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Feb. 3, 2017

NCUA lifts itself out of regulatory deep freeze

A regulatory freeze imposed by the Trump administration on federal agencies does not apply to NCUA, as it is an independent federal financial regulator -- but the agency will “adhere to its spirit,” according to a statement issued by the agency this week. The immediate result of the development: the proposal on alternative capital will continue to move forward, and new field of membership regulations for federal credit unions will take effect next week (Feb. 6), as scheduled.

The freeze was proclaimed by the White House on Jan. 20, in one of the first acts by President Donald Trump on the evening of his inauguration. Since then, there has been some confusion whether the action affected NCUA and other independent agencies (which are typically exempt, explicitly or implicitly from such directives). “NCUA has reviewed the January 20 memorandum from the White House Chief of Staff on a regulatory freeze and has determined that, as the agency is an independent federal financial regulator, it does not apply,” said NCUA Spokesman John Fairbanks said in a statement. “NCUA will nonetheless adhere to its spirit.”

NASCUS President and CEO Lucy Ito praised the agency statement for clearing up confusion. “The proposal on alternative capital is critical for the state credit union system, and is something NASCUS has sought for many years,” Ito said. “Further delay in addressing the issue would be very disappointing, particularly in bringing federal rules in line with existing authorities already on the books for credit unions in 15 states. NCUA’s clarification maintains hope of healthy dialogue on alternative capital as a tool for buttressing credit union safety and soundness and protecting the share insurance fund.”

Since May 2016, all regulations approved by the NCUA Board have been required by statute or have provided federally insured credit unions with regulatory relief, the NCUA spokesman also pointed out in the statement. Those include, he stated, the final field-of-membership rule (approved by the Board last October and effective Feb. 6); the proposed field-of-membership rule (also approved by the Board last October); and the ANPR on alternative capital. “By moving forward with these rulemakings, NCUA is working to decrease regulatory burdens,” Fairbanks stated. The ANPR has not yet, however, been published in the Register.

(Note: Trump is expected to sign another executive order this morning rolling back certain rules imposed under the Dodd-Frank Act of 2010, such as the “fiduciary rule,” set to take effect in April and which is designed to eliminate conflict-of-interest among investment advisers; no other details were available at press time.)


NCUA became the first federal financial institution regulatory agency to assert its independence with the proclamation this week that the Trump administration’s regulatory freeze “does not apply” to the agency (although NCUA pledged to “adhere to its spirit”). To date, other federal financial regulators – the FDIC, OCC, CFPB and Federal Reserve, all independent organizations – have been quiet about their independent designation (and the impact of the freeze). Most seem to be taking the position that their independent status is recognized.

But NCUA is in a different position than the other agencies: it is the only one at which a top regulator has been appointed by President Trump. J. Mark McWatters was named “acting chairman” last week by the president, essentially swapping roles with then-Chairman Rick Metsger (who has reverted to a member of the board).

The memo sent by the White House Jan. 20 announcing the freeze stated that no regulation could be sent to the Federal Register “until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.” In its statement issued this week, NCUA was sure to mention this passage – as well as the fact of McWatters’ designation as acting chairman.

So far, the Trump administration has not yet nominated anyone for positions at the other agencies. One board seat is open at the FDIC, and two at the Federal Reserve (all three are subject to Senate approval). Meanwhile, the term of Comptroller of the Currency Thomas J. Curry ends in April. And the future of Richard Cordray as CFPB Director remains uncertain since a federal appeals court ruled last fall that he may be removed “at will” by the president (rather than for cause). CFPB has submitted the judgment to the full court for rehearing, and the ruling is stayed pending a decision by the appeals court about the rehearing.

NCUA press release: McWatters named acting chairman of NCUA


Meanwhile, NCUA and other independent agencies were spared another Trump administration regulatory directive earlier in the week requiring that any new, proposed federal regulation would have to be offset by repeal of “at least two” existing regulations. However, the White House later in the day (Monday) clarified that the order did not apply to independent agencies. In addition to requiring the “1-for-2” regulatory swap, the order (titled “Reducing Regulation and Controlling Regulatory Costs”) would mandate that for fiscal year 2017 “the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero,” unless otherwise required by law or “consistent with advice provided in writing by the Director of the Office of Management and Budget (OMB),” the order states. For fiscal years 2018 and beyond, the order states, each agency is required to identify -- for each regulation that increases incremental cost -- the offsetting regulations that will be repealed, and “provide the agency's best approximation of the total costs or savings associated with each new regulation or repealed regulation.” The order also requires that any new, incremental costs associated with new regulations must be offset by eliminating existing costs associated with at least two prior regulations.

Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs


However, it remains unclear if NCUA’s independent status may exempt the agency from the Trump hiring freeze imposed on federal agencies Jan. 23. In the “Memorandum: Federal Civilian Hiring Freeze Guidance” posted this week on (the White House website), the directors of the Offices of Management and Budget (OMB) and Personnel Management (OPM) reiterated language from the Trump order that the freeze applies to all executive departments and agencies “regardless of the sources of their operational and programmatic funding and to all types of Federal civilian appointments, regardless of the length of the appointment” except in 18 specific exemptions or as otherwise provided in law. No mention is made of independent agencies, such as NCUA (which said this week it is still reviewing the guidance to determine its impact).

Both the Federal Reserve and Office of the Comptroller of the Currency have said they would comply with the hiring freeze. The impact on CFPB, still seeking a review of the court decision from last fall (see above), is not clear: the court ruled that CFPB will operate as an executive agency. However, that ruling is at odds with the statute, which lists CFPB as an “independent regulatory agency.”

Among the 18 exemptions is one (at paragraph d) which covers appointments of Senior Executive Service (SES) or Schedule C appointments in the Excepted Service, “or the appointment of any other officials who serve at the pleasure of the appointing authority (i.e., “appointed” positions of a political/non-career nature).” (See next item.)

Memorandum: Federal Civilian Hiring Freeze Guidance


Sarah Vega, a former Illinois credit union regulator and NASCUS chairman, has been appointed chief of staff for NCUA Acting Chairman J. Mark McWatters. Formerly director of the Illinois Department of Financial Institutions, and before that administrator of the department’s credit union division (the regulator of state-chartered credit unions in the state), Vega has served as McWatters’ senior policy advisor since he joined the NCUA Board in August 2014. This is her second stint as chief of staff to an NCUA chairman; she was previously the top staffer to former NCUA Board Chairman Michael E. Fryzel. Vega is also a former chairman of NASCUS (1999-2000), after having served previously as a member of the board.

NCUA press release: McWatters Names Vega as Chief of Staff


Law firms and individual attorneys offering debt relief services were sued this week by the CFPB for collaborating to allegedly charge “illegal fees” to consumers seeking debt relief, the consumer agency announced today. The suit seeks, CFPB said in a statement, to stop the defendants’ unlawful scheme, obtain relief for harmed consumers, and impose penalties. The penalties being sought were not detailed in the statement. The suit alleges that three law firms (Howard Law, P.C. and Williamson & Howard, LLP, both of Orange County, Calif.; and the Williamson Law Firm, LLC, registered in Kansas) and two attorneys (Vincent Howard and Lawrence Williamson) operated a debt relief operation with another firm, Morgan Drexem, Inc. That firm, CFPB said, “shut down” in 2015 following the agency’s lawsuit against it. “The defendants exploited consumers who were already suffering financial difficulties by tricking them into paying steep, illegal fees,” said CFPB Director Richard Cordray. “We put a stop to this scam once already, and we intend to do it again.”

CFPB Sues Debt Relief Attorneys for Collecting Illegal Fees from Struggling Consumers


A Senate bill to convert leadership of the Consumer Financial Protection Bureau from a single director to a five-member board was highlighted this week by Sen. Deb Fischer (R-Neb.) in a press release. The legislation, S.105 (the Consumer Financial Protection Board Act of 2017) – introduced Jan. 11 (she introduced similar bills in both of the past two Congresses) -- would install a bipartisan board of directors comprised of five individuals, with each board member appointed by the president and confirmed by the Senate. The president would also appoint one of the five members as chairperson. Members would serve staggered five-year terms, and no more than three members could be from the same political party. The legislation would take effect, the release stated, “on the date on which not less than three persons have been confirmed by the Senate to serve as members of the board of directors.” The bill also contains a provision essentially reducing the size of CFPB personnel through attrition. Under the provision, the board would be limited to appointing “not more than 1 employee of the Bureau for every 3 employees that are separated from service with the Bureau.” The president may provide the Board with an exemption from the provision, the bill states, if the board can show a national security concern or an “extraordinary emergency” exists, or if the employees are needed to “perform a critical mission.”

Text of S.105, Consumer Financial Protection Board Act of 2017


Easing the federal path to use of medicinal “marihuana” in states where it is legal is the aim of two pieces of legislation introduced in the House over the past week. H.Rs. 714 and 715 – both introduced by Rep. H. Morgan Griffith (R-Va.) and both of which use the uncommon spelling of “marihuana” to refer to the controversial herb  – take steps to bring federal law into accordance with state law where medicinal marijuana possession and use is permitted. H.R. 714 would “provide for the legitimate use of medicinal marihuana in accordance with the laws of the various States.” H.R. 715 would “provide for the rescheduling of marihuana, the medical use of marihuana in accordance with State law, and the exclusion of cannabidiol (a compound within marijuana possessing medical benefits) from the definition of marihuana.” No other text for the bills is available – and neither bill has yet been given a formal title.

NASCUS legislative affairs page/What we are following


Noting that NASCUS can act as a conduit for informative feedback about what state credit union regulators are seeing on the ground with regard to Bank Secrecy Act (BSA) and anti-money laundering compliance, the association has requested a seat on FinCEN’s Bank Secrecy Act Advisory Group (BSAAG). The group is the means by which the Treasury Department receives advice on the operations of the BSA. “As BSA/AML continues to be a pressing supervisory concern for the credit union system as a whole, we believe it is important for NASCUS to be included as a voice at the table,” NASCUS wrote.

BRIEFLY: CUSOs are somebodies – reaffirmations begin; ‘prepaid’ guidance offered;’ accreditation overhaul; NASCUS at GAC

The process for annual required “reaffirmation” by credit union service organizations (CUSOs) is now open (as of Wednesday), and must be completed by March 31 with CUSOs required to send regulatory information to NCUA on an annual basis through the registry … the CFPB recently released its “Small Entity Compliance Guide” on prepaid products, which the bureau says is aimed at providing “ an easy-to-use summary of the Prepaid Rule and to highlight information that may be helpful implementing the Prepaid Rule,” which takes effect in October … The NASCUS Performance Standards Committee is beginning an overhaul of the association’s Accreditation Program; look for more about the effort in coming weeks … The CUNA Governmental Affairs Conference (GAC) is Feb. 26-March 2 – the largest gathering of the year for the credit union system -- and NASCUS will, once again be engaged; if you are attending, let us know and we’ll be glad to keep you informed of our activities.


CUSO reaffirmation registration

Small Entity Compliance Guide

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