NCUA to Introduce Provisional Charter for New Credit Unions

Agency board members address GAC attendees, touch on chartering, Central Liquidity Facility, vendor supervision, overdraft examinations and more.

The NCUA will be “rolling out” a provisional charter intended to help new credit unions raise capital, NCUA board Vice Chairman Kyle Hauptman said Tuesday.

The purpose, Hauptman told those attending CUNA’s Governmental Affairs Conference, is to fix “the chicken and egg problem, whereby a potential credit union wants to get its initial capital from a CDFI but can’t get that capital until we’ve issued them a charter. Still, we wouldn’t issue the charter until that credit union has the capital.”

He did not disclose additional details about that plan.

Push to Re-Establish CLF Provisions

The three NCUA board members spoke at GAC Tuesday, with Hauptman and board Chairman Todd Harper urging attendees to try to convince their lawmakers to push legislation that would re-establish NCUA Central Liquidity Facility provisions intended to solve potential liquidity problems.

Those provisions were enacted to help credit unions through the pandemic, but they have since expired.

“The CLF functions as an emergency liquidity backstop for the industry, similar to the Federal Reserve’s discount window,” Harper said. “And, while the CLF is an effective mechanism for managing liquidity risk, legislative enhancements would provide the NCUA with greater flexibility to respond to future liquidity events.”

He added, “Now is not the time to cut a liquidity lifeline.”

Vendor Oversight and Examination Powers

Harper also called on Congress to provide the NCUA with supervisory and examination powers over credit union third-party vendors.

“Adopting new technology is essential for your credit union to remain competitive,” he said. “But, leaving a hole in the financial system’s defenses means the credit union system is vulnerable to exploitation by bad actors who threaten our nation’s economic security and the financial well-being of our citizens.”

Credit union trade groups, including CUNA, oppose giving the agency that power and Harper attempted to counter some of their arguments, explaining that banking regulators with oversight power do not share data with the NCUA. Further, he added, “to those who claim vendor authority is simply an excuse for the agency to increase its budget, this is also false because a risk-focused review of vendors would not necessitate the hiring of scores of additional exam staff.”

Overdraft Program Examinations

The chairman also renewed his call for the agency to conduct separate consumer protection exams, a process already implemented by banking regulators, saying, “It doesn’t seem fair that credit union members have less protection than bank customers.”

Harper additionally revealed that this year the NCUA be reviewing credit union overdraft programs, including advertising, balance calculation methods and settlement processes.

“And, examiners at federal credit unions with more than $500 million in assets will dig into authorize positive, settle negative transactions, as well as some other problematic fees,” he said. “Our supervisory efforts here are aimed at creating a more equitable financial system that enables financial security for credit union members, especially those of modest means.”

Share Insurance Fund Refund

During his own speech, board member Rodney Hood delivered some news that drew applause from the GAC crowd. 

He revealed that in the next few days, the NCUA will be announcing a $281 million “refund” from the Share Insurance Fund to be divided up among a total of 2,900 credit unions.