As Prepared for Delivery on September 21, 2023
I am glad we are finalizing the Final Rule, Parts 701 and 714, Financial Innovation – Loan Participation, Eligible Obligations, and Notes of Liquidating Credit Unions, which is aimed at providing clarity and flexibility to credit unions in their engagement with fintech companies and loan participation activities. I believe this regulation will empower credit unions to thrive in an evolving financial landscape while safeguarding the safety and soundness of the system. And I appreciate the extensive feedback received from stakeholders during the rulemaking process, which was considered in drafting the final rule before us today.
I want to express my gratitude to Chairman Harper for his leadership in bringing this final rule to the Board. This rule underscores the strength of the current NCUA Board and its commitment to fostering a safe and sound credit union industry while also responding to changing market dynamics. Mr. Chairman, I must say, I appreciate all you have done to move my priorities. And, as we look to the 2024 budget, I believe there is more that can be done to move your priorities, so I look forward to working with you and the Vice Chairman to do so.
I also want to acknowledge and express my gratitude to the NCUA staff for their invaluable contributions and whose diligent efforts have shaped this rule:
- Senior Policy Advisors and Chief of Staff: Lenwood Brooks, Sarah Bang, and Catherine Galicia,
- Examinations and Insurance staff: Amanda Parkhill, Viki Nahrwold, Naghi Khaled, Simon Hermann, Laura Smith, and Jessica Yam,
- OGC staff: Kevin Tuininga, Ian Marenna, Ariel Pereira, John Brolin, Mahala Vixamar; and
- OCE staff: Mark Vaughn.
Today's final rule addresses the growing presence of fintech companies in originating consumer loans and the need for credit unions to effectively leverage fintech solutions to reach borrowers digitally. The rule aims to enhance clarity and adaptability within the NCUA's regulatory framework.
The loan participation market for credit unions has experienced substantial growth in recent years, with total loan participations purchased across all credit unions increasing from $20 billion in December 2015 to slightly less than $60 billion as of the last Call Report. The growth rate has been particularly noteworthy in recent years, indicating the changing landscape of the financial industry.
Today’s final rule emphasizes the significance of integrating fintech tools and partnerships into credit union business models. Fintech is no longer a luxury but a strategic imperative for credit unions to remain relevant, attract younger generations of members, and promote financial inclusion.
Credit unions have been losing market share to fintech companies, especially in unsecured personal loans. The rule acknowledges this trend and underscores the importance of credit unions adapting to the changing dynamics of the lending market.
The final rule clarifies that credit unions acquiring loans through indirect lending relationships, such as fintech partnerships, qualify as originating lenders. This recognition is pivotal in addressing the challenges credit unions face in competing with fintech companies.
To facilitate credit unions' engagement with fintech and other eligible obligations, the rule eliminates the prescriptive limits on loan purchases and provides credit unions with the ability to establish their due diligence and risk management practices based on portfolio size and complexity.
The rule embraces a principles-based approach to regulation, focusing on the credit decision and origination process while reducing regulatory burdens on credit unions.
The rule streamlines the approval process for certain federal credit unions to purchase non-member loans, eliminating the need for prior NCUA approval and allowing credit unions to establish sound policies instead.
I have focused on these reforms throughout my tenure on this Board because I’m convinced these reforms are essential to ensuring that our credit union industry remains strong now and in the future. While credit unions have been performing well, we can’t stay blind to the competitive pressures credit unions are facing. We must acknowledge the threats that credit unions face from a changing marketplace.
I do have some questions:
- How did we allay the concerns of those who think this final rule could bring more risk into the system?
- Can we speak to how credit unions should make sure their policies allow for the flexibilities offered under today’s final rule before embarking on these new flexibilities?
- I personally believe that additional guidance may benefit our examiners and provide greater clarity and consistency in the credit union industry. Do we need to do any special training?
- I also noticed that a legal agreement needs to be reviewed by counsel according to our rule. I know I covered this during the Board meeting on the proposed rule, but has the NCUA ever considered a template of an approved agreement?
That concludes my comments. Thank you.