ALEXANDRIA, Va.-In a lengthy meeting, the NCUA Board approved several key measures, including Reg-Flex and the budget, overhead transfer rate, and operating fee for fiscal year 2002. NCUA Chairman Dennis Dollar highlighted that this was the first time all three aspects of the budget were considered at the same meeting. After a two-year hiatus, Dollar’s Regulatory Flexibility concept has come to fruition with the passage of his largely unchanged proposal. Reg-Flex would allow for “earned regulatory flexibility” for well-managed, well-capitalized federal credit unions in the areas of fixed assets, investments, charitable donations, public unit shares, and eligible obligations. Additionally, the required appraisal threshold was increased from $100,000 to $250,000. To be eligible for Reg-Flex considerations-which are automatic for federal credit unions meeting the criteria-federal credit unions must have maintained a CAMEL 1 or 2 rating and a net worth of 9% for two consecutive examination periods. If a credit union doesn’t quite meet these requirements, there is still hope through the application process. If a credit union meets at least one of these requirements, the institution may apply to the board to be granted all or part of the relief provided for under Reg-Flex. Chairman Dollar pointed out that 3,867 of the 6,191 federal credit unions are eligible automatically. Another 1,893 are eligible to apply. Of those automatically eligible, 69% are under $20 million in assets, he said. “We were very happy to see a final Reg-Flex rule,” NAFCU Director of Regulatory Affairs Gwen Baker said. She noted that NAFCU had worked very closely with NCUA and NAFCU members during the process. “The approval of the Reg-Flex rule is a visionary action taken by a regulator board proving it is most interested in fostering a credit union community that is safe and sound, responsible, and well-managed,” CUNA President and CEO Dan Mica said. The one area where commenters questioned NCUA the most, Dollar said, was on the triggers for Reg-Flex, which were not changed from the proposed rule. “Only time will tell how close we’ve hit on those triggers,” he said. Many commenters, and Board Member Yolanda Wheat, felt that the 9% net worth requirement was too high and should be set at 7% in line with `well-capitalized’ prompt corrective action guidelines. Others said CAMEL ratings are too subjective and should not be a requirement. “We were very heartened that the chairman said `don’t look at this as an event but rather as a process,’ ” CUNA Associate General Counsel Mary Dunn commented. In his remarks during the meeting, Dollar indicated that he expected sequels to Reg-Flex. “ [Dollar] is to be commended for designing this program,” Wheat said. While Reg-Flex’s popularity made its passage a triumph for the credit union community, the setting of the agency’s budget was somewhat more controversial. Credit union trade groups praised the board’s decision to hold an open forum November 1 and expressed approval for the minimal increase included in the budget. However, the lobbyists seemed to be looking more forward to the 2003 budget, which is expected to decrease. The agency’s budget went unchanged from the outline given during the open public forum, holding at $146,967,461.40, up 4.55% from this year’s $140.6 million budget. For 2003, the agency budget is expected to drop to $145,629,229 (-0.91%). “We would hope to see a decline, at that time, in the operating fee scale,” Mica said. Even though the agency did not make any changes to the budget in the two weeks between the hearing and the meeting, NAFCU’s Baker said, “I think they are receptive,” and noted that the agency’s projected budget reduction for 2003. Because payroll and benefits comprise the bulk of the agency’s budget ($88,814,867 for 2002), the credit union community has closely monitored NCUA’s hiring habits. Their work is paying off; the agency has gone into streamlining mode, demonstrated by a $175,000 decrease in recruitment expenses. Full-time equivalent (FTE) positions were reduced through attrition by 33.55 to 995.20, just below the level 10 years ago. Reductions came from regional field staff (18.30), regional field supervisor staff (3.00), regional office staff (2.17), and the central office (10.08). While this reduced the agency budget by $3.28 million, an average pay adjustment of 4.5% for all employees pushed it back up by just over $4 million. The Board Action Memorandum also pointed out that Dollar’s Accountability in Management team created savings in payroll, benefits, travel, and training totaling $866,000. In a closely related matter, the board unanimously approved a decrease in the overhead transfer rate (OTR) from 66.72% to 62% for 2002, meaning 62% of the 2002 budget will be funded by the National Credit Union Share Insurance Fund (NCUSIF) for insurance related expenses. According to the NCUA’s analysis, any rate between 62% and 70% would be justifiable. “In the understanding that there is subjectivity to this, we should err toward conservatism,” Dollar said explaining his support for the lower number. Prior to passage, Wheat amended the motion to ensure that the Deloitte and Touche study of the overhead transfer rate would be used in combination with data from 2002 and 2003 in the setting of the next overhead transfer rate. “This board commissioned the study and spent the money on it. We don’t want it to just sit on the shelf,” she said. Baker commended Wheat’s amendment, saying it was key to ensuring fairness in the process. “The agency really did make a concerted effort to look at all the concerns” from all federally-insured credit unions. Mica added, “The board’s decrease in the overhead transfer rate of funds from the NCUSIF to the NCUA operating budget is an honest and sincere effort to find an equitable solution.” Boeing Employees Credit Union presented a proposal – that was rejected by NCUA – to make the overhead transfer rate setting a rulemaking process with public comment. NCUA Senior Staff Attorney Mike McKenna said the agency staff determined that the Administrative Procedure Act does not require the agency to engage in rulemaking in its allocation of expenses regarding the NCUSIF and the overhead transfer rate was essentially “an internal agency function” not needing public comment. He pointed out that the Federal Deposit Insurance Corp. does not seek comment on similar issues. CUNA’s Dunn said that while CUNA is supportive of Boeing’s right to bring the issue before the board, CUNA was not involved in their proposal. “That action signals the NCUA Board’s sensitivity to the arguments raised in frequent meetings with NASCUS leadership during the last six months,” said Doug Duerr, President/CEO of NASCUS. When discussing the NCUA budget and overhead transfer rate, the federal credit unions’ operating fee cannot be left out. NCUA increased the operating fee charged to federal credit unions by $2.14 million, up 4.36% from 2001, for a total of $51.25 million. Individual operating fees are based on the asset size of the credit union. For example, a $10 million credit union would pay $2,337 in operating fees, up $97. The operating fee increase is due to a combination of the budget increase and the overhead transfer rate decrease. “Any time you increase charges to credit unions, they’re not going to be happy about it,” NAFCU Economist Dr. Tun Wai said. He promised that NAFCU will continue to monitor the situation to ensure fairness. The board also approved Maryland’s member business loan rule, which is more flexible than NCUA’s rule in construction borrowing and credit union officer borrowing, but more restrictive in net worth requirements and member business loan policy requirements. The board granted an investment waiver to Pacific Corporate FCU, permitting investment in non-wholesale corporate credit unions in excess of the investment concentration limit of 100% of the sum of reserve and undivided earnings and paid-in-capital. The board also unanimously approved a community charter conversion for Greenville Federal Credit Union; permitted a community charter expansion by SAC Federal Credit Union; and added the largest underserved/investment area ever (698,218 according to 2000 census data) to Fort Bliss Federal Credit Union. [email protected]

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