NCUA should consolidate rules for FISCUs to reduce reg burden

CONTACT: Patrick Keefe, NASCUS Communications/703-528-5974, [email protected]

Consolidation makes rule compliance, understanding easier, NASCUS writes

ARLINGTON, Va. — Consolidating NCUA rules that are applicable to federally insured, state chartered credit unions would make it easier for the credit unions to understand which rules apply to them, and reduce their regulatory burden, NASCUS has written in a comment letter to the agency.

NASCUS filed the letter Aug. 3 in response to NCUA’s February call for comments on its 2015 “Regulatory Review,” under which the agency reviews all of its existing regulations every three years, with one third of regulations reviewed annually.

NASCUS General Counsel Brian Knight noted that 15 of the 35 provisions in this year’s rule review applied to state-chartered credit unions. “However, nothing in NCUA’s notice regarding the rule review indicates which rules apply to FISCUs,” he added.

The letter points out that, in order for a FISCU to submit relevant comments, the credit union would have to compare each of the 35 provisions against the entirety of Part 741 (requirements for insurance) to identify the cross reference to the provisions subject to the review. “This unnecessarily burdensome process is emblematic of the regulatory burden NCUA places on FISCUs by the agency’s continued resistance to reorganizing its rules and regulations to consolidate those rules applicable to FISCUs,” Knight wrote.

“Simply consolidating rules applicable to FISCUs would make it easier for FISCUs to understand which rules apply, in turn facilitating compliance,” Knight wrote. “Consolidation would also reduce confusion among examiners, state and federal, as to which rules apply to FISCUs. We note that consolidating rules requires no lengthy safety and soundness analysis, or balancing of supervisory concerns with regulatory burden.”

The NASCUS general counsel identified a number of areas in which the agency could consolidate its rules, or otherwise clarify the regulations for state-chartered credit unions – including:

  • Change in official or senior executive officer in newly chartered or troubled credit unions. NASCUS urged that the applicable sections related to this rule (sec. 701.14) should be incorporated in part 741. Additionally, NASCUS urged the agency to clarify the role of the state regulator in the approval process for newly chartered or troubled FISCUs. “In some states, the approval/rejection determination is made by the state regulator in consultation with NCUA,” the NASCUS letter stated. “NCUA should amend the regulation to note that a FISCU will be notified by its state regulator, or NCUA, of the determination regarding a change of senior official.”
  • Clarify loans and lines of credit to members. At a minimum, NCUA should include FISCUs, and consider revising and simplifying the exception for loan compensation pursuant to a credit union board approved policy. “It is our understanding that in the field, there is sometimes confusion as to whether a specific credit union is in compliance with this provision regarding the formality of a policy versus a ‘plan,’” NASCUS wrote. To minimize the risk of confusion, NCUA should amend its rules to allow for such compensation “as approved” by the credit union’s board.
  • Loan participations, purchase, sale, and pledge of eligible obligations. “The safety and soundness nexus between membership of the borrower and quality of the participation loan is too tenuous for NCUA to extend it to FISCUs,” the NASCUS letter stated. “NCUA should exempt FISCUs.” Further, the letter urged NCUA to replace prescriptive thresholds for waivers from NCUA Regional Directors, and – for FISCUs — adopt principle-based thresholds that defer to state law, credit union policy, and prudent supervisory oversight. Further, the letter urged the agency to clarify the application of its loan participation and eligible obligation rules to FISCU indirect vehicle loan purchases, which now can be interpreted to limit the ability of FISCUs to participate in indirect auto loans.
  • FISCU holding of both public deposits and non-member deposits. The agency should exempt FISCUs from current regulations to permit them to hold both public deposits and non-member deposits to the extent permissible by state law.
  • Capital Adequacy. The agency should exercise its authority to incorporate supplemental capital into any future risk-based capital rule.
  • Corporate credit unions. “We remain equally concerned with the current homogenization of the corporate credit union system,” the NASCUS letter states. “NCUA’s corporate credit union rule should provide for variances at the state level unless a direct, material, nexus to safety and soundness exists. For example, a state-chartered corporate credit union should be permitted to follow state law with respect to the composition of its board of directors.” Additionally, the letter urged NCUA to allow the use of the federal Form 990 (filed by FISCUs) to meet the requirement that corporates disclose annually the compensation of top executive employees (that is, so long as the corporate’s Form 990 filing contains the information required by the provision, and access to the Form 990s is made available to the members).

Click here for the complete text of the NASCUS letter.

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