THIS WEEK: CORONAVIRUS RESPONSE: State system shares resources … NCUA outlines strategies … Savings safe, scams noted … Private insurance ‘well positioned’ … BSA concerns, swindles addressed … Fed, FDIC take big actions … NASCUS events affected; SBA urged to exempt PICUs; Letter outlines MLA changes; BRIEFLY: Appraisal subcommittee cuts travel, deposit insurance claims debunked
As the coronavirus (COVID-19) has exploded around the country in terms of those infected and news coverage of the impact of the outbreak on the financial system, so has the response by the state system, federal authorities and others. Here’s a rundown of what’s happened (so far) this week:
State system shares resources to deal with pandemic …
A repository of guidance and updates related to the coronavirus (COVID-19) from various state regulators has been developed by NASCUS, with results posted on line at nascus.org. The information compiled is being used by fellow regulators and the state credit union system at large to share information and glean ideas.
“By sharing information across the states, the system is displaying its strength in working together, and showing its commitment to deal with this crisis head on for the state credit union system,” said NASCUS President and CEO Lucy Ito. “As each state regulator learns more about innovative and effective actions their colleagues take, the better for other states around the country.”
The list of items on the site so far includes letters to credit unions, guidance, orders, office closure forms, emergency declarations and updates on remote exams and telework. Resources from federal regulators – including NCUA, the Financial Crimes Enforcement Network (FinCEN), the FFIEC and more – are also linked to the page.
UPDATE: NASCUS is planning a conference call with all regulator and credit union members Wednesday, March 25 at 3 p.m. ET to discuss next steps for the state system with regard to the coronavirus crisis. Information about how to dial in to the call will be forwarded to members separately.
… NCUA outlines strategies to address outbreak …
Strategies credit unions may consider when determining how to work with their members to address the impact and challenges of COVID-19, the coronavirus, were outlined in a new letter to credit unions sent by NCUA early this week.
The letter also details the agency’s plans for in-person examinations at credit unions and its operational status, noting that – through March 30 – NCUA has mandated telework for headquarters and regional office staff “unless narrow exemptions are met.”
The letter, sent to credit unions from NCUA Board Chairman Rodney Hood, assures credit unions that agency examiners will not criticize a credit union’s efforts to “provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight.”
“The NCUA encourages credit unions to work with affected borrowers,” Hood wrote, amplifying similar messages issued by other federal regulators of financial institution. “A credit union’s efforts to work with members in communities under stress may contribute to the strength and recovery of these communities.”
Among the strategies Hood cited in his letter for credit unions to consider:
- Offer payment accommodations, such as allowing borrowers to defer or skip some payments, or extend the payment due dates, which would avoid delinquencies and negative credit bureau reporting caused by any COVID-19-related disruptions;
- Waive overdraft fees;
- Waive early withdrawal penalties on time deposits;
- Increase ATM daily cash withdrawal limits;
- Ease restrictions on cashing out-of-state and non-member checks;
- Offer or expand payday alternative loan (PAL) programs.
Regarding the agency’s exam and supervision program, the letter states that it is limiting that work “over the next couple of weeks” to offsite procedures only. A few exceptions for exigent circumstances will be made, the letter states. The agency added it will be evaluating that approach regularly and extending it as necessary.
In mandating telework, Hood’s letter stated that the agency “has a history of operating the agency from a telework posture.”
“We expect operations to proceed with little interruption. This includes processing credit union inquiries and requests such as regulatory approvals and field of membership expansions,” the letter stated.
… Savings safe, watch for scams, agency advises …
Savings in federally insured credit unions are safe and sound in the face of the financial impact of the coronavirus crisis, NCUA said Thursday, following in the footsteps of a similar message released the day before by the FDIC. Also, like its sister agency for banks, NCUA warned credit union members to “remain vigilant against” scams related to COVID-19.
“Federally insured credit unions offer a safe place for credit union members to save money,” the agency said. “All deposits at federally insured credit unions are protected by the National Credit Union Share Insurance Fund, with deposits insured up to at least $250,000 per individual depositor.”
The NCUA and FDIC notices came in the wake of reports that investors, and others, were withdrawing large amounts of cash from credit unions and banks. According to the Wall Street Journal, the withdrawals were often in affluent neighborhoods in Seattle, New York and other cities, where people have taken out sums sometimes reaching $100,000 or more. The Journal reported that the withdrawals seem to be motivated by financial-market tumult over the coronavirus pandemic.
(Another issue with the withdrawals: Currency is dirty, and easily capable of spreading the virus.)
The credit union regulator also warned that “cyber actors” may send emails with malicious attachments or links to fraudulent websites to trick victims into revealing sensitive information or donating to fraudulent charities or causes. “Exercise caution in handling any email with a COVID-19-related subject line, attachment, or hyperlink, and be wary of social media pleas, texts, or calls related to COVID-19,” NCUA advised.
Wall Street Journal: Some Bank Branches Run Low on Cash as Customers Make Big Withdrawals (subscription required)
… private savings insurance fund ‘well positioned’ …
Meanwhile, the private insurer of savings in some state-chartered credit unions said this week that it is “well-positioned to serve its member credit unions and their members.” American Share Insurance (ASI) said it has deployed its “four-step action plan” for addressing the coronavirus crisis. The plan focuses on: social distancing, postponement of all onsite field exams (using remote exams in lieu of those) scheduled for 30 days; continuous communication with member; quick response to member needs. The company noted that dealing with a pandemic outbreak has long been a component of the company’s contingency plan, updated every five years for the regulator in its home state of Ohio. The plan was last updated in November, ASI said.
… FinCEN advises on BSA reports, swindles …
Credit unions’ and other financials’ concerns, if any, about potential delays in their ability to file required Bank Secrecy Act (BSA) reports due to the impact of the coronavirus crisis should be reported “as soon as practicable” to state or federal regulators, the Treasury’s financial crimes unit said this week.
In a release, the Financial Crimes Enforcement Network (FinCEN) said it encouraged financials to keep it and their “functional regulators” informed as circumstances change.
The agency also alerted financials to scams and swindles being peddled to financial institutions and their members and customers. It advised institutions to be alert to malicious or fraudulent transactions similar to those that occur in the wake of natural disasters. FinCEN said it is monitoring public reports and BSA reports of potential illicit behavior connected to COVID-19, including those it described as:
- Imposter Scams – Bad actors attempt to solicit donations, steal personal information, or distribute malware by impersonating government agencies (e.g., Centers for Disease Control and Prevention), international organizations (e.g., World Health Organization [WHO]), or healthcare organizations.
- Investment Scams – The U.S. Securities and Exchange Commission (SEC) urged investors to be wary of COVID-19-related investment scams, such as promotions that falsely claim that the products or services of publicly traded companies can prevent, detect, or cure coronavirus.
- Product Scams – The U.S. Federal Trade Commission (FTC) and U.S. Food and Drug Administration (FDA) have issued public statements and warning letters to companies selling unapproved or misbranded products that make false health claims pertaining to COVID-19. Additionally, FinCEN has received reports regarding fraudulent marketing of COVID-19-related supplies, such as certain facemasks.
- Insider Trading – FinCEN has received reports regarding suspected COVID-19-related insider trading.
“Financial institutions are encouraged to review information from other relevant functional regulators as updates are available,” the law enforcement agency stated. “FinCEN will continue to monitor this situation and will release updated information for financial institutions as appropriate.”
The Financial Crimes Enforcement Network (FinCEN) Encourages Financial Institutions to Communicate Concerns Related to the Coronavirus Disease 2019 (COVID-19) and to Remain Alert to Related Illicit Financial Activity
… Fed lowers reserve ratios, FDIC seeks CECL delay …
Meanwhile, the Federal Reserve and other federal financial institution regulators were busy this week taking actions of interest to the state system related to the coronavirus crisis. Among those actions:
- Federal Reserve: After a rare Sunday meeting of the rate-setting Federal Open Market Committee (FOMC), at which the central bank lowered interest to near zero, the agency announced reserve requirement ratios would drop to 0%, effective next week (March 26, the beginning of the next reserve maintenance period). “This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses,” the Fed said. The Fed also lowered the discount window’s primary credit rate by 150 basis points to 0.25%, effective March 16; encouraged banks to use their capital and liquidity buffers as they lend to households and businesses who are affected by the coronavirus; and urged depository institutions to use intraday credit extended by Federal Reserve Banks, on both a collateralized and uncollateralized basis.
- The Fed also established liquidity facilities (or “backstops”), with support from the U.S. Treasury, to shore up commercial paper issuers, money market mutual funds, and primary dealers of investment vehicles.
- FDIC: Chairman Jelena McWilliams wrote to the Financial Accounting Standards Board (FASB) Thursday asking it to postpone implementation of the current expected credit loss (CECL) accounting standard for banks that are both now implementing the standard, and for those that are scheduled to do so (especially smaller financial institutions, including credit unions) by 2023. The FDIC also announced that, because of the financial impact triggered by the coronavirus crisis, it had suspended employee early retirement and separation programs announced March 5. The agency had earlier announced the separation and retirement of some 20% of staff as it worked to “reshape the agency’s workforce for the future and to enhance preparedness.” The agency announced no end date for the suspension of the early retirement/separation program.
… Events canceled for April-May
NASCUS has canceled its April and May events in several states due to the coronavirus crisis and in compliance with federal health authority recommendations to limit sizes of groups. The cancellations are for the Michigan Director’s College (April 7 in Battle Creek), the California Examiner School (April 13-17 in San Diego) and the NASCUS Ohio Credit Union Day (April 28 in Columbus). Further information on rescheduling the events, if possible, will be released later.
SBA urged to exempt PICUs from ‘supervised lender’ proposal
The federal agency that promotes lending to small businesses “clearly lacks a comprehensive understanding of the state regulatory system and the role state regulators play supervising credit unions” in its proposal to impose a variety of requirements on non-federally regulated lenders, including privately insured credit unions (PICUs), NASCUS wrote in a comment letter in opposition.
It its comment to the Small Business Administration (SBA), NASCUS wrote it opposes proposed changes to the agency’s rules that apply to “supervised lenders” which are supervised by state credit union regulators. Under the SBA’s proposal, “Non Federally Regulated Lenders (NFRLs)” would be required to: employ qualified full time professional management staff, restrict NFRLs to originating loans only in the state where their primary state regulator is domiciled, establish minimum capital requirements for NFRLs, require SBA Supervised Lenders to submit written Lender Assessment Plans (LAPs) as part of the application process, and codify the existing SBA policy requiring written approval of the SBA before any SBA Supervised Lender undergoes a change of ownership or control.
However, NASCUS wrote that the agency should exempt from the proposed rule non-federally insured credit unions and other entities supervised by state credit union agencies, for a variety of reasons including:
- State credit union regulatory agencies supervise credit union NFRLs in the same manner, with the same personnel, as they do the federally insured SBA credit union participants. State regulators also use the same examination platform and risk rating system as the federal credit union regulator.
- State regulators supervising the credit union NFRLs are members of the same regulatory network with primary supervisory authority over the nation’s two thousand state-chartered credit unions holding nearly half of the over $1 trillion in credit union assets. Together, state regulatory agencies supervise institutions with lending portfolios many magnitudes larger than the SBA’s lending exposure in the NFRLs supervised by the states.
- State regulatory agencies are familiar with credit union branch networks across multiple states and have years’ worth of experience supervising cross-border activities of their chartered entities.
- NFRLs supervised by state credit union regulators are already subject to similar capital, change in control, and professional management requirements as proposed by the SBA, specifically designed for financial institutions.
“We understand SBA’s attention to the safe and sound management of its lending program and agree that supervisory due diligence is essential as part of sound regulatory oversight,” NASCUS wrote. “In the case of SBA program participants supervised by a state regulatory agency, it is evident that a regulatory and supervisory framework is already in place that obviates the need to apply these proposed changes to credit union NFRLs.”
Letter outlines changes in MLA rule
A change in an interpretive rule for lending to members of the military is outlined in a “letter to credit unions” issued by NCUA this week.
The letter notes that on Feb. 28 the Department of Defense (DoD) amended its interpretive rule for the Military Lending Act (MLA) regulation. The MLA is meant to protect active-duty service members and their covered dependents from predatory lending practices. It established an interest rate cap of 36% on most consumer loans to members of the military and put other financial protections in place.
The change, NCUA said, withdraws a specific “question and answer” (Q&A) of the revised interpretive rule, issued in 2017, and reverts back to the Q&A from the original interpretive rule, issued in 2016. The change also adds a new Q&A from the original interpretive rule, issued in 2016.
According to NCUA, the DoD issued the original interpretive rule on Aug. 26, 2016, in the form of questions and answers. On Dec. 14, 2017, NCUA noted, the DoD issued a second, amended version of the interpretive rule which, among other things, amended Q&A #2. “In that amendment, the Department provided examples of the types of financed purchases associated with buying motor vehicles and other personal property that eliminate a transaction’s exemption from MLA coverage, and support other transactions as exempt from MLA coverage,” NCUA stated in its letter.
The letter states that, after issuing the second Q&A #2, the DoD became aware of concerns over the ability of creditors to take a security interest in motor vehicles, leading to the recent action.
“This most recent amended version of the interpretive rule withdraws the answer to Q&A #2 from the 2017 interpretive rule and reverts back to the original Q&A #2 issued in 2016,” NCUA advised. In the latest interpretive rule, NCUA stated, DoD notes that “this amended interpretive rule does not change the regulation implementing the MLA, but merely states the Department’s preexisting interpretations of an existing regulation.” The Department also noted this amendment will allow it to conduct additional analysis on the matters covered in that Q&A, NCUA stated.
BRIEFLY: Appraisal subcommittee curtails staff travel; phony claims about deposit insurance debunked
The FFIEC’s appraisal subcommittee has informed state regulators that it has curtailed all of its staff travel until April 30, a result of the COVID-19 outbreak. The agency said it is working to develop an alternate plan to conduct compliance reviews and other ASC business remotely for as long as is necessary … meanwhile, the FDIC Thursday demanded that a California-based precious metals trader immediately stop and correct advertising falsely claiming consumers’ FDIC-insured deposits are at risk of forfeiture. The agency claims that Monetary Gold of Woodland Hills, Calif., is engaging in a marketing campaign to sell gold products by falsely indicating that consumer’s insured bank deposits can be legally seized by banks. “These assertions are false,” the agency said. “Federal law is clear that in the unlikely event of a bank failure, customers’ insured deposits would be fully protected up to the $250,000 limit.”