Jan. 3, 2020 NASCUS Report

THIS WEEK: Full agenda in 2020 for state system; NCUA report reflects NASCUS efforts on operating agreements; CFPB sets thresholds for HMDA, TILA reporting; Student credit card market shrinking; TRANSITIONS in Idaho; Full education schedule ahead in New Year

As 2020 debuts, state system has full agenda

With the advent of 2020, the state system and NASCUS are ready with a full set of goals to be advanced over the new year. Among them:

Clarity for serving legal marijuana businesses

NASCUS supports legislation that addresses the conflict between federal and state law on the provision of products/services for legitimate marijuana enterprises. The House in September passed the Secure and Fair Enforcement (SAFE) Banking Act (H.R. 1595), on a 321-103 bipartisan vote. Supported by NASCUS, the bill would prohibit penalizing, or discouraging, a credit union or bank from providing financial services to a cannabis-related legitimate business or to a state (and its political subdivisions or Indian Tribe) that exercises jurisdiction over cannabis-related legitimate businesses. (Last year, NASCUS leadership – the association’s Regulator Board and Credit Union Advisory Council — approved a cannabis banking policy that permits the organization to support federal safe harbor legislation. The previous NASCUS policy sought clarification on the conflict between federal and state law.) Action in the Senate on the bill is uncertain, however, as Banking Committee Chairman Mike Crapo (R-Idaho) has said he does not support it, citing concerns over public health and money laundering. He has said he is seeking public input on “how to thoughtfully address these concerns.”

Access to supplemental capital

The state system believes that access to supplemental capital is critical to safety and soundness and provides well-managed credit unions with an additional tool to react to economic pressures. As of now, natural person, non-low-income credit unions do not have access to supplemental capital. However, NCUA appears to be on the verge (perhaps this month) of proposing a form of supplemental capital (as “subordinated debt”) that Board Member Mark McWatters in December called part of a “suite of capital rules.” McWatters said the proposed subordinated debt would count as capital for risk-based net worth purposes. “It’s a good rule, it’s a complex rule – we’ll need a lot of feedback on it,” he said at the December NCUA Board meeting.

Advancing interstate branching

The state system recognizes that the ability of state-chartered credit unions to access new field of memberships across state lines is vital for balance in the dual charting system. NASCUS is now working on a new, third generation nationwide interstate branching template — with delivery expected later in the year — aimed at expanding the breadth of past arrangements and to provide more clarity for the state credit union system.

Other key issues being advocated by NASCUS over the coming year include:

  • Support for federal data breach notification legislation that gives deference to more stringent state notification requirements and holds non-financial entities to the same data breach notification standards as financial institutions.
  • Reform of the NCUA Board to require appointment of a board member with state credit union supervisory experience, and to increase the number of seats on the board from three to five members.
  • Revisiting federal tax rules to obtain a comparable exemption from the 21% excise tax on pre-existing executive compensation contracts for non-profits.

OIG report reflects NASCUS work on operating agreements

Updated operating agreements with state supervisors, including a process for improving documentation of supervisory examiner decisions following reviews of state exams, is in the works by NCUA before the end of this year, according to a report by the agency’s inspector general filed late last month.

The Dec. 18 report focuses on a self-initiated review by the NCUA’s Office of Inspector General (OIG) to assess the agency’s joint examination process with state supervisory authorities (SSAs). Covering the period of January 2013 through December 2018, the review is aimed at: determining whether the NCUA provided shared oversight of federally insured state-chartered credit unions (FISCUs) to assess their condition and address material risks that could negatively affect the National Credit Union Share Insurance Fund (NCUSIF), and; whether the NCUA effectively monitored FISCUs using off-site monitoring tools and joint oversight processes with state supervisory authorities.

The OIG found that the agency met those objectives, but it also found that its regional offices did not have updated optional operating agreements with each individual SSA that defined roles and responsibilities at a high level for joint on-site examinations of FISCUs. According to the report, NCUA had signed and dated operating agreements during the period from March 2003 to July 2008. It said that of the 45 states that have FISCUs, 18 had signed operating agreements on file, 11 had unsigned operating agreements on file, and 16 had no operating agreement on file. Five states (as well as the District of Columbia, Guam, Puerto Rico, and the Virgin Islands) do not have FISCUs.

(In August, NASCUS and NCUA signed their first “document of cooperation” since 2007. The document is aimed at ensuring the safety and soundness of the credit union system, fostering an environment of innovation, prosperity, and success for all system stakeholders, and maintaining a strong cooperative relationship between the state and federal regulatory systems.)

“As a result of the NCUA not having updated and useable optional operating agreements with each SSA,” the report states, “some NCUA examiners and officials we interviewed, as well as some examiners and officials for the SSAs, expressed there could be confusion regarding roles and responsibilities at a high level and indicated that although optional, having an executed operating agreement in place would help bring consistency to the working relationship and across the joint examination process.”

The report notes that an NCUA-State Supervisor Working Group (which NASCUS helps to coordinate) was formed in 2017 to identify and address any issues that could positively impact the joint supervision programs of the NCUA and SSAs. The working group implemented a pilot program to alternate the lead supervisory authority on joint examinations (launched in January 2019, the program is set to run about three years) and developed a new template for an optional standardized operating agreement between the NCUA and the SSAs.

The OIG report also says that NCUA’s regions are working to update operating agreements with SSAs that wish to enter into them. It says the agency has also updated its National Supervision Policy Manual to provide that NCUA regional directors, not SSAs, will be responsible for maintaining any such agreements. Guidance to clarify examination reviews of state supervisory examinations of FISCUs when NCUA examiners participate in joint examinations has also been revised and clarified, the report states.

Other findings of the report include:

  • NCUA needs to enhance its guidance to clarify its reviews of state exams of FISCUs when NCUA examiners participate in joint examinations, which the report says has been done;
  • While not a requirement, that as a best practice, supervisory examiners (SE) did not consistently document their decisions on follow-up actions recommended by examiners after completing such reviews.

On the latter, the OIG recommended that the NCUA create a formal process to capture supervisory examiner decisions regarding recommended follow-up actions taken or not taken from reviews of state supervisory exam reports “to ensure concerns identified by examiners are properly documented.”

In its response to the report, the agency said it plans to use the Modern Examination and Risk Identification Tool (MERIT) system as the formal process and, in the interim, has implemented steps to adjust the documentation process. MERIT will replace the agency’s AIRES exam system by year’s end (or as soon as the middle of the year) and was being piloted as of the date of the report, according to the report.

NCUA inspector general report #OIG-19-11

Bureau sets thresholds for HMDA, TILA reporting compliance

Credit unions, banks, and savings associations with assets of $47 million or less as of Dec. 31 are exempt from collecting data in 2020 under Regulation C (which implements the Home Mortgage Disclosure Act (HMDA)), the CFPB said Dec. 23 in setting the annual asset-size threshold.

The consumer bureau said the $1 million upward adjustment from 2018 in the threshold was based on a 1.6% increase in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the 12-month period ending in November 2019. The 2018 threshold was $46 million.

The bureau also announced that creditors with assets of less than $2.202 billion (including assets of certain affiliates) as of Dec. 31 are exempt from establishing escrow accounts for higher-priced mortgage loans in 2020 under Regulation Z (which implements the Truth in Lending Act (TILA), if other requirements of the regulation also are met.

The asset-size exemption threshold applies to certain creditors under the escrow requirements and small creditor portfolio and balloon-payment qualified mortgage requirements, and the small creditor exemption from the prohibition against balloon-payment high-cost mortgages under Reg Z.

The CFPB said the asset limit will also apply during a grace period, in certain circumstances, with respect to transactions with applications received before April 1, 2021.

Like the Reg C threshold adjustment, the Reg Z adjustment is based on the 1.6% increase in the average of the CPI-W for the 12-month period ending in November 2019.

Both adjustments are effective Jan. 1.

Home Mortgage Disclosure (Regulation C) Adjustment to Asset-Size Exemption Threshold

Truth in Lending Act (Regulation Z) Adjustment to Asset-Size Exemption Threshold

Report: student credit card market shrinking

The market for credit cards issued to college students is getting smaller, the CFPB said last week in a report, as the number of issuers dries up. In its report on college credit card agreements (which mostly covers agreements in force in 2018), the bureau asserts that it found the market for college credit cards “is getting smaller by all the metrics we track.” The agency said that is a general trend that dates back a decade.

The bureau also said it found that there were fewer issuers of the cards in 2018 who were “parties to college credit card agreements compared to last year and that agreements with alumni associations continue to make up the largest part of this market.”

The agency acknowledged that its findings are subject to a number of limitations. “Some college agreements cover other financial products besides credit cards, such as deposit accounts, so payments made by issuers under these agreements may not relate solely to credit card accounts,” the bureau stated. “In addition, some or all of the accounts opened in connection with these agreements, even those directly between issuers and institutions, may have been opened by individuals who are not students, such as alumni, faculty, and staff of an institution of higher education.”

The CFPB report is the eighth issued by the agency, and the tenth overall (as the Federal Reserve issued the first two). The report is required by the 2009 Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act), which requires credit card issuers to submit agreements they make with colleges (and organizations affiliated with colleges) to the CFPB.

2019 College credit card agreements

TRANSITIONS: New director in ID

Patti Perkins will be the new director of the Idaho Department of Finance, Gov. Brad Little (R) announced last week. She will replace department veteran Mary Hughes, who has been serving as acting director, on Jan. 13. According to a press release from the governor’s office, Perkins has nearly 30 years’ banking experience in both business and human resources roles. Most recently, she operated her own human resources consulting firm. Hughes, who was named the 2019 Pierre Jay Award honoree by NASCUS last year, has served nearly 30 years with the state agency. Over that period, she also served as a NASCUS officer and director, participating in several NASCUS committees and taskforces – including as a member of the NASCUS Regulator Board of Directors from 2009-13 and as a member of the association’s Legislative and Regulatory Committee since 2006.

In 2020, a schedule full of key events

A new year brings a whole new agenda of NASCUS signature events, which are scheduled and ready to be placed on the calendars of members and participants in the state credit union system. The top, upcoming events include:

  • NASCUS State System Summit 2020 (Aug. 9-12, New York, N.Y.): The State System Summit is the association’s annual, unique event which brings together credit union regulators and practitioners for mutual exchange and dialogue. It’s a rewarding experience for both groups, as they listen to ideas, share thoughts and look for solutions to the challenges and opportunities facing the state credit union system.
  • State Credit Union Regulators National Meeting 2020 (March 16-17, New Orleans; regulators only): The annual, regulators-only meeting brings state credit union regulators together from across the country in one place for two full days of discussions that take a long look at the issues, topics and trends resonating through the state credit union regulatory environment today, with an eye toward the year ahead.
  • Cybersecurity Conference with CUNA (June 1-3, San Diego): NASCUS and the Credit Union Natl. Assn. (CUNA) partner for this groundbreaking program that sets the standard for credit union cybersecurity conferences. The three-day program brings both credit union regulators and practitioners together to consider such topics as how to harden cyber defenses, enhance cyber resilience and maintain secure data.
  • Hemp and Cannabis Banking Symposium (June 17, Chicago): Following up on 2019’s inaugural event – a first-of-its-kind for the credit union system at large — the 2020 symposium builds on the momentum gained last year by exploring more issues related to hemp banking and legalized state cannabis businesses as those issues play out against the backdrop of the fast-developing cannabis and hemp industries.
  • BSA/AML Certification Conference with CUNA (Nov. 9-12, Fort Lauderdale, Fla.): Offered in partnership with CUNA, this conference stands as the premiere event covering anti-money laundering/Bank Secrecy Act (AML/BSA) issues for the credit union system.

For more information about any or all of these events – and more events to come throughout the year – see the link below.

NASCUS Upcoming Events: 2020

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