WASHINGTON—Today is the deadline for filing comment on NCUA’s plan to close the Temporary Corporate Credit Union, and at least one CEO is concerned the slow pace of comments from CUs could result in a lot of credit union money being left on the table.
Or, as one of the CU trade groups put it, a “cash grab” by NCUA.
“The comment period for the stabilization fund closure is drawing to a close,” Evan Clark, CEO of the $439-million Department of Commerce FCU here, told CUToday.info late last week. The comment period closes Sept. 5. “The NCUA has only gotten a handful of comment letters and this is a huge issue. Credit unions could potentially leave millions of dollars on the table.”
After long maintaining that the TCCUSF would not close until 2021 at the earliest, NCUA has now proposed closing the TCCUSF before the end of the year and merging it into the Share Insurance Fund. It would then potentially begin making payouts to credit unions in 2018. The agency is also proposing to increase the normal operating level (NOL) of the Share Insurance Fund to 1.39% from 1.3%.
As of the middle of last week only 12 comments were posted on NCUA’s site. Friday morning, Sept. 1, there were 37, including separate letters from CUNA and NAFCU that have taken opposite positions on the issue, as CUToday.info reported here.
Lack Of Comments
Clark said that the lack of comments concerns him because he’s not certain the entire credit union industry realizes what’s at stake.
“There are two big issues as I see it. First, the NCUA has not done a very good job of controlling operating expenses in the past,” Clark said. “Their operating expenses have been covered in large part by transfers from the NCUSIF…So the NCUA is saying there will be more risk when the stabilization fund is merged into the NCUSIF. That’s not the case at all. The quality of the assets underlying the bad bonds they conserved from the corporates has done nothing but improve as the economy has chugged along over the past nine or so years. It sure looks like they are providing themselves more room for operating expense growth. That’s issue number one.”
Evan Clark, DOCFCU
Clark told CUToday.info that “issue number two” is the impact an NOL of 1.39% vs. 1.30% has on individual credit unions.
“For DOCFCU, if the NOL is raised to 1.39% then our rebate is in the neighborhood of $270,000. If it remains at 1.30% then the rebate is in the neighborhood of $650,000,” he explained. “And if the NOL remains at its current level of 1.26% the rebate gets even bigger. You don’t have to be a big math genius to see the difference. It’s very substantial. And the difference is proportionally the same for every federally insured credit union.”
NAFCU’s comment to the agency shares the similar concerns. NAFCU asserts that the agency is attempting to “distract credit unions with the promise of dividends as it hoards nearly $800 million for itself by increasing” the normal operating level of the Share Insurance Fund “to the highest level in the history of the SIF."
Berger: 'Cash Grab'
NAFCU President and CEO Dan Berger, in the trade association’s comment letter, asserted that if NCUA moves forward with the current proposal, credit unions would only receive about 40% of what is "rightfully their money." He called it a "cash grab" and said it amounts to a "60% premium charged to the industry."
In his comment to the agency, Clark challenges NCUA’s assertion that raising the NOL is necessary to mitigate any potential risk of loss from the closing of the Stabilization Fund.
“The truth has more to do with the NCUA’s rising operating expenses. According to Callahan and Associates, NCUA’s operating expenses have risen from $82 million in 2008 to $209 million in 2016. That’s an average annual increase of well over 15%,” wrote Clark. “Transfers from the NCUSIF covered $79 million of NCUA’s expenses in 2008 and had risen to $203 million in 2016. During the same time period, the operating expense ratio of the credit union industry has fallen from 3.41% to 3.00%. In other words, from 2008 to 2016 as credit unions have become much better at controlling their operating expenses the NCUA has been rapidly increasing their expenses and the transfers from the NCUSIF to cover those expenses. It’s time for NCUA to take a page out of the credit union industry’s playbook and get their operating expenses under control.”
Clark concluded his letter stating that NCUA’s proposal to raise the NOL to 1.39% “has very little to do with risk and everything to do with their inability to control operating expenses. I urge the NCUA to do a better job of controlling their operating expenses. Putting the maximum rebate in the hands of credit unions is the best way to protect the industry because credit unions can earn much more on their assets than the NCUSIF. If the industry ever experiences another financial crisis the NCUA can charge an assessment like they did during the corporate crisis. The credit union industry is much healthier now than it was back in 2008 and even then it was very healthy. And finally, giving the largest rebate possible back to credit unions allows them to give back to their members and their communities in the ways that make the credit union movement such a unique and wonderful financial model.”
Clark emphasized that NCUA’s proposal is a “really big deal” and stated again that CUs must weigh in.
Metsger: 'Don't Wait'
NCUA Board Member Rick Metsger made the same request during the July open board meeting when the proposal to close the TCCUSF was approved.
“Don’t wait until the final few days of the comment period,” said Metsger during the meeting, noting that will not give the agency enough time to adequately address feedback and develop a final rule in a timely manner. He said if credit unions wait until the final few days to comment, that distributions set for the second quarter of 2018 could be delayed. “We believe we can do this, but we need your (timely) help.”
NAFCU is hopeful that comments will come, even if they are later than Metsger had hoped for.
“The deadline is September 5, and credit unions still have time to weigh in,” said Alexander Monterrubio, director of regulatory affairs for NAFCU, Thursday. “It is not unusual for the bulk of comments to be submitted the last few days of an open comment period."