NCUA Increases FCU Fees on Average By 6.7% and Abbreviates Exam Cycle

ALEXANDRIA, Va. — Federal credit unions will pay the NCUA an average of 6.7% more next year in operating fees and possibly as much as 12% more, based onasset size, according to the rate structure approved by the agency at its November meeting.The fees will be based on asset size as of Dec. 31, 2008 and due no later than April 15, 2009. The board approved the increase unanimously with little discussion at the Nov. 20 meeting.NCUA Deputy Financial Officer Michael McNeill said the increased fees were necessary to finance additional costs of the agency’s operations, including changes to the examination cycle. He told the NCUA Board members that the assets of federal credit unions are projected to increase 6.5% this year.Most federal corporate credit unions will pay the same dollar amount in a fee. The only exception is for those with assets between $750,000 and $5million-their fee will be based on the natural person scale-meaning that their dollar amount will increase by 6.7%.In addition to paying more money, federalcredit unions will be examined more frequently by the agency.The board revised the examination schedule so that all federal credit unions will receive an “on-site supervision contact” every 12 months, based on risks observed over a period of 10-14 months. Previously, the agency’s target was one exam every 18 months for well-capitalized, well-run credit unions, with an average of 16 months between exams.NCUA will closely monitor all CAMEL 3 and 4 federally insured, state-chartered credit unions and perform an on-site insurance review within a targeted period of every 10-14 months.NCUA Executive Director J. Leonard Skiles said the change was needed in light of the economic crisis credit unions are living through because “experience shows there is value in frequent contact.”As a result of concerns raised by trade associations about the regulatory burden on credit unions and the higher costs, the agency scaled back the scope of the changes to the examination cycle. It will not conduct full-scale examinations on all federal credit unions during a 12-month period and will only hire 50 new examiners, down from the original proposal of 100 new examiners.Skiles said the changes “shift the emphasis to those credit unions with higher risk levels.”He noted that closer examination was needed because of the nation’s economic woes and said that as of June 2008 there were 1,667 credit unions that reported losses. He also predicted that even when the economic recovery begins, it will take two to three years for credit unions to work though troubled assets, which is why the agency needs to increase oversight.NAFCU President/CEO Fred Becker said the agency’s response to the associations’ concerns was a positive step but did not go far enough.“I appreciate the chairman listening to our concerns as cutting back somewhat on the proposed increase. At the same time we continue to believe that with modern technology and more frequent requests for information on an as-needed basis, as well as the use of the rapid-deployment teams they are creating, that there are more efficient ways to adapt to situations such as the present. By the time the staff hired are trained and seasoned (several years as they have noted), the effects of the current crisis will have dissipated,” he said in an e-mail response.The changes in the examination cycle are the biggest factor in the 12% increase in the agency’s budget that the board approved at the meeting.The budget, which takes effect Jan. 1, will be $177.8 million, up from $158.6 million this year. Agency officials had originally planned on requesting $182.9 million but reduced the figure by scaling back the proposed examination plan and also reducing the funds allocated for the celebrations of the 75th anniversary of the Federal Credit Union Act.Another key initiative of agency plans for next year is centralizing the chartering process away from the regional offices into the headquarters.The board also approved language implementing changes mandated by Congress in 2005 to clarify the definition of a credit union’s net worth during a merger for purposes of prompt corrective action. It defines a credit union’s net worth as a retained earnings balance of the continuing credit union combined with the merging credit union’s retained earnings.Board members also approved changes in the credit union chartering process that clarify the procedures for determining whether an “underserved area” qualifies as a “local community.” It also addresses how certain economic and demographic data can be used to determine if an area that combines geographic units qualifies as underserved.The regulation also explains the data needed to show that a proposed area has “significant unmet needs for financial services.”In addition, the board gave final approval for the NCUA to use median (rather than average) household income to determine underserved areas.The agency rejected suggestions by CUNA and NAFCU that all existing low-income credit unions be permanently grandfathered in as low-income credit unions. Instead, those credit unions will have five years to prove their qualifications.The NCUA proposed the rule change after its Outreach Task Force decided on recommendations to help the agency encourage credit unions do more to serve the underserved. The task force was the result of criticisms of the lack of credit union data regarding service to the underserved by then-House Ways and Means Committee Chairman Bill Thomas (R-Calif.) and by the Government Accountability Office, Congress’ investigative arm.–[email protected]