Fundamental issues of capital and risk will need to be part ofcredit unions' strategic planning this year as regulatorscontemplate action on risk-based capital and potential rules oninterest-rate risk.

“Credit unions need to thoroughly understand these regulations,and what they need to do,” Mary Dunn, SVP and deputy generalcounsel at CUNA, said.

While the new risk-based capital proposal from NCUA will have much lessimpact than its initial proposal, credit unions need to assess theneed for corrective action and plan for whatever would be requiredif they need additional capital.

“This could mean they can do less in terms of products offeredand [it] could affect their plans for growth,” Dunn said.

A rule on interest-rate risk, which CUNA opposes, would requirecredit unions to examine the risk mitigation rules they have inplace and place additional focus on their asset-liabilitymanagement, according to Dunn.

These longer-term issues will be part of strategic planning thisyear along with a range of shorter-term issues from gearing up forfinal implementation of new mortgage disclosure rules to thelong-awaited action on possible overdraft/NSF restrictions, CUNAofficials said. The good news is that planning may include someregulatory relief this year as a Republican majority in bothhouses.

“There will be a number of opportunities on both sides of theCapitol,” Sam Whitfield, vice president, legislative affairs atCUNA, said.

For instance, credit unions will be seeking parity with banks onthe requirement to maintain 10% of their assets in residentialmortgage loans for Federal Home Loan Bank membership, which banks with less than$1 billion in assets do not have to adhere to.

Whitfield is also hopeful that there will be progress on theexamination fairness legislation proposed in the last Congress toaddress complaints about the examination process.

Risk-based capital and interest-rate risk rules also top the agenda items for CarrieHunt, general counsel at NAFCU. She complimented members on workingto get improvements in the revised proposal, but added in a videosumming up advocacy efforts for 2015, “We certainly don't think ourwork on risk-based capital is done.

For Hunt, the long-discussed rule from the CFPB on overdraftsremains a top concern for credit union planners. Issues that may beincluded in any eventual rule are questions of transactionre-ordering that results in higher fees, disclosure requirements,and limits on transactions. These issues, plus the question ofopt-in or opt-out requirements, remain central, Dunn agreed.

“The real issue is whether or not CFPB clearly treats overdraftsas a loan,” she said. “This would put credit unions in a difficultposition.”

Treating the overdrafts as loans would trigger of number ofdisclosure, compliance and even usury considerations, she said.Lobbying efforts will continue to aim at minimizing therequirements of the rule so that it will not undermine creditunions' ability to offer the product.

In the meantime, for planning purposes, credit unions relyingheavily on overdraft/NSF fees should consider diversifying theirproduct offering, according to some experts.

“When a top revenue source comes under scrutiny,” Dunn said,“prudent management would be sure to look at a number of other waysto sustain capital requirements and growth.”

While the overdraft proposal may not be ready until late thisyear or early 2016, CUNA officials suggested that credit unionsmight want to look at the CFPB's white papers on the subject to seewhat they are thinking on these issues.

New products that have proven attractive tomembers and generated added fee revenue include mobile bankingservices, ID theft protection, and peer-to-peer lending. Meanwhile,potential CFPB action on prepaid cards could pose a threat to another credit unionproduct. The agency is considering whether some of the protectionsprovided to credit cards should be extended to prepaid cards.

“Credit unions would have to evaluate how much extending theseprotections could interfere with profit,” Jared Ihrig, a seniordirector of advocacy and counsel at CUNA, said. “They would have todecide about continuing or discontinuing their productofferings.”

The most immediate planning challenge for credit unions, Ihrigsaid, is getting ready for full implementation of the integratedmortgage disclosure in August.

“This will take up a lot of resources and training,” he said,“and working with vendors to get it right.”

Complicating matters is that there is no early adoption, Ihrigsaid. “You can't put things into action until August,” he said.

On the plus side, expanding the definition of small creditorsand rural lenders for somewhat looser restrictions on ability torepay requirements and qualified mortgages could be finalized thisyear.

In January, the CFPB issued a final rule with tweaks to theintegrated disclosure rule that fixes some of the more challengingaspects, such as a tight deadline for revised loan estimates.

While the Republican majority in Congress is serious aboutexploring proposals for tax reform, lobbyists see little immediatedanger of credit unions losing their tax-exempt status.

“I think now everyone in Congress is aware of how important thatis to credit unions,” Whitfield said.

But advocates are not letting down their guard. “Credit unionsdefinitely don't need to plan on losing the tax exemption,”Whitfield said, “but we are planning a full-throated defense ofit.”

Other issues that credit unions might consider in theirstrategic planning this year include a long-pending rule from theFinancial Accounting Standards Board on the reporting of creditlosses. This rule, which has been pending for more than 18 months,may be finalized in the late spring or summer, Dunn said.

“Credit unions may initially have to put more in their allowanceaccount,” she said in response to the rule.

Regulator attention to cybersecurity could also impact creditunions.

“They may have to beef up what they're doing in that regard,”Dunn said.

Hunt also called attention to the Department of Defense'sproposal to extend the protections of the 2007 Military Lending actto virtually all forms of credit, including credit cards and carloans. She pointed out that it would impact not just those creditunions specifically serving the military, but any credit union thathas a service member or spouse among its membership.

“The credit union is going to have check proactively to seewhether they are a service member, and this, of course, will be anadditional regulatory burden for credit unions,” Hunt said.

In the plus column, opening up a possible new product for creditunions was the enactment in December of the CreditUnion Share Insurance Fund Parity Act that provides the fullinsurance coverage for Insurance on Lawyers Trust Accounts that theFDIC provides for those accounts in banks.

Credit unions had been at a competitive disadvantage becausedeposit insurance did not cover clients of the lawyer that were notmembers of the credit union – a gap that has now been remedied bythe new law.