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Oct. 6, 2017


In final notice, agency leaves door ajar
for changes to ‘normal operating level’

Partially reflecting NASCUS’ view, the “normal operating level” of reserves for the fund that protects savings in credit unions will be reviewed “periodically” by the NCUA Board, with action on revising the level taken only after the review suggests a change is warranted, according to the final notice for the rule closing the corporate credit union fund, formally published this week.

Additionally, according to a the “final notice” of the rule adopted last week by the board on “Closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) and Setting the Share Insurance Fund Normal Operating Level,” any review of the operating level will be accompanied by an analysis for stakeholders.

The board’s adoption of the final rule closing the TCCUSF and setting the “normal operating level” (that is, the amount of funds held in reserve in the insurance fund, relative to total savings insured) was the subject of considerable debate during the comment period, which closed in early September after 30 days. The board proposed (and ultimately approved) setting the operating level at 1.39% of reserves to total insured shares. However, a broad swath of commenters urged the agency to leave the level at the current 1.3%. Doing so would have meant insured credit unions would have received more in rebates because of the TCCUSF being closed and merged with the insurance fund. As it is, with a 1.39% operating level, NCUA estimates credit unions will receive rebates (or “distributions”) of between $600 million to $800 million in the first quarter of 2018.

NASCUS in its comments noted that temporarily increasing the normal operating level for the duration of the corporate resolution is prudent, but recommended that NCUA provide clearer assurance that the 1.39% rate would sunset upon maturity of the NCUA Guaranteed Notes in 2021.  “The agency’s commitment to review the operating level annually beginning in 2018 should address this concern,” NASCUS’ Lucy Ito wrote.

In its final notice, NCUA states that – after consideration – any change to the operating level of more than 1 basis point “shall be made only after a public announcement of the proposed adjustment” and opportunity for public comment. The agency said that, in soliciting comment, it will issue a public report, including data supporting the proposal. Additionally, the board set three objectives in setting the operating level in the future, according to the notice:

·  Retain public confidence in federal share insurance;
·  Prevent impairment of the 1% contributed capital deposit; and
·  Ensure that the insurance fund can withstand a moderate recession without the equity ratio
declining below 1.20% over a five-year period.

Final notice: Closing the Temporary Corporate Credit Union Stabilization Fund and Setting the Share Insurance Fund Normal Operating Level

NASCUS comments: Notice, request for comment: Closing the Temporary Corporate Credit Union Stabilization Fund and Setting the Share Insurance Fund Normal Operating Level


REVISED OPINION: NO PROHIBITION ON BOND COVERING CUSOS

In a change of opinion, NCUA has decided the "individual policy" requirement of credit union fidelity bonds does not prohibit a credit union from having a bond also covering a CUSO, provided the credit union owns at least 50% of the CUSO or the service organization otherwise meets the definition of a "nominee," according to an opinion letter published by the agency. The opinion applies to all federally insured credit unions.

“This Office is changing its opinion of the permissibility of certain joint coverage provisions to clarify the permissibility of the prior bond forms approved by NCUA,” agency General Counsel Michael McKenna wrote. “As the individual policy requirement is neither a statutory requirement nor defined in the current regulation, but rather has been defined by OGC legal opinions, the agency may change its legal interpretation by revising its legal opinions.”

The agency general counsel wrote that previous legal opinions did not address the issue of joint coverage in bond forms that NCUA had approved in the past. “This has resulted in an inconsistency between NCUA's approvals and this Office's legal opinions,” he stated. The inconsistency was determined, he stated, after a review of the previous opinions showed that the agency did not focus on the joint coverage provisions that had been included in approved bond forms before a previous regulatory change.

At issue in the Sept. 26 letter (NCUA opinion letter 17-0959, which does not show an addressee), is section 713.4(b) of the agency’s rules, which requires NCUA to approve any bond form before a credit union may use it, and to approve any changes or amendments to that form. In the past, McKenna wrote, NCUA's process was to focus on the changed portions of an approved bond form, including joint coverage provisions.

The Sept. 26 letter notes that the agency’s recently published “proposed regulatory reform agenda” includes a recommendation to explore revisions to Part 713 of NCUA rules in the first 24 months of the agenda.

NCUA legal opinion letter: Fidelity Bonds Joint Coverage


PAYDAY LENDING RULE REQUIRES ‘FULL PAYMENT TEST’ IN DETERMINING IF BORROWERS CAN REPAY

A final rule requiring payday lenders and others to determine upfront whether consumers can repay their loans was issued Thursday by the Consumer Financial Protection Bureau (CFPB), covering payday loans, auto title loans, deposit advance products, and longer-term loans with balloon payments. The long-awaited (and, at 1,690 pages, extensive) rule, CFPB said in a fact sheet, is aimed at stopping “debt traps” by installing ability-to repay protections which apply to loans requiring consumers to repay all or most of the debt at once.

Under the new rule, CFPB stated, lenders must conduct a “full-payment test” to determine upfront that borrowers can afford to repay their loans without re-borrowing. For certain short-term loans, lenders can skip the full-payment test if they offer a “principal-payoff option” that allows borrowers to pay off the debt more gradually. The rule takes effect 21 months after publication in the Federal Register, except for section 1041.11, which takes effect in 60 days (after Register publication), a smaller time window the agency said is necessary to implement the consumer reporting components of the regulation.

The rule requires lenders to use credit reporting systems registered with the agency to report and obtain information on certain loans covered by the proposal. According to the bureau, the rule allows less risky loan options, including certain loans typically offered by community banks and credit unions, to forgo the full-payment test. The new rule also includes a “debit attempt cutoff” for any short-term loan, balloon-payment loan, or longer-term loan with account access and an annual percentage rate higher than 36% that includes authorization for the lender to access the borrower’s checking or prepaid account.

The protections, CFPB stated, are in addition to existing requirements under state or tribal laws. "All lenders who regularly extend credit are subject to the CFPB’s requirements for any loan they make that’s covered by the rule," the agency stated. "This includes banks, credit unions, nonbanks, and their service providers. Lenders are required to comply regardless of whether they operate online or out of storefronts and regardless of the types of state licenses they may hold."

CFPB fact sheet: CFPB finalizes rule to stop payday debt traps

Final rule: Payday, Vehicle Title, and Certain High-Cost Installment Loans

Press release: CFPB Finalizes Rule To Stop Payday Debt Traps

Executive summary: Payday, Vehicle Title, and Certain High-Cost Installment Loans


RULE, PROPOSAL AIM TO IMPROVE COMMUNICATIONS WITH TROUBLED MORTGAGE BORROWERS

Mortgage servicers would receive 10 more days to tell borrowers facing foreclosure -- who have requested a cease in communication under federal debt collection law -- about their options in preventing the foreclosure, under an interim final rule issued by the CFPB Wednesday. Simultaneously, the bureau issued a proposed rule providing “more certainty” for mortgage servicers about when to provide periodic statements to consumers about their bankruptcy case.

The interim rule giving servicers the longer, 10-day window to provide the modified notices takes effect Oct. 19 (the same date that related 2016 rule provisions become effective). CFPB said it is seeking comment (for 30 days) on the interim rule and will consider whether to revisit it in the future.

The bureau, in a statement, said the interim final rule should make it easier for mortgage borrowers to receive timely information from their mortgage servicers about available options for saving their home, even if they have submitted a request to cease communications. The latter proposal, CFPB Director Richard Cordray said, is aimed at clearing up confusion about when mortgage servicers can provide periodic statements with important loan information to borrowers in bankruptcy.

According to CFPB, last year it made changes to its rules requiring mortgage servicers to send written notices (known as “early intervention notices”) to certain consumers at risk of foreclosure who have requested a cease in communication under the Fair Debt Collection Practices Act. Under this law, consumers have the option to request that companies stop contacting them except for limited purposes. Once these borrowers become delinquent, the bureau said, its 2016 amendments generally require that mortgage servicers send notices to these consumers every 45 days to inform them of available foreclosure prevention options but prohibit servicers from sending the notices more than once in a 180-day period.

The proposal about providing “more certainty” of the timing for servicers to provide periodic statements about a borrower’s bankruptcy case is in response to “certain technical aspects of the 2016 amendments” which “may create unintended challenges and be subject to different legal interpretations.” The proposed effective date for the proposal is April 19, 2018, the same date that the sections of the 2016 rule that the proposal would amend become effective. The proposal will also have a 30-day comment period.Thus, the Bureau is also seeking public comment on a proposed rule that would provide greater certainty for mortgage servicers regarding the timing for providing periodic statements in those circumstances. The proposed effective date for the proposed rule is April 19, 2018, the same date that the sections of the 2016 rule that the proposal would amend become effective.

The comment periods for both the interim final rule and the proposed rule will close 30 days after publication in the Federal Register.

CFPB Issues Interim Final Rule to Help Mortgage Servicers Communicate With Certain Borrowers At Risk Of Foreclosure


BILL WOULD CLARIFY STATE BANKING REG EXPERIENCE ON FDIC BOARD

Legislation which clarifies that a person with state banking regulatory experience must be a member of the Federal Deposit Insurance Corp. (FDIC) Board – and which echoes a long-time goal of NASCUS for state representation on the NCUA Board -- has been introduced in the Senate; a similar measure has been unveiled in the House. The Senate bill, S.1910, the “State Regulatory Representation Clarification Act,” was introduced by Sens. Orrin Hatch (R-Utah, and chairman of the Senate Finance Committee), and Mazie Hirono (D-Hawaii). A similar measure has been introduced in the House (H.R. 3915) by Reps. Frank D. Lucas (R-Okla.) and Denny Heck (D-Wash.) both are members of the Financial Services Committee.

The legislation is intended to make clear that the FDIC Board must include at least one member who worked in state government as a state bank supervisor, as required under current law. In 1996, Congress passed a measure requiring that one FDIC Board member “shall have State bank supervisory experience,” supporters of the legislation point out. However, they say, now and for the past several years, the legal requirement has not been met (for example, with individuals experienced as federal regulators of state-chartered institutions being appointed). The Conference of State Bank Supervisors (CSBS) asserts that Congress’ clear intent when passing the bill was that at least one FDIC Board member have experience as a state official responsible for bank supervision.

NASCUS is closely watching the two bills, and is advocating for similar legislation for the NCUA Board. “Having an individual on the board with state credit union regulatory experience ensures a diversity of voices and supervisory experience,” said NASCUS President and CEO Lucy Ito. “That diversity and experience will encourage broader, more robust discussion and will bolster NCUA’s accountability to all of its stakeholders including the state credit union system.”

NASCUS legislative resources affairs web page/S.1910

S.1910 – State Regulatory Representation Clarification Act


SENATE VOTES TO SEAT FIRST FED VICE CHAIRMAN FOR SUPERVISION

The Senate has confirmed Randal Quarles as vice chairman for supervision of the Federal Reserve, the first person to serve in that position (mandated by the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act but never filled). The confirmation of Quarles, 60, is the first by President Donald Trump to the Fed Board; two seats remain open, and the resignation of Vice Chairman Stanley Fischer (effective Oct. 13) will open a third. Quarles was actually confirmed to two terms: the first completing the remainder of an existing term of a former Fed governor, ending next February, the second to a 14-year term, ending in 2032. The new vice chairman has long experience in government. He served in the administration of President George Herbert Walker Bush from 1990-93 as special assistant to the Treasury Secretary for banking legislation and as Deputy Assistant Treasury Secretary for financial institutions policy. From 2001-06, he served in the administration of President George Walker Bush as U.S. Executive Director of the International Monetary Fund, Assistant Secretary of the Treasury for International Affairs, and Under Secretary of the Treasury for Domestic Finance.


BRIEFLY: In memoriam, Pete Parsons; position opening in Oregon

Pete Parsons, long-time former Texas credit union regulator and NASCUS board member in the 1980s, died recently. He was among the earliest pioneers of NASCUS 52 years ago and
also served as chairman of the NASCUS board during his tenure … the Oregon Department of Consumer and Business Services (DCBS) has an opening for agency director; see the link below for more information about job description and contacts.

NASCUS career opportunities



Information Contact:
Patrick Keefe, pkeefe@nascus.org