Letter outlines concerns of state system
over fidelity bond proposal’s impact
Concerns that an NCUA-proposed regulation of fidelity bonds will adversely impact the dual charter system and credit unions generally make up the basis of NASCUS’ opposition to the proposal, as cited in the association’s comment letter to NCUA this week.
However, the association cited in the letter its readiness to “work with NCUA to identify a better supervisory path forward to address NCUA’s concerns with fidelity bond rules and the issues raised by this proposal.”
In its official comment letter on NCUA’s rules for federally insured natural person credit union and corporate credit union fidelity bond requirements, NASCUS said it could not support the proposal (issued Nov. 23) as it would burden federally insured credit unions, confuse directors’ understanding of their proper role, increase operating costs, and discourage qualified candidates from serving on credit union boards.
“NASCUS is concerned that the rule as proposed by NCUA is an unnecessary overreach by the share insurer with respect to state chartered credit unions that will weaken the dual charter system by preempting state laws related to fidelity bonds,” NASCUS Executive Vice President and General Counsel Brian Knight wrote. “The prescriptive nature of the proposal also runs counter to the current approach to mandatory bond coverage of federal bank regulators. If finalized, the proposed rule would likely increase costs for credit unions, insert the credit union board into matters best handled by management, and possibly encumber a credit union’s ability to recruit board members.”
Despite the NASCUS view that the changes in the proposal have “limited supervisory utility,” the association’s letter also supported codification of an agency 2017 legal opinion which allowed for joint fidelity bond coverage between a credit union and its CUSOs in certain limited circumstances and for the 10-year review of approved bond forms. That letter (which NASCUS has summarized; see link at the bottom of this item) dealt with a change of opinion, in which the NCUA’s general counsel office said it had decided the “individual policy” requirement of credit union fidelity bonds does not prohibit a credit union from having a bond also covering its credit union service organization (CUSO), provided the credit union owns at least 50% of the CUSO or the service organization otherwise meets the definition of a “nominee.”
In other comments, the NASCUS letter noted:
- NCUA’s proposal represents an expansion of FCU rules to FISCUs: NASCUS wrote that, if the agency intends to expand the scope of its rules in this area to apply in full to all FISCUs, it should invite specific stakeholder comment on such a proposal. “NCUA should also propose changes to Part 741.201 (of its rules) to more clearly identify fidelity bond provisions that apply to FISCUs,” NASCUS wrote, adding that the association “does not believe it necessary to apply such detailed bond provisions to FISCUs.” NASCUS also noted that the Federal Deposit Insurance Corporation (FDIC) focuses its requirements for deposit insurance on the amount of bond coverage.
- It fails to adequately address likely increased costs to credit unions: “NASCUS does not question the value to the insurance fund of guarantying the liquidating agent’s ability to purchase a two-year discovery period within which to identify losses and claims,” NASCUS wrote. “However, we do have concerns about the cost to credit unions of mandating these contractual provisions. Before the rule is finalized, NASCUS advised, NCUA should provide to stakeholders more information as to why the agency believes additional costs of extended discovery periods would be borne solely by the liquidating agent as asserted in the proposal. “If that is the case, then NASCUS’ concerns with this provision of the proposal would be mitigated,” NASCUS wrote.
- Board review and signature of bond applications are problematic and unlikely to yield much supervisory benefit: “Our primary concern with requiring the credit union board and supervisory committee to review ‘all applications for purchase or renewal’ of the credit union’s bond is that it injects the strategic leadership and oversight body of the credit union into the management-decision making role: a role which properly belongs to the professional staff of the credit union,” NASCUS wrote. “The board’s decision making should focus on policies, not such detailed decision making as choosing the bond provider. By injecting the board into a management decision, NCUA’s rule could potentially create confusion as to the proper relationship and roles of board and management: confusion more damaging to the credit union than any de minimus benefit achieved by the board involvement.”
NCUA RULE REVIEW INCLUDES 17 AFFECTING FISCUS
One-third of NCUA rules and regulations are up for review in the New Year – including 17 areas that directly affect state-chartered, federally insured credit unions — as part of the agency’s annual “regulatory review.” The agency posted the review topics on its website Jan. 4; comments are due June 1.
NCUA is not subject to the provisions of the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA), which requires other federal regulators and the Federal Financial Institutions Examination Council (FFIEC) to perform a review of their regulations every 10 years. Instead, the credit union regulator maintains a “rolling review schedule” that identifies one-third its existing rules for review each year. According to the agency, it then provides notice of those regulations under review so the public may have an opportunity to comment.
The list of regulations being reviewed affecting FISCUs in this go-round include:
- Change in Official or Senior Executive Officer in Credit Unions that are Newly Chartered or are in Troubled Condition
- Suretyship and Guaranty
- Loans and Lines of Credit to Members
- Loan Participations
- Purchase, Sale, and Pledge of Eligible Obligations
- Payment on Shares by Public Units & Nonmembers
- Designation of Low-Income Status; Acceptance of Secondary Capital(by way of §741.204) Accounts by Low-Income Designated Credit Unions
- Capital Adequacy
- Investment and Deposit Activities
- Corporate Credit Unions
- Mergers of Federally-Insured Credit Unions; Voluntary Termination or Conversion of Insured Status
Some of the rules under review affecting FISCUs are by way of regulations which apply to FCUs that also apply to FISCUs (such as section 741.205).
NASCUS has developed a summary of the agency’s rule review for this year, which also delineates which of the rules under review (of the 35 total) are related to FISCUs.
AGENCY WANTS CUS TO KNOW ABOUT CFPB RULE CHANGES
The CFPB recently announced changes to maximum fees allowed for credit reports, and reporting thresholds for Home Mortgage Disclosure Act (HMDA) and Regulation Z small-creditor status – and NCUA wants credit unions to know about the changes.
In two, separate notes addressed to boards and chief executives at federally insured credit unions this week, NCUA reported that CFPB had:
- Increased the maximum fee a consumer credit reporting agency may charge ($12.50, up from $12 last year), as of Jan. 8. The decision to increase the fee (which is considered annually by the consumer bureau, but had not changed for several years) was among the first actions taken by new Director Kathy Kraninger, who signed the change Dec. 21. The rule change revises the bureau’s Regulation V, which implements the Fair Credit Reporting Act (FCRA). It provides the fee cap adjustment for 2019 and codifies such adjustments in bureau regulation for the first time. “Historically, the Bureau has published these FCRA annual adjustments as a notice,” according to a bureau summary for the final rule. “The Bureau is now codifying those notices and adding a provision to Regulation V to track the FCRA’s provisions concerning the annual maximum allowable charge.”
- Announced increases to the maximum asset-size of credit unions exempt from collecting Home Mortgage Disclosure Act (HMDA, Reg C) data in 2019 to those with $46 million or less (as of Dec. 31). The consumer bureau also raised the cap under which credit unions can be considered small creditors for certain escrow and qualified mortgage requirements under the Truth in Lending Act (TILA, Reg Z), NCUA noted, to $2.167 billion. The issuances reflect annual adjustments required by HMDA and Reg Z, respectively, NCUA said.
… AND MORE: 2018 HMDA REGISTERS DUE MARCH 1
Continuing its string of reminders to credit unions about rules and deadlines related to Consumer Financial Protection Bureau (CFPB) rules, NCUA Thursday noted that Home Mortgage Disclosure Act (HMDA) loan/application registers for calendar year 2018 loan activity are due by March 1. The registers, NCUA said, are required for credit unions with offices located in metropolitan areas engaging in certain types and volumes of residential mortgages lending. The affected credit unions also have to have more than $45 million in assets (as of Dec. 31, 2017). The HMDA data, the regulator said, must be submitted using a web-based platform provided (and maintained) by CFPB, which implements HMDA through its Reg C.
CREDIT, CONSUMER REPORTING LED COMPLAINTS BY SERVICEMEMBERS
Credit or consumer reporting, followed by debt collection issues, led the list of complaints from members of the U.S. armed services to the CFPB in 2018, the agency said Thursday in its Office of Servicemember Affairs Annual Report. Other emerging issues facing servicemembers in the financial marketplace – and identified in the report — according to the bureau are: debts related to medical, telecommunications and VA expenses on servicemembers’ credit reports; student loan servicing obstacles, and; automobile add-on products “in the car-buying process.”
ANTI-‘CHOKE POINT’ LEGISLATION ARISES ANEW
Legislation that would block NCUA and federal banking agencies from ordering a bank or credit union to terminate, restrict or “discourage” a customer account or group of accounts unless certain conditions are present has been re-introduced in Congress. The legislation, H.R. 189 (the “Financial Institution Customer Protection Act of 2019”) by Rep. Blaine Luetkemeyer (R-Mo., and former chairman of the House financial institutions subcommittee) is a repeat from the last session of Congress. The bill would affect NCUA and the “appropriate federal banking” agencies – the Federal Reserve, the FDIC and the OCC. It was introduced Jan. 3.
The bill is intended to put an end to “Operation Choke Point,” a Department of Justice initiative during the Obama administration intended to investigate banks and the business they do with firearms dealers, payday lenders, and other companies believed to be at higher risk for fraud and money laundering. Under the legislation, the agencies could not order an account closed, restricted or “discouraged” unless certain conditions existed, including: the agency has a valid reason for such an order (such as a threat to national security), and that reason is not based solely on reputation risk.
The same bill passed the House in the previous Congress by a vote of 395-2; it was also authored by Luetkemeyer.
AROUND THE STATES: Transitions in AL, MN, WI
Sarah Moore is leaving the Alabama Credit Union Administration to become executive director of the Alabama Board of Medical Examiners and the Medical Licensure Commission of Alabama, effective Feb. 1. Meanwhile: Steve Kelley is now the commissioner of the Minnesota Department of Commerce, appointed by Gov. Tim Walz (D) this month; he replaces Jessica Looman in the position. Even more transitions: Kathy Koltin Blumenfeld has been appointed secretary of the Wisconsin Department of Financial Institutions (WDFI) by Gov. Tony Evers (D). Blumenfeld has a strong foundation in credit unions: she served with CUNA Mutual Group for 25 years, including as vice president of lending and payment security. The governor also re-appointed Kim Santos as director of the WDFI’s office of credit unions. She is also a member of the NASCUS regulator board.
MORE ADDED TO EDUCATION AGENDA (IN APRIL, AUGUST)
The 2019 education agenda for NASCUS continues to grow, with two more sessions recently added. Our first Examiners’ School of 2019 (scheduled so far) gets underway April 29-May 1 in Seattle, a session sponsored with the Washington Department of Financial Institutions, Division of Credit Unions. The tentative agenda for the two-and-a-half-day event includes sessions on ALM Derivatives Training, fintech, cybersecurity, enterprise risk management (ERM), and the latest developments at the CFPB.
Our second recently added session is our Fraud School, set for Aug. 27 in Ann Arbor, Mich. The one-day session focuses on employee fraud, dishonesty, and embezzlement schemes, which can typically last longer and result in more severe losses than those caused by malicious outsiders. The program focuses on real-life loss scenarios, identifying key warning signs to look for, and learning which loss controls should be executed to hold individuals responsible for their actions and minimize operational and reputational risk.
For more on these sessions – including registration and agenda – see the links below. See also the link to all of NASCUS’ educational sessions for 2019.
BRIEFLY: VP of State Programs, Supervision position still open
NASCUS continues to seek a highly qualified individual with bank or credit union examination experience for the newly created role of vice president of state programs and supervisory policy at the association. For details, and to apply, see the link below.