Pending Regulatory Issues April 1, 2010 There are a number of regulatory issues pending, and the LSCU wants to bring you up to date on the LSCU’s and CUNA’s work on some of the key regulatory concerns. If you have any questions or comments, please e-mail Bill Berg, Vice President of Regulatory Affairs at william.berg@lscu.coop and/or Scott Morris, Director of Compliance at scott.morris@lscu.coop. You may also contact Bill or Scott at 800.342.1266 x1028 or 2165 respectively. Corporate Credit Unions Following the issuance of CUNA’s Corporate Credit Union Task Force report and the filing of our comment letter, CUNA Chairman Kris Mecham has appointed a new Corporate Credit Union Next Steps Working Group to develop recommendations to the CUNA Board on how to ensure natural person credit unions will continue to have access to critical services, including through corporates that are well-positioned to manage their risks. You will be receiving more information about the group, including who is on it, once the group is final. CUNA’s report and comment letter are available on our website: http://www.cuna.org/initiatives/corp_report/index.html. The LSCU’s comment letter is here. Meanwhile, CUNA and LSCU staff have been meeting and communicating with NCUA officials regarding the agency’s efforts to address corporate credit union problems and related issues. One of the issues we have raised is to urge the NCUA Board to set the normal operating level of the National Credit Union Share Insurance Fund below 1.3%, which would allow insurance costs related to the corporates and other issues to be spread out even further than NCUA has currently allowed for federally insured credit unions. According to NCUA Board Chairman Matz, NCUA will make its determination regarding the NCUSIF’s normal operating level this fall. Until that decision is made, we will continue pressing the agency for a favorable response. Chairman Matz indicated that NCUA is working on a plan to remove the “riskiest” legacy assets (the undervalued mortgage and asset-backed securities) from the balance sheets of corporate credit unions. Chairman Matz has been responsive to concerns on this issue and signaled her willingness to work with the credit union system. The agency indicated it plans to consider a proposal on the legacy assets by the end of June. Alternative Capital
Like a number of issues, this matter is both legislative and regulatory. The CUNA Governmental Affairs Committee during its meeting in February requested that CUNA staff develop a white paper on alternative capital, which should be completed in the early part of May. The paper focuses on the need for such capital, how it could help credit unions, the forms it could take, and political considerations. NCUA has indicated its report on alternative capital, which was expected last fall, may be issued this month. FOM Proposal In December, NCUA issued a proposed ruled to amend its policies regarding chartering and field of membership issues, in particular for community federal credit unions. The purpose of the proposal was to improve the agency’s charter and expansion approval process by relying on quantifiable criteria, which could help limit the number of legal challenges from banker groups. However, the proposal has prompted concerns on the part of many community credit unions, and CUNA has formed a field of membership working group, chaired by Truliant FCU President and CEO Marc Schaefer. A key issue is that a significant number of locales that qualify as a community now would no longer qualify under the new proposal. Members of the CUNA group have already discussed concerns with NCUA and will be following up with the agency, which has indicated it wants to work with our group to help achieve improvements. CUNA requested that the comment period be extended and NCUA lengthened the period to April 15. Reg-Flex Proposal While the NCUA Board since the arrival of Chairman Matz has expressed concerns about regulatory burdens on credit unions, the Board seems to be going in the opposite direction with its new proposal regarding the Reg-Flex program. This program, which was developed in 2002 and amended several times, allows well-managed federal credit unions with a net worth of at least 9% to avoid certain nonstatutory, regulatory requirements. Last month the NCUA Board approved a proposed rule that would reinstate four regulatory requirements for Reg-Flex credit unions: • •
The requirement that a federal credit union with $1 million or more in assets invest no more than five percent of its shares and retained earnings in fixed assets, unless it obtains a waiver from NCUA. The requirement that a federal credit union making a business loan obtain the personal guarantee of the borrower. A credit union would still be able to request a waiver.
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The requirement that a federal credit union perform stress testing on its securities. The requirement that if a federal credit union delegates discretionary control over investments to a registered investment advisor, it may only delegate up to 100 percent of the FCU’s net worth.
Comments are due on the proposal May 24, 2010. Overdraft Regulation Credit unions are preparing for the upcoming changes to Regulation E, the Electronic Funds Transfer Act, in which they will be required to obtain the members' permission before charging an overdraft fee for ATM and one-time debit card transactions. CUNA recently hosted an audio call and has responded to numerous questions on these rules. Credit union concerns relate mostly to the complexity of the rule and the lack of guidance that has been provided by the Fed, as well as certain provisions that will require credit unions to pay overdrafts under card network rules without being able to collect the fee unless the member agrees. CUNA is filed a comment letter with the Federal Reserve Board on proposed clarifications to Regulation E and Regulation DD on overdraft provisions. The letter can be reviewed at: http://www.cuna.org/reg_advocacy/comment_letters/comment_letters10.html.
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