OTR reduced for time since 2013,
an initial win for state CU system

In an initial win for the state credit union system and NASCUS, the NCUA Board Thursday reduced the overhead transfer rate for the first time since 2013, as part of the agency’s revised budget for next year. The OTR was cut to 67.7% from last year’s 73.1%; but it needs to be reduced further, NASCUS President and CEO Lucy Ito said in a statement. She added that the state system expects further reductions as NCUA refines its methodology and fully implements recommendations from the Exam Flexibility Initiative (EFI). “The OTR has never been about a number: it’s about equity and fairness, and most importantly the legal question as to how Congress intended the agency to allocate funding,” she said.

During a briefing about the OTR for Chairman Rick Metsger and Board Member J. Mark McWatters (as part of the regular NCUA Board meeting), staff shared a memo showing the decrease for 2017 is the first since 2013, and the rate is the lowest since that year, when it was set at 59.1%. The memo stated that the “primary driver” of the change is the reduction of state examination hours and the reassignment of 20,000 of these hours to compliance and training activities. “This also results in more reliance on SSA examinations and supervision, which increased the SSA imputed value by $10.2 million,” the memo stated.

Additionally, staff told the board that it is still analyzing input received during the comment period this past spring – including from NASCUS, state regulators, national credit union trade organizations, state credit union leagues, and credit unions– about the methodology for determining the OTR (all of which called for some change in the methodology). “Because this issue is complex, sensitive, and has significant implications for how the agency’s budget is funded and because it has a potential effect on state regulators, NCUA staff have been thoroughly, thoughtfully, and comprehensively approaching this matter,” staff reported to the board in a memo. It added that the staff plans to deliver an analysis of issues raised (many of them by NASCUS) in the comments received, and any recommended changes, to the Board by the end of January 2017.

Metsger said he has been hearing about the OTR from his first week at the agency in 2013. “From an agency standpoint, we are agnostic,” he said. “We just need to make sure it is fair and equitable. That may be wishful thinking; if we have any goal at all, can we finally settle the OTR?” The chairman added that “if we can come up with a plan that is understandable, with the hope of reaching an understanding that (the plan) is fair and equitable, that would be a great win. We are moving forward, and making our best effort to resolve what has been a nagging issue for a quarter century.” McWatters echoed those views, noting that when he arrived at the agency, “the OTR mystified me.” He said that NCUA’s efforts are not geared at a number. “The point is transparency, understandability, fairness. Hopefully, we can do that,” he said. He also noted that he hoped the agency would be able to present something (presumably in January) “that is a little bit different, more elegant” than the current method of determining the transfer rate.

NASCUS has been pursuing OTR equity and transparency for more than 20 years Ito said, echoing Metsger’s comments. “We await eagerly the staff report in January, she said, adding that “it’s a very hopeful sign to the state system that the NCUA Board is taking a close look at the comments submitted earlier this year on the methodology, and that the agency is looking for fairness and transparency going forward, as both Chairman Metsger and Board Member McWatters said. Our sincere thanks to both of them.” However, the NASCUS leader again voiced the association’s concern with the board’s delegation to the staff (via the office of Examination and Insurance) of setting the OTR. “Again, we urge the agency to rescind its delegation to staff of setting the OTR; this is something that must rest with the board,” she said.

LINKS:
NCUA staff 2017 OTR summary
NCUA History of OTR
Slides from OTR presentation to board
Lucy Ito statement on OTR action

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BOARD OKS 2017-18 BUDGETS, RAISES OP FEES, DISCUSSES PREMIUMS

The board also approved a $298.2 million budget for 2017, up 2.5% from the budget approved a year ago, and a “requested budget” of $312.1 million for 2018, a 4.7% increase from 2017 during its meeting Thursday. Staff said that among the recommendations driving the 2017 budget were objectives incorporated from the Examination Flexibility Initiative (EFI), a program set up by Chairman Metsger with the aim of “improving the ability to adapt to economic changes and emerging issues,” while ensuring the agency has the resources it need to supervise and examine credit unions. Among the objectives cited: Improving coordination with state supervisors in the examination of federally insured, state-chartered credit unions. In a statement he read aloud, Metsger said the budget incorporates “major changes” to agency supervision and exam processes noted under the EFI, including better coordination with “our state supervisory partners.” In other action, the board: agreed to raise the federal credit union operating fee scale by an average of 25.5%; heard a report on the share insurance fund’s equity ratio, which projected a premium range of 3 to 6 bp for 2017 (to shore up the fund’s slowly declining equity ratio, now at 1.27%); noted that the board will decide next year whether, in fact, to declare a premium; and heard a report on the insurance fund’s performance overall, which revealed 12 credit union failures to date (after 16 in all of 2015).

LINK:
NCUA staff board action memo on 2017-18 budgets
Share insurance fund premium projections

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CHOICE ACT CONSIDERATION EARLY NEXT YEAR, CHIEF SPONSOR SAYS

Action on the Financial CHOICE Act (HR 5983) – which would (among other things) require the NCUA Board to enhance transparency of the OTR (by providing a rationale for any amounts the board proposes to use from the insurance fund) – could come early next year, the chairman of the House Financial Services Committee said this week. Speaking before a Washington group, Rep. Jeb Hensarling (R-Texas) made a plug for his legislation, which would make a number of additional changes in the federal financial regulatory scheme, including at NCUA. In addition to the OTR provision, the proposed legislation (which was sent to the House floor by Hensarling’s committee this year, but not acted upon) would: provide for a five member NCUA Board; require the agency to submit a draft annual budget for public comment; require NCUA to establish a Credit Union Advisory Council; and provide for an 18-month (or longer) examination cycle for certain credit unions. NASCUS has voiced support for a number of provisions in the bill (including OTR transparency and NCUA Board expansion).

The committee chairman also told the Exchequer Club (a group of Washington-based financial trade group representatives and others) that he is considering development of a Dodd-Frank Act “2.0” in the next Congress. Dodd-Frank was under fire during the recent presidential campaign: President-elect Donald Trump vowed to dismantle the legislation, passed in the wake of the financial crisis to prevent future such predicaments. But Washington observers have lately been questioning whether a full-fledged disassembling will be possible — especially with the slim majority the GOP holds in the Senate, likely strong Democratic push-back to attempts to eviscerate the law, and little interest by anyone to drop some of the oversight provisions of the law, such as regulation of derivatives. In other comments, Hensarling pledged to stop the CBPB’s proposed payday lending rule.

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CUBA TRAVEL, CANNABIS, MOBILE PAYMENTS (AND MORE) DISCUSSED AT BSA CONFAB

Travel to Cuba, marijuana business banking, shared branching, mobile payments and more were the grist for lively discussion among the more than 300 participants at this week’s NASCUS/CUNA Bank Secrecy Act Conference in San Antonio, which concluded Wednesday. During a panel featuring federal regulators from OFAC, FinCEN and NCUA, participants posed a number of questions about issues facing credit unions as their members and their families travel to Cuba. Credit card use was of particular interest, especially with regard to whether credit unions need to determine if they will allow their cards to be used by members traveling in the Caribbean island state. Additionally, the hundreds of participants listened to an exchange between the FinCEN and NCUA representatives about BSA responsibilities of participants in the shared-branch network. A session on legal marijuana business banking also drew the interest of the credit union and regulator audience (topical since, last week, the number of states where recreational or medicinal use of cannabis is legal expanded by eight, for a total of 28 nationwide). Extended discussion focused on the risks posed to credit unions by ancillary businesses to the legal marijuana industry. In another session, participants heard that it is vital that credit unions cover emerging technology such as mobile payments under their BSA and anti-money laundering (AML) policies. That’s especially important, one speaker acknowledged, since criminals are more likely to attempt to enter a credit union’s system online, rather than merely walk into a branch. Next year’s conference is set for Nov. 12-15 in Las Vegas.

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CYBER-THEFT EXPERT JIM STICKLEY TO KEYNOTE 2017 SYMPOSIUM

Jim Stickley, one of the premiere cybersecurity experts in the nation, will be the keynoter of the 2017 NASCUS/CUNA Cybersecurity Symposium, June 5-6, in San Diego. Stickley has more than 20 years’ experience in the cybersecurity field and is CEO of Stickley on Security, a firm focusing on cybersecurity education and awareness solutions. Over the course of his career, he notes that he has been involved in “thousands of security services for financial institutions, Fortune 100 corporations, healthcare facilities, legal firms, and insurance companies,” according to his website. Additionally, he has been a consultant for Fox News, CBS and NBC networks, as well as the Associated Press. His views and commentary on cybersecurity have also been featured in stories and items in such publications as Time, Business Week, Fortune, the New York Times, PC Magazine and more. The 2017 Cybersecurity Symposium takes place at the Westin Gaslamp Quarter Hotel in San Diego, June 5-6. The fourth annual edition of this event maintains the momentum built from editions in the previous three years, providing a look at and discussion of cutting-edge techniques and best practices and procedures that protect your organization from the latest threats.

LINK:
More info, 2017 Cybersecurity Symposium

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BRIEFLY: CUs increase level of consumer satisfaction

Credit unions increased their level of overall consumer satisfaction in 2016 (no doubt in part the result of strong dual chartering of credit unions), according to the American Consumer Satisfaction Index (ACSI) released this week. According to the index’s Finance and Insurance Report 2016, credit unions earned a score of 82 on the index for 2016 (out of a possible 100), up 1.2 points from the previous year.

LINK:
ACSI website (report is free, but requires registration)

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