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May 18, 2018

Agency has ‘S’ CAMEL rating in sights – perhaps by year-end

Look for NCUA by year’s end to develop an “S” rating to address market sensitivity in its CAMEL rating system, according to a report made public this week by the agency. In its semiannual report to Congress (covering the activities and findings between Oct. 1, 2017 and March 31 of this year), the agency’s Office of Inspector General (OIG) stated that NCUA is working to modify its examination rating system by developing the “S” rating “to better capture a credit union’s sensitivity to market risk” and to “improve interest rate risk clarity and transparency.”

It hasn’t been a simple road to development for the agency so far, the report indicates. “Management noted that while progress has been made in assessing changes required in NCUA's systems, procedures, and examination guidance to add an ‘S’ component, the change process will be complex,” states the report. “Management indicated that making this change involves regulatory changes followed by reprogramming multiple IT systems, data storage and retrieval, and revising examination policies and procedures.”

The report also notes that the largest change (and perhaps largest challenge) in adopting the additional component is revising the agency’s “Automated Integrated Regulatory Examination System” (AIRES), which the report notes is “scheduled for a rewrite that will carry into 2018.”

NASCUS has strongly urged the agency to move toward adding the S component – which 22 states have already adopted (and at least four more are considering; see graphic). In a 2016 letter to NCUA Board Members J. Mark McWatters and Rick Metsger, association President and CEO Lucy Ito noted that separating out the “S” component “does not require a credit union to develop additional management system enhancements where market risk is already appropriately identified, measured, monitored and managed as part of the ‘L’ component.”

The NASCUS leader wrote then that in states that have adopted CAMELS, regulators and credit unions report positive outcomes with nearly no additional regulatory burden. In practice, she noted, state supervisors have continued to use the same examination procedures for assessing liquidity and interest rate risks. However, she wrote, by rating the “L” and “S” components separately—rather than in a combined component—state regulators have been able to provide better information to credit unions to clearly delineate analysis between liquidity risk and interest-rate risks.

“From a credit union perspective, an ‘S’ rating is no longer masked by a stronger ‘L’ rating nor is an ‘L’ rating ‘dinged’ by a weaker ‘S’ rating; conversely, an ‘L’ rating is no longer masked by a weaker ‘S’ rating nor is an ‘S’ rating  ‘dinged’ by a weaker ‘L’ rating,” she wrote.

NCUA OIG Semiannual Report to Congress

Ito letter to NCUA Board members on ‘S’ in CAMEL (June, 2016)


A proposed rule on payday alternative loans is on the agenda for the NCUA Board’s consideration at its regular monthly meeting next Thursday, along with a final rule addressing federal credit union involuntary liquidations and a quarterly report on the National Credit Union Share Insurance Fund (NCUSIF).

NCUA in 2010 approved a payday alternative loan rule (for “short-term, small amount loans”) that included conditions including: Loans could be for $200 to $1,000 to borrowers who have been credit union members for at least one month; terms of one to six months; maximum $20 application fee; no rollovers allowed; and an interest rate of up to 28% APR if all other conditions are met.

In 2016, responding to a proposal by the Bureau of Consumer Financial Protection (BCFP, known then as the CFPB) about its own rules on “small dollar loans,” then-NCUA Board Chairman Rick Metsger wrote to the consumer bureau stating that NCUA’s payday alternative loan rules protect consumers, and asked the bureau to “fully exempt (the credit union loans) from its payday lending rule.” “The National Credit Union Administration fully supports the goals of the proposed rule,” Metsger wrote. “NCUA continues to review its existing regulations and may consider enhancements to the PALs regulation. Additional rules from sister agencies will unnecessarily increase compliance burdens.”

(In its 2016 comment letter to the BCFP on its proposal, NASCUS urged the agency to provide compliance exemptions for states that have in place “comparable regulation” to avoid increasing the regulatory burden on an “already heavily regulated class of entities.” Additionally, NASCUS urged the bureau to be prepared to address “anticipated state requests for inconsistency determinations regarding their existing short-term, small amount regulations.”)

According to NCUA’s spring 2018 regulatory agenda, released earlier this year, a “PALsII” option would have different terms and conditions than the current PALs, with modified minimum and maximum loan amounts, no minimum length-of-membership requirement, and an increased maximum loan maturity. “All other features of the current PALs rule would be incorporated into PALs II,” the description states. Additionally, the spring agenda noted, the agency could solicit feedback on a possible PALsIII as well, which “could include differing fee structures, loan features, maturities, and loan amounts.”

In other action at next week’s board meeting, the board will consider a final rule affecting federal credit union involuntary liquidations (and claims), and a regular, quarterly report on the federal savings insurance fund.

The meeting gets underway at agency headquarters in Alexandria, Va., at 10 a.m.

NCUA Board May 24 meeting agenda

NASCUS 2016 comment letter: CFPB proposed rule on small-dollar loans

Metsger 2016 letter to CFPB, re: small-dollar loan rule proposal

NCUA spring 2018 agenda: payday alternative loans


Financial institution regulatory relief legislation is poised to be considered in the House next week, the last before the congressional Memorial Day recess, perhaps as early as Tuesday. The bill, the “Economic Growth, Regulatory Relief, and Consumer Protection Act” (S.2155) was passed by the Senate in March and contains a number of provisions affecting credit unions (which include requiring NCUA to hold annually a public hearing and publish details on its budget, and providing more flexibility in business lending). In fact, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said Thursday at a Washington event that “I am expecting next week that the House will pass S.2155." The House Rules Committee will also consider the legislation early next week (a precursor to House floor action).

The expected vote is the result of an agreement between the two houses of Congress to consider the Senate measure in the House, in exchange for the Senate to consider a yet-to-emerge House financial regulatory reform measure. Although the only indication of timing on that package has been “later this year,” some portions of the bill are likely to include previous, House-approved items (such as H.R. 4545, the ‘‘Financial Institutions Examination Fairness and Reform Act,’’ sponsored by Rep. Scott Tipton, R-Colo.). The bill would allow material supervisory determinations by a federal financial institution regulator to be reviewed by a newly created federal office. It also sets deadlines for federal regulators to hold exit interviews and issue financial examination reports to the institutions under their supervision.

NASCUS legislative page: Section-by-section summary of S.2155

H.R.4545 - Financial Institutions Examination Fairness and Reform Act


Retroactive “exceptive” relief for 90 days (beginning May 11) from beneficial ownership requirements for legal entity customers, as prescribed in the customer due diligence (CDD) rule, was issued this week by the Financial Crimes Enforcement Network (FinCEN). The exemption ends Aug. 9; it applies to accounts that automatically rollover or renew, such as certificates of deposit or loan accounts. “During this time, FinCEN will determine whether and to what extent additional exceptive relief may be appropriate for such financial products and services that were established before May 11, 2018, but are expected to rollover or renew after such date,” FinCEN said in an administrative ruling.

The ruling is the second “exceptive” action to be taken by the agency over the past week, since the CDD rule went into effect (for compliance) last week (May 11). Last week, FinCEN extended the “exceptive relief” from the application of the “beneficial ownership requirements” to premium finance lending products that allow for cash refunds.

This week’s action was taken within a couple hours after a hearing on the CDD rule featuring testimony by FinCEN Director Kenneth Blanco, who said his agency is aware that there will be “wrinkles” early on with the new rule and that his agency will be working with covered institutions and their regulators to iron those out.

“The misuse of legal entities to disguise illicit activity has been a key vulnerability in the U.S. financial system,” Blanco told the House terrorism and illicit financing subcommittee. “Corporate structures have facilitated anonymous access to the financial system for criminal activity and terrorism.” He said the law enforcement agency’s goal in the CDD rule is to “gain the transparency needed to protect the U.S. financial system and to prevent, deter, detect and disrupt money laundering, terrorist financing, and other serious crimes.”

FinCEN Administrative Ruling – Beneficial Ownership Requirements for Legal Entity Customers of Certain Financial Products and Services with Automatic Rollovers or Renewals


Late last week (May 11) FFIEC released through NCUA and banking regulators exam procedures for assessing compliance with the new CDD rules. The procedures apply to credit unions, banks, savings and loan associations, savings associations, and branches, agencies, and representative offices of foreign banks. They replace those in the current “Customer Due Diligence — Overview and Examination Procedures” section of the FFIEC’s Bank Secrecy Act/Anti-Money Laundering Examination Manual. In addition, new overview and examination procedures were developed for the beneficial ownership requirements for legal entity customers.

Customer Due Diligence – Overview and Examination Procedures (PDF)

Beneficial Ownership for Legal Entity Customers – Overview and Examination Procedures (PDF)

NCUA announcement


Planning for the NASCUS 2018 State System Summit July 16-19 in Orlando, Fla. (at Disney Yacht and Beach Club) continues, featuring four days of programming and discussion exclusively about the state credit union system. Key session topics for the four-day conference -- the only national conference dedicated to the interests and future of the state credit union system – include:

  • 5 Changes we should make to the CU system right now
  • Six Easy Pieces: Essentials of Cybersecurity
  • Blip or a Wave: What to make of the upcoming mid-terms
  • Surveying the Litigation Landscape 
  • NASCUS's State of the State System

With about 22 hours of presentation and discussion, the Summit features topics chosen in consultation with NASCUS members which reflect the interests of the state system, and especially how to effectively address and resolve issues that have arisen in those topics. For more information, including registration, see the link below.

2018 NASCUS State System Summit, July 16-19, Orlando/information and registration


As always, scholarships to attend the Summit, or other NASCUS educational programs and conferences, are available through the National Institute of State Credit Union Examination (NISCUE). NISCUE, through the generosity of credit unions that donate to the foundation, funds training programs that benefit the professional development of state credit union examiners. These funds can cover costs related to registration fees, travel, and/or lodging if your agency is facing budget constraints related to training or travel. Applications for a NISCUE scholarship (to attend this year’s Summit or another event) are available at the link below; return to Doug McGuckin, NASCUS vice president of corporate affairs (at Deadline to submit applications for this year’s Summit is June 15.

NISCUE scholarship application

ON THE ROAD: With TN regulators and CUs; with FL CEOs

NASCUS President and CEO Lucy Ito this week joined Tennessee regulators and credit union officials for the Credit Union Task Force of the Tennessee Department of Financial Institutions (TDFI) hosted by Commissioner Greg Gonzales and Deputy Commissioner Tina Miller. Ito and Fred Robinson, CEO of the Tennessee Credit Union League, spoke at the meeting, which covered topics including cybersecurity, CECL, the TDFI’s Small Credit Union Initiative, the new Customer Due Diligence requirements, TCUL’s Elderly Financial Exploitation Prevention Initiative, and national issues impacting the state credit union system (at right, Ito and Gonzales share time during a break in the meeting) … Also this week, Ito traveled to Jacksonville, Fla., to meet with CEOs of local credit unions and discuss issues affecting their institutions. Participating were Community First Credit Union’s John Hirabayashi, 121 Financial Credit Union’s Bruce Farfad, and Alive Credit Union’s Rose Gunter.

BRIEFLY: Four come on board as members; robust agenda for WA examiners

NASCUS welcomes four organizations as its latest members: SECU Credit Union of Linthicum, Md., which holds $3.5 billion in assets, counts nearly 251,000 members and is led by President & CEO Rod Staatz; Service Credit Union of Portsmouth, N.H., which is led by President & CEO David Van Sutton, holds $3.4 billion in assets and counts 247,000 members; and National Cooperative Bank of Arlington, Va., (led by President & CEO Chuck Snyder) which provides banking services and products to cooperative business and associations (including credit unions); and EasCorp Credit Union, based in Burlington, Mass. … About 70 state examiners and credit union senior staff gathered in Seattle for three days this week at the Washington Examiners School to discuss (among other things): ALM/derivatives, fintech, cybersecurity, investment real estate underwriting, compliance commercial lending trends and issues, and national issues. The three-day event was hosted in conjunction with the Washington Department of Financial Institutions.

Information Contact:
Patrick Keefe,