NCUA Board Approves FOM Changes; Says It's 'Critical Step' to Serving Underserved

With a unanimous vote, the NCUA Board approved changes to its chartering and field-of-membership regulations.

The 3-0 vote approving the final rule on Thursday laid the foundation to enable better access to safe and affordable financial services for “community charter approvals, expansions or conversions.”

According to the NCUA, the final rule was a re-adoption of a previous provision which allowed “an applicant to designate a combined statistical area, or an individual, contiguous portion thereof, as a well-defined local community if the chosen area has a population of 2.5 million or fewer.” The initial provision was vacated in March 2018 by a U.S. District Court decision.

The rule adds a provision to the NCUA’s FOM regulation to address potential discrimination issues when it comes to the selection process for combined statistical areas as well as core-based statistical areas.

Chairman Rodney Hood said Thursday’s vote was “a critical step in the NCUA’s ongoing work to allow credit unions to alleviate some of the difficulties of low-income and underserved Americans in accessing financial services.”

Board member J. Mark McWatters said, “Today, credit unions are free to serve an expanded scope of rural individuals and small businesses, thereby offering consumers with a viable choice relative to those lenders who operate under less consumer friendly business models. Without question, this rule serves as the most significant consumer protection safeguard by helping transform financial deserts into communities of financial choice, all within the FCUA and without safety and soundness risk.”

In a statement, CUNA President/CEO Jim Nussle said, “(The) NCUA finalizing this rule completes an important modernization of FOM requirements that will allow credit unions to serve more Americans. This is particularly important when people around the country are feeling the impact of the pandemic. Consumers around the country will benefit from (the) NCUA’s determination to modernize its field of membership rules, and CUNA and Leagues were proud to stand by the agency as bankers tried hard to deprive consumers of safe and affordable options for financial services.”

NASCUS President/CEO Lucy Ito issued the following statement: “We have long asserted that the healthy competition of a strong dual charter system is beneficial to both federal and state-chartered credit unions and the final passage of (the) NCUA’s Field of Membership Rule is a step in that direction.”

This final rule will be effective 30 days after publication in the Federal Register.

Phasing In CECL

In another 3-0 vote, the NCUA Board approved a proposed rule to phase in the day-one adverse impacts on “regulatory capital that may result from fully implementing the current expected credit losses (CECL) accounting methodology.”

Chairman Hood acknowledged the concerns credit unions have about CECL. “The proposed CECL change has raised serious questions in the credit union industry, as well as among other smaller financial services providers, as it would entail greater complexity, higher costs and a significantly heavier compliance burden, while bringing little additional benefit to the institutions.” Hood continued, “As such, it is unwise to impose a burdensome and costly new regulation on credit unions, particularly smaller institutions in underserved areas, at such a time of great challenge.”

The proposed rule would phase in the day-one effects on a credit union’s net worth ratio over a three-year period. According to the NCUA, the phase-in process would only be applied to federally-insured credit unions that adopted CECL for the fiscal years beginning on or after Dec. 15, 2022.

Reacting to Thursday’s vote, Ito said, “We are pleased that (the) NCUA is joining the other Federal Banking Agencies in taking action to mitigate the adverse effects that the adoption of the current expected credit loss accounting methodology will have on the capital ratios of credit unions. We will closely examine the proposed rule to check for any conflicts with state laws and regulations and to recommend any improvements to ensure reasonable implementation of CECL for federally-insured state-chartered credit unions.”

Comments on the proposed rules will be open for 60 days.

Calculating Annual Operating Fees

The Board approved another proposed rule to amend the agency’s assessment of annual operating fees on federal credit unions.

The proposed rule would amend the current operating fee rule “to exclude from a federal credit union’s total assets any loan under the Small Business Administration’s Paycheck Protection Program or similar future programs approved for exclusion by the NCUA Board when calculating the annual operating fee.”

The proposed rule would change how federal credit unions calculate the determination of the annual operating fee. The proposal would require total assets to be calculated using the previous four Call Reports instead of the current system of using the Dec. 31 Call Report from the preceding year.

OTR and Operating Fee Methodologies

The last threshold change for Overhead Transfer Rates occurred in 2013 and the NCUA Board approved a measure for request for comments “on the methodologies for computing the Overhead Transfer Rate and determining the annual operating fee schedule.”

These two items are used to fund the NCUA’s budget.