WA regulator seeks changes to OTR methodology

April 18, 2016 -- Noting its concern with the rising rate of the overhead transfer rate (OTR), and a corresponding declining rate for the federal credit union operating fee, the Washington State Department of Financial Institutions (WDFI)/Division of Credit Unions has asked NCUA to revise its OTR methodology to “rely on safety and soundness examinations” to the maximum extent feasible.

The WA DCU was responding to NCUA’s call for comments on both the OTR methodology and the FCU operating fee; comments for both are due April 26.

“Of concern is the trend of an increasing percentage (OTR) of the NCUA budget that was transferred from the insurance fund. In 2015, the OTR was 71.8%. The OTR has been climbing since the year 2000. Before 2000, it was 50% for 14 years,” wrote Linda K. Jekel, Director of Credit Unions. “Correspondently, the FCU operating fees have declined over recent years. This is surprising during a time of significant changes to the consumer compliance related rules and additional supervision over interest rate risk and cybersecurity. We would expect increasing time for safety and soundness examinations for FCUs and not decreasing FCU operating fees to cover those exam costs,” she added.

The Washington state regulator asserted that, from a broad policy perspective on budget, the historical 50% OTR from the insurance fund and 50% from FCU operating fees “appears to be more compatible to the dual functions of NCUA as a charter regulator and fiduciary of the insurance fund.” She stated that an imbalance of the allocation between the insurance fund and the declining fees collected from FCUs has an “inadvertent discriminatory effect on state charters that pay into the insurance fund.”

She wrote that the current OTR methodology, and operating fee, is “problematic” in that NCUA policy is to transfer the safety and soundness examination work from its chartering supervision to its insurance duties. “This premise compromises the basic methodology and establishes a backward analysis,” she stated.

“We ask the OTR methodology be revised to rely on safety and soundness examinations for FCUs and FISCUs to the maximum extent feasible, as a cost savings to the insurance fund,” Jekel wrote. “The reason to revise the methodology of both FCU operating fee and OTR is based on the plain reading of the Federal Credit Union Act (FCUA) that looks to NCUA to examine FCUs as the charter supervisor and use the FCU exams and state exams for cost savings for the insurance fund. The current methodology inadvertently discriminates against state charters by using the insurance fund to subsidize FCU safety and soundness exams while FCU operating fees decline.”


WA Department of Financial Institutions (WDFI)/Division of Credit Unions letter