In Shocking Move, NCUA Board Defeats Overdraft Policy Presented by Chairman Hood

In a startling turn of events, the National Credit Union Administration board tabled a final rule Thursday that would have allowed credit unions more flexibility in deciding when to require members to settle overdrafts.

The proposal was presented by Republican Chairman Rodney Hood. Democrat Todd Harper opposed the plan, saying it did not provide needed relief to credit union members, while GOP member J. Mark McWatters said the final rule was being rushed through the process. The board tabled the proposal for lack of a second for Hood’s motion to pass it.

As an interim final rule, the plan would have gone into effect immediately and the board would then accept comments on it.

It is extremely rare for the board to defeat a plan presented by the chairman, sources in the credit union community said. “Before any meeting, the chairman knows how a vote will go and if it will not pass, it is pulled from the agenda,” a former NCUA board member said following the meeting.

Under NCUA rules, a federal credit union must establish a time limit of not more than 45 days for a member to “cure” an overdraft. That “cure” could be in the form of a deposit that solves the overdraft or a formal loan to the member.

Hood’s proposal would have removed the 45-day limit, replacing it with a requirement that credit unions have a policy that sets a reasonable timeframe for members to deposit funds or take out a loan.

“I believe this rule is reasonable, is prudent and is needed during the pandemic,” Hood said. He added that it provided “appropriate regulatory relief.”

Harper said that the board was missing a tremendous opportunity to provide members with relief by adopting such policies as the elimination or capping of fees during the pandemic.

“Counter to the text of the interim final rule, in actuality this rulemaking does almost nothing to …provide credit union members the flexibility needed to cope with the impact of COVID-19,” he said, adding that under the policy, credit unions still would have been able to garnish a member’s wages to cover an overdraft.

Harper also said he was not happy that the rule was being presented as an interim final rule that would have become effective immediately. “This rulemaking is being rolled out under a sketchy administrative process,” he said.

In his comments, McWatters concentrated on the process being used, saying that the new policy should have come to the board as a proposed rule, with comments solicited before it became final.

At Thursday’s meeting, the agency board approved an interim final rule that waives the content requirements for a net worth restoration plan that an undercapitalized credit union must submit to the agency. The rule allows such a credit union to submit a much simpler restoration plan.

In other action, the board approved a proposed rule that would provide an alternative method to satisfy the membership or account signature card necessary for insurance coverage.

Hood said the proposed rule would allow credit unions to use such methods as electronic signatures to demonstrate membership. The change would mirror a change enacted by the FDIC last year.

The board also received an update on the Share Insurance Fund, but board members emphasized that the update does not take into account the impact of the pandemic.

The update showed that at the end of March, there were 175 credit unions falling into the CAMEL 4 and 5 supervisory rating—the two lowest levels of health of a financial institution. At the end of 2019, there were 190 credit unions in those two categories.

Story updated on May 25, 2020 to reflect that proposal was defeated as a result of it being tabled.


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