Removing Barriers Blog

Pt 1: NCUA Board Holds December Meeting
Posted December 17, 2020 by CUNA Advocacy

Proposed Rule – Field of Membership Shared Facility Requirements (Part 701, Appendix B)

In a 2-1 vote, with Board Member Harper dissenting, the Board issued a proposal to amend the chartering and FOM rules to modernize requirements related to service facilities for multiple common bond FCUs.

The proposal would amend the rules to include any shared branch, shared ATM, or shared electronic facility in the definition of “service facility” for an FCU that participates in a shared branching network. The FCU would not need to be an owner of the shared branch network for the shared branch or shared ATM to be a service facility. These changes would apply to the definition of service facility both for additions of select groups to multiple common bond FCUs and for expansions into underserved areas.

In voting against the proposal, Board Member Harper stated that the proposal does not conform to either the letter or spirit of the FCU Act, citing specific concern with the “reasonable proximity” requirement of the Act. Further, Harper opposed a 30-day comment period for this and the other proposals before the Board today, expressing concern that these issues are too important to not provide ample time for the public to provide input on.

The agency will accept comments on the proposal for 30 days following publication in the Federal Register.


Temporary Final Rule – Regulatory Relief in Response to COVID-19 (Part 701)

The Board extended the effective date of its temporary final rule (adopted in April 2020) that modified certain regulatory requirements to help ensure credit unions remain operational and can properly conduct appropriate liquidity management to address economic conditions caused by the pandemic. Specifically, the temporary final rule:

  • Raised the maximum aggregate amount of loan participations that a credit union may purchase from a single originating lender to the greater of $5,000,000 or 200% of the credit union’s net worth.
  • Suspended limitations on the eligible obligations that a FCU may purchase and hold.
  • Tolled the required timeframes for the occupancy or disposition of properties not being used for FCU business or that have been abandoned.

Without today’s action, these temporary modifications would expire on December 31, 2020. Due to the continued impact of COVID-19, the Board has decided it is necessary to extend the effective period of these temporary modifications until December 31, 2021.

Board Member Harper asked staff whether the agency would also be extending the effective date of a rule issued earlier this year that temporarily defers the appraisal requirement. Staff is not recommending extension of the effective date, which will expire at year-end. Staff cited several reasons for allowing it to expire, such as appraisal flexibilities put forth by the GSEs.


Proposed Rule – Mortgage Servicing Rights (Parts 703 & 721)

In a 2-1 vote, with Board Member Harper dissenting, the Board issued a proposed rule to amend the NCUA’s investment regulation to permit FCUs to purchase mortgage servicing rights (MSRs) from other federally insured credit unions subject to the following conditions:

  • The underlying mortgage loans of the MSRs are loans the FCU is empowered to grant;
  • The FCU purchases the MSRs within the limitations of the FCU’s board of directors’ written purchase policies; and
  • The board of directors or investment committee approves the purchase in advance.

In voting against the proposed rule, Board Member Harper cited concerns over the proposal’s lack of guardrails to protect against the numerous risks associated with mortgage servicing.

The agency will accept comments on the proposal for 30 days following publication on the Federal Register.


Proposed Rule – Overdraft Policy (Part 701)

In a 2-1 vote, with Board Member Harper dissenting, the NCUA Board issued a proposal to amend one of the requirements that a FCU must adopt as a part of its written overdraft policy.

Specifically, the proposal would modify the requirement that a FCU’s written overdraft policy establish a time limit, not to exceed 45 calendar days, for a member to either deposit funds or obtain a loan from the FCU to cover each overdraft. The proposed rule would replace the 45-day limit with a requirement that the written policy establish a specific time limit that is both reasonable and applicable to all members, for a member either to deposit funds or obtain a loan from the credit union to cover each overdraft.

The agency will accept comments on the proposal for 30 days following publication on the Federal Register.


Final Rule – Subordinated Debt (Parts 701, 702, 709, & 741)

The Board adopted a final rule to amend various parts of the NCUA’s regulations to permit Low-income Designated Credit Unions, Complex Credit Unions, and New Credit Unions to issue Subordinated Debt for purposes of Regulatory Capital treatment.

The final rule—being adopted largely as proposed—includes a few changes based on comments, including:

  • Amending the definition of Accredited Investor,
  • Providing a longer timeframe in which a credit union may issue Subordinated Debt after approval,
  • Reducing the required number of years of Pro Forma Financial Statements an Issuing Credit Union must provide with its application,
  • Clarifying the prohibition on Subordinated Debt issuances outside of the United States, and
  • Clarifying that the Board will publish a fee schedule only if it makes a determination to charge a fee.

The final rule will become effective January 1, 2022.

CUNA filed a comprehensive letter in support of the Subordinated Debt proposal, which will help credit unions build additional capital.


Board Briefing – Share Insurance Fund 2021 Normal Operating Level

The Board was briefed on the NOL of the NCUSIF, which will remain at 1.38% (the level it has been at since December 2019). Today’s briefing was part of the agency’s periodic review of the equity needs of the NCUSIF. The NOL calculation relies on established methodology for determining the level. The briefing also acknowledged establishment of a working group that will evaluate the NOL going forward, including review of factors that impact the methodology.

In response to a question from Board Member Harper regarding the likelihood of an insurance premium in early 2021, staff noted that if the actual year-end equity ratio of the NCUSIF is in line with the projected ratio (of 1.32%), then the agency would not expect to charge a premium at the start of 2021.