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5 things to know this week
NAFCU's widely read NAFCU Today is credit union leaders' go-to source for the latest on issues impacting the credit union industry. For those short on time, here's a roundup of this week's top need-to-know updates and resources.
Light at end of debt ceiling tunnel?
The federal government is moving closer to defaulting on its debt, with Treasury Secretary Janet Yellen anticipating reaching the limit around June 1. While President Joe Biden and congressional leaders have been meeting to find a compromise, no deal has been reached. Despite the approaching deadline, there is optimism on Capitol Hill as a group of negotiators – consisting of White House counselor Steve Ricchetti, Director of the Office of Management and Budget (OMB) Shalanda Young, Director of the White House Office of Legislative Affairs Louisa Terrell and Rep. Garret Graves, R-La. – has been assembled.
House Speaker Kevin McCarthy, R-Calif., Thursday said he could “see the path that we can come to an agreement,” with hopes that a deal can be reached in the coming days for the House to vote on next week. Although the Senate is in recess the next two weeks, Majority Leader Chuck Schumer, D-N.Y., told senators to be ready to return to Washington if they need to vote on the measure.
What to know about GSE credit score changes
The government-sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac – held a webinar this week to review new credit score requirements. The new requirements mandate institutions that sell to the GSEs to replace the classic FICO model with the FICO 10T and the VantageScore 4.0. There will also be a transition from requiring three credit reports to two.
During the webinar, it was noted that although the credit score calculation will be based on a bi-merge report, if a lender obtains three credit reports, all three must be provided to the GSEs. The webinar also outlined the implementation timeline:
- currently, stakeholders are encouraged to take a survey on how to refine the implementation process;
- in the first quarter of 2024, the bi-merge report will be implemented and calculation methodology will be updated;
- in the third quarter of 2024, lenders will be required to provide FICO 10T, VantageScore 4.0, and classic FICO; and
- in the fourth quarter of 2025, lenders will be required to provide FICO 10T and VantageScore 4.0.
NAFCU has consistently called for alternative credit scoring models that more accurately capture creditworthy borrowers and offer them access to affordable credit.
Finding common ground on stablecoins
The House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion held another hearing on stablecoins Thursday, during which lawmakers reiterated the need for bipartisan legislation and support for 1-1 backing ratio of the currency. Witnesses at the hearing discussed how stablecoins could foster innovation and increase financial inclusion, and the potential for state charters.
One concern raised by subcommittee Ranking Member Stephen Lynch, D-Mass., was the lack of deposit insurance for stablecoins. Politico reported yesterday morning on similar concerns from Yale researcher Steven Kelly. Kelly noted stablecoin issuer Circle had $3 billion in Silicon Valley Bank, and was part of the run on the bank that ultimately led to its failure. By forcing stablecoin issuers to become banks, they’d have deposit insurance coverage for consumers, as well as discount window access and supervision, he argued.
House Financial Services Committee Chairman Patrick McHenry, R-N.C., and Ranking Member Maxine Waters, D-Calif., each had draft legislation discussed during Thursday’s hearing. NAFCU continued to call for an appropriate regulatory framework.
NAFCU concerns about 7(a) changes shared during House hearing
The House Small Business Committee met Wednesday to continue discussions on recent rules that modify the Small Business Administration’s (SBA) 7(a) lending program. Ahead of the hearing, NAFCU said the rules “miss the mark,” reiterating concerns about the increased risk of fraud fintechs participating as SBA lenders would bring to the program.
Lawmakers and witnesses during the hearing shared similar concerns about increased fraud from fintechs – as seen in the Paycheck Protection Program – as well as the SBA’s inability to effectively provide oversight to fintech lenders. The importance of relationship banking to support small businesses and tailor loans to meet their needs was also discussed.
Lawmakers slam failed banks, regulators
Former leaders of the three recently-failed banks testified on Capitol Hill this week before Senate and House panels, with lawmakers criticizing the executives for mismanagement and the high rates of uninsured deposits at their institutions.
In addition, Thursday’s financial regulator hearing with the Senate Banking Committee focused on bank failure-related issues. Senators condemned supervisory issues and lack of action to address them. They also raised concerns related to interest rate risk, liquidity risk, deposit insurance reform, merger and acquisition efforts, and more. NAFCU urged the committee “to ensure that problems from a few banks do not create new burdens for well-run credit unions in an effort to respond to this recent situation” and to maintain parity in deposit insurance coverage between the FDIC and National Credit Union Share Insurance Fund.
NAFCU will continue to tout the credit union difference and advocate for industry priorities that allow credit unions to grow and better serve their 135 million members.