NCUA Unveils Aggressive Agenda

From bank purchases to payday lending to Risk-Based Capital, NCUA Board Chairman Rodney Hood has outlined an agenda for the rest of 2019 that could make credit union officials’ head spin.

Hood, who returned for his second stint on the NCUA board earlier this year, has made it clear he and the credit unions are well-acquainted.

“I know many of you, and you know me,” he told those attending the recent NAFCU Congressional Caucus. “Which means we can save some time on introductions and pleasantries.”

That may help explain his list of issues he plans to tackle.

“The board agenda for the remaining of 2019 is ambitious, but all of the issues are timely and in need of being addressed,” former NCUA Chairman Dennis Dollar said.

“A lot of these issues they’ve been working on for years,” said Carrie Hunt, NAFCU’s executive vice president of government affairs and general counsel. “It takes time to work through these issues.”

At its September meeting, a divided NCUA board tackled the first thorny issue—payday lending.

NCUA officials had said that they wanted to provide members with an alternative to the Payday Loan Alternative model. The new model is not designed to replace the original PAL program.

Under the plan, unveiled at the September meeting, federal credit unions can make loans of up to $2,000 to a member regardless of how long they have been members of the credit union.

The PAL II model would allow credit unions to charge borrowers 28% interest, a $20 application fee and limit loans to three loans over a six-month period.

However, the plan did not quell divisions over credit union payday lending.

NCUA board member Todd Harper said that the maximum loan of $2,000 is too high.

Meanwhile, the agency is poised to attack another high-profile issue.

With a mostly favorable court ruling in hand, Hood has said the NCUA will phase in the updated Field of Membership rule and will attempt to bring more clarity to the one issue raised by the appellate court.

The U.S. Court of Appeals for the District of Columbia ruled in August that Congress gave the NCUA broad authority in issuing rules governing fields of membership.

The American Bankers Association and state banking associations had filed suit challenging the rule and a U.S. District Court voided portions of the rule.

The appellate court overturned much of the lower court’s ruling.

However, the court also ruled that the NCUA must better explain the part of its rule stating that credit unions may serve core-based statistical areas without serving the area’s urban core.

Hood said that the agency will make that section of the rule clearer and will solicit comment on it.

Hunt said she regularly hears from credit unions that want to expand their charter, adding that she would like to see the agency to begin the process soon.

“The sooner the NCUA does it, the better,” she added.

“The gradual approach announced by NCUA strikes me as a smart way to go about it,” said John McKechnie, senior partner at Total Spectrum, discussing the field of membership process. “NCUA has an opportunity to proceed with both confidence, given what the federal courts have said, and care, given the complexity of the issue and the need to structure a rule that is beneficial to all consumers.”

Dollar said that the delay caused by the lawsuit was frustrating for many credit union officials.

“There appears to be some light at the end of that tunnel and the NCUA Board needs to act expeditiously to get the 2016 FOM rules implemented,” Dollar said.

The board also has proposed an additional two-year delay to its Risk-Based Capital Rule and may consider a final rule implementing that delay.

Linked to that delay, Hood also has said that by the end of the year, the board will be presented with an asset securitization rule.

“We support this delay as we believe the Risk Based Capital Rule is a solution in search of a problem, and not appropriate for credit unions,” said Elizabeth Eurgubian, CUNA’s deputy chief advocacy officer and senior counsel.

McKechnie said that the Risk-Based Capital Rule was proposed more than six years ago and “still has the ability to stir the pot in the credit union community.”

He added that Hood has added new issues to the rule controversy, saying that, “access to subordinated debt, creation of an entirely different leverage ratio for credit unions that runs parallel to community banks, and [another look]at how asset securitization relates to capital, are all possible additions.”

McKechnie added, “These are all real issues, and how they are decided will have a significant long-term impact on how credit unions manage their balance sheets.”

NASCUS President/CEO Lucy Ito said that NASCUS appreciated the NCUA addressing asset securitization along with Risk-Based Capital.

“Subordinated debt should be a part of the risk-based capital framework because it encourages well-managed credit unions to attract additional loss-absorbing forms of capital that they would otherwise forego,” Ito said.

She added that states are experienced in regulating and supervising asset securitization activities of state-chartered community banks.

Hood also has promised to propose rules updating the agency rules governing credit unions purchasing banks.

“It’s still a relatively small number of transactions by any standard,” Hood said at the NAFCU conference.

He said the NCUA and the FDIC must approve the transactions, adding that data indicates that the institutions involved are generally smaller institutions with lower profitability.

“If it makes it possible for a local financial institution to keep its doors open, then we must consider this factor,” he said.” I am a strong believer in the free market, and one of my priorities is to be forward thinking. Later this year, I plan for the NCUA to consider a rulemaking on this issue to add even more transparency to the process.”

Dollar predicted that the NCUA will not make it any more difficult for credit unions to purchase banks.

“There does not seem to be any appetite to try to stifle the marketplace on bank purchases by credit unions,” he said. Hood added that the rule is likely to make the process more transparent.

State regulators have experience in evaluating such transactions, Ito said, adding she wants to discuss with NCUA officials whether a rule is needed.

“If NCUA opts to move forward with a rule, we encourage the agency to consult with NASCUS and state regulators to assure that the rule is properly constructed and to collect information from state agencies that have evaluated a greater number and variety of these transactions,” she added.