McWatters Asks Congress for More Field of Membership Authority

NCUA Chairman J. Mark McWatters on Tuesday asked Congress to loosen field-of-membership rules and allow the agency to supervise third-party vendors.

“While the NCUA Board can provide federally insured credit unions with meaningful regulatory relief, congressional action is required to provide additional flexibility in some areas,” McWatters told the Senate Banking Committee during a hearing on how banking and credit union regulators are implementing the regulatory overhaul bill, S. 2155, that passed during this Congress.

“There is still a lot to do on implementation of this legislation,” Senate Banking Chairman Mike Crapo (R-Id.) said. But he warned regulators about trying to implement it informally through guidance rather than regulations.

“In order to ensure that Congress can engage in its proper oversight role, as well as ensure that future Congresses do not overturn the agencies’ policy statements related to implementation of S. 2155, I encourage the regulators to follow the Congressional Review Act and submit all rules to Congress, even if they have not gone through formal notice and comment rulemaking,” he said.

However, Senate Banking ranking Democrat Sherrod Brown of Ohio called the legislation and the committee’s efforts misguided.

“A decade after the most severe financial crisis since the Great Depression – today, we’re discussing how the financial watchdogs will roll back rules put in place after that crisis,” he said. “But in reality, this bill is littered with concessions to the biggest banks and offers virtually nothing for American consumers.”

McWatters applauded Congress for enacting that legislation and said that by working with board member Rick Metsger, the board has been able to provide more regulatory flexibility to credit unions.

He said that in the coming months, the agency’s Regulatory Reform Task Force will publish its second report. That report will provide an updated blueprint for the agency’s regulatory reform agenda and a means for measuring regulatory relief efforts.

McWatters added that the NCUA will solicit comment on one-third of its regulations in January as part of its annual regulatory review.

In written and oral testimony, McWatters highlighted four legislative changes he would like Congress to enact. Since the House will not be in session until after the midterm election and Congress will consider limited issues during a lame duck session after the election, McWatters’s wish list will have to wait for the new Congress.

Field of Membership

McWatters said that Congress should permit all credit unions, not just multiple common-bond institutions, to add underserved areas to their field of membership. That would expand access to financial services to the unserved and underserved, he added.

Such a change would allow more credit unions to participate in the Community Development Financial Institutions program, according to the agency chairman.

McWatters said Congress also should consider allowing federal credit unions to serve underserved areas without requiring those areas to be local communities.

McWatters also said Congress should consider eliminating the requirement that a multiple common-bond credit union be within “reasonable proximity of the location of a group to provide services to members of that group.”

In addition, Congress should consider allowing the NCUA to issue credit union charters to web-based communities.

McWatters also suggested that Congress revise federal law to allow the agency to permit federal credit unions to add anyone living in a census tract where current projections indicate he or she qualifies as low-income.

Vendor Authority

McWatters said the NCUA is the only federal banking regulator that has no authority over third-party vendors, including CUSOs.

“We really can’t go in and examine those,” he told the committee. “Our hands are tied.”

McWatters said that the move toward digital transactions and services help smaller credit unions but added that the NCUA does not have the legal authority companies offering those services.

He said he is particularly concerned about cybersecurity threats those companies could pose.

McWatters said that the NCUA may only examine CUSOs and third-party vendors with their permission and cannot enforce any corrective action. He said that nearly all the core technology providers that serve credit unions exclusively have declined requests for reviews by the NCUA.

Alternative Capital

The agency has included alternative capital as one of its goals, but McWatters said that only Congress can authorize alternative forms of capital that would count toward the statutory net worth of accredit union without a low-income designation.

Loan Rate Ceiling

McWatters said that congressional action would be needed to give the NCUA broader authority to establish a maximum loan rate ceiling for credit unions based on financial criteria and for periods designated by the board.

“Providing the NCUA with this authority would allow the agency to provide much more flexibility to credit unions, while simultaneously protecting consumers and the credit union system,” he said. “It would also allow the NCUA flexibility to establish loan rate ceilings that permit and encourage credit unions to continue to offer products with rates that appeal to and help those of modest means and the underserved as interest rates change.”