Feb. 24, ’17 NASCUS Report

Alternative capital proposal
‘best opportunity’ in 20 years

The proposal on alternative capital now out for comment from NCUA presents the state credit union system with the best opportunity in 20 years to speak out on this issue, NASCUS President and CEO Lucy Ito writes in a column published this week by CUToday.info, urging the state credit union system to weigh in on the proposal between now and May 9, when the comment period ends.

“A regulatory proposal on supplemental capital has been years in the making, overcoming apathy in some corners of the credit union system, antipathy in other corners, distraction by the varied issues of the day (including risk-based capital), and even a freeze on new regulations by President Donald Trump,” Ito writes in the op-ed. “Yet, despite all of that, movement on supplemental capital for credit unions – in the form of comments on an advance notice of proposed rulemaking about the issue — is now taking place, thanks to the leadership of NCUA Acting Chairman Mark McWatters and Board Member Rick Metsger.”

The NASCUS leader affirmed that the proposal (issued as an “advance notice of proposed rulemaking” Jan. 19, and published in the Federal Register on Feb. 8, beginning a 90-day comment period) holds a number of issues within its 50 pages. But she said she is confident that the state credit union system – which, through NASCUS, has been urging the acknowledgement of supplemental capital for 20 years – can overcome the challenges presented by the issues.

“My confidence is rooted in the long-term commitment by the state system and NASCUS to bring about supplemental capital for the credit union system generally,” she wrote. “At NASCUS, our view for the past nearly 20 years has been that a capital structure limited exclusively to retained earnings significantly disadvantages credit unions in facing unexpected economic shocks, and penalizes well-run institutions that are dealing with the ups and downs of the economy, such as simply attracting deposits too quickly from consumers in a “flight to safety” that credit unions offer.

Lucy Ito: State Charters, It’s Time to Comment And Take A Step Forward


Although it is titled a “summary,” NASCUS has developed a comprehensive look at NCUA’s alternative capital, distilling the 50-page proposal to a 3,400-word analysis looking at a dozen key issues outlined in the proposal. Additionally, the summary notes that the proposal includes six questions from the 2015 rulemaking regarding risk-based capital. “Noting that it received few responses to the questions, NCUA has again asked those six questions,” the summary points out.

The summary also explains that limitations on supplemental capital imposed on federal credit unions do not apply to state credit unions. “State credit unions may issue whatever forms of supplemental capital might be authorized under state law so long as those offerings are not explicitly prohibited by NCUA through share insurance regulation,” the summary states. “Current rules limit FISCU borrowing to 50% of paid-in and unimpaired capital with the ability to seek a waiver up to any higher limit imposed by the state.”

NASCUS Summary: Advance Notice of Proposed Rulemaking (ANPR), Alternative Capital


Re-establishment of the federal credit union interest rate ceiling 18% was approved for the next 18 months by the NCUA Board at its regular monthly meeting Thursday, but only after the board’s two members agreed that the time may be come to consider a new way to set the rate – pointing to states as a model. NCUA Board Acting Chairman J. Mark McWatters and Board Member Rick Metsger approved the new interest rate ceiling, following Metsger’s remark that the board has been considering, and setting, the ceiling in the same way for the past 40 years.

“It may be time for us to consider asking Congress to either adjust the statutory ceiling to reflect the reality of the marketplace over the last four decades, or to give the Board broader ability to set the rate for longer periods of time,” he said. Referring to results of a NASCUS survey of state interest rate ceilings, Metsger said the agency may want to “review the experience of states that have set variable rates to review the impact on consumers; to determine whether that provided reg relief, or additional reg burden on credit unions; and to determine whether variable caps create compliance and enforcement challenges for credit unions and examiners.” (See following item)

NASCUS’ Lucy Ito said that Metsger’s comments underscore the crucial importance of a robust dual-chartering system. “As Board Member Metsger noted, a number of states have taken innovative approaches to equitably set ceilings that work for the benefits of both consumers and lenders – giving the NCUA Board members food for thought in addressing the future federal ceiling. This is how the dual chartering system is supposed to work – and a clear example of its effectiveness.”

NCUA Board Action Bulletin; Feb. 23, ‘17


As Metsger mentioned, some of NCUA’s deliberations this week on the federal credit union interest rate ceiling were informed by state credit union supervisory authorities, via a NASCUS survey. In response to a request from the federal agency, NASCUS conducted a survey of its regulator members across the country, asking what interest rate ceilings (if any) their states have on the books and what those rates are. According to the responses, about one in every three states have no interest rate ceilings. Of those that do, the average rate is 22% with most reporting a fixed rate. Results of the interest rate ceilings (report and spreadsheet) are available to all NASCUS members; see the links below.

Summary report: Usury-rate ceilings in the states (members only)

Spreadsheet: Details by state for interest-rate ceilings (members only)


Congress’ return next week from its week-long President’s Day state/district work period could be the opportunity for financial reform legislation to be introduced, particularly the latest version of the Financial CHOICE Act by House Financial Services Committee Chairman Jeb Hensarling (R-Texas). Earlier this month, Hensarling circulated a memo among committee colleagues outlining changes to his bill, which he first proposed in the last Congress. Among other things, the first version of the legislation called for a five-member NCUA Board, extend the exam period for some credit unions to 18 months, and increase the transparency by NCUA for the overhead transfer rate (OTR). However, in his Feb. 6 memo, Hensarling dropped the five-member board provision, stating “NCUA Board will have three rather than five members.” (NASCUS continues to urge lawmakers to consider designating one seat on the NCUA Board for a candidate who has served as a state credit union supervisor.)

Meanwhile this week, the CFPB filed notice that it is rechartering (for two year terms) its four advisory bodies, which are the Credit Union, Community Banker and Research Advisory Councils, and the Consumer Advisory Board. The consumer board (mandated under the Dodd-Frank Act, and which is intended to “provide information on emerging practices in the consumer financial products or services industry, including regional trends, concerns, and other relevant information”) may be short-lived, if the latest version of the CHOICE bill becomes law. According to Hensarling’s memo, “mandatory advisory boards” of the CFPB would be repealed under the latest version of the bill.


The state system will be well represented next week at the largest credit union system gathering of the year – the 2017 CUNA Governmental Affairs Conference in Washington – as NASCUS Board and Advisory Council members, staff and others maintain a heady schedule of conferences and discussions with congressional committee representatives, federal regulators, credit union system leaders and more throughout the week. Meetings are scheduled with representatives from: Senate Banking Committee, House Financial Services Committee, Treasury Department, CFPB and between the chairs of the NCUA and NASCUS Boards. In addition to those, the state system leaders are scheduled to hold discussions and dialog with representatives from (among others) World Council of Credit Unions (WOCCU), the National Association of Federally-insured Credit Unions (NAFCU), CUNA Mutual Group, American Association of Credit Union Leagues (AACUL), National Association of Credit Union Service Organizations (NACUSO), Payments Systems for Credit Unions (PSCU), and more. Look for reports on Twitter (@TheNASCUS), the NASCUS website and next week’s NASCUS Report for a wrap up.

BRIEFLY: FL Directors, Clearinghouse on changing AML reports

It doesn’t matter what state you may be from: state credit union system participants nationwide are welcome to the March 8 Florida Directors College & Executive Forum in Orlando, a one-day program focusing on national trends and issues affecting state credit unions in the Sunshine State, and nationwide; see the link below for more … The current anti-money laundering/ countering the financing of terrorism (AML/CFT) statutory and regulatory framework is “outdated and thus ill-suited for apprehending criminals and countering terrorism in the 21st century,” according to the Clearinghouse, a New York-based advocacy group for the nation’s largest banks, which released a 30-page white paper on the subject last week. The paper makes a number of recommendations, including “modernizing” suspicious activity report (SAR) filing thresholds.

Florida Directors College and Executive Forum; March 8, Orlando

A New Paradigm: Redesigning the U.S. AML/CFT Framework to Protect National Security and Aid Law Enforcement


Information Contact:
Patrick Keefe, NASCUS Communications, pkeefe@nascus.org or (703) 528-5974

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