Midsession Budget Reprograms Funds for Mission Critical Priorities
July 20, 2023 – The National Credit Union Administration Board held its seventh open meeting of 2023 and approved a final rule on member expulsion. The NCUA’s Chief Financial Officer also briefed the Board on the agency’s midsession budget, and the Board approved the reprogramming of surplus funds for priority and mission critical areas.
Final Rule Balances Member Rights and Congressional Intent
The NCUA Board unanimously approved a final rule that amends the standard federal credit union bylaws to adopt a policy by which a federal credit union member may be expelled for cause by a two-thirds vote of a quorum of the credit union’s board of directors.
“The final rule we are considering today strikes a balance between addressing the legitimate concerns over providing services to violent and disruptive members and providing due process rights to credit union member-owners. These rights include proper disclosures, hearings, and an appeals process,” NCUA Chairman Todd M. Harper said. “The powers granted in the Credit Union Governance Modernization Act must not be used as a tool to facilitate financial exclusion. What’s more, a federal credit union must ensure its implementation of the authority to expel members for cause is consistent and does not violate anti-discrimination laws or regulations.”
Under the Credit Union Governance Modernization Act of 2022, enacted by Congress on March 15, 2022, the NCUA had until September 15, 2023, to develop a final rule that federal credit unions may adopt to expel a member for cause.
The final rule is effective 30 days after publication in the Federal Register.
Reprogramming of Surplus Funds Supports Cybersecurity Specialists and Chartering Efforts
The Chief Financial Officer reported(opens new window) the NCUA will have an estimated $5.1 million surplus in the agency’s Operating Fund at the end of the year. Approximately one-third of the surplus is attributable to slightly lower-than-projected pay and benefit costs for 2023. Non-payroll categories, including travel, make up the remaining surplus.
The Chief Financial Officer recommended the NCUA Board approve the midsession reprogramming of $737,000 to fund four new cybersecurity support positions and two positions to assist with the NCUA’s field-of-membership and charter-expansion efforts. These reprogrammed funds will also support reasonable accommodations for employees and expenses associated with the background and security investigation for new hires.
The Board unanimously approved this request.
Said Chairman Harper, “These fiscally responsible and mission critical changes in our 2023 budget will ensure the NCUA, the credit union system, and the National Credit Union Share Insurance Fund can continue to adapt to the evolving financial, economic, and market conditions brought on by various external events and pressures, including growing cybersecurity threats and increasing applications for changes in federal credit union’s fields of membership.”
The Chief Financial Officer also reported that no Board action was needed on the capital budget and National Credit Union Share Insurance Fund’s operating budget. Additional information about the agency’s budget and expenses is available at https://ncua.gov/news/budget-supplementary-materials.
Board Meeting Speeches
June 22, 2023 — The NCUA Board meeting agenda consisted of three items for consideration, including a request for comment regarding NCUA’s Operating Fee Schedule Methodology, a board briefing regarding new charter modernization, and a proposed Interpretive Ruling and Policy Statement (IRPS) specific to the Minority Depository Institution (MDI) Program.
Operating Fee Schedule Methodology
As the first action item, the Board unanimously approved a notice and request for comment on revisions to the NCUA Operating Fee Schedule Methodology. In the request for comment, the Board seeks to increase the threshold at which federal credit unions are exempt from paying an operating fee from $1 million to $2 million in assets. This change would be adjusted annually for inflation. The Board is also seeking comments about whether and how the Board should modify the current three-tier Operating Fee Schedule.
Specifically, the Board is evaluating how the current methodology is regressive in that credit unions with assets exceeding $1 billion pay a lower marginal rate than those credit unions with less than $1 billion in assets. Prior to approving the notice and request for comment Board Member Hood also inquired as to whether a larger exemption threshold of $10 million had been considered vs. the $2 million. The NCUA considered the larger threshold and determined if the threshold were increased to $10 million, it would exempt 27% of federal credit unions vs. 7% if increased to an exemption of $2 million. Comments will be due 60 days from the date of publication in the Federal Register.
Board Briefing – New Charter Modernization
The Board was also briefed on the new charter modernization efforts by the Office of Credit Union Resources and Expansion (CURE). The briefing discussed the three phases of the charter process, and staff presented the significant strides made in improving the chartering process for a new credit union.
The improvements include updates to the chartering webpage and new templates and forms to help new groups seeking to organize a new credit union. Due to the various improvements, the average time to review and approve a complete application has been reduced from 564 to 130 days from start to finish. In total, there have been 29 applications received since 2018, with 14 applications approved, five currently under review, two denials, and one withdrawal. The Board was also briefed on a new provisional charter pilot program that is set to launch by the end of September 2023. For the agency to receive stakeholder feedback on the pilot program, it program will be open for a 60-day comment period upon publication in the Federal Register.
Interpretive Ruling and Policy Statement – MDI Preservation Program
Also unanimously approved were proposed changes to the IRPS on the agency’s Minority Depository Institution Preservation Program. The proposal would amend IRPS 13-1, approved by the agency on June 18, 2015. The proposed changes include:
- Incorporating recent program initiatives such as the consulting and support program for MDIs and providing examples of technical assistance an MDI may receive.
- Including subsections on engagement with MDIs, technical assistance, examination of MDIs, Community Development Revolving Loan Fund grants and loans, training and education, and preservation of MDIs.
- Establishing a new standard for MDIs to assess their designation periodically and updating how the NCUA will review an MDI’s designation status to reflect it will be part of the examination process.
- Simplifying “community it services, as designated in its charter” to refer to an MDI’s field of membership.
- Specifying that “Asian American” includes Native Hawaiian or Other Pacific Islander, and “Native American” includes American Indian and Alaska Natives.
- Clarifying that “small entity” means a “small credit union” as defined by the NCUA and the simplified process for a small credit union to determine whether it qualifies as an MDI.
- Adding new sections that address comments to the agency, the agency’s annual congressional reporting on MDIs, and the availability of the list of MDIs from the NCUA website.
Comments on the changes to the IRPS will be due 60 days from the date of publication in the Federal Register.
May 25, 2023 — The NCUA Board had two items on the May agenda, the Share Insurance Fund (SIF) quarterly board briefing and a proposed rule that would amend Part 721 of NCUA Rules and Regulations specific to Charitable Donation Accounts.
SIF Briefing
The SIF briefing was based on quarter end, March 31, 2023. The SIF remains strong with a total income of $90.9 million and a net income of $42 million.
There were two credit union failures in the first quarter, one involuntary liquidation without a purchase and assumption and one involuntary merger. It was noted during this portion of the briefing that fraud was not a contributing factor in these credit unions. Additionally, the number of credit unions with a CAMELS rating of 4/5 increased slightly from 122 as of December 31, 2022, to 127 on March 31, 2023, while credit unions with a CAMELS rating of 3 also increased slighted from 769 to 779, and credit unions with a 1/2 rating decreased from 3,889 to 3,815. The majority of credit unions falling into categories 3, 4, and 5 were $100 million or less in assets.
Finally, the Board was presented with the projected equity ratio calculation for June 30, 2023, of 1.25 percent. It was noted during the briefing that the decrease of .5% from 1.30% reflects historical trend data over the years and is primarily due to projected growth in insured shares.
Notice of Proposed Rulemaking – Charitable Donation Accounts
The Board also unanimously approved a Notice of Proposed Rulemaking to amend the charitable donation accounts section of the NCUA’s incidental powers regulation. Specifically, the proposal would add “war veterans’ organizations,” as defined under section 501(c)(19) of the Internal Revenue Code, to the definition of a “qualified charity” in which a federal credit union may contribute to using a charitable donation account. The proposed rule will also seek comments on whether there are other groups, entities, or organizations the Board should consider adding to the definition of a “qualified charity” to inform potential future rulemaking in this area.
Currently, federal credit unions may only use a charitable donation account to fund donations to qualified charities and nonprofit entities under the Internal Revenue Code as 501(c)(3). Comments on the proposed rule will be due 60 days after publication in the Federal Register.
| Comments From the NCUA Board | |
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By Sarah Stevenson, Vice President, Regulatory Affairs, NASCUS
During the April meeting, the NCUA Board had three items on its agenda. These included a Board Briefing and update on cybersecurity, a proposed Request for Information and Comment focusing on climate-related financial risks, and a Board Briefing on the Federal Credit Union Loan Interest Rate Ceiling.
The Cybersecurity Update addressed what the agency has identified as key threats to the credit union ecosystem and financial sector. The threats discussed were:
- Ransomware and Extortion Operations
- Social Engineering and Open AI Platforms
- External-Facing Application Vulnerabilities
- Misconfigurations in Cloud Environments
- Distributed Denial of Service Attacks (DDoS)
- Geopolitical Issues
At the April meeting, the Board received a briefing on the NCUA’s Cybersecurity Policy and Programs, including the Information Security Examination Program and the White House National Security Cybersecurity Strategy. The Board discussed the agency’s efforts to raise awareness of cybersecurity risks to the credit union industry through training, outreach, partnerships, and resources on the Cybersecurity Resources page. During the Q&A portion, Chair Harper emphasized the need for NCUA to seek third-party vendor authority to monitor cybersecurity risks better. The Board acknowledged that this authority could also benefit smaller credit unions and aid in information sharing under the new Cyber Incident Notification final rule.
Additionally, the Board approved a Request for Information and Comment on Climate-Related Financial Risk in a 2-1 vote, with Vice-Chair Hauptman dissenting. Through this RFI, the NCUA aims to gather information from the industry on the current and future climate and natural disaster risks to FICUs, related entities, their members, and the NCUSIF.
The RFI consists of 38 questions specific to the impact of climate risk and is broken into a handful of categories, including:
- Physical Risk
- Transition Risk
- Operations
- Governance
- Business Strategies
- Risk Management
- Reporting and Targets
- Climate-related Opportunities
- Suggestions for NCUA
- Data Gathering
- Questions for NCUA
During the presentation, the Board and staff emphasized that any information shared by credit unions in response to the RFI on Climate-Related Financial Risk will not be used in their examination and supervision. They also clarified that any new requirements related to climate-related financial risk would require changes to examination and supervision procedures and approval from the Board before implementation. The RFI aims to gather feedback that will enhance the NCUA’s ability to identify and evaluate climate and natural disaster risks for credit unions. The agency will accept comments on the RFI for 60 days after publication in the Federal Register.
Board Briefing, Federal Credit Union Loan Interest Rate Ceiling
In January 2023, the NCUA Board voted to extend the Federal Credit Union Loan Interest Rate Ceiling to 18% for a period of 18 months, as allowed by the Federal Credit Union Act. The Board also committed to evaluating the feasibility of raising the interest rate beyond the current statutory limit of 15% and exploring the possibility of a floating interest rate.
During the April 20th meeting, the Board received a detailed topic analysis. After careful consideration, the Board concluded that a floating interest rate ceiling would not benefit the industry at this time, despite being permissible under certain conditions. Instead, the Board will continue to monitor the industry and the rate environment, and reevaluate its position
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The NCUA held its third open meeting of 2023. Chairman Todd Harper kicked off the meeting further, reinforcing his statement from March 13, that the credit union system remains well-capitalized and on a solid foundation. He also reiterated the many liquidity sources available to credit unions. Vice Chair Kyle Hauptman and Board member Rodney Hood echoed Chairman Harper’s comments.
The chairman’s complete statement from Thursday’s board meeting can be found here.
A single agenda item was considered, a final rule on subordinated debt, which the board voted to approve. The final rule makes two changes to the current subordinated debt rule that was finalized in 2020. Specifically, the rule replaces the 20-year maximum maturity of Subordinated Debt Notes and Grandfathered Secondary Capital (GSC) to the later of 30 years from the date of issuance or January 1, 2052. Second, the final rule extends the regulatory capital treatment of any credit union seeking to issue notes with maturities exceeding 20 years and must demonstrate how the instrument would continue to be considered “debt.”
The final rule also includes four technical amendments from the current rule, which include:
- Amending the definition of “Qualified Counsel” to clarify that such person(s) is not required to be licensed to practice law in every jurisdiction that may relate to an issuance
- Amending two sections to remove the “statement of cash flow” from the Pro Forma Financial Statements requirement and replace it with a requirement for “cash flow projections”
- Revising the section of the current rule on filing requirements and inspection of documents
- Removing a parenthetical reference related to GSC that no longer counts as Regulatory Capital
The final rule will become effective 30 days after publication in the Federal Register.
Courtesy of Sarah Stevenson, Vice President, Regulatory Affairs, NASCUS
On February 26, the NCUA Board held its second open meeting of 2023. The Board unanimously approved two items. The items approved included a long-awaited final rule on cyber incident reporting requirements and a notice of proposed rulemaking to amend the NCUA’s federal credit union chartering and field-of-membership rules.
Final Rule, Part 748, Cyber-Incident Notification Requirements for Federally Insured Credit Unions
The final rule on cyber incident reporting remains largely unchanged from that of the proposed rule. Under the final rule, federally insured credit unions (FICUs) will be required to report a cyber incident that leads to a “substantial loss of confidentiality, integrity, or availability of a network or member information system as a result of the exposure of sensitive data, disruption of vital member services, or that has a serious impact on the safety and resiliency of operational systems and processes.” Such cyber attacks must be reported to NCUA within 72 hours upon a credit union forming a reasonable belief that it has experienced a cyberattack.
The effective date of the final rule is September 1, 2023. NCUA will issue resources for credit unions in advance of the effective date.
Proposed Rule, Part 701, Chartering and Field of Membership
In an effort to provide greater opportunities for expanding fields of membership for Federal credit unions, the Board unanimously approved a proposed rule that would amend the chartering and field of membership rules with nine changes. The changes are intended to enhance consumer access to safe, fair, and affordable financial services, especially in underserved communities.
The proposed changes include:
- Four changes to the rules for underserved areas that multiple common-bond federal credit unions may seek to add to their field of membership. The changes would streamline the current application requirements and clarify the role of data and criteria that other federal agencies provide relating to underserved areas, specifically the U.S. Treasury’s CDFI criteria.
- Elimination of the business and marketing plan requirement for certain Federally Insured State Chartered credit unions that are seeking to convert to a federal charter while serving the same community field of membership.
- Expanding the definition of community-based field of membership affinities – recognizing the growth of telecommuting and remote work for companies headquartered in a community.
- A provision to allow all federal credit unions to better capture the ongoing bond between individuals within a field of membership and their immediate family members following the death of a member.
- A technical clarification on the process by which NCUA reviews and approves the character and fitness of a prospective federal credit union’s management and officials.
Comments will be due 90 days following publication in the Federal Register. NASCUS will provide a summary of the proposed rule in the coming weeks.
Share Insurance Fund Equity Ratio Briefing
The Board was also briefed on the performance of the Share Insurance Fund and the status of the fund’s equity ratio. The fund ratio remained at 1.30 percent as of December 31, 2022. This was an increase from 1.26 percent at the end of June 30, 2022. The board once again discussed credit union failures and their impact on the equity ratio. In the 4th quarter of 2022, there were a total of six credit union failures. Five of the six failures were due to fraud. The complete presentation of the board’s share insurance fund briefing can be found here.
Read the press release from the NCUA following the board meeting here.
All meetings of the NCUA Board are held at its headquarters at 1775 Duke Street in Alexandria, Virginia. Visitors are encouraged to register in advance to attend Board meetings in person and must enter the building at the agency’s Visitor Center on Diagonal Road.
NCUA’s open Board meetings are also livestreamed on the NCUA’s YouTube channel and available afterward for viewing for one year.
Click here for redirection to the NCUA website for agenda’s and meeting notes.
All future meetings’ agendas and schedules are subject to change.
All meetings of the NCUA Board are held at its headquarters at 1775 Duke Street in Alexandria, Virginia. Visitors are encouraged to register in advance to attend Board meetings in person and must enter the building at the agency’s Visitor Center on Diagonal Road.
NCUA’s open Board meetings are also livestreamed on the NCUA’s YouTube channel and available afterward for viewing for one year.
Click here for redirection to the NCUA website for agenda’s and meeting notes.
All future meetings’ agendas and schedules are subject to change.
All meetings of the NCUA Board are held at its headquarters at 1775 Duke Street in Alexandria, Virginia. Visitors are encouraged to register in advance to attend Board meetings in person and must enter the building at the agency’s Visitor Center on Diagonal Road.
NCUA’s open Board meetings are also livestreamed on the NCUA’s YouTube channel and available afterward for viewing for one year.
Click here for redirection to the NCUA website for agenda’s and meeting notes.
All future meetings’ agendas and schedules are subject to change.
All meetings of the NCUA Board are held at its headquarters at 1775 Duke Street in Alexandria, Virginia. Visitors are encouraged to register in advance to attend Board meetings in person and must enter the building at the agency’s Visitor Center on Diagonal Road.
NCUA’s open Board meetings are also livestreamed on the NCUA’s YouTube channel and available afterward for viewing for one year.
Click here for redirection to the NCUA website for agenda’s and meeting notes.
All future meetings’ agendas and schedules are subject to change.
All meetings of the NCUA Board are held at its headquarters at 1775 Duke Street in Alexandria, Virginia. Visitors are encouraged to register in advance to attend Board meetings in person and must enter the building at the agency’s Visitor Center on Diagonal Road.
NCUA’s open Board meetings are also livestreamed on the NCUA’s YouTube channel and available afterward for viewing for one year.
Click here for redirection to the NCUA website for agenda’s and meeting notes.
All future meetings’ agendas and schedules are subject to change.
All meetings of the NCUA Board are held at its headquarters at 1775 Duke Street in Alexandria, Virginia. Visitors are encouraged to register in advance to attend Board meetings in person and must enter the building at the agency’s Visitor Center on Diagonal Road.
NCUA’s open Board meetings are also livestreamed on the NCUA’s YouTube channel and available afterward for viewing for one year.
Click here for redirection to the NCUA website for agenda’s and meeting notes.
All future meetings’ agendas and schedules are subject to change.