(May 21, 2021) Giving his agency examination and enforcement authority over third-party vendors, and making key changes to the structure of the federal savings insurance fund for credit unions, were the top legislative requests made to a House committee by NCUA’s Todd Harper this week.

The NCUA Board chairman told the House Financial Services Committee – which held an oversight hearing of all of the federal credit union and banking regulators — that his agency needs the third-party exam authority because, increasingly, activities that are “fundamental” to credit unions are being outsourced to entities outside of the agency’s regulatory oversight. Those activities include, he said, loan origination, lending services, Bank Secrecy Act/anti-money laundering compliance (BSA/AML), financial management and technological services including information security and mobile and online banking.

Those third parties also include credit union service organizations (CUSOs), he said. And, he added, while there are many advantages to credit unions and members in using the service providers, “the concentration of credit union services within CUSOs and third-party vendors presents safety and soundness and compliance risk for the credit union industry.”

As examples, he pointed to the top five credit union core processor vendors which, he said, provide services to approximately 87% of total credit union system assets, and the top five CUSOs, which provide services to nearly 96% of total credit union system assets. “A failure of even one of these vendors represents a significant potential risk to the Share Insurance Fund and the potential for losses from these organizations are not hypothetical,” he asserted. “Between 2008 and 2015, CUSOs contributed to more than $300 million in losses to the Share Insurance Fund alone,” he added, referring to the National Credit Union Share Insurance Fund (NCUSIF).

Harper noted that now NCUA may only examine CUSOs and third-party vendors with their permission. He asserted that continued transfer of operations to third parties (and CUSOs) “diminishes the ability of NCUA to accurately assess all the risks present in the credit union system and determine if current CUSO or third-party vendor risk-mitigation strategies are adequate.“

NASCUS supports the agency obtaining the power 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, NASCUS supports efforts to strengthen state regulatory exam and supervision of third parties providing services to state-chartered credit unions.

Regarding the insurance fund, Harper made three legislative requests to the committee:

Increase the fund’s capacity by removing the 1.50% statutory ceiling on its capitalization;
Remove the limitation on assessing premiums when the equity ratio exceeds 1.30% of equity in the fund to insured shares, giving the NCUA Board discretion on the assessment of premiums;
Institute a risk-based premium system.

“These recommended changes, if enacted, would allow the NCUA Board to build, over time, enough retained earnings capacity in the Share Insurance Fund to effectively manage a significant insurance loss without impairing credit unions’ contributed capital deposits in the Share Insurance Fund,” he said. “Moreover, these changes would generally bring the NCUA’s statutory authority over the Share Insurance Fund more in line with the statutory authority over the operations of the (FDIC’s) Deposit Insurance Fund.”

LINK:

NCUA Chairman Todd M. Harper’s Written Testimony before the U.S. House of Representatives Committee on Financial Services

(May 7, 2021) Tom Fite, director of the Indiana Department of Financial Institutions, is now chairman of the State Liaison Committee (SLC) of the FFIEC, the group said this week. He will serve a one-year term as SLC chairman from May 1 to April 30, 2022.

Fite was also reappointed to a two-year membership term on the SLC, which he first joined in 2017. Director of the Indiana regulator’s office since January 2016, Fite served before that as deputy director of the department’s depository division and, for 15 years prior to that, served in field examination and regional supervision.

In a statement FFIEC Chairman, and NCUA Board Chairman, Todd Harper congratulated Fite as a fellow Hoosier. “ Tom’s examination and supervision acumen, along with his state regulatory experience and working knowledge of the SLC, make him an ideal choice for Chairman,” Harper said. “I look forward to working with him on the important work of the Council.”

The five-member SLC, in addition to Fite, also includes:

Steve Pleger, State of Georgia, Department of Banking and Finance senior deputy commissioner, designated by NASCUS; he is a current NASCUS Board member and a former chairman of the Regulator Board;
Kevin Allard, Ohio Division of Financial Institutions superintendent, designated by the American Council of State Savings Supervisors (ACSSS);
Melanie Hall, Montana Division of Banking and Financial Institutions commissioner, confirmed by the council; and
Susannah Marshall, Arkansas State Bank Department commissioner, designated by the Conference of State Bank Supervisors (CSBS.

LINK:
Fite Elected as State Liaison Committee Chairman, Reappointed to FFIEC State Liaison Committee

(April 23, 2021) While no new regulations were proposed or finalized, the NCUA Board did indicate at its meeting Thursday that final rules on two NASCUS-supported proposals – on capitalization of interest and derivatives — are nearing the point of being considered soon, according to comments during this week’s meeting.

In open session of the NCUA Board, Chairman Todd Harper said staff is “working through” issues on proposed rules for capitalization of interest and on derivatives. Harper said he was hopeful to see actions on the proposals “in the near future.”

The issue of action on proposed or pending regulations was brought up by Board Member Rodney Hood. Thursday’s meeting included only board briefings, on cybersecurity and an interim final rule addressing the impact of savings growth due to the coronavirus crisis on credit union capital.

Hood, in his comments, suggested the board work in the future “in a bipartisan manner” to develop board meeting agendas for “robust rulemaking opportunities.” Hood indicated that there are proposed rules awaiting action (and proposals waiting to be unveiled) that he and the other board members want to see move forward.

The capitalization of interest rule was proposed in November by the NCUA Board; it would remove the prohibition in agency rules against the capitalization of interest in connection with loan workouts and modifications, particularly as they struggled with the financial impact of the coronavirus crisis.

NASCUS, in its February comment letter, supported the proposal and called for its expeditious completion. NASCUS also recommended the agency reconsider the blanket prohibition against additional advances, to cover credit union fees and provide them with “the full range of options for managing and structuring loan work outs as other depository institutions.”

The derivatives rule was proposed in October; it would make the agency’s regulation less prescriptive and more “principles-based,” expanding federal credit unions’ authority to purchase and use derivatives as part of their interest-rate risk (IRR) management. NASCUS likewise supported the proposal in its December comment letter, calling for two changes: eliminate the redundant supervisory notice requirements where applicable, and incorporate exempt derivatives transactions directly into part 741.219 of NCUA rules – the section that covers federally insured state-chartered credit unions (FISCUS) and investment requirements.

NASCUS also noted that the proposal continues recognition by NCUA of the primacy of state law in determining investment authority for FISCUs.

Both items were issued for comment without objection by any members of the board.

LINKS:
NASCUS comment: Proposed Rule — Capitalization of Interest in Connection with Loan Workouts and Modifications

NASCUS comment: Proposed Rule — Derivatives (RIN 3133–AF29)

(April 2, 2021) NASCUS has reappointed Steve Pleger, senior deputy commissioner of the Georgia Department of Banking and Finance, as its representative on the FFIEC’s State Liaison Committee (SLC), one of five members of the committee. Pleger was named to a second two-year term on the committee, which represents state supervisory interests before the exam council.

Also appointed to the committee are:

Ohio Division of Financial Institutions Superintendent Kevin Allard (appointed by the American Council of State Savings Supervisors (ACSSS) for a first full two-year term.
Arkansas Bank Department Commissioner Susannah Marshall (designated by CSBS) to a first two-year term.

The terms of all three end on March 31, 2023.

The other members of the SLC are Tom Fite, Director, Indiana Department of Financial Institutions (selected by the FFIEC); and Melanie Hall, Commissioner, Montana Division of Banking and Financial Institutions, (also selected by the exam council).

Meanwhile, NCUA Board Chairman Todd Harper has been named FFIEC chairman for a two-year term running through March 31, 2023. Also named to the council was Acting Comptroller of the Currency Blake Paulson, who will serve as its new vice chairman for the same two-year term.

“Congratulations to former NASCUS Chairman Steve Pleger for taking on another term as the state credit union system’s representative on the SLC; he has well-represented the interests of state credit union supervisors,” said NASCUS President and CEO Lucy Ito. “And congratulations to other continuing and new members of the committee; we look forward to working with them.”

Ito also extended salutations to NCUA’s Harper to lead the exam council. “Chairman Harper is a terrific choice to lead the council, particularly with his strong understanding of the financial services regulatory framework, its interaction with credit unions, and his commitment to communication, cooperation and coordination,” Ito said.

LINKS:
Marshall Appointed to FFIEC State Liaison Committee, Allard and Pleger Re-Appointed

Todd M. Harper Named FFIEC Chairman

2021 National Meeting

National Meeting list of presentations, video links, and chat-shared resources.

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DAY ONE PRESENTATIONS

Click for VIDEO Link Welcome address: Lucy Ito, President/CEO, NASCUS and Rose Conner, Administrator, NC Credit Union Division

PRESENTATION DECK (PDF): Around The States

Click for VIDEO LInk

PRESENTATION DECK (PDF): Future of Payment Systems: Mark Dixon, Director, Payments Innovation, NEACH

PRESENTATION DECK (PDF): Mike Townsley, Policy Counsel & Director of Regulatory Policy, CSBS

Click for VIDEO Link

PRESENTATION DECK (PDF): The Future of Capital in Credit Unions and the Broader System: Mark DeBree, Managing Principal, Catalyst Strategic Solutions with moderator: Brian Knight, Esq., Executive Vice President & General Counsel

Click for VIDEO Link

DAY TWO PRESENTATION

PRESENTATION DECK (PDF): Climate Change as a Safety and Soundness Issue

Click for VIDEO Link

Click for VIDEO Link Fireside chat with NCUA Chairman Todd Harper and Lucy Ito

SHARED RESOURCES IN CHAT

(March 5, 2021) Staying focused on capital and liquidity, consumer financial protection, and diversity, equity and economic inclusion will achieve a vibrant economic outcome from the impact of the coronavirus crisis for everyone, including credit unions, the NCUA Board chairman said in a speech this week.

In recorded video remarks to the Credit Union Natl. Assn.’s (CUNA) annual Governmental Affairs Conference (GAC) this week, Chairman Todd Harper urged credit unions to pay careful attention to capital, asset quality, earnings and liquidity as they and their members emerge from the crisis. He urged credit unions to mitigate problems when they develop. And, as the pandemic evolves, he said his agency will continue to adjust its supervision and examination program to mitigate potential risks to the National Credit Union Share Insurance Fund (NCUSIF). He made no mention about a premium to be paid to the fund.

Harper also advocated for creation of a dedicated program to supervise for compliance with consumer financial protection and fair lending laws. He indicated that the agency, in 2020 exams, had found “notable shortfalls” in credit union compliance with the Fair Credit Reporting Act (FCRA), the Electronic Funds Transfer Act (EFTA) and the Truth in Lending Act (TILA).

He said creation of a dedicated consumer protection unit at the agency would “better protect consumers’ interests, ensure that the credit union system lives up to its commitment to serve members, and provide a comparable level of consumer protection oversight as federal bank regulators.”

However, he also said the agency would continue to focus on compliance with forbearance provisions of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act to help consumers facing difficulties spawned by the pandemic. “Whether it means reworking an existing loan due to financial stress, or delaying payments, the NCUA will not criticize a credit union’s efforts to provide prudent relief for members when such measures are conducted in a reasonable manner with proper controls and management oversight,” he said.

He told the group that – given the cooperative philosophy of credit unions – that each credit union “has a moral obligation to step up and help minority-owned businesses and communities recover and start anew in the months ahead.” He challenged the viewers to deliver more financial products and services “free of discrimination or unfair practices to people of color and within communities of color,” adding that such efforts will be “vital to ensuring a more equitable economic recovery.”

LINK:
NCUA Chairman Todd M. Harper Remarks before CUNA’s 2021 Governmental Affairs Conference

(Feb. 12, 2021) A continuing partnership with state supervisors “will be invaluable” to ensuring a viable dual-chartering credit union system, NCUA Board Chairman Todd Harper said in a webinar Thursday, his first public event as new leader of the agency

During the 90-minute event – billed as the “Chairman’s Webinar” – Harper outlined his priorities as chairman, which include a variety of other issues.

“My whole heart is in the NCUA, its vital work, and the mission of the credit union system,” he said. In particular, he said he looked forward to working with credit unions and other key stakeholders in responding to the economic fallout caused by pandemic, positioning the agency to meet future challenges, and strengthening NCUA’s commitment to consumer financial protection.

More specifically, regarding his priorities, he cited capital and liquidity, consumer financial protection, cybersecurity, and diversity, equity and economic inclusion. “In the months ahead, these priorities will guide the agency’s decisions,” he said. He also said credit unions, in order to compete, must be able to safely and securely use technology to deliver member services and adopt financial innovations – but emphasize security and equity in providing those services.

“We must also strengthen the agency’s consumer financial protection program to ensure that all consumers receive the same level of protection regardless of their financial provider of choice,” he said.

Referring to state regulators, the new NCUA chairman said the supervisors play an important role in ensuring safety and soundness. He said the dual chartering system is a “critical asset that helps the credit union system be dynamic and thriving.” A continuing partnership between NCUA and state regulators, as the credit union system addresses the economic fallout from the pandemic, he said, “will be invaluable.”

In other comments, Harper said:

CUs must live up to their mission of providing access for their members to credit and savings – including members of modest means. ”NCUA must do all that it can, then, to advance economic equity and justice,” he said.
In the aftermath of the killing of George Floyd last summer, the credit union system has an obligation to address racial justice directly and chart a better course for the nation’s future. “We especially must enhance support for minority deposit institutions, low-income credit unions and community development credit unions that are “on the front lines of serving the underserved “– as well as compliance with fair lending laws to counter discrimination in lending.
Future challenges, such as climate change, must also be addressed (since, he said, it disproportionately affects underserved communities).

Harper also noted issues on the horizon for the agency, which include finalizing the capitalization of interest rule, developing a rule to phase in the current expected credit loss (CECL) accounting rule, and exploring the impact of additional economic stimulus approved by Congress on net worth ratios.

In comments from NCUA staff during a questions and answer period of the event, it was noted that the rollout of the new MERIT exam program is delayed until the second half of this year. The impact of the coronavirus crisis was specifically pointed to as the cause.

Also, according to NCUA Director of Examination and Insurance Myra Toeppe (in response to a question submitted by a participant), a decision on an insurance premium has not yet been reached. She said the agency would be finalizing the equity ratio for the insurance fund first, and presenting that at the NCUA Board meeting next week. “We need to get the calculation finalized and then move on from there,” she said.

LINK:
Presentation: NCUA Chairman’s Feb. 11, 2021 webinar

(Feb. 5, 2021) New NCUA Board Chairman Harper met with state regulators this week during a regularly scheduled conference call of state regulators. During the hour-long “regulator to regulator” session, the new NCUA leader outlined his priorities for the agency in 2021 and responded to questions from the state supervisors … An advisory warning financial institutions of a proliferation of fraud schemes tied to health care or health insurance services bought and paid for amid the COVID-19 pandemic was issued this week by the Treasury’s Financial Crimes Enforcement Network (FinCEN). The agency said law enforcement and financial institutions have detected numerous instances of potential frauds to health care benefit programs, health insurance, and COVID-19 health care relief funds. The advisory also stated that frauds have also been seen related to COVID-19 relief funds for health care providers, such as those provided under the Paycheck Protection Program (PPP) and Health Care Enhancement Act (HCEA) … The Federal Reserve now says 2023 (rather than 2024) is the launch time for its planned FedNow instant payments system. The agency said the one-year, shortened timeframe is the result of “significant strides” made over the last several months toward program milestones. The Fed said it continues to take a phased approach to launching the service, with the initial launch set for two years from now to include core clearing and settlement functionality and key value-added features, such as a request-for-payment capability and tools to support participants in their handling of payment inquiries, reconcilements and certain exceptions … The Texas Credit Union Department has a job opening for a Director of Examination Support Activities (Director IV); see the State Job Announcements page on the NASCUS website for more information.

LINKS:

FinCEN advisory (FIN-2021-A001)

Federal Reserve updates FedNow^SM Service launch to 2023

State Job Announcements

(Feb. 5, 2021) Catherine Galicia – with a long resume of service on Capitol Hill — has been selected as chief of staff by Board Chairman Todd Harper, the credit union regulator announced this week. She had been serving as senior policy counsel since 2019 to Harper, who was a board member at the time. Before joining the agency, she headed the CFPB’s legislative affairs office and has also worked for Banco Popular as vice president for government affairs, where she led the bank’s Washington office.

In a release, NCUA said Galicia is one of the highest-ranking Latinas in a Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) agency (which are NCUA, the FDIC, the OCC and the Federal Reserve), referring to a 1989 law enacted in the wake of the savings and loan crisis. She worked on Capitol Hill for 15 years, NCUA noted, during which time she served as counsel for Sens. Chris Dodd (D-Conn.) and Tim Johnson (D-S.D.) during their respective periods chairing the Senate Banking Committee; for Sen. Evan Bayh (D-Ind.) as staff director of the International Trade and Finance Subcommittee and Banking Committee counsel; as legislative director and financial service policy aide to Rep. Jim Maloney (D-Conn.); and as legislative director and financial service policy aide for Rep. Nydia Velázquez (D-N.Y.).

She holds a bachelor’s degree in history from the University of Connecticut and a Juris Doctor degree from Rutgers University School of Law. She is a member of the Massachusetts Bar Association.

LINK:
Harper Names Catherine Galicia as Chief of Staff

(Feb. 5, 2021) The new chairman of the NCUA Board will discuss his priorities for the agency and the credit unions it supervises during a 90-minute webinar set for next week, the agency said this week.

Chairman Todd Harper will host the webinar Feb. 11 at 2 p.m. ET, the agency said in a release. During the event, Harper is also anticipated to address the agency’s supervisory activities and recently issued guidance and regulations.

The webinar is open to the public and there is no charge, although advance registration is required.

“Open communication with stakeholders aids the NCUA in achieving its safety and soundness mission and consumer financial protection oversight responsibilities. Such interactions also assist the agency in developing effective and efficient regulations,” Harper said in a statement in this week’s announcement. “I look forward to participating in this webinar and sharing my regulatory philosophy and other thoughts about our priorities and programs with stakeholders.”

Harper was named chairman of the three-member board by President Joe Biden Jan. 25, succeeding Rodney Hood in the position. Harper will chair his first meeting of the board one week after the Feb. 11 webinar. The Feb. 18 meeting is set for 10 a.m. ET.

Registered participants of the webinar may submit questions during the presentation or in advance by emailing [email protected]. The email should have this subject line: NCUA Chairman’s Webinar.

LINK:
Register Now for NCUA Chairman’s Webinar on Feb. 11

(Jan. 29, 2021) On behalf of the state system, NASCUS President and CEO Lucy Ito congratulated new Chairman Harper, noting his experience with credit unions.

“State regulators and credit unions recognize the breadth and depth of his knowledge of the consumer financial services market and his dedication to a robust dual chartering framework that ultimately benefits members of both state and federal credit unions,” Ito said in a press statement. “Working together, we hope to achieve our shared objectives of a safe, sound and strong credit union system that can innovate and grow in the interests of our members.”

The NASCUS leader also extended thanks to former Chairman Hood for working with the state system over the past two years. “We are especially grateful for his support of the 2019 Document of Cooperation between NCUA and NASCUS which provides a durable roadmap for federal-state partnership,” she said.

Finally, Ito said the state system looks forward to working with Vice Chairman Hauptman, who also serves as the NCUA Board liaison to NASCUS, “particularly as both NASCUS and the agency foster collaboration and alignment between state and federal regulators and the whole NCUA Board.”

(Jan. 29, 2021) Todd M. Harper is now the NCUA Board chairman, succeeding Rodney Hood in the position, as the result of designation by President Joe Biden early this week. Harper is the 12^th person to be chairman of the federal credit union regulator board.

“The credit union system now sits at the intersection of several crossroads, and the agency faces many decisions ahead related to the economic fallout of the COVID-19 pandemic and the need to advance economic equality and justice,” Harper said in a statement issued the day his designation was announced. “As NCUA Board Chairman, I will continue to focus on four policy priorities: capital and liquidity, consumer financial protection, cybersecurity, and diversity, equity and economic inclusion. Each of these priorities are vital in responding to current economic and marketplace realities.”

Prior to joining the NCUA Board, Harper served as director of the agency’s Office of Public and Congressional Affairs and chief policy advisor to former Chairmen Debbie Matz and Rick Metsger. He is the first member of the NCUA staff to become an NCUA Board member and chairman. Before joining the agency, he worked for the U.S. House of Representatives as staff director for the subcommittee on capital markets, insurance, and government-sponsored enterprises and as legislative director and senior legislative assistant to former Rep. Paul Kanjorski (D-Pa.).

Harper was confirmed by the Senate as a member of the NCUA Board in April 2019. His term expires in just about two months (in April), but he can continue to serve in a holdover capacity until a successor is confirmed.

But Harper is the lone Democrat on the board, serving alongside Republican appointees Hood and Vice Chairman Kyle Hauptman. Because he is the only Democrat, it’s likely that the White House will keep him in the seat until at least another position opens on the board. That may be a while, however: the term of Hood (who remains on the board as a member) ends in August 2023, and Hauptman’s in August 2025.

Hood and Hauptman also released a statement this week congratulating Harper, with Hauptman saying he looked forward to working with the new chairman “to provide a regulatory framework that helps credit unions meet the evolving needs of members,” and Hood saying he would work in partnership with both board colleagues to address the impact of COVID-19 on credit unions, and other things, “in a bipartisan manner.”