Aug. 11, ’17 NASCUS Report

Merger proposal earns opposition
for lack of deference to state law

Proposed changes to NCUA rules regarding voluntary mergers are opposed by NASCUS, primarily because of the proposal’s lack of deference to state law, the association wrote in its official comment letter to the agency this week. In addition, NASCUS pointed out several other problematic areas and asserted that the agency should have issued the proposal as an advance notice of proposed rulemaking (ANPR) rather than a proposed rule, given the uncertainty of the rule’s application to federally insured state-chartered credit unions. The letter on the mergers rule proposal was one of three comment letters filed this week by NASCUS.

The proposed rule, as presented by NCUA, would revise the procedures a federally insured credit union must follow to merge voluntarily with another credit union, particularly regarding outreach to members of merging credit unions. But NASCUS made clear in its comments that the proposal should not apply to FISCUs. For state credit unions, “NCUA’s sole concern should be mitigating risk to the National Credit Union Share Insurance Fund (NCUSIF),” NASCUS Executive Vice President and General Counsel Brian Knight wrote. “In the absence of any clear and compelling nexus between the activity being regulated and risk to the NCUSIF, NCUA should defer to state law. Nowhere in the preamble to the proposed rule does NCUA articulate an NCUSIF risk that would compel extension of this proposal to FISCUs.”

NASCUS also pointed out that FISCUs are already subject to more extensive disclosure requirements than are FCUs. For example, the NASCUS letter noted, all FISCUs must complete annual Internal Revenue Service Form 990 filings, which require disclosure of any compensation paid to directors and officers, the compensation paid to “key employees” (employees earning more than $150,000.00 in reportable compensation), and “highly paid” employees (the top 5 employees earning more than $100,000.00 in reportable compensation)

In other areas, NASCUS asserted that the proposal – especially with respect to FISCUs – should have been issued as an ANPR. “On its face, the proposal as published is unclear as to what exactly NCUA proposes to apply to FISCUs,” NASCUS wrote. “This lack of clarity in the proposal puts the state system at a disadvantage in evaluating the rule.”

Other problematic areas of the proposal, NASCUS wrote, include:

  • Definitions of “covered persons” and scope of compensation, which NASCUS described respectively as dubious (since there is no asset threshold set – which could result in modest-sized credit unions required to report all their employees) and “too broad.”
  • The requirement that 24 months of board minutes which reference a merger is “overly broad,” noting that federal and state supervisors already have unlimited access to a credit union’s board minutes, books and records.
  • “Member to member” communication requirements (in disseminating information about a proposed merger) raises concern about “practical operation” of the provision. “NCUA should more carefully consider whether the potential for acrimony among members is outweighed by the marginal benefit of compelling the credit union to send unsolicited member communications to other members,” NASCUS wrote. “Ultimately, it is the credit union’s reputation at risk in member-to-member communications. Disclaimers aside, members receiving an unwanted communication will lay blame on the credit union as the transmitter of the communique.”

NASCUS comment letter: Voluntary Mergers of Federally Insured Credit Unions


Continuing this week’s comment-a-thon, NASCUS filed two additional letters in support of NCUA proposals to change its appeals process, and to alter procedures for appealing material supervisory determinations of its Supervisory Review Committee (SRC).

Appeals process proposal: NASCUS noted that the proposed changes would “introduce consistency to the now varied processes” for credit union appeals over NCUA regulatory determinations to the agency board. The association suggested some refinements as well, such as: include an explicit provision establishing regular publication of the appeals process results; codify the process under the section of NCUA rules affecting federally insured, state-chartered credit unions (FISCUs) – Part 741 – so that the state-chartered credit unions “would know where to look for them;” copy state regulators on all appeals involving FISCUs.

Appealing material supervisory determinations to NCUA’s Supervisory Review Committee: NASCUS suggested additional changes, including: clarify that the review process applies to NCUA supervisory determinations to reduce confusion over applicability of rules given the overlap of jurisdictions of the federal agency and state regulators (and emphasize the applicability of the review procedures exclusively to determinations made by NCUA staff); enhance transparency with additional reporting of decisions to reject a petition for review; codify the SRC process, as it applies to FISCUs, within Part 741 of NCUA rules, which ostensibly contains all rules applying to the state-chartered credit unions.

NASCUS Comments: Appeals procedures

NASCUS Comments: Supervisory Review Committee: Proposed Procedures for Appealing Material Supervisory Determinations


This week’s trio of comments-due was just a taste of what’s to come, with another fivesome of due dates for comments on proposals just around the corner, which address: revising the methodology for the “overhead transfer rate” (OTR) (Aug. 29); NCUA’s annual review of one-third of its regulations (Monday, Aug. 14); adjusting the agency’s rules on corporate credit unions (Sept. 1); providing “greater transparency” for federally insured credit unions regarding their proportionate share of an NCUSIF-declared equity distribution (Sept. 5); and, closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) (also Sept. 5). While all five comment dates are important for state credit unions, the OTR methodology proposal is of particular interest to the state system. To that end, NASCUS will be sharing its comments on the issue in advance of the Aug. 29 deadline with the state system to be used as talking points for drafting additional comment letters.


NASCUS Summary: NCUA call for comments, OTR methodology

NASCUS Summary: NCUA proposed revisions to the corporate credit union rule

NASCUS Summary: NCUA 2017 Regulatory Review


Serving as a “map” of sorts to CFPB’s new rule regulating pre-dispute arbitration clauses in consumer financial contracts, NASCUS has developed and posted a summary of the regulation’s executive summary. While the rule itself (which takes effect Sept. 18) occupies 228 pages in the printed version of the Federal Register, the NASCUS summary looks at the more concise executive summary of the directive, and in about four pages outlines crucial portions, including: who “providers” are under the rule; covered consumer products/services under the rule; the scope of pre-dispute arbitration agreements; provisions required under arbitration agreements; submission of required records, and more.

NASCUS Summary: Executive Summary of CFPB Arbitration Agreements Rule


Citing “inaccuracies” in a letter from a bank trade association complaining about $1 billion in legal fees paid by NCUA for recoveries, agency board Chairman J. Mark McWatters has written to the chairman of a House subcommittee to “set the record straight.” The NCUA leader wrote that at the top of the list of inaccuracies was a statement by letter writer Camden Fine, president and CEO of the Independent Community Bankers of America (IBAA) that “over $1 billion in taxpayer money was channeled through the NCUA into inflated legal fees.” “This is not correct,” McWatters wrote.

The NCUA leader told Rep. Ann Wagner (R-Mo.), chairman of the oversight subcommittee of the House Financial Services Committee, that while in his view there is no question whether the fees may be excessive (and, to that end, he pointed out that NCUA has worked to renegotiate the contracts on which they are based), there is also no question about the source of funds. “No taxpayer funds were lost through the restructure of the corporate credit unions and no taxpayer money was spent on attorney’s fees, either directly or indirectly. Instead, the funds to pay the legal fees came from the approximately $5 billion in recoveries and were paid from the proceeds of each of the settlements,” McWatters wrote.


NCUA pegged the closure of the corporate stabilization fund (TCCUSF) in October, with payouts expected in 2018, to success on legal recoveries over the last several years, which has recouped more than $5 billion to the NCUSIF.

In a webinar this week about the closure of the corporate fund and merging it into the National Credit Union Share Insurance Fund (NCUSIF), NCUA Office of Examination and Insurance Director Larry Fazio said the agency had, as recently as less than a year ago, estimated that the earliest the TCCUSF could close was in 2021.

However, he said, as a result of legal recoveries of $5.1 billion in settlements of claims brought by NCUA against banks, the agency was able to take actions that worked to push back the closing date for the TCCUSF to this year. Those actions include: paying back the U.S. Treasury (last year) and meeting other obligations (including that the equity ratio of the insurance fund exceeds the “normal operating level” at end of the succeeding calendar year, and that the NCUSIF’s available asset ratio exceeds 1%).

In other comments during the webinar, Fazio said that payment of between $600 million and $800 million to credit unions, because of closing the TCCUSF this year, is expected to be made in the first part of the 2nd quarter of 2018.


The Labor Department is reportedly considering an 18-month delay — to July 2019 — to full implementation for its “fiduciary rule,” according to court documents filed this week. The rule had been set to be implemented effective Jan. 1, 2018 (after an earlier delay). The court documents – which were filed in a legal challenge to the rule in Minnesota — also indicated that the Labor Department is considering loosening restrictions on transactions types prohibited by the rule. The regulation, as it stands now, holds financial advisers to a “fiduciary standard” affecting how they may advise clients on retirement savings.


CFPB is finalizing a rule — effective Oct. 10, but with compliance delayed by almost a year to Oct. 1, 2018 – that modifies some federal mortgage disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act (TILA-RESPA) implemented in Regulation Z. At the same time, the bureau is proposing another rule that would amend disclosure requirements under TILA-RESPA that are “related to when a creditor may compare charges paid by or imposed on the consumer to amounts disclosed on a Closing Disclosure, instead of a Loan Estimate, to determine if an estimated closing cost was disclosed in good faith.” Additionally, the bureau said, the amendments would permit creditors to compare charges regardless of when the “Closing Disclosure” is provided, relative to consummation of the loan. Comments are due Oct. 10.


CFPB final rule on TILA-RESPA disclosures

CFPB proposal on amending ‘closing disclosure’ requirements

BRIEFLY: Welcome Redwood, Old Hickory; new face in NC

Welcome to the latest state credit unions to join NASCUS: Redwood Credit Union of Santa Rosa, Calif., with $3.5 billion and about 237,000 members, and; Old Hickory Credit Union, of Old Hickory, Tenn., with $230 million in assets and 21,500 members … Welcome also to Tim Merritt, who is now assistant administrator at the North Carolina Credit Union Division; he has more than 20 years’ experience in financial institution regulation and consulting, having served previously with the NC Office of Commissioner of Banks and then at the FDIC.


Information Contact:
Patrick Keefe, [email protected]

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