NAFCU’s Comments to NCUA on Definition of “Small Entity”

November 21, 2012

Mary Rupp
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314–3428

RE:     Comments on Proposed Rule 702, 741, 791, and IRPS 12–2.

Dear Ms. Rupp:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I am writing you regarding the National Credit Union Administration’s (NCUA) request for comment on the definition of “small entity.”  NAFCU applauds the NCUA for proposing to increase the asset threshold for “small entity” status and committing to reevaluate the threshold every three years; however, for reasons discussed in more detail below, NAFCU believes the proposed $30 million threshold is far too low.

NAFCU agrees with the NCUA’s position that the asset threshold for “small entity” status should be increased from its current threshold of $10 million.  When Congress amended the Federal Credit Union Act (FCU Act) in 1998 and imposed the arbitrary $10 million threshold, over sixty percent of federally-insured credit unions (FICUs) were considered “small entities.”  As of June 30, 2012, that number has been cut by nearly one-half, as only thirty-five percent of FICUs are considered “small entities.”

In addition, NAFCU agrees with the NCUA that the threshold needs to be reevaluated regularly.  NAFCU believes that reevaluating the threshold every three years will help ensure that the percentage of smaller federal credit unions considered “small entities” remains consistent.  The NCUA should, however, incorporate into the three-year review process a substantive evaluation of the risk that small credit unions pose to the National Credit Union Share Insurance Fund (NCUSIF).  This evaluation should not be restricted to the review of the aggregate small credit union risk to the NCUSIF, but also include review and analysis of the type of activities that may increase risk to the NCUSIF and pose reputation risk to the industry.

NAFCU believes that raising the “small entity” threshold to ensure that a similar proportion of credit unions are considered “small entities” now, as in 1998, should be the agency’s bare minimum goal.  NAFCU strongly suggests that the NCUA adopt a higher asset-threshold limit for “small entity” and urges the agency to use existing application and analysis of the Regulatory Flexibility Act (RFA).  For example, the Consumer Financial Protection Bureau’s (CFPB) uses the Small Business Administration’s (SBA) threshold to determine that credit unions with one-hundred seventy-five million dollars or less in assets are “small.”  We note that the SBA has proposed to increase the small business size standards for credit unions to five hundred million dollars.  NAFCU believes the NCUA should adopt a similar standard so that the definition is consistent among government agencies, which will reduce compliance burdens on smaller credit unions.

The NCUA indicates that it will use the “small entity” threshold for determining “regulatory relief” for smaller FICUs when promulgating future rules and policies, as well as making adjustments to examination schedules.  While we welcome the provision of regulatory relief to more credit unions, with the ever-growing regulatory compliance burden on smaller credit unions, we believe the one-hundred seventy-five million dollars threshold is more appropriate.  At the very least, the NCUA should increase the proposed threshold to $50 million, which would be close to the same level as that established by the CFPB for purposes of exemption from reporting requirements under the Home Mortgage Disclosure Act.  See 77 Fed Reg. 8721 (February 15, 2012).

By relying on a thirty-million dollar threshold, the NCUA will not consider many small, well-capitalized credit unions when promulgating rules.  For instance, one of NAFCU’s members has almost one-hundred and fifty million dollars in assets, yet operates out of one branch, and only employs fifteen full-time employees.  Under the proposed rule, this credit union will not be considered a “small entity,” and therefore will not be taken into consideration when NCUA is promulgating future rules that affect credit unions without the “small entity” status.

For the reasons noted above, NAFCU strongly suggests that the NCUA adopt the CFPB’s threshold for determining “small entity” status.  Creating a consistent standard is beneficial to both credit unions and government agencies as compliance with regulations and examinations would be easier conduct.  In addition, a higher threshold will ensure that small, well-capitalized federal credit unions are not penalized for being well-capitalized.

NAFCU appreciates the opportunity to share our thoughts on the proposed rule.  Should you have any questions or require additional information please call me at (703) 842-2268.


Tessema Tefferi
Regulatory Affairs Counsel

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