CUNA Comment Letter
NCUAs Annual Regulatory Review (2006)
August 1, 2006
Regulatory Review (2006)
Office of General Counsel
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
Dear Sir or Madam:
On behalf of the Credit Union National Association, I appreciate the opportunity to file comments in response to the agencys Annual Regulatory Review. CUNA is the nations largest trade organization for credit unions, representing about 90% of the approximately 8,900 state and federal credit unions in this country, which serve nearly 86 million members.
Under the agencys policy, NCUA reevaluates one-third of its current rules each year and all rules are reviewed every three years. Also, under the Economic Growth and Regulatory Paperwork Reduction Act, NCUA and other regulators are required to seek comments from stakeholders and report to Congress on the agencys efforts to minimize or eliminate unwarranted, outdated, or excessive regulations.
For credit unions, which are one of the most highly regulated businesses in this country, these reviews are very important, and CUNA commends the agencys efforts to identify unnecessary and/or overly burdensome regulatory requirements that have been imposed on federally insured credit unions. Our comments on the particular rules listed in the notice for consideration as well as recommendations for improving the review process are addressed below.
Summary of CUNAs Views
- Regarding field of membership, one of the rules under review, CUNA supports legislation at the appropriate time to allow all credit unions regardless of charter type to add new underserved areas. CUNA looks forward to working with the agency to achieve this goal.
- CUNA continues to advocate and press for reform of prompt corrective action (PCA) as a top priority. We urge NCUA to continue its work to achieve passage of PCA improvements. In the meantime, we encourage NCUA to review the list of sanctions under PCA for undercapitalized credit unions with greater than 4% net worth to determine if any of the discretionary supervisory actions could be eliminated or lessened, under appropriate circumstances.
- NCUA should consolidate the list of key terms used in its regulations in its Definitions, 12 CFR 700, and consider including a definition for the term fiduciary duty of credit union board members and senior management officials.
- NCUA has included 12 CFR 708a, Conversions to Mutual Savings Banks, on the list of rules to be reviewed. Rather than address this rule in the context of this letter, CUNA will be filing a detailed comment letter in response to the NCUA Boards conversion proposal for which comments are due to the agency August 28, 2006.
- CUNA supports the agencys efforts to work with the corporate credit unions to develop a risk-based capital system that more closely reflects their operations.
- NCUA adopted a rule change in February to allow low-income credit unions offering uninsured secondary capital accounts to redeem the funds in those accounts. CUNA encourages NCUA to review regulatory burdens on low-income credit unions, as we do for all credit unions, with an eye toward further regulatory relief, consistent with safety and soundness.
- CUNA supports efforts to provide additional regulatory flexibility to credit unions in the areas of lending and investments as addressed below.
- The process for obtaining comments from credit unions on the Regulatory Review could be improved. For example, the notice requesting comments should be more prominently featured on the agencys website.
Field of Membership
CUNA remains deeply concerned about the impact of the agencys recent field of membership (FOM) changes to permit only multiple group credit unions to add new underserved areas even though CUNA agrees the NCUA Board had no alternative in light of the bankers litigation and highly hypocritical actions that hurt those who need credit union service the most.
Vice Chairman Rodney Hood voted against the final rule because, as he stated, in his view the agency is not required to mandate that multiple group credit unions that convert to a non-multiple group charter relinquish their underserved areas. He offered an unsuccessful amendment to restore this authority.
CUNA has developed a legislative proposal to lift the statutory constraints on service to underserved areas for single and community credit unions, which would also render moot the concern raised by Vice Chairman Hood. We want to work with NCUA to achieve passage of this proposal at the appropriate time, and CUNA commends the Chairmans efforts to discuss this matter with key policymakers.
In the meantime, CUNAs Federal Credit Union Subcommittee is reviewing the associations policies on a range of FOM issues and plans to provide recommendations to CUNAs Governmental Affairs Committee at the Governmental Affairs Conference in February 2007.
Net Worth and PCA Reform Remain A Top Priority
NCUA has developed a legislative proposal that calls for broad reform of the current net worth requirements for natural person credit unions and would result in a PCA framework that will more accurately set net worth requirements in relation to the relatively low level of risk associated with credit unions operations.
CUNA strongly supports PCA reform as a top association priority and we continue to work to promote its adoption. We urge NCUA to continue its diligent work with the U.S. Department of the Treasury and Congress until statutory improvements in PCA have been achieved.
We also encourage NCUA to review the discretionary supervisory actions that the agency may apply to credit unions with net worth of less than 6% but more than 4%. While the agency has already limited the impact of such action for credit unions with less than 6% and more than 5% net worth, CUNA continues to question whether any discretionary sanctions should apply for credit unions that are only slightly under the adequately capitalized level. We also question whether undercapitalized credit unions that still have more than 4% net worth should be subject to all the discretionary supervisory actions listed in the PCA rule for such credit unions, such as the limits on credit union service organization (CUSO) transactions and the ability of the agency to limit or alter any activity of the credit union if the agency determines such action poses an excessive risk to the credit union. CUNAs Examination and Supervision Subcommittee would welcome the opportunity to assist the agency with this review.
One of the regulatory provisions the agency is reviewing is its Definitions, 12 CFR 700, which lists and describes key terms used in NCUAs rules. We encourage NCUA to include all defined terms in the agencys rules in this section so there is one complete list of key terminology and how those terms are utilized. Also, we urge NCUA to propose for comments some additional terms, including fiduciary duty of credit union board members and senior management officials. Navy Federal Credit Union has proposed relevant changes to the agencys Chartering and Field of Membership Manual which we encourage NCUA to consider.
Corporate Credit Unions
Corporate credit unions are working with NCUA to develop a comprehensive risk-based capital system for corporates using the principles of the BASEL Accords to tailor the system to the specific needs and activities of these institutions. CUNA strongly supports this effort.
Low-Income Credit Unions
In February, the NCUA Board approved a final rule to allow low-income designated credit unions (LICUs) offering uninsured secondary capital accounts to redeem the funds in those accounts at the same rate they are discounted when they are within five years of maturity. Such credit unions are authorized to offer these accounts to non-natural person members and nonmembers. We supported this change and urge the agency to continue working with the National Federation of Community Development Credit Unions to help ensure community development credit unions are not subjected to unnecessary regulatory burdens in any aspects of the operations, consistent with safety and soundness.
Loans to Members and Lines of Credit to Members
The Credit Union Regulatory Improvements Act (CURIA) contains a number of changes to the statutory and regulatory framework surrounding credit union activities. One of the amendments would increase the 12-year loan maturity limit in the Federal Credit Union (FCU) Act, which we strongly support. Also, as provided in CURIA, NCUA should have greater flexibility to adjust the usury ceiling, which among other things, would make it easier for federal credit unions to serve the underserved.
Also, the FCU Act requires approval of the FCUs board of directors in any case in which the aggregate of loans to an official and loans on which the official serves as endorser or guarantor exceeds $20,000 plus pledged shares. CUNA believes the statute should allow the FCUs board to set the limit or the limit should be increased in the statute.
Investment and Deposit Activities
The FCU Act is very specific in addressing permissible investments for federal credit unions. Even so, restricted investment activities are cited by some credit unions as an impediment to growth and improved services for members. In that connection, we encourage NCUA to consider what measures it might take which do not involve statutory changes to address investment activities. (We will be filing a comment letter next month on the proposal to expand authority for certain investment repurchase transactions.)
We also encourage NCUA to consider whether all adequately capitalized credit unions, not just those with Rag-Flex status, could be eligible for additional investment flexibility. Also, NCUA prohibits the purchasing of an investment with the proceeds from a borrowing transaction if the purchased investment matures after the maturity of the borrowing repurchase transaction. This restriction does not apply to Reg-Flex credit unions, and we urge NCUA to lift this restriction for all FCUs. We do not believe that removing this prohibition will raise liquidity or safety and soundness concerns, which has been the justification for imposing the prohibition.
Process for Identifying Rules for Review and Soliciting Comments
As we have stated before, we believe the process for seeking comments on regulations that are included in the agencys Regulatory Review could be improved. For example, some of the rules included are already the subject of proposed changes or recent modifications. It is confusing for those rules to be included on the regulatory review list.
Also, the notice for the regulatory review is difficult to find on NCUAs website. As a result, we are not sure if very many credit unions are aware that the Regulatory Review is underway and that they can comment.
We also think it would be beneficial for NCUA to provide a yearly summary of rules it has reviewed, comments that were provided and what the agency plans to do to address recommendations that are obtained through the Regulatory Review process.
Thank you for the opportunity to share our views on the review.
Mary Mitchell Dunn
CUNA Deputy General Counsel and
Senior Vice President