WASHINGTON—A bill reintroduced in Congress today could reopen the argument surrounding one of the credit union movement’s biggest controversies in decades.

H.R. 3736, the Risk-Based Capital Study Act of 2017 – also known as the “Stop and Study” bill – was reintroduced today by U.S. Reps. Bill Posey (R-Fla.) and Denny Heck (D-Wash.). The proposed legislation would require the National Credit Union Administration to perform additional due diligence on its Risk-Based Capital rule before it takes effect in January 2019, including submitting that study to Congress, along with legislative recommendations on how to improve the CU capital system.

NCUA did not have comment on the bill’s reintroduction, which came during the second day of the National Association of Federally-Insured Credit Unions’ annual Congressional Caucus.

Mark McWatters Rick Metsger NCUA Board
The National Credit Union Administration's April 2018 board meeting marked two years during which Chairman Mark McWatters, left, and Board Member Rick Metsger have operated as a two-person committee as the agency waits for a vacant seat to be filled by presidential appointment.

Posey had been scheduled to speak at the event today, but could not attend due to complications from Hurricane Irma. In his place, a staffer read a letter from the congressman in which he pledged to work with NCUA Chairman Mark McWatters “to help him stop this rule from becoming implemented unchecked.”

“Though the NCUA’s revised risk-based capital measure does address some of the problems we all had with the first one, there’s still plenty to be concerned about,” Posey wrote. “My ‘stop and study’ bill will require that a comprehensive study is undertaken to insure that this rule will not unnecessarily burden credit unions and their members.”

Mike Brubaker, a staffer for Rep. Bill Posey, R-Fla., addressing the crowd at NAFCU's 2017 Congressional Caucus in Posey's absence.
Mike Brubaker, a staffer for Rep. Bill Posey, R-Fla., read a letter to the NAFCU Congressional Caucus crowd outlining the congressman's reasoning behind reintroducing the new RBC "stop and study" bill.

NAFCU has long supported reintroduction of the bill, which would require NCUA to report on four issues related to the rule:

• Whether the agency has the clear and legal authority to issue a two-tier proposal;

• How RBC compares to bank capital requirements;

• The rationale behind the risk weighting used by the agency; and

• The impact the rule will have on credit unions' capital cushions.

“The reintroduction of the bill is saying we realize there are still issues that need to be resolved,” Brad Thaler, NAFCU vice president of legislative affairs, told CU Journal. “There may be issues that Congress needs to act on in terms of modernizing credit union capital.”

When the rule was first proposed, more than 300 members of Congress expressed concerns.

“Whether the bill moves forward is still to be determined,” Thaler added. “Depending on what happens with NCUA, if Congress needs to step in and pass the legislation before the implementation – before the rule takes effect – that will be available to do in 2018 because the legislation is introduced now. It’s kind of out there as a vehicle and serves as a Congressional road map for NCUA.”

While NAFCU cheered the bill, the Credit Union National Association was less enthusiastic.

“CUNA appreciates Reps. Posey and Heck for their concern regarding credit unions,” CUNA Director of Public Affairs Vicki Christner told CU Journal via email. “However, we’re not sure now is the time for this legislation given that NCUA Chairman McWatters announced during the CUNA [Governmental Affairs Conference] that one of the agency’s top priorities to address regulatory reduction was revisiting the risk-based net worth regulation and other needlessly burdensome rules.”

CU execs respond

Dennis Halpin, CFO and executive vice president of $784 million Truity Credit Union in Bartlesville, Okla., looks forward to the NCUA studying its mortgage servicing rates adjustment. “Right now, in the risk-based capital approach it’s weighted at 300 percent of the asset,” Halpin said. “I don’t quite understand why anything should be weighted that strongly as a risk-based approach.”

Halpin added he believes that 90 percent of CUs wouldn’t be challenged by the rule because they already have high capital standards “But for 10 percent of the credit unions, they may have a lot of growth in the first quarter that they may pass as of Dec. 31, but they may fail as of the end of March or June until their income catches up, their net worth catches up, to their share growth,” he said.

John Fenton, CEO and president of $2.7 billion Affinity Federal Credit Union based in Basking Ridge, N.J., said that the RBC rule makes CUs less competitive. The CEO is meeting with NCUA board member Rick Metsger, who voted for the RBC rule when it was finalized with former chairman Debbie Matz and whose term is technically expired. Fenton sees the issue as an imbalance between Metsger’s consideration of staff opinion and the concerns of CUs.

“McWatters is trying to do it all by himself until they fill the other two slots now even with Metsgers’ position,” Fenton said. “I don’t know how much room he’s going to get, and that gives the staff a lot of power. That’s the issue. The staff is putting their opinion on the table but their opinion shouldn’t be the only thing that Metsger considers.”