Federal Legislative and Regulatory Update - October 2017
Included in this issue:
• Principal Key Contacts (PKCs) Visit D.C.
• Credit Unions Successful on NCUA Appropriations Vote
• Tax Reform and the FY 2018 Budget
• Data Security Conversations Increasing
• Regulatory Relief Uncertain
• NCUA and CFPB Regulatory Update
Principal Key Contacts (PKCs) Visit D.C.
Iowa Credit Union League (ICUL) staff and the PKCs traveled to Washington, D.C., on October 2-4 to visit with members of the Iowa delegation, as well as meet with the National Credit Union Administration (NCUA). The PKCs on the trip included Brent Helin (Des Moines Metro CU), Helen Pearce (Cedar Falls Community CU), Gary Key (Cornerstone Community CU), Jeff Disterhoft (University of Iowa Community CU), Scott Zahnle (Greater Iowa CU) and Pat Drennen (1st Gateway CU). The meetings with the Iowa delegation focused on three main topics:
- Tax reform and the value to consumers of the maintaining the credit union tax exemption;
- Data security and the need for merchants to be covered by the same data security requirements that apply to credit unions and banks, and
- Regulatory relief and support for various provisions in the CHOICE Act, which was passed by the House back in June.
To see some photos from the visits, click here.
Credit Unions Successful on NCUA Appropriations Vote
In mid-September, credit unions around the country took action on an amendment to H.R. 3354 (one of the budget bills moving through the House). H.R. 3354 contained language that would put the NCUA, OCC and FDIC all under the appropriations process. NCUA is currently funded by fees on credit unions (not taxpayer dollars) and isn’t subject to congressional appropriations. CUNA and the Iowa Credit Union League (ICUL) worked, along with other leagues around the country, to ask our U.S. Representatives to support an amendment offered by Rep. Amodei that would pull the NCUA back out of congressional appropriations. Among other concerns was the fact that, by co-mingling credit union dollars with taxpayer dollars, our credit union funds could be used for purposes other than funding the NCUA. ICUL worked with our Principal Key Contacts (PKCs) and other CEOs around the state, reaching out to our House members and asking for their support of the “Amodei amendment.” Our collective efforts were impactful, as the amendment to H.R. 3354 was passed on the House floor on September 14 via voice vote. Thanks to everyone who assisted with this significant victory!
Tax Reform and the FY 2018 Budget
The last week of September, Republicans released their budget blueprint for the upcoming fiscal year, paving the way for tax reform. CUNA has seen both proposed budget resolutions. As you may guess, they are light on specifics and leave the Congressional standing committees to enact the instructions included in the resolutions. It is important to note that both documents include reconciliation instructions for Congress to enact $1.5 trillion in tax relief and tax reform. Once a common budget resolution has passed both chambers of Congress, the tax writing committees will begin writing tax reform legislation in earnest. The plan sets up the special power of budget reconciliation, which means Republican leaders can advance tax reform with just a 50-vote threshold in the Senate.
While many of the specifics of the tax plan won’t be known until a bill is presented, some broad points were shared. The Republican tax blueprint would cut corporate tax rates to 20% and drop tax rates on small businesses and other pass-throughs (the top rate would be 25%, down from 39.6% on the profits of so-called pass-through businesses). A “pass-through” passes its profits through to partners and shareholders, who then report them on their individual returns. On the individual tax front, the framework shrinks the number of tax rates to just three (from seven today). The proposed rates are 12%, 25% and 35%, but it will be up to the tax committees to assign income ranges to each rate. Also, the drop in the top rate to 35% from 39.6% may not stick, as the framework gives tax writers the "flexibility" to add a fourth rate above 35% to ensure reform keeps the tax code at least as progressive as the current system.
As of now, there is no indication that the credit union tax exemption is targeted. However, everything is always on the table with these broad tax reform conversations, and we’ll continue to be very vigilant in our work with the Iowa delegation, in coordination with CUNA, on this topic.
Data Security Conversations Increasing
CUNA and Leagues are continuing the push with Congress to ensure consumers affected by the Equifax data breach are notified and protected. Hearings were held in several committees in the House and Senate in late September and early October, and CUNA has sent letters to respective committees of jurisdiction. CUNA also filed a lawsuit against Equifax and hosted a member call on October 3rd to discuss legal options for credit unions.
The Equifax breach has clearly heightened the level of congressional dialogue around the topic of data security. We are aware that Mmembers in both chambers and on both sides of the aisle are considering new legislation in response to this breach. While many of the initial ideas have focused on strengthening consumer protections in the Fair Credit Reporting Act, we anticipate seeing legislation that will seek to make changes to data security requirements. Senator Grassley, as Chair of the Judiciary Committee, will be very involved in the drafting of any legislation. On our Iowa PKC trip to D.C., we encouraged our members to subject merchants to the strong data security requirements that credit unions must follow. That said, we know that Equifax was subject to those requirements, so Congress may consider even tougher requirements on entities that hold sensitive information. We shared with Senator Grassley that the Federal Trade Commission (FTC), which regulates Equifax, does not have the same examination authority over Equifax as bank and credit union regulators do when it comes to data security. The FTC’s authority is based in enforcement—i.e., after an event has happened. We will keep you apprised as congressional efforts progress in this area.
Regulatory Relief Uncertain
As you know, back in June the House passed the CHOICE Act on a party-line vote. The bill, which was very large, contains a number of provisions of interest to credit unions. However, the Senate is very unlikely to take up the bill because it doesn’t have the Democrat support needed for 60 votes on the floor. In September, the House took some of the regulatory relief provisions from the CHOICE Act and put them in budget bill H.R. 3354. H.R. 3354 included language that would bring the CFPB under the appropriations process, reform its UDAAP authority, and add more checks and balances to the CFPB rulemaking process. Other relief provisions in the bill include the repeal of the CFPB Small Business Loan Data Collection program, repeal of the CFPB’s authority to write rules for arbitration, and language providing for community financial institution mortgage relief and a “safe harbor” for certain loans held on portfolio.
Whether the Senate will be able to move any type of regulatory relief package this year is uncertain. During our PKC trip to D.C., the Iowa House members seemed somewhat pessimistic that the Senate would get something done, but all of them voiced support for these provisions that reduce the burden on credit unions and community banks.
NCUA and CFPB Regulatory Update
While in D.C. with our PKCs, here are some things we learned relative to NCUA and CFPB regulatory activity:
- Exam Flexibility Initiative
- NCUA is implementing its extended exam cycle for certain well-capitalized credit unions. NCUA will be coordinating with the state to avoid examining at different times.
- NCUA continues to work on its technology interface so that it can collect more data in advance and conduct more of the exam remotely.
- Based on feedback, NCUA is emphasizing and providing training to its examiners on better communication with credit union staff during an exam.
- Voluntary Merger Proposal
- It will be awhile before the final rule is released. NCUA is still debating whether this rule will apply to state chartered credit unions (in its comment letter to NCUA this summer, the Iowa League urged that it not apply and deference to states’ right be given).
- NCUA recognized that some aspects of the rule, such as the member-to-member communications that had to flow through the credit union, were too burdensome. While NCUA will be emphasizing greater transparency in the final rule, the agency is considering alternatives to alleviate some of the burdensome provisions from the proposal.
- Open Discussion with NCUA Staff:
- Regulatory reform: NCUA will be doing an in-depth review of the regulations to look for ways to alleviate the burden and improve the regulations. Comments are due in November, they are open to additional suggestions for regulatory relief.
- NCUA restructuring plans: NCUA will transition from five5 regions to 3three regions nationally.
- NCUA voted to dissolve the stabilization fund. In the coming months NCUA will determine how best to issue the first of possibly two dividend returns to credit unions and will be releasing guidance on how that dividend should be accounted for during next year reporting.
- The Share Insurance Fund’s normal operating level will be increasing to 1.39 percent.
- Low income designated credit unions interested in secondary capital are encouraged to discuss their plans with NCUA staff and the regional directors.
- The implementation difficulty and continued ambiguity surrounding MLA and TCPA was shared with the CFPB and NCUA. Both agencies were encouraged to take that into account during examinations.
- Debt collection: Based on comments, the CFPB will be adjusting its rulemaking (it will be directed more narrowly at third party creditors and the agency will attempt to limit the impact on direct creditors).
- Small dollar loan rule: (Released shortly after our meeting) CFPB considered the comments received from credit unions on the impact to credit union loan programs. The agency did not intend to inhibit beneficial credit union small dollar loan programs (they were targeting payday lenders). The agency tried to diminish the impact on credit union loans in the final rule.
- Overdraft: The CFPB is focused on testing the new prototype disclosures. If it sees increased consumer awareness under its prototype disclosures the agency will consider a new rule in the future.
- Reporting small business loans: CFPB is in the very early stages of policy development. If they implement new provisions, it will also include FinTech institutions as well as traditional financial institutions. However, the CFPB emphasized it would like to see credit unions continue to serve this market and are learning more about how additional reporting requirements could be problematic for credit unions.
- CFPB will consider joining CUNA’s petition to FCC for a declaratory ruling (requesting relief for credit unions) under TCPA.
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