Proposed Rule – Capitalization of Interest (Part 741, Appendix B)
The
Board issued a proposed rule to allow the capitalization
of interest in connection with loan workouts and modifications. The proposal
would remove the current prohibition on capitalizing interest, which according
to the agency “may be overly burdensome and, in some cases, hamper a federally
insured credit union’s good-faith efforts to engage in loan workouts with
borrowers facing difficulty because of the economic disruption that the COVID-19
event has caused.”
The
proposed change would apply to workouts of all types of member loans, including
commercial and business loans.
Staff
explained how the proposed rule would include certain consumer protections,
such as requiring credit unions to determine the borrower’s ability to repay
the debt prior to capitalizing interest on the member’s loan.
CUNA
has called on the agency on several occasions, including in a September letter, to allow for the
capitalization of interest.
The
agency will accept public comments on the proposal for 60 days following
publication in the Federal Register. Summary here
Board Briefing – State of Credit Union Diversity and 2019 Diversity
Self-Assessment
The
Board received a briefing on the state of credit
union diversity, equity, and inclusion. Staff discussed the annual voluntary
diversity self-assessment, which is critical to collecting information on credit
union diversity. Staff stressed that data is reported only in the aggregate to
the Board, that no credit unions are identified, and that results have no
bearing on a credit union’s examination.
Staff
then discussed the results of the 2019 diversity
self-assessment, which was completed by 118 credit unions, up from 35 in 2016. Staff
is encouraged by the increase in participation and expects more credit unions
to complete the assessment going forward.
In
response to a question from Board Member Harper on how the agency can increase
participation in the assessment, staff said they may explore use of a
third-party to collect the data to address a lack of trust among the industry;
staff also reiterated the idea that the agency could pursue a reduction in the
operating fee for federal credit unions that participate. In a recent letter to the NCUA, CUNA stressed
the importance that not only must the assessment remain voluntary but any
possible discount for participating credit unions must be available to federal
and state-chartered credit unions alike.
Board Briefing – 2020 Budget Update and Reprogramming
The Board was provided an update on the 2020 agency budget.
Staff anticipates that of
the $27.4 million allocated for travel in the 2020 budget, at least $18 million
will be left unspent due to a reduction in travel. Staff recommended
reallocating $4.32 million for COVID-related costs and opportunities, leaving
the surplus at $14.7 million. The bulk of the reallocation ($3 million) would
be used for renovations to the agency’s central office; thus, allowing the $3
million planned for the 2021 Capital Budget to be eliminated.
While the Board agreed to reprogramming
of part of the 2020 budget, Board Members Harper and McWatters expressed
concern with the 2021-2022 budget and indicted they are unlikely to support it
as proposed.
Board Briefing – Share Insurance Fund Quarterly Report
Today’s
report on the Share Insurance
Fund showed total income of $69.3 million and net loss of $26.1 million for the
quarter ending 9/30/2020. The balance sheet indicated total liabilities and net
position of $19.213 billion, an increase of roughly $1.5 billion from the
previous quarter. The Fund’s reserve balance stands at $175.2 million as of the
end of the third quarter, with $15.5 million being for specific reserves. The
number of CAMEL Code 4/5 credit unions decreased slightly from the preceding
quarter to 163; CAMEL Code 3 credit unions also decreased slightly to 767. The
Fund’s equity ratio stands at 1.22% as of June 30, below the Normal Operating
Level of 1.38%.
In
regard to the Share Insurance Fund “true up” announced at last month’s Board
meeting, staff noted that as of yesterday, 99.6% of the amount invoiced has
been collected.
Board
Member Harper reiterated comments he has made previously that, with the Fund’s
equity ratio continuing to decline, it is not a question of if a premium will
be charged but when, whether next year, the following year, or sometime beyond
that. He warned credit unions that they need to brace themselves for that
reality.
Further,
Board Member Harper reiterated his call for the agency to begin discussions
with Congress to find a way for the NCUA to manage the Fund going forward in a
manner that permits the Fund to be built up in good times rather than during times
of stress.