(Oct. 22, 2021) In yet another split decision over the issue, a final rule giving CUSOs the power to originate any type of loan an FCU may originate – and give the NCUA Board more flexibility in approving permissible CUSO activities and services – was approved by the board at its meeting Thursday.
The rule will become effective 30 days after publication in the Federal Register.
On a 2-1 vote (with Chairman Todd Harper dissenting), the board finalized the rule that – from the start – has been contentious. In January, when the proposal was issued, the board voted 2-1 in favor of issuing it for comment. In September, the board voted 2-1 to bring the final rule up for consideration. Harper dissented on all three.
NCUA said that it made no substantive changes from the proposal in finalizing the rule. The agency said the final rule is intended to accomplish two things: expand the list of permissible activities and services for CUSOs to include the origination of any type of loan that an FCU may originate; and grant the NCUA Board additional flexibility to approve permissible activities and services.
By allowing CUSOs to originate any type of loan an FCU can, the list of permissible loans by CUSOs is expanded from only business loans, consumer mortgage loans, student loans, and credit cards. The list of new loans includes automobile and small-dollar (payday) loans – the two types NCUA has said would likely draw the newest involvement by CUSOs.
Harper scorned the rule, saying (as he has in the past) that its adoption will result in a “wild west” among credit unions of affording “little accountability for consumer protection.” Board Member Rodney Hood, in his comments, disregarded Harper’s concerns, asserting that CUSOs are already largely regulated under state laws. He also told the board that the new rule doesn’t go far enough: it should allow, he said, CUSOs to invest directly into financial technology companies (fintechs) without requiring the fintechs to become CUSOs. Hood said he intended to work toward that end, and other expansions of the rule, in the remaining tenure of his term.
Vice Chairman Kyle Hauptman, in his comments, suggested that the rule could be tweaked in the future, to address any emerging issues or developments.
However, both Hood and Harper stated their continued support for giving NCUA exam authority over third-party vendors to credit unions.
In its comment filed on the proposal in late April, NASCUS noted as a key concern with the proposal that possible, additional reporting requirements for state credit unions could be a result of a finalized rule. NASCUS noted that the proposal could influence state credit unions considering collaborating with FCU investors in the formation and ownership of a CUSO – a condition that prompted the association to comment.
In some states, NASCUS pointed out, CUSOs owned by state credit unions already hold expanded lending power. The association noted, however, that the NCUA proposal could end up requiring additional reporting requirements that don’t today exist for SCUs. “NASCUS opposes extension of any additional reporting requirements to SCU CUSOs resulting from an expansion of FCU powers,” the association wrote.
NCUA, however, in its commentary on the final rule, rejected that view saying that it “does not believe the effect of this rule on CUSOs in which only FISCUs have an ownership interest represents a policy change” from existing NCUA reporting requirements.
Following the meeting, NASCUS’ Ito reiterated the point the association made in its comment letter last spring that CUSOs owned by state credit unions already hold expanded lending powers with benefits accruing to members and participating credit unions alike, without raising safety and soundness nor consumer protection concerns. She said NASCUS views the final rule as a “natural evolution“ in a robust dual charter system.
“However, we note that, as finalized, the CUSO rule includes additional reporting requirements which could impact state-chartered credit unions in considering whether to collaborate with FCU investors in the formation and ownership of a CUSO. An additional concern is whether the rule adds new reporting requirements to state credit union CUSOs, because of expanding FCU CUSO powers. Is there something wrong with this picture? NASCUS will review the final rule closely and look forward to working with NCUA to resolve any unintended, negative impacts on state credit union CUSOs.”
LINKS:
Final Rule, Part 712, Credit Union Service Organizations
NASCUS comment: Proposed Rule, Credit Union Service Organizations (CUSOs) – RIN 3133–AE95
(Oct. 15, 2021) Credit unions with both minority depository institution (MDI) and low-income (LICU) designations may apply now, through Oct. 29, for NCUA’s mentoring grants worth a total of $100,000, the agency said this week.
NCUA said the grant round is aimed at supporting mentoring relationships with larger, experienced credit unions to provide guidance to the other MDIs.
Eligibility and administrative requirements information is available on the agency’s website. However, NCUA said, credit unions must use its “CyberGrants portal” to submit applications.
The agency first announced the mentoring grant round last month.
LINK:
NCUA MDI Mentoring Grant Round Reopens Oct. 11
(Oct. 15, 2021) Finalizing a proposed – and contentious — rule on expanded lending and services provided by federal credit union (FCU) credit union service organizations (CUSOs) highlights the scheduled agenda for next week’s meeting of the NCUA Board.
In other action, the board will consider finalizing a rule that would add an “S” (Sensitivity to Market Risk) component to the existing CAMEL rating system and redefine the “L” (Liquidity Risk) component, thus updating the rating system from CAMEL to CAMELS.
The CUSO rule was proposed at the beginning of the year. It would deem as permissible for CUSOs the origination of any type of loan that an FCU may originate; and grant the NCUA Board additional flexibility to approve permissible CUSO activities and services. The agency also sought comments on broadening FCUs’ authority to invest in CUSOs.
But, from the beginning, the proposal has been controversial. It was released Jan. 14 on a 2-1 vote of the NCUA Board, with then-Board Member (now Chairman) Todd Harper dissenting. Harper, making his objection, noted the NCUA’s lack of direct supervisory authority over CUSOs and indicated the proposal raised potential consumer protection concerns. He said such a rule “will create a Wild West within the credit union space,” affording “little accountability for consumer protection” as CUSOs could exceed the restrictions applied to FCU lending in areas such as interest rate, loan term, and repayment.
Shortly after that board meeting, Harper was named chairman of the three-member board by the newly inaugurated President Joe Biden (D). He replaced current Board Member Rodney Hood in the position.
Since then, the proposal stalled. It was originally issued with a March 29 comment deadline (about 60 days after its proposal). The agency then extended the comment period another 30 days.
Last month, the board agreed to consider finalizing the rule (along with two other outstanding proposals) in upcoming board meetings over three months; the CUSO rule was the first on the list. However, controversy again dogged the proposed CUSO rule, as it (and the other two rules, to be considered in November and December) were approved for future, final consideration on a vote of 2-1, with Harper again dissenting. In doing so, he reiterated his concerns about the potential of the proposed CUSO rule for growing an “already unregulated space within the credit union system, with little accountability for protecting consumers and credit unions.”
In its comment filed on the proposal (on April 30), NASCUS noted as a key concern with the proposal that possible, additional reporting requirements for state credit unions could be a result of a finalized rule. NASCUS noted that the proposal could influence state credit unions considering collaborating with FCU investors in the formation and ownership of a CUSO, — which prompted the association to comment.
In some states, NASCUS pointed out, CUSOs owned by state credit unions already hold expanded lending power. The association noted, however, that the NCUA proposal could end up requiring additional reporting requirements that don’t today exist for SCUs. “NASCUS opposes extension of any additional reporting requirements to SCU CUSOs resulting from an expansion of FCU powers,” the association wrote.
The CAMELS proposal was put forth in January (the same meeting at which the CUSO proposal was issued) and was approved for public comment on a unanimous vote by the board. The proposal would bring the NCUA’s rating system up to date with a change that banking regulators incorporated decades ago and satisfy a recommendation the agency’s inspector general has been recommending for about the past five years.
Nearly five years ago, NASCUS wrote to NCUA urging the change and adding the “S” component. “NASCUS and state supervisory agencies encourage NCUA to consider earlier adoption of ‘CAMELS,’” NASCUS’ Lucy Ito wrote in the June 2016 letter to the board. “We again note that the separation of the ‘S’ component does not require a credit union to develop additional management system enhancements where market risk is already appropriately identified, measured, monitored and managed as part of the ‘L’ component.”
She also noted that in states that have adopted CAMELS (now totaling 24 – up from 16 when she wrote the letter), that regulators and credit unions have reported positive outcomes with nearly no additional regulatory burden.
In its comment letter filed last spring, NASCUS wrote that moving expeditiously on adding a “market risk sensitivity” component to the credit union examination system – that is, adding an “S” to “CAMEL” – would better align NCUA with state credit union and federal banking regulators that have already made the move. However, NASCUS added, there is no need to “reinvent the wheel and develop a credit union CAMELS Rating System that diverges from the established CAMELS system currently in use in bank supervision and in the states that have adopted CAMELS for credit union supervision.” NCUA has proposed definitions and components of the criteria to be used in assigning the “S” and “L” ratings.
Also on the agenda for Thursday’s meeting is a board briefing on cybersecurity. The NCUA Board meeting is scheduled to get underway at 10 a.m., and to be live-streamed via the Internet.
LINKS:
Board Agenda for the October 21, 2021 Meeting
NASCUS comment: Notice of Proposed Rulemaking Regarding CAMELS Rating System
NASCUS comment: Proposed Rule, Credit Union Service Organizations (CUSOs) – RIN 3133–AE95
(Oct. 15, 2021) Describing a new set of tools it has developed to promote digital safety as a “holistic cybersecurity resource” for credit unions, NCUA has scheduled an Oct. 28 webinar on the tool kit, the agency said this week.
The 60-minute webinar will cover the agency’s “Automated Cybersecurity Evaluation Toolbox (ACET),” and features participation by agency Board Chairman Harper. The event is scheduled to get underway at 3 p.m. ET.
According to the agency, the ACET is a downloadable self-contained application, developed for credit unions by the agency, which guides credit unions through the ACET “Maturity Assessment.” NCUA said that component is aligned with the FFIEC’s Cybersecurity Assessment Tool (CAT). The maturity assessment, the agency said, allows credit unions of all sizes to determine and measure their own cybersecurity preparedness over time.
The ACET also contains, NCUA said, several other types of industry recognized cybersecurity best practices and standards, including the “Ransomware Readiness Assessment (RRA)” from the federal government’s Cybersecurity & Infrastructure Security Agency (CISA). According to NCUA, the RRA is a “self-assessment based on a tiered set of practices to help organizations better assess how well they are equipped to defend and recover from a ransomware incident.”
The webinar will include a question-and-answer session with participants. Registration for the event is now open, NCUA said; there is no fee.
LINK:
Understanding the Automated Cybersecurity Examination Tool (ACET)
(Oct. 15, 2021) In other NCUA webinar developments, the agency said this week that, on Oct. 27, it is hosting an event focusing on bias in home appraisals and the racial homeownership gap. (This topic was the subject of in-depth discussion during last August’s 2021 NASCUS State System Summit (S3)). The agency said the 90-minute session, which gets underway at 2 p.m. ET, will highlight how systemic and institutionalized discrimination in the U.S housing system has created a wide wealth gap between races. NCUA said discussion will focus on strategies for closing the homeownership gap and eliminating appraisal bias, due to its direct impact on wealth accumulation for minority homeowners. The event will also explore, the agency said, the collaborative efforts of federal agencies and other stakeholders to initiate valuation and housing policy reforms for more equitable outcomes in communities of color.
LINK:
Understanding Bias in Home Appraisals and the Racial Homeownership Gap
(Oct. 8, 2021) Three new summaries were posted by NASCUS this week on: An NCUA regulatory alert on credit union credit card data submission to the CFPB; an NCUA letter to credit unions about the expiration of homeowner protection programs during the coronavirus crisis; and NCUA’s proposal to amend its subordinated debt rule to allow for the Treasury Department’s Emergency Capital Investment Program (ECIP).
All of the summaries are available to members only.
On Sept. 29, the NCUA issued a “regulatory alert” (21-RA-09) that essentially put credit unions on notice that they may begin submitting data on credit card agreements with their members, and applying data submission requirements, to CFPB’s “Collect” website, which gathers credit card information. The alert also lists important dates for credit unions to consider when submitting their data.
On Sept. 27, the agency sent a letter to federally insured credit unions (letter 21-CU-09), which outlined “critical information” for compliance with expiring pandemic-era homeowner protection programs. The letter noted several key areas, including the deadline for granting forbearance on mortgage payments. It also outlined steps that credit unions may take to continue providing relief to homeowners, even though several programs had expired.
Finally, on Sept. 23 – because of its monthly meeting – the NCUA Board issued a proposal to amend its new subordinated debt rule to accommodate credit union access to federal investment programs – but making no other changes to the rule taking effect Jan. 1. The proposal, according to NCUA staff, would amend the definition of “grandfathered secondary capital” to include any secondary capital issued to the U.S. government or one of its subdivisions under an application approved before Jan. 1, “irrespective of the date of issuance” (that is, when funds are issued), primarily to benefit low-income credit unions (LICUs).
LINKS:
NASCUS Summary: Navigating and Understanding the End of Pandemic-Era Homeowner Protection Programs
NASCUS Summary: Changes to NCUA Subordinated Debt rule
(Oct. 8, 2021) Four recommendations to improve NCUA’s information technology investment management program are laid out in a report from the agency’s office of inspector general (OIG), made public this week.
The recommendations made to agency management, in a report of an audit initiated by the OIG, are:
- Document and publish information technology investment management policies and procedures to include definitions, roles, responsibilities, and processes associated with information technology governance and selecting, controlling, and evaluating information technology investments.
- Finalize and publish an updated agency IT oversight council charter that more comprehensively addresses and delineates the council’s information technology investment management authority, responsibilities, and functions.
- Keep the language from the April 2019 charter, or include similar language in its new charter, requiring the council to provide a rated and ranked listing of all office of primary interest-proposed projects to the NCUA Board, highlighting those that are statutorily or legally required.
- Include language in the council’s charter requiring NCUA officials to provide the group’s meeting minutes to the NCUA Board.
According to the report, the audit covered the period of Jan. 1, 2016, through Dec. 31, 2019. NCUA Inspector General (IG) James Hagen wrote that, although the audit found that the agency overall had an effective process for managing IT initiatives across the agency, “we also determined the agency could make some improvements in its IT Investment Management program related to its policies and procedures and transparency, as well as ensuring certain functions of the Information Technology Oversight Counsel (ITOC) are clearer.”
The IG found that the agency needs to document its IT investment management policies and procedures; needs to make the scope of the Information Technology Prioritization Council’s (ITPC) authority, responsibilities, and functions clearer; and needs more transparency in the IT Investment Management process.
Hagen wrote that the audit also considered Office of the Chief Information Officer’s (OCIO) concerns regarding the funding of IT projects that fall outside of operations and maintenance support and below the threshold of capital projects. The report made no recommendations regarding funding, Hagen wrote, since the agency CIO is already addressing that.
LINK:
Audit of the NCUA’s Governance of Information Technology Initiatives, Sept. 28, 2021 (Report #OIG-21-06)
(Oct. 1, 2021) Rohit Chopra is now the permanent director of the CFPB, with a five-year term, thanks to a 50-48 vote by the Senate on Thursday. He took a big step toward that vote earlier in the day when the Senate voted 51-50 – with Vice President Kamala Harris casting the tie-breaking vote – to cut off debate and proceed to the final vote on confirmation. Chopra replaces acting director Dave Uejio – who himself has been nominated to be assistant secretary for fair housing and equal opportunity at the Department of Housing and Urban Development (HUD) … NASCUS President and CEO Lucy Ito will be on the panel discussing “How to Increase Gender Diversity in the C-Suite” Nov. 3 (at 2:15 p.m.) as part of NCUA’s Nov. 2-4 Diversity, Equity and Inclusion (DEI) Summit. The panel – made up of all female credit union executives – will discuss successes and setbacks on their paths to leadership, according to NCUA. They will also discuss how to increase gender diversity in the upper ranks of financial institutions. Other panelists include CEOs of NASCUS-members Orange County’s CU and Navy Federal CU – Shruti Miyashiro and Mary McDuffie, respectively.
LINK:
(Oct. 1, 2021) Credit unions may begin submitting data on credit card agreements with their members, and applying data submission requirements, to the CFPB’s website for collecting credit card information, NCUA said this week.
In a “regulatory alert,” the agency said credit unions may begin submitting data to the bureau’s “Collect” website using submission deadline dates of:
- Feb. 14, 2022, for terms of credit card plans (TCCP) survey data;
- Jan. 31, 2022, for quarterly credit card agreement submissions;
- March 31, 2022, for annual reports related to college credit card marketing agreements and data.
On Aug. 20, the consumer bureau issued new technical specifications for complying with credit card agreement and data submission requirements under the Truth in Lending Act (TILA) and the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. In the specifications, the bureau said all submissions would be made via the agency’s Collect website beginning in January.
The Collect website has been available since July 2018 for those participating in the semiannual TCCP Survey. According to the bureau, 83% of survey submissions early this year were made via Collect.
NCUA, in the letter, reminded that credit unions selected to participate in the TCCP Survey or are required to submit an annual report of college student credit card agreements can register now. Any credit union with 10,000 or more credit card accounts as of any quarter-end is required to make quarterly credit card submissions to the CFPB, the credit union regulator said, and must register for Collect by Nov. 1, 2021.
“Once a credit union receives its login credentials, it will be able to review its current submissions and make the required submissions for the fourth quarter of calendar year 2021 starting on Dec. 1, 2021,” NCUA said.
LINKS:
(Oct. 1, 2021) While not outright supporting the idea of an expanded NCUA Board membership, the chairman of the current board noted that there are some upsides to the idea during testimony Thursday at a Senate confirmation hearing.
NASCUS and the state system have long called for an expansion of NCUA Board from its current three members to five – and for requiring that at least one member of the board have state credit union regulator experience.
At the hearing, during questions to him from Sen. Steve Daines (R-Mont.) at the Senate Banking Committee hearing on NCUA Board Chairman Todd Harper’s nomination to a full term on the NCUA Board (and to continue as chairman), Harper acknowledged that there are two sides to expanding the membership of the NCUA Board.
“Certainly a disadvantage of going to a larger board would be higher costs for that board and perhaps slowing down the process,” Harper said. “On the flip side of that, though, it would create more voices at the table in order to have more informed decision making.”
Harper also noted “that state regulators have long called for an increase in the size of the NCUA board.” He also pointed out that, adding more members to the board could change a structural defect that limits communications among board members.
“The sunshine act rules make it difficult for me to talk one-on-one with my fellow board members because when you have a three-member board, two people talking together is a majority and you have to notice that,” he said, referring to publication of board meetings for public review in the Federal Register. “A larger board would facilitate the board-member-to-board-member interaction.”
Daines seemed to be open to the idea of an expanded board, saying he appreciated Harper’s view. He said “looking at the reality” of how many members the agency board has had since its 1979 inception (22), and a four-year run of having only two board members during the last decade, “there’s an argument for considering making the board larger.”
Any change in the size of the NCUA Board would require a change in the Federal Credit Union Act; there is currently no legislation before Congress calling for that.
Harper was nominated last month by President Joe Biden (D) to a term on the NCUA Board ending in 2027; the White House has indicated Harper will continue as chairman. Harper’s nomination is somewhat a first among NCUA Board members as he is essentially succeeding himself (he is now serving in a “holdover” status as the term he was serving officially ended in April).
Harper was one of three nominees to appear on a panel before the Banking Committee hearing Thursday; the other two are nominees to the Export-Import Bank (Exim Bank) of the United States. (They are: Judith DelZoppo Pryor as first vice president, and Owen Edward Herrnstadt as a member of the bank’s board.)
All three were repeatedly congratulated by senators from both parties on their nominations; none publicly voiced opposition to any of their nominations.
(Oct. 1, 2021) “Critical information” for compliance with expiring pandemic-era protection programs for homeowners are addressed in a letter to credit unions from NCUA this week.
The letter (LTCU 21-CU-09), sent to all federally insured credit unions, provides lenders and mortgage servicers with the information. Among the key points noted:
- The deadline was Thursday (Sept. 30) to grant forbearance through provisions of the Coronavirus Aid Relief and Economic Security Act (CARES Act). Section 4022 of the act, as amended, the agency noted, provides homeowners with federally backed mortgages the option to temporarily suspend their monthly mortgage payments up to 18 months. Borrowers who have not previously been in forbearance have until Thursday to request assistance.
- 4013 CARES Act loans may be modified – including forbearance – until Jan. 1 without designating the modification as a “troubled debt restructuring” (TDR) under certain criteria. Those include: the loan existed before Dec. 31, 2019; the modification is related to COVID-19; the borrower was less than 30 days past due as of Dec. 31, 2019; and the modification is executed between March 1, 2020 and the earlier of Jan. 1, 2022, or 60 days after the date of termination of the national emergency concerning COVID–19 outbreak declared by the president on March 13, 2020.
- The moratorium foreclosure expired July 31. However, the agency pointed out, the Consumer Financial Protection Bureau (CFPB) recently issued a final rule temporarily amending certain mortgage servicing requirements under Regulation X to assist borrowers affected by COVID-19. “Among other amendments, the final rule establishes temporary special COVID-19 loss mitigation procedural safeguards to ensure that a borrower has a meaningful opportunity to pursue loss mitigation options,” the letter states. It adds that, between Aug. 31 and year’s end, a servicer must meet at least one of the specified safeguards before initiating any judicial or non-judicial foreclosure processes where a borrower became more than 120 days delinquent on or after March 1, 2020.
- Although the eviction moratorium expired Thursday, its aim, the letter notes, is to keep people in their homes even after the home has been foreclosed.
The letter also outlines other homeowner and renter assistance programs, which NCUA said provides nearly $10 billion in assistance to keep owners in their homes. The money may be used, NCUA pointed out, for mortgage payments, utilities, insurance, and other needs.
LINK:
(Oct. 1, 2021) Other key moments of the Harper nomination hearing included:
- Harper again endorsed third-party vendor exam authority for NCUA (which would require a statutory change). “Bank regulators have authority to go into third-party vendors; NCUA does not,” Harper said in response to questions from Sen. Jon Ossoff (D-Ga.). Harper, as he has before, called lack of that authority “a blind spot” for NCUA. He told the senator NCUA is working on a white paper on the subject that Harper will provide to Ossoff if confirmed. (NASCUS supports the agency obtaining the power over technology service providers (TSPs) that provide services to federally insured credit unions — provided that any such authority requires NCUA to rely on state examinations of such service providers where such authority exists at the state level.)
- The NCUA Board chairman indicated to Sen. Tina Brown (D-Minn.) that credit unions in all communities – large and small, urban and rural – should be cognizant of risks presented by climate change. He said NCUA must consider storms and all material risks that occur as a result of climate change, including such risks as credit unions attached to a particular industry that is facing structure changes due to climate change, or credit unions in areas of high concentration of agricultural areas where crops are affected by climate change.
- A commitment by Harper for “more specialized training” of examiners working in agricultural areas to assess risks particular to those areas, in response to comments by Sen. Kevin Cramer (R-N.D.). “One of the complaints I hear from credit unions in ag lending is ‘our [NCUA] examiners, they don’t know the particular crop; they don’t know how this farm works.’ That is something certainly I would commit to you, if confirmed, to working with you to make sure that we get more specialized training for our examiners and help in our exams in that way.”
- On repeated questions about his views of a proposal that credit unions and banks report to IRS the deposits and withdrawals made by members to determine their tax liability, Harper repeatedly answered that, while he was aware of the proposal, he hadn’t looked at it in detail and indicated he couldn’t render an opinion on it. He did say there would be administrative costs – but wouldn’t characterize how big (or small) those would be. He asked if he could get back to the panel members who inquired about it after he’s had more time to study the proposal, which has been roundly criticized by credit union industry trade groups.