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Oct. 5, 2018

NCUA chair voices legislative requests on FOM, vendor exam authority

More authority to examine vendors doing business with credit unions, and expanding federal credit unions’ ability to sign up members from underserved households, were two “asks” by NCUA Board Chairman J. Mark McWatters this week in Senate testimony (at right, delivering his testimony).

Joining other federal financial institution regulators in the hearing of the Senate Banking Committee to discuss how the regulators are implementing new regulatory relief legislation enacted in May (the Economic Growth, Regulatory Relief and Consumer Protection Act – EGRRCPA, S. 2155), McWatters said obtaining the expanded authority in examination and field of membership (FOM) modifications were necessary in light of changing times.

“Technological and other advancements, including credit union relationships with fintechs and other third-party vendors, are changing the way financial services are provided,” he told the Senate panel at the Tuesday hearing. “While these developments can help credit unions meet the needs of all segments of their membership and communities, they also mean that credit unions and the NCUA must evolve to remain effective in the changing financial services landscape.”

He noted that the Federal Credit Union Act allows only FCUs with multiple common bond charters to add underserved areas to their fields of membership. By allowing all FCUs to add underserved areas, he argued, more people would be given access to federally insured financial institutions and more credit unions would be eligible for Community Development Financial Institutions Fund (CDFI) programs. He also recommended allowing chartering of web-based communities and permitting credit unions to add people living in a census tract where current projections would indicate they qualify as low-income.

Regarding third-party vendor exam authority, McWatters pointed to the other regulators on the panel (representing the OCC, FDIC and Federal Reserve) and noted that only the NCUA, among all four, does not have authority to examine and supervise third-party vendors. Congress should correct that, he said. “As fintech options increase both in importance and use in credit unions, this request becomes even more crucial to the NCUA’s defense against cybersecurity risks in the credit union system,” he told the committee.

McWatters testimony to Senate Banking Committee


NASCUS and the state system are on board with NCUA obtaining examination authority over technology service providers that provide services to federally insured credit unions – as long as the agency relies on state exams of service providers where state authority exists, the association’s leader said this week.

In a statement following McWatters’ testimony, NASCUS President and CEO Lucy Ito outlined state support for the NCUA chairman’s proposal, but asserted that, in states with existing vendor examination mechanisms in place, deference should be given to the state authority to supervise the vendors.

It’s not a new position for the state system, Ito added.

“As far back as 2001, NASCUS has supported limited NCUA authority over technology service providers, specifically,” she said. “Most recently in 2015, in view of growing cybersecurity concerns, NASCUS promulgated a public policy position, again, proscribing NCUA’s authority to technology service providers with the added proviso that NCUA defers to state examinations of these entities in those states that have authority.”

She also pointed out that state regulators already cooperate with each other and with NCUA when examining technology service providers. “Addressing cybersecurity threats necessitates a collaborative state-federal effort,” she said.

NASCUS statement following McWatters’ testimony


Facilitating the sharing of member-to-member (MTM) communications when a federally insured credit union is merging with another is addressed in a letter to credit unions (LTCU) published this week by NCUA. In its LTCU 18-CU-03 (the third published this year), the agency also noted that it has established an MTM communications process to facilitate the information sharing (as part of its rulemaking).

According to the letter, a federally insured credit union proposing a merger with another federally insured credit union is required to include in its member notice of the merger a statement about the availability of a website where members of the merging credit union can share comments or questions with each other about the proposal. Through the website, members may jointly or individually submit a comment and attachments about the merger, NCUA said.

The agency also said its office of Credit Union Resources and Expansion (CURE) will, prior to website posting, review each submitted communication. NCUA said its rules give it the right not to post a communication that the agency “reasonably believes” is: false or misleading; omits a material fact necessary to make the statement in the material not false or misleading; advances a personal claim or personal grievance, or solicits personal gain or business advantage by or on behalf of any party.

NCUA also reserves the right, the agency said in its letter, to block a comment or attachment which “directly or indirectly and without expressed factual foundation” impugns the character, integrity, or reputation of a person; makes charges concerning improper, illegal, or immoral conduct; or “makes statements impugning the safety and soundness of the credit union.”

All federally insured credit unions (FICUs)  – federal and state-chartered – must submit a proposed merger application to the agency for review and application, NCUA said. A state-chartered federally insured credit union, NCUA said, must comply with the requirements of its state regulator, in addition to applicable requirements of the NCUA’s merger rule. “Unless a membership vote is waived under state law, the NCUA must receive a copy of the notice at least 15 days before any mailing of the member notice (or equivalent state document),” the letter notes. “The notice must include a link to a credit union-specific MTM web address where members can find how and where to submit comments pertaining to the proposed merger.”

For a merging federal credit union, once it has received permission from NCUA to proceed with a membership vote on the merger, it must send a copy of its notice to the CURE office. That notice must be emailed to the agency by the FCU at least 15 days before it its mailed to members, and must include a link showing a credit union-specific MTM web address “where members can find how and where to submit comments pertaining to the proposed merger,” NCUA said.

The NCUA letter states that members of a merging credit union may submit comments using the specific MTM web address provided, and that each comment submitter will be asked to provide certain personal information. “Once CURE reviews and posts a comment, it will be accessible for viewing at the merging credit union’s MTM-URL address,” the letter states.

In other areas, the NCUA letter addresses:

  • The merger rule requires an update by merging federal credit unions to their bylaws (which should be adopted prior to submitting the proposed merger application to the agency); state-chartered credit unions should refer to their individual state agencies.
  • A merging credit union must disclose certain merger-related financial arrangements for covered persons in its member notice.
  • Merging and continuing credit unions must certify (by the board presiding officer and CEO) that there are no other merger-related financial arrangements other than those disclosed in the notice to the members of the proposed merging credit union.

NCUA LTCU 18-CU-03 Merger Rule Provisions Including the Member-to-Member (MTM) Communications Process


The NASCUS summary of the agency’s rule on voluntary mergers of federally insured credit unions presents a concise look at the 63-page rule, which was approved by the NCUA Board in June. The summary notes that the rule is intended to require FICUs to disclose to members any ‘‘merger-related financial arrangement’’ provided to a ‘‘covered person.’’ The rule also notes the rules provision for NCUA to create a website where members may comment on the proposed merger.

The summary notes that, at-a-glance, the final rule will:

  • Revise and clarify the contents and format of the member notice;
  • Require merging credit unions to disclose “merger-related compensation” provided to “covered persons;”
  • Increase the minimum member notice period;
  • Provide a method for members and others to submit comments to the NCUA regarding the proposed merger.

The summary also notes that the merger rule, Part 708b, applies to federally insured state credit unions by way of reference in §741.208 of NCUA’s Rules & Regulations.

NASCUS Summary: Part 701 & 708b – FCU Bylaws and Voluntary Mergers of Federally Insured Credit Unions


A sixth federally insured credit union for 2018 has been liquidated, the federal regulator announced this week, and the second related to declining values of taxi cab medallions. The NCUA said Monday that it had liquidated LOMTO Federal Credit Union of Woodside, N.Y. on Sunday, with its members, most shares, some loans and other assets assumed by Teachers Federal Credit Union of Hauppauage, N.Y. Teachers is the same credit union that assumed the members and selected assets of the former Melrose Credit Union of Briarwood, N.Y., another casualty of the taxi medallion loan business. NCUA closed Melrose Aug. 31 and is also seeking a prohibition order against its former CEO as well as fines and restitution. LOMTO FCU, started in 1936 by taxi owners, had suffered under the weight of underwater taxi medallion loans. NCUA said the credit union had 2,283 members and approximately $156 million in assets at the time of liquidation, based on its last call report. NCUA retained some of the credit union’s loans.

LOMTO Federal Credit Union Closes; Teachers Federal Credit Union Assumes Members, Most Shares, and Some Loans


The instances in which credit unions and banks may form collaborative arrangements to share resources to better manage their Bank Secrecy Act/anti-money laundering (BSA/AML) responsibilities are addressed in a statement issued jointly this by financial institution regulators and Treasury’s financial crimes unit.

The statement – by NCUA, the Federal Reserve, the FDIC), and the OCC, in collaboration with Treasury’s Financial Crimes Enforcement Network (FinCEN) – provides examples of functions that may be conducted utilizing shared resources. The statement said these might include: 1) reviewing, updating, and drafting BSA/AML policies and procedures; 2) reviewing and developing risk-based customer identification and account monitoring processes; and 3) tailoring monitoring systems and reports for the risks posed.

The joint statement is intended to highlight the potential benefits of collaborative arrangements to pool resources. “Collaborative arrangements involve two or more banks with the objective of participating in a common activity or pooling resources to achieve a common goal,” according to the statement. “Banks use collaborative arrangements to pool human, technology, or other resources to reduce costs, increase operational efficiencies, and leverage specialized expertise.”

Such arrangements, the statement notes, generally are most suitable for financial institutions with a community focus, less complex operations, and lower-risk profiles for money laundering or terrorist financing,” the agencies said.

The statement “does not apply to collaborative arrangements or consortia formed for the purpose of sharing information under Section 314(b) of the USA PATRIOT Act,” the agencies stated. Additionally, the statement notes that each institution is ultimately responsible for ensuring its own compliance with BSA requirements: “Sharing resources in no way relieves a bank of this responsibility. Nothing in this interagency statement alters a bank’s existing legal and regulatory requirements.”

Credit unions and banks are also encouraged to contact their primary federal regulator with any questions about sharing BSA resources and to refer to “other relevant guidance,” it states.

Late Thursday, NCUA released a "Letter to Credit Unions" (its fourth of the year) focusing on the statement's impact on credit unions (LTCU 18-CU-04).

(Note: The upcoming NASCUS/CUNA Bank Secrecy Act Conference (Nov. 5-8 in Louisville, Ky.) – the premier event on the subject in the credit union industry – takes a close look at developments such as the joint statement, and other key changes to BSA/AML compliance.)

Interagency Statement on Sharing Bank Secrecy Act Resources October 3, 2018

NCUA LTCU 18-CU-04: Sharing Bank Secrecy Act Resources

NASCUS/CUNA BSA Conference, Nov. 5-8, Louisville


In other BSA news: An exemption from the law’s customer identification program (CIP) rules for loans made for the purchase of property and casualty insurance has been approved by federal regulators, effective as of Sept. 27. The exemption was announced late last week by NCUA and the federal banking regulators (along with FinCEN). The exemption applies to loans extended by federally insured credit unions and banks, and their subsidiaries, to facilitate commercial customers’ or members’ purchase of property and casualty insurance policies.

“FinCEN agrees that the structural characteristics of premium finance lending, as described, present a low risk for money laundering activity or terrorist financing,” the order states. “In addition, FinCEN has already made the independent determination that these types of accounts present a low risk of money laundering, both because of the purpose for which such accounts are established and because the characteristics of these accounts that make them poor vehicles for money laundering.”

NCUA announced that the exemption for credit unions applies under Section 748.2 of the agency’s rules and regulations, for certain property and casualty finance contracts provided by credit unions to small businesses.

Order granting an exemption from customer identification program requirements implementing section 326 of the USA PATRIOT Act


Learn more about NASCUS and the benefits it offers to credit unions and other state credit union system players – directly from those who reap those benefits in a Nov. 1 “NASCUS 101,” a no-charge event featuring an overview of the rewards of membership in the association.

Among others, the one-hour event includes comments from: Mary Ellen O’Neill, Director, Financial Institution Division, Connecticut Department of Banking (and NASCUS Immediate past chair), and John Holt, president and CEO, Nutmeg State Financial Credit Union on NASCUS’ role in legislative and regulatory affairs (and resources are available); and Jay Bienvenu, senior deputy commissioner, Massachusetts Division of Banks, and Patty Idol, president and CEO, Mountain Credit Union, (NASCUS CU Advisory Council immediate past chairman) on NASCUS education and training.

Other segments of the event include those focusing on NASCUS’ unique leadership composition of two groups: state regulator board of directors and credit union advisory council; and the association’s unique membership model that includes state regulatory agencies, credit unions, credit union leagues, and industry partners (associate members). Other segments include those focusing on association accreditation programs, committees, the National Institute of State Credit Union Examination (NISCUE).

Info/registration for NASCUS 101; Thursday, Nov. 1, 2-3 p.m. ET

BRIEFLY: Welcome Amy Hunter in WA … and to Shellee Mitchell at NASCUS; 2 CUs become privately insured

A prospective welcome to Amy Hunter as the new director of the WA Division of Credit Unions, effective Nov. 1; she will replace in the position Linda Jekel, who is retiring. Hunter joins the credit union regulator office from the state’s Gambling Commission (a regulatory agency) with more than 20 years executive level experience (currently serving as the deputy director and, before that, as the agency’s legislative liaison and staff attorney). She earned her JD from Seattle University School of Law and holds a B.S. in Sociology and Criminal Justice from Kansas State University … and a current welcome to newest NASCUS staff member Shellee Mitchell, who joined last week as executive assistant. Shellee brings 20 years’ experience to NASCUS in office management, administrative services, and event planning. Previous positions included those at Credit Union National Association (CUNA) in Washington, D.C., and previous positions as hotel sales manager and at Nestle as executive assistant to the president of corporate affairs. She holds a B.A. in Communications from Frostburg State University and an M.A. in Organizational Communications from Bowie State University … Two credit unions have recently been approved to switch to private share insurance from the federal program: $240 million-in-assets Rocky Mountain CU (Helena, Mont.), the first credit union in the state to convert since American Share Insurance (ASI), the provider of private insurance, was approved to do business in the state effective Jan. 1, 2018, and; $344 million-in-assets River Valley CU, located in Miamisburg (Dayton) Ohio, the 51st credit union in the state to have private insurance.

Information Contact:
Patrick Keefe,