Summary: Joint Ownership Share Accounts

Final Rule Summary: Joint Ownership Share Accounts (Part 745)

Prepared by NASCUS Legislative & Regulatory Affairs Department

March 2021

NCUA has issued a final rule amending its rules regarding what documentation the National Credit Union Share Insurance Fund (NCUSIF) may rely on to evidence joint ownership of a share account for separate share insurance coverage. The final rule amends § 745.8 to provide an alternative method to satisfy the membership card or account signature card requirement necessary for insurance coverage in the event the jointly signed membership cards cannot be produced by the credit union.

This rule applies to federally insured state credit unions (FISCUs) by reference in  § 741.212.

The change mirrors one made in 2019 by FDIC for banks.

The provisions of this rule become effective March 26, 2021. The rule may be read in its entirety here.

 Summary

As the Administrator of the NCUSIF, NCUA is authorized to promulgate regulations governing the payment of coverage to members in the event of the failure of a federally insured credit union (FICU). NCUA recognizes categories of accounts, and each category is eligible for the maximum share insurance coverage allowable by law.

Section 745.8 of the NCUA’s Rules & Regulations governs share insurance coverage for joint ownership accounts and provides that ‘‘qualifying joint accounts’’ will be insured separately from the joint co-owners’ individual accounts (if any). In general, “qualifying joint accounts’’ must satisfy two requirements:

  • Each co-owner has personally signed a membership card or account signature card; and
  • Each co-owner possesses withdrawal rights on the same basis.

The final rule amends § 745.8 to allow a FICU to use information contained in its account records to satisfy the signature card requirement proving joint ownership when the signature card or membership cards cannot be located. Examples of information that could prove co-ownership of the account include:

  • Evidence that the FICU issued the means for accessing the account to each co-owner; or
  • Evidence of usage of the share account by each co-owner.

Part 745.8(c) is amended to read as follows:

  • 745.8 Joint ownership accounts * * * * *

(c) Qualifying joint accounts.

(1) A joint account is a qualifying joint account if each of the co-owners has personally signed a membership or account signature card and has a right of withdrawal on the same basis as the other co-owners. The signature requirement does not apply to share certificates, or to any accounts maintained by an agent, nominee, guardian, custodian or conservator on behalf of two or more persons if the records of the credit union properly reflect that the account is so maintained.

(2) The signature card requirement of paragraph (c)(1) of this section also may be satisfied by information contained in the account records of the federally insured credit union establishing coownership of the share account, including, but not limited to, evidence that the institution has issued a mechanism for accessing the account to each co-owner or evidence of usage of the share account by each co-owner.

 

 

-End-

Final Rule Summary: Corporate Credit Unions (Part 704)                     

Prepared by NASCUS Legislative & Regulatory Affairs Department

March 2021

NCUA has issued a final rule to cohere the agency’s Part 704, Corporate Credit Unions with the 2020 final Subordinated Debt rule. Part 704 applies to state-chartered corporate credit unions by reference in § 741.206.

The final rule:

  • Makes clear corporate credit unions may purchase natural person credit union subordinated debt
  • Incorporates the definition of subordinated debt from the 2020 final rule into Part 704
  • Requires corporate credit unions deduct from their Tier I capital calculation the amounts of any natural person subordinated debt in which they are invested

The provisions of this rule become effective January 1, 2022. The rule may be read in its entirety here.

 Summary

NCUA’s final Subordinated Debt rule permits low-income designated credit unions, complex credit unions, and new credit unions to issue subordinated debt instruments for purposes of regulatory capital treatment. This final corporate credit union rule will govern how corporate credit unions invest in those instruments issued by natural person credit unions (NPCUs).

  • What is NPCU Subordinated Debt?

NCUA’s Subordinated Debt rule defines NPCU subordinated debt as any debt instrument issued by a natural person credit union that is subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and either the NCUSIF or the insurer of a privately insured credit union.

This definition is now incorporated into the definitions of § 704.2.

  • May corporate credit unions purchase NPCU subordinated debt?

Yes. A corporate credit union’s ability to purchase NPCU subordinated debt is inherit in the corporate credit union’s lending authority because NCUA has characterized the issuance of subordinated debt as a borrowing for the NPCU. Because corporate credit unions’ current lending authority is sufficiently broad to include purchasing subordinated debt instruments NCUA is not making any changes to the regulatory text of § 704.

  • What is the affect on a corporate credit union’s regulatory capital of purchasing NPCU subordinated debt?

Part 704 currently requires corporate credit unions to deduct from Tier 1 capital any investments in perpetual contributed capital and nonperpetual capital accounts that are maintained at other corporate credit unions. The final rule will treat NPCU subordinated debt in the same manner. To guard against systemic risk and the potential for cascading losses, NPCU subordinated debt purchased by a corporate credit union will be fully deducted from the corporate credit union’s Tier I capital.

Summary: NCUA 2021 Regulatory Review

Prepared by NASCUS Legislative & Regulatory Affairs Department
February 2021

The NCUA maintains a rolling review schedule that identifies 1/3 of the agency’s existing regulations for review each year and provides stakeholders an opportunity to comment.  NCUA’s Regulatory Review is a not an exclusive list of NCUA rulemaking this year, the agency will also engage in discretionary rulemaking involving any provision it believes necessary.

NCUA’s 2021 Regulatory Review may be read here.

Comments on NCUA’s 2021 regulatory review are due to NCUA by August 16, 2021. NASCUS will file comments on the Regulatory Review. To discuss the 2021 NCUA Regulatory Review, please contact NASCUS at your convenience.

This year, NCUA will review the following 12 rules as part of the agency’s review:

  • 748 Security Program, Report of Suspected Crimes, Suspicious Transactions, Catastrophic Acts and Bank Secrecy Act Compliance

Part 748 applies to FISCUs by way of reference in Part 741.214. The rule mandates compliance with the BSA, the creation of a written security program, and the creation of a program to safeguard member information.

  • 749 Records Preservation Program and Appendices – Record Retention Guidelines; Catastrophic Act Preparedness Guidelines

Part 749 applies to FISCUs by way of reference in Part 741.215. NCUA’s record retention rule requires all federally insured credit unions (FICUs) to maintain a records preservation program to identify, store and reconstruct vital records in the event the credit union’s records are destroyed. Credit unions are required to maintain written policies and procedures for compliance with the rule.  

  • 750 Golden Parachute and Indemnification Payments

Part 750 applies to FISCUs by way of reference in § 741.224. The rule limits the ability of insured credit unions to indemnify senior officials being sanctioned for regulatory wrongdoing as well as providing excessive exit compensation to those officials.

  • 760 Loans in Areas Having Special Flood Hazards

Part 760 applies to FISCUs by way of reference in Part 741.216. The rule requires FICUs to maintain a Flood Act compliance program.

  • 761 Registration of Residential Mortgage Loan Originators

Part 761 applies to FISCUs by way of incorporation in Part 741.223. The rule now provides a cross reference to the CFPB’s Regulation G and mandating that mortgage loan originators be registered (or licensed if they work for a CUSO) with the Nationwide Mortgage Licensing System and Registry (NMLS).

  • 790 Description of NCUA; Requests for Agency Action

Part 790 establishes NCUA’s various offices and regions as well as establishes procedures for public to request agency action.

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

Part 791 governs NCUA conduct of business: from board meetings to rulemaking.

  • 792 Requests for Information under the Freedom of Information Act and Privacy Act, and by Subpoena; Security Procedures for Classified Information

Part 792 governs NCUA’s records. The provision covers Freedom of Information Act requests, NCUA’s keeping of non-public records, NCUA information security, NCUA’s handling of subpoenas, and the Privacy Act.

  • 793 Tort Claims Against the Government

This provision addresses litigating tort claims against NCUA.

  • 794 Enforcement of Nondiscrimination on the Basis of Handicap in Programs or Activities Conducted by the National Credit Union Administration 

Part 794 prohibits NCUA from discriminating on the basis of handicap.  

  • 796 Post-Employment Restrictions for Certain NCUA Examiners

Part 796 prohibits NCUA senior examiners from accepting employment with a FICU within 12 months of leaving service under certain circumstances.

  • 797 Procedures for Debt Collection

This provision authorizes NCUA to collect certain debts owed to the United States by individuals and entities.

21-RA-04 HMDA Data Collection Requirements for Calendar Year 2021

February 2021

NCUA Regulatory Alert 21-RA-04 to provide additional HMDA filing information for credit unions meeting the following criteria and subject to the CFPB’s Regulation C for filing mortgage data on the credit union’s 2021 activities in March of 2022

  • The credit union’s total assets as of 12/31/2020 exceeded $48 million;
  • The credit union had a home or branch office in a MSA on 12/31/2020;
  • The credit union originated at least 1 home purchase loan (other than temporary financing such as a construction loan) or refinanced a home purchase loan, secured by a 1st lien on a 1-4 unit dwelling during 2020; and
  • The credit union originated at least 100 covered closed-end mortgage loans orat least 500 covered open-end lines of credit in each of the 2 preceding calendar years (2019 and 2020).

Credit unions meeting all 4 criteria must collect HMDA data during this calendar year to be submitted by March 1, 2022. A credit union that does not meet all 4 criteria is exempt from filing HMDA data in 2022 for mortgage loan applications processed in 2021.

HMDA Data Partial Exemptions

Section 1003.3(c) of the HMDA rule contains a list of partial exemptions from the filing requirements. NCUA Regulatory Alert discusses some of these exemptions and provides an illustrative chart showing an example of how partial exemptions are applied.

The HMDA filing requirements include 48 total data points. Of these, 26 data points are not required to be collected and reported if a transaction qualifies for a partial exemption (reducing reporting to 22 data points only for qualifying institutions).

More information on partial exemptions is available in Appendix F of the 2020 A Guide to HMDA Reporting: Getting It Right!.

Recording of Jan. 25, 2021 Solar Winds Breach Webinar

(members only)

Click here to access the recording of the Jan. 25, 2021 webinar focusing on the Solar Winds/Orion hacking.

The webinar focuses on the latest information related to how the SolarWinds Orion “breach” was carried out along with secondary risks related to the SolarWinds software. The webinar also discusses the threat landscape through the analysis of case studies and examples for public disclosures.

21-RA-03 Submission of 2020 Home Mortgage Disclosure Act Data

February 2021

NCUA Regulatory Alert 21-RA-03 informs credit unions subject to HMDA reporting requirements in calendar year 2020 that loan/application data must be submitted to the CFPB by March 1, 2021. The requirement applies to credit unions that:

  • are located in metropolitan areas;
  • engage in certain types and volume of residential mortgage lending; and
  • had assets greater than $47 million as of December 31, 2019,

NCUA notes in the alert that the closed-end mortgage loan threshold increased from 25 to 100 effective July 1, 2020. Therefore, credit unions that originated fewer than 100 covered closed-end mortgage loans in 2018 or 2019 are not required to report any closed-end mortgage loan information for 2020.

Excluded transactions are listed in Section 1003.3(c) of Regulation C.

Submission Process for Data Collected in 2020

Credit unions must submit their HMDA data using the HMDA Platform. NCUA also notes:

  • Credit unions should use a modern web browser, such as the latest versions of Google Chrome, Mozilla Firefox, Internet Explorer 11, Safari or Microsoft Edge when accessing the platform.
  • The FFIEC has developed a loan/application formatting tool to help credit unions format data into the required pipe delimited text file (.txt) format.
  • All edits must be addressed prior to submission of the HMDA data. Edit reports may be viewed and downloaded from the Platform.
  • An authorized credit union representative must certify the accuracy of the submission on the Platform (emailed/fax certificates will not be accepted).

For more information:

Technical questions about reporting HMDA data collected in or after 2020 should be directed to [email protected].

NCUA reserves the right to assess CMP against credit union that fail to meet their applicable March 1, 2021 filing deadline.

21-RA-02 CFPB Publishes 2021 Threshold Adjustments Under Regulation C, Regulation Z and Regulation V

NCUA issued Regulatory Alert 21-RA-02 to inform credit unions on the CFPB’s threshold adjustments to Regulations C HMDA), Z (TILA) and V (FCRA). All three adjustments were effective on January 1, 2021.

  • Regulation C Data Collection Asset-Size Exemption Threshold

The Reg C  exemption threshold for 2021 increased to $48 million based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in effect through November 30, 2020. Credit unions with assets of $48 million or less as of December 31, 2020 are exempt from collecting HMDA data in 2021.

  • Regulation Z Escrows and Small Creditor QMs Asset-Size Exemption Threshold

The Reg Z escrow and small creditor qualified mortgages (QMs) asset-size exemption threshold increased to $2.23 billion. Credit unions with assets of less than $2.23 billion at the end of last year are exempt if other provisions of Reg Z are also met).

  • Regulation V Credit Bureau Consumer Report Fee Ceiling

The ceiling on the fee a consumer reporting agency may charge for a consumer report in 2021 increased to $13.00, based proportionally on changes in the Consumer Price Index for All Urban Consumers (CPI-U). The ceiling does not affect the amount a credit union may charge its members or potential members, directly or indirectly, for obtaining a credit report in the normal course of business.  Such cost must however be accurately represented in all advertising, disclosures, or agreements, whether written or oral.

Summary: Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations

Prepared by NASCUS Legislative & Regulatory Affairs Department

February 2021

 

On January 19, 2021, FinCEN, the Federal Reserve, NCUA, the OCC, and the FDIC issued answers to 7 frequently asked questions (FAQs) regarding suspicious activity reports (SARs) and other anti-money laundering (AML) considerations for financial institutions covered by SAR rules.

The FAQs may be read here. 

Summary

Question 1 addressed whether financial institutions may keep an account open in response to a written request to do so from law enforcement even if the financial institution has identified suspicious or illegal activity. The FAQ notes that YES, financial institutions may choose to keep an account open in response to a written request from law enforcement if the institutions chooses. The FAQ recommends:

  • the written request be specific and indicate both that the law enforcement agency has requested that the financial institution maintain the account, as well as the purpose and duration of the request.
  • The financial institution consider maintaining documentation of “keep open” requests, including after a request has expired.

Institutions are still required to comply with all applicable BSA requirements, including requirements to conduct ongoing risk-based monitoring and filing of ongoing SARs.

Question 2 addressed whether a financial institution should file a SAR solely on the basis of receiving a grand jury subpoena or other law enforcement inquiries. The FAQs clarify that receipt of a law enforcement inquiry, such as a grand jury subpoena, does not by itself meet the SAR filing criteria. However, receipt of a grand jury subpoena or other law enforcement inquiry is pertinent information that should be incorporated into an institution’s overall assessment of risk and the risk profile for the relevant customer account and should cause the institution to review relevant account activity and transactions.

Question 3 addresses whether a financial institution is required to terminate a customer relationship following the filing of multiple SARs. The FAQs answer NO, there is no BSA regulatory requirement to terminate a customer relationship after the filing of a SAR or any number of SARs. The decision to maintain or close a customer relationship as a result of the identification of suspicious activity is a determination for a financial institution to make based on its risk tolerance and policies and procedures. An institution’s policies should establish criteria for when a review by senior management and legal staff is warranted to determine whether to maintain or terminate the customer relationship in light of elevated risk factors.

Question 4 addresses whether an institution is required to file a SAR based solely on negative news. The FAQs answer that NO, the existence of negative news related to a customer or other activity at an institution does not alone indicate that the SAR filing criteria have been met. An institution may review media reports, news articles and/or other references to assist in its performance of customer due diligence, as well as its evaluation of any transactions or activity it considers unusual or potentially suspicious and negative news may cause the institution to review customer activity as well as other related information, such as that of third parties with transactions involving the customer’s account.

Question 5 also addresses negative media alerts. The FAQs state that if an institution’s monitoring identifies multiple negative news alerts that are based on the same underlying events, the institution does not need to independently investigate each alert. If a particular alert contains new or different information that warrants further investigation or the news provides new information thru which to evaluate the activity or the customer, then an institution may rely on its policies to determine the prudence of investigating.

Question 6 addresses whether financial institutions need to repeat information in the SAR narrative that has already been included in other SAR data fields. The FAQs answers NO, information provided in other sections of a SAR does not need to be repeated in the narrative. Detail (such as subject identification data) that is reported in the appropriate SAR data fields does not need to be repeated in the SAR narrative, unless necessary to clearly describe the activity reported 

Question 7 addresses whether institutions should file additional SARs on the same suspicious activity to accommodate narratives that are longer than the SAR narrative character limits. The FAQs answered NO, an institution reaching the SAR narrative character limit (20,000 characters) should review its narrative to ensure it contains only relevant information. Institutions can include an attachment to the SAR or note that supporting material is available as supporting documentation. Institutions can include a single comma-separated values (CSV) file with no more than one megabyte of data as an attachment to a SAR. Filers must retain all supporting documentation & business records for 5 years from the date of filing and should be made available to the appropriate authorities upon request.

CFPB Summary re: Seasoned Qualified Mortgage Loan Final Rule

12 CFR Part 1026

Prepared by the Legislative and Regulatory Affairs Division

February 2021

 

The CFPB is issuing this final rule to create a new category of QMs (Seasoned QMs) for first-lien, fix-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements.  The Bureau’s primary objective with this final rule is to ensure access to responsible, affordable mortgage credit by adding a Seasoned QM definition to the existing QM definitions.

The Final Rule becomes effective on March 1, 2021. The rule can be found here.

Summary

The Ability to Repay/Qualified Mortgage Rule (ATR/QM) requires a creditor to make a reasonable, good faith determination of a consumer’s ability to repay a residential mortgage loan according to its terms.  Loans that meet the ATR/QM Rule’s requirements for QMs obtain certain protections from liability.  The Bureau issued a proposal in August 2020 to create a new category of QMs – Seasoned QMs.  The final rule defines Seasoned QMs as first-lien, fixed rate covered transactions that have met certain performance requirements over a seasoning period by the originating creditor or first purchaser, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements.

Under the final rule:

  • a covered transaction receives a safe harbor from ATR liability at the end of a seasoning period of at least 36 months as a Seasoned QM if it satisfies certain product restrictions, points and fee limits, and underwriting requirements and it meets performance and portfolio requirements during the seasoning period. Specifically, a covered transaction has to meet the following product restrictions to be eligible:
    • The loan is secured by a first lien
    • The loan has a fixed rate, with regular, substantially equal periodic payments that are fully amortizing and no balloon payments
    • The loan term does not exceed 30 years and
    • The loan is not a high-cost mortgage as defined by Section 1026.32(a)
  • A creditor must consider the consumer’s DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and verify the consumer’s income or assets other than the value of the dwelling and the consumer’s debts (using the same consider and verify requirements established for General QMs in the General QM Final Rule) for a loan to be eligible to become a Seasoned QM.
  • A loan generally is eligible to season only if the creditor holds it in portfolio until the end of the seasoning period. There are several exceptions to this portfolio requirement that are similar to the exceptions to the Small Creditor QM portfolio requirement under the ATR/QM Rule.  The final rule also includes an additional exception for a single transfer of a loan during the seasoning period.  In the event of such a transfer, the final rule requires the purchaser to hold loan in portfolio after the transfer until the end of the seasoning period.
  • A loan must meet certain performance requirements at the end of the seasoning period. Specifically, “seasoning” is available only for covered transactions that have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period.  Funds taken from escrow in connection with the covered transaction and funds paid on behalf of the consumer by the creditor, servicer, or assignee of the covered transaction (or any other person acting on their behalf) are not considered in assessing whether a periodic payment has been made or is delinquent for purposes of this final rule.  Creditors can, however, generally accept deficient payments, within a payment tolerance of $50, on up to three occasions during the seasoning period without triggering a delinquency for purposes of this final rule.
  • The “seasoning period” is defined as a period of 36 months beginning on the date which the first periodic payment is due after consummation. Failure to make full contractual payments does not disqualify a loan from eligibility to become a Seasoned QM if the consumer is a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency, as long as certain conditions are met.
  • A qualifying change is defined as an agreement entered into during or after a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency that ends any preexisting delinquency and meets certain other conditions to ensure the loan remains affordable.
Request for Information: NCUA Communications & Transparency

Prepared by NASCUS Legislative & Regulatory Affairs Department

January 2021

NCUA is seeking comments and information on how the agency can improve its communications to stakeholders, improve efficiency of NCUA’s presentation and reporting of information to the public, and reduce the burden on stakeholder’s consumption of NCUA communications.

The NCUA Request for Information may be read here. Comments are due to NCUA March 9, 2021.

Summary

The NCUA is seeking input on how to make its communications with federally insured credit unions more effective, consistent, and clear to minimize unnecessary regulatory and operation burdens as much as possible. The RFI solicits comments on how NCUA can maximize efficiency and minimize burdens associated with obtaining information on federal laws, regulations, policies, guidance, and other materials relevant to  FICUs.

The RFI is open ended and asks for all constructive suggestions to improve NCUA communications. NCUA provides a list of communications, including:

REGULATIONS, POLICIES, PROCEDURES, AND GUIDANCE

  • Federal Register: The NCUA publishes proposed and final rules, requests for information, and other notices, including statements of policy and certain guidance or interpretations in the Federal Register.
  • Unified Agenda: Biannually through the Unified Agenda process, NCUA publishes an agenda of regulations to inform the public of its regulatory actions and to enhance public participation in the rulemaking process.
  • Letters to Credit Unions: Provide guidance on specific NCUA policies and procedures, compliance, governance, and other timely issues that affect all federally insured credit unions.
  • Letters to Federal Credit Unions: Provide guidance on specific NCUA policies and procedures, compliance, governance, and other timely issues that affect only credit unions with a federal charter.
  • Risk Alerts: Detail practices or external threats that potentially are significant risks to the safety and soundness of the credit union system.
  • Regulatory Alerts: The NCUA uses regulatory alerts to provide guidance on rules and regulations from other agencies that credit unions must comply with.
  • Supervisory Letters: While geared towards the NCUA’s examiners to provide instructions and information on a range of supervisory and regulatory issues, Supervisory Letters are posted on the NCUA’s website for the benefit of credit unions and the public.
  • Accounting Bulletins: Accounting Bulletins provide guidance and instructions on how changes in generally accepted accounting principles and other regulatory initiatives affect how credit unions report these items in their financial statements.
  • Corporate Credit Union Guidance Letters: NCUA ONES issues letters to inform corporate credit unions about specific NCUA policies and procedures, compliance, governance, and other timely issues.
  • Consumer Financial Protection Updates: Announce new activity on consumer compliance laws, regulations and guidance.

EXAMINATION MANUALS AND GUIDES

  • Online Examiners Guide
  • National Supervision Policy Manual
  • Chartering & Field of Membership Manual
  • Fair Lending Guide
  • Federal Consumer Financial Protection Guide (FAQs)

NCUA BOARD MEETINGS & ASSOCIATED DOCUMENTS

  • Board Meeting Agendas
  • Board Action Memorandum
  • Board Action Bulletins

NEWS AND UPDATES

  • Press Releases
  • Speeches
  • Testimony
  • Statements
  • Annual reports to Congress
  • Events Calendar

INDUSTRY DATA, EDUCATIONAL MATERIALS, AND OUTREACH

  • Credit Union and Corporate Call Report Data
  • Quarterly State Map Reviews
  • Industry at a Glance
  • Chartering and Merger Activity Reports
  • NCUA Videos, Webcasts, Webinars General Communications
  • CUSOs at a Glance
  • Manuals & Guides

GENERAL COMMUNICATIONS

  • gov website and MyCreditUnion.gov
  • Social Media (such as Twitter, Facebook, LinkedIn, and YouTube)
  • NCUA Express Email Subscriptions

In addition to general comments, NCUA seeks specific comments on the following questions:

  • The NCUA issues, or has issued, regulatory and supervisory guidance under a variety of different letterheads, including Letters to Credit Unions, Letters to Federal Credit Unions, Corporate Credit Union Guidance Letters, Accounting Bulletins, Risk Alerts, Regulatory Alerts, Consumer Financial Protection Updates, and Supervisory Letters. Is this practice effective? Should the agency consider consolidating its supervisory guidance into fewer letterheads?
  • How effective are the NCUA’s current forms of communication, such as press releases, social media content, and email distributions? Which of these are the most or the least effective? Are there other methods of communication the NCUA should consider?
  • Which communications vehicles are best suited for informing federally insured credit unions about new policy initiatives, laws and regulations, guidance, background or educational materials, news and other updates?
  • How appropriate is the timing and frequency of the NCUA’s communication?
  • Is it clear to federally insured credit unions which of the agency’s communication is supervisory in nature and which is purely informational?

NCUA also seeks feedback on Improving its Websites and Online Resources:

  • How can the NCUA improve the NCUA.gov and MyCreditUnion.gov websites? Does the website search function provide helpful and relevant results? What aspects of the NCUA.gov and MyCreditUnion.gov websites are the most helpful?
  • How often do you access the financial performance, chartering and merger data available on NCUA.gov? Is the current format useful to you? How can NCUA improve the presentation of data online?
  • What other financial, business, or economic data websites do you use? What do you like about how they present their financial or economic data? What features should the NCUA consider when improving its presentation of financial performance and other data to stakeholders online?
Proposed Rule Summary, Part 712, CUSOs

Prepared by NASCUS Legislative & Regulatory Affairs Department

January 2021

NCUA is proposing to amend its credit union service organization (CUSO) regulation with the intention of accomplishing the following objectives:

  • expanding the list of permissible activities and services for CUSOs to include originating any type of loan that a federal credit union (FCU) may originate; and
  • providing additional flexibility to approve permissible activities and services for FCU CUSOs

The NCUA also seeks comment on broadening FCU investment authority in CUSOs.

NCUA’s CUSO rule applies in part to FISCUs by incorporation in Part 741.222. Specifically, FISCUs must comply with:

  • 712.2(d)(2)(ii) – less than adequately capitalized FISCUs must obtain prior written approval before recapitalizing a CUSO
  • 3(d) – FISCUs must obtain written agreements from their CUSOs that the CUSOs will follow GAAP, prepare quarterly financials and obtain annual audits, provide regulators access to the CUSOs books & records, submit to NCUA detailed annual reports on the CUSO and its credit union clients
  • 4 – FISCUs must maintain corporate separateness from their CUSOs
  • 11(b) and (c) – applying the FISCU CUSO rules to CUSO subsidiaries

NCUA is not proposing changes to the provisions applicable to FISCUs, however, if FISCUs wish to have FCUs invest in their CUSOs, then all the FCU provisions apply.

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

Summary

NCUA has allowed FCU CUSOs to make 4 types of loans:

  • MBL/commercials
  • consumer mortgage
  • student
  • credit cards

NCUA is proposing to expand FCU CUSO lending authority to include any type of loan that may be originated by an FCU. Historically, NCUA has declined to allow FCU CUSOs to engage in the full range of credit union lending for several reasons:

  • NCUA is concerned expanding CUSO lending authority dilutes the common bond requirement for FCUs
  • NCUA is also concerned that if member loans were being made by CUSOs, the NCUA would have a duty to examine those loans and the CUSOs originating them

When NCUA has expanded CUSO powers in the past, it has done so where the agency felt FCUs lacked the expertise, or the economies of scale to develop the expertise, to effectively manage the lending.

Now however, NCUA feels the collaborative benefits of CUSOs will help FCUs compete with non-bank entities in the marketplace. Therefore, NCUA is now proposing to allow FCU CUSOs to originate, purchase, sell, and hold any type of loan permissible for FCUs to originate, purchase, sell, and hold. As a result, CUSOs could originate types of loans previously prohibited by NCUA such as:

  • general consumer loans
  • direct auto loans
  • unsecured loans and lines of credit
  • vehicle-secured retail installment sales contracts (RICs)

Under the proposed rule, CUSO originated loans would not be subject to the same restrictions as loans originated by FCUs such as limitations on interest rate, maturity, and prepayment. However, FCU would not be permitted to purchase a loan from a CUSO unless the loan meets the requirements of the NCUA’s eligible obligations rule. Likewise, FCU may only participate in CUSO loans pursuant to the loan participation rule. See, 12 CFR 701.23(b) & 12 CFR 701.22. Therefore, CUSOs may not buy or sell participation interests in credit card loans.

CUSO Registry

CUSOs that are engaged in complex or high-risk activities have additional obligations with respect to the CUSO Registry. Complex/high-risk CUSOs must report to NCUA:

  • a list of services provided to certain credit unions
  • the investment amount, loan amount, or level of activity of certain credit unions
  • their most recent year-end audited financial statement
  • the total dollar amount & number of loans outstanding and total dollar and number of loans granted year-to-date

The proposed rule would classify all loan originations as complex or high risk and subject them to the more extensive reporting requirements.

Expansion of Permissible CUSO Activities

Currently, the list of permissible FCU CUSO activities in § 712.5 does not provide NCUA the option to consider additional activities and services without engaging in notice and comment rulemaking. The proposal would amend the rule to provide that the NCUA may approve additional activities.

Specific Request for Comment: 10 Questions

In addition to general comments, NCUA seeks answers to 10 specific questions:

  1. Is the term “any type of” loan sufficiently clear such that FCUs would be able to comply with the proposed rule? Are there any types of loans that FCUs cannot originate that CUSOs currently do originate?
  2. Please discuss, and provide supporting information, on the costs of the development or acquisition, implementation, and maintenance of technology-based lending services.
  3. Would the proposed rule enable FCUs to offer additional technology-based lending services that FCUs may be otherwise unable to offer their members?
  4. Could CUSOs serve as an aggregator of loans to allow FCUs better access to securitization markets?
  5. Does the proposed rule expose FCUs to unnecessary safety and soundness risks? If so, are there steps the Board should consider to mitigate such risks?
    • For example, should the NCUA gather additional data about CUSO lending activities? If so, what data?
    • Should the NCUA consider additional constraints on an FCU’s ability to purchase and hold loans originated by a CUSO?
    • Should the NCUA consider risk retention requirements for CUSO lending activities? The Board notes that FCUs that sell loan participations must maintain 10 percent of the loan.
  6. Would permitting CUSOs to engage in any type of lending as FCUs lead to additional reputational risk for FCUs?
  7. Does expanding CUSO lending authority to include additional core FCU lending categories create unnecessary competition for FCUs, particularly small FCUs?
  8. Instead of adopting a provision similar to the corporate CUSO provision that allows the NCUA to add additional categories of permissible activities for all CUSOs on its website, should the Board require individual FCUs to petition the Board for permission to lend to or invest in CUSOs that do additional activities or services not already listed in §712.5?
  9. Should the Board publish on its website any conditions imposed on activities permissible through the approval process?
  10. Should the Board consider additional changes to the permissible activities list for CUSOs?

Authority to Invest in Organizations

An FCU’s authority to lend to and invest in a credit union organization is provided for in two separate provisions of the FCU Act.

  1. The FCU Act authorizes an FCU to lend to credit union organizations provided the extensions of credit do not exceed 1% of the FCU’s paid-in and unimpaired capital and surplus. A credit union organizationis defined as any organization, as determined by the Board, which is established primarily to serve the needs of its member credit unions and whose business relates to the daily operations of the credit unions they serve.
  2. The FCU Act authorizes FCUs to invest up to 1% of its total paid in and unimpaired capital and surplus, with the approval of the Board, in the shares, stocks, or obligations of any other organization providing services which are associated with the routine operations of credit unions.

These provisions are different. The lending authority refers to “credit union organizations” and limits such entities to those that primarily serve the needs of their member credit unions. In contrast, the investment authority does not use the term “credit union organization”, but instead generally refers to an “organization”. In addition, the investment authority is not limited to organizations that primarily serve the needs of their member credit unions.

However, NCUA has historically interpreted the lending and investment authority under the FCU Act as referring to the same types of organizations.

NCUA is now considering adopting separate definitions for the types of organizations that an FCU may invest in or lend to. NCUA could permit FCUs to invest in organizations that do not primarily serve credit unions or credit union members, but still provide services that relate to the routine operations of FCUs. Under such an interpretation, FCUs could join together with a bank and invest in a company that serves the broader financial services community.

The Board invites comments on whether it should reconsider its interpretation of the lending and investment authorities under the FCU Act. Specifically, NCUA asks:

  • Do specific provisions & the legislative history of the FCU Act suggest that the NCUA could take a less conservative approach to interpreting the lending and investment authorities?
  • The FCU Act states that Board approval is required before an FCU can make an investment in an organization. If NCUA were to consider permitting investments that are not included in § 712.5, should approval be required for each investment to determine if the activities of the organization relate to the routine operations of FCUs? If the Board requires separate notice requirements, should current investments be grandfathered?
  • What safety & soundness considerations should be evaluated if NCUA makes this change? Should NCUA impose a requirement that the FCU’s ownership interest in the organization not be speculative? For example, should an FCU be permitted to have an investment in an organization that is still developing a product? If the Board reinterprets its interpretation, should the Board impose a separate capital treatment for new investments that are currently prohibited?

Proposed Rule Summary, CAMELS Rating System

Parts 700, 701, 703, 704, 713

Prepared by NASCUS Legislative & Regulatory Affairs Department

February 2021

NCUA is proposing to add the “S” (Sensitivity to Market Risk) component to the existing CAMEL rating system and redefine the “L” (Liquidity Risk) component: the CAMELS rating system used by other federal bank regulators and 24 state credit union regulators. NCUA would implement the change starting in Q1 of 2022.

NCUA seeks comments on both the definitions of the “L” and “S” components as well as the ratings descriptions.

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

Summary

NCUA’s current CAMEL rating system, adopted in 1987, evaluates 5 elements of a credit union’s operations:

  • Capital adequacy
  • Asset quality
  • Management
  • Earnings
  • Liquidity and asset liability management

For more information, see NCUA Letter to Credit Unions No. 93 (September 25, 1987) and 07-CU-12 (Dec. 2007).

In 1997, Federal Bank Regulators adopted a sixth component, Sensitivity to Market Risk (“S”), to address price and interest rate risks (IRR): CAMELS. NCUA chose not to adopt the CAMELS at that time citing the “the relative lack of complexity in the consolidated balance sheets of credit unions.” However, since 1997, credit unions have increased in size and complexity (mortgage-related assets have increased from 19% to 42% of total assets) and NCUA has made changes to CAMEL and focused supervisory efforts on IRR and finalized an IRRrule that took effect in September 2012.

Rationale for Proposed Rule

The existing CAMEL rating process addresses both sensitivity to market risk and liquidity risk within the “L” component. Separating the two components will provide greater clarity and transparency regarding credit unions’ sensitivity to market risk. NCUA also states the proposed change will allow it to enhance the:

  • Monitoring of sensitivity to market risk and liquidity risk in the credit union system
  • Communication of specific concerns to individual credit unions
  • Allocation of resources.

NCUA notes that the Office of Inspector General (OIG) recommended the agency revise its “L” component rating to reflect only liquidity factors. NASCUS and state regulators have also long urged NCUA to adopt the “S” rating. NCUA has planned to implement the OIG recommendation in conjunction with the completion of the agency’s transition to the new MERIT examination and supervision platform (scheduled for 2021).

Adding the “S” to CAMEL

The sensitivity to market risk reflects the exposure of a credit union’s current and prospective earnings level and economic capital position arising from changes in market prices and the general level of interest rates. Effective risk management programs include:

  • comprehensive interest rate risk policies
  • appropriate and identifiable risk limits
  • clearly defined risk mitigation strategies
  • a suitable governance framework

Sensitivity to Market Risk ratings are based on, but not limited to, the following evaluation factors:

  • sensitivity of a credit union’s current and future earnings and economic value of capital to adverse changes in market prices and interest rates
  • management’s ability to identify, measure, monitor, and control exposure to market risk considering a credit union’s size, complexity, and risk profile
  • the nature and complexity of interest rate risk exposure

“S” Rating Description

S Rating Description
1

 
  • Market risk sensitivity is well controlled and that there is minimal potential that the earnings performance or capital position will be adversely affected;
  • Risk management practices are strong for the size, sophistication, and market risk accepted by the institution; and
  • The level of earnings and capital provide substantial support for the degree of market risk taken by the institution

 
 

2

 
  • Market risk sensitivity is adequately controlled and that there is only moderate potential that the earnings performance or capital position will be adversely affected;
  • Risk management practices are satisfactory for the size, sophistication, and market risk accepted by the institution; and
  • The level of earnings and capital provide adequate support for the degree of market risk taken by the institution

 
 

3

 
  • Control of market risk sensitivity needs improvement or that there is significant potential that the earnings performance or capital position will be adversely affected;
  • Risk management practices need to be improved given the size, sophistication, and level of market risk accepted by the institution; and
  • The level of earnings and capital may not adequately support the degree of market risk taken by the institution

 
 

4

 
  • Control of market risk sensitivity is unacceptable or that there is high potential that the earnings performance or capital position will be adversely affected;
  • Risk management practices are deficient for the size, sophistication, and level of market risk accepted by the institution; and
  • The level of earnings and capital provide inadequate support for the degree of market risk taken by the institution

 

5

 
  • Control of market risk sensitivity is unacceptable or that the level of market risk taken by the institution is an imminent threat to its viability; and
  • Risk management practices are wholly inadequate for the size, sophistication, and level of market risk accepted by the institution

“L” Component for Liquidity Risk

In evaluating the adequacy of a credit union’s liquidity profile, NCUA will consider the current and prospective sources of liquidity compared to funding needs and the adequacy of liquidity risk management. These factors will be evaluated relative to a credit union’s size, complexity, and risk profile.

Liquidity risk management practices should ensure the credit union maintains sufficient liquidity to timely meet its financial obligations and member share and loan demands.

Credit union liquidity risk management practices should reflect:

  • the credit union’s ability to manage unplanned changes in funding sources
  • changes in market conditions affecting the credit union’s ability to quickly liquidate assets with minimal loss
  • ensure liquidity is maintained at a reasonable cost
  • limit reliance on funding sources that may not be available in times of financial stress or adverse changes in market conditions.

Credit union liquidity risk management practices should also be commensurate with the complexity of the balance sheet and its capital adequacy.

“L” Rating Description

L Rating Description

1
  • Strong liquidity levels and well-developed funds management practices; and
  • The institution has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs

 

2
  • Satisfactory liquidity levels and funds management practices;
  • The institution has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs; and
  • Modest weaknesses may be evident in funds management practices

 

3
  • Liquidity levels or funds management practices in need of improvement; and
  • Institutions rated 3 may lack ready access to funds on reasonable terms or may evidence significant weaknesses in funds management practice

 

4
  • Deficient liquidity levels or inadequate funds management practices; and
  • Institutions rated 4 may not have or be able to obtain a sufficient volume of funds on reasonable terms to meet liquidity need

 

5
  • Liquidity levels or funds management practices so critically deficient that the continued viability of the institution is threatened; and
  • Institutions rated 5 require immediate external financial assistance to meet maturing obligations or other liquidity need

 

Technical Changes

Because NCUA’s rules specifically reference “CAMEL” the proposal makes technical changes to replace those references with the new “CAMELS.”

NCUA Part Provision Change
Part 700 Definitions  

§ 700.2

 

 Amend the definition of “troubled condition” in § 700.2 by removing “CAMEL” and add in its place “CAMELS” each time it appears.
Part 701

Organization & Operation of FCUs

  

§ 701.14

 Amend § 701.14(b) (3) (i) and (ii)

Amend § 701.14(b) (4)(i) and (ii)

Amend § 701.23(b)(2)

by removing “CAMEL” and add in its place “CAMELS.”
Part 703

Investment & Deposit Activity

 § 703.13

&

§ 703.14

 Amend § 703.13(d)(3)(iii) & Amend § 703.14(i) by removing “CAMEL” and add in its place “CAMELS.”

Amend § 703.14(j)(4) by removing “CAMEL” & add in its place “CAMELS.”
Part 704

Corporate Credit Unions

  

§ 704.4

 Amend § 704.4(d)(3)(ii) by removing “CAMEL” and add in its place “CAMELS.”
Part 713

Fidelity Bond & Insurance Coverage for FCUs

  

§ 713

 Amend § 713.6(a)(1) by removing “CAMEL” and add in its place “CAMELS.”

Amend § 713.6(c) by removing “CAMEL” and add in its place “CAMELS” each place it appears.