ALEXANDRIA, Va. — NCUA Chairman Debbie Matz said the agency will formally invite credit union stakeholders and the public to comment on the methodologies for calculating both the overhead transfer rate (OTR) and the federal credit union operating fee.
Matz added that she plans to call for an NCUA board vote in January of next year to publish both methodologies as public notices in the Federal Register, a journal that includes government agency rules, proposed rules, and public notice
"While these methodologies do not require notice and comment procedures, the Federal Register notices would provide additional measures of transparency by making the process behind the agency's two primary funding mechanisms more formally available for public comment," Matz said in a statement. "As always, NCUA will review all comments thoroughly and consider them carefully."
NCUA also said that this process typically takes six to nine months, including at least a 30-day comment period, consideration of the comments and staff recommendations for NCUA board review and action.
"Publishing these notices in January 2016 would provide ample time for interested parties to share their views before the NCUA board considers a 2017 budget at an open meeting in November 2016," Matz added. "We also plan to publish a Federal Register notice in January 2016 with a multi-year draft NCUA Strategic Plan, which will drive the agency's budget process over several years."
NCUA will also allow credit union stakeholders and the public to comment on the draft NCUA Strategic Plan.
The essential battle over the controversial OTR methodology has long pitted state credit union regulators against their federal counterpart. Indeed, the National Association of State Credit Union Supervisors (NASCUS) recently demanded a "detailed explanation" from NCUA over its refusal to submit the OTR to notice and comment rulemaking.
NASCUS CEO, Lucy Ito asserted that OTR should fall under the purview of the Administrative Procedure Act (APA) — a stance denied by NCUA. NASCUS has also maintained that OTR has become tantamount to an "inequitable distribution" that allegedly "favors" the federal credit union charter over the state charter. Put another way, Ito asserted that NCUA's current OTR "essentially" lowers federal credit union operating fees.
But what exactly is the OTR and why has it elicited so much conflict and controversy?
Under the Federal Credit Union Act, the NCUA was authorized to expend funds from the Share Insurance Fund for "administration and other expenses" related to federal share insurance. OTR represents a transfer of funds from the Share Insurance Fund to cover insurance-related expenses which are paid by both federal credit unions and federally insured state credit unions. Thus, OTR accounts for a percentage of NCUA's annual operating budget that is paid by a transfer from the Fund. These transfers are made monthly, based on actual, incurred expenses, not budgeted amounts.
According to the NCUA, OTR is determined annually through an analysis of: an Examination Time Survey; the workload budget; the operating budget; and the imputed value of the state supervisory authority work.
And since the NCUA is both supervisor and regulator of federal credit unions, as well as an insurer of all federally insured credit unions, the OTR is needed to determine the proper distribution of costs between the agency's "regulator" function and its "insurer" function.
Historically, OTR has fluctuated widely—from as low as 30% in the early 1980s, to more than 70% in recent years.
