NWCUA Regulatory Advocacy Update


NWCUA Hosts Meeting on Oregon Public Funds Law
Last week, the Northwest Credit Union Association (NWCUA) hosted a meeting in Salem for Oregon credit unions interested in accepting public funds. The meeting was led by the Oregon Treasurer’s office and provided a great overview of the program, including its requirements and timeline.

For the program to move forward, five credit unions will need to have commitments from appropriate public officials of at least $250,000 each. The costs of program implementation and ongoing administration are still being determined, and the Treasurer’s office is consciously committed that the funds provided by credit unions for this program pay only for this program. Credit unions would be required to provide collateral into a pool to protect the funds and create a share liability.

The earliest this program could be implemented would be Jan. 1, 2013, although the program could also begin any time after that. Once all triggers are met, the program would launch in 180 days.

Three triggers must be met:

  • Five credit unions apply to become public depositories;
  • All five credit unions have a letter of intent from a public official to deposit at least $250,000 in their institution;
  • Funds are collected to cover the implementation and first-year costs of the program.

This is a very general overview. The NWCUA will soon be distributing more information and holding a meeting with interested credit unions to talk more about the program.

If your credit union is interested in learning more about the public funds program and is unable to attend the meeting, contact Jaycee Winn, Director of Regulatory Advocacy for the NWCUA, and she will keep you informed as this process moves forward.

Preparing for Bank Transfer Day
Bank Transfer Day has been hot in the media over the last few weeks and still seems to be gaining momentum. Many credit unions have expressed concern about how examiners will view the already-increasing and potentially large influx of new deposits from this viral event.

The National Credit Union Administration (NCUA) reports they have advised examiners that this may “temporarily depress a credit union’s net worth ratio” and have highlighted for credit unions alternative ways to calculate this ratio, including “using ‘point-in-time’ assets or using a rolling average of assets.” Rolling average of assets “was put into place to be more equitable to credit unions who may experience a large payroll deposit on the last day of a quarter or have seasonal fluctuations such as teachers credit unions.”

The NCUA acknowledged that these alternative calculation methods, however, may only be temporary fixes if funds remain on the credit union’s balance sheet. Should new members continue to stay with the credit union, “capital retention plans should be updated to include this new factor.”

The outcome of Bank Transfer Day is still an unknown, but the NWCUA is encouraged that the NCUA is looking at this real event in a timely manner and remains ready to react should the need arise.

NCUA Clarifies Role of New Office of Consumer Protection
The NCUA recently issued a letter to credit unions (11-CU-17) to clarify the structure of its new Office of Consumer Protection (OCP). The OCP is divided into two divisions: Consumer Compliance and Outreach and Consumer Access. Each division will play a different role in guiding federally insured credit unions to the right area of contact, separating “consumer protection and consumer compliance responsibilities from those involving safety and soundness.”

Division of Consumer Compliance and Outreach is responsible for:

  • Consumer compliance policies, program and rulemaking
  • Serving as an inter-agency liaison on consumer protection and compliance issues
  • Fair lending examinations
  • A consumer call center
  • Financial literacy and outreach programs
  • Ombudsman duties

This division will centralize consumer complaints and consistently work to resolve them appropriately.

Division of Consumer Access is responsible for:

  • New federal credit union charters
  • Charter conversions
  • Field-of-membership expansions
  • Share insurance conversions
  • Bylaw amendments
  • Low-income designations

According to the NCUA, the OCP has completed consolidation of regional Division of Insurance functions into its Division of Consumer Access, with the exception of mergers and liquidations. Federally insured credit unions should contact the Division of Consumer Access for assistance with any of its functions.

President Names NCUA Board Nominee
President Obama recently named Carla Decker as the replacement for outgoing NCUA board member Gigi Hyland. Decker has been president and CEO of the District Government Employees Federal Credit Union since 2000 and served on the board of the DC League. She has spent over 20 years in credit unions, serving at PAHO/WHO Federal Credit Union and moving from operations manager to president and CEO.

Decker is a Credit Union Development Educator and is active in the Latino community as the director and co-founder of the Network of Latino Credit Unions and Professionals.

Decker will need to be confirmed by the Senate before taking her place on the board. Decker’s hearing may be “packaged” with that of Federal Deposit Insurance Corp. (FDIC) nominee Thomas Hoenig to expedite the process. Nominations such as these have typically been timely, and her committee hearing and confirmation before the full Senate are anticipated by the end of the year.

Check out the Newest Regulatory Comment Calls
November is shaping up to be an incredibly busy month. Beyond being the beginning of the holiday season, it is a regulation bonanza. The Office of Government Ethics has proposed a change to the gift rules currently applied to federal employees. On the heels of extensive lobbying reform, this proposal would allow employees to attend “substantive events that would provide a legitimate education of professional development benefit.” However, the proposal would not allow federal employees to accept free attendance to events put on by trade associations (those which have paid lobbyists on staff), as the proposal states that “trade associations may sponsor educational activities for their members and even the public, but the primary concern…is not the education or development of members of a profession or discipline.”

This categorization of a trade association is off base. Because one of their functions is certainly to educate and develop members, lawmakers, regulators and the public, this distinction would make it very difficult for organizations with registered lobbyists (including trade associations) to invite executive branch officials and employees to attend events for free. Guests would be required to either be speaking at the event or paying their own way.

Trade associations work so closely with government officials, and this could make it difficult to continue foster those relationships and educate members.

To read more about this and other pending proposals that will impact credit unions, click here.

Association Participates in Forum with Elizabeth Whitehead
The NWCUA participated in a spirited conversation with Elizabeth Whitehead, NCUA Region V Director, and staff at the Oregon Division of Finance and Corporate Securities’ CEO Outreach day. Whitehead spoke about three areas of concern and then opened the floor for questions.

Whitehead said examiners are paying particular attention to risk these days, particularly to how a credit union measures, monitors, and controls risks such as credit, concentration, strategic, and interest rate risk. She said that while loan charge-offs remain high, it is important that a credit union’s plan is clear and that it is followed and monitored closely.

Whitehead also touched specifically on interest rate risk, citing that many credit unions are holding long-term fixed-rate loans. While liquidity remains high, should interest rates increase, members could move their money rather quickly, and credit unions need to have plans in place to mitigate those potential changes. The NCUA proposed a regulation early this year dealing with a more formal interest rate risk policy, but the Association strongly opposed this proposal, as there are already significant powers in place for the NCUA to monitor this risk. Still, the NCUA continues to be concerned about credit unions in this area.

In speaking on strategic risk, Whitehead said examiners look at management’s philosophy and plans looking forward. This is one of the strongest indicators for the NCUA to help determine risk. Delinquency is a lagging indicator of problems and climbing now, because they are showing up more on balance sheets.

Whitehead also addressed the “Capping Report,” which was issued late last year by the NCUA Office of Inspector General (OIG) and summarizes significant findings from 10 credit union material loss review reports (each credit union impacting the NCUSIF for $25 million or more). The main findings Whitehead cited from this report were that the NCUA should have been more aggressive early on to mitigate losses and that credit union management contributed to the losses, whether through poor strategic planning, poor oversight and internal controls, or fraud.

The Association has found more and more that the NCUA is addressing the suggestions included by the OIG in this report by creating unofficial regulations and requirements of credit unions without the proposal and comment period process. The NWCUA continues to highlight this problem at all levels and is working to ensure that shadow regulations are not driving more compliance burden.

Documents of Resolutions (DORs) were the final topic Whitehead covered. There has certainly been significant coverage of the issue in the press recently, and this is something the Association is working on and will bring up with Chairman Matz. Whitehead explained DORs as demands rather than recommendations to credit unions. She said they are a “to-do” list, and while they are serious, there is opportunity for credit unions to work with examiners on timelines, progress, and concerns. If DORs are not appropriately addressed by the credit union, Whitehead said the NCUA would then ratchet up the level of action.

When asked about the 26,000 unresolved DORs reported recently, Whitehead and Oregon Supervisory Examiner Hilary Tormala explained that a portion of this is internal NCUA process. From poor follow-up to ensure completion (especially with CAMEL 1 and 2 credit unions) to new examiners not understanding how to clear completed DORs out of the system, the NCUA needs to revise its system. Additionally, they acknowledged that examiners need to ensure that what goes into a DOR is a serious concern rather than process issue, and there is a need for flexibility for the examiner and credit union to reach amendable timelines and individualized solutions.

New Programs continue to be a big issue for credit unions and examiners. Hilary Tormala stated that the NCUA will look at every new program, no matter how material, to ensure the credit union has done its “homework.” Credit unions that have done due diligence, set limits, developed controls, have a workable operating plan, and considered reputation risk should be fine.

The NCUA’s candor in this dialogue was widely appreciated, and the NWCUA looks forward to working with the NCUA as new issues emerge to continue to help control the ever-increasing regulatory burden on credit unions. As Whitehead stated, “New regs come about because someone screwed up.” The Association has asked the NCUA to not give in to this urge to over-regulate in response to a few bad actors and to work closely with the industry in determining what is and is not meaningful and beneficial new policy.

The NWCUA Regulatory Advocacy team works with state and federal regulators to help reduce the regulatory burden on credit unions and protect the credit union movement. The Association encourages members to participate in the regulatory process. If you have any questions on these or any regulatory issues, please contact Director of Regulatory Advocacy Jaycee Winn at jwinn@nwcua.org, or at 800.995.9064 x209.

Posted in NCUA, NWCUA.