Oct. 21, 2016
FOM rules, supplemental capital,
budget briefing cap October agenda
Consideration of a final rule on field of membership (FOM), a proposed rule further amending FOM regulations, a board briefing on supplemental capital, and a briefing on the NCUA 2017 budget – with statements by stakeholders, including NASCUS (see below) – will be among the highlights of next week’s activities by the NCUA Board. The FOM rule under final consideration at the open board meeting (starting at 10 a.m. ET) applies only to federal credit unions; federally insured state chartered credit unions will continue to look to state law and regulation for field of membership. However, the sweeping changes proposed by the board last fall are an effort to expand FCU FOMs, and were partially driven (NCUA has stated) by the agency’s perception that many state FOMs are more beneficial to FISCUs. “This is another example of value of the dual-chartering system,” said NASCUS President and CEO Lucy Ito, “in which action among the states spurs similar action by the federal regulator – which ultimately benefits all credit unions and their members.”
The briefing on supplemental capital (also part of the 10 a.m. open meeting) is likely the first step of a long process by the agency that may lead to a proposed rule. Speaking at the NASCUS Summit earlier this month, NCUA Board Member J. Mark McWatters said that, following next week’s briefing, the goal of the board is to have an “advance notice of proposed rulemaking” (ANPR) released in January in advance of a proposed rulemaking – with a rule out for comment later in the year. “So if you are interested in this rule, it’s time to sharpen your pencils and respond when the ANPR comes out,” he said at the Summit.
Other items under consideration at the morning meeting include: consideration of a statutory inflation adjustment of civil money penalties; a proposed Interagency rule regarding loans in areas having special flood hazards; and a final rule on the name change for the Office of Consumer Protection (to be known going forward as the “Office of Consumer Financial Protection and Access”).
NASCUS TO VOICE STATE SYSTEM VIEWS AT BUDGET BRIEFING
Meanwhile, NASCUS’ Lucy Ito will offer the state credit union system perspective at the budget briefing next Thursday, at 2 p.m. She will likely join a panel of other stakeholders making statements during the two-hour event Thursday afternoon. NCUA Board members will also have the opportunity to question stakeholders about their comments. A “staff draft” of the NCUA 2017-18 budget released last week indicates that the overhead transfer rate (OTR), which the agency employs to determine the amount that the National Credit Union Share Insurance Fund (NCUSIF) will reimburse the agency’s operating fund to account for insurance-related budgeted expenses, will be presented to the NCUA Board for its consideration at the Nov. 17 meeting of the board. However, next Thursday’s event offers the state system an opportunity to voice its views prior to action in November.
Interest rate risk review procedural changes released by agency
Changes to interest rate risk review procedures – as well as a standardized measurement of the risk – will be instituted by NCUA at the beginning of next year, the agency wrote in Letter to Credit Unions (16-CU-08) posted on its website Monday. According to the letter (signed by Board Chairman Rick Metsger) the standardized measurement will be used to “scope and rate interest rate risk assessments more efficiently and effectively.” The letter adds that agency field staff will apply the changes using the Interest Rate Risk Review Procedures Workbook and Guide to Using NCUA’s Interest Rate Risk Procedures Workbook – both attached to LTCU 16-CU-08. The agency also stated, in the letter, that NCUA revised the chapter of the Examiner’s Guide providing interest rate risk information.
Key changes in IRR supervision outlined in the letter include:
- The development of the Interest Rate Risk Review Procedures Workbook;
- The updating of interest rate risk tolerance thresholds in the Net Economic Value Supervisory Test;
- The creation of an estimated net economic value tool for credit unions with total assets of $50 million or less; and
- The revision of the interest rate risk chapter in the Examiner’s Guide.
According to the letter, the Net Economic Value Supervisory Test measures the relative degree of market risk inherent in a credit union’s balance sheet under a prescribed interest rate shock scenario using standardized non-maturity share values. The agency stated that an “extreme rating” generated by the test “ could trigger the administrative process for a potential downgrade of your credit union’s net worth classification; however, we anticipate such circumstances to be very rare.”
3 SUMMARIES LOOK AT LETTER, ALERT AND ACCOUNTING BULLETIN
Three new summaries – outlining a regulatory alert, letter to credit unions and an accounting bulletin, all from NCUA – have been posted to the NASCUS website. All three summaries are available to NASCUS members only. The regulatory alert summary outlines the agency’s September item concerning the “Department of Defense’s Interpretive Guidance on Military Lending Act Limitations on Terms of Consumer Credit Extended to Service Members and Dependents.” According to the alert (16-RA-06), the guidance clarifies (among other things):
- Determining a person’s covered borrower status;
- Exercising a statutory right to take a security interest in a member’s account;
- Timing and delivering required disclosures; and
- Identifying fees which can be excluded when calculating the military annual percentage rate for credit card accounts
The “letter to credit unions” summary focuses on LTCU 16-CU-07 (issued this month) – “Military Lending Act Examination Approach” -- in which NCUA states that its examiners will accept credit unions’ “reasonable and good faith efforts” to comply with the Military Lending Act (MLA) rules. The summary of the September-issued accounting bulletin (16-1) – the first in two years from the agency – reports that NCUA has concluded that a credit union is permitted to use Private Company Council (PCC) alternative accounting reporting options when preparing Call Reports for filing with the agency.
(Note: All three summaries are available to members only.)
HIGH-LEVEL REVIEW OF CFPB’S PREPAID RULE OFFERED
An executive summary of CFPB’s new rule on prepaid financial products – itself 11 pages long to cover a rule that is nearly 1,700 pages in length– is summarized by NASCUS and posted on the website. The CFPB executive summary of the rule was issued to provide a high-level review of the rule, the NASCUS summary notes, and points out seven key aspects addressed:
- The definition of a “prepaid account;”
- Applicability of Regulations E and Z to prepaid accounts;
- Error resolution and limitations on liability;
- Periodic statements and periodic statement alternatives;
- Internet posting and submission of prepaid account agreements;
- Overdraft credit features;
- Effective dates
$1 BILLION TO CLOSE OUT STABILIZATION FUND’S TREASURY BORROWINGS
The $1 billion owed to Treasury to cover the costs of resolving corporate credit unions will be repaid by Oct. 31, NCUA announced Tuesday, closing out the Temporary Corporate Credit Union Stabilization Fund’s (TCCUSF) outstanding borrowings – but federally insured credit unions shouldn’t immediately expect a rebate of their assessments to the fund, the agency also made clear. The $1 billion is the final portion of the funds the agency borrowed from Treasury to resolve corporate credit unions. Since 2009, according to the “Borrowing Cost” page on the agency’s website, NCUA has borrowed $11.2 billion from Treasury, and paid back $10.2 billion (as of June 25). The Oct. 31 payment will close out the amount borrowed to date. However, the agency also explained that – even though the TCCUSF’s outstanding borrowings from Treasury will be fully repaid at the end of the month -- no funds will be available to provide federally insured credit unions with an “immediate rebate” of stabilization fund assessments. “Additionally, no funds are available for any recoveries by investors with claims for depleted capital of the failed corporate credit unions,” the agency advised. “NCUA must first satisfy any outstanding senior obligations of the Stabilization Fund and corporate credit union asset management estates.” The agency also stated that it would provide additional information “in the near future” related to the timing of potential rebates and capital recoveries. (Separately, NCUA reported his week that it has paid more than $1 billion to attorneys as part of its lawsuits against big banks and Wall Street over failed investments sold to corporate credit unions prior to the financial crisis. The agency has recovered more than $4 billion from that litigation.)
CECL WEBINAR JUST AROUND THE CORNER (NEXT WEEK) …
It’s not too late to participate in next week’s (Oct. 27) webinar on CECL, the new accounting standard from the Financial Accounting Standards Board (FASB) covering current expected credit union losses. The one-hour webinar is intended to provide an informed place to begin the process of implementing CECL, as well as recommended next steps. Among the highlights: Understanding of the requirements for the new CECL model, and establishing an implementation committee; consideration of the implementation timeline to provide sufficient time to test and validate a planned model prior to the effective date; discussion of the implications that CECL may pose on credit unions for capital planning purposes. See the link below to register.
… AND IN-DEPTH SESSIONS ON BSA, MBL COMING UP (IN NOV. AND DEC.)
There’s more in the weeks to come, both next month and December: Our annual Bank Secrecy Act (BSA) Conference (in association with CUNA), and our two-day session on the new member business loan (MBL) regulation. The BSA conference runs Nov. 13-16 in San Antonio, and brings participants up to date on the latest BSA changes and challenges. The MBL School, Dec. 6-7 in Nashville, ensures participants are in line with all of the changes to the NCUA rule, giving state stakeholders the latest opportunity to become intimately familiar with the rule and how it affects the state credit union system. See more at the links below.
BRIEFLY: CAT FAQs; on the road with NASCUS – MI and PA
A guide to “frequently asked questions (FAQ)” about the Cybersecurity Assessment Tool (CAT) developed by the FFIEC (and to be incorporated into NCUA exams) was released this week, which answers questions and clarifies points in the tool based on questions received over the past year; see the link below for details … NASCUS is on the road these days; in Michigan, we co-hosted an Industry Day last week with the Michigan Department of Insurance and Financial Services covering a host of issues: Update from Washington, cybersecurity, fraud, ALM, trends and issues, and more … Meanwhile, marijuana business banking is of increasingly strong interest within the state CU system – and NASCUS has established itself as an expert on the status and outlook for the issue. No wonder: Recreational or medical use of marijuana is on the ballot in nine states on Nov. 8. This week, NASCUS EVP and General Counsel Brian Knight led a session at the Pennsylvania Credit Union Association’s “Big Ideas” conference discussing issues related to the decision to bank, or not, state-licensed marijuana businesses.
Patrick Keefe, NASCUS Communications, email@example.com or (703) 528-5974