NCUA Board Strikes Deal on Service Facility Rule, Climate Change

Cutting deals on contentious issues Thursday, the National Credit Union Administration board approved a draft Strategic Plan that includes a climate change statement and adopted a compromise final rule governing shared facilities.

In December of last year, Republican board members Kyle Hauptman and Rodney Hood voted to publish a proposed rule that would include any shared branch ATM or shared electronic facility in the definition of “service facility” for Multiple Common Bond federal credit unions that participate in a shared branching network. At the time, Democratic board member Todd Harper said he believed the rule violated federal law.

The final rule includes any shared facility, shared ATM or shared electronic facility in the definition of a Multiple Common Bond credit union that participates in a shared branching network. For the addition of underserved areas, a location must accept deposits, take loan applications and disburse loan proceeds to qualify as a service facility.

At Thursday’s meeting, Harper said the revised final rule made changes that satisfied his concerns. He said that unlike the proposed rule, the final rule will not allow credit union websites and mobile phone applications to be considered a service facility for a multiple-bond credit union. He said the final rule will not allow leased ATMs that primarily distribute cash to count as a service facility in an underserved area.

Board member Rodney Hood said that the rule will increase access in rural, minority and tribal communities. He added, however, “I wish we were going further to consider other technological advances in what constitutes a service facility.”

Board member Kyle Hauptman said he has heard concerns that the rule encourages federal credit unions to only serve the most desirable portions of underserved areas. “I am honestly not sure how this would work because the [Federal Credit Union] Act actually includes detailed criteria for what constitutes an underserved area,” he added.

The three board members also said they had reached a compromise on climate change language to be included in the agency’s Strategic Plan. The Strategic Plan had been scheduled to be presented at the board’s July meeting, but sources said it was pulled from the agenda because the three board members could not reach a consensus on how climate change should be addressed.

Harper, a Democrat, has said in recent comments and congressional testimony that he believes that climate change is a safety and soundness issue that credit unions and the NCUA must address.

The passed Strategic Plan does not provide specific ways the NCUA will address climate change. “Credit unions need to consider climate-related financial risks and how they could affect their membership and institutional performance,” the plan says.

It goes on to say that to “remain resilient credit unions may need to consider adjustments to their fields of membership as well as the types of loan products they offer. Efforts to combat climate change will likely give rise to new regulations, potentially increasing costs for credit unions as they adapt and respond.”

It states that the agency will need to adapt its risk monitoring framework to account for climate-related threats to the credit union system.

Harper said that climate change is a business decision for credit unions. “For that reason, the agency will not micromanage auto lending, mortgage lending, or member business lending for climate financial risk,” he said. He added, “As a regulator and insurer, the NCUA will continue to work to ensure that the institutions it oversees remain resilient against all material risks, including climate financial risk. “

Last month, Harper voted for a Federal Stability Oversight Council report that went further than that. It said that financial regulators must review their regulations to ensure they address climate change and change them if they do not take climate risks into account.

During Thursday’s meeting, Hood said that while climate change is an issue, he does not believe it is a safety and soundness issue that the NCUA must address. He said credit unions should be able to deal with the risk.

He said that the Strategic Plan is an “aspirational document,” adding that he was willing to defer to Harper, as chairman, to set the agency’s vision.

Foreshadowing a possible conflict, Hood said he is unhappy with the draft 2022-2023 budget the agency released Wednesday. That budget calls for 48 new employees. Hood said he could not support a budget that calls for that number of new employees. Harper and Hood agreed that the budget is a starting point and that the members will work during the next several weeks to try to hammer out an agreement.

The board also received a briefing on the agency’s response to the pandemic.

Following that presentation, Hood said that with the agency enforcing a vaccine mandate, the agency should bring back employees onsite as soon as possible. He said he believes that employees should return to their offices by the first quarter of 2022. Harper said he is committed to bringing employees back to their offices as soon as possible.

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