(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
(Dec. 17, 2021) Meanwhile, the board also approved a $320.1 million operating budget that was $6 million less than that proposed. To reach that lower level, the agency also cut 46 full-time equivalent (FTE) positions that were proposed last month. For next year, the agency will carry 1,196 FTEs.
However: the board also decided to reduce the amount that federal credit unions (FCUs) pay to fund the remainder of the NCUA operating budget (the OTR will fund 62.7% of the agency operations, the FCU operating fee 37.3%). The agency is doing that by crediting to FCUs $15 million from “accumulated cash in excess of funding needs.” As a result, on average, in 2022 FCUs will pay approximately 24% less than they paid NCUA in 2021.
The agency said there the $15 million credit (from the agency’s operating fund), represents past-year, unspent operating fee cash collections “the NCUA does not currently require.” “It is important to note that the OTR is billed throughout the year for actual expenses, so there are not excess funds collected that can be ‘returned’ at the end of each year,” NCUA explained. However, as NASCUS has previously argued, a problem with the OTR and budgeting process is that, once the OTR is set, there is no reconciliation to affirm or correct the workload analysis assumptions that drive the OTR calculation, itself.
As another point in explaining the credit for the operating fee, the agency also said that, based on call report data through Sept. 30, average asset growth is calculated at 16.3%, an increase of approximately 200 basis points from the 14.3% projected asset growth included in the draft budget.
The decrease in the operating fee is 23.7% compared to 2021, NCUA said, adding that it is also “a 1,250 basis point reduction from the estimate provided in the staff (budget) draft.”
(Nov. 6, 2020) Increases in the overhead transfer rate (OTR – the rate at which dollars transferred from the National Credit Union Share Insurance Fund (NCUSIF) to fund insurance-related costs of NCUA) lead to the “incontrovertible truth” that doing so means the insurance fund has less resources to face financial troubles for credit unions, NASCUS wrote in a comment letter late last week.
That is, unless the agency decides to charge an insurance fund premium, NASCUS indicated.
In its comment letter to the agency on its request for information about the methodologies used to determine the OTR (and the federal credit union (FCU) operating fee), NASCUS noted that the current proposal for next year’s OTR reflects an increase. The association asserted that the allocation of agency expenses to the insurance fund take on a “particular importance against the backdrop of the ongoing pandemic in the United States and resulting economic dislocation.”
NASCUS pointed out that every dollar the agency pulls from the insurance fund to cover the expenses of the agency is a dollar not available to cover credit union losses, such as those resulting from the financial impact of the coronavirus pandemic. It also means that’s a dollar that may need to be replaced in the insurance fund through an insurance premium being charged.
And there are more issues to be considered, the state system declared through NASCUS.
“Furthermore, the allocation of NCUA’s operating expenses and the corresponding effect on FCU chartering fees has the potential to imbalance the dual chartering system by disadvantaging the state system in an inequitable and inorganic manner,” NASCUS wrote.
The state system also noted that for more than 20 years there has been an imbalance in how the agency covers its expenses from the insurance fund through the OTR, forcing federally insured, state credit unions (FISCUs) to “shoulder an inordinate cost of supervising the safety and soundness of the credit union system.” NASCUS pointed to mid-year statistics from federally insured credit unions showing FISCUS holding nearly 50% of all insured shares, but number only 37% of the federally insured credit unions. Put another way, NASCUS wrote, FISCUs pay half the NCUSIF’s costs but are only 37% of the work.
“Some stakeholders are apt to assert that FCUs pay an aggregate greater amount of NCUA’s overall budget when the total expense to FCUs of the operating fee and OTR are aggregated,” NASCUS wrote. “But this assertion ignores the fact that the NCUSIF is NOT expending resources to conduct examinations on a majority of FISCUs because it relies on the exam work conducted by the states — exam work which is paid for entirely by FISCUs.”
Illustrating its point, NASCUS noted that in 2019 nine states sent their examiners to more 6,793 hours of non-NCUSIF funded training, paid for by state credit union fees of more than $25.2 million for examination and supervision in those nine states alone. “A similar story can be told in the remaining 36 state regulatory agencies,” NASCUS wrote.
Two other imbalances lie within the current system, NASCUS pointed out: the OTR is borne by state-chartered CUs in lost NCUSIF dividend opportunity or as additional insurance premium costs (as may be the case in 2021), and an “inverse benefit” for FCUs through application of the OTR.
“The larger the OTR, the more modest the FCU operating fee,” NASCUS wrote. “That inequitable result is one reason why the OTR methodology is so important to the state system.”
In other comments, NASCUS:
- Supported including the agency’s budget for capital projects within the annual budget subject to the OTR (although it noted doing so “may not be equitable” in some cases under how it is defined in the methodology).
- Disagreed that allocating NCUA work related to CUSOs and other third-party vendors as solely related to the insurance fund is consistent with the principles of the methodology or with the practical reality of a chartering authority. “The allocation of third-party regulatory and supervisory work takes on an enhanced importance given NCUA’s interest in obtaining direct supervisory authority over such entities,” NASCUS wrote. “Should NCUA obtain that regulatory and supervisory authority (which NASCUS supports), ensuring equitable allocation of associated expenses will be essential.”
- Deferred comment on providing an incentive (through a discount in operating fees) for FCUs to complete the voluntary diversity self-assessment “So long as there was no corresponding effect on the OTR from any shortfalls in operating fee funding resulting from the proposed discounts.”
LINK:
NASCUS Comment: Request for Comment, OTR and Operating Fee Schedule Methodologies