NCUA’s Hood Leads Discussion on Minority Depository Institution Preservation

Chairman Moderates Conversation with Financial Regulators during Freedman’s Bank Forum

WASHINGTON, D.C. (March. 3, 2020) — Before attendees of the Freedman’s Bank Forum today, National Credit Union Administration Chairman Rodney E. Hood offered welcoming remarks and moderated a panel discussion on the importance of minority depository institution preservation.

“The founding of the Freedman’s Bank was more than just a business opportunity. In its original conception, it was an act of humanitarian service to others, rooted in the sense of deep faith and generosity, for the benefit of people who had very little,” Chairman Hood said. “Today, we call it ‘financial inclusion.’ But to the bank’s founders, this was greater than a policy goal: it was a moral and ethical necessity.”

The U.S. Department of the Treasury celebrated the 155th anniversary of the Freedman’s Bank, which was founded as a way of advancing financial and economic security for African Americans and their communities after the Emancipation Proclamation and the end of the Civil War. Hood’s welcoming remarks are available on the NCUA’s website.

In his discussion with Comptroller Joseph Otting; Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury, Bimel Patel; Federal Deposit Insurance Corporation Chairman, Jelena McWilliams; and Federal Reserve Board Governor, Michelle Bowman, Hood addressed topics of significant importance to MDIs and relevant stakeholders, including:

  • Initiatives and supervisory strategies agencies are undertaking to complement the work of MDIs in their communities;
  • The challenges an evolving financial services marketplace poses to smaller institutions; and
  • The benefits of fintech as an opportunity to improve service and expand access to affordable financial services.

At the conclusion of the Treasury event, Chairman Hood kicked off a two-day Minority Depository Forum for credit unions.

The first day includes a one-on-one discussion with Chairman Hood and National Urban League Senior Vice President and Chief Financial Officer, Calvin Harris. The second day consists of several training sessions and breakouts that focus on the NCUA’s 2020 supervisory priorities, strategies for growth, and the NCUA’s initiatives to support minority credit unions.

NCUA Hosts Financial Inclusion Webinar

ALEXANDRIA, Va. (Feb. 25, 2020) – Credit unions can get valuable insights into serving low-income and underserved communities on a March 11 webinar hosted by the National Credit Union Administration’s Office of Credit Union Resources and Expansion.

“Expanding access and bringing affordable financial services to more people are embedded in the credit union ethos of ‘people helping people,’” NCUA Chairman Rodney E. Hood said. “I hope credit union stakeholders will take full advantage of this opportunity to hear from regulators and their industry peers.”

Registration for the webinar, “Financial Inclusion: Pathways to Serving the Underserved,” is now open. Participants will be able to log into the webinar and view it on their computers or mobile devices using the registration link. They should allow pop-ups from this website.

The webinar is scheduled begin at 2 p.m. Eastern and run approximately one hour. The NCUA will provide live Twitter updates on @TheNCUA. Participants can submit questions over Twitter anytime during the presentation and in advance by emailing [email protected]. The email’s subject line should read, “Financial Inclusion.” Please email technical questions about accessing the webinar to [email protected].

Representatives from the NCUA and Consumer Financial Protection Bureau will discuss:

  • The current landscape of financial inclusion in the U.S.;
  • Barriers and challenges to low-income populations for financial inclusion; and
  • Innovations in financial inclusion.

Credit union officials will join the webinar to share information about their programs aimed at helping bring greater inclusion and equity to low-income and underserved communities.

This webinar will be closed captioned and archived online approximately three weeks following the live event.

The NCUA’s Office of Credit Union Resources and Expansion supports low-income-designated credit unions and credit unions interested in a low-income designation; minority credit unions; credit unions seeking changes in their charters, bylaws, or fields of membership; and groups organizing to start new credit unions.

NCUA’s Harper Discusses Consumer Protection, Inclusion, and Being Prepared

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.”

McWatters Discusses Taxi Medallion Sale, Regulation, Mergers, and Liquidity

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.”

NCUA’s Hood Discusses Taxi Medallion Sale, Financial Inclusion, and Guidance Review

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.”

Mortgage Study Shows Credit Union Members Pay Lower Interest Rates

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, 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 of the Chief Economist’s presentation is available online.

Share Insurance Fund Continues Positive Trends

The National Credit Union Share Insurance Fund 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 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 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 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.

NCUA Completes Taxi Medallion Loan Sale

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.

NCUA’s Four Funds Receive Clean 2019 Audit Opinions

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 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.

Six Credit Unions Agree to Late-Filing Penalties for Second Quarter of 2019

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.

New Form 1040-SR, alternative filing option available for seniors

WASHINGTON ― The Internal Revenue Service wants seniors to know about the availability of a new tax form, Form 1040-SR, featuring larger print and a standard deduction chart with a goal of making it easier for older Americans to read and use.

The Bipartisan Budget Act of 2018 required the IRS to create a tax form for seniors. Taxpayers age 65 or older now have the option to use Form 1040-SR, U.S. Tax Return for Seniors. Form 1040-SR, when printed, features larger font and better readability.

Taxpayers who electronically file Form 1040-SR may notice the change when they print their return. More than 90% of taxpayers now use tax software to prepare and file their tax return.

Taxpayers born before January 2, 1955, have the option to file Form 1040-SR whether they are working, not working or retired. The form allows income reporting from other sources common to seniors such as investment income, Social Security and distributions from qualified retirement plans, annuities or similar deferred-payment arrangements.

Seniors can use Form 1040-SR to file their 2019 federal income tax return, which is due April 15, 2020. All lines and checkboxes on Form 1040-SR mirror the Form 1040, and both forms use all the same attached schedules and forms. The revised 2019 Instructions cover both Forms 1040 and 1040-SR.

Eligible taxpayers can use Form 1040-SR whether they plan to itemize or take the standard deduction. Taxpayers who itemize deductions can file Form 1040-SR and attach Schedule A, Itemized Deductions, when filing a paper return. For those taking the standard deduction, Form 1040-SR includes a chart listing the standard deduction amounts, making it easier to calculate. It also ensures seniors are aware of the increased standard deduction for taxpayers age 65 and older.

Married people filing a joint return can use the Form 1040-SR regardless of whether one or both spouses are age 65 or older or retired.

Both the 1040 and the 1040-SR use the same “building block” approach introduced last year that can be supplemented with additional Schedules 1, 2 and 3 as needed. Many taxpayers with basic tax situations can file Form 1040 or 1040-SR with no additional schedules.