CUNA Regulatory Advocacy Report
January 18, 2012
Good afternoon. Here is our CUNA Regulatory Advocacy Report for this week. Even though Congress is not currently in session, it continues to be very busy here in Washington, with various regulatory developments unfolding almost on a daily basis. In this report, we would like to call to your attention to several important issues and advocacy items that we are working on here at CUNA, including several dealing with not only NCUA, but also the Consumer Financial Protection Bureau (CFPB) and even President Obama’s administration.
As I have previously mentioned, CUNA continues to have major concerns with NCUA’s loan participation proposal’s potential impact and has been working on efforts to ensure credit unions are aware of the proposal and to identify all significant concerns. Additionally, NCUA has expressed its interest in recent months in increasing its focus in the area of Interest Rate Risk Management, and we are including an update in this report.
We continue to work closely with the CFPB on many fronts, and I am looking forward to my meeting later this month with the newly-appointed Director of the CFPB, Richard Cordray. I have shared several telephone conversations with Mr. Cordray in recent days, and CUNA is encouraged that the agency, and Mr. Cordray in particular, understands that credit unions did not cause the financial crisis we have all experienced over the last few years. While we support legislative proposals to change the structure of CFPB, we are encouraged that the agency will now be able to focus some of it’d resources on previously unregulated entities.
Here are some of the issues we have been dealing with this week:
- Update on CUNA’s Efforts Re NCUA’s Loan Participation Proposal
- President Obama’s Proposal to Combine Federal Agencies
- Interest Rate Risk Management FAQs
- CFPB: Richard Cordray, Upcoming Events, Mortgage Origination Examination Procedures
- CUNA’s Comments on CFPB Mortgage Servicing Model Forms and Disclosures
- CUNA’s Comments on the Financial Accounting Foundation’s Proposal to Improve Standards for Private Entities
- GAO Cybersecurity Report
Update on CUNA’s Efforts Re Key NCUA Proposals
NCUA’s Loan Participation Proposal is a concern to many of you. I wanted to bring you up to date on CUNA’s efforts to ensure credit unions are aware of the proposal and to identify all significant concerns with the proposal. The proposal was issued for comments at NCUA’s board meeting in December and would impose concentration limits on credit unions purchasing loan participations. You can access CUNA’s Regulatory Comment Call and other information about the proposal here. This week, CUNA held a conference call with members of the CUNA Lending Council, league groups, individual credit unions and a joint call of our Examination and Supervision Subcommittee and Federal Credit Union Subcommittee. CUNA will use the comments from these calls and other input from credit unions and leagues in formulating our letter, which we will be circulating next week. Also, CUNA’s Operation Comment on the proposal will be live this afternoon to help credit unions as they develop letters to NCUA. While we can’t catalogue all of the issues raised, some of the major concerns with the proposal include: it is not clear this proposal is necessary and NCUA has not provided sufficient justification for the proposal; NCUA has developed a one-size-fits all proposal; the proposal undermines dual chartering by eliminating flexibility for state regulators to address loan participation issues with state chartered credit unions; the concentration limits, particularly as they apply to loan participations purchased from one originator (25% of the net worth of the purchasing credit union), are arbitrary; the proposal would not help to minimize systemic risk but would increase it by limiting the ability of credit unions to use loan participations and requiring them to purchase from more originators, some of which they may not have a prior business arrangement.
President Obama’s Proposal to Combine Federal Agencies
Earlier today, President Obama introduced his proposed plan to combine several trade and commerce related agencies under a plan that the White House says would save $3 billion and eliminate more than 1000 jobs over next 10 years. The proposal would combine the functions and staff of 6 trade and commerce related agencies and offices, including the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation and the Trade and Development Agency.
According to White House, this move would ease the regulatory burden on businesses and save money by eliminating duplicative functions such as human resources. Under the plan, Obama would first seek broad consolidation authority from Congress, which could vote on each proposed merger. For a link to a fact sheet issued by the White House on this proposed plan, click here. While the NCUA is not specifically mentioned as one of the affected agencies, CUNA will continue to follow the developments.
Interest Rate Risk Management FAQs
Yesterday, the Federal Financial Institutions Examination Council (FFIEC) released answers to Frequently Asked Questions (FAQs) about the January 2010 advisory on Interest Rate Risk Management. These FAQs are being adopted by the various banking regulators, including the National Credit Union Administration and State Liaison Committee. The FAQs respond to common questions on several areas that are critical to sound interest rate risk management, including appropriate measurement and reporting, robust and meaningful stress testing, assumption development reflecting the institution’s experience, and comprehensive model validation.
Banking regulators expect that all supervised institutions will manage interest rate risk exposures using processes and systems commensurate with their complexity, business models, risk profiles, scope of operations, and earnings and capital levels. Each financial institution’s management team is responsible for ensuring that the institution’s interest rate risk management processes and measurement systems are capable of capturing, reporting and controlling risks being taken. The FAQs provide examples of risk management expectations for financial institutions of various interest rate risk profiles, including how to adjust processes as risks change. The FAQs supplement the advisory and should be reviewed in connection with that document and other referenced guidance.
CFPB: Richard Cordray, Upcoming Events, Mortgage Origination Examination Procedures
As mentioned above, I will be meeting later this month with the newly appointed CFPB Director, Richard Cordray to discuss key issues and concerns. We continue to work with credit unions, Leagues, and others to emphasize that the CFPB must consider ways to help minimize regulatory burdens for credit unions.
CUNA and the Alabama League has been working with the CFPB to help arrange a meeting with credit unions in conjunction with a CFPB field hearing on payday lending on January 19 in Alabama. The field hearing is intended to focus on the CFPB’s new supervision and enforcement authority over payday lenders, and will include perspectives from consumer groups, financial industry representatives, including credit unions, and members of the public. Credit unions will be present at the field hearing to discuss how credit unions provide better alternatives to high fee payday lenders. We continue to emphasize to the CFPB hat credit unions are consumer-owned cooperatives and need meaningful regulatory relief instead of additional regulatory burdens, so that credit unions can continue their critically-important role as consumer advocates and champions.
On Wednesday, the CFPB published its Mortgage Origination Examination Procedures. These procedures are a field guide for CFPB examiners looking at mortgage originators in both the bank and nonbank sectors of the industry. The agency has announced that these procedures are a key initial step in implementing its Nonbank Supervision program, and the procedures are an extension of the CFPB’s general Supervisory and Examination Manual. The procedures describe the types of information that the agency’s examiners will gather to evaluate mortgage originators’ policies and procedures, assess whether originators are in compliance with applicable laws, and identify risks to consumers throughout the mortgage origination process. The examination manual tracks key mortgage originator activities, from initial advertisements and marketing practices to closing practices. For a link to the CFPB’s press release on these new procedures, click here.
CUNA’s Comments on CFPB Mortgage Servicing Model Forms and Disclosures
Today, CUNA submitted comments to the CFPB regarding information gathering efforts related to mortgage servicing model forms and disclosures. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB to publish certain mortgage servicing rules by January 21, 2013. The CFPB determined that in order to generate the required model servicing forms, it must first undertake an information gathering process, which is the subject of its request for comment. In its comment letter, CUNA applauds the analytical and deliberative approach that the CFPB has taken thus far with regard to its various information gathering and rulemaking efforts, and encourages the CFPB to take a similar approach with respect to creating the required model servicing forms and disclosures. CUNA believes this can be done through seeking information from a broad sample of industry participants and by releasing several draft model servicing forms for comment during the drafting period. In this connection, CUNA asks that the CFPB gather information from participants in all areas of the mortgage servicing market, including credit unions and other small mortgage lenders and servicers. CUNA also requests that this process place emphasis on the compliance burden associated with adopting new model forms, and that the CFPB ensure that any compliance burden for servicers is minimized – especially for small servicers. Provided these steps are effectively taken, CUNA believes that this information gathering process could help minimize any compliance burden associated with adopting new model servicing forms, particularly for small servicers.
CUNA’s Comments on the Financial Accounting Foundation’s Proposal to Improve Standards for Private Entities
Today we filed a comment letter with the Financial Accounting Foundation on its proposed plan to establish the Private Company Standards Improvement Council (Council). As proposed, the Council would work toward improving the accounting standard-setting process for private (non-public) companies, including credit unions. We believe strongly that there is a need for improvements to the accounting standards that private companies must operate under on a daily basis. The primary concern we are hearing from credit unions is that current accounting standards are unnecessarily complex, especially given the relatively straightforward financial transactions of most credit unions.
As proposed, the Council would establish criteria for determining whether exceptions or modifications to generally accepted accounting principles (GAAP) would be warranted for private companies. Based on those criteria, the Council would suggest specific exceptions or modifications to GAAP, which would be subject to ratification by the Financial Accounting Standards Board (FASB) and open to public comment. Our letter to the Foundation, which was drafted with significant input from our Accounting Subcommittee, is generally supportive of the Foundation’s proposed Council but suggests changes to ensure it is not overly influenced by FASB.
We urge the Foundation to ensure that regardless of the specific form the Council ultimately takes, modifications to GAAP that are made in an effort to “improve” private-entity standards result in standards that are no more complex or burdensome than existing standards. We agree that many of the (complex) reporting requirements of GAAP are necessary to ensure adequate and accurate information is reported by public companies as is necessary for investors to make informed decisions regarding the financial health of the company. However, as noted in our letter, such complex reporting requirements are inappropriate for (non-public) credit unions since the primary user of their financial information is not a public investor but instead their state or federal regulator.
GAO Cybersecurity Report
On Monday, the U.S. Government Accountability Office (GAO) released a report on cybersecurity guidance from different sectors, including the financial services sector. The report found that credit unions and other depository institutions are currently subject to strong data and information security requirements and are examined by their regulators on their compliance with such requirements. Further, the report found that regulators, such as the National Credit Union Administration (NCUA), and the Federal Financial Institutions Examination Council (FFIEC) have issued regulations and guidance that cover a comprehensive set of high-level requirements on data and information security. These requirements also include risk management, incident response, and anti-identity-theft in the FFIEC IT Examination Handbook and NCUA Letters to Credit Unions and Regulatory Alerts. CUNA has worked to provide information regarding credit union data and information security requirements to the GAO. We continue work with credit unions, the CUNA Payments Policy Subcommittee, the Financial Services Sector Coordinating Council (FSSCC), BITS, and others on data and information security issues.
This year will be active in the regulatory area but throughout the year we will press all agencies to minimize burdens on credit unions. In the meantime, if you have any questions or comments about this report, please feel free to contact Mary Dunn, Bill Hampel, or me.