NCUA Board Seeks Comment to Simplify OTR Methodology

NCUA Board Seeks Comment to Simplify OTR Methodology
June 23, 2017 Marketing GrafWebCUSO

The NCUA board on Friday agreed to solicit comment on changes to the methodology used to calculate the Overhead Transfer Rate—an issue that often has divided the credit union community.

In publishing the changes, the board proposes to simplify the methodology used to calculate the OTR—a formula that determines what percentage of the NCUA’s operating budget will be drawn from the National Credit Union Share Insurance Fund and used to cover expenses related to federal share insurance.

The issue has been particularly divisive, with federally insured, state chartered credit unions saying that the calculation of the OTR is unfair to their institutions and that the OTR should be published in the Federal Register, with comments about it solicited from the credit union community.

“As it now stands, NCUA’s methodology is arbitrary, capricious, and inequitable to FISCUs,” NASCUS President/CEO Lucy Ito said in an April 2016 letter commenting on the OTR methodology.

The proposed rules would decrease simplify the calculation.

Board staff said that had the proposed methodology been in place for 2017, the OTR would have been 60%, rather than the 67.7% under the current methodology.

The changes would have resulted on the annual Operating Fee paid by federal credit unions increasing about 24%–an increase of about $22.8 million.

Following Thursday’s meeting, Ito said she is pleased with the simplified approach.

“The proposed methodology is a significant step in the right direction and we appreciate that NCUA has acknowledged a number of the views we previously shared in our submitted comments,” she said, adding that NASCUS will be reviewing the proposal. 

CUNA officials praised the NCUA board for opening up the OTR methodology for comment.

“Our ultimate goal is to see a process that ensures fairness to state and federal credit unions for the allocation of legitimate insurance-related costs, and we plan to submit a detailed comment letter outlining ways that can be achieved,” said Elizabeth Eurgubian, CUNA’s deputy chief advocacy officer.

NAFCU officials continued to push the NCUA board to decrease the agency’s operating expenses and to ensure that any OTR methodology does not favor state regulators.

“NAFCU supports the dual-chartering system, and we will always work to ensure that there is an appropriate balance between state and federal regulators,” said NAFCU Director of Regulatory Affairs Alexander Monterrubio. “We encourage the agency to avoid tipping the scales in favor of state regulators. At the end of the day, we continue to urge the agency to materially reduce its overall operating expenses, which would in turn reduce the OTR’s impact on the share insurance fund and the industry as a whole.”

The NCUA board also approved a plan to solicit public comments on changes to regulations governing capital calculations and corporate credit unions.

The board also received a staff update on its “Enterprise Solution Modernization” program, a project to update the agency’s information technology capabilities.