NCUA board makes moves beyond just risk-based capital

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Although many credit unions were focused on changes to the much-despised risk-based capital rule, the National Credit Union Administration board on Thursday addressed several other important issues during its August board meeting, including an extension of the current 18 percent annual interest rate limit for loans, a revision of the regulator’s operating fund budget projecting a reduction of almost $8.5 million and an announcement $675,000 will be transferred to pay for cybersecurity improvements and other costs.

During the seventh open meeting of 2018 at the agency’s headquarters Thursday, Chairman J. Mark McWatters and board member Rick Metsger unanimously approved four non-RBC-related items:

  • A $675,000 operating fund budget transfer to pay for cybersecurity improvements and employee relocation costs associated with the agency’s reorganization.
  • Continuation of the current 18 percent annual interest rate limit for loans—with the exception of loans originated under the payday alternative loan program—through March 10, 2020.
  • A final rule creating new suspension and debarment procedures to better protect the federal government’s interest in only doing business with presently responsible contractors.
  • A proposed rule to add specificity and clarity to current regulations covering loans and lines of credit granted to members and to provide credit unions with regulatory relief.

In addition, NCUA’s chief financial officer briefed the board on the agency’s revised 2018 budget estimates, which currently project a reduction in the agency’s operating fund budget of almost $8.5 million. NCUA said it expects net savings of nearly $8.5 million in its 2018 Operating Fund Budget, primarily due to reduced staff levels from the agency’s reorganization.

The board approved a $291.8 million Operating Fund Budget at its November 2017 meeting. Current estimates show the agency will have 70 fewer full-time equivalent positions than the 1,183 positions originally planned in the 2018 budget, resulting in a decrease in salary and benefits costs.

The mid-year budget review also reported estimated reductions for travel ($632,000); rent, communications, and utilities ($91,000); administrative costs ($155,000); and contract costs ($102,000). The $15.4 million Capital Projects Budget remained unchanged. The review projected $325,000 savings in the $8.1 million Share Insurance Fund Administrative Budget.

Proposed Lending Rule Changes

The NCUA board proposed to amend its regulations regarding loans and lines of credit to members – known as Part 701, a change it said is part of the agency’s ongoing regulatory reform agenda.

According to NCUA, the proposed rule would make those regulations more user-friendly by:

  • Identifying in one section the various maturity limits applicable to federal credit union loans;
  • Clarifying that the maturity for a new loan under GAAP is calculated from the new date of origination;
  • Expressing clearly the limits for loans to a single borrower or group of associated borrowers; and
  • Seeking comment on whether the agency should provide for longer, more flexible maturity limits on certain loans.

NCUA said comments on the proposed rule, available online here, must be received within 60 days of publication in the Federal Register.

Interest rate ceiling stays in place

The board said it extended the current interest rate ceiling of 18 percent on most federal credit union loans through March 10, 2020, after “reviewing trends in money-market rates and current conditions among federal credit unions.”

NCUA noted the Federal Credit Union Act caps the interest rate on federal credit union loans at 15 percent. However, the NCUA board has discretion to raise that limit for 18-month periods if interest rate levels could threaten the safety and soundness of credit unions.

The regulator explained the extended 18 percent cap applies to all federal credit union lending except originations made under NCUA’s consumer-friendly payday alternative loan program, which are capped at 28 percent.

NCUA said its staff analysis found money market rates have risen between December 2017 and June 2018, and lowering the interest rate “could have an adverse effect on the safety and soundness of credit unions.” The regulator said the Federal Credit Union Act requires both those conditions exist for the board to allow the interest rate ceiling to be higher than 15 percent.

NCUA added the staff analysis found a reduction in the loan rate cap could force credit unions to restrict the flow of credit, particularly to low-income members.

The board said it will continue to monitor market rates and credit union financial conditions to determine whether a change should be made to the maximum loan rate. “The board may take action sooner than 18 months if circumstances warrant,” NCUA said in a statement.

Final Rule on Agency’s Procurement Practices

NCUA said it is adopting new contractor suspension and debarment procedures to protect the federal government’s interest in doing business with “responsible contractors” under a final rule.

The regulator declared it is not required to follow federal government acquisition laws and regulations, but said the agency believes those include best practices, “and suspension and debarment procedures have proven to be an important part of government procurement.”

According to NCUA, these new procedures “would protect the agency by helping ensure the NCUA does business only with presently responsible contractors.”

NCUA added it will only solicit offers from, award contracts to, or consent to subcontracts with presently responsible contractors.

The final rule, available online here, will become effective 30 days after publication in the Federal Register.

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Lending Lending rules Cyber security Compliance J. Mark McWatters Rick Metsger NCUA