As Prepared for Delivery on December 15, 2022
Thank you, Laura, Naghi, and Ian, for your presentation and to the entire team for your work on this proposed rule. This is an ambitious proposal with clarifications to several current regulations. It also offers new flexibilities for federal credit unions to purchase loans of their members from financial technology companies.
My interest in credit union innovation is rooted in the belief that businesses must innovate to stay relevant. Plus, credit unions are not top of mind for most fintech, so anything their regulator can do to improve the process of working with them is critical. At the very least, we do not want fintechs – or any service provider – choosing not to work with credit unions because their regulator makes it unnecessarily difficult.
The NCUA Board has a fiduciary duty to make sure we aren’t standing in the way of anything that ensures the long-term viability of credit unions. But an issue we face is that credit unions only have about 10 percent of America’s insured deposits, the rest being in banks and insured by the FDIC. The reason that’s an issue for us is that products marketed at banks sometimes need to be tweaked in order for credit unions to utilize them. Credit unions, if you will, are like the left-handers of the world; they’re the small 10 percent of the market. Thus, credit unions can’t afford to be difficult to work with, since the market will always focus on the other 90 percent.
Mr. Chairman, you’re left-handed. Regarding products that use one’s hands, does the world focus on you in the 10 percent or on the 90 percent of us that are right-handed?
I think this is the frame we need to use when considering the costs and benefits of innovative technology.
Today’s proposed rule is a demonstration of the agency’s real desire to improve clarity. We can publish guidance letters and risk appetite statements all day long, but without regulatory clarity they are meaningless. The clarity will also be helpful for field staff.
In addition, the proposed changes are intended to give flexibility to credit unions that want to engage in lending activities related to financial technology companies, including loan participations and eligible obligations. With greater flexibility, more credit unions will have the option to work with these lenders. Credit unions that may not have had the resources to manage the challenges around the current prescriptive rules will be able to tailor their programs to reflect their policies and goals.
I urge all commentors to be as specific as possible with suggestions and concerns. If you represent a credit union that curtailed its use of participation loans and eligible obligations because of lack of regulatory clarity, I urge you to take advantage of this opportunity to provide input.
This proposal was a big job. To the team that worked on it, I again, want to say thank you for your diligence in getting this important process started. I look forward to reading the comments.
In closing, I would be remiss if I didn’t thank Board Member Hood for his commitment to ensuring credit unions have access to fintech solutions. And to Chairman Harper for his efforts to keep the fintech dialog among the Board offices productive.
Thank you, Mr. Chairman. That concludes my remarks. I have a few questions.
How would the changes in the proposed rule make it easier for credit unions to engage in and take advantage of fintech opportunities?
Can you describe what the five-percent limit on unimpaired capital and surplus under the eligible obligations rule would apply to under the proposed changes? How is that different from the current rule?
What are some examples of the questions we are asking the public to comment on to get additional clarity on the rule?