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This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello, this is Samantha Shares.
This episode covers NCUA's Proposed
Regulation on Auto Loan Participations
The following is an audio
version of that document.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
forty years of National Credit
Union Administration experience.
We assist our clients with N C
U A so they save time and money.
If you are worried about a recent,
upcoming, or in process N C U A
examination, reach out to learn how they
can assist at Mark Treichel dot com.
Also check out our other podcast called
With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the document.
Summary.
The N C U A Board is seeking comment on
a proposed rule that would remove the
N C U A's unnecessarily prescriptive
regulation regarding third-party
servicing of indirect vehicle loans.
This action would reduce regulatory burden
and provide credit unions with greater
operational flexibility, consistent with
a principles-based supervisory approach.
The intent is to reduce administrative
costs and compliance complexity,
enabling credit unions to serve
their members more efficiently.
Supplementary Information.
Introduction.
Background.
In 2006 the N C U A approved a final
rule, referred to as the 2006 Final
Rule, governing federally insured credit
union purchases of indirect vehicle
loans serviced by third parties, which
is codified in sections 701.21(h)
and 741.203(c)
of the N C U A's regulations.
At that time, the Board recognized
that indirect lending has certain
advantages for credit unions, such
as growth in membership and loans.
The Board was concerned, however,
that some credit unions may involve
themselves in indirect lending programs
without adequate due diligence,
appropriate controls, or sufficient
experience with a third-party servicer.
At that time, the Board thought
this could create undue risk where a
third party manages a credit union's
relationship with automobile dealers
and with credit union members whose
loans the third party services.
The resulting regulation governing
third-party servicing of indirect vehicle
loans set prescriptive, inflexible limits
on the aggregate amount of indirect loans
and participations in indirect loans.
The rule limits the aggregate amount
of indirect loans and participations in
indirect loans a credit union may purchase
from any one servicer to 50 percent of
the credit union's net worth, which,
after 30 months of experience with a
particular servicer, the rule increases
the limit to 100 percent of net worth.
These requirements create a rigid,
one-size-fits-all framework that is
unduly burdensome for credit unions.
The Board believes that a credit
union's board is in the best
position to develop policies that are
appropriately scaled to its activities.
Removing the N C U A's current
regulatory requirements would reduce
regulatory burden and provide credit
unions with greater operational
flexibility, consistent with a
principles-based supervisory approach.
Accordingly, the proposed rule
would remove these prescriptive
requirements and allow credit union
boards to develop their own policies.
Credit union boards will continue
to be responsible for developing
policies and procedures that protect
the safety and soundness of the credit
union and ensure that their purchases
of indirect vehicle loans serviced
by third parties are appropriately
scaled for the credit union's size and
the complexity of the transactions.
If this proposal is adopted as final,
the N C U A will continue to monitor
credit unions' purchases of indirect
vehicle loans serviced by third parties
through the examination process.
Legal Authority.
The Board has the legal authority to
issue this final rule pursuant to its
plenary rulemaking authority under
the Federal Credit Union Act and its
specific rulemaking authority under the
various provisions the Board administers.
Proposed Rule.
Section 701.21,
Loans to Members and Lines
of Credit to Members.
Section 701.21(h),
Third party servicing of
indirect vehicle loans.
Current section 701.21(h)(1)
limits the aggregate amount of indirect
vehicle loans and participations
in indirect vehicle loans a federal
credit union may purchase from
any one servicer to 50 percent
of the credit union's net worth.
After 30 months of experience
with a particular servicer,
paragraph (h)(1) increases the
limit to 100 percent of net worth.
Paragraph (h)(2) sets forth a process
for a federal credit union to request
a waiver from the concentration
limits from its Regional Director.
Paragraph (h)(3) sets forth a
timeline for the N C U A to provide
written responses to waiver requests.
Paragraph (h)(4) defines various
terms, including the term third-party
servicer, which excludes federally
insured depositories, wholly owned
subsidiaries of those depositories,
and certain servicing entities.
As previously discussed, the
provisions in section 701.21(h)
impose a prescriptive framework for
the purchase of indirect vehicle loans
serviced by third parties, which is
unduly burdensome for credit unions.
The Board believes that a federal credit
union's board is in the best position to
develop policies that are appropriately
scaled to its purchases of indirect
vehicle loans serviced by third parties.
Accordingly, the proposed rule
would remove current paragraph
(h) from section 701.21.
Section 741.203,
Minimum Loan Policy Requirements.
Section 741.203(c).
Current section 741.203(c)
provides that federally insured,
state-chartered credit unions
must adhere to the requirements
set forth in section 701.21(h)
concerning third-party servicing
of indirect vehicle loans.
Paragraph (c) also requires that,
before a state-chartered credit union
applies to a Regional Director for
a waiver under section 701.21(h)(2),
it must first notify its
state supervisory authority.
In addition, paragraph (c) states
that the Regional Director will not
grant a waiver unless the appropriate
state official concurs in the waiver.
Finally, paragraph (c) provides that
the 45-day period for the Regional
Director to act on a waiver request,
as described in section 701.21(h)(3),
will not begin until the Regional
Director has received the state
official's concurrence and any
other necessary information.
The provisions in section 741.203(c)
impose the same prescriptive
framework in section 701.21(h)
on federally insured, state-chartered
credit unions for the purchase of indirect
vehicle loans serviced by third parties.
The Board also believes that a federally
insured, state-chartered credit union's
board is in the best position to develop
policies that are appropriately scaled
to its purchases of indirect vehicle
loans serviced by third parties.
Accordingly, consistent with the
removal of section 701.21(h),
the proposed rule would also
remove current paragraph
(c) from section 741.203(c).
Section 746.201,
Authority, Purpose, and Scope.
Section 746.201(c),
Scope.
Current section 746.201(c)
lists rule sections and subsections
covered under part 746, subpart B for
appeals of initial agency determinations
by a program office, which the petitioner
has a right to appeal to the Board.
Among other things, paragraph
(c) lists section 701.21(h)(3),
which this proposal would remove.
Accordingly, this proposal would remove
the citation to section 701.21(h)(3)
consistent with the changes
made by this proposed rule.
Regulatory Procedures.
Providing Accountability Through
Transparency Act of 2023.
The Providing Accountability Through
Transparency Act of 2023 requires
that a notice of proposed rulemaking
include the internet address of a
summary of not more than 100 words in
length of a proposed rule, in plain
language, that shall be posted on the
internet website under section 206(d)
of the E-Government Act of 2002,
commonly known as regulations dot gov.
In summary, the proposed rule would
streamline the N C U A's regulations
governing the organization and operation
of federally insured credit unions
by eliminating several provisions
that are outdated, redundant,
or unnecessarily prescriptive.
Specifically, the proposal would
remove the N C U A's regulation
regarding third-party servicing
of indirect vehicle loans.
This action would reduce regulatory burden
and provide credit unions with greater
operational flexibility, consistent with
a principles-based supervisory approach.
The intent is to reduce administrative
costs and compliance complexity,
enabling credit unions to serve
their members more efficiently.
The proposal and the required summary
can be found at regulations dot gov.
Executive Orders 12866, 13563, and 14192.
Pursuant to Executive Order 12866,
Regulatory Planning and Review, as amended
by Executive Order 14215, a determination
must be made whether a regulatory action
is significant and therefore subject to
review by the Office of Management and
Budget, O M B, in accordance with the
requirements of the executive order.
Executive Order 13563, Improving
Regulation and Regulatory Review,
supplements and reaffirms the principles,
structures, and definitions governing
contemporary regulatory review
established in Executive Order 12866.
This proposed rule was drafted and
reviewed in accordance with Executive
Order 12866 and Executive Order 13563.
O M B has determined that this
proposed rule is not a significant
regulatory action as defined in
section 3(f) of Executive Order 12866.
Executive Order 14192, Unleashing
Prosperity Through Deregulation, requires
that any new incremental costs associated
with new regulations shall, to the
extent permitted by law, be offset by the
elimination of existing costs associated
with at least 10 prior regulations.
This proposed rule is expected
to be a deregulatory action for
purposes of Executive Order 14192.
The Regulatory Flexibility Act.
The Regulatory Flexibility Act
generally requires an agency to conduct
a regulatory flexibility analysis of
any rule subject to notice and comment
rulemaking requirements, unless the
agency certifies that the rule will not
have a significant economic impact on
a substantial number of small entities.
If the agency makes such a certification,
it shall publish the certification
at the time of publication of either
the proposed rule or the final rule,
along with a statement providing the
factual basis for such certification.
For purposes of this analysis,
the N C U A considers small credit
unions to be those having under
100 million dollars in assets.
The Board fully considered the potential
economic impacts of the regulatory
amendments on small credit unions.
The proposed rule would remove the N C
U A's regulation regarding third-party
servicing of indirect vehicle loans.
This action would reduce regulatory burden
and provide credit unions with greater
operational flexibility, consistent with
a principles-based supervisory approach.
The intent is to reduce administrative
costs and compliance complexity,
enabling credit unions to serve
their members more efficiently.
The N C U A certifies the proposed
rule would not have a significant
economic impact on a substantial
number of small credit unions.
The Paperwork Reduction Act.
The Paperwork Reduction Act of 1995,
P R A, generally provides that an
agency may not conduct or sponsor, and
notwithstanding any other provision of
law, a person is not required to respond
to, a collection of information, unless
it displays a currently valid Office of
Management and Budget control number.
The P R A applies to rulemakings in which
an agency creates a new or amends existing
information collection requirements.
For purposes of the P R A,
an information-collection
requirement may take the form of
a reporting, recordkeeping, or a
third-party disclosure requirement.
The N C U A has determined that the
changes addressed in this notice do
not create a new information collection
or revise an existing information
collection as defined by the P R A.
Executive Order 13132 on Federalism.
Executive Order 13132 encourages certain
agencies to consider the impact of their
actions on state and local interests.
The N C U A, an agency as defined
in 44 United States Code 3502
paragraph 5, complies with the
executive order to adhere to
fundamental federalism principles.
The proposed rule would not have
substantial direct effects on the states,
on the relationship between the National
Government and the states, or on the
distribution of power and responsibilities
among the various levels of government.
The rule would remove a prescriptive
limitation that currently applies to
federally insured, state-chartered
credit unions, which would remove
a federally imposed restriction
on state-chartered entities.
The N C U A has determined that this
rule would not constitute a policy
that has federalism implications
for purposes of the executive order.
Assessment of Federal Regulations
and Policies on Families.
The N C U A has determined that this rule
would not affect family well-being within
the meaning of section 654 of the Treasury
and General Government Appropriations Act.
This concludes the document.
If your credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and
we thank you for listening.