`Reg-Flex' makes its debut, cleared for 60-day public run

ALEXANDRIA, VA. - NCUA Board member Dennis Dollar's much-anticipated Regulatory Flexibility and Exemption Program ("Reg-Flex") opened to a packed house at the board's regular meeting March 16 and-through the advance notice public comment process-was unanimously given a 60-day run before having to return for board review as a proposed rule. Only NCUA Board Chairman Norman D'Amours expressed serious reservations about this advance notice of proposed rulemaking (ANPR) that would relieve FCUs of regulatory restrictions in six distinct areas if they maintained-through two examination periods-a 9% or above net worth ratio and overall CAMEL (as well as CAMEL "management" ratings) of I or II. While noting that areas of statutory requirement and "overriding" safety and soundness could not be modified under the draft proposal, all board members encouraged credit union commenters to provide input not only on the enumerated eligibility "triggers" and relief categories but also on as many aspects of the ANPR as possible-and on whether or not certain recommendations should be extended to all FCUs. "I really believe that what we are putting out for comment as an ANPR today," said Dollar, linking "Reg-Flex" to several agency goals in its recently passed strategic plan, "is very consistent with what is the direction that our agency seeks to go in the next five or six years...." "I truly look forward to the comment period helping us shape a final `Reg-Flex' rule that can be a shining example of how we can empower credit unions to innovate in a constantly changing marketplace with, not necessarily more, but smarter regulation." As proposed, the sweeping regulatory relief initiative-the first of its kind among federal financial institution regulators, according to Dollar-seeks comment on relieving qualifying "safe and sound FCUs with a record of risk-management" from: * the requirement of seeking NCUA approval to exceed the 5% "fixed asset cap"; * provisions of the "investment and deposit activities" rule that callibrate with increased FCU investment authority to specific risk-managing practices and which impose tests and caps, investment maturity limits, and restrictions on permissible instruments; * all restrictions on charitable donations; * the requirement that loans $100,000 and above be accompanied by an appraisal, increasing the amount to $250,000; * the 20% of total shares or $1.5 million (whichever is greater) limit on pubic unit (government) and non-member shares (available to low-income CUs only); * restrictions in the purchase of eligible obligations (loans), allowing "Reg-Flex"-designated FCUs to purchase any kind of legitimately executed loan from any other credit union. Once awarded to an FCU, however, "Reg-Flex" powers can be revoked in whole or in part at any time if the FCU's regional director suspects problems. "I have been a supporter and an advocate of the idea of regulatory flexibility for several years...," D'Amours eventually stated, listing some of his own initiatives in the area. "(But) I find some of the elements of this (proposal) very troubling...from a safety and soundness perspective." "I also have to say that I think (that) this proposal has strayed significantly from its original announced purpose of removing regulatory obstacles to serving low-income people...." D'Amours then said his preliminary objections to the proposal included concerns over examiner-determined "Reg-Flex" eligibilities and the competitiveness disparities that could result; a fear that the high CAMEL rating criterion would discourage FCU service to the underserved; belief that a service-to-the-underserved component should be one of the proposal's eligibility triggers; and uneasiness that "Reg-Flex's" relaxation of safety and soundness rules smacked of the eighties "forbearance" campaign, which led to the savings and loan crisis. "If you relax regulation," D'Amours warned, "you have to increase supervision." Stating that he also didn't like the idea of "creating classes among credit unions at all," D'Amours added that he thought "Reg-Flex" might create a class system among FCUs. He therefore announced that he planned some amendments to the proposal, saying, "There is much about the content of this ANPR that could be very valuable and much that I have serious reservations about, even disagreements with....(But) I believe we should send these questions out for comment." In her comments NCUA Board member Yolanda Wheat supported "Reg-Flex," adding that it might even serve as the basis for separate regulatory relief for all FCUs and special relief to those that service low-income groups. She therefore encouraged the widest possible input from CU commenters, including unconventional suggestions from those whose reaction to the proposal might be, "Where's the beef?" When it was his turn to speak again, however, Dollar was quick to address D'Amours' contention that "Reg-Flex" was initially presented as a low-income service initiative. "This has never been intended as a low-income service proposal. This is intended as a regulatory flexibility proposal, one of the results of which will be the extension of service to the underserved...." "If `Reg-Flex' results in the removal of some regulatory restrictions on all credit unions," Dollar continued, "then it will have been a very worthwhile process." The amendments ultimately proposed by D'Amours-and passed in 3-0 votes-inserted verbiage prompting public comment on the capacity "Reg-Flex" to discourage service to the underserved, its potential anti-competitive effects, and the suitability of making FCU low-income service a "Reg-Flex" eligibility criterion. In other action the board approved a regional field-of-membership (14 Midwestern states) for the $53 million-asset South Dakota Corporate FCU. It also unanimously passed a final amendment to its overdraft regulation allowing overdraft coverage if the FCU has a written policy on record that: * sets an individual and aggregate amount cap on overdrafts that the FCU will honor; * establishes a time, not to exceed 45 days, for the member to cover the overdraft; and * sets the fee and interest rate for overdraft coverage. In its final action of the session, the board unanimously passed the agency's annual performance plan-a subset of the agency's six-year strategic plan-which establishes "quantifiable performance goals, defines the level of performance to be achieved...and describes the operation processes and resources to meet the performance goals." Described by NCUA Chief Financial Officer Dennis Winans as having no extra budgetary impact, the plan outlines five strategic goals for the agency in 2000, including promoting FCU safety and soundness, the safe integration of technology, and the cultivation of a regulatory environment that favors innovation and service. Also included in the annual plan was a strategic plan objective of extending Y2K-impelled, NCUA oversight of FCU vendors beyond its 2001 deadline, an objective opposed by Dollar but voted down in February. -gmcorrigan@mindspring.com