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NCUA Proposes Rule to Enhance Emergency Liquidity Standards
On July 30, the NCUA proposed a rule that would alter the emergency liquidity requirements applicable to all federally-insured credit unions. For those credit unions with assets of $10 million or more, the rule would require a contingency funding plan with strategies for addressing liquidity under an emergency scenario. The rule would require institutions with assets of $100 million or more to have access to backup federal liquidity. Institutions with less than $10 million in assets would have to establish a board-approved framework for managing liquidity under emergency circumstances, including a list of contingent liquidity sources. The proposal reminds credit unions that their access to the Central Liquidity Facility is expected to close in October 2012. Comments on the proposal are due by September 28, 2012.
NCUA Reorganizes Examination and Supervision Offices
On July 26, the NCUA announced the creation of the Office of National Examinations and Supervision, effective January 1, 2013. The new office will focus on consumer credit unions with more than $10 billion in assets. The NCUA is making the change to alter what it identifies as an imbalance in its current examination and supervision program by shifting resources from examination of smaller credit unions to the largest credit unions.
CFPB, Prudential Regulators Release Supervisory Coordination Memorandum
On June 4, the CFPB and the federal banking prudential regulators the Federal Reserve Board, the National Credit Union Administration, the Federal Deposit Insurance Corporation, and the Office of Comptroller of the Currency jointly released a Memorandum of Understanding (MOU) meant to facilitate coordination of supervisory activities. The Dodd-Frank Act grants the CFPB exclusive authority to examine insured depository institutions and insured credit unions with more than $10 billion of total assets (and their affiliates) for compliance with federal consumer financial laws. The prudential regulators retained supervisory authority for all other applicable laws for such institutions, and all supervisory responsibilities for institutions with $10 billion or less in total assets. The Dodd-Frank Act also requires the CFPB and the prudential regulators to share supervisory information and work to minimize regulatory burden by coordinating examinations. The recent MOU seeks to implement those statutory requirements by establishing guidelines for simultaneous examinations and a framework for sharing certain supervisory information. The MOU also sets forth, among other things, a process by which covered institutions can request separate examinations.
Senate Banking Chairman Requests Audits of Community Bank and Credit Union Exam Processes
On February 10, Senator Tim Johnson, Chairman of the Senate Banking Committee, sent a letter to the inspectors general of the Department of Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the National Credit Union Administration seeking audits of each agency's exam process for community banks and credit unions. The letter cites community bank and credit union complaints of unclear standards and inconsistent application of policies and procedures. Sen. Johnson asked that the audit review (i) the overall exam process, (ii) examination timelines, and (iii) the ability of an institution to question or appeal exam results. The House Financial Services Committee has been considering legislation, H.R. 3461, that would mandate changes to the examination process. To date, no corresponding bill has been introduced in the Senate.
FTC Announces Settlement With Debt Relief Service Operators
On February 8, the FTC announced it had settled with four defendants alleged to have operated a phony debt relief service. According to the FTC, the defendants used illegal robocalls to falsely promise consumers lower credit card interest rates in exchange for a $995 fee, and falsely promised refunds. The operation allegedly netted over $13 million from over 13,000 consumers. The FTC’s complaint alleges that instead of negotiating lower rates for consumers, the defendants at most tried to arrange three-way phone calls with credit card companies for some consumers. The defendants agreed in the settlement to be banned from robocalling consumers and from selling debt relief services, and to pay a $13.1 million judgment, which will be suspended upon payment of $159,000 by the settling defendants. Defendants’ assets are subject to sale by a receiver to recover additional funds. The settlement also bars the defendants from a variety of misleading or illegal practices related to phone contacts to consumers.
NCUA Publishes Advance Notice Regarding Use of Financial Derivatives Transactions to Offset Interest Rate Risk
On February 3, the NCUA published a second advance notice of proposed rulemaking seeking additional comments to identify the conditions for federal credit unions to engage in certain derivatives transactions to offset interest rate risk. The second notice follows one issued in June 2011, which requested comment on potentially modifying NCUA’s rule on investment and deposit activities to allow such derivative transactions. The current notice focuses on the ability of federal credit unions to independently engage in derivative transactions, without the oversight of a third-party provider. The NCUA is seeking comment on eligibility requirements and safety and soundness considerations that might limit the types of derivatives that federal credit unions may use, exposure limits, and counterparty risk. Comments responding to the notice must be received by April 3, 2012.
NCUA Issues Final Interest Rate Risk Rule
On February 2, the National Credit Union Administration (NCUA) issued a final rule amending Part 741 of its insurance rules to require certain federally insured credit unions (FICUs) to adopt written interest rate risk policies and programs. These interest rate risk policies and programs must include five elements: (i) Board approval, (ii) Board oversight and management implementation, (iii) risk-measurement systems to assess the interest rate risk sensitivity of earnings and/or asset and liability values, (iv) internal controls to monitor adherence to interest rate risk limits, and (v) decision-making that is informed and guided by interest rate risk measures. The new rule applies to all FICUs with assets greater than $50 million and to any FICU with assets between $10 million and $50 million that has a Supervisory Interest Rate Risk Threshold ratio (SIRRT ratio) greater than 1:1. FICUs can calculate their SIRRT ratio by adding together their portfolios of first mortgage loans and investments with maturities greater than five years, and dividing that figure by the FICU’s net worth. The final rule also contains guidance on how to develop an interest rate risk policy and program that is based on generally recognized best practices for safely and soundly managing interest rate risk. The rule is effective September 30, 2012.
NCUA Proposes Rule Regarding Loan Workouts and Nonaccrual Policies
On February 1, the National Credit Union Administration (NCUA) published a proposed rule related to the management of loan workouts and nonaccrual policies for loans. The rule as proposed would, for all federally insured credit unions, (i) establish standards for the management of loan workout arrangements and require written workout policies, (ii) revise requirements for reporting troubled debt restructured (TDR) loans, including the calculation and reporting of TDR loan delinquency based on restructured contract terms, (iii) prohibit accruing interest on loans at least ninety days past due (with some exceptions), and (iv) maintain member business workout loans in nonaccrual status until the credit union receives six consecutive payments under the modified loan terms. The NCUA is accepting comments on the proposed rule through March 2, 2012.
Agencies Release Guidance on ALLL Estimation Practices for Junior Liens
On January 31, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency (collectively, the agencies), released joint guidance related to allowance for loan and lease losses (ALLL) estimation practices associated with loans and lines of credit secured by junior leans on one- to four-family residential properties. The guidance reiterates, specifically with regard to junior liens, key concepts included in generally accepted accounting principles and existing ALLL supervisory guidance related to the ALLL estimation practices. The agencies provided the guidance to remind regulated financial institutions to monitor all credit quality indicators relevant to credit portfolios and to follow appropriate risk-management principles in managing junior liens.
NCUA Issues List of Regulations Subject to Regulatory Review
On January 30, the NCUA issued a list of regulations to be reviewed in 2012. The NCUA reviews one third of its rules every year to ensure that the regulations are "clearly articulated and easily understood" and that substantive concerns are considered as well. This year, in the spirit of Executive Order 13579 regarding agency regulatory review, the NCUA is seeking comments to help it modify, streamline, expand, or repeal rules that are not required by statute and would not jeopardize safety and soundness. Rules under review this year include, for example, those covering (i) corporate credit unions, (ii) unfair or deceptive acts or practices, (iii) Truth in Savings, (iv) investment and deposit activities, and (v) bank conversions and mergers. The NCUA is accepting comments on the listed regulations through August 3, 2012.