California Passes New Assessment Matrix
If the three largest state-chartered credit unions in California were to convert to federal charters, the state’s regulator would lose $1.7 million of its $7.2 million budget, leaving small and midsize state-chartered credit unions to subsidize that loss.
That’s the worst case scenario the California Credit Union League wanted to avoid, and the reason the league successfully lobbied the state legislature to approve Assembly Bill 1282, which establishes a new assessment table that provides more parity between state assessments and NCUA operating fees. The bill was signed into law by Gov. Jerry Brown on Aug. 16.
The current table had only four tiers, said Melissa Ameluxen, CCUL’s vice president of state government affairs. The new formula, she said, includes a table of 10 asset tiers.
Large state-chartered financial institutions have been paying a disproportionate amount compared to their small and midsize state-chartered credit unions, the league said.
The issue came up a couple of years ago in the Credit Union Advisory Council, which is a council of CEOs appointed by the division of credit union in California’s Department of Business Oversight, formerly known as the Department of Financial Institutions.
CCUL also said this inequity was causing large state-chartered credit unions to consider converting to a federal charter, which would significantly reduce their assessment.
For example, the $8.1 billion The Golden 1 Credit Union’s current state assessment pays $708,419 annually. If the Sacramento-based credit union were to convert to a federal charter, its assessment would fall to $478,141, according to a state analysis compiled by the committee on banking and finance in the California Assembly.
CCUL also pointed out to California’s legislators that if just the three largest state credit unions—The Golden 1, the $6.4 billion Star One Credit Union of Sunnyvale and the $6.2 billion San Diego County Credit Union—switched to a federal charter, the state regulator would lose $1.7 million of its $7.2 million budget.
The new law, which takes effect on Jan. 1, is expected to address these issues by changing the state’s assessment so that all of California’s 152 state-chartered credit unions will pay assessments that are more aligned with the assessments paid by the state’s 251 federally chartered credit unions.
Next Page: By the Numbers
California’s current base assessment rate is 82 cents per $1,000 in assets, a number that has been steadily increasing. By law, this base assessment rate cannot exceed $2.20 per $1,000 in assets.
Credit unions will pay 85% of the base rate for the first asset tier of up to $3 million, and 25% of the base for assets of $3 million to $6 million. The state’s smallest credit unions will pay a minimum $2,000 assessment.
As asset tiers increase, the percentage of base rate paid decreases. The formula will provide relief for large credit unions; in particular, credit unions with more than $5 billion in assets will see the largest rate drop.
For the five asset tiers between $6 million to $2 billion, the rate doesn’t change much, decreasing from 13% to 11.5%.
However, for assets from $2 billion to $5 billion, the rate drops to 8%. And, from $5 billion to $10 billion, the rate drops to just 3.5%, and is 3% for assets of more than $10 billion.
Despite the relief provided to the state’s largest credit unions, executives at small credit unions said they aren’t concerned.
Alan Cortum, president/CEO of the $45 million Valley Oak Credit Union in Three Rivers, Calif., said he understands CCUL’s rationale for the new law.
“If some of the big credit unions decided to go, they would redo the assessment which would make it higher on us that are left, because they will be looking for the same pool of money to run the state-chartered program,” Cortum said. “And in that scenario, we all lose.”
The new law means 128 state-chartered credit unions will see their assessments increase between an estimated 0.11% and 9.7%. But even with this increase, the state regulator said state-chartered credit unions would still pay more—between an estimated 0.11% and 112.24%—if they converted to a federal charter.
The remaining 24 state-chartered credit unions will see their state assessments stay the same or decline, according to CCUL.
“When I look at it (new assessment) I would say it is an equitable schedule,” said Frank C. Michael, president/CEO of the $22 million Allied Trades Credit Union in Stockton, Calif. “I think it works.”
Under the new assessment, Michael said Allied Trades’ assessment would decline slightly by about $10 to $15, though he understands why small and midsize credit unions should pay more.
“I think the smaller credit unions should be paying a little bit more to cover those exams,” he said. “I think that (the state assessment) is still a great deal for them compared to what it could be if they paid for the actual cost of the exam.”
But Cortum, who doesn’t yet know how the new assessment will impact his credit union, said he believes most credit unions don’t give the assessment much thought as long as it remains reasonable.
“It’s just part of the business,” he said. “It’s just a bill that you got to pay. That cost, compared to the bigger things we have to worry about at the credit union, is probably not going to impact us.”
Alana L. Golden, public information officer for California’s Department of Business Oversight, said the new calculator will be updated and posted on the regulator’s website Jan. 1.
“We calculate the assessment based on the credit union’s assets as of March 31 of each year,” she said. “DBO will send out assessment notices in June with payment due by the end of July.”