Comments: Temporary Regulatory Relief Rule in Response to COVID-19 – Prompt Corrective Action
June 29, 2020
Gerard Poliquin
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314
Re: NASCUS – Comments on Temporary Regulatory Relief Rule in Response to COVID-19 – Prompt Corrective Action (RIN 3133-AF19)
Dear Mr. Poliquin:
The National Association of State Credit Union Supervisors (NASCUS)[1] submits the following comments in response to the National Credit Union Administration’s (NCUA’s) request for comments on Interim Final Rule: Regulatory Relief in Response to COVID-19 – Prompt Corrective Action (RIN 3133-AF19).[2] The Interim Final Rule (IFR) made two temporary changes to NCUA’s Prompt Corrective Action (PCA) regulations. The first change temporarily enables the NCUA Board to issue an order applicable to all federally insured credit unions (FICUs) to waive the earnings retention requirement for any FICU that is classified as adequately capitalized.[3] The second change modified § 702.206 to allow NCUA to permit a credit union that is undercapitalized to submit to the NCUA Regional Director a streamlined Net Worth Restoration Plan (NWRP) plan attesting that the credit union’s reduction in capital was caused by share growth and that such share growth is a temporary condition due to COVID–19. Both changes made by the IFR expire on December 31, 2020.
NASCUS supports this Interim Final Rule and we commend NCUA for taking action to provide prudent and meaningful regulatory relief to FICUs during these extraordinary times. NASCUS has long been on record urging policy makers to re-evaluate the prudence of the current regulatory capital framework for credit unions that generally relies solely on retained earnings. One of our primary concerns has been the very scenario this rule attempts to temporarily attenuate: an otherwise healthy credit union experiences an influx of deposits as a “flight to safety” that erodes its net worth. With this modest, and temporary change, credit unions will be granted needed flexibility to manage liquidity and deposits to serve their members during this crisis.
The supervisory implementation of PCA requires the cooperation and consultation of NCUA and state regulators with respect to federally insured state credit unions (FISCUs). Given the dual nature of the oversight of the sufficiency of FISCU regulatory capital, we do not believe the changes made here in any way diminish the safety or soundness of the system.
As noted above, the changes to PCA made by the IFR expire on December 31, 2020. NASCUS has concerns that should the economic dislocation caused by the pandemic linger, the regulatory relief contemplated here may be necessary beyond the end of the year. We would support a longer effective period for these changes and encourage NCUA to continue coordination with state regulators on these issues.
NASCUS agrees with NCUA that good cause exists for the issuance of these changes as an IFR with neither advance notice and comment nor a delayed effective date.[4] Given the unprecedented nature of the COVID-19 crisis and the volatile nature of its effect on both the economy and the financial services’ sector, it is important to provide credit unions with prudent regulatory relief that enhances their ability to focus on serving their members and managing their operations.
NASCUS strongly supports the Administrative Procedure Act (APA)[5] and believes the opportunity for meaningful stakeholder contribution to NCUA’s rulemaking process is essential for a robust credit union system. While we have supported NCUA’s previous COVID-19 related IFR publications, our support of the use of the APA § 553 exception is not without limit. However, in addition to the COVID-19 exigent circumstances, this rulemaking presents several other compelling qualities that help garner our support of issuance as an IFR. First, the changes to § 702 are administrative in function and do not directly affect a credit union’s powers, authorities, or products and services. Second, the changes implemented by the IFR do not preempt, impede, or otherwise diminish state authority.[6] Under the IFR, NCUA would still consult with state regulators when evaluating submitted plans. Furthermore, when NCUA waives a provision as applied to a FISCU, a state’s authority to require remedial action remains unencumbered.[7] Taken as a whole, the benefits of the IFR far outweigh our concerns with use of the APA exception to advance notice and comment.
NASCUS appreciates the opportunity to submit comments to NCUA on the Interim Final Rule regarding these PCA changes. The state credit union system remains committed to doing its part to aid in the national response to the economic fallout from the pandemic. We would be happy to answer any questions or provide further information at NCUA’s convenience.
Sincerely,
– signature redacted for electronic publication –
Lucy Ito
President and CEO
[1] NASCUS is the professional association of the nation’s 45 state credit union regulatory agencies that charter and supervise over 2,000 state credit unions. NASCUS membership includes state regulatory agencies, state chartered and federally chartered credit unions, and other important stakeholders in the state system. State chartered credit unions hold nearly half the $1.5 trillion assets in the credit union system and are proud to represent nearly half of the 117 million credit union members.
[2] NCUA Interim Final Rule: Temporary Regulatory relief in response to COVID-19 – Prompt Corrective Action, 85 Fed. Reg. 103, at 31952 (May 28, 2020).
[3] See 12 C.F.R. § 702.201(b)(2)(i).
[4] 85 Fed. Reg. 103, at 31955 (May 28, 2020).
[5] 15 U.S.C. §553.
[6] NCUA Rules and Regulations require NCUA consult and cooperate with state regulators in implementing certain PCA relate provisions, including §§ 702.202(b), 702.203(b), 702.204(b), 702.304(b) and 702.305(b) with respect to a FISCU. NCUA must also allow the state regulator to take action before placing a FUSCU into conservatorship under PCA or liquidating a FISCU pursuant to PCA. See 12 U.S.C. 702.205.
[7] This is an important distinction from rulemaking where NCUA seeks to impose a requirement upon FISCUs and therefore inherently impedes upon state’s authority to pursue a different supervisory course.