Trades Push for Economic Cushion
CUNA and NAFCU create a regulatory outline for the NCUA to help credit unions during the economic crisis.
As the economic ripples of the coronavirus crisis continue to roil the credit union community, there are plenty of things the NCUA could be doing to help cushion the blow, according to the industry’s trade groups.
CUNA and NAFCU have outlined regulatory changes – above and beyond the legislative changes they believe Congress should make – that should be made beginning this winter to help credit unions weather the storm.
“It may take years for consumers to recover from the economic consequences of COVID-19, social distancing, lockdowns and unemployment,” CUNA President/CEO Jim Nussle wrote in a September letter to NCUA Chairman Rodney Hood. “Credit unions must dedicate the next several months and years to ensuring members have the necessary resources available to them as they recover from this crisis.”
Senate Banking Chairman Mike Crapo (R-Id.) also urged regulators to provide flexibility to financial institutions.
“Banks and credit unions must not be deterred from continuing to play a key role in the recovery and must maintain ample flexibility to serve customers and work with those affected by the pandemic,” Crapo wrote in his October letter.
But the ranking Democrat on the Banking Committee said he is concerned that regulators are not prepared for a financial crash that could be caused by the pandemic.
“I am deeply concerned that the system is blinking red and, just as in the lead-up to the 2007-2008 financial crisis, you are asleep at the switch,” Sen. Sherrod Brown of Ohio wrote in his own letter to regulators.
The NCUA and its chairman, Rodney Hood, have been eager to hear what credit unions say they need from the regulator, Ryan Donovan, CUNA’s chief advocacy officer, said.
“Still, more needs to be done and we will continue to work with Chairman Hood and others to make sure that as this crisis continues, regulation and supervision supports the fulfillment of credit unions’ responsibilities to their members,” he added.
For instance, CUNA has called for further delay of the NCUA’s controversial Risk-Based Capital rule, which the board had delayed before the pandemic struck. Now, the trade group wants the agency to set an effective date of Jan. 1, 2023 in order to allow more time to determine whether the rule is practical.
“While we have always maintained that [the] NCUA’s new risk-based capital rule is unnecessarily burdensome for credit unions and a solution in search of a problem, this is particularly evident given the current economic environment,” Nussle told Hood.
CUNA and NAFCU have asked the agency to allow credit unions to capitalize interest on consumer mortgage loans in connection with modifications made during the pandemic.
The two trade groups have also raised concerns about the NCUA’s equity ratio, which stands at 1.22%. If it dips to 1.20% or below, the agency would be required to develop a restoration plan, which could include a premium charged to federally-insured credit unions.
“We urge the NCUA to forebear on any assessments, consistent with the forbearance toward distressed members the agency has urged credit unions to embrace, and the temporary, lower prompt corrective action capital trigger thresholds for required supervisory actions the agency has also adopted,” Nussle told Hood.
NAFCU had another idea about how to handle the equity level problem.
“Considering the current economic circumstances, the NCUA should determine that a credit union may temporarily engage in additional investments that share a rational nexus to those explicitly outlined in the FCU Act, do not pose more risk than those activities explicitly authorized by the FCU Act, and are essential to carrying on the credit union’s operations,” according to Curt Long, NAFCU’s chief economist and vice president of research.
The NCUA should speed up consideration of the agency’s long-awaited subordinated debt rule, according to NAFCU President/CEO B. Dan Berger.
To develop the proposal quickly, the agency should consider the framework that low-income designated credit unions use to issue secondary capital, he said.
“Not only are these regulations already familiar to many credit unions and potential investors, they are far less complex than those that have been proposed by the Board in connection with its subordinated debt proposal,” Berger wrote in a letter to Hood.
The two trade groups have also called on the NCUA board to reconsider its tabling of an interim final rule dealing with overdrafts.
At the board’s May meeting, Hood proposed removing a 45-day time limit for credit unions to “cure” an overdraft by a member. The “cure” could be in the form of a deposit or a loan to the member by the credit union. Hood’s plan would have replaced the 45-day limit with a requirement that credit unions have a policy that sets a reasonable deadline for solving the overdraft.
NCUA Board Member Todd Harper objected to the proposal, questioning whether the NCUA should be charging overdraft fees during the pandemic. Board Member J. Mark McWatters questioned the process that was to be used to consider the rule. He said the agency should consider such a plan using the normal regulatory process, rather than voting on it as an interim final rule that would have been effective immediately.
“The best path forward for the NCUA Board is to give credit unions the tools and flexibility to develop customized solutions to secure members’ financial well-being, without jeopardizing safety and soundness, and overdraft protection is one such vital tool,” Nussle wrote.
CUNA has also requested that the agency issue an interim final rule to eliminate the requirement that a borrower be a member of a credit union for at least one month before they may request a short-term loan under one of the options included in the NCUA’s Payday Alternative Loan model. Nussle wrote that the change would ensure that credit unions have the flexibility to make loans to people who need them the most.
Despite all the suggestions, it has remained unclear whether the board will make any additional large regulatory moves, since the board’s membership remains in a state of flux.
The term of Republican board member McWatters has expired and President Trump has nominated Kyle Hauptman for the position. The status of that nomination is uncertain. While the Senate Banking Committee has recommended that Hauptman be confirmed, a vote on the nomination may have to wait until a lame duck Senate session after the election.