THIS WEEK: NCUA Board offers relief on PCA … but consultation with states a must; Joint accounts proposal issued, overdraft rule tabled; No failures in Q1 — CAMEL 4s, 5s down; Letter outlines CLF scope, reach; New HMDA reporting rules outlined; ‘Culture, diversity, inclusion group launched; CORONAVIRUS RESPONSE – Comment lists 6 PPP recommendations … Medical scams, BSA filings detail … Call for small-dollar loans repeated … PPP loans may be reported; ON THE ROAD: In IL (virtually); BRIEFLY: Video explains debit card for EIP; Comptroller steps down; have a terrific Memorial Day!
Board votes for relief on PCA rule,
waiving earnings retention for some
Approval of an interim final rule waiving the earnings retention requirement for a credit union that is adequately capitalized under prompt corrective action (PCA) rules was among the actions taken by the NCUA Board at its meeting Thursday.
The regular monthly board meeting for May, held remotely via audio only, also featured the issuance of a proposal of an alternative method to satisfy signature card requirements for joint access to share accounts, and an unusual tabling (for lack of a second) of an interim final rule on overdraft policies for federal credit unions. The board also heard an update on the share insurance fund
In the interim final rule (IFR) on PCA, the board approved a temporary modification of its rules to, it said, ensure that federally insured credit unions (FICUs) “remain operational and liquid during the COVID-19 crisis.” More specifically, the agency said, the IFR makes two temporary changes to the NCUA’s prompt corrective action (PCA) regulation, waiving the earnings retention requirement for any credit union that is adequately capitalized, and modifying agency rules with respect to net worth restoration plans (NWRPs) for FICUs that become undercapitalized.
The temporary changes, which take effect upon publication in the Federal Register, will be in place until Dec. 31, the agency said.
Under the changes to PCA requirements, NCUA said, federally insured credit unions (FICUs) will see a reduction in the earnings retention requirements associated with a temporary increase in shares, as long as the credit unions are adequately capitalized (or better). The rules, until now, had provided that a credit union classified as adequately capitalized or lower must increase the dollar amount of its net worth quarterly by an amount equivalent to at least 1/10th of 1% of its total assets and must quarterly transfer at least that amount (for a total of 0.4% annually) from undivided earnings to its regular reserve account every quarter until it is “well capitalized.” The IFR removes that requirement.
“In response to the COVID-19 pandemic and resulting economic disruption, the Board has determined that it is appropriate to amend §702.201 (of NCUA rules) temporarily to provide express regulatory authority for the Board to issue a single order waiving the earnings retention requirement for all FICUs that are classified as adequately capitalized during this time, subject to the applicable Regional Director retaining authority to subsequently require an application if a particular FICU poses undue risk to the NCUSIF or exhibits material safety and soundness concerns,” the agency said.
As for the NWRPs, the agency is waiving net worth restoration plan content requirements for FICUs that become classified as undercapitalized (that is, have a net worth ratio of between 4% to 5.99%), mostly because of share growth. “In these cases, the FICU may submit a significantly simpler net worth restoration plan to the applicable Regional Director noting that the FICU fell to undercapitalized because of share growth,” the agency said.
A FICU would be required to show that its reduction in capital was caused by share growth and that such share growth is a temporary condition due to the COVID-19 pandemic, the agency said.
“Federally insured, state- chartered credit unions must comply with applicable state requirements when submitting NWRPs for state supervisory authority approval,” NCUA pointed out.
NASCUS’ Ito: Agency must consult with states on PCA
While the state system gets it that rapid relief from NCUA’s net worth requirements is needed for credit unions as their members flood savings accounts with money from stimulus checks, PPP loan disbursements and just a flight to safety, according to the law the agency still must confer with state supervisors when changing the rules, NASCUS President and CEO Lucy Ito said in a statement.
“Twenty years ago, NCUA and state credit union regulators jointly crafted the PCA framework which has withstood the test of time partly due to federal-state coordination,” Ito said. “State credit union supervisors stand ready, again, to collaborate with the agency as required by the Federal Credit Union Act.”
Ito said the state system agrees that relief from net worth requirements is appropriate if declines are a result of growth in shares related to the COVID-19 crisis. However, she added, “while NASCUS understands that the current crisis has motivated NCUA to move swiftly, NASCUS also reminds the agency that under Sec. 1790d of the Federal Credit Union Act, the agency is required to consult with state credit union supervisors on PCA matters.”
Board issues joint accounts proposal, tables overdraft change
In other action at Thursday’s open meeting, the board:
- Issued a proposed rule on joint share accounts, providing an alternative method to satisfy the membership card or account signature card requirement (the so-called signature card requirement). Under the proposal, NCUA said, the requirement could be satisfied by information contained in the account records of the insured credit union establishing co-ownership of the share account, such as evidence that the credit union has issued a mechanism for accessing the account to each co-owner or evidence of usage of the share account by each co-owner. The proposal, which is similar to one made final by the FDIC earlier this year, will be subject to a 30-day comment period.
- Tabled an interim final rule that would have modified permanently some written overdraft policies at FCUs. Neither Board Members J. Mark McWatters or Todd Harper would offer a second to Hood’s motion to adopt the rule. The rule would have removed the requirement that an FCU’s written overdraft policy establish a time limit of no more than 45 days for a member to either deposit funds or obtain a loan from the credit union to cover each overdraft. That would have been replaced with a requirement that the written policy establish a specific time limit “both reasonable and applicable to all members” for a member either to deposit funds or obtain an approved loan from the credit union to cover each overdraft. Harper opposed the rule on its face, saying it would (among other things) allow credit unions to garnish members’ income – including any economic stimulus relief funds – to pay off overdraft debt, and that the rule would be permanent (not sunsetted). McWatters largely objected to the regulation being issued as a final interim rule, rather than as a proposed rule with a 30-day comment period. He said there was no safety and soundness reason to justify the IFR (or immediate adoption) approach on the rule – and that no “meaningful constituencies” of credit unions and their members had specifically requested the board to consider the issue. Delaying the rule for 30 days “is the right thing to do for the right reasons,” McWatters said, noting that the rule affects the relationship between credit unions and their members, and therefore deserves careful consideration.
No CU failures in Q1, CAMEL 4-5s down
There were no credit union failures in the first quarter of the year, the number of credit unions rated with lowest exam scores dropped (relatively to the previous quarter), and those with the highest scores remained steady (for about four in every five credit unions). according to a report given to the NCUA Board Thursday.
Acting NCUA Chief Financial Officer Eugene Schied told the three-member board that the number of CAMEL 4-5 credit unions at the end of the first quarter was 175, down from 190 at the end of last year. The first quarter number is the lower than the year-end numbers for the last six years, according to information shared with the board.
That CAMEL 4-5s accounted for 3.3% of all 5,206 FICUs according to the NCUA figures at the end of the first quarter, with most (88%) under $100 million in assets. (The agency also reported that there were three FICUs of more than $500 million in assets rated 4-5, totaling about $4.2 billion in assets). CAMEL 1-2 FICUs made up 81% of FICUs – about the same as year-end 2019, and account for 96.6% of all assets.
However, NCUA officials indicated many of those figures are likely to change, as the financial impact of the coronavirus crisis, which became apparent mostly in the latter part of March (and continues through now), affects members and credit unions. However, the officials indicated that the insurance fund, and credit unions, are well positioned to deal with the economic effects of the crisis.
Letter notes new scope of CLF reach
NCUA’s Central Liquidity Facility (CLF) will be able to borrow more than $13 billion to meet the liquidity needs of the 3,700 eligible credit unions through this year-end under membership subscriptions enabled under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the agency announced in a Letter to Credit Unions May 11.
The statute, enacted March 27, temporarily permits corporate credit unions to become agent members of the Central Liquidity Facilty (CLF) for a subset of their members, as explained in the letter (20-CU-14) signed by NCUA Chairman Rodney Hood. He reported that all 11 corporates have joined the CLF as agent members, effective immediately. The institutions, the letter noted, have purchased CLF capital stock for their member credit unions having assets of less than $250 million. That means, the letter states, that all credit unions with assets of less than $250 million and that are members of a corporate credit union are now eligible to apply for a loan from the CLF.
The corporates’ joining the facility extended CLF coverage to more than 3,700 credit unions and increased the CLF’s borrowing capacity by over $13 billion, the agency letter notes. (Preliminary financials for the CLF showed the facility had $7.5 billion in such authority as of this Feb. 29.)
NASCUS has developed a summary of the letter; see the link below for more information.
NCUA Letter 20-CU-14
New HMDA data reporting thresholds outlined
Changes in home mortgage data reporting thresholds for credit unions – particularly those institutions now excluded from sharing data — under amended final rules implementing the Home Mortgage Disclosure Act (HMDA) are outlined in a “regulatory alert” issued by NCUA late last week.
In its Regulatory Alert 20-RA-04, NCUA focuses on of the amended, final HMDA rules issued by the Consumer Financial Protection Bureau (CFPB) May 12. Under the amended rules, the threshold for collecting and reporting data about closed-end mortgage loans increases from 25 to 100, effective July 1, 2020. The final rule also increases the threshold for collecting and reporting data about open-end lines of credit, from 100 to 200, effective Jan. 1, 2022 (when the current temporary threshold of 500 open-end lines of credit expires).
NCUA noted that the final rule does not change the 2020 institutional asset size threshold. Credit unions with total assets less than or equal to $47 million as of Dec. 31, 2019, are not subject to HMDA in 2020
The agency’s notice focused on three areas of the amended HMDA reporting rules: Collecting, recording and reporting. More specifically:
- Collecting: Credit unions newly excluded from HMDA data reporting can stop collecting HMDA data on their closed-end mortgage loans beginning July 1, 2020. “Please note that other laws or regulations may require credit unions to collect data on home loan activity,” the agency said. “For example, Regulation B requires lenders to collect information regarding an applicant’s ethnicity, race, sex, marital status, and age when credit sought is primarily for the purchase or refinancing of a dwelling that is, or will be, the applicant’s principal residence and will secure the credit.”
- Recording: Newly excluded credit unions, the agency said, must still record closed-end data for the first quarter of 2020 on a loan/application register no more than 30 calendar days after the end of the first quarter. “However, they will not be required to record closed-end data for the second quarter of 2020 because the deadline for recording that data is after July 1, 2020,” NCUA said.
- Reporting: Because newly excluded credit unions collecting HMDA data in 2020 would not otherwise report this data until early 2021, the final rule relieves these credit unions of the obligation to report by March 1, 2021, data collected in 2020 on closed-end mortgage loans (including data collected in 2020 before July 1, 2020), NCUA said. “Under the final rule, a newly excluded credit union may voluntarily report HMDA data on closed-end mortgage loans in 2021 as long as the credit union reports data for the full calendar year 2020,” the agency pointed out.
On the open-end threshold (which effectively drops from 500 to 200 open-end lines of credit as of Jan. 1, 2022), the agency alert noted that, beginning in 2022, credit unions that originated at least 200 open-end lines of credit in each of the two preceding calendar years must collect and record HMDA data on their open-end lines of credit and report that data by March 1 of the following calendar year.
“Credit unions should read the provisions of the final rule and Regulation C to determine the potential effects on their operations,” NCUA advised. “The current version of Regulation C will not be updated until the effective dates of the amendments.”
NASCUS has published a summary of this regulatory alert too; see the link below for more information.
Agency launches new ‘culture, diversity, inclusion’ council
Issues of inclusion within NCUA are the focus of a new council at the agency, launched this week. NCUA Board chairman Rodney Hood, announced the new Culture, Diversity, and Inclusion Council in November. At the time he said it would serve an “important advisory and policy-making role within the agency to ensure that inclusion and equity are top priorities.” At last fall’s announcement, he did not say when the council would get to work, or who its members would be.
In remarks last week to the council’s kick-off meeting, Hood said he wanted the agency to “have a work environment where every employee can bring their true and authentic selves to work each and every day.”
Membership of the council was not specifically listed by the agency in its release this week(although Hood commended the agency’s Chief Human Capital Officer and Director of the Office of Human Resources, Towanda Brooks, and Office of Minority and Women Inclusion Director, Monica Davy, “for their leadership on the council”). However, according to the release, the council’s first activity is an agency-wide survey to examine the NCUA’s current organizational culture and to identify areas for improvement.
Improvements for PPP outlined in six recommendations …
The program designed to help businesses protect their employee payrolls during the coronavirus crisis should be improved to assist state regulators and credit unions, NASCUS wrote to the administrator of the program last week.
In its official comment letter to the Small Business Administration (SBA), which administers the Paycheck Protection Program (PPP), NASCUS urged the SBA to establish rules that are easy to understand and implement. “Of course, the PPP and its particular restrictions on the use of loan proceeds and loan forgiveness calculations are going to be unfamiliar to lenders and borrowers,” said NASCUS Executive Vice President and General Counsel Brian Knight. “Credit unions and the credit union system stakeholders have worked diligently at the retail level to implement the PPP. We urge the SBA to expeditiously publish the rules needed to move forward with successful implementation of the remainder of the program.”
The association recommended six specific enhancements for the agency to consider:
- Promulgate promptly rules governing the SBA’s forgiveness of qualifying loans and the parameters of the loan forgiveness must be easy for borrowers to understand and lenders to implement;
- Recognize that non-federally insured credit unions are safe, sound, and closely supervised and should be included as eligible lenders;
- Require lender concurrence of the use of borrower agents as a prerequisite for payment of fees;
- Create safe harbors for lenders acting in good faith to implement elements of the PPP where guidance was lacking at the time of the lender’s decisions;
- Amend provisions of the IFR to include specific instructions, metrics and references to forms needed to administer the PPP
- Reorganize and codify as a single regulation for ease of reference the current IFR, the pending IFR on loan forgiveness, all other modifying rules, and existing PPP specific guidance.
FinCEN details medical scams, filing under BSA …
Calling attention to medical scams related to the coronavirus crisis, and detailing filing instructions for financial institutions reporting pandemic-related criminal and suspicious activities (including Bank Secrecy Act (BSA) obligations), are aims of advisories issued this week from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The advisory calls attention to what the agency calls “rising medical scams related to the COVID-19 pandemic.” “This advisory contains red flags, descriptions of COVID-19 related medical scams, and information on reporting suspicious activity,” the FinCEN notice states. “This is the first of several advisories FinCEN intends to issue concerning financial crimes related to the COVID-19 pandemic.”
The notice asserts that several federal agencies have detected fraudulent COVID-19-related cures, tests, vaccines, and associated services being offered to the public. Examples of fraudulent medical services, the agency said, include: claims related to purported vaccines or cures for COVID-19; claims related to products that purportedly disinfect homes or buildings; and the distribution of fraudulent or unauthorized at-home COVID-19 tests. “Some of these scams may be perpetrated by illicit actors who recently formed unregistered or unlicensed medical supply companies,” the agency said.
Regarding filing instructions to meet BSA obligations, the notice urges financial institutions to monitor FinCEN’s websites for updates concerning BSA obligations related to the pandemic. It also recommends that financial institutions “should not include in the suspicious activity report (SAR) narrative their challenges during the pandemic; the SAR narrative should include COVID-19 when it is tied to suspicions activity only.”
However, FinCEN said, filers who have already included references to COVID-19 in matters not related to the pandemic do not need to file corrected reports.
The notice also advises on provision of SAR supporting documentation to law enforcement and FinCEN; information sharing; reporting COVID-19-related criminal activity; and response and recovery of funds.
Agencies repeat call for small-dollar loans …
NCUA joined federal banking regulators this week in releasing a set of interagency lending principles to encourage institutions to offer responsible small-dollar loans to customers “for consumer and small business purposes,” noting the important role of such lending in periods of economic stress and other circumstances “such as the public health emergency created by COVID-19.”
The agencies said in a joint statement that they recognize the important role such lending can play in helping customers meet ongoing needs amid such crises. They said responsible small-dollar loan programs generally reflect a high percentage of customers successfully repaying their small dollar loans in accordance with original loan terms, “a key indicator of affordability, eligibility, and appropriate underwriting”; repayment terms, pricing, and safeguards that minimize adverse customer outcomes, including cycles of debt due to rollovers or re-borrowing; and repayment outcomes and program structures that enhance a borrower’s financial capabilities.
The agencies’ release of the principles this week are in follow-up to a joint statement they issued March 26 encouraging credit unions, banks and savings associations to offer responsible small-dollar loans to consumers and small businesses in response to COVID-19.
PPP loans can be reported today (Friday) …
Credit unions that participated in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) can begin reporting on PPP loans and collecting the processing fee on fully disbursed loans that they are eligible to receive, NCUA said in an email message this week. “Lenders will use an SBA Form 1502 to report fully disbursed loans to SBA,” the NCUA said. “Additionally, credit unions should ensure their ACH information is inputted into the Fiscal Transfer Agent Lender portal.” The agency refers credit unions to the SBA’s website for more details.
ON THE ROAD (virtually): With IL League to talk COVID-19, more
NASCUS’ Lucy Ito was “on the road” with the Illinois League (virtually, via Zoom web conference) to discuss with credit unions in the state the reaction to the coronavirus crisis by federal and state agencies, Congress and other stakeholders. Among other things, she compared government’s reaction to the current financial crisis resulting from the pandemic to the response to the 2008 financial crisis and top concerns for credit unions. She also had the opportunity to discuss the impact of new cannabis laws on the states where those laws were adopted.
BRIEFLY: Video highlights debit card for EIP; Comptroller steps down; have a terrific holiday weekend!
A video intended to illustrate to consumers how they can receive coronavirus-related economic impact payments (EIPs) on a prepaid debit card, beginning this week, was released Tuesday by CFPB. The agency said approximately 4 million eligible EIP recipients will receive a prepaid debit card in the mail. The agency noted that it issued an interpretive rule last month making it easier for pandemic-relief payments to be made on a prepaid debit card … Comptroller of the Currency Joseph Otting is resigning, effective May 29, the OCC said this week. The agency made the announcement the day after the OCC released finalized new rules implementing the anti-redlining Community Reinvestment Act (CRA). Otting’s successor, at least in the interim, is Brian P. Brooks, current chief operating officer of the OCC … Monday is the first holiday of the summer – a well-earned one for everyone across the nation. Have a terrific Memorial Day holiday, and please stay safe!