Dec. 8, ’17 NASCUS Report

Board to consider agency reorganization, emergency merger rules

Final rules on emergency mergers and reorganization of the agency will be the main events of the NCUA Board when it meets in open session Thursday in Alexandria, Va.

In July, the board announced a restructuring plan for the agency, which will be finalized at the Thursday meeting. At that meeting, the board approved several recommendations for restructuring, including:

  • Consolidating the agency’s five regional offices into three by closing the Albany, New York, and Atlanta, Georgia offices and eliminate four of the agency’s five leased facilities;
  • Creating an Office of Credit Union Resources and Expansion by redefining and realigning chartering and field-of-membership, credit union development, grants and loans, and minority depository institutions programs;
  • Restructuring the Office of Examination and Insurance into specialized working groups; and
  • Realigning the Asset Management and Assistance Center to include changes to the servicing business model and moving to a financial supervisory structure.

The agency, in July, also said it plans to eliminate agency offices with overlapping functions and improve functions such as examination reporting, records management, and procurement. The plan to be considered next week, NCUA said, “anticipates a reduction in the agency’s workforce by attrition.”

Also in July, the board proposed a rule that would amend the definition of “in danger of insolvency” in the agency’s chartering and field of membership manual for emergency mergers. According to NCUA Board Chairman J. Mark McWatters, the proposal allows the agency to look into the future with the idea that it’s “better to catch things earlier than later.” NCUA Board Member Rick Metsger, at the July meeting, noted that state credit union supervisors would have the right to challenge agency actions under the proposal, but would not lose their due process rights. The proposal was issued for a 60-day comment period.

LINK:
Board Agenda for the December 14, 2017 Meeting


IN ADVERTISING PROPOSAL, COMMENT LETTER LOOKS TO SOCIAL MEDIA

Rules governing notices through social media of the federally insured status of a credit union should be flexible enough to accommodate the platforms themselves, NASCUS wrote in a comment letter to NCUA this week on a proposed, new rule on accuracy of advertising. NASCUS generally supported the rule, which proposes the addition of a fourth short statement “Insured by NCUA” for official advertising of insured status, as well as an expansion to 30 seconds of an exemption from the advertising statement requirement regarding radio and television advertisements (putting credit union advertising on par with that allowed for banks by the FDIC).

NCUA also sought comments about whether its rules should accommodate new trends in advertising such as via social media, texting, and mobile banking applications. NASCUS wrote that it should, particularly for social media, and recommended NCUA rules make three allowances for social media advertising:

  • Distinguish between messages appearing on the credit union’s own social media sites as opposed to advertising that might appear on the site of a third party;
  • Clarify that inclusion of the official advertising statement on the credit union’s masthead or on the credit union’s landing page for its social media sites satisfies the regulatory requirements rather than the official statement having to appear on every page; and
  • Allow the official advertising statement to appear by link, no more than one click away, to a social media posting.

“Given the evolving nature of social media, NASCUS also recommends that NCUA commit to regularly reviewing the advertising rule to consider new developments and new technology,” the association wrote. “It is unrealistic to expect that stakeholders can foresee today the next dominant social media platform’s structure and utility. Ensuring a process through which timely feedback on needed changes to the rules regarding the official statement may be considered will be essential in helping credit unions stay engaged across the same medium as their members.”

LINK:
NASCUS Comments: Proposed Rule on Accuracy of Advertising


ON STRATEGIC PLAN: SUPERVISION SHARING, RULES IN ONE PLACE URGED

Improving the shared supervision program of federally insured state chartered credit unions, and another appeal to organize rules applicable to the state-chartered credit unions in one or contiguous sections, were among the recommendations made by NASCUS for NCUA’s strategic plan.

In a comment letter to the agency on its 2018-22 Draft Strategic Plan, NASCUS said it supports a flexible examination schedule to be instituted by the agency, and remains “committed to continuing our work to improve the shared supervision program” of FISCUs. More specifically, regarding training to help examiners deal with future challenges, NASCUS recommended that the agency work with state regulators to identify new course material needed, and work with NASCUS to improve the administration of National Credit Union Share Insurance Fund (NCUSIF) training of state examiners.

Additionally, as it has in the past, NASCUS again urged the agency to co-locate rules applicable to FISCUs in one section, or contiguous sections, of its rules and regulations. “The current organization of NCUA’s rules is unnecessarily convoluted, confusing, and opaque,” NASCUS wrote. “A FISCU must spend an inordinate amount of time researching NCUA’s rules to merely identify whether a particular provision applies.”

The letter pointed to recently finalized changes in the structure and operation of the agency’s Supervisory Review Committee (SRC). “The SRC, to which a material supervisory finding may be appealed, applies to FISCUs and is incorporated in Part 746 (Subpart A) of NCUA’s rules,” NASCUS wrote. “However, there is no mention of the new Part 746 Subpart A in Part 741.

“This is problematic because Part 741 is identified, by NCUA, as containing all the rules applicable to a FISCU. And this is but one example of many.”

In other recommendations, NASCUS:

  • Suggested that overall supervisory risk tolerance should be developed in conjunction with state regulators as the prudential regulators of FISCUs;
  • Noted that NCUA’s governance would benefit from an expanded NCUA board and consistent representation of the state regulatory system (which NASCUS continues to advocate for in Congress).

LINK:
NASCUS Comments: NCUA 2018-22 Draft Strategic Plan


AGENCY LETTER HIGHLIGHTS DIVERSITY CHECKLIST COMPLETION DEADLINE

Completion of a voluntary self-assessment checklist for gauging diversity at credit unions in business practices and hiring is due before Dec. 30 from federally insured credit unions – especially those with 100 or more employees –NCUA said in a “letter to credit unions” issued last week.

Throughout the letter (LTCU 17-CU-07), the agency emphasizes that completion of the checklist is voluntary. “This voluntary collection is not part of the NCUA examination process and will have no impact on CAMEL ratings,” the agency writes in the letter to federally insured credit unions (FISCUs). “There is no penalty for credit unions that have limited or no diversity practices in place. The NCUA will not publish diversity information that identifies any particular credit union or individual.” (emphasis by NCUA)

The credit union regulator pointed out that it, along with other federal financial institution regulatory agencies, issued and “interagency policy statement” more than two years ago establishing “joint standards for assessing the diversity policies and practices of regulated entities.”

The agency stated that the policy statement was mandated by provisions in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which encouraged credit unions and other financial institutions to “consider adopting and incorporating” the diversity standards into business and hiring practices. The statement, the agency reiterated, is not a rule or regulation “and does not create any legal compliance obligations; implementation or use of the diversity standards is completely voluntary,” NCUA wrote. (emphasis by NCUA)

The agency noted that the diversity standards are summarized in the agency’s Letter to Credit Unions 15-CU-05. It noted that the its Office of Minority and Women Inclusion (OMWI) aggregates the annual self-assessment data and only shares results anonymously.

LINK:
LTCU 17-CU-07: 2017 Voluntary Credit Union Diversity Self-Assessment


5TH CREDIT UNION FOR 2017 LIQUIDATED

A $55 million-in-assets Alabama credit union became the fifth federally insured credit union to be liquidated in 2017; the 11,500 members and their savings and loans were merged into a Louisiana credit union, NCUA announced this week. Riverdale Credit Union of Selma, NCUA said, was liquidated after the agency determined the credit union “was insolvent and had no prospect for restoring viable operations.” The credit union was placed into conservatorship on June 22, 2017, the agency said, as a result of unsafe and unsound practices at the financial institution. According to NCUA, the membership, shares and most other assets (including loans) were assumed by Jefferson Financial Federal of Metairie, La. Jefferson Financial FCU has about 44,000 members and $563 million in assets.

LINK:
Riverdale Credit Union Closes, Jefferson Financial Assumes Members, Shares, and Loans


SENATE REG RELIEF BILL – WITH MBL PROVISION – HEADS TO FLOOR

Regulatory reform legislation is on its way to the Senate floor after the Banking Committee this week approved a package (with bipartisan support) containing a number of credit union provisions. Among other things, the bill, S.2155 (the “Economic Growth, Regulatory Relief and Consumer Protection Act”) includes provisions that would:

  • Exempt one-to-four unit, non-owner occupied residential loans from a credit union’s member business loan (MBL) cap. The provision would treat the credit union loans similar to those made by banks.
  • Exempt depository institutions that have originated fewer than 500 open-end lines of credit and closed-end mortgages in the previous two years from certain Home Mortgage Disclosure (HMDA) reporting and recordkeeping requirements.
  • Provide credit unions with regulatory relief from various Truth in Lending Act (TILA) and TILA/Real Estate Settlement Procedures Act (RESPA) integrated mortgage disclosure rule provisions.
  • Require NCUA to annually publish details of and hold a public hearing on its budget.
  • Provide immunity to credit unions (and other financial institutions) from lawsuits for disclosure of financial exploitation of senior citizens.

LINK:
S.2155, Economic Growth, Regulatory Relief and Consumer Protection Act


TAX CONFERENCE AT WORK – WITHOUT UBIT PROVISION ON ROYALTIES

A tax bill under consideration by a Senate-House conference committee no longer contains a provision about unrelated business income tax (UBIT) that would have affected state-chartered credit unions, and other non- and not-for-profit entities. Before the tax relief bill was approved last week (on a vote of 51-49), senators stripped out a provision that would have made taxable the income received for royalty payments for use of name and logo of an organization (such as AD&D insurance, mailings using a credit union’s name and logo, and others). The provision was roundly opposed by the credit union system, as well as trade associations and other groups.

However, all eyes are now on the conference committee. Although the name and logo royalties provision was eliminated, both the Senate and House contain a UBIT provision addressing royalties received primarily from sporting events. Additionally, as pointed out this week by the American Society of Association Executives (ASAE, the “trade association for trade associations”) there remains a risk that in a search for revenue the name/logo provision could be added back as the conference committee begins to reconcile the House and Senate versions of the legislation.

Meanwhile, a provision to impose a 20% excise tax on tax- exempt organizations’ executive compensation of $1 million or more each year is retained in the Senate bill; the language is consistent with House provisions. The excise tax could be problematic for credit unions due to the manner in which most 457(f) plans are structured.

A NASCUS review of the provision has found that an assertion that the new tax provides “parity” for the elimination of an executive compensation deduction for corporations is debatable: the tax would not amount to “parity” to the extent that many corporations do not utilize the deduction because they do not pay taxes. The tax would reportedly apply to “all not-for-profits.”  NASCUS is monitoring developments about the provision, including whether either or both 501(c)(14) state-chartered credit unions and 501(c)(1) federally chartered credit unions would be affected.


BANKING PANEL APPROVES POWELL NOMINATION FOR FED CHAIR

Jerome H. “Jay” Powell’s nomination to be chairman of the Federal Reserve Board was supported for confirmation by roll-call vote of the Senate Banking Committee Tuesday, with only Sen. Elizabeth Warren (D-Mass.) casting a “no” vote, for a tally of 22-1. The nomination will now be sent to the full Senate for consideration. Warren said she could not support Powell’s nomination because of his position on financial regulation. President Donald Trump nominated Powell, 64, to be chairman Nov. 2. He is now a member of the Fed board; his term expires in 2028.


GAO FINDS BUREAU’S INDIRECT LENDING ‘GUIDANCE’ SUBJECT TO CONGRESSIONAL REVIEW

A 2013 bulletin about auto lending and compliance with federal credit reporting laws issued by the Consumer Financial Protection Bureau (CFPB) is a general statement of policy and a rule subject the Congressional Review Act (CRA), the Government Accountability Office (GAO) said in a letter to a senator this week. Responding to a request from Sen. Patrick Toomey (R-Pa.), GAO General Counsel Thomas H. Armstrong said that the bureau’s March 2013 bulletin “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act” meets the requirements of being subject to the congressional review law.

“The Bulletin is of general and not particular applicability, does not relate to agency management or personnel, and is not a rule of agency organization, procedure or practice,” Armstrong wrote, outlining the three exceptions to rules from being subject to the CRA. “CFPB did not raise any claims that the Bulletin would not be a rule under CRA pursuant to any of the three exceptions, and we can readily conclude that the Bulletin does not fall within any of the those exceptions,” Armstrong noted. Rather, he stated, the Bulletin is a general statement of policy “designed to assist indirect auto lenders to ensure that they are operating in compliance with ECOA and Regulation B, as applied to dealer markup and compensation policies,” he wrote.

The bulletin, the GAO counsel stated, is a nonbinding general statement of policy providing guidance about indirect auto lenders’ compliance with the fair lending requirements of the ECOA and its implementing regulation, Regulation B. According to Armstrong, CFPB did not submit a report about the bulletin to Congress or the GAO’s Comptroller General because “in their opinion the Bulletin is not a rule under CRA.”

GAO said the issue with the bulletin had been whether a nonbinding general statement of policy, which provides guidance on how CFPB will exercise its discretionary enforcement powers, is a rule under CRA.

LINK:
GAO letter to Sen. Patrick Toomey re: CFPB bulletin/guidance on indirect lending and CRA coverage


MONTANA OPENS DOORS TO PRIVATE SHARE INSURANCE PROVIDER

American Share Insurance (ASI) has been approved by Montana to provide private, primary share insurance coverage for credit unions in its state. According to ASI (the sole provider of private share insurance), the company is now operating in 10 states, its most ever. The other nine states are: Alabama, California, Idaho, Illinois, Indiana, Maryland, Nevada, Ohio and Texas. The company said the Montana Division of Banking and Financial Institutions and the Commissioner of Securities and Insurance recently provide formal approvals to the ASI’s application.



BRIEFLY: Gathering in OR; Prize-linked savings in WI

NASCUS President and CEO Lucy Ito is in Salem, Oregon, today speaking at the Credit Union CEO Outreach, sponsored by Janet Powell, Credit Union Program Oregon manager for the Oregon Department of Consumer and Business Services. Also speaking at the event: NCUA Board Member Rick Metsger, and Northwest Credit Union Association (NWCUA) President & CEO Troy Stang … Wisconsin Gov. Scott Walker (R) has signed into law Assembly Bill 283, which authorizes credit unions, state-chartered banks and other savings institutions to conduct prize-linked savings promotions, designed to encourage regular contributions to a savings account by offering entries into a drawing for a prize with each deposit.


 

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