Jan. 22, 2016
The overhead transfer rate (OTR) – for the first time – is out for “notice and comment” to the credit union movement, as the result of action taken unanimously by the NCUA Board Thursday (at top, in session). That’s terrific – but it’s also about time. For years, state regulators and credit unions have sought the chance to weigh in on the OTR to address the inequities of the current system. The legal analysis NASCUS contracted for and released last summer, in fact, found that the OTR is a rule and should be subject to notice and comment. We’re gratified that NCUA has voluntarily considered the view expressed in our analysis and taken this step. With the door open for comment, this really is an unprecedented opportunity for state regulators and credit unions.
The board outlined four specific areas in which it is looking for views and opinions over the 90-day comment period: Whether the overhead transfer rate should be determined by a formula, or set at the discretion of the NCUA Board; what adjustments or changes, if any, should be made to the current calculation; the definition NCUA uses for insurance-related activities, and; alternate methodologies to arrive at an accurate and fair allocation of costs. NASCUS is urging as many state regulators and state credit unions as possible to consider these areas (and more), and offer comments.
NASCUS will be developing additional summary and analysis of the OTR call for comment over the next several weeks, and providing that to our members and other stakeholders. We look forward to an active comment period throughout the rest of the winter and into spring.
The 111-page, 21,000- word document that accompanies the NCUA Board’s call for comments on the OTR is one of the largest accompanying documents to a board action issued by the agency in the last 12 months. It is exceeded by the October 2015 final rule on risk-based capital (II), at 427 pages, and the November 2015 field of membership proposal, at 167 pages (which is still out for comment). Given the length of the OTR document, it takes some time to mine its details – but here are a few nuggets that we found after a quick review:
- The document asserts that regulations on member business lending and prompt corrective action (PCA) were imposed on credit unions as a result of the Credit Union Membership Access Act of 1998 (HR 1151) to “protect the NCUSIF.” Our recollection, however, is that the restrictions were imposed during the legislative process to temper credit union growth in exchange for broader FCU field of membership (which was the focus of the legislation), largely at the behest of the Treasury Department. The restrictions on MBL and PCA had nothing to do with the insurance fund as we recall.
- The document points to various independent studies that have examined the OTR methodology – but from an accounting viewpoint. It makes no mention of independent studies (such as the NASCUS legal analysis issued last summer) that view the OTR from a legal viewpoint – which NCUA Board Member J. Mark McWatters has mentioned repeatedly in the past as a key point in addressing the methodology.
- A significant aspect of the comment call may come down to page 72 and on for the next 20 pages (as Board Member J. Mark McWatters pointed out), which “maps” NCUA regulations as insurance-related or not. The table asserts that about 70% of agency rules are “insurance regulatory related.”
Other action by the NCUA Board Thursday included:
- Issuing the federal credit union operating fee methodology for a 90-day comment period as well – although its supporting documents were spread over only 19 pages.
- Approving release of the agency’s 2017-21 draft strategic plan for a 60-day comment period. During discussion, NCUA Board Chairman Debbie Matz noted that the agency may revert to an 18-month exam cycle for credit unions that pose less risk to the share insurance fund. “We are exploring that possibility,” she said.
- Changing the reporting structure for the agency’s Office of Minority and Women Inclusion (OMWI) via a final rule, which moves the director of Equal Employment Opportunity (EEO) responsibility from the agency’s executive director to the director of OMWI and revising the OMWI director’s reporting line from the executive director to the NCUA Chairman.
Credit union service organizations (CUSOs) and NCUA’s new registry for them is the subject of a Letter to Credit Unions issued late last week by the agency and sent to all federally insured credit unions. “The purpose of this letter is to ensure credit unions are informed about the upcoming initial registration period for the CUSO Registry,” which is defined in the letter as the “online system through which credit union service organizations (CUSOs) will report information directly to NCUA.” The registry will be available for CUSOs to begin registering on Feb. 1, the letter states. CUSOs will have 60 days between Feb. 1 and March 31 to register; there is no fee.
The letter, LTCU 16-CU-02, notes that federally insured credit unions are required to enter into written agreements with any CUSOs to which they make loans or invest in. Each agreement, the letter states, must be signed before a credit union invests in or lends to a CUSO. “The written agreement must obligate the CUSO to annually provide certain information directly to NCUA, and the state supervisory authority where applicable,” the letter states. “This required information will be collected from CUSOs through the CUSO Registry.”
The registry plays a role in enforcement of CUSO registration, the letter also notes, essentially by blocking a credit union from doing business with a CUSO that has not registered. The letter also addresses how the registration process for CUSOs will proceed, and the confidentiality of information provided via the registry (see link to our analysis under "Briefly" below).
NCUA LTCU 16-CU-02
BRIEFLY: New summaries on web; new meetings for March
Three new summaries – on NCUA’s Letter to Credit Unions 16-CU-01 on supervisory priorities for 2016 (members only), on Letter to CUs 16-CU-02 on the new CUSO registry, and on the agency’s 2016 Regulatory Review – are now posted on the NASCUS website, ready for review … And, we’ve added two educational offerings for March: The March 23 CU Executive Forum in Seattle, and the March 30 Cybersecurity Seminar in Charlotte, N.C. Check them out – and join us!
Patrick Keefe, NASCUS Communications, email@example.com or (703) 528-5974