(Jan. 22, 2021) Focusing on challenges to credit unions posed by the ongoing coronavirus pandemic and steps to enhance the agency’s offsite monitoring of credit unions’ condition are key priorities for 2021 laid out by NCUA in a letter to credit unions issued late last week.
Also in the letter to all federally insured credit unions (21-CU-02), the agency stated that examiners will not be assessing credit unions’ efforts to transition to the current-expected-credit-losses (CECL) standard “until further notice.”
Regarding the coronavirus crisis, the agency said it planned to continue to focus examination activities on areas posing the highest risk to the credit union industry and that it will continue with its extended examination cycle, with qualifying credit unions to be scheduled “accordingly” in 2021.
The targeted exam procedures in the agency’s Small Credit Union Exam Program, NCUA wrote, remain in place for most federal credit unions with assets under $50 million. “For all other credit unions, NCUA examiners will conduct risk-focused examinations, which concentrate on areas of highest risk, new products and services, and compliance with applicable laws and regulations.”
Along that line, the agency said it is incorporating an exam planning questionnaire into the exam planning process. It said examiners will provide the questionnaire – which will collect information on certain products and services, significant events, insider activities, and fraud awareness – to credit unions in advance of their scheduled exams. Responses will be used to refine the exam scope, increase offsite-monitoring capabilities, and incorporate efficiencies to the exam. (More information on this questionnaire will be “forthcoming,” it said.)
Meanwhile, the agency noted that it will continue to pilot its new examination tool, the Modern Examination and Risk Identification Tool (MERIT), until the broader rollout in the second half of this year.
Regarding CECL, the agency said examiners would not assess credit unions’ efforts to transition to the CECL standard until further notice, given the ongoing economic impact of the pandemic and the Financial Accounting Standards Board’s (FASB) decision to delay its requirement to comply with the current expected credit losses (CECL) standard until January 2023. The agency said it does, however, encourage credit unions to continue to assess their needs and evaluate methodologies for the eventual implementation of the CECL standard.
Other priorities listed by the agency include continuing to:
- Conduct BSA/AML reviews during every examination and take appropriate action when necessary to ensure credit unions meet their regulatory obligations.
- Review compliance with provisions of the last year’s CARES Act and Consolidated Appropriations Act of 2021, including a provision that suspended the requirement to categorize certain loan modifications as troubled debt restructurings (TDRs), which was extended through Jan. 1, 2022; and requirements for financial institutions related to the administrative provisions for the additional 2020 recovery rebates for individuals.
- Examine for compliance with applicable consumer financial protection regulations during every federal credit union examination. The scope of each examination’s consumer compliance reviews, the agency said, is largely risk-focused and based on the credit union’s compliance record, products and services provided, and any new or emerging concerns. Examiners will assess a credit union’s Fair Lending Compliance Management System, the agency added.
- Not criticize credit unions’ efforts to provide prudent relief for borrowers, when such efforts are conducted in a reasonable manner with proper controls and management oversight. The agency said examiners will emphasize review of policies and practices related to helping borrowers affected by COVID-19 and will verify that credit unions evaluated the potential impact their COVID-19 response and relief efforts will have on their capital position and financial stability.
Also mentioned in its priority list were: cybersecurity; the transition away from the London Interbank Offered Rate (LIBOR) as a benchmark in transactions and contracts; liquidity risk (including, for example, that posed by “sudden and significant” share outflows); and serving hemp-related businesses.
LINK:
NCUA’s 2021 Supervisory Priorities (21-CU-02)
(Jan. 15, 2021) Florida (and NASCUS) welcome a new state-chartered credit union this week: Radiant CU of Gainesville (formerly SunState FCU). The 64-year-old credit union holds $570 million in assets and counts about 40,000 members … Melissa M. Lowden will be NCUA’s next deputy chief financial officer, effective Jan. 17, the agency said this week. In a release, the agency said Lowden – who joined NCUA in 2015 – will oversee accounting and financial reporting, enterprise risk management, strategic and performance planning, budgeting, procurement, facilities and logistical support, the administration of credit union operating fees, and the National Credit Union Share Insurance Fund’s (NCUSIF) capitalization deposits and investments … Brian Brooks, the acting comptroller of the currency, on Thursday resigned from the agency; Blake Paulson, formerly senior deputy comptroller and chief operating officer at the Office of the Comptroller of the Currency (OCC) was named his successor in accordance with federal statute.
LINK:
Lowden Named Deputy Chief Financial Officer
(Jan. 15, 2021) A final rule extending to Dec. 31, 2021 a temporary final rule on loan participations is the subject of the latest summary to be developed by NASCUS and posted on the association’s website.
The summary is available to members only.
At its Dec. 17 meeting, the NCUA Board approved (unanimously), an extension for a temporary final rule that increases the maximum aggregate amount of loan participations that a federally insured credit union (FICU) may purchase from a single originating lender without seeking a waiver from NCUA to the greater of $5 million or 200% of the FICU’s net worth (up from the greater of $5 million or 100% of the FICU’s net worth).
The rule had been slated to expire Dec. 31, 2020. The temporary rule, adopted by the NCUA Board as a relief measure for credit unions in the midst of the coronavirus crisis last spring, originally took effect April 21.
LINK:
Summary: Final rule, Temporary Regulatory Relief in Response to COVID-19 — Extension (members only)
(Jan. 15, 2021) Improving coordination between NCUA and CFPB over the consumer protection supervision of credit unions with more than $10 billion in assets is the stated purpose of a “memorandum of understanding” announced by the two agencies Thursday.
In a joint release, the two agencies said that under the agreement they will “pursue opportunities to proactively and efficiently share supervisory information, including drafts of Covered Reports of Examination and final Reports of Examination for credit unions” with more than $10 billion dollars in assets. The agencies said they would use “secure, two-way electronic means” to accomplish that and that they will “jointly collaborate in semi-annual strategy planning sessions to identify and address areas of alignment and coordination in examinations for covered institutions.”
CFPB and NCUA also asserted that the agreement would “better facilitate coordinated examinations” to increase efficiency, and that the two agencies would share information on training activities and content, as well as on supervisory activities and potential enforcement actions.
(Jan. 15, 2021) The state system has a new, direct contact on the NCUA Board: Vice Chairman Kyle Hauptman, who was named board liaison to NASCUS and another credit union group this week by Chairman Rodney Hood.
In a release, the agency said Hauptman’s responsibilities as liaison to the state system (and to the Defense Credit Union Council, a Washington-based group representing defense-based credit unions) would include meeting with both groups and reporting on priorities and recommendations to the NCUA Board. Hood noted that the Federal Credit Union Act empowers him, as NCUA Chairman, to determine each board member’s area of responsibility.
Hauptman said, in the release, that he is looking forward to working with NASCUS “as it will provide me with a broader understanding of the credit union landscape.”
NASCUS’ Lucy Ito, in a press statement of her own, congratulated Hauptman and added that the state system is fully ready and willing to interact with him to achieve his stated goal of developing a broader understanding of credit unions, particularly the role of the dual chartering system. “NASCUS shares the belief that a strong, equal partnership between NCUA and the state credit union system will help ensure a vibrant and mutually reinforcing dual charter system – which we also believe makes for a stronger, more resilient and long-lasting credit union system overall,” she said.
LINKS:
Hauptman Named NCUA Liaison to DCUC and NASCUS
(Jan. 8, 2021) Two new summaries – of an NCUA proposal on exemptions for suspicious activity reports (SARs) and exemption thresholds for consumer reporting requirements – have been published by NASCUS.
Both are available to members only.
Late last month, the NCUA Board proposed modifying requirements for federally insured credit unions to file SARs under Bank Secrecy Act (BSA) requirements that would exempt some credit unions which develop “innovative solutions” to meet BSA requirements, when requested.
In its proposal, NCUA suggested that innovative approaches and technological developments in the areas of SAR monitoring, investigation and filings may involve a variety of techniques, including automated form population, automated or limited investigation processes and enhanced monitoring processes
The agency said requests for exemptive relief pertaining to innovation or other matters may involve, among other things, for SARs: expanded investigations and timing issues, disclosures and sharing, continued filings for ongoing activity, outsourcing of responsibilities and practices, as well as the role of agents of FICUs, the use of shared utilities and shared data, and the use and sharing of de-identified data. “The NCUA expects that new technologies will continue to prompt additional innovative approaches related to SAR filing and monitoring,” the agency said.
However, NCUA added, any exemptions it grants would not relieve a credit union from its obligation to comply with Treasury’s Financial Crimes Enforcement Network (FinCEN) SARs regulations, where appropriate.
The second summary looks at a regulatory alert issued by NCUA, also late last month, on annual adjustments for exemption thresholds for 2021 under the Truth in Lending Act (Regulation Z) and the Consumer Leasing Act (Regulation M). The new thresholds (which took effect Jan. 1) are the same as the 2020 thresholds, specifically: for higher price mortgage loans exemption, $27,200; for consumer credit and consumer lease exemptions, $58,300.
LINKS:
NASCUS Summary: NCUA Proposed Rule BSA Part 748
(Jan. 8, 2021) The state credit union system supports NCUA’s efforts to clarify how it will treat supervisory guidance issued by the agency in the context of examination and supervision, NASCUS said in a comment letter filed with NCUA Monday.
However, NASCUS also urged the agency in the letter to coordinate with state agencies as it implements a final rule, and to consider incorporating definitions of covered guidance into the final rule.
NASCUS was commenting on a proposal issued by NCUA in October aimed at clarifying and codifying the role of supervisory guidance. In doing so, the agency joined with other federal financial institution regulators who had earlier issued the same proposal for the institutions they supervise.
Under the proposal, the meaning of “supervisory guidance” would be clarified as meaning, essentially, it doesn’t have the force of law. If finalized, it would codify an interagency statement issued by all of the agencies in September 2018. That statement was intended to make clear that, unlike a statute or regulation, supervisory guidance is not the same as statute or regulation. “Supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance,” the 2018 statement read.
In its comment, NASCUS said the state system supports the proposal, but also made some recommendations, including:
- NCUA should coordinate with state supervisory agencies. Noting that the prevalence of joint examinations and the pilot Alternating Examination Program necessitate NCUA coordinate implementation of this rule with state regulators, NASCUS urged the agency to work with states to ensure a mutual understanding of how NCUA examiners will manage supervision of activities “for which guidance rather than rules form the foundation of supervisory expectations.” NASCUS also urged the agency to ensure state regulators understand how NCUA will incorporate state reliance on state guidance into joint examinations – or in alternating exams where NCUA may be the lead. “NCUA must also communicate to state regulators what, if any, effect state examinations citing state guidance will have on NCUA reliance upon, and acceptance of, state examinations of a federally insured state credit union,” NASCUS added.
- The agency should consider incorporating definitions of covered guidance into a final rule. NASCUS suggested that a final rule would benefit from additional clarification as to what is “supervisory guidance,” noting that the proposal does not contain a formal definition. “It is foreseeable that confusion could arise as to whether existing and future issuances are covered by the rule,” NASCUS wrote. “For example, NCUA Interpretive Rules and Policy Statements (IRPS) are part exempted interpretive rules and covered policy statements. NCUA might consider explicitly identifying existing and future issuances as either covered supervisory guidance or exempt interpretive rule to provide clarity for stakeholders.”
Finally, NASCUS urged the agency to “remain vigilant” to ensure implementation of the proposal (should it become a final rule) does not inadvertently diminish communication of supervisory and regulatory expectations to credit unions.
LINK:
NASCUS comment: Proposed Rule, Role of Supervisory Guidance
(Jan. 8, 2021) NCUA’s communications methods are up for comment in an effort, the agency said this week, to “promote efficiency and increase transparency.”
In a release, NCUA said it is seeking public input through a “request for information” (RFI) on how it can streamline and improve its communications with its stakeholders. Specifically, the agency said, the request for information “seeks public input on how the agency can maximize efficiency and minimize burdens associated with obtaining information on federal laws, regulations, policies, guidance, and other materials relevant to federally insured credit unions.”
The RFI, the agency said, contains questions about the effectiveness of its press releases, social media content, and the timing and frequency of agency communications. There are also questions related to improving the agency’s websites, online data resources, and the delivery and format of supervisory guidance, NCUA said.
“Outdated or duplicative regulatory and supervisory information adds to the overall regulatory burden of credit unions as they must devote time and resources to sorting through this information,” NCUA Chairman Rodney E. Hood said in the release. “We recognize that the amount of information the NCUA provides to credit unions can create challenges and may impose unintended burdens. This request for information addresses this concern and continues my mission to ensure NCUA’s regulation of credit unions is effective, not excessive.”
Comments will be taken for 60 days following publication of the RFI in the Federal Register.
LINK:
Request for Information on NCUA Communications and Transparency
(Jan. 8, 2021) NASCUS supports NCUA’s proposed derivatives rule, but has made two recommendations to the agency that the association said would make the proposal more flexible for the needs of the state credit union system.
In the letter filed Dec. 28, NASCUS noted that the proposal would continue to defer to state law for federally insured state credit union (FISCU) derivatives authority, and adjust the timeframe for FISCUs to notify NCUA of derivatives activity. The proposal was issued by the NCUA Board Oct. 15. It is designed, the agency said then, to make the agency regulations over derivatives less prescriptive and more principles-based – and expand federal credit unions’ (FCUs) authority to purchase and use derivatives as part of their interest-rate risk (IRR) management.
For the state system, a key part of the proposal (as NASCUS noted in its letter) is continued recognition by NCUA of the primacy of state law in determining investment authority for FISCUs. The association made two recommendations for improving the proposal by, NASCUS said, enhancing coordination between NCUA and state supervisory authorities (SSAs).
First, NASCUS said the agency should eliminate redundant supervisory notice requirements where applicable. The agency, NASCUS wrote, should provide an exemption from its notice requirement for FISCUs in states where pre-approval or pre-notification is required to be given to the state regulator.
NASCUS cited the examples of Georgia and Connecticut as states where prior approval from the state regulator is required. “Exempting FISCUs in states where the state regulator is willing to provide notification to NCUA on behalf of FISCUs eliminates redundancy, streamlines the regulatory framework, provides regulatory relief for credit unions, and reduces the potential for confusion resulting from different state and federal notification timeframes,” NASCUS wrote.
Second, NASCUS recommended that the agency should incorporate exempt derivatives transactions directly into part 741.219 of its rules – the section that covers FISCUS and investment requirements. Specifically, NASCUS “strongly recommended” that — to facilitate FISCU compliance – the agency should incorporate the excluded transactions under the proposal (under part 703.14 of NCUA rules, which only apply to FCUs) directly into a new subpart (d) of section 741.219. Restating the excluded transactions directly in the relevant FISCU rule, NASCUS wrote, “is a better organizational framework that more clearly communicates to FISCUs the required compliance obligations.”
LINK:
NASCUS Comment: Proposed Rule — Derivatives (RIN 3133–AF29)
(Jan. 8, 2021) Nine items – including a proposal on risk-based net worth (complex threshold), an advance notice of proposed rulemaking on simplification of risk based capital requirements and four other final or proposed rules – are all on the NCUA Board’s agenda for Thursday’s open meeting, which gets underway at 10 a.m. ET.
The other action items on the board’s open meeting agenda include: a proposed rule (part 712), on credit union service organizations (CUSOs); a final rule (and a board briefing) on statutory adjustment of civil money penalties (CMPs, part 747); a final rule (part 704), corporate credit unions; and a notice of proposed rulemaking (parts 700, 701, 703, 704 and 713), CAMELS rating system.
The meeting could also possibly be the last chaired by Rodney Hood, a Republican appointee. President-elect Joe Biden, once he is inaugurated Jan. 20, is expected to name Todd Harper, a Democrat appointee, chairman shortly after taking office.
Rulemaking for risk-based net worth and capital requirements has been on the board’s action item list since at least 2014. That year, the board first issued its risk-based capital proposal for “complex” credit unions – then defined as those with more than $100 million in assets – with implementation slated 18 months after the rule would have been finalized. A revised proposed rule was issued in 2015 and finalized that October with an effective date of Jan. 1, 2019.
That final rule was intended to replace the then- (and still now) effective risk-based net worth ratio with a new risk-based capital ratio for federally insured credit unions, which NCUA called comparable to the regulatory risk-based capital measures used by the federal banking agencies: the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of Currency (OCC).
But in 2018, the board revised its definition of “complex” credit unions to include only those with more than $500 million in assets. It also delayed the rule’s implementation further, to Jan. 1, 2020.
In December 2019, the board delayed the implementation date again, to 2022 (and on a split vote, with Board Member Todd Harper voting no). At that 2019 meeting, NCUA Board Chairman Rodney Hood said delaying the effective date to 2022 woiuld give the agency time to consider new methods for strengthening credit union capital requirements, indicating that then was a good time to do so as credit unions enjoy strong capital positions.
Also at that meeting, then-NCUA Board Member J. Mark McWatters said the agency was considering “a suite of capital rules,” which would include a proposal for credit unions similar to the community bank leverage ratio (CBLR), adopted by the federal banking agencies in 2019. That rule, he indicated, would exempt credit unions with less than $10 billion in assets from complying with the risk-based capital requirements, if those credit unions meet certain requirements.
Other items on the NCUA Board’s Jan. 14 open meeting agenda include:
- Consideration of the agency’s 2021 annual performance plan;
- Board briefing on the agency’s “Advancing Communities through Credit, Education, Stability and Support” (ACCESS) initiative;
- Board briefing on December’s Consolidated Appropriations Act, 2021 (the COVID-19 relief bill).
Following the board’s public meeting will be its closed (non-public) meeting, featuring six items – which include two supervisory actions, two personnel actions, a delegation of authority and a board briefing.
LINK:
NCUA Board meeting agenda, Jan. 14
(Jan. 8, 2021) A number of provisions contained in the massive appropriations and coronavirus relief legislation signed into law Dec. 27 are highlighted by NCUA in a letter to credit unions sent this week.
That letter came on the heels of two other letters issued recently by the agency, addressed to federal credit unions only, but with some interest to the state system.
In its letter to credit unions 21-CU-01, NCUA notes that most of the provisions of the COVID-19 relief bill extend portions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March as the impact of the coronavirus crisis became apparent. The provisions are extended to Dec. 31, 2021.
More specifically, NCUA said the provisions in December’s Consolidated Appropriations Act directly affecting credit unions and their members include:
- Extending provisions affecting the agency’s Central Liquidity Facility (CLF, which makes loans to credit unions and the National Credit Union Share Insurance Fund (NCUSIF)) to Dec. 31, 2021. Those include: an increase in the facility’s borrowing capacity (allowing it to borrow $16 (up from $12) for every $1 in capital and surplus; relaxed requirements for agent membership (making it more economical for corporate credit unions to join the facility); and extension of liquidity help directly to corporates.
- Suspending the requirement to categorize certain loan modifications related to the COVID-19 pandemic as troubled debt restructurings (TDRs) through Jan. 2, 2022.
- Lengthening the time for compliance with the Current Expected Credit Loss (CECL) accounting standard through Jan. 1, 2022 (although federally insured credit unions, the agency notes, are not required to comply with CECL accounting standards until Jan. 1, 2023).
- Authorizing an additional $284.5 billion of more easily forgivable loans through the Paycheck Protection Program (PPP). In addition, the December bill sets aside funding for loans by specific institutions: not less than $15 billion for loans by community development financial institutions and minority depository institutions (CDFIs and MDIs), and not less than $15 billion from loans by financial institutions with assets less than $10 billion.
The agency also highlighted provisions in the bill allowing for $1.5 million for its Community Development Revolving Loan Fund (CDRLF) until Sept. 30, 2022; and $12 billion in COVID-19 relief funding for CDFIs that predominantly serve minority communities – with a third of that set aside for smaller financial institutions with less than $2 billion in assets.
Also this week., the agency sent a letter to FCUs (21-FCU-02) pointing out that April 15 is the due date for adjustments to 1% deposits in the NCUSIF, and FCU operating fees. The letter also notes that the overhead transfer rate (OTR, the rate at which funds are transferred from the NCUSIF to the agency’s operating budget to cover “insurance related costs”), increased to 62.3% for 2021, up 100 basis points from 2020 (at 61.3%). “This change results in a reduction to the estimated 2021 operating fee revenue compared to the 2020 operating fee collections,” the agency noted. The 2020 FCU operating fee dropped by an average of 19.6% from the previous year, NCUA said.
Finally, in letter 21-FCU-01, the agency provided updated guidance and templates which it said are intended to assist FCUs seeking to convert to a community field of membership or expand their existing community field of membership. The agency said the letter reflects a number of revisions to its chartering and field of membership manual.
LINKS:
NCUA letter to credit unions 21-CU-01: Summary of the Consolidated Appropriations Act, 2021
NCUA Letter to Federal Credit Unions (21-FCU-02) Operating Fee Schedule Adjusted for 2021
NCUA Letter to Federal Credit Unions (21-FCU-01) Community Charter Conversions and Expansions
(Dec. 23, 2020) A 2021 budget of $341.4 million – with an overhead transfer rate (OTR) of 62.3% — was approved by the NCUA Board on a split vote of 2-1 at its meeting late last week, with barely two weeks to go until that budget takes effect for the new year.
The agency’s budget for next year is down about 1.7% from the 2020 budget, but the OTR went up by 100 basis points. Board Chairman Rodney Hood and (now) Vice Chairman Kyle Hauptman voted for the 2021 budget; Member Todd Harper against it.
The OTR represents money that is transferred from the National Credit Union Share Insurance Fund (NCUSIF) to the operating budget of the agency to cover “insurance-related” expenses of the agency. The remainder of the operating budget is covered by the operating fee paid by federal credit unions, resulting in a split of 62.3% (from the OTR) and 37.7%, respectively.
NASCUS President and CEO Lucy Ito said the OTR increase for next year is a sign of the need for NCUA to reconsider how it allocates expenses.
In a press statement following last Friday’s board meeting, Ito said what appears counterintuitive to the state system in the 2021 NCUA budget is that the projected increase in workload for state exams is not matched with an at least equal if not greater increase in workload for federal credit union exams. She noted that assets between state and federal CUs are approximately equal, yet FCUs outnumber FISCUs by more than 1,000 (3,213 FCUs versus 1,920 FISCUs as of the end of the 2020 third quarter).
Further, she said, the 1-point OTR increase will essentially mean there will be $3.3 million less to cover losses by the National Credit Union Share Insurance Fund should those materialize as the result of an economic downturn due to the financial impact of the coronavirus pandemic
“NASCUS will continue to work with NCUA to allocate expenses to the OTR in a way that safeguards balance and equity, and that ensures that the insurance fund has the resources necessary to protect the savings of credit union members,” she said.
Along those lines, she added, NASCUS welcomes the formation of an OTR working group comprised of NCUA, state regulators, and NASCUS to assure transparency in and reasonableness of cost allocation assumptions to foster equity between federal and state credit unions.
LINKS:
Notice: Overhead transfer rate