Directors College & Executive Forum. Orlando, Florida March 8, 2017

Transcription

1 Directors College & Executive Forum Orlando, Florida March 8, 2017

2 2017 NASCUS. All rights reserved.

3 AGENDA CU System: Fact Facts NCUA Update Banking Marijuana Around the States The ICBA Fails & Other Litigation to Watch Congressional Action Your Turn: Questions

4 Disclaimer The information contained in this presentation does NOT represent legal advice. It in no way is intended to represent a formal determination made by any regulatory agency on any specific matter. Issues at any credit union are fact specific and you should seek legal counsel or formal supervisory determination to guide any course of action.

5 The Voice for the State Credit Union System About NASCUS Founded in 1965 Defends the State System and State Autonomy Advocates for Smart Effective Regulation Focused on Ensuring Viability of State System Membership = State Regulators, Credit Unions, Leagues, Consultants and CUSOs 5 Member NCUA Board & Seat for State Regulator NCUA Part 741 Compendium Interstate Branching

6 The Credit Union System 2017: Fast Facts 3,648 FCUs 5,967 CUs 2,319 SCUs 61%/39% Units $1.293 trillion/assets - $663 billion FCU [51%] - $631 billion SCU [49%] Avg. CU = $219m assets Avg. Net Worth = 10.85% Avg. ROA = 78 basis points ***** IN 2016**** 12 Failed CUs (10 FCU/2 SCU) 2 Additional SCUs conserved 4 Supervisory mergers (SCUs) 5 FCU to SCU charter converts 5 SCU to FCU charter converts 198 Voluntary mergers

7 NCUA Regulatory Update NCUA Rulemaking - Proposed Rules - Recent Final Rules NCUA Guidance - 1 LTCU - 2 Regulatory Alerts - 0 Risk Alerts - 0 Legal Opinions NCUA Initiatives - Exam Flexibility - Alternating Examinations - Consolidating NCUA Regions The New Administration & NCUA

8 NCUA Rulemaking: Proposed Rules ANPR Alternative Capital Covers 2 distinct issues: 1) Secondary Capital = Low Income Designated CUs (LICUs) and 7% net worth ratio 2) Supplemental Capital = non LICU credit unions that are complex and their riskbased 10% net worth ratio (2019) Other Proposed Rules: FCU FOM Incentive Based Compensation 2017 Regulatory Review Home Based Credit Unions Overhead Transfer Rate Methodology**

9 NCUA Rulemaking: Recent Final Rules FCU Occupancy Rule Commercial Lending Office Name Change FCU FOM

10 NCUA Rulemaking: Final Rule Part 723 Commercial Lending Narrows the definition of associated borrower 15% borrower loan limit can go up to 25% if amount > 15% secured by readily marketable collateral CU must set its own limits and administration of C&D loans Detailed loan policy requirements CU sets its own unsecured MBL limits Non member commercial loans don t count toward MBL cap Personal guarantee now requirement to document mitigated risk CU must set its own LTV limits & ensure sufficient collateral Requires use of credit risk rating system

11 The Board of Directors: Commercial Lending Responsibilities Part Loan Policies Part (d)(5) no preferential loans to, guaranteed by, or endorsed by Director Part Commercial Loans Establish commercial loan policy Review it annually Be briefed periodically Ensure proper staffing NASCUS

12 The Board of Directors: Commercial Lending Responsibilities Type(s) of CLs * Trade area * Maximum amount of assets, in relation to net worth, allowed in secured, unsecured, and unguaranteed CLs of any type * Limit aggregate $ amount of CLs to any 1 borrower(s) to greater of 15% NW or $100k * Loan approval processes * Approval authority * Underwriting standards * Level and depth of financial analysis necessary * Methods to be used in collateral evaluation, for all types of collateral authorized, including loan-to value ratio limits * Risk management processes * Use of loan covenants * Frequency of borrower and guarantor financial reporting * Periodic loan review * Use of a credit risk rating system * Process to identify, report, and monitor loans approved as exceptions to the credit union s loan policy

13 NCUA Guidance LTCU 17-CU-01 NCUA 2017 Supervisory Priorities Cybersecurity Assessment - NCUA continues to encourage CUs to use the Cybersecurity Assessment Tool to bolster their cybersecurity and cyber risk management processes. NCUA is developing a structured cyber assessment process for its examiners for use by late BSA Compliance - NCUA requires its examiners to review CU s compliance with the BSA and to complete the related examination questionnaire at every examination. In 2017, NCUA will again focus on CUs & MSBs & other high risk accounts. See LTCU 14-CU-10, Identifying and Mitigating Risks of Money Service Businesses. Internal Controls and Fraud Prevention - NCUA will focus on internal controls/fraud detection. Interest Rate & Liquidity Risk - NCUA implementing new interest rate risk (IRR) exam procedures. See LTCU 16-U-08 Revised Interest Rate Risk Supervision. Effective on 1/1/17. NCUA also evaluating liquidity risk in CUs. Commercial Lending - NCUA s revised Part 723, Member Business Loans; Commercial Lending, effective 1/1/17. CU officials should be prepared to provide documentation to support management s ability to effectively monitor and manage its commercial loan portfolio. Consumer Compliance - NCUA examiners will also focus on consumer compliance, in particular the Military Lending Act and Servicemembers Civil Relief Act. Additional information on the Military Lending Act, see LTCU 16-CU-07, Military Lending Act Examination Approach.

14 Banking Marijuana Related Business (MRB): The State/Federal Rift 28 legalized (9 recreational: AK, CO, CA, ME, DC*, MA, NV, OR, WA) $7b industry with projected 25% growth year over year Estimated $21b by institutions providing banking** (2.6% of 11,867) Tax revenue = CO $200m; WA $256m; CA estimates $1.2b FL 2016 medical expansion tax revenue increase $11.4m but questions remain!

15 Information courtesy of The Banking Exchange (1/25/17) "If a credit union decides to serve a marijuana business, that's a business decision for that credit union. NCUA will expect that credit union to have performed the necessary risk analysis and put mitigation plans in place to address that risk" - John Fairbanks (NCUA) 585 different banks/cus have at some point served MRBs (meaning 274 have dropped out at some point) Total marijuana market (both legal and illegal) estimated to be $40b+ New Administration = 6 possible outcomes?

16 BSA Reputation Banking Marijuana Complications HR Lending Policies

17 What is Next? 7-11 states with likely 2017 ballot measures Complicated issues: State s Rights?: (bathrooms v. weed) Commerce Clause? Administration Options Eliminate federal restrictions Enforce federal law Grandfather existing states. no new states Enforce the Cole Memo Leave medicinal and target recreational Withhold federal $$

18 Around the States FOM CAMELS Board Compensation Commercial Lending # of Board Meetings

19 Litigation

20 ICBA v. NCUA ICBA NCUA action arbitrary & capricious in 2003 & 2016 w/respect to purchased loan participations NCUA 1) changes too marginal to have caused harm; 2) suit is premature - rule was not in effect; 3) suit time barred -changes first made in ) rule result of deliberation Federal Court Eastern District of Virginia Slam Dunk win for NCUA. Statute of Limitations for APA is 6 years Suit should have been filed on 2003 rule so time barred Only 7 on 90 paragraphs focused on 2016 rule No provable injury to banks so no standing

21 American Bankers Association v NCUA -FCU FOM- The ABA 1) Banks will suffer unfair competitive disadvantage 2) CU tax exemption was conditioned on limiting the CU service market 3) Rule plainly contravenes the definition of well defined local community 4) Expansion of rural community violates letter and spirit of FCUA

22 BoA & Wells v. Miami -SCOTUS- City of Miami suing under the FHA claiming harm from predatory and discriminatory lending practices resulting in lost tax revenue. Expressions Hair Design v. Sneiderman -SCOTUS- A credit surcharge case. Whether state nosurcharge laws unconstitutionally restrict speech conveying price information (as the 11th Circuit has held), or regulate economic conduct (as the 2 nd & 5th Circuits have held). Robins v. Spokeo -Remanded 9 th Circuit- Consumers must allege concrete harm rather than mere statutory violation to establish Article III standing. What this means is anyone s guess! Might affect class action litigation and maybe the TCPA!

23 NCUA Initiatives Exam Flexibility Consolidating Regions Alternating Exams

24 Legislative Overview

25 S. 366 TAILOR Act Regulators, including NCUA & CFPB must tailor regulations to institutions risk & business model. Retroactive review to Annual reporting to Congress on compliance. HR 26 REINS Act Congressional approval of any rule w/compliance costs $100m+, or increased consumer cost. If no Congressional action w/in 70 days rule null void. S. 223 Senior Safe Act 2017 Creates safe harbor from civil/administrative liability for reporting suspected senior abuse. Based on program in Maine & has mandatory training element. HR 790 Return to Prudent Banking Act Would reinstate the Glass-Steagall Act separation of commercial & investment banking. HR 5983 HR 975 The Financial Choice Act Respect State Marijuana Laws Fis with 10% capital and CAMEL 1 or 2 gain certain exemptions. Repeal FSOC SIFIs. Weaken Chevron. Repeal Durbin amendment. Prohibit federal prosecution/forfeiture of individuals in compliance with state laws.

26 Check Out Other NASCUS Presentations!! Banking Marijuana Bitcoin & Crypto Currencies Regulatory Update The CFPB BSA/AML for Directors & for Compliance Staff Legal Update National Issues Update Cybersecurity Duties of the Board of Directors Social Media Challenges Legislative Outlook Around the States And much, much more!

27 QUESTIONS? Brian Knight NASCUS Executive Vice President & General Counsel (703) See What is NASCUS:

28 Join NASCUS at our Annual Meeting!

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