Though roundly hailed as an important step in the right direction, NCUA Chairman Debbie Matz's announcement that the regulator will formally invite comment on the overhead transfer rate (OTR) may not be a straightforward victory for the CU community.
The concern surrounds the difference between the agency choosing to publish the methodologies used for calculating the OTR-the transfer of funds from the National CU Share Insurance Fund to cover insurance-related expenses-in the Federal Register and seeking public comment, as Matz has proposed doing; or treating the OTR as a rulemaking under the Administrative Procedure Act (APA), which includes the same public notice and comment procedures, but also comes with a host of other key requirements.
Chairman Matz has said she intends to call for a board vote in January on this approach to give the public the opportunity to comment on OTR.
But there are three key differences between publishing in the Federal Register for greater transparency and going through an actual rulemaking through the APA process. NCUA said those differences are:
- The publication of the OTR methodology is voluntary so a future board would not bound by this action;
- The APA notice and comment requirements-which are specific to an agency's responsibilities on issuing proposed rules, responding to comments, and issuing final rules-do not apply; and
- The agency is not required to publish the final methodology in the Federal Register.
These differences raise concerns about both the timing and the accountability of the process, sources familiar with the issue told Credit Union Journal, and could alleviate Congressional concerns about a lack of transparency at NCUA without leading to real, permanent reform.
Still, many CU advocates applauded the chairman's announcement as an important step in the right direction. Indeed, NASCUS President and CEO Lucy Ito called it a "historic victory for the credit union system."
"From the beginning, NASCUS has sought transparency, and the meaningful stakeholder input afforded by formal notice and comment. The chair's statement commits to providing both, and we expect that the formal notice and comment as promised by the NCUA will be a meaningful exercise to benefit all stakeholders."
NAFCU President/CEO Dan Berger also pointed to the importance of transparency from NCUA on its budgeting processes.
"Over the last several weeks, we have seen the agency take several important steps toward greater transparency," Berger said in a statement. "Chairman Matz's announcement that the agency will seek public comment on OTR and the operating fee constitutes another step forward towards transparency."
Former NCUA chairman Dennis Dollar characterized Matz's decision as a "step in the right direction, a baby step perhaps, but any step toward greater transparency and openness is positive. I hope this is the beginning of additional moves towards transparency because, from my experience, NCUA as an independent agency specific to credit unions with both regulatory and insurance authority is vitally important for the long-term viability of the credit union industry."
While Dollar was happy to see this "baby step," he asserted the federal regulator could do "considerably more" by re-instituting the budget hearings he held during his tenure as NCUA chairman and having input from the stakeholders on an annual basis.
Michael E. Fryzel, another former NCUA chairman and now a Chicago-based attorney, called Matz' announcement a "good and important" move, but expressed similar concerns about the timing. "One of my concerns is that the public comment period will not begin until next year, after the current budget cycle, which means we may not see any feedback or meaningful changes for another two years or so."
Fryzel also noted that critics believe OTR should be a rule unto itself, not merely something subject to rulemaking. "This has not been resolved yet," he added.
John McKechnie, a partner at Total Spectrum and a former NCUA and CUNA staffer, noted if nothing else, the announcement from Matz moves the debate forward. "Now, instead of process debates, I want to hear a vigorous and honest discussion on policy, on substance, on priorities," McKechnie said. "If this yields better ideas, and a better understanding of the NCUA budget, everybody wins."
One long-time critic of the OTR process saw little reason to applaud. Gary Oakland, the former CEO of BECU, noted that "a comment period is fine, but we've been 'commenting' on it for the last ten years and it's only slowed the growth of the unsubstantiated OTR."
During Oakland's tenure at BECU the CU financed a study of OTR entitled "Caught in a Regulatory Vise: The Peculiar Problem Faced by Federally Insured State-Chartered Credit Union," authored by Lawrence J. White, professor of Economics at New York University. In that study, While, who is also a former member of the Federal Home Loan Board, suggested NCUA should abolish the OTR because it is inherently unfair to FISCUs.
When Credit Union Journal asked Oakland about the latest development in OTR, the retired CEO said NCUA needs to clearly define their dual roles of regulator and insurer so state-chartered credit unions, federal credit unions and federally insured credit union can understand their relationship with NCUA and their examinations.
