(Nov. 19, 2021) Shared locations are service facilities for purposes of multiple common bond federal credit unions (FCUs) adding underserved areas to their membership bases, as are those with electronic facilities such as video teller machines, regardless of whether those credit unions have an ownership interest in either of the facilities, under a rule finalized Thursday by the NCUA Board.

However, automated teller machines (ATMs) continue to be excluded from the service facility definition for adding underserved areas, according to the new rule.

The final rule, approved unanimously by the three-member board, will take effect 30 days after publication in the Federal Register.

The rule was proposed nearly a year ago (in December 2020) to modify Part 701, Appendix B, of NCUA’s regulations to include any shared branch, shared ATM, or shared electronic facility in the definition of “service facility” for a multiple-common-bond FCU that participates in a shared branching network. “Reasonable proximity” to those shared facilities by an underserved group is a requirement under federal law for an FCU to add the group to its membership.

The proposal ran into opposition (largely from banking groups, evidenced by 680 form letters out of more than 700 total comment letters received) objecting to the definition of “service facility” to include ATMs. For the final rule, NCUA dropped ATMs from its shared service definition.

It also dropped in the final rule the requirement that FCUs seeking to add underserved groups must have an ownership interest in shared locations and electronic facilities.

The final rule does include, however, continues to mandate that a service facility must offer all three services: ability to take deposits (shares), approve loans and disburse loan proceeds

In other meeting proceedings, the NCUA Board:

Heard an update on its new exam tools (including the (the Modern Examination and Risk Identification Tool, MERIT), noting that there are now 3,383 total MERIT system users, including 547-plus state supervisory authorities (SSAs).
Issued a proposed 2022-2026 strategic plan for a 60-day comment period.
Was told that the National Credit Union Share Insurance Fund (NCUSIF) is expected to reach an equity ratio of 1.28% by year’s end (if the ratio falls below 1.2% — or is projected to do so within six months – the NCUA Board is required to implement a restoration plan – including a premium – to bring the ratio above 1.2% within eight years).

LINKS:

Final Rule, Part 701, Shared Services Facilities

Board Briefing, NCUA’s Modernized Examination Tools

Board Briefing, Share Insurance Fund Quarterly Report.

(Aug. 20, 2021) A proposal by NCUA to create the new “complex credit union leverage ratio (CCULR)” framework — the credit union equivalent of the community bank leverage ratio (CBLR) — is out for public comment until Oct. 15, according to a notice published in the Federal Register this week. Issued for comment during the July 22 NCUA Board meeting, the proposed rule would make a simplified measure of capital adequacy available to federally insured credit unions defined as “complex” – meaning those with more than $500 million in assets … The spread of the Delta variant of the coronavirus and stagnant vaccination rates pose “downside risks” to the economic outlook, according to members of the Fed’s rate-setting Federal Open Market Committee, as expressed in the minutes of the meeting from July 27-28. The minutes were released this week. Committee members also noted economic uncertainty remains high and that supply disruptions and labor shortages might last for longer than anticipated … NCUA is scheduling a Sept. 8 webinar on its modernized examination tools. The session, which gets underway at 2 p.m. ET and runs for an hour, will focus on the new modern examination platforms and systems, including the agency’s Modern Examination & Risk Identification Tool, (MERIT), as well as associated programs: the Data Exchange Application (DEXA), NCUA Connect, and the Admin Portal. The agency said registration is now open.

LINKS:

Capital Adequacy: The Complex Credit Union Leverage Ratio; Risk-Based Capital

Minutes of the Federal Open Market Committee, July 27-28, 2021

(Aug. 20, 2021) Summaries of three recent issuances from NCUA – on capitalizing loans, the rollout of the new examination tool, and on mortgage servicing rules – were published by NASCUS this week.

All three are available to members only. The summaries cover issuances – two letters to credit unions and one regulatory alert – issued by the agency over the last three weeks or so.

Early this month, the agency issued letter to credit unions (LTCU) 21-CU-07, which outlined limits on capitalization of loans to members. In particular, the letter pointed out, the financing of fees and commissions continue to be prohibited for federally insured credit unions, despite adoption of the new rule earlier this year allowing capitalization of loan interest. In the letter, the agency said that maintaining the prohibition on capitalization of fees “is an important consumer protection feature of the rule for member borrowers.”

In June, the agency’s board voted unanimously to lift the prohibition of capitalization of interest in connection with loan workouts and modifications; the rule took effect July 30. The change was made, NCUA said, to give borrowers additional access to loan workouts, perhaps caused by the economic disruption caused by the coronavirus crisis.

The second letter (LTCU 21-CU-08) summarized listed the new applications (and their implementation) the agency is employing for assisting in exams and communicating to credit unions. The letter, issued just last week, noted that the agency would begin transitioning to its new Modern Examination and Risk Identification Tool (MERIT) exam tool and other applications meant to modernize and streamline the agency’s operations. The other tools include the Data Exchange Application (DEXA), the Administrative Portal, and the Consumer Access Process and Reporting Information System (CAPRIS) for federal credit unions.

The letter also offers insights about who at credit unions can use the new tools, and how the tools integrate with state supervisory authority (SSA) examination and supervision programs.

The third item summarized by NASCUS and published this week is of a regulatory alert (21-RA-08), which urges review of CFPB mortgage servicing rules. According to the alert, credit unions are urged to review the June 30 rule temporarily amending certain mortgage servicing requirements under the bureau’s Regulation X to assist borrowers affected by the COVID-19 emergency. The alert noted that the CFPB rule — which takes effect Aug. 31 — only applies to servicers that service mortgages secured by a borrower’s principal residence and does not apply to small servicers.

LINKS:

NASCUS summary: LTCU 21-CU-07, Capitalization of Unpaid Interest (members only)

NASCUS summary: LTCU 21-CU-08, Implementation of Modernized Systems (members only)

NASCUS summary: 21-RA-07 Equal Credit Opportunity Act (Regulation B) (members only)

(Aug. 13, 2021) NCUA this month will begin transitioning to the new MERIT exam tool and other applications meant to modernize and streamline the agency’s operations, according to a letter to federally insured credit unions issued Thursday.

NCUA’s Letter to Credit Unions (LTCU) 21-CU-08 states that the new applications may be accessed through NCUA Connect, another of its applications debuting this month, which the agency described as a central user interface which credit unions use to securely interact with the agency.

In addition to MERIT (the Modern Examination and Risk Identification Tool) the applications include:

Data Exchange Application (DEXA): an “ingest tool” that provides authorized NCUA, state supervisory authority (SSA), and credit union users the ability to securely upload the credit union member loan and share data requested during the examination and supervision process.
Admin Portal: designed to provide authorized credit union administrative users with the ability to manage user access to NCUA Connect and other applications for their credit unions.
Consumer Access Process and Reporting Information System (CAPRIS, which replaces the Field of Membership Internet Application (FOMIA): for use by multiple common bond FCUs to submit field of membership expansion requests electronically.

Credit unions that want to use the applications, the letter notes, must identify two individuals as admin portal administrators with delegated responsibility for managing the users for their credit union. “Once approved and confirmed by the NCUA, administrators can add users and grant application access,” the agency stated. “As part of the process, the administrator will be granted access to NCUA Connect to access the Admin Portal application.”

The agency also noted that MERIT – which is designed to provide examiners with visualizations to identify trends and potential risks in credit unions through enhanced, integrated analytics – allows SSAs and NCUA to work jointly on examinations, “reducing redundancy, increasing efficiency, and improving communication.”

(NASCUS developed a team of state regulators to offer feedback to the agency as the system was developed; NASCUS will continue to consult with the agency as the system is deployed).

According to NCUA, MERIT gives examiners the ability to document examination results, generate the report issued to the credit union, and formally follow up on examination concerns. The agency said the new system allows credit unions to securely transfer documents to their NCUA and SSA exam teams (as applicable) through the system’s “survey” functionality. “Examiners can send a document request list (survey) through MERIT rather than through other manual or electronic means, thus improving the efficiency of the document request process,” NCUA said.

Before credit unions request to obtain access to information from MERIT (or DEXA), NCUA said credit unions should wait until they are notified of their first exam in MERIT. Doing so before that, NCUA suggested, would be fruitless since there is no information specific to credit unions in the system until the first MERIT exam. “Further, as part of enhanced security, user accounts are locked after a period of inactivity, and user access would need to be restored once notified of an upcoming examination,” the agency said.

The LTCU also lists user training opportunities for the new systems, complete with Internet links.

LINK:

NCUA LTCU 21-CU-08: Implementation of Modernized Systems

(March 19, 2021) Nine areas that will affect the resource needs of NCUA– including monitoring the equity ratio of the savings insurance fund, enhancing the examination program and building the supervision workforce — in the coming year and likely beyond, are listed in the agency’s 2020 annual report released this week.

The nine areas, the agency said, “will continue to shape the environment facing credit unions and will determine the resource needs of the NCUA.” Those areas are:

Monitoring the National Credit Union Share Insurance Fund’s (NCUSIF’s) equity ratio
Enhancing the agency’s examination program
Building the NCUA workforce to supervise an evolving credit union environment
Declining membership in small credit unions
Growing threats to cybersecurity
Adapting to technology-driven changes to the financial landscape
Factoring the near-term economic outlook
Managing interest rate risk and liquidity risk
Continuing consolidation

Regarding the insurance fund, the agency said that an incident such as a significant credit union failure that drops the equity ratio below 1.0% “would result in a direct expense to credit unions through the impairment of the 1.0% capital deposit they contribute to the fund, which credit unions have recorded as an asset on their balance sheets.”

“Additionally, if the equity ratio falls below 1.20%, or is expected to within six months, the Federal Credit Union Act requires the NCUA Board to assess a premium on federally insured credit unions to restore the fund to at least 1.20% or adopt a fund restoration plan,” the report reminds. It notes that the fund, as of Dec. 31, 2020, was at 1.26% of equity to shares insured — 12 points below the “normal operating level” of the fund of 1.38%.

As for enhancing the exam program, the report states that in 2021 the agency will finalize deployment of the new MERIT system and transition new exams from AIRES to the new method. “This transition includes the agency’s primary examination platform as well as many business processes targeted to take advantage of MERIT’s configurable platform,” the report states. It also indicates that the agency will continue to develop its Enterprise Data Program, intended to “enhance how agency governs and reports its data.”

On building its workforce, the agency said it increasingly needs cybersecurity specialists and experts in areas including capital markets, commercial lending, consumer financial protection and payments systems. “The agency also has a large percentage of employees who have reached, or will soon reach, retirement age, including many in senior levels of management,” the report states. “Finding appropriate successors who can lead the agency and employees who have the requisite skills and expertise is essential to ensuring that the NCUA can continue to achieve its mission effectively.”

The report notes that, this year, it will use a new learning management system to “better enable access to on-demand training for all employees,” and will develop and execute training to support implementation of the new MERIT exam system and its multi-year leadership development strategy.

Also in the report, the agency states:

Among its supervisory priorities in the wake the coronavirus crisis, it will work with state regulators and credit unions to identify operational challenges emerging from the impact of the pandemic;
It will continue in 2021 working with six state regulators in piloting an alternating-year examination program for federally insured, state-chartered credit unions (FISCUs). After the pilot ends, the agency said, it and the states will assess how – and whether – the results can improve the exam program, particularly by improving coordination.

LINK:
NCUA Releases 2020 Annual Report