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August 25, 2017

NAFCU calls for "fairness, accuracy and equity" in OTR methodology

NAFCU on Friday urged the NCUA to retain its current overhead transfer rate methodology, calling it an "objective formula-based model" that "prioritizes fairness, accuracy, and equity."

At its June open board meeting, the NCUA issued a request for comment on its OTR methodology recommendations. The NCUA has proposed revising the methodology to three steps; the agency currently uses an eight-step calculation. The proposed methodology also eliminates the examination time survey. If the proposed methodology had been used in setting the 2017 OTR, the rate would have been set at 60 percent, compared with the current 67.7 percent.

"NAFCU has long held that NCUA should prioritize fairness, accuracy, and equity," wrote NAFCU Senior Regulatory Affairs Counsel Michael Emancipator. "In matters that can be perceived as partial, it is of the utmost importance to ensure that these goals are achieved. Unfortunately, the proposed methodology supplants these goals with ease of implementation and simplicity."

Emancipator also expressed concerns that the proposed methodology is not based on "observable and measurable data inputs." He said a much fairer and more accurate approach to the OTR is the current approach used by the NCUA.

"The fallacy with a principles-based model, such as the one presently proposed, is that it uses inputs based on concepts rather than observable and measurable data inputs," wrote Emancipator. "Although a principles-based methodology is flexible and less burdensome for NCUA to administer, NAFCU believes that a formula- or rules-based methodology would lead to more accurate and true assessments of NCUA's delineation of time spent on between insurance and non-insurance related activities."

Emancipator said the proposed methodology would introduce subjectivity to the process. He also noted that when the NCUA asked for comments on its OTR methodology last year, the majority of commenters did not call for a wholesale rebuke of the current methodology.

He recommended that the NCUA convene a credit union advisory council and have it take up the OTR methodology as one if its first topics.

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