WASHINGTON—NAFCU is calling for an accurate and equitable overhead transfer rate (OTR) methodology and further offering recommendations on the NCUA's proposed clarifications related to how the methodology is applied to apportion operating fees charged to federal charters.
The comments are included in a letter to the agency following a request for comment (RFC) issued at the NCUA board's July meeting.
NCUA finalized and adopted revisions to its OTR methodology, which focuses on assigning a percentage share of the agency’s work to insurance costs in four categories of activities, in 2017. As NAFCU noted, the adoption marked a departure from the well-established Examination Time Survey (ETS), which was a metrics-based approach driven by assessments of individual regulations and other measures.
NAFCU has previously expressed concerns about eliminating a data-oriented assessment of insurance-related activities under the ETS in 2017, suggesting at that time it would be “harder to track how much time examiners actually spend on insurance-related activities.”
"An appropriately tailored OTR helps allocate supervisory costs within our industry’s dual charter system, but prudent management of the NCUA budget remains the best avenue to reduce costs to credit unions," wrote Andrew Morris, NAFCU senior counsel for research and policy. "NAFCU continues to urge prioritization of an accurate and equitable OTR methodology, but we also recommend that the agency continue to explore opportunities to reduce expenses.
‘Diverse Range’
"While the NCUA is not currently proposing to modify the current OTR methodology, NAFCU recognizes that there will always be a diverse range of stakeholder perspectives on how the formula should be tailored,” added Morris.
Morris urged the agency to operate in a fiscally prudent manner to reduce waste and ensure FCUs’ operating fees are not excessive. He suggested the agency revisit its 2021 budget draft, which proposed a 3.8% increase over the 2020 budget, given the operational stress created by the coronavirus pandemic, the agency should consider the difficulties FCUs are facing and their ability to pay operating fees.
Recommendations Offered
On the operating fee schedule and methodology, Morris offered several recommendations, including:
- Considering how the effect of excess share growth resulting from the pandemic might distort proposed changes in the calibration of asset tiers, as part of the current three-tier operating fee schedule
- Ensuring that reallocation of revenue associated with any recalibration of the operating fee exemption threshold is offset with proportional reductions in the agency’s budget to the maximum extent practicable
- Making adjustments to the rate tier thresholds through a calculation of total assets based on the four most recently reported quarters
CUNA sent its comment to the agency earlier this week.