The National Credit Union Administration (NCUA) has notably restricted its Regulatory Flexibility (RegFlex) Program, which exists to provide well-run federal credit unions relief from certain regulatory restrictions.
Section 742 of NCUA’s regulations details what examination standards and net worth classification a federal credit union must have to qualify for the program. The changes were made this fall in response to agency concerns about increased risks some credit unions have experienced in the current economic environment.
Four changes to the RegFlex regulation went into effect last month:
1. RegFlex credit unions are no longer exempt from the provision in the member business loan (MBL) regulation that requires a credit union to obtain the borrower’s personal liability and guarantee. Credit unions still can request a waiver from NCUA on a case-by-case basis.
2. The fixed-asset investment limit of 5% of shares and retained earnings will once again apply to all federal credit unions. Those credit unions that already have exceeded the 5% cap will be grandfathered at their current limit. But if their level of fixed assets subsequently moves down, then so will the level at which they’re grandfathered. Any federal credit union still can seek a waiver from the investment limit.
3. All federal credit unions will have to “stress test” their securities in accordance with NCUA’s monitoring of investment requirements.
4. RegFlex credit unions will no longer have the flexibility to determine how much of their investment portfolio they want a third party to manage. Delegating discretionary control over the purchase and sale of investments to registered investment advisers cannot exceed an amount that is equal to or less than 100% of the credit union’s net worth.
Visit CUNA’s e-Guide to Federal Laws and Regulations at cuna.org.
Compliance Dates Ahead
Four significant compliance requirements begin in January 2011:
1. Credit unions must comply with the new Fair and Accurate Credit Transactions (FACT) Act’s risk-based pricing notice, effective Jan. 1.
2. The new model privacy form eliminates the “safe harbor” of using the notice language in place since the federal privacy regulations were first adopted in 2001. While it’s not mandatory that credit unions switch to using the new form to comply with the annual privacy notice requirement, CUNA suggests they should seriously consider doing so.
3. Regulation Z (implementing the Truth in Lending Act) has new disclosure requirements for closed-end mortgages, requiring borrowers be told how their mortgage payments can change over time and that they might not be able to refinance to avoid larger monthly payments.
4. Registration of residential mortgage lending staff, to comply with the Safe and Fair Enforcement for Mortgage Licensing Act (SAFE Act), is expected to begin at the end of January and run through July 2011. Refer to CUNA’s NewsNow for regular updates as well as CUNA’s e-Guide to Federal Laws and Regulations (select “mortgage staff registration”), both at cuna.org.