Nov. 1, 2019 NASCUS Report

THIS WEEK: NCUA proposes 2020 budget, with increase in OTR; Harper wants consumer compliance exams for big CUs; House takes action on AML/BSA; Bill would require twice-annual regulator testimony; Rule holds promise for deposits from hemp producers; CFPB bumps up Regs Z, M thresholds; State reps join bureau in debt relief outfit prosecution; ON THE ROAD: In MN, MI, WI and GA; 3 events ahead in November; BRIEFLY: Non-member shares rule takes effect; consumer webinar set; CFPB ECOA symposium next week

NCUA wants 2020 OTR increase;
public briefing set for Nov. 20

A proposed $316.2 million operating budget in 2020 will be funded, in part, by an increased overhead transfer rate (OTR) of funds from the federal credit union insurance fund to NCUA’s budget, the agency said this week in announcing its proposed spending plan for next year. The agency also announced a Nov. 20 public hearing on the proposed budget, as required by law.

While the agency described the proposed 61.3% OTR as “modestly higher” than the 2019 rate (which is 60.5%), NASCUS President and CEO Lucy Ito said the association is concerned that the overhead transfer rate is estimated to rise for the first time in three years (in both 2018 and 2019 the OTR was lower than the previous year; the 2018 rate was 61.5%). In any event, Ito said NASCUS looks forward to “engaging with NCUA to ensure the higher rate will not place an unjustifiable burden on state-chartered credit unions.” NASCUS plans to provide a presentation at the briefing.

According to NCUA, the OTR represents the percentage of the agency’s operating budget paid for by a transfer of funds from the insurance fund. “Federally insured credit unions are not billed for, and do not have to remit, the OTR amount; instead, it is transferred directly to the Operating Fund from the Share Insurance Fund,” the agency said in its staff memo on the 2020 budget.

NCUA said the OTR is allocated based on four underlying principles in terms of “insurance-related costs”: Time and costs spent supervising or evaluating risks posed by FISCUs “or other entities the agency does not charter or regulate,” such as third-party vendors and CUSOs (100% insurance related); time and costs related to the NCUA’s role in administering federal share insurance and the  insurance fund (100%); time spent examining and supervising FCUs (50%); time and costs related to the agency’s role as charterer and enforcer of consumer protection and other non-insurance based laws governing the operation of credit unions, such as field of membership requirements (0% insurance related).

The agency’s operating budget makes up the lion’s share of the three pieces of the total proposed 2020 NCUA budget of $347.7 million. The other two pieces are: Capital budget, $25 million, and; share insurance fund administrative budget, $6.4 million. The spending plan projects 1,185 employees at the agency; about 73% of the operating budget covers employee pay and benefits.

The Nov. 20 briefing is scheduled to get underway at 10 a.m. In addition, the agency is taking comments on the budget until Dec. 2. Last year’s Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155), required the agency to publish its budget proposal in the Federal Register (scheduled for today), hold a public hearing, and solicit and consider public comments.

2020–2021 Budget Justification: Staff Draft

… proposal seeks beefed up consumer compliance program

Meanwhile, a dedicated consumer compliance exam program for large, complex credit unions – including three agency staff members — is on the wish list for the agency’s budget by a member of the NCUA Board. Further, he’s seeking public comment on the proposal (also by Dec. 2).

In a release this week, Board Member Todd Harper said he wants the agency to bring on the three staff positions for the program, in connection with the agency’s 2020-21 budget consideration. Those employees, according to Harper, would develop and later launch a dedicated consumer compliance examination program for large, complex credit unions. He indicated the program is necessary because the profile of the credit unions the agency supervises and insures has changed over time.

“For more than three decades, the NCUA has focused its examination program primarily on safety and soundness reviews,” said Harper. “This policy worked well when the NCUA oversaw a large number of small credit unions serving a limited field of membership with only a few basic financial products, but today’s credit unions are larger and more complex, with 317 credit unions exceeding $1 billion in assets having 71.7 million members.”

He asserted that NCUA’s current compliance examinations covering consumer financial protection laws in credit unions with total assets of $10 billion or less differ from those of other financial institution regulators. He said other regulators complete regularly scheduled, risk-focused consumer compliance reviews and assign a separate consumer compliance rating outside of the CAMEL process for institutions under their jurisdiction. (Harper, in September, made a similar call for the expanded consumer compliance exams for larger credit unions.)

NCUA release: Harper Calls for Dedicated Consumer Compliance Exams of Large Credit Unions

House adopts bills on AML-CFT (again), study of underbanked

The House this week passed more legislation affecting financial services, including two of particular interest to credit unions.

On a voice vote, the Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act (COUNTER bill, HR 2514) was passed, which (according to a release from the House Financial Services Committee) is aimed at closing loopholes in the Bank Secrecy Act (BSA), increasing penalties for those who break the law, and helping provide financial institutions with new tools to fulfill their obligations under the law for anti-money laundering (AML) and combatting the financing of terrorism (CFT). In fact, the bill’s provisions are called the first major improvements to federal AMT-CFT laws since 2001. The legislation was introduced by Reps. Emanuel Cleaver (D-Mo.) and Steve Stivers (R-Ohio).

The COUNTER bill was also included in H.R. 2513, adopted by the House last week. However, in an effort to illustrate the House’s intent to update and improve the AML-CFT laws, lawmakers decided to pass H.R. 2514 again this week as a separate measure.

(Note: the NASCUS-CUNA BSA Certification Conference – where legislation and regulations such as the COUNTER Act will be on topic) is coming up, Nov. 18 – 21 in Tempe, Ariz. See the link below for more details.)

Meanwhile, the House also adopted (and also by voice vote) the Financial Inclusion in Banking Act (H.R. 4067), which requires the CFPB to study how to better address the needs of underbanked, unbanked and underserved communities. This bill was introduced by Rep. David Scott (D-Ga.).

Press release: House Passes Financial Services Bills

BSA Certification Conference

Bills seek annual testimony from regulators, cyber ‘resilience’

Semi-annual testimony would be required by NCUA and the three other federal financial institution regulators before Congress under legislation approved by a House committee this week.

The Prudential Regulator Oversight Act (H.R. 4841), sponsored by Reps. Dean Phillips (D-Minn.), and Barry Loudermilk (R-Ga.), is aimed at requiring NCUA, the FDIC, Federal Reserve and OCC to semi-annually report to and annually testify before Congress on their supervisory and regulatory activities. It was approved by the House Financial Services Committee unanimously, vote 55-0.

In nearly all cases, the top appointed leader of each agency would be required to appear (chairman of the NCUA Board, chairman of the FDIC Board, Comptroller of the Currency). In the case of the Federal Reserve, the board’s vice chairman for supervision would be required to provide input.

The committee memo points out that the Fed’s vice chairman for supervision is already required (under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to testify at semi-annual hearings. However, it notes that FDIC, NCUA and OCC do not have such mandatory testimony requirements. “Receiving testimony from all four agencies would allow for a comprehensive examination of the state of prudential regulation, supervision, and enforcement with respect to megabanks and other depository institutions,” the memo states.

The memo also asserts that, before a May 16, 2019 committee hearing with prudential regulators, “it had been more than three years since any official from the FDIC or the NCUA testified before the committee.”

The committee memo also notes that financial institution regulation “has evolved into a system with multiple regulators” and that, even if state chartered, “virtually all depository institutions are federally insured, and are subject to at least one federal primary regulator that examines the institution for safety and soundness, as well as compliance with federal banking laws.”

In other action, the committee also passed (by voice vote) H.R. 4458, the Cybersecurity and Financial System Resilience Act , which would require the federal financial regulators to each issue an annual report to Congress describing measures each regulator has taken to strengthen cybersecurity with respect to its functions as a regulator, including the supervision and regulation of financial institutions and, where applicable, third-party service providers.

The report must include steps each agency is taking to address any cybersecurity concerns identified by the annual independent evaluations conducted under the Federal Information Security Modernization Act (FISMA) of 2014. The bill sunsets after seven years; it was sponsored by Committee Ranking Member Patrick McHenry, R-N.C.

Committee memo: Markup of financial services legislation

Rule attempts to open door to deposits from hemp producers

An interim final rule establishing new regulations and procedures for the legal production of industrial hemp was issued this week by the U.S. Department of Agriculture (USDA) that could also open the door to financial institutions receiving deposits from the producers.

The interim rule (which took effect Thursday) provides a “standardized framework” for how the agency will approve regulatory plans from states and Indian tribes that wish to oversee hemp production, as well as a federal plan for producers in areas without approved local plans.

Significantly for credit unions, as the regulation points out, “the banking industry is awaiting these regulations in order to develop guidance regarding deposits derived from hemp operations. Without these regulations, the banking industry is not willing to take the risk of accepting deposits or lending money to these businesses.”

The rule was required under last year’s Farm Bill (the Agriculture Improvement Act of 2018), which reclassified hemp as a legal agricultural commodity. However, a number of questions remained (including those revolving around deposits at financial institutions) – which the rule attempts to address.

The framework covers how to maintain information on the land where hemp is produced, test THC levels and dispose of plants that do not meet the necessary requirements. The rule, which also addresses licensing requirements and compliance, became effective Thursday upon publication in the Federal Register; it remains in effect through Nov. 1, 2021.

Reminder: The NASCUS Hemp and Cannabis Banking Symposium (June 17-18 in Chicago) will explore issues related to the interim rule, and other issues, related to banking for the fast developing, and growing, cannabis and hemp.

Interim final rule: Establishment of a Domestic Hemp Production Program

NASCUS Hemp & Cannabis Banking Symposium, June 17-18, Chicago

Agencies increase Reg Z, M thresholds 1.9%

Dollar thresholds have been set at $58,300 for determining exempt consumer credit and lease transactions in 2020 under rule changes issued jointly by the Federal Reserve and the CFPB, announced Thursday.

The new thresholds, effective Jan. 1, are up about 1.9% from the 2019 level of $57,200. They extend the protections of Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) to consumer credit and leases that fall underneath them. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) requires that the thresholds be adjusted annually.

Under that law, the consumer credit and lease threshold adjustments under Regs Z and M are based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The $1,100 threshold increases for 2020 are based on the CPI-W in effect on June 1, 2019, which was reported on May 10, 2019.

Both notices point out that private education loans and loans secured by real property or by personal property that is the consumer’s principal dwelling are covered by TILA regardless of the loan amount.

Agencies announce dollar thresholds in Regulations Z and M for exempt consumer credit and lease transactions

State reps join CFPB to stop student loan debt relief outfit

State law enforcement from California, Minnesota and North Carolina joined with the CFPB this week to force a student loan debt relief operation to temporarily halt activities, under a restraining order sought by the group of regulators.

The bureau said the action– involving numerous companies — against the debt relief operation seeks to halt a student-loan debt-relief operation that engaged in allegedly unlawful conduct and consisted of several related companies: Consumer Advocacy Center Inc., which does business as Premier Student Loan Center; True Count Staffing Inc., also known as SL Account Management; and Prime Consulting LLC, which is known as Financial Preparation Services. Other individuals were also named in the order.

The action was brought under the Consumer Financial Protection Act (CFPA) of 2010; and the Telemarketing and Consumer Fraud and Abuse Prevention Act and its implementing regulation, the Telemarketing Sales Rule (TSR).

The bureau alleges that since at least 2015, the debt-relief companies operated as a common enterprise and deceived thousands of federal-student-loan borrowers and charged more than $71 million in unlawful advance fees in connection with the marketing and sale of student-loan debt-relief services to consumers.

The complaint seeks an injunction against defendants, as well as damages, redress to consumers, disgorgement of ill-gotten gains, and the imposition of civil money penalties. It also names several defendants in order to obtain relief, and seeks disgorgement of those relief defendants’ ill-gotten gains.

Consumer Financial Protection Bureau Announces Action Against Student Loan Debt Relief Operation


NASCUS representatives were on the road again this week, with professional meetings in Minnesota, Michigan, Wisconsin and Georgia. NASCUS CEO Lucy Ito attended the Minnesota Commerce Department’s 2019 Credit Union Summit, offering her latest views on the state system, regulations and national issues affecting the state system. In the photos (at left), Ito gets together with (left) Steve Kelley, MN Commerce Department Commissioner, and Max Zappia, MN Commerce Department Deputy Commissioner, and; (at right), MN state and association officials were on hand, with (from left) Mark Cummins, Minnesota Credit Union Network (MnCUN) president and CEO; Zappia; Marcia Lewis, Financial Institutions Chief Examiner, MN Commerce Department, and; Mara Humphrey, MnCUN vice president, government affairs and association services. While in the upper Midwest, Ito also took some time in Wisconsin (where she met with Pat Wesenberg, CEO of Simplicity Credit Union  and Charlie Zanayed, CEO of CoVantage CU) and Michigan (where she shared time with Patty Corkery, EVP/COO/General Counsel of the Michigan CU League and Glory LeDu, CEO of League InfoSight). Meanwhile, NASCUS Executive Vice President and General Counsel Brian Knight traveled to Lake Oconee, Ga., to attend the 2019 CUNA Attorneys Conference.

With November comes 3 events for state system

Happy November! It seems like the year has flown by– but there is still much to do, including participation in three upcoming events this month from NASCUS. Those events are:

Compliance Risk Management Seminar (Nov. 7, Needham, Mass.)

The seminar provides a comprehensive look at the details of a Compliance Risk Management Program (CRMP) and what to look for during an examination. It will break down the CRMP, including what is a policy versus procedure, monitoring versus audit, training, complaint management, risk assessments, and how to risk assess the CRMP. Best practices for change management process in a CRMP will also be reviewed.

Connecticut Executive Forum (Nov. 13, Rocky Hill, Conn.)

This annual one-day session offers credit union volunteers and staff the opportunity to discuss key state and national issues facing the state credit union system. Co-sponsored by NASCUS, the Connecticut Department of Banking and the Credit Union League of Connecticut, the event will also feature remarks from NCUA Chairman Rodney Hood.

BSA Certification Conference (Nov. 18-21: Tempe, Ariz.)

Offered in partnership with the Credit Union Natl. Assn. (CUNA), the four-day event stands as the premiere session covering anti-money laundering/Bank Secrecy Act (AML/BSA) issues for the credit union system.

For more information about any or all of these events, see the link below.

NASCUS upcoming education events/Fall ‘19

BRIEFLY: NCUA non-member shares rule takes effect Jan. 29; Agency consumer webinar agenda set; Reminder: CFPB ECOA symposium next week

NCUA’s new rule on limits for non-member and public unit shares (adopted last week by the agency board) takes effect Jan. 29. The final rule makes a conforming change to agency regulations that apply to all federally insured credit unions (FICUs) … Registration is open now for NCUA’s Nov. 19 webinar on consumer financial regulation and protection topics, including the agency’s new Payday Alternative Loans (PALS II), findings from reviews of Home Mortgage Disclosure Act (HMDA) loan and application registers; Regulation B (Equal Credit Opportunity Act) adverse action notices; and more. The webinar, “Fair Lending and Consumer Compliance Regulatory Update,” is set for 2 p.m. ET and will last about 90 minutes. See the link below for more details … Reminder: Information collected, reported and made public through credit applications made by women-owned, minority-owned and small businesses will be the subject of the CFPB’s next symposium, set for next week (Nov. 6). The event – one of a series the agency is sponsoring on a variety of issues related to its mission – focuses on Section 1071 of the Equal Credit Opportunity Act (ECOA) and the information it requires to be reported. See the link below for details, including registration

Final rule: Public Unit and Nonmember Shares

Registration Now Open for NCUA Consumer Financial Protection Webinar

RSVP, Nov. 6 CFPB symposium on Sec. 1071 of Dodd-Frank Act (ECOA)

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