Effective, Not Excessive Regulation
Since Chairman Rodney E. Hood’s swearing-in as the NCUA Chairman on April 8, 2019, the agency has vigorously pursued a regulatory system that is effective, but not excessive. These include:
- A proposed rule delaying the effective date of the risk-based capital rule to January 2022 to allow the agency to take a surgical approach to implementing this rule in a coordinated manner rather than incrementally. It also would give the agency time to consider additional improvements to credit union capital standards, such as subordinated debt authority, capital treatment for asset securitization, and a community bank leverage ratio equivalent for credit unions.
- A final rule amending the agency’s regulation requiring real estate appraisals for certain commercial real estate transactions to provide greater clarity as well as measured regulatory relief. In underserved and rural areas across the United States, entrepreneurs have a pressing need for business loans. The question is: what’s the best mechanism for putting more money into the hands of those who can make a difference by launching business ventures, creating jobs, and driving economic growth?
There’s no simple answer to that question. However, one tool the NCUA can use to expand access to loans is available right now: rethinking regulatory policies that stand in the way of productive borrowing and lending.
This final rule will help boost economic activity and job creation in local communities, particularly in some hard-pressed areas. It accomplishes four specific agency objectives:
- Increases the threshold for required appraisals in commercial real estate transactions from the current $250,000 to $1 million;
- Reorganizes the appraisal regulation to make it easier to determine when a written estimate or an appraisal is required;
- Exempts commercial real estate transactions located in rural areas from appraisal requirements if certain conditions are met; and
- Amends the definitions section of the rule to reflect these changes.
- A final rule allowing federal credit unions the option to offer more payday alternative loan options, creating more alternatives for borrowers. This rule is a free-market solution that responds to the need for small-dollar lending in the marketplace. Coupled with financial counseling or literacy programs, which many credit unions offer, this lending can help credit union borrowers get out of debt while having access to credit they need. The PALs II option, as it is known, augments, rather than replaces, the existing payday alternative loan option. The final rule:
- Allows federal credit unions to offer a PALs II loan for any amount up to $2,000;
- Requires PALs II loans to have a minimum term of one month with a maximum of 12 months;
- Allows federal credit unions to make a PALs II loan immediately upon a respective borrower establishing membership;
- Restricts federal credit unions to offering only one type of PALs loan to a respective member at any given time; and
- Protects consumers by prohibiting federal credit unions from assessing an overdraft fee in connection with a PALs II loan payment.
- A proposed rule allowing federal credit unions to accept nonmember and public unit shares up to 50 percent of paid-in and unimpaired capital and surplus. The proposed rule would raise the nonmember share limit to 50 percent and eliminate the waiver request process. Federal credit unions would be required to develop a specific use plan if its nonmember shares, combined with its borrowings, exceeds 70 percent of paid-in and unimpaired capital and surplus.
Second Chance Initiative
- Chairman Hood proposed an interpretive ruling and policy statement (opens new window) that would allow individuals convicted of certain minor offenses to work in the credit union industry without applying for the Board’s approval.
Section 205(d) of the Federal Credit Union Act prohibits anyone convicted of a criminal offense involving dishonesty or breach of trust, or who has entered into a pretrial diversion or similar program in connection with a prosecution for such an offense, from participating in the affairs of an insured credit union. If this rule becomes final, individuals in those circumstances must still apply to the NCUA Board for its consent to work in a credit union.
- The agency issued two important guidance letters:
- To low-income credit unions describing their authority to offer secondary capital accounts (opens new window) and the framework for the NCUA’s analysis and approval or disapproval of secondary capital plans.
- To federally insured credit unions so they may provide certain financial services to legally operating hemp businesses. The guidance will be revised and updated once the U.S. Department of Agriculture finalizes forthcoming regulations and guidelines. Credit unions are able to provide the customary range of financial services for business accounts, including loans, to hemp-related businesses within their fields of membership.
- Chairman Hood appointed Johnny E. Davis, Jr. to serve as Special Advisor to the Chairman for Cybersecurity to provide strategic counsel on policy and engage with other federal financial institutions regulators and external stakeholders.
- The NCUA embarked on a three-year cooperative effort with the U.S. Small Business Administration to bring small businesses and credit unions together and expand awareness about SBA programs. The two agencies signed a memorandum of understanding on April 30, 2019, to undertake a series of initiatives that will help credit unions better understand and make use of SBA-backed loans and resources. These joint initiatives include webinars, training, and external outreach.
- The NCUA and the National Association of State Credit Union Supervisors signed a document of cooperation (opens new window) on August 14, 2019, setting forth principles of cooperation between the NCUA and state regulators.
- Chairman Hood hosted a commemoration of the 85th anniversary of the signing of the Federal Credit Union Act.
- The Chairman delivered speeches discussing important financial industry policy issues and NCUA updates to:
- The HOPE Global Forum
- The African American Credit Union Coalition Annual Conference
- The National Association of State Credit Union Supervisors Summit
- The National Association of Federally-Insured Credit Unions Congressional Caucus
- The American Credit Union Mortgage Association Annual Conference
- The Defense Credit Union Council Annual Conference
- The National Council of Firefighter Credit Unions Annual Conference
- Destinations Credit Union, to highlight its work on financial literacy
- A Polish and Slavic Federal Credit Union event to commentate the 80th anniversary of the outbreak of World War II
- America’s Credit Union Museum