CA/NV CREDIT UNIONS

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Regulatory Issues

National Credit Union Administration

Risk-Based Capital (RBC)

The Board intends to consider asset securitization, subordinated debt, and a community bank leverage ratio analog. The NCUA should also reevaluate whether the rule is warranted and revisit NCUA’s legal authority to establish a two-tier, risk-based net worth requirement. We look forward to further discussions on potential improvements.

Subordinated Debt

Proposed rule to permit low-income designated credit unions, Complex Credit Unions, and New Credit Unions to issue Subordinated Debt for RBC purposes. We support permitting all FICUs to issue supplemental capital that would count toward the risk-based net worth requirement. We support the proposal if the rule: 1) preserves the cooperative credit union model; 2) includes robust investor safeguards; and 3) provides prudential safety and soundness requirements.

Current Expected Credit Loss (CECL) Implementation

We appreciate NCUA’s determination that credit unions can phase-in the day-one adverse effects on regulatory capital; we look forward to a proposed rulemaking. However, there are still long-term financial impacts and ongoing compliance challenges. Preparation for credit unions to comply with the CECL standard should also be a top priority for NCUA. We urge NCUA to provide CECL compliance guidance and resources.

Expanded Consumer Financial Protection

Board Member Harper proposes a dedicated consumer compliance exam program for “large, complex credit unions,” requiring three new FTEs. Board Member McWatters supports this, but he recommends tailoring consumer protection exams and supervision appropriately for credit unions. We view the proposal as a solution in search of a problem. There has been no evidence of enhanced risk to warrant increased costs. The NCUA could instead provide additional consumer compliance resources, such as webinars, checklists, FAQs, etc.

National Credit Union Share Insurance Fund (NCUSIF)

The normal operating level (NOL) of the Fund is 1.38 percent. The NCUA does not anticipate an equity distribution to credit unions during 2020. We encourage NCUA to issue additional Share Insurance Fund distributions whenever possible, with the expectation that the initial increase in the NOL was temporary. What are the plans to phase out additional basis points in the NOL for legacy asset volatility as the risk exposure declines? We look forward to a phase-down of the NOL to 1.30 percent by 2021. In the interest of transparency, we encourage the agency to more regularly share its views on the possible return of capital from conserved corporate credit unions.

Credit Union Purchase of Banks

NCUA is seeking input on a proposed rule intended to clarify and make transparent the procedures and requirements currently in place related to combination transactions. Combination transations include those where a federally insured credit union (FICU) proposes to assume liabilities from a non-credit union, including a bank. They also include a FICU's merger or consolidation with a non-credit union entity.

Because these transactions occur in relatively small numbers, the Board has not previously promulgated a detailed rule addressing them. We appreciate the increased transparency the proposed rule provides and believe it will assist FICUs seeking to engage in these combination transactions.

Executive Compensation

In April 2019, the agency issued an Advanced Notice of Proposed Rulemaking (ANPR) regarding compensation in connection with loans and lines of credit to members. We recommend the NCUA maintain the current exception that permits payment of an incentive or bonus to any employee, including senior management employees, based on the credit union’s overall financial performance.

When does the agency expect to issue a proposed rule in follow-up to the ANPR?

Extended Exam Cycles

The NCUA has adopted an extended exam cycle for credit unions with assets of less than $1 billion. The banking agencies permit extended exam cycles of 18-months for financial institutions with assets of less than $3 billion. This creates a comparative disadvantage for credit unions. The NCUA should increase the extended exam cycle eligibility for credit unions consistent with the banking agencies.

Examination Modernization Initiatives

The NCUA is taking steps to modernize and streamline the exam process. There are several initiatives under way including the Enterprise Solution Modernization Program, the Virtual Examination Program, and the Call Report Modernization project. However, we have not seen a comprehensive update on these integrated initiatives since June 2018. We want to ask for an update and ask whether timelines are being met. We also want to share that while virtual exams are desirable. and would result in less time by examiners in your shop, credit unions also want the ability for some in-person interaction with their examiners.

Cybersecurity

Concern over cyber and data security is one of the biggest issues currently facing most industries, including financial services. NCUA Chairman Hood has said that cybersecurity is also a top concern of his. What changes can credit unions expect in cybersecurity requirements? Credit unions continue to be concerned about the depth of knowledge of NCUA’s cyber examiners. What steps is the agency taking to ensure examiner expertise? What steps does the NCUA take to secure confidential information about cyber exams and other intellectual property that could harm a credit union if accessed by a bad actor?

Serving the Underserved

Credit unions are committed to serving the underserved. However, when credit unions go deep in credit or do other things to help this segment of members, they are getting written up in their examinations or told they can no longer work in that area. What is the agency doing to ensure credit unions can continue to serve the underserved? Has the agency communicated to examiners that exam findings are not warranted in this area when a credit union’s balance sheet, risk tolerance, and capital adequacy support its activity? To provide credit unions with some guidelines and not hinder their ability to serve the underserved, we suggest the agency create a matrix based on the health of the credit union and how deep they can go in credit.

 

 

Consumer Financial Protection Bureau

Tailored Regulations

Credit unions are not asking to be exempt from all rules without reason; instead, we ask the Bureau to consider how credit unions are different from other financial service providers and to tailor rules accordingly. Rather than drafting rules with a one-size-fits-all approach, the Bureau should draft them narrowly to address those engaged in abusive behavior.

Remittances Rule

We thank the Bureau for listening to our concerns regarding the safe harbor threshold. The Bureau proposed increasing the threshold from 100 to 500. We urge the Bureau to increase the safe harbor threshold to 1,000. This would more appropriately tailor the regulation to affect only those who regularly engage in the remittance transfers business. We thank the Bureau for addressing the temporary exception’s expiration and proposing reasonable alternatives. We also strongly encourage the Bureau to address and eliminate the 30-minute cancellation period.

Qualified Mortgage (QM) Definition; GSE Patch Expiration

The Temporary GSE QM Loans category (or GSE Patch) is scheduled to expire by Jan. 10, 2021, which will significantly disrupt the mortgage lending market. To mitigate the effect, we recommend increasing the DTI limit for General QM loans to 45 percent, with a maximum of 50 percent if the borrower has sufficient residual income or reserves. Appendix Q should also be amended to allow more flexibility to calculate and verify income.

Home Mortgage Disclosure Act

We thank the Bureau for revisiting the HMDA rules. We recommend increasing the closed-end threshold to at least 100 loans (currently 25) and allow voluntary reporting of open-end lines of credit data, as was the case prior to 2015, or make permanent the open-end threshold of 500 lines of credit (proposed permanent threshold of 200). We also urge the Bureau to reduce the HMDA data set for all credit unions to only those data points specifically enumerated in the Dodd-Frank Act.

UDAAP: Defining 'Abusive'

The CFPB issued a policy statement outlining its approach to the “abusiveness” standard in supervision and enforcement matters. The Leagues and our members have long advocated for the Bureau to clarify the scope and meaning of “abusive.” This policy statement is a step towards ending an “I know it when I see it” approach to the Bureau’s UDAAP authority.

We support the Bureau’s recent steps toward establishing clear standards and transparency for “abusive” behavior. However, the recent policy statement on “abusive” should be merely the first step on the path toward greater clarity. We recommend the Bureau solicit additional stakeholder feedback on the “abusive” prong of UDAAP. The Bureau should clarify that previous enforcement actions or consent orders that conflict with statutory or judicial precedent create no new expectations for compliance.

PACE Loans

What is the status of the Bureau’s PACE financing rulemaking? Is the Bureau consulting with the FHFA regarding its concerns and possible actions? In developing rules, we recommend the Bureau closely examine California’s PACE financing and consumer protection rules.

Payday Lending: Reconsideration of the Rule

It is very difficult for credit unions to offer a payday alternative loan program and not lose money on the product, given the small-dollar amounts and interest rate cap. Therefore, underwriting must be very simplified to make it as easy as possible to originate these loans and assist consumers with small-dollar, urgent needs. A viable product requires more flexibility as compared to underwriting for traditional unsecured lending.

This rule should be better tailored to address bad actors. Credit unions try to assist members to get out of the payday cycle by offering innovative products and at much lower interest rates than traditional lenders. We strive to help members improve their cash flow with a lower rate, more affordable payment, and sometimes a savings component to help them improve their financial situation.

Due to the member-owned structure and mission of credit unions, we have fundamentally different operating motives compared to traditional payday lenders. We recommend the Bureau use its broad exemption authority to exempt all small-dollar loans offered by credit unions. Absent a full carveout for credit unions, the Bureau should substantially expand the “alternative loan” exemption to cover all Payday Alternative Loan (PAL) options developed by the NCUA, including the PALs II program. We do not support rescinding the underwriting requirements for traditional payday lenders or the necessity that they determine the consumer’s ability to repay.


CONTACT US

  Diana Dykstra, President/CEO
  dianad@ccul.org

  Bob Arnould, SVP Advocacy
  boba@ccul.org

  Jeremy Empol, VP Federal Government Affairs
  jeremye@ccul.org

  Robert D. Wilson, VP State Government Affairs
  robertw@ccul.org

  Emily Udell, Advocacy Specialist
  emilyu@ccul.org

  Sharon Turley, VP Regulatory Advocacy
  sharont@ccul.org

  Heather deNecochea, Manager Political Advocacy
  heatherd@ccul.org   

Patti Neumaier, Executive Assistant, Advocacy
  pattin@ccul.org

CONTACT US

  Diana Dykstra, President/CEO
  dianad@ccul.org

  Bob Arnould, SVP Advocacy
  boba@ccul.org

  Jeremy Empol, VP Federal Government Affairs
  jeremye@ccul.org

  Robert D. Wilson, VP State Government Affairs
  robertw@ccul.org

  Emily Udell, Advocacy Specialist
  emilyu@ccul.org

  Sharon Turley, VP Regulatory Advocacy
  sharont@ccul.org

  Heather deNecochea, Manager Political Advocacy
  heatherd@ccul.org   

Patti Neumaier, Executive Assistant, Advocacy
  pattin@ccul.org