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ALEXANDRIA, Va.-Credit unions of all kinds should be relatively pleased with the funding moves the NCUA Board made last week. NCUA reduced its budget, the overhead transfer rate, and federal credit unions’ operating fee scale during the November board meeting. The board adopted a 2005 budget that was 1.29% below 2004 at $148 million. The overhead transfer rate, which is used to calculate the funds transferred from the National Credit Union Share Insurance Fund to pay for the agency’s insurance related expenses, was reduced from 59.8% to 57%. Finally, federal credit unions were given a $9 million operating fee refund and the 2005 operating fee scale was reduced by 1.23%. Additionally, the fee scale asset dividing points were increased by 6.25% to reflect estimated growth in 2004. “I am extremely pleased we were able to decrease the budget, return funds to credit unions, reduce the operating fee, and lower the overhead transfer rate,” NCUA Chairman JoAnn Johnson said. “The 2005 budget is well balanced for all stake holders.” “The agency is definitely making a concerted effort to look at the budget and curtail costs,” CUNA Associate General Counsel Mary Dunn noted. She pointed out that CUNA was very pleased that NCUA was going to revisit the issue of clearly defining what are insurance and what are regulatory costs regarding the determination of the overhead transfer rate for the industry. NAFCU Director of Regulatory Affairs Gwen Baker also made this point. She said she was unsure which direction the overhead transfer rate should go but looking again at the differentiation between insurance and regulatory costs could make a major difference. She did say she felt the rate setting process is transparent. “And NCUA seems committed to continuing down that path,” NAFCU General Counsel Bill Donovan chimed in. NCUA Board Member Debbie Matz was “very, very excited” that a pet project of hers-reinvigorating small credit unions-received budgetary attention. She had recently announced that she was going to work to get three staffing positions added to the Office of Credit Union Development, which was approved in the budget, and renamed the Office of Small Credit Union Initiatives. “I believe we need to spend more resources on small credit unions, not less,” Matz said in her remarks at the board meeting. Under the changes, a deputy director position will be created to coordinate the activities of NCUA’s 15 Economic Development Specialists in the regional offices. A small credit union trainer will develop and put together training programs covering issues that often lead to the failure of small credit unions, including board responsibilities and recordkeeping. An examiner trainer will also focus on training all NCUA examiners who work with small credit unions for consistent treatment between the regions. “It’s finally letting us walk the walk and talk the talk,” Matz commented. However, she said was not at all pleased with the reduction in full-time equivalents from 963 to 961 that was also in the budget. She pointed out during her statements for the record that she was told 963 was about as low as the agency could go, but she added the board can always revisit the matter at the mid-year budget review. Afterwards Matz said in the short-term it’s a good trade off, particularly since the agency has 39 staffing openings that are not likely to be entirely filled by mid-year 2005 anyway. The budget also renamed the Office of Strategic Program Support and Planning the Office of Capital Markets and Planning with a new Division of Capital Markets to organize existing investment staff. Concerning the overhead transfer rate, NCUA Examination and Insurance Office Director of Risk Management Larry Fazio explained that the agency was able to lower it because of new regulatory related requirements regarding the PATRIOT Act and Bank Secrecy Act issues. In addition, NCUA built up excess cash from the operating fee assessments for federal credit unions. Namely, this was from greater than expected asset growth, lower expenses, and extra reserves for the regional realignment. Therefore, the agency will refund federal credit unions $9 million (an average of $1,600 each) and cut the operating fees 1.23%. The NCUA Board approved a final rule under the Fair and Accurate Credit Transactions Act regarding proper disposal of consumer information. The agency has been coordinating with other federal regulators to come up with a “consistent and comparable” regulation; the others are expected out shortly. The rule requires federal credit unions to follow procedures to properly dispose of consumer information derived from credit reports. According to NCUA Staff Attorney Chrisanthy Loizos and industry analysts, there will be no significant changes for credit unions. The regulation only covers information that identifies an individual. State chartered credit unions are subject to similar rules coming from the Federal Trade Commission. Compliance is required by July 1, 2005 and agreements with vendors must be modified by July 1, 2006. NCUA also issued a proposed rule for a 60-day comment period codifying previous legal opinions regarding loans and lines of credit to members. The rule puts three legal opinions concerning maturities on loans with government guarantees, mobile home loans, and manufactured home loans. -

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