Treasury Recommendations Could Impact Credit Unions and NCUA

The United States Department of the Treasury (Treasury) released on June 12th a report, A Financial System that Creates Economic Opportunities, on reforming the financial sector regulatory framework.

The report makes a number of regulatory and legislative recommendations that could impact credit unions and the National Credit Union Administration (NCUA).

First, Treasury recommended that Congress take action to reduce fragmentation, overlap, and duplication in the U.S. regulatory structure. This could include consolidating regulators with similar missions and more clearly defining regulatory mandates. For example, this could involve merging the NCUA with other federal banking regulators or merging the National Credit Union Share Insurance Fund with the Federal Deposit Insurance Corporation.

The report noted that the following two recommendations can be implemented by NCUA regulation.

• Treasury recommendeds raising the asset size threshold for stress-testing requirements for federally-insured credit unions from its current level of $10 billion in assets to $50 billion in assets. This would mean only one credit union, Navy Federal Credit Union, would be subject to stress-testing.
• Treasury believed that NCUA should revise its risk-based capital requirements to only apply to credit unions with total assets in excess of $10 billion or eliminate altogether risk-based capital requirements for credit unions satisfying a 10 percent simple leverage (net worth) requirement. Treasury noted that if the asset threshold for the risk-based capital requirement is raised to $10 billion in assets, it would support allowing such credit unions to rely in part on appropriately designed supplemental capital to meet a portion of their risk-based capital requirements. If NCUA eliminates the risk-based capital rule, then the agency does not need to pursue its supplemental capital proposal.

Treasury notes that if supplemental capital is made available to all credit unions to meet their net worth leverage ratio, this action would require Congressional action.

As with banks, credit unions should be granted relief from the current level, design, and lack of notice and transparency of the supervision and examination processes. Examination should be more tailored and cost efficient to avoid burdensome and unnecessary procedures. This would require coordination between NCUA, CFPB, and state regulators. Procedures that are redundant between regulators should be streamlined.

Moreover, Treasury recommends that Congress raise the asset threshold for small banks and credit unions to be eligible for an 18-month examination cycle.

Treasury believes that a significant restructuring in the authority and regulatory responsibilities of the Consumer Financial Protection Bureau (CFPB) is necessary. The report notes that the CFPB's unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses. Treasury stated the CFPB has hindered consumer access to credit, limited innovation, and imposed unduly high compliance burdens, particularly on small institutions.

Treasury’s recommendations include: making the Director of the CFPB removable at will by the President or, alternatively, restructuring the CFPB as an independent multi-member commission or board; funding the CFPB through the annual appropriations process; adopting reforms to ensure that regulated entities have adequate notice of CFPB interpretations of law before subjecting them to enforcement actions; and curbing abuses in investigations and enforcement actions.

The CFPB’s Consumer Complaint Database should be reformed to make the underlying data available only to federal and state agencies, and not to
the general public.

Treasury recommended raising the total asset threshold for making Small Creditor Qualified Mortgage loans from the current $2 billion to a higher asset threshold of between $5 and $10 billion to accommodate loans made and retained by small depository institutions.

In addition, Treasury is recommending that the CFPB delay the 2018 implementation of the new Home Mortgage Disclosure Act reporting requirements until borrower privacy is adequately addressed and the industry is better positioned to implement the new requirements. The new requirements should be examined for utility and cost burden, particularly on smaller lending institutions.

Treasury recommended that Congress repeal Section 1071 of the Dodd-Frank Act. Section 1071 requires the CFPB to establish regulations and issue guidance for small business loan data collection. The purposes of section 1071 include enabling creditors to identify the needs of small, minority-owned, and women-owned businesses, and to facilitate enforcement of fair lending laws.

Read the report.