April 5, 2019 NASCUS Report

NATIONAL STATE REGULATORS MEETING

Three days of supervisors discussing issues, sharing ideas

The three-day 2019 National Meeting of state regulators from around the nation this week in the Washington area covered a variety of topics, sparked mutual exchange, and opened up some new ideas.

For regulators only, the annual event drew more than 60 regulators from 37 states to hear presentations and participate in discussions with NCUA, experts in cannabis banking policy, artificial intelligence, cybersecurity, culture in the workplace and more.

On the more technical side, the regulators discussed NCUA’s new Modern Examination and Risk Identification Tool (MERIT), the General Data Protection Regulation (GDPR), and the next liquidity crisis (among other things). NASCUS President and CEO Lucy Itomoderated a state system “round-up” to give the gathered supervisors a look at howemerging trends in their own states compare and contrast with others across state credit union system.

“We received terrific feedback from all participants for this year’s meeting, who especially appreciated the opportunity to discuss freely the issues at hand in their states,” Ito said. “Thanks to all of those who attended and participated in this year’s event. State credit unions nationwide can rest assured that their supervisors are always working to improve and bolster the state charter, by sharing ideas about their own programs – and maintaining an absolute commitment to safety and soundness of credit unions and efficiency in regulation.”

In the photos (beginning at top left, clockwise): NCUA’s Deputy General Counsel Lara Rodriguez and Office of Examination and Insurance Director Larry Fazio participate in a dialogue with the state supervisors; state regulators listen intently to discussion; North Carolina Credit Union Division Administrator Rose Conner raises a point with her fellow supervisors; Amber Gravius, NCUA supervisory special assistant for business innovation (left) and Kelly Lay, NCUA director, Office of Business Innovation, discuss the agency’s new MERIT system with state supervisors; NASCUS’ Ito shares insights about developments in the state credit union system.

NASCUS LEADER PLEGER NAMED TO SLC FOR EXAM COUNCIL

Former NASCUS Regulator Board Chairman – and current board member — Steve Pleger is now a member of the council of state regulators that advises the umbrella group of federal financial institution regulators, it was announced Monday.

Pleger, the senior deputy commissioner for the Georgia Department of Banking and Finance, was nominated for the two-year seat on the State Liaison Committee (SLC) of the Federal Financial Institutions Examination Council (FFIEC) by NASCUS. He replaces Mary Hughes, acting director of the Idaho Department of Finance, who completed a maximum two terms as NASCUS’ SLC representative. In his role as deputy commissioner, Pleger is responsible for general administration and oversight of the department; development of policies and regulations; oversight of information technology, security, and project management; and liaison to government agencies (state and federal) as well as various trade groups.

Other members of the SLC are: Chairman Greg Gonzales, commissioner of the Tennessee Department of Financial Institutions, who was appointed Monday to a second, two-year term; John Ducrest, commissioner of the Louisiana Office of Financial Institutions (OFI), appointed Monday; and continuing, current members of the council: Edward Joseph Face, commissioner of financial institutions for the Virginia State Corporation Commission’s Bureau of Financial Institutions; and; Tom Fite, director, Indiana Department of Financial Institutions. Both were confirmed by the FFIEC for their positions.

LINK:
Pleger, Ducrest Appointed, Gonzales Re-Appointed, to FFIEC State Liaison Committee

KRANINGER, MCWATTERS TAKE NOS. 1 AND 2 SEATS AT FFIEC

The head of the consumer financial protection agency will chair the umbrella Federal Financial Institutions Examination Council (FFIEC) through March 31, 2021, the council announced this week, with the chairman of the NCUA sitting in the second seat on the panel. Kathleen (“Kathy”) Kraninger, director of the Consumer Financial Protection Bureau (CFPB), took the council chairmanship Monday. She succeeds Jelena McWilliams, chairman of the Federal Deposit Insurance Corp. (FDIC). The council also named NCUA Board Chairman J. Mark McWatters as its vice chairman for the same two-year term. (However, McWatters’ current NCUA Board term expires this Aug. 2.) In a statement, Kraninger said as chairman she plans to focus on building a culture of compliance that prevents consumer harm in the first place. “This prevention of harm is one of my primary goals, and using all available tools will better protect consumers, taxpayers, and the financial system,” she said.

LINK:
CFPB Director Kraninger Becomes FFIEC Chairman

OIG OUTLINES FAILURE CAUSES FOR TAXI MEDALLION CUS

An inspector general report on three credit unions that failed in 2018 under the weight of taxi medallion loans, costing the federal share insurance fund an estimated $765.5 million, recommends that the federal regulator improve monitoring of loan concentrations in credit unions, revise examination quality control procedures, and ensure that examiners review credit unions’ lending procedures – with a focus on ability to repay.

The report by the NCUA Office of Inspector General (OIG) is dated March 29 and reviews the causes of the failures of Melrose Credit Union, LOMTO Federal Credit Union and Bay Ridge Credit Union, all in New York. All three, the report says, maintained “significant concentrations” in loans collateralized by taxi medallions.

Since these credit unions were chartered for the purpose of making member business loans, the report states, they qualified for an exemption from a federal statutory limit on MBL portfolios to 175% of their net worth. However, it says that the credit unions failed to identify and appropriately monitor loans to associated borrowers, which for MBLs are limited to 15% of net worth.

Exam reports “reflect several instances when the Credit Unions exceeded the regulatory limit to associated borrowers, resulting in additional concentration risk to the loan portfolios.” It’s unclear how many times this happened since the credit unions did not appropriately identify and document loans made to associated borrowers, it states.

The report notes the impact of technological innovation in the form of mobile ride-sharing companies like Uber and Lyft on the market, the disruption it caused to the taxi industry, and the losses to credit unions on loans that were collateralized by taxi medallions. It also points to inadequate underwriting practices, over-valuation of the taxi medallions, boards and management being unresponsive to issues raised by examiners, and a lack of overall risk management strategies at the institutions.

Additionally, the report states NCUA might have acted earlier and mitigated the loss to the National Credit Union Share Insurance Fund. (NCUSIF). “We determined NCUA may have mitigated the loss … had they taken a timelier and aggressive supervisory approach regarding the Credit Unions’ concentration risk and failure to follow industry accepted lending practices for MBLs,” the report states. “Specifically, had the NCUA acted more aggressively through formal enforcement actions for repeat DORs [documents of resolution], which had not been corrected by management, improvements may have been made to inadequate lending practices and risk management policies, thus reducing the loss to the Share Insurance Fund.”

LINK:
Material Loss Review of Melrose Credit Union, LOMTO Federal Credit Union, and Bay Ridge Federal Credit Union (Report #OIG-19-06 March 29, 2019)

CREDIT, CONSUMER REPORTING LEADS COMPLAINTS AGAIN

Complaints about credit or consumer reporting, for the second straight year, was the leader in 2018 as the “most-complained about” consumer financial product or service, according to the CFPB’s Consumer Response Annual Reportfor 2018, released late last week.

Not only were complaints about credit or consumer reporting the leader again in 2018 out of the 329,800 total complaints the bureau received, the number of complaints were up from 2017 by 27%, according to the report. The credit/consumer reporting complaints made up 38% of all complaints (for 126,300) the bureau received.

Rounding out the top five most complaints in 2018 were: debt collection (81,500, or 24.7%), mortgages (30,100, or 9%), credit cards (8.7%), and checking or saving accounts (25,900, or 7.8%).Those five areas, combined, accounted for about nine in every 10 complaints received by the bureau in 2018.

Complaints about student loans showed the biggest decrease during the year, down nearly half (48%) from the previous year to 10,400. On the other hand, complaints about credit repair organizations showed the biggest increase (33%) from the previous year, with 1,000 complaints received.

Complaints about payday loans were also down in 2018, the CFPB reported, with 2,300 complaints received (down by 19% from the previous year).

LINK:
2018 Consumer Response annual report

FED BANK PRESIDENTS CALL FOR CANNABIS CLARITY

Three Federal Reserve Bank presidents called for clarity on rules for providing financial services to the cannabis-related businesses, according to a trade report this week. Marijuana Momentreported that, during a Wednesday panel at a conference of the American Bankers Association in Washington, the CEOs of the Federal Reserve Banks of Richmond, Kansas City and Atlanta all voiced a need for clarity on financial institutions’ ability to serve legal cannabis-related businesses.

NASCUS was one of the first to call for clarity in federal law over credit union and other financial institution service to legal cannabis-related businesses, particularly as more and more states began to legalize use of marijuana in some form. NASCUS first made the call for clarity in 2014. Last week, the House Financial Services Committee sent to the full House for consideration legislation (H.R. 1595, the SAFE Banking Act) that is intended to provide that clarity.

“For better or for worse, we’re responsible to follow federal law, and so we would very much like to have clarification on this,” Tom Barkin, CEO of the Federal Reserve Bank of Richmond, said. “Whatever legislative answer gets us to clarity would be our preferred outcome.”

Esther George, of the Kansas City reserve bank, said a financial institutions’ decision to service a marijuana business is “not an easy judgement for the banks to make.” She said she looks forward to “that resolution that provides more clarity to the bankers.”

Raphael Bostic of the Atlanta Fed said existing laws relating to cannabis put financials into an “impossible situation.” “I do hope that we get some legislative clarity sooner rather than later,” he said.

NASCUS will explore the cannabis banking issue in depth at its inaugural “State Legalization of Cannabis and Banking Symposium” this summer. The symposium will be held June 25-26 in Universal City, Calif., in the greater Los Angeles area and feature industry experts and stakeholders.

LINK:
Federal Reserve Bank Presidents Call For Marijuana Banking Clarity

2019 NASCUS Symposium: Cannabis Banking

WITH APRIL COME EDUCATION EVENTS – INCLUDING NASCUS 101

With the advent of April comes an extensive list of NASCUS education events – including the NASCUS 101 Member Orientation(April 25; webinar), a no-charge, one-hour event that brings together members, prospective members or anyone else interested in NASCUS (the voice of the state credit union system) to better understand the unique tools and benefits NASCUS offers. Attendees also hear from their peers—a member network of state regulators, credit unions, credit union leagues, and other system supporters—and how they leverage their NASCUS membership. The webinar ends with a Q&A session. Advance registration required (although there is no charge).

Next week, NASCUS hosts (in co-sponsorship with the Carolinas Credit Union League and the North Carolina Credit Union Division) the CECL Symposium (April 10-11, in Charlotte, N.C.), focusing on the “current expected credit loss” (CECL) accounting standard for recognition and measurement of credit losses for loans and debt securities.

Other events coming up this month include:

• Credit Union Association of the Dakotas Directors College (April 11, Fargo, ND)co-sponsored by NASCUS, this one-day educational session is designed for CEO’s, upper management, and volunteers seeking specific training for their duties and board responsibilities.
• NASCUS/CUNA BSA(April 23-24, Columbus, OH); a joint program of NASCUS, CUNA and the Ohio Department of Commerce. The program takes an in-depth look at issues related to topics that include marijuana business banking, money-service businesses (MSBs), cybersecurity, elder abuse, human trafficking, payments and enforcement actions. This two-day conference is followed later in the year (Nov. 18-21) by the BSA/AML Certification Conference in Tempe, Ariz.(also sponsored by NASCUS and CUNA).
• NASCUS Washington Examiners School (April 29-May 1, Seattle)co-sponsored withthe State of Washington, Division of Credit Unions, this two-day conference looks at a variety of issues including ERM training, fintech, CECL, fraud issues – and more!
• Michigan Directors College (April 30, Midland, MI); co-sponsored with the Michigan Office of Credit Unions, this one-day event looks at key topic including: CECL, national credit union issues, compliance developments – and more.

For more about these events (including agendas and registration), or any other upcoming events at NASCUS, see our 2019 education agenda at the link below.

LINK:
NASCUS 2019 Education Agenda

BRIEFLY: FASB holds fast on CECL; webinar on low-income CUs planned

The Financial Accounting Standards Board (FASB) voted unanimously this week to make no changes to its accounting standard for current expected credit losses (CECL) that would have affected how credit losses are recorded. Members of the board noted that they have already considered (and rejected) such changes – with one saying that a change at this stage “would be inappropriate and, in fact, unfair, for us to go back and start re-litigating decisions” …  Programs and initiatives for minority depository institutions, the credit union chartering process and the grant round for low-income credit unions are among the topics to be discussed in an April 24 webinar by NCUA. The 60-minute webinar is intended to detail the plans in 2019 of the NCUA’s Office of Credit Union Resources and Expansion (CURE).

LINK:
Registration Open for CURE Initiatives Webinar