Unite state rules, adopt alt capital,
among NASCUS reg reform comments
The opportunity to consolidate all NCUA rules applicable to federally insured, state-chartered credit unions (FISCUs) under one section within the agency’s list of regulations should be seized as part of a regulatory reform agenda, NASCUS has written in its comment letter on the agency’s regulatory reform effort. Additionally, NASCUS wrote, the agency should commence rulemaking for alternative capital next year, rather than two to three years from now, as contemplated in the agency’s reform plan.
The NASCUS letter filed Monday is in response to NCUA’s call for comments on its four-year “regulatory reform agenda” (unveiled in August). The proposed agenda was made in response to an executive order issued by President Donald Trump in February calling on all federal agencies to review their regulations to determine which regulations may be repealed, replaced, or modified. As an independent agency, the order did not apply directly to NCUA. However, the agency chose to “adhere to the spirit” of the order, and published a recommended regulatory reform agenda that groups its existing rules into three tiers for revision over four years.
At the top of the NASCUS comments is a recommendation for “significant regulatory reform” that the agency co-locate and combine all of its rules related to share insurance in one section of the agency’s list of regulations. NASCUS pointed out that the agency opens the door to doing so (a long-time goal of the association) by proposing in its reform agenda to co-locate several other requirements of its rules into single combined provisions (such as for loan maturity and single borrower provisions).
“NCUA’s proposal acknowledges the confusing nature of having various maturity limits, various borrower provisions, and various third-party due diligence provisions scattered throughout its rules,” NASCUS wrote in its comment letter. “This burden is multiplied exponentially for FISCUs that have dozens of applicable rules scattered throughout NCUA’s FCU rules.” NASCUS noted that by consolidating FISCU rules, NCUA could provide substantial regulatory relief to FISCUs consistent with Trump’s order, and “with the rationale the agency itself cites in proposing to combine maturity limits and aggregate borrower limits.”
TIME FOR ALTERNATIVE CAPITAL RULEMAKING IS NOW, LETTER ARGUES
In other comments, NASCUS urged NCUA to begin rulemaking now for alternative capital, rather than in the third year of the agency’s reform agenda (essentially, 2020). NCUA’s reform agenda proposes to enhance low-income credit union (LICU) secondary capital rules and to establish supplemental capital for risk-based capital (RBC) rulemaking in Tier II of the plan (year three of the overall four-year plan).
But NASCUS pointed out that timing does not work under the agency’s current regulatory timetable. “Currently, credit unions have a little more than one year to prepare for the 2019 effective date of new NCUA risk-based net worth requirements,” NASCUS wrote, adding that alternative capital is an essential tool for both LICUs and non-LICU complex credit unions to meet net worth thresholds.
“As currently relegated to Tier II, Alternative Capital would not be available for use in meeting risk-based net worth requirements until after the effective date of the final RBC rule,” NASCUS stated. “Furthermore, NCUA’s proposal is ambiguous as to whether the agency remains committed to a robust Alternative Capital rulemaking, stating only that the NCUA Board “should decide whether” to make Alternative Capital changes. This runs contrary to repeated statements from NCUA unequivocally linking Alternative Capital rulemaking to risk-based capital.”
NASCUS noted that state regulators, NCUA, and many others in the credit union system have studied alternative capital, developing regulatory frameworks for well over a decade. “To abdicate the progress made on alternative capital rulemaking would squander one of the more significant, and long sought, regulatory relief opportunities before NCUA,” the association wrote.
NASCUS OFFERS MORE SUGGESTIONS IN REG REFORM LETTER
Among the other key issues identified in the NASCUS comment letter:
- That NCUA should not suspend its annual “Regulatory Review” until 2020, and urged the agency to “maintain a formal mechanism for stakeholders to provide insight into the real world effect of existing regulations on a contemporary basis;”
- Support for raising the stress-testing threshold (which NASCUS pointed out is also the subject of a separate comment period) and supported a delay in the implementation of risk-based capital;
- Support for consolidating all third party due diligence standards and eliminating certain loan participation aggregate limits in favor of a third party due diligence standard;
- Concerns about NCUA’s proposal to withdraw from joint rulemaking on appraisals with the other federal bank regulators and to create its own modified appraisal rule;
- Recommendation that NCUA change its restoration of accrual status in business loans from six payments to six months, matching bank standards;
- Advocacy for more progressive CUSO rules;
- That the agency should separate its rules for FCU supervisory committees from audit requirements for FISCUs, and fully incorporate the FISCU audit requirements in part 741 of NCUA rules.
YELLEN RESIGNATION ASSURES MORE REGULATOR CHANGE COMING
The resignation of Federal Reserve Board Chairman Janet L. Yellen from the central bank’s board – effective on the swearing-in of her successor as chair – assures that even more change to the leadership of federal financial institution regulators is coming. Further, Yellen’s resignation will leave four seats open on the Federal Reserve’s governing board – and give President Donald Trump an opportunity to shape the board as he wishes.
Yellen announced her resignation to Trump in a letter this week, writing it would be effective on the swearing in of her successor as chair of the board. Jerome Powell a current member of the board, has been nominated as the next chairman; a hearing in the Senate Banking Committee is set for Tuesday (Nov. 28) on Powell’s nomination. Yellen’s term as chairman runs to Feb. 3, 2018. Her current term on the board expires at the end of January, 2024.
Yellen wrote that sustaining the progress that the economy and health that the financial system has achieved since the financial crisis will require continued monitoring of newly emerging threats to financial and economic stability, and decisive responses. She wrote that the economy has produced 17 million jobs, on net, over the past eight years and, “by most metrics, is close to achieving the Federal Reserve’s statutory objectives of maximum employment and price stability.”
BUREAU FORMALLY CLOSES THE BOOK ON ‘ARBITRATION RULE’
A formal removal of the “arbitration rule” from the list of federal rules and regulations has been filed by the CFPB, closing the book on the regulation, which would have allowed consumers to join in class actions over disputes about financial products, including credit cards and bank accounts. “Under the Congressional Review Act, Congress has passed and the president has signed a joint resolution disapproving a final rule published by the Bureau of Consumer Financial Protection (Bureau) on July 19, 2017, to regulate arbitration agreements in contracts for specified consumer financial products and services,” the CFPB notice states, which is scheduled for publication in the Federal Register. “Under the joint resolution and by operation of the Congressional Review Act, the arbitration agreements rule has no force or effect. The Bureau is hereby removing it from the Code of Federal Regulations (CFR).”
President Donald Trump Nov. 1 signed H.R. 111, the repeal of the CFPB rule (which would have blocked “arbitration agreements” and allowed consumers to join in class actions over disputes about financial products). The repeal, accomplished through the Congressional Review Act (CRA), was passed by the Senate in late October, 51-50; the House approved the resolution earlier this year.
Under the CRA, once a rule is repealed it may not be reissued in substantially the same form – nor may a new rule that is substantially the same be issued – “unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original,” according to the statute, passed in 1996.
AS CORDRAY PREPARES TO EXIT, BUREAU KEEPS UP ACTIVE PACE
Although CFPB Director Richard Cordray may be leaving by the end of the month, the bureau continued this week to keep an active pace, issuing a letter to financial institution leaders on new technology adoption, leveling a $1.1 million penalty against a software firm, fining a large bank $6.5 million for student loan servicing failures, and issuing a report on overdraft programs.
The bureau released a letter that Cordray (who said last week he is leaving the agency) had sent to credit union, bank and financial company CEOs urging their organizations to consider adopting new technology that makes it feasible for financial institutions to enable consumers to exert “much greater control” over their credit cards, debit cards, and other payment methods. The CFPB director urged speedy adoption by financial institutions so their customers can take advantage of the technology, such as digital servicing, which can enable consumers to exercise detailed control over their accounts by setting spending limits on a card-by-card basis for particular merchants, channels of transactions (online versus phone versus in-person versus recurring transactions, for example). Cordray said he believes credit union members and bank and financial company customers will want and demand the capability, “and it is worth considering how you can prioritize the steps necessary to speed its availability to them.”
Meanwhile, the agency announced details of an action against Xerox Business Services, LLC (now called Conduent Business Services, according to CFPB) of Dallas, Texas, that included a $1.1 million fine and a demand for a plan from the software developer about fixing the errors. According to the bureau, software errors in the company’s product led to auto lenders sending incorrect information about more than 1 million borrowers to credit reporting agencies. The company compounded the problem, CFPB said, by keeping lenders in the dark about the defects. In addition to the fine, the company is required to explain the errors to its clients, act to prevent future mistakes, and provide CFPB a plan showing that the company will identify and fix all defects in its software, and ensure that the software will report accurate information to credit reporting agencies.
Tuesday, the consumer bureau revealed action against Citibank, N.A. for student loan servicing failures that the agency said harmed borrowers, fining the bank $6.5 million ($3.75 million in redress to consumers and a $2.75 million civil money penalty) and ordering the bank to “end these illegal servicing practices.” According to the bureau, the bank misled borrowers into believing that they were not eligible for a valuable tax deduction on interest paid on certain student loans. The company also incorrectly charged late fees and added interest to the student loan balances of borrowers who were still in school and eligible to defer their loan payments, among other things.
A report on overdraft programs was also released Tuesday which, according to the agency, shares findings “from qualitative interviews the CFPB conducted with consumers about their experiences with overdraft programs.” The interviews, the agency said, focused on how consumers understand overdraft programs, their perceptions of their experiences with overdraft, and their beliefs about the advantages and drawbacks to alternatives to overdraft.
NEW SUMMARIES OF NCUA LTCU, LEGAL OPINION POSTED
Two new summaries – both for NASCUS members only – on a recent legal opinion letter regarding joint coverage of fidelity bonds, and a “letter to credit unions” on appraisal exceptions in the wake of the recent hurricanes have been posted on the NASCUS website. The legal opinion deals with a change of opinion, in which the NCUA’s general counsel has decided the “individual policy” requirement of credit union fidelity bonds does not prohibit a credit union from having a bond also covering its credit union service organization (CUSO), provided the credit union owns at least 50% of the CUSO or the service organization otherwise meets the definition of a “nominee.” The letter to CUs reports on appraisal requirements that were eased for real estate-related financial transactions in areas declared to be a major disaster – including those affected by severe storms and flooding related to Hurricanes Harvey, Irma, and Maria.
NASCUS ON THE ROAD: IN VA FOR CU HOUSE HONORS
The Virginia Credit Union League (VACUL) honored NASCUS for its support of the association’s Credit Union House at a recent event in the state capital of Richmond, attended by Vice President of Member Relations Alicia Valencia Erb. NASCUS and the VACUL are developing events for the coming year to raise awareness of state credit unions and their issues, to be held at league event facilities in the capital.
BRIEFLY: Welcome to Delta Community Credit Union, Heartland CU Association; Mortgage symposium Tuesday; commercial lending school in two weeks; Happy Thanksgiving!
NASCUS welcomes Delta Community Credit Union of Atlanta and the Heartland Credit Union Association as its newest members. The credit union is led by President and CEO Hank Halter, counts more than 360,000 members and holds assets of $5.6 billion. Heartland represents credit unions in Kansas and Missouri through advocacy, compliance, professional development and consumer awareness … The NASCUS Mortgage Symposium kicks off Tuesday, with a high-level overview on topics such as Real Estate Loan workflow, Fannie/Freddie as Investor/Servicer, the Business of Loan Servicing, Economics of Servicing, Servicing Components and Loss Mitigation. The one-day training session in Newton, Mass., is $250 for members, $300 for non-members … In early December, NASCUS hosts its MBL Symposium. The one-day session on commercial lending Dec. 5 in Nashville covers investment real estate underwriting, documentation, and risk management practices. Cost is $349 for members, $399 for non-members …
NASCUS Mortgage Symposium
Happy Thanksgiving to all;
here’s to a safe and joyous holiday!
Patrick Keefe, email@example.com