Dec. 16, 2016
Op-ed aims to clear confusion over OTR, insurance premium
A decrease in the overhead transfer rate did not force an insurance premium to be assessed, NASCUS President and CEO Lucy Ito writes in an op-ed appearing in Credit Union Times this week -- and she further notes that the higher the OTR, the more all credit unions, state and federal, will be on the hook for future premium assessments to maintain the equity ratio. However, the NASCUS leader also acknowledges that the agency’s leadership has vowed to work for a more transparent, understandable and fair OTR – which NASCUS appreciates and supports.
In the piece, the NASCUS leader notes that the recent declarations on the same day by NCUA that it intends to reduce the OTR in 2017 (for the first time since 2013) – and set a range for an insurance premium in the New Year – has led to confusion within the credit union system. “The juxtaposition of the discussion about these two actions has led to a misconception that one caused the other, or vice versa,” Ito writes. She writes that her goal in the column is to clear up misunderstanding, pointing out that the OTR and the insurance fund’s equity ratio have an inverse relationship. “That is: as the OTR goes down, the equity of the fund potentially increases (with the opposite being true as well),” she writes.
As an example, she points to the decision by NCUA to reduce the OTR in 2017 to 67.7% (from the previous year’s 73.1%). If the change had not been made, she states, the insurance fund would have been charged just about $218 million in 2017. “Instead, at the reduced rate, the bill to the insurance fund is about $10 million less for 2017 (just a tad under $202 million) than the previous year (and about $15 million less than the charge would have been under the previous rate). Further, Ito notes that – if NCUA had held the line over the past four years on the OTR to the 2013 rate of 59.1%, the insurance fund would have saved about $103 million, which would potentially be available to offset higher premiums.
Efforts are underway, she writes, to ease or end the confusion. At the November board meeting, NCUA Board Chairman Rick Metsger and Board Member J. Mark McWatters both voiced strong interests in adopting a future OTR methodology for the agency that is rooted in “transparency, understandability, fairness.” “We could even see a proposal by early next year,” Ito writes. “NASCUS is very much supportive of their efforts.”
MCWATTERS: ENHANCING DUAL CHARTER SYSTEM AMONG ITEMS TO TACKLE
Working with state regulators to enhance the dual-chartering system is one of 18 items identified by NCUA Board Member J. Mark McWatters that the agency could pursue in 2017 “to improve operations at NCUA and to allow well-managed credit unions greater flexibility consistent with the principles of safety and soundness.” McWatters – perhaps the next chairman of the NCUA Board (as the Republican, he could be named as early as this January after President-elect Donald Trump takes office) -- listed the items (in no numbered list) in his column in the December issue of the NCUA Report, the agency’s monthly newsletter. The top five items appearing on his list for next year are:
- Determine if the risk-based capital rule, as adopted, should be revisited.
- Reevaluate the stress-testing rule and program for the credit unions with more than $10 billion in assets.
- Consider additional items the agency could pursue to help small credit unions better serve their members.
- Examine what additional steps the agency could take on examiner training so that examinations are done uniformly throughout the regions.
- Develop an improved examination-appeals process.
METSGER: ‘BOARD BRIEFINGS’ WILL CONTINUE
Meanwhile, in a separate column, NCUA Board Chairman Rick Metsger indicated that the “board briefings” that were instituted under his watch at the agency in 2016 (including one on the OTR) would continue in the New Year, likely touching on a variety of other subjects. Among them: the wind-down of the Temporary Corporate Credit Union Stabilization Fund and the disposition of the legacy assets; NCUA’s exam appeals process; the Enterprise Solutions Modernization (ESM) program; the new online Examiner’s Guide; the Treasury Department’s Community Development Financial Institutions (CDFI) program; revisions to the payday alternative loan program, and; ways to work with NeighborWorks America to better serve community needs.
CORPORATE FUND POSITION, REBATE POTENTIAL DOMINATE BOARD DISCUSSION
Credit unions shouldn’t expect rebates on their assessments for the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) before 2021, a position reiterated during a staff briefing about the fund at Thursday’s NCUA Board meeting in Alexandria, Va. However, in a long presentation about the stabilization fund, staff told the board that the agency is evaluating the potential of closing the fund early. As staff pointed out, there are benefits and disadvantages of doing so. Among the benefits: doing so would allow the agency to use the current positive “net position” of the fund (about $1.5 billion) to offset National Credit Union Share Insurance Fund premiums. Among the disadvantages: increased potential volatility for the insurance fund’s equity ratio. In any event, NCUA Director of Examination and Insurance Larry Fazio told the board that the agency “can’t rebate funds at this time.”
On the other hand, during the briefing, staff said any rebates of credit union assessments to the stabilization fund will be determined by asset performance, future recoveries via legal action, and economic variables. However, they also estimated the range of assessment rebates from $2.5 billion to $3.2 billion when the stabilization fund closes as scheduled in 2021. Additionally, staff noted, those rebates could only come after other obligations are paid out.
TEXAS BIZ LENDING RULE APPROVED
Also at the meeting, the board approved a revised member business loan rule for the state of Texas to provide parity with NCUA’s revised rule Part 723. NCUA said its Region IV office performed a safety and soundness review of the Texas rule and determined that the agency “did not expect the 2017 rule, as proposed, to cause future safety and soundness concerns. We believe approval of the Texas Member Business Loan Rule would not result in an unacceptable exposure to the NCUSIF.” During discussion NCUA Board Member Rick Metsger called the Texas Credit Union Department (led by Commissioner Harold Feeney) “a very strong department.” In addition, the board:
- Approved a final rule for federal credit unions eliminating requirement that a credit union must plan for, and eventually achieve, full occupancy of acquired premises.
- Approved an interim final rule on the agency’s Freedom of Information Act responses, mostly dealing with document availability, charges for reviewing, and the right of requesters to seek assistance.
NEW MBL REG ON LAWMAKERS’ LIST OF RULES ‘RECOMMENDED FOR REMOVAL’
The new NCUA member business lending rule – scheduled to take effect Jan. 1 – is on a “recommended list of regulations to remove” presented to President-elect Donald Trump by a group of lawmakers this week. The list – detailing 232 recommended regulations that the new president should repeal immediately – was presented to Trump by the conservative House Freedom Caucus, a group of about three dozen members of Congress. The recommendation for the NCUA rule (which was adopted in March) is listed as #213, under the headers “Recommended List of Regulations to Remove,” “Office of the President.” The specific reference is to “National Credit Union” and describes the rule as “member business loans, commercial lending.” Other rules recommended for removal by the group to the incoming chief executive include the CFPB’s proposed regulation on consumer finance dispute resolution through arbitration (proposed in May), and the FDIC’s rule on deposit account recordkeeping, finalized last month (and mostly applicable to large banks). The MBL rule is also being challenged by a bankers’ group (the Independent Community Bankers of America) in federal court. A hearing was held in court Thursday to consider NCUA’s motion to dismiss the lawsuit; a ruling by the judge is expected next month.
SUMMARY OUTLINES PRODUCTS COVERED UNDER FINAL PREPAID RULE
Financial products that are affected by the final prepaid accounts rule published by the CFPB – and which products are not affected – are outlined in a summary by NASCUS of NCUA’s recent Regulatory Alert on the prepaid rules. The summary is available to members only. NCUA issued the alert (16-RA-07) last week, to draw attention to the CFPB final rule issued in October. The NASCUS summary notes that the CFPB rule creates comprehensive federal consumer protections for prepaid financial products under Regulations E and Z (which implement the Electronic Fund Transfer Act and the Truth in Lending Act). In addition to outlining which financial products are covered, the NASCUS summary also notes the final rule provisions that provide consumer protections under Reg E, and under both Regs E and Z.
BRIEFLY: Doug Duerr, letter to FinCEN, FDIC budget cutting
In memorium -- Former NASCUS President and CEO Douglas F. “Doug” Duerr, who led the association from 1993-2003, died Nov. 12; he was 73. A long-time advocate for credit unions (he served with the Indiana and California Credit Union Leagues and the Credit Union National Association in Washington prior to joining NASCUS), he was a tireless champion of the importance of the dual chartering system and the special needs and opportunities of state-chartered credit unions within the whole credit union system … A bipartisan group of 10 senators this week urged FinCEN to update its guidance to financial institutions, including credit unions, on their ability to provide services to the state-sanctioned marijuana industry, noting that now 29 states have legalized recreational or medicinal use – or both. The senators noted that the 2014 FinCEN guidance did not distinguish between state-sanctioned marijuana businesses and the indirect businesses that service the marijuana industry, so financial institutions have had to determine how to classify and treat indirect businesses … In a press release headlined “FDIC Board Approves 2017 Operating Budget, Down 46 Percent from Peak in 2010,” the federal bank deposit insurer this week announced it had approved a $2.16 billion operating budget for next year – down 2.4% from 2016. Additionally, the agency announced that its budget calls for a 2.6% decrease in staffing from 2016 – which is 32% lower than the peak level of employees in 2011.
Patrick Keefe, NASCUS Communications, firstname.lastname@example.org or (703) 528-5974