June 28, 2019 NASCUS Report

First-ever, sold out cannabis symposium
gives state system broad view of issues

A sell-out crowd of nearly 170 including regulators, credit union practitioners, both the marijuana and hemp industries, “CannaTech” (cannabis technology) alternative payment providers, insurers, and other participants enjoyed a two-day – and first-time – conference this week on cannabis and financial services offered by credit unions to the businesses that sell marijuana, hemp, and related products.

The Tuesday-Wednesday NASCUS Cannabis Banking Symposium – the first-ever presented by the association — featured a dozen sessions about key issues for credit unions and regulators about doing business with the burgeoning cannabis industry (at least 11 states and the District of Columbia have legalized marijuana for recreational use for adults over 21 – and 33 states have legalized medical marijuana).

“The tax, legal, public health, public safety, local, state, and federal issues surrounding cannabis banking are complex and myriad,” said NASCUS President and CEO Lucy Ito. “This inaugural session by NASCUS cast a bright light on all of these subjects, answering questions and raising new ones for the participants. We look forward to hosting future symposia to help the state system address the issues surrounding the banking of cannabis businesses as those issues emerge and evolve.”

Among the session topics of the program (held in Universal City, Calif.): State cannabis legalization: today and tomorrow; the business cycle of cannabis; the role of technology in cannabis compliance; perspectives from credit unions and other financial institutions that serve the cannabis industry.

The program ended with a key session: To bank or not: checklist of considerations. The session noted that providing financial services to marijuana-related businesses remains illegal under federal law – but as state legalization spreads and matures, financial institutions will have to decide whether they are in, or out, of servicing the businesses.

(In the photos: (Left) NASCUS Executive Vice President and General Counsel Brian Knight opens the program with a brief rundown of the agenda, and background of financial services to marijuana-related businesses. (Right) A panel leads the packed crowd in a rousing discussion of top issues facing financial services providers and the cannabis business.)

Guidance, supervisory process best suited for loan compensation, NASCUS writes

A general regulatory framework supported by guidance, reliance on the supervisory process to curb bad actors, and clear identification of who among credit union employees is affected by proposed rules on compensation for loans are the top recommendations by NASCUS for the federal credit union regulator.

In its comment letter to NCUA about the agency’s advance notice of proposed rulemaking on compensation in connection with loans to members and lines of credit to members, NASCUS also urged the agency – as the association does consistently with rules affecting the state system — to consolidate the provisions applicable to state-chartered federally insured credit unions (FISCUs) in one place under the agency’s  share insurance rules for state credit unions.

A prescriptive, one-size-fits all approach for the loan compensation proposal is not effective for supervising loan-based incentive programs, NASCUS wrote. “Given the differences in credit union practices regarding loan-based incentive compensation, and the inherent nuances that distinguish a well-managed incentive compensation program from one that incentivizes inappropriate risk-taking, this is a subject better suited to guidance and supervisory review than to prescriptive rules,” NASCUS told NCUA.

State credit union practices in developing and structuring incentive-based compensation vary widely, NASCUS also wrote, which further complicates efforts to adopt an over-arching rule.

Asserting that the best approach for risk mitigation is a case-by-case analysis within a framework of guidance, NASCUS suggested three approaches for allaying any possible concerns about regulatory discretion:

  • publish the guidance and solicit comments before finalizing it;
  • explicitly clarify that supervisory findings related to incentive-based compensation are appealable under NCUA rules (part 746); and,
  • require NCUA to obtain concurrence of the state regulator before taking a supervisory action related to incentive-based compensation with a state credit union.

Specifying, and segregating, regulatory limitations that might apply to executive level staff as opposed to those that might apply to general management staff would also provide greater clarity, NASCUS wrote. “Regulatory limitations could also be distinguished based on the lending portfolio, recognizing that residential real estate, auto, and commercial lending present different underwriting vulnerabilities that might be exacerbated by an affiliated incentive-based compensation program,” the letter stated.

Incorporating provisions of the proposal affecting state credit unions, should it become final, into those parts of agency share insurance rules covering state credit unions should also be pursued, NASCUS wrote. “The current practice of incorporation by reference creates confusion among stakeholders,” the association wrote. “Incorporation by reference also creates an additional, and wholly unnecessary regulatory burden for FISCUs and examiners seeking to understand NCUSIF-related compliance obligations.”

NASCUS also advised NCUA to exempt from the proposal all FISCUs in a state that has state-specific limitations, regulations, or supervisory policies that address incentive-based compensation. “Many states have comparable rules intended to curb abuses in incentive-based compensation programs,” NASCUS reminded the agency. “NCUA’s rule should defer to state rules with NCUA’s prohibitions acting as a default in the event a state has not addressed incentive-based compensation.”


NASCUS Comments: Advance Notice of Proposed Rulemaking: Compensation in Connection with Loans to Members and Lines of Credit to Members

Bureau adds 3 months to HMDA data points comments

A three-month extension of the comment deadline on a proposed rulemaking about Home Mortgage Disclosure Act (HMDA) data points, as well as plans to reopen the comment period on HMDA coverage thresholds, were announced Thursday by CFPB.

The comment deadline on the data points proposal (issued as an advanced notice of proposed rulemaking (ANPR)) is now Oct. 15; it was July 8, the bureau said in a release Thursday. CFPB also said it will publish a Federal Register notice to reopen the comment period on certain aspects of that proposed rule. (The comment period on coverage thresholds closed June 12.)

“The extension will give interested parties an opportunity to review the Bureau’s annual overview of residential mortgage lending based on the HMDA data financial institutions collected in 2018, as requested by a variety of stakeholders,” the bureau said in its release. “In late summer, the Federal Financial Institutions Examination Council will release the national loan level dataset and the Bureau will release an overview of that dataset.”

The ANPR, issued on May 2, 2019, solicits comment on certain data points in the bureau’s October 2015 final rule that were added to Regulation C or revised to require additional information, and on coverage of certain business- or commercial-purpose loans. The bureau said that to facilitate additional comments based on the public’s review of the release of the national loan level data set, it will issue a Federal Register notice to reopen the comment period on certain aspects on its notice of proposed rule making relating to HMDA coverage thresholds.


CFPB Extends Comment Period For ANPR on HMDA Data Points

Agencies OK final funds availability rules, but delay effective date

The amount of funds credit unions and others must make available to their members and customers from checks deposited, as well as a revised threshold for determining whether an account has been repeatedly overdrawn, are set in amendments to federal rules affecting funds availability, released this week by the CFPB and the Federal Reserve, but that don’t take effect until July 1, 2020.

The agencies jointly published the amendments to Regulation CC (funds availability), which implements the inflation-adjustment requirement of the EFA Act under amendments by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

Under that provision, the funds-availability dollar amounts must be inflation-adjusted every five years, beginning after Dec. 31, 2011, by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For the adjustment methodology, the agencies proposed an adjustment every five years by the aggregate annual percentage increase in the Consumer Price Index for Wage Earners and Clerical Workers (CPI- W), rounded to the nearest multiple of $25 (the multiple amount provided by law).

However, the agencies said the adjusted amounts won’t take effect until next year. “To help ensure that institutions have sufficient time to implement the adjustments, the compliance date for the adjusted amounts is July 1, 2020,” the Fed and CFPB said.

Under the amendments, the inflation measurement period for next year’s adjustment begins in July 2011 and ends in July 2018. For dollar amount adjustments that are effective on July 1, 2025, the inflation measurement period begins in July 2018 and ends in July 2023.

For dollar amount adjustments that are effective on July 1 of every fifth year after 2025, the inflation measurement period begins in July of every fifth year after 2018 and ends in July of every fifth year after 2023, the agencies stated.


Agencies issue final amendments to Regulation CC regarding funds availability

UDAAP uncertainty bars compliance, bureau leader asserts

Uncertainty over the parameters of “abusiveness” in federal consumer protection law creates impediments to innovation and other helpful developments in the marketplace, according to CFPB Director Kathleen (“Kathy”) Kraninger. That, she said, makes it harder for businesses desiring to comply with the law do so.

In opening the first of the CFPB’s symposia series on key topics this week, Kraninger said the bureau’s authority to protect consumers from unfair, deceptive, or abusive acts or practices — or “UDAAP” – is “a fundamental and critical responsibility.” But, she asserted, “abusiveness” – which was added to federal law in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) – lacks a “long and rich history” under legal definitions. She said that stands in contrast to 80 years of authority by the Federal Trade Commission (FTC) to address unfair and deceptive acts and practices that harm consumers.

“Statutory language, regulations, agency policy statements, and a substantial body of case law have clarified the metes and bounds of these concepts” of unfair and deceptive acts and practices, she said. “Over time, this has provided reasonably clear standards for market participants to use in assessing whether their own conduct comports with laws prohibiting unfair and deceptive acts and practices.

“’Abusiveness’ is somewhat different,” she said.

Kraninger said the CFPB’s symposia “will help inform the bureau’s thinking as to whether the bureau should use its rulemaking or other tools to provide clarity about the general meaning of abusiveness—and, if so, which principles should be applied to determine the scope of abusiveness.”

In later remarks, bureau Deputy Director Brian Johnson said future symposia sponsored by the bureau would look at behavioral law and economics, small business loan data collection, disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.

Kraninger Speech at the Abusive Acts or Practices Symposium

Bill would give states power over national banks

State attorneys general would be able to conduct oversight of national banks for compliance with state financial protection law, extending the ability of the states to issue subpoenas, examine records and interview executives of federally chartered banks, under legislation now in development in both the Senate and House.

The Accountability for Wall Street Executives Act (being developed by Sen. Kamala Harris and Rep. Katie Porter, both D-Calif.) would amend a 2009 Supreme Court decision that gave the OCC exclusive rights to conduct oversight of federally chartered banks. Specifically, the legislation would give state attorneys general the ability to issue subpoenas for violations of real estate lending laws and require national banks to comply with state financial protection laws, both in an effort to head off another subprime mortgage crisis (such as that in the late 2000s). The bill makes no reference to credit unions or their regulation.

In a press release, Harris outlined key provisions of the proposal, including that it is designed to:

  • Clarify that state attorneys general have “visitorial” authority to conduct oversight of federally-chartered national banks by issuing subpoenas to inspect bank records and interview bank executives.
  • Repair language in the National Bank Act that the Supreme Court interpreted as limiting the “visitorial” powers of state law enforcers when addressing compliance with state law by national banks.
  • Permit subpoenas (upon request) for suspected violations of real estate lending laws; requiring specific information pertaining to loans, services, and products offered from the bank in question. With this subpoena power, genuine law enforcement becomes possible.
  • Ensure there will always be at least two “cops on the block” to “ensure federally-chartered banks are complying with state financial protection laws and avoiding the kinds of risky bets that would contribute to another financial crisis like the mortgage scandal that caused the Great Recession.”

Similar legislation was introduced in the Senate in 2017.

Sen. Harris press release: Harris, Porter Announce Bill to Empower State AG Enforcement of Banks

Summit plans 18 hours of key sessions; make those SF hotel reservations!

More than 18 hours of educational sessions covering a wide variety of topics of specific interest to the state credit union system are planned for the Aug. 13-16 NASCUS State System Summit in San Francisco.

The Summit’s headquarters is the Westin St. Francis San Francisco on Union Square.

The Summit – the annual conference for NASCUS which brings together credit union regulators and practitioners in a unique event for mutual exchange and dialog – explores 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.

In addition, NCUA Board Chairman Rodney will address the Summit (just last week he announced his commitment to ensure that a subordinated debt proposal for credit unions is taken up by NCUA Board by the end of the year; NASCUS has supported capital reform for U.S. credit unions for over 20 years). And, he 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. (A white-labeled product is a product or service produced by one company (the producer) that other companies (the marketers) rebrand to make it appear as if they had made it.)

Registration for the 2019 NASCUS State System Summit is open until Aug. 13. However, the deadline for Summit-rate reservations at the Westin St. Francis hotel is July 12. For more information about that, as well as registration and the Summit agenda, see the links below.

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

NASCUS State System Summit 2019

More credit unions, leagues see value in NASCUS

NASCUS welcomes a strong group of new (and returning) credit union members, and associate credit union league members this week, including:

  • Arizona Central, Phoenix, Ariz., with $510 million in assets and 58,000 members; Todd Pearson is president and CEO;
  • First Credit Union, Chandler, Ariz., with $480 million in assets and 43,000 members; Jay Curtis is president and CEO;
  • Altura Credit Union, Riverside, Calif., with $1.4 billion in assets and 134,000 members; Jennifer Binkley is president and CEO;
  • Universal City Studios Credit Union, Burbank, Calif., with $70 million in assets and 6,000 members; Tom Ott is president and CEO;
  • Westerra Credit Union, Denver, Colo., with $1.5 billion in assets and 120,000 members; Jay Champion is president and CEO;
  • GEMC Credit Union, Tucker, Ga., with $128 million in assets and 12,000 members; A / Denise Swan is president and CEO;
  • San Mateo Credit Union, Redwood City, Calif., has returned to membership; the credit union holds $1.1 billion in assets and counts 92,000 members; Wade Painter is president and CEO.

In addition, the state leagues in Maine (Todd Mason, president and CEO), Nebraska (Scott Sullivan, president and CEO) and New Jersey (David Frankil, president and CEO) have joined the association.

About NASCUS: membership, background, more

BRIEFLY: Non-member shares proposal may prompt states; NCUA marks 85thyear of FCU Act

NCUA’s recent proposal on non-member deposits (which is open for comment until July 29) could lead to higher thresholds among the states, NASCUS President and CEO Lucy Itotold a trade publication this week. Most states have some type of federal parity provisions, meaning many states will also increase their thresholds for nonmember deposits if NCUA adopts the proposal, Ito pointed out. “As such, final approval of NCUA’s proposed threshold increases could definitely lead to increased thresholds in those states where a lower threshold is in place, especially where a state already mirrors NCUA’s limits on non-member shares,” Ito told the Credit Union Journal, a trade publication … It’s been 85 years since the federal credit union system was started, the result of the signing into law by President Franklin Rooseveltthe Federal Credit Union Act (on June 26, 1934), and NCUA marked the occasion this week with what it called “ a digital outreach initiative, ‘85 Years of Community, Service, and Savings.’” The agency said its outreach includes a commemorative page on NCUA.gov, tracing the history of the FCUA, the agency, and the credit union system.

NASCUS Summary: NCUA Proposed Rule Part 701 and Part 741, Unit and Nonmember Shares

NCUA FCU Act 85th anniversary commemorative page

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