April 21, 2017
HEARING SET IN HOUSE FOR UPDATED FOR FIN. REG REFORM BILL
A House hearing to consider the latest version of financial regulatory reform legislation – a draft of which was released publicly this week-- has been scheduled for next Wednesday by Financial Services Committee Chairman Jeb Hensarling, R-Texas. Known as the Financial CHOICE Act 2.0 (the second version of the “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs,” the first version having debuted last summer), the nearly 600-page draft bill includes several sections and provisions related to NCUA. Those include providing transparency to the overhead transfer rate, bringing the agency under the congressional appropriations process, and requiring an annual public hearing on the agency’s proposed budget (see following items).
However, unlike last year’s version – which would have expanded the NCUA Board from three members to five -- the latest makes no changes to the make-up of the agency board. NASCUS has supported the board expansion, and stated so in a letter to Chairman Hensarling early this year. NASCUS President and CEO Lucy Ito has said that the association will continue to advocate expansion of the board – including designating one member of the board for an individual with experience as a state credit union regulator – through the legislative process.
In a release, Hensarling stated that Republicans are eager to work with President Donald Trump to use the Financial CHOICE Act as a replacement for the “mistake” of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. “We will work with President Trump to follow through on his promise to dismantle Dodd-Frank,” he stated. “Dodd-Frank’s one-size-fits-all regulations treat all financial institutions the same, regardless of their size. That makes no sense and hurts smaller, hometown banks and credit unions that did nothing to cause the last financial crisis.”
... WITH PROVISION SEEKING TRANSPARENCY FOR OTR ...
A separate provision of the proposed CHOICE bill (like the CHOICE bill offered last summer) would require that resources from the National Credit Union Share Insurance Fund (NCUSIF) used for the agency’s annual budget – such as through the overhead transfer rate (OTR) -- be detailed in an individual report. The report would contain a detailed analysis of how the expenses of the agency are assigned between “prudential activities and insurance-related activities” and the extent to which the expenses are paid from the fees collected from federal credit union operating fees, or from the NCUSIF through the OTR. Additionally, the agency must include a “supporting rationale” for any proposed use of NCUSIF funding in its budget, “including detailed breakdowns and supporting rationales for any such proposed use” and make the report available to the public.
NASCUS has long supported closer scrutiny of the agency’s OTR methodology, including subjecting the agency’s budget process to notice and comment. However, NASCUS takes no position on the size of NCUA’s overall budget allocations, only how those costs are allocated.
... AND PUBLIC, CONGRESSIONAL SCRUTINY FOR NCUA BUDGET
NCUA, along with other federal financial regulatory agencies, would be brought under the congressional appropriations process in still more provisions of the draft CHOICE bill. The credit union agency, along with the Federal Deposit Insurance Corp. (FDIC), Office of the Comptroller of the Currency (OCC) and the “non-monetary policy related functions of the Board of Governors of the Federal Reserve System,” would all be required to have funding for their operations reviewed and approved by Congress before spending any dollars on agency programs. However, the agencies (where required) would still be responsible for collecting, through assessments and fees, the funds to cover their operations. Now, the budgets are determined and approved entirely by the leadership of each of those agencies, with little or no congressional oversight.
Additionally, the proposal includes a provision calling for “budget transparency” by NCUA through an annual public hearing on a draft of a detailed “business-type budget” for the agency, “with public notice provided of such hearing, wherein the public can submit comments on the draft of such detailed business-type budget” and that those comments will be addressed.
ADVISORY COUNCIL OF FEDERALLY INSURED CUS FOR NCUA SUPPORTED
An advisory council of federally insured credit unions intended to provide NCUA with advice and guidance about issues related to credit union federal share insurance regulation and supervision is supported by NASCUS, the result of action taken by the association’s board this week. In a policy adopted at its quarterly meeting, the NASCUS Board stated that a council of federally insured credit unions would provide NCUA with advice and guidance on issues related to insurance regulation and supervision. “Such an advisory council should consist of equal numbers of state chartered and federally chartered credit unions and should convene at least twice annually with the NCUA board in public meetings,” the policy states.
The NASCUS policy echoes a proposal made by Acting NCUA Board Chairman J. Mark McWatters earlier this year. McWatters, in outlining 15 areas for reducing the regulatory and supervisory burden on credit unions, called for a Credit Union Advisory Council at the agency in order to hear – and learn – directly from the credit union community “as we work collaboratively to identify needless regulatory burden and create cost-effective solutions.”
In a letter to McWatters in February, NASCUS President and CEO Lucy Ito urged the acting chairman to consider an advisory council. She wrote that establishment of a “Credit Union Advisory Council” at the agency would follow what 22 out of 45 states have already done, and which, she noted, generate “common sense solutions that simultaneously assure appropriate safety measures and foster credit union growth.”
In its policy statement this week, NASCUS also noted that “properly balanced regulation and supervision considers not just the risk to be mitigated,” but should also take into account the burden of compliance and the need for business flexibility and innovation. “To help achieve that proper balance, there should be robust dialogue between the regulator and the regulated,” the association’s leadership agreed.
NASCUS Public Policies; April 19, 2017 (PDF file format) (see policy #19)
AGENCY STILL GRAPPLING WITH TERMINATION OF CORPORATE FUND
While it may be “tough stuff” and a “head scratcher” to overcome various accounting challenges in closing the fund meant to stabilize the corporate system, that doesn’t mean “this can’t happen” – in 2021 or this year -- NCUA Board Acting Chairman Mark McWatters said Thursday at the board’s April meeting. In February, McWatters suggested closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) this year and merging it with the National Credit Union Share Insurance Fund. Since then, he said at Thursday’s meeting, he’s been conferring with NCUA staff about the accounting challenges in doing that, which he (and NCUA Chief Financial Officer Rendell Jones) acknowledged are considerable. “There is no knock out yet” to accomplish the closing of the fund, McWatters said, “but there are lots of caveats.”
In a release following the meeting, the agency stated that it expects no future Stabilization Fund assessments for credit unions. However, it also stated that, while the Stabilization Fund’s positive net position continued during 2016, “no funds are available at present to provide federally insured credit unions with an immediate rebate of assessments paid to the fund.” The agency added that future changes in the economy or in the performance of the legacy assets securing the NCUA Guaranteed Notes “are likely to change the value of the assets the agency can access. Only when the holders of NCUA Guaranteed Notes are paid and the fund is closed can rebates be made to credit unions.” The fund is scheduled to close by 2021 – but McWatters continued to hold out the possibility of closing it this year.
In other action at its meeting, the board:
- Approved a request from the Illinois Department of Financial and Professional Regulation to revise its member business lending rule to provide parity with NCUA’s own rule (which was itself approved by the Board in February). Under NCUA’s member business lending rule, states that wish to have their own versions of that rule must receive NCUA approval. NCUA originally approved Illinois’ member business loan rule in 2013.
- Heard first quarter, 2017, report of the share insurance fund, which detailed a net loss of $41.9 million (primarily due to the increase in the provision for insurance losses), and the failure of two credit unions (neither, however, due to fraud). Total year-to-date losses associated with credit union failures are $3.7 million, compared to $4.7 million in the first quarter of 2016.
FOLLOWING ADVICE, CFPB DELAYS PRE-PAID RULE FOR 6 MONTHS
Following NASCUS’ recommendation, the CFPB has delayed by six months the effective date of its rule on prepaid accounts, under a final rule issued by the agency Thursday. The rule on pre-paid accounts will now take effect April 1, 2018 (rather than Oct. 1 of this year). About three weeks ago, NASCUS filed a comment letter with the consumer bureau favoring the six-month delay (as proposed by CFPB), stating that length of delay will ensure credit unions and other industry participants have the time to prepare for the rule. In its comment letter on the bureau’s final rule regarding Prepaid Accounts under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z), NASCUS noted that concerns have been raised about the lack of sufficient time to implement the changes to policies and procedures that are needed in order to comply with the former effective date of the final rule (Oct. 1).
“NASCUS believes it is important to strike a balance between enforcing reasonable regulation while not stifling institutions’ ability to provide the products and services that are beneficial and desired by consumers,” wrote NASCUS Vice President and Legislative and Regulatory Counsel Nichole Seabron. “State regulators are often required to balance ensuring the safety and soundness of the state banking system with the need to not quell or stifle innovation and delivery of products/services,” she added.
CFPB also stated that it would revisit at least two substantive issues through a separate notice and comment rulemaking: The linking of credit cards to digital wallets that are capable of storing funds, and; error resolution and limitations on liability for prepaid accounts that cannot be registered, have not yet been registered, or for which consumers have attempted but have not successfully completed the registration process. “We are continuing to evaluate other concerns raised by industry and other stakeholders and may address a limited number of other topics in the proposal as well,” the bureau wrote in a blog posting.
SUMMARIES OUTLINE KEY DEVELOPMENTS IN CREDIT CARDS, ALTERNATIVE DATA, COMPLIANCE RISK
NASCUS has posted three summaries this week: of a letter to credit unions and two “requests for information” from the CFPB:
- In outlining LTCU 17-CU-02, “Risk-Focused Examinations & Compliance Risk,” the NASCUS summary provides background behind the letter (referring to a 2002 LTCU), pointing out that this year’s letter provides examiners and credit unions information on updated risk indicators, including transformations in technology, business models, and members’ banking habits. The summary also emphasizes that the updated compliance risk indicators framework has three broad categories: board and management oversight, compliance programs, and violations of law and consumer harm.
- In summarizing CFPB’s request for information about ‘alternative data’ used in the credit process, NASCUS points out that comments are due May 19. The summary notes that the bureau defines “alternative data” as any data that are not traditional. Traditional data is that typically assembled and managed in the core credit files of nationwide consumer reporting agencies, including tradeline information, credit inquiries, information from public records such as public records relating to civil judgments, tax liens and bankruptcies.
- In outlining the consumer bureau’s inquiry about how the credit card market is functioning, the summary points out that up to 13 different areas of comment are being sought by the CFPB, and that comments are due June 8. Among the 13 items the bureau seeks comment on are: terms of credit card agreements and practices of credit card issuers; effectiveness of disclosure of terms, fees, and other expenses of credit card plans, and; adequacy of protections against unfair or deceptive acts or practices or unlawful discrimination relating credit card plans.
Summary: Letter to Credit Unions No. 17-CU-02: Risk-Focused Examinations & Compliance Risk (members only)
Summary: CFPB Request for Information Regarding Use of Alternative Data and Modeling Techniques in the Credit Process
NASCUS Summary: CFPB Request for Information Regarding Consumer Credit Card Market
Patrick Keefe, NASCUS Communications, email@example.com or (703) 528-5974