Oct. 20, ’17 NASCUS Report

In budget briefing, change for OTR
emerges as state system’s focus

The state credit union system encourages NCUA to consider “further efficiencies” in its budget – including with staffing and management – that is consistent with the consolidation of the credit union system, NASCUS President and CEO Lucy Ito told the agency’s board members this week in a public briefing. However, the association leader also used the opportunity of a “budget briefing” sponsored by the board to press the state system’s case for revising the methodology of the overhead transfer rate (OTR).

Ito joined a panel of other association leaders, and a credit union representative, at the Wednesday event focusing on the agency’s 2018-19 budget. Board Chairman J. Mark McWatters and Member Rick Metsger heard the panel’s comments. NCUA has proposed a $321 million budget for 2018, up slightly (less than 1%, about $3 million) from 2017. She focused most of her remarks on the interconnection between the NCUA budget process and the OTR, which is the rate at which NCUA transfers funds from the National Credit Union Share Insurance Fund (NCUSIF) to the agency’s operating budget to cover “insurance-related expenses” of the agency.

The NASCUS president noted that the association has historically held the position that a regulatory agency is best positioned to know the resources it needs to maintain a safe and sound supervisory program. “But beyond the agency’s budget justification, NASCUS and its members have long-held concerns regarding NCUA’s management of budget funding sources and NCUA’s management of its complex role as both the chartering authority for federal credit unions and as the administrator of the National Credit Union Insurance Fund,” she said. “The overhead transfer rate—which determines how much of NCUA’s operating expenses are covered by the NCUSIF—is inextricably tied to NCUA’s implementation of its budget.”

She reiterated many themes established in the NASCUS comment letter on the OTR methodology, filed in late August. She noted NCUA’s safety and soundness responsibility as the chartering authority for FCUs; elements that go into the OTR, including: the imputed value of state regulator work (that is, the value of the work state regulators perform that lessens the financial burden on NCUA, such as safety and soundness exams); the importance of future notice and comment for the OTR methodology; and the OTR methodology’s inverse impact on FCU operating fees.

“We recognize that there is an inverse relationship between the OTR and the FCU operating fee and understand that if the OTR is adjusted to become more equitable NCUA might have to increase its operating fee accordingly,” Ito noted. “But increasing the FCU operating fee is not NCUA’s only option. Increases in the operating fees paid by FCUs could be tempered by reductions in NCUA’s overall budget.”

She closed by reiterating the commitment of the state credit union system– state regulators, credit unions, and other state system participants — to forge “a balanced partnership with NCUA that contributes to a vibrant dual charter credit union system well into the future.”

Lucy Ito written comments for Oct. 19 NCUA Board budget briefing

NASCUS comment letter: OTR methodology


Implementing operational efficiencies to reduce overall staffing requirements, while continuing to invest in information technology and data analytics to improve overall performance, is the strategy that NCUA has adopted in proposing 2018-19 budgets with limited growth, the agency told a public briefing Wednesday.

At its briefing, NCUA outlined a proposed 2018 budget of $321 million, up less than 1% (about $3 million) from 2017. “The NCUA remains committed to ensuring the safety and soundness of the credit union system, but it realizes that the dynamics of the system are changing to relatively fewer, but larger credit unions,” said Rendell Jones, chief financial officer for the agency during the budget briefing.

The CFO said a reduction for 2018 of 57 regional staff (22 CU examiners, 20 regional positions, 15 supervisory examiners) offset by seven new positions and other agency reform reallocations, will result in a net reduction of 42 positions at the agency compared to 2017. The agency has budgeted 1,183 “full-time equivalent” positions for 2018. In information technology and data analytics, the agency is increasing its spending by just more than $600,000, having reduced spending in IT software development investments by $6.2 million, but increasing IT hardware and system costs by $6.8 million from 2017 levels.

He noted four additional areas in which the agency is working to increase operating efficiency in the 2018 budget:

  • Consolidating regional offices from five down to three, with the closing of the Albany, N.Y., and Atlanta, Ga., offices in January 2019 and the corresponding elimination of those regional office staff positions;
  • Increasing the ratio of supervisory examiners to staff from 8 staff to 1 supervisor, to 10 staff to 1 supervisor ratio;
  • Reducing the amount of leased office space by 80%, which the agency will prepare for in 2018 and 2019, but will largely go into effect when the leases expire in 2020; and
  • Continuing to discern ways to reduce agency travel and training expenses, without undercutting our organizational effectiveness.

Jones noted that the 2018 budget is the fifth straight year the agency has reduced its rate of budget growth.

Prepared Remarks on NCUA’s Proposed 2018–2019 Budget October 18, 2017


Removing some of the capital planning and stress testing requirements now applicable to federally insured credit unions with $10 billion or more in assets is the aim of a proposed rule issued for comment by the NCUA Board Thursday. The proposal also, NCUA said, would make the agency’s capital planning and stress testing requirements more efficient (for both the credit unions and NCUA) by authorizing some credit unions to conduct their own stress tests in accordance with agency requirements and allowing those credit unions to incorporate the stress test results into their capital plan submissions.

The agency pointed out the approach it is taking is consistent with actions taken recently by the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC).

Under the proposal, NCUA said covered credit unions (those with $10 billion or more in assets) would be subject to new, three-tiered regulatory requirements aimed to ensure that the capital plans of those credit unions covered under the proposal are tailored to reflect their size, complexity, and financial condition. Specifically:

  • A capital plan review for a tier I credit union (which has completed fewer than three capital planning cycles and has less than $20 billion in total assets) would be incorporated into the NCUA’s supervisory oversight of the credit union.
  • A capital plan review for a tier II credit union (which has completed three or more capital planning cycles and has less than $20 billion in total assets, or is otherwise designated as a tier II credit union by the NCUA), would be incorporated into its supervisory oversight from the NCUA.
  • A capital plan review for a tier III credit union (which has $20 billion or more in total assets, or is otherwise designated as a tier III credit union by the NCUA) would continue to be subject to the current requirement that the NCUA formally approve or reject it.

Staff acknowledged that a goal of the proposal, in response to a question from NCUA Board Chairman J. Mark McWatters, is to internalize review of capital plans, rather than the agency contracting with an outside firm (such as Black Rock) to perform the review. NCUA Board Member Rick Metsger said the board is looking for comments about the proposal, in general and in specific areas – such as whether the asset thresholds should be adjusted (that is, is $20 billion too low or too high).

NCUA proposal, Capital Planning and Supervisory Stress Testing


Standardizing the loan, deposit, and investment information collected electronically during examinations was proposed by the National Credit Union Administration (NCUA) Board in a request for information issued Thursday; comments are due in 60 days. In seeking comments on the proposal, the agency board said it wants views about the “interrelated considerations and challenges” that could arise if the agency adopts a new standardized data format for loan, deposit, and investment data.

“The overarching goal of our comprehensive review is to modernize, formalize, and standardize data formats collected during examinations from the core data processing and offline systems used by credit unions,” the agency said. The information collection, NCUA said, is part of its “Enterprise Solution Modernization Program,” a long-term project at the agency to update its technology systems. “Collecting a broader dataset will provide benefits to both the NCUA and credit unions, including a more consistent examination process, a more efficient use of examiner time, reduced burden on credit unions, reduced onsite time, improved data reliability and quality, and enhanced analytics,” the agency said in its rule summary.

The action, agency staff said in a presentation at the board’s meeting Thursday, would also support NCUA’s “Exam Flexibility Initiative,” which (among other things) recommended an extended examination cycle for well-managed, low-risk federal credit unions with assets of less than $1 billion.

NCUA Board Chairman J. Mark McWatters urged the credit union system to comment on the proposal. “Please help us; it seems like a very prudent thing to do,” he said.

In other action, the board approved two final rules related to procedures for appealing agency decisions. Under a final rule on the agency’s supervisory review committee, subjects appealable to the committee are expanded, and credit unions have an option for additional review by the Director of NCUA’s Office of Examination and Insurance (E&I).

A “trailblazing” move for NCUA, according to staff during the board meeting, is that an oral hearing could be considered by the full NCUA Board – a first for the agency. They asserted that other regulators — the Federal Deposit Insurance Corp. (FDIC), Office of the Comptroller of the Currency (OCC) and the Federal Reserve — “largely rely on written record;” no face time, they said, is provided for financial institutions with the boards or the comptroller.

The final rule on the appeals process is intended to streamline and replace the process for appeals to the NCUA Board for those agency regulations that have existing embedded appeals processes. The procedures would apply in cases in which a decision rendered by a regional director or other program office director is subject to appeal to the board.
Both rules take effect Jan. 1

Proposal: Electronic Loan, Deposit, and Investment Data Collection

Final rule: Appeals procedures

Final rule: Supervisory Review Committee


Summaries of two recent crucial CFPB actions — about mortgage servicing reporting and payday lending – have been posted by the NASCUS website. The payday lending summary looks at the fact sheet developed by the consumer bureau on the new rule, governing the underwriting of covered short term and longer-term balloon payment loans including payday and vehicle title loans. The summary looks at loans and lenders covered , underwriting requirements, loans exempted from the “full payment” test established by the rule, pre-emption and other requirements. The rule is effective 21 months after publication in the Federal Register, except for section 1041.11, which takes effect in 60 days (after Register publication). As of Thursday (Oct. 19), the rule had not yet been published.

The summary of the interim final rule on the mortgage servicing communications under the Real Estate Settlement Procedures Act (RESPA; Regulation X) notes that the rule became effective just Thursday, but that comments are due Nov. 15. The summary points out that the interim rule would give mortgage servicers a 10-day window (at the end of the required 180-day period) to provide modified written early intervention notices to borrowers who have invoked their “cease communication rights” under the Fair Debt Collection Practices Act (FDCPA).

NASCUS Summary: Payday lending rule fact sheet

NASCUS Summary: Interim final rule on mortgage servicing rules under RESPA


One of the roles of our Legislative & Regulatory Affairs Division is to keep the state system informed of events and information emerging from the consumer bureau – which is why we maintain a “latest updates” on the CFPB pages on the NASCUS website. Over the last week, we’ve added reports about the bureau’s nine principles for protecting consumers when authorizing third-parties to access their financial data for financial products and services; the impact on student borrowers of complaints posted in the bureau’s database (resulting, the bureau says, in $750 million in relief for the borrowers); and the publication of an updated guide from the bureau on TILA-RESPA Integrated Disclosure (TRID) rule implementation for small entities. The “updates” are frequently refreshed; see the link below for more details.

CFPB news, updates from NASCUS


Two “letters to credit unions” about FFIEC Uniform HMDA resubmission guidelines and the delay in the implementation of the rule on prepaids have been summarized and posted by NASCUS. The letters, issued in August by NCUA (FFIEC HMDA guidelines: LTCU 17-CU-04 and; Prepaid rule: LTCU 17-CU-03) both cover federally insured credit unions. They outline the steps NCUA will be taking in applying the guidelines and rule. The NASCUS summaries (available to members only) provide additional insights on both.

NASCUS Summary: LTCU 17-CU-03, Prepaid Rule Implementation Delay (members only)

NASCUS Summary: LTCU 17-CU-04, FFIEC Uniform HMDA Resubmission Guideline (members only)


A 90-minute, no-cost, members-only conference call about the impact on the state system of the Equifax data breach will be held Monday (Oct. 23) at 2 p.m. ET. Sponsored and hosted by NASCUS, the call offers all the details surrounding the massive data breach at the credit reporting service that has roiled the nation. A panel of experts from within and outside of the credit union space – featuring experts in cybersecurity, risk mitigation, the law and public relations – have been assembled to provide participants with a complete rundown of the impact of the breach, including: How the breach happened and continuing vulnerabilities; risk mitigation steps for credit unions; legal fallout from suits brought by state Attorneys General, credit unions, and private citizens; and crisis communications tips for credit unions and regulators. This member-benefit event is open to NASCUS members only: state regulators, credit unions, credit union leagues, and system organizations. All NASCUS members were emailed dial-in instructions earlier this week (Tuesday) from NASCUS President and CEO Lucy Ito (look for subject line: “Equifax Briefing Call for NASCUS Membership – October 23 at 2 PM EST”). Or, for more information, contact NASCUS Vice President of Member Relations Alicia Valencia Erb at aerb@nascus.org or (703) 528-0874.

Agenda, panel bios: Equifax Data Breach Briefing

BRIEFLY: Credit for WA in creating ‘best environment’

Washington State Employees Credit Union of Olympia, Wash. is giving due credit to the Washington State Department of Financial Institutions after the credit union and its small dollar loan program won recognition recently as a “top 10 company to watch from the fintech sector” by the Financial Times. Credit union CEO Kevin Foster-Keddie(noting that only two other U.S. companies were recognized in the listing, but no other financial institution worldwide) gave credit to the DFI for “creating the environment for innovation to happen” and called Washington state “the best environment for credit unions.”

Future of Fintech Awards shortlist 2017 (Financial Times)


Information Contact:
Patrick Keefe, pkeefe@nascus.org

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