April 26, 2019 NASCUS Report

Summary: Proposal to ease
loan incentive limits affects FISCUs too

A new, proposed regulation that would ease limits on incentive compensation for credit union employees related to loans covers federally insured, state-chartered credit unions (FISCUs) – at least, in those states that have not adopted their own limitations on compensation — according to a new summary published by NASCUS this week.

A week ago, the NCUA Board approved an advanced notice of proposed rulemaking (ANPR) regarding limitations on federally insured credit union officials’ and employees’ compensation in connection with loans to members and lines of credit to members. More specifically, the NASCUS summary points out, the NCUA ANPR seeks input about how the agency may provide flexibility with respect to senior executive compensation plans that incorporate lending as part of a set of organizational goals and performance measures.

“NCUA now views these limitations on executive compensation as out-of-step with common industry practice,” the NASCUS summary notes. “NCUA seeks to update the rules to allow credit unions to offer competitive compensation without encouraging inappropriate risks, incentivizing bad loans, or negatively effecting safety and soundness.”

The current limitation in NCUA rules on loan compensation applies to FISCUs (and, thus, the proposal would apply to those credit unions – if finalized – as well), the NASCUS summary makes clear. The limitation applies, the summary notes, because “it is specifically cited in Part 741.203(a), which reads in relevant part that “[a]ny credit union which is insured pursuant to title II of the Act must… [a]dhere to the requirements stated in part 723 of this chapter concerning commercial lending and member business loans, §701.21(c)(8) of this chapter concerning prohibited fees, and §701.21(d)(5) of this chapter concerning non-preferential loans…”

However, the summary notes, Part 741.203(a) of NCUA rules also contains an exemption for FISCUs in states that have adopted substantially similar rules, and which have been approved by the NCUA Board. “In those cases, NCUA’s loan-based incentive compensation limitation does not apply (the state limitations would apply) and naturally, any changes to NCUA’s rule would not apply going forward,” the summary notes.

State credit unions are pointed, by the summary, to regulations on incentive-based compensation issued by federal banking regulators as a reference. The summary also urges state credit unions to consider two key questions: Should NCUA be limiting compensation by regulation at all, and, if so, should those rules be co-located with the loan rules, as they are now, or should they be located somewhere else within the agency’s regulations?


NASCUS Summary: NCUA Proposal, Compensation in Connection with Loans to Members and Lines of Credit to Members (April, 2019)

NASCUS, newest NCUA board member
discuss state priorities, 4-point approach

State credit union system priorities including capital reform, liquidity, the agency’s new exam and risk measuring tool, cybersecurity, access to appraisers and more were all topics brought to the table by NASCUS executives to new NCUA Board Member Todd Harper this week. (In the photo, Harper participates in a panel discussion during 2016 NASCUS State System Summit in Chicago)

In the hour-long meeting, NASCUS President and CEO Lucy Ito, and NASCUS Executive Vice President and General Counsel Brian Knight, also heard Harper’s own regulatory philosophy. He utilized the acronym “FIRE” in explaining his four-pronged approach to regulation:

  • Fair and forward looking;
  • Innovative, inclusive, and independent;
  • Risk focused and ready to act quickly; and
  • Engaged with all stakeholders to develop effective, but not excessive, regulation.

A key topic of the meeting was the agency’s new Modern Examination and Risk Identification Tool (MERIT) exam tool. As developed, it will permit credit unions and state examiners to interact and share information with NCUA. NASCUS has been engaged with NCUA during the platform’s development and most recently provided feedback during the NASCUS National Meeting held earlier this month.

“We thank Board Member Harper for his time and attention so early in his tenure on the NCUA Board,” said Ito. “We particularly appreciate the open exchange and mutual spirit of partnership expressed during the meeting and look forward to future dialogues.”

Harper joined the NCUA Board earlier this month after being confirmed by the Senate; he attended his first meeting in his new position last week.

Hearing next week will precede May session with regulators

The Senate Banking Committee will hold a hearing next week titled “How do the Banking Agencies Regulate and Supervise Institutions,” but it won’t include any regulators – just academics and legal experts in banking regulation. However, the hearing will be a run-up to a committee hearing next month, featuring testimony from federal financial institution regulators – including new NCUA Board Chairman Rodney Hood. Others at the hearing will include Comptroller of the CurrencyJoseph M. Otting, Federal Reserve Board Vice Chairman for Supervision Randal K. Quarles, and FDIC Chairman Jelena McWilliams. The session, set for May 15 (at 9:30 am.), will be an oversight hearing of the regulators by the committee (an official notice of the hearing has not yet been published by the committee).


Senate Banking hearing: How do the Banking Agencies Regulate and Supervise Institutions

Bureau promises more info, specifics in investigative demands

More information about potential violations of law, and specifics about business activities subject to supervision, will be included in future “civil investigative demands” (CIDs), the CFPB said this week. In a release, the bureau said it is changing its policies toward CIDs (which is a subpoena-like tool often used by consumer protection offices that tends to be expansive, typically seeking specified documents). The bureau said its policies are intended to assure that the CIDs “will provide more information about the potentially applicable provisions of law that may have been violated” and “also typically specify the business activities subject to the Bureau’s authority.”

The bureau also said its new policy takes into account recent court decisions about “notifications of purpose.” The agency said its new policy is consistent with a 2017 report by the agency’s Office of Inspector General, which the agency said emphasized the importance of updating its Office of Enforcement policies to reflect such developments.

The new policy, the bureau said, is consistent with comments it received in response to last year’s series of “requests for Information” (RFIs), which included its use of CIDs in enforcement investigations. The agency received more than 8,000 comments to its RFI on CIDs, the third-highest number of comments on the 12 RFIs it issued (equal to about 9% of all RFI comments received). The majority of comments received during the RFI series last year were on the agency’s supervision program, with more than 55,000 comments received (62.2% of all comments).


CFPB Announces Policy Change Regarding Bureau Civil Investigative Demands

NASCUS CFPB pages, latest updates

… and seeks more about impact of remittance disclosure change

How to mitigate the impact on providers of next year’s expiration of a remittance rule disclosure exception, and just what firms are subject to the rule itself, is the focus of a CFPB request for information (RFI) issued Thursday for a 60-day public comment period.

The RFI comes just one day after the CFPB posted a revised version of the remittance rule assessment report it sent to Congress in October; the bureau said the correction made to the report showed banks conducted more remittance transfers than reported earlier.

The remittance rule, which took effect in 2013 and implements provisions of the Electronic Fund Transfer Act (EFTA), generally requires that, among other things, providers of international remittances (money transfers) for consumers disclose the exact exchange rate, the amount of certain fees, and the amount expected to be delivered to the recipient.

Information on two aspects of the rule is requested by the bureau. First, it is seeking information to determine whether to propose changing the remittance transfer providers the rule covers. Second, it seeks information about the expiration, scheduled July 21, 2020, of a temporary exception from the rule’s requirement to estimate the exchange rate and certain fees when sending remittance transfers.

On coverage, the bureau is seeking information about the number of remittance transfers a provider must make to be deemed to provide remittances in the “normal course of business” and thus subject to the rule’s requirements; currently, the rule’s safe harbor excludes institutions making 100 or fewer transfers in the current and previous calendar years from coverage. The bureau is also seeking information on whether an exception for “small financial institutions” would be appropriate.

There may be more on the issue to come: The bureau says it has received suggestions for other changes in the remittance rule but is limiting this RFI given next year’s expiration of the disclosures exception.


CFPB Issues Request for Information on Remittance Rule

LA’s Ducrest chairs accreditation committee

John Ducrest is the new chairman of the NASCUS Performance Standards Committee (PSC), the body that administers the association’s accreditation program – including determining which applicant credit union supervisory agencies meet and maintain accreditation standards.

Ducrest is commissioner of the Louisiana Office of Financial Institutions and has served at the OFI for more than 33 years. He is currently a member of the State Liaison Committee (SLC) of the (FFIEC), appointed April 1 for a two-year term. He is also a former chairman of the Conference of State Bank Supervisors (CSBS).

Other members of the committee include:

  • John Kolhoff, Commissioner, Texas Credit Union Department (and NASCUS Board chairman); Mary Ellen O’Neill, Director, Financial Institution Division, Connecticut Department of Banking;
  • Mary Hughes, Acting Director, Idaho Department of Finance;
  • Corey Krebs, Acting Assistant Commissioner, North Dakota Department of Financial Institutions

NASCUS Credit Union Council Chair Richard Stipa (of Trumark Financial CU, Fort Washington, Pa.), and NASCUS President and CEO Lucy Ito serve as ex officio members of the panel.


NASCUS committees/task forces

ON THE ROAD: In OH, taking on BSA issues

Attorneys David Reed of Reed & Jolly, PLLC (left) and Valerie Moss of the Credit Union National Assn. (CUNA), explain the ins and outs of compliance with anti-money laundering and Bank Secrecy Act (BSA) requirements during the NASCUS/CUNA BSA conference this week in Columbus, Ohio. The two-day session offered a close look at a wide range of topics related to BSA issues, including: enforcement actions, elder abuse, payments (including new technology threats to credit union ALM/BSA programs), human trafficking, marijuana and more. Thanks to all of our speakers, the Ohio Division of Financial Institutions and CUNA for participating, as well as all of the registrants. This week’s program served as a table-setting for the upcoming four-day NASCUS/CUNA BSA Certification Conference set for Nov. 18-21 in Tempe, Ariz.


NASCUS Education Agenda, 2019

(In the photo, NASCUS staff members Shelton Roulhac and Alicia Valencia Erb make last-minute preparations for Thursday’s call.)

NASCUS 101 outlines issues, role of NASCUS, for state system

The NASCUS 101 webinar Thursday drew a wide variety of attendees from all across the country, including: credit union executives, state supervisors, examiners, state league and association representatives, and many more. The 60-minute, no-charge program focused on the role of NASCUS in addressing and resolving the issues facing the state system – including the NASCUS legislative and regulatory agenda, the association’s education and training program, communications and public outreach, recognition of leadership (through the Pierre Jay Award program), support for continuing training for state supervisors (through the National Institute of State Credit Union Examination (NISCUE)), and more. A second NASCUS 101 webinar is set for this fall – Oct. 24, 2 p.m. ET – to provide updates and the latest information about NASCUS activities.


NASCUS 101 Member Orientation:

UPDATE: UT’s Leary signed letter on cannabis clarification

An item in last week’s NASCUS Report on a letter signed by state supervisors to congressional leaders inadvertently omitted the name of G. Edward Leary, Commissioner, Utah Department of Financial Institutions. The letter — signed by 24 state financial institution supervisors, and one from Puerto Rico — urged congressional leaders in both parties to resolve the conflict between state cannabis programs and federal statutes that “effectively create unnecessary risk for banks seeking to operate in this space.” NASCUS Report regrets the omission.

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