WASHINGTON, DC (July 3, 2017) — National Association of Federally-Insured Credit Unions (NAFCU) President and CEO Dan Berger thanked Treasury Secretary Steven Mnuchin in a letter today for issuing a recent report containing many NAFCU-backed regulatory relief provisions. Berger underscored these measures’ importance to the credit union industry.
Last month, the Treasury Department released a report that is filled with credit union-specific and NAFCU-requested recommendations aimed at helping the industry better serve its members and communities. Citing NAFCU’s Annual Report on Credit Unions multiple times, the Treasury report recommends a review of credit union capital requirements and the “current expected credit loss” accounting standard, among other things.
“These reforms, if enacted, will make it easier for credit unions to focus on the needs of American consumers,” Berger noted.
“NAFCU welcomes the Report’s dedicated focus on the unique nature of this country’s credit unions,” Berger wrote. “This nuanced structure is sometimes difficult for federal agencies to fully comprehend, but this Report demonstrates a sophisticated understanding of the credit union difference, along with the benefits members enjoy and the overly broad regulatory environment they must endure.
“While many of the report’s recommendations will require congressional action, we are pleased to see that many others can be implemented through policy shifts at Treasury, or through other federal agency action,” Berger added.
Berger specifically pointed out that Mnuchin, as chair of the Financial Stability Oversight Council, should be able to “coordinate and oversee the group of federal agency heads so that these reforms are implemented.” He encouraged Mnuchin to make this framework a topic at an upcoming FSOC meeting.
The letter also notes recent testimony from NCUA Chairman J. Mark McWatters before the Senate Banking Committee, which touched upon several topics in the report and more.
Monday’s letter was also sent to Craig Phillips, counselor to Mnuchin.
Below please find the full text of the letter:
July 3, 2017
The Honorable Steven T. Mnuchin
Secretary
United States Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
RE: Credit Union Support of Recommendations in Treasury Report, “A Financial System that Creates Economic Opportunities”
On behalf of the National Association of Federally-Insured Credit Unions (NAFCU), the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions, I am writing in response to and in support of your report, “A Financial System that Creates Economic Opportunities” (Treasury Report), published on June 12, 2017.
Foremost, NAFCU would like to thank you and your staff for engaging with us and our members in preparation of this Report. During our April 2017 meeting, as well other subsequent discussions, NAFCU appreciated the opportunity to explain how the regulatory environment since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) has made it increasingly difficult for our nation’s credit unions to serve their members. Those discussions, and others like it with dozens of other stakeholders over the course of several months, have culminated in a very insightful, practical, and comprehensive Report that sets the framework for reform of this country’s duplicative and confusing web of regulations. These reforms, if enacted, will make it easier for credit unions to focus on the needs of American consumers.
Additionally, NAFCU welcomes the Report’s dedicated focus on the unique nature of credit unions. As the Report noted, credit unions are not-for-profit, cooperative financial institutions that are owned by members. This nuanced structure is sometimes difficult for federal agencies to fully comprehend, but this Report demonstrates a sophisticated understanding of the credit union difference, along with the benefits members enjoy and the overly broad regulatory environment they must endure. Specifically, NAFCU was pleased to see the multiple citations to original NAFCU research and reports, as this material is intended to help policy- and decision-makers understand the nature of credit unions.
Understandably, not all of the nearly 100 recommendations proffered in the Report are applicable to credit unions, but NAFCU and our members support the 31 recommendations that will provide benefit and relief to this country’s 108 million credit union member-owners. While many of the Report’s recommendations will require congressional action, we are pleased to see that many others can be implemented through policy shifts at Treasury, or through other federal agency action. As Chair of the Financial Stability Oversight Council, we are optimistic that you can coordinate and oversee the group of federal agency heads so that these reforms are implemented. In fact, we would ask that this framework be a topic of discussion at a forthcoming FSOC meeting, and be routinely revisited as a benchmark for progress.
In addition to the direct impact that your Report will have, it has already made a noticeably positive effect on the discourse in Washington, DC. It has also generated great interest and dialogue in the industry between stakeholders and other federal agencies. For example, the Report served as a topic during the June 22, 2017 Senate Banking Committee Hearing on ways to improve the financial regulatory landscape.
Further, the Report is serving as a roadmap for federal agencies seeking to change their own industries of jurisdiction. In fact, soon after the publication of your Report, NCUA Chairman J. Mark McWatters’ written testimony to the Senate Banking Committee referenced the Report several times. Similar to your Report, Chairman McWatters’ testimony contained both statutory and regulatory recommendations for improvements. We would like to take this opportunity to highlight some of his suggestions, many of which echo your own recommendations, and others which complement and further the discussion.
Recommendations raised in Chairman McWatters’ written testimony
Regulatory Recommendations
Call Report Enhancements
Chairman McWatters’ testimony highlighted his efforts to conduct a comprehensive review of NCUA’s 5300 Call Report. NAFCU is currently engaged in providing feedback to NCUA on ways it can streamline the process, and our members look forward to the adoption of technology that would alleviate some of the burdens noted in the Treasury Report.
Supplemental Capital (for regulatory purposes)
As referenced in the Treasury Report, NCUA recently proposed a rule that would permit credit unions to issue subordinated debt to satisfy certain requirements under a risk-based capital regime. NAFCU supports this rulemaking as a way to help credit unions comply with an otherwise onerous rulemaking, and appreciates Treasury’s support of this initiative.
Risk-Based Capital
Similar to the recommendation made in the Treasury Report, Chairman McWatters recommends revisiting the RBC rule in its entirety to consider whether significant revision or repeal of the rule is warranted. NAFCU strongly supports the spirit of this recommendation, and urges Treasury to lend all warranted assistance to Chairman McWatters as he seeks to reassess this very troublesome rule.
Examination Flexibility
In his remarks, Chairman McWatters cited continued exam flexibility as one of NCUA’s top initiatives. Cited and supported in the Treasury Report, exam flexibility, such as extended exam cycles for all well-run institutions, is a practical way to provide regulatory relief to credit unions. While NAFCU appreciates the work NCUA has done to date on this issue, we ask that Treasury work jointly with NCUA to find a way forward that does not require annual examinations merely because of an institution’s asset size. NAFCU believes that a more nuanced approach would be more appropriate.
Enterprise Solutions Modernization
Chairman McWatters’ written remarks to the Senate Banking Committee included discussion on NCUA’s Enterprise Solution Modernization Program (ESMP), which is still being developed and implemented to enable the agency to be a more efficient regulator. NAFCU and our members strongly support such moves, which demonstrate the agency’s commitment to transparency and industry participation in the rulemaking process. This aligns with the goals noted above.
Appeals Procedures
NCUA recently proposed a rule that would aggregate and consolidate appeals procedures, both for material supervisory determinations and for other various appeals procedures. While NAFCU appreciates Chairman McWatters’ initiative in this arena, we believe there needs to be significant revisions to the exam appeals procedures in a manner that would ensure more examiner accountability. For example, NAFCU recommends that the Federal Financial Institutions Examination Council (FFIEC) create an independent, inter-agency appeals board that is capable of reviewing other agency determinations. Given FSOC’s unique charter, NAFCU believes that Treasury is well-positioned to facilitate this effort.
Corporate Rule
Given positive developments in the corporate credit union system, the NCUA Board recently proposed a rule that would better align the components of capital with the corporates’ financial statements, and revise the definition of “retained earnings” to incorporate “GAAP equity acquired in a merger” as a component of retained earnings. NAFCU supports this rule as an additional means to provide flexibility to corporate credit unions, which will in turn help natural person credit unions and their members.
Credit Union Advisory Council
In his written remarks to the Senate Banking Committee, Chairman McWatters advocated for the creation of a credit union advisory council for a real-time exchange of ideas and dialogue on improving regulations. NAFCU asks that Treasury consider this recommendation, and assist NCUA in creating such advisory councils. We believe that regular communication between an established group of stakeholders with first-hand knowledge of regulatory burdens would be a great asset as NCUA seeks to tailor future rulemaking, and streamline existing regulations.
Legislative Recommendations
Regulatory Flexibility
Chairman McWatters’ written remarks reflect on the fact that the Federal Credit Union Act (FCUA) currently contains several provisions that restrict NCUA’s discretion, despite the agency being in the best position to make determinations based on judgement and subject matter expertise. Provisions listed by Chairman McWatters include limitations on the eligibility for credit unions to obtain supplemental capital, field-of-membership restrictions, investment limits, and the general 15-year loan maturity limit.
NAFCU concurs with Chairman McWatters, and we believe that the FCUA should be amended so as to provide NCUA with enough deference and flexibility to enact changes that would provide relief for credit unions, and in turn, provide further benefits for this country’s consumers.
Field-of-Membership
Chairman McWatters wrote about his desire for Congress to amend the FCUA so that all federal credit unions (FCUs) could serve underserved areas. Currently, only multiple common-bond charters are afforded that flexibility in the FCUA.
Similarly, NAFCU would like FCUs of all charter types to be able to add underserved areas to their fields of membership. To achieve this, NAFCU supported and helped introduce “Financial Services for the Underserved Act of 2016” (H.R. 5541) in the last Congress. Chairman McWatters supports this Act, and NAFCU hopes that Treasury will also lend its support so that more unbanked and underbanked households can have access to financial services.
In addition to underserved areas, Chairman McWatters recommended that Congress eliminate the FCUA provision that requires a multiple common-bond credit union to be within “reasonable proximity” to the location of a member group in order to provide services to members of that group. Further, Chairman McWatters suggests that another legislative enhancement to the FCUA would be the recognition that people have common bonds in ways not currently contemplated by the Act, such as web-based communities. NAFCU fully supports these ideas, and we are optimistic that Treasury sees the benefits of such improvements to the FCUA, as well.
Member Business Lending
On January 10, 2017, Representatives Ed Royce (R-CA), Jared Huffman (D-CA), Don Young (R-AK) and Peter DeFazio (D-OR) reintroduced the “Credit Union Residential Loan Parity Act” (H.R. 389). The bill would exempt loans for non-owner-occupied, one- to four-unit dwellings from credit unions’ statutory MBL cap, making it possible for credit unions to lend more to small businesses without running up against the current cap. In April 2017, Senator Ron Wyden (D-OR) introduced legislation similar to H.R. 389.
Chairman McWatters wrote of his support for these bills, and NAFCU strongly urges other members of Congress, as well as Treasury, to support these bills, which would provide credit unions with more flexibility within their lending cap and help them better serve small business owners critical capital needs.
Supplemental Capital
Given the negative impact the NCUA’s recently approved risk-based capital proposal could have on credit unions, it has never been more important for Congress to consider allowing credit unions access to supplemental capital. More specifically, NAFCU supports the “Capital Access for Small Businesses and Jobs Act,” H.R. 1244, which would authorize credit unions to issue supplemental capital, so long as the not-for-profit, mutual, member-owned and cooperative structure of credit unions are preserved. In his written remarks, Chairman McWatters noted that NCUA also supports this bill, and we ask for Treasury’s support, as well.
In conclusion, this Report is well-received, and has already started spurring dialogue and action. NAFCU is committed to engaging with Treasury as we seek to enact these changes together, and we look forward to meeting with you and your staff in the near future to develop implementation strategies. On behalf of this country’s nearly 6,000 credit unions, owned by 108 million members, NAFCU appreciates your hard work and dedication to this very monumental issue. Should you have any questions or concerns, please do not hesitate to contact me.
Sincerely
B. Dan Berger
President and CEO
CC: Craig S. Phillips, Counselor to the Secretary, U.S. Department of the Treasury
The National Association of Federally-Insured Credit Unions is the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions. NAFCU membership is direct and provides credit unions with the best in federal advocacy, education and compliance assistance. For more information on NAFCU, go to www.nafcu.org or @NAFCU on Twitter.
