Proposed and final rules on such diverse topics as “subordinated debt/regulatory capital” and payday loans are expected to be addressed by the federal regulator of credit unions in the upcoming months.
According to spring 2019 regulatory agenda of the National Credit Union Administration (NCUA), published May 22, the credit union regulator expects to issue this summer a formal proposal on subordinated debt for some credit unions, which can be counted toward regulatory capital for purposes of risk-based capital.
The agency’s most recent action on the issue was an advanced notice of proposed rulemaking (ANPR) in January 2017 about alternative capital at credit unions. The ANPR gave the public 90 days to provide input on issues related to credit unions building capital from “alternative means” (that is, other than from net income; credit unions are not stock-held). Subordinated debt is one method for credit unions to consider in building additional capital.
“There are many different ways to structure capital,” said former NCUA Board Chairman Rick Metsger in 2017, who presided over the board meeting at which the ANPR was issued. He also noted at the time the many side issues to consider, including structure, ownership, and tax implications (“especially for state credit unions”).
Indeed, at that same meeting, NCUA Board Member Mark McWatters noted the complexity of the issues related to alternative capital at credit unions and pointed out that the agency had hired outside counsel to address securities issues related to alternative capital at credit unions.
Also driving the issue: the agency’s new rules on “risk-based capital” (RBC) at credit unions is slated to go into effect early next year; agency leaders had expressed interest in combining the effective date of the new RBC rule with one addressing alterative capital. However, new NCUA Board Chairman Rodney E. Hood has also signaled that the effective date of the RBC rule could be delayed (for at least a second time) to give the agency and credit unions more time to “further study and assess its real effects on the credit union system,” according to reports of Hood’s written responses to Senate Banking Committee members.
Other issues ahead for the credit union regulator, according to the agenda:
- A proposed rule to clarify federal credit unions’ authority to purchase, sell, and pledge loans–including loan participations and eligible obligations.
- A proposed rule to amend the agency’s regulation requiring appraisals for certain residential real estate-related transactions, increasing the threshold level below which appraisals would not be required for the transactions.
- A final rule raising the threshold transaction amount for appraisals of nonresidential real estate-related transactions (from $250,000 to $1 million). The September 2018 proposal would also exempt from appraisal requirements certain transactions under $400,000 in rural areas where no state certified or licensed appraiser is available.
- A final rule on so-called “PALS II” (payday alternative loans, alternative two) which modifies current rules for the minimum and maximum amount of the loans, eliminates the minimum membership requirement, and increases the maximum maturity for these loans. (In its request for comment last year, the agency also asked for comments on a third flavor of the PALs, third alterative (PALs III), which could include differing fee structures, loan features, maturities, and loan amounts.) The agency said it is working toward finalizing a PALs II rule.
- A final rule updating, clarifying, and improving Federal Credit Union bylaws.
- A final rule “modernizing” regulation on fidelity bond coverage for federal credit unions to “bring the regulation in line with current practices by federal credit unions and bond issuers.”