NCUA Proposed Rule Summary: Prohibition on Use of Reputation Risk

NASCUS Summary on the NCUA Proposed Rule: Prohibition on Use of Reputation Risk
October 21, 2025

NCUA has issued a proposed rule to codify the elimination of reputation risk from its supervisory program. The proposed rule would prohibit NCUA:

  1. From criticizing or taking adverse action against a federally insured credit union (FICU) or any other entity NCUA may now or in the future supervise;
  2. From requiring, instructing, or encouraging a FICU to close an account, to refrain from providing an account, product, or service, or to modify or terminate any product or service on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or on the basis of politically disfavored but lawful business activities perceived to present reputation risk;
  3. From requiring, instructing, or encouraging an institution or its employees to terminate a contract with, discontinue doing business with, or modify the terms under which it will do business with a person or entity on the basis of the person’s or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or on the basis of the third party’s involvement in politically disfavored but lawful business activities perceived to present reputation risk.

NCUA emphasizes that the proposed prohibition on NCUA’s use of reputation risk does not affect requirements or limitations related to field of membership. Nor would the prohibition affect requirements under OFAC, CTR rules, or the NCUA’s administration of Community Development Revolving Loan Fund activities, or any other federal law mandates consideration of criteria such as character and fitness or integrity.

NASCUS Note: The proposed rule, while applicable to NCUA’s interactions with federally insured state (chartered) credit unions (FISCUs), it only applies to NCUA examiners and NCUA activities. It does not apply to state rules, state supervision, or state examiners.

Comments are due to NCUA by December 22, 2025.

Background

NCUA’s proposed rule follows Letter to Credit Unions 25-CU-05 Elimination of Reputation Risk issued in September of this year. The LTCU in turn follows Executive Order 14331, Guaranteeing Fair Banking for All Americans. The Executive order required federal bank regulators (including NCUA) to remove reputation risk from their oversight and supervisory materials and directed the Small Business Administration. For more background on the Executive Order, see this overview from Holland & Knight.

It is important to note that proposed rule deals exclusively with NCUA’s use of reputation risk in its regulatory and supervisory functions. The proposed rule does not address the second element of Executive Order 14331 related to prohibitions on institutions debanking of customers protected political views. The proposed rule would not alter the ability of a credit union to make business decisions regarding its members, accountholders, or third-party arrangements consistent with safety & soundness and compliance with applicable laws.

The preamble to the proposal notes that in NCUA’s view, assessing reputation risk is too subjective, too ambiguous, and lacks measurable criteria and is therefore inappropriate for NCUA to use in its oversight. However, NCUA also notes that credit unions should operate in a manner that members view favorably, noting that credit union management is better positioned to make decisions that will positively reflect on the credit union.

Proposed Rule and Changes

The proposal would make two changes to the current NCUA Rules and Regulations.

  • Part 702 Prompt Corrective Action

Under NCUA’s Capital Planning rule, Part 702.304(b)(2) requires as a mandatory part of a covered credit union’s capital planning include:
A discussion of how the credit union will, under expected and unfavorable conditions, maintain stress test capital commensurate with all of its risks, including reputational, strategic, legal, and compliance risks;

  • Part 791 Rules of NCUA Board Procedure; Promulgation of NCUA Rules & Regulations; Public Observation of NCUA Board Meetings

The bulk of the proposed changes would affect Part 791.

  1. The proposed rule would change the title of Part 791 to “Rules of NCUA Board Procedure; Promulgation of NCUA Rules & Regulations; Public Observation of NCUA Board Meetings; Use of Supervisory Guidance; Prohibition on Use of Reputation Risk” [emphasis added]
  2. The proposed rule would add new Subpart E to Part 791, Prohibition on Use of Reputation Risk by NCUA. The provision prohibits NCUA from criticizing an “institution,” formally or informally, or taking “adverse action” against an institution on the basis of “reputation risk.”

NASCUS note: One key to understanding the proposed rule is understanding how NCUA is defining some key terms such as “reputation risk” and “adverse action.” Key definitions in the proposed rule include:

  • “Adverse action” would be defined as any negative feedback delivered by or on behalf of the NCUA to an institution, including in an NCUA-issued report of examination or a formal or informal enforcement action, supervisory action, or decisions on applications.
  • ‘‘Doing business with’’ means an institution providing any product or service, account services; contracting with a 3rd party vendor; providing discounted or free products or services to customers or third parties, including charitable activities; entering into, maintaining, modifying, or terminating an employment relationship; or any other similar business activity that involves an institution’s member or accountholder or a third party.
  • ‘‘Institution’’ means an entity for which the NCUA makes or will make supervisory determinations or other decisions, either solely or jointly.
  • ‘‘Reputation risk’’ is defined as any risk, regardless of how the risk is labeled by the institution or the NCUA, that an action or activity, or combination of actions or activities, or lack of actions or activities, of an institution could negatively impact public perception of the Institution for reasons unrelated to the current or future financial condition of the institution.

NASCUS note: In theory, these definitions taken together likely mean that on a joint State/NCUA exam, NCUA would not participate in any discussions by the state of reputation risk. It also likely means that NCUA would assign its own CAMELS rating for a FISCU where the state rating included reputation risk. What is unclear is what NCUA would do with respect to accepting a state examination, where NCUA was not present (a majority of FISCU exams) and the state references reputation risk.

Request for Comments

NCUA identified 9 specific issues for which they would like feedback. However, stakeholders may offer comments on all aspects of the proposed rule.

  1. Do commenters believe the prohibitions capture the types of actions that add undue subjectivity to supervision based on reputation risk? If there are other prohibitions that would be warranted, please identify such prohibitions and explain.
  2. Is the definition of ‘‘adverse action’’ in the proposed rule sufficiently clear? Should the definition be broader or narrower? Are there other types of agency actions that should be included in the list of ‘‘adverse actions?’’ Does the catch-all provision at the end of the definition of ‘‘adverse action’’ appropriately capture any agency action that is intended to punish or discourage credit unions on the basis of perceived reputation risk? Is such catch-all provision sufficiently clear?
  3. Are commenters aware of any other uses of reputation risk in supervision that should be addressed in this proposed rule? If so, please describe such uses and their effects on credit unions.
  4. Do commenters believe the definition of ‘‘reputation risk’’ should be broadened or narrowed? If so, how should the definition be broadened or narrowed? Please provide support for any suggested changes.
  5. The proposed definition of ‘‘reputation risk’’ includes risks that could negatively impact public perception of a credit union for reasons unrelated to the credit union’s financial condition. Should this be broadened to include reasons unrelated to the credit union’s operational condition?
  6. Should the list of relationships that would constitute ‘‘doing business with’’ include additional types of relationships?
  7. Does the removal of reputation risk create any other unintended consequences for the agency or institutions?
  8. Would the proposed rule have any costs, benefits, or other effects that the agency has not identified? If so, please describe any such costs, benefits, or other effects.
  9. Should the definition of institution be broadened or are there any other categories of activities that should be excluded from the scope of the rule?

Notice and Request for Information and Comment
FinCEN: Customer Identification Program Rule Taxpayer Identification Number Collection Requirement

NASCUS Legislative and Regulatory Affairs Department
Summary prepared April 12, 2024

On March 28th, 2024, FinCEN issued a request for information (RFI) seeking comment regarding the Customer Identification Program (CIP) Rule requirement that credit unions (and other covered entities) [1] collect a full taxpayer identification number (TIN) before opening an account from an individual and a U.S. person (in most cases, for US citizens, this would be their Social Security Number or SSN).  An RFI is not a rulemaking, rather it is an agency seeking background information to help determine if a future rulemaking is necessary.

In this case, FinCEN seeks perspectives on whether allowing credit unions and other covered entities to collect only partial TIN or SSN information would be beneficial.

Comments on the RFI are due on or before May 28, 2024.

Summary and Request for Information

Under the BSA/AML, credit unions are to obtain an individual’s full SSN prior to opening an account as part of the institution’s Customer Identification Process (CIP). Generally, institutions are required to collect the information directly from the member opening the account.

When the rule was first adopted, institutions were exempt from the requirements to collect identifying information including the TIN/SSN directly from the consumer when opening credit card accounts because traditionally, institutions used third party sources to collect SSN information when opening those accounts. When implementing the CIP, FinCEN recognized that common practices in situations when the customer was likely not physically present (like opening a credit card account) practice was to forego asking for the TIN/SSN as potential customers would often be uncomfortable giving out that information in a remote setting. The final CIP rule respected that practice. As a result, credit card accounts, think of Chase, American Express, or Capital One for example, were exempt from the CIP Rule’s information collection requirements and institutions may obtain identifying information from a third-party source, such as a credit bureau.

FinCEN has heard from stakeholders seeking a change to the CIP to allow for partial collection of TIN/SSN for all account openings. The agency also acknowledges advancements in technology and tools that may provide additional means of identifying a consumer.

FinCEN recognizes there are risks and concerns with permitting partial SSN collection at account opening.  For example, failing to obtain full SSNs could result in increased identity theft or other fraud. There are also risks of inaccurate third-party data.

For these reasons, FinCEN seeks comments and perspectives on the risks, benefits, and safeguards surrounding the collection of partial SSNs by banks. As part of this RFI FinCEN is also seeking information about current industry practices regarding SSN collection. There are a series of eight questions with additional sub-questions. FinCEN requests that commenters note their highest priorities in their response, along with an explanation of how or why certain suggestions have been prioritized, when possible. You can find the complete list of questions here.

The eight categories of questions include:

  1. Should banks be permitted to collect part or all of a customer’s SSN for a U.S. individual from a third-party source prior to account opening? Should FIs be permitted to collect other customer-identifying information required by the CIP Rule from a third-party source? 
  2. If banks were permitted to collect partial SSN information from a customer in the case of a U.S. individual and subsequently use a reputable third-party source to obtain the full SSN prior to account opening, what risks, benefits, safeguards, and due diligence would be conducted.
    • This question has a series of ten additional questions specific to overall due diligence.
  1. Regarding the current CIP Rule SSN collection requirement for FIs to collect the full SSN for a U.S. Individual directly from the customer prior to account opening, this question also asks a series of additional questions surrounding:
    • The impact of the current requirements on FIs and their customers
    • How they impact their AML programs and;
    • The risks and benefits of collecting a full SSN directly from the customer.
  1. Regarding current practices by parties not subject to the CIP Rule’s SSN collection requirement (i.e. non-banks) when using third-party sources for SSN collection, this question asks several questions specific to:
    • Risks and benefits of using a third-party source for SSN collection;
    • The minimum due diligence processes the non-bank typically conducts before contracting third-party sources;
    • What on-going due diligence and monitoring is conducted;
    • How they ensure the privacy and security of customer data;
    • Notification to customers of obtaining their SSN from a third-party source.
  1. Provide any publicly available studies or data points that demonstrate:
    • Customer behavior in seeking or avoiding access to financial products or services based on risks associated with a customer providing a full SSN;
    • Accuracy and reliability of third-party sources from which SSN information could be acquired;
    • Impact on financial crime or other illicit finance activity risks when a customer is not required to provide a full SSN;
    • The benefits and risk for non-banks (e.g., employers, retailers, financial service providers, and government agencies) and third-party service providers in obtaining a partial SSN from the customer and then using a third-party source to obtain the customer’s full SSN.
  1. Regarding current CIP practices of all financial institutions, both banks, and non-banks, this question asks a series of questions about:
    • Risks identified with the SSN collection requirement and how risks are mitigated;
    • Whether FIs rely on documentary and non-documentary methods to verify identity;
    • The variations of TIN collection and verification practices;
    • Other processes for TIN collection and verification;
    • Processes and technologies used for verification; and
    • Similarities and differences in the collection and verification practices by FIs between individuals who provide SSNs and legal entities that provide Employer Identification Numbers (EINs).
  1. What are the competitive advantages and disadvantages between banks that are required to collect the full SSN from the customer and those non-banks that collect a partial SSN from the customer and then use a third-party source to obtain the customer’s full SSN?
  2. What types of products/services are impacted by differing regulatory requirements related to SSN collection?

[1] For purposes of this summary banks also refers to credit unions.

Summary: NCUA Proposed Rule (FCUs Only); Derivatives Part 703

Prepared by NASCUS Legislative & Regulatory Affairs Department
November 2020

NCUA has proposed changes to Subpart B of Part 703, NCUA’s derivatives rule for federal credit unions (FCU).NCUA first approved derivatives for FCUs in 2014. NCUA’s derivatives rule only applies to FCUs. Federally insured state credit unions (FISCUs) are currently only required to notify NCUA if they intend to use derivatives pursuant to state law. See 741.219.

NCUA now proposed to eliminate the requirement that FISCUs notify NCUA 30-days prior to engaging in derivatives transactions and replace it with a requirement that FISCUs notify NCUA within 5 days after HAVING ENGAGED in a derivatives transaction.

The proposed changes for FCUs would:

  • Eliminate the pre-approval process for FCUs that are “complex” (assets of $500m+) with a Management CAMEL component rating of “1” or “2”
  • Eliminate the interim approval step for non-“complex” credit unions
  • Eliminate the specific product permissibility and replace it with mandatory characteristics
  • Eliminate the regulatory limits on the amount of derivatives

The proposed rule may be read here. Comments are due to NCUA December 28, 2020.

Summary

NCUA’s current derivatives rule is intentionally prescriptive. In 2014, NCUA felt FCUs lacked the experience to use derivatives and NCUA lacked the expertise to administer a derivatives rule. As NCUA provides FCUs with greater flexibility, it stresses that FCUs must maintain strong prudential controls, including appropriate risk management by experienced staff, as well as suitable policies, procedures, and management oversight.

FISCUs – § 741.219

NCUA’s current rule DOES NOT limit or otherwise affect FISCU derivatives authority. NCUA’s rule only requires FISCUs give NCUA notice of the intent to engage in derivatives transactions 30-days prior. NCUA now proposes amending Part 741.219(b) to simply require notice within 5 days AFTER a FISCU enters into its first derivatives transaction.

(b) Any credit union which is insured pursuant to title II of the Act must notify the applicable NCUA Regional Director in writing within five business days after entering into its first Derivatives transaction. Such transactions do not include those included in § 703.14 of this chapter.

FCU Changes

Loan Pipeline Management & “Put Options” – Part 701(21)(i)

NCUA allows FCUs to use Put Options as a form of loan pipeline management. NCUA is moving this authority from § 701.21(i) to consolidate it with other pipeline management authorities in a revised § 701.14(k). NCUA is not changing the FCU authority in existing § 701.21(i) other than to relocate it.

Mutual Funds – § 703.100

The current rule prevents FCUs from investing in registered investment companies or collective investment funds where the prospectus of the company or fund permit the investment portfolio to contain Derivatives. NCUA now proposes to allow FCUs to invest in mutual funds that engage in derivatives for the purpose of managing to manage IRR. In the Supplemental material, NCUA stresses that FCUs may not invest in mutual funds that engage in derivatives that do not manage IRR.

Definitions – § 703.102

NCUA is proposing making changes to several definitions, adding several definitions, and deleting some others. Specifically, NCUA is making revisions to the following defined terms (see page 68489 of the proposal):

  • Counterparty
  • Interest Rate Risk
  • Margin
  • Master Service Agreement
  • Net Economic Value
  • Senior Executive Officer
  • Threshold Amount
  • Trade Date

In addition, NCUA will the following definitions (see page 68490 of the proposal):

  • Domestic Counterparty – to be defined as a counterparty domiciled in the United States. The proposal would only allow FCUs to enter into derivatives transactions with Domestic Counterparties.
  • Domestic Interest Rates – to be defined as interest rates derived in the United States and are U.S. dollar denominated.
  • Earnings at Risk – to be defined as the changes to earnings, typically in the short term, caused by changes in interest rates. This type of modeling would be required for an FCU’s asset/ liability risk management under the proposal.
  • Written Options – to be defined as options where compensation has been received and the purchaser has the right, not obligation, to exercise the option on a future date. The proposed rule would prohibit Written Options for FCUs.

NCUA would eliminate the following existing definitions in a new rule:

  • Amortizing Notional Amount
  • Basis Swap
  • Cleared Swap
  • Credit Support Annex
  • Derivative Clearing Organization
  • Exchange
  • Fair Value
  • Forward Start Date
  • Futures
  • Futures Commission Merchant (FCM
  • Hedge
  

  • Interest Rate Swap
  • Introducing Broker
  • ISDA Protocol
  • Leveraged Derivative
  • Minimum Transfer Amount
  • Non-cleared
  • Notional Amount
  • Reporting Date
  • Swap Dealer
  • Swap Execution Facility
  • Unamortized Premium

 

Requirements/Characteristics of Permissible Interest Rate Derivatives – § 703.103

NCUA will replace existing § 703.102, Permissible Derivatives with the new proposed § 703.103 titled ‘‘Requirements related to the characteristics of permissible interest rate Derivatives.’’ This new section will replace prescriptive prohibitions with principle-based characteristics such as:

  • Denominated in U.S. dollars
  • Based off Domestic Interest Rates or dollar-denominated London Interbank Offered Rate (LIBOR)
  • A contract maturity equal to or less than 15 years, as of the Trade Date
  • Not used to create Structured Liability Offerings for members of nonmembers

FCUs could enter into derivatives transactions that meet those characteristics. In addition, FCUs would be allowed to participate in:

  • interest rate swaps
  • basis swaps
  • purchased interest rate caps
  • purchased interest rate floors
  • S. Treasury note futures

NCUA would eliminate the following requirements:

  • forward start date limitations
  • fluctuating notional amount limitations
  • restriction on leveraged derivatives
  • meeting the definition of derivative under GAAP

NCUA is retaining the prohibition against Written Options, but seeks comments on whether FCUs should be allowed to engage in Written Options for managing IRR.

Requirements for Counterparty Agreements, Collateral and Margining – § 703.104

Revising the requirements for counterparty agreements, collateral and margining, NCUA is proposing to require FCUs have an executed Master Services Agreement with a Domestic Counterparty that must be reviewed by counsel with relevant expertise in similar types of transactions. FCUs would also be required to use contracted Margin requirements with a maximum Margin threshold amount of $250k and accept only U.S. dollars, S. Treasuries; GSE or US government agency debt, GSE residential mortgage-backed security pass-through securities, or S. government agency residential mortgage-backed security pass-through securities as collateral.

Reporting Requirements – § 703.105

NCUA currently requires FCUs provide their board of directors, senior executives a comprehensive derivatives report. Under the proposal, NCUAS would retain the requirements for quarterly reporting to the FCU’s board and monthly reporting to executive management. NCUA is also retaining the requirements outlining what must be included in these reports.

Operational Support Requirements, Required Experience & Competencies – § 703.106(a)

NCUA will retain the current rule’s competency requirements, including:

  • Prior to engaging in derivatives, FCU’s board must obtain training
  • Senior executive officers must have knowledge and ability to supervise the program
  • The FCU’s board must be briefed annually on the program

The briefing requirement replaces an ongoing annually training requirement.

Operational Support Requirements; Required Review and Internal Controls Structure – § 703.106(b)

NCUA is retaining the requirement that an FCU identify and document the circumstances that lead to the decision to execute a transaction, specify the strategy the credit union will employ, and demonstrate the economic effectiveness of the transaction. NCUA is proposing to reduce the number of required internal controls reviews an FCU must conduct from at least once each year for the first 2 years to just 1 review in the first year.

The Board is retaining the current rule’s requirement that any FCU engaging in derivatives must obtain an annual financial statement audit and account for all transactions consistent with GAAP. NCUA also proposes adding a requirement for a a liquidity review.

External Service Providers – § 703.107

FCUs will be able to use External Service Providers (ESPs). FCUs will be able to use the ESPs provided the ESP does not:

  • Act as a counterparty to any Derivatives transactions that involve the FCU
  • Act as a principal or agent in any Derivatives transactions that involve the FCU
  • Have discretionary authority to execute any of the FCU’s Derivatives transactions

FCUs will be required to document the role of the ESPs in the FCU’s policies and procedures. NCUA also stresses that an FCU’s use of ESPs does not alleviate the credit union of its responsibility to employ qualified personnel in accordance with the operational support requirements of the proposed rule.

Notification and Application Requirements – § 703.108

NCUA proposes eliminating the application process for FCUs with at least $500m in assets and a CAMEL Management component rating of 1 or 2. FCUs would be required to provide the applicable RD a written notification within five business days after entering into its first Derivative transaction.

Regulatory Violation or Unsafe and Unsound Condition – § 703.109

If an FCU no longer meets requirements of the rule, the FCU must immediately stop entering into any new derivative transactions.

Final Rule: Corporate Credit Unions (Part 704)

Prepared by NASCUS Legislative & Regulatory Affairs Department
December 2020

NCUA has issued a final rule amending its corporate credit union regulations in § 704. The final rule addresses several provisions of the NCUA’s corporate credit union rule, including:

  • permitting a corporate credit union to make a minimal investment in a credit union service organization (CUSO) without the CUSO being classified as a corporate CUSO pursuant to § 704
  • expanding the categories of senior staff positions at member natural person credit unions (NPCUs) eligible to serve on a corporate credit union’s board
  • amending the minimum experience and independence requirement for a corporate credit union’s enterprise risk management (ERM) expert
  • clarifies the definition of a collateralized debt obligation
  • simplifies the requirement for net interest income modeling

The Final Rule may be read here. The final rule is effective December 14, 2020.   

NCUA’s corporate credit union rule applies to state-chartered corporate credit unions by reference in § 741.206.

Summary

  • Minimal Investment in Natural Person CUSOs

Under the final rule, corporate credit unions will be allowed to make de minimus, non-controlling investment in a NPCU CUSO without that CUSO being classified as a corporate CUSO. Corporate CUSO are subject to much more prescriptive regulations than NPCU CUSOs. For example:

  • permissible activities for a corporate CUSO are more limited than the permissible activities for a NPCU CUSOs
  • corporate CUSOs must agree to give NCUA complete access to personnel, facilities, equipment, books, records, & other documentation that NCUA deems pertinent while NPCU CUSOs must only provide access to its books & records & the ability to review its internal controls
  • corporate CUSOs must provide quarterly financial statements to the corporate credit union whereas NPCU CUSOs must prepare quarterly financial statements, but do not have to provide the statements to FCUs

With this rule change, NPCUs might be more willing to allow small corporate credit union investments into their CUSOs which could benefit NPCUs by opening a new pool of investors and benefit corporates by allowing them to leverage the innovation of NPCU CUSOs.

  • New Definitions – § 704.2

The final rule has several new definitions, including:

  • Consolidate CUSO – any CUSO the assets of which are consolidated with those of the corporate credit union for purposes of reporting under GAAP
  • Corporate CUSO – a CUSO in which one or more corporate credit unions have a controlling interest, defined as:

(1) the CUSO is consolidated on a corporate credit union’s balance sheet;

(2) a corporate credit union has the power, directly or indirectly, to direct the CUSO’s management or policies;

(3) a corporate credit union owns 25% or more of the CUSO’s contributed equity, stock, or membership interests; or

(4) the aggregate corporate credit union ownership of all corporates investing in the CUSO is 50% or more of the CUSO’s contributed equity, stock, or membership interests

  • Credit Union Service Organization (CUSO) – the final rule defines a CUSO as applying to both corporate CUSOs and NPCU CUSOs.

Loans to CUSOs

Under the final rule, a corporate credit union making loans to NPCU or corporate CUSOs must have a board-approved policy that:

  • provides for ongoing control, measurement, and management of CUSO lending
  • includes qualifications and experience requirements for personnel involved in underwriting, processing, approving, administering, and collecting loans to CUSOs
  • establishes the loan approval process, underwriting standards, and risk management processes

In addition, NCUA requires any NPCU CUSO in which a corporate credit union invests or to which a corporate credit union makes a loan must comply with § 712 in its entirety.

Disclosure of Executive Compensation – § 704.19

Section 704.19 currently requires that each corporate credit union annually prepare and maintain a document that discloses the compensation of certain employees, including compensation received from a corporate CUSO. Under the final rule, employee compensation from either a NP CUSO or a corporate CUSO must be reported. Corporate CUSOs are required to report the compensation of a dual employee, however there is no requirement for the NPCU CUSO to report the income, therefore the dual employee is obligated to report the income to the corporate credit union in order for that corporate credit union to meet its reporting obligations.

Corporate Credit Union Board Representation – § 704.14

Currently, NCUA rules require corporate credit union directors hold the following positions as a NPCU: CEO, CFO, COO, treasurer, or manager. The final rule makes this preceding list a set of examples and requires only that the corporate credit union directors hold a senior management position at a NPCU.

Enterprise Risk Management – § 704.21

NCUA has eliminated the prescriptive independence and experience rules related to the required ERM position in corporate credit unions. The final rule also clarifies that the ERM expert may report either to the corporate credit union’s board of directors or to the ERMC. Corporate credit unions now have the flexibility the appropriate level of experience necessary for the position and the reporting structure. The ERM officer and function should be commensurate with the complexity and risk of the corporate credit union. NCUA will evaluate the adequacy of a corporate credit union’s enterprise risk management practices through the supervisory process.

Summary: ANPR, Simplification of the RBC Requirements (Parts 702 & 703)

Prepared by NASCUS Legislative & Regulatory Affairs Department
February 2021

NCUA has published an Advance Notice of Proposed Rulemaking (ANPR) to solicit comments on simplifying the October 29, 2015 final risk-based capital (RBC) rule scheduled to take effect on January 1, 2022. NCUA proposes 2 different approaches for simplifying the rule:

  • Replace the RBC rule with a Risk-based Leverage Ratio (RBLR) requirement, which uses relevant risk attribute thresholds to determine which complex credit unions would be required to hold additional capital (buffers).
  • Retain the 2015 final RBC rule but enable eligible complex FICUs to opt-in to a “complex credit union leverage ratio” (CCULR) framework to meet all regulatory capital requirements (modeled on the “Community Bank Leverage Ratio” framework).

The proposed rule may be read here. Comments are due to NCUA 60 days after publication in the Federal Register.  

Summary

The 1998 Credit Union Membership Access Act (CUMAA) added § 216 to the Federal Credit Union Act (FCUA) creating a system of Prompt Corrective Action (PCA) for federally insured credit unions (FICUs).

Section 216(d)(1) of the FCUA required that the PCA rules include both the statutory net worth ratio requirements as well as a risk-based net worth requirement for credit unions that are complex (as defined by NCUA). NCUA implemented § 216 by rule in 2000. In 2015, NCUA finalized revisions to the rule that included replacing a credit union’s RBNW ratio with a RBC ratio. The 2015 rule defined complex credit unions as having

total assets over $100 million. In 2018, NCUA raised that threshold again to $500 million. The rule however will not take effect until January 1, 2022.

NCUA now seeks input on 2 potential alternatives to the 2015 (as amended) RBC rule. As noted above, the Risk-Based Leverage Ratio (RBLR) approach would include repealing the 2015 final rule in its entirety and recreating an entirely new risk-based capital rule. The Complex Credit Union Leverage Ratio (CCULR) would amend the 2015 rule to provide an alternative framework for some qualifying credit unions.

Option 1: Replacing the Entire 2015 RBC Rule with The Risk-Based Leverage Ratio (RBLR)

NCUA seeks input on whether it should repeal the 2015 RBC rule and replace it with a “simpler” framework that would be easier for credit unions to understand and for NCUA to administer. The simplified framework would still, in NCUA’s view:

  • comply with all applicable statutory and legal requirements, including the statutory PCA requirements
  • be easier to understand and use
  • effectively identifies risk characteristics that trigger commensurate capital requirements.

The new approach would be called a risk-based leverage ratio (RBLR) and would utilize certain risk characteristics to determine the required capital level rather than risk weight all assets and off-balance sheet activities (as is done in the current 2015 rule approach). NCUA is also considering using the net worth ratio as the RBLR measurement, which is already a well-established, simplified, and observable measurement.

Under this approach, the net worth ratio would be supplemented with mandatory capital buffers when certain risk factors are triggered. The capital buffers would be a discreet percentage of net worth-to-total assets over 7%. NCUA is considering using the asset categories from the 2015 Final Rule as risk factors. For example, the 2015 rule weights the following categories as higher risk:

  • non-current loans
  • commercial loans exceeding 50% of assets
  • junior lien real estate loans exceeding 20% of assets
  • mortgage servicing rights
  • other investment activities

If a FICU met a certain threshold of activity, then that could trigger a requirement to hold a buffer amount of net worth. The buffer amount might also vary based on the level of the applicable threshold. The minimum leverage ratio necessary to be well capitalized under RBLR would remain at 7%, with two higher tiers applied to those complex credit unions exhibiting quantified amounts of higher relative risk. The defining risk attributes would be a function of the types and concentration of underlying assets.

NCUA envisions converting the current computational framework for complex credit unions into a three-tiered system of minimum leverage ratios for all complex FICUs would be much simpler and would significantly reduce the Call Report requirements and utilize a measurement that FICUs are already familiar with.

However, NCUA cautions that while an RBLR approach would be simpler, it may also result in a higher capital requirement for certain FICUs that have riskier assets when compared to the risk-based capital framework.

NCUA seeks general feedback on this approach, and comments on the following specific questions:

  • Question #1: Does the RBLR have merit as an alternative to the RBC framework under the 2015 Final Rule. What risk characteristics should be incorporated into the RBLR? Are the higher risk-weighted asset categories from the 2015 RBC rule framework the correct starting point, or should the Board consider a different approach?
  • Question #2: What risk thresholds should be used for the risk factors. What measurements should be used and how would the measurement be reported and monitored? Should there be more than one capital buffer for a risk factor based on the measurement? How would multiple measurements be combined or weighted to determine the threshold?
  • Question #3: What capital buffers over the well-capitalized seven percent threshold should be used?

Impact of RBLR on Subordinated Debt Final Rule

Any changes to NCUA’s capital rules would potentially affect NCUA’s recently finalized Subordinated Debt rule. The Subordinated Debt Rule is a direct amendment to the 2015 Final RBC rule. Therefore, rescinding the 2015 rule to replace it with the RBLR framework would fundamentally alter the structure of the Subordinated Debt rule. For example, using a net-worth based rule may not provide a means for non-LICUs to use subordinated debt because the FCUA includes a definition of net worth the limits use of such instruments to LICUs.

  • Question #4: How may a non-LICU complex credit union be able to apply subordinated debt towards an RBLR capital calculation?

Option 2: Amending the 2015 RBC Rule to Include a Complex Credit Union Leverage Ratio (CCULR)

In 2019, federal banking agencies (FBAs) promulgated the Community Bank Leverage Ratio (CBLR ), an optional framework to the RBC requirements for depository institutions and depository institution holding companies that meet the following 5 criteria:

  • A leverage ratio greater than 9%
  • Total consolidated assets of less than $10 billion
  • Total off-balance sheet exposures of 25% or less of its total consolidated assets;
  • Trading assets plus trading liabilities of 5% or less of its total consolidated assets
  • Not an advanced approaches banking organization

“Qualifying community banking organizations” meeting these 5 criteria that opt into the CBLR framework are considered to be in compliance with the FBAs applicable RBC and leverage capital requirements. In exchange, the qualifying banking organization must maintain a greater amount of capital than normally required to be deemed well capitalized. Qualifying community banking organizations may opt into or out of the CBLR framework at any time.

The banking framework includes a 2-mquarter grace period during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater than 9% leverage ratio requirement, will still be deemed well capitalized. However, the qualifying community banking organization must maintain a leverage ratio greater than 8%.

At the end of the grace period, the banking organization must meet all qualifying criteria to remain in the CBLR framework or otherwise must comply with and report under the generally applicable risk-based and leverage capital requirements. A banking organization that fails to maintain a leverage ratio greater than 8% will not be permitted to use the grace period and must comply with the generally applicable capital requirements and file the appropriate regulatory reports.

NCUA is considering developing the CCULR as a similar approach for credit unions. Complex credit unions meeting certain criteria and choosing to opt-into the approach would be relieved from the requirement of calculating a risk-based capital ratio as implemented by the 2015 rule. Rather, qualifying complex credit union would be required to maintain a higher net worth ratio than is otherwise required for the well-capitalized classification.

This is a similar trade-off to the one made by qualifying community banking organizations under the CBLR.

  • Question #5: Should the NCUA capital framework be amended to adopt an “off-ramp” such as the CCULR to the risk-based capital requirements of the 2015 Final Rule?
  • Question #6: The Board invites comment on the criteria for CCULR eligibility. Should the Board adopt the same qualifying criteria as established by the other banking agencies for the CBLR? In recommending qualifying criteria regarding a credit union’s risk profile, please 19 provide information on how the qualifying criteria should be considered in conjunction with the calibration of the CCULR level under question 7, below.
  • Question #7: What assets and liabilities on a FICU’s Call Report should the Board consider in determining the net worth threshold? How should each of these items be weighted?
  • Question #8: What are the advantages and disadvantages of using the net worth ratio as the measure of capital adequacy under the CCULR? Should NCUA consider alternative measures for the CCULR? For example, instead of the existing net worth definition, the CCULR could use the risk-based capital ratio numerator from the 2015 Final Rule, similar to the “Tier 1 Capital” measure used for banking institutions.
  • Question #9: Should all complex credit unions be eligible for the CCULR, or should the Board limit eligibility to a subset of these credit unions? For example, the Board could consider limiting eligibility to the CCULR approach to only complex credit unions with less than $10 billion in total assets.
  • Question #10: The Board invites comment on the procedures a qualifying complex credit union would use to opt into or out of the CCULR approach. What are commenters’ views on the frequency with which a qualifying complex credit union may opt into or out of the CCULR approach? What are the operational or other challenges associated with switching between frameworks?
  • Question #11: What should be the treatment for a complex credit union that no longer meets the definition of a qualifying criteria after opting into the CCULR approach. Should NCUA consider requiring complex credit unions that no longer meet the qualifying criteria to begin to calculate their assets immediately according to the risk-based capital ratio? Should a grace period be provided? What other alternatives should NCUA consider with respect to a complex credit union that no longer meets the definition of a qualifying complex credit union and why? Is notification that a credit union will not meet the qualifying criteria necessary?
Summary: Proposed rule, Risk Based Net Worth – COVID 19 Relief; Complex credit union threshold (Part 702)

Prepared by NASCUS Legislative & Regulatory Affairs Department

February 2021

NCUA is proposing to raise the asset threshold for defining a credit union as “complex” for purposes of being subject to risk-based net worth (RBNW) requirement in § 702 of the NCUA’s regulations. The proposal would amend § 702 to apply the RBNW to FICUs with quarter-end assets that exceed $500 million.

The proposed rule may be read here. Comments are due to NCUA 30 days after publication.

Summary

Currently, the NCUA defines a credit union as complex and subject to the RBNW requirement only if the credit union has quarter-end assets that exceed $50 million and its risk-based net worth requirement exceeds 6%. NCUA has also issued rules to create a risk-based capital (RBC) requirement for larger complex credit unions with assets over $500 million which will become effective on January 1, 2022. However, until that effective date in 2022, the RBC rules still apply to credit unions with only $50 million in assets.

NCUA now proposes amending § 702.103 to raise the RBNW threshold to $500 million to match the RBC threshold. NCUA notes that even with the raised RBNW threshold, 81.6% of FICU assets would be classified as complex. In terms of relief, NCUA notes that increasing complexity threshold to $500 million would provide potential relief to 1,737 FICUs. In addition, there are 94 complex credit unions with assets totaling $66 billion which are required to hold capital above 7% to be well capitalized based on their risk-based net worth requirement. Of the 94 credit unions, 67 have assets less than $500 million and would no longer be required to hold more capital to remain well capitalized. This would allow those credit union redeploy their capital to assist their members.

Summary: NCUA Proposed Rule BSA Part 748

Prepared by NASCUS Legislative & Regulatory Affairs Department
January 2021

NCUA is proposing to provide, on a case-by-case basis, exemptions from SAR filing requirements to federally insured credit unions (FICUs) that develop innovative solutions to meet their BSA/AML compliance obligations.

The proposed rule may be read here. Comments are due to NCUA (30 days from publication).  

Summary

Since 1985, NCUA’s rules have required FICUs to report potential violations of law arising from transactions through the institution. In 1992, Congress made the reporting of possible criminal violations part of the BSA. In 1996 FinCEN issued its SAR reporting regulations and NCUA then amended its regulations to incorporate FinCEN’s regulations into NCUA’s rules. NCUA and FinCEN’s regulations are substantially similar but not identical. FICUs must comply with both regulations.

Both the NCUA and FinCEN require FICUs file SARs relating to money laundering and transactions that are designed to evade the reporting requirements of the BSA and to maintain the confidentiality of those filings. Both regulations also provide:

  • that SARs are not required for a robbery or burglary committed or attempted that is reported to appropriate law enforcement authorities
  • recordkeeping requirements for SARs and supporting documentation
  • that supporting documentation shall be deemed to have been filed with the SAR
  • that supporting documentation shall be made available to appropriate law enforcement agencies upon request
  • a safe harbor from liability to any FICU and any of its officials, employees, or agents that make a voluntary disclosure of any possible violation of law or regulation to a government agency or file a SAR pursuant to the regulations

However, the NCUA’s regulations cover a broader range of transactions (e.g., insider abuse at any dollar amount) and require FICUs promptly notify their board of directors when a SAR has been filed.

Innovation in Compliance and Regulatory Flexibility

In 2018, the NCUA, FinCEN, and the other federal banking agencies issued a statement encouraging financial institutions to take innovative approaches to meet their BSA/anti-money laundering (BSA/AML) compliance obligations. Types of innovative approaches that have developed include:

  • automated form population using natural language processing, transaction data, and customer due diligence information
  • automated or limited investigation processes depending on the complexity and risk of a particular transaction and appropriate safeguards
  • enhanced monitoring processes using more and better data, optical scanning, artificial intelligence, or machine learning capabilities.

Industry has requested exemptive relief to explore innovation related to issues such as:

  • SAR investigation & timing
  • SAR disclosures and sharing
  • Ongoing activity and related continued SAR filings
  • Outsourcing SAR production
  • The role of credit unions’ agents
  • Using shared facilities, utilities, and data & use & sharing of “de-identified” data

Proposed Rule

The proposal would add a provision to § 748.1 allowing NCUA to exempt a FICU from the requirements of that section. Exemptions may be:

  • conditional or unconditional
  • apply to particular persons, or to classes of persons
  • apply to transactions or classes of transactions

When evaluating exemption requests, NCUA will determine whether the exemption is consistent with the purposes of the BSA (seeking FinCEN’s determination as well), with safe & sound practices, & may consider other factors as appropriate. In addition, NCUA:

  • will seek FinCEN’s concurrence regarding any exemption requests that involve the filing of SARs required by FinCEN’s rules
  • may consult with the other state and federal banking agencies
  • may grant an exemption for a specified time period
  • may revoke previously granted exemptions if circumstances change

Although NCUA will have obtained FinCEN’s concurrence, the FICU will still need an exemption from FinCEN as well for FinCEN’s SAR rules. NCUA exemptions would not relieve a FICU from the obligation to comply with FinCEN’s SAR regulation.

NCUA will grant exemptions to its stand-alone BSA related requirements.

Final Rule Summary: Role of Supervisory Guidance (Part 791, Subpart D)

Prepared by NASCUS Legislative & Regulatory Affairs Department
February 2021

NCUA has finalized a rule codifying the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the federal agencies (FAs) in September 2018 that reiterates the federal banking agencies’ commitment to the principle that supervisory guidance does not carry the full force and effect of law and does not create binding obligations for financial institutions.

NCUA issues the final rule in conjunction with the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve (the Board), the Office of Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (Bureau) finalizing a similar rule for their regulated entities.

By incorporating the 2018 Statement into Part 791 Subpart D, NCUA codifies the principles of the Statement and makes them binding upon the agency and NCUA examiners. The new rule applies to NCUA interactions with FISCUs but is not binding on state examiners.

The provisions of this rule become effective March 5, 2021.

Summary

The 2018 Statement is now codified in Part 791 Subpart D of NCUA’s Rules and Regulations. The rule binds NCUA to the principles of the 2018 Statement as revised by the 2020 proposal. NCUA will not treat covered guidance as binding rules, and will:

  • limit the use of numerical thresholds in guidance;
  • reduce the issuance of multiple supervisory guidance on the same topic;
  • make the role of supervisory guidance clear to examiners & credit unions; and
  • encourage credit unions to discuss their concerns about supervisory guidance with their agency contact.
Interim Final Rule Summary: Central Liquidity Facility (Part 725)

Prepared by NASCUS Legislative & Regulatory Affairs Department
March 2021

NCUA issued an Interim Final Rule (IFR) extending enhancements to the Central Liquidity Facility (CLF) first enacted in 2020 in response to the pandemic.

The Interim Final Rule may be read here. Comments are due to May 24, 2021. The rule took effect on March 24, 2021.

Summary

The Cares Act, passed in response to the COVID 19 pandemic, made several changes to the CLF to enhance credit union liquidity options during the crisis. As a result, NCUA approved an IFR (April 16, 2020) to implement those changes and make other enhancements to the CLF. The changes related to the CARES Act were scheduled to sunset on December 31, 2020. However, the Consolidated Appropriations Act (CAA) extended the sunset date of the CLF enhancements in the CARES Act to December 31, 2021. NCUA is now cohering its regulations to the CAA extension.

  1. The CARES Act temporarily amended the definition of “Liquidity need” by removing the words “primarily serving natural persons.” This allowed corporate credit unions to access the CLF for their own liquidity needs. This change was to sunset on December 31, 2020. The CAA extended this provision in the CARES Act until December 31, 2021.
    This IFR makes a corresponding change to § 725.2(i).
  2. The CARES gave NCUA discretion to amend the Agent membership requirement that a corporate credit union subscribe to CLF capital stock on behalf of all of the corporate’s natural person credit union members regardless of whether all of those members want access to the CLF. In response, NCUA allowed corporates to only subscribe to stock on behalf of those natural person credit union members seeking access to the facility.
    This provision was scheduled to sunset in accordance with the CARES Act on December 31, 2020 but was extended to December 31, 2021 by the CAA. Therefore, the IFR now amends § 725.4(ii) to reflect that change. Furthermore, after December 31, 2021, corporates now have until January 1, 2023 to either:

    • Purchase Facility stock for all of its member credit unions; or
    • Terminate its membership in the Facility
  3. As noted above, the CARES Act allows CLF Agents to borrow for their own liquidity needs. To implement authorized Agent borrowing, the April 2020 NCUA Interim Final Rule amended § 725.4 to clarify that an Agent member borrowing from the CLF for its own liquidity needs must first subscribe to the capital stock of the Facility in an amount equal to ½% of its own paid-in and unimpaired capital and surplus. The new sunset date of these provisions is December 31, 2021.
    This IFR reaffirms that upon the December 31, 2021 sunset of this provision, an agent:

    • May not request any additional CLF advances for its own liquidity needs; and
    • Must continue to follow the terms of the CLF advance agreement
  4. In the April 2020 Interim Final Rule, the Board amended the waiting period for a credit union to terminate its membership in the CLF until January 1, 2022. These changes temporarily permitted a credit union to withdraw from membership in the CLF after notifying the NCUA Board in writing on the sooner of:
    • Six months from the date of its written notice to the NCUA Board; or
    • December 31, 2020. Further, any credit union that remained a member after December 31, 2020, was permitted to withdraw from membership immediately upon notifying the Board in writing of its intent to do so.

NCUA is now making several conforming amendments to this section to address the extension of the CLF provisions in the CARES Act by the CAA.

  • Any credit union that joined the CLF between April 29, 2020 and December 31, 2022 may immediately withdraw from membership upon notifying the Board in writing of its intent to do so.
  • Credit unions that join the CLF between January 1, 2021 and December 31, 2021, regardless of percentage amount of stock subscription, may withdraw from membership in the Facility after notifying the NCUA Board in writing on the sooner of:
  • 6 months from the date of its written notice to the NCUA Board; or
  • December 31, 2021.

Any credit union that joins the CLF between January 1, 2021 and December 31, 2021, and remains a member after December 31, 2021, may immediately withdraw from membership upon notifying the Board in writing of its intent to do so until December 31, 2022. On January 1, 2023, the immediate withdrawal period will cease, and all members will be subject to the termination provisions in effect before April 29, 2020.

CARES Act provisions extended by the CAA but not included in the IFR

The CARES Act included two additional amendments to the FCU Act that were also extended by the CAA but are not included in the IFR because they did not require NCUA rulemaking to implement. However, both provisions are extended until December 31, 2021. The 2 additional provisions of the CARES Act:

  1. Increased the multiplier from “12x” to “16x;” and
  2. Provided more clarity about the purposes for which the NCUA Board can approve liquidity-need requests by removing the phrase “the Board shall not approve an application for credit the intent of which is to expand credit union portfolios.”

Final Rule Summary
FinCEN: Use of FinCEN Identifiers in Beneficial Ownership Information Reporting

NASCUS Legislative and Regulatory Affairs Department
November 28, 2023

On November 7, 2023, FinCEN issued a final rule that specifies the circumstances in which a reporting company may report an entity’s FinCEN identifier in lieu of information about an individual beneficial owner.

Summary

A FinCEN identifier is a unique number that FinCEN will issue upon request after receiving the required information. Although there is no requirement to obtain a FinCEN identifier, doing so can simplify the reporting process and allow entities or individuals to provide the required information directly to FinCEN.

The final rule amends FinCEN’s final Beneficial Ownership Information (BOI) Reporting Rule. The amendments specifically respond to concerns from commenters that the reporting of entity FinCEN identifiers could obscure the identities of beneficial owners in a manner that might result in greater secrecy or misleading disclosures. To address this concern, the final rule provides clear criteria that must be met in order for a reporting company to report an intermediate entity’s FinCEN identifier in lieu of information about the individual beneficial owner.

Specifically, the final rule adopts the following changes:

  1. To consistently refer to the entity whose FinCEN identifier the reporting company may use as “another entity” or “the other entity” rather than simply “the entity,” in order to avoid confusion with the reporting company itself; and
  2. To make clear that it is an individual’s ownership interest in another entity that allows the reporting company to report the other entity’s FinCEN identifier in lieu of the individual’s information.

The final rule will be effective January 1, 2024, to align with the effective date of the BOI Reporting Rule.

NASCUS Legislative and Regulatory Affairs Department
July 10, 2023 

The National Credit Union Administration (NCUA) Board has published a Notice and Request for Comment Regarding NCUA Operating Fee Schedule Methodology.   NCUA is proposing to change the exemption threshold below which Federal Credit Unions (FCUs) would not be required to pay the operating fee and establish a process to update the exemption threshold in future years

Comments are due to NCUA by August 7, 2023. The proposal may be read here.

Background

As part of the budget process, the NCUA Board adopts an annual budget in the fall of each year to cover an “operating budget” for the costs of day-to-day operations and a “capital budget” related to estimated capital project expenditures.  Determination of the annual operating fee funding requirements are calculated by subtracting from the annual budget NCUA’s estimates for miscellaneous revenues collected, the Overhead Transfer Rate (OTR) funding of the budget, interest income, and other miscellaneous adjustments made by the Board including an estimate of unallocated prior-period operating fees collected.

Once the estimated annual operating fee funding requirements are determined, the Board approved methodology is utilized by the CFO to determine the operating fee funding requirements of each individual FCU and make the appropriate recommendation to the Board.

The FCU Act imposes three requirements on the Board related to assessing an operating fee on FCUs:

  • The fee must be assessed according to a schedule or schedules, or other method that the Board determines to be appropriate, which gives due consideration to NCUA’s responsibilities in carrying out the FCU Act and the ability of FCUs to pay the fee;
  • The Board must determine the period for which the fee will be assessed and the due date for payment; and
  • The Board must deposit collected fees into the Treasury to defray the Board’s expenses in carrying out the FCU Act. Once collected, operating fees, “may be expended by the Board to defray the expenses incurred in carrying out the provisions of [the FCU Act,] including the examination and supervision of [FCUs].”[1]

Changes to Operating Fee Methodology and Request for Comment

Currently FCUs reporting average assets of $1 million or less during the preceding four calendar quarters are exempt from paying an operating fee.  Under the proposal, the Board would raise the average asset exemption level for FCUs to $2 million and annually adjust the exemption threshold in future years.

The inflationary adjustment, calculated as a percentage of average asset growth reported on the call reports over the previous four quarters, would be included in the operating fee calculation presented in the annual draft NCUA budget published by NCUA’s CFO.   This adjustment factor would then be factored into the threshold to determine the new asset base below which a FCU would not be assessed an operating fee by the NCUA.

The Notice states the Board believes this change would appropriately maintain its current policy of exempting the smallest natural person credit unions from paying the operating fee based on those institutions’ ability to pay the fee.

The Board is also seeking comment on whether either the three-tier operating fee schedule and its regressive approach to fee assessment remains appropriate.  While not pointing to a specific methodology, the Notice does reference whether a flat-rate schedule for all institutions over a certain exemption threshold, or another less regressive alternative is more appropriate.

Finally, the Board seeks comments on the equitable distribution of the operating fees across FCUs.  Specifically, they seek understanding on how any proposals to change the methodology can be justified as fair and equitable not only for those FCUs whose operating fee would decrease, but also those FCUs whose operating fees would increase compared to the current methodology.

[1]  12 U.S.C. 1755(d).

CFPB 2022-0003: Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products/Services

The Consumer Financial Protection Bureau (CFPB) is seeking comments from the public related to fees that are not subject to competitive processes that ensure fair pricing.  The submissions to this request for information will serve to assist the CFPB and policymakers in exercising its enforcement, supervision, regulatory and other authorities to create fairer, more transparent and competitive consumer financial markets.

Comments are due by March 31, 2022.  You can access the RFI here.

Summary

The CFPB is concerned that “exploitative junk fees” charged by banks and non-bank financial institutions have become widespread, with the potential effect of shielding substantial portions of the true price of consumer financial products/services from competition.  The Bureau is seeking information from the how such fees have impacted their lives.  The Bureau is particularly interested in hearing from individuals (including older consumers, students, servicemembers, consumers of color and lower-income consumers), social services organizations, consumer rights and advocacy organizations, legal aid attorneys, academics/researchers, small businesses, financial institutions and state/local government officials.

The Bureau has posed specific questions below.  However, the Bureau is interested in receiving any comments related to fees in consumer finance.

  • If you are a consumer, please tell us about your experiences with fees associated with your bank, credit union, prepaid or credit card account, mortgage, loan or payment transfers including:
    • Fees for things you believed were covered by the baseline price of a product/service
    • Unexpected fees for a product or service
    • Fees that seemed too high for the purported service
    • Fees where it was unclear why they were charged
  • What types of fees for financial products/services obscure the true costs of the product/service by not being built into the upfront price?
  • What fees exceed the cost to the entity that the fee purports to cover? For example, is the amount charged for NSF fees necessary to cover the cost of processing a returned check and associated losses to the depository institution?
  • What companies or markets are obtaining significant revenue from backend fees, or consumer costs that are not incorporated into the sticker price?
  • What obstacles, if any, are there to building fees into up-front prices consumers shop for? How might this vary based on the type of fee?
  • What data and evidence exist with respect to how consumers consider back-end fees, both inside and outside of financial services?
  • What data and evidence exist that suggest that consumer do, or do not, understand fee structures disclosed in fine print or boilerplate contracts?
  • What data and evidence exist that suggest consumers do or do not make decisions based on fees, even if well disclosed and understood?
  • What oversight and/or policy tools should the CFPB use to address the escalation of excessive fees or fees that shift revenue away from the front-end price?