May 8, 2020 NASCUS Report

THIS WEEK: Charter for DC CUs takes effect; Regulators to testify in Senate; ‘Low income’ now includes military members; CORONAVIRUS REPONSE: 5 more summaries posted … CFPB offers ECOA FAQs on PPP … First PPP fraud charges leveled … Accountants offer PPP forgiveness guidance … Week Ahead looks at events, more; Roundtables talk cybersecurity, COVID-19; Webinars focus on crisis communications, repos; BRIEFLY: Harper lists legislative goals

Charter for DC CUs takes effect
in overall win for state system

There is a new credit union chartering law in effect which – for the first time in nearly 56 years – will bring a local charter to the District of Columbia, providing an option to D.C.-based credit unions and their members, and expanding the overall reach of the state credit union system.

Legislation creating the new law was adopted by the D.C. Council earlier this year; the law went into effect this week. According to the Maryland and DC Credit Union Association (MDCCUA), which spearheaded the adoption of the legislation, the next step for the law is promulgation of rules by the District’s Department of Insurance, Securities and Banking (DISB) implementing the law. The association, it said, has been advocating for the adoption of the charter since 2001, and has ramped up actions over the last several years. For example, in January, the association hosted a roundtable offering the DISB and D.C. credit union officials an opportunity for open dialogue about the new law.

Under the legislation (the Credit Union Act of 2019), the District’s regulatory agency will be authorized to charter, supervise, regulate, examine and exercise other powers related to the operation of credit unions in D.C. Since 1964, the only charter available to credit unions in the District was the federal license to operate issued by NCUA.

Kudos to D.C. credit unions and the MDDCCUA for their tenacious efforts in securing a charter option in the District,” said NASCUS President and CEO Lucy Ito. “The dual chartering system has proved both its value and effectiveness for the entire credit union system and its members across the nation. Now more than ever, credit unions need a strong dual-charter system, to provide the greatest flexibility in serving members. The development of the District charter is a bright spot for the credit union system, particularly as we all navigate the current landscape.”

Calling the law a win for credit unions, MDDCCUA President and CEO John Bratsakis said the law will provide credit unions headquartered in the District with greater flexibility when it comes to examinations, field of membership, loans and low-income designations. The law, he said, “gives credit unions another arrow in their quiver to deploy. We will continue to work with DISB and the D.C. Council during the rule-making process to ensure that regulations serve in the best interest of credit union members.”

Not counting the DISB, there are 45 state governmental agencies that charter, regulate and examine state-chartered credit unions. Only three states — Delaware, South Dakota and Wyoming — have no laws permitting state-chartered credit unions.

MDDCCUA chart comparing the provisions of the Federal Credit Union Act with the D.C. Credit Union Act

Regulators will visit Senate panel in virtual hearing

NCUA Board Chairman Rodney Hood is one of four federal financial institution regulators scheduled to testify Tuesday before the Senate Banking Committee in a remote, web-streamed oversight hearing. The committee announced the hearing this week, which is essentially an oversight hearing on federal credit union and bank supervision. Scheduled to join Hood at the virtual witness table are Federal Reserve Board Vice Chairman for Supervision Randal K. Quarles, Comptroller of the Currency Joseph Otting, and FDIC Board Chairman Jelena McWilliams. The hearing is set to get underway at 10 a.m. ET. Reportedly a similar hearing before the House Financial Services Committee is in the works, once the House returns to Washington (which is not yet scheduled).

May 12 financial regulator oversight hearing

‘Low income’ will now include military members

Military personnel will now be considered within the group that helps to determine whether a credit union may be designated “low-income,” NCUA said this week.

In a release, the agency said that, in order for a federally insured credit union to qualify as a low-income institution, a majority of its membership must meet certain low-income thresholds, based on data from the Census Bureau and requirements outlined by NCUA rules. “Under the new approach, military personnel will now be considered in a similar manner as students attending colleges, universities, vocational or technical schools when the NCUA evaluates a federally insured credit union’s low-income designation,” the agency said.

The move by the agency is an expansion of its approach for qualifications for the low-income designation, according to NCUA.

Active-duty military personnel constitute a highly mobile population with frequent transfers, both domestically and internationally, and often list Army/Air Post Office or Fleet Post Office mailing addresses,” the agency said.

Before the expansion to include military members (and the corresponding methodology), NCUA said, its income assessment tool only geocoded the incomes of members with physical street addresses. As a result, service members using APO or FPO addresses were omitted from the agency’s evaluation.

NCUA Changes Low-Income Designation to Include Military Personnel in Calculation


5 more summaries issued on letters, alert, bulletin …

NASCUS published five more summaries this week, outlining letters, an alert and a bulletin from NCUA and the CFPB on a variety of subjects, most related to the coronavirus crisis.

Three letters to credit unions (LTCUs) from NCUA are summarized, which address: regulatory treatment for PPP loans (LTCU 20-CU-11), outreach related to COVID-19 impact (LTCU 20-CU-12), and working with borrowers affected by the pandemic (LTCU-20-13).

The first LTCU provides an overview of changes to various lending and risk-based capital requirements at credit unions under various emergency programs developed to combat the financial impact of the coronavirus crisis, including the SBA’s Paycheck Protection Program (PPP). The second letter looks at the agency’s examiner outreach, noting that emerging credit risks resulting from the coronavirus crisis will be the focus of questions by federal examiners when they are contacting the institutions they review beginning this month. The third letter outlines more than a dozen strategies for credit unions to use in helping members during the coronavirus crisis, including new funds to borrowers, temporary loan modifications and permanent loan modifications.

The NCUA regulatory alert summarized by NASCUS looks at the Federal Reserve’s April 24 action deleting the six-per-month limit on convenient transfers from the definition of “savings deposit.” The action allows credit union members and bank customers to make unlimited numbers of transfers and withdrawals from their savings account “at a time when financial events associated with the coronavirus pandemic have made such access more urgent,” according to the Fed.

Finally, NASCUS published a summary of a CFPB bulletin issued in March on “responsible business conduct.” The bulletin identified four categories of responsible conduct: self-assessing, self-reporting, remediation, and cooperation. “If an entity meaningfully engages in these activities, the bureau will favorably consider it, along with other relevant factors, in addressing violations of federal consumer financial law in supervisory and enforcement matters,” the agency said when the bulletin was published.

Summary: Letter to Credit Unions 20-CU-11 Regulatory Treatment for Paycheck Protection Program Loans (members only)

Summary: Letter to Credit Unions 20-CU-12 Outreach Related to COVID-19 Impact (members only)

Summary: Letter to Credit Unions 20-CU-13 Working with Borrowers Affected by the COVID-19 Pandemic (members only)

Summary:  20-RA-02 FRB Issues Rule Allowing Credit Unions to Remove the Monthly Limit on Savings Withdrawals (members only)

Summary CFPB Bulletin 2020-01 (members only)

FAQs aim to clarify ECOA aspect of PPP …

An application for a loan under the Paycheck Protection Program (PPP) is only a “completed application” once the creditor has received a loan number from the Small Business Administration (SBA) or a response about the availability of funds, the federal consumer financial protection agency said in a notice published this week.

The notice was published by the CFPB as “clarifying frequently asked questions (FAQs)” about the PPP program. The bureau noted that, generally under the Equal Credit Opportunity Act and Regulation B, creditors are required to notify applicants within 30 days of receiving a “completed application” of the creditor’s approval, counteroffer, denial or other adverse notice regarding the application.

Those notices, the bureau said, are designed to help consumers and businesses by providing transparency to the credit underwriting process in a timely manner. “Information that is generally included in a complete application includes any approvals or reports by governmental agencies or others who can guarantee, insure, or provide security for the credit or collateral.”

By considering an application completed once the loan number or availability of funds notice has been released, the bureau said, the time waiting for information from the SBA does not count toward the 30-day notice requirement, and applications thus will not “time out” during the process.

The CFPB said the FAQs also clarify that if the creditor denies an application without ever sending the application to the SBA, the creditor must give notice of this adverse action within 30 days. The document also clarifies, the agency said, that a creditor cannot deny a loan application based on incompleteness where the creditor has enough information for a credit decision but has yet to receive a loan number or response about the availability of funds from the SBA.

Consumer Financial Protection Bureau Issues Clarifications to Support Small Business Applying for PPP Loans

First charges of PPP loan fraud filed

It’s been just about six weeks since the Paycheck Protection Program (PPP) came into existence, but just this week federal law enforcement authorities announced the first fraud charges related to the program.

Enacted into law March 27 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Small Business Administration (SBA)-administered program provides loans (typically through a credit union or bank) to businesses with fewer than 500 employees. The loans are intended to be used to keep the businesses’ employees on the payroll until the coronavirus crisis is past. Among the provisions of the program, those businesses with loans that keep paying all of their employees will have their loans forgiven by the SBA.

In the charges leveled this week by the U.S. Justice Department, two New England businessmen (from Massachusetts and Rhode Island) were alleged to have filed fraudulent bank loan applications in pursuit of more than $500,000 in forgivable loans guaranteed by the PPP.

According to Justice, the pair claimed to have dozens of employees earning wages at four different business entities when, in fact, there were no employees working for any of the businesses. The two were charged by way of a federal criminal complaint with conspiracy to make false statements to influence the SBA and conspiracy to commit bank fraud. Other charges are also pending.

The Justice Department said that, according to court documents unsealed Tuesday in federal court in Providence, R.I., the fraudulent loan requests were to pay employees of businesses that were not operating prior to the start of the COVID-19 pandemic and had no salaried employees, or, as in one instance, to pay employees at a business the loan applicant did not own.

Two Charged in Rhode Island with Stimulus Fraud

AICPA offers guidance on PPP loan forgiveness …

Recommendations on the appropriate documents and calculations that small businesses should use to qualify for loan forgiveness under the CARES Act’s Paycheck Protection Program (PPP) are available from the nation’s largest professional accounting group. The American Institute of CPAs (AICPA) said the recommendations, released late last week, are intended help bring clarity to the implementation of the PPP, which is administered by the Small Business Administration (SBA), for loans approved by credit unions and banks.

Among other things, the group recommends:

  • The eight-week covered period under PPP should align with the beginning of a pay period, not the date loan proceeds are received.
  • The eight-week period should commence once local stay-at-home restrictions are lifted, not when loan proceeds are received, so small businesses have adequate funds to ramp up operations.
  • Full-time job equivalents (FTEs) can be calculated using a simple wage-based proxy when hours worked are not tracked by the employer.
  • Payroll reduction calculations should be based on small businesses’ average payroll per week, not total compensation per employee.

AICPA recommendations for PPP Application and Forgiveness Processes

… Week Ahead offers look at events, webinars ahead

In yet another effort by NASCUS to keep the state system informed and ready to deal with the coronavirus crisis, a new publication – The Week Ahead – is now being distributed every Monday morning via email to NASCUS members and others in the state system. The weekly e-newsletter offers a rundown of webinars and meetings hosted by NASCUS, financial services organizations and law firms. It also provides an overview of upcoming agency meetings and comment letter deadlines. The publication is offered at no charge. To subscribe, see the link below.

The Week Ahead sign up

Roundtables offer peer talk on cybersecurity, COVID-19

Roundtables on credit union cybersecurity issues related to the coronavirus crisis are underway now, sponsored by NASCUS and the Credit Union Natl. Assn. (CUNA). Participation in one of the three roundtable sessions – all provided at no charge to NASCUS and CUNA members — is divided by asset sizes of credit unions: those with less than or equal to $120 million; those with $120 million to $500 million; and those with greater than $500 million. The roundtable format, including the division by asset-size ranges, is aimed at providing participants the opportunity to ask questions and learn from peers regarding challenges and solutions stemming from the COVID-19 pandemic. A recording of the first roundtable, held Tuesday (May 5) for credit unions with $120 million or less in assets, is available now. The second two roundtables, which will be held live, will be: May 12 for credit unions with $120 million to $500 million in assets; and May 19 for and those with more than $500 million in assets. Both sessions are set for 4 p.m. ET. While the sessions are free – and are being provided as an extension of the annual NASCUS-CUNA Cybersecurity Conference – registration for the two upcoming live roundtables is required. For more information, see the link below.

Cybersecurity roundtables: The COVID-19 pandemic and credit unions (info, registration)

Crisis communications, repos, subjects for webinars

Communicating with media in a crisis, and proper procedures in repossessions, are topics for discussion in two NASCUS-sponsored webinars set for next month. Both are offered at no charge. Both are also presented by long-time credit union educator and legal consultant Frank Drake. The crisis communication session looks at the importance of a communications plan in disaster preparedness (including issues related to COVID-19). The repossessions session looks at “10 cardinal rules for a proper repossession,” particularly at the common mistakes lenders commit when attempting to enforce liens on collateral. The communications webinar takes place June 4; the repo webinar on June 11. Both sessions are scheduled for 2-3:15 pm. ET. Although there is no charge for the sessions, advance registration is required (see the link below).

NASCUS June 4 (crisis communications), June 11 (repossessions) webinars, info and registration (no charge)

BRIEFLY: NCUA’s Harper lists his legislative suggestions to senators

Extending the sunset of the CARES Act’s Central Liquidity Facility (CLF) enhancements and protecting from garnishment economic impact payments meant to help consumers face the financial impact of the coronavirus crisis, are two top legislative recommendations for Senate Banking Committee leaders by NCUA Board Member Todd Harper. In a letter this week to Chairman Mike Crapo (R-Idaho) and Ranking Member Sherrod Brown (D-Ohio), Harper also recommended action on: increasing funding for Community Development Revolving Loan Fund emergency grants; exempting all member business loans from the statutory cap during the COVID-19 emergency; permitting all federal credit union charter types to add underserved communities; providing NCUA with vendor examination authority; and maintaining capital standards at credit unions. Harper’s letter follows a letter last week from NCUA Board Chairman Hood outlining his legislative recommendations for the committee.

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