The Dodd-Frank Act
The most important issue facing credit unions under new Dodd-Frank rules involves the legislation’s debit interchange amendment (CUMag 10/10, p. 30). It will be one of the earliest rules to be finalized (at press time, a proposed rule was forthcoming) and potentially might have the greatest effect on credit unions’ bottom lines. Expect a final rule by this April.
The legislation requires interchange fees to be “reasonable and proportional” to the cost of the issuer regarding the transaction. The rules might reflect a two-tiered system because there’s an exemption for issuers with less than $10 billion in assets. But whether the exemption actually holds financial institutions with less than $10 billion in assets harmless remains to be seen.
Along with the CFPB, new mortgage rules, and debit interchange fees, Dodd-Frank also provides for changes to Regulation CC which implements the Expedited Funds Availability Act. The legislation will require credit unions to make the first $200 of a check available the next day (rather than only $100 as is currently required). This requirement will mean credit unions must revise Reg CC disclosures, policies, procedures, and signage, as well as train credit union staff to provide the additional funds.
It’s important to develop a system in your credit union that tracks the various rule changes this massive piece of legislation requires. Consult the Credit Union National Association’s (CUNA) chart describing the rules and effective dates. It’s available at cuna.org(select “regulations & compliance,” “regulatory advocacy,” and then “financial regulatory reform resources”).
Looking at examination hot topics, indirect lending definitely sticks out as a front-runner. NCUA considers it a key issue and will be taking a closer look at your credit union’s loan concentration and vendor due diligence.
In August 2010, NCUA issued Letter to Credit Unions No. 10-CU-15 titled “Indirect Lending and Appropriate Due Diligence.” In the letter, NCUA indicates that examiners are reviewing call report information for “red flags” and, if the agency sees any, it might “conduct on-site supervision” even if an exam isn’t scheduled.
NCUA guidance provides that a sound due diligence program for indirect lending should include these components:
• A planning process;
• Comprehensive written policies;
• A review of the vendor’s financial and operational risks;
• A legal review of agreements; and
• A risk management process.
Also on the agency’s hot plate: board governance. NCUA last year proposed rules relating to indemnification and federal credit union directors’ fiduciary duties. A final rule is expected to be in place early this year.
And finally, NCUA last fall issued its long-awaited rules on repairing the corporate credit union system. Effective in the first half of the year are provisions for investment limitations, asset/liability management provisions, credit risk management, liquidity management, corporate credit union service organizations limitations, and corporate governance.
An additional proposed rule came out in late 2010 and addresses the issues of membership fees, nonfederally insured credit unions paying assessments, and limitations on membership in corporate credit unions. Expect discussions on how to restructure the corporate credit union system to continue throughout 2011.
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