Oct. 7, 2016
At Summit, state system hears
key leaders on top issues
Two-and-half days of representatives of the state credit union system coming together to confer and share ideas comes to a close today in Chicago – but only after the gathered group heard from the leadership of NCUA, a member of Congress and experts in a variety of fields. Among the highlights:
- NCUA Board Chairman Rick Metsger said he was “very excited” about the report of the Exam Flexibility Initiative, released this week (see item, below). “People out there were trying to define what the exam cycle was,” he said. “It’s not about that; it’s about better use of our resources to meet our statutory requirements.”
- U.S. Representative Randy Hultgren (R-Ill.) told the group that while the Financial CHOICE Act (H.R. 5983, passed by the House Financial Services Committee this summer, and which includes a number of credit union provisions, including greater transparency by NCUA for the overhead transfer rate) won’t pass Congress this year, “it’s important to have the committee work accomplished so the bill can come up in the next session” of Congress.
- Fourth Corner Credit Union CEO Deirdra O’Gorman said to a lively early morning session that her credit union – chartered in Colorado to serve businesses providing services to the legal marijuana trade in her state – doesn’t consider itself the pot credit union; “we consider ourselves the compliance credit union.”
- Allyson Baker of Venable LLP (a Washington law firm) gave a strong overview of the growing pains of the Consumer Financial Protection Bureau, noting that the agency is still “calibrating,” which is leading to unsatisfying experiences for a number of financial institutions.
- A session featuring “The Next Big Idea” competition winner by NACUSO (which honors the winner of a financial services innovation contest) focused on a fintech-like solution for credit unions called “CU Rate Reset,” which gives credit union members the ability to reduce their monthly auto payment by extending the term of the loan – all on-line.
See other items below for additional coverage of the 2016 Summit.
STATE CUS THRIVING – BUT CHALLENGES MUST BE MET, ITO SAYS
The state credit union system is thriving in the current environment, but issues on the horizon could have an impact on that prosperity – and NASCUS is working to ensure the impact is positive, association President and CEO Lucy Ito told the NASCUS Summit Wednesday. The NASCUS leader pointed out that state-chartered credit unions outpaced federal credit unions in key measures in the one year-period of mid-year 2015 to MY 2016, including: Shares (9.5% growth vs. 5.3% for FCUs), loans (12.9% vs. 8.3%), and memberships (5.3% vs. 2.5%). She also detailed how more federal charters are converting to state charters rather than vice versa, noting that from 2014 to August, 2016, 24 FCUs had converted to state charters (with $16.6 billion in assets), while only seven SCUs converted to federal (with $850 million in assets).
Among the issues that could have an impact on the prosperity of state charters that Ito outlined included: interstate branching (in which federals have an advantage); member business lending (which the “floor” of the MBL rule threatens to stifle state innovation – often the key to development for all credit union charters), and; proposed field of membership changes for FCUs (which, she said, rightly places pressure on state charters).
She pointed out that NASCUS has been working to ensure state credit union competitiveness, by “checking federalization and fostering state system competitiveness.” She noted NASCUS advocacy on the overhead transfer rate (resulting in a 90-day comment period with 40 letters filed – all of which called for greater transparency by the agency); support for expanding the NCUA Board to five members (included in the Financial Choice Act) – and designating one seat for a member with state regulatory experience, and; urging NCUA to consider flexibility in its examination program (Board Chairman Rick Metsger announced his “Examination Flexibility Initiative” this summer).
MCWATTERS: OTR ACTION WILL ‘TAKE SOME TIME;’ SUP. CAP. ANPR ON WAY
Noting that NCUA is conducting analysis and developing position papers on the overhead transfer rate, NCUA Board Member J. Mark McWatters Wednesday told the Summit audience that action by the agency on the OTR will “take some time – I don’t know how much.” Later, he told the group that an advance notice of proposed rulemaking (ANPR) on supplemental capital could be coming in January.
Regarding the OTR, he said he hoped that the agency will ultimately come up with something to replace the current OTR methodology that is “more standard, more intuitive” than what the agency is now using. In April, NCUA closed a 90-day comment period on the OTR methodology. Calling the 40 or so comment letters that NCUA received during the comment period “well thought-out,” McWatters noted that – while the letters were far fewer in number than those received on some other, recent issues, such as the thousands of letters on member business lending or field of membership -- the OTR letters were “more dense and difficult” demanding a greater review effort by the agency.
Regarding an ANPR on supplemental capital, McWatters said the Board will hold a briefing in October on supplemental capital, looking in detail at some of the issues facing the agency with the rule. “Then the goal is to have an ANPR in January in advance of the proposed rulemaking, and then put the rule out for comment,” he said. “So if you are interested in this rule, it’s time to sharpen your pencils and respond when the ANPR comes out,” he said.
In other comments, he said: he hopes to have a final field of membership rule by year’s end; “it won’t be perfect, but it will be progress;” “something should be done” to solve the impasse between the states and the federal government over marijuana business banking. “But let’s get this money (from the legal transactions of marijuana in states where it is legal) into the banking system – and let Congress figure it out from there.”
‘EXAM FLEX’ RECOMMENDS SOME FISCUS ELIGIBLE FOR EXTENDED EXAM CYCLE
Meanwhile, .also this week, NCUA released the report of its “Exam Flexibility Initiative” (EFI), which included “enhanced coordination of exams for federally insured, state-chartered credit unions,” and a joint NCUA-state supervisor working group, to begin early next year – items NASCUS has been long advocating. Those and at least eight other recommendations have been presented to the NCUA Board – which is expected to consider them at its Nov. 17 meeting. A key part of the report is the recommendation that well-managed, low-risk federal credit unions with assets of less than $1 billion could move to an extended examination cycle beginning next year, pending approval by the NCUA Board. Some FISCUs would also be eligible for an extended exam cycle (that is, examination not less frequently than every 5 years) the report stated, but only after meeting certain criteria. Those include: All federally insured, state-chartered credit unions (FISCUs) with assets under $50 million; if assets greater than $50 million (but less than $250 million), the credit union must have a composite CAMEL score of 1, 2 or 3; if assets $250 million or greater (up to $1 billion), the credit union must have a composite CAMEL of 1 or 2. FISCUS with assets of $1 billion or more are not eligible for the extended cycle, and will face an 8- to 12-month exam cycle. NCUA stated that this approach “ensures parallel treatment of credit unions greater than $1 billion, regardless of charter type.”
Additionally, NCUA announced it would establish a joint NCUA-State Supervisor Working Group at the start of next year. The agency stated that the purpose of the group will be to “evaluate and recommend further changes to our examination program for federally insured, state-chartered credit unions.” “The working group will collaborate to improve coordination and scheduling of joint exams, provide scheduling flexibility, and reduce redundancy where possible,” the agency’s report states.
The recommendations from the agency’s Exam Flexibility Initiative working group, which began its work this past summer, also included input from calls with five state regulators. The NCUA Board is scheduled to consider the working group’s recommendations as part of the agency’s 2017–2018 budget, scheduled to come before the Board at its November open meeting. If approved, the recommendations would become effective Jan. 1.
COMPENSATION OF DIRECTORS KEY TOPIC DURING REGULATORY DISCUSSION
Compensation of directors became a key topic of discussion during a Thursday session at the 2016 State System Summit, as panelists discussed legislative and regulatory trends within the states. During the panel discussion (which featured NASCUS EVP and General Counsel Brian Knight as moderator, and panelists Patrick Harris (OH Credit Union League), Patrick Smith (IL Credit Union League) and Rick Wargo (PA Credit Union League)), opinion among those in the audience trended toward allowing compensation of directors. A number of audience members said they believed doing so would allow credit unions to recruit candidates for the board seats who are well-equipped to deal with the more complex issues credit unions face, have more time available to spend on key issues, and more such attributes. The 2016 NASCUS State System Profile (compiled this summer) indicates that 14 states currently allow compensation for credit union directors. In some of those states, the law is silent as to policy for compensating directors. However, the Profile results show, at least six states call for “reasonable” compensation of directors, and two of those only allow compensation in the form of “reasonable” life, health or accident insurance. In Texas, the policy is specific: Credit unions are authorized to pay – by written policy -- “reasonable fees” for directors and committee members attending meetings called for the conduct of credit union business. However, the policy must establish the schedule of meeting fees; fees may only be paid for actual attendance. Further, credit unions must give the commissioner advance notice of its intent to pay or modify director or committee member fees 30 days prior to the new or modified program – including a copy of the policy, the new or revised schedule, the anticipated costs and the credit union’s ability to absorb the increase in operating costs. There are limitations under the Texas plan; credit unions operating under a net worth restoration plan (or an order under 7 TAC 122.257 or 122.258) may not pay director or committee member fees.
AT SUMMIT, ILLINOIS BECOMES 27TH STATE ACCREDITED BY NASCUS
The 27th state has been officially accredited by NASCUS as the Illinois Department of Financial and Professional Regulation (IDFPR) received its certificate of accreditation during the Summit. As the 27th, and newest accredited state agency, Illinois ranks first nationwide in the number of state chartered credit unions, possessing a combined $35 billion in assets. Nationwide, nearly 86% of state-chartered credit union assets are supervised by NASCUS' 27 accredited state agencies. "Accreditation of a state agency is earned only after a rigorous evaluation process, conducted by an Accreditation Review Team (ART)," said NASCUS President and CEO Lucy Ito. "Illinois successfully earned its accreditation after being subjected to this review - joining 26 other states across the country that have earned this status. Our sincere congratulations to the Illinois Department of Financial and Professional Regulation." IDFPR Secretary Bryan A. Schneider noted that the NASCUS accreditation serves as the “gold standard” in the exam process. “I commend our Credit Union Division for this achievement and for their exceptional work throughout the accreditation process, as Illinois now joins the NASCUS accredited family for the first time in agency history.”
BOARD, COUNCIL SELECT NEW LEADERSHIP
Mary Ellen O’Neill (at left in photo) is the chairman of the NASCUS Board of Directors, and Patty Idol (at right in photo) chairman of the NASCUS Credit Union Advisory Council, going into the next year, following the joint annual meeting of the regulators and credit union council Wednesday. O’Neill is the director of the Financial Institutions Division for the Connecticut Department of Banking, and previously served as vice chairman of the NASCUS Board. Idol is president and CEO of Mountain Credit Union in Waynesville, North Carolina. She served previously as vice chairman of the NASCUS Credit Union Advisory Council. The two were elected to the positions during a joint meeting Monday of the NASCUS board and advisory council.
Other officers elected are:
- NASCUS Board: Vice chairman, Jay Bienvenu (deputy commissioner, financial institution supervision, Massachusetts Division of Banks); Treasurer, John Kolhoff (director, office of credit unions, Michigan Department of Insurance and Financial Services).
- NASCUS Credit Union Advisory Council: Vice chairman, Terry West (president and CEO, Vystar Credit Union, Jacksonville, Fla.); Secretary, Richard Stipa (CEO, TruMark Financial Credit Union, Trevose, Pa.).
O’Neill and Idol replace (respectively) Steve Pleger (senior deputy commissioner, Georgia Department of Banking and Finance) and Linda Childs (president and CEO, TNConnect Credit Union, Knoxville, Tenn.) in the chairman positions.
NCUA TELLS EXAMINERS TO ACCEPT CU ‘GOOD FAITH EFFORTS’ – FOR NOW – IN MLA COMPLIANCE
NCUA examiners will accept credit unions’ “reasonable and good faith efforts” to comply with the Military Lending Act (MLA) rules that went into effect this week, the agency stated in a “Letter to Credit Unions” this week, addressed to all federally insured credit unions. In the letter (LTCU 16-CU-07), the agency wrote that – as of Oct. 3 -- credit unions must comply with the Department of Defense-issued amended regulation implementing the MLA. “With this amended rule, NCUA intends to take the same examination approach used with the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule in 2015 and its Qualified Mortgage and Ability-to-Repay rules in 2014,” the agency stated. In doing so, however, NCUA wrote that its examiners are instructed to “accept a credit union’s reasonable and good faith efforts to comply with the new rule during the first examination following the implementation date.” However, the agency added that “credit unions should understand that NCUA’s acceptance of good faith efforts for supervision purposes does not shield a credit union from the third-party liability that can arise under the MLA. Your principal and most immediate goal should be to ensure servicemembers and other covered borrowers are receiving the consumer protections the MLA provides.”
NCUA LTCU 16-CU-07
NEW CFPB RULE AIMS TO ‘CLOSE LOOPHOLES’ ON PREPAID ACCOUNTS
A new rule providing federal consumer protections for prepaid account users was announced by the CFPB this week, which agency Director Richard Cordray said “closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone.” In a conference call, Cordray said that the new rule (issued Wednesday) has three key new requirements that financial institutions must meet in order to be in compliance. They are (1) they must limit consumer losses when funds are stolen or cards are lost; (2) they must investigate and resolve errors that occur; and (3) they must give consumers free and easy access to their account information. Cordray also said that the bureau has finalized new “Know Before You Owe” disclosures for prepaid accounts that give consumers the clear information they need, up front, about the fees they can be charged and other key details. Additionally, Cordray said financial institutions must offer protections similar to those for credit cards if they allow a prepaid account to be used to access certain credit extended by the institution, its affiliates, or its business partners. “These protections would apply when a prepaid card can be used to cover a transaction even though the account lacks sufficient funds, with certain exceptions,” he said. The new rule will generally apply to prepaid accounts starting in October 2017. Additionally, prepaid account issuers must publicly post agreements for accounts they offer to the general public on their websites. Starting in October 2018, issuers must also generally submit all their agreements to the bureau, for posting on its website.
BRIEFLY: Appreciation extended for state system supporters
Resolutions of appreciation of individuals who have worked to advance the state credit union system were adopted by the NASCUS Board and CU Advisory Council this week, honoring their contributions. Those honored are: JD Fields, State of Louisiana; Linda Jekel, State of Washington; Tami Smull, State of Arizona; Parker Cann, BECU; Lori Rush, Universal 1 CU; Ron McDaniel, California CU; Jim Blaine, State Employees Credit Union; David Cotney, State of Massachusetts.
Patrick Keefe, NASCUS Communications, firstname.lastname@example.org or (703) 528-5974