(April 2, 2021) Two new summaries – of a interim final rule concerning enhancements to NCUA’s Central Liquidity Facility (CLF) and of an NCUA “regulatory alert” on CFPB’s expanded exemptions concerning higher-priced mortgage loans (HMPLs) – were published by NASCUS this week.
As a benefit of membership, only members have access to the summaries.
Regarding the CLF enhancements, the NCUA Board approved the interim final rule (IFR) at its meeting March 18. Generally, it extends provisions enacted under the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that expanded CLF access beyond natural person credit unions to include access for corporate credit unions or a group of corporates. That expansion, implemented under an interim rule a year ago, was due to expire Dec. 31, 2020, but was extended through Dec. 31, 2021, under the Consolidated Appropriations Act, 2021, enacted into law late last year. Also extended are provisions approved in April governing CLF capital stock subscriptions by agent members.
The IFR also extends and clarifies the regulatory provisions related to a member withdrawing from CLF membership: The immediate withdrawal period for credit unions that joined the CLF between April 29, 2020, and Dec. 31, 2020, now continues through Dec. 31, 2021; for those joining between Jan. 1 and Dec. 31, 2021, the immediate withdrawal period continues through Dec. 31, 2022.
The rule took effect March 24; comments are due by May 24.
Regarding the regulatory alert on HPMLs issued in mid-March, the summary addresses the CFPB’s rule issued in February. The rule exempts from the HPML escrow requirement any loan made by a bank or credit union and secured by a first lien on the principal dwelling of a consumer if:
- the institution has assets of $10 billion or less (as of Dec. 31 in the preceding year);
- the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and
- certain of the existing HPML escrow exemption criteria are met.
Proposed in July, CFPB said the rule represents the last mandatory rulemaking to implement the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155).
LINKS:
NASCUS Summary: Interim Final Rule, Central Liquidity Facility (CLF) (members only)
(April 2, 2021) Information on how credit unions and banks use artificial intelligence (AI) in their activities, including fraud prevention, personalization of customer services, credit underwriting, and more is sought under a request for information released this week by NCUA, CFPB and the federal banking agencies.
The agencies are seeking input from a broad audience, including not only financial institutions, but also trade associations, consumer groups, and other stakeholders. The agencies said they want to better understand:
- financial institutions’ use of AI, including machine learning;
- appropriate governance, risk management, and controls over AI;
- challenges in developing, adopting, and managing AI; and
- whether clarifications are needed.
Regarding clarifications, the agencies said they are seeking to learn whether any are necessary from the agencies that would be helpful for financial institutions’ use of AI “in a safe and sound manner and in compliance with applicable laws and regulations, including those related to consumer protection.”
Comments are due June 1 (60 days after the RFI’s publication in the Federal Register).
LINK:
Agencies Seek Wide Range of Views on Financial Institutions’ Use of Artificial Intelligence
(April 2, 2021) Two supervisory actions were taken this week, the first by NCUA as it closed one credit union (the first of the year) and by the Texas Credit Union Department which conserved another.
NCUA closed tiny Indianapolis’ Newspaper FCU (in Indianapolis), initially conserved in January, on Wednesday. The $6.4 million FCU (with 1,143 members) became the first federally insured credit union closed in 2021, NCUA said. It was chartered 60 years ago and served current and past employees of the Indianapolis Star and a few other select employee groups in the city. Elements Financial FCU, also of Indianapolis – a $2 billion credit union – assumed most of the credit union’s shares; however, a portion of shares was retained by the NCUA.
In January, NCUA said the credit union was conserved because of unsafe and unsound practices. This week, the agency said liquidation was necessary “after determining the credit union was insolvent and has no prospect for restoring viable operations on its own.”
Earlier in the week, NCUA announced it was named by the Texas Credit Union Department as conservator of the $106.2 million, 12,500-member Edinburg Teachers CU (of Edinburg, Texas). The credit union serves several education-based and other employee groups as well as their family members, according to NCUA.
In a release, NCUA said it and the TCUD would work to resolve operating issues at the credit union with the goal of protecting member assets and seeking a resolution to identified problems. “Neither the Texas Credit Union Department, nor the NCUA have made any decisions about the long-term future of the credit union; however, continued service to members is a priority,” the agencies said in a joint statement.
LINKS:
Indianapolis’ Newspaper Federal Credit Union Closes, Most Shares Assumed by Elements Financial
Edinburg Teachers Credit Union Conserved
(April 2, 2021) If you couldn’t meet the deadline for filing your comment letter on a proposed rule affecting credit union service organizations (CUSOs), you’ve got more time: late last week, NCUA extended the comment period 30 days, to April 30.
The proposed rule would expand the list of permissible activities of CUSOs, deeming as permissible for the service organizations the origination of any type of loan that a federal credit union may originate. The proposal would also grant the NCUA Board additional flexibility to approve permissible CUSO activities and services.
Comments are also sought on broadening federal credit unions’ authority to invest in CUSOs.
The proposal originally held a March 29 comment deadline. Late last week, the agency said it was extending the deadline 30 days (on a unanimous notation vote by the NCUA Board); the notice of extension was published Wednesday in the Federal Register. It was ssued Jan. 14 on a vote of 2-1 of the NCUA Board, with then-Board Member Todd Harper dissenting (Harper was elevated to the chairman’s post later that month). Harper, making his objection, noted the NCUA’s lack of direct supervisory authority over CUSOs and indicated the proposal raised potential consumer protection concerns.
LINK:
NCUA Board Extends Comment Period for Proposed CUSO Rule
(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
(March 26, 2021) Today is the effective date of NCUA’s new rule on joint ownership share accounts, which essentially permits the use of records other than signed membership cards or account signature cards as evidence that a jointly owned account qualifies for share insurance coverage apart from individually owned accounts. The final rule was approved by the NCUA Board at its February meeting … A new version (for this Congress) of the “Secure and Fair Enforcement Banking Act” (SAFE Banking Act, H.R. 1996) – which aims to provide protections for financial institutions serving cannabis-based businesses where it is legal – was introduced March 18 in the House by Reps. Ed Perlmutter (D-Colo.), Nydia Velazquez (D-N.Y.), Steve Stivers (R-Ohio) and Warren Davidson (R-Ohio). The legislation is similar to bills introduced (and which passed the House in 2019), but yet to become law, in previous Congresses … A Senate vote Thursday sent a bill extending the Paycheck Protection Program (PPP) to May 31 to President Joe Biden for his signature; the bill had previously been approved by the House. The Paycheck Protection Program Extension Act (H.R. 1799) would allow loan applications to the program—currently set to expire on March 31—for two more months and give the Small Business Administration (SBA) 30 additional days to process loan applications made by the new May 31 deadline … An April 14 webinar on BSA/AML compliance has been scheduled by NCUA, to provide updates on recently issued BSA statements, actions for managing high-risk accounts and highlights of the 2020 Anti-Money Laundering Act. The webinar is slated to start at 2 p.m. ET and last about an hour. (NASCUS and CUNA jointly host an annual BSA/AML compliance conference, scheduled again this year for the coming fall.) … Mark your calendars for the April 22 Pierre Jay Awards 2021 virtual presentation ceremony, getting underway at 2 p.m. ET. There is no charge for attending the event, although registration is required. Three leaders of the state system — Patty Idol, Kim Santos and Sarah Vega — are being recognized for the 2021 awards, which are the highest honors bestowed by NASCUS for persons or entities demonstrating service, commitment and leadership to the state system.
LINKS:
Joint Ownership Share Accounts (final rule)
NASCUS summary: Joint Ownership Share Accounts (members only)
PPP Extension Act of 2021 (H.R. 1799)
Registration Now Open for April 14 Webinar on BSA/AML Compliance
Registration: Pierre Jay Awards April 22 presentations, registration
(March 26, 2021) The state system supports raising the asset threshold to $500 million for defining a credit union as “complex” under risk-based net worth (RBNW) requirements, citing the benefit the move would accrue for both credit unions and their members.
In a comment letter filed this week with NCUA, NASCUS wrote that it concurred with NCUA over raising the threshold from $50 million to $500 million, stating that the action would not result in a material increase in risk the National Credit Union Share Insurance Fund (NCUSIF). Beyond that, NASCUS wrote, the benefit of the regulatory relief provided by the threshold change for both credit unions and their members “outweighs any nominal increase in risk.”
“NCUA provides a compelling case in the Supplemental Material for raising the asset threshold,” NASCUS wrote. “We note the fact that the proposed change would provide relief to 1,737 federally insured credit unions (FICUs) while maintaining coverage of over 81% of assets held by FICUs.”
In January, the NCUA Board proposed (on a vote of 2-1, with now-Chairman Todd Harper dissenting) to propose the rule raising the asset threshold. The board noted then the difficulties posed by the ongoing COVID-19 pandemic, and said the proposal is aimed at providing a measure of regulatory relief to further encourage credit unions to ensure access to credit and other services.
NASCUS acknowledged in its comment letter that while an overwhelming majority of credit union assets would still be covered under the RBNW provisions, more modestly sized credit unions would be able to refocus on responding to the financial impact of the pandemic and serving their membership.
Additionally, NASCUS wrote, it makes sense to cohere the current threshold now to the threshold taking effect Jan. 1 under the 2015 Risk-Based Capital Rule (2015 RBC Final Rule).
“The question before us is what regulatory and supervisory sense is there for maintaining a $50 million threshold for the remaining nine months of 2021 given the limited risk mitigation utility maintaining a low threshold provides? We see little benefit to maintaining the existing threshold as an interim benchmark,” NASCUS stated.
(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
(March 19, 2021) Payments totaling $368.7 million will be made by April 30 to about 2,000 credit unions that used to be members of three failed corporates, the NCUA Board was told Thursday, as the agency continues winding down the liquidation that began more than 10 years ago of the three institutions.
The board, meeting in its regular monthly meeting for March, was also told that there remains potential for future distributions to the former members of the corporate credit unions, which were U.S. Central, Members United and Southwest.
Capital holders of two other failed corporates – WesCorp and Constitution – should not expect payouts, the board was also told.
According to NCUA staff, those holding membership capital accounts (MCAs) in U.S. Central will receive a total of $150 million in the payout; $126.2 million will go to Members United MCA holders; and $96.5 million will go to Southwest MCA holders.
The payouts represent a partial recovery of the depleted capital at the failed corporates, which were seized by NCUA in 2009 following their failures. According to charts displayed in a staff briefing, the percentage of the recovered depleted capital is 8.9% for U.S. Central, 25.6% for Members United, and 22.9% for Southwest.
Credit union MCA holders are only paid after all senior priority claims have been fully paid or provided, NCUA noted.
The payments will be made to MCA holders that have claim certificates issued by the agency in 2010. At the time of liquidation of the corporates, NCUA said, there were 2,654 MCA holders in the three credit unions, 97% of which were credit unions. However, since 2010, a number of those credit unions have been merged into other credit unions, participated in purchases and acquisitions – and a few others have been liquidated – leaving about 2,000 MCA credit union holders, NCUA said.
The agency said it would notify payout recipients by letter of their individual distributions and other payment details. Distributions will be made via electronic funds transfer by April 30, the agency added.
LINK:
NCUA Guaranteed Notes Program and Asset Management Estate Update
2021 National Meeting
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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
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
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
DAY TWO PRESENTATION
PRESENTATION DECK (PDF): Climate Change as a Safety and Soundness Issue
Click for VIDEO Link Fireside chat with NCUA Chairman Todd Harper and Lucy Ito
SHARED RESOURCES IN CHAT
- Marijuana banking guidance from WA Department of Financial Institutions
- First penalty for pot banking violations lands on credit union
- NCUA Charters Clean Energy Federal Credit Union
- Climate Change Is a Source of Financial Risk
- Biden administration wants the financial sector to face up to climate risk
- Credit Unions Anyone Can Join
(March 12, 2021) Requirements for exemptions for some credit unions from establishing escrow accounts for certain high-priced mortgage loans (HPMLs) are outlined in a “regulatory alert” sent Wednesday from NCUA.
The message from the agency noted that in February the CFPB published its final rule that provides the exemption for smaller banks and credit unions. The rule exempts from the HPML escrow requirement any loan made by a bank or credit union and secured by a first lien on the principal dwelling of a consumer if:
- the institution has assets of $10 billion or less (as of Dec. 31 in the preceding year);
- the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and
- certain of the existing HPML escrow exemption criteria are met.
The rule was proposed in July. At that time, the CFPB said it represents the last mandatory rulemaking to implement the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155).
Wednesday’s “alert” notes that qualifying institutions that have established HPML escrow accounts on or after April 1, 2010, will have 120 days after the Feb. 17 effective date of the final rule to cease providing escrows for HPMLs to take advantage of the new exemption.
“The HPML provisions of Regulation Z require that a creditor establish an escrow account for certain first-lien HPMLs,” the alert states. “While the HPML provisions include an exemption for small creditors operating in rural or underserved areas that meet certain requirements, the exemption under the EGRRCPA is an additional exemption for qualifying insured credit unions.”
However, the alert also notes some caveats. It states that even if an insured credit union qualifies for the exemption from the escrow account requirement, “if, at consummation, the transaction is subject to a forward commitment for sale to a purchaser that does not qualify for an exemption from the escrow account requirement, an escrow account is required under the HPML provisions, unless the transaction is otherwise exempt from the requirement.”
(March 12, 2021) Clear communication to federally insured state credit unions (FISCUs) of which regulations do and do not apply to them – and also providing a clear chain of regulatory citations applicable to any given issue being communicated – are among the recommendations NASCUS made this week to NCUA about its communications and transparency.
In a comment letter on the agency’s requestion for information (RFI) about its communications practices, NASCUS placed strong emphasis on how the agency communicates information about regulation and compliance relevant to the state system. NASCUS wrote that, often, the agency’s communications “fall short in clearly communicating to FISCUs what applies and how.”
The association pointed to NCUA’s annual (and recent) regulatory review, which identifies provisions of agency rules under review – but without identifying to FISCUs which of those provisions apply. Another example, NASCUS stated, was a May 2020, NCUA Letter to Credit Unions (20-CU-16, “Low-Income Designations: Qualifications of Military Personnel”). NASCUS noted that the communication cites the agency’s low-income designation rule, 12 C.F.R 701.34, but fails to provide FISCUs the corresponding citation applying that provision to state credit unions (12 C.F.R 741.204).
“There is simply no reasonable justification for preserving an organizational framework for compliance guidance that requires FISCUs to spend time searching through the regulations to determine if the information being evaluated applies to them and how it applies to them,” NASCUS wrote.
In order to clearly communicate compliance obligations, the association urged NCUA to reorganize its regulations to consolidate all rules applicable to FISCUs, a long-standing goal of the state system. NASCUS stated that doing so would “much more clearly communicate compliance obligations and reduce the regulatory burden of FISCUs constantly having to search through dozens of NCUA rules to identify references to rules that apply to them.”
NASCUS also recommended that all NCUA communications applicable to FISCUs should contain all relevant regulatory and statutory citations, including the reference to Part 741 of NCUA’s rules that applies the subject matter of NCUA communications to FISCUs. “Going forward there should never be an NCUA compliance communication applicable to FISCUs that does not contain a reference to Part 741,” NASCUS wrote.
In other comments, NASCUS recommended:
- The agency maintain a list of interagency statements and guidance on the NCUA.gov website where other regulatory and supervisory guidance is presented, rather than only as a press release or a “letter to credit unions.”
- On credit union mergers and conversions, that the agency provide both an individual transaction data set as well as systemic data (as was done prior to 2018). “The aggregate systemic data is valuable to stakeholders thinking strategically about the effect and implications of trends in consolidation and charter conversion on the system as a whole,” NASCUS wrote.
- Creation of a dedicated page on the agency website to provide information for de novo state credit unions seeking to apply for federal share insurance (and referred the agency to the FDIC website (FDIC.gov) for an example of a deposit/share insurance application page). Additionally, NASCUS recommended, the agency should provide a link to NASCUS for parties seeking information on conversion to a credit union charter. “NASCUS can provide additional information and contacts for state regulators were NCUA to provide a link to NASCUS,” the association wrote. “Providing a link to NASCUS for additional information would be similar to NCUA’s webpage dedicated to Financial Literacy and Education which provides helpful links to various non-profits dedicated to financial literacy.”
- Clarification by the agency of what publications and guidance can be expected to be communicated by way of the “NCUA Express,” an e-mail information delivery service of the agency. “NASCUS has experienced an intermittent inconsistency in receipt of email communications from that otherwise excellent service resulting in our resubmitting credentials from time to time,” NASCUS stated. “In addition to the interruption in receipt of notices, NCUA Express does not always appear consistent in communicating all guidance documents issued and published on NCUA.gov. For example, NCUA Legal Opinions are not communicated by way of this platform.”
- More clear delineation between data for FISCUs and FCUs.
LINK:
NASCUS comment letter: NCUA RFI on communications and transparency