The Administrative Procedures Act required the NCUA to submit the calculations it uses to develop its overhead transfer rate to public notice and comment, according to a legal analysis prepared for NASCUS. The OTR is the percentage of funds the NCUA transfers to its operating budget from the NCUSIF each year to cover insurance related agency expenses.
The Washington law firm of Schwartz and Ballen prepared the analysis for the state regulators' association.
“As the analysis points out, by shifting a portion of federal credit unions' share of NCUA expenses to the NCUSIF, the OTR reduces out-of-pocket expenses incurred by federal credit unions,” NASCUS President/CEO Lucy Ito said. “Our fundamental point is that the resulting reduction in federal credit union operating fees provides a singular advantage to those credit unions, and adversely affects the competitive position of state charters relative to federal charters.”
NASCUS said it has consistently questioned NCUA's calculation of the OTR and that, since 1986, the OTR has mostly fluctuated around 50% to 60% of the NCUA's annual budget. However, in recent years, it has grown dramatically, accounting now for 71.8% of the agency's total budget, NASCUS said.
The analysis said that the NCUA's adoption of the OTR constitutes a major rule subject to the Administrative Procedure Act notice and comment requirements. A major rule indicates the agency action will have a substantial impact on costs, prices or competition in the industry, and specifically requires the agency to consider the costs and benefits of the rule and any possible alternatives, the analysis said.
“The NCUA board has never published a proposed OTR in the Federal Register for public comment, nor has it requested in the Federal Register public comment on its methodology for calculating the OTR or any change to its methodology,” the analysis stated. “Accordingly, we believe the process the NCUA board uses to implement the OTR violates the APA.”
NASCUS pointed that, earlier this month, it supported H.R. 2287, introduced by Rep. Mick Mulvaney (R-S.C.), which would require the NCUA to open its entire budget process to notice and comment from stakeholders and the public. The association expressed that support in a letter to leaders of the House Financial Services' Financial Institutions subcommittee.
The 29-page analysis – the first to link OTR to the APA requirements of public notice and comment related – noted that an APA-compliant notice and comment process would require the NCUA board to explain and demonstrate the OTR and the methodology used to calculate it was reasonable, NASCUS said.
Ito explained that the publication of the analysis was a watershed event in the long history of state regulators' desire to provide more input into the development of the annual OTR from the insurance fund to the NCUA's annual budget.
“Opening the OTR to public notice and comment will give all stakeholders – whether state or federally chartered – the opportunity to evaluate and respond to the NCUA's allocation of expenses across the industry,” she said.
“We recognize the setting of the overhead transfer rate is an important issue for all federally insured credit unions,” the NCUA said in statement about the analysis. “We, therefore, have regularly reviewed and received stakeholder input and independent third party analysis on the OTR methodology since the current methodology was adopted in 2001 and most recently in 2011. The NCUA also is in compliance with the Administrative Procedure Act.
“Nevertheless, the NCUA will carefully consider the NASCUS study's conclusions to determine whether more formalized stakeholder input about the OTR methodology is warranted.”
Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.
Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking credit union news and analysis, on-site and via our newsletters and custom alerts
- Weekly Shared Accounts podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the commercial real estate and financial advisory markets on our other ALM sites, GlobeSt.com and ThinkAdvisor.com
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
