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Aug. 3, 2018

NCUA proposes 1-year delay in RBC rule,
exemption for additional 1,000 CUs

A regulation on risk-based capital would become effective in 2020, rather than 2019, under a proposal issued Thursday for a 30-day comment period by the NCUA Board. Additionally under the proposal, the agency would modify its current asset threshold of a “complex credit union” (used for determining risk-based capital requirements) from $100 million to $500 million. That change would effectively exempt about two-thirds of credit unions now subject to the current rule, according to the agency.

In proposing the one-year extension and increase in the “complex” definition (under a “proposed, supplemental rule”), NCUA said the changes would provide “covered credit unions and the NCUA with additional time to prepare for the rule’s implementation,” particularly those changes related to the increased asset threshold for redefining “complex” (including changes to call reports, computer coding, etc.).

The agency also noted that, by redefining “complex,” the proposal would exempt an additional 1,026 credit unions from the rule (resulting in 90% of all credit unions exempted, based on year-end 2017 Call Report data) “without subjecting the National Credit Union Share Insurance Fund (NCUSIF) to undue risk.” The proposal would leave 531 credit unions defined as “complex,” less than 10% of all federally insured credit unions. The remaining about 90% of credit unions would be defined as noncomplex and thus exempt.

According to the agency, during the extension period, its current prompt corrective action (PCA) requirements would remain in effect. Staff told the board it hopes to have a final rule for the board to consider before year’s end.

According to NCUA Director of Examination and Insurance Larry Fazio, the one-year delay is a “good balance” between providing additional time for credit unions and the agency to adjust to the proposed changes without unduly extending the effective date of risk-based capital. “With this delay, credit unions subject to risk-based capital will have a total of more than four years to have prepared,” Fazio said.

Regarding the “complex” redefinition, the agency said the proposal eliminates two indicators from the current definition: Internet banking, and investments with maturities greater than five years, where the investments are greater than 1% of total assets. It further revises four of the indicators in the current definition, by: substituting “commercial loans” for “member business loans;” replacing “participations loans” with “participation loans sold;” excluding first-lien mortgages from interest-only loans; and narrowing “real estate loans” to “sold mortgages.”

The proposal also factors in the extent to which a credit union is involved in complex activity (the “Complexity Ratio”), NCUA said.

Staff told the board that the revised indicators show that all credit unions with more than $500 million in assets engage in at least one complex activity, and that 92% of those credit unions engage in four or more complex activities. Additionally, staff noted that the larger credit unions hold more complex assets and liabilities as a share of their total assets, and 85% of all complex assets and liabilities ($423 billion of $497 billion) of all credit unions.

The credit unions being dropped from the “complex” definition (those between $100 million and $500 million in assets) represent approximately 16% of the total assets of credit unions “bound” by risk-based capital under the original rule adopted in 2015, and 21% of incremental capital required, NCUA pointed out.

Board Chairman J. Mark McWatters said he and Board Member Rick Metsger plan to pen a joint, bipartisan letter to Congress outlining the proposal and the agency’s rationale for its being issued.

Risk-Based Capital—Supplemental Rule

Board briefing slides -- RBC


In a statement issued shortly after the board meeting, NASCUS President and CEO Lucy Ito said the state credit union system commends NCUA for delaying the RBC rule for one year, and for raising the rule's applicability threshold -- but also urges the agency to work with state regulators during the one-year interval to develop a supplemental capital framework for insured credit unions.

“Supplemental capital has a key role in protecting the NCUSIF and bolstering the safety and soundness of the credit union system,” Ito said. “NASCUS will continue to engage with the agency to secure this valuable tool for credit unions ahead of the next financial crisis that strikes the credit union system.”

She noted that the agency has previously committed to issue a supplemental capital framework in conjunction with RBC, and suggested NCUA use the delayed implementation for RBC to consult and coordinate with state regulators.

As for the delay itself, she said it is welcomed by the state system, which recognizes the time needed for guidance to be developed by NCUA and understood by federal and state examiners as well as credit unions, not to mention “enormous impact it can have on how credit unions operate, the products and services they offer, the types of information sought by regulators, and the cost of compliance.“

In raising the threshold, she noted the board followed a recommendation made by the state system in 2015. “At this threshold, NCUA would be able to ensure smooth implementation of the rule without threatening the viability of smaller institutions,” she said.

She added that NASCUS is analyzing how raising the threshold for “complex” credit unions would impact individual credit unions and the broader credit union system.

Ito statement: NCUA Board action Aug. 2, 2018

NASCUS comment letter: Risk-based capital (2) proposal (2015)

NASCUS comment letter: 2017 NCUA Alternative Capital ANPR


Also at Thursday’s meeting, the NCUA Board:

  • Issued a proposed rule on FCU lending to “provide clarity and ease compliance” by (among other things): identifying in one section the various maturity limits applicable to federal credit union loans; clarifying that the maturity for a new loan under GAAP is calculated from the new date of origination; expressing clearly the limits for loans to a single borrower or group of associated borrowers; and seeking comment on whether the agency should provide for longer, more flexible maturity limits on certain loans. The proposal will be issued for a 60-day comment period.
  • Published a final rule creating new “suspension and debarment procedures” for contractors with the agency, which NCUA said is intended to better protect the federal government’s interest in only doing business with presently responsible contractors.” Under the new rule (among other things), NCUA will only solicit offers from, award contracts to, or consent to subcontracts with “presently responsible contractors.”
  • Continued the current 18% annual interest rate limit for loans made by federal credit unions —with the exception of loans originated under the payday alternative loan (PALS) program (which are capped at 28%) -- through March 10, 2020. NCUA noted that the Federal Credit Union Act caps the interest rate on federal credit union loans at 15%, but the board has discretion to raise that limit for 18-month periods if interest-rate levels could threaten the safety and soundness of credit unions. The 18% cap applies to all federal credit union lending except that made under the PALS program.
  • Approved a recommendation that $675,000 already in the agency’s operating fund budget be “reprogrammed” to pay for cybersecurity improvements (its evaluation tool) and employee relocations under the agency’s overall realignment.

Proposed rule: FCU Loans to Members and Lines of Credit to Members

Final rule: NCUA Suspension and Debarment Procedures

FCU loan rate cap: Supplemental Information and Interest Rate Statistics

NCUA Budget and Supplementary Materials


An expansive Treasury report issued Tuesday morning about fintechs and nonbank financial institutions was followed that afternoon with an announcement that the national bank regulator is now accepting applications from the financial technology companies for federal charters.

The OCC said Tuesday it will begin accepting applications for national bank charters from the “nondepository financial technology” companies (fintechs) engaged in “the business of banking.” Treasury said decision was “consistent with bi-partisan government efforts at federal and state levels to promote economic opportunity and support innovation that can improve financial services to consumers, businesses, and communities.”

The agency’s decision followed the morning release of the Treasury’s 222-page report on “nonbank financials, fintech and innovation.” Containing more than 80 recommendations (see following item), the report is the the fourth and final in a series responding to President Donald Trump’s 2017 executive order focusing on regulatory core principles. It covers four broad themes: embracing use of consumer financial data and competitive technologies; streamlining regulation to foster innovation; modernizing activity-specific regulations; and facilitating experimentation, such as by working with federal and state regulators to establish a kind of “regulatory sandbox” to encourage innovation.

Specifically regarding a fintech charter, the report urged the OCC “to move forward on ‘prudent and carefully considered’ special-purpose bank charter applications.” Move forward the agency did – four hours later.

OCC outlined five points it will consider in evaluating fintech applications, including a final point of the agency’s resolve:

  • Every application will be evaluated on its unique facts and circumstances.
  • Fintech companies that apply and qualify for, and receive, special purpose national bank charters will be supervised like similarly situated national banks, to include capital, liquidity, and financial inclusion commitments as appropriate. Fintech companies will be expected to submit an acceptable contingency plan to address significant financial stress that could threaten the viability of the bank. The plan would outline strategies for restoring the bank’s financial strength and options for selling, merging, or liquidating the bank in the event the recovery strategies are not effective.
  • The expectations for promoting financial inclusion will depend on the company’s business model and the types of planned products, services, and activities.
  • New fintech companies that become special purpose national banks will be subject to heightened supervision initially, similar to other de novo banks.
  • The OCC has the authority, expertise, processes, procedures, and resources necessary to supervise fintech companies that become national banks and to unwind a fintech company that becomes a national bank in the event that it fails.

OCC Policy Statement on Financial Technology Companies’ Eligibility to Apply for National Bank Charters


In other areas of the Treasury report, state authority and oversight in areas such as payday lending and supervision of money transmitters was emphasized. However, for data breach notification, the report envisions a federal approach pre-empting existing state laws.

The report recommends that the BCFP rescind its rule on payday (or “small dollar”) lending, which was adopted in 2017, and became effective at the first of this year. In the report, Treasury notes that states already regulate the businesses making the loans and that additional regulation through the bureau only further restricts access to credit.

In the spring federal unified regulatory agenda, which outlines regulatory plans of federal agencies, the bureau stated it would “revisit” the payday rule this year, but has not yet acted. In a statement praising the Treasury report, BCFP Acting Director John “Mick” Mulvaney praised the Treasury report and “the important steps taken by our fellow agencies to promote innovation” regarding the fintech charter. He made no mention of the payday lending rule.

In other areas, the Treasury report:

  • Calls on states to “harmonize” money transmitter requirements for licensing and supervisory examination. Treasury contends such harmonization will enable innovation and ensure a competitive marketplace for financial services.
  • Recommends that Congress enact a federal data security and breach notification law to protect consumer financial data and notify consumers of a breach in a timely manner. Doing so, Treasury said, would address the inconsistencies of state data breach notification laws. The report stated that a federal law should: Employ uniform national standards that preempt state laws; recognize existing federal data security requirements for financial institutions; protect consumer financial data; and ensure technology-neutral and scalable standards based on the size of an entity and type of activity in which the entity engages;

Treasury Releases Report on Nonbank Financials, Fintech, and Innovation


The Senate’s passage this week of a spending bill that differs from the House-passed version – which contains a number of regulatory relief provisions – sets the stage for a Senate-House conference on a final package.

The Senate passed its version of the “Financial Services and General Government” appropriations bill on a vote of 92-6 as part of a spending bill package (a “minibus”) containing a total of four spending measures. The Senate bill (H.R. 6147) now heads to a conference with the House over its version, adopted July 19 (on a vote of 217-199, with 15 Republicans and 184 Democrats voting against; no Democrats voted in favor).

The House bill contains a number of regulatory relief provisions that are missing in the Senate version. Among them:

  • Increase to two years for the required resolution planning process for banking organizations supervised by the Federal Reserve and Federal Deposit Insurance Corp. (FDIC);
  • Stress test relief for nonbanks that are supervised by trading markets regulators and the Federal Housing Finance Agency;
  • Creation of an Office of Independent Examination Review within the Federal Financial Institutions Examination Council (FFIEC), plus establishment of an independent process for appealing material supervisory findings;
  • Creation of an inspector general position within the Bureau of Consumer Financial Protection;
  • A revision in Volcker Rule requirements regarding some smaller community banks;
  • A two-year delay, to Jan. 1, 2021, in the effective date of the National Credit Union Administration (NCUA) risk-based capital rule for credit unions.


The Senate Banking Committee Wednesday postponed nomination votes for Kathleen “Kathy” Kraninger to be director BCFP (formerly known as the CFPB), and five others, as the Senate closed for the week. It was a quick change for the committee – it had scheduled the nomination votes just two days’ prior to the postponement. Kraninger, if confirmed by the full Senate, would succeed BCFP Acting Director John “Mick” Mulvaney. He has been serving in that role since November 2017, when he was appointed by President Donald Trump to succeed Richard Cordray, who resigned. No new date for the committee to consider the nominations was announced.

Meanwhile, the committee has yet to schedule a hearing for Rodney Hood, who was nominated in June to be a member of the NCUA Board. Hood, who previously served as a member of the Board was nominated to serve the remainder of a six-year term expiring in August 2023. If confirmed, he would take the place of current board Member Rick Metsger, whose own term ended in August of last year (in fact, a year ago yesterday). A former chairman of the NCUA Board, Metsger continues to sit on the leadership panel until his replacement is confirmed by the Senate. Metsger is a Democrat; Hood is a Republican.

BRIEFLY: Welcome new members; mortgage symposium (3) set

NASCUS welcomes two more credit unions as members: Tennessee Employees Credit Union in Nashville, and Velocity Credit Union in Austin, Texas. Tennessee Employees holds $28 million in assets and counts nearly 4,000 members; Sherrie Brooks is the president and CEO. Velocity has nearly $850 million in assets, counting nearly 88,000 members. Debbie Mitchell is the president and CEO. … NASCUS has scheduled a “part three” of its popular mortgage symposium series for Nov. 27-28 in Newton, Mass. The training session is designed to provide a high-level overview on topics such as: Community Reinvestment Act (CRA, specific to MA); Home Mortgage Disclosure Act (HMDA); Fair Lending/Equal Credit Opportunity Act; Fair Housing Act; Servicemember’s Civil Relief Act -- and more!

NASCUS Mortgage Symposium – Part 3; Nov. 27-28, Newton, Mass.

Information Contact:
Patrick Keefe,