DANA POINT, Calif. (10/21/14)--Speaking to a packed house, Credit Union National Association Executive Vice President and General Counsel Eric Richard opened CUNA's Attorneys Conference with a update on some of the most pressing regulatory issues facing credit unions.
Of primary legal concern to financial regulators is a case the Supreme Court will hear in December. It involves the issuing of guidance versus regulations, which requires a public notice and comment period. The Washington, D.C., Federal Court of Appeals ruled that an agency cannot change its interpretation of a rule without engaging in notice-and-comment.
Richard called the case "one of the most important ones to watch for regulated industries such as credit unions." The decision could articulate a standard as to when a regulated entity is expected to follow guidance, which could have implications on the examination and supervision process.
Credit Union National Association Executive Vice President and General Counsel Eric Richard (at podium) speaks to the audience at the CUNA Attorneys Conference Monday about the latest regulatory and legal issues facing credit unions. (CUNA Photo)
"If the Supreme Court upholds the D.C. court's decision, credit unions could have more opportunity to participate in the process, on the other hand, agencies might decide not to use guidance, for fear of locking themselves into a position," Richard said. "However, if the Supreme Court rejects the D.C. court, agencies will more confidently issue interpretations."
In his update on the National Credit Union Administration's risk-based capital proposal, Richard outlined CUNA's efforts over the past six months, which included meeting with stakeholders around the country, preparing a library of material to help credit unions see how they might be affected, speaking to members of Congress and helping to generate a record 2,056 comment letters on the proposal.
He also said the process has likely been a learning process for the NCUA and credit unions. Since the proposal deals with wide-ranging topics such as interest-rate risk, concentration risk, examiner power, capitalization requirements and more, Richard said the agency might be better served breaking those down into individual proposals.
"In the future, we encourage the agency to tackle areas of concern one at a time, rather than putting out a single huge proposal," he said. "It causes less heartburn to the industry and ultimately it is in the agency's interest to take things in small bites."
Other lessons learned during the risk-based capital proposal process include:
The 2,056 letters have been distilled to about 50 individual issues the agency is considering;
The unprecedented credit union reaction to the rule "must have made a huge impression on NCUA board members," and that it is just as important that those efforts be continued during the second comment period; and
A negotiated rulemaking or Advance Notice of Proposed Rulemaking could have involved stakeholders at an earlier stage, making sure credit union voices were heard.
Data breaches are another topic that has filled the headlines recently, with a significant cost coming to credit unions and other financial institutions. According to CUNA's survey on the Target data breach, it cost credit unions roughly $30 million to re-issue credit and debit cards, as well as other costs.
Richard said a layered approach to payment security is needed, with an ultimate goal of bringing merchants to the table to discuss ways to implement appropriate security standards.
"We feel like a national standard is appropriate here, rather than a patchwork of differing state laws and regulations, but we don't want Congress to set the standard, the technology develops too quickly," he said. "We'd also like merchants to be required to reimburse credit unions for the costs they incur as a result of data breaches."
Other points he made include:
While litigation is not a "silver bullet," it is an important tool for credit unions. Some credit unions must serve as named plaintiffs if they want to sue. CUNA is working with plaintiffs firms and connecting credit unions and lawyers. A number of credit unions must serve as named plaintiffs if the industry wants to pursue class action;
For the Target breach, there are at least 30 cases directly related to financial institutions under way, with at least 10 credit unions serving as named plaintiffs. Target is trying to have the case dismissed, saying it does not owe a duty of care to financial institutions;
For the Home Depot breach, cases are just starting, including at least three involving credit unions; and
Visa and MasterCard also have procedures used to negotiate to create compensation funds for those affected.
Also during the Monday sessions at the conference was a presentation from NCUA Senior Associate General Counsel John Ianno and staff attorneys Sarah Chung and Pamela Yu. Watch News Now
Wednesday for details.
Other sessions at this week's conference include "Social Media: Compliance Challenges and Opportunities for Credit Unions," presented today by CUNA Mutual Group's Ross Hansen, associate general counsel, and Jennifer Kraus, lead attorney; and "New Developments in the Bank Secrecy Act," presented by T. Wayne Hood, senior vice president/general counsel, ORNL FCU, Oak Ridge, Tenn., with $1.5 billion in assets. Wednesday features "ID Theft Response--How to Do It Right," presented by Christopher Gerety, general counsel, APCO Employees CU, Birmingham, Ala., with $2.4 billion in assets.