Agency seeks comments on sweeping
four-year plan of regulatory reforms
A laundry list of sweeping regulatory reform proposals over a four-year period – including delaying “risk-based capital” requirements, a new rule allowing alternative capital and blocking dividends or rebates for credit unions switching from federal insurance – has been issued by the NCUA Board, with a 90-day comment period.
The proposals were issued in response to President Donald Trump’s Executive Order 13777, released Feb. 24, which called on all federal agencies to implement “regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms.” The order also mandated task forces be created in each agency with a goal of eliminating red tape.
NCUA, as an independent agency, was not covered under the president’s order. However, in a release, the agency stated that it chose to “voluntarily” comply “with the spirit of the order.” The agency also stated that its regulatory task force was created in March. All changes outlined in the list of reforms would require board approval, it noted.
“The need for a forward-looking regulatory structure that offers meaningful relief without undermining safety and soundness is quite clear,” NCUA Board Chairman J. Mark McWatters said, “and these recommendations serve as a roadmap for a thoughtful process to achieve that goal. This undertaking represents a more significant and comprehensive regulatory relief effort than the agency has pursued in the past.” NCUA Board Member Rick Metsger noted that much work went into developing the recommendations. “The task force scoured all the agency’s regulations, looking for ways to make improvements. I hope credit union stakeholders will take time to review this plan carefully and offer comments,” he said.
40 REGULATIONS ‘RIPE FOR REFORM’ TARGETED UNDER PLAN
In its plan, NCUA outlines 40 regulations that its task force “believes are ripe for reform” over a four-year period. Among those recommendations:
A delay to the risk-based capital rule would be considered in the first 24 months of the reform plan, extending the implementation date from Jan. 1, 2019 to sometime in the future (no deadline provided). NCUA said doing so would avoid the need to “develop call report and system changes while this rule is under review.” The agency also said an extension of the deadline would “closely coincide” with implementation of the new current expected credit loss (CECL) accounting standard, and, additionally, allow NCUA to “consider any changes in risk-based capital standards for community banks currently being considered by the federal banking agencies.” (Also, in this time range, the agency is considering changing the definition of “complex credit union,” to narrow the rule’s applicability and exempt credit unions with high net worth ratios.)
Consideration of a proposed alternative capital rule would be in the third year of the plan. The plan recommends that the NCUA Board “consider whether to propose a rule on alternative forms of capital federally insured credit unions could use in meeting capital standards.” The plan notes that the board should decide whether to make changes to secondary capital regulations for low-income designated credit unions, then resolve if it should authorize credit unions to issue supplemental capital instruments that would only count toward the risk-based net worth requirement.
Also within 24 months, NCUA proposes to preclude a credit union that has converted to “another form of insurance” from receiving a subsequently declared NCUSIF dividend. Now, NCUA points out, if a credit union terminates insurance before a premium is declared it does not pay the premium — but if it terminates insurance before a dividend is declared (within the same calendar year) it receives the dividend. “This is unfair to credit unions that remain insured,” NCUA writes.
ITO: PRORATED DIVIDENDS HAVE BEEN THE NORM FOR CONVERTING CUS
Focusing on the recommendation to deny dividends to credit unions converting to private insurance, NASCUS President and CEO pointed out that NCUA has historically prorated dividend payments to credit unions that have terminated insurance. “This approach has been taken to be equally fair to both those credit unions that leave the insurance fund and those that remain insured by it,” Ito said. “This is the same recommendation that is in NCUA’s proposal to merge the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) into the insurance fund. We will urge NCUA to consider continuing this approach for converting credit unions.”
NASCUS AGAIN URGES ONE PLACE FOR INSURANCE FUND RULES
Consolidating all NCUSIF rules in one place in NCUA regulations is among four major recommendations offered by NASCUS as part of the association’s comments on the agency’s annual review of one-third of its regulations. NASCUS, in its comments, emphasized that none of its recommendations elevate the risk to a credit union, the overall system or the National Credit Union Share Insurance Fund (NCUSIF)). The other three recommendations by NASCUS addressed “consistency and continuity” on cyber security-related initiatives, Bank Secrecy Act reporting to credit union boards, and registration of CUSO-based mortgage loan originators.
In a reorganization of NCUA rules, NASCUS as in years past urged the agency to consolidate all NCUSIF rules in one section, and all those affecting FCUs in another, so that federally insured, state-chartered credit unions (FISCUs) know which rules affect them. Thus, NASCUS stated, a significant burden would be reduced for FISCUs. “As an example, the notice NCUA published for this Regulatory Review required a reader planning to comment from the perspective of a FISCU to spend an inordinate amount of time determining which provisions subject to review applied to FISCUs,” NASCUS wrote. “That is because no Part 741 provision is cited.” NASCUS additionally pointed out that both the Consumer Financial Protection Bureau (CFPB) and the Financial Crimes Enforcement Network (FinCEN) undertook reorganization of their rules to make those rules more accessible, searchable, and understandable. “NCUA should follow their example,” NASCUS wrote.
In cybersecurity consistency, NASCUS wrote that the agency needs “a practical and consistent approach to cybersecurity initiatives and expectations.” In BSA reporting, NASCUS urged flexibility by changing its rules to allow reporting to credit union boards of filing of “suspicious activity reports” under BSA at the boards’ “next board meeting” (rather than at least monthly, since not all states require monthly board meetings).
On registration of CUSO-based MLOs, NASCUS urged the agency to re-evaluate its determination that it lacks authority over CUSOs for the SAFE Mortgage Licensing Act (SAFE Act). NASCUS noted that by exercising its discretionary authority regarding credit union-affiliated MLOs – and by making them eligible for registration – credit unions would not be subjected to the “more involved” process of state licensing.
CANADA’S PROVINCIAL CUS WIN BREATHER IN ‘BANK’ BAN
Canada’s provincial credit unions have won a breather from the prohibition of the use of the terms “bank, banker and banking” after the federal regulator suspended the ban pending a further review by the nation’s Finance Department. Earlier this year, Canada’s Office of the Superintendent of Financial Institutions (OSFI) announced the ban, interpreting the nation’s Bank Act to bar use of the words by non-bank financial service providers, including credit unions. However, the Finance Department last week issued a “consultation paper” which stated that it is “seeking views on whether prudentially regulated non-bank deposit-taking institutions should be given flexibility to use the terms ‘bank’ or ‘banking’ to describe their activities and services in appropriate circumstances.” “Feedback is welcomed on how to refine the limitations on the use of these terms and on how to avoid marketplace confusion and ensure appropriate protection of consumers,” the paper states. Comments are due Sept. 29.
GROUP WANTS DEPOSIT INSURANCE COVERAGE REDUCED, ELIMINATED
The federal deposit insurance limit for banks should be “returned” to $100,000, with a goal of ultimately eliminating government deposit insurance entirely, according to a paper released this week by a prominent Washington think tank. The Competitive Enterprise Institute (CEI, which describes itself as a “non-profit public policy organization dedicated to advancing the principles of limited government, free enterprise, and individual liberty”) said in the paper that it recommends lowering the insurance limit to pre-2008 levels because FDIC policies “unfairly make all taxpayers liable for decisions made by banks and their customers.” The current level of coverage is $250,000 (made permanent in 2010). According to the report, “Shrinking government bureaucracies: Ideas for Reform and Reinvention,” the current policies of FDIC give “financial institutions incentive to disregard risky behavior and provides a false sense of security to consumers. Congress and the administration should reevaluate how the mission of the FDIC addresses the needs of 21st century consumers, and lessen the unfair risk to taxpayers.” The paper also recommends making CFPB’s director directly accountable to the president, removing the bureau’s supervisory role over banks and credit unions, and returning authority over policing deceptive business practices to the Federal Trade Commission from the bureau.
LAWMAKERS’ LETTER SEEKS EXEMPTION FROM MLA RULES
Exempting credit unions from 2015 rules implementing Military Lending Act (MLA) amendments is the aim of a “dear colleague” letter to the Department of Defense being circulated for signatures among House members. The letter, sponsored by Rep. Paul Cook (R-Calif., and a member of the Armed Services Committee), notes that credit unions report that they have been forced to cut back on or eliminate products and services because of the rules. Many of the items cut are relied upon by servicemembers and their families, the letter states, including those that help “find solutions for credit” for those families. The letter seeks clarity for the credit card component of the rule, which takes effect Oct. 3 (and which the DoD has said it will not delay) with an interim rule or interpretive guidance. Not doing so, the letter notes, “could have the unintended consequence of limiting more credit opportunities.” Credit unions argue that the rules should not apply to them, since credit unions were not among the unscrupulous lenders for which the expanded provisions were needed.
2017 PIERRE JAY AWARD HONORS FORMER VYSTAR CEO TERRY WEST
Terry West, recently retired president and CEO of VyStar Credit Union in Jacksonville, Fla., is the 2017 recipient of the Pierre Jay Award, sponsored by NASCUS. The annual award recognizes and honors the individual whose contributions have benefited the state credit union system in a significant way, demonstrating outstanding service, leadership and commitment to NASCUS and the state system. “Terry exemplifies the spirit of the Pierre Jay Award, through his service to the credit union system overall, his commitment to the state credit union system specifically, and his leadership for NASCUS as a member of our advisory council,” said NASCUS’ Lucy Ito. “Terry’s record of achievement and service stood out significantly in benefitting the state credit union system as we considered who would be this year’s honoree.” A 35-year veteran of the credit union system, West led the credit union to extensive local and community service, while also serving the state credit union system at the national level in a variety of positions with industry and advocacy groups (most recently as member of the NASCUS Credit Union Advisory Council). Ito said that the award for West will be conferred Thursday, Aug. 31 at the upcoming NASCUS State System Summit (beginning Aug. 29 and running through Sept. 1), in San Diego, Calif.
STILL TIME TO TAKE ADVANTAGE OF SUMMIT ‘17 HOTEL RATE
Cutoff date for the NASCUS State System Summit hotel rate is now Tuesday (Aug. 22), extended (again) so everyone who wants to take advantage can do so (and reservations have been surging lately). Our headquarters for this year’s event – in just two weeks from now — is the Westin Gaslamp Quarter Hotel, located on the border of the historic Gaslamp Quarter, and close to many attractions in San Diego. Among those who are gathering to speak during the Summit about future trends and issues for the state system: NCUA Board Member Rick Metsger, former NCUA Board Chairman Dennis Dollar,cybersecurity expert Jim Stickley, marijuana business banking expert Sundie Seefried (CEO of Partner Colorado Credit Union in Denver) and many more. Key topics at the event include fintech, evolving field of membership (FOM) requirements, the future of the corporate system, cybersecurity, outlook for CFPB – and others. Take advantage of the extended hotel reservation date for the 2017 Summit – including registration and hotel reservations – at the event’s website, linked below.
BRIEFLY: Privately insured in Texas; Leg and Reg committee to meet
United Texas Credit Union of San Antonio has become the latest to change from a federal charter to state, and obtain private share insurance, American Share Insurance (the private deposit insurer) announced recently. According to Kyle Ashley, president and CEO of the $245 million credit union, a key reason for the charter and insurance change was the state’s flexible field of membership rules which he said allow the credit union to better serve its members’ financial needs … The NASCUS Legislative and Regulatory Committee meets Aug. 29 in San Diego (in conjunction with the 2017 State System Summit); all interested credit union volunteers and executives in the area are welcome to attend (whether they are registered for the Summit or not). The meeting – including a detailed briefing of current issues and lunch – runs from 11 a.m. to 1:15 p.m. in the Plaza AB room (second floor) at the Westin Gaslamp Quarter Hotel. To RSVP, or for more information, contact Brian Knight at firstname.lastname@example.org
Patrick Keefe, email@example.com