Get NASCUS Report in your in-box; click here

Jan. 13, 2017

‘Alternative capital’ on NCUA Board agenda

“Alternative capital” for credit unions will be the subject of an advanced notice of public rulemaking that the NCUA Board will consider at next week’s regular meeting in Alexandria, Va. An ANPR on the issue of supplementary capital has been anticipated since at least last October, when the NCUA Board held a “board briefing” on the issue. At that briefing, staff outlined a number of challenges for the agency (and the credit union system) in formulating such a regulation. Those challenges included fraud prevention, investor suitability, disclosures and others. Also at that briefing, NCUA Board Chairman Rick Metsger said the agency would move “as expeditiously as possible” on the issue, but also then added there are issues to be considered, including tax implications.

NASCUS has a long record of consistently encouraging NCUA, Congress and others to embrace capital reform for credit unions as a tool for enhancing safety and soundness, with the general view that a capital structure limited exclusively to retained earnings significantly disadvantages credit unions in facing unexpected economic shocks, and penalizes well-run institutions that are facing rising deposit rates.

NASCUS President and CEO Lucy Ito has pledged the state system to work closely with NCUA in addressing the challenges outlined at the October briefing. “Supplemental capital or alternative capital are important tools in enhancing credit union safety and soundness and should be available in anticipation of forthcoming risk-based capital requirements. The state system must be part of the discussion to ensure that both federal and state credit unions have the opportunity to use this tool, and that neither be at a disadvantage,” she said.

In other action, the board has scheduled a briefing on statutory inflation adjustments for civil money penalties it charges.

NCUA Board meeting agenda for Jan. 19


Cybersecurity, Bank Secrecy Act compliance, internal controls and interest rate and liquidity risk are among the top priorities for NCUA in its supervisory agenda for the New Year, according to a “Letter to Credit Unions” (LTCU 17-CU-01) issued by the agency Thursday. “This letter is intended to assist you in preparing for your next NCUA examination,” the letter states. “NCUA field staff will continue to use the streamlined small credit union exam program procedures for credit unions with assets up to $50 million and CAMEL ratings of 1, 2, or 3. For all other credit unions, field staff will conduct risk-focused examinations, which concentrate on the areas of highest risk, new products and services, and compliance with federal regulations.” Also among the regulatory priorities outlined in the letter are commercial lending and consumer compliance. (Note: Two of NASCUS’ three signature events for the year focus on NCUA’s top two priorities; see more at the link below.)

NASCUS Education Calendar, 2017


Two additional names have been added to the “landing team” at NCUA for the incoming Trump Administration, which includes a former top staffer at the agency. Peter Barrett, a former senior policy advisor and chief of staff to former NCUA Chairman JoAnn Johnson (and now the Superintendent of the Iowa Division of Credit Unions), and Chelsea Pizzola, who most recently worked as a research fellow for the Committee on Capital Markets Regulation, are listed as "landing team" members for the credit union agency. (“Landing teams” are groups of paid and volunteer staffers charged with smoothing the government transition.) The two join former NCUA Board Chairman (and member) Michael Fryzel as those named to the team; all three are serving as volunteers. Barrett is currently president of Barrett Capitol Strategies; prior to that, he served as director of federal affairs for the National Association of State Treasurers. His service to NCUA spanned January 2007 to September 2008. Prior to Pizzola’s service at the Committee on Capital Markets Regulation (a private organization that focuses on legislative and regulatory reforms for the financial system) she was a law clerk for the office of Commissioner J. Christopher Giancarlo, U.S. Commodity Futures Trading Commission.


Annual required “reaffirmation” by credit union service organizations (CUSOs) must be completed between Feb. 1 and March 31 with the NCUA’s CUSO registry, the agency announced this week, noting that CUSOs are required to report financial and regulatory information to NCUA on an annual basis through the registry. The CUSO Registry (launched last year) is part of NCUA’s enhanced CUSO rule approved by the agency’s Board in November 2013. While registration is required, it may be completed online and there is no fee. NCUA also posted a link to a “searchable version” of the CUSO registry, which it noted holds information on nearly 900 registered CUSOs. Additionally, the agency is hosting a 90-minute training webinar (at no charge) on the annual reaffirmation process Jan. 25 (at 2:30 p.m. ET).

CUSO reaffirmation registration
Jan. 25 CUSO registry webinar registration
Searchable version of CUSO registry


More than one in four consumers contacted by debt collectors feel threatened – and three in four of consumers report that debt collectors do not honor their request that collectors leave them alone, according to a new report released this week from the CFPB. The report is based on a national survey (the first of its kind, the agency stated) conducted by the consumer bureau, and shows that about one-third of consumers – or more than 70 million Americans – were contacted by a creditor or debt collector about a debt in the previous 12 months. They were most often contacted about medical and credit card debt. According to CFPB, the survey is part of an ongoing agency effort to explore industry practices and consumer experiences with debt collectors (and comes on the heels of a report from the bureau two weeks ago that attempts to collect on a debt that has already been paid is the source of the most common complaint about collections).

Also this week, the bureau released a white paper on risks in the online debt sales market, which highlights potential risks to consumers’ personal information posed by debt sales online. “Many debts sold in online marketplaces come with sensitive personal information attached, and are easily available at extremely low prices,” the bureau stated in a release. “The report raises questions about protections for that information and the dangers of it falling into the wrong hands.”

Consumer Experiences with Debt Collectors Report
Online Debt Sales Report


Richard Cordray’s tenure as director of the CFPB came into sharp focus this week, with lawmakers both urging the new administration to fire him – and to keep him on board through the remainder of his five-year term, ending in 2018. Republican Sens. Mike Lee (Utah) and Ben Sasse (Nebraska) sent a letter to Mike Pence, the vice-president elect, urging President-elect Donald Trump to fire Cordray “promptly after his inauguration” as president next week. In their letter, the two listed a number of reasons why Cordray should be fired – including that, under his watch, the bureau “has issued regulations that have disproportionately burdened credit unions and community banks …” The two made the request despite the on-going legal battle over whether the director may be fired “at will” before the end of his term.

Last fall, the U.S. Court of Appeals for the D.C. Circuit ruled that the way the law creating the consumer bureau is written is unconstitutional, in that the CFPB is the first agency to concentrate administrative powers in an independent single director not removable except for cause. To remedy that, the court ruled to strike the clause in the Dodd-Frank Act (the enabling legislation for the CFPB) which said the director could only be removed “for cause,” effectively allowing the president to dismiss the head of the agency “at will.” The CFPB is seeking further court review of the ruling.

Following the senators’ letter, however, 21 Democratic House members (led by House Financial Services Committee Ranking Member Maxine Waters (Calif.)), urged Trump to reject calls to fire the CFPB’s first and only director. The lawmakers cautioned the incoming president against “entering into a protracted – and likely unsuccessful – legal battle to oust” Cordray before his term expires in July 2018, calling any attempts to do so are “ without historical precedent, and intended solely to distract the director and the bureau from its important work protecting servicemembers, students and other borrowers from financial predation.”


Saying he would enforce federal marijuana laws, Attorney General-designate (and U.S. Senator) Jeff Sessions said during his confirmation hearing this week that it’s up to Congress to change those laws if use and possession of the substance is going to proceed in the states. Testifying before the Senate Judiciary Committee, the Alabama Republican said Congress made possession of marijuana “in every state” and the distribution of it illegal acts. “So, if that’s something that’s not desired any longer, Congress should pass a law to change the rule,” he said. “"It's not so much the attorney general's job to decide what laws to enforce. We should do our job and enforce laws effectively."

NASCUS supports federal legislation that would clarify the permissibility of financial institutions to provide financial services to state-authorized marijuana businesses. As of last November’s election, more than half of the states (28, and the District of Columbia) have now legalized recreational or medicinal – or both – uses of marijuana for their jurisdictions. However: The substance remains classified as a Schedule 1 drug (the same as heroin), a rating that was reiterated by the federal Drug Enforcement Agency in the summer, which hampers the ability of businesses serving the legal marijuana trade to receive services from financial institutions (including credit unions), which are reluctant to provide services out of fear of violating federal drug laws.


Legislation intended to limit new regulation based primarily on its economic impact of $100 million or more is now pending in the Senate, after passage last week by the House. The “Regulations from the Executive in Need of Scrutiny Act of 2017” (or REINS Act, H.R. 26) would require Congress to hold an up-or-down vote prior to enactment of any regulation expected to: have an economic impact equal to or exceeding $100 million; result in a major increase in costs/prices for consumers, individual industries, federal, state or local government or geographic regions; or have “significant adverse effects” on competition, employment, investment or more. The bill also allows greater congressional scrutiny of other regulations.

A preliminary NASCUS analysis of the legislation (which passed the House 237-187) indicates that the REINS Act could have an impact on the overhead transfer rate (OTR) -- if it costs the National Credit Union Share Insurance Fund (NCUSIF) $100 million or more. Under that view, the spirit of the legislation suggests it would apply to the OTR outright. On the other hand, if the OTR is not considered a “rule” the legislation may have less of an impact. It is also less clear what the impact of the legislation – which has earned the support of both national credit union trade groups -- would be on other credit union issues and rules, such as the new member business lending and field of membership regulations.


NASCUS Legislative Affairs page/HR 26


Excluding loans to purchase small apartment buildings from the calculation of the credit union member business lending cap of 12.25% is the aim of legislation introduced this week by a bipartisan group of four lawmakers. The “The Credit Union Residential Loan Parity Act” (H.R. 389) would, specifically, amend the Federal Credit Union Act to exclude a loan secured by a non-owner occupied 1- to 4-family dwelling from the definition of an MBL. A similar bill was introduced in the 114th Congress. The co-authors of the bill – Reps. Ed Royce (R-Calif.), Jared Huffman (D-Calif.), Don Young (R-Ala.), and Peter DeFazio (D-Oregon) – said in a statement that the legislation would allow credit unions to lend an additional $11 billion to small businesses. The future of the legislation is unclear (especially since the banking industry continues to actively oppose increased authority for credit unions to make MBLs, as evidenced by recent lawsuits filed by bank trade groups challenging the agency’s latest MBL rule). However, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) is reportedly working on a new version of his regulatory relief legislation (known as the Financial CHOICE Act in the 114th Congress), and the bill could end up as a provision there.


NASCUS Legislative Affairs page/HR 389


Mike Ryan, vice president and general counsel of BECU in Tukwila, Wash., has been appointed to a one-year term on the NASCUS Credit Union Advisory Council. He joins two other members (of the eight member group) who were recently re-elected. Ryan has been with BECU since 2015, following private practice at Foley & Lardner LLP in Milwaukee, Wisconsin, and Miller Nash Graham & Dunn LLP in Portland, Oregon. Recently re-elected to the council (which represents credit union members of NASCUS, who advise the NASCUS Board with an exclusive focus on preserving the dual chartering system and the future of state-chartered credit unions), were Terry West, president and CEO of VyStar Credit Union in Jacksonville, Fla. (who also serves as vice chairman of the Council), and Rick Stipa, CEO of TruMark Financial Credit Union in Trevose, Pa. (who also serves as Council secretary). Both were elected to terms that end in 2019. Patty Idol, president and CEO of Mountain Credit Union in Waynesville., N.C., is Council Chairman. Other Council members are: Linda Childs, president and CEO of TNConnect Credit Union in Knoxville, Tenn. (past chairman); Jason Boesch, manager of Energize Credit Union in Oklahoma City; Catherine Tierney, president and CEO of Community First Credit Union in Appleton, Wis.; and Mike Williams, president/CEO of Colorado Credit Union in Littleton, Colo.

BRIEFLY: Welcome to NASCUS; FOM webinar Feb. 1; Iowa job opening; FL Directors’ college

As 2017 gets underway, NASCUS is welcoming new members, including: OnPoint Community Credit Union of Oregon City, Oregon; Public Service Credit Union of Denver, Colo.; and Community Choice Credit Union of Commerce City, Colo. Watch this space for more new NASCUS members in coming weeks … A webinar on the new FOM rule for federal credit unions is being hosted by NCUA Feb. 1; see the link below for registration details … The State of Iowa Division of Credit Unions is searching for a credit union examiner supervisor; see the job listing on the NASCUS website under “career opportunities” … A Directors’ College for credit unions in and near Florida is set for March 8 in Orlando, jointly sponsored by the Florida Office of Financial Regulation, the League of Southeastern Credit Unions and NASCUS. See the link below for more information and to register.


More info/registration, NCUA FOM webinar (Feb. 1)

Career opportunity/State of Iowa Division of Credit Unions

More info/registration, FL Directors’ College, March 8 (Orlando)

Information Contact:
Patrick Keefe, NASCUS Communications, or (703) 528-5974