Positive News for CUs on NCUSIF; NCUA Board OKs Proposed Rules on Member Expulsion, Subordinated Debt Changes
The NCUA Board and credit unions today received good news on the National Credit Union Share Insurance Fund. Owed to only three credit union failures and more than $73 million in income year-to-date through June 30, the equity ratio stood at 1.26%, unchanged from Dec. 2021.
All three board members noted they're pleased with the performance of federally insured credit unions and the NCUSIF -- which has enabled the Board to avoid levying a premium on credit unions. In better news, NCUA staff is forecasting an equity ratio of 1.3% come December, inching closer to NCUA's normal operating level of 1.33% of insured shares.
The Board also noted plans to make public in December the normal operating level calculations in the interest of ensuring transparency and understanding by stakeholders.
Regarding the Central Liquidity Facility (CLF), all three Board members said they remain engaged with Congress on certain enhancements that will expire on Dec. 31, 2022. NCUA, credit union trades and credit unions have all urged Congress to extend or make CLF enhancements permanent -- enabling credit unions to continue to respond to the COVID-19 pandemic and beyond.
Although unanimously supporting the member expulsion rule, all three Board measures noted the importance of federal credit unions using the authority sparingly -- chiefly as a tool to address violence, threats of violence and aggressive behavior.
"...[T]here are admittedly times in which the expulsion of a member is necessary to protect credit union members and staff," noted Board Chairman Todd Harper. "This is a power that credit unions should rarely use in my view ... This is an extreme remedy and it should be saved for the most egregious examples of member behavior."
All three Board members said they viewed a fair hearing of paramount importance in these cases, in which the member facing potential expulsion has a chance to be heard and an opportunity to respond to the specific reasons laid out in the notice for the member's potential expulsion.
NCUA staff noted that the agency is seeking feedback on some aspects of the proposed rule during the comment period, including the handling of loans and credit for members who have been expelled and the hearing process itself with regard to timing, the presence of attorneys, the time allotted for questions, and the timing for providing a decision to the member/expelled member.
The proposed rule is the result of credit unions' successful lobbying efforts for the Credit Union Governance Modernization Act, which became law in March of this year. The NCUA Board has until next September to finalize a rule.
"We were pleased to see a virtual option included for hearings involving potential member expulsions," noted League President/CEO Carrie Hunt. "As we heard from Board Member Hood today, the stories involving members committing violence and threatening violence are all too real and sadly, common enough that security and safety must be addressed. Your League will remain engaged on this proposed rule as it enters the comment period, knowing that our credit unions view this as a vital safety measure for their members, staff and boards."
Following passage and enactment of the Credit Union Governance Modernization Act, the Federal Credit Union Act now includes a new section, “expulsion for cause,” that will allow a federal credit unions' board of directors -- by a two-thirds vote of a quorum -- to expel members in three specific circumstances:
- a substantial or repeated violation of the membership agreement;
- a substantial or repeated disruption, including “dangerous or abusive behavior;” and
- fraud, attempted fraud, or other illegal conduct that a member has been convicted of, including insider fraud conducted by federal credit union employees.
The proposed rule also details specific procedures that a federal credit union's board of directors will need to follow to expel a member for cause. This includes:
- Providing the member with notice in advance outlining the reason for expulsion (which must outline specific reasons for the potential expulsion);
- Allowing the member to request a hearing within 60 days of receiving this notice; and
- If the member requests a hearing, the board of directors must hold the hearing and then hold a vote “in a timely manner” on whether to expel the member.
NCUA staff noted that in cases of violence and threats of violence by members, the credit union could immediately begin the expulsion process.
The Board also unanimously approved a proposed rule to change the maturity requirements for subordinated debt notes and grandfathered secondary capital under the NCUA’s current subordinated debt rule.
Specifically, this proposal would replace the maximum maturity of Notes with a requirement that any credit union seeking to issue Notes with maturities longer than 20 years demonstrate how such instruments would continue to be considered “debt.”
This proposed rule would also extend the Regulatory Capital treatment of grandfathered secondary capital to the later of 30 years from the date of issuance or Jan. 1, 2052.
The proposed rule would also make four minor modifications to the current rule to make it more user-friendly and flexible.
The U.S. Department of the Treasury’s ECIP grant funds can be held for many to 30 years. However, NCUA’s current subordinated debt rule generally limits maturity levels to 20 years. To fix this maturity mismatch, NCUA said the proposed rule would align the NCUA’s subordinated debt rule with the Treasury Department’s ECIP rule.
Board member Rodney Hood said he viewed the subordinated debt proposed rule and the capital flexibility it provides participating credit unions as a means of providing minority depositories and Low-Income Credit Unions "with the resources to continue providing access to affordable financial services for the most vulnerable of our communities ... Financial inclusion is the civil rights issue of our generation..."
Related: NCUA Issues Subordinated Debt, Member Expulsion Proposals
Related: NCUA Board Briefed on SIF Quarterly Report, Subordinated Debt, CUGMA Implementation
Related: New Rules For Expelling Members From CUs Approved By NCUA
Related: NCUA Approves Proposed Changes To Subordinated Debt Rule
Related: NCUA: Strong Q2 For NCUSIF, No Premium, Or Distribution, Likely
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