CUNA Regulatory Advocacy Report

CUNA has Major Concerns with NCUA White Paper

Last week, NCUA released a NCUSIF Improvements White Paper suggesting changes to the operation and structure of the NCUSIF. The paper recommends legislation that would make the following changes:

  • Allow the agency to levy premiums sufficient to increase the equity ratio of the fund far beyond current limits. The white paper suggests the NCUSIF needs an equity ratio of “at least 2%,” compared to the current operating range of 1.2% to 1.3%;
  • Base assessments on the sum of all shares and deposits and liabilities, not just insured shares; and
  • Allow risk-based premiums.

The good news is that the agency has apparently not made seeking legislation to implement the recommendations a priority, as the paper carries a September 2013 date, and has just now been released in response to a Freedom of Information Act Request. While NCUA did include in a footnote of recent Congressional testimony a reference to risk-based premiums being a priority, CUNA is not aware that agency officials have pressed the issue on Capitol Hill. However, the really bad news is that the agency considers these changes even remotely necessary or desirable, particularly the first one, increasing the size of the insurance fund’s equity ratio.

CUNA is analyzing the paper in-depth, but says a preliminary review reveals it to be “yet another example of the agency proposing a solution with absolutely no demonstrable problem to address.” CUNA finds it particularly troubling that there are frequent references to the need to make changes similar to those recently put in place for the FDIC. CUNA reminds that credit unions are not banks, they do not operate like banks, and the historical performance of the NCUSIF compared to FDIC clearly demonstrates this.

As the accompanying chart shows, the FDIC has twice become insolvent in the past twenty-five years during financial crises.

During both of those financial crises, the NCUSIF, in its current form, performed extremely well, maintaining its equity ratio in the 1.2% to 1.3% range. This was accomplished with only modest insurance fund premiums in comparison to those charged by FDIC in the same periods. CUNA says that given this divergence in performance, why NCUA would recommend changes to make the NCUSIF more like the FDIC is “just baffling.”

CUNA estimates that in order to increase the NCUSIF’s equity ratio from the current 1.3% to the white paper’s suggested 2% in ten years would require annual insurance premiums of 8 to 9 basis points a year, or about $850 million in the first year, then rising as assets grow.

CUNA believes that such a huge drain on credit union earnings would be totally unnecessary. The white paper bases the goal of 2% for the equity ratio on the losses generated by the five corporate credit unions that failed in the latest crisis. This analysis misses two very important points. First, insurance losses at natural person credit unions, although elevated during the crisis, were low enough to have been handled by just two NCUSIF premiums, of 10 and 12 basis points. Second, the corporates that generated the $8 billion losses described in the white paper were neither operated nor regulated and supervised as natural person credit unions.

Having learned a very costly lesson, corporate credit unions now operate under a rule so restrictive that their assets have shrunk from almost $130 billion in 2006 to less than $20 billion today. The risks that were imposed by the corporates in 2006 simply no longer exist in anything close to their previous magnitude.

CUNA also has concerns with basing premiums on total assets less net worth as opposed to insured shares. In principle, assessing insurance premiums on the basis of risk has merit, CUNA notes, but creating an appropriate, forward-looking, risk-based premium system would be very difficult, and probably not worth the cost given the infrequency with which premiums would need to be charged.

Again, CUNA acknowledges that it is somewhat comforting that implementing the white paper’s recommendations appears to be quite low on the agency’s to do list. But CUNA will stand ready to oppose major aspects of the recommendations if they are ever introduced in Congress.

Based on CUNA’s NewsNow April 8, 2015.

Banking Agencies Announce Additional EGRPRA Outreach Meetings

Last week, the federal banking agencies announced that they will hold an outreach meeting on May 4, at the Federal Reserve Bank of Boston as part of their regulatory review under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). The meeting is the third in a series of outreach sessions under EGRPRA.

NCUA conducts an EGRPRA regulatory review separate from the banking agencies, which does not include outreach meetings.

NCUA Updates National Supervision Policy Manual regarding Approval of Secondary Capital

NCUA recently announced revisions to its National Supervision Policy Manual intended to make secondary capital processes easier for low-income credit unions as well as investors. Specifically, the changes were aimed at achieving two goals: expediting the approval of secondary capital requests by regional offices and making it possible for credit unions that have secondary capital to return portions of the loans that no longer count towards net worth.

The revised procedures can be found in the updated section of the agency’s National Supervision Policy Manual.

CFPB Files Suit Against Participants in Robo-Call Debt Collection Operation

Last week, the CFPB filed a lawsuit against a robo-call debt collection operation. The CFPB alleges that Marcus Brown and Mohan Bagga led a group of individuals and entities that threatened, harassed, and deceived consumers in order to collect phantom debt. Phantom debt is debt consumers do not actually owe or debt that is not payable to those attempting to collect it. According to the complaint, Brown and Bagga and those working with them used many fictitious names as they threatened consumers with arrest, wage garnishment, and “financial restraining orders.” The CFPB’s claims against these defendants are based on the Consumer Financial Protection Act and the Fair Debt Collection Practices Act.

The CFPB’s complaint alleges that consumers were tricked into believing that the collectors were legitimate because the collectors verified consumers’ personal information, such as date of birth, social security number, the names of family members, and employment information. According to the complaint, Brown and Bagga purchased consumers’ personal information from debt brokers and lead generators. They then used a telemarketing firm, Global Connect, to automatically broadcast robo-calls to millions of consumers. The calls alleged that the consumer had engaged in check fraud and threatened to contact the consumer’s employer.

In response to the debt collectors’ threats and false statements, consumers provided credit or debit card payment information. The complaint alleges that once the debt collectors got consumers’ payment information; they would submit it to the payment processors, who enabled the collectors to access consumers’ bank accounts to withdraw money, despite the many indications of misconduct.

Current CUNA Regulatory Calls to Action

  • NCUA Issues New Risk-Based Capital Proposal (RBC2) (comments due by April 27)
  • NCUA Issues New Fixed Assets Proposal (comments due by April 29)
  • NCUA Proposes to Revise Definition of “Small Entity” (comments due by May 4)
  • FAF Seeks Comments on Effectiveness of Private Company Council (comments due by May 11)
  • Financial Regulators (excluding NCUA) Issue EGRPRA Review (comments due by May 14)
  • CFPB Seeks Input on Credit Card Market (comments due by May 18)

To write directly to regulators click here.

For other items of interest, visit CUNA’s Regulatory Advocacy page.

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