NAFCU Compliance Blog

NCUA’s November 2013 Board Meeting and the Final CUSO Rule

Written by JiJi Bahhur, Director of Regulatory Compliance

During last week’s open board meeting, the National Credit Union Administration (NCUA) took several important actions, including unanimously approving the final Credit Union Service Organization (CUSO) rule.

Effective June 30, 2014, the final CUSO rule will require CUSOs to annually provide basic profile information to the NCUA and the appropriate state supervisory authority. CUSOs engaging in certain complex or high-risk activities, such as credit lending, information technology and custody and investment management, will be required to report more detailed information, including audited financial statements and general customer information.  The reporting burden is on the CUSO, not the credit union, but credit unions will need to update their written CUSO agreements to include the new requirements in the final rule.

From NCUA’s Board Action Bulletin:

“Other provisions of the new rule include:

• Extension, for consistency, of sections of the current CUSO rule, which currently apply only to federal credit unions, to all federally insured credit unions. A CUSO must agree to:

- Account for its transactions in accordance with generally accepted accounting principles;

- Prepare quarterly financial statements; and

- Obtain an annual financial statement audit by a licensed certified public accountant.

• A new requirement that CUSOs must agree to report information directly to NCUA and to the state regulator, as applicable. CUSOs that offer complex or high-risk services—like credit and lending; information technology; and custody, safekeeping and investment management services—must report more detailed information, including financial statements and general customer information.

 

• Any subsidiary in which a CUSO has an ownership interest in any amount will be subject to the rule if the subsidiary is primarily engaged in providing products or services to credit unions or their members.

 

• A requirement that a state-chartered credit union that is or would be rendered less than adequately capitalized by additional investment in a CUSO must obtain approval from its state regulator and notify an NCUA regional director prior to making the investment.”

CUSOs will begin submitting reports to NCUA under new section 712.3(d)(4) when NCUA’s reporting system becomes fully operational by December 31, 2015.

You can find the final CUSO rule here.  Also note, NAFCU’s Regulatory Affairs staff will issue a Final Regulation summarizing the key aspects of this rule.  Once it is available, it will be located here.

Other actions taken during the open board meeting include:

• An announcement that federally insured credit unions will likely pay no Corporate Stabilization Fund assessment in 2014;
• Approval of a budget of $268.3 million to fund NCUA’s activities in 2014, including no increase in authorized staffing levels;
• Approval of a decrease of 18.4 percent in the 2014 federal credit union Operating Fee scale that also exempts 303 credit unions with assets below $1 million; and
• Approval of a 2014 Overhead Transfer Rate of 69.2 percent to fund the Share Insurance Fund’s activities.

For detailed information on all actions taken during the open meeting, take a look at this message from NAFCU and NCUA’s Board Action Bulletin. 

No News Left Behind

Written by JiJi Bahhur, Director of Regulatory Compliance

It would be nearly impossible to cover every piece of news that drops in any single month, but we try our best to cover as many notable items that may impact credit unions here on NAFCU’s Compliance Blog.  Today, I’d like to point to a few items that we did not have a chance to mention during the busy month of October.

NCUA Guidance on DORs and Exam Findings.  NCUA issued Letter to Credit Unions 13-CU-09 to streamline the examination report and clarify for federally insured credit unions the difference between a document of resolution and examiner findings.  New processes related to issuing and following up on the examination report are also being implemented by the agency.  Under the new process, examiners are now required to follow up with credit union officials on outstanding DOR items within 120 days after the timeframe for completion has passed.  The changes to the examination report and the new processes are contained in the agency’s revised National Supervision Program Manual.  The agency stated that full implementation will begin with examinations that start after January 1, 2014.

Electronic Filings.  NCUA issued a final rule, effective January 1, 2014, that requires all federally insured credit unions to file quarterly call reports and profile data electronically using NCUA’s information management system or other electronic means specified by the agency.  Manual filing of this information is no longer an option for federally insured credit unions. NCUA guidance and the extended call report deadlines for 2014 are available in Letter to Credit Unions 13-CU-11.

No Share Insurance Premium for 2013. Announced during the October NCUA Board meeting, insured credit unions will not be assessed a share insurance premium for 2013.  The NCUSIF ended September at a ratio equal to 1.31 percent of insured shares, above the statutory minimum of 1.2 percent. If the fund ends the year above that level, any excess would be transferred to the Temporary Corporate Credit Union Stabilization Fund. The NCUSIF's year-to-date net income was $110.3 million; a negative $25 million was budgeted this year.

Flood Hazard Interagency Proposal.  The NCUA Board issued an interagency proposed rule regarding loans in areas having special flood hazards.  The proposal amends the agency’s regulations on federal flood insurance to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters).  It establishes: 1) that regulated lending institutions must accept “private flood insurance,” as defined in Biggert-Waters, as satisfaction of the flood insurance requirement;  2) an expansion of the escrow requirement for flood insurance payments to all residential loans secured by residential real estate; and 3) a clarification of the provisions relating to force placement of flood insurance.  A Regulatory Alert with an analysis of the proposal will be provided to NAFCU members.  Currently, existing guidance that NCUA has issued still applies to credit unions.

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 Have a great weekend!

NCUA Letter to Credit Unions; CFPB Semi-Annual Report; August Compliance Monitor

Written By Michael Coleman, Regulatory Compliance Counsel

NCUA Letter to Credit Unions 12-CU-09. Last week at the July NCUA Board Meeting, the NCUA Board approved the 2012 Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) assessment of 9.5 basis points of insured shares as of June 30, 2012. This week, NCUA released Letter to Credit Unions 12-CU-09 which provides details regarding how the Stabilization Fund assessment was reached and an update on the remaining projected costs of the corporate resolution program. Regarding the current projected costs, the letter states that “deducting the assessments paid through 2012 leaves a projected range of $1.9 billion to $5.2 billion in remaining assessments.” For further details (including some useful charts) see 12-CU-09. 

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Semi-Annual Report. The CFPB recently issued its inaugural Semi-Annual Report. The report contains an overview of the CFPB’s “activities and accomplishments since its inaugural report in January 2012 and additional information required by the Dodd-Frank Act.” The report is fairly lengthy, but credit unions may find Appendix C of the report useful. Appendix C contains a list of the CFPB’s significant rules, orders and initiatives which the CFPB is required to list pursuant to Dodd-Frank Section 1016(c)(3). The list is about 3 pages long, and is a nice summary of all the actions that the CFPB has taken during the reporting period (proposed rules, final rules, etc.). However, the list does not provide any links to the rules, orders or guidance issued by the CFPB, which could have been an extremely helpful addition. Although these documents can be found elsewhere on the CFPB’s website, the website is not particularly user friendly for financial institutions seeking to comply with regulations (the website still lacks a search function).

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NAFCU's August Compliance Monitor.  The August 2012 Compliance Monitor is available for download by NAFCU members. This month’s issue features an article on the CFPB’s continuing mission to meet their Dodd-Frank mandates and highlights the CFPB actions federal credit unions should keep on their radar.  

The Compliance Monitor is a NAFCU member-only publication.  If your credit union is interested in learning more about NAFCU membership, take a peek at our trial membership program.

 

Changes to Equal Housing Lender Poster (for FCUs); NCUA Letter on Corporates

Written by Steve Van Beek

Last Thursday, the NCUA Board approved a couple of Technical Corrections at their March Board Meeting.  One of these changes provides clarity for Federal Credit Unions in an area full of confusion since the creation of NCUA's Office of Consumer Protection:  the address required on the Equal Housing Lender poster.

Equal Housing Poster.  NCUA amended Part 701.31(d)(3) of their regulations to update the address that Federal Credit Unions are required to have on their posters.  In the past, the address was the Office of Examination & Insurance but it should now be NCUA's Office of Consumer Protection.  

Updated Language.  This rule change was included in the Federal Register yesterday and the Electronic Code of Federal Regulations for 12 C.F.R. 701.31(d)(3) should be updated in the next couple of days.  The language for the updated poster can be found here.

Federal Credit Unions.  Part 701.31 only applies to federal credit unions.  State-chartered credit unions should look to the HUD's Equal Housing Poster in 24 C.F.R. 110.25.  

Note:  NCUA did not make the distinction in their technical corrections but the existing language of 12 C.F.R. 701.31 indicates NCUA's poster requirement only applies to federal credit unions - here is from Subsection (d)(2):

"(2) Lobby notice of nondiscrimination. Every federal credit union that engages in real estate-related lending must display a notice of nondiscrimination. The notice must be placed in the public lobby of the credit union and in the public area of each office where such loans are made and must be clearly visible to the general public. The notice must incorporate either a facsimile of the logotype and language appearing in paragraph (d)(3) of this section or the logotype and language appearing at 24 CFR 110.25(a). Posters containing the logotype and language appearing in paragraph (d)(3) of this section may be obtained from the regional offices of the National Credit Union Administration."  (emphasis added).

Technically, Federal Credit Unions could use either NCUA's poster of the HUD poster - but it makes much more sense to use the NCUA specific language with the new updated address for the Office of Consumer Protection.

Timing?  The changed rule became effective immediately - March 21, 2012.  However, NCUA staff did indicate at the Board meeting that credit unions would have a reasonable amount of time to update their posters.

While I'm sure a lot of credit unions appreciate the informal implementation time, I'm hoping NCUA has passed this flexible interpretation to their examiners as well.  

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On Tuesday, NCUA issued Letter to Credit Unions 12-CU-03 which indicates that the unlimited share insurance coverage for shares invested with Corporate Credit Unions will end - as scheduled - on December 31, 2012.  The program is formally known as the Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP) - See Letter 09-CU-01 for more information on the program.

If your credit union has funds with a corporate, make sure your credit union is aware of Letter 12-CU-03 as it does a very good job of explaining how the expiration of the unlimited share insurance could impact credit unions.

Note:  This does not impact share insurance coverage for funds held at natural person credit unions.  Similarly, it does not alter the timeframe for the unlimited share insurance for noninterest-bearing transaction accounts (which is also slated to expire on December 31, 2012 according to Dodd-Frank).

NLRB Notice; NCUA Webpages on Corporates & NGN Program

Written by Steve Van Beek

Below are a pair of items for your Wednesday morning.

NLRB Notice.  The National Labor Relations Board has pushed back the deadline for providing the required notice.  Here is from their website:

"As of April 30, 2012, most private sector employers will be required to post a notice advising employees of their rights under the National Labor Relations Act. (The original effective date was postponed.) The notice should be posted in a conspicuous place, where other notifications of workplace rights and employer rules and policies are posted. Employers also should publish a link to the notice on an internal or external website if other personnel policies or workplace notices are posted there."

Information on the rationale behind the postponement is here.  If your credit union is ready, it is probably best to provide the notice now and move on to the next compliance challenge.  We've discussed the NLRB notice requirement in a previous blog post.

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NCUA Webpages on Corporate Resolution & NGN Program.  Last week (and last year), NCUA announced two new webpages that provide additional information on the Corporate Resolution Costs and the NCUA Guaranteed Notes (NGN) Program.  The announcement is here.  

• Corporate Resolution Costs starting page
• NCUA Guaranteed Notes (NG) Program starting page

Each page also contains additional links on the right-hand side with more detailed information.  

U.S. Central; Special Member Call-in; Servicemembers

Written by Steve Van Beek

On Friday, NCUA issued a press release regarding the failed recapitalization of U.S. Central.  From the release:

"The member-driven solution to charter PayNet as a vehicle to provide back-office payment and  settlement services to consumers through U.S. Central Bridge Corporate Federal Credit Union’s member corporate credit unions did not achieve sufficient support to launch PayNet as a viable business model. Agent for the conservator of U.S. Central Bridge, Scott Hunt, announced activation of NCUA’s contingency plans in a letter to the members of U.S. Central Bridge today.

“NCUA will look to alternative resolution plans to facilitate the orderly transition of member services to other service providers,” said Hunt. “While we have a fiduciary duty to achieve the least, long-term cost resolution of U.S. Central Bridge, we remain committed to minimizing disruption to its corporate members, and in turn, natural person credit unions and American consumers.” 

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NAFCU will be hosting a special member call-in today at 2 p.m. Eastern to discuss the corporates.  Scott Hunt, NCUA's Director of the Office of Corporate Credit Unions will participate in the call.  The call-in is free but registration is required.

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The CFPB's Office of Servicemember Affairs has issued a Request for Information regarding the products and services currently offered to servicemembers.  The Request has a short turnaround time of 14 days - with comments due by September 20, 2011. 

NCUA Communications; Football Season

Written by Steve Van Beek

NCUA issued a press release Thursday to address Western Bridge Corporate's status.  The release emphasizes there will be no interruption in services as the transition and bidding process occurs.  Attached to the letter is a Frequently Asked Questions document providing additional details.

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NCUA also released Second Quarter financials for the Credit Union industry.  That information can be found here.

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How do you know it is football season?  When this is the first comment posted on yesterday's blog - from SC Buckeye:

"Do you know what Saturday is?

Since your bride-to-be is an Ohio State girl, I thought she would say "Michigan's first loss"."

Ouch.  Good luck and Go Blue!  Have a great holiday weekend!

NCUA Board Meeting; Charitable Activities

Written by Steve Van Beek

Yesterday, the NCUA Board met and announced a 2011 assessement of 25 basis points for the Corporate Stabilization Fund.  NCUA will begin distributing the invoices with the assessment due by September 27.  

The Board also announced a Management and Oversight Committee for the NCUA Guaranteed Notes.  Finally, NCUA proposed a regulation with technical corrections to the Corporate Rule.  Additional information can be found in NCUA's Board Action Bulletin.  

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NCUA also issued additional information on disaster prep and providing assistance and services after disasters.

Included in the information is information about how credit unions can help other credit unions as well as members and non-members in these types of situations.  Specifically, the information indicates:

"Federal credit unions may also provide assistance to other credit unions, their members, and non-members in the affected areas, under certain conditions.

• Emergency financial services for non-members, including check cashing, access to ATM networks, or other services to meet short-term emergency needs of individuals in the areas affected by Hurricane Irene, can be provided under the authority to engage in charitable activities. Federal credit unions providing services on this charitable basis may not impose charges for services that exceed their direct costs.

• A federal credit union may provide services to other credit unions that it is authorized to perform for its own members or as part of its operations. This activity is part of a federal credit union’s incidental powers, so it may impose charges for these services."  

From yesterday's NAFCU Today story (ha!), it looks like NCUA is working on a legal opinion letter to provide additional details in these situations.  

Sorry - after typing that, I had to chuckle.  Just a few more days until college football kicks off!  Remember, everyone is currently undefeated.     

Board Meetings Results

Written by Sarah Loats Zimmermann

With our Annual Conference this week and two Board meetings yesterday it's been a bit busy around here so I'll hope you'll allow me a short post today.

As I noted a couple of days ago, both the NCUA and the Fed held Board meetings yesterday.

NCUA approved a voluntary corporate stabilization assessment prepayment program. For more information you can find the NAFCU Today article here.  And NCUA's information here.


Also the Federal Reserve Board approved its debit card interchange rule by a vote of 4-1. The rule provides for a maximum interchange fee of the sum of a 21-cent base component plus 5 basis points of the transaction's value. While this is better than the proposed rule, it still isn't awesome. A few of the Board members expressed concern over whether the small issuer exemption would work in practice, and the Federal Reserve's Gov. Elizabeth Duke opposed the rule due to her concerns. However the sentiment seemed to be that they were hamstrung by the statute and the best they can do is monitor the exemption's effectiveness (so, basically, wait and see). The Board also approved an interim final rule that allows for an upward adjustment of no more than 1 cent to an issuer's debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve the fraud-prevention standards set out in the interim final rule.

For more information you can read the NAFCU Today article.

And the Federal Reserve's press release is here, with links to the final rule and the interim final rule.

Adverse Action Notices; Fiduciary Duties Policy; NCUA Webinar

Posted by Sarah Loats Zimmermann

Adverse Action Forms. Confusion abounds surrounding the proposed adverse action forms under Reg B. The confusion probably stems from the fact that the change required by the Dodd-Frank Act (to include credit scores and other information in an adverse action notice) is a change to the FCRA adverse action notice requirements. Changes are not being made to the ECOA/Reg B adverse action requirements at this time.

However, very often a credit union needs to send both adverse action notices at the same time. Therefore, the Federal Reserve created model forms that combine the Reg B and FCRA adverse action notice requirements. These model forms are housed in Appendix C to Reg B, and because there are changes to the FCRA notice requirements the Federal Reserve needs to change those model forms that purport to satisfy both the Reg B and FCRA adverse action notice requirements.

The proposed model forms were published in the Federal Register in March. The FCRA notice requirements kick-in July 21, 2011 per the Dodd-Frank Act. Final forms have not yet been issued, but keep an eye out for them because July 21 is just around the corner. If you are itching for a more detailed discussion of this issue, please see the Background section of the proposed rule. If that link doesn't work for you, go to the Fed's press release announcement. You can access the proposed rule from there as well.


Fiduciary Duties Policy.  NAFCU members, another very generous member has offered a sample Fiduciary Duties policy for the policy exchange library. If you'd like to review it, you can go to the library and peruse the Miscellaneous section. It is aptly named Fiduciary Duties. And when that generous nature strikes you, please consider offering a sample policy of your own.

 

NCUA Webinar.  NCUA will be holding a free webinar Thursday May 26 (tomorrow) at 4 pm. The topic is the proposed voluntary prepaid Corporate Stabilization Fund assessments program that NCUA announced at its May 19 Board meeting. NCUA's press release about the webinar contains a link to register.

NCUA Board Meeting; The Chairman on Comment Letters; Mortgage Doc Prototypes Near?

Posted by Anthony Demangone

Happy Friday, everyone.  We somehow made it through another week as compliance officers!

NCUA. Yesterday, NCUA held its monthly board meeting.  You can access the meeting materials here. It wasn't a huge compliance day, although NCUA did issue rules regarding corporates and they finalized a proposed IRPS that tweaks NCUA's Supervisory Review Committee.  NAFCU Today will provide overview of the meeting here.

Comment letters. NCUA Chairman Debbie Matz gives some great advice on how to write comment letters.  Via this link, you can read a quick overview of the four major areas where she gives advice, as well as watch a 5-minute video on the art of writing comment letters. This clearly is on the Chairman's mind right now, as she covered the same topic in this month's NCUA Report. 

The Mortgage Forms Are Coming.  Reportedly, the CFPB is close to releasing prototype model mortgage disclosure forms.  This will be our first chance to see how they'll handle model forms. 

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As you can see, Kate and Briggs would rather be outside, enjoying springtime.  I hope you follow their lead, and enjoy your weekend!  If you are travelling, be safe.  

WesCorp MLR; This and That

Posted by Anthony Demangone

NCUA has released its Material Loss Review on WesCorp.   Here's a NAFCU Today article with our reaction. If you don't have a lot of time, just skim the executive summary. The report points to weak risk-management, as well as  problems in NCUA's supervision of the corporate. 

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Here are some other items of note.

• Treasury has announced two key hires for the CFPB.

Peggy Twohig.  Peggy Twohig currently serves as Treasury's Director of the Office of Consumer Protection and Policy Lead for the CFPB implementation team.  Prior to joining Treasury, Twohig worked at the Federal Trade Commission on enforcement and policy issues related to consumer financial services, including directing the activities of the Division of Financial Practices.  Before her work at the FTC, Twohig practiced law with the firm of Arnold & Porter in Washington D.C., handling civil litigation matters.  In her new role, Twohig will spearhead efforts to conduct research and policy analysis around the creation of the first federal non-depository supervision program.  

Steve Antonakes.  Steve Antonakes served as the Commissioner of Banks for the Commonwealth of Massachusetts for the past seven years and oversaw nearly 240 state-chartered banks and credit unions and more than 4,500 non-bank financial entities. Antonakes also served as a voting member of the Federal Financial Institutions Examination Council (FFIEC) and as the Vice Chairman of the Conference of State Bank Supervisors (CSBS). He began his career as an entry level Community Reinvestment Act Bank Examiner in June 1990 and worked his way through the management ranks to become the Commissioner of Banks – only the second career bank examiner to serve in that position.  In his new role, Antonakes will build the consumer supervision program for the nation's largest depository institutions.  

• The Acting Director of the OTS recently spoke in Japan on various issues regarding the U.S. financial system, including Dodd-Frank.  His remarks were less than "warm and fuzzy." Here are a few interesting excerpts.

Of course, the OTS was not the only federal banking regulator to supervise financial institutions that failed during the crisis. Since the IndyMac failure, about 300 U.S. financial institutions have failed, including state-chartered banks and national banks. And institutions much larger than Washington Mutual — for example, Citigroup and Bank of America — collapsed. However, the federal government deemed these larger institutions too big to fail and provided open bank assistance to prevent their failures. As I have said in the past, the OTS did not regulate the largest banks that failed; the OTS regulated the largest banks that were allowed to fail...

I think it is instructive to view those words in light of the new U.S. financial services framework mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law on July 21 of this year. Have we succeeded in designing a regulatory structure for the 21st Century, or have we ended up with a system that is politically feasible, rather than truly optimal? My conclusion is that, like any result of compromise, the new structure is not necessarily the ideal structure, it is merely the structure that was able to muster enough votes to pass through the legislative process.

• NCUA has released its most recent issue of The NCUA Report. This report focuses on corporate credit unions, recent NCUA actions, and concentration risk.

NCUA Board Meeting; My Son Was "That Kid"

Posted by Anthony Demangone

Yesterday, NCUA held its monthly NCUA board meeting.  Here's a link to the draft items that the board considered at the meeting.  For a more detailed overview of the meeting, please read our NAFCU Today article on the meeting. 

NCUA addressed the following items: 

1. Interim Final Rule – Part 704 of NCUA’s Rules and Regulations, Corporate Credit Unions, Technical Corrections.
2. Proposed Rule – Part 704 of NCUA’s Rules and Regulations, Corporate Credit Unions.
3. Insurance Fund Report and Premium/Assessment Ranges.
4. NCUA’s 2011 Operating Budget.
5. NCUA’s Overhead Transfer Rate.
6. NCUA’s Operating Fee Scale.

Regarding the corporate proposal, NCUA issued a proposed rule that would do the following:

• Require corporates to conduct all board of director votes as recorded votes and include the votes of individual directors in meeting minutes;
• Impose internal control and reporting requirements (including audit, reporting and audit committee practices) similar to those required for banks;
• Provide for the equitable sharing of the Corporate Stabilization Fund (TCCUSF) expenses among all members of a corporate credit union, including both credit union and noncredit union members, by establishing procedures for requesting members not insured by the NCUSIF to make voluntary premium payments to the TCCUSF;
• Limit natural person credit unions (NPCUs) to membership in one corporate of the NPCUs choice at any one time and prohibit an NPCU from making any investment in a corporate where the NPCU is not also a member;
•  Require corporates to establish enterprise-wide risk management committees staffed with at least one independent risk management expert;
• Allow corporates to charge their members reasonable one-time or periodic membership fees; and
• Require the disclosure of compensation received from a corporate CUSO by certain highly compensated corporate credit union executives.

The Board also approved NCUA's 2011 operating budget.  The 2011 budget comes in 12% heavier than the 2010 version (reminds me of...well, me), which will allow NCUA to increase its staff by 78 positions.  Regarding the budget, here are a few things that caught my eye:

• The Office of Inspector General will receive an increase of $650,000 to engage outside professionals to conduct Material Loss Reviews, for a total budget of $1,250,000.  That's double from 2010. Are we looking forward to a doubling of material loss reviews in 2011?  
• The budget includes $3,461,000 in pay, benefits, travel, training, and other related expenses for the continuing implementation of NCUA's Annual Examination Program. That program incorporates more frequent onsite contact of all federal credit unions, with emphasis on problem credit unions, and enhanced offsite monitoring of credit unions. The program adds 60 field positions to the regions: 53 examiners, six (6) supervisory examiners, and one(1) lending specialist.

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On the return flight of a recent trip to Boston, my son Briggs was that kid on the plane. 

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Have a great weekend, everyone!

U.S. Central MLR; Fixed Assets Grandfathering; NAFCU Member Call-In

Posted by Anthony Demangone

Last week, NCUA's Office of Inspector General released a material loss review (MLR) concerning NCUA's conservatorship of U.S. Central Federal Credit Union.  The MLR tries to determine the reason why NCUA had to conserve U.S. Central.  You should read the MLR yourself, but, in short, the MLR found that U.S. Central's management and board failed to adequately manage the risk involved with its investment strategy, partly due to inadequate oversight.  In addition, the report pointed fingers at NCUA, concluding that examination staff failed to hone in on that risk within the investment portfolio.  By the time NCUA saw the risk, it was too late.

Here's one paragraph that caught my eye:

Since 2001, U.S. Central had modest growth and a generally conservative investment strategy. However, in 2006, U.S. Central’s business strategy shifted towards more aggressive growth that was focused on increasing or maintaining market share of the retail corporate credit union balances by offering competitive investment products and rates. U.S. Central’s assets grew to $44.7 billion by December 31, 2007, an increase of 22 percent from December 31, 2005. U.S. Central’s growth was achieved by offering highly competitive rates to its retail corporate credit union members, encouraging these members to invest their liquid funds with U.S. Central.

This paragraph states that in 2006, U.S. Central moved toward a strategy of aggressive growth.  In order to fund the higher returns needed to grow its assets, U.S. Central had to achieve higher returns on its investments. Arguably, that growth strategy is the event that caused the rest of the dominoes to fall. But there was no discussion within the MLR about why U.S. Central changed strategies.  It is food for thought, anyway.

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In last week's NCUA board meeting, NCUA approved a regulation that ends four RegFlex exemptions. One of the affected areas involved fixed assets. Currently, RegFlex credit unions are exempt from the 5% limitation on fixed assets. The final rule ends that, and the rule will be effective 30 days after it is published in the Federal Register.  I'm sure that last sentence caused a few jaws to drop.  There's good news, of sorts.  There is a grandfather clause.

Credit unions that have already exceeded the 5% limit on the effective date of this rule will be grandfathered at that limit. If their level of fixed assets subsequently trends downward, then so will the level at which they are grandfathered. Grandfathered credit unions are, however, still eligible to apply for a waiver to increase their fixed asset investments. For example, a credit union grandfathered at 8% whose fixed assets trend downward to 6.5% will have a new grandfathered limit of 6.5%. Further, if that same credit union then wishes to increase its fixed assets to 9%, then it may apply for a waiver to do so. 

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Please join us for our "Year-End Review," a NAFCU member-only conference call on Nov. 18. NAFCU President Fred Becker and the association's senior staff will report on the latest developments in Washington affecting credit unions, as well as the outlook for the economy. NAFCU's Member Call-In is free, but you must register to participate. You can register online or contact our Member Service Center at (800) 344-5580.

This and That...

Posted by Anthony Demangone

Here are a few items of interest.

Don't call it a bailout.  You may get some questions from members asking why credit unions were bailed out by the federal government.  These questions would likely stem from sloppy headline writing following the recent conservatorship of three additional corporate credit unions. Most do not understand that the credit union share insurance system is a mutual system, whereby we insure each other against loss.  Taxpayer dollars were not involved.  Just in case someone doesn't want to take your word, Congressional Quarterly wrote an intelligent overview of the NCUA conservatorship actions. Here's our NAFCU Today article about the CQ article. That's right.  You're reading a blog, that talks about an article, that talks about another article, that talks about NCUA's conservatorship of three corporate credit unions. 

Yes, people do try to launder money.  If you need examples of how people will continue to launder money, here's a recent, real-world example of structuring that you may want to use in some BSA training. 

Letter to NCUA.  Much of the work of NAFCU's Regulatory Affairs team goes unnoticed.  Their job is to represent NAFCU's members before regulatory bodies (and other places.) Here's a recent example of their work: a letter to NCUA concerning examination and regulatory issues.  

NAFCU's offices will close a little early today, and we'll be off on Monday in observation of the federal holiday.  Have a wonderful weekend.  Note: Next week, many of us will be in Grapevine, Texas for the NAFCU Regulatory Compliance Seminar.  Please bear with us, as response times may be a bit longer than normal. For those heading to Seminar, safe travels!

Consumer Compliance Outlook; This and That

Posted by Anthony Demangone

The Fed has released the latest issue of its Consumer Compliance Outlook publication.  I always find the articles to be well-written, and very useful.  Of note in this issue:

• An article on changes to the HUD-1.
• Furnisher requirements under the FACT Act.
• MDIA explanations and examples.
• An index of all of their articles.
• A super useful calendar of upcoming requirements.

Sign up to receive email notifications when new issues are available here. 

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In other news:

• NCUA charters 2 "bridge" corporate credit unions. 
• NAFCU members: We've issued a "Final Regulation" for NCUA's recent Short Term/Small Amount Loan Regulation.
• The FDIC has issued guidance on the security risks involved with digital images stored on copiers, fax machines, and printers.  You may recall that we wrote about this issue back in August. In short, these machines store digital images of the faxes, copies or items that you print.  When you get rid of the machines, the images go with them unless you have policies and procedures in place to strip the potentially sensitive data.  The security risk increases compliance risks related to Part 748 of NCUA's rules and regulations, not to mention Red Flags. 

 

NCUA's Corporate Credit Union Plan;

 Posted by Anthony Demangone 

On Friday, NCUA released its long awaited corporate credit union final regulation.  The materials from that meeting are available here.  NAFCU's communications team has a lot of information about the meeting here.  In addition, NCUA has scheduled a virtual town hall meeting for this afternoon.  Read about it, and sign up, here.  

A good place to start would be to review this NCUA webpage.  It is their "corporate resolution"page, and it contains information such as:

• A letter to credit unions that summarizes the rule.
• A frequently asked questions document.
• A side-by-side chart that compares the old corporate rule, the proposal, and the final rule released on Friday.

If you have time, I'd glance through the articles and NCUA materials, and then attend this afternoon's town hall meeting.  NAFCU will continue to push out additional information to its members in the upcoming days, so be sure to sign up for the NAFCU Today if you have not already.

That should be enough for any Monday!

Regulation CC; This and That

Posted by Anthony Demangone

Oh, that Reg Reform Law is going to be the end of me.  

Buried within the 2,000+page reg reform bill was a simple change.  The reg reform law amended the Expedited Funds Availability Act regarding the "first $100" availability provision.  That amount has been bumped to $200.  And the change is effective as we speak.  But Regulation CC has not changed, and it continues to contain the $100 language. 

I say it was a "simple" change with a great deal of sarcasm, because such a change likely will require changes to core processor programming, disclosures, websites, and policies.  There is no mention of the need for the Fed or CFPB to write regulations to implement the change.  

Ugh.

NAFCU contacted the Fed, and this is roughly what we heard.  

The Fed will issue new regulations regarding the change to the Expedited Funds Availability Act.  The effective date for that provision is whatever date the CFPB officially becomes effective, so the Fed doesn't know exactly when that will be.  The Fed is trying to get a better feel for when that date will be before they move forward on Regulation CC, but right now they are looking at two different options.  

1. First, the Fed may wait until they know when the CFPB will go into effect and then update the regulation with an effective date that matches the CFPB.  If they just update those changes required by the Act, the Fed indicated that the regulation will have a very short comment period or possibly, none at all.
2. The second option would be for the Fed to look at some other changes to Reg CC and do a more comprehensive proposed rule encompassing the changes required by the Act as well as other issues the Fed has been looking at.  What those issues are were unclear from our conversation. 

Keep in mind that this was an informal conversation, and that "things are fluid" in Washington, D.C.  For now, though, it does appear the Fed will issue regulations to update Regulation CC based on the reg reform law.  So, what to do?  It seems reasonable for credit unions to wait until a final regulation is issued that mandates changes to policies, disclosures, etc. That being said, the reg reform law is already effective, including the $200 language. Perhaps the Fed will issue some clarification in the near future to clear things up.

And in other news...

Interchange.  Last week, I wrote how another threat to interchange income surfaced during the appropriates process.  Well, that threat has ended. 

Mortgage fraud. FinCEN has released a report regarding mortgage fraud activity in 2009. 

Corporate credit unions.  NCUA announced plans to release a three-part series to address the current situation facing corporate credit unions.  The complete set is now available. 

In the News

Posted by Sarah Loats

Welcome back from the holiday weekend. I hope everyone had a chance to unwind and recover from the July 1 deadline craziness. Here are just a few news-worthy notes to start the week.

• Congress cleared the way for a flood insurance extension through September 30. The measure awaits the president's signature.
• NCUA filed a notice of claim on U.S. Central to protect its right to seek recovery under the liability policy.
• NAFCU members, our July Compliance Monitor is now available.
• Last week, NCUA held a "town hall" webinar where it discussed, among other things, corporate credit unoins and legacy assets. In case you missed it the first time, you can now access the archived version.
• NCUA has issued Letter to Credit Unions 10-CU-11, which provides guidance on the merger and purchase and assumption process.

This and That...

Posted by Anthony Demangone

Happy "Hump Day," everyone.  Here's a few tid-bits for your consumption.

NFIP.  There has been a good deal of guidance related to the lapse of the National Flood Insurance Program.  NCUA decided to join in the fun, issuing Letter to Credit Union 10-CU-08 to highlight FEMA guidance that addresses "lapse" related issues. 

Compensation.  Recently, the Fed, OCC, OTS, and FDIC issued guidance on "incentive compensation." The goal was to ensure that incentive compensation arrangements at financial organizations take into account risk and are consistent with safe and sound practices. NCUA did not sign on to the guidance, but it still might be useful to review if your credit union is reviewing its compensation policies and practices. 

Member assessment fee?  A member asked us if his credit union could assess a fee to the credit union's membership to pass on the cost of the 13.4 basis points corporate assessment.  The credit union didn't want to create a "account maintenance fee."  Rather, as mentioned above, they wanted to simply pass the costs along directly to the membership.  I'm not sure that is possible.  In 1993, NCUA was asked whether a federal credit union could directly pass along their league dues to the membership.  NCUA said no.   The letter is not long, so here it is in its entirety.

You requested an opinion concerning whether an FCU may pass along its League dues to its membership in the form of an annual assessment. This practice is impermissible.

ANALYSIS

Section 109 of the FCU Act permits FCUs to charge "a uniform entrance fee if required by the board of directors" when becoming a member of the FCU. 12 U.S.C. ~1759. No other membership fees are permitted by the FCU Act. Under the ancient legal maxim "expressio unius est exclusio alterius," where something is designated in a statute, all omissions should be interpreted as exclusions. See Sutherland Stat. Const. ~47.23 (5th ed., 1992). Therefore, no annual membership fees of FCU members may be assessed except for the initial entrance fee. This is a long-standing policy of the NCUA. See Letter from John L. Ostby, NCUA General Counsel, to Michael Marion, Assistant Counsel, Michigan Credit Union League, dated June 8, 1981.

Credit unions would be able to increase fee income in other ways to compensate for the assessment, but a direct fee to the membership does not appear possible based on this legal opinion letter.

Corporate Assessment; Opt In Issue; Credit Card Agreement Specifications; FinCEN "Stored Value" Rule

Posted by Anthony Demangone

NCUA has issued Letter to Credit Union 10-CU-09 to discuss the recent NCUA board actions concerning its corporate stabilization program.  If your credit union has questions about the 13.4 basis points assessment, this guidance provides a good deal of information. 

***

Here was an interesting issue that I just stumbled upon.  A credit union called to note that certain gas stations near his credit union have created their own "debit card." (I'm assuming this is nation-wide.) The card links to the member's credit union account, but it clears as an ACH transaction.  The question was this: how do these cards fit within Regulation E's overdraft protection rule?  Answer: They don't.  

Regulation E's ODP opt-in rule only applies to cards issued by or on behalf of the account-holding bank or credit union.  This comes from the Official Staff Interpretation section of Regulation E:

Section 205.17(b) applies to ATM and one-time debit card transactions made with a debit card issued by or on behalf of the account-holding institution. Section 205.17(b) does not apply to ATM and one-time debit card transactions made with a debit card issued by or through a third party unless the debit card is issued on behalf of the account-holding institution. § 17(b)(1)(i) of the Official Staff Interpretations supplement to Regulation E. 

***

A little birdie told me that she received an email from the Fed indicating that the Fed will create new technical specifications for submitting credit card agreements per Reg Z.  The next submission is due by August 2, 2010. Reportedly, the Fed will be emailing the new specifications shortly. 

***

The Credit CARD Act mandated that new regs be issued to address the "stored value" system in relation to anti-money laundering and financial crimes.  Well, FinCEN yesterday, FinCEN issued a proposal to deal with that mandate.   The proposal, though, does not apply to depository institutions.   It is focused on MSBs.  But don't forget that the recent changes to the BSA manual do discuss risk mitigation controls for credit unions that offer stored value products. Here's a 7-page overview (member log-in needed) of the BSA manual changes. It will be made available to anyone who signs up for our July 14th webcast, which will also address the BSA changes. 

NCUA Board Meeting; NCUA Newsletter; 50 Years and Counting

Posted by Anthony Demangone

Yesterday, NCUA held its monthly board meeting.  Here's a recap of what went down.  

• NCUA issued a final rule - Part 701 of NCUA’s Rules and Regulations, Interpretive Ruling and Policy Statement (IRPS) 10-1, NCUA’s Chartering and Field of Membership Rules.  NCUA issued its final rule to amend its chartering and field of membership manual to update its community chartering policies.  The final rule includes the use of "objective and quantifiable" criteria to determine the existence of a local community and to define the term “rural district.”  The rule also clarifies NCUA’s marketing plan requirements for credit unions converting to or expanding their community charters.   The rule becomes effective 30-days from publication in the Federal Register.   NAFCU will provide a summary and section-by-section analysis of the final rule for NAFCU members in a Final Regulation.
•  NCUA issued new chartering delegations of authority in order to speed up the processing of various types of chartering transactions.  These new delegations authorize the Regional Directors and the Director of the Office of Small Credit Union Initiatives to process a broad range of chartering transactions.  NCUA’s Board will keep its authority to process appeals and all chartering transactions involving over 1,000,000 persons.
• The NCUA Board also authorized the following:

1. The date of September 30, 2010, for the repayment of $1.5 billion in funds borrowed by the Temporary Corporate Credit Union Stabilization fund.
2. The assessment of 0.134 percent of March 31, 2010, insured shares, an estimated total of $1 billion, according to §217(d) of the Federal Credit Union Act.

• Since the approval of this assessment establishes the liability, credit unions should expense the assessment in June and report the expense on the June call report.   The Office of the Chief Financial Officer will prepare the associated invoices and provide them to all federally insured credit unions in July with the assessments due in August, not less than 60 days of this action.  

As always, you can access the "draft board items" here.  The draft board items are the items that were presented to the NCUA board meeting for their approval.

***

NCUA has released the most recent issue of The NCUA Report.   I guarantee you that NCUA does not throw darts at a wall to determine what topics are covered within this periodical.  Undoubtedly, they use the publication to stress something that is keeping them up at night or something they want to stress to credit unions.  With that, there were two topics that caught my eye.  There are articles within the newsletter regarding loan loss provisions, charge offs and modifications.  Another article talked about fair lending issues.  If NCUA is thinking about those topics, perhaps you should as well.

***

I'm heading home today to celebrate my parents' 50th wedding anniversary.  It will be a well-deserved celebration for two of the best people I know.  Here's to you, Mom and Dad!

1960

 

      2010

This and That; Coach Wooden

Posted by Anthony Demangone

I hope everyone had a great weekend.  Now, let's roll up our sleeves and get to work!

Accounting.  NCUA recently issued Accounting Bulletin 10-01.   The purpose of this Accounting Bulletin is to transmit Interagency Supervisory Guidance on Bargain Purchases and FDIC- and NCUA-Assisted Acquisitions. The guidance was issued jointly by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of Thrift Supervision (OTS) (the Agencies).  Just make sure your accounting team is aware of the guidance.

Corporate.  NCUA has released a presentation that is designed to help individuals understand the current corporate credit union situation.  You can access the presentation here.  Kicked off by NCUA Chair Debbie Matz, the presentation runs roughly 30 minutes.  NCUA will release additional presentations on the subject.  This could be used as a nice overview or refresher for a board or senior management meeting.

NCUA Board Meeting.   The agenda is now available for this week's meeting.  On the agenda?

1. Final Rule - Part 701 of NCUA's Rules and Regulations, Interpretive Ruling and Policy Statement (IRPS) 10-1, NCUA's Chartering and Field of Membership Policies.
2. Delegations of Authority - Chartering.
3. Proposed Rule - Part 741 of NCUA's Rules and Regulations, Requirements for Insurance, Interest Rate Risk Policy and Program.
4. Insurance Fund Report.
5. Temporary Corporate Credit Union Stabilization Fund Accounting Standard.
6. Temporary Corporate Credit Union Stabilization Fund Payment of Insured Shares.
7. Temporary Corporate Credit Union Stabilization Fund Assessment.

Region III.  Herb Yolles ws named the temporary Regional Director for Region 3 for the rest of 2010.  Why do I mention this? Regional Directors play a big role in compliance.  They oversee the Region's staff, ultimately approve waiver requests and play other pivotal roles.

John Wooden.  You may have heard of the passing of John Wooden.  If you are not a sports fan, Mr. Wooden is generally regarded as the greatest college basketball coach our nation ever produced.  Some would say that he is the best coach of any category.  I've been reading quite a few stories about him.  There were times when the UCLA basketball team would come in for halftime, and Coach Wooden's entire halftime speech would center on...enthusiasm. He wouldn't talk about boxing out, or how to work on a trap.  He'd often just talk about an important quality he wanted on his team.  It could be enthusiasm, or friendship, or self-control.  Coach Wooden's thought was that if you took care of certain smaller things, success was inevitable.  He turned it into the pyramid of success.  I downloaded that pyramid and I'll post it somewhere.  The pyramid is made up of qualities that lead to success.  I don't care if it is basketball, soccer or compliance.  That chart works for me.  Perhaps it will work for you. 

This and That

Posted by Anthony Demangone

Here are some items of interest.

Economy.  NCUA indicates that the first quarter financials show few positive signs for credit unions.  Of note is the following quote from NCUA Chairman Debbie Matz:

“As long as serious economic issues persist, credit unions will be challenged. NCUA is taking administrative actions wherever necessary to uphold safety and soundness standards. We are working diligently to ensure that credit unions maintain strong balance sheets so that they can continue to serve members well through the economic recovery and beyond.” (Emphasis added.)

Reg Reform.  I've read a number of articles that estimate that perhaps more than 200 rulemakings will be needed to implement whatever regulatory reform becomes law.  Yes, perhaps more than 200.  And some of the rules must be written by an agency that has yet to be created.  Here's my view of the crystal ball: 2011 will see a slowdown in new rules from regulators.  There are a few remaining proposal and final rules of note, but after January 1, 2011, there likely will be a lull.  But when the new agency kicks into gear and regulators start writing regs to implement the reg reform law, be prepared to be busy.  I'm thinking late 2011/early 2012 will see the beginning of the avalanche.  Many of the rules will affect credit unions, but we'll have to read each one to know for sure.

Flood.  We're in a NFIP lapse again.  As noted before, regulators have issued guidance to help us understand how to proceed during a lapse.

TCCUSGP Extended.  NCUA extended the expiration date of NCUA’s Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP) from June 30, 2012, to September 30, 2012. With this extension, new investments with maturities of two years or less in participating corporate credit unions made before September 30, 2012, will be fully covered by the guarantee program. This is in addition to the existing deposits already covered.

Risk Management.  NCUA recently issued Letter to Credit Union 10-CU-06,which focuses on interest rate risk.  This is simply a regurgitation of guidance the regulators issued back in January of 2010.  With the importance of risk management, though, I thought I'd give it a shout out.  Also, on page 10 of the guidance is a list of NCUA guidance documents that touch upon interest risk management.  You might want to forward this guidance and that list of other guidance documents to your CFO.  If you are the CFO, feel free to send yourself an email.

RESPA's QWR; TCCUSGP Extended; Newsletter Document Updated

Posted by Anthony Demangone

If you have received a qualified written request from a member per RESPA, you probably groaned a bit.  The requests can be intimidating.  On the surface, QWRs appear to require a ton of work, and you often wonder if you are being set up for a lawsuit or some other type of shenanigans. 

Along those lines, I found this article from the American Banker Association's Banker Journal that details steps financial institutions can take to more efficiently handle such requests.  The article provides a general overview of QWRs, and it provides citations and legal explanations that you should find to be useful.  A very good read, indeed.

***

NCUA has extended the expiration date of the Temporary Corporate Credit Union Share Guarantee Program, also known by its easy to remember acronym, TCCUSGP.  Really?  That acronym may be the worst one.  Ever.

***

NAFCU members:  Did you know that we have a master .pdf document that includes all of our newsletters since 1999?   This document is a treasure trove of articles, guidance and "questions and answers."  Note that the information is included as it was originally printed, so some information will be outdated.  That being said, I use the document on a weekly basis. 

Corporate Credit Union Proposal - We Need Your Help

Posted by Tessema Tefferi

As most (if not all) of you know, NCUA has issued its long-awaited proposed rule to overhaul Part 704 of NCUA’s rules and regulations (corporate rule). The proposed rule addresses a wide array of issues, most of which are related to corporate credit union capital requirements, investment authority, limits on risk, and corporate governance. About a month ago, NAFCU issued a Regulatory Alert summarizing the proposal and seeking comments from NAFCU members. Your comments are critical to the development of our comment letter, as is the case with each that we submit to the NCUA or other federal agencies.

So, we are reaching out to you again for your comments. While you are welcome to write to us on any matter addressed in the proposed rule, as well as what you believe the NCUA should have addressed, I thought I would point out a few aspects of the proposal that your credit union can focus on. 

• What do you think about the proposed rule to institute a risk-based capital regime and a corresponding PCA system for corporates?
• Should the NCUA bolster the limits it proposed on corporate credit union investment authority by more fully addressing credit risk? If so, should there be enhanced requirements relative to securities analysis in addition to, or instead of, the requirements that securities be top-rated by credit rating agencies?
• Do you find the proposed requirements related to ALM clear enough and appropriate to measuring ALM, including use of net economic value?
• What do you think of the proposed retention of most of the current expanded authorities?

We would love to hear your thoughts on these issues and others. You can e-mail me at [email protected] or call me directly at (703) 842-2268.

A Quick Look Toward 2010

Posted by Anthony Demangone

When I was a young lad, I realized that I would graduate from high school in 1990.  1990!  That date seemed like something from a science fiction movie.  Twenty years later, I still get those same feelings each year.  2010?  It can't be.  But it is.  And it will take me about a month to remember to write 2010 on my checks.

With that in mind, here's a quick run-down on things that we should keep in mind this year.

SAFE Act.  If you are a state or federally-chartered credit union, there's still no news here.  NCUA has yet to issue a final rule.  And the deadline for registration is still 180 days after the system starts accepting registrations.

Escrowing.  I'm not even sure if that is a valid verb.  But we'll start doing that for higher-priced mortgage loans this April.  And for manufactured homes, the escrow deadline is in October.

BSA.  The BSA manual will be updated at some point.  I'm not sure when, but it very well may require you to tweak your BSA/AML program. The CARD Act will require Treasury to issue rules to bring stored value cards under the BSA regulatory system.  I expect that rule at some point. 

Reg Z. Ugh.   Where do I begin?  Sure - we have a good grasp on how the open-end changes will wreck our social lives this year.  But don't forget that there the July 1 changes to Reg Z's open end rules that already were to take affect before the CARD Act entered our lives.  Also, there are proposals on HELOCs and closed-end lending that should go final this year.  The private student lending rule takes effect in February.  And the mortgage transfer/sale rule kicks in later this month.  In addition, there are two more Credit CARD Act provisions that will become affective this August.  The Fed will need to issue rules for those this year.

Reg E.  The overdraft rules kick in on July 1, 2010.  We expect additional guidance from the Fed this month on this topic.

FCRA.  Risked-based pricing notice rules kick in on January 1, 2011. But don't forget that another "FACT Act rule" kicks in on July 1, 2010 - the Accuracy and Integrity Guidelines. 

Corporates.  NCUA has a major proposal out there to overhaul the corporate credit union system.  NAFCU members - we urge you to respond to our Regulatory Alert's call for comments on this proposal.

Reg CC.  The Fed has not officially changed the regulation due to the impending death of non-local checks.  But they'll have to do so at some point in 2010.

The Hill.  Reg Reform and overdraft protection issues are addressed in a number of areas. But nothing has passed both houses.  Stay tuned.

So, 2009 was a bear.  I'm not sure what animal 2010 will ultimately be, but it won't be a kitten. 

NCUA Board Meeting

Posted by Sarah Loats

NCUA conducted a busy Board meeting yesterday. The items on the agenda were:

1. NCUA's 2010/2011 Operating Budget

2. NCUA's Overhead Transfer Rate

3. NCUA's Operating Fee Schedule

4. Proposed rule for the Corporate system

5. Final rule for the NCUSIF premium and one percent deposit

6. Insurance Fund report.

The major proposed revisions to the corporate credit union rule involve 5 areas: 1) corporate credit union capital; 2) investments; 3) asset-liability management; 4) governance; and 5) CUSO activities.

NCUA Board Member Hyland hosted a free member business lending webinar on Wednesday November 18 where she stated she expects NCUA's 2010 budget to include funding to ensure that each region has appropriate expertise to ensure effective MBL examinations. See NAFCU Today's article for more on the webcast. The budget does propose $5,778,000 to implement the Annual Examination Program. The program calls for, among other things, the addition of 57 positions to the regions including 4 lending specialsts. For those of you that missed the webinar but would like to watch it, NCUA should have an archived version available soon.

Another item from the budget that caught my attention was the proposal to create the Office of Consumer Protection within the agency. The office will include 2 divisons, the Division of Consumer Protection and the Division of Consumer Access. The office will: a) provide consumer services, including consumer education and complaint resolution; b) establish, consolidate, and coordinate consumer protection functions within the agency; c) act as the central liaison on consumer protection with other federal agencies; d) nationalize field of membership (FOM) processing; e) absorb centralized chartering activities; and f) assume the activities of the agency’s ombudsman. The ombudsman investigates complaints and recommends solutions on regulatory issues that cannot be resolved at the regional level.

Odds and Ends

Posted by Anthony Demangone

The regulators do not seem to grasp the idea that some of us have Holiday shopping to do.  The pace of news has been furious, and it doesn't seem to be slowing down a bit.  Here's some recent items of interest.

Gift cards.  Yesterday, the Fed released proposed changes to Regulation E that would restrict fees and expiration dates that would apply to gift cards.   This proposal flows from the Credit CARD Act, which required the Fed to issue rules in this area.  The proposal would prohibit dormancy, inactivity, and service fees on gift cards unless: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees.   Under the proposal, expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.  We'll have 30 days to comment once this is published in the Federal Register.

120 Days of Love.  Not quite, but close enough. Last Friday, HUD announced that it will "exercise restraint" for the first 4 months of 2010 in its enforcement of RESPA. And it urges federal regulators to follow suit. As you would expect, HUD will give lenience to those who made "good faith" efforts to comply.

RESPA procedures.  Speaking of RESPA, the FFIEC interagency RESPA exam procedures have been released.  These procedures will be used by examiners.  The procedures also provide a very good overview of all the changes taking place to the RESPA requirements. 

NCUA.  The agenda for this Thursday's board meeting is available.  The item that caught my eye? NCUA will release its proposal regarding corporate credit unions.   Last week, Chairman Debbie Matz indicated that NCUA examiners will take a close look at fixed-rate mortgage loan concentrations, and increased delinquencies in indirect lending, member business lending and loan participations.  She also said that if credit unions do not address NCUA recommendations that were in a private Document of Resolution, expect a public Letter of Understanding and Agreement or Cease and Desist Order. 

SAFE Act.  Last week, the FDIC issued a final rule to implement the SAFE Act requirements.   Of note: the document, which is labeled a draft, has NCUA's name on it, along with other regulators.  Therefore, I would expect NCUA to follow suit shortly.  Remember, you'll have 180 days to register folks covered by the regulations once the registration system is open and ready to take registrations.

Tuesday Grab Bag; Group Photo from Seminar

Posted by Anthony Demangone

Here's some compliance-related odds and ends.

• The FTC has delayed the effective date of its Red Flags rule again, this time until June 1, 2010.  Remember, the FTC's version of this rule does not cover federal credit unions.  So the extension does not benefit you FCUs.  I mention this news because the FTC announcement may confuse some within our industry.  (Now, if only the FTC would talk to HUD about extending the RESPA deadline...)
• NCUA has announced that we can expect its proposed rule that will address corporate credit unions in its November 19th board meeting.
• I'm guessing it was not fun working at this Ohio bank recently.  (Link to www.bankinfosecurity.com).  Someone walked in and took three storage bins that contained paper that was to be shredded.  Oh, and each bin weighed 500 pounds.  This would be a nice story to use to reinforce your security procedures.  Along those lines, don't forget that Appendix B to Part 748 contains NCUA's guidance on response programs.  If the incident noted above happened at your credit union, how long would it take you to respond as outlined in that guidance? 
• NCUA, along with other regulators, adopts "Prudent Commercial Real Estate Loan Workouts" guidance.  If your credit union does commercial real estate lending, this is a must read.
• Relatedly, NCUA issued Letter to Credit Union 09-CU-19 in September, to share a Supervisory Letter given to examination staff to help them evaluate residential real estate modification programs.   If your credit union is doing workouts, your examiner will likely scan this guidance before visiting your shop.  Ergo, you should review it as well.

I guess that's enough.  Enjoy your Tuesday!

***

Here's a group photo of our Compliance Seminar attendees from Charleston.  A full week of compliance, and they are still all smiling.  Incredible! To all the attendees, thanks so much for attending.  I hope you had as much fun as I. *

 

* (I always waffle on how to end that sentence.  As much fun as I?  Or as I had?  Is the had implied?  It sounds fancier to leave it out.  But what do I know?  Ugh.)

Section 102 of the Credit CARD Act, Part 1 of 2; Corporate Stabilization

Posted by Anthony Demangone

Section 102 of the Credit CARD Act is a doozy, so we're going to split it in half. 

Double cycle billing.  This section adds a new subsection (j) to Section 127 of the Truth in Lending Act to prohibit double-cycle billing.  This section should not cause weeping and gnashing of teeth within the credit union industry.  Placing this requirement on credit unions is akin to banning unicorns from running in the Belmont.  The practice was not used much, if at all, within our industry. In any event, NCUA's UDAP rule already would have banned double-cycle billing for federal credit unions on July 1, 2010. 

If you are curious how double-cycle billing works, check out this pretty nifty blog posting.  And you may recall that big credit card lenders were taken behind the woodshed by Congress not too long ago on this issue, forcing many to end the practice.

What this section does, though, is move up the compliance deadline from July 1, 2010 to February 22, 2010.

***

Opt-in for over the limit fees.  Section 102 does blaze new trails, though.  This section also adds subsection (k) to Section 127 of TILA – which requires an opt-in for over-the-limit transactions if a fee is assessed.  There was no such requirement under UDAP or the final amendments to Reg Z's open-end rules.  But first, let me vent.

If a fee is assessed?  Does anyone NOT charge an over the limit fee?

Effective on February 22, 2010, a credit union will not be able to charge an over-the-limit fee unless the member has “opted-in” to allowing over-the-limit transactions to be processed rather than rejected.  If a member opts-in, the credit union is only allowed to charge one over-the-limit fee per billing cycle and, in general, would only be allowed to charge an over-the-limit fee for the next two billing cycles if the member’s balance still exceeds their credit limit.   In addition, if the member opts-in, lenders will have to allow them to revoke the opt-in election whenever they wish.  

Oh, in case you forgot.  Each time you charge an over the limit fee (assuming Joe Member gives you his blessing), you have to remind the affected member of his right to revoke their opt-in.   For those members who opt-in (agree to over-the-limit* fees), you will be required to remind them (via new disclosures on the periodic statement) about their right to revoke their opt-in election each time an over the limit fee is charged.  In other words, I'd look at your credit card over the limit fee income, and I would expect it to drop considerably. 

All these requirements kick in on February 22, 2010.

There is some good news.  The Federal Reserve is required to issue regulations relating to the disclosure, form, and timing of the opt-in notice to credit cardholders.  Will they grandfather existing accounts? Don't hold your breath.  The Credit CARD Act doesn't appear to discuss that possibility.  Nevertheless, the Fed has indicated to us that they will issue regulations before August 20, 2009 to implement and clarify requirements under the Credit CARD Act.  If there is any room for comment on these rules, we need to act quickly and decisively. 

*Editor's Note: The original post accidently used "late fee" rather than "over-the-limit" fee.

***

NCUA has released Letter to Credit Union 09-CU-14.  The guidance details NCUA's actions and plans on how it will implement corporate stabilization efforts under its new powers as authorized by Congress.

Capital Guidance; 44, on Preemption

NCUA has released Letter to Credit Union 09-CU-10.  You can access it here.

Following the conservatorships of WesCorp and U.S. Central, many credit unions asked about the status of their paid-in-capital and their membership capital.  This letter was designed to answer the numerous questions posed to NCUA. Rather than rehash it, I urge you to review the guidance - especially if your credit union is a member of either institution.

***

If anyone wondered what President Obama's administration thinks about federal preemption of state laws, one only has to review this memo from the White House.  It will remain to be seen what effect it has.  But it clearly is not a "hooray for preemption" sort of document.

To ensure that executive departments and agencies include statements of preemption in regulations only when such statements have a sufficient legal basis:

1. Heads of departments and agencies should not include in regulatory preambles statements that the department or agency intends to preempt State law through the regulation except where preemption provisions are also included in the codified regulation.
2. Heads of departments and agencies should not include preemption provisions in codified regulations except where such provisions would be justified under legal principles governing preemption, including the principles outlined in Executive Order 13132.
3. Heads of departments and agencies should review regulations issued within the past 10 years that contain statements in regulatory preambles or codified provisions intended by the department or agency to preempt State law, in order to decide whether such statements or provisions are justified under applicable legal principles governing preemption. Where the head of a department or agency determines that a regulatory statement of preemption or codified regulatory provision cannot be so justified, the head of that department or agency should initiate appropriate action, which may include amendment of the relevant regulation.
   

Credit Cards Bill and UDAP; Corporates; NCUA Board Meeting; Softball

Posted by Anthony Demangone

Here's one interesting angle of the credit card bill that I overlooked.  While the provisions within the bill are very similar to UDAP, the reach of the bill is effectively larger.  Remember, NCUA's UDAP rule only applies to federal credit unions.  The FTC could write UDAP rules, but their rule-making process is much, much slower than NCUA's or the Federal Reserve's.  The credit card bill, on the other hand,  will apply to all issuers of credit cards once signed.  And NCUA will have enforcement authority for both state and federal credit unions for its requirements.

***

Each corporate credit union is required to provide a summary of its annual audit reports to its members at its annual meeting.  NCUA has loosened that requirement in light of the current situation.  NCUA has indicated that it will not take exception to a corporate credit union not providing that summary if the audit has not been completed before the meeting.  Corporates should indicate the reason for the delay and and inform members that a copy will be provided when available.  Since members of corporates are natural person members - this will affect you.

***

NCUA held its monthly board meeting yesterday. 

• Here's a link to the results, which include the items considered by the board.
• Here's NCUA's presser on the meeting.

In the meeting, NCUA approved one of the remaining FACT Act regulations still in limbo.  (Can you believe that regulators have been issuing regs on these for 5 years now?). 

NCUA Board approved a final rule implementing the accuracy and integrity and the direct dispute provisions of the FACT Act.  The final rule requires furnishers, including credit unions, to establish reasonable policies and procedures for implementing the guidelines found within the new reg.  It also states when a furnisher must reinvestigate disputes about the accuracy of information contained in a consumer report based on a direct request from a consumer (the direct dispute regulations).

The accuracy and integrity regulations also contain definitions of key terms such as “accuracy,” “integrity,” “direct dispute” and “furnisher” and require furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information provided to a CRA.   Also included are guidelines concerning the accuracy and integrity of information furnished to CRAs that furnishers must consider in developing their policies and procedures. 

The final direct dispute regulations: 

• set forth the circumstances under which a furnisher must reinvestigate a consumer’s direct disputes
• provide exceptions to those requirements
• detail the direct dispute address and dispute notice content requirements
• specify furnishers’ duties after receiving a direct dispute; and
• establish when a furnisher may deem a direct dispute to be frivolous or irrelevant.

Effective date: July 1, 2010.  NCUA looked at other issues during the meeting, so I'd check out their presser, which is linked above.

***

Updated by Steve Van Beek

Head, shoulders, knees and toes - knees and toes.  No, not the song - those are just the body parts that hurt this morning.  NAFCU softball had another split doubleheader last night.  The NAFCU Nationals won the first game with a score of 7-4 which included a defensive stand to preserve the game.  In the second game, NAFCU got down 11-3 early but clawed its way back to have the tying run on first base before falling in defeat 14-11.  After an 0-2 start to the season, NAFCU has split games the past three weeks putting our record at 3-5.  Stay tuned as we hunt down that .500 mark...

Another great team effort, including the Compliance Guy's first appearance (which include two line drive singles and an amazing play at first base to preserve the lead).  Thanks for letting him play Mandy!  Can you tell Anthony is my boss?

***

Have a great long weekend, everyone.  Until Tuesday, stay compliant.

Stabilization Bill Becomes Law; Stabilization Calculator; Reg D

I've never seen an idea turn into law this quickly.  When NCUA originally announced its corporate stabilization plan, the costs for individual credit unions were massive.  NAFCU quickly looked into other possibilities in order to lessen the impact on the industry.  Yesterday, a lot of lobbying and hard work paid off.

Yesterday, President Obama signed a law that does a number of things for the credit union industry. The law, among other things, does the following:

• Extends $250,000 credit union share insurance protection to 2013;
• Enables credit unions to spread the cost of corporate stabilization over 7 years;
• Extends replenishing the National Credit Union Share Insurance Fund through premiums to 8 years;
• Increases NCUA borrowing authority to $6 billion; and
• Establishes $30 billion NCUA emergency borrowing authority. 

How  much relief will this law give your credit union in 2009?  NAFCU has created this calculator to show you.  We've also prepared this chart to show the relief for different peer groups.  Download Stabilization Plan_Estimated Costs by Asset Peer Group. 

***

In the spirit of regulatory relief, here's some good news regarding Reg D.  The Fed has approved a final rule to loosen requirements concerning the dreaded Reg D tranfer limitations.

The Board has revised Regulation D's restrictions on the types and number of transfers and withdrawals that may be made from savings deposits. The final amendments increase from three to six the permissible monthly number of transfers or withdrawals from savings deposits by check, debit card, or similar order payable to third parties. Technological advancements have eliminated any rational basis for the distinction between transfers by these means and other types of pre-authorized or automatic transfers subject to the six-per-month limitation.

This becomes effective 30 days after publication in the Federal Register.  Read the Federal Reserve notice here. Here are some thoughts:

• Your online banking transaction limits may need to be updated.
• Alert your marketing folks.  Brochures will need to be updated.  And your website as well.
• Look for disclosures that talk about the limitations.  Reg E, for example. Or perhaps your membership disclosure booklet.

• Your core processor may need to be updated if it flags transfers from savings accounts.

Stabilization Fund; BOA Updated

Representative Paul Kanjorski, a well-known champion of credit unions (and a fellow Keystone Stater, to boot!) has introduced legislation designed to help credit unions spread out payments to recapitalize the NCUSIF over a number of years.   The legislation does a number of other things as well.  I'd say this is a must read.  Access his press release here.  NAFCU Today has a good article on the development here.

Spreading out payments doesn't lessen the amount that a credit unions would ultimately pay.  But it would help credit unions that might facePCA problems due to a one-time "whopper" NCUSIF recapitalization payment. 

Yes.  I said Whopper. 

***

Hey NAFCUers: We've updated our Book of Answers.  Download it here.

For you non-NAFCUers, here's a taste:

Question: We are redesigning our account application. We see some credit unions that require two signatures – one for the credit union application, and a separate signature for the substitute W-9. Other credit unions require one signature. Which is correct?

Answer: Either method is permissible. As you stated, the IRS allows credit unions to incorporate a substitute W-9 within their membership application. AW-9 is an IRS form used to request the taxpayer identification number of a U.S. person, including a resident alien. The form also asks for certain certifications and claims for exemptions. Credit unions that incorporate a substitute W-9 into their application must clearly state certain things. The IRS has indicated that substitute W-9s that require a separate signature line for the certifications satisfy the requirement that the required disclosures be “clearly stated.” If your credit union decides to use a single signature line for the required certifications and other provisions, “the certifications must be highlighted, boxed, printed in bold-face type, or presented in some other manner that causes the language to stand out from all other information contained on the substitute form.” In addition, the IRS requires the following statement to appear immediately above the single signature line: “The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding.” See Instructions for the Request of Form W-9 (Rev. September 2007), available at www.irs.gov.
May 2009

Are We Worthy?; Corporate Stabilization; Share Insurance

As compliance officers, we work to make sure our credit unions stay out of hot water to the best of our ability.  But we don't make money for our credit unions.  We don't generate revenue.  Basically, we eat up payroll, and we kill a lot of trees when we print out regulatory proposals.

How much are we worth?  It is hard to answer that question with a hard number.  But I did read something very interesting the other day in an issue of the Corporate Counsel.  Access the article here.  In short, the author tries to determine whether compliance departments failed during the current market turmoil.  Here's a paragraph:

Is there a new appreciation for this (compliance, ethics and risk management) these days? A reality check comes from Vincent Kaminski, who hopes it's true but isn't so sure. Kaminski, who was a risk analyst at Enron Corp. and now teaches at Rice University, says that traders tell him risk management has been "elevated" since the crash. But many risk management departments are "Potemkin villages," he says. "They were set up to fail." The problems he perceives apply to compliance and ethics as well. Companies often marginalize them, and the departments are given responsibility but no authority. And sometimes they go begging for resources. At Enron, Kaminski's group didn't control its own budget so they had to find a corporate sponsor. And that permitted executives to limit their inquiries.

The article gives some "lessons" for compliance/ethics departments based on what has happened in the past few years.   I consider this to be good stuff.  Very, very good stuff.

***

Our lobbyists are pretty good. 

Yesterday, the U.S. Senate passed S. 896, the Helping Families Save Their Homes Act of 2009, by a vote of 91-5.  The legislation does a few pretty major things. 

• It would allow up to eight years to repay National Credit Union Share Insurance Fund (NCUSIF) premiums.
• It would increase the National Credit Union Administration’s (NCUA’s) borrowing authority to $6 billion (with emergency authority to $30 billion)
• It would create a temporary corporate credit union stabilization fund and provide credit unions seven years to pay off the fund. 
• In addition, it would remove the December 31, 2009 sunset for increased deposit insurance coverage of $250,000 and extend it to the end of 2013.

(Whew - did you get all that?) The action now heads to the House.  If you want to read more, NAFCU put together a very nice news story here.

More Corporate Stuff

Posted by Sarah Loats

NCUA released a summaryof the PIMCO analysis with its Weekly Corporate Credit Union Update on Friday. Of note the summary states:

"In its assessment of possible courses of action, PIMCO views were that the most attractive option, in the intermediate term, is for NCUA to continue to hold the portfolio. The greatest risk will be aggressive servicer modification of loan terms and/or principal forgiveness. They were also of the view that NCUA should monitor the options of whether or not to buy loss protection and to possibly repackage some of the senior RMBS securities to enhance portfolio liquidity. These strategies are influenced by capital reserve and accounting treatments."

The update indicates that Clayton Fixed Income Services, Inc. is conducting a review of the private label mortgage backed securities of US Central and WesCorp. The purpose of the review is to determine the level of OTTI charges the two corporates will record, and to finalize the outstanding CPA audits.

In additiona, NCUA notes that it will provide guidance on "any extinguishment of paid-in-capital and membership capital accounts at corporate credit unions when the March 31, 2009, financial statements for WesCorp and U.S. Central are released."

Fryzel Speaks; Model Privacy Notice

Posted by Sarah Loats

NCUA Chairman Michael Fryzel made his first public speech since NCUA placed US Central and WesCorp into conservatorship. He addressed the attendants of the Texas Credit Union League's 75th Annual Meeting in Austin. Urging industry unity in resolving corporate issues, Fryzel stated in part:

“The Corporate Stabilization Plan is what we need for credit unions today. I need you to roll up your sleeves and in that great credit union tradition of grassroots activism, get it enacted into law so we can mitigate the cost to the system and allow credit unions to continue to serve their members. When this stabilization proposal becomes law, our job will not be finished. I have made a commitment to the Administration, to Congress and to you in the industry that NCUA would undertake a broad and comprehensive reform of the corporate system. We have initiated a rulemaking process that I promise will yield results.”

You can find NCUA's full press release here.

***

Back in 2007 NCUA, along with the other federal financial regulators, issued a proposed rule, which would create a model privacy form in Appendix A of Part 716 of NCUA's regulations. Use of the model form would constitute compliance with the notice content requirements of sections 716.6 and 716.7. In developing the model form, the agencies decided to carry out two phases of consumer testing. The first phase involved form development research on an alternative format and the second phase to entail quantitative research on the effectiveness of the proposed alternative. The proposed rule included the phase one form development research. The phase two effectiveness research was to be conducted after the public comment period of the proposed rule.

Well, phase two is here, and the comment period for the proposed rule has been re-opened for 30 days to allow interested persons to comment on the additional quantitative testing documents. If you have any interest in how the consumer testing was conducted and the results you may find this to be a good read.

Corporate Stabiliztion; Bankruptcy

NCUA posted a new "corporate stabilization" document to its website.   The new document is an analysis of the distressed investments held at corporate credit unions.  While this is technically CFO stuff, people expect compliance officers to find stuff that pertains to NCUA.  So here's a link to that document.  And here's a link to NCUA's corporate stabilization homepage, which serves as a repository for all related guidance.

***

We often get questions regarding bankruptcy at NAFCU.  Let me be honest: we are farfrom being experts regarding bankruptcy.  There's no substitute for good legal counsel who is familiar with your particular jurisdiction/bankruptcy court.  That being said, here's a good bankruptcy resource.

You'll find links to forms, form instructions, overviews, etc.   Good stuff, people.  Good stuff.

  

Supervisory Guidance on Accounting Bulletin

On Friday, NCUA issued some Supervisory Guidance on Accounting Bulletin 09-02. 

• Access Accounting Bulletin 09-02 here.
• As of this posting, NCUA had not posted the Supervisory Guidance to its website.  NAFCU received an early copy, and we drafted an overview for NAFCU Today.  Access that article here.
• Here's a copy of the guidance that I was able to obtain.  Download Accounting Bulletin 09-2 Supervisory Treatment   (Don't say I never gave you anything.)  Again, it hasn't been posted officially to the website yet, but it should be there shortly - if not already.

I'll leave you to read the materials for yourself and your credit union's accounting team.  But just what is Supervisory Guidance?  It is information that NCUA gives to its examination team to help it enforce an NCUA regulation, rule or other type of requirement.  Is it law?  No.  Is it a regulation?  No.  But this is what your examiner will be reading when he or she reviews how you've treated the Corporate Stabilization-related transactions from an accounting point of view.

For that reason, Supervisory Guidance is not something to take lightly.

Accounting; HELOCs

Posted by Anthony Demangone

The "word on the street" is that NCUA will (or perhaps already has this morning) issue another accounting bulletin to clarify some accounting issues with the corporate stabilization program. 

• Access NCUA's corporate stabilization page here. 
• Access NAFCU's news articles here, which should have information about the new guidance.

Update:  NCUA released the Accounting Bulletin 09-2 this morning.

Here's a sneak peek at some of the info that should appear in the bulletin.

AICPA Statement of Position (SOP) 01-6 states, “to the extent that the NCUA Board assesses premiums to cover prior operating losses of the insurance fund or to increase the fund balance to ‘normal operating levels,’ credit unions should expense those premiums when assessed.”  Credit unions should rely upon the advice and guidance of their independent licensed accountant to interpret generally accepted accounting procedures (GAAP) and ensure accurate and transparent reporting on their financial statements.  If a credit union chooses to implement an accounting treatment other than that stated above, they should be prepared to provide written guidance from their accounting practitioner to support that treatment.  If a credit union’s licensed practitioner is willing to provide a written opinion that allows for the delay in the recording of the expenses and indicates in their opinion it is in compliance with GAAP, NCUA examiners will not take exception absent a definitive ruling from the accounting profession to the contrary.

***

As you may be aware, the Regulation Z changes to open-end lending do not affect HELOCs.  A Fed representative yesterday indicated that the agency will issue a separate rulemaking to address HELOCs.  There was no word on a time-line.

NAFCU Member Call-In: NCUA Corporate Stabilization Update

Posted by Steve Van Beek

Today, NAFCU will host a free Special Member Call-In to provide the latest NCUA Corporate Stabilization Update.  The call-in will focus on recent events related to NCUA's Corporate Stabilization Program, including yesterday's NCUA board decision to propose legislation for Congressional approval in order to create a Corporate Credit Union Stabilization Fund. 

NAFCU President/CEO Fred Becker and NAFCU's Senior Counsel Carrie Hunt will be joined on the call-in by Larry Fazio, NCUA's Deputy Executive Director, and Paul Peterson, an attorney from NCUA's Office of General Counsel.

The call-in will occur Today, March 27, 2009, between 2:00 - 3:00 p.m., EDT.  NAFCU members can register here.

Proposed Corporate Stablization Fund; NAFCU Today

Posted by Steve Van Beek

Today, NCUA held a closed board meeting to discuss the Corporate Stablization Program.  The result of the board meeting was a proposal for a Corporate Credit Union Stabilization Fund.  Here is a snippet from the press release:

"The National Credit Union Administration (NCUA) Board today approved a proposal that would enable credit unions to spread the cost of the National Credit Union Share Insurance Fund (NCUSIF) replenishment over as much as a 7-year period.

The proposed legislation would create a mechanism, the Corporate Credit Union Stabilization Fund, to absorb losses associated with the corporate credit union stabilization actions and assess federally insured credit unions for associated costs over as much as a 7-year period.  If enacted into law, the proposal:

• Should allow insured credit unions to expense these assessments over time;
• Is consistent with generally accepted accounting principles (GAAP); and
• Is limited in use to only pay for losses incurred by corporate credit unions."

The proposed language of the Corporate Credit Union Stabilization Fund legislation is available.  The next step is for NCUA to bring its proposal to Congress. 

***

Anthony, Sarah, and I have been trying to keep you all informed and up-to-date on actions being taken on the Hill and at NCUA.  We try - but it is a tough task.  NAFCU also produces the NAFCU Today - a free daily news e-mail - available to both NAFCU and non-NAFCU members.  If you are looking for the latest information affecting CUs - this is your source.  If you want to get a feel for what the daily news looks like - click here and you can see the latest stories.      

More Corporate Stabilization

Posted by Sarah Loats

Happy Wednesday! Since the Compliance Guy is busy changing diapers and the Compliance Guy-in-training is busy at Compliance School, my days of avoiding the blog are officially over. Lucky for me, NCUA was fairly busy on Monday.

In addition to Monday's webcast, Chairman Fryzel issued a press release indicating that NCUA is exploring other options to enhance the Corporate Stabilization efforts. Specifically, Chairman Fryzel noted:

"Events continue to move swiftly, and I have directed NCUA staff to explore two new avenues to augment NCUA’s Corporate Stabilization efforts.  First, we have held preliminary discussions with Congress regarding the creation of a Corporate Stabilization mechanism, as an adjunct to the National Credit Union Share Insurance Fund (NCUSIF). This new mechanism would replenish the NCUSIF through an arrangement with the Treasury Department, while providing additional flexibility for credit unions to make their required contributions over a period of time. Specific details of the proposal will be available pending the Board’s review and decision at Thursday’s Board Meeting.

Second, I am evaluating the latest Treasury initiative to deal with troubled assets. This new ‘Public-Private Investment Program’ appears to hold some promise for corporate credit union holdings. NCUA is conducting a thorough review of the parameters of the Program, and if those details comport with relevant statutes and regulations we will utilize the Program in a way that affords NCUA more latitude in resolving problem assets."

The Treasury announced the Public-Private Investment Program on Monday.

NCUA also released 2 FAQs on Monday - on the PIMCO Credit Analysis and the conservatorship actions. You can find the press release here, which provides links to the FAQs.

Finally, NCUA noted on Monday that the CU SIP program has been sucessful.

 

Corporate Stabilization Update; NCUA Webcast Today

Posted by Steve Van Beek

On Friday evening, NCUA placed U.S. Central Corporate FCU and Western Corporate FCU into conservatorship.  NCUA indicates that operation of both corporate credit unions will continue uninterrupted.  NCUA issued a press release that contains information on the most recent actions to stabilize the corporate credit union system.

NCUA also issued Letter to Credit Unions 09-CU-06 which addresses the conservatorship and contains updated estimates for the NCUSIF impairment.  In short, NCUA's continued analysis resulted in an assumption of a $5.9 billion reserve level, up from $4.7 billion estimated on January 28, 2009.  NCUA calculates that this additional $1.2 billion will result in a further 10 basis point reduction of earnings and 9 basis points of net worth on average.  NCUA also included this information:

"If your credit union has already reflected the stabilization expense on the financial statements, the accounts will need to be adjusted for the increase in the NCUSIF’s recorded liability estimate. The individual expense for the stabilization action should be calculated based on insured shares of $100,000 in two parts:

1) Multiply insured shares as of December 31, 2008, by 0.30% to arrive at the projected premium expense.

2) Multiply insured shares as of December 31, 2008, by 1% to arrive at the NCUSIF Deposit. Multiply the NCUSIF Deposit by 69% percent to arrive at the revised impairment expense. Previously, this was estimated at 51% of the deposit.

Refer to Accounting Bulletin 09-1 issued in February 2009 for more details."  (emphasis in original).

***

To help explain its most recent actions, NCUA will host a webcast TODAY, March 23 at 2:00 p.m., EST.  You can find the registration link by clicking on the link above or going directly to the registration site here.  Registration closes at 1:45 p.m., so be sure to get signed up right away.

My suggestion would be to try and get through NCUA's Letter to Credit Union before settling in for the webcast as the letter gives the general background for NCUA's actions and how they will impact the NCUSIF and, ultimately, natural person credit unions.                 

Corporate Stabilization; SBA; Shameless Plug

Yesterday, NCUA released a communication designed to help credit unions communicate the effects of NCUA's corporate stabilization program to their memberships.  Access the communication here.   The communication describes what happened, and it displays the NCUA logo. 

***

Yesterday, President Obama announced plans to use government funds to purchase securities backed by SBA loans.  Coupled with tweaks to SBA programs (higher guarantees, lower fees), the Obama administration hopes this will kick-start lending to small businesses.  Read the press release here.  Read a Q and A document that describes the hopes of the new program here.  The following two Q and A's sum things up quite nicely, in my humble opinion.

Why will purchasing securities on the secondary market help small business owners?

Under normal circumstances, many banks sell a portion of their loans to companies that pool them together and sell them as securities to investors. This provides banks with new capital that they can use to make additional loans. The result is that the secondary markets significantly increase the amount of lending banks can do to small businesses.

Over the past year, however, the secondary markets for 7(a) and first lien 504 securities have ground to a virtual halt. The institutions that securitize these loans have been unable to find buyers for the securities they have already packaged. This has in turn reduced their willingness to purchase new loans from banks. Since banks depend on the secondary markets for liquidity, they have increasingly become reluctant to extend credit to small businesses. Today’s announcement will help unlock secondary markets by providing assurances that the government will stand ready to purchase 7(a) and 504 first-lien securities. If you apply for a 7(a) or 504 loan at your local community bank, that bank will be more willing to lend because it will have confidence that the Treasury Department will be a ready buyer of the loan in the secondary markets.

Which loans are affected by the fee elimination and higher guarantees?

Beginning this week, the SBA will temporarily raise guarantees and eliminate fees for borrowers on certain of its 7(a) loans. 7(a) loans, which are partially guaranteed by the SBA, are issued by a bank to a small business to support its operations.

Additionally, the SBA has temporarily eliminated fees for borrowers and third party lenders on its 504 Certified Development Company Loans. These loans offer growing small businesses long-term, fixed-rate financing for major fixed assets, such as land, buildings and machinery and equipment. These loans are aimed at fostering community development, creating jobs and encouraging modernization.

***

Here's the shameless plug.  Next year will be a bear, from a compliance officer's perspective.  One of the largest issues will be complying with Regulation Z.  NAFCU is offering a webcast in April that will provide an overview of the changes that will take affect July 1, 2010.  Believe me, with a change this large, you can never start planning early enough.  Access information about the webcast here.   NAFCU also has planned a series of webcasts this year that break down the changes into bite-sized sections.  Go here to see more about the NAFCU Reg Z series.

More Corporate Stabilization Information

NCUA just released a summary of a PriceWaterhouseCoopers report that lists recommendations for improving the corporate credit union system.  NCUA hired PWC on this matter back in November.  Access NCUA's press release here, which also gives you access to a summary of the PWC report findings.   PWC's recommendations sound pretty familiar.  For example, here's what PWC recommended to help corporate liquidity:

• NCUA should collaborate withnatural person credit unions to increase liquidity at corporates.
• NCUA should use the Central Liquidity Fund (CLF) to infuse liquidity into corporates.
• NCUA should implement a deposit guarantee program for deposits at corporates.

Interesting. 

I wonder how many other times NCUA has tapped into outside expertise to help brainstorm regulatory solutions to an industry problem.

***

Yesterday, the American Institute of Certified Public Accountants (AICPA) provided guidance on how credit unions should account for the costs of NCUA's stabilization plan.  Access the AICPA guidance here.

The guidance provides for flexibility on how to treat thecosts resulting from NCUA's stabilization plan.   Technical Practice Aids are not binding, but accountants may rely on them on them in making their determinations.  In theguidance, the AICPA indicated that it will addresses three issues:

1. The accounting treatment of credit unions NCUSIF deposit,
2. How the obligation of the insurance premium should be recognized for financial reporting purposes, and
3. How corporate credit unions and natural person credit unions should evaluate their membership capital shares (MSC) and paid-in capital (PIC) in U.S. Central and in other corporate credit unions for other-than-temporary impairment (OTTI) at December 31, 2008.

On the first two matters - the NCUSIF deposit and the premium assessment – the AICPA staff has concluded that there is diversity in opinion and provided alternative views.  Importantly, the guidance does not express a preference.  The guidance, rather, provides that there is supporting literature for credit unions to amend their 2008 financial statements to reflect the deposit costs and insurance premiums, to amend the 2008 financial statements to reflect the deposit cost only as a 2008 event, or treat both the deposit insurance costs and the premium as a 2009 event and record them as such in their 2009 financial statements.

On the third issue, the AICPA guidance discusses authoritative literature on how corporates and natural persons evaluate their membership capital shares and paid-in capital and determine whether an OTTI exists.  Corporates should evaluate U.S. Central’s ability to redeem the MSC or PIC within anticipated time frames.  The audited financial statements of the U.S. Central as of and for the year ended December 31, 2008 would be useful evidence to appropriately evaluate MSC or PIC for other-than-temporary impairment.  Natural person credit unions should follow this approach in evaluating whether their investments are other than temporarily impaired.  

Again, the AICPA indicated that the guidance should be posted shortly.

Corporate Stabilization Call Report Change; Crossing the Rubicon

Last week, NCUA announced that is is changing its Call Report to deal with its Corporate Stabilization Plan.  Read the announcement here.  Here's a snippet of the press release:

March 5, 2009, Alexandria, Va. – The National Credit Union Administration (NCUA) today announced changes to the March 31, 2009, Call Report designed to better enable credit unions to provide a more accurate picture of expenses related to the recent NCUA Corporate Stabilization Program. 

The new version of the 5300 Call Report features the separate presentation of the expense resulting from the recent NCUA corporate stabilization actions. The changes will show the expense related to the stabilization action as a separate line item on the Income Statement within the Call Report.  It will also show net income before and after the expense item.  The two new accounts added are NCUSIF Stabilization Expense, Account 311 and Net Income (Loss) before NCUSIF Stabilization Expense, Account 660A.  This will allow Call Report users to quickly ascertain the impact of the stabilization expense on the operating position of each credit union.

Here are some related resources:

• Go here for general information concerning the 5300 Call Report.
• Go here for NCUA's corporate stabilization web page.
• Go here for other blog postings on NCUA's corporate stabilization plan.

***

On Saturday, I officially became the owner of a minivan.  I think there are certain events in a person's life that mark a dividing line.  There is the time before this event.  And the time after it.

Buying a minivan may just be one of those events.

(By the way, I'm learning that people are either minivan people, or they are not.  There are few in-between.)

SAR Sharing Proposal; Letter to Federal Credit Unions

Earlier this week, FinCEN issued a proposed regulation and proposed guidance that may tweak the confidentiality of SARs. 

• Read the NAFCU Today Article here.
• Access FinCEN's Press Release here. (From there, you can access all the proposals.)

The proposals touch upon a number of things.  FinCEN hopes they will help clarify the confidentiality of SARs, as well as to clarify the ability to share SARs between entities and their affiliates.

***

NCUA has released NCUA Letter to Federal Credit Unions 09-FCU-04.  This was done to give all Federal Credit Unions access to Supervisory Letter 09-01.  This letter clarifies how examiners are supposed to treat credit unions that have been negatively affected by NCUA's Corporate Stabilization Plan.  Access the letter and its attachments here.  In short, credit unions are not supposed to be penalized for the negative affects of NCUA's stabilization plan.  I'd give the guidance a thorough read.

Corporate Stabilization; Hmmmm; BOA is updated

During yesterday's NCUA Corporate Stabilization webinar, I picked up the following points.:

• NCUA is still working on a Supervisory Letter.  Once they release this, probably in the form of a letter to credit unions, we'll have some clarity on how examiners are supposed to view credit unions that might take a hit to their ROA or capital due to any required payments to the NCUSIF.
• Payments to the NCUSIF are not inevitable.  NCUA has indicated that they are still working on alternatives that might change their initial stabilization plan. 
• If payments come, it sounded to me like your credit union would make the payment in September.
• How do you book this?  Follow GAAP.
• Dave Marquis indicated that there were more than 1,200 questions submitted.  I estimate that they answered 20.  Be on the lookout for a Q and A document that synthesizes all the questions, along with NCUA's response.
• And for the latest, don't' forget that NCUA has created a Corporate Stabilization Program page on its website.

***

Yesterday, I stumbled upon two things that made me go hmmmm.

• First, a GAO report indicates that understaffing at the Social Security Administration is causing huge problems. 
• But then I find where the Social Security Administration apparently has the time to track the most common names given to baby boys and girls.  (This was a legitimate find. I was researching whether a person possibly could receive 2 social security numbers.  The answer, apparently, is yes.)

***

Hey NAFCUers, our Book of Answers has been updated again. Access it here. (Member login needed.)

For you non-NAFCUers, here's a taste of what you're missing.

Question: As our credit union staff expands, we find ourselves with a shortage of secure storage space. Our employees rarely pull physical signature cards since we use an optical system. Can our credit union dispense with the metal signature boxes by placing each member’s signature card in their respective files? It would save us a lot of filing trouble and ease the issue of pulling signature cards and files.

Answer:There is nothing in the National Credit Union Administration’s (NCUA’s) Records Preservation Program and Record Retention Appendix stating that a credit union can not keep the original signature card together and within the member file. The regulations state “Preserved records may be in any format that can be used to reconstruct the credit union’s records.” 12 C.F.R. § 749.4. In addition, NCUA indicates that “(c)redit unions may use any format, electronic or other, for maintaining the writings records or information that accurately reflects the information, remains accessible to all persons who are entitled to access by statute, regulation or rule of law, and is cable of being reproduced by transmission, printing or otherwise.” 12 C.F.R. § 749.5.
August 2007

Have a great weekend, everyone!