NCUA 2019 Regulatory Review
Summary

Prepared by NASCUS Legislative & Regulatory Affairs Department
January 2019

NCUA has published its 2019 Regulatory Review covering 1/3 of its Rules & Regulations from Part 700 to Part 710. The Regulatory Review includes both federal credit union (FCU) only rules as well as rules that apply to federally insured state credit unions (FISCUs) by reference in Part 741.

NCUA’s Regulatory Review may be read here: https://www.ncua.gov/regulation-supervision/rules-regulations/regulatory-review.

Comments on the Regulatory Review are due to NCUA by June 1, 2019.

Summary

This year, NCUA will review the following rules as part of its administrative review :

1. 700                  Definitions
2. 701.1               FCU Chartering, Field of Membership Modifications, and Conversions
3. 701.2               FCU Bylaws
4. 701.3               Member Inspection of Credit Union Books, Records, and Minutes
5. 701.4             General Authorities and Duties of FCU Directors
6. 701.6              Fees Paid by FCUs
7. 701.14             Change in Official or Senior Executive Officer in Credit Unions that are Newly                                Chartered or are in Troubled Condition (by way of §741.205)
8. 701.19             Benefits for Employees of FCUs
9. 701.20            Suretyship and Guaranty (by way of §741.221)
10. 701.21            Loans to Members and Lines of Credit to Members (by way of §741.203)
11. 701.22            Loan Participations (by way of §741.8 & §741.225)
12. 701.23            Purchase, Sale, and Pledge of Eligible Obligations (by way of §741.8)
13. 701.24             Refund of Interest
14. 701.26             Credit Union Service Contracts
15. 701.30             Services for Nonmembers Within the Field of Membership
16. 701.31            Nondiscrimination Requirements
17. 701.32             Payment on Shares by Public Units & Nonmembers (by way of §741.204)
18. 701.33             Reimbursement, Insurance, and Indemnification of Officials and Employees
19. 701.34            Designation of Low-Income Status; Acceptance of Secondary Capital(by way of                             §741.204) Accounts by Low-Income Designated Credit Unions
20. 701.35             Share, Share Draft, and Share Certificate Accounts
21. 701.36             FCU Ownership of Fixed Assets
22. 701.37             Treasury Tax and Loan Depositaries; Depositaries and Financial Agents of the                                Government
23. 701.38             Borrowed Funds from Natural Persons
24. 701.39             Statutory Lien
25.  Appendix A to Part 701 – FCU Bylaws
26. Appendix B to Part 701 – FCU Chartering and Field of Membership Manual
27. 702                 Capital Adequacy (by way of §741.3)
28. 703                 Investment and Deposit Activities (by way of §741.3 & §741.219)
29. 704                 Corporate Credit Unions (by way of §741.3)
30. 705                 Community Development Revolving Loan Fund Access for Credit Unions (by way                         of §741.207)
31. 707                 Truth in Savings (by way of §741.217)
32. 708a               Bank Conversions and Mergers (by way of §741.208)
33. 708b               Mergers of Federally-Insured Credit Unions; Voluntary Termination or Conversion                         of Insured Status (by way of §741.208)
34. 709                 Involuntary Liquidation of Federal Credit Unions and Adjudication of Creditor                                Claims Involving Federally Insured Credit Unions in Liquidation (by way of                                     §741.218)
35. 710                 Voluntary Liquidation (Only 710.9)

Summary: NCUA Proposal, Part 715
Supervisory Committee Audits and Verifications
(By reference in §741.6 and §741.202)

Prepared by NASCUS Legislative & Regulatory Affairs Department
March 2019

NCUA is proposing changes to its regulations governing supervisory committee and other audits.  NCUA’s audit rules are found in NCUA’s Rules and Regulations Part 715. For federally insured state credit unions (FISCUs), Part 715 is referenced in Parts 741.6 and 741.202. Specifically, §741.6 requires FISCUs submit financial reports to NCUA in the manner, and by the means, prescribed by the agency. The provision requires FISCUs file required reports consistent with generally accepted accounting principles (GAAP) if the FISCU has assets in excess of $10 million. The provision incorporates the definition of GAAP found in §715.2(e) and the definition of generally accepted auditing standards (GAAS) found in §715.2(f). Part 741.202, applying to FISCUs, states:

(a) The supervisory committee of each credit union insured pursuant to title II of the Act shall make or cause to be made an audit of the credit union at least once every calendar year covering the period elapsed since the last audit. The audit must fully meet the applicable requirements set forth in part 715 of this chapter or applicable state law, whichever requirement is more stringent.

(b) Each credit union which is insured pursuant to title II of the Act shall verify or cause to be verified, under controlled conditions, all passbooks and accounts with the records of the financial officer not less frequently than once every 2 years. The verification must fully meet the requirements set forth in §715.8 of this chapter.

NCUA’s proposed rule may be read here. The proposed rule is open for comment until April 26, 2019.

Summary

Section 202(a)(6)(A) of the FCU Act authorizes the NCUA to prescribe audit standards that require an outside, independent audit by a certified public accountant for any fiscal year for which a credit union has not conducted an annual supervisory committee audit, has not received a complete and satisfactory supervisory committee audit, or during which the credit union has experienced persistent or serious record keeping deficiencies.

Section 202(a)(6)(D) of the FCU Act requires larger FICUs having assets of $500 million or more to obtain an annual independent audit of its financial statements performed in accordance with generally accepted auditing standards (GAAS). That audit must be performed by an independent certified public accountant or licensed public accountant.

NCUA’s audit rules are in Part 715 of their rules and regulations. Specifically, §715.5 and §715.6 establish: (1) the minimum type of annual audit a FICU is required to obtain according to its charter type and asset size; (2) the licensing requirements of persons performing certain audits; and (3) the auditing principles that apply to certain audits. In addition, §715.7 allows FICU to comply with the annual audit requirement if it has elected not to voluntarily obtain a financial statement audit by obtaining:

(1) a Balance Sheet Audit
(2) a Report on Examination of Internal Controls over Call Reporting
(3) an Audit per the Supervisory Committee Guide

The first two options are analogous to options adopted in 1999 by the Federal Financial Institutions Examination Council for other federally insured financial institutions. The third option was clarified by NCUA in 1999 when the agency amended the Supervisory Committee Guide to detail the minimum scope and procedures for an audit distinct from a financial statement audit.

NCUA’s Proposed Change

Part 715.7 Supervisory Committee Audit Alternatives to a Financial Statement Audit

NCUA proposes eliminating references to the Supervisory Committee Guide as an audit alternative. NCUA would replace a Supervisory Committee Guide audit with an option to conduct an audit so as to meet certain minimum requirements incorporated into a proposed new Appendix A to Part 715.

Under the proposed new Appendix A, the supervisory committee, internal auditor, or other qualified person would be required to perform and document the following areas of review:

• Test and confirm material asset and liability accounts, including, at a minimum, loans, cash, investments, shares and borrowings
• Test material equity, income and expense accounts
• Review key internal controls, at a minimum, bank reconciliation procedures, cash controls, dormant account controls, wire and ACH transfer controls, loan approval and disbursement procedures, and inside account controls
• Test the mathematical accuracy of the allowance for loan and lease loss accounts and ensure the methodology is properly applied
• Test loan delinquency and charge-off

In addition to the proposed changes, NCUA is seeking comment on whether other areas should be included in Appendix A such as loans to insiders, pay and benefits to employees and board members, regulatory compliance, compliance with the Bank Secrecy Act, or other topics.

Part 715.9 Assistance from Outside, Compensated Person

NCUA proposes amending §715.9(c)(6), the provision addressing engagement letters a credit union may use to hire a compensated auditor to perform audit functions. Current NCUA rules require credit unions stipulate audit reports must be completed and delivered no later than 120 after the calendar year end for which the audit was performed.

NCUA proposes eliminating the specified 120-day target date. The new standard would only require a credit union specify in the engagement letter a target delivery date that enables it to meet its §715.4 annual audit requirements. NCUA intends the proposed changes will:

• Provide credit unions greater ability to negotiate the target date for delivery of audit reports
• Eliminate the need for a Supervisory Committee to obtain a waiver from NCUA for audit reports exceeding the 120-day period

Supervisory Committee Guide

NCUA proposes amending §715.9(c)(3), §715.9(d), and §715.9(e) to remove references to the Supervisory Committee Guide. NCUA will revoke the Supervisory Committee Guide and replace it with minimum requirements in a new Appendix A consistent with the proposed changes to §715.7(c).

NCUA will also amend §715.7 by removing a current option a credit union has to obtain “a report on examination of internal controls over call reporting” as an alternative to obtaining a financial statement audit. NCUA believes this option is of limited value and has been used by less than 1% FICUs.

Balance Sheet Audit Alternative

NCUA seeks comment on whether it should also eliminate the “balance sheet audit” alternative. It has been the NCUA’s experience that the balance sheet audit alternative is utilized only by a small number of credit unions (approximately 2.5 percent) and provides limited value, as it does not include an audit of a credit union’s income statement.

Delaware does not have a state credit union statute and has no state-chartered credit unions. Please visit one of our other states for the latest news on the state credit union system.

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Summary: Overdraft Rule Review Pursuant to the Regulatory Flexibility Act

12 CFR Part 1005

Consumer Financial Protection Bureau
Prepared by the NASCUS Legislative & Regulatory Division
May 2019

The Consumer Financial Protection Bureau (Bureau) is conducting a review of the 2009 Overdraft rule in compliance with Section 610 of the Regulatory Flexibility Act.  The Bureau is seeking comment on the economic impact of the overdraft rule on small entities.  The Bureau intends to use the comments received to determine whether the rule should be continued without change or amended/rescinded to minimize significant economic impact on small entities.

The RFA request for comments can be found here.  Comments are due to the Bureau no later than July 1, 2019.

Summary

The Overdraft Rule was issued in 2009 and limits the ability of financial institutions to assess overdraft fees for paying automated teller machine (ATM) and one-time debit card transactions that overdraw consumer accounts.

Under the Regulatory Flexibility Act (RFA), agencies are required to consider the effect on small entities for certain rules.  Section 610 of the RFA requires agencies to publish a plan for periodic review of rules that will or have had a significant economic impact on small entities.  During the RFA review, agencies are required to consider the following factors:

• The continued need for the rule;
• The nature of public complaints or comments on the rule;
• The complexity of the rule;
• The extent to which the rule overlaps, duplicates or conflicts with Federal, State or other rules; and
• The time since the rule was evaluated or the degree to which technology, market conditions, or other factors have changed the relevant market.

The Bureau is requesting feedback on the following:

• The nature and extent of the economic impacts of the Rule as a whole and of its major components on small entities, including impacts of the reporting, recordkeeping, and other compliance requirements of the Overdraft Rule, as well as benefits of the Rule;
• Whether and how the Bureau by rule could reduce the costs of the Overdraft Rule on small entities, consistent with state objectives of EFTA and the Overdraft Rule; and
• Any other information relevant to the factors that the Bureau considers in completing a Section 610 Review under the Regulatory Flexibility Act.

Summary: Proposed rule with request for comments re: the Home Mortgage Disclosure Act

12 CFR Part 1003

Consumer Financial Protection Bureau

Prepared by the NASCUS Legislative & Regulatory Division

May 2019

The Consumer Financial Protection Bureau (Bureau) is proposing two alternatives to amend Regulation C to increase the origination threshold that would trigger HMDA compliance requirements for closed-end mortgage loans.  In addition, the proposal would extend the temporarily increased origination threshold for open-end lines of credit as well as set a higher permanent origination threshold for open in lines of credit.

The proposed rule can be found here.  Comments on the proposed rule are due to the Bureau by June, 12, 2019.  Comments on the Paperwork Reduction Act analysis in Part VIII of the Supplementary Information are due to the Bureau no later than July 12, 2019.

Summary

The Home Mortgage Disclosure Act (HMDA) provides for institutional and transactional coverage thresholds that determine whether certain financial institutions are required to collect, record and report any HMDA data on closed-end mortgage loans or open-end lines of credit.  The Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) provides partial exemptions from HMDA requirements for certain insured depository institutions (including credit unions).  In 2015, the Bureau determined that institutions that originated: (i) at least 25 closed end mortgage loans in each of the two preceding calendar years or (ii) at least 100 open-end lines of credit in each of the two preceding calendar years would be required to collect, record and report HMDA data.  The Bureau then issued an updated HMDA rule in 2017 that temporarily increased the open-end line of credit threshold to 500 open-end lines of credit for calendar years 2018 and 2019.

The Bureau is now proposing amendments to Regulation C that would increase the closed-end mortgage loan origination threshold that would trigger HMDA requirements.  Under the proposal, institutions originating fewer than either 50 closed-end mortgage loans or alternatively 100 closed-end mortgage loans, in either of the two preceding calendar years would not have to report such data as of January 1, 2020.  The proposal would also adjust the threshold for reporting data about open-end lines of credit by extending the current temporary threshold of 500 open-end lines of credit until January 1, 2020.  After that date, the open-end lines of credit threshold will be set to 200.  The proposal would also incorporate into Regulation C the interpretations/procedures from the interpretive/procedural rule the Bureau issued on August 31, 2018.

The Bureau is seeking comments on the following among other things:

• On whether the data that would be reported at thresholds of 50 or 100 closed-end mortgage loans would achieve the purposes of HMDA?
• On whether other closed-end and open-end coverage thresholds may be appropriate?
• Whether the value of the data that would be reported by institutions that originate between 25 and 50 closed-end mortgage loans or alternatively between 25 and 100 closed end mortgage loans is outweighed by the burden on those institutions of reporting HMDA data and undergoing examinations to validate the accuracy of their submissions?
• How the proposed increase to the closed-end coverage threshold to 50, 100 or another number would affect the number of depository institutions required to report data on closed end mortgage loans?
• The significance of the data that would not be available for achieving HMDA’s purposes as a result of the proposed increase to the closed-end coverage threshold to 50, 100 or another number?
• The reduction in burden that would result from the proposed increase for institutions that would not be required to report (addressing separately the burden reduction for depository institutions that are eligible for the EGRRCPA’s partial exemption for closed-end mortgage loans and the burden reduction for depository institutions that are not)?
• Whether it should extend the temporary institutional coverage threshold of 500 open-end lines of credit as proposed, and if so, for how long?
• Whether to increase permanently the open-end institutional coverage threshold when the proposed temporary extension expires? And, if so, whether a threshold of 200 or some other threshold would most appropriately balance the benefits and burdens of covering institutions based on their open-end lending beginning in 2022?
• How the proposed temporary and permanent increases would affect the number of financial institutions required to report data on open-end lines of credit?
• The significance of the data that would not be available as a result of the proposed temporary and permanent increases?
• The reduction in burden that would result from the proposed temporary and permanent increases for institutions that would not be required to report their open-end lines of credit (addressing separately the burden reduction for institutions that are eligible for the EGRRCPA’s partial exemption for open-end lines of credit and for institutions that are not)?

 

 

 

 

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