Texas regulator: OTR leads to ‘inequitable treatment’

April 13, 2016 -- The federal savings insurance fund for credit unions was meant to be a supplementary, and not the primary, source of funding for the NCUA budget, based on a plain reading of the law – which leads to a “strong argument” that the fund, through the overhead transfer rate (OTR), is not being managed equitably, the Texas Credit Union Department stated in a comment letter to the agency.

“It is the contention of this Department that the OTR methodologies are incompatible with the spirit and intent of the Federal Credit Union Act and result in the inequitable treatment of federally insured, state chartered cred it unions,” wrote Texas Commissioner Harold E. Feeney. “We encourage NCUA to carefully consider modifying the methodology to ensure it does not inadvertently discriminate in any manner again state-chartered cred it unions by indirectly subsidizing federal credit unions.”

Feeney was writing in response to NCUA’s January 2016 call for comments on the agency’s methodology for calculating the OTR. Comments are due April 26

The Texas regulator noted that, in its methodology, NCUA seems to reason that it has virtually no safety and soundness responsibilities for the federal credit unions it charters. “The asserted notion that all safety and soundness-related costs are only insurance-related costs is not supported by a plain reading of the FCUA and is inherently implausible,” Feeney wrote. “Additionally, such an interpretation artificially inflates the costs” to the National Credit Union Share Insurance Fund (NCUSIF).

He noted that “embedded within the provisions of the legislation creating the agency” passed by Congress, was an obligation on the part of NCUA to ensure that FCUs operated in a safe, sound manner and complied with applicable laws. He also pointed out that Congress has “also made clear that safety and soundness is also a responsibility of the chartering authority, including state chartering authorities. Thus, all safety and soundness costs related to federal credit union examinations cannot be insurance related,” he wrote.

Feeney added that Congress seems to have envisioned a combined structure within NCUA to provide cost-saving efficiencies. “Contrary to the current OTR methodologies and processes, however, those efficiencies were designed to be accruing to the benefit of the NCUSIF and not NCUA as the regulator and supervisor of federal credit unions,” the Texan wrote. “In a deliberate act by Congress to preserve the resources of the NCUSIF, Congress not only directed NCUA to structure its regulatory examinations so they may be used by the NCUSIF (12 U.S.C. §1783), it also instructed the NCUSIF to rely on state regulatory examinations to the maximum extent feasible (12 U.S.C. §1782).”


Texas CU Department OTR comment letter