At biggest CU gathering of year, NASCUS will speak out for state system

The structure of the NCUA Board, and the impact of the new tax law on state-chartered credit unions, will be among the top items the state system addresses next week as it takes part in the year’s largest credit union advocacy conference in Washington.

NASCUS — including board members, credit union advisory committee leaders, and executive staff – will participate in a range of meetings and events during the Governmental Affairs Conference (GAC) held by the Credit Union National Association (CUNA) next week in Washington. The annual credit union advocacy event draws thousands of credit union system representatives from across the nation. CUNA anticipates that this year’s event will draw upward of 5,000 credit union system participants. The association, the nation’s largest, is an associate member of NASCUS.

Key for NASCUS among those meetings and events: conferences with lawmakers and regulators about top issues. Among them: urging lawmakers to consider mandating at least one seat on the NCUA board be reserved for a member with state credit union supervisory experience, and support for increasing the size of the board from three to five members.

Additionally, NASCUS will be urging lawmakers, as they consider technical amendments to last year’s tax reform legislation, to address a provision in the measure imposing a 21% excise tax on executive compensation for tax-exempt organizations (such as credit unions). Under the provision (according to an analysis distributed by CUNA), beginning in tax year 2017, tax-exempt entities would pay a 21% excise tax for each of the five highest-paid employees whose compensation exceeds $1 million annually. According to the trade association, the provision is designed to create parity with respect to for-profit organizations, which may only deduct the first $1 million of employees’ compensation.

However, the new law “grandfathers” compensation plans for for-profit organizations by exempting from deductibility limits for existing executive compensation those contracts in effect on or before Nov. 2, 2017.

According to the American Society of Association Executives (ASAE), the issue is one of fairness for non-profit, tax-exempt organizations. The “association for associations” believes that if Congress “grandfathers” existing contractual arrangements for for-profit corporations, then tax-exempt organizations deserve the same treatment.

“The state system’s views on these issues, and others, will be voiced by our leadership and staff as they meet with House and Senate members and staff, as well as key federal regulators,” said NASCUS President and CEO Lucy Ito. “The GAC is the biggest event of the year for credit unions; it’s our opportunity to voice the state system’s view to a wide variety of issues –and to hear the views of the credit union system at large about how the state system can bolster its needs.”

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REPORT CALLS PROCESS USED FOR NCUSIF NOL ‘REASONABLE’

The rationale used by the NCUA Board to raise the normal operating level (NOL) of the National Credit Union Share Insurance Fund from 1.3% to 1.39% last September was “reasonable,” the NCUA Office of Inspector General (OIG) said in a recent report. Responding to a request from the credit union analysis and support firm Callahan and Associates, the OIG said in an opinion dated Feb. 15 both the agency’s process and basis for recommending the 1.39% level was reasonable.

According to the eight-page report, Callahan’s requested a review of the legality of last year’s closure of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), transfer of the fund’s assets to the NCUSIF, and the increase in the share insurance fund NOL. The OIG declined to review the legality of these moves and instead reviewed the rationale and process of the action.

In its review, the OIG looked at statutory requirements regarding the administration of both funds, key factors affecting the NCUSIF equity ratio, past actions in the management of the NCUSIF and projections using economic scenarios and stress-test models developed by the Federal Reserve.

According to the report, NCUA employed the Federal Reserve’s stress test scenarios simulated over five years assuming a moderate recession, accounting for the potential declines on the value of asset management estates, and accounting for the maturing of the NCUA Guaranteed Notes (NGNs) maturing. (This NGN program was created to provide long-term funding for distressed investment securities from five failed corporate credit unions.) The OIG also noted that the NCUA Board took into account the rationale used by the Federal Deposit Insurance Corp. (FDIC) in setting the “designated reserve ratio” (DRR) for the federal Deposit Insurance Fund, which protects bank deposits.

The OIG stated that NCUA Board’s objectives for setting the NOL were similar in scope to sentiments the FDIC presented to the FDIC Board for setting the DRR.

LINK:
NCUA OIG memo: Evaluation of the Underlying Rationale for the NCUA Board’s Closure of the Stabilization Fund and Setting the Normal Operating Level to 1.39 Percent

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OPINION PROVIDES EXAMPLE OF ‘PASS-THROUGH’ INSURANCE ELIGIBILITY

A specific “lease security account” qualifies for pass-through share insurance coverage based on credit union membership of a landlord or account holder, a new NCUA legal opinion letter states. However, the opinion holds only for the account described in the letter, NCUA stated in its Feb. 1 note to ESL Federal Credit Union of Rochester, N.Y.  The agency stated that while not all accounts known as lease security accounts would qualify for pass-through share insurance coverage, the subject account does based on the specific facts offered.

NCUA said it was issuing the opinion on the specific account offered by ESL FCU to “help federally insured credit unions: (1) better understand the concept of ‘other similar escrow accounts’; and (2) identify accounts eligible for pass-through share insurance coverage.”

In its analysis of the account, the agency pointed out that pass-through share insurance is available to “interest on lawyers trust accounts” (IOLTAs) and “other similar escrow accounts.” However, NCUA noted that the account “clearly is not an IOLTA,” and the question is then whether it fits the definition of “other similar escrow accounts.”

The letter noted that the account does meet the three requirements under the definition. First, it satisfies the membership requirement of a “licensed professional or other individual” element of the definition. Second, it satisfies the requirement that the account holder is “serving in a fiduciary capacity” if the funds in the lease security account are held “pursuant to such a relationship and meet state and other applicable law requirements and rules of professional conduct.” Third, the account meets the requirement that the account holder/agent “hold funds for the benefit of a client or principal as part of a transaction or business relationship.”

Even though the account met those three requirements, NCUA noted “to be fully eligible for coverage, the subject lease security account must also comply with all applicable state and federal law.” The letter pointed specifically to recordkeeping requirements, which (under NCUA rules) require that “the account records of an insured credit union shall be conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insurance coverage is founded.”

LINK:
NCUA legal opinion: Other Similar Escrow Account Share Insurance Coverage

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CO CU SERVING POT INDUSTRY SEEKS MEDIATION WITH NCUA

The Colorado credit union chartered to serve the marijuana industry in its state is seeking mediation to resolve its request that NCUA provide it with share insurance coverage, according to new filings in federal court. In its motion to U.S. District Court for the Colorado district, Fourth Corner Credit Union claims that while NCUA has asked the credit union to voluntarily dismiss its 2015 lawsuit against the agency and reapply for share insurance, NCUA has not given the credit union any assurances that the agency will act timely on a new application (or approve it) if the credit union reapplies. To achieve that reassurance, the credit union has asked the court to order the parties to engage in mediation within the next 30 days (and include the Colorado Department of Financial Services in the dispute resolution process), and that further action be stayed until further order of the Court. The credit union also seeks a that a status report addressing the outcome of the mediation and the need to lift the stay be filed by March 26.

LINK:
Fourth Corner Credit Union motion to compel mediation, stay proceedings

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AROUND THE STATES: Virtual members meetings OK in WA, if …

A state credit union in Washington may not be able to conduct its annual membership meeting as a virtual meeting without an in-person meeting at the same time – but it may hold the virtual meeting at the same time as the physical meeting, according to state supervisory authorities. In an interpretive letter to its credit unions, the Washington Department of Financial Institutions, Division of Credit Unions, told state-chartered credit unions in the state that present language of the Washington Credit Union Act, does not permit a credit union to conduct a virtual annual meeting or virtual special membership meeting, unless such meeting is held concurrently at a physical location (i.e., a hybrid virtual meeting). To that end, the letter states, credit unions may amend their bylaws to allow for hybridvirtual membership meetings, including annual and special meetings.

LINK:
Division of Credit Unions Revised Interpretive Letter I-17-04

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‘EXTERNAL ENGAGEMENTS’ LATEST CALL FROM BUREAU FOR ‘EVIDENCE’

“External engagements” is the topic for the fifth of an expected 12 “requests for information issued Wednesday by the Consumer Financial Protection Bureau (CFPB), focusing on ways the bureau engages and receives feedback from the public on the agency’s work. The information request is being issued with a 90-day comment period.

The fifth RFI comes in as many weeks since the agency’s Acting Director Mick Mulvaney announced a “call for evidence” about how CFPB fulfills is functions. In its filings with the Federal Register, CFPB said it is looking for comments in seven areas of conducting future external engagements:

• Strategies for seeking public and private feedback from diverse external stakeholders on the bureau’s work;
• Structures for convening diverse external stakeholders and the public to discuss bureau work in ways that maximize public participation and constructive input, including but not limited to structures utilized by the bureau to date, such as field hearings, town halls, roundtables, and meetings of the advisory groups;
• Processes for transparency in determining topics, locations, timing, frequency, participants, and other important elements of both public and private events;
  Vehicles for soliciting public and private perspectives from outside of Washington, D.C. on the bureau’s work;
• Strategies for promoting transparency of external engagements, including Advisory Board and Council meetings, while protecting confidential business information and encouraging frank dialogue;
• Strategies and channels for distributing information about external engagements to maximize awareness and participation; and
• Other approaches, methods, or practices not currently utilized by the bureau that would elicit constructive input on the bureau’s work.

The bureau noted that its practice, to date, has been to hold field hearings, town halls, roundtables, and meetings of its Advisory Board and Councils to engage the public and gather input. To that end, the bureau noted, it has held (to date) 33 field hearings and 15 town halls in more than 40 cities, and conducted 47 public meetings of four advisory groups (The Credit Union Advisory Council (CUAC); The Consumer Advisory Board (CAB); The Community Bank Advisory Council (CBAC); and The Academic Research Council (ARC)).

CFPB said its next RFI (to be issued next week for the sixth straight week) will focus on the agency’s complaint reporting processes. Six more RFIs are anticipated after that.

LINKS:
CFPB Issues Request For Information On External Engagements

NASCUS CFPB pages (including comments due dates, other RFIs)

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DATA BREACH BILL UNVEILED WITH STANDARD, STATE LAW PRE-EMPTION

Bi-partisan, draft legislation addressing data breaches was unveiled late last week which would include pre-emptions of “often conflicting and contradictory state laws” about information violations. The legislation, advanced by from Reps. Blaine Luetkemeyer (R-Mo.) and Carolyn Maloney (D-N.Y.), the chairman and member, respectively, of the House financial institutions subcommittee, would also: establish a “flexible, scalable data protection standard;” create a notification regime requiring timely notice to affected consumers, law enforcement and applicable regulators; mandate “consistent, exclusive enforcement of the new national standard by the Federal Trade Commission and state attorneys general,” and; set up the “clear pre-emption of the existing patchwork of often conflicting and contradictory state laws.”

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NASCUS TAPS JAMES TYLL TO LEAD COMMUNICATIONS EFFORTS

James Tyll is the new NASCUS Vice President of Communications, who brings more than 10 years of experience as a senior communications professional specializing in helping national associations in becoming industry thought leaders and growing membership. As a communicator, he has penned hundreds of op-eds and press releases, and is a published author on best practices in communications and advocacy strategy. In addition to message and narrative development and generating earned media, he is experienced in website design and administration, video and graphics editing, database research, surveying, metrics-based analysis, and integrated social media strategizing.  His most recent position is with the Brady Campaign to Prevent Gun Violence; before that, he served the American Academy of Physician Assistants and the American Psychiatric Association. He replaces Pat Keefe in the position.

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BRIEFLY: Pair take seats on NASCUS leadership groups

Charles A. Vice, Commissioner of the Kentucky Department of Financial Institutions will join NASCUS’s national Board of Directors, while Brian Wolfburg, CEO of VyStar Credit Union in Jacksonville, Fla., recently joined NASCUS’s Credit Union Advisory Council. Vice will occupy the eighth seat on the NASCUS Board, which is appointed on an annual basis. He has been commissioner since 2008. Wolfburg was appointed Vystar president and CEO last fall; he previously served as chief operations officer at the Alaska USA Federal Credit Union in Anchorage, Alaska.