Posted by Anthony Demangone
Oh what a tangle web we weave, when first we decide to work in regulatory compliance. Yep, yesterday was one of those days that did tangle up one's workflow. I'll keep this as brief as possible, highlighting what I think are key takeaways from yesterday's regulatory downpour.
NCUA. NCUA was a busy beaver yesterday. Here's a link to all of the items that the board approved.
Fiduciary Duties. NCUA issued its long-awaited final rule on Fiduciary Duties, Mergers and Conversions. The compliance deadline is quickly approaching, as this rule becomes effective 30 days after the rule is published in the federal register. That means likely a late January/early February effective date. In a nutshell, the rule creates federal standards of duty and care for federal credit union directors. It closely tracks the proposal, but there were some changes. Most notably, new directors will have six months to become financially literate. (The proposal only gave them 90 days.) NAFCU is preparing an overview of the new rule. In addition, NCUA plans on issuing additional guidance on this issue, so stay tuned.
Training myths and realities. Many of you were wondering about the training requirements in the rule. Let me be clear: The rule creates no training mandate. It creates expected levels of performance, and some directors may need training to meet those expectations. Example: new directors need to be financially literate within 6 months. If you have a CPA join your board, I'm sure he or she is A-OK. But someone with a marketing or HR background likely will need some training. And that can be done in one of a number of ways. In addition, the rule mandates that boards somehow ensure that management operates the credit union in conformity with the FCU Act, NCUA regulations, other laws and regulations, and sound business practices. There's no training mandate there, but how in the world could a director meet that expectation without ongoing education? Here's what I would do: take a look at your training program and tweak it as necessary. Consider in-person training at board meetings, conferences, or learn-at-your-own-pace training solutions. Shameless plug warning. As an example, NAFCU has a volunteer's conference and an annual conference that can help your directors meet these new expectations. In addition, I developed an online training program for federal credit union directors that can do the same. The online training program has a free 2-week trial that can let you kick the tires a bit.
Indemnification. I know there was a good deal of angst concerning this rule's possible affect on indemnification. Many directors told me that they were scared that they'd lose indemnification if any business deal went south. That's not what the rule says. Here's what it says, and I think you'll see that the rule's "loss of indemnification" provisions will rarely, if ever, come into play. But they are a possibility, I have to say that.
"...a Federal credit union may not indemnify an official or employee for personal liability related to any decision made by that individual on a matter significantly affecting the fundamental rights and interests of the Federal credit union’s members where the decision giving rise to the claim for indemnification is determined by a court to have constituted gross negligence, recklessness, or willful misconduct. Matters affecting the fundamental rights and interests of Federal credit union members include charter and share insurance conversions and terminations." (Emphasis added.)
I'll only add this: when is the last time a lawsuit against your board progressed all the way to a judge's decision? (And that's not to say that it couldn't happen next year if it hasn't happened already.)
Proposal for Unlimited Share Insurance for Non-Interest Bearing Transaction Accounts. NCUA issued a proposal to clarify the definition of the term "noninterest bearing transaction account," that the insurance is separate and in addition to, other share insurance coverage amounts, and to note certain notice and disclosure requirements. NCUA notes that the unlimited share insurance protection, while temporary, is already in place as mandated by the Dodd-Frank Act. Read the proposal if you need additional details.
Proposal for Accuracy of Advertising and Notice of Insured Status. NCUA issued a proposal to revise provisions of its advertising statement rule. In short, insured credit unions, under the proposal, would be required to include the statement in all radio and television advertisements, annual reports, and statements of condition required to be published by law. Currently, for example, radio and television advertisements that are not longer than 30 seconds do not need to official advertising statement. This rule would zap that and other exemptions. The proposal does a number of other things, so please read it. But here's one that caught my eye: the proposal would clarify what it means when it says the official advertisement must be in a size and print that is clearly legible. The proposal doesn't require a specific font size. But it would require that in addition to legibility, the font size for the official advertising statement has to be no smaller than the smallest font size used in other portions of the ad that are designed to convey information. We'll have 60 days to comment on the proposal.
Interchange. Yesterday, the Fed issued its long-awaited proposal to address debit card interchange fees. The proposal sets out two alternatives, but both would cap debit card interchange fees at 12 cents per transaction - roughly 70 percent less than the 2009 average. While Dodd-Frank stated that this restriction was only supposed to affect institutions with more than $10 billion in assets, Federal Reserve staff acknowledged that card companies very well may set one set of rates for all institutions, regardless of size. For a shorter read, consider reading this memo prepared by Federal Reserve Staff for the Fed Board. Ultimately, final restrictions will take effect by July 21, 2011. NAFCU is preparing an overview of the proposal for its members. Ugh. This one hurts.
Have a great weekend, everyone. Even you, Senator Durbin.