July 12, ’19 NASCUS Report

Excise tax results in significant hardship;
make changes, or rescind, NASCUS writes

A 21% excise tax on some compensation for tax-exempt organizations’ executives – including credit union officials — results in significant hardship for those credit unions that were not able to plan in advance for such costs, NASCUS has told leaders of a subcommittee for the House tax-writing committee.

Further, NASCUS recommended that credit unions and other tax-exempt organizations be exempted from the tax – or that the tax be rescinded outright.

In the letter to Reps. John Lewis (D-Ga.) and Mike Kelly (R-Pa.), the chairman and ranking member respectively of the House Ways and Means Oversight Subcommittee, NASCUS President and CEO Lucy Ito shared concerns NASCUS has heard from credit unions about the tax, which was imposed by new laws adopted in late 2017. “A number of credit union CEOs have expressed concern that the imposition of this retroactive tax, without an exemption for certain pre-existing executive compensation agreements, puts them at a fiscal disadvantage as compared to their for-profit counterparts,” she wrote.

The excise tax was imposed by the 2017 Tax Cut and Jobs Act (TCJA). The provision applies to all tax years beginning with 2018, and was designed, reportedly, to create parity with respect to for-profit organizations, which may only deduct the first $1 million of employees’ compensation. However, the TCJA “grandfathers” compensation plans for for-profit organizations by exempting from deductibility limits for existing executive compensation those contracts in effect on or before Nov. 2, 2017. No such grandfathering exists for tax-exempt organizations, such as credit unions.

In light of that, Ito stressed that the new law did not give credit unions the “necessary notice or opportunity to develop a strategy” to deal with the added costs related to the law’s retroactive effective date. “Nor were they (credit unions) provided a ‘grandfathering’ exemption for applicable pre-existing compensation agreements to help them acclimate to the new changes without significant financial hardship.

She wrote that NASCUS believes that simple fairness calls for Congress to either provide a similar exemption for tax-exempt organizations or rescind the excise tax altogether. “Failure to provide a similar exemption for pre-existing tax-exempt compensation agreements is counterintuitive to the stated goal of achieving parity between corporate entities and tax- exempt entities going forward,” she stated.

The NASCUS leader provided the panel leaders with examples of five credit unions – ranging in size from $200 million in assets to $1.5 billion in assets — affected by the excise tax, pointing out that each faced “a significant unexpected cost related to the tax law changes.”

“Absorbing such unexpected costs may be exceedingly difficult for smaller and mid-sized institutions,” Ito wrote. “Unfortunately, the unexpected costs will have to be recouped in some manner and will likely be borne by consumers through loss of vital financial products/services or increased pricing.”

Ito wrote that NASCUS believes it “patently unfair to provide exemption relief to the corporate sector while at the same time denying similar relief to the tax-exempt sector. “ She wrote that fairness and fair dealing require that applicable pre-existing executive compensation agreements for tax-exempt organizations must receive the same treatment as similar corporate sector agreements.

Letter commenting on Tax Cut and Jobs Act (TCJA) of 2017 excise tax (to House Ways and Means oversight subcommittee leaders)


Two final rules – on fidelity bonds and real estate appraisals – a proposed interpretive rule and policy statement on prohibitions and the agency’s mid-session budget review are all on the agenda for the meeting next week of the NCUA Board.

The fidelity bonds final rule (parts 704 and 713 of NCUA regulations) follows up on a proposal made last December. In the proposal (which was written for federal credit union, but applied to federally insured state-chartered credit unions (FISCUs) in part), the agency asserted that it would accomplish four objectives: Strengthen credit union board oversight of fidelity bond coverage; ensure an adequate period to discover and file fidelity bond claims following a credit union’s liquidation; codify a 2017 NCUA legal opinion that permits a natural person credit union’s fidelity bond to include coverage for certain CUSOs, and; clarify the documents subject to Board approval and require that all bond forms receive Board approval every 10 years.

In its comment letter early this year, NASCUS outlined its concerns that the proposal would adversely affect the dual charter system and credit unions generally, calling the proposal “an unnecessary overreach by the share insurer with respect to state chartered credit unions that would weaken the dual charter system by preempting state laws related to fidelity bonds.” But NASCUS also signaled its willingness to work with the agency to “identify a better supervisory path forward to address NCUA’s concerns with fidelity bond rules and the issues raised by this proposal.”

The appraisals proposal, issued last fall, would apply to all federally insured credit unions. It would increase the threshold below which appraisals would not be required for nonresidential real estate transactions from $250,000 to $1 million. It would also exempt from the existing appraisal rule certain transactions where the property is located in a rural area, and would make certain conforming and clarifying amendments to the rule.

In its comment letter filed late last year, NASCUS also wrote that the proposed changes “can provide regulatory relief for FICUs by re-evaluating credit union appraisal rules consistent with contemporary views of sound lending practices while taking into considerations the effects of inflation on legacy regulatory thresholds.”

While NASCUS supports the proposed appraisals rule, overall, including the $1 million threshold for non-residential real estate appraisals, the association also noted in its letter that changes in the proposal to a list of transactions that are exempted from appraisal requirements raise concerns that appraisals may be required, as a result, even when “no new moneys are advanced.” NASCUS wrote that NCUA’s current rule, and the rules for banks of the federal banking agencies, provide greater flexibility in this regard. “NCUA should retain the existing rule for credit unions going forward,” NASCUS wrote, insofar as exempted transactions are concerned.

The agency provided no additional details about the proposed IRPS on prohibitions, or the “mid-session budget review.” The NCUA Board meeting, set for Thursday (July 18) in Alexandria, Va., gets underway at 10 a.m.



Legislation that aims for more flexibility in fees charged for appraisals was among several bills approved Thursday by the House Financial Services Committee.

The committee approved an amendment in nature of a substitute to H.R. 3619, the “Appraisal Fee Transparency Act,” which would give the Federal Financial Institution Examination Council’s (FFIEC) Appraisal Subcommittee “greater flexibility to determine the structure and amount of the fee charged to appraisal management companies (AMCs), provide the ASC with greater flexibility to utilize fee proceeds to partner with different entities to ensure compliance with federal appraisal standards.”

The legislation would also add a representative of the Department of Veterans Affairs (VA) to the ASC (to join representatives of federal financial institution regulators already on the committee), create a national registry of appraisers in training, and provide consumers with greater transparency in the disclosure of fees paid for appraisals.

Other bills approved by the committee included:

  • H.R. 3622, the “Restoring Unfairly Impaired Credit and Protecting Consumers Act,” which would shorten the time period most adverse credit information stays on consumer reports by reducing the statutory time periods from seven to four years and from 10 to seven years for bankruptcy information.
  • Amendment to H.R. 2852, the “Homebuyer Assistance Act of 2019,” would change the property appraisal requirements for mortgages backed by the Federal Housing Administration (FHA) by allowing licensed appraisers to conduct appraisals for such mortgages, rather than only certified appraisers.
  • H.R. 3618, the “Free Credit Scores for Consumers Act of 2019,” which directs consumer reporting agencies to give consumers free copies of their credit scores that are used by creditors in making credit decisions, as determined by the CFPB. It that’s not practicable, educational credit scores can be provided whenever consumers obtain their free annual consumer reports. The bill also requires the agencies to include free credit scores with reports when consumers exercise their rights to free consumer reports under existing law, such as when individuals believe they may be or are victims of fraud.
  • The “Improving Credit Reporting for All Consumers Act” (H.R. 3642) would provide to consumers a new right to appeal the results of initial reviews about the accuracy or completeness of disputed items on their credit report. The bill requires the consumer reporting agencies to conduct additional training of their personnel to better handle and address consumer concerns throughout the dispute resolution process.

Next stop for the bills is the floor of the House for consideration.

Memo to House Financial Services Committee Members: July 11, 2019 Full Committee Markup


A limited temporary waiver of appraiser credentialing requirements for appraisals was granted to North Dakota regulators this week on a vote of 5-2 by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC).

Meeting in Washington, the subcommittee held a public meeting to consider the state’s request for the waiver of the credentialing requirements for appraisals for federally related transactions under $500,000 for 1-to-4 family residential real estate transactions and under $1 million for agricultural and commercial real estate transactions throughout the state. The request was spurred by the state due to local concerns over long wait times for appraisals, caused by a lack of appraisers in the state.

The request was made by the North Dakota Department of Financial Institutions, supported by North Dakota Gov. Doug Burgum (R ) and others.

The waiver request was not granted for the full five years, but for one year with an option for a second year, provided that both the state department of financial institutions and the North Dakota Appraiser Board work to address issues that lead to the long turnaround times for an appraisal, according to reports.

The full FFIEC must sign off on the waiver at its next meeting before a final order can be issued.


Just a reminder that the deadline for securing our special reservation rate at the Westin St. Francis San Francisco on Union Square for the 2019 State System Summit is today (July 12) at 5 p.m. See the contact information below to make your reservation.

This year’s summit in San Francisco, Aug. 13-16, features more than 18 hours of educational sessions covering a wide variety of topics of specific interest to the state credit union system. Among other things, the sessions will explore the state of the state credit union system, the federal legislative outlook for state credit unions, effective enterprise risk management, interstate branching, addressing sexual harassment claims, the latest in compliance trends – and much more.

NCUA Board Chairman Rodney Hood will address the Summit and will sign a renewed “Document of Cooperation” with NASCUS representing/on behalf of state credit union regulators.

The program also includes a presentation by the winner of the “The Next Big Idea” awarded by the National Association of Credit Union Service Organizations (NACUSO). This year’s winner is Zogo Inc., which is building a “white-labeled” financial wellness application for smart phones which the firm says is backed by science to help teenagers become better at personal finance. The app would be provided by financial institutions

Registration for the 2019 NASCUS State System Summit is open until Aug. 13.

Hotel information (Westin St. Francis Hotel on Union Square)

NASCUS State System Summit 2019


In addition to the State System Summit next month, NASCUS is also sponsoring a school for identifying and combatting fraud, Aug. 27.  This one-day session focuses on identifying and preventing occurrences of internal fraud at credit unions, including employee deception, dishonesty, and embezzlement schemes. At the NASCUS Fraud School – held in Ann Arbor, Mich. – participants will hear real-life loss scenarios, identify key warning signs to look for, and learn which loss controls should be implemented to hold individuals responsible for their actions and minimize operational and reputational risk.


NASCUS 2019 Education Agenda


NASCUS was traveling throughout the West this week, in MT, NE and WA, meeting with regulators and credit unions and leading discussion of current regulatory and legislative issues.

In the Treasure State, NASCUS leader Lucy Ito participated in the Montana Credit Union Network’s Regulators’ Meeting in Helena, with MCUN President and CEO Tracy Kenyon and Vice President of Advocacy Karen Smith. Joining the group was Montana Department of Banking and Financial Institutions Commissioner Melanie Hall and Credit Union Bureau Chief Rick Christianson; NCUA Western Region Director Cheri Freed, Associate Regional Director Nancy Kjelgaard, and Supervisory Examiner Sherri Hudson, and Millennium Corporate Credit Union Larry Eisenhauer.

In Nebraska, Ito discussed credit union regulatory matters with Nebraska Department of Banking and Finance Deputy Director Kelly Lammers and Review Examiner Darren Davis and Nebraska Credit Union League CEO Scott Sullivan and Chief Advocacy Officer Brandon Leutkenhaus; and Cobalt Credit Union CEO Gail DeBoer.

Meanwhile, in Washington, NASCUS EVP and General Counsel Brian Knight hosted NASCUS’ Washington State Executive Forum in Sea-Tac.  The meeting, co-hosted by the Washington Department of Financial Institutions Office of Credit Unions and held at the office of the Northwest Credit Union Association featured a number of guest speakers and a state regulatory panel including Washington Director of Credit Unions Amy Hunter, Oregon Manager of Credit Union Program Janet Powell, and Idaho Department of Finance Supervisory Examiner Rick Sherrick.

BRIEFLY: Relief for community banks from Volcker rule (and capital rule compliance); call reports coming due

Federal banking and securities regulators this week announced a final rule – unchanged from its proposed form – that excludes community banks from Volcker Rule prohibitions and restrictions on proprietary trading and certain relationships in hedge funds and private equity funds. The rule change was mandated by last year’s regulatory reform law (the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155) … Also this week: the banking regulators finalized a rule simplifying compliance for community banks with regulatory capital (that is, those that that do not use the “advanced approaches” capital framework, generally firms with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure). Specifically, the rule simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest … NCUA this week was reminding federally insured credit unions that their mid-year call reports are due by July 28 (a bit more than two weeks from now).

Agencies adopt final rule to exclude community banks from the Volcker Rule

Agencies Simplify Regulatory Capital Rules

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