THIS WEEK: Changes sought in bank purchase regulation … Key points stress state role; Regulator to consider proposed RBNW rule; Senate staffer tapped for NCUA Board … NASCUS, NCUA leaders send congrats; McWatters: $3 billion corporate payout coming; In one week, NCUA issues letters, alert, message; Webinar next week on crisis management; ON THE (VIRTUAL) ROAD: For PA, NJ; BRIEFLY: New SLC member named; Harper on economic equality, justice; Agency releases minority CU report; New staff member at NASCUS
NASCUS: ‘Significant changes’ necessary
for proposed bank purchase regulation …
“Significant changes” are needed to NCUA’s proposed regulation on credit union purchases of banks, NASCUS has written, to address a variety of issues.
The association filed an official comment letter this week on the “Combination Transactions with Non-Credit Unions; Credit Union Asset Acquisitions” proposed rule. NCUA has said the proposal, issued in January by the NCUA Board, is intended to “clarify and make transparent the procedures and requirements” the agency uses in transactions in which, for example, a federally insured credit union (FICU) proposes to assume liabilities from a non-credit union, including a bank.
NASCUS wrote that the proposal is well intentioned but needs changes. “The proposed rule fails to adequately distinguish between state and federal charters, ignores the practical business need for expeditious supervisory and regulatory approvals, has the potential to weaken board governance, and is in parts overly vague,” NASCUS wrote.
Most troubling is the extent to which the proposed rule “would usurp state authority” by reaching far beyond a reasonable safety and soundness nexus, the association said.
“Although NCUA asserts its authority to supplant state governance rules with respect to Combination Transactions we emphatically disagree that so doing is the proper course of action or within the spirit of the Federal Credit Union Act (FCUA),” NASCUS wrote.
NASCUS made it clear in its letter: “With respect to Combination Transactions, NCUA should more precisely craft a rule that provides greater autonomy for state regulators and state supervision.”
… Key points stress state role, authority
Among the key points the association made in its comments:
- State regulators should retain primary approval authority for federally insured state credit union (FISCU) combination transactions. NASCUS noted that an “overwhelming majority” of Combination Transactions involve acquiring credit unions that are FISCUs. “Between the year 2012 and the year 2018, 18 of the 20 credit unions that acquired bank assets and liabilities were FISCUs,” NASCUS stated. “Presuming the trend continues in comparable fashion, NCUA’s rule would have a disproportionate impact on FISCUs and the state system. For this reason, NCUA should be particularly sensitive to the need to precisely tailor rulemaking to address risk and to preserve the dual chartering system.” NASCUS stressed that FISCUs are state corporations governed by state law. “In the absence of NCUA’s proposal, FISCU Combination Transactions would be procedurally governed primarily by state rulemaking and state policy.”
- Approval required for combination transactions should focus on safety and soundness; other factors should be left to the states. NASCUS wrote that, in reviewing combination transactions, in many cases, state regulators not only review the acquiring credit union’s financial condition and management, but also conduct in-person examinations or review a recent report of examination of the non-credit union entity involved in the transaction. NASCUS wrote that NCUA should defer to state regulators for transactions involving FISCUs where the convenience and needs of the members to be served by the credit union are involved, and whether the acquiring financial institution is, in fact, a credit union.
- Timeframes for approval are essential for a rule. “Combination Transactions can be time sensitive business transactions,” NASCUS wrote, pointing to stock prices, investor views and timing issues related to the transaction. The association wrote that it strongly recommended the agency establish timeframes for supervisory approval, and look to FDIC rules and procedures for guidance.
Other points made by NASCUS:
- NCUA should clarify what transactions are covered by the proposed rule.
- Submission to NCUA should be streamlined and limited in the provision’s application to FISCUs.
- Requirements to prove eligibility for, and consent to, membership of an acquired financial institution should be left to the states for FISCUs.
- A requirement that a certification signed by each of the credit union’s directors that voted in favor of the combination transaction should not apply to FISCUs.
- Provisions applying to federal credit union membership should not be applied to FISCUs.
NCUA Board to consider proposed RBNW rule
A proposed rule on risk-based net worth (RBNW) will be considered by the NCUA Board when it gathers next week for its June open monthly meeting, according to an agenda posted by the agency this week.
In a March 2017 joint regulator report to Congress issued by the FFIEC, then-NCUA Board Chairman J. Mark McWatters noted that the agency intended to “substantially revise the risk-based net worth rule (RBNW).” Since then, the agency has taken a number of other steps, including early this year issuing a proposed rule on subordinated debt (which was also addressed as an “upcoming proposal” in the 2017 report). Comments are due July 8 on that proposal.
The NCUA Board will also consider:
- A briefing on NCUA’s Guaranteed Notes Oversight Program;
- A request for information on “Strategies for Future Examination and Supervision Utilizing Digital Technology;”
- A briefing on the Minority Depository Institution Annual Report;
- A final rule on technical amendments to agency rules.
The board is scheduled to meet (virtually, by phone) June 25 at 10 a.m. ET.
Senate staffer tapped for NCUA Board seat …
Kyle Hauptman, now a Senate committee staff aide and former member of President Donald Trump’s 2016 presidential transition team, would become the newest member of the federal credit union regulator’s board under an “intention to nominate” announcement made by the White House this week.
If confirmed by the Senate, Hauptman would replace current NCUA Board Member (and former chairman) J. Mark McWatters. His term on the board ended last August; he has been serving in a “holdover” status since then. Hauptman would serve the remainder of a six-year term which ends in August 2025.
According to a release from the White House, Hauptman is now staff director of the Senate Banking Committee’s Economic Policy subcommittee. He also serves, the White House said, as economic policy advisor to Sen. Tom Cotton (R-Ark.), a member of the Banking Committee. The White House said Hauptman worked on Trump’s 2016 Presidential Transition Team and was a policy advisor for financial services for 2012 Republican presidential nominee Mitt Romney during that campaign (Romney is now a U.S. senator from Utah).
Hauptman holds a B.A. from the University of California, Los Angeles (UCLA) and an MBA from Columbia University, the White House said.
McWatters joined the NCUA Board in 2014; in 2017, he was named “acting” chairman of the board; in June of that year, he was named permanent chairman. He held that position until last year when Trump named Rodney Hood, a new member of the board, to the chairman’s seat.
… congratulations offered by state system, Chairman Hood
NASCUS President and CEO Lucy Ito issued a congratulatory statement to Hauptman on behalf of the state system, as did NCUA Board Chairman Rodney Hood. “If he is confirmed, we look forward to developing a productive relationship with Mr. Hauptman and collaborating with him, NCUA Board Chairman Hood and Board Member Harper to ensure credit unions remain strong, competitive members of the financial services industry,” she said. Meanwhile, NCUA’s Hood said he looked forward to working with the intended nominee. “Kyle has significant experience in the financial services sector as well as the public policy arena, which will serve him well. If confirmed, I look forward to working with Kyle to ensure credit unions have the regulatory structure to meet the evolving needs of their members and serve as a vital component of the nation’s economic recovery following the COVID-19 pandemic.”
In parting words, McWatters indicates $3 billion payout coming
Some credit unions are on the cusp of receiving an estimated nearly $3 billion in distributions of membership capital, paid-in capital and liquidating dividends resulting from the liquidations of five failed corporate credit unions, outgoing NCUA Board Member J. Mark McWatters reminded them this week.
“It is my hope that the agency will begin making distributions to the former members of the failed Corporates as soon as is prudently and legally possible and will continue the distributions until the funds are exhausted,” McWatters wrote. “Today, during the pandemic, the former corporate members would no doubt welcome any such distributions.”
In a column published on news site CUToday.info, McWatters congratulated intended nominee to the NCUA Board Kyle Hauptman, who will take McWatters’ seat on the board if he is confirmed by the Senate. McWatters’ has been serving in a holdover capacity since his term expired last summer.
Later in the essay, McWatters stated he “was surprised to learn that some credit union leaders were not aware that the NCUA, hopefully, is nearing the point where it will begin remitting distributions to former members of the failed corporate credit unions – U.S. Central, WesCorp, Members United, Southwest, and Constitution.”
According to McWatters, the details of the payout were outlined in a year-end 2019 report on the NCUA website. The report was created in March and modified in May. The “Corporate Asset Management Estates Recoveries and Claims, as of 12/31/2019” report outlines the potential future distributions from the Asset Management Estates of the five failed Corporates.
It notes specifically that former members of four of the five failed corporates — U.S. Central, WesCorp, Members United, Southwest, and Constitution – would receive payments. Those include:
- Projected repayments of membership capital: U.S. Central, $1.666 billion; Members United, $493 million; Southwest, $404 million, and Constitution, $36 million.
- Projected repayments of paid in capital: Members United, $79 million.
- Projected potential liquidating dividends: Members United, $16 million; and Southwest, $299 million
The payouts total $2.99 billion.
McWatters was careful to note that the amounts were projected as of Dec. 31, 2019, and could change before any distributions are actually made. “In any event, these projected distributions will most likely exceed the distributions made from the merger of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) into the National Credit Union Share Insurance Fund (NCUSIF),” McWatters noted. Those distributions totaled nearly $736 million, beginning in July 2018.
NCUA ‘floods the zone’ with letters, alert, message
NCUA was busy this week releasing two letters to credit unions (about its plans to resume on-site operations, and on guidance in providing services to legal hemp-related businesses), a regulatory alert (on the CFPB’s remittance rule changes) and a message to all federally insured credit unions (urging them to participate in the Federal Reserve’s Main Street Lending Program, which is aimed at increasing the flow of credit to small- and medium-sized businesses).
- Phased-in on-site operation resumption planned
In its Letter to Credit Unions 20-CU-20, “Phased Approach to On-site Operations,” NCUA outlines its approach to resuming on-site operations, both at NCUA offices and at credit unions.
“In the transition plan’s first phase, we may begin conducting voluntary on-site examinations,” the agency wrote. “We will communicate specific implementation details before we begin the first phase. During the first phase, the NCUA will continue to encourage both field and office staff to work remotely when possible and has placed prudent limits on the number of staff working in our offices.”
Regarding staff returning to NCUA offices, the agency said it would implement social distancing and other precautionary measures in its offices to ensure the health and safety of its staff. “Additional precautionary measures will include the distribution of appropriate protective supplies to both field and office staff,” NCUA wrote.
The agency also said it would “continue to coordinate examination and supervision efforts with state supervisory authorities during this time.”
NASCUS has learned that the on-site transition plan may begin as early as July 6, and that the plan allows for flexibility to delay implementation to a later date, if necessary. Except for credit unions in troubled condition, onsite examinations are to be voluntary, and a credit union must agree and be able to physically host on-site activity safely. The NCUA regional director must also approve onsite exam activity; state rules and policies are to be respected.
- Letter offers guidance in serving hemp businesses
A list of 17 “frequently asked questions” about credit union service to legal hemp-related businesses is the focus of the letter to credit unions (20-CU-19) issued by NCUA this week, with the intention of providing additional information to credit unions that are serving or considering serving legal hemp-related businesses, the agency said.
Nearly a year ago, the agency said (in August 2019), it released a “regulatory alert” outlining legislative changes that changed the status of hemp under federal controlled substances regulations. The alert provided guidance to credit unions related to that status change.
In particular, the agency said the change meant credit unions would be able to provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp-related businesses within their fields of membership. “The information in this alert is intended to help credit unions better understand what they should consider in providing financial services to lawfully operating hemp businesses,” the guidance stated at the time.
The FAQs released this week outline some specific issues related to the law’s implementation for credit unions serving the hemp businesses.
For example, the FAQs point out that the interim rule issued by the Agriculture Department (USDA) does not mean that hemp may be legally produced in every state. “The 2018 Farm Bill did not preempt state or tribal laws regarding the production of hemp that are more stringent than federal law,” the letter states. “Further, hemp may be produced only under the 2018 Farm Bill with a valid USDA-issued license or under a USDA-approved state or tribal plan.”
More directly related to credit unions, the FAQs note that NCUA examiners in 2020 will be covering hemp. The examiners, the agency said, “will be collecting data through the examination process concerning the types of services credit unions are providing to hemp-related businesses. This data collection is intended only to help the agency better understand how it can assist credit unions serving hemp-related businesses.”
The letter also pointed out that credit unions do not need to file marijuana-related suspicious activity reports (SARs) on legally operating hemp businesses. That is, as long as the credit union “reasonably believes” the businesses are operating lawfully and the activity is not unusual for that business.
“Credit unions must remain alert to any indication an account owner is engaging in illicit or unusual activities and should follow current FinCEN guidance for filing regular SARs when they suspect the business is engaging in illicit, suspicious or unusual activity,” the letter states.
Other specific credit union-related issues covered in the letter included: Issues credit union boards should consider when evaluating whether to provide services to a hemp business; Whether a credit union may provide loans to a hemp-related business; Expectations of a credit union to ensure the hemp business it lends to is operating lawfully.
- Alert advises on CFPB remittance rule changes
The regulatory alert issued by the agency this week gives credit unions an overview of final remittance rule changes adopted in May and set to take effect July 21. The final rule, issued by the CFPB as amendments to Regulation E and published June 5 in the Federal Register, permanently provides “tailored” exceptions to remittance rule requirements for banks’ and credit unions’ disclosures of exchange rates and covered third-party fees. It also raises the safe harbor under the rule from 100 transfers annually to 500 annually.
In its Regulatory Alert 20-RA-05, NCUA provides an overview. Among the key details:
- If a credit union provided 500 or fewer remittance transfers in the previous calendar year and provides 500 or fewer remittance transfers in the current calendar year, that credit union is not considered to be providing remittance transfers in the normal course of business. Therefore, the credit union is not a “remittance transfer provider” and not subject to the remittance rule.
- Credit unions may disclose certain estimated third-party fees for a particular remittance transfer to a designated recipient’s institution under certain circumstances.
- the credit union made 500 or fewer transfers to the designated recipient’s institution in the prior calendar year;
- at the time the disclosures must be given, the credit union cannot determine the exact amount of the covered third-party fees that will be imposed on that particular transfer; and
- the remittance transfer is sent from the sender’s credit union account, provided the sender’s account does not include a prepaid account, unless the prepaid account is a payroll card account or a government benefit account.
- Credit unions may disclose an estimate of the exchange rate for a transfer to a country if:
- the remittance payment is made in the local currency of the designated recipient’s country;
- the credit union processing the transaction made 1,000 or fewer remittance payments to that country in the prior calendar year; and
- the credit union cannot determine the exact exchange rate for that particular remittance transfer.
- Credit unions may estimate third-party fees when another federal statute or regulation prohibits it from determining the exact amount of covered third-party fees, and the credit union meets the other conditions in the final rule.
The agency noted that the rule provides credit unions that exceed the thresholds in these new permanent exceptions a reasonable amount of time to come into compliance, not to exceed the later of six months after the applicable threshold is crossed or Jan. 1 of the following year.
- ‘Main Street’ can ‘assist members with minimal risk exposure’
In its message to credit unions (which wasn’t characterized as a “Letter to Credit Unions”), NCUA said that credit unions would be able to “assist their members during this difficult period with minimal risk exposure” by participating in the Main Street Lending Program (MSLP). The agency said loans made through the program will be offered as a participation; the Fed will provide 95% of the loan and the credit union will provide 5%. The credit union will service the loan, NCUA said.
“The NCUA encourages credit unions to participate in this program, if appropriate,” it said. Loans issued under the program have a five-year maturity, deferral of principal payments for two years, and deferral of interest payments for one year. NCUA said that loans range in size from $250,000 to $300 million.
Lenders must register to participate in the program. That registration program opened this week. Once they have registered, lenders become “eligible” to provide funding through the program. Eligible borrowers apply for loans by contacting an eligible lender. U.S. businesses may be eligible for loans if they have 15,000 employees or fewer; or the business had 2019 revenues of $5 billion or less.
Service to hemp, cannabis businesses topic for July 15 webinar
Speaking of service to hemp-related businesses: NASCUS is hosting a webinar on the subject next month, featuring a pioneer of credit union work with the industry. The July 15 NASCUS “Cannabis and Hemp: A Changing Landscape” webinar features Deirdra O’Gorman as leader of the 60-minute program. Starting at 2 p.m. ET, the webinar is planned to provide financial institutions with the latest updates on the cannabis and hemp industries. Scheduled topics to be covered include:
- Latest regulatory updates;
- The impact of Covid-19 on the industries;
- How these businesses are evolving and what financial institutions should start thinking about for their cannabis banking programs.
Cost for the program is $99 for NASCUS members, $199 for all others. For more information, including registration, see the link below.
Reminder: Webinar on crisis management next week
Just a reminder that on Tuesday (June 23), NASCUS hosts a webinar on managing a credit union during times of great uncertainty – particularly the unprecedented economic turmoil associated with the coronavirus crisis.
Titled “V, U, or L: The Role of Scenario Planning in Managing Through Great Uncertainty,” and presented by long-time credit union analysts and leaders C. Alan Peppers and John Lass, the one-hour webinar gets underway at 2 p.m. ET. Lass is president of Lass Advisory Services LLC; C. Alan Peppers is founder of CAP Advisory Services. Lass is a former senior executive for strategy and business development at CUNA Mutual Group (CMG); Peppers served as a credit union CEO for four decades.
The following week (on July 1) Lass and Peppers team up for another NASCUS-sponsored webinar, “The Future Has Arrived Early: Are We Ready for It?” That webinar is also set for 2 p.m. ET that day.
See the link below for more information, including registration.
ON THE (VIRTUAL) ROAD: Working with PA, NJ CUs
NASCUS Executive Vice President and General Counsel Brian Knight participated in webinars this week hosted by theCrossstate CU Association, focusing on credit union “reopening, returning, resuming” once the impact of the coronavirus crisis recedes. The CCUA counts as members credit unions in New Jersey and Pennsylvania.
BRIEFLY: MT regulator joins SLC; Harper targets economic, justice; Agency release minority CU report; New staff addition for NASCUS
Melanie Hall, commissioner of the Montana Division of Banking and Financial Institutions, is the newest member of the State Liaison Committee (SLC) to the FFIEC, the umbrella group for federal financial regulators said this week. She will serve a term that runs from May 1, 2020, through April 30, 2022. She joins the five-member SLC that includes Stephen Pleger, senior deputy commissioner, State of Georgia, Department of Banking and Finance. He is a former chairman of NASCUS and serves as the NASCUS-designated appointee to the council. Other members are: Chairman Greg Gonzales, commissioner of the Tennessee Department of Financial Institutions; John Ducrest, commissioner, Louisiana Office of Financial Institutions; and Tom Fite, director, Indiana Department of Financial Institutions … NCUA Board Member Todd Harper called last week for credit unions to take action to advance economic equality and justice. “To address long-standing societal problems of economic equality and justice, we need you to recommit to addressing these issues in your communities by finding ways to adapt your products and services,” Harper told the Illinois Credit Union League’s Virtual Town Hall Meeting … NCUA Friday issued its annual report to Congress detailing the financial condition of minority credit unions in 2019. The agency reported there are now 514 federally insured credit unions with the minority depository institution (MDI) designation in the country, serving 3.9 million members with assets of $40.5 billion – about 10% of federally insured credit unions. In the release, NCUA Board Chairman Hood also noted that today is Juneteenth, the celebration of which, he said, “compels all of us to do our part to advance the goal of greater financial inclusion for more Americans” … NASCUS welcomes to its staff this week Pamela Jordan, who serves as executive assistant to the association.
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