invoice. In advance, thank you for your continued membership. We look forward to tackling the new year together in 2021. Together, we can do this.
CU Campus 365: Be your credit union’s compliance training hero.
NASCUS credit union members get great pricing for the new member benefit. CU Campus 365, the new compliance training program, launched last month. With the latest in courseware and the BAI Learning Manager, a learning management system (LMS) specifically designed to meet the demands of the financial services industry, credit unions have the tools they need to minimize compliance risk and increase employee development. The alliance, called CU Campus 365, delivers effective and re-imagined learning to your credit union staff and directors to use anytime, anywhere, using a sophisticated LMS. For a review of the benefits of CU Campus 365, visit us here.
CU Campus 365’s course libraries offer more than 530 compliance courses that cover more than 55 regulations and are updated constantly to align with the latest regulations plus more than 140 professional skills courses to build your employees’ career growth and development.
NASCUS invites you to experience the benefits of CU Campus 365. To learn more about CU Campus 365’s powerful training solutions, complete this form or email us at [email protected].
Pierre Jay Award Nominations
Nominations for the NASCUS 2020 Pierre Jay Award – which recognizes the individuals, programs or organizations whose contributions have benefited the state credit union system in a significant way – are due Dec. 31. The award honors those who have demonstrated outstanding service, leadership and commitment to NASCUS and the state system; it will be presented during a virtual event in the first quarter of 2021. NASCUS members may nominate any person, program, or organization who or that has made a significant contribution to the state credit union system. Nominees can include individuals, programs or organizations to be nominated include credit union organizations, volunteers (including committee members), staff members, or chief staff executives; and, state/federal organizations, state/federal lawmakers, state/federal regulators, or others. See the link below to submit a nomination.
LINK:
Pierre Jay Award: Details, nomination form
(Dec. 23, 2020) The Federal Reserve Board now has six (out of a total seven) members, as newest Gov. Christopher Waller joined the board after taking his oath of office last Friday. Waller was confirmed by the Senate Dec. 3; he is the former research director for the St. Louis Fed, and a former professor. Meanwhile, there is still no word on confirming the nominee to the seventh and final seat on the board. A vote on controversial nominee Judy Shelton has been stalled in the Senate since at least November; Senate leadership has yet to announce plans to take up the nomination again … Big banks saw their losses rise to more than $600 billion under conditions simulated in a second stress test conducted by the Federal Reserve – but the banks’ capital ratios, despite the losses, would continue to be well above the minimum required (falling from 12.2% to 9.6%, but still above the 4.5% minimum), the central bank said late last week. Nevertheless, the Fed plans to keep restrictions on the banks’ distributions to investors and share repurchases, and won’t make changes to capital requirements … How to spot warning signs of human trafficking is in the spotlight for a webinar next month sponsored by NCUA, set for Jan. 7. The agency said the event will provide an overview of human trafficking and its impact on communities, law enforcement’s efforts to combat it, and potential red flags in credit unions. Attendees will also learn how to report concerns about human trafficking to the proper authorities, the agency said. There is no charge for attending, although advance registration is required … This is the final issue of NASCUS Report for 2020; we’ll see you again on Jan. 8. In the meantime: Happy Holidays – and have a terrific New Year!
LINKS:
Federal Reserve Board releases second round of bank stress test results
Register Now for NCUA’s Human Trafficking Webinar on Jan. 7
(Dec. 18, 2020) Well-capitalized, federally insured credit unions could count subordinated debt as capital for risk-based net worth purposes under a new rule approved by the NCUA Board at its meeting Thursday.
The decision has been long sought by the state system, which would bring regulation of federally insured credit unions in line with regulations of some states that already allow their credit unions to issue secondary capital, including in the form of subordinated debt.
Thursday’s meeting was the first of two meetings for the board this week; it also meets today to consider its 2021 budget and the overhead transfer rate (OTR); see story below.
Key provisions of the final rule (137 pages long), approved unanimously by the board, include:
- Permission for low-income-designated credit unions (LICUs), complex credit unions, and new credit unions to issue subordinated debt for purposes of regulatory capital treatment.
- A maximum maturity of 20 years to be imposed on debt issued (with a minimum maturity of 5 years), and a minimum denomination of $100,000. The agency noted the maturity limit helps to clarify that the financial instruments issued are debt – and not equity in the credit unions (which are solely owned by the members; credit unions do not issue stock).
- Prohibitions on a credit union from being both an issuer and investor unless the credit union meets certain conditions related to mergers.
- A section addressing new rules and limits for making loans to other credit unions, including investing in subordinated debt at those credit unions.
The effective date for the final rule is Jan. 1, 2022 (which coincides with implementation of the new risk-based capital rule).
The final rule also grandfathers any secondary capital issued before the effective date of this final rule and preserves that capital’s Regulatory Capital treatment for 20 years after the effective date, the agency said. The “grandfathered secondary capital” generally, according to NCUA, remains subject to requirements in the agency’s current secondary capital rule.
The agency also noted a number of additions and amendments to other parts and sections of NCUA’s regulations through the new rule, including:
- Cohering changes to part 741 of NCUA rules to account for the other changes proposed in the final rule that apply to federally insured, state-chartered credit unions (FISCUs);
- A new section addressing limits on loans to other credit unions;
- An expansion of the borrowing rule to clarify that federal credit unions (FCUs) can borrow from any source;
- Revisions to the final RBC Rule and the payout priorities in an involuntary liquidation rule to account for subordinated debt and grandfathered secondary capital.
Several changes in the final from the proposal have also been made, the agency said, including:
- Amendment of the definition of “accredited Investor;”
- Provision of a longer timeframe in which to issue subordinated debt after approval;
- Reduction in the required number of years of pro forma financial statements an issuing credit union must provide with its application (from five years to two years);
- Clarification of the prohibition on subordinated debt issuances outside of the United States;
- Clarification that the NCUA Board will publish a fee schedule only if it makes a determination to charge a fee.
In announcing the unanimous vote on the new rule, NCUA Board Chairman Rodney Hood said he was pleased with the balance struck with the final rule. “I support giving complex credit unions the authority to prudently use subordinated debt as an additional tool to comply with risk-based capital requirements, and newly chartered credit unions the ability to use this tool to get up and running,” he said.
Last summer, in a comment letter on the proposal, NASCUS wrote that the development of the rule is an essential complement to the implementation of a risk-based capital rule. “Including Subordinated Debt in risk-based capital ratio calculations is consistent with the statutory purposes of both state and federal credit unions and is sound public policy,” NASCUS wrote. “This rule will help credit unions and their members, protect the share insurance fund, and help place natural person credit unions in the United States on par with credit unions and other depository institutions worldwide.”
Reaction from the banking industry to the board’s action was negative, as illustrated by comments from two of the industry’s largest advocacy groups. The American Bankers Association (ABA), in an op-ed published the day before the board acted, said it “firmly opposed” the final rule, claiming it will undermine the “statutory principle that credit unions should serve consumers of small means.” The Independent Community Bankers of America (ICBA) said in press statement Thursday that the rule will “allow outside investors to exploit the credit union tax subsidy.”
LINK:
Final rule: Subordinated debt (Parts 701, 702, 709, and 741)
(Dec. 18, 2020) NASCUS President and CEO Lucy Ito, in a press statement, praised the NCUA Board for finalizing the subordinated debt rule, noting the state system’s long support for such action.
“The state system has long said that subordinated debt should be a part of the risk-based capital framework because it encourages well-managed credit unions to attract additional loss-absorbing forms of capital that they would otherwise forego,” said NASCUS President and CEO Lucy Ito. “The risk-based capital rulemaking itself is intended to increase the capital buffer standing of a credit union before any effect on the share insurance fund, and subordinated debt is consistent with that goal.”
Ito also thanked the board for moving forward on the final rule, which has been in the works for at least four years. She said NASCUS and state regulators look forward to working closely with NCUA in preparing for the implementation of the subordinated debt rule, and related capital rules, given the state system’s familiarity and experience with this form of capital
LINK:
Press statement by Lucy Ito on subordinated debt adoption
(Dec. 18, 2020) In other action at Thursday’s meeting, the NCUA Board issued one final rule and three proposed regulations – with three of those approved on split votes after Board Member Todd Harper (the lone Democrat appointee on the board) voted in opposition all three times.
The board:
- Approved (unanimously), an extension to Dec. 31, 2021 for a temporary final rule that increases the maximum aggregate amount of loan participations that a federally insured credit union (FICU) may purchase from a single originating lender without seeking a waiver from NCUA to the greater of $5 million or 200% of the FICU’s net worth (up from the greater of $500 million or 100% of the FICU’s net worth). The rule had been slated to expire at year’s end. The temporary rule, adopted by the NCUA Board as a relief measure for credit unions in the midst of the coronavirus crisis last spring, took effect April 21.
- Issued a proposed rule (on a 2-1 vote) on field of membership shared facility requirements (under Part 701, Appendix B, of agency rules) that NCUA said is intended to modernize requirements related to service facilities for multiple common bond (MCB) federal credit unions (FCUs). NCUA said the proposal includes any shared branch, shared ATM, or shared electronic facility in the definition of “service facility” for an MCB FCU that participates in a shared branching network. “The FCU need not be an owner of the shared branch network for the shared branch or shared ATM to be a service facility,” the agency said. “These changes would apply to the definition of service facility both for additions of select groups to MCB FCUs and for expansions into underserved areas.” Harper said he questioned the proposal’s ability, without changes, to increase service to underserved areas. The proposal will have a 30-day comment period.
- Released a second proposed rule (on a 2-1 vote), this one on mortgage servicing rights (under Parts 703 and 721 of agency rules), which would amend the agency’s investment regulation to permit FCUs to purchase mortgage servicing rights from other federally insured credit unions subject to certain conditions. Harper called the proposal “half baked,” but said he could find a way to support a final rule if changes were made. The proposal will be issued with a 30-day comment period.
- Advanced yet a third proposed rule – this one on overdraft policy (under Part 701 of NCUA rules) – also on a 2-1 vote. The proposal would remove the requirement that an FCU’s written overdraft policy establish a 45-day time limit for a member to either deposit funds or obtain an approved loan from the FCU to cover each overdraft, and replace it with a requirement that the written policy must establish a specific time limit that is “both reasonable and applicable to all members for a member either to deposit funds or obtain an approved loan from the FCU to cover each overdraft.” In May, the board tabled a proposed interim final rule to let FCUs decide how long members have to resolve account overdrafts. The proposal was tabled after failing to win a second from one of two board members when Chairman Hood asked for it (both members Harper and McWatters expressed opposition to a final rule). Back in May, Harper said the rule would (among other things) allow credit unions to garnish members’ income – including any economic stimulus relief funds – to pay off overdraft debt. Harper reiterated his objections Thursday (“I couldn’t support it then, I can’t now,” he said). Comments are due 30 days after publication in the Federal Register.
The board also set the “normal operating level” for the National Credit Union Share Insurance Fund (NCUSIF) at 1.38 for the coming year, no change from 2020. The NOL represents the target level of reserves in the fund relative to shares insured (referred to as the equity level). Generally, it is the level of reserves the board believes is needed to deal with anticipated losses from credit unions (if any) throughout the year, without lowering the reserving rate below 1.20%, the point at which an insurance premium would be required.
Along those lines, staff told Board Member Harper that it estimates the equity level of the fund at year-end will be 1.32% — well above the level at which a premium would be required. Agreeing with staff that chances of a premium in 2021 now look “next to zero,” Harper said that would be “welcome news to many credit unions.”
LINKS:
Temporary Final Rule, Regulatory Relief in Response to COVID-19
Proposed rule, Field of Membership Shared Facility Requirements
Proposed Rule, Mortgage Servicing Rights
Proposed Rule, Part 701, Overdraft Policy.
Board Briefing, Share Insurance Fund 2021 Normal Operating Level
(Dec. 18, 2020) Kyle Hauptman, sworn in as the latest (and 24th) member of the NCUA Board this week prior to participation in the Thursday and today’s board meetings, said he has three priorities as a board member: managing the fallout from the current pandemic and economic downturn, expanding the role of technology, and aligning incentives.
“Credit unions were chartered to serve those of modest means. I plan to work with credit unions, my fellow board members, and Congress on solutions for those facing financial stress,” said Hauptman in a release from NCUA. Echoing comments he made to the Senate Banking Committee last summer during his confirmation hearing, Hauptman added that he wants to “expand technology’s role in reaching the underserved because innovation can provide more inclusive financial services.
The newest board member also said that the practice of less-frequent exam cycles for credit unions with the highest marks “will incent them to maintain that benefit and allow the NCUA to focus more of its attention on problematic credit unions.”
Hauptman, nominated June 18 to the NCUA Board by President Donald Trump, has most recently served as a staff director for the Senate Banking Committee Economic Policy subcommittee and as an economic policy advisor to Sen. Tom Cotton (R-Ark.). He worked on the 2016 Trump presidential transition team and served as a policy advisor on financial services for 2012 Republican presidential nominee Mitt Romney (now a U.S. senator representing Utah).
According to NCUA’s release Monday, Hauptman holds a master’s in business administration from Columbia Business School and a bachelor of arts from University of California, Los Angeles