COMMENT CALL: The National Credit Union Administration (NCUA) has announced the sixth round of proposed regulatory changes associated with NCUA’s Deregulation Project. The project is an ongoing review of NCUA’s regulations to ensure they are focused on credit unions’ safety, soundness, and resilience. Information on the earlier rounds can be found in the “open comment calls” and the “closed comment calls” Regulatory Advocacy pages of our website.
The NCUA is requesting comments on six new proposals that would clarify agency guidance or eliminate unduly burdensome or duplicative requirements. The six proposals are summarized below.
Round Six
- Post-election training for new board members. The NCUA proposes to remove the regulatory requirement that each director of a federal credit union (FCU) attain a working familiarity with finance and accounting within six months after election or appointment. The NCUA says it believes that “the regulation is unnecessarily prescriptive.”
Impact on credit unions: Removing this requirement reduces overall compliance burden on volunteer boards.
- Loan compensation/commission. The NCUA is proposing to amend §701.21(c)(8) of its regulations, which establishes a blanket prohibition on the direct or indirect receipt of any commission, fee, or other compensation by a federally insured credit union (FICU) official, employee, or their immediate family members, in connection with any loan made by their FICU. “While the regulation carves out certain exceptions to this prohibition, FICUs have expressed confusion and uncertainty about what is permitted and the definition of ‘overall financial performance,’” the NCUA wrote. “They also have asserted that the regulation is subject to varying interpretations and levels of enforcement across the NCUA’s regions.”
While NCUA says that it has determined limitations on compensation tied to lending are still necessary, the proposed rule would change the regulation to provide clearer and more flexible standards by adding a definition for “overall financial performance.” Additionally, the proposed rule would permit incentives and bonuses to employees, including senior management, to incorporate lending metrics as part of compensation based on a credit union’s overall financial performance.
Impact on credit unions: This change would provide clarity about the meaning of the regulation in a way that makes the regulation less burdensome for credit unions. This change would help credit unions recruit and retain staff, which is an important aspect of credit union resiliency.
- Eligible obligations. The NCUA is proposing three changes to streamline its regulations governing the purchase, sale, and pledge of eligible obligations. The Federal Credit Union Act authorizes FCUs to purchase, sell, and pledge eligible obligations to provide great flexibility in meeting member demand and improving liquidity. NCUA implements this authority through provisions in §701.23 of its regulations, which includes the requirement that a credit union must have policies governing its purchase, sale, and pledge of eligible obligations and a list of items that those policies must address. The proposed revisions would retain the requirement that a credit union must have policies that address eligible obligations, but it would remove the prescriptive lists of items that must be addressed in written policies.
- Proposed Change 1: The NCUA proposes to revise the requirements related to written purchase policies to say that the eligible obligations and notes of liquidating credit unions must comply with the internal written policies of the purchasing FCU.
Impact on credit unions: This change would remove unduly burdensome, overly prescriptive requirements related to an FCU’s internal policies while still requiring the purchasing credit union to have written policies appropriate to their unique portfolio.
- Proposed Change 2: The NCUA proposes to revise the requirements related to the sale of eligible obligations in a way that gives a credit union’s board of directors the authority to establish the limitations of their written sale policies.
Impact on credit unions: The change would reduce administrative burden without eliminating the requirement that FCUs manage their operations responsibilities. It would also give the FCU more flexibility to tailor their process to its needs and risk profiles.
- Proposed Change 3: The NCUA proposes to remove §701.23(g) from its regulations, regarding payments and compensation. This is because FCUs are already governed by broader conflict of interest provisions in their bylaws and by the fiduciary duties of their officials.
Impact on credit unions: This change would give FCU boards additional flexibility in establishing risk-based policies and compensation frameworks. The change would address a provision that is duplicative of other requirements and unduly burdensome.
- Refund of interest (loans). The NCUA proposes to remove §701.24 of its regulations, which addresses the refund of interest to members. The NCUA explained that the FCU Act authorizes an FCU’s board of directors to refund interest to members at the close of business on the last day of any dividend period. This refund is in proportion to the interest paid by the member in that dividend period. This proposal would reduce regulatory burden by limiting the number of sources that FCUs must check to ensure compliance with laws and regulations.
Impact on credit unions: This change would minimize compliance burden by centralizing requirements into one place. FCUs would only need to reference the FCU Act (12 U.S.C. 1761b(9)) to confirm requirements for refunds of interest to members.
- Credit union service contracts. The NCUA has proposed to remove §701.26 of its regulations, which outlines the authority for an FCU to enter into contracts for assets or services that relate to its daily operations with other credit unions and organizations. The authority for an FCU to enter into contracts for operational services is inherent in its charter and its general powers under the FCU Act. Under current regulation, these agreements must be in writing and must advise all parties subject to the agreement that the goods and services provided are subject to examination by the NCUA to the extent permitted by law. The regulation’s principal requirement – that such agreements be in writing – is a standard business practice, which exists regardless of whether it is mentioned in the NCUA’s regulations. Rescinding this regulation does not change the basic operating expectations for credit unions.
Impact on credit unions: This change would minimize compliance complexity by removing superfluous requirements.
- Definitions related to statutory lien. Section 701.39 of the NCUA’s regulations states that an FCU has the power to impress and enforce a lien against a member’s shares and dividends to satisfy any outstanding obligations owed to the credit union. That section defines the phrase “except as otherwise provided by law or except as otherwise provided by federal law.” The NCUA proposes to remove the definition of this phrase “because the language is unnecessary and obvious. The definition does not add anything to the plain meaning of these words.”
Impact on credit unions: Removing unnecessary text makes the regulation easier to understand and reduces the compliance burden.
Make your voice heard
The League may comment on some or all of these proposals, depending on the feedback we receive from Wisconsin’s credit unions. Please email Paul Guttormsson with your thoughts on this round of NCUA regulatory relief proposals by April 20, so that our comment letter (which is due April 27) can reflect your positions.
Compliance Roundtable – April 1 (Webinar)
Join a member of The League’s compliance team as they lead a discussion on the latest changes in regulations and need to know information to keep your credit union in compliance. You can find more information or register on our website.