Critics charge NCUA proposal could stifle innovation

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Credit union representatives are calling on the National Credit Union Administration to modify a proposed rule for corporate credit unions, citing fears that the regulation could inadvertently slow down the development of new technologies the industry needs to compete.

The NCUA board initially issued the proposal as part of its February board meeting but later extended the comment period as credit unions became focused on managing fallout from the coronavirus.

The rule, intended to update and simplify policies governing corporate credit unions, would allow those institutions to invest a limited amount in a credit union service organization without the company being considered a corporate CUSO. It also expands the type of senior employees who can serve on the corporate CU’s board.

The agency received upwards of 40 letters regarding the proposal and much of the feedback was positive. However, many commenters pushed back on NCUA’s attempt to codify permissible activities for corporate CUSOs by adding those activities to Part 704 of NCUA’s regulations regarding how it implements the Federal Credit Union Act.

“Technology and the way credit unions do business is rapidly changing,” wrote Jane C. Melchionda, president and CEO of Eastern Corporate Federal Credit Union, which does business as EasCorp. “It is impossible to predict what types of services corporate CUSOs want and need to be involved with in the future. By codifying permissible services, which requires rulemaking changes for additions to the permissible services, the regulatory burden is increased and potential opportunities for corporate credit unions to innovate and provide better services to their members in a timely manner is compromised.”

Under the current structure, noted Alison DeTuncq, president and CEO of University of Virginia Community Credit Union, corporate CUSOs and NCUA staff are able to work collaboratively to quickly determine whether new services will count toward the list of permissible activities.

“Moving the permissible activities from the NCUA's website to an appendix to Part 704 and making future changes subject to rulemaking would increase regulatory burden and make it more difficult for corporate CUSOs to obtain timely approval for requests for additions to the list of permissible activities,” she said.

Amy Kleinschmit, chief compliance officer at the Credit Union Association of the Dakotas, pointed to concerns with “the potential delay in innovation should a CUSO have to wait for the NCUA to amend the permissible activities list” as part of future rulemaking.

The proposal also modifies how natural-person and corporate CUSOs are defined in some instances, which some commenters said could create problems for credit unions when determining whether or not they are in compliance with concentration limits for loans to and investments in CUSOs.

“Corporate credit unions have been key sources of liquidity for [natural-person] CUSOs and this would be a material change that would result in a reduction in liquidity sources to [natural-person] CUSOs,” wrote R. Lee Powell, Jr., president and CEO of DESCO Federal Credit Union.

NCUA has also proposed changing requirements for net interest income modeling, which must currently be done at least quarterly, projecting earnings in a variety of interest rate enviornments of a period of at least two years. The agnecy has proposed reducing that requirement to just one year’s worth of projections. A review of comment letters found no signiicant opposition to this change.

Most commenters were also on board with NCUA’s move to amend requirements regarding enterprise risk management at corporate credit unions, including lifting the stipulation that those leading ERM activities be independent from the institution, as well as waiving the current requirement of five years’ experience. However, some recommended removing a section of the current regulation which restricts ERM experts from having relationships — either family or business — with executive-level management at corporates.

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Corporate credit unions Financial regulations Compliance NCUA Fintech Fintech regulations