Oct. 11, 2019 NASCUS Report

THIS WEEK: ‘Progress’ notes key state system items; ON THE ROAD: Bridging an issue for WA and ME; CA issues ‘no action’ letter on cannabis service; HMDA data exemption threshold extended; Banks want FOM ruling reviewed; CECL challenges can be eased; CDFI certification window extended; Get to know NASCUS better (at 101 webinar); BRIEFLY: CUAC sets meeting

Two key state system items featured
within Hood 6-mo. ‘progress report’

A document of cooperation with the state system, and consideration of “additional improvements to credit union capital standards, such as subordinated debt authority,” are among top items cited by NCUA Board Chairman Rodney Hood’s six-month progress report issued this week.

Hood, in the report, said since he was sworn in as chairman in early April, “the agency has vigorously pursued a regulatory system that is effective, but not excessive.” He lists a variety of regulatory actions as evidence, leading off with the proposal to delay the effective date of the agency’s “risk-based capital” (RBC) rule for large, “complex” credit unions (those with $500 million or more in assets) by two years – to Jan. 1, 2022. The current effective date is this Jan. 1.

Doing so, he said would “allow the agency to take a surgical approach to implementing this rule in a coordinated manner rather than incrementally.” He also mentions subordinated debt authority (which NASCUS has advocated) as an improvement to credit union capital standards, as well as capital treatment for asset securitization, and a community bank leverage ratio equivalent for credit unions as improvements.

However, the agency has yet to propose rulemaking for any of those three approaches, and Hood offered no timeline for doing so, either.

Regarding the statement of cooperation (signed with NASCUS at the association’s 2019 Summit in San Francisco in August), Hood noted that that it sets forth “principles of cooperation between the NCUA and state regulators.”

Among the other “progress” items reported by Hood:

  • A final rule amending NCUA’s real estate appraisals for some commercial real estate transactions. Hood wrote that the final rule will help boost economic activity and job creation in local communities, particularly in some hard-pressed areas.
  • “2nd chance initiative,” which clarifies that persons convicted of certain minor offenses could be allowed to work in the credit union industry without applying for prior NCUA Board approval.
  • A final rule giving federally chartered credit unions an option to offer more payday alternative loans (PALs). The “PALs II” option, he said, augments, rather than replaces, the existing payday alternative loan option by, among other things, allowing federal credit unions to offer a PALs II loan for any amount up to $2,000.
  • A proposed rule allowing federally insured credit unions to accept nonmember and public unit shares of up to 50% of paid-in and unimpaired capital and surplus.

Six-Month Progress Report of Chairman Rodney E. Hood

ON THE ROAD: In WA, serving as a bridge for ME on cannabis

Helping one state to decipher the regulatory framework for credit union service to legal marijuana businesses in another state was the aim of a visit by NASCUS leaders this week to the state of Washington.

NASCUS President and CEO Lucy Ito (joined by NASCUS Vice President of Communications Shelton Roulhac) led a delegation from Maine – including Superintendent of Financial Institutions Lloyd LaFountain, and Todd Mason, president and CEO of the Maine Credit Union League – to the Evergreen State. The group visited with state regulators and cannabis banking stakeholders (including members of the state Liquor and Cannabis Board), as well as NASCUS-member Numerica CU of Spokane. Since 2012, Washington has allowed adults age 21 and older to purchase and possess limited amounts of marijuana; purchases can only be made at state-licensed retail stores. The state law does not pre-empt federal law.

“Adult-use cannabis is permitted in Maine,” Ito said. “However the state is still developing a regulatory framework; the experience that Washington has collected over the past seven years – and the robust regulatory framework it has developed – made the state an ideal place to learn about the industry.”

NASCUS – since at least 2014 — was among the first organizations representing state regulators, credit unions or financial institutions to call for clarity in federal law regarding financial institutions’ ability to serve legal marijuana businesses.

In the photos above (clockwise, beginning at left): Visiting Cinder, a retail cannabis shop in Spokane, Ito discusses the business with shop owner Justin Peterson and Lynn Ciani, executive vice president and general counsel for Numerica Credit Union. (Above:) At Numerica’s Spokane headquarters, Ito meets with (from left) WA Department of Financial Institutions (DFI) Examiner Supervisor Myriam Powers, Megan Denny of Numerica, and DFI Director of Credit Unions Amy Hunter. (Below:) At the DFI headquarters, the delegation gets down to work; participants included (from left) Maine Dept. of Financial Institutions Superintendent Lloyd LaFountain; WA DFI Director of Banks Roberta Hollinshead; Hunter; Ito; Maine Credit Union League President and CEO Todd Mason; and Powers.

‘No action’ guidance issued on service to legal cannabis firms

Action will not be taken against state-chartered credit unions (and banks) for serving legal, licensed cannabis companies in California, the state’s supervisory agency said in guidance issued Oct. 3.

The guidance was issued in the form of a questionnaire used by examiners. It was developed, the California Department of Business Oversight said, to address “the growing number of state banks and credit unions establishing banking relationships with cannabis-related businesses. Additional financial institutions are considering pilot programs for cannabis banking,” the agency said.

“The DBO will not bring regulatory actions against state‐chartered banks or credit unions solely for establishing a banking relationship with licensed cannabis businesses; however, the DBO expects all financial institutions to comply with FinCEN’s BSA expectations, including the FinCEN guidance and priorities set forth in the Cole Memo, and identify, evaluate, and manage risks appropriately,” the DBO added.

The Cole Memo was a 2013 U.S. Justice Department document governing federal prosecution of offenses related to marijuana. It was rescinded in 2018, but the FinCEN guidance remains in effect, the DBO pointed out.

The guidance notes that “consumers, businesses, and law enforcement have been concerned about the lack of banking access for cannabis-related businesses.” Historically, the agency said, the cannabis industry dealt primarily in cash, posing a significant public safety risk, among other concerns. “Since California’s cannabis regulators began issuing licenses in 2018, the number of state-legal cannabis businesses has increased, but many businesses have struggled to obtain basic banking services amid financial institution concerns about complying with federal law.”

Department of Business Oversight Issues Cannabis Banking Guidance

HMDA data exemption threshold extended

A two-year extension of a current, temporary threshold suspending the collection and reporting data about open-end lines of credit for certain, smaller mortgage lenders is provided under a rule issued Thursday by the CFPB. In a release, the agency said the extension – to Jan. 1, 2022 – applies to financial institutions that originated less than 500 open-end lines of credit for reporting purposes under the Home Mortgage Disclosure Act (HMDA). For data collection years 2020 and 2021, those institutions originating fewer than 500 open-end credit lines in either of the two preceding calendar years will not need to collect and report data with respect to open-end lines of credit, the agency said.

CFPB said its rule also clarifies partial exemptions from certain HMDA requirements that were included in last year’s regulatory relief legislation (the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155).

The rule incorporates into Regulation C the clarifications from CFPB’s August 2018 interpretive and procedural rule, the agency said. “This final rule further effectuates the burden relief for smaller lenders provided by the EGRRCPA by addressing certain issues relating to the partial exemptions that the August 2018 rule did not address,” according to the bureau.

The rule issued Thursday, the agency said, finalizes aspects of its May 2019 Notice of Proposed Rulemaking. Another aspect of the NPR – addressing an increase in the permanent coverage thresholds for closed-end mortgage loans and open-end lines of credit – will be covered in a final rule to be issued next year, the bureau said. This past summer, the bureau reopened the comment period on that increase (until Oct. 15).

Consumer Financial Protection Bureau Issues Final HMDA Rule to Provide Relief to Smaller Institutions

Banks want review of appeals court decision on FOM

The legal challenges to NCUA’s 2016 field of membership rules are not over yet, as the banking industry filed for a review of an appeals court decision earlier this year that mostly held up the regulations.

The American Bankers Association (ABA) filed a petition late last week with the full U.S. Court of Appeals for the District of Columbia Circuit seeking review of the decision by a three-judge panel of the court this past summer upholding much of the agency’s rules, adopted three years ago.

In its Aug. 20 ruling, the three-judge panel said NCUA holds “vast discretion to define terms because Congress expressly has given it such power.” However, the court also stated that the authority is not boundless. “The agency must craft a reasonable definition consistent with the Act’s text and purposes,” the court stated.

In filings late last week, the bankers’ group requested a rehearing of the August decision by the full (or “en banc”) panel of judges in the D.C. Appeals Court. The ABA argued that the August decision distorted long-time court views that regulators must be given deference when making rules (under the Supreme Court’s so-called “Chevron doctrine,” courts defer to administrative agencies’ interpretation of statutes they administer where Congress has not specifically addressed the question at issue).

Rehearing en banc is warranted to realign this Court’s Chevron jurisprudence with that of the Supreme Court,” the bankers’ group stated.

The group also asserted that the August decision was incompatible with judicial review under the Administrative Procedure Act and thus warranted review.

ABA Challenges Appellate Court’s Reliance on Chevron Doctrine in NCUA Ruling

CECL a challenge, but impact can be eased

The adoption by credit unions of the new accounting standard for current expected credit losses (CECL) will “significantly affect many credit unions’ net worth ratios and lead to an increase in their operating costs,” a member (and former chairman) of the NCUA Board wrote this week. But J. Mark McWatters also noted “several recent developments that will help credit unions make the transition to CECL” in an opinion piece published this week in the Credit Union Journal, a trade publication.

McWatters, a lawyer and accountant, wrote that there are at least three developments over adoption of the standard, scheduled to take full effect in 2021 but proposed by the Financial Accounting Standards Board (FASB) to be delayed to 2023, that will help NCUA and credit unions deal with its effects:

  • The agency has determined that the NCUA Board has the authority to provide for a phase-in of CECL for credit unions for regulatory capital purposes;
  • A recent list of questions and answers from FASB about CECL provides flexibility on the “reasonable and supportable forecast” required by CECL based on the size and complexity of the reporting institution “can be scaled to the size and complexity of an institution, and “do not necessarily require modeling or economic forecasting;”
  • The proposed delay of the effective date for credit unions until 2023.

The NCUA Board member wrote that, as a policy matter, he still has reservations about the need for CECL, and that he remains concerned about the standard’s potential effects on lending and financial stability. “Under Chairman Hood’s leadership, I know the NCUA will do its part to provide credit unions with additional information and training on CECL, and to educate our examiners on the standard,” McWatters wrote.

CU Journal: NCUA can ease credit unions’ CECL burden

CDFI certification window extended by six weeks

Federally insured, low-income credit unions that want to become certified community development financial institutions (CDFIs) have until Nov. 30 to apply for qualification in the 2020 funding round using NCUA’s “streamlined” certification process, the agency said this week. “This will be the final opportunity to take advantage of the streamlined certification process in 2019,” the agency said in Monday’s announcement.

The new deadline is extended from the Oct. 5 deadline announced last month.

Beginning with the FY2020 application round, credit unions must be certified as CDFIs no later than the date the Notice of Funds Availability from the CDFI Fund, housed within the Treasury Department, is published in the Federal Register. Treasury says that the CDFI Fund will no longer process funding applications and CDFI certification applications simultaneously for CDFI Program and Native American CDFI Assistance Program (NACA) award round applicants.

NCUA-CDFI Certification Initiative

NCUA Extends Deadline to Qualify for Streamlined CDFI Application to Nov. 30

Get to know NASCUS better at our 101 Orientation webinar

NASCUS 101, a half-hour (no charge) webinar that brings together members, prospective members or anyone else interested in NASCUS to better understand the unique tools and benefits NASCUS offers, is Oct. 24. The event is packed-with-information about how NASCUS works, including: the unique leadership composition of NASCUS (through state regulators and credit unions); the association’s distinctive membership model that includes state regulatory agencies, credit unions, credit union leagues, and industry partners (associate members); legislative and regulatory priorities; training and education, committees, and our foundation (the National Institute of State Credit Union Examination or NISCUE). All may learn how to leverage their NASCUS membership. The webinar ends with a Q&A session. Advance registration required; sign up today!

Agenda, registration for Oct. 24 NASCUS 101 webinar (no charge)

BRIEFLY: CFPB’s CU Advisory Council sets meeting

The first meeting of fiscal year 2020 of CFPB’s Credit Union Advisory Council (CUAC) is scheduled for Oct. 23-24 to discuss “broad policy matters related to Bureau’s Unified Regulatory Agenda and general scope of authority.” Meetings of the bureau’s Bank Advisory Council and Consumer Advisory Board are also set during that time frame. The full meeting agenda for the CUAC, which includes two NASCUS members (and six state CU representatives out of eight total members) is set to be published on the CFPB’s website Oct. 22.

Credit Union Advisory Council meeting notice

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