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Nov. 17, 2017

Agency adopts new OTR methodology;
sets 2018 rate at 61.5% -- lowest in years

NCUA’s operating budget in 2018 will be covered 61.5% by the National Credit Union Share Insurance Fund (NCUSIF), the agency’s board agreed Thursday as it set both its budget for the new year and the “overhead transfer rate” (OTR) based on a new methodology – which the board also adopted. The 2018 OTR is down from 2017, which is 67.7%, and down even more from the 2016 high of 73.1%. The board made its decision at its regular meeting for November.

The OTR set by the board means the insurance fund will provide about $183.5 million of the agency’s $298.1 million operating budget for 2018. (The remaining 38.5% of the budget will be covered by operating fees paid by federal credit unions.) The operating budget makes up the lion’s share of the agency’s overall budget of $320.8 million, and includes staff salaries and benefits, travel, rent, communications, utilities, administrative and contracted services.

The agency said federal credit unions will cover 69.9% of the operating budget (determined through the rate by which operating fees contribute to the budget, plus the product of the OTR multiplied by the percentage of total insured shares of FCUs of 51.1%). Federally insured, state-chartered credit unions (FISCUs) will cover 30.1% of the operating budget (computed through the product of the OTR multiplied by the percentage of total insured shares of FISCUS of 48.9%).

Under the new OTR methodology (which the board finalized and set for publication in the Federal Register), the rate is determined using four principles, NCUA staff said. Those are:

  • Time spent examining and supervising federal credit unions is allocated as 50% insurance related;
  • All time and costs spent supervising or evaluating risks posed by federally insured state-chartered credit unions or other entities NCUA does not charter or regulate (for example, third-party vendors and CUSOs) is allocated as 100% insurance related;
  • Time and costs related to NCUA’s role in administering federal share insurance and the NCUSIF are allocated as 100% insurance related.
  • Time and costs related to the agency’s role as charterer and enforcer of consumer protection and other noninsurance based laws governing the operation of credit unions (like field of membership requirements) are allocated as 0% insurance related;

NASCUS President and CEO Lucy Ito said that the new methodology is something NASCUS has been working toward for more than 20 years. “A decades' old debate between NCUA and the state credit union system has been resolved, at long last. Over the past 20 years, NASCUS has advocated that NCUA allocate its safety and soundness examination costs for federal credit unions fairly between the insurance fund and federal credit union operating fees and to open the OTR to periodic public notice and comment.  NASCUS and the state system applaud and thank Chairman McWatters, Board Member Metsger, and NCUA staff for their open dialogue with the state system and for demonstrating their commitment to transparency, clarity, and fairness.”

During a presentation, NCUA Director of Examination and Insurance Larry Fazio told the board that the methodology presented for final approval was unchanged from that proposed in June (and open to comments for 60 days). He said that, in the future, the agency will seek public comment on the OTR every three years “and whenever there is a proposed change to the methodology.”

During discussion, NCUA Board Chairman J. Mark McWatters suggested that “there has been an inexorable creep (upward) in the OTR” over the past few years. However, he said, the new methodology seems to offer “a little more predictability,” with a narrow band of change – up or down – for the next year or beyond.

Fazio agreed, saying he expected the OTR to operate in a “narrow range.” However, he said that could be affected by any “big programmatic shift” in the distribution of insured savings (by either FISCUs or FCUs), or big changes in the agency’s examination program – which Fazio said he does not foresee.

LINKS:
2018 Overhead Transfer Rate Summary

NCUA final notice: Overhead Transfer Rate Methodology

Board briefing materials: OTR


ON CORPORATES: FINAL RULE ADOPTED, FINAL REPORT HEARD

Amendments revising provisions regarding retained earnings and tier 1 capital at corporate credit unions were adopted as a final rule by the NCUA Board Thursday. Staff said the changes outlined under the final rule – to part 704 of the agency’s regulations – are appropriate to the current credit unions system, which has stabilized since the financial crisis at the start of the decade.

More specifically, staff said, the rule would better align capital components with a corporate credit union’s financial statements, and clarify the minimum retained earnings requirement for the corporates. Existing standards for prompt corrective action are not changed, nor are regulations on authorized investments, concentration risk limits, maturity limits or other limitations on corporate investment activities. The rule takes effect 30 days after publication in the Federal Register.

In other action, the board heard that the Temporary Corporate Credit Union Stabilization Fund closed Oct. 1 with a net position of $2.6 billion, after earnings of $570.6 million at the end of the third quarter. Since the fund was closed (on a vote of the NCUA Board), its remaining funds, property, and other assets were distributed to the NCUSIF, as required by law. The insurance fund assumed the activities and obligations of the stabilization fund, including the NCUA Guaranteed Notes Program. The Share Insurance Fund will report on these activities in the future, the agency said.

LINKS:
Final Rule, Part 704, Corporate Credit Unions

Corporate Stabilization Fund Quarterly Report.


NCUA releases 2018 board meeting schedule

Meetings are set to be held in 11 of 12 months during 2018 – all on Thursdays as in recent years -- by the NCUA Board, according to a schedule released by the agency leadership this week.The board plans to meet in every month other than August, a month the board has routinely skipped in past years. All of the meetings for 2018 are scheduled to be held at agency headquarters in Alexandria, Va.

Scheduled board meetings for 2018 are:
Jan. 25
Feb. 15
March 15
April 19
May 24
June 21
July 26
Sept. 20
Oct. 18
Nov. 15
Dec. 20

LINK:
NCUA Board Sets 2018 Meeting Schedule


HOUSE PANEL OKS ‘REG RELIEF ’PACKAGE WITH KEY CU PROVISIONS

“Regulatory relief” legislation moved forward in the House this week, and a package of similar items made its debut in the Senate, as lawmakers moved forward on promises to ease rules on financial institutions. The House Financial Services Committee reported out 23 bills, which Chairman Jeb Hensarling (R-Texas) said would “deliver much-needed regulatory relief to community banks and credit unions” to better serve their customers. Among the prominent measures sent to the House floor:

  • Mortgage Choice Act of 2017 (H.R. 1153): Adjusts Truth-in-Lending Act (TILA) mortgage rules, exempting affiliated title and escrow charges for taxes and insurance from the qualified mortgage cap on points and fees.
  • Securing Access to Affordable Mortgages Act (H.R. 3221): amends TILA and the “Financial Institutions Reform, Recovery, and Enforcement Act of 1989” (FIRREA) to exempt from property appraisal requirements a mortgage loan of $250,000 or less if it appears on the loan creditor's balance sheet for at least three years. The bill also exempts mortgage lenders and others involved in real estate transactions from incurring penalties for failing to report appraiser misconduct.
  • Protecting Consumers' Access to Credit Act of 2017 (H.R. 3299): Amends the Federal Deposit Insurance Act and other federal banking statutes to clarify that loans that are valid as to their maximum rate of interest in accordance with federal law when made will remain valid with respect to that rate regardless of whether a financial institution has subsequently sold or assigned the loan to a third party.
  • TRID Improvement Act of 2017 (H.R. 3978): Amends the Real Estate Settlement Procedures Act of 1974 (RESPA), and the “Know Before You Owe” requirements under Truth in Lending-RESPA (TRID) to require the CFPB to allow for the calculation of the discounted rate that title insurance companies may provide to consumers when they purchase a “lenders and owners” title insurance policy simultaneously.
  • A bill to place requirements on operational risk capital requirements for banking organizations established by an appropriate federal banking agency (H.R. 4296): Prohibits the establishment of operational risk capital requirements for banking organizations (including credit unions) unless they are sensitive to, and based on, an organization’s current activities, businesses or exposures; are determined by a forward-looking assessment of an organization’s potential losses and not based solely on its historic losses; and allow for adjustments based on qualifying operational “risk mitigants.”

SENATORS INTRODUCE THEIR OWN RELIEF PACKAGE

Also last week, 18 senators – nine Republicans, eight Democrats and one independent – unveiled a “relief” package of their own, which includes a provision granting credit unions parity with banks by allowing credit unions to classify residential loans on one-to-four non-owner-occupied units as real estate loans residential loans. Now, the credit union loans are classified as member business loans. Similar loans made by banks are considered real estate loans.

Also included in the Senate package:

  • Home Mortgage Disclosure Act Adjustment and Study: Exempts from certain disclosure requirements under the Home Mortgage Disclosure Act (HMDA) “small depository institutions” that have originated less than 500 closed-end mortgage loans or less than 500 open-end lines of credit in each of the two preceding calendar years. It also directs the Comptroller General to “conduct a study examining the impact on the amount of data available.”
  • Minimum Standards for Residential Mortgage Loans: Provides that certain mortgage loans that are originated and retained in portfolio by an insured credit union or an insured depository institution with less than $10 billion in total consolidated assets will be deemed qualified mortgages under the Truth in Lending Act (TILA) while maintaining consumer protections.
  • Eliminating Barriers to Jobs for Loan Originators: Provides that an individual will be deemed to have temporary authority to act as a loan originator for 120 days under the S.A.F.E. Mortgage Licensing Act of 2008 if such person is (1) a registered loan originator who becomes employed by a state-licensed mortgage company or (2) a state-licensed loan originator who becomes employed by a state-licensed mortgage company in a different state.
  • Treasury Report on Risks of Cyber Threats: Requires the Treasury Department to submit a report to Congress on the risks of cyber threats to financial institutions and the U.S. capital markets

BUREAU FINALLY PUBLISHES FINAL RULE ON PAYDAY, VEHICLE TITLE LOANS

The CFPB today will finally publish its final rule on payday and vehicle title loans -- released in Oct. 5  – with an effective date in mid-January (60-days after publication in the Federal Register). As published, the rule has two parts. First, for short-term and longer-term loans with balloon payments, the rule identifies it as an unfair and abusive practice for a lender to make such loans without reasonably determining that consumers have the ability to repay the loans according to their terms. According to CFPB, the rule generally requires that, before making such a loan, a lender must reasonably determine that the consumer has the ability to repay the loan. The agency has exempted certain short-term loans from the ability-to-repay determination prescribed in the rule if they are made with certain consumer protections. 

Second, for the same set of loans and for longer-term loans with an annual percentage rate greater than 36% that are repaid directly from the consumer’s account, the rule identifies it as an unfair and abusive practice to attempt to withdraw payment from a consumer’s account after two consecutive payment attempts have failed, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account. The rule also requires lenders to provide certain notices to the consumer before attempting to withdraw payment for a covered loan from the consumer’s account.  

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

NASCUS Fact Sheet Summary: CFPB Final Rule Re: Payday, Vehicle Title and Certain High-Cost Installment Loans


OVERDRAFT, DEBT COLLECTION PROJECTS UNDER DEVELOPMENT

CFPB is developing two on-line projects designed to gather information from consumers about overdraft and debt collection disclosures, according to notices published this week in the Federal Register.

For online testing of ATM/debit card overdraft disclosures forms, the bureau said it is exploring consumer understanding – and decision making – in response to the forms. According to CFPB, in addition to looking at consumer understanding and decision-making, the testing will “explore financial product usage, behavioral traits, and other consumer characteristics that may interact with a consumer’s experiences with overdraft programs and related disclosure forms.” The program is titled the “Web-Based Quantitative Testing of Point of Sale/ATM (POS/ATM) Overdraft Disclosure Forms.”

Also, the agency said it is developing a web-based survey intended to gauge responses by consumers to debt collection disclosure forms. The survey, titled Debt Collection Quantitative Disclosure Testing, will attempt to elicit responses from 8,000 individuals to “explore consumer comprehension and decision making in response to debt collection disclosure forms,” the CFPB filing states. “The survey will oversample respondents who have had experience with debt collection in the past.”

LINKS:
Agency Information Collection Activities: Submission for OMB Review; Comment Request

Comment request: Web-Based Quantitative Testing of Point of Sale/ATM (POS/ATM) Overdraft Disclosure Forms


CORDRAY DEPARTURE ONE OF SEVERAL CHANGES AHEAD FOR REGULATORS

The faces of federal financial institution regulation will be changing following several actions and developments this week, including:

  • CFPB: Director Richard Cordray announced he would leave the agency by the end of November. In a message to staff, Cordray said “it has been the joy of my life to have the opportunity to serve our country as the first director of the Consumer Bureau by working alongside all of you here.” Appointed in 2012 by President Barack Obama as the first director of the consumer bureau, Cordray’s five-year term ends in July 2018. The White House reportedly said this week that it would appoint an acting director, and consider a permanent “at the appropriate time.” Cordray gave no indication of what he would do after leaving the agency. According to some reports, President Donald Trump is considering giving control of the bureau to Office of Management and Budget (OMB) Director Mick Mulvaney (who would also continue to run OMB, reportedly). The role for Mulvaney – a fierce critic of CFPB when he was in Congress last year -- may be dictated by geography: CFPB offices are right across the street from OMB headquarters in Washington. If appointed, Mulvaney would reportedly hold the job until a Trump nominee for permanent director is confirmed.
  • OCC: Joseph Otting was confirmed by the Senate for a five-year term as Comptroller of the Currency Thursday, on a vote of 54-43. He replaces Acting Comptroller Keith Noreika (who was named to that role by the White House after the term of Tom Curry, a former state regulator, expired last spring). Otting, a former banker, has no previous experience as a regulator.
  • Federal Reserve: Two names were being floated throughout the week for open seats on the central bank’s board – including a current state regulator. Kansas State Bank Commissioner Michelle “Miki” Bowman has been reported as a candidate to fill the seat on the board reserved for a community banker, a role Bowman has also held. (NASCUS has long supported a seat on the NCUA Board being reserved for a state regulator.) For the seat of vice chairman, Mohamed A. El-Erian, a former CEO of investment giant PIMCO, is under consideration. He is also a former chairman of President Barack Obama’s Global Development Council.
  • FDIC: No change here yet, although the term of Chairman Martin Gruenberg runs out at the end of the month. However, Gruenberg said this week he intends to stay at his post at the deposit insurer until a successor is confirmed by the Senate, as per statute. President Donald Trump has not yet nominated a successor, although former Senate Banking Committee staff member Jalena McWilliams (now chief legal officer for Fifth Third Bancorp of Cincinnati) has been mentioned as a candidate.

On the road


BRIEFLY: State advocacy issues discussed; Report on Wednesday

State advocacy issues – including interstate branching, data security and cannabis banking – were on the agenda for NASCUS leader Lucy Ito when she sat down with the American Association of Credit Union Leagues’ (AACUL) State Issues Advocacy Committee at its meeting in New Orleans this week. The group also discussed state legislative issues, consumer protection in the states, and more … In observance of the Thanksgiving holiday Thursday, NASCUS Report will be distributed on Wednesday.


Information Contact:
Patrick Keefe, pkeefe@nascus.org