e-Weekly
July 22, 2009
Federal credit union 18% rate gets 18-month extension
The National Credit Union Administration (NCUA) at its July 16 open meeting voted to continue the 18% interest rate ceiling for loans made by federal credit unions. The ceiling is set for an 18-month period from September 10, 2009 to March 10, 2011. The agency will soon issue a Letter to Federal Credit Unions to notify them of this decision.
The current 18% ceiling was due to revert to 15% on September 10, 2009 absent NCUA's action. As required by Congress, the NCUA will review this rule again in 18 months, but may do so sooner if economic conditions warrant.
The board discussed the benefits of a higher interest rate ceiling, which enables federal credit unions to provide affordable capital through risk-based lending and allows consumers to avoid predatory lenders. Vice Chairman Rodney Hood noted that credit unions are in the best position to help consumers in this way.
Insurance premiums v. deposit recapitalizations: NCUA
Interested parties have 30 days to comment on a National Credit Union Administration (NCUA) plan to clarify how insurance premiums and deposit recapitalizations are calculated for only a portion of a year when a credit union either enters or departs the National Credit Union Share Insurance Fund (NCUSIF) in a year with an assessment.
NCUA board member Gigi Hyland said at the agency's July 16 open board meeting that this new rule is necessary to clarify ambiguities in the current regulations that came to light because of the NCUSIF expenses related to the corporates.
The rule could apply to such situations as conversions from NCUSIF to private insurance; conversions from private insurance to NCUSIF insurance; and conversions to a federal thrift where the conversion is from NCUSIF insurance to FDIC insurance. Those scenarios could also include mergers of one type of charter with another.
The proposal includes specific calculations for these types of assessments and distributions. The proposal would amend the definition of insured shares to include shares that would have been insured by the NCUSIF if the institution had been federally insured on the date of measurement.
The proposal would also add a definition of premium/distribution ratio and modified premium/distribution ratio to reflect a fraction of a year that a credit union was insured if it enters or departs the NCUSIF. An additional clarification to distinguish premium assessments and assessments to replenish the 1% deposit is also in the plan.
In response to a question from the board, NCUA staff clarified that the new regulation as proposed would not apply to TCCUSF payments.
Executive compensation draft released by Congressman Frank
An executive compensation "discussion draft" is now circulating among lawmakers and its designer, Representative Barney Frank (D-Mass.) said his committee plans to mark up legislation this week. Frank, who is chairman of House Financial Services Committee, noted the draft is based on a House-passed 2007 "Say-on-Pay" bill combined with new U.S. Treasury Department proposals.
The discussion draft, titled the Corporate Fairness Act of 2009, is comprised of four major components. Addressing credit unions and other financial institutions are sections labeled "Incentive-Based Compensation Disclosure Requirements" and "Compensation Standards for Financial Institutions."
The first proposes to require financial institutions to disclose compensation structures that include any incentive-based elements. The second would require federal regulators to proscribe "inappropriate or imprudently risky" compensation practices as part of solvency regulation. No limits on executive compensation are contained in the draft.
John Magill, senior vice president of legislative affairs for the Credit Union National Association (CUNA) said that credit unions can expect timely guidance from CUNA on the issues involved for credit unions. "We are carefully studying the committee's draft and consulting credit union compensation experts about its impact on credit unions," Magill said.
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