Aug. 2, 2019 NASCUS Report

Delay for RBC offers time for fixing flaws,
developing subordinated debt, NASCUS writes

NASCUS supports a delay to 2022 of a rule mandating risk-based capital for some credit unions, but is also urging the agency to, in the meantime, fix flaws in the rule and develop an “alternative capital” option for credit unions (through subordinated debt), the association wrote in its official comment letter.

In the letter to NCUA late last week, NASCUS urged the agency to work with state regulators “expeditiously” to propose a rule on subordinated debt (a vehicle to provide credit unions with an option for raising additional capital), concurring that the effective date of the rule should be delayed until subordinated debt rules – and other issues — are finalized.

“While NASCUS recognizes and respects the supervisory consensus that a risk-based capital framework is a necessary element of a robust regulatory system, we must support delaying the effective date at least until the subordinated debt rules are finalized, appropriate guidance issued, and Call Report changes are published,” NASCUS wrote. “Although this delay may result in controversy, it is necessary to remain consistent with the NCUA’s well-founded commitment to include elements that are not yet complete.”

The NASCUS letter acknowledged that the latest delay for the risk-based capital rule – if adopted, it would be the third such delay adopted by the rule since the rule itself was embraced by the agency in 2015 – inserts a degree of uncertainty for credit union management. Providing certainty, NASCUS indicated, may come from NCUA entirely repealing the rule and starting over.

“NASCUS recognizes that for some credit unions the regulatory certainty of implementation on Jan. 1, 2020 is preferable to the ‘Sword of Damocles’ nature of ever-present risk-based capital rules that never take effect yet are never repealed,” NASCUS wrote. “Since 2015, ‘covered credit unions’ have, in theory, managed their balance sheets with an eye toward the effective date of the risk-based capital rule. As we approach the four-year mark of suspended implementation, it seems reasonable that the NCUA should formally announce that the NCUA does not plan to allow the present risk-based capital rules to become effective in their current, unrevised form.”

NASCUS reminded NCUA that, to provide greater certainty with respect to the risk that the 2015 risk-based capital rule might nevertheless take effect, the agency board has authority to rescind the 2015 rule, “and to announce that it will be replaced with a new rule in which the flaws of the 2015 are remedied and the NCUA is prepared to move forward with implementation.”

Also in its letter, NASCUS voiced support for evaluating the merits of an alternative leverage ratio (ALR) “so long as care is given to ensure an ALR provides regulatory relief rather than inadvertently creates regulatory burden.” (At the June NCUA Board meeting, Chairman Rodney Hood said he was “intrigued” by the community bank leverage ratio (CBLR) developed by the federal banking agencies for banks and thrifts. A final rule on CBLR (which is equal to 9% for banks under $10 billion in assets that meet certain criteria) is still under development by the banking agencies, although a final rule could be ready later this summer.)

“Of course, NCUA should continue to work with state regulators in evaluating and developing the appropriate framework within which to supervise credit union balance sheet risk and capital sufficiency,” NASCUS added.

NASCUS Comments on Proposed Rule: Risk-Based Capital – Delay of Effective Date

Support offered for non-member shares proposal

Providing greater operational flexibility for credit unions to use external funding for liquidity — such as that outlined in NCUA’s proposal on non-member shares — “makessense from a supervisory perspective,” NASCUS wrote in its comment letter on the issue submitted this week to the agency.

But some changes to the proposal should be considered, NASCUS also wrote, such as retaining a provision in a final rule that credit unions may obtain a waiver from a limit on non-member shares of 50% of the credit union’s paid-in and unimpaired capital and surplus less any public unit and non-member shares.

In its comment letter on NCUA’s proposed rule on public unit and nonmember shares, NASCUS wrote that it supports raising the limit for public unit and non-member deposits. NCUA has proposed that the limit on the non-member shares should be raised to the 50% level. “Not only does broader access to public funds enhance credit union liquidity options, it allows credit unions accepting such deposits to preserve other lines of credit,” NASCUS wrote.

The association told NCUA that public unit deposits can represent a stable source of external funding that could strengthen participating credit unions. “We are confident that NCUA and the states can supervise increased non-member shares public unit deposits in a safe and sound manner,” NASCUS stated.

But NASCUS also pointed out that, in some cases, the 50% limit may not be enough. “While we concur that the proposed limit should be sufficiently high that the existing alternative measure of $3 million for smaller credit unions would be generally unnecessary, we remain concerned that for some credit unions, there could arise a need for levels of external funding in excess of the 50% limit,” NASCUS wrote. The association recommended a provision in the final rule for a credit union to seek a waiver from the limit, regardless of the credit union’s asset size.

In other points, NASCUS again urged NCUA to clear any confusion in the proposal regarding its impact on state-chartered, federally insured credit unions. NASCUS recommended to NCUA that it provide federally insured state credit unions their specific compliance obligation under the proposal within Part 741 of the agency’s rules (the rules for federally insured credit unions), and to redraft the proposal to refer to “federally insured credit unions” rather than just federal credit unions.

“Taken together, the use of incorporation of rules by mere reference in Part 741 and the repeated use of the term ‘federal credit unions’ within rules applicable to state credit unions is unnecessarily confusing. “It creates unnecessary regulatory burden for state credit unions,” NASCUS wrote. The agency could easily mitigate — and eliminate — that burden, NASCUS stated, “by simply incorporating the state credit union applicable limits for public unit and non-member shares within Part 741.204 in their entirety.”

NASCUS Comments on Public Unit and Nonmember Shares Proposed Rule

Fed getting closer to next step on ‘faster payments’

A decision by the Federal Reserve about its involvement with a “real-time payment system” proposal will be made soon, the chairman of its board said this week, although he acknowledged that the central bank has not yet made a judgment. Federal Reserve Board Chairman Jerome H. (“Jay”) Powell said in a press conference that the Fed has not yet made a decision about its involvement in a so-called “faster payments system.” However, he did give clues as to how the agency might proceed — that is, in partnership with private sector players.

“I would point out that in our payments system, in many places the Fed operates alongside private sector operators — for example, wholesale payments, ACH, and in checks. So it wouldn’t be unusual or out of keeping with how we’ve done things in the past,” Powell said. He also noted, pointedly, that the U.S. is “far behind other countries in terms of having real-time payments available to the general public.”

In a letter to senators this week, however, Powell was more forceful about the Fed’s role in the payments system. He said the central bank was “uniquely placed” to overcome the difficulty of establishing nationwide access because of its existing payment infrastructure and relationships with more than 10,000 depository institutions (including credit unions and banks).

Last year, the Fed asked for public comment about what its role should be in developing a real-time payments system. Powell said the comments received were “overwhelmingly favorable” for the Fed’s involvement. Since then, however, the banking industry has essentially split into two camps on Fed involvement in real-time payments, with large banks pushing back against Fed participation – and smaller, community banks urging the Fed to take on a leadership role.

CFPB adds time to HMDA plan comments …

Proposals released in May for revising coverage thresholds for home loan data reporting were reissued this week by the CFPB, with the aim of allowing commenters to work from 2018 data slated for release later this summer. Comments are now due Oct. 15 (the original comment deadline was June 12).

The proposals would revise the coverage thresholds for lenders required to collect and report mortgage application and loan data under the Home Mortgage Disclosure Act (HMDA), which is implemented by Regulation C. HMDA data for 2018 is expected to be released in the next month or so.

Under the May proposal, institutions originating fewer than either 50 closed-end mortgage loans, or alternatively 100 closed-end mortgage loans, in either of the two preceding calendar years would not have to report such data as of Jan. 1, 2020. The proposed rule would also adjust the threshold for reporting data about open-end lines of credit by extending to Jan. 1, 2022, the current temporary threshold of 500 open-end lines of credit and setting the threshold at 200 open-end lines of credit upon the expiration of the proposed extension of the temporary threshold. The comment deadline closed June 12.

However, the CFPB also said that, given the added time now being taken on the proposal, it cannot make the permanent closed-end coverage threshold effective Jan. 1, 2020, as proposed. The agency is therefore seeking comment on an appropriate effective date should the revised coverage threshold be finalized.

As for the proposed open-end coverage threshold, the proposed effective date – Jan. 1, 2022 – is still doable if the bureau opts to keep it, the notice states.

Also: The new Oct. 15 comment deadline for HMDA coverage thresholds is the same that the bureau set last June in extending the comment period on its advance notice of proposed rulemaking on HMDA data points (when it also first announced it planned to extend the comment period on the coverage thresholds). The ANPR solicits comment on certain data points in the bureau’s October 2015 final rule that were added to Regulation C or revised to require additional information, and on coverage of certain business- or commercial-purpose loans.

Home Mortgage Disclosure (Regulation C); Reopening of Comment Period

… publishes FAQs (and answers) about TRID

Eleven frequently asked questions (and answers) about integrated disclosures related to real estate lending — including about providing loan estimates to consumers — are now posted on its website, CFPB said this week. The FAQs, the agency said, are aimed at assisting compliance with the TILA- RESPA Integrated Disclosure Rule (TRID), the bureau said.

Four topics are covered in the series of 11 questions: Corrected closing disclosures and the three business-day waiting period before consummation; model forms; construction loans, and; providing loan estimates to consumers.

For providing loan estimates for consumers, the FAQ answer states that, generally, a creditor is responsible for ensuring that the loan estimate is delivered to a consumer or placed in the mail to the consumer no later than the third business day after receipt of the consumer’s “application” for a mortgage loan subject to the TRID Rule. Under that rule, an “application” consists of the submission of the consumer’s name, income, social security number (to obtain a credit report), property address, estimate of the property’s value, and the mortgage loan amount sought.

TILA-RESPA Integrated Disclosure FAQs

$25k grants available for pilot mentoring program

Grants of up to $25,000 for a new pilot mentoring program with small low-income credit unions that are also designated as minority depository institutions were announced this week by NCUA. The agency said the program – the “MDI Mentoring Pilot Initiative, 2019” – will make three to five targeted technical assistance grants to help small institutions establish mentoring programs with larger low-income, MDI credit unions. The larger institutions, NCUA said, can provide expertise and guidance in serving low-income and underserved populations. The NCUA’s annual Community Development Revolving Loan Fund allocation is providing funding for the pilot program. Grant applications will be accepted Aug. 18 through Sept. 28.

NCUA CyberGrants portal

#MeToo, crisis communications aired at Summit

Hot issues in today’s society – sexual harassment and crisis communications — and their impact on regulators and credit unions, are upcoming in the NASCUS State System Summit in less than two weeks, set in San Francisco.

“#MeToo and the Corner Office: the Credit Union CEO’s or Regulator’s Role in Preparing for and Responding to Sexual Harassment Claims” pivots off of one of the most important, and hotly debated, issues in today’s society. Led by veteran employment attorney Steve Peltin (partner in the law firm Foster Pepper PLLC) will address how credit union executives, and state regulators, can help their organizations to avoid harassment clams and to provide effective leadership if a claim is made.

Among the areas he will cover: preventive steps to take to avoid claims; how to ensure an effective response to a claim; and what to do if (or when) a complaint is lodged.

The session takes place on Thursday of the conference (Aug. 15), at 10:30 a.m.

Also on Thursday (and an hour earlier at 9:30), Anthony Huey, president of Reputation Management Associates, leads a session about crisis communications. The focus: how to deal with the media and other audiences during a crisis, with an aim at avoiding mismanagement that can quickly ravage an organization’s reputation.

The 2019 NASCUS State System Summit takes place Aug. 13-16 at the Westin St. Francis San Francisco Hotel on Union Square. It features more than 18 hours of educational sessions covering a wide variety of topics of specific interest to the state credit union system. The Summit is the annual conference for NASCUS, bringing together senior credit union regulators and practitioners in a unique event for mutual exchange and dialog.

Agenda, registration: 2019 NASCUS State System Summit

ON THE ROAD: In PA, meeting with regulators, CU advocates

Pennsylvania was the latest destination for NASCUS officials, as they met with both regulators and credit union advocates in the state. NASCUS CEO Lucy Ito led the delegation, which discussed national and local regulatory and supervision issues with representatives of the Pennsylvania Department of Banking and Securities (DOBS) and the Pennsylvania Credit Union Association (PCUA).

BRIEFLY: Bureau to extend comments on debt collection proposal

The deadline for public comments on proposed revisions by CFPB to Fair Debt Collection Practices Act (FDCPA) regulations will be extended to Sept. 18, according to a notice filed this week by the bureau. The proposed amendments were issued in May for a 90-day comment period set to end Aug. 19. The bureau received requests for an extension (60-day and 90-day extensions were requested) and settled on a 30-day extension, taking the end of the comment period to Sept. 18.

Debt Collection Practices (Regulation F); Extension of Comment Period

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