EGRPRA COMMENT MAKES 13 RECOMMENDATIONS IN SIX AREAS
Suggestions would amend existing rules, or exempt FISCUs from others
Thirteen recommendations for regulatory changes in six different areas – some which would amend existing rules, and others which suggest exempting state-chartered credit unions from existing rules — have been made by NASCUS in a comment letter responding to NCUA’s notice of regulatory review and call for comments under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA).
In making its recommendations, NASCUS focused on areas where regulatory burden on federally insured, state-chartered credit unions (FISCUs) could be reduced either by amending existing rules or exempting the state credit unions in areas where alternate state regulation provides “comparable safe and sound risk mitigation.”
The areas on which NASCUS focused its comments are: examinations; voluntary and involuntary liquidations; lending; supervisory committee audits; appraisals, and; consolidating regulations affecting FISCUs in a single section (or sections) of the agency’s rules.
“NCUA exercises partial regulatory and supervisory authority over FISCUs in its role as administrator of the National Credit Union Share Insurance Fund (NCUSIF),” wrote NASCUS General Counsel Brian Knight. “However, state regulatory authorities remain the primary prudential regulator of FISCUs. This shared regulatory oversight means FISCUs are subject to a more complicated compliance regime (subject to both state and federal rules) than their federal credit union (FCU) counterparts.”
Among the NASCUS recommendations:
- Examinations – rely more on state reports: NCUA should take steps to limit its presence in FISCUs and increase agency reliance on state reports of examination, NASCUS wrote. “As Administrator of the NCUSIF, NCUA has a duty to monitor the condition of federally insured credit unions, including FISCUs,” the NASCUS letter states. “NASCUS has always supported NCUA’s authority, and duty, to examine FISCUs, in its capacity as share insurer, as necessary. However, as both the FCUA, and NCUA’s own regulations make clear, the agency should be relying on state examinations for the preponderance of FISCU exams.”
- Regulations affecting FISCUs – consolidate within a single section, or sections, of rules. “As currently organized, NCUA’s rules are confusing at best, and unacceptably burdensome at worst,” the letter states. “At a minimum, it is incumbent on NCUA to present its regulations in a manner which makes clear to FISCUs what rules apply.” The NASCUS comment letter points out six specific areas in which current rules could be consolidated: loan participations; state-specific MBL rule exemptions; clarification of the relationship between NCUA and state regulators with regard to low-income designations; allowing for diverse state chartered corporate credit union regulation; state law governance of conversion of FISCUs to non-federally insured credit union status; revise guidance that BSA reporting be done “promptly” rather than at least monthly (since not all states require monthly board meetings).
- Liquidations – address the payout priority for supplemental capital in non-low income natural person credit unions. “Amending the liquidation provisions now streamlines NCUA’s rules and regulations in anticipation of its forthcoming supplemental capital rule,” NASCUS wrote. “We also note that the authority to issue a supplemental capital instrument for a state chartered credit union resides with state law and state regulation. Currently, federal law controls whether such an issuance counts toward regulatory capital, but the issuance itself is determined under state law. As such, it also makes sense for NCUA to amend its existing regulations to recognize such instruments.”
- Supervisory committee audits – clarify that provisions of NCUA’s rule apply to FISCUs. The letter notes that confusion arises because NCUA’s audit rule, Part 715, contains numerous provisions, some of which directly address audit requirements, others of which are more tangential in nature. While these provisions are related to audits, they are not themselves specifically setting standards for the audit, the letter notes, and therefore it is unclear if these provisions are incorporated in the section of NCUA rules that largely affect FISCUs (Part 741 Subpart B).
Loan fees and procedures — focus on risk to the share insurance fund rather than “how similar the state rules might be to NCUA’s rules.” “Exemptions available to FISCUs related to prohibited fees and non-preferential loans require a state to promulgate a ‘substantially equivalent’ rule,” the letter states. “A better approach would focus on a state-specific rule’s mitigation of risk to the safety and soundness of the credit union.”
- … and amend § 701.21(h), third party servicing of indirect vehicle loans, from its current prescriptive form to a principle based approach. “Replacing those limits (in current regulation) with a requirement that credit unions set their own limits in policies would be consistent with NCUA’s recent rulemaking for FCU fixed assets and FICUs MBL and commercial lending,” the letter states.
- Appraisals — ensure that thresholds remain consistent across the federal bank agencies. “We are aware that federal banking agencies, as part of their §2222 EGRPRA process, might be considering whether (the current) $250,000.00 threshold should be raised,” the letter states, adding that NCUA should ensure the threshold for credit unions be consistent.
As NASCUS noted in its March 22 letter, NCUA is not required to undertake EGRPRA review, but does so voluntarily to identify and minimize outdated, unnecessary, or unduly burdensome requirements — which NASCUS applauded. “NASCUS appreciates the opportunity to aid NCUA in that effort, and is hopeful that the process will lead to more efficient and effective regulation,” the letter stated.