McWatters: Regulatory Flexibility Would Help Credit Unions Offer Better Service

NCUA Acting Chairman Highlights Field of Membership, Member Business Lending, and Supplemental Capital

WASHINGTON (June 22, 2017) – National Credit Union Administration Acting Chairman J. Mark McWatters today recommended that Congress support the agency’s efforts to ease regulatory burdens on credit unions by tailoring and simplifying federal law.

“The NCUA encourages Congress to consider providing regulators with enhanced flexibility to write rules rather than imposing rigid requirements,” McWatters said. “Such flexibility would allow the agency to effectively limit additional regulatory burdens consistent with safety and soundness considerations.”

Paying particular attention to the diversity of scale and business models in financial institutions and recognizing that smaller institutions face their own challenges, McWatters highlighted legislative measures Congress could take to benefit credit unions.

“Permitting the NCUA greater discretion with respect to scale and timing when implementing broad statutory language would help mitigate the costs and administrative burdens imposed on smaller institutions,” he said. “Many credit unions are very small and operate on extremely thin margins. They are challenged by unregulated or less-regulated competitors as well as limited economies of scale.”

McWatters testified during a hearing of the Senate Banking, Housing, and Urban Affairs Committee. The text of McWatters’ testimony is available online here.

McWatters discussed three specific areas where Congress could reduce burdens on credit unions:

• Field of membership, especially with an eye towards reaching underserved consumers and communities;
• Member business lending, particularly granting regulatory parity with banks in residential lending; and
• Supplemental capital, allowing healthy and well-managed credit unions access, which would lead to a stronger capital base for credit unions and greater protection for taxpayers.

McWatters explained steps the NCUA has already takes to modernize regulation, including its three-year rolling review of rules and its voluntary participation in the Economic Growth and Regulatory Paperwork Reduction Act process. The agency also has chosen to comply with the spirit of recently issued Executive Orders addressing financial services regulation.

“The NCUA is committed to promulgating targeted regulation, accompanied by a thoughtfully tailored supervisory and examination program,” McWatters said. “The agency endeavors to identify emerging adverse trends in a timely manner and remains mindful that regulators should learn from the past, yet focus on the future.”

The agency also has implemented a flexible examination schedule that extends examination cycles up to 18 months. The NCUA has updated its field-of-membership, member-business-lending, and fixed-asset rules, McWatters said, and worked to help small credit unions with access to secondary capital, an expedited examination process, exemption from some rules, and facilitating the processes of obtaining the low-income credit union and community development financial institutions designations.

The NCUA is considering several initiatives that are likely to be implemented in the near future, including closure of the Temporary Corporate Credit Union Stabilization Fund, modernizing the Call Report and credit union Profile systems, and creation of the Enterprise Solutions Management program to make examinations, data collection, and reporting more effective and cost-efficient.

McWatters also indicated he intends to revisit the agency’s risk-based capital rule to determine whether significant revision or repeal is warranted.