(Jan. 21, 2022) Federal credit union (FCU) operating fees will decrease by an average of 23.7% in 2022, NCUA told the FCUs in a letter Thursday (letter to FCUs 22-FCU-01). About half of the 2022 operating fee reduction results from the NCUA Board applying a $15 million credit to amounts that would otherwise be due to support the approved 2022 operating and capital budgets, which came from previously collected operating fees that were unspent at year-end 2021, NCUA said. The remainder of the fee reduction, the agency said, came from budget surplus, growth in credit union assets – and “a slight increase to the share of the Operating Budget funded from the Share Insurance Fund through the Overhead Transfer Rate (OTR) methodology.” … NCUA and the federal banking agencies were all dinged in a congressional watchdog’s report on privacy protection for not fully implementing key practices. The report from the Governmental Accountability Office (GAO) notes that the agencies, among other things, have not maintained a full “personally identifiable information” (PII) inventory for all agency-owned applications. The agencies also did not document steps taken to minimize the collection and use of PII, the report asserts … A 2019 CFPB taskforce, ostensibly focusing on federal consumer financial law, did not comply with federal “sunshine” law requirements and the report of the group, issued about a year ago, will say so under a settlement announced late last week by the agency. Under that settlement, all taskforce records that would have been made public if the CFPB had complied with FACA’s requirements will be released publicly March 22. The records will also be made publicly available on the CFPB’s website, the agency said.
LINKS:
NCUA Letter 22-FCU-01: Operating Fee Schedule Adjusted for 2022
CFPB Announces Settlement Regarding the 2019 Taskforce on Federal Consumer Financial Law
(Jan. 21, 2022) A proposed rule on succession planning at federal credit unions (under Part 701 of NCUA regulations), and a final rule on resetting civil monetary penalties (CMP), as well as three board briefings, are on the agenda for the NCUA Board when it meets Thursday.
The meeting is set to begin at 10 a.m. ET and scheduled to be live-streamed via the Internet.
The final rule on CMPs (under Part 747 of the agency’s regulations) is also scheduled for a board briefing. The final rule, which essentially updates an existing rule at the agency, will address statutory inflation of CMPs (the federal banking agencies have recently adopted similar rules for their agencies).
The other two board briefings will address the agency’s list of 2022 supervisory priorities (which was the subject of a letter to credit unions this week), and impact of the expiration of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act of late 2020 on the agency’s Central Liquidity Facility (CLF).
Both statutes were aimed primarily at providing fast, direct economic assistance to consumers and businesses to weather the financial impact of the coronavirus crisis. They also included provisions designed to strengthen the CLF over the duration of the pandemic.
LINK:
Board Agenda for the Jan. 27, 2022 Meeting
(Jan. 21, 2022) Pros and cons of a U.S. central bank digital currency (CBDC) are examined in a discussion paper released by the Federal Reserve Thursday, the agency said, which also seeks public comment in four months.
The Fed described the paper as a “first step in a discussion of whether and how a CBDC could improve the safe and effective domestic payments system.” The paper takes no policy position, the Fed asserted.
The paper addresses, according to the agency, several issues including the state of the domestic payments system and different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies.
The paper also examines the potential benefits and risks of a CBDC, and identifies specific policy considerations, the Fed said. Among the considerations: could a CBDC negatively or positively affect financial stability; would it adversely affect the financial sector differently from stablecoins or other nonbank money; should CBDC be legal tender; should it pay interest; what types of firms should serve as intermediaries for CBDCs, and what should be the role and regulatory structure for the intermediaries.
“Other key policy considerations include how to preserve the privacy of citizens and maintain the ability to combat illicit finance,” the Fed said.
Comments will be due in 120 days (four months), the Fed said.
LINK:
(Jan. 21, 2022) The names of three candidates to fill three open seats on the Federal Reserve Board are now in the hands of the U.S. Senate – including the name of a former state regulator.
Late last week, President Joe Biden (D) nominated Sarah Bloom Raskin, Lisa DeNell Cook and Phillip N. Jefferson to fill open seats on the central bank’s board.
Raskin – a former Maryland commissioner of financial regulation – was also nominated to be Fed vice chair for supervision, a position open since last fall when the term of Randal Quarles in that job expired. Quarles resigned from the board last month, even though his term as a board member ran to January, 2032. According to the White House, Raskin currently is the Colin W. Brown Distinguished Professor of the Practice of Law at the Duke University School of Law in Durham, N.C.
If confirmed, Raskin would serve a four-year term as supervision vice chair, and the rest of the Quarles term, ending in 10 years.
Raskin previously served on the Fed Board (from October 2010 to March 2014), and is a former deputy Treasury secretary.
Cook is a professor of economics and international relations at Michigan State University in Lansing. She has also served at the White House Council of Economic Advisers under President Barack Obama (D). Jefferson, a former Fed economist, is vice president for academic affairs and dean of faculty, and the Paul B. Freeland professor of economics, at Davidson College in Davidson, N.C.
If confirmed, Cook would serve a term that ends in 2024; Jefferson would serve a 14-year term ending in 2036. If all three are confirmed, the seven seats on the Fed Board would be filled.
LINK:
Nominations Sent to The Senate on Thursday, January 13, 2022
(Jan. 21, 2022) There were 56 credit unions authorized to do business in Maine at mid-year 2021 – which altogether held $10.3 billion in assets, for 22.07% of all financial institution assets in the state — according to the annual report to the state’s legislature issued this week by the Maine Bureau of Financial Institutions. The charter types for the credit unions included 12 state credit unions chartered by Maine, two credit unions chartered by other states, and 42 federal credit unions. Overall, Maine-chartered credit unions, the report notes, held $3.15 billion in assets, representing a year-over-year increase of 15.2% ($416 million). For more information on Maine credit unions (and financial institutions) see the link below to the full report.
LINKS:
Annual Report from The Superintendent Of The Bureau Of Financial Institutions To The Legislature
(Jan. 21, 2022) The California Department of Financial Protection & Innovation is the latest credit union state supervisory authority earn reaccreditation from NASCUS, the association announced this week. The achievement followed a series of in-depth reviews and assessments by a panel of veteran state supervisors.
“I am proud that the Department of Financial Protection and Innovation has earned reaccreditation from NASCUS,” said DFPI Commissioner Clothilde V. Hewlett. “With the DFPI credit union division supervising 120 credit unions with more than $155 billion in assets, our work is important to communities and the state economy. I congratulate our phenomenal team of examiners and administrators for continuing to adapt through the pandemic to provide critical services and thank the staff at NASCUS for helping us in this important effort.”
NASCUS’ Brian Knight said an agency’s achievement of NASCUS Accreditation reflects the exceptional capabilities of state regulators and their ability to meet the highest level of regulatory proficiency and industry standards. “This peer-reviewed program recognizes achievements of state credit union regulators to effectively carry out regulatory and supervisory programs in their operations and utilization of resources,” he said.
NASCUS Accreditation is a robust process that includes disciplined self-evaluation and ongoing monitoring, administered by the NASCUS Performance Standards Committee (PSC), a group of senior regulators from accredited state agencies. To earn accreditation, a credit union state supervisory agency must demonstrate that it meets accreditation standards in agency administration and finance, personnel and training, examination, supervision, and legislative powers.
LINK:
California DFPI Receives 2022 NASCUS Reaccreditation
(Jan. 21, 2022) A free, members-only webinar outlining the impact of the U.S. Supreme Court’s (SCOTUS) decision striking down vaccine mandates for large employers – but also upholding a mandate for health care workers — is being held today (Friday) beginning at noon ET. The hour-long program, which includes a question-and-answer session will provide (among other things): an overview of the court’s decision – including what it says, and what it doesn’t say; what the decision means for those organizations that have already announced vaccine mandates; the path forward for those organizations still interested in mandating vaccinations, and; the definition of “vaccinated.” Registration is required (by 10:30 a.m. ET); see the link below.
LINK:
NASCUS webinar: SCOTUS decision on workplace vaccine mandates (members only)
(Jan. 21, 2022) Under the last portion of the letter, on the agency’s exam program – and particularly on “recording of official meetings” – the letter holds a footnote stating that the guidance provided in the letter on recordings of exit meetings with examiners only applies to NCUA examiners.
“State examiners will follow guidance provided by the state supervisory authority,” the footnote reads. “Generally, the NCUA will defer to the state supervisory authority for state-chartered credit union meetings.”
During a virtual appearance this week at the Volunteer Leadership Institute (VLI) conference in Waimea, Hawaii, NASCUS President and CEO Brian Knight suggested that NCUA’s disclaimer about deference to state authority on federally insured, state chartered credit union (FISCU) exams should have been more prominent than a footnote so as to avoid potential confusion.
“We have 45 states and many of the states don’t think (recording) is going to be beneficial,” Knight told the group, according to reporting by CUToday.info. Referring to state regulators, Knight added “they do think it creates a chilling effect. They either do not allow it or discourage it intensely.”
Knight made his remarks to the conference during a session with NCUA Board Member Rodney Hood, which was moderated by HI Credit Union President and CEO Dennis Tanimoto. Knight participated in the session via the Internet from NASCUS headquarters in Arlington, Va. The conference is sponsored by the consulting firm Rochdale Paragon.
In other comments, Knight told the group:
- State regulators have great familiarity with some of the most sophisticated financial services transactions, products and services being offered, given the other institutions their agencies may supervise (including industrial savings and loans, banks, money transmitters and other entities). He said that expertise flows out of the state system and benefits the entire credit union system.
- Issues to watch for the state system in the coming year, Knight indicated, include third-party vendor due diligence and management, and BSA/AML issues.
- The state system’s service and performance during the coronavirus pandemic is worth of praise, and that the partnership between state and federal regulators has been “fantastic.”
(Jan. 21, 2022) Credit risk management, cybersecurity and payment systems are the three top supervisory priorities for NCUA, the agency said this week.
Additionally, the agency indicated it will also be taking a closer look at overdraft programs at credit unions, with an eye to perhaps further action in 2023.
Overall, NCUA said in its letter to credit unions (22-CU-02), it will continue to conduct examination and supervision activities primarily offsite, given the uncertainty associated with the coronavirus crisis.
“Working with our public health consultant, the agency continues to closely monitor the COVID-19 pandemic trends and will resume onsite examination and supervision work when safe to do so,” the letter stated.
On its apparent top priority of credit risk management, the agency said its examiners would continue to review management and mitigation efforts at credit unions. “For all lending programs, credit unions’ risk management practices should be commensurate with the level of complexity and nature of their lending activities,” the agency letter states. “Credit unions must maintain safe-and-sound lending practices and comply with consumer financial protection laws, including disclosures and regulatory reporting requirements.”
Examiners will focus on adjustments credit unions made to lending programs to address borrowers facing financial hardship, the letter states. Examiners will also emphasize reviewing policies that address the use of loan workout strategies, risk-management practices, and “new strategies implemented to provide funds to borrowers under distress, including programs authorized under the CARES Act and extended in the Consolidated Appropriations Act, 2021,” the letter states. Examiners will evaluate credit unions’ controls, reporting, and tracking of these programs, in particular, NCUA wrote.
“NCUA examiners will not criticize a credit union’s efforts to provide prudent relief for borrowers when such efforts are conducted in a reasonable manner with proper controls and management oversight,” the letter stated.
On cybersecurity, the agency said it is developing updated information security examination procedures tailored to institutions of varying size and complexity. The procedures will be piloted and finalized this year, NCUA said. “Cybersecurity risks remain a significant threat to the financial system,” the letter stated. “Ransomware, third-party/supply chain risks, and business email compromises, in particular, continue to be of concern.”
The agency asserted that payment systems are growing in complexity and risk for credit unions and consumers, pledging increased focus in the area. “Today’s environment of easy and fast electronic processing of transactions relies on technology, the applications and their controls, and the underlying security of the platforms facilitating the transactions,” NCUA wrote. “The changes in payment systems increase the risk of fraud, illicit use, and breaches of data security.”
Key points of the other priorities include:
- Overdraft programs (consumer financial protection): Examiners will request information about a credit union’s policies and procedures governing its overdraft programs and the monitoring tools and audit of its overdraft programs, as well as the communications it provides to consumers about such programs. “We anticipate using this documentation for a fuller review of credit unions’ overdraft programs in 2023,” NCUA wrote.
- Loan-loss reserving: The agency reminded that credit unions subject to generally accepted accounting principles (GAAP) are required to implement the current expected credit losses (CECL) accounting methodology by the start of next year. (Credit unions under $10 million are not required to follow GAAP.) All federal credit unions, the agency noted, will be required to have a reasonable reserve methodology, provided the methodology adequately covers known and probable loan losses. Federally insured, state-chartered credit unions (FISCUs) should refer to state law on GAAP accounting requirements and CECL standard applicability, the agency wrote.
- Loan participations: Examiners will verify that credit unions have evaluated the risk in the loan participation transactions and how that risk fits within the tolerance levels established by the credit union’s board. At a transactional level, NCUA said, each loan participation must have separate and distinct records for individual payments, including principal, interest, fees, escrows, and other information relating to individual loans.
- LIBOR transition: Examiners will focus on credit unions with significant LIBOR exposure or inadequate fallback language.
LINK:
NCUA Letter to Credit Unions 22-CU-02: NCUA’s 2022 Supervisory Priorities