Jan. 5, ’18 NASCUS Report

Rumblings of McWatters’ nomination
for CFPB role kicks off New Year

NCUA Board Chairman J. Mark McWatters’ name as the potential next director of the CFPB became the lead story for a number of Washington financial reports as the New Year began, with many of those writing he’s a “serious” and “short-list” candidate for the position. McWatters, who was named chairman of the federal credit union regulator by President Donald Trump last January (the first to be tapped to lead a federal financial institution regulatory agency by the White House) joined others reportedly under consideration for the post, including current House Financial Services Chairman Jeb Hensarling (R-Texas) and former Acting Comptroller of the Currency Keith Noreika. McWatters has had no comment on the reports.

However: If he is named to lead the consumer agency (which will require Senate confirmation), the NCUA Board would be left in an unusual position: two of the three seats empty, with the third filled by Board Member Rick Metsger, whose term officially expired in August. Metsger may continue to serve until a replacement is nominated and confirmed by the Senate. Further: if McWatters moves to CFPB (replacing Acting Director Mick Mulvaney), the credit union agency would be without a chairman, unless the president names Metsger to that position (no Senate confirmation required). But Metsger is a Democrat, and the president is more likely to select a fellow Republican for the job – which would require Senate confirmation.

In any event, NASCUS President and CEO Lucy Ito told the Credit Union Journal this week that the state credit union system greatly appreciates both the “refreshing transparency and credibility” McWatters’ has brought to NCUA. “Throughout his three-year tenure at the agency, he has proven himself to be an inquisitive, deliberative, and balanced regulator with an approach to rule-making that is forward-looking, consultative, and timely,” she said. “While his common-sense leadership would be a tremendous loss, the very experience and qualities he has marshaled at NCUA would make him highly effective at any of the other federal agencies that regulate and supervise the financial services sector, including the CFPB.”

CU Journal: McWatters to CFPB? Credit union movement reacts


NCUA should do more to harmonize capital planning and stress-testing rules with its current regulatory reform and relief agenda, so that the agency may “better tailor stress testing rules to actual characteristics of the covered credit unions,” NASCUS has written in its official comment letter.

Responding to the agency’s call for comments about a proposed rule on capital planning and stress testing, NASCUS wrote that it supported the agency’s goals outlined in the proposal, and agreed that the proposal represents improvements over the existing supervisory stress testing rules. But more can be done, the association said, to fit the agency’s own goals. “Because NCUA’s rule is fully within the agency’s discretion, we urge NCUA to act boldly to right-size the rule and correct the deficiencies that have become apparent in the intervening years since initial DFAST (‘Dodd-Frank Stress Tests’) rule promulgations,” NASCUS wrote.

Under the proposal, three tiers for “covered credit unions” would be established, based on asset size and tenure under the supervision of the agency’s Office of National Examinations and Supervision (“ONES”). Tier I will include covered credit unions during the first three years under the supervision of ONES and the first three capital planning cycles. Tier II credit unions will be those covered credit unions in their fourth years of ONES supervision, entering their fourth capital planning cycle, with assets between $10 billion and $20 billion.  Tier III will be covered credit unions that have assets greater than $20 billion

The NASCUS comment letter recommended:

  • NCUA should increase the thresholds for the proposed tiers for covered credit unions (those affected by the rule) to an asset threshold greater than $20 billion;
  • The agency should consider whether supervisory stress tests could be conducted periodically rather than annually;
  • The frequency of data submissions associated with supervisory stress testing should be reduced;
  • Redundant requirements should be eliminated for covered credit unions.

“The changes as proposed by NCUA represent a good start to reforming these rules, and we urge NCUA to take this opportunity to make further improvements,” NASCUS wrote. “There is a general consensus that the bank DFAST rules upon which NCUA modeled its capital planning and stress testing rules are flawed in their application to regional institutions with limited footprints and assets less than $50 billion.”

NASCUS added that NCUA faces no constraints such as those imposed on bank regulators. Furthermore, NASCUS wrote, as is clear from numerous initiatives to raise thresholds on the bank side, “NCUA can pursue our recommended improvements to the rule without sacrificing prudential safety and soundness,” NASCUS wrote.

NASCUS Comments: Capital Planning and Supervisory Stress Testing


Looking for concise, relevant and insightful rundowns of the latest NCUA proposals, final rules and letters to credit unions? Look no further than NASCUS summaries – which added four more outlines over the past week to its roster of 2017 synopses. The latest additions include summaries on:

  • Final regulations governing procedures for appealing material supervisory determinations to the NCUA’s Supervisory Review Committee (SRC). Noting that the rules took effect at the start of the year (and this week; Jan. 1), the summary points out it creates a rotating pool of SRC members, formalizes the hearing process, provides for an interim review before an SRC appeal, and allows for appeal of the SRC decision to the NCUA Board. The summary also points out that the NCUA SRC appeal process only applies to the agency’s material supervisory determinations – not to those reached/taken by state regulatory agencies. “If a supervisory determination that is subject to a request for review or appeal pursuant to these procedures is the product of a joint NCUA/state determination, NCUA will immediately notify the state regulator (providing copies of all relevant materials and the request for review) and solicit the state regulator’s views regarding the merits of the appeal.” The NASCUS summary also notes that any NCUA determination on review/appeal affects only the NCUA’s actions, and that the agency will notify the state regulator of its decision and leave the FICU and state to resolve issues between them.
  • NCUA Letter to Credit Unions (LTCU) 17-CU-07, 2017 Voluntary Credit Union Diversity Self-Assessment (available to members only). The letter notes that 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 LTCU 17-CU-08, Interagency Supervisory Guidance for Institutions Affected by a Major Disaster(available to members only). Issued in concert with federal banking regulators, the letter provides guidance for institutions affected by a major disaster – including hurricanes and flooding – and outlines the practices examiners will follow in assessing financial and operational conditions of credit unions that have been directly affected by an event which results in a presidential declaration of a major disasters.
  • NCUA LTCU 17-CU-09, Supervisory Priorities for 2018 (available to members only). Outlining seven issues of supervisory focus (including cybersecurity) in 2018 for federally insured credit unions, the letter indicates the agency would fall in line with other federal regulators in not citing violations for data errors, nor require data resubmissions in the absences of material errors, found in quarterly reports related to the Consumer Financial Protection Bureau’s (CFPB) Regulation C, Home Mortgage Disclosure.

Proposed Rule Summary: Capital Planning & Stress Testing

LTCU 17-CU-07: 2017 Voluntary Credit Union Diversity Self-Assessment (members only)

LTCU 17-CU-08: Interagency Supervisory Guidance for Institutions Affected by a Major Disaster (members only)

LTCU 17-CU-09: Supervisory Priorities for 2018 (members only)


Proposed rules related to website accessibility have been rescinded by the Justice Department, potentially curbing or shutting off the flow of “demand letters” to credit unions, state and local governments and others over access to their websites. The letters were prompted by the proposed regulations, dating from 2010, which were never finalized, and which applied to website accessibility under the Americans with Disabilities Act (ADA), and how the law applied. However, according to reports, the proposed rules led to a rash of “demand letters” alleging failure to comply with the ADA; some have also said the proposed rules encouraged courts to interpret the accessibility rules broadly. In rescinding the “advance notice of proposed rulemaking,” the DOJ said it is “evaluating whether promulgating regulations about the accessibility of Web information and services is necessary and appropriate.” The agency added that an evaluation will be informed by additional review of data and further analysis, and that it would continue to “assess whether specific technical standards are necessary and appropriate to assist covered entities with complying with the ADA.”

Nondiscrimination on the Basis of Disability; Notice of Withdrawal of Four Previously Announced Rulemaking Actions


In a step that could potentially dampen the legalization of marijuana (and banking for the industry), the Trump Administration Thursday announced it was rescinding an Obama Administration policy that discouraged federal prosecutors from bringing charges of marijuana-related crimes in states that have legalized sales of the drug. Just this week, recreational marijuana became legal in California. Attorney General Jeff Sessions, in a statement, said the policy of the previous administration undermined “the rule of law” and the Justice Department’s mission to enforce federal statutes. However, the announcement met resistance on Capitol Hill: Sen. Cory Gardner (R-Colo.) said Session’s plan contradicts what the Attorney General told him during his confirmation process. Gardner said he would hold up all future DOJ nominees unless Sessions reverses the decision.

Meanwhile, a credit union serving the Colorado marijuana industry is highlighted in this week’s New York Times Magazine. The article notes that the credit union, Partner Colorado Credit Union in Arvada, has in three years established itself “entirely through word of mouth” as the marijuana industry’s biggest banker. The credit union has “created a sophisticated process to match deposits and withdrawals to marijuana transactions that are legal in the state,” the article notes.

NYT Magazine: Where Pot Entrepreneurs Go When the Banks Just Say No


Credit cards are making a comeback as consumer use is ramping up, according to the 2017 credit card report issued by the CFPB last week. The biennial report found that total amount of credit line, number of accounts, average amount of card debt, and enrollment in online services have all increased since the end of the economic turndown. According to the report, as of mid-2017, consumers held more than $4 trillion in card credit line, used or unused – which is just under the pre-recession high of $4.4 trillion in mid-2008.

New credit card accounts have jumped by about 50% since 2010, and – at 110 million new accounts – are higher than in any single year since the start of the economic downturn in 2007, the study found. “However, new account volume has not yet returned to the level it had reached in the years prior to the recession,” the CFPB stated in a release.

The CFPB report also noted that, along with the rising level of credit card use, credit lines, and accounts, consumer delinquency and charge-off rates, “which were high during the financial crisis and then fell to historical lows in the years following the recession,” have increased over the last two years.

In other areas, the report noted that average debt of cardholding consumers overall has increased 9% over the last two years, and that average balances for cardholders with low credit scores have increased at faster rates. “Cardholders with deep subprime scores, for example, have seen a 26% increase in their average credit card debt over the last two years,” the CFPB stated.

CFPB Releases Report on the State of the Credit Card Market


Employees of the federal consumer watchdog agency overwhelmingly like the work that they do, have the information they need to do the job, are encouraged to come up with new and better ways to do their jobs, and have feelings of personal accomplishment, according to the results of a survey released by the CFPB this week. Additionally, more than 90% of survey respondents (about three in four of all agency employees) said they “strongly agreed” or “agreed” that “the work I do is important.” However, there were some strong feelings expressed about how promotions and pay increases are distributed, and how employees are recognized.

The survey results, based on responses provided between July 17 and Aug. 25, show an “agree” or “strongly agree” response equal to 67% or more to the first eight questions about personal work experience. To a question of “I know how my work relates to the agency’s goals,” 89.9% of the respondents agreed or strongly agreed. Nearly 87% (86.9%) agreed/strongly agreed that they “like the work I do.” More than four out of five (83%) agreed/strongly agreed they had enough information to do their jobs well. And nearly 83% (82.9%) agreed/strongly agreed that their work “gives me a feeling of personal accomplishment.”

There were areas of disagreement among the employees responding to the survey, according to the results. In the areas of “rewards and recognitions,” nearly 30% (29.1%) said they “disagreed/strongly disagreed” that “promotions in my work unit are based on merit.” And nearly one in three (32.1%) said they “disagreed/strongly disagreed” with the statement “pay raises depend on how well employees perform their jobs.” Also: 30.3% said they disagreed/strongly disagreed that “employees are recognized for providing high quality products and services.”

On the other hand, two in three of survey responders (66.9%) agreed/strongly agreed that they were satisfied with their pay.

2017 CFPB Annual Employee Survey Results


Financial institutions, consumers or others attempting to calculate rate spreads for Home Mortgage Disclosure Act (HMDA) reportable loans should use one of three online calculators, depending on when “final action” for the loan was taken, the umbrella group for federal financial institution regulators said this week. The Federal Financial Institutions Examination Council (FFIEC) advised:

The FFIEC also said batch rate spread calculator is also available to allow institutions to calculate the rate spread on multiple Loan Application Registers (LARs).

FFIEC Rate Spread Calculator


Changes are ahead in Alaska credit union and banking regulation, as Division of Banking and Securities Director Kevin Anselm retires today, and a transition begins. On Monday, Operations Manager Barbara Reid takes over as interim acting director of the DBS. Next month (Feb. 20), Chief of Enforcement and Outreach Kristy Naylor takes the reins as acting director. Anselm, who previously served as both a regulator and an administrative law judge in Oregon, joined the DBS in 2011; she was appointed director in 2013.

BRIEFLY: CECL seminar set for April 12; Cyber conference on the radar

Surveying the process for implementing the upcoming Current Expected Credit Loss (CECL) accounting standard is the focus of an April 12 seminar sponsored by NASCUS in Versailles, Ky. The one-day program takes a close look at the standard, adopted in June 2016 by the Financial Accounting Standards Board (FASB) for estimating allowance for loan losses. The standard, which begins to take effect at the end of 2019 (and for non-profits at the end of 2020), represents the most significant change to generally accepted accounting principles (GAAP) in many years and would fundamentally change the way many credit unions will have to calculate ALL. Cost is $199 for NASCUS members, $225 for non-members. For more information, including the agenda and registration, see the link below … Also on the planning board: The NASCUS-CUNA Cybersecurity Conference, set June 3-5 in Nashville. The timing couldn’t be more fitting: NCUA announced cybersecurity is among its regulatory priorities for 2018 (see above). And as the recent news regarding chip vulnerability demonstrates, cybersecurity challenges facing credit unions and regulators show no signs of abating. This conference brings together credit unions, examiners, and policy makers to ensure the credit union system will meet the cyber challenges ahead. Details available soon!

Details, NASCUS April 12 CECL Seminar, Versailles, Ky.

Information Contact:
Patrick Keefe, [email protected]

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