NCUA restricts its Regulatory Flexibility Program.
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.
Merger Partner Registry
Last month NCUA issued Letter to Credit Unions No. 10-CU-22 announcing its “Merger Partner Registry.”
The registry allows healthy credit unions to be considered for acquiring a troubled credit union or engaging in a purchase and assumption of a liquidated credit union.
In both types of transactions, NCUA selects the continuing credit union from bidders and may offer financial assistance from the National Credit Union Share Insurance Fund. CUNA and individual credit unions had urged NCUA to establish clearer procedures on how a healthy credit union may be considered.
Find more information at ncua.gov.
Compliance Q & A
Q For open-end loans without a grace period, what’s the minimum amount of time credit unions must provide between the mailing (or delivery) of the periodic statement and the payment due date?
A Fourteen days. But after Congress passed a Technical Corrections Act for the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act in November 2009, everyone was confused.
As credit unions will recall, the Federal Reserve Board said that the CARD Act passed in May 2009 required period statements for all open-end loans be mailed at least 21 days before the due date. Based on lobbying from CUNA, Congress passed an amendment to the CARD Act a year ago that applies the 21-day requirement only to credit card accounts or to open-end consumer loans that provide a grace period.
But when finalizing its massive open-end Regulation Z amendments and commentary changes at the beginning of 2010, the Fed failed to reinsert the 14-day mailing requirement for open-end loans without a grace period, raising new questions. In October 2010, the Fed issued 53 pages of more than 30 proposed clarifications of its open-end Truth in Lending (TIL) rules, almost all of which will undoubtedly be finalized in early 2011 without major change. One of these clarifications is that for an open-end loan without a grace period, the creditor must mail or provide the periodic statement at least 14 days prior to the payment due date.
For more on these TIL clarifications, visit cuna.org (“regulations & compliance”) and review CUNA’s regulatory comment calls.
Q Is a credit union required to provide the new risk-based pricing notice whenever a loan officer uses credit report information to evaluate a member’s loan application?
A No. Just using a credit report to evaluate the member’s credit history does not trigger the risk-based pricing notice requirement, which becomes effective Jan. 1, 2011. Offering a higher annual percentage rate (APR) based on the member’s credit report when compared to the terms offered to a substantial proportion of the credit union’s other borrowers will trigger the new requirements. The Fair and Accurate Credit Transactions (FACT) Act’s risk-based pricing regulations generally require a credit union to provide a notice when, based on a credit report, the credit union offers credit to the member on “material terms” (i.e., APR) that are “materially less favorable” (i.e., higher cost of credit) than those offered to a substantial proportion of the institution’s other borrowers. In order to comply with the FACT Act, the credit union will also need to provide a risk-based pricing notice for account reviews when it periodically reviews an existing credit account (such as every six or 12 months), and based on credit report information, increases the APR on that account.