Dec. 4, 2015
Legislation with regulatory changes affecting credit unions and other financials – which includes giving privately insured, state-chartered credit unions access to membership in the Federal Home Loan Bank system -- is on its way to President Obama for his expected signature and enactment into law, the result of Senate and House votes Thursday. Both bodies approved, by overwhelming margins, the conference report for H.R. 22, the highway and transit funding bill, which contains the credit union and financial institution provisions. Under the PICU FHLB provision, a credit union can be eligible for FHLB membership “only if the appropriate supervisor of the State in which the credit union is chartered has determined that the credit union meets all the eligibility requirements for Federal deposit insurance as of the date of the application for membership.” However, the provision also notes that, if the state supervisor fails to make the determination "by the end of the 6-month period beginning on the date of the application," the credit union shall be deemed to have met the requirements. In addition, the measure requires a Government Accountability Office (GAO) study of private share insurance (due 18 months after the bill’s enactment – which would be approximately May 2017) related to adequacy of private insurers’ insurance reserves, and “information on the level of compliance with Federal regulations relating to the disclosure of a lack of Federal deposit insurance.” Other credit union-related provisions in H.R. 22 would: modernize privacy notification requirements to allow all financial institutions to send notices only when there is a policy change, not on an annual basis, and; direct the Consumer Financial Protection Bureau (CFPB) to establish an application process determining whether an area should be designated as a rural area., which (among other things) affects the types of products credit unions may offer their members in these areas. A key provision for banks in the bill: the FDIC has the authority to raise the ceiling of bank eligibility for an 18-month exam cycle to $1 billion for well-run community banks (now, the ceiling is $500 million). Credit unions are not included in the provision. (NCUA Board Chairman Debbie Matz, commenting in late October about a proposed 18-month cycle for low-risk credit unions, said “I’m not saying no, just that this is not the right time,” indicating she prefers to see the impact on credit unions of recent regulatory relief efforts before altering exam cycles).
Meanwhile, an appropriations bill in the Senate – expected to be considered by that body within the next week -- also contains some regulatory changes for credit unions and other financials. Among them: a provision requiring NCUA to hold annual budget hearings. The measure is similar to H.R. 2287, the NCUA Budget Transparency Act, sponsored by Rep. Mick Mulvaney (R-S.C.), which mandates the NCUA Board open its budget process to notice and comment -- including publication in the Federal Register -- by stakeholders and the public. In fact, that legislation is scheduled to be marked up by the House Financial Services Committee Tuesday. Another provision in the Senate appropriations bill would grant credit unions and other lenders a safe harbor until the CFPB can certify its Truth in Lending Act-Real Estate Settlement Procedures Act forms do not conflict with state law. The Senate provisions are part of a financial services regulatory relief package crafted by Senate Banking Committee Chairman Richard Shelby (R-Ala.) and attached to the Financial Services and General Government Appropriations Bill. The Senate is expected to vote on the measure by Dec. 11.
While 10 state supervisory agencies have already done so (and more are considering), NCUA’s Office of Inspector General (OIG) has recommended adding an “S” for market-risk sensitivity to the agency’s CAMEL rating system – but not until the end of 2018. According to a Nov. 13 OIG report, the current system “may not be effectively capturing interest-rate risk (IRR) when assigning a composite CAMEL rating to a credit union.” However, any change by NCUA (including adding the “S” and revising the “L” to reflect only liquidity factors) won’t come for three more years, the report states, “because the process involves regulation changes, reprogramming of multiple data systems, and revisions to examination policies and procedures.” The report, (#OIG-15-11, “Review of NCUA’s Interest Rate Risk Program”) states that NCUA currently assesses sensitivity to market risk under the "L" in its CAMEL rating. “However, combining sensitivity to market risk with liquidity may understate or obscure instances of high IRR exposure in a credit union,” the report notes. “The addition of an ‘S’ rating to its CAMEL Rating System to capture and separately assess a credit union’s sensitivity to market risk should improve NCUA’s ability to accurately measure and monitor interest rate risk,” the report concludes. The 10 state supervisory authorities that have already adopted the “S” component are Connecticut, Michigan, Maine, Texas, Washington, Massachusetts, Colorado, New Hampshire, Utah and Vermont. At least another four states are considering the addition of the “S.” NASCUS is supportive of NCUA making the change – but a three-year horizon for the revision is a tad long, especially with a rising interest rate environment anticipated between now and 2018. NASCUS will continue to coordinate with the federal agency in addressing interest rate risk concerns.
The House Financial Services Committee will hear Tuesday (Dec. 8) from NCUA Board Chairman Debbie Matz as she and other members of the Financial Services Oversight Council (FSOC) offer testimony to the panel. The hearing will be before the full committee, chaired by Rep. Jeb Hensarling (R-Texas), and is expected to focus on FSOC's agenda, operations and structure. In a November meeting of the council, Matz repeated NCUA’s wish for third-party examination authority; she thanked FSOC for including that recommendation in a report to Congress last spring. The hearing is scheduled to start at 10 a.m. (ET), and will be streamed live on the committee’s website.
Changes to section 760 of NCUA’s rules addressing force-placement of flood insurance, exemptions for detached structures, and escrow requirements for flood insurance payments, and which are contained in a Regulatory Alert recently issued by the agency, are summarized by NASCUS and available to association members. The summary (of NCUA Regulatory Alert 15-RA-05, issued in October) notes the Escrow Requirements for credit unions with at least $1 billion in assets, and outlines the exemptions from the requirements for CUs with less than $1 billion. The summary also details changes to the statutory force-placement provisions that apply to all federally insured credit unions, and notes that the Regulatory Alert features Frequently Asked Questions (FAQs) to help credit unions understand the new requirements.
The NASCUS education program shifts into high gear for the New Year with two key events in January: The Idaho Credit Union Outreach (Jan. 14 in Boise), and the Florida Directors’ College (Jan. 28 in Orlando). Both programs feature the NASCUS-signature focus on the issues facing credit unions (particularly from the regulatory viewpoint), with an emphasis on the relevant details – and skipping the fluff. For details, see the links below.
A special webinar on cybersecurity – focusing on recent events, including the latest hacking threats – is set for 1 p.m. ET Wednesday, Dec. 16. We’ve also added – partnering with the Carolinas Credit Union League – a March 30 Cybersecurity Seminar in Charlotte, NC. Watch our Education and Training web page for details on both as we post them.
Patrick Keefe, NASCUS Communications, firstname.lastname@example.org or (703) 528-5974