The continuing conflict between state and federal regulators over the NCUA's overhead transfer rate (OTR) took yet another turn as the National Association of State Credit Union Supervisors (NASCUS) demanded a "detailed explanation" from the agency over its refusal to submit the OTR to public notice and comment rulemaking.
OTR, which has been hotly debated since its inception decades ago, refers to the percentage of funds that the NCUA shifts from the National Credit Union Share Insurance Fund (NCUSIF) to cover insurance-related expenses.
NASCUS CEO Lucy Ito made the latest request in a letter to NCUA general counsel Mike McKenna after the federal agency rejected assertions by NASCUS that the OTR is a rule under the Administrative Procedure Act (APA). If the OTR is determined to be a rule, that would require NCUA to follow the public rulemaking process, which includes not only public notice of its intent but also a public comment period, as well.
In that letter, McKenna also declined to release a written opinion from 2003 (which was prepared by the agency's own office of general counsel for the NCUA board) regarding the applicability of the APA and its "notice and comment" requirements to the OTR.
"We are asking for — and the credit union system deserves — a candid and transparent discussion of the administrative procedure surrounding the OTR," Ito wrote in the latest missive. "NCUA has a public duty to justify its actions to stakeholders — beyond a conclusory statement that the agency is not in violation of the APA."
Ito further pointed out that a formal rulemaking procedure for the OTR by NCUA would provide all stakeholders the opportunity to evaluate the rate's methodology before it is finalized, and would "give NCUA the opportunity to incorporate that feedback into an OTR that serves the system in an equitable manner."
Ito noted that while NCUA has historically published some OTR materials on its website, mere public disclosure "cannot replace the measured accountability that accompanies a formal rulemaking."
She added that NASCUS is not advocating "for a specific allocation between the OTR and operating fees, but for a refined methodology which reflects a reasoned evaluation of stakeholder concerns."
Moreover, Ito indicated that NASCUS' requests for additional information about the formulation of the OTR are intended to give the credit union system a "holistic picture" of the debate over the OTR.
"Given the direct impact of the OTR on the allocation of agency expenses across the industry, and the weaknesses that have been identified with the current process during several independent reviews, I believe the credit union system deserves that much," Ito stated. "Although it may not resolve our differences of opinion on the subject, I believe it will enable a truly transparent evaluation of those differences."
NASCUS maintains that OTR has become tantamount to an "inequitable distribution" that allegedly "favors" the federal credit union charter over the state charter. Ito earlier also asserted that NCUA's current overhead transfer rate "essentially" lowers federal credit union operating fees by "reallocating a significant portion of the expense related to FCU supervision from direct FCU operating fees to the NCUSIF, which is funded in part by state-chartered credit unions."
According to the NCUA, OTR is determined annually through an analysis of: an Examination Time Survey; the workload budget; the operating budget; and the imputed value of the state supervisory authority work.
Historically, OTR has ranged widely — from as low as 30% in the early 1980s, to almost 70% in recent years.
The debate surrounding OTR dovetails with similar concerns credit unions and their trade groups level against NCUA's budget process, of which OTR is one element.