CUNA Regulatory Advocacy Report

Regulatory Advocacy Report: February 10, 2012
Here is our Regulatory Advocacy Report for the week of February 10, 2012. There are numerous issues we are pursuing for credit unions and this report focuses on some of the prominent ones we are working on this week.

State Credit Unions Should Not Be Disadvantaged By The Dispute Between NCUA and NC Credit Union Regulator

Coordinating with the North Carolina League, CUNA continues to urge NCUA to meet with the North Carolina Credit Union Regulator to work out their differences, as NC League President and CEO John Radebaugh has urged.

While NCUA is focusing on the disclosure of the CAMEL rating of State Employees Credit Union, at stake is the fact that all state chartered credit unions in North Carolina are being subjected to separate NCUA examinations. The NC Credit Union Regulator allowed the disclosure of the CAMEL rating that it provided. NCUA, which routinely uploads such information provided by state examiners, has taken the position that once the information was obtained by NCUA, it was confidential and should not be disclosed. As a result of the dispute regarding the disclosure of the CAMEL rating, NCUA said it did not want to participate in future joint examinations in North Carolina.

In a letter to NCUA earlier this week, I urged NCUA to come together with the NC CU Regulator to discuss their differences and work out a solution that will not penalize state chartered credit unions in that state by requiring them to endure two separate annual examinations. CUNA will continue to coordinate with the North Carolina Credit Union League on this and push NCUA to work its disagreement with the North Carolina regulator out as soon as possible so that joint examinations can resume as quickly as possible. Credit unions (and Leagues and CUNA, for that matter) have enough problems without having to worry about disagreements between regulators and how they will be affected by them.

CUNA Circulates Its Draft Letter on NCUA’s Loan Participations Proposal

CUNA is urging NCUA to drop its proposal on loan participations in a draft letter that we have circulated to various CUNA subcommittees and the AACUL Regulatory Advocacy Advisory Committee. Among other things, the proposal would make loan participations more complicated and would actually undermine safety and soundness by minimizing the ability of credit unions to use loan participations effectively.

We are strongly recommending that instead of proceeding with a new proposal, NCUA allow credit unions that purchase loan participations—which are the focus of the proposal—to address concentration limits, loan participation agreements, and underwriting criteria in their board polices according to their capacity to manage risks. We disagree that such credit unions should have to follow an onerous new set of regulatory requirements that include arbitrary concentration limits and underwriting standards.

Comments are due to the agency by February 21. Feel free to let Elaine Rowley know if you would like a copy of the draft letter. We will be filing the final version of our letter early next week and a copy will be available to all CUNA members.

NCUA’s TDR Proposal Seems Generally Favorable

NCUA’s proposal to address credit unions’ concerns regarding the regulation and reporting of troubled debt restructurings has generated generally positive reactions. CUNA’s Examination and Supervision Subcommittee and Accounting Subcommittee held a joint call on the proposal last week and Leagues and other credit union officials are also weighing in with their reactions.

However, there are some concerns with the proposal, which include: receiving assurances that the proposal’s guidance and reporting is fully compliant with U.S. generally accepted accounting principles and the treatment of restructured member business loans, which would still require additional work on the credit union’s part to meet the proposed regulatory and reporting provisions regarding those loans.

Comments on the TDR proposal are due to NCUA by March 2. CUNA has posted its Regulatory Comment Call on the proposal and will be circulating, in the next few days, a summary of the concerns we plan to raise with NCUA in our comment letter.
CUNA will generally support the proposal, which was developed with substantial guidance and input from Washington League President and CEO John Annaloro, Summit FCU Chief

Financial Officer Keith Peterson, Mid-Minnesota Chief Financial Officer Pam Finch, and Patelco SVP and Chief Financial Officer Scott Waite. CUNA’s subcommittees also provided substantial input to NCUA prior to the issuance of the proposal. Click here for CUNA’s letter to NCUA last month on TDR reporting and regulatory requirements.

CUNA Meets With CFPB Director Richard Cordray

Wednesday, I had the opportunity to sit down with CFPB Executive Director Richard Cordray to discuss a number of issues. Of course, we always emphasize to him and others at the CFPB that credit unions should not be subject to any new regulatory requirements. Concerns about duplicate ATM notices and the regulation of multi-featured open end lending under Regulation Z were also discussed. CUNA has also raised the need to improve disclosures relating to the mortgage loan process, in addition to the combination of certain Truth in Lending Act and Real Estate Settlement Procedure Act disclosures under the CFPB’s Know Before You Owe project.

There are certain rules credit unions cannot escape such as regulations Congress is imposing under the Dodd-Frank Act, including the new remittances rule that regulates disclosures and other issues relating to funds that are sent from the United States to other countries. We emphasized to him that while credit unions must provide disclosures regarding exchange rates and other matters relating to the receipt of the funds across national borders, many credit unions that provide such funds-transfer services use third parties to make the transfers and do not have complete control over the transmittal process. CUNA urged flexibility for credit unions that provide remittances transfers to their members. A second proposal that focuses on certain exemptions from the new final remittances rule is open for comments through April 9. Click here for our Regulatory Comment Call.

It was encouraging that CFPB Director Cordray mentioned CUNA’s meeting with him during the NCUA Town Hall conference call also February 8th (see item below). CUNA’s Deputy General Counsel and SVP Mary Dunn accompanied me at the CFPB meeting that included CFPB’s Director of External Affairs Elizabeth Vale; Elizabeth is leaving this week to work on the U.S. Senate campaign of Elizabeth Warren, who first championed the idea of a CFPB.

Rest assured, we will be following up with the CPFB on the range of concerns that credit unions have to minimize and contain regulatory burdens that are associated with consumer financial protection.

Joint CFPB/NCUA Town Hall Meeting

On February 8, the CFPB held a joint Town Hall Meeting with NCUA, which was webcast. Since all of you may not have been on the call and NCUA will not be archiving it for several weeks, we wanted to provide a short summary.

Director Cordray spoke first about the CFPB’s plans and issues affecting credit unions, followed by a question and answer session. He first noted that only three credit unions are currently subject to CFPB supervisory and examination jurisdiction (as they have $10 billion or more in assets), but that he understands some of CFPB’s rulemaking under its regulatory authority will likely reach credit unions with less than $10 billion in assets. He applauded the credit union model, stating that it is a “terrific model” as it is community-oriented, as credit unions are attuned to members’ needs and the overall issues affecting the communities in which they operate.

Mr. Cordray also reiterated his understanding that credit unions had “nothing to do” with the financial crisis, although many of the consequences of the crisis have affected credit unions’ ability to conduct business (the credit crunch, for example). Mr. Cordray announced that the CFPB and NCUA have entered into a memorandum of understanding wherein the agencies will cooperate to prevent overlapping jurisdiction. The agencies are already directing consumer complaints to the correct agency for resolution (to the CFPB for credit unions with $10 billion or more in assets, and to NCUA for those under $10 billion). He also announced that the CFPB is currently in the process of setting up its Credit Union Advisory Committee, which he anticipates will include representatives from 15-20 credit unions representing a diverse range of perspectives. CUNA will be working with Leagues to develop a list of nominees.
With regards to the CFPB’s regulatory plans, he stated that the CFPB plans to adhere to the statutory deadlines set forth by the Dodd-Frank Act, which means that most rules required under the statute will be implemented by January 2013. In implementing the rules, he pledged to be sensitive to the impact of the rules on credit unions of varying asset sizes. He hopes that credit unions will continue to come forward with comments, bringing compliance and regulatory burden issues to the CFPB’s attention.

Mr. Cordray noted that CUNA had brought to his attention the need for clarification and guidance on multi- featured open-ended lending issues under Regulation Z, as he was not previously aware of such issues. He said that the CFPB now plans to look into how it can provide additional guidance and clarification under Regulation Z.

NCUA Chairman Debbie Matz then spoke about issues directly related to credit unions. While she claimed that NCUA is trying to reduce regulatory burden and streamline regulations, especially with its recent rulemakings, CUNA has urged the agency to do much more to actually address the unfavorable regulatory environment that credit unions are in, largely due to actions and examination practices from NCUA. Ms. Matz said that the recent TDR proposal is designed to ensure members can keep their homes by agreeing to certain terms with credit unions, and to eliminate the need for manual tracking of TDRs. She also mentioned that the NCUA tried to give credit unions plenty of time to implement the new interest rate risk (IRR) policy rule, that the NCUA tailored the rule to include only certain credit unions, and that it gave credit unions the flexibility to develop their own policy.

Ms. Matz discussed the upcoming CUSO rule, noting that it will be very different from the proposed rule, and it will only affect CUSOs in areas that pose the highest risk to credit unions (lending and IT). CUNA has been aggressively pushing NCUA to improve the CUSO proposal.

Finally, she said that NCUA is working on increasing access to emergency liquidity for credit unions in light of NCUA’s winding down of U.S. Central.

CUNA Opposes Federal Housing Finance Agency’s Proposed Rule Re Community Support Enforcement

Earlier this week, CUNA filed its comment letter opposing the Federal Housing Finance Agency’s (FHFA) proposal to amend the community support regulation to require the Federal Home Loan Banks (FHLB), as opposed to the FHFA, to monitor and assess the eligibility of each FHLB member for access to long-term advances through compliance with the Community Reinvestment Act of 1977 (CRA) and first-time homebuyer standards. Under the proposed rule, the delegation of responsibility for determining member compliance with FHFA’s community support requirements from the FHFA to each respective FHLB would effectively require the FHLBs to perform functions that are inherently regulatory in nature.

Our comment letter stressed that FHFA is best suited to determine compliance with its own regulations, and that as member-owned cooperatives, it would be inappropriate for the FHLBs to act as both lenders to their members and regulators of them. Our letter also urged the FHFA to allow the FHLBs to continue fulfilling their mission by offering advances and community investment products to their members, and requested the FHFA to amend its proposed rule to keep responsibility for determining compliance with the FHFA’s community support regulation at the FHFA.

CUNA Compliance Launches New Monthly “CompBlog Wrap-Up”

At the beginning of February, CUNA launched a new monthly “CompBlog Wrap-Up” of key information drawn from CUNA’s CompBlog. With easy-to-scan headings, the Wrap-Up is formatted to give credit unions a monthly snapshot of the major compliance issues they need to address, effective dates of new regulations, answers to key compliance questions, upcoming training, and key proposals out for comment. The Wrap-Up is not intended to be a substitute for other CUNA resources, such as the daily compliance blog and this Regulatory Advocacy Report, which can be found on CUNA’s “Regulations & Compliance” website.

Bank Secrecy Act Update

CUNA participated on a call this week with the Financial Crimes Enforcement Network (FinCEN)’s Bank Secrecy Act Advisory Group (BSAAG) Banking Subcommittee to discuss recent Suspicious Activity Report (SAR) and Currency Transaction Report (CTR) reporting issues, financial institution effects from recent final rules, and other content for upcoming SAR Activity Review reports. On Wednesday, FinCEN issued a final rule that requires non-bank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and to file SARs, as FinCEN currently requires of credit unions and banks. There is also currently a proposed rule with similar requirements that would apply to Fannie Mae, Freddie Mac, and the FHLBs. We continue to coordinate and monitor Bank Secrecy Act developments with our Payments Policy and Examination and Supervision Subcommittees, Leagues, credit unions, our Compliance area, and others.

CUNA Comments On IRS Proposal Related To Retirement Plans

Earlier this week, we filed a comment letter with the IRS in response to its advance notice of proposed rulemaking that would establish a test for determining whether an entity is considered a “governmental entity” for purposes of offering certain retirement plans. The proposal specifically addresses whether federal credit unions (FCUs) would be “governmental entities” for purposes of section 414(d) of the Internal Revenue Code; this section relates to specific retirement plans. In applying its proposed “facts and circumstances test,” the proposed example concludes FCUs are non-governmental entities for purposes of this section; such a conclusion permits FCUs to continue maintaining plans such as those under section 457 of the Code. CUNA supports the IRS’s conclusion that FCUs are considered non-governmental for purposes of section 414(d). This conclusion is consistent with the position CUNA and CUNA Mutual had advocated for in discussions with the IRS in 2004 and 2005, when the agency last addressed the issue.

Posted in NCUA.