McWatters Makes Legislative Recommendations

National Credit Union Administration (NCUA) Chairman McWatters on October 2 in testimony before the Senate Banking Committee recommended four legislative priorities for the agency.

The four areas involve modification of provisions related to field of membership, granting the NCUA vendor authority, authorizing alternative forms of capital, and giving the NCUA Board broader authority to establish a maximum loan rate ceiling for federal credit unions.

Field of Membership

• NCUA is recommending that all types of federally chartered credit unions, not just multiple common bond charters, be allowed to add underserved areas to their fields of membership. 
• NCUA urges Congress to consider allowing federal credit unions to serve underserved areas without also requiring those areas to be local communities. 
• NCUA recommend that Congress simplify or remove the “facilities” test for determining if an area is underserved. 
•  Congress consider eliminating the Federal Credit Union Act’s requirement that a multiple common-bond credit union be within “reasonable proximity” of the location of a group to provide services to members of that group.
• Congress should grant explicit authority for web-based communities as a basis for a credit union charter. 
• Congress should consider providing greater flexibility for low-income individuals to join federal credit unions. Specifically, NCUA believes that Congress revise the Federal Credit Union Act to allow the NCUA to permit federal credit unions to add anyone residing in a census tract where current projections indicate he or she qualifies as low-income.

Vendor Authority

The NCUA is requesting that Congress consider legislation to provide the agency with examination and enforcement authority over certain third-party vendors — including credit union service organizations (CUSOs).

Currently, the NCUA may only examine CUSOs and third-party vendors with their permission and cannot enforce any necessary corrective actions or share the results of a voluntary review with customer credit unions of the third-party vendor. This lack of vendor authority stands in contrast to the powers of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and most state regulators.

In making his case for the authority to examine third-party vendors, McWatters noted that the top five technology service providers serve more than half of all credit unions, representing 92 percent of the credit union system’s assets. Data from the fourth quarter of 2017 show that credit unions using the services of a CUSO accounted for $1.375 trillion in assets or 99.7 percent of the system’s assets.

He also stted that a failure of even one of these vendors represents significant potential risk to the Share Insurance Fund. For example, since 2008, CUSOs have caused more than $500 million in losses to federally insured credit unions, and they have contributed to the failure of 11 credit unions.

Alternative Forms of Capital

Under the Federal Credit Union Act, only low-income credit unions are able to include secondary capital (a form of alternative capital) in the calculation of their statutory net worth ratio. NCUA wants Congress to authorize alternative forms of capital that would count towards the statutory net worth ratio of a credit union without a low-income designation.

Maximum Interest Rate Ceiling on Loans

Federal credit unions are currently subject to a statutory usury rate on loans. The NCUA Board is seeking broader authority to establish a maximum loan rate ceiling for federal credit unions based on financial criteria and for periods as the NCUA Board may determine. McWatters believes this would dramatically simplify the administration of interest rate changes and make it much easier for credit unions to comply.

However, McWatters' testimony does not address reforming the National Credit Union Share Insurance Fund. It also fails to make any recommendations regarding the Central Liquidity Facility.

Read the testimony.