When it comes to influencing regulators, whether credit union bills make it into law is often not as important as the attention they attract.
Good examples of that are a couple measures before Congress right now that appear to put the NCUA on notice about its proposed risk-based capital rules.
The first — the “Credit Union Risk-Based Capital Study Act of 2015” — would order the regulator to study and report to Congress whether it has the clear legal authority to issue the kind of requirements contemplated in RBC.
The second is inclusion of language in a major appropriations bill that urges the NCUA to “give careful consideration” to the thousands of comments submitted to the agency about RBC2.
Much has been reported about new GOP board member Mark McWatters’ questions about the NCUA’s authority to issue such a rule. More than 2,000 comments were submitted about each of the first two versions of the rule. NCUA spokesman John Fairbanks says the agency is still reviewing the latest rounds of comments and that no vote is scheduled.
NAFCU views HR 2769 — nicknamed the “RBC2 Stop and Study Bill” — “as crucial because a change as big as RBC2 deserves maximum scrutiny from both the NCUA and Congress,” says Alicia Nealon, director of regulatory affairs at NAFCU. “The legislation was just introduced and we’re hoping for a hearing soon.”
However, while the prospects of Congress actually passing credit union-supported bills are always uncertain and often quite dim, that’s not necessarily the point.
“This is about more than a bill getting passed,” says Ryan Donovan, chief advocacy officer at CUNA. “Not that we’re not interested in bills getting passed, but we’re more interested in getting policy right.”
Donovan notes that more than 375 members of Congress have formally weighed in on the topic in various ways, showing they’re taking an interest. “It doesn’t make sense to just focus on the likelihood of a bill passing,” the CUNA executive says. “The ultimate measure of success is to what extent the rule is ultimately improved.”
The MBL Bellwether
Member business lending is another example of the NCUA getting ahead of legislative action. “On the MBL front, we’ve seen various bills introduced, including legislation to raise the cap and exclude certain residential loans from its calculations. There’s also legislation that would exclude loans made to veterans from the cap,” Nealon says.
But while those kinds of bills have come and gone in the past, and may well this time, the NCUA went ahead and made a move on its own, approving at its June meeting a series of proposed rule changes that would make it easier for credit unions to lend to businesses. They’re sweeping enough that Credit Union Times headlined its coverage: “NCUA Proposes Drastic MBL Regulation Changes.”
To Jeremy Empol, vice president of federal government affairs at the California and Nevada Credit Union Leagues, that’s all fine and good, but he says congressional action is still ultimately the answer to leveling the playing field for credit union member business lending.
A bellwether state, California has the largest concentration of billion-dollar credit unions, big credit unions that Empol says “need to balance their portfolios, are well-capitalized, experienced and shouldn’t have to be going up against a cap.”
“Congress needs to act. They need to set the precedent. We can’t have proper government unless they properly govern,” Empol says. He adds that 29 of California’s 53 House members have signed on as co-sponsors of the latest effort, HR 1188, as have three out of Nevada’s four House members.
Only 59 sponsors overall have signed on, however, so credit unions may have to rely on the NCUA’s regulatory initiatives for now. One veteran industry consultant says that may not be all bad.
“The NCUA’s proposed changes to MBLs is significant and a loosening of some of the restrictions that have hurt credit unions competitively,” says Jay Johnson, executive vice president at Callahan & Associates. “It’s still in the proposal stage, but I don’t see any credit unions not supporting it. I’m sure the banks won’t!”
Data Security Dictums
Another measure that credit union watchers are watching is the Data Security Act (HR 2205, S 961). Pam Perdue, executive vice president of regulatory operations at Continuity, says while it addresses the need to have retailers bear some of the burden for the skyrocketing costs of data breaches, it may comes with a price.
“What data protection standards survive from this group of ideas remains to be seen, but no doubt the act in its surviving form, if any, will contain some provisions that will ultimately turn into regulations that credit unions will have to interpret and follow,” Perdue says.
Empol says the California/Nevada league supports the data security bill but wants to ensure that his state — which has long had privacy laws that exceed national standards — gets to continue going its own way, including raising the bar on merchant responsibility and member reimbursement. “We feel states should have the right to put in place tougher laws if they want, rather than one national, uniform standard pre-empting all state laws,” he says.
Shelby’s Sweeping Sleeper?
While it may not be generating as much headlines, legislation that has cleared a key Senate panel may have a better chance of passage and provide several points of regulatory relief for credit unions.
The measure sponsored by Senate Banking Committee Chairman Richard Shelby (R-Ala.) would provide relief in a number of areas, and even includes a requirement that the NCUA be more transparent in its budgeting process.
“It probably won’t get to the full Senate in its current form, but the Shelby bill holds a lot of potential and opportunities,” says Michael Emancipator, associate vice president at Callahan Financial Services. He points to the access the bill would give privately insured credit unions to the Federal Home Loan Bank system, as well as the creation of an examination ombudsman. “In light of recent and newsworthy grievances about field examiners, this would be a welcome third party to help mediate disputes,” Emancipator says.
“But what I’m most excited about is the safe harbor it would create for non-Qualified Mortgage loans credit unions hold in their portfolios,” Emancipator says. “It would mean credit unions would no longer have to fear the legal liability that comes with those loans and can instead focus on what’s truly good for the member.”
In Terms of TRID
Speaking of mortgage rules, the Consumer Financial Protection Bureau plans to extend by two months its effective date for major changes in the Truth-in-Lending Act and Real Estate Settlement Procedures Act Integrated Disclosures (TRID).
That’s the good news. The bad news is that credit unions will still have to comply with the new rules – which combines the Know Before You Owe disclosure forms from four into two — by Oct. 1 unless the bureau relents again. One never knows.
“I'm surprised the CFPB delayed TRID as the agency was so adamant that it would not,” says Tim Mislansky, chief lending officer at Wright-Patt Credit Union ($3.1B, Beavercreek, OH) and president of its myCUmortgage CUSO. "Credit unions should use the time wisely." He says that includes more system and form testing, more staff training including how to discuss the changes with consumers, and more collaboration with real estate agents and title companies to decrease the likelihood of delays in the closing process.
The CFPB’s announcement last week — which includes a comment period open until July 7 — follows closely on the heels of its promise to hold off on aggressive enforcement of the rule ahead of the original Aug. 1 deadline.
Also read: A Grace Period By Any Other Name
While happy with the proposed formal delay, banking trade groups are continuing to push for the enforcement date to be extended further. Donovan at CUNA says he expects the bureau to approve the delay but that his group will ask that it be extended through 2015.
He says the delay would enable credit unions and their vendors to finish getting ready for a new rule that they inevitably will have to follow, and give the bureau a chance to clarify just who is covered.
CUNA detailed the discrepancy in an announcement earlier this week. Basically, there’s some confusion in the way the rules are now written that could mean even credit unions that make less than five mortgage loans a year would be required to provide the new disclosures.
That’s about 700 credit unions. And thousands more who know they’ll be included should continue getting ready while their lobbyists continue to state their case in Washington.
“In terms of TRID, NAFCU believes a two-month delay gives credit unions much-needed time to complete their testing and update processes as they seek to comply with this complex rule,” Nealon says. She adds that her trade believes the CFPB and NCUA alike “still must take credit unions’ good-faith efforts to comply into account beyond the Oct. 1 deadline.”
The competition feels the pain, too. “The proposed delay would help all industry stakeholders better prepare for this major change, which will impact the majority of home mortgage loans,” the Independent Community Bankers of America said in a statement last week.