June 14, 2019 NASCUS Report

With rule delay, alt capital as background, agency to consider RBC proposal

A proposed rule on risk-based capital is the only item on the agenda for the NCUA Board’s regular monthly meeting next week in Alexandria, Va. No other details were provided by the agency in its agenda notice.

However, a new rule on risk-based capital for credit unions is due to take effect at the beginning of next year. In the past, agency leaders had expressed interest in combining the effective date of the new RBC rule with one addressing alterative capital (likely in the form of “subordinated debt”). However, new NCUA Board Chairman Rodney E. Hood has also recently signaled that the effective date of the RBC rule could be delayed (for at least a second time) to give the agency and credit unions more time to “further study and assess its real effects on the credit union system,” according to reports of Hood’s written responses to Senate Banking Committee members.

In the agency’s spring 2019 regulatory agenda published last month, NCUA indicated it expects to issue this summer a formal proposal on subordinated debt, which can be counted toward regulatory capital for purposes of risk-based capital for some credit unions.

In January 2017,NCUA issued an advanced notice of proposed rulemaking (ANPR) about alternative capital at credit unions. The ANPR, as NASCUS wrote in its summary in 2017, was in response to the agency’s commitment at the time to the credit union system to consider providing for the use of supplemental capital by “complex” credit unions to meet NCUA’s “prompt corrective action” (PCA) risk-based net worth requirements.

The 2017 ANPR gave the public 90 days to provide input on issues related to credit unions building capital from “alternative means.” Subordinated debt is one method for credit unions to consider in building additional capital.

In its official comment letter to the agency filed in May 2017, NASCUS wrote that the state credit union system supported NCUA’s proposal to issue a rule on alternative capital – and the agency should do so, because it’s the right thing to do. “It is incumbent on supervisory authorities to not just do the popular and the easy, but to also do what is right,” NASCUS President and CEO Lucy Ito wrote in the association’s 19-page comment letter on the proposal.

“As with NCUA’s derivatives rule, supplemental capital is the right thing to do. It is a potentially valuable ‘tool in the tool box’ of credit unions’ and regulators’ risk management, provides a capital buffer, and serves as a counter-cyclical means to maintain service to members,” Ito wrote. She also stated that NCUA should look to existing regulation found in state, federal and international regulatory regimes for instruction on shaping a rule.

Since then (last November, in fact), NCUA raised the “complex” definition threshold from $100 million to $500 million – setting the stage for the agency to re-consider limiting supplemental capital (in the form of subordinated debt, for example) to complex credit unions only, and allowing smaller, well-run credit unions to take advantage of such a program.

The NCUA Board meets in open session next Thursday, beginning at 10 a.m.; the meeting will be live-streamed via the Internet.

NCUA Board agenda, June 20, 2019

NASCUS Summary, Advance Notice of Proposed Rulemaking (ANPR), Alternative Capital (February, 2017)

NASCUS comment letter, 2017 NCUA Alternative Capital ANPR (May, 2017)

‘Stop, study’ CECL legislation emerges in house

Halting the implementation of the new accounting standard on current expected credit losses (CECL) until a study on the effects of the standard can be conducted is the aim of a House bill introduced this week that serves as a companion to a measure already pending in the Senate. The bipartisan measure, H.R. 3182, was introduced by Reps. Vicente Gonzalez (D-Texas) and Ted Budd (R-N.C.); it had 10 cosponsors as of mid-week. Text for the new House bill was not yet available. However, it follows a similar bill introduced in the Senate last month by Thom Tillis (R-N.C.). The Senate bill (the “Continued Encouragement for Consumer Lending Act,” S.1564) would require a quantitative study on the potential impact of the CECL standard. As introduced, the legislation would require regulators (including NCUA and others) to conduct the study.

Meanwhile (and separately) the House Appropriations Committee reported out a spending bill that called on federal financial regulators to study the impact of the CECL standard. The Financial Services and General Government (FSGG) Act for Fiscal Year 2020 also (among other things) allocates $2 million in funding for NCUA’s Community Development Revolving Loan Fund (CDRLF), and directs the credit union regulator to issue a report on its efforts to support and advance community development credit unions in low-income communities.

H.R. 3182, CECL ‘Stop and study’ legislation

Senate, House gear up to modernize AML/CFT

Use of transaction monitoring software, sharing of information and assurance that existing and future payment systems are covered under anti-money laundering and combatting financing of terrorism (AML/CFT) regimes are all envisioned under draft legislation released this week by senators for public comment. Sens. Mark Warner (D-Va.), Tom Cotton (R-Ark.), Doug Jones (D-Ala.) and Mike Rounds (R-S.D.) released the draft, which they say is aimed at reforming existing AML rules. The bill also requires the Treasury’s Financial Crimes Enforcement Network (FinCEN) to establish a “beneficial ownership” database, outlining who holds a stake (and benefits from that) in corporations. Comments are due by July 19, the bill’s sponsors said.

Meanwhile, the House Financial Services Committee Wednesday approved (on a vote of 43-16) the “Corporate Transparency Act of 2019” (H.R. 2513) introduced by New York Reps. Carolyn Maloney (D) and Peter King (R). The legislation would require corporations and limited liability corporations (LLCs) to disclose their true “beneficial owners” to FinCEN at the time a company is formed and in annual filings. Committee Chairwoman Maxine Waters (D-Calif.) said the bill is an effort to end “criminals’ ability to use anonymous shell companies to hide their money and illicit activities.”

Both legislative approaches are being taken by Congress in an effort to strengthen and modernize the AML/CFT compliance and enforcement framework.

NASCUS, along with the Credit Union National Assn. (CUNA), is sponsoring a four-day conference BSA/AML conference, Nov. 18-21 in Tempe, Ariz., which includes sessions on the Treasury’s Financial Action Task Force (FATF) and international AML/CFT standards.

H.R. 2513, the Corporate Transparency Act of 2019

CUNA BSA/AML Certification Conference with NASCUS

Committee votes to extend flood insurance program

The National Flood Insurance Program would be extended for more than five years under a bill passed unanimously Wednesday by the House Financial Services Committee. The bill (H.R. 3167) extends the NFIP to Sept. 30, 2024 and includes a number of reforms to increase affordability, improve mapping, enhance mitigation, and modernize the program, the committee leadership said. The committee also adopted (also unanimously) H.R. 3111, which makes what the committee called improvements to the program’s claims appeals and litigation processes.

In other action, the committee adopted a measure to requirs HUD to provide a 25-basis-point discount in upfront Federal Housing Administration (FHA) single-family mortgage insurance premiums for first-time-homebuyers who complete a housing counseling program to help them sustain homeownership. The bill, H.R. 2162, was approved on a vote of 53-6.

All three bills advance to the House floor for further consideration.

First bureau ‘symposium,’ on UDAAP, set for June 25

The first in a series of conferences “exploring” consumer protections in financial services will be held June 25, the CFPB said this week and will focus – as promised by the agency in April – on clarifying the meaning of abusive acts or practices under the law. The event, termed a “symposium” by the agency, will be streamed live via the Internet, the agency said.

The bureau’s release on the symposium this week was the first time since April that the agency revealed dates, times and details of one of its symposia; more future events are expected to be announced.

In a release, the bureau asserted that the meaning of “abusiveness” under the law establishing the agency’s powers to enforce the law, “is less developed than the meaning of unfair or deceptive, which have been defined substantially by the Federal Trade Commission Act.” The bureau said the symposium will provide a public forum for the bureau and the public to hear various perspectives on the meaning of abusiveness.

Under the Dodd-Frank Act, CFPB is authorized to take enforcement, supervision, and rulemaking actions concerning unfair, deceptive, or abusive acts and practices (UDAAP). But the meaning of “abusive” has been the subject of debate since the agency was given the power to enforce the law.

The bureau said two panels will be featured at the symposium, which gets underway at 9 a.m. at the agency’s headquarters, 1700 G St. NW Washington, D.C., and is scheduled to run to 12:30 p.m. CFPB Director Kathleen (“Kathy”) Kraninger, and Deputy Director Brian Johnson, are scheduled to address the event separately.

CFPB Symposium: Abusive Acts or Practices

Hood rejects CRA for CUs, while others tell Fed it’s needed

While NCUA Board Chairman Rodney Hood may reject the need for federal Community Reinvestment Act (CRA) application to credit unions, a new report issued by the Federal Reserve Thursday said banking industry and community investment representatives are avidly pushing to include credit unions under the law’s anti-redlining rules.

Participating in a “fireside chat” at the Cato Institute’s “Summit on Financial Inclusion” in Washington this week, NCUA Board Chairman Rodney Hood indicated credit unions should not be subject to federal CRA. The NCUA Chairman said the anti-discrimination law was a punitive measure enacted by Congress against banks in the wake of their redlining activities. “I do not believe that credit unions need punitive measures,” he said.

But the following day, the Federal Reserve released a summary of comments from its series of roundtables on CRA reform held between October of last year and this past January. According to the Fed, the roundtables drew more than 400 participants who shared views that, the Fed said, will factor into its consideration of any CRA modernization proposals.

Among the comments highlighted in the Fed summary: participants from both banks and community groups said they wanted to see CRA expanded to credit unions and other entities (including insurance companies).

“Many participants—both bankers and community stakeholders—noted that they would like to see the CRA expanded to apply to credit unions, insurance companies, financial technology companies, mortgage brokers, and other non-regulated and/or non-depository institutions,” the Fed summary states. The report notes that the bankers and community representatives called such an expansion “more fair” to banks that are now subject to CRA, and “would increase overall resources available to (low- and moderate-income) communities.”

Some states (such as Massachusetts and Connecticut) already have CRA requirements for credit unions on the books.

Perspectives from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act

Taking note of CU bank purchases, group vows state action

Recent acquisitions of banks by credit unions in Florida and other states have earned the ire of at least one banking industry national trade group, which announced a task force this week to study the purchases. The Independent Community Bankers of America (ICBA) also said it would be raising the issue with policymakers in state capitols and in Washington, pointing to credit unions’ tax preference as they purchase commercial banks.

The ICBA, in a release, cited figures from S&P Global (a data and news collecting organization) which the bank association said showed nine purchases of banks by credit unions over the past year. The association said the figures showed the total assets of acquiring credit unions was $24 billion, while assets of acquired banks totaled $2.3 billion. The ICBA charged that the purchases reduce income taxes to the federal government by “roughly” $3.9 million.

Cybersecurity conference looks at key issues

Credit union and regulator cybersecurity experts from across the nation gathered in Austin, Texas, this week for three days of discussions and presentations about the latest developments in cybersecurity. The conference, sponsored by NASCUS and the Credit Union National Assn. (CUNA), focused on techniques for hardening cyber defenses, enhancing cyber resilience, maintaining secure data and more. Among the key sessions noted at the three-day event by the nearly 150 participants on hand: Biometrics (in which palms of hands are scanned and used to authenticate users of organizations’ networks), training (for both employees and directors), and cybersecurity talent recruitment. Overall, the event featured more than 15 different cybersecurity experts from industries both within and without financial services, speaking on such topics as GDPR and CCPA compliance; emerging trends and threats; NCUA cyber tools; understanding CIS 20, and; cybersecurity risk assessment. NASCUS has hosted the cybersecurity conference either in full or in partnership with CUNA since 2014. Next year’s event is tentatively set for San Diego in early June.(In the photo, from left: NASCUS Executive Vice President and General Counsel Brian Knight, World Council of Credit Unions Vice President of Advocacy Andrew Price, and CUNA Chief Compliance Officer Jared Ihrig take time out at the cybersecurity conference before Price delivers remarks.)

NASCUS Education Agenda, 2019

BRIEFLY: Hearing to consider excise tax on fringe benefits

A repeal of the 21% excise tax on fringe benefits programs for executives at some not for profits – including credit unions – will be under consideration during a hearing next week in a House subcommittee. The oversight subpanel of the House Ways and Means Committee will consider proposals to repeal the tax, which some credit unions began paying this year on executive compensation plans. The hearing on the tax, implemented under the 2017 tax cut bill and which also affects items such as transportation and parking, gets underway at 2:30 p.m. on Wednesday.

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