(Dec. 23, 2021) Pandemic-related regulatory relief under rules on loan participations, eligible obligations, and occupancy requirements for certain properties has been extended to year-end 2022, under a temporary final rule given the green light in a unanimous notation vote by the NCUA Board this week.

The agency said the relief measures, originally approved in April 2020, are aimed at helping federally insured credit unions (FICUs) remain operational and able to address economic conditions caused by the COVID-19 pandemic.

This action continues, temporarily:

• the increase in the maximum aggregate amount of loan participations that a FICU may purchase from a single originating lender to the greater of $5 million or 200% of the FICU’s net worth;
• the suspension of limitations on the eligible obligations that a federal credit union (FCU) may purchase and hold; and
• the tolling of the required timeframes for the occupancy or disposition of properties not being used for FCU business or that have been abandoned (given the physical distancing practices necessitated by COVID–19).

The temporary revisions were originally set to expire last year-end, but Dec. 31, 2020, extended through this year. “Due to the continued impact of COVID-19, the Board has decided it is necessary to further extend the effective period of these temporary modifications until Dec. 31, 2022,” the agency stated in its notice for the Federal Register, which was set to publish Wednesday.

The provisions of this rulemaking generally take effect upon publication.

LINK:

NCUA Board Approves COVID-19 Regulatory Relief Extension

(Dec. 23, 2021) Reminder: NASCUS sent to credit union and associate members their 2022 membership dues invoices in mid-December. NASCUS primary points of contacts should look for an email from Shellee Mitchell, program specialist. If you have not received your invoice by now, please let Shellee know at [email protected]. NASCUS appreciates the ongoing support from our membership, and we look forward working with you again in 2022. Special note: Thank you to our members who have already renewed their membership!

(Dec. 23, 2021) Regulators should take appropriate actions within their jurisdictions to address risks associated with digital assets like stablecoins, while continuing to coordinate and collaborate on issues of common interest, the Financial Stability Oversight Council (FSOC) recommended late last week.

And if federal legislation mandating regulation of stablecoins and other digital assets is not enacted, FSOC said, regulators should be ready to take steps on their own.

In its 2021 annual report, the Financial Stability Oversight Council (FSOC) made several recommendations, including those on digital assets, transition away from the LIBOR reference rate, climate-related financial risk, and cybersecurity.

“The Financial Stability Oversight Council’s annual report analyzes past episodes of financial turmoil to understand weak points in our financial system. It also reviews the actions taken by the Council to strengthen our financial system, with one eye on the past and one on the future,” said Secretary of the Treasury Janet L. Yellen, who chairs the council made up of leaders of federal financial regulators. “In the coming year, the Council will continue to monitor threats to financial stability and take concrete action where appropriate.”

Regarding digital assets, the report recommends that member agencies consider the November-released report on stablecoins issued by the President’s Working Group on Financial Markets, in conjunction with the FDIC and the OCC.

Among other things, that report advocated requiring that stablecoins should only be issued through federally insured depository institutions (such as credit unions and banks) through an act of Congress. The report also recommended that that legislation complement existing authorities held by federal regulators meant to ensure market integrity, investor protection, and prevention of illicit finance.

“The Council recommends that federal and state regulators continue to examine risks to the financial system posed by new and emerging uses of digital assets and coordinate to address potential issues that arise from digital assets,” the report stated. It added that the FSOC will further assess and monitor the potential risks of stablecoins while recommending FSOC members consider actions to address those stablecoin risks by working together.

However, if legislation is not enacted, the FSOC said, it will be ready. “The Council will also be prepared to consider steps available to it to address risks outlined in the PWG Report in the event comprehensive legislation is not enacted,” the report states.

LINK:

Financial Stability Oversight Council Releases 2021 Annual Report

 

(Dec. 23, 2021) The moratorium on federal student loan payments is extended through May 1, the Biden Administration announced Wednesday, pushing the deadline back from its previous end point of Jan. 31. The White House said the spread of the omicron variant of the COVID-19 virus prompted the extension … Landlords and mortgage servicers with military servicemembers and veterans as tenants and clients were put on notice about housing protections enacted for servicemembers during the coronavirus crisis in letters sent this week from the CFPB and the Department of Justice. In their joint letters, the agencies said they reminded landlords and mortgage servicers of important legal housing protections for military families. They noted that some servicemenbers “may have had to relocate or make other changes to their housing arrangements in response to the crisis,” the agencies said. “While military families enjoy the same legal protections and privileges afforded to all other homeowners and tenants, they also have additional housing protections under the Servicemembers Civil Relief Act (SCRA), which is enforceable by the DOJ and servicemembers themselves” … Federal banking regulators, along with federal securities industry and housing supervisors, have decided to leave unchanged their definitions of qualified residential mortgage (QRM), the community-focused residential mortgage exemption, and the exemption for qualifying three-to-four-unit residential mortgage loans under their 2014 federal credit risk retention regulations. The decision was based on a review of the rules that began in 2019; the agencies said they have decided, “at this time, not to propose to amend the definition of QRM, the community-focused residential mortgage exemption, or the exemption for qualifying three-to-four-unit residential mortgage loans” … A fourth new federal credit union (FCU) charter for the year, which would offer services to the community of Eatonville, Fla., was announced this week by NCUA. Eatonville FCU is sponsored by the Macedonia Missionary Baptist Church Eatonville Florida, Inc. NCUA said the new credit union is the first federally insured financial institution in the community. It has the agency’s low-income designation and may also qualify as a minority depository institution, NCUA said … This issue of NASCUS Report is the final one for 2021; we’re taking a week off next week for the holidays. The next issue of NASCUS Report is scheduled for Jan. 7. Until then: have a terrific Christmas and here’s to a happy New Year!

 

Cheryll Olson Collins will be the new secretary of the Wisconsin Department of Financial Institutions (DFI) effective Jan. 17, replacing Kathy Koltin Blumenfeld who has accepted a new position in state government (also effective Jan. 17). Olson Collins is now deputy secretary of DFI; before that, she was the acting administrator of the agency’s division of banking. Meanwhile, Blumenfeld has been named secretary-designee of the state’s department of administration (DOA).

 

(Dec. 23, 2021) Brian Knight is the next president and CEO of NASCUS, the association announced this week, effective Jan. 1. He succeeds Lucy Ito, who retires as of Dec. 31, after leading the association since 2014.

 A 23-year staff member of the association, Knight’s most recent position is executive vice president and general counsel, a position he held since 2014. In 2007, he was named the association’s first internal general counsel; he joined the association in 1998 as director of regulatory affairs.

“NASCUS is a unique and vitally important thread in the fabric of the credit union system and the broader financial services sector,” Knight said. “I am honored and humbled to accept this position and build on the achievements of Lucy and those leaders that have come before me.”

Knight (right) said NASCUS helps to ensure that the credit union system is positioned to meet the challenges of the moment and of the future by supporting state regulatory agencies and working with dedicated credit union professionals to facilitate the cooperation and consultation essential for dynamic and viable credit union system.

“I know firsthand the commitment of our staff and members to our mission. I want to thank the NASCUS Regulator Board of Directors and Credit Union Advisory Council for this opportunity,” he added.

NASCUS Regulator Board of Directors Chair Rose Conner (who is administrator of the North Carolina Credit Union Division) said Knight is uniquely qualified to lead the organization. “The depth and breadth of his knowledge about the state and federal credit union systems, and his keen sense of emerging issues in the consumer financial services marketplace, has well-prepared him for this new role,” she said.

NASCUS Credit Union Advisory Council Chair Mike Williams (CEO of Colorado Credit Union in Denver) echoed Conner’s view. “I am confident that Brian’s leadership and vision are the combination we need to continue the organization’s success into 2022 and beyond,” he said.

Both Conner and Williams expressed their thanks to Ito for her leadership over the past seven years and wished her the best in her retirement.

Knight holds a B.A in history and political science from Hope College in Holland, Mich., and a J.D. from the Marshall Wythe School of Law of the College of William & Mary in Williamsburg, Va.

LINK:

NASCUS press release: Brian Knight Selected as NASCUS President and CEO

(Dec. 23, 2021) When credit unions open their doors for business on Jan. 3, a revised regulatory landscape will stretch before them with three regulatory changes that took effect Jan. 1: a new “risk-based capital” (RBC) rule, a new “complex credit union leverage ratio” (CCULR), and a new reference rate to replace the then-defunct London Interbank Offered Rate (LIBOR).

The RBC rule was approved by NCUA more than six years ago (and amended more than three years ago). Its aim was to require credit unions taking certain risks to hold capital commensurate with those risks. It restructured the agency’s existing “prompt correction action” (PCA) rules, including by adding a risk-based capital ratio (rather than a risk-based net worth ratio) for federally insured credit unions.

The effective date of the rule was delayed repeatedly by NCUA, as the agency considered (and later made) changes to the asset size for defining a “complex” credit union, which is affected by the RBC rule, and restructured the rule in consideration of recent events.

The agency first issued its risk-based capital proposal for “complex” credit unions – then defined as those with more than $100 million in assets – in 2014, with implementation slated 18 months after the rule would have been finalized. A revised proposed rule was issued in 2015 and finalized that October with an effective date of Jan. 1, 2019. That final rule replaced the risk-based net worth ratio contained in the 2015 rule with a new risk-based capital ratio for federally insured credit unions, which the NCUA called comparable to the regulatory risk-based capital measures used by the federal banking agencies: the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of Currency (OCC).

However, in 2018 the NCUA Board revised its definition of “complex” credit unions to include only those credit unions with more than $500 million in assets and delayed the rule’s implementation again, to Jan. 1, 2020. A year later (in 2019) the agency pushed the rule’s implementation date to Jan. 1, 2022. The delay was necessary, the agency said, to review potential changes to credit union capital such as subordinated debt authority; capital requirements for asset securitization; and an option like the community bank leverage ratio (CBLR) that had since been adopted for banks by federal banking agencies.

The board, in fact, addressed all those issues – including, just last week, finalizing the CCULR which it described as an “off-ramp” for eligible complex credit unions from the RBC rule. The rule also took effect Jan. 1; it was approved just last week.

That final rule creates a framework that allows “complex” credit unions opting in to maintain the CCULR instead of risk-based capital. Under CCULR, a complex credit union – one having more than $500 million in assets – may qualify to opt in to the CCULR framework if it has a minimum net worth ratio of 9%. this minimum requirement for a classification of “well capitalized” under the CCULR framework – modeled on federal banking agencies’ community bank leverage ratio (CBLR) – is higher than the 7% minimum ratio required under prompt corrective action (PCA) but lower than the 10% required under risk-based capital. The CCULR final rule also amends provisions of the 2015 risk-based capital final rule. The agency notes that based on June 30, 2021, call report data, about 70% of complex credit unions (down from 90% pre-pandemic) qualify to use the CCULR framework and would be well capitalized under a 9% calibration.

(Also taking effect Jan. 1: changes to NCUA’s rule on subordinated debt, aimed at easing low-income credit unions’ participation in Treasury’s Emergency Capital Investment Program (ECIP), which was created to help communities hard hit economically by the COVID-19 pandemic. The revisions amend the definition of “grandfathered secondary capital” to include any secondary capital issued to the U.S. government or one of its subdivisions under a secondary capital application approved before Jan. 1, 2022, regardless of the date issued. The final rule also extends the expiration of regulatory capital treatment for such secondary capital issuances to the later of 20 years from the date of issuance or Jan. 1, 2042. According to the NCUA, Treasury on Dec. 14 said 85 credit unions will receive about $2 billion in funding that can be used as secondary capital.)

Finally, also effective Jan. 1: LIBOR can no longer be used as a reference rate for a wide variety of financial instruments: from derivative contracts to consumer loans written after Jan. 1 (existing contracts may use LIBOR until June 30. 2023, when LIBOR will be completely phased out). Financial institutions and others will have to use an alternative, which (for derivatives and many other financial contracts) is the Federal Reserve-developed Secured Overnight Financing Rate (SOFR), a broad Treasuries repurchase financing rate.

NCUA has not told credit unions they must use SOFR for their consumer, student, commercial, real estate or other loans with potential LIBOR exposure. Instead, the agency has left that up to each institution to determine for itself (as long as the credit union determines the rate is appropriate for its risk management and member needs).

The agency has also advised that all LIBOR-based contracts that mature after Dec. 31 (one-week and two-month) and June 30, 2023 (one-, three-, six- and twelve-month) should include contractual language that provides for use of a robust fallback rate.

(Dec. 23, 2021) The revelation of the “log4j” computer vulnerability made headlines this week, and NASCUS followed up by posting on its cybersecurity alerts and responses web pages guidance from federal agencies on how to protect against exploitations of the weakness.

Late last week, the federal CyberSecutiry & Infrastructure Security Agency (CISA) released a directive ordering federal civilian executive branch agencies to address vulnerabilities of log4j, a component widely used in Java scriptwriting for computer routines, including on websites and in applications. The component holds a “critical remote code execution” (RCE) vulnerability that computer and network security officials have found is being exploited by hackers. CISA described the hacks as “active, widespread exploitation.”

Friday’s directive, according to CISA, requires agencies to implement additional mitigation measures for vulnerable products where patches are not currently available and requires agencies to patch vulnerable internet-facing assets immediately.

By the beginning of this week, news about the vulnerability was reported widely in the press, with some headlines stating the vulnerability could be the “most serious in decades.”

Federal civilian agencies have until Friday to complete patching for log4j, according to press reports.

But that may not be enough, according to cybersecurity experts, as by then hackers may have already found their way into systems using the code.

In the meantime, users are advised to be on the lookout for phishing emails (and many of them) – and NOT to click on any links. For example, in response to an email claiming that an account has been compromised or a package failed to deliver, a user should ensure first that an account actually exists with that company and the user was expecting an email. Then, the user should find a real customer service number or address online and reach out in either (or both) of those methods.

Additionally, updating systems and apps with patches provided by software developers is the best defense, according to security networks.

LINK:

NASCUS Cybersecurity Alerts & Resources: Apache Log4j Vulnerability Guidance

(Dec. 23, 2021) Concern about accumulating debt, regulatory arbitrage, data harvesting, and other components associated with “buy now, pay later” (BNPL) plans has led the CFPB to open an inquiry into the quickly expanding market, the agency said late last week.

Meanwhile, the credit-reporting agency Equifax announced over the weekend that it intends to add elements of BNPL plans (such as installment repayments) to its credit statements, filling what has become a blind spot for lenders.

In a release, the CFPB said it has issued a series of orders to firms – including Affirm, Afterpay, Klarna, PayPal, and Zip – that are using the BNPL plans to collect information about the risks and benefits of the BNPL plans which the bureau referred to as loans.

The bureau described BNPL as a type of deferred payment option that generally allows the consumer to split a purchase into smaller installments, typically four or fewer, often with a down payment of 25% due at checkout.

Bureau Director Rohit Chopra described BNPL as a new version of old layaway plans, with the twist that where the consumer gets the product immediately, but gets the debt right away too.

The bureau contended that merchants are adopting BNPL programs and are willing to typically pay 3% to 6% of the purchase price to the companies. The agency said that’s similar to credit card interchange fees, because consumers often buy more and spend more with BNPL.

Equifax said it will begin recording installment plans that allow shoppers to make four biweekly payments instead of covering the full cost at checkout, often from online sources. Those particular plans have become very popular with shoppers, as they require a low down payment followed by three additional plans over time (known as “pay in four” plans).

But the payment plans do not typically show up on credit reports, which means financial institutions do not receive a clear picture of the risk the consumer has accumulated.

The credit reporting agency said that more than 45 million people in the U.S. are expected to use BNPL services in 2021.

LINK:

Consumer Financial Protection Bureau Opens Inquiry Into “Buy Now, Pay Later” Credit