(Sept. 24, 2021) Saule T. Omarova, a Cornell University law professor, is President Joe Biden’s (D) pick as nominee to a five-year term for Comptroller of the Currency, the White House announced Thursday. A former special advisor for regulatory policy in the Treasury Department’s office of domestic finance (from 2006-07), Omarova has spent most of her career as an academic and lawyer studying and practicing financial regulatory law, according to a biography published by the White House … NCUA did not always pursue enforcement actions aggressively enough with regard to failed credit unions with concentrations in taxicab medallions, or conduct post-mortem reviews of failed credit unions as required, the Government Accountability Office (GAO) said in a report issued Thursday. The report, the congressional watchdog said, was aimed at analyzing the causes of failure and observed opportunities for NCUA to enhance its oversight. The report takes particular focus on the failure in 2018 of three credit unions with loans concentrated in taxi medallions with declining values. GAO said it recommended that the agency enhance its tracking of enforcement data, act earlier on indications of future problems, and complete post-mortem reviews in a timely manner … Credit unions and banks serving legal, cannabis-related businesses would receive a “safe harbor” and other protections under legislation that was added this week to the House version of must-pass FY22 National Defense Authorization Act (NDAA), which annually funds the nation’s military, among other things. The House passed the bill – Secure and Fair Enforcement (SAFE) Banking Act — as a standalone measure earlier this year, but it has not advanced in the Senate. Including it in the NDAA helps the SAFE Banking Act’s chances for final enactment, but is still subject to change in the Senate.
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President Biden Announces Key Nominations for Financial Regulation and Investor Protection
NCUA: Additional Actions Needed to Strengthen Oversight
(Sept. 24, 2021) In yet more action at its Thursday meeting, the NCUA Board approved a state member business lending rule in Oregon for exemption from NCUA’s revised member business lending rule. However, NASCUS noted that the approval highlights concerns for the state system about the 2016 rule that the approval was based on, and the need for future dialogue with the agency about that federal rule.
Under NCUA rules, state-chartered credit unions do not face NCUA examination of compliance with the agency’s member business (commercial lending) rule if the state rule is “no less restrictive” than the NCUA regulation. Oregon had presented its state business rule for consideration and approval by the NCUA Board that the rule complied with the federal regulation.
NASCUS’ Lucy Ito praised Oregon regulators for taking the time and effort to develop a rule that complied with the federal requirements. She also said the state system acknowledges the NCUA Board’s approval of the Oregon rule.
However, Ito said NASCUS has continuing concerns with the NCUA regulation adopted five years ago.
“From the modern inception of NCUA’s MBL (now commercial lending) rule, Part 723 has provided a path for states to implement a divergent, yet sound, rule governing commercial lending,” Ito said. “In the intervening years between 1998 and 2016, several states took advantage of that power—to the betterment of the entire credit union system. And those states did so without detrimental effect on the National Credit Union Share Insurance Fund. Indeed, in finalizing the 2016 rule, NCUA cited no shortcomings or enhanced risk in states that had adopted state-specific MBL rules.”
She noted that, under the previous rule, states both with and without state-specific rules led the way in removing the MBL personal guarantee requirement as a regulatory mandate, permitting loan-to-value (LTV) flexibility, and introducing the concept of viewing MBL through the prism of commercial lending terminology. She asserted that the federal agency emulated states on all these fronts several years after states had evolved these changes.
“In a rule meant to be principles-based, NCUA chose an unnecessarily prescriptive approach to managing the dual-chartering strength of the credit union system,” Ito said. “Rather than focusing on whether a state-specific rule increased risk to the NCUSIF in an unacceptable manner, the ‘no less restrictive’ limitation on state rules instead foreclosed, for practical purposes, the historical avenue by which the regulatory framework for commercial lending was advanced. This was and remains unfortunate,” she said.
The NASCUS leader added that, at a time when the agency is appropriately considering innovative approaches to accommodate digital assets and fintechs, “revisiting innovation in the regulation and supervision of commercial lending would be congruent with NCUA’s laudable future focused posture.”
She said the association looks forward to conferring with NCUA on reconsidering the MBL rule and other regulations “to assure the future vibrancy and health of the credit union system by fostering regulatory diversity and competition between charters and regulators while maintaining safety and soundness.”
LINK:
Oregon Member Business Lending Rule
(Sept. 24, 2021) Four representatives of state-chartered credit unions are joining four representatives of federal credit unions as members of the CFPB’s Credit Union Advisory Council (CUAC), according to an updated roster of the panel released this week by the agency.
The CUAC is one of four advisory councils sponsored by the bureau (as mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) of 2010). The other three are the Consumer Advisory Board (CAB, the largest with 14 members), the Community Bank Advisory Council (CBAC, eight members), and the Academic Research Council (ARC, five members).
The groups are advisory, providing advice and input to the bureau on issues related to their interest areas; they meet at least twice a year. Members serve two-year terms.
The CUAC roster is now:
- Jose Iregui (Chair), Vice-President of Consumer Lending, Langley Federal Credit Union (Newport News, VA)
- Michael Daugherty, President, Community Plus Federal Credit Union (Rantoul, IL)
- Monica Davis, Senior Vice President Risk Management, Union Square Credit Union (Wichita Falls, TX)
- Michelle Dwyer, President/CEO, Franklin First Federal Credit Union (Greenfield, MA)
- Jeff Ivey, President/CEO, River City Federal Credit Union (San Antonio, TX)
- Jeremiah Kossen, President/CEO, Town and Country Credit Union (Minot, SD)
- Michael Levy, General Counsel, Travis Credit Union (Vacaville, CA)
- Deborah Wreden, EVP, Product & Delivery Strategy, Virginia Credit Union (Richmond, VA)
LINK:
Consumer Financial Protection Bureau Announces New Advisory Committee Members
(Sept. 24, 2021) Credit unions have long prided themselves as the financial institutions that put consumer members and communities first – and responses to last month’s hurricane by a Louisiana state-chartered credit union are perfect examples of putting that pride to work.
According to the Louisiana Office of Financial Institutions (OFI), Pelican State Credit Union (of Baton Rouge) took several key steps to offer relief to their members, and the community, in the wake of Hurricane Ida. The LAOFI reports that Pelican State told the regulator that the credit union:
- Proactively refunded more than $118,000 in overdraft protection program, non-sufficient funds and ATM fees for charges incurred from Aug. 28 to Sept. 3;
- Made available disaster relief loans, credit card limit extensions, and more time to make loan payments;
- Provided supplies to other credit unions in areas affected by the hurricane and its aftermath, including lunch to the employees of one credit union.
This week, according to LA OFI, the credit union completed its “gas giveaway,” which distributed $7,000 worth of gasoline to residents in hard-hit Terrebone Parish (on the Gulf Coast), offering relief to persons using generators to provide power in the wake of the storm, now more than three weeks ago.
“The efforts of Pelican State, supported by the LA OFI, to lend assistance to those in need at this critical time are a great reflection on the CU Industry in the state and nationwide,” said NASCUS’ Lucy Ito. “The credit union maintains the mission of serving its members above all else – and the state regulator ensures an environment where such service can be provided quickly and efficiently. Congratulations, and thanks, to all.”
(Sept. 24, 2021) NASCUS President and CEO Lucy Ito agreed with the NCUA Board for proposing the secondary capital changes to the subordinated debt rule scheduled to take effect at the first of next year. “The state system appreciates the board’s proposal to essentially make subordinated debt more accessible to LICUs,” Ito said. “That will serve to strengthen the use of subordinated debt and reduce burden on LICUs—two goals the state system has been seeking for years.”
Regarding the action on the three rules over the next three months – and particularly expansion of CUSO authorities, Ito noted that NASCUS supports the agency obtaining exam authority over technology service providers (TSPs) that provide services to federally insured credit unions — provided that any such authority requires NCUA to rely on state examinations of such service providers where such authority exists at the state level. Further, she noted, NASCUS supports efforts to strengthen state regulatory exam and supervision of third parties providing services to state-chartered credit unions.
(Sept. 24, 2021) A proposed change to the new subordinated debt rule to accommodate credit union access to federal investment programs – but making no other changes to the rule taking effect Jan. 1 – was approved unanimously for a 30-day comment period by the NCUA Board Thursday.
In other action, the board agreed – on a split vote, with Chairman Todd Harper dissenting – to act on three outstanding proposed rules over the course of the next three, monthly board meetings dealing with credit union service organization (CUSO) authorities, field of membership (FOM) shared service facility requirements, and mortgage servicing rights (see following item).
The subordinated debt proposal, according to NCUA staff, would amend the definition of “grandfathered secondary capital” to include any secondary capital issued to the U.S. government or one of its subdivisions under an application approved before Jan. 1, “irrespective of the date of issuance” (that is, when funds are issued), primarily to benefit low-income credit unions (LICUs).
According to NCUA, the benefit would accrue to the LICUs that are either participating in the Treasury Department’s Emergency Capital Investment Program (ECIP) — or other programs administered by the federal government – “that can be used to fund secondary capital, if they do not receive the funds for such programs by Dec. 31, 2021.”
This proposal also provides that the expiration of regulatory capital treatment for the issuances is the later of 20 years from the date of issuance or Jan. 1, 2042, according to NCUA.
The ECIP (created by this year’s Consolidated Appropriations Act) directs Treasury to make investments in “eligible institutions” to financially support small businesses and consumers in low-income and underserved communities. Those institutions include federally insured credit unions that are minority depository institutions (MDIs) or community development financial institutions (CDFIs) that are in sound financial condition. The investments are made in the form of subordinated debt.
However, although LICUs are also eligible to apply to NCUA for secondary capital treatment for the investments, under current rules those institutions approved by NCUA for the program and not funded by year’s end would have to reapply for regulatory capital treatment under the subordinated debt rule.
The proposal would permit funding of secondary capital approved under the current rule, beyond 2021, without the need to reapply under the subordinated debt rule – thus giving those credit unions a measure of regulatory relief.
According to NCUA, as of Sept. 17, 44 LICUs have received approval to issue secondary capital under the ECIP for an aggregate amount of approximately $1.9 billion.
LINK:
Proposed Rule, 702 and 703, Subordinated Debt
(Sept. 24, 2021) Earlier in the meeting, the NCUA Board voted – 2-1, with Harper the “no” vote – to act on three outstanding proposed rules over the span of the final three months of the year. Under the board’s vote, an expanded list of permissible activities and services of CUSOs would be considered for final action at the board’s Oct. 21 meeting
Action on two other outstanding proposals – on FOM shared service facility requirements, and mortgage servicing – were also scheduled for action at upcoming board meetings (Nov. 18 and Dec. 16, respectively). All three rules have been awaiting final action since this spring, following the close of their comment periods.
The CUSO proposal would allow the origination by a service organization of any type of loan that a federal credit union may originate, and grant the NCUA Board additional flexibility to approve permissible CUSO activities and services. In the comment request, the agency also sought comments on broadening federal credit unions’ authority to invest in CUSOs.
The proposal was issued by the NCUA Board Jan. 14, also on a vote of 2-1, with then-Board Member Harper dissenting (he became chairman later that month). Harper, making his objection, noted the NCUA’s lack of direct supervisory authority over CUSOs and indicated the proposal raised potential consumer protection concerns.
He essentially repeated those objections at Thursday’s meeting, calling the proposal the “wrong rule at the wrong time.” He asserted that the rule is not related to COVID-19 pandemic relief, and more likely to cause harm to small credit unions rather than help them. “It will grow an already unregulated space within the credit union system with little accountability to consumers and credit unions,” Harper said.
He also reiterated a call (which he has made before Congress) for NCUA to have oversight authority of CUSOs and other third-party vendors.
Regarding the FOM shared service facility requirements and mortgage servicing proposals, the NCUA chairman voiced continued opposition to both, but also aired some optimism about “a path forward” for each.
Under the FOM shared service facility requirements, any federal credit union shared branch, ATM, or electronic facility would meet the definition of “service facility” for membership requirements in multiple-common-bond FCU that participates in a shared branching network, thus expanding membership reach of federal credit unions. Under the mortgage servicing proposal, the agency’s investment regulation would be amended to permit FCUs to purchase mortgage servicing rights from other federally insured credit unions subject to certain conditions.
Those two proposals were issued for comment in December, on a vote of 2-1 for both with Harper dissenting on both.
Thursday’s action on the three proposals was advanced jointly by Vice Chairman Kyle Hauptman and Board Member Rodney Hood. They presented a joint memo to the board for approval that set the meeting dates, specifically meant to force action on the three outstanding proposals. “The items put forth by this Board Action Memorandum shall be brought before the Board as final rules in the timeframe set by this action. Nothing in this action should be construed to alter NCUA’s obligations under the Government in the Sunshine Act,” their memo stated.
LINK:
Board action memorandum: Action on NCUA Board Agenda Items for 2021
(Sept. 24, 2021) Two key events from NASCUS aimed at supporting and building the credit union dual chartering system are coming up over the next several weeks, part of the association’s overall commitment to the state and federal oversight of the credit union system.
Both events, part of NASCUS’ Dual Charter Resource Initiative (DCRI), are by invitation only.
The Credit Union and Regulator Engagement (CURE) is set for next week (Sept. 29-30). A virtual event, it brings together leaders from credit unions with between $4 billion to $10 billion with state regulators from across the country to focus on topics now affecting the credit union system. Among the topics on the agenda are: central bank digital currencies (CBDCs), climate change considerations for the credit union system, the evolution of the mortgage market from the Great Recession (beginning in 2007) to the current COVID-19 era, and the regulatory and supervisory transitions credit unions face as they cross the $10 billion threshold that defines supervision under NCUA’s Office of National Examinations and Supervision (ONES).
The second event, the Exchange, is set for Nov. 1-2, and will be held in Phoenix at the Crowne Plaza hotel. Invitees are leaders of credit unions with more than $10 billion in assets, as well as state regulators. The agenda includes discussion about growing cybersecurity and ransomware risks, interstate operations, and threats to the state and federal credit union charter as the charter of choice amid new entrants in the U.S. payments system, including BigTech and fintechs.
The DCRI is a sponsorship opportunity for those who value a vibrant and robust dual charter system. DCRI sponsors engage with the initiative through a series of financial contributions and select events. Support is solicited on three levels, Champions, Leaders, and Partners. For more information, including on invitations, see the links below.
LINKS:
Credit Union & Regulator Engagement (CURE) Virtual Event
(Sept. 24, 2021) Savings expanded at a slightly quicker pace at state-chartered credit unions than at federal credit unions in the first half of the year, while lending at federals moved ahead slightly faster, according to additional numbers compiled by NASCUS for state and federally chartered credit unions.
Using mid-year call report data provided by NCUA (for federally insured credit unions) and by American Share Insurance (ASI, for privately insured credit unions), NASCUS found that savings at all state-chartered credit unions advanced by $66.3 billion in the first six months of 2021, up 8.18% to a total of $877.2 billion. At FCUs, according to the mid-year data, savings advanced by $62.2 billion, up 7.82% to $857.1 billion.
It was a flip-flop for loans, however, with states just behind the federals. According to the data, all SCUs added $15.2 billion in loans by June 30, 2021 – up 2.57% to $606.8 billion. FCUs ran their loan totals to $599 billion at mid-year – an increase of 2.69% (or $15.7 billion).
Still, in both cases, SCUs hold slight edge in market share of both loans and savings, with 50.3% and 50.6%, respectively
(Sept. 24, 2021) In other action Thursday, the NCUA Board:
- Approved “midsession budget review” action that will use a $15 million 2021 budget surplus (realized through savings on curtailed travel during the coronavirus pandemic) to add seven new positions to the agency’s employment roster, among other things. Those positions will be added to the agency’s cybersecurity program (three new positions), the NCUA Board secretary (one position), and the agency’s office of ethics counsel (three positions), taking up $11 million of the surplus. The balance will be “reprogrammed,” with $2.4 million going to address cybersecurity support, employee relocations, and “human capital analytical support” (for analysis of compensation plans and diversity/equity/ inclusion programs and practices), and approximately $1.6 million to cover employee leave payouts.
- Considered a staff projection that, by year’s end, a “residual budget balance” (or surplus) of about $24.6 million will be left, which the agency said “can be used to offset future budget needs by the agency.”
- Heard a quarterly report on the National Credit Union Share Insurance Fund (NCUSIF), which noted an equity ratio for the fund, as of June 30, at 1.23% — three basis points above the minimum allowed by law before a “restoration plan” (including assessment of a premium) can be established by the board, but well below the fund’s current “normal operating level” (NOL) of 1.38%. Along those lines, Board Member Hood said he wants the board to consider resetting the NOL to 1.3% at either the October or November board meetings (staff project the equity ratio to rise to 1.28% at the end of December 2021).
Regarding the budget review, NASCUS’ Lucy Ito urged NCUA to apply any surplus in 2021 to offset the overhead transfer rate (OTR) for 2022. “Additionally, surplus in the share insurance fund’s admin budget, which largely represents savings in state examiner training, should either be reserved for future training needs or also used to offset the OTR even more,” Ito said.
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