Removing Barriers Blog

NCUA Adopts Rules on Bylaws, PALs, and Supervisory Committee Audits
Posted September 19, 2019 by CUNA Advocacy

Today, the NCUA Board adopted final rules on supervisory committee audits, FCU bylaws, and Payday Alternative Loans, and received its quarterly briefing on the status of the Share Insurance Fund. Chairman Hood thanked members of several credit union leagues for their attendance at today’s meeting.

Final Rule – Supervisory Committee Audits (Part 715)

The Board adopted a final rule amending its regulations governing the responsibilities of a federally insured credit union (FICU) to obtain an annual supervisory committee audit of the credit union. The final rule implements recommendations outlined in the agency’s Regulatory Reform Task Force’s Regulatory Reform Agenda and will provide additional flexibility to FICUs.  

CUNA filed a letter in support of the proposed rule, which we believe will make compliance with these requirements less burdensome.

The final rule:

  • Replaces the Supervisory Committee Guide with a simplified Appendix to Part 715;
  • Eliminates two audit types that FICUs seldom use; and
  • Eliminates a specific deadline for outside, compensated persons to deliver written audit reports to FICUs.

In response to a question by Board Member Harper, staff noted that additional implementation guidance will be released by the agency in the coming months.

The final rule will become effective 90 days after publication in the Federal Register.

Final Rule – FCU Bylaws (Part 701, Appendix A)

The Board adopted a final rule regarding FCU bylaws. The final rule updates, clarifies, and simplifies the FCU Bylaws. The final rule updates and conforms the FCU Bylaws to legal opinions issued by the Office of General Counsel and provides greater flexibility to FCUs. The final rule also makes other changes that are designed to remove outdated or obsolete provisions.

The final rule was adopted largely as proposed. However, the final rule includes some changes from the proposal, such as retaining the existing quorum requirement for meetings, consistent with CUNA’s request in our comment letter.

In response to a question from Board Member Harper, staff clarified that credit unions are able to keep their current bylaws in place and do not need to make specific changes as a result of today’s action.

The final rule will become effective 90 days after publication in the Federal Register.

Final Rule – Payday Alternative Loans II (Part 701)

In a 2-1 vote, with Board Member Harper dissenting, the Board adopted a final rule establishing a Payday Alternative Loan II program. The final rule does not impact the PALs I rule.

As proposed and adopted, PALs II loans:

  • Loan amount: can be up to $2,000 (PALs I loans must be between $200 and $1,000);
  • Loan term: can be up to 12 months (PALs I loans are limited to 6 months);
  • Membership requirement: no minimum membership length is required (PALs I requires a minimum membership of at least 1 month). 

The PALs II proposal would have removed the restriction on the number of PALs II loans that an FCU may make to a single borrower in a rolling 6-month period. (The PALs I rule currently prohibits an FCU from making more than 3 PALs loans in a rolling 6-month period to a single borrower.)

However, the PALs II final rule adopts the PALs I limit of no more than 3 loans in a rolling 6-month period to a single borrower. In addition, an FCU may not make more than one PAL (PAL I or PAL II) loan to a borrower at a time.

Lastly, the final rule prohibits an FCU from charging any overdraft or nonsufficient funds fees in connection with any PALs II loan payment drawn against a borrower’s account.

In support of the final rule, Board Member McWatters stated that an increase of the total loan amount is necessary because people in the payday risk category often need to borrow more than $1,000. However, in expressing his opposition to the final rule, Board Member Harper commented that he believes a PAL loan up to $2,000 is excessive.

The final rule will become effective 60 days after publication in the Federal Register.

Quarterly Report – Share Insurance Fund

Today’s report on the Share Insurance Fund indicated total income of $81.2 million and net loss of $79.1 million for the quarter ending 6/30/2019. The balance sheet showed total liabilities and net position of $16.09 billion, a decrease of roughly $112 million from 3/31/2019. The Fund’s equity ratio stands at 1.33% as of the end of the last quarter. The number of CAMEL Code 4/5 credit unions increased slightly from the preceding quarter to 204; CAMEL Code 3 credit unions decreased to 872. So far in 2019 there has been one credit union failure.