NCUA Board Proposes Amendments to Subordinated Debt & Member Expulsion Rules

The last time the NCUA Board met in person was early in 2020. More than 30 months later, the board gathered together on Thursday in the same room at the same time to hold its first in-person meeting since the pandemic began.

Of note: Thursday’s gathering was the first time Vice Chairman Kyle Hauptman had attended an in-person board meeting since he joined the NCUA Board more than two years ago.

The main agenda items discussed by the board revolved around amendments to the Subordinated Debt Rule and a proposed rule on credit union member expulsion.

In a 3-0 vote, board members approved a proposed rule to amend the Subordinated Debt Rule which would “extend the Regulatory Capital treatment of Grandfathered Secondary Capital GSC would benefit eligible low-income credit unions participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program or in other programs administered by the federal government.”

The Subordinated Debt Rule went into effect on Jan. 1 of this year.

According to the NCUA, the changes to the rule include:

• Replacing the maximum maturity of Notes with a requirement that any credit union seeking to issue Notes with maturities longer than 20 years demonstrate how such instruments would continue to be considered “debt.” The Jan. 1, 2022, final rule contained a provision requiring Notes to have a minimum maturity of five years and a maximum maturity of 20 years. The U.S. Department of the Treasury’s ECIP grant funds can be held up to 30 years, but the NCUA’s current subordinated debt rule generally limits maturity levels to 20 years. The proposed rule would fix this maturity mismatch.
• Extend the Regulatory Capital treatment of Grandfathered Secondary Capital (GSC) to the later of 30 years from the date of issuance or Jan. 1, 2052.

NCUA Chairman Todd Harper said, “I wholeheartedly support these proposed changes because they would advance the statutory mission of federally insured credit unions to meet the credit and savings needs of their members, especially those of modest means. This proposed rule would align the NCUA’s subordinated debt rule with the Treasury Department’s ECIP rule. That is good for credit union members, their credit unions and their communities.”

Comments on the proposed changes are due 60 days after it’s published in the Federal Register.

Member Expulsion Proposed Rule

In another unanimous vote, board members approved a proposed rule to amend federal credit union bylaws to “adopt a policy by which a FCU member may be expelled for cause by a two-thirds vote of a quorum of the FCU’s board of directors.”

Earlier this year, Congress passed the Credit Union Governance Modernization Act of 2022. Under the law, the NCUA has until Sept. 15, 2023, to develop a final rule that federal credit unions may adopt to expel a member for cause.

Harper said, “While there are admittedly times in which the expulsion of a member is necessary to protect credit union members and staff, this is a power that credit unions should rarely use. That’s because the Federal Credit Union Act exists so that people, particularly those of modest means, can access safe, fair and affordable financial services. That is the statutory mission of credit unions. So, in acting today, we want to preserve this guiding principle.”

As of now, credit unions are able to expel a member by either a two-thirds vote by members present at a special meeting or for non-participation in the affairs of the credit union by the member.

Comments will be open for 60 days once the proposed rule is published in the Federal Register.