Proposal focuses on merger transparency
A rule aimed at enhancing transparency of mergers between federal credit unions – but that could be applied to mergers between federally insured, state chartered credit unions — was one of the rules proposed Thursday for a 60-day comment period by the NCUA Board. The proposal would amend the “procedures and timeframes that a federal credit union (FCU) must follow for voluntary mergers with another credit union,” according to NCUA staff briefing the board members. In particular, staff noted during the meeting, the proposal addresses concerns of the agency that “merger packets” presented to members in advance of merger decisions are not “serving members’ needs.” The proposal is also aimed, staff said, at clarifying contents and format of the member notice of the merger “so that members of merging federal credit unions have better information about the merger transaction.” Further, the proposal would require merging FCUs to disclose all merger-related compensation for certain employees and officials of the merging FCU.
NCUA Board Acting Chairman J. Mark McWatters expanded on all of those points, noting that the proposal pushes credit unions to “tell the story” about why a merger is being proposed. Board Member Rick Metsger commented that the proposal is “important to me; (credit union) management has a responsibility to tell members a merger is being proposed,” noting that “full transparency” is necessary. He added that, during the comment period on the proposal, he hoped stakeholders would weigh in on whether federally insured, state chartered credit unions should be included under the proposal (rather than only FCUs). “I’m prepared to entertain requests to not pre-empt state laws or rules if they provide substantially similar, or stronger, disclosures and communication opportunities for the members of federally-insured state chartered credit unions,” Metsger added.
NASCUS President and CEO Lucy Ito, following the board meeting, said that while some state supervisors may share NCUA’s concerns over transparency and member interests, states may also view this as a credit union governance issue and business decision as opposed to an insurance matter. “Under this view, application of merger rules should properly be left to state supervisors to decide as the chartering agency of state-chartered credit unions,” she said. “This view, among others, will be reflected in our comments.”
In other action, the NCUA Board Thursday:
- Issued a proposed rule to set up procedures for appeals directly to the NCUA board of agency regulations that now have their own embedded appeals provisions; a comment period of 60 days was set.
- Issued a proposed rule to codify the process for appealing material supervisory determinations to the NCUA Supervisory Review Committee – with the aim of being more consistent with the practices now used by federal banking agencies; the proposal was issued for a 60-day comment period.
- Heard a first quarter 2017 report of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), which showed the fund with net income of $43.8 million in the first quarter, and total assets of $1.58 billion (up from $1.53 billion at YE’16).
IN LETTER, MCWATTERS SEEKS RELIEF FROM CONSUMER BUREAU RULES
The acting chairman of NCUA told the CFPB this week that the consumer bureau could ease credit unions’ compliance burdens – without sacrificing consumer protection — under the Home Mortgage Disclosure Act (HMDA) and Unfair, Deceptive and Abusive Acts or Practices (UDAAP) requirements. “Such regulatory relief would lessen the financial burden on the credit union community, thereby enhancing the capital positions of credit unions and the NCUA’s efforts to ensure the safety and soundness of the NCUSIF,” NCUA Acting Chairman McWatters stated in a letter to CFPB Director Richard Cordray.
In his letter, McWatters called the HMDA requirements “especially compelling,” noting that, next year, thresholds governing HMDA reporting include a minimum assets level and transaction volume. “Consideration should be given by the Bureau to raising the various thresholds to a more substantive asset and transaction volume level to further reduce the reporting burden on smaller institutions,” McWatters wrote. He also recommended exempting credit unions from certain aspects of additional reporting slated to take effect in 2019. “While the Bureau may consider such additional data points as value added for econometric modeling or other purposes, please consider the distinct economic burden placed on the credit union community by this exercise,” McWatters wrote.
Regarding UDAAP, the NCUA leader urged Cordray and the bureau to provide “much needed clarity” either through rulemaking or guidance. “I believe the bureau should promptly issue clear, transparent guidance that is reasonable, objective and specifically tailored for the credit union community so these not-for-profit financial institutions can comply fully with the law and meet the needs of their members in a cost-efficient and effective manner,” he stated.
DEBIT FEE CHANGE KEEPS CHOICE ON TRACK; SENATE ACTION UNCLEAR
A major provision in sweeping regulatory reform legislation dealing with debit card fees – strongly supported by credit unions and other financial institutions — has been scrapped, allowing the bill to perhaps receive a vote on the House floor following next week’s Memorial Day break.
On Thursday, House leaders confirmed that they had dropped from the Financial CHOICE Act (H.R. 10, authored by Committee Chairman Jeb Hensarling, R-Texas) a portion of the bill that would have repealed the so-called “Durbin Amendment” passed as part of the 2010 Dodd-Frank Act and which capped the fees financial institutions could charge retailers. The CHOICE Act provision would have given financial institutions, including credit unions, greater flexibility to set the fees. But intense lobbying by supporters of the current law – including retailers, restaurants and airlines – threatened to hold up the CHOICE bill entirely. The legislation was sent to the House floor three weeks ago on a party-line vote of 34-26. Then, expectations were high that the measure would be considered and likely passed by the full House this month. However, fierce debate over the debit card fee provision contributed to delaying a May floor vote.
As passed by the House earlier this month, the CHOICE Act includes several NASCUS-supported provisions, including: more transparency in the NCUA budgeting process (including through public hearings), and for the overhead transfer rate (OTR). The bill also contains a so-called “off-ramp” provision that would allow financial institutions, including credit unions, which maintain an average leverage ratio of at least 10% the option to be exempt from federal capital and liquidity requirements.
But regardless of what the House does in two weeks, the CHOICE Act’s future in the Senate is murky. Last week, Senate Majority Leader Mitch McConnell (R-Ky.), said in an interview that – while he would “love to do something about Dodd-Frank” — he is “not optimistic” that something will pass this year, particularly with likely Democratic opposition in the Senate. In the meantime, McConnell suggested that the Trump administration could act to mitigate the effects of the Dodd-Frank law.
‘FIDUCIARY RULE’ TAKES EFFECT JUNE 9, BUT CHANGES LIKELY AHEAD
A rule holding financial advisers to a “fiduciary standard” affecting how they may advise clients on retirement savings will take effect June 9, without further delay, the Secretary of Labor said this week. Writing in the Wall Street Journal, Labor Secretary Alexander Acosta said his department has “found no principled legal basis to change the June 9 date” of the so-called “Fiduciary Rule.” Full implementation of the rule is not until Jan. 1, 2018 – but the rule officially takes effect in two weeks.
However, in his Journal column, Acosta noted that the rule “may not align with President Trump’s deregulatory goals.” As such, some expect that between June 9 and the beginning of next year, the DOL will proceed with new rulemaking to either modify or overturn the rule taking effect June 9 (with a full implementation date perhaps postponed beyond Jan. 1). Additionally, DOL this week released guidance noting that between June 9 and Jan. 1 (the so-called “phased implementation” period), the agency will not enforce claims against fiduciaries “working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.“ The agency also stated that to the extent circumstances surrounding the applicability date of the rule and exemptions give rise to the need for other temporary relief, the department’s Employee Benefits Security Administration (EBSA) “will consider taking such additional steps as necessary.”
The guidance also states that the DOL has “repeatedly said” its general approach to implementation will be through emphasis on assisting plans, plan fiduciaries, financial institutions, and “others who are working diligently and in good faith to understand and come into compliance with the fiduciary duty rule and exemptions” rather than citing violations and imposing penalties. “Consistent with that approach, the Department has determined that temporary enforcement relief is appropriate and in the interest of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners,” the guidance states.
TRUMP BUDGET CUTS CDFI/CDRLF FUNDS, GRANTS
Elimination of the Community Development Financial Institution Fund, and the Community Development Revolving Loan Fund grant program, are both contemplated under President Donald Trump’s proposed 2018 budget, released this week by the administration. As of Jan. 31, there were 287 credit unions certified as CDFIs; the fund has been cited by the credit union industry (which is urging Congress to maintain the fund) as a resource for helping those credit unions better serve low-income communities, “which are often overlooked by other financial institutions.” Congress is supportive of the programs: just this month, it passed a “continuing resolution” to keep the federal government funded, which included $248 million for the CDFI fund. Meanwhile, the Trump administration budget makes no changes to the credit union tax exemption, and anticipates that the tax preference will remain in place for at least the next 10 years.
SUMMARY LOOKS AT SMALL BIZ LENDING INFORMATION REQUEST
Comments regarding the small business lending market, in response to the CFPB’s recent “request for information,” are due July 14, according to a new summary posted by NASCUS. Earlier this month, the bureau announced it is seeking information about the small business lending market. Section 1071 of the 2010 Dodd-Frank Act requires financial institutions to “compile, maintain, and report information concerning credit applications made by women-owned, minority-owned, and small businesses.” According to the bureau’s public notice announcing the request, the information will assist it in the development of a business lending data collection rulemaking to implement Section 1071. The NASCUS summary outlines five areas of focus in the bureau’s information request, with the aim of learning more about the small business financing market, including the products offered to small businesses (such as women/minority-owned small businesses) and the institutions that offer such credit.
APPEALS COURT ARGUMENTS REVEAL SHARP DIFFERENCES OVER CFPB
The constitutionality of the CFPB’s structure – with a single director who may only be fired “for cause” — was at issue during a federal court hearing this week in an appeal of an earlier decision that the agency’s director must serve at the will of the president. The hearing before the full panel of judges for a federal appeals court in Washington revealed sharp, differing views on the issue at hand. One judge said that having a consumer agency board with several members could actually make them less accountable than a single director. On the other hand, another asked “whose ox is going to get gored” if President Trump appoints a new bureau leader for a five-year term after Director Cordray’s tenure ends next year – and a subsequent president wants to fire that person in the middle of that term. But the hearing also gave hints that the whole issue may soon be kicked upstairs for resolution – to the Supreme Court. Some of the judges at this week’s hearing appeared to suggest that only the high court, not they, can rule on whether the CFPB structure is constitutional.
AROUND THE STATES: 17 now include ‘S’ in CAMEL
Maryland recently became the 17th state nationwide to adopt the “S” component in its CAMEL rating system – and the second to implement the component this year. Mississippi has said it will deploy in July the “S” (for “sensitivity to market risk”) rather than as a factor within the “Liquidity and Asset-Liability Management” or “L” component.
BRIEFLY: State CUs among late filers; Summit discounts end June 1 (next week); Position opening; Enjoy your Memorial Day holiday!
Eight state-chartered credit unions are among the 25 federally insured credit unions that have consented to pay civil monetary penalties for filing late Call Reports in fourth quarter 2016; but, according to NCUA numbers, the state credit unions paid about half (49%) of the total fines levied of $10,365. Compared to the 4Q ’15, late filers are up; in that year, 22 credit unions consented to penalties … Just a reminder that discounts for the 2017 NASCUS State System Summit end on June 1 – that’s next THURSDAY! Take advantage of the savings now; click on the link below and sign up TODAY! (or watch the video above) … NASCUS continues its search for a vice president, member relations; applications are being taken now. For more information, see the “Career Opportunities” page on the NASCUS website …Here’s to a happy, much-deserved and SAFE Memorial Day Holiday weekend for everyone!
Patrick Keefe, NASCUS Communications, email@example.com or (703) 528-5974