Feb. 9, ’18 NASCUS Report

Final rule on equity distributions from insurance fund on agenda

A final rule for calculating pro-rata share distributions of National Credit Union Share Insurance Fund (NCUSIF) equity will be considered by the NCUA Board at its regular meeting next week in Alexandria. Va.

Last summer, the board proposed a rule for calculating equity distribution. According to staff, the purpose of the proposal was to provide credit unions greater transparency regarding the calculation of a federally insured credit union’s proportionate share of a declared equity distribution from the fund.

However, a key portion of the proposal is that it would prohibit a federally insured credit union that terminates federal share insurance coverage during a particular calendar year from receiving an NCUSIF equity distribution for that calendar year. The purpose, according to NCUA, is to “provide greater fairness to FICUs that remain federally insured.”

In its comment letter about the rule, NASCUS told the agency it disagreed with that approach, which represents a policy change. “Presumably, a credit union that terminates its NCUSIF coverage in a year for which an equity distribution is declared nonetheless contributed to the accumulation of equity in the insurance fund,” NASCUS wrote. “For those credit unions, and their members, honoring the longstanding commitment to return their pro-rata share of a distribution is the right thing to do.

NASCUS also pointed out that It is “worthy of note that the traditional commitment of the NCUSIF to return the equity value to all credit union members in a distribution year is not open- ended. The existing methodology only applies to credit unions, and their members, that were NCUSIF insured during the year giving rise to the dividend.”

NASCUS comments: National Credit Union Share Insurance Fund Equity Distribution


The board will also consider rebates from the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), which was merged into the share insurance fund last fall. About $600 million to $800 million is expected to be distributed to credit unions this year; additional distributions are possible. The money being rebated is that in the insurance fund above its 1.39% “normal operating level” (NOL) of total reserves in the fund relative to insured shares.

Actual amounts to be distributed will be determined in March, the agency has indicated, after year-end 2017 insured shares are reported. Additional information regarding the amount and accounting for any distribution is expected around the end of the second quarter.

With the merging of the corporate fund into the insurance fund, the NCUA Board also voted last fall to raise the NOL of the fund to 1.39% (up from about 1.3%). At the time, both Board Chairman Mark McWatters and Board Member Rick Metsger indicated that the agency would review the operating level on at least an annual basis between 2018 and 2021, “based on relevant data.”

Many during the comment period leading up to the board’s decision urged the agency to keep the NOL at 1.3%, to maximize return to credit unions. NASCUS, in its comments, noted that temporarily increasing the normal operating level for the duration of the corporate resolution is prudent, but recommended that NCUA provide clearer assurance that the 1.39% rate would sunset upon maturity of the NCUA Guaranteed Notes in 2021. (In other words, that 1.39% not be the “new normal.”)

NASCUS comments: Closing the Temporary Corporate Credit Union Stabilization Fund and Setting the Share Insurance Fund Normal Operating Level


For the third straight week the CFPB issued a “request for information” (RFI) in its drive to expose “evidence” about whether the agency is doing its job – this one on “enforcement processes.” The agency said this third RFI would be aimed in particular at helping “assess the overall efficiency and effectiveness of its processes related to the enforcement of federal consumer financial law.” The RFI, as with the previous two, will be issued for a 60-day comment period.

CFPB began issuing the RFIs Jan. 24, following a statement by Acting Director Mick Mulvaney the previous week (Jan. 17) saying the agency was issuing the call for “evidence” of the agency’s functions in performing its role to give the public an opportunity to provide feedback and suggest ways to “improve outcomes for both consumers and covered entities.”

For the latest RFI, the agency said it seeks specific suggestions in comments about any potential updates or changes to its enforcement processes and including (with details) the potential update or modification, supporting data or other information on effects and costs, or information concerning alignment with the processes of other agencies. CFPB said it also wants “specific identification of any aspects” of its enforcement processes that should not be modified, likewise including supporting data on effects and costs.

Next week, the agency said, will come the fourth RFI – on supervisory processes.

NASCUS Rules and Summaries web page: Enforcement processes


There was plenty more going on with the bureau this week as well – including talk about the massive Equifax data breach in September, and any investigation into it. Early this week, reports surfaced that the CFPB, under Acting Director Mick Mulvaney’s direction, had throttled back its investigation into the breach at Equifax, which resulted in the exposure of sensitive personal information of 143 million Americans, according to the Federal Trade Commission (FTC). Treasury Secretary Steven Mnuchin, when confronted with the reports during testimony before the House Financial Services Committee (see item below), said he hasn’t spoken to Mulvaney about it – “but I will,” he said. “It is something I am going to discuss with him.”

Meanwhile, new Comptroller of the Currency Joseph Otting issued a statement this week – following a meeting with Mulvaney – that essentially supported Mulvaney. Saying he has been impressed by the “leadership and emphasis on operational efficiency and excellence” by the acting director of the bureau, Otting pledged to work to reevaluate “practices and programs that result in regulatory overreach and unnecessary burden that adversely affect banks’ ability to serve their customers,” much as Mulvaney has pledged to do.

In a third development, Mulvaney made it official that Kirsten Sutton Mork will be the next chief of staff for the bureau, filling a role that was most recently held by the staffer now challenging the acting director’s appointment – Deputy Director Leandra English. Sutton Mork was most recently staff director of the House Financial Services Committee for Chairman Jeb Hensarling (R-Texas).

Comptroller Statement on Meeting with the Acting Director of the CFPB

CFPB Acting Director Announces Chief of Staff


Cybersecurity vigilance was a key point of testimony by Treasury’s Mnuchin before a House committee this week. Mnuchin, delivering the House version of his 2017 annual report of the Financial Stability Oversight Council (FSOC, a body he chairs as Treasury secretary), told the House Financial Services Committee that the financial system’s “heavy and increasing reliance” on technology increases the risk of significant cybersecurity incidents which “could disrupt the financial sector and potentially impact U.S. financial stability.”

Mnuchin noted that the FSOC annual report includes a recommendation to create a private sector council of senior financial services executives to “collaborate with regulators in order to mitigate cybersecurity threats.” The concern, Mnuchin said, is that the regulators work together in concert with the industry in providing protections. In response to comments from Rep. Blaine Leutkemeyer (R-Mo.), he agreed that streamlining a “patchwork of regulations” would be a sound approach in ensuring cybersecurity. “I am participating along with DHS (Department of Homeland Security) and with the NSC (National Security Council) to coordinate across government,” Mnuchin said. “We are not immune to these issues ourselves; what we are learning about to protect government we are using to protect industry as well.”

Agenda, registration: NASCUS-CUNA Cybersecurity Conference, June 3-5 (Nashville)


A Colorado credit union chartered to offer financial services to marijuana-related groups was “conditionally” granted a “master account” by the Federal Reserve last week, essentially opening the door – at least part way – for the credit union to begin operations.

The Federal Reserve Bank of Kansas City told Fourth Corner Credit Union of Denver in a Feb. 2 letter that the Reserve bank would “conditionally grant” the credit union the master account (which provides the credit union with a primary nine-digit Routing Transit Number (RTN), among other things). The Fed had previously denied the credit union’s application; the credit union sued, lost in federal District Court, appealed to the U.S. Court of Appeals, and won a 2-1 decision last summer. That opened the door to the credit union being allowed to re-apply for the master account (action blocked by the lower court) under certain conditions.

Among the conditions: the credit union cannot serve marijuana-touching (plant-touching) businesses – instead, it will be limited to serving advocacy groups, charities and other groups (such as accountants) related to the marijuana industry. Additionally, the credit union must receive deposit/savings insurance, which a spokesman for the credit union called “the biggest hurdle.”

According to Marijuana Business Daily (a trade publication), the credit union intends to apply for NCUA insurance – which has once before rejected the credit union’s application, largely because of the Fed’s rebuff of the master account to the credit union. The publication also pointed out that the Fed’s decision to grant the master account on the conditional basis is the first time a regional Fed bank has granted such a green light.

NASCUS supports federal legislation that clarifies the permissibility of financial institutions providing financial services to state-authorized cannabis businesses.

NASCUS 2015 letter to Congress: Support for the Marijuana Businesses Access to Banking Act of 2015


The Treasury Department is considering removing guidance from its Financial Crimes Enforcement Network (FinCEN) that laid out a process for financial institutions in opening accounts for marijuana businesses without violating federal regulations and triggering enforcement actions. According to reports, a Treasury representative told members of Congress in a letter that the department is reviewing the FinCEN guidance “in light of the Attorney General’s announcement,” which rescinded a policy that opened the door for states to implement their own cannabis laws without Justice Department interference. The Treasury letter was in response to earlier correspondence from a bipartisan group of House members, which asked that FinCEN continue the cannabis banking guidance.


Bank regulators in Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington will recognize each other’s findings when assessing the suitability of companies applying for money service business licenses – sometimes referred to as “fintechs” — CSBS said this week. Under the agreement, if one state reviews key elements of state licensing for a money transmitter – IT, cybersecurity, business plan, background check, and compliance with the federal Bank Secrecy Act – then other participating states agree to accept the findings, the association said. According to the group’s president and CEO, John Ryan, the licensing agreement will “minimize the burden of regulatory licensing, use state resources more efficiently, and allow for broad participation by other states across the country.”

CSBS release: State Regulators Take First Step to Standardize Licensing Practices for Fintech Payments


Legislation modifying the definition of “points and fees” for purposes of determining whether a mortgage can be a “Qualified Mortgage” (QM) was approved Thursday by the House, 280-131. The vote on the “Mortgage Choice Act” (H.R. 1153) had been delayed from the previous day by the historic, longest-ever House speech by Democratic Leader Nancy Pelosi (Calif.), who held the floor for more than eight hours to deliver remarks regarding budget and immigration legislation. The QM bill, H.R. 1153 (as passed by the House Financial Services Committee last month), amends the Truth in Lending Act (TILA) by modifying the “points and fees” definition for determining a QM, according to the NASCUS summary of the legislation. The bill excludes taxes and insurance held in escrow and fees paid to affiliated companies that result from their participation in an affiliated business arrangement from the points/fees calculation. The credit union industry supports the bill, and is urging the Senate to take it up. The version of the bill passed Thursday is actually the third time that the House has passed a “Mortgage Choice Act” that contained similar provisions.

BRIEFLY: Nominations for FDIC, FSOC, Fed board roll on

Nominations for the chairman of the Federal Deposit Insurance Corp. (FDIC) Board, a member of the Federal Reserve Board and the insurance representative for the Financial Stability Oversight Council (FSOC) were all approved Thursday by the Senate Banking Committee. The nominations now head to the floor of the Senate for confirmation. Jelena McWilliams – nominee for FDIC Board chairman and Thomas E. Workman, to be the insurance industry representative on FSOC – were easily approved on voice vote. Marvin Goodfriend, nominee for an open seat on the Federal Reserve Board of Governors, was approved narrowly, on a party line vote of 13-12.

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