Association Holds Meeting on Oregon Public Funds Program

Last week, the Northwest Credit Union Association (NWCUA) met with interested credit unions and the Oregon treasurer’s office to facilitate a discussion around the developing public funds program. The group agreed that moving forward with a program is essential and that there is significant interest in doing so.

Michael Selvaggio of the treasurer’s office provided an overview of the public funds program enacted into law, and the steps necessary to begin preparing the program to come online Jan. 1, 2013. In order to come online in January, all triggers must be met by July 15, 2012. This is the earliest date to meet the triggers of the program. Credit unions could meet the triggers later in the year, but it would delay the start of the program.

Those triggers are:

  • Deliver applications from five credit unions to become public depositories. Each institution must certify in writing that it will:
    • Provide appropriate reports to the treasurer’s office and Department of Consumer and Business Services (DCBS);
    • Estimate incoming public deposits; and
    • Identify appropriate collateral.
  • Each of the first five applicants must have a letter from an appropriate public official that certifies the intent of a local government to deposit at least $250,000 to that institution if it qualifies as a depository. Once five have been delivered, additional credit unions will not be required to procure letters.
  • The Treasury must receive enough funds to cover implementation and first-year costs for the program. Following that, annual costs will be assessed quarterly. This assessment is generally split among participating institutions. However, the Treasury may accept funds from other sources as well. If any organization wishes to contribute to the cost, the assessments to each participating institution will be lowered accordingly.

Once all triggers are met, the treasurer’s office has six months to start the program. If at any time the program includes fewer than five credit unions, the treasurer’s office may suspend the program at their discretion.

Questions were also asked about what would be considered collateral and how the collateral would be counted toward the state’s collateralization requirements. Banks use securities to collateralize their public funds pool, which contains between $2 and 2.4 billion. In the past, the treasurer’s office has stated they would accept a Federal Home Loan Bank (FHLB) letter of credit, but that has not yet been confirmed.

The costs represent an area of serious concern, both for the first five credit unions that would bear the initial costs and in terms of ongoing costs as well.

Start-up costs would be around $33,000. While not as high as expected, there may be some potential for offsetting these through creative means. Private foundations and grants from interested public depositories were mentioned as possibilities. Many states are looking at similar programs, and the NWCUA will research possibilities to gain support for this as a pilot program.

Ongoing costs were cited at $213,000 annually. This number was reportedly garnered using the same information as the bank pool. However, there are 45 banks with a collateral pool of more than $2 billion. There was concern that the treasurer’s office may be rubber-stamping the bank program costs onto the credit union program, which could potentially be as small as five credit unions and $1.25 million. The initial fiscal note established by the Legislative Fiscal Office estimated ongoing costs at $124,000, substantially lower than this revised estimate.

The Association will be requesting a detailed accounting of this budget and working with interested credit unions to review these numbers and provide feedback to the treasurer’s office. It will also cite any potential efficiencies between the bank and credit union programs.

Understanding the significant costs, the Association will develop a fair-share proposal for funding the program and seek feedback on potential options from interested stakeholders.

NACHA Mandatory Same-Day Service Unfeasible

A recent proposal from The Electronic Payments Association (NACHA) would create a premium same-day Automated Clearing House (ACH) service. The proposal would require all receiving financial institutions to have the capability to provide this service, which could require increased staffing, software updates, and increased risk management concerns.

“Credit unions are already buckling under tremendous regulatory and compliance burdens, as well as the financial strain of increased assessments and a tough economic environment,” NWCUA Director of Regulatory Advocacy Jaycee Winn said in the Association’s comment letter. “While the Association believes NACHA put forth this proposal with the best of intentions, the direct and unintended consequences of the proposal could be crippling to credit unions.”

The Association also expressed serious concerns about the proposal including adding to compliance concerns.

“Overwhelming regulatory burden continues to be in the forefront,” Winn said. “We ask NACHA, in consideration of these comments, to look at the overall compliance burden being placed on small institutions. Credit unions, as well as all financial institutions, are currently struggling to meet the compliance burden placed on them through individual rulemakings as well as the implementation of Dodd-Frank.”

The NWCUA suggested support for an optional, opt-in same-day service for those institutions with membership that would benefit from such a service.

Additionally, should NACHA believe this program is necessary, the Association requested implementing a test program that would gauge the real costs and concerns associated with the proposed service, saying, “This would also allow consumers an opportunity to learn about and embrace the program should it be a desired service. It would also provide a pilot program for NACHA so that real-world costs, commitments, and requirements could be fleshed out. Actual implementation costs may well include consequences not yet considered or accounted for.”

The full comment letter is available on the Association Comment Letter Archive.

 

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 Compliance, NWCUA.