The Process is Most Important Aspect of Setting the Controversial Overhead Transfer Rate, Trades Say

ALEXANDRIA, Va. – Unraveling the mystery that is the overhead transfer rate is key to dissolving, at least partially, the controversy surrounding it, according to three national credit union trade associations. CUNA has expressed support for equity in the determination of the OTR. “We focused on the process rather than the number,” CUNA Associate General Counsel Mary Dunn said. “And our board policy now.is that we support a policy that is fair to both state and federal credit unions as well as to the agency and that there is accountability and transparency to credit unions in how the rate is determined.” She added that the agency deserves “high marks” for instituting its annual budget hearing and the Deloitte & Touche study, but even the recent U.S. General Accounting Office report found that the process still needed some tinkering. NAFCU Director of Research and Analysis Tun Wai has said that even behind closed doors, NCUA is not as open about its OTR process as one might think. “Overall, our comments to NCUA have been just to make sure that the calculation is fair to all federally insured credit unions,” NAFCU Director of Regulatory Affairs Gwen Baker remarked. “We put a lot of stock to make sure the agency doesn’t have a lot of excess budgetary expenditures, so in some sense, NAFCU’s position is to make sure that the agency doesn’t spend too much, let alone where the cost happens to go,” Wai agreed. “So the benefits of having the agency not spend as much is both to the federals as well as to the states equally.” NASCUS acting-President and CEO Mary Martha Fortney referred back to Chairman Roger Little’s testimony at the recent NCUA Budget Hearing. She reiterated, “We regard the overhead transfer rate controversy as merely a symptom of a broader NCUA structural and organizational dilemma, and that is the mixing together, administratively, budgetarily, functionally, and organizationally of the regulation of federal credit unions and the management of a share insurance business. Our concern with the NCUA’s budget is less one of spending than one of accountability and appropriate segregation of functions.” She also emphasized that NASCUS supports the NCUSIF remaining under NCUA’s wing and that NCUA maintain its independence. The credit union trade groups have said the agency must clearly define what activities are insurance related in order to properly allocate resources from the National Credit Union Share Insurance Fund to cover the agency’s “insurance related” costs. This was a recommendation from the Deloitte & Touche study and reappeared in the GAO report just this month. CUNA Chief Economist Bill Hampel pointed out, “In the last several years, it’s gone from 50 to 67 down to 62%, and I don’t think most credit unions are totally convinced that the nature and structure of the exam process has changed that much over the last few years, which suggests that they are changing the method and the technique for determining the overhead transfer rate looking for what they think the appropriate rate is.” Each of the organizations said the issue goes back to accountability. “I think all of this gets back to the agency being more accountable for its budget, and we do applaud their efforts to try to keep those costs down, but to the extent that they do, it’s less pressure to transfer funds from the share insurance fund.” She added that CUNA’s indirect goal is that value states provide NCUA is recognized and that federal credit unions are not overcharged in the operating fee. Hampel said that if you assume NCUA’s definition of “insurance related” is correct and the examiner survey of time spent is done properly and all other expenses are allocated properly, then the OTR is probably set too high. However, the process is not transparent enough to fully analyze it. “There’s no perfect answer, but the more informed the constituency, credit unions, are about what went into it and how the answer was arrived at then there’s less disagreement and there’ll be more agreement on this,” he advocated. “Part of the problem is that the lack of transparency.everyone’s going to say, it’s probably too much the other way.” While CUNA and NASCUS would like to see more credit given for the states’ involvement in the examination process, NAFCU focused on other considerations. “What we want the agency to take into account is the value that the agency is providing [in services] to the state regulators.in terms of the federally insured state [chartered credit unions],” Wai explained. CUNA and NASCUS have come out in support of an annual review of the OTR, as suggested in the GAO report. NAFCU’s Wai has stated, “We don’t have a position on it. We support any review that would reflect a fair and accurate assessment of the situation.” “In some ways,” Dunn commented, “almost regardless of how NCUA determines the overhead transfer rate, they’re going to get criticized. There’s no doubt about it, but our big push is, whatever system you use should be fair, should be easily understood, and there should be accountability so that one group isn’t paying more disproportionately to another group.” [email protected]