Sept. 27, 2019 NASCUS Report

THIS WEEK: House adopts cannabis-clarity bill … Ito: It’s ‘Imperative’ legislation for credit unions; State system legislative agenda detailed; Summary outlines supervisory committee audit rule; Former IL regulator named to key CFPB post; New ‘FAQs’ on SAFE Act published; ON THE ROAD: In DC, PA; 3 key education events next month; BRIEFLY: SBA webinar; ‘acting’ shed from title of Hood aide

House passes cannabis clarity bill;
Senate action still required

A long-sought goal of NASCUS was realized (at least partially) this week when the House passed legislation giving state-authorized, cannabis-related businesses access to credit union or bank services without the financial institution having to fear federal prosecution for doing so.

By a vote of 321-103 Wednesday, the House passed the Secure and Fair Enforcement (SAFE) Banking Act (H.R. 1595), which is designed to (according to the bill text) “harmonize federal and state law concerning cannabis-related businesses and allow these businesses access to banking services.”

NASCUS, as long ago as 2014, was among the first organizations representing state regulators, credit unions or financial institutions to call for clarity in federal law for financial institutions in serving legal marijuana businesses. Since then, in addition to adopting policy on clarity this year, NASCUS has hosted a number of sessions at its conferences and events about the issue – including the first two-day symposium early this past summer in Los Angeles focusing on cannabis banking. (Significantly, NASCUS takes no position on legalization of cannabis usage.)

This summer, NASCUS leadership (the Regulator Board and Credit Union Advisory Council) approved a cannabis banking policy that supports federal safe harbor legislation, such as the SAFE Act.

H.R. 1595, introduced by Rep. Ed Perlmutter (D-Colo.) with Reps. Denny Heck (D-Wash.), Steve Stivers (R-Ohio), and Warren Davidson (R-Ohio), would bar federal financial institution regulators from taking several actions against credit unions and banks serving legal cannabis-related businesses, including:

  • Terminating or limiting deposit insurance at a bank or credit union “solely because the depository institution provides or has provided financial services to a cannabis-related legitimate business”;
  • Prohibiting, penalizing, or discouraging a bank or credit union from providing financial services to (first) a cannabis-related legitimate business or (second) to a state (and its political subdivisions or Indian Tribe) that exercises jurisdiction over cannabis-related legitimate businesses;
  • Encouraging (in any way) a bank or credit union not to offer or to downgrade financial services to account holders solely because they own or become an owner of a cannabis-related legitimate business;
  • Taking any “adverse or corrective supervisory action on a loan made to an owner or operator” of a cannabis-related legitimate business or for real estate or equipment leased to that business.

Meanwhile, the Senate needs to act on the legislation before it can become law. At least one similar bill has been introduced: S.421, the “Responsibly Addressing the Marijuana Policy Gap Act of 2019.” Offered by Sen. Ron Wyden (D-Oregon), the legislation would (among other things) prohibit federal credit union and banking regulators from taking actions against a credit union or bank “solely because the depository institution provides or has provided financial services to a marijuana-related business,” and as long as the institution is providing service to legal cannabis-related businesses under state law. A House version of that bill (H.R. 1119, introduced by Rep. Earl Blumenauer (D-Oregon)) remains pending in the House.

However: Senate Banking Committee Chairman Mike Crapo (R-Idaho) earlier this month hinted that a vote by his panel by year’s end could be held on legislation similar to the SAFE Act. Crapo reportedly said he is compelled to act as cannabis businesses without bank access are forced to transact in cash, leading to security issues for other firms that do business with financial institutions.

NASCUS’ Ito: Bill is imperative legislation for state credit unions

It is imperative that credit unions and other financial institutions in the states that have legalized some form of cannabis use be able to provide financial services to the state-authorized cannabis businesses in their communities, NASCUS President and CEO Lucy Ito said in response to this week’s House vote.

And while she noted appreciation to the House for acting, she urged the Senate to do likewise.

In a press statement, Ito noted that without access to financial institutions, cannabis businesses will have to continue to operate in cash, which creates public safety issues and fraud risks.

“While today’s House vote is monumental,” Ito said, “the Senate must follow suit to ensure credit unions can serve their members and meet the needs of their communities by providing secure, financial services.”

State system legislative goals delineated for press

While cannabis business banking legislation is making progress, three other NASCUS legislative goals remain in the sites for the association, as highlighted by a trade publication this week.

In an article by the Credit Union Journal which summarized the credit union industry’s approach overall to congressional action during the remaining months of the 116th Congress, NASCUS CEO Lucy Ito outlined the NASCUS goals as:

*Fairness for state CUs in application of the excise tax on excess executive compensation: Under the Tax Cut and Jobs Act of 2017, a 21% excise tax is imposed on excess executive compensation for a tax-exempt organization’s five “highest-compensated” employees, Ito said. The new excise tax would apply to remuneration paid by the organization to a covered employee in excess of $1 million (including retirement benefits) during the tax year. There is no comparable “grandfathering” exemption provided for similar pre-existing executive compensation agreements in the tax-exempt sector, she said.

“We are concerned about the uneven treatment of pre-existing compensation agreements for tax-exempt organizations and have taken every opportunity to raise our issues with members of Congress,” Ito told the Journal. “We believe that simple fairness calls for Congress to either provide a similar exemption for tax-exempt organizations or rescind the excise tax altogether. Failure to provide a similar exemption for pre-existing tax-exempt compensation agreements is counterintuitive to the stated goal of achieving parity between corporate entities and tax- exempt entities going forward.”

*Assurance that national data breach legislation won’t pre-empt existing state laws: Several states have already moved forward with legislation to notify consumers about data breaches and their effects, Ito noted, but Congress is moving more slowly. When (and if) Congress does act, she said, it must preserve the authority of states to regulate and supervise cybersecurity and privacy protections.

“We have expressed concern that past data breach notification bills would interfere with a state’s ability to determine the best mechanism for providing those protections to its citizens,” the NASCUS leader said. “A state’s legislature and state supervisory agency are in the best position to determine the most effective means to protect its consumers,” she added. “In the case of the 2017 Equifax breach, state laws – not federal law – led to the company be being held accountable.”

*Reform of the NCUA Board, with expanded membership, one member with state regulator experience: Increasing the number of board members from three to five would make it possible for two board members to have informal discussions without triggering the formal meeting requirements of the Sunshine Act, Ito told the Journal. “This would allow for more efficient administration of NCUA business and would minimize undue NCUA staff control,” Ito said. She also noted the expanded board would foster feedback and the deliberative process.

Designating that at least one seat be reserved for a candidate with previous experience as a state credit union regulator would better ensure that the state perspective gets equal consideration, she added. That’s particularly important, Ito said, given what she called NCUA’s “inherent conflict of interest” as both charterer of federal credit unions and insurer of both federal credit unions and state credit unions. “A dedicated state credit union regulator seat on the NCUA board should have the positive effect of further fostering the dual charter system,” she said. She also noted the precedent of the FDIC Board, which is required (since 1996) to have a member with prior state bank regulatory experience.

CU Journal: The credit union issues fighting to break through in Congress (subscription required)

Summary outlines supervisory committee audit rule

A summary of NCUA’s new rule intended to clarify supervisory committee audits has been posted by NASCUS, outlining the rule’s major provisions.

According to NCUA, the final rule (which was adopted last week by the NCUA Board, and takes effect in 90 days after publication in the Federal Register) updates outdated provisions of existing regulation and provides flexibility to FICUs with less than $500 million in assets. NCUA said the new rule also continues to ensure appropriate financial oversight.

The new rule, according to NCUA: Replaces the outdated Supervisory Committee Guide Audit alternative to a financial statement audit and replaces it with a simplified appendix to the regulation; eliminates two types of audits federally insured credit unions seldom use; and eliminates a 120-day deadline for receiving a third-party audit report and gives credit unions the ability to negotiate a delivery date.

The summary is available to NASCUS members only.

Summary: Final Rule Part 715 Supervisory Committee Audits and Verifications (members only)

IL’s Schneider named to head CFPB enforcement

Bryan A. Schneider, former secretary of the Illinois Department of Financial and Professional Regulation – and a former NASCUS Regulatory Board member – is the new associate director in the CFPB’s supervision, enforcement and fair lending division, the bureau said Wednesday. In the role, Schneider will serve as new permanent chief of the bureau’s enforcement office.

According to the bureau, the division ensures compliance with federal consumer financial laws by supervising market participants and bringing enforcement actions when appropriate. It includes the Office of Supervision Examinations, the Office of Supervision Policy and the Office of Enforcement.

The bureau also announced four other additions to its executive team: Desmond Brown as the deputy associate director for the Consumer Education and Engagement Division; Jason Brown as assistant director for research; Karla Carnemark as deputy chief of staff, and; Ren Essene as chief data officer.

Press release: CFPB Announces Additions to Executive Team

4 new ‘FAQs’ on changes to SAFE Act published

Four new “frequently asked questions” (FAQs) about amendments to the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) made by last year’s regulatory relief legislation are outlined by the CFPB in a notice published Wednesday.

The amendments to the SAFE Act – which take effect Nov. 24 – were made by last year’s Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA, S. 2155). The FAQs cover two topics for the SAFE Act that were amended by last year’s law: Types of loan originations and state transitional licenses.

Under types of loans, the FAQs ask “what are the categories of loan originators in the SAFE Act,” and “where can loan originators exercise temporary authority.”

Under state transitional licenses, the questions are “what is the bureau’s guidance regarding state transitional license availability under the ‘SAFE Act,’” and “does EGRRCPA impact the statue of state transitional licenses under the SAFE Act.”

As it typically does with FAQs about its regulations, the bureau noted that reviewing the FAQs (and answers) “is not a substitute for reviewing the SAFE Act or the Bureau’s Regulation G or Regulation H.” The statute and the regulations, CFPB noted, are the definitive sources of information regarding the requirements.

*Also this week: the bureau released its “Filing Instructions Guide” (FIG) – a  technical resource — for assistance in filing HMDA data collected in 2020 and reported in 2021 by credit unions and other financial institutions. The FIG is a compendium of resources to help financial institutions file their data, the bureau said. Among the major changes in the new FIG: Beginning in 2020, covered institutions that reported a combined total of at least 60,000 applications and covered loans in the preceding calendar year are required to report HMDA data quarterly.

Secure and Fair Enforcement for Mortgage Licensing Act FAQs

Bureau issues new HMDA ‘FIG’ with technical resource for 2020

ON THE ROAD: In DC (with CUs from Brazil), in PA (at examiner forum, training)

Twenty-six senior staff and board members from Brazilian credit unions sat down in Washington this week with NASCUS Vice President of Communications Shelton Roulhac to discuss (through an interpreter, as the primary language for the delegation was Portuguese) the dual charter system for credit unions in the United States. The Brazilians, representing the UNICRED credit union system in their country, sought information about how the dual chartering system in the U.S. works, relationships between state credit unions and their regulators, the pros and cons of the state and federal regulators, and key areas of oversight. The get-together was arranged by the World Council of Credit Unions (WOCCU) through its Global Classroom initiative, which aims to bring credit union professionals and directors together from around the world to discuss common areas of interest.

3 key events coming up in October (next week!)

Three education events from NASCUS are upcoming in October (which, believe it or not, begins next week), offering opportunities for state system participants in Ohio, Michigan – and around the nation.

All state system participants from around the nation are invited to participate in the “NASCUS 101” session, a webinar set for Oct. 24 (from 2-2:30 p.m. ET). The half-hour (no charge) webinar brings together members, prospective members or anyone else interested in NASCUS to better understand the unique tools and benefits NASCUS offers. The session serves as both a member orientation and as an introductory session for those wanting to learn more about the association’s mission and actions.

Also in October:

Oct. 3: Ohio Directors’ College (State Library of Ohio, Columbus): Training provided to directors and officers by the credit union section of the Ohio Division of Financial Institutions (and hosted by NASCUS);

Oct. 22: Michigan Industry Day (Sheraton Ann Arbor hotel, Ann Arbor): An up-close look at the Michigan regulatory agenda and practices, as well as a close look at national issues.

There is life after October, too – with several events coming up, including:

Nov. 5: Wisconsin Directors College (WI Department of Financial Institutions, Madison, Wis.): Co-sponsored with the Wisconsin Department of Financial Institutions and the Wisconsin Credit Union League, the one-day event is open to both directors and credit union senior management to discuss key regulatory and legislative issues affecting Wisconsin credit unions.

Nov. 18-21: BSA Certification Conference (Tempe Mission Palms hotel, Tempe, Ariz.): Offered in partnership with the Credit Union Natl. Assn. (CUNA), the four-day event stands as the premiere event covering anti-money laundering/Bank Secrecy Act (AML/BSA) issues for the credit union system.

Dec. 3, Tennessee Directors’ College (Tennessee Tower, Nashville): Open to board and committee members, as well as credit union management, this one-day session offers a complete rundown of the state and federal regulatory and legislative issues confronting the local credit union scene.

NASCUS upcoming education events/Fall ‘19

BRIEFLY: NCUA, SBA host webinar; no more an ‘acting’ role for Hood CoS

A webinar to help credit unions learn about lending programs of the Small Business Administration (SBA) is set for Oct. 16, hosted jointly by the agency and NCUA. The program includes a brief history of the SBA, benefits of SBA to the borrower and to the credit union, an overview of SBA programs, and how offering small business loans may align with the credit union’s mission. The one-hour program is set to start at 2 p.m. ET. See the link below for registration information … H. Lenwood Brooks has shed the “acting” portion of his title as chief of staff for NCUA Board Chairman Rodney Hood, the agency said this week. Since joining the agency in late May, Brooks has held the “acting” chief of staff title, as well as the position of director of the agency’s office of external affairs and communications.

The Big Picture of SBA Lending for Credit Unions—Part 1

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