In This Issue

• ABA Sues Credit Union Regulator Over Field of Membership Rule
• ABA Seeks Regulatory Action to Mitigate Appraiser Shortage
• ABA, Farm Groups Urge Congress to Maintain FSA Funding
• OCC to Grant Federal Charters to Fintech Firms
• OCC Seeks Comment on Aspects of Chartering Fintech Firms

• ABA Files Additional Comments on Form 5500 Proposal

ABA Sues Credit Union Regulator Over Field of Membership Rule

Immediately after the National Credit Union Administration's publication yesterday in the Federal Register of a controversial final rule further expanding the already loose fields of membership from which federal credit unions can draw their customers, ABA filed a lawsuit in federal court seeking to overturn the rule.

“NCUA’s rule ignores statutory requirements at the expense of taxpayers, small banks and the communities those banks serve,” said ABA President and CEO Rob Nichols. “ABA has successfully sued NCUA three times on past occasions in which the agency exceeded its congressional authority, and we look forward to challenging their latest violation of the law in federal court.”

NCUA’s final rule “fails to adhere to the limitations on federal credit unions established by Congress,” ABA said in the lawsuit. “By exceeding these statutory limitations, the final rule upsets the balance Congress struck between granting federal credit unions tax-favored status and limiting their operations to carefully circumscribed groups or localities that share a common bond.”

Under the final rule, FCUs can apply to serve entire geographic regions, so-called “rural districts” up to 1 million people (which include the entirety of Alaska, North Dakota, South Dakota, Vermont or Wyoming), and areas contiguous to their existing service areas. NCUA is also facilitating easier conversions to community charters.

Nichols noted that NCUA’s action affects all taxpayers by “further increasing the industry’s tax exemption, which is already worth more than $27 billion over the next 10 years,” adding that “Congress set appropriate limits on credit union activities in return for a tax-exempt status that no other trillion-dollar industry enjoys.”

The final rule is part of an aggressive series of actions by NCUA to end-run statutory limits on CUs, Nichols explained, including a final rule substantially loosening the cap on business lending by CUs. ABA supports a pending lawsuit filed by the Independent Community Bankers of America over that rule and will file a detailed friend-of-the-court brief in support of ICBA’s litigation.

• Read the final rule.
• Read ABA’s lawsuit.
• For more information, contact ABA's Brittany Kleinpaste. 

ABA Seeks Regulatory Action to Mitigate Appraiser Shortage

With the shortage of qualified appraisers a priority issue for bankers--particularly those in rural markets--ABA on Tuesday urged the federal banking agencies to take action to mitigate the ongoing challenge. 

Specifically, as the Appraiser Qualification Board deliberates slowly on changing qualifications to address the shortage, ABA urged the regulators to decide whether they can issue guidance that would prod the process along. “If left unresolved, we forecast negative effects on banks’ abilities to process and originate real estate related loans and to serve their customers,” ABA said. 

ABA also recommended that the agencies double to $500,000 the de minimis transaction threshold at which bankers may use an evaluation instead of an appraisal by a licensed professional and clarify the definition of “federally related transactions” with respect to appraisals.

The letter is part of an ongoing effort led by ABA to address the appraiser shortage in rural areas, including advocacy before the Appraiser Qualifications Board and education of regulators and members of Congress. Read the letter. For more information, contact ABA's Rod Alba. 

ABA, Farm Groups Urge Congress to Maintain FSA Funding

 
ABA and several farming and financial groups wrote to the congressional appropriations committees on Monday urging them to ensure the Farm Service Agency has sufficient funding to meet agricultural credit needs during winter and spring months, when demand for production loans peaks.

“When you factor in the existing loan backlog and the higher than previously anticipated demand on FSA loan programs due to lower commodity prices, FSA will likely run out of money during the [continuing resolution] period, just when farmers need the program the most,” the groups said. “We continue to strongly urge you to give this issue the high priority it deserves, in crafting the final bill, by providing for additional direct and guaranteed operating loan funding than in the committee approved bills earlier this year.” Read the letter. For more information, contact ABA’s Ed Elfmann. 

OCC to Grant Federal Charters to Fintech Firms

 
The OCC “will move forward” with plans to provide special-purpose national bank charters to financial technology firms, Comptroller of the Currency Thomas Curry announced last Friday. The move would help level the playing field for fintech firms that compete with banks by providing a consistent regulatory framework and promote consumer protection, Curry said.

ABA welcomed the news. “We are strongly encouraged by the OCC’s comments on a potential special purpose charter for fintech companies,” said ABA President and CEO Rob Nichols. “This is a bank charter for fintech companies that will hold them to the same standards of safety, access and fair treatment. Maintaining high-standards is the best way to ensure customers have access to the best financial products and services.”

During a Q&A session following his remarks, Curry acknowledged the wide variation in fintech companies’ business models, products and goals and added that the “diversity of approach in the fintech area” will be “the hardest evaluative aspect of the chartering process.” He emphasized that the OCC will take a tailored approach when determining whether or not to grant charters and setting capital requirements for fintech firms.

Curry added that the OCC is also seeking input on how firms could be resolved in the event of failure and that “there needs to be as part of the calculation a buffer that either reduces the risk of failure or allows for a ‘soft landing’ of that business, either through the regulatory process or through our receivership authorities under existing law.”

Curry also addressed another common concern: how to ensure that non-deposit-taking fintech companies would meet community financial needs, since the Community Reinvestment Act only applies to FDIC-insured institutions.

“The OCC has the unique ability to impose requirements in some or all of these areas through the chartering process to require companies seeking national charters to support financial inclusion in meaningful ways, as appropriate for the business model and activity of a particular company,” Curry said. Read the speech. 

OCC Seeks Comment on Aspects of Chartering Fintech Firms

 
The OCC also released a white paper on its authority, principles and process for chartering special-purpose national banks, which it already does for uninsured trust banks and special-purpose credit card banks. Under the National Bank Act, the OCC may issue charters for any company involved in making loans, processing payments or receiving deposits.

The white paper further addressed the point for charter applicants engaged in lending: “[T]he OCC expects a special-purpose bank engaged in lending to explain its commitment to financial inclusion in its business plan.” The plan must identify and define the relevant market or community, describe what and how the bank will offer its products and explain how its products and services will promote financial inclusion.

In the white paper, the OCC requested comment on several further issues before it begins granting fintech charters. Questions included what capital and liquidity requirements the OCC should impose, how a fintech firm can demonstrate its commitment to financial inclusion, how fintech firms that do not lend (such as a payments provider) can demonstrate a commitment to inclusion, whether a special-purpose fintech charter would have competitive advantages over a full-service bank charter, and how the OCC can ensure fintech charter applicants mitigate the unique risks they face.

Comments are due by Jan. 15, 2017. Read the white paper. For more information, contact ABA’s Rob Morgan. 

ABA Files Additional Comments on Form 5500 Proposal

Following a meeting last month with bankers, ABA staff, the Department of Labor and the Internal Revenue Service, ABA on Monday filed additional comments on DOL’s proposed updates to Form 5500 (Annual Return/Report of Employee Benefit Plan). The form--which must be filed by all private-sector employers under the Employee Retirement Income Security Act and the Internal Revenue Code--reports information about the operation, funding, assets and investments of pensions and other employee benefit plans.

ABA reiterated its call for DOL to hold a hearing followed by a series of roundtable discussions on the proposed amendments to allow for greater input from industry stakeholders before releasing a revised proposal for public comment. In addition, ABA recommended that DOL conduct a beta test using actual plan data prior to rolling out the new form and requested that DOL host several focus groups with plan sponsors, service providers, participants and accounting professionals to evaluate the form’s workability before it is finalized.

The association also echoed its previous concerns about the revisions to the form, citing several gaps, inconsistencies and ambiguities in the proposal, such as those related to trustee certification, asset identification and hard-to-value assets, among others. Read the letter. For more information, contact ABA's Tim Keehan.