July 15, ’16 NASCUS Report

Bill requiring OTR transparency debuts in House

Legislation requiring the NCUA Board to provide a rationale for any amounts it proposes to use from the share insurance fund – particularly through the overhead transfer rate (OTR) – has been introduced in the House by Reps. Mick Mulvaney (R-S.C.) and Denny Heck (D-Wash.). The brief bill (two pages; a bill number has not yet been assigned) would require the NCUA Board to accompany each annual budget with a report (which must be made publicly available) that contains a “detailed analysis” of how agency expenses are assigned between prudential activities and insurance-related activities. The report would also require an analysis of the extent to which expenses are paid from fees collected from federal credit unions (via operating fees) and the agency’s rationale for any “proposed use of amounts in the (insurance) Fund contained in such budget, including detailed breakdowns and supporting rationales for any such proposed use.” Those amounts typically are transferred to the agency budget via the OTR.

The Mulvaney-Heck legislation mirrors language contained in the Financial CHOICE bill, announced by House Financial Services Committee Chairman Jeb Hensarling (R-Texas) last month, and subject of a hearing this week (see below). Two weeks ago, Mulvaney told a Washington group of his intent to introduce the bill.

NASCUS President and CEO Lucy Ito said transparency in the calculation of the overhead transfer rate is much needed, and this legislation would go a long way to bringing that about. “At NASCUS, our goal for years has been to give the credit union system the opportunity to evaluate and respond to NCUA’s allocation of expenses – and this measure, once enacted, will be significant in helping us reach that goal. Our thanks to Rep. Mulvaney for drafting and introducing the bill, and to Rep. Heck for his original co-sponsorship. We look forward to working with them as the legislative process moves forward.”

Bill text for Mulvaney-Heck legislation


John A. Herrera was nominated this week for the open seat on the NCUA Board by President Obama, to fill the opening created with the retirement in April of Debbie Matz. He is now a senior vice president for Latino and Hispanic Affairs at Self-Help Services (associated with Self Help FCU), a non-profit community development financial institution in Durham, N.C. He has held that position since 1999. He served as a commissioner for the North Carolina Credit Union Commission from 2003-10, a seven-member group whose members are appointed by the governor for a term of four years to advise on credit union matters. Additionally, he has served on the board of the Latino Community Development Center in Durham since 2001, and co-founded the state-chartered Latino Community Credit Union in 2000. In 2013, the White House honored Herrera as an Immigrant Innovator Champion of Change.

On Wednesday, NCUA Board Chairman Rick Metsger and Board Member J. Mark McWatters issued statements congratulating Herrera on his nomination. Metsger stated he hoped the Senate would act quickly on the nomination; McWatters (himself a nominee to Export-Import Bank of the U.S.) wished him success “as he proceeds through the nomination and confirmation process.”

NASCUS President and CEO Lucy Ito highlighted Herrera’s experience with credit unions, particularly with the state system. “Mr. Herrera has long and distinguished service to the credit union community, and worked closely with state regulators for seven years in his role as a member of the North Carolina Credit Union Commission, getting a first-hand look at the impact of state regulation. As one who has organized a state-chartered credit union, he has inside knowledge of the challenges facing new credit unions – but also an appreciation for the opportunities that a state charter can present to a growing institution.” Additionally, Ito noted that North Carolina regulators reported Herrera’s service on the North Carolina commission provided him with a state regulatory perspective. “That can serve as a healthy reality check as the NCUA Board considers the potential impact of rule-making on credit union operations,” she said.

It’s unclear when (or if) the Senate will take up the nomination, which was sent to that body Wednesday evening. Congress enters its longest recess this weekend, returning Sept. 6 after the political conventions and the usual August break. But it won’t be around for long: The Senate’s target pre-election adjournment date is Oct. 7, with return scheduled Nov. 14. The House expects to go out a week earlier (Sept. 30), and return the same day as the Senate. The results of the national election, Nov. 8, will also likely play a role in any action the Senate schedules on pending nominations.

White House announcement on Herrera nomination to NCUA Board
NCUA release: Statements by Metsger, McWatters


The first of what will likely be a number of hearings by the House Financial Services Committee on legislation to reform the Dodd-Frank financial restructuring bill – passed by Congress in the wake of the financial crisis – was held this week, focusing on Title I of the measure, regulatory relief for strongly capitalized, well-managed banking organizations. Overall, the proposed legislation – known as the Financial CHOICE Act — contains a total of 11 titles and is 498 pages long. Among the other things the measure proposes: Creation of a five-member board for the NCUA; the provision mirroring the Mulvaney-Heck legislation noted above; allowing for an 18-month exam cycle for certain credit unions; and placing the federal financial institution regulatory agencies in the appropriations process “so that Congress can exercise proper oversight.”

In opening Tuesday’s hearing, Chairman Jeb Hensarling (R-Texas) noted that the CHOICE bill “rests on the belief that a high level of private bank capital is the most basic element in making a financial system healthy, resilient and reliable for economic growth.” However, he noted that “most community banks and credit unions will have to raise little to no additional capital,” a nod to high levels of capital already maintained by those institutions. He said that banking organizations that maintain a simple leverage ratio of at least 10%, and have a composite CAMELS rating of 1 or 2, may elect to be functionally exempt from the post-Dodd-Frank supervisory regime, the Basel III capital and liquidity standards, “and a number of other regulatory burdens that pre-date Dodd-Frank.” No additional hearings have yet been scheduled.


Taking a cue from the launch of the CHOICE bill hearings, NASCUS President and CEO Lucy Ito wrote to Hensarling and the committee’s Ranking Member Maxine Waters (D-Calif.) noting interest in the bill’s provisions calling for a five-member NCUA Board, and suggesting it be expanded to include designation of a seat for a state credit union regulator. “In our view, expanding the board from three members to five would enhance the board’s deliberative process, expand its collective expertise, and improve the efficient administration of NCUA business,” Ito wrote. “We also would like to work with you to broaden the impact of this provision should it move forward. That is, by designating one of the seats on the board for a candidate who has served as a state credit union supervisor,” she wrote. “Doing so would provide important perspective about the impact of federal regulations on states and local communities – which is sorely needed by all levels of government,” she stated.

Ito acknowledged the concern by some that the number of NCUA Board members will expand the budget of the agency. “We have analyzed those costs, and we estimate that (based on the 2016 NCUA budget of $290.9 million) each additional board seat would cost approximately $979,000, for a total of just under $2 million – an increase in the agency’s budget (for 2016) of just over two-thirds of 1% (0.67%). This slight increase is clearly not material,” she wrote.

Letter from Lucy Ito to House Fin. Services Cmte. Leaders on NCUA Board structure


Also this week, financial technology (fintech or “marketplace”) lending was under scrutiny in the House as the financial institutions subcommittee opened what Chairman Randy Neugebauer (R-Texas) said was the first in a series of hearings on the subject he intends to convene. In opening the session, Neugebauer noted that fintech shows signs of tremendous growth potential (estimated to be a $90 billion industry by 2020), but with identifiable challenges (including, whether or not a “limited national banking charter” should be established for “operational efficiency and regulatory clarity”). During the hearing, fintech providers argued for freedom to innovate (i.e., no more regulation needed), while financial institutions argued that the entities be subject to the same or similar regulation that they must comply with (such as the Community Reinvestment Act). During the hearing, witnesses pointed to two recent research projects developed at the federal and state levels that offer additional insights to marketplace lending: A white paper by the U.S. Treasury (published in May), and results of a survey of online consumer and small business financing companies by the California Department of Business Oversight (published in April). Reminder: fintech is the topic of a highlighted session at the Oct. 5-7 NASCUS State System Summit in Chicago.

Treasury white paper on marketplace lending
CA DBO survey results, growth of online lending
Agenda, NASCUS 2016 State System Summit (Oct 5-7, Chicago)


Legislation establishing a five-member board to govern the CFPB passed the House late last week, although the bill’s future is cloudy. The House passed (by a vote of 239-185) H.R. 5485, the Financial Services and General Government Appropriations Act (FSGG), which would (among many other things) change the leadership structure of the CFPB to a five-person board and also place the agency under the appropriations process. CFPB is now funded through the Federal Reserve. The measure would also require the bureau to: study the use of arbitration prior to issuing any new regulations; further analyze the proposed short-term, small-dollar lending rule; strongly consider the impact its rules have on small financial institutions including credit unions, and; support efforts to allow residential mortgages held in portfolio to be considered Qualified Mortgages under its lending rules. The bill’s future is murky, however; the White House has threatened a veto over some of the bill’s provisions, including restricting the IRS’s ability to enforce the Affordable Care Act.


Thinking about attending the 2016 State System Summit in Chicago Oct. 5-7? Consider yourself invited – by NASCUS President and CEO Lucy Ito. In a video distributed this week, the NASCUS leader discusses the key topics to be addressed at the three-day conference, the goals of the meeting, notes that it is the only national gathering focusing exclusively on the state credit union system, and focuses on the dynamics at play throughout the Summit: mutual exchange and dialog between state credit union practitioners and regulators. She also points out that those who register by July 31 save at least $100. Click on the image to view the video; for more information, including registration, click on the link below.

Lucy Ito video invite to the 2016 State System Summit
Information and registration for Summit

BRIEFLY: NCUA Board sets agenda; on the road with NASCUS

In its final gathering July 21 before taking its annual August break, the open meeting of the NCUA Board will consider its five-year strategic plan, participate in a 2016 mid-session budget board briefing, and hear a quarterly report on the share insurance fund … NASCUS representatives are on the road this week, to locations near and far, including: hosting in Marlboro, MA (with the Cooperative Credit Union Association) a Director’s College for credit unions in DE, MA, NH and RI; discussing in Washington, D.C., association goals and priorities for the state system – and key regulatory issues – during a planning session at Credit Union House on Capitol Hill, for Kemba CU of Cincinnati (facilitated by Ohio Credit Union League President and CEO Paul Mercer); briefing in Nashville the Credit Union Task Force of Tennessee Commissioner of Financial Institutions Greg Gonzales on NCUA rulemaking, and other important regulatory issues.

Information Contact:
Patrick Keefe, NASCUS Communications, [email protected] or (703) 528-5974

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