The President's Perspective
by Jeff Olson
President/CEO
4/13/2020

CUAD working with congressional and regional SBA offices to resolve technical issues.

At the request of Senator Thune’s and Senator Cramer’s offices, CUAD staff began communicating with our members about issues and concerns that Dakota credit unions were experiencing with regards to platforms used for SBA PPP approval, and with the CAVS or E-Tran platforms. Late Friday, and over the weekend, CUAD communicated our findings to both Senate offices, as well as with our regional SBA offices in Sioux Falls and Bismarck. We have been informed that some of the issues have been resolved, while others are getting attention and expected to be taken care of today or early this week.

Free FFCRA Webinar.

To help you learn more about the Families First Coronavirus Response Act (FFCRA), CUAD has arranged for a webinar on Wednesday, April 15 at 2:00 p.m. (CT). This free session is being offered as a benefit of membership to all CUAD affiliated credit unions. Our speaker, David Hanna, managing member of Paystubz, will walk attendees through the required provisions for employers with under 500 employees, such as the required Emergency paid Sick Leave (EPSL) and required paid Emergency Family and Medical Leave Expansion (EFMLA). David will also explain the payroll tax credit that is available to reimburse the employer for payments made to employees in certain situations and how to calculate the payroll tax credit. Register here.

Never let a good crisis go to waste!

You’ve heard that saying before. You’ve probably heard it a lot in recent weeks. Many attribute Rahm Emanuel, former advisor to President Obama and later Mayor of Chicago, as the originator of that quote. However, given the fact Mr. Emanuel is a noted progressive (political designation), he more than likely picked up the quote from Saul Alinsky, who used the phrase "Never let a good crisis go to waste" in his book, Rules for Radicals, which was published in 1971.

However, long before Saul Alinsky and Rahm Emanuel used the phrase, it was Sir Winston Churchill, UK Prime Minister during WWII, who is credited with first saying, “Never let a good crisis go to waste.” He said it in the mid-1940s towards the end of World War II on the prospective unlikely alliance between the United Kingdom, the U.S.S.R, and the United States, leading to the formation of the United Nations, and “creating opportunities in the midst of a crisis.”

But back to what Mr. Emanuel was really saying when he repeated that quote during the financial collapse in 2008-2009, was “it’s an opportunity to do things you think you could not do before.”

So, here we are smack dab in the middle of a global pandemic crisis, one that brought our high-flying economy to a screeching halt. Unemployment numbers have doubled in just one month and there are reports that nearly 17 million Americans have lost their job due to the COVID-19 crisis. Even here in Dakotas, we have seen record unemployment numbers. North Dakota, already hit hard by the slowdown in oil and gas production late last year, saw nearly 30,000 people apply for unemployment insurance by the end of March. In South Dakota, unemployment claims quadrupled in just one week. No one was prepared for this; we are all feeling somewhat overwhelmed.  

Taking advantage of any crisis, whether real or manufactured, is a common tool used by businesses, organizations, and especially politicians. Why is this? Because in times of crisis opportunities arise that can often lead to improvements. And, in times of crisis, there seems to be more latitude to make changes. 

In our world of financial services, we are often guilty of not challenging the norm; we are instead satisfied with following procedure and tradition. In most cases, our rules and regulations require us to do so. However, in times like this, all it takes is a little insight and a little courage to question our leaders as to why things are done a certain way, and ask: “Why not; and why not now?”

So, here is our credit union COVID-19 wish list.

Let’s start with Reg D. Regulation D is the federal government’s way of ensuring that financial institutions have the proper amount of reserves on hand and encourages people to use savings accounts as they are intended: to save money. With that said, we are in a new age today. We’re more tech savvy than any previous generation has ever been. We demand convenience and in the age of internet banking where we can literally take care of all our financial service needs on our smartphones and without ever leaving our house. So, in today’s reality, there should be no reason to limit transfers from a savings account to just six. Sure, there are ways around Reg D, however, if there was ever a case study to support an update of the old rule, it has been during this current crisis. These limits were set in the 1980s when Reg D was first enacted, long before the internet was even known to be in existence, let alone the possibility of internet banking. 

Providing relief now from the Regulation D transfer limit would make it easier for credit unions to give members access to their funds, during crisis, or any time.

Temporarily raise, waive, or remove the MBL Cap for credit unions. The current member business lending cap was imposed by Congress in the Credit Union Membership Act of 1999. This arbitrary cap limits most credit unions to lending no more than 12.25 percent of their assets to business members, even though credit unions have been making member business loans since our inception over 100 years ago. Now, as small businesses are struggling to keep their doors open, credit unions can help their small business members through the SBA’s (Small Business Administration) Paycheck Protection Program (PPP), and regulators need to exclude, or exempt member business loans made during disasters from the MBL Cap.

Credit unions should be allowed to apply for PPP loans. As “essential businesses,” a large number of credit unions have indicated that their operations and employees have been impacted as well. Specifically, to ensure that they could continue operations in the event of having staff quarantined, credit unions streamlined their services, downsized staff hours or implemented shifts for front line employees. Therefore, credit unions should be eligible to participate and apply for the SBA’s PPP grants. 

Delay CECL implementation. As you well know, CECL is a new Financial Accounting Standards Board (FASB) rule that recognizes lifetime expected credit losses as opposed to the current “incurred-loss” approach. CECL will have a substantial impact on many financial institutions down the road. Credit unions are asking FASB, as well as our congressional leaders and NCUA, to delay implementation of CECL for at least one year due to the pandemic.  

Delay RBC Rule.

The NCUA should consider delaying the risk-based capital rule (RBC) effective date to, at earliest, January 1, 2023. In addition, we support a threshold increase for RBC compliance from $500 million in assets to $10 billion in assets

Temporarily waive secondary market extension fees. Prior to the COVID-19 breakout, and currently, financial institutions have been in the middle of a refi-boom. In fact, many credit unions are reporting records numbers. Most financials “lock” these loans so they can be sold on the secondary market. When these loans are locked, it is required that the loan is fully ready in the timeframe of when it was locked. If credit unions are unable to present that loan by the end of that timeframe, they are accessed a fee to par that loan off and start all over or pay extension fees, which are often in the thousands of dollars. The issue that many credit unions are running into is a backlog due to the volume amount which is getting magnified by delays caused by the COVID crisis. Issues such as appraisal delays, underwriting backlogs, and members losing their jobs due to the economic slowdown (even in a refi, if the member isn’t employed at the time the loan closes the loan is denied). These issues are only going to amplify over the next several months. When these factors are combined, the losses in paying these fees to the credit union or passed on to the member could be substantial. Perhaps Congress can intervene and have the extension fees temporarily waved.

Other recommendations include:

  • Allowing for greater flexibility in providing notice of annual meetings that are postponed or changed to a virtual annual meeting, including guidance that will allow credit unions to utilize electronic methods for notices even if a member has elected to receive paper notices;
  • Adjusting examination guidelines to provide credit unions with greater flexibility, specifically to understand and consider credit unions’ good-faith efforts regarding Regulation B (Equal Credit Opportunity Act) notices for new credit products intended to assist members during the pandemic;
  • Expeditiously adopting any needed rule changes to ensure the Central Liquidity Facility’s (CLF) borrowing authority and membership parameters conforms to the CLF provisions passed in the CARES Act;
  • Letting National Credit Union Share Insurance Fund (NCUSIF) capital do its work throughout the crisis period. If the NCUSIF equity ratio drifts downward as expected, NCUA should avoid compounding any capital stresses credit unions may experience this year due to the crisis by deferring any potential 2020 NCUSIF premium assessment;

Supervision and Enforcement:

  • The Consumer Financial Protection Bureau (CFPB) should quickly finalize its proposal amending the Remittance Rule and to exercise its authority to permit compliance flexibility for remittances sent to individuals in countries affected by the growing public health concern surrounding coronavirus disease;
  • The CFPB should continue to suspend routine onsite examinations and reduce the frequency of requests for examination-related information so credit union employees can dedicate their time to focusing on members.

Rulemaking:

  • The CFPB should extend the compliance deadlines for pending regulatory changes in 2020, unless the regulation reduces requirements. For example, the CFPB and the Federal Reserve Board extend the July 1, 2020, implementation date for the upcoming changes for Regulation CC (Availability of Funds and Collection of Checks);
  • CFPB should provide clarity to credit unions regarding the “temporary GSE patch,” which is set to expire on January 10, 2021 by either extending the “patch” or modify the underlying “ability-to-repay” and “qualified mortgage” rules by eliminating the 43% debt-to-income (DTI) ratio and Appendix Q requirements from the safe harbor;
  • CFPB should complete its rulemaking on small dollar lending and either exempt credit unions loans completely from the rule’s requirement or rescind the mandatory underwriting provisions in the 2017 final rule.

While the COVID-19 pandemic has dramatically changed almost every aspect of everyday life, credit unions here in the Dakotas are standing true to their mission. Thank you for all that you do for your members, and for your communities.

Jeff

 

 

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