NCUA Board Divided on Overdraft, Mortgage Servicing & Service Facility Rules
In his first meeting as board member, Kyle Hauptman votes with Chairman Rodney Hood to pass several items.
A divided NCUA board on Thursday approved an interim final rule governing overdrafts, a proposed rule on mortgage servicing and a controversial change to its Multiple Common Bond credit union rule that board member Todd Harper said was not only ill-advised but a violation of the Federal Credit Union Act.
While those three issues divided board members, the board found unanimity on several other matters.
The board, meeting for the first time since Kyle Hauptman was sworn in as a board member, approved a final rule extending pandemic-related credit union policies and a final regulation governing subordinated debt. Hauptman voted with board Chairman Rodney Hood in advancing several proposals that Harper opposed.
The board also heard a recommendation from NCUA staff that the agency’s Normal Operating Level be kept at 1.38% next year.
The board was divided on three other issues, with Hauptman voting with board Chairman Hood to advance proposals that Harper opposed.
Hauptman and Hood supported a proposed rule that would include any shared branch, shared ATM or shared electronic facility in the definition of “service facility” for a Multiple Common Bond federal credit union that participates in a shared branching network. The proposal also includes a question of whether the definition of “shared facility” should be amended to include a federal credit union’s website or mobile banking application.
Hood said the changes would allow credit unions to serve more underserved areas and would update NCUA rules to take into account new technology.
“Consumers are moving more and more toward digital banking,” he said, adding, “I have heard from many young members who never stepped foot in their credit unions.”
However, Harper said that federal law requires a credit union adding an underserved area to its field of membership to establish within two years an office or service facility in the community. “I do not find that a leased ATM, among other proposed structures, creates a sufficient field of membership nexus under the Federal Credit Union Act,” he said.
He added, “What is more, a leased ATM would not serve the needs of an under-resourced community well. The residents of these communities often prefer, and need, more personalized service.”
On overdrafts, the board approved an interim final rule that will require credit unions to establish specific time limits for members to either deposit funds or obtain a loan to cover each overdraft. Currently, the NCUA rules prescribe a 45-day time limit for members to solve overdraft problems.
“In some cases, overdraft protection can serve as a form of short-term credit [assistance that gives] credit union members greater peace of mind and flexibility in managing their daily finances,” Hood said.
He said the policy essentially serves as access to short-term credit for some people.
Harper disagreed. He said, “The reality is that overdraft programs are products of financial exclusion, not financial inclusion.” He said that the board could have taken a bold step toward helping credit union members deal with overdrafts, but chose not to.
Hauptman said he believes the new rule will help credit union members.
Hood had attempted to bring an overdraft rule to the board earlier this year but it was blocked by Harper and then-board member J. Mark McWatters. With Hauptman replacing McWatters, Hood had the necessary votes to pass it.
The board also approved a proposed rule that would allow federal credit unions to purchase mortgage servicing rights from other federally-insured credit unions.
Hood said the rule would provide “appropriate regulatory relief” to credit unions.
However, Harper voted against the plan, saying there are many risks associated with servicing mortgages.