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April 28, 2017

CHOICE formally intro’d; hearings held; markup scheduled

Financial regulatory reform legislation known as the Financial CHOICE Act was formally introduced Wednesday in the House as H.R. 10, in conjunction with what turned out to be a nearly all-day hearing about the proposed bill in front of the Financial Services Committee. But, as it turns out, there’s more to come: the hearing is scheduled to continue this morning, with witnesses called by the Democratic minority, essentially as rebuttal witnesses to those who testified earlier in the week. Further: the committee has scheduled a mark up hearing of H.R. 10 for Tuesday (May 2).

The Financial CHOICE Act is sweeping legislation (589 pages worth) offered by committee Chairman Jeb Hensarling (R-Texas). The bill, now with the number H.R. 10, essentially rewrites or discards much of the law established under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things (such as changing the name of the CFPB to the ““Consumer Law Enforcement Agency” (CLEA) and refocusing the agency to consumer protection and competitive markets, the bill includes provisions calling for more transparency in the NCUA budgeting process (including through public hearings), and for the overhead transfer rate (OTR).

The specific credit union-related issues received little attention during Wednesday’s hearing, although there was considerable discussion about the regulatory challenges facing community financial institutions, including credit unions. The hearing was largely dominated by partisan back-and-forth over what triggered the Great Recession, how the Dodd-Frank legislation affects the economy, and whether the law can prevent a future economic downturn. However, apparently the committee’s Democratic minority wanted more testimony, and requested (as provided for by committee rules) one day of hearing to call witnesses – presumably from their point of view.

Executive summary: H.R. 10, the Financial CHOICE Act


Financial institutions, including credit unions, maintaining an average leverage ratio of at least 10% would have the option to be exempt from federal capital and liquidity requirements under a so-called “off-ramp” provision that defines “qualifying banking organizations” (QBOs) in the CHOICE Act. Additionally, the provision would exempt the QBOs from federal laws and regulations that permit federal banking agencies to object to capital distributions. Under the provision, financial institutions meeting the 10% level could elect to become a QBO; however, the provision also includes a process for remediation if capital levels fall below 10%. The Credit Union National Association (CUNA), in a letter to the Financial Services Committee this week, noted that about 65% percent of all credit unions have net worth ratios of more than 10%. These credit unions, the letter stated, hold 62% of credit union assets and serve nearly 60% of credit union members. “We believe many of these credit unions would take advantage of the regulatory relief provided under Section 602 (of the CHOICE Act) which would include relief from, among other things, NCUA’s regulations on interest rate risk, liquidity requirements, and the recently finalized risk-based capital requirements,” the association wrote.


Meanwhile, separate “regulatory relief” legislation for community financial institutions (including credit unions) was introduced Wednesday by Rep. Blaine Luetkemeyer (R-Mo.), which he described as an effort to “ease the burdens facing local financial institutions by providing them with targeted regulatory relief from an onslaught of federal red-tape that has made it increasingly difficult for them to serve their customers and communities.” It’s the second time around for the CommunityLending Enhancement and Regulatory Relief (CLEARR) Act (H.R. 2133): he first introduced the measure in 2013. Among other things, the legislation would: repeal risk-based capital rules related to mortgage servicing assets; exempt higher-risk mortgages of $250,000 or less from appraisal requirements for loans held in portfolio for at least three years; waive escrow mandates for loans held in portfolio by creditors with assets of less than $50 billion; raise the CFPB direct supervision level to financial institutions with $50 billion or more in assets from the current $10 billion asset-level; provide a qualified mortgage safe harbor for portfolio loans.

Rep. Luetkemeyer release on H.R. 2133


A lawsuit over a proposal to establish a federal charter for financial technology (or “fintech”) companies has been brought by state banking agencies in federal court. The complaint filed Wednesday by the Conference of State Bank Supervisors (CSBS) in federal court in Washington aims to block the Office of the Comptroller of the Currency from moving forward with its proposed charter, which CSBS termed “an unlawful attempt to create a national nonbank charter that will harm markets, innovation and consumers.” The association asserted that the OCC’s actions went “far beyond the limited authority granted to it by Congress under the National Bank Act and other federal banking laws.” In addition to asking the court to declare that OCC lacks authority to establish the charter, the association also seeks injunctive relief “prohibiting the OCC from pursuing and further implementing the Nonbank Charter Decision or creating or issuing any nonbank charter.”

CSBS release on lawsuit challenging OCC fintech charter


A federal credit union charter has been granted to a Los Angeles-based institution – serving more than a half million fire protection industry workers around the country from offices and a call center in California – which was formerly a privately insured credit union. Firefighters First FCU, which since 1984 was privately insured, and most recently known as Firefighters First Credit Union chartered by the California Department of Business Oversight, was also designated by NCUA as chartered for the purpose of granting member business loans, NCUA stated in a press release. The new charter became effective April 18, the agency stated. According to the agency, prior to its conversion to a federal charter the credit union served 37,000 members and held $1.18 billion in assets, “making it one of the largest single-common-bond federal credit unions in the United States,” NCUA’s release stated.


The pros and cons of creating a new nationwide interstate branching (or operations) agreement for the state credit union system is under consideration by a NASCUS task force. Currently there are two interstate branching agreements (developed by NASCUS): the Southeastern Regional Cooperative Interstate Agreement for the Supervision of State-Chartered Credit Unions, and the 2015 Cooperative Interstate Agreement for the Supervision of State-Chartered Credit Unions. However, the two agreements overlap with each for some state signatories. The NASCUS task force is considering the development of an updated master to create a single agreement, which states may choose to sign. Among the questions being considered by the panel: what constitutes interstate branching; the “dormant commerce clause” and its applicability to interstate branching, and; the implications of establishing statutory remedies to enhance state credit unions’ abilities to operate across state lines. Additionally, the group discussed broadening its scope to “interstate operations,” to acknowledge modern-day realities of interstate commerce.

AROUND THE STATES: Governors sign CU-related bills into law

Bills giving regulators more flexibility in approving out-of-state branches in their state, requiring data breach notifications, and updating governance and state CU parity provisions have been signed into law recently. In New Hampshire, Gov. Chris Sununu (R ) recently signed the bill loosening credit union branching restrictions by giving the state regulator authority to approve out-of-state credit unions to branch into the state. In New Mexico, Gov. Susan Martinez (R ) signed legislation requiring retailers and any other entity which gathers and stores personal information to notify affected parties within 30 days when the entity believes there is a serious risk of identity theft or fraud. Businesses that do not comply could be fined up to $150,000. In Washington, Gov. Jay Inslee (D) has signed the bill updating credit union governance, board of director powers and responsibilities; clarifying low-income designations for credit unions; and updating the parity provision allowing state-chartered credit unions the same powers as federally chartered credit unions.


Cyber: Hotel cutoff May 15Attending (or considering it) the NASCUS/CUNA 2017 Cybersecurity Symposium June 5-6 in San Diego? Don’t forget to secure your accommodations at the Westin Gaslamp Quarter Hotel by May 15 (the reservation cutoff date). The two-day symposium, featuring more than 20 experts in the cybersecurity field providing presentations and leading discussions, offers 14 hours of sessions with an emphasis on dialog among participants and speakers. Randall “Randy” Romes of CliftonLarsonAllen is the master of ceremonies for the event, and cyber-expert Jim Stickley is the keynote speaker. For a comprehensive view the event – and to make your hotel reservation – see the link below.

NASCUS/CUNA 2017 Cybersecurity Symposium: agenda, registration, more


Early bird registration discount for the 2017 NASCUS State System Summit, Aug. 29-Sept. 1 in San Diego, ends on June 1 – giving potential participants in the only national meeting focusing exclusively on the state credit union system about one month take advantage of the lower price. The four-day meeting, headquartered at the Westin Gaslamp Quarter Hotel, is a unique event bringing together credit union regulators and practitioners for mutual exchange and dialog, offering a rewarding opportunity for both groups as they listen to ideas, share thoughts and look for solutions to the challenges and opportunities facing the state credit union system through dialog and networking. For a quick look at what to expect at the 2017 Summit, click on the video image. For more information, including agenda and registration, use the link below.

2017 State System Summit: Agenda, hotel information, registration

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