What's Expected from the Dodd-Frank Act in 2011?

A special message from Mary Martha Fortney, President and CEO,
January 6, 2011

Since the Dodd-Frank Act was signed in summer 2010, federal regulators continue the process of implementing the legislation into regulation. While the majority of the Act does not impact credit unions as much as it does banks or non-depositories, I wanted to take this opportunity to discuss a few areas of interest to state regulators and credit unions.

Deposit Insurance Coverage
As you already know, the Dodd-Frank Act (the Act) permanently increased the deposit insurance coverage to $250,000.  Additionally, the Act provided for unlimited insurance coverage for non-dividend transaction accounts until Dec. 31, 2012. The National Credit Union Administration (NCUA) issued a proposed rule regarding the non-dividend accounts in December.  While the provisions are self-implementing, this proposed rule clarifies that for a credit union, a non interest-bearing transaction account is a “non dividend-bearing” account and that coverage is separate from, and in addition to, other coverage provided for in NCUA’s insurance rules. The proposed rule was approved with a 60 day comment period.

Executive Compensation
In early 2011, the NCUA and the other federal banking regulators will issue a proposed rule to comply with Section 956 of the Act regarding executive compensation disclosure. The Act requires that institutions with more than $1 billion in assets disclose to their appropriate federal regulator any incentive-based compensation arrangements. The NCUA is expected to propose rulemaking concurrently with the other federal regulators in early 2011.

Interchange Fees
The Act directs the Federal Reserve Board (Fed) to establish standards restricting the level of interchange fees for certain debit card (including prepaid card) transactions to an amount that is “reasonable and proportional” to the cost incurred by the issuer with respect to that transaction. As you know, debit card interchange fees are established by payment card networks and paid by merchants to card issuers for each transaction.

On Dec. 16, the Fed issued a proposed rule – Regulation II, Debit-Card Interchange Fees and Routing. These standards would apply to issuers that, together with their affiliates, have assets of $10 billion or more. The Fed has proposed two options: one, a fee based on each issuer's costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); or, two, a stand-alone cap at 12 cents per transaction.

The industry has expressed concern that these standards, while not directly applying to all but three credit unions, will make it difficult to compete with large issuers. The Credit Union National Association asked Congress for hearing on this issue for small issuers to express their concerns. NASCUS will continue to monitor developments with regard to this Fed proposed rule.

Financial Stability
The Financial Stability Oversight Council (FSOC) as required by the Act has met twice since the Act became law. NCUA Chairman Debbie Matz is a voting member of the FSOC along with the other heads of the federal financial regulatory agencies. William Haraf, commissioner of the California Department of Financial Institutions, is an advisor to the FSOC in a nonvoting capacity along with a state insurance and securities regulator. The group is charged with identifying and mitigating systemic risk. At this point, no credit union issues have been raised by the FSOC, however, a recent bill signed into law, S. 4036, requires a Government Accountability Office (GAO) study of NCUA’s handling of the corporates that will be sent to the FSOC for review in about a year.

Consumer Protection
The Bureau of Financial Consumer Protection, as required by the Act, has been created and Elizabeth Warren is currently leading the Bureau as a special adviser appointed by the President. It is uncertain whether Warren will be nominated to the Director position and subsequently face Senate confirmation. In the meantime, the Bureau is staffing up and recently tapped Massachusetts Division of Banks Commissioner Steve Antonakes to lead the Bureau’s depository institution teams.

The Bureau will examine institutions with more than $10 billion in assets, but can also participate in consumer protection exams with the institution’s primary regulator. In our meeting last month with Antonakes, NASCUS began the critical conversations for proper consultation with state regulators as the Bureau gets off its feet and fulfills its purpose.

This is just a briefing of the some of the regulations we expect as the Dodd-Frank Act is implemented in 2011 and beyond. Further, the 112th Congress may attempt changes to the Act. Regardless, NASCUS will keep you updated at www.nascus.org under Legislative Affairs.