July 7, ’17 NASCUS Report

Four key changes for OTR outlined in summary of proposal

Four key changes to the methodology for determining the “overhead transfer rate” (OTR) of funds from the National Credit Union Share Insurance Fund (NCUSIF) to cover a percentage of the annual NCUA budget are outlined in a new summary published by NASCUS.

In late June, the NCUA Board issued a proposed rule designed to enhance the “transparency” of the OTR by, the agency stated, simplifying the rate’s methodology. Last year, the board set the 2017 OTR at 67.7% — meaning that funds from the insurance fund would cover a little more than two-thirds of the agency’s operating budget. The summary points out that NCUA is proposing four key changes for setting rate in the future:

  • Time spent examining and supervising federal credit unions would be allocated as 50% insurance related;
  • All time and costs that the agency expends in supervising or evaluating the risks posed by federally insured, state-chartered credit unions (or other entities, such as vendors or CUSOs) will be allocated as 100% insurance-related;
  • Time and costs related to NCUA’s role as charterer and enforcer of consumer protection and other non-insurance-based laws governing the operation of credit unions (such as field of membership requirements) are allocated as 0% insurance related;
  • Time and costs related to NCUA’s role in administering federal share insurance and the Share Insurance Fund are allocated as 100% insurance related.

“NCUA would use the above principles to categorize hours allocated in its budget in order to formulate a portion of the OTR,” the NASCUS summary points out. NASCUS President and CEO Lucy Ito pointed out that, under the these principles, the 2017 OTR would have been 60% — 770 basis points less than the current OTR of 67.7%, and 1,310 bp less than the 73.1% rate of 2016, the all-time highest.

NASCUS is developing its comment letter on the OTR proposal, with the intention of making it available in time for the state system to use as talking points for their own letters on the issue. “NASCUS and the state system have advocated for clarity and transparency about the OTR for two decades,” said NASCUS’ Ito. “This is really our chance to drive home the issue and our views; I urge as many credit union regulators and practitioners as possible to join us in filing comments.”

A 60-day comment period has been set by the agency for the proposed rule; comments are due Aug. 29.

NASCUS Summary: Proposed rule, NCUA Revised Overhead Transfer Rate Methodology

NASCUS’ history of the OTR


Condensing 14, three-column Federal Register pages into essentially four typewritten pages, the NASCUS summary of NCUA’s recently proposed rule on its appeal procedures gets down to the meat of the proposal while making clear that the proposal does not cover supervisory actions taken by state regulators – only those taken by federal supervisors.

But, the summary notes, the proposal does “homogenize” appeals processes covered in eight separate rules, in cases in which a decision rendered by a regional director or other program office director is subject to appeal to the Board. These kinds of decisions are regarded as “informal” decisions by NCUA. They include:

  • Part 709 Claims of a Creditor of an Insolvent FICU under an NCUA Alternative Resolution Dispute Process;
  • Payment of Claims Regarding Federally Insured Shares or Deposits;
  • Chartering and Field of Membership (which apply solely to federal credit unions);
  • Community Development Loans;
  • Golden Parachutes;
  • Investment Authority;
  • Change of Officials for Troubled or Newly Chartered Credit Unions;
  • Conversions and Mergers.

“Formal” agency determinations are not covered under the proposal, the NASCUS summary points out. Those formal determinations include Administrative Procedure Act (APA) adjudications, formal NCUA enforcement actions, prompt corrective action (PCA) orders, matters under jurisdiction of NCUA’s Supervisory Review Committee, creditor claims in liquidation, delegated final agency actions, others (such as FOIA requests).

The summary also notes that the proposal includes a new, recommended appeals rule, which establishes six new areas under section 746 of NCUA rules, covering such items as “request for consideration,” “appeal to the board,” and “procedures for an oral hearing.”

Comments are due on the proposal Aug. 7.

Summary: NCUA Appeal Procedures


The NCUA budget and its oversight by Congress are subjects that will be squarely in the crosshairs next week when Congress comes back from the Independence Day holiday period and resumes work on 2018 appropriations. On tap for next Thursday: House Appropriations Committee consideration of a bill that subjects the budget of NCUA, as well as other independent federal financial regulatory agencies (including the FDIC and OCC), to the annual congressional appropriations process.

For many states, legislative branch oversight of their credit union regulators’ budget is nothing new: 23 states (about half of the state agencies responding) reported in the 2016 NASCUS State System Profile that their legislatures have total or partial “final approval authority” over agency budgets. However, for the federal financial regulators – NCUA, FDIC, OCC, CFPB and the Fed – their budgets are not subject to legislative branch approval. The appropriations bill, if it becomes law, would mark the first time the federal credit union regulator, as an independent regulator, would face congressional budget approval.

When the Appropriations Committee considers the financial services and general government appropriations package as scheduled on Thursday (one of 12 spending bills that must be adopted by Sept. 30 to fund the federal government in 2018), it will likely hear concerns from both national credit union trade groups, the Credit Union National Association (CUNA) and the National Association of Federally-insured Credit Unions (NAFCU). “CUNA opposes bringing the NCUA under the appropriations process,” the group wrote in its Removing Barriers advocacy blog last week. “The money that funds the NCUA comes solely from credit unions and their members, not the taxpayers in general. Maintaining a separate, independent federal regulator and insurer is critically important to the credit union system, and the structural and mission-driven differences between credit unions and banks necessitate such a regulatory scheme.” NAFCU has likewise written that it opposes placing NCUA under congressional appropriations.

In addition to the congressional oversight of the budgets, the bill also contains provisions sharply limiting funding for the Community Development Financial Institutions (CDFO) Fund, and outright eliminates funding for NCUA’s Community Development Revolving Loan Fund (CDRLF). The credit union groups have advocated for full funding of both the CDFI and CDRLF.

2016 NASCUS State System Profile (members only)


Three, very large state-chartered credit unions – out of six federally insured credit unions with $10 billion or more in assets — would receive a “conditional exemption” from CFPB exam and enforcement authority under a request made Thursday by NCUA Board Chairman J. Mark McWatters. The NCUA Chairman noted in the request that the state chartered credit unions face triple examinations now, under state, federal and CFPB review. In a letter to CFPB Director Richard Cordray, McWatters requested the exemption for the very large credit unions to shift exam and enforcement authority from the consumer bureau to NCUA, citing “numerous benefits from the current system, in which credit unions face unnecessary examination burdens and aggressive punitive fees.

State-chartered credit unions covered under the request are BECU of Wash., State Employees Credit Union of N.C., and The Golden 1 Credit Union of Calif. Other credit unions that would be exempted (should CFPB grant it) are Navy Federal Credit Union of Va., Pentagon Federal Credit Union of Va. and, SchoolsFirst Federal Credit Union of Calif.

“Subjecting federally insured credit unions and their consumer/member owners to the dual examination—and, in the case of federally insured, state-chartered credit unions, triple examination—regime mandated under Section 1025 of the Consumer Financial Protection Act imposes unnecessarily burdensome costs, particularly given their positive, consumer-focused role,” he said. McWatters added that CFPB and the NCUA should work together, stating that, as prudential regulator of federally insured credit unions, NCUA owns a “broader arsenal of enforcement tools than is available to the CFPB, allowing the agency to take more targeted actions to protect consumers and address consumer financial protection law violations.”

NCUA Release: Chairman McWatters Asks Director Cordray to Exempt Largest Credit Unions from CFPB’s Examination and Enforcement Authority


Comments on extending certain provisions of the Jan. 1 applicability date of the fiduciary rule – which holds financial advisers to a “fiduciary standard” affecting how they may advise clients on retirement savings – are being sought by the U.S. Labor Department by July 21. Additionally, the agency is seeking additional comments (by Aug. 7) on other issues related to the rule, which went into effect June 9. Regarding an extension of the applicability date of the rule, the Labor Department wants to know if a delay from Jan. 1 would “reduce burdens on financial services providers and benefit retirement investors by allowing for more efficient implementation responsive to recent market developments.” The Labor Department also wants comments on whether a delay would carry any risk, whether it would be otherwise advantageous to advisers or investors, and views on costs and benefits associated with a delay.

Request for Information Regarding the Fiduciary Rule and Prohibited Transaction Exemptions


Restrictions on use of the words “bank,” “banker,” or “banking” by Canada’s credit unions and other non-bank financial institutions in their advertising or other messaging is leading to protests by local credit unions, who say the limits will make it difficult for them to compete fairly with banks. Under an advisory issued June 30 by the Canadian Office of the Superintendent of Financial Institutions, the nation’s Bank Act is interpreted strictly to bar use of the words by non-bank financial service providers – and could mean the Canadian federal regulator can bring charges against credit unions that use the terms in any form. The Canadian Credit Union Association, a trade group, estimates that, if credit unions are forced to comply, it could cost them up to $80 million to make changes, including creating and popularizing “new words” to describe and advertise credit unions. The federal regulator has proposed timelines for compliance with the advisory, including for converting websites, print materials and signage. Restrictions on use of the term “bank” is not limited to Canada: at least 15 states answered “no” in the 2016 NASCUS State System Profile to the question “May credit unions in your state use the term ‘banking’ in their advertising?”

CCUA release: Federal regulator bans use of “to bank” and “banking” by credit unions


NCUA has issued a legal opinion regarding federal credit union (FCU) authority to issue and sell securities, which is summarized by NASCUS. The opinion only applies to FCUs; federally insured state chartered credit unions (FISCUs) look to state law for authority to issue or sell securities. As of 2014, the last time NASCUS surveyed the question, 10 states allowed FISCUs to issue or sell securities and 19 states did not. The summary, available only to NASCUS members, looks at conclusions reached by the NCUA’s office of general counsel, as well as the current legal standard related to incidental powers and other issues.
Summary: NCUA legal opinion – Authority to issue and sell securities (members only)


If you’ve never seen someone get kinetic about cybersecurity, then you haven’t witnessed Jim Stickley. Luckily, you’ll have the chance to eyeball his energy – at the 2017 NASCUS State System Summit next month in San Diego (Aug. 29-Sept. 1, at the Westin Gaslamp Quarter Hotel). Stickley – who provided an energetic keynote speech at last month’s NASCUS/CUNA Cybersecurity Symposium (also in San Diego) – is one of the premiere cybersecurity experts in the nation. He has more than 20 years’ experience in the cybersecurity field and is CEO of Stickley on Security, a firm focusing on cybersecurity education and awareness solutions. Involved in thousands of security services for financial institutions, Fortune 100 corporations, healthcare facilities, legal firms, and insurance companies over the course of his career, Stickley is sought out as a consultant by news organizations such as Fox News, CBS and NBC networks, as well as the Associated Press, the New York TimesPC Magazine, Fortune and more for his views and commentary on cybersecurity. For more on the 2017 Summit next month in San Diego, see the link below … LATE BREAKING: NCUA Board Member Rick Metsger is confirmed to speak at the 2017 Summit; he’s tentatively scheduled to address the group Thursday, Aug. 31.

2017 NASCUS State System Summit/agenda, registration, speakers and more


Information Contact:
Patrick Keefe, NASCUS Communications, pkeefe@nascus.org or (703) 528-5974

For more information about NASCUS's news and/or public relations, please contact our Marketing and Communications Department.