May 31, 2019 NASCUS Report

‘SAFE’ cannabis bill would save money,
give bump to deposits, report asserts

Legislation intended to clarify that credit unions and other financials may serve cannabis businesses in states where it is legal to do so – something NASCUS has long sought — would save the federal government up to $4 million over 10 years, a congressional study has found.

The May 24 study by the Congressional Budget Office (CBO) also found that the legislation, the Secure and Fair Enforcement (SAFE) Banking Act (H.R. 1595), would increase insured savings at both NCUA’s Share Insurance Fund and the FDIC’s Deposit Insurance Fund (DIF) to $350 million and $2.1 billion, respectively, by 2029.

In determining savings, the study estimated that over the 10-year period future direct spending for resolving credit union and bank failures would increase by $5 million, combined for both insurance funds. “However, those costs would be offset by assessments levied on insured financial institutions; those assessments would total $9 million, CBO estimates,” the study states. “As a result, CBO estimates, H.R. 1595 would decrease net direct spending by $4 million over the 2019-2029 period.”

The legislation is currently pending before the full House (although it has also been referred to the House crime and homeland security subcommittee), after having been approved in March in a bipartisan vote by the Financial Services Committee.

H.R. 1595, as it stands now, would give legal cannabis-related businesses access to financial institution services and exempt financial institutions and employees from federal prosecution (or investigation) solely for providing services to state-authorized cannabis-related businesses.

Introduced by Rep. Ed Perlmutter (D-Colo.) with Reps. Denny Heck (D-Wash.), Steve Stivers (R-Ohio), and Warren Davidson (R-Ohio) — and 184 cosponsors as of this week—H.R. 1595 is intended to “harmonize federal and state law concerning cannabis-related businesses and allow these businesses access to banking services,” according to the bill’s language. Specifically, it would bar federal financial institution regulators from taking several actions against financial institutions serving legal cannabis-related businesses.

NASCUS, as long ago as 2014,was among the first organizations representing credit unions or financial institutions to call for clarity in federal law for financial institutions serving legal marijuana businesses. Since then, in addition to adopting policy on clarity, NASCUS has hosted a number of sessions at its conferences and events about the issue – including the first two-day symposium June 25-26 in Los Angeles focusing on cannabis banking (see item below).

CBO cost estimate: H.R. 1595, SAFE Banking Act of 2019

In Alert, NCUA advises of options in flood insurance …

Private flood insurance policies for applicable loans must be accepted by credit unions beginning July 1, the NCUA Board chairman reminded credit unions this week. In a Regulatory Alert sent to all federally insured credit unions (FICUs), Chairman Rodney E. Hood said the private insurance policies must meet the definition of private flood insurance included under the Biggert-Waters Flood Insurance Reform Act of 2012. In February, NCUA adopted a rule along with other federal financial institution regulators that – after nearly seven years – finally put the definition in effect.

“Credit unions should be aware of this significant policy change in flood insurance regulations and update policies and procedures to address these alternative options to (National Flood Insurance Program) NFIP policies,” Hood wrote.

The new rule, adopted by NCUA Feb. 12 (but which doesn’t take effect until the beginning of July):

  • Implements the Biggert-Waters Act requirement that regulated lending institutions accept private flood insurance policies that satisfy criteria specified in the act;
  • Allows institutions to rely on an insurer’s written assurances in a private flood insurance policy stating the criteria are met;
  • Clarifies that institutions may, under certain conditions, accept private flood insurance policies that do not meet the Biggert-Waters Act criteria; and
  • Allows institutions to accept certain flood coverage plans provided by mutual aid societies, subject to agency approval.

In the Alertpublished Tuesday, Hood noted when credit unions must accept private flood insurance that meets the definition outlined in the February rules. The policy coverage amount under those plans must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the 1968 National Flood Insurance Act (NFIA), the Alert states.

The Alertalso outlines when credit unions have more discretion in accepting the insurance policies that do not meet all of the definitions under the new rule.

For the mutual aid society plans, the Alertstates, NCUA must give approval. “If a credit union desires NCUA approval for a mutual aid society flood plan, it should submit a request to the NCUA through its Regional Office,” the Alert states. “The NCUA will evaluate requests and, if approved, such plans will be listed on the NCUA’s website for future reference. The evaluation will assess the plan based on the criteria for mutual aid societies detailed above.”

Flood Insurance Alternatives (NCUA 19-RA-01/May 2019)

… As agency officially announces participation in webinar

As noted last week in NASCUS Report, NCUA is participating in a June 18 webinar with other federal financial regulators about updates to federal flood insurance rules. The agency made its participation official this week with a press release announcing that registration is open for the no-charge event. The one-hour webinar, set for 2 p.m. ET, will focus on the final rule issued in February – and set to take effect this July 1 – by NCUA as well as the Federal Reserve Board, the Farm Credit Administration (FCA), the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC). Staff from the agencies (including NCUA) will participate in the webinar; a Q&A session follows the presentation. Participants also may submit questions in advance at [email protected].

NCUA release: Register Now for June 18 Flood Insurance Webinar

NCUA online flood insurance resources

‘Profile’ would include new questions about benefit plans

Two questions intended to evaluate industry-wide exposure to employer-defined benefit plans would be added to credit union quarterly reports, according to a proposal by NCUA. In filings with the Federal Register this week, the agency outlines its plan to revise its Form 4501A – “NCUA Profile,” which is used to gather non-financial data which the agency said is relevant to regulation and supervision (including names of senior management and volunteer officials)  – to include the questions related to related to single- and multi-employer defined benefit plans.

However, the agency’s notice in the Federal Registerprovides no other details about the questions, other than to say that the financial and statistical information the agency gathers from the form “is essential to NCUA in carrying out its responsibility for supervising federal credit unions” and also enables the agency to monitor all federally insured credit unions with National Credit Union Share Insurance Fund (NCUSIF) insured share accounts.

The proposed revision, which will apply to all FICUs (including federally insured, state-chartered credit unions) will be out for comment until July 29 (60 days), NCUA said.

Agency Information Collection Activities: Proposed Collection; Comment Request; NCUA Profile

Audit of agency’s SSA exam process continues

An audit of operating agreements between states and NCUA continues by the agency’s Office of Inspector General (OIG), according to the office’s latest report published this week. In its Semiannual Report to the Congressfor Oct. 1, 2018 to March 31, 2019, the agency’s OIG said its objectives in the audit (which was also referred to in the previous report by the OIG, for April 1-Sept. 30, 2018)  is to determine whether NCUA provides shared oversight of FISCUs to “assess their condition and address material risks that may negatively affect the (National Credit Union) Share Insurance Fund (NCUSIF).” In the report, the OIG points that the operating agreements between the states and NCUA “outline the method and procedures to monitor FISCUs for insurance risk.”

NCUA OIG Semiannual Report to the Congress for Oct. 1, 2018 to March 31, 2019

Program aims to encourage ‘innovative’ AML programs

Emerging innovative products and services and approaches designed to enhance anti-money laundering (AML) efforts and the countering of the financing of terrorism (CFT) get their day in the sun under a new program announced late last week by the Treasury’s law-enforcement arm for battling financial crime. The new program took effect Thursday.

The Financial Crimes Enforcement Network (FinCEN) said its new “Innovation Hours Program” will give credit unions, other financial institutions, technology providers and other financial services firms the opportunity to present their innovative programs. FinCEN, in a release, said the program is part of a broader “Innovation Initiative” that also includes consideration of exceptive relief for pilot programs designed to facilitate innovative solutions to AML/CFT compliance challenges and ongoing efforts to provide enhanced feedback and information sharing programs.

Minimum requirements for participating in the program are outlined on the agency’s website. In addition, FinCEN said it expects to host demonstrations the second Thursday of each month, from 9:30 a.m.-12:30 p.m. ET. Requests from financial technology (fintech) and regulatory technology (regtech) firms and financial institutions are encouraged, the agency said, and will give primary consideration to requests from entities that are at the operational stage.

(As a reminder: NASCUS hosts with CUNA the annual BSA/AML Certification Conference – this year set for Nov. 18-21 in Tempe, Ariz.)

FinCEN Announces Its Innovation Hours Program

NASCUS 2019 Education Agenda

CFPB: highest, lowest scores prompt credit card shopping

As credit scores change – fluctuating in both directions, both highest and lowest – consumers tend to shop around for new cards, according to a new report from the CFPB released this week. In its latest, quarterly consumer credit trend report, Timing of Applications for Consumer Credit Cards, the bureau said it found consumers with big changes in their credit scores in either direction tend to be younger and have considerably lower credit scores on average than consumers with more stable scores. The study also found that consumers are more likely to apply for a general purpose credit card (or, CFPB said, an increase in their existing credit limit, although that is much less common) as their scores approach the maximum and minimum scores observed for the borrower over the analysis period of 2009-17.

Further, the bureau reported, consumers application rates dropped sharply as consumers reach minimum scores, and then, after hitting bottom their application rates trend steadily upward. “The decline in application rates around the minimum score cannot be explained by sudden drops in credit scores, nor can it be explained by bankruptcies,” the bureau stated. However, it added that patterns of application rates generally hold regardless of the levels of minimum and maximum credit scores. “However, the patterns are generally more muted for those with higher levels of maximum and minimum scores,” the report stated.

CFPB consumer trend report: Timing of Applications for Consumer Credit Cards,

June conferences look at cybersecurity, cannabis banking

Two timely NASCUS-sponsored education events are coming up next month, dealing with key topics facing credit union regulators and practitioners: cybersecurity and cannabis banking.

The NASCUS Cybersecurity Conference (held in conjunction with the Credit Union National Assn. (CUNA)) runs June 10-12 in Austin, Texas. It is preceded by a special June 9 pre-conference workshop aimed at security and technology professionals new to their fields.

The cybersecurity conference features more than 15 different cybersecurity experts from industries both within and without financial services, who will discuss hardening cyber defenses, enhancing cyber resilience and maintaining secure data. Specific topics covered include: GDPR and CCPA compliance; emerging trends and threats; NCUA cyber tools; understanding CIS 20, and; cybersecurity risk assessment.

Both credit union state supervisors and practitioners in the fields of security and technology, risk management, and compliance – as well as top executives – should consider attending.

Later in the month, June 25-26, NASCUS hosts its first-ever cannabis banking symposium, set for Universal City, Calif. NASCUS decided to launch the symposium as it became clear that prevailing uncertainty regarding the permissibility of banking for quickly growing, state-legalized cannabisbusinesses increasingly called on credit unions (and state supervisors) to discuss policy with respect to accounts held by these businesses at their institutions.

The two-day conference dives into a variety of crucial topics, including: The business cycle of cannabis; BSA/AML compliance; cannabis and insurance; and the role of technology in cannabis compliance (among others).

For more information, including registration and complete agendas, see the NASCUS education web page.

NASCUS 2019 education agenda (cybersecurity, cannabis banking)

BRIEFLY: 1Q ’19 CU results next week, on heels of bank results (of nearly $61 billion in profits)

First quarter results for federally insured credit unions are expected to be released next week, according to NCUA, which follows first quarter reports of bank performance issued this week. The bank report (released by the FDIC) showed net income of nearly $61 billion ($60.7 billion, to be precise) for banks in the first quarter, up 8.7% from the same period last year. Almost two-thirds of all federally insured banks and thrifts reported annual increases in net income, FDIC said; less than 4% of institutions were unprofitable. The average return on assets increased to 1.35%, up from 1.28% a year earlier, the agency said.

Information contact: Patrick Keefe/[email protected]

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