September 27, 2012
The National Credit Union Administration (NCUA) board of directors convened its fifth open meeting on Sept. 20, 2012, and unanimously approved four regulatory relief items as part of the agency’s Regulatory Modernization Initiative. The board adopted three proposed rules and an Advance Notice of Proposed Rulemaking (ANPR).
Proposed Rule: Provide Regulatory Relief by Raising “Small Credit Union” Threshold
The board issued a proposed rule and Interpretive Ruling and Policy Statement to update the definition of a “small entity” under the Regulatory Flexibility Act to include federally insured credit unions with less than $30 million in assets.
The Regulatory Flexibility Act generally requires federal agencies to determine and consider the effect of proposed and final rules on small entities. The proposed rule would grant relief to 1,603 federally insured credit unions and bring the total number covered by the definition to 4,041, an increase of 66 percent.
If finalized, the proposed asset threshold increase would also provide regulatory relief by excluding more credit unions from risk-based net worth requirements.
The NCUA’s final interest rate risk rule, scheduled to go into effect Sept. 30, 2012, would also be adjusted to correspond with the proposed threshold increase. All credit unions beneath the revised asset threshold would be excluded from the requirement to adopt and implement an interest rate risk policy. However, until the small credit union threshold is updated, credit unions from $10 million to less than $30 million in assets will be expected to comply with the interest rate risk rule, as appropriate.
In order to expeditiously provide small credit unions with regulatory relief, the board issued the proposed rule with a 30-day comment period, once published in the Federal Register.
Proposed Rule: NCUA Moves to Protect Rural Credit Unions’ Sustainability
The board voted to issue a proposed rule to change the definition of a “rural district” in the agency’s Chartering and Field of Membership Manual.
The current definition includes a population ceiling of 200,000 people. The proposed change would consider a district to be rural if the population does not exceed the greater of 200,000 people or 3 percent of the population of the state in which it is located. If the district crosses state lines, the 3-percent component would be based on the population of the state containing the majority of the district.
The board also issued the proposed change with a 60-day comment period, once published in the Federal Register.
ANPR: Board Seeks to Enhance Features of Payday Alternative Loans
Some federal credit unions have worked to provide their members with an affordable alternative to payday loans.
In September 2010, the board allowed federal credit unions to offer a new type of payday alternative loans (PALs) in an effort to both serve consumers’ needs and help them break the cycle of financial dependency on these high-cost loans. To protect consumers, the rule, among other things, limits fees, extends payback periods up to six months and bans rollovers.
Through an ANPR, the board is seeking comments about the application fee and is posing specific questions, such as:
- Should the board increase the permissible PAL interest rate, currently 28 percent, based on 1,000 basis points above the maximum level for non-PALs?
- Should the board expand the permissible PAL dollar range from the current $200 to $1,000?
- Should the board permit PAL maturities shorter than one month or longer than six months?
- Should the board allow federal credit unions to make more than one PAL at a time to a borrower?
The board is also seeking information from credit unions offering other viable, responsible alternatives to payday loans and the business models they are using to execute these loan programs successfully.
The board issued the advance notice of proposed rulemaking with a 60-day comment period.
Proposed Rule: Allow Credit Unions to Invest in TIPS
The board also issued a proposed rule to allow federal credit unions to invest in the variable-rate instruments known as Treasury Inflation Protected Securities (TIPS).
When the rule is finalized, federal credit unions could use TIPS to protect against inflation risk. However, the board noted that TIPS may not be appropriate for all federal credit unions, and the decision to use them should be based on sound due diligence and a demonstrated effectiveness at managing risk.
The proposed rule was issued with a 60-day comment period, once published in the Federal Register.
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