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Board Member Urges a Dedicated Supervision Program for Consumer Protection

WASHINGTON, D.C. (Feb. 26, 2020) – The mission of America’s credit unions reflects the fundamental principles of democracy itself, National Credit Union Administration Board Member Todd M. Harper said today.

“More than 200 years ago, our founders wrote a Constitution that begins with ‘We the People,’” Harper said. “If you think about it, the credit union mission really tracks the vision of our founders. Immediately after ‘We the People,’ the Constitution speaks about striving to form ‘a more perfect union.’ With the NCUA’s oversight, today’s $1.5 trillion credit union system aims to achieve that laudable goal.”

Board Member Harper spoke to the Credit Union National Association’s Governmental Affairs Conference, covering issues affecting credit union members, including diversity and inclusion, consumer protection, and safety and soundness.  A copy of his prepared remarks is available online.

Prioritizing Consumer Protection and Inclusion

Harper’s four priorities as an NCUA Board member are capital and liquidity; cybersecurity; diversity, equity, and economic inclusion; and consumer protection. In the latter area, he said the NCUA “needs to refine its approach to consumer financial protection” by creating a dedicated supervision program for compliance to address the growth and change in the credit union industry.

“Consumer compliance exams are like regular maintenance on your car,” he said. “Would you go 10 years without getting a tune-up and checking your oil? None of us would. My proposal is about ensuring that a credit union runs smoothly, and if it does not, providing the maintenance needed to optimize performance.”

Similarly, Harper said the NCUA should take the lead in fostering “an environment that promotes inclusion, which will lead to economic dignity for all.”

“Diversity, equity, and inclusion are highly important to the continued health of the credit union system,” he said. “The agency should support the work of small credit unions, minority depository institutions, and low-income credit unions, who are often the ones reaching the underserved and facing the challenges of increased competition and difficulties achieving economies of scale.”

He encouraged credit unions to use the agency’s voluntary credit union diversity self-assessment.

Concerns on the Horizon

Harper said that, looking ahead, succession planning, liquidity, and growing consumer debt are three important issues facing the NCUA and credit unions.

With particular respect to succession planning, Harper said “be prepared” should be credit unions’ motto.

“About one in five credit unions lack CEO succession plans,” he said. “This Hoosier learned young that to ‘be prepared’ is to be a good scout. Succession planning is really about being prepared. A large portion of credit union CEOs and executives are Baby Boomers who will be part of a retirement wave. There is a real need for credit unions of all sizes to focus on succession planning, especially if we want to avoid mergers.”

Harper noted that, despite good economic numbers, “some households are running into trouble.” Consumer debt, after adjusting for inflation, is now higher than its peak during the economic crisis. Meanwhile, delinquencies on credit card payments—consumers owe a record $930 billion on their credit cards—are rising.

Planning for a possible economic downturn should include careful evaluation of new credit risks and quickly mitigating delinquencies, he said.

Harper reminded his listeners of the essential role credit unions play in the economy.

“When credit unions expand access to responsible financial services, our economy will grow,” he said. “Through the ongoing efforts of the NCUA to refine its consumer financial protection program while also supporting small credit unions, minority depository institutions, and low-income credit unions, we can work together to create that more perfect union our founders envisioned.”

WASHINGTON, D.C. (Feb. 24, 2020) – National Credit Union Administration Board Member J. Mark McWatters discussed the agency’s recent taxi medallion sale as well as issues around regulation, credit union-bank transactions, and preparing for an economic downturn in remarks to the Credit Union National Association’s Governmental Affairs Conference here today.

A copy of Board Member McWatters’ prepared remarks is available online.

Duty to Credit Unions, Members Guided Taxi Medallion Sale

The NCUA’s statutory requirement to limit losses to the National Credit Union Share Insurance Fund was the primary factor in the decision to sell its portfolio of taxi medallion loans, McWatters said, adding that consumer protection was a major consideration in choosing the winning bidder.

“The NCUA was charged, under the Federal Credit Union Act, with developing a plan that would yield the least long-term cost to the Share Insurance Fund,” McWatters said. “We made it very clear to those interested in acquiring the portfolio that the winning bidder must work with the taxi medallion loan borrowers in a transparent, good-faith manner and in full compliance with all applicable consumer protection laws.”

The agency carefully considered a proposal for a public-private partnership to purchase the loans; however, with a firm offer already in-hand and no assurance when, if ever, the proposed partnership might be able to act, the agency could not risk losing its qualified bidder. Noting the Share Insurance Fund has already booked approximately $750 million in losses, McWatters said further losses would certainly delay future possible Share Insurance Fund distributions that would put money back into use by credit unions and their members.

“It is critically important to note we would not have permitted the sale unless we sincerely believed the winning bidder would treat taxi medallion borrowers in a transparent, good-faith manner,” McWatters said. “If we were to have delayed the disposition of the medallion loan portfolio, there is a substantial likelihood the agency would have to forego distributions to credit unions for the immediate future, if not longer.”

McWatters stressed the NCUA understood the impact the collapse of the medallion market has had on borrowers, and he said the public-private partnership idea could still provide them with a measure of relief.

A “Thoughtfully Tailored’ Approach to Regulation

McWatters described the NCUA’s approach to regulation, saying the agency has become more transparent and more active in reducing regulatory burdens.

“We have enacted thoughtfully tailored and targeted rules aimed at the actual risks present by the credit union system to the Share Insurance Fund,” McWatters said. “I am pleased to report we have made substantial progress as an agency in a spirit of collegiality and collaboration.”

The many examples of this progress over the last five years, McWatters said, include:

• Closing the Temporary Corporate Credit Union Stabilization Fund, transferring its assets to bolster the Share Insurance Fund, and delivering a distribution of nearly $800 million to eligible credit unions;
• Restructuring the agency for greater efficiency and cost-effectiveness;
• Expanding stakeholder input, particularly on the agency’s annual budget; and
• Implementing new regulations, guidance, and initiatives in areas ranging from fields of membership to credit union governance, lending, and capital planning.

“Diligence, prudence, transparency, and respect for competing ideas have a practical effect,” McWatters said. “We will work and reason together with you to achieve those goals.”

Credit Unions and Community Banks

McWatters expanded on his point of working and reasoning together by discussing credit union and community bank mergers.

“It is worth considering whether credit unions and community banks could benefit from a ‘come now, and let us reason together’ approach,” he said.

McWatters discussed misperceptions that have arisen, in large part over bankers’ objections to the credit unions’ statutory federal tax exemption, about the purpose and the result of the relatively small number of transactions each year where credit unions acquire bank assets or liabilities.

“We should remain mindful that it is not intellectually possible to discuss the credit union tax exemption in a fair-minded and objective manner without acknowledging the additional statutory restrictions placed on credit unions and the absence of such restrictions on community banks, notwithstanding their ability to avoid corporate-level taxation by making a taxpayer-subsidized Subchapter S election,” McWatters said.

The transactions between credit unions and banks, he added, are business decisions between the parties.

“These transactions reflect market forces and are negotiated in an arm’s-length manner,” McWatters said. “The NCUA should respect the independent, market-driven decisions of the interested parties, unless safety and soundness, consumer protection, and related matters indicate to the contrary.”

Avoid Dropping the Basket

Noting that his 40-year career has seen several financial crises, including the most severe economic downturn since the Great Depression, McWatters discussed the importance of adequate liquidity and capital and the necessity of avoiding concentration risk.

While credit unions did not trigger these crises, he noted, they were not completely insulated from the effects.

“Each of these events was caused, in substantial part, by the over-concentration of banking and other financial assets in narrowly circumscribed areas of lending and investment,” McWatters said. “Simply put, the banking and financial communities stuffed too many eggs in one basket and then proceeded to drop the basket.”

Surviving a crisis depends on have adequate liquidity and capital levels, McWatters said.  Liquidity allows an institution to pay its bills; capital provides a buffer against declining asset values. McWatters advised credit unions to avoid over-concentration in lending and investments, maintain strong internal controls, anticipate cybersecurity threats, and “hire people you trust implicitly.”

Chairman Addresses CUNA Governmental Affairs Conference

WASHINGTON, D.C. (Feb. 25, 2020) — In his speech today before members of CUNA, NCUA Chairman Rodney E. Hood shared his vision for financial inclusion in rural America and elaborated on the agency’s decision to sell the majority of its taxi medallion portfolio.

“I understand this decision may not be popular or satisfy everyone,” said Chairman Hood. “But, the collapse of the taxi medallion market, and the failure of several credit unions that supported the taxi industry has already cost the Share Insurance Fund approximately $750 million dollars.”

Hood made his remarks during CUNA’s Annual Governmental Affairs Conference. His full speech is available on the NCUA’s website.

He also addressed concerns CUNA expressed to him in a letter dated January 22, as the NCUA, as liquidating agent, was consummating the sale, including:

• An in-depth evaluation of the taxi medallion portfolio’s size, characteristics, and condition of assets;
• Consultation and recommendation from a third-party advisor to sell the assets in a bulk sale;
• The thorough process of vetting bidders to make sure only bids from reputable and experienced firms dedicated to working in a good-faith manner with borrowers were considered; and
• The statutory obligation to achieve the least possible long-term cost to the Share Insurance Fund.

The Chairman also discussed plans for his rural initiative, which focuses on boosting financial inclusion in rural America.

“One of the things I’m most excited about, and which we’ll be discussing in greater detail in the coming weeks: The NCUA is preparing a set of initiatives aimed at improving financial services in underserved, rural communities,” Hood said.

Chairman Hood also revealed the NCUA would conduct a comprehensive review of all the agency’s guidance letters and legal opinions to determine if they are still relevant in today’s regulatory climate. A review would help to reduce the burdens of compliance, complexity, and costs that weigh so heavily on both the regulators who have to enforce the rules, and on credit unions who have to follow the rules.

He also commended credit unions for their service to their memberships.

“One thing that I see in common in all the credit unions I visit is that strong sense of hope, a deep commitment — not for profit, not for charity — but to service, and a strong focus on the future,” said Hood. All of that is in keeping with the historic credit union tradition and ethos of ‘people helping people.’ That’s a tradition I look forward to working to advance in partnership with all of you.”

Board Action Bulletin

Share Insurance Fund Assets Grow in 2019; Equity Ratio at 1.35 Percent

ALEXANDRIA, Va. (Feb. 20, 2020) – The National Credit Union Administration Board held its second open meeting of 2020 at the agency’s headquarters today and unanimously approved two items:

• A joint agencies’ policy statement to financial institutions on measuring credit losses under the current expected credit loss methodology and on changes in accounting standards.
• A proposed rule to update, clarify, and simplify several provisions in the agency’s corporate credit union regulations.

The Chief Economist briefed the Board on a study of mortgage interest rates.

The Acting Chief Financial Officer briefed the Board on the performance of the National Credit Union Share Insurance Fund.

Study Shows Credit Union Members Pay Lower Interest Rates on Mortgages

According to a study by the NCUA’s Chief Economist (opens new window), credit union members could save thousands of dollars on their mortgages when compared to borrowers at other financial institutions.

Analyzing 2018 Home Mortgage Disclosure Act data — the most recent available—and applying appropriate filters to remove likely errors, the study finds:

• Mortgage loans originated by credit unions generally carried lower interest rates than mortgage loans originated by other lenders;
• The median interest-rate spread for credit union mortgages was 9 to 14 basis points lower than for other originators;
• The discount in rates for credit union loans generally was observed in both urban and rural areas; and
• Statistics for three credit risk indicators — credit scores, combined loan-to-value ratios, and debt-to-income ratios — suggested that differences in mortgage rates were not likely the result of differences in credit risk.

The lower interest rates could save credit union borrowers thousands of dollars over the life of their mortgage loans, the study finds. A borrower with a $175,000 mortgage, for example, could see total principal and interest payments nearly $5,000 lower with a 14-basis-point spread.

A slide deck summary (opens new window) of the Chief Economist’s presentation is available online.

Share Insurance Fund Continues Positive Trends

The National Credit Union Share Insurance Fund (opens new window) reported a net income of $169.7 million and a net position of $16.6 billion for 2019.

The fund’s assets rose to $16.7 billion at the end of the year from $15.8 billion at the end of 2018.

As of Dec. 31, 2019, the Share Insurance Fund’s calculated equity ratio was 1.35 percent, an increase from 1.33 percent reported as of June 30, 2019. The equity ratio is calculated on an insured share base of $1.2 trillion. The equity ratio was lower than the normal operating level of 1.38 percent.

For the fourth quarter of 2019:

• The number of CAMEL codes 4 and 5 credit unions decreased to 190 from 200 in the third quarter of 2019. Assets for these credit unions decreased 3.6 percent from the third quarter of 2019, to $10.8 billion from $11.2 billion.
• The number of CAMEL code 3 credit unions decreased to 838 from 861 in the third quarter of 2019. Assets for these credit unions decreased 3.9 percent from the third quarter of 2019, to $41.7 billion from $43.4 billion.

There was one involuntary liquidation and one assisted merger during 2019, compared to eight credit union failures in 2018. The total amount of losses associated with failures in 2019 was $40.3 million, compared to $792.5 million the previous year.

The Acting Chief Financial Officer reported the agency’s four funds — the Share Insurance Fund, the Operating Fund, the Central Liquidity Facility and Community Development Revolving Loan Fund — each received an unmodified, or “clean,” audit opinion with no reportable conditions for 2019 from the agency’s independent auditor, KPMG LLP.

Board Approves Joint Agencies’ CECL Policy Statement

The NCUA Board approved an interagency policy statement (opens new window) that provides supervisory guidance to financial institutions measuring credit losses under the current expected credit loss methodology and on changes in accounting standards.

The NCUA joins the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in the statement. The agencies are issuing the policy and guidance in response to changes in generally accepted accounting principles promulgated by the Financial Accounting Standards Board.

The new policy statement will be published in the Federal Register once it is approved by all four regulators.

Proposed Rule Would Make Corporate Credit Union Regulation Changes

The NCUA would amend its corporate credit union regulations to clarify, simplify, and update certain provisions under a proposed rule (opens new window) approved by the Board.

The changes the proposed rule would make include:

• Permitting a corporate credit union to make a minimal investment in a credit union service organization without that organization being classified as a corporate CUSO and subject to heightened NCUA oversight;
• Expanding the categories of senior staff positions at member credit unions who would be eligible to serve on the corporate credit union’s board;
• Amending the prescriptive experience and independence requirements for a corporate credit union’s enterprise risk management expert; and
• Clarifying the treatment of an investment in a subordinated debt instrument of a natural-person credit union.

Comments on the proposed rule must be received no later than 60 days following publication in the Federal Register.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

ALEXANDRIA, Va. (Feb. 19, 2020) – The National Credit Union Administration today announced the sale of the majority of its taxi-medallion loan portfolio to Marblegate Asset Management LLC.

After thorough research and careful consideration, the NCUA determined this sale was the most appropriate action to meet its statutory obligation under the Federal Credit Union Act to achieve the least long-term cost to the National Credit Union Share Insurance Fund.

Of equal importance, this sale also provides borrowers and their families greater certainty about the management of their loans. Private entities have specialized skills and greater resources and flexibility to work with borrowers in ways the NCUA cannot.

The NCUA’s holdings included medallion loans from Melrose Credit Union and LOMTO Federal Credit Union, which supported the New York City taxi industry for nearly a century until their liquidations in 2018. To date, the Share Insurance Fund has lost more than $760 million because of these and other credit union failures related to taxi medallion loans.

For nearly 18 months, the NCUA evaluated a variety of approaches for resolving this portfolio, including holding and servicing the loans, pooled sales, structured sales, and securitization. After careful consideration, investor outreach, and consultation with an independent financial advisor, the NCUA determined a single bulk sale was the best option to meet its statutory requirements and prevent any unnecessary volatility in the already stressed taxi medallion market.

The agency took all appropriate steps during the sales process to make sure multiple bidders were involved to ensure a competitive price and maximize any potential recoveries to the Share Insurance Fund. The NCUA vetted the credentials of all bidders to identify potential buyers that demonstrated the capability and willingness to work with borrowers in a good-faith manner. The agency also contracted with a third party to perform extensive background investigations to confirm the reputation and other representations made by each prospective buyer.

After this extensive review, the agency allowed two firms to advance to the final due diligence round. The agency then received two independent offers and selected Marblegate as the best, least long-term cost option to the Share Insurance Fund. The firm also demonstrated the best track record of working with borrowers in a good-faith manner. The NCUA fully expects them to work with borrowers consistent with the representations made during the selection process.

There is nothing associated with this transaction that prevents a public-private partnership or any private investor from seeking to purchase these assets at a later date.

Stakeholders can learn more about the NCUA’s response to the collapse of the New York City taxi medallion market and its support for borrowers and credit union members by visiting the agency’s public website at www.ncua.gov/news/responding-collapse-new-york-city-taxi-medallion-market.

ALEXANDRIA, Va. (Feb. 14, 2020) – The National Credit Union Administration’s four funds again earned unmodified, or “clean,” audit opinions for 2019, according to audited financial statements released today by the agency’s Office of the Inspector General.

The complete 2019 financial statement audits (opens new window) are available on NCUA.gov.

The financial statements, audited by the independent auditor KPMG LLP, cover the National Credit Union Share Insurance Fund, the agency’s Operating Fund, the Central Liquidity Facility, and the Community Development Revolving Loan Fund.

The Share Insurance Fund, which held assets of $16.7 billion on Dec. 31, 2019, protects the deposits of more than 119 million members at more than 5,200 federally insured credit unions.

Alexandria, Va. (Feb. 3, 2020) – Six federally insured credit unions subject to civil money penalties for filing late Call Reports in the second quarter of 2019 have agreed to penalties of $2,259, the National Credit Union Administration announced today.

Individual penalties ranged from $150 to $757. The median penalty was $330. The Federal Credit Union Act requires the NCUA to send any funds received through civil money penalties to the U.S. Treasury.

Four of the six credit unions had assets of $10 million or less. Two had assets between $10 million and $50 million. All six had filed a Call Report late in a previous quarter.

The NCUA publishes lists of credit unions that file late Call Reports and agree to pay penalties. Penalty assessments primarily rest on three factors: the credit union’s asset size, its Call Report filing history, and the length of the filing delay. 

The agency provides credit unions with detailed instructions for filing Call Reports on the Credit Union Online webpage.

Executive Director Mark Treichel to Retire After a Long and Distinguished Career

ALEXANDRIA, Va. (Jan 23, 2020) – National Credit Union Administration Chairman Rodney E. Hood announced today that the NCUA Board unanimously approved several changes to the agency’s leadership:

Larry Fazio Named NCUA’s New Executive Director

Examination and Insurance Director Larry Fazio will serve as the agency’s new Executive Director, the highest senior career position at the NCUA. Fazio will assume these duties on March 1.

“Larry’s knowledge and expertise are of tremendous value to the NCUA and for credit unions,” Chairman Hood said. “He was instrumental in helping the agency successfully navigate the failure of the corporate credit unions during the Financial Crisis a decade ago. He also has led efforts to not only modernize NCUA’s policies to ensure the continued safety and soundness of credit unions, but also enhance the agency’s examination program. I look forward to Larry serving in this role.”

Fazio succeeds Mark Treichel, who is retiring after more than 33 years of distinguished service at the NCUA, including the last seven as Executive Director. His retirement will become effective June 30 to allow for a smooth transition in leadership. 

“Mark’s professionalism, leadership and judgment have long benefited this agency,” Hood said. “On behalf of the entire NCUA Board, I sincerely thank Mark for his exceptional and long-standing service and life’s work to the nation’s system of cooperative credit. I know all NCUA employees will miss his guidance, and I wish him well as he enters a new and exciting chapter of his life.”

Fazio joined the NCUA in 1991 as an examiner in Chicago. During his career, he has served as a supervision analyst, a supervisory examiner in Detroit, the director of supervision in the former-Chicago regional office, and the director of risk management, the Deputy Director and Director of the Office of Examination and Insurance, and the NCUA’s Deputy Executive Director.

Fazio graduated from Lewis University with a degree in accounting, and he has a master’s degree in organizational management from The George Washington University in Washington D.C.

Rendell Jones Named Deputy Executive Director and Chief Operating Officer

Chief Financial Officer Rendell Jones has been named Deputy Executive Director and will assume these duties on Feb. 2.

Jones came to the NCUA from U.S. Citizenship and Immigration Services, where he was Associate Director for Management and served as the agency’s Acting Deputy Director from December 2013 to July 2014. Prior to that appointment, he served as USCIS’s Chief Financial Officer. He previously served as Deputy Budget Director at the Department of Homeland Security. His career in federal service began in 1996 at the Department of Justice.

Jones holds a master’s degree in public administration from North Carolina State University and a bachelor of science degree in finance from Virginia Commonwealth University. He received the Presidential Rank Medal for Meritorious Service and the Secretary’s Silver Medal for his service at the Department of Homeland Security.

John Kutchey Named Director of the Eastern Region

John Kutchey has been named Regional Director for the Eastern Region after eight years as Deputy Executive Director. He will assume his new duties on Feb. 2.

Prior to his appointment as Deputy Executive Director, Kutchey served as the agency’s Deputy Director of the Office of Examination and Insurance. Within the NCUA, he has also held positions as director of risk management and then-Region II’s director of supervision. He also served as a supervisory examiner, a problem case officer and a principal examiner. Prior to joining the NCUA, he worked for various credit unions.

Kutchey has a bachelor’s degree in business administration from the University of Baltimore.

Towanda Brooks Named Chief Human Capital Officer

Towanda Brooks, Director of the Office of Human Resources, has been named Chief Human Capital Officer for the agency. She will assume her expanded duties on Feb. 2.

Prior to coming to the NCUA in 2018, Brooks served as Chief Human Capital Officer for the Department of Housing and Urban Development. Her career includes 30 years’ service in human resources at the Department of Commerce, the National Nuclear Security Administration, the Department of Homeland Security, the U.S. Secret Service, the Department of Agriculture, and the Library of Congress.

She holds a bachelor’s degree from George Mason University in Fairfax, Virginia, and a master’s degree from The American University in Washington, D.C. She also received a professional certificate in executive leadership from Georgetown University. She received the 2017 Presidential Meritorious Rank Award.

Frank Kressman Continues to Serve as Acting General Counsel

Frank Kressman will continue to serve as Acting General Counsel while the NCUA continues its search for a permanent General Counsel.

Before today’s action, he served as Acting General Council on as part of a short-term detail. Before his selection, Kressman served as a Deputy General Counsel to the NCUA. He joined the agency in 1998 as a staff attorney. His previous experience includes work as an attorney at the Federal Deposit Insurance Corporation and the Commodity Futures Trading Commission.

Kressman holds a bachelor’s degree from Dickinson College in Carlisle, Pennsylvania, a Juris Doctor from the Gonzaga University School of Law in Spokane, Washington, and a Master of Laws degree from The American University Washington School of Law in Washington, D.C.

Linda Dent Will Continue to Serve as Acting Deputy General Counsel

Linda Dent will continue to serve as Acting Deputy General Counsel. Before today’s action, she served in this capacity as part of a short-term detail.

Dent previously served as the Associate General Counsel for Information and Access Law, where she established a new office focused on federal information laws and practices. During her NCUA career, she has also served as the Associate General Counsel for Administrative Law and the Acting Director of the Office of Minority and Women Inclusion.

Dent joined the NCUA in 2006 after a lengthy career directing and implementing compliance, financial analysis, and organizational efficiency initiatives for commercial and non-profit financial industry entities. She holds degrees from the Pennsylvania State University in State College, Pennsylvania, and the George Mason University Antonin Scalia Law School in Arlington, Virginia.

Board Action Bulletin

2020 Annual Performance Plan, CMP Adjustments, Interest Rate Ceiling Approved

ALEXANDRIA, Va. (Jan. 23. 2020) – The National Credit Union Administration Board held its first open meeting of 2020 at the agency’s headquarters today and unanimously approved four items:

• A proposed rule to permit low-income-designated credit unions, complex credit unions, and newly chartered federal credit unions to issue subordinated debt.
• A proposed rule that provides greater clarity on the regulations governing transactions where a federally insured credit union proposes to assume liabilities from or merge with another institution that is not a credit union.
• The 2020 Annual Performance Plan, which outlines the strategies and initiatives the NCUA will use to achieve the performance measures and outcomes described in the 2018–2022 Strategic Plan.
• An extension of the current 18-percent interest ceiling on most federal credit union loans until September 2021.

The Office of the General Counsel briefed the Board on inflation adjustments required by federal law to the agency’s civil monetary penalties.

Proposed Rule Would Update Authority to Issue Subordinated Debt

The NCUA Board approved a proposed rule (opens new window) that would update its regulations to allow eligible credit unions to issue subordinated debt for regulatory capital standards.

“Federal credit unions borrowing in the form of subordinated debt is squarely within the statutory authority provided under law,” NCUA Board Chairman Rodney E. Hood said. “I support giving complex credit unions the authority to use subordinated debt prudently as an additional tool to comply with risk-based capital requirements and newly chartered credit unions the ability to use this tool to get up and running.”

The proposed rule would better organize certain NCUA regulations, improve clarity and transparency, and incorporate enhanced investor protections. The rule would amend parts of the NCUA’s regulations to update the authority low-income-designated credit unions have to issue subordinated debt. The rule also would authorize complex credit unions subject to the agency’s risk-based capital requirements and new credit unions to use subordinated debt under certain circumstances.

In particular, the proposed rule would:

• Add a new section to NCUA’s regulations addressing limits on loans to other credit unions;
• Clarify application requirements to issue subordinated debt;
• Expand requirements for note disclosures and offering documents;
• Update the borrowing rule to clarify that federal credit unions can borrow from any source; and
• Add new safe harbors for repudiation and interest payments.

Any secondary capital issued before the effective date of a final rule would be grandfathered under the new rule.

Comments on the proposed rule must be received no later than 120 days after publication in the Federal Register.

Proposed Combination Transactions Rule Clarifies Requirements

Federally insured credit unions interested in merging with or assuming liabilities of financial institutions that are not credit unions would benefit from greater clarity about that process under a Board-approved proposed rule (opens new window).

“The number of credit union acquisitions of bank assets and certain liabilities is small relative to any standard,” Chairman Hood said. “As we continue to see the evolution in the marketplace, one of my priorities as Chairman is to be forward-thinking. Credit unions as well as banks have asked for clarity on this process. I am glad the Board is considering this rule to add even more transparency to the process, and I welcome the public’s comments.

“Additionally, credit union acquisitions of banks may be particularly beneficial for underserved and rural areas, which have seen a severe contraction in access to financial services over the last decade as financial institutions shut down branches,” Hood said.

The proposed rule adds a new Subpart D to Part 708(a) of the NCUA’s regulations that:

• Simplifies the basic requirements that apply to combination transactions between a federally insured credit union and another type of financial institution;
• Ensures that the directors of a federally insured credit union proposing such a transaction understand the nature and ramifications of the proposed transaction; and
• Makes regulatory provisions applicable to all asset purchases and lists other NCUA regulations that apply to each particular transaction.

All such transactions require the NCUA’s approval, and state-chartered, federally insured credit unions also must obtain approval from their state regulator.

Comments on the proposed rule must be received no later than 60 days following publication in the Federal Register.

Annual Performance Plan Sets 2020 Agency Priority Goals

The Board approved the NCUA’s 2020 Annual Performance Plan (opens new window), which provides specific direction and guidance to implement the overarching goals listed in the 2018–2022 Strategic Plan (opens new window).

The performance plan describes how the agency will reach its strategic goals and its monitor progress in 2020. The plan identifies four agency priority goals:

• Fully and efficiently execute the requirements of the agency’s examination and supervision program;
• Effectively identify and evaluate risk in complex credit union portfolios;
• Promulgate efficient, targeted regulation tailored to offer meaningful relief without undermining safety and soundness; and
• Implement secure, reliable, and innovative technology solutions.

The NCUA developed the 2020 performance plan simultaneously with the 2020–2021 budget (opens new window). The performance plan, in combination with the 2020–2021 budget, executes the agency’s strategic plan.

Board Extends Loan Interest Rate Ceiling to September 2021

After reviewing recent trends in money-market rates and financial conditions among federal credit unions (opens new window), the Board extended the current interest rate ceiling of 18 percent on most federal credit union loans through Sept. 10, 2021.

The Federal Credit Union Act caps the interest rate on federal credit union loans at 15 percent; however, the NCUA Board has discretion to raise that limit for 18-month periods if interest-rate levels could threaten the safety and soundness of credit unions. The 18-percent cap applies to all federal credit union lending except originations made under NCUA’s payday alternative loan program, which are capped at 28 percent currently.

An NCUA staff analysis concluded that money market rates have risen over the preceding six-month period and that lowering the rate ceiling below the current 18-percent maximum would threaten the safety and soundness of individual credit unions, due to anticipated adverse effects on liquidity, capital, earnings, and growth. The Federal Credit Union Act requires both those conditions exist for the Board to allow the interest rate ceiling to be higher than 15 percent.

The analysis also found that a reduction in the loan rate cap would likely result in a reduction in payday alternative lending, a reduction in federal credit union earnings and some members turning to payday lenders to meet short-term borrowing needs.

The Board will continue to monitor market rates and credit union financial conditions to determine whether a change should be made to the maximum loan rate. The Board may take action sooner than 18 months, if circumstances warrant.

Final Rule Confirms Required Inflation Adjustments to Civil Monetary Penalties

The Office of General Counsel briefed the Board on the required inflation adjustments for the maximum amounts for civil monetary penalties (opens new window) under its jurisdiction, as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

The act requires agencies to adjust the maximum amounts of civil monetary penalties annually to account for inflation. The NCUA Board previously approved these adjustments by notation vote on Jan. 7, 2020. The final rule will become effective upon publication in the Federal Register.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.