Meeting the Regulatory Challenges
While protecting safety and soundness of credit unions and looking out for consumer interests, undue burdens should not be heaped on credit unions, choking out effective service to members, or bogging down the efficiency of the operations.
The challenge, of course, to achieving that objective is to be vigilant to maintain a flexible system for credit unions. Here are some top regulatory issues to focus on:
-Outreach Task Force: NCUA Board Member Gigi Hyland spent 2007 soliciting credit union views for her report for the full board, which covers member service and executive compensation, as well as other recommendations. In collaboration with the American Association of Credit Union Leagues, we will be working to ensure NCUA acts in the best interests of credit unions in helping show how they reach out to their members.
Along these lines, just last week CUNA, the National Credit Union Foundation and AACUL announced an "outreach framework" for the credit union system at large -- known as "The REAL Deal."
The "The REAL Deal" framework is designed to maximize the impact of the efforts by credit unions of reaching out to all of their members, and urges each League and credit union to engage in at least two of four "REAL Deal" model examples. These are: products and services, consumer information, community help/commitment; and partnerships. Ultimately, data will be reported by credit unions about how they are meeting their social mission.
-FOM, mergers, economy: Our members have said they remain deeply concerned about these key issues and the agency's role in them.
Reflecting these concerns, in February AACUL Chairman Rosie Holub and five other league presidents from every region of the country met with all three NCUA Board members.
Specifically, the discussions focused on the importance of NCUA proceeding with its modified field of membership proposal to help community credit unions; developing improvements in the agency's process for selecting credit union merger partners, and; resisting overreaction by the examiner corps to the current mortgage crisis and economic downturn.
Along those lines, earlier this year, Chairman Holub and I sent a joint letter to NCUA supporting reasonable flexibility for credit unions to work prudently with their members who need to refinance or restructure mortgage loans. We stressed -- as did the CUNA/League mission to the NCUA Board last month -- that no new rules are needed.
We noted that guidance for NCUA's examiners is needed on the meaning of NCUA's statements that encourage mortgage "workout plans," and will continue pressing NCUA for appropriate advice.
-Charter changes: 20 issues on whether new rules are needed on hostile takeovers, charter conversions and merger issues have been issued by the agency, which should fully reflect credit unions' concerns in the end. The agency is responding to issues raised after the attempted 2007 takeover of one credit union by another, as well as other situations involving broad changes in charter and control that affects members' interests. These significant issues may not all require new rules, but each deserves to be part of a dialogue.
-Due diligence: Oversight of dealings with third-party vendors is a key examination issue in 2008, the regulator has announced. As important as due diligence is, credit unions do not need any additional regulation in this area. In fact, credit unions, using their facilities and resources, are capable of fully addressing any issues themselves.
To tackle credit union concerns and facilitate compliance, CUNA has assembled a task force, chaired by SAFE CU CEO Henry Wirz, of North Highlands, Calif. The task force will offer credit unions various "deliverables" in the coming months, such as no-cost resources making it easier to meet responsibilities and facilitate effective due diligence practices). The group will also serve as a collecting point for combined concerns to be shared with NCUA.
-UBIT: Efforts by CUNA, working with CUNA Mutual, AACUL, and the National Association of State Credit Union Supervisors, have resulted in the IRS confirmation that many income items are exempt from Unrelated Business Income Tax, including debit and credit card interchange fees, member ATM fees, collateral protection insurance and check printing.
However, IRS ruled negatively on a number of other insurance and investment services.
To address the tax agency's seeming intransigence, Community First CU of Appleton, Wis. (led by its board and CEO, Catherine Tierney), filed suit in January seeking a refund of taxes it had already paid, but were not owed. And there may be soon another credit union suit against the IRS in the coming weeks.
In the meantime, CUNA worked with its Accounting Task Force and chairman, Scott Waite of Patelco CU in San Francisco, to successfully urge the Financial Accounting Standards Board to defer the effective date of FIN 48, a FASB interpretation determining tax liabilities, such as UBIT. Some outstanding questions remain but are being worked out.
Yet more issues are ahead in 2008. Among them IRS Form 990s for state chartered credit unions, Bank Secrecy Act guidance, Small Business Administration lending by credit unions -- but the space provided here does not give us the room to completely address each.
Perhaps the breadth and scope of issues to be addressed is emblematic of the challenges that all credit unions face today in dealing with regulatory demands.
But we think with our partnership of CUNA, the Leagues and credit unions -- as well as vigilance and creativity in dealing with the issues -- helps credit unions meet those challenges successfully and effectively.