March 03, 2023

Updates from 5 agencies to know this week

Govt building columnsNAFCU'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.

Treasury tackles CBDC, funding for CDFIs, MDIs

Treasury Undersecretary for Domestic Finance Nellie Liang announced an interagency working group between Treasury, the Federal Reserve, and various White House economic teams to explore the possibility of a central bank digital currency (CBDC) and other payments innovations.

Liang noted that while policy considerations are ongoing, agencies are moving forward with technological development of a CBDC so it could be rapidly deployed if it is determined to be in the nation’s best interest. Other countries, including Russia and China, have recently announced their own versions of a CBDC.

In addition, Liang argued a retail CBDC would support competition and innovation within the payments system, financial inclusion, and help preserve the singleness of the currency. The CBDC Working Group is considering potential trade-offs, including issues related to limits on transactions, privacy, and illicit finance goals, that could make it less useful to end-users.

NAFCU is opposed to the creation of a CBDC, arguing that the costs outweigh the benefits and that credit unions represent a superior and safer alternative for advancing financial inclusion goals and promoting affordable access to payments. The association has shared its concerns with the FedTreasuryCommerce Department, and Congress. Legislation to prohibit the Fed’s issuance of a CBDC was introduced in the House last week.

In other Treasury news, the department recently approved more than $692 million in support of small businesses in seven states and two U.S. territories. The funds were authorized through the State Small Business Credit Initiative, which provides access to capital to small businesses and entrepreneurs in underserved communities. Credit unions, especially those designated as Community Development Financial Institutions (CDFIs) and minority depository institutions (MDIs), can work with the states’ economic development entity to provide the funds. NAFCU had advocated for CDFI and MDI credit union participation in these programs.

NCUA announces 2023 DEI Summit, interest rate ceiling extension

The NCUA Thursday announced its 2023 Diversity, Equity, and Inclusion (DEI) Summit will take place Nov. 1-2 in the Washington, D.C., area. During the annual summit, the agency brings together credit union industry leaders to discuss best DEI and financial inclusion practices, explore solutions to industry-specific challenges, and collaborate. Results from the previous year’s Credit Union Diversity Self-Assessment are also typically released during the summit.

The agency also sent a Letter to Credit Unions earlier this week on the permissible loan interest rate ceiling extension. The NCUA Board, during its January meeting, approved maintaining the current temporary 18 percent interest rate ceiling for loans made by federal credit unions (FCUs) for a new 18-month period. NAFCU continues to advocate for additional interest rate ceiling flexibility; the agency said it is reviewing a floating interest rate ceiling option and plans to discuss its analysis at its April board meeting.

FHFA updates on rulemakings, Fannie’s Selling Guide

The Federal Housing Finance Agency (FHFA) announced several updates related to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac:

  • Proposed rulemaking to modify certain provisions of the GSEs’ regulatory capital framework: In February 2022, the agency published a final rule to amend the Enterprise Regulatory Capital Framework (ERCF) by refining the prescribed leverage buffer amount (PLBA) and risk-based capital treatment of retained credit risk transfer (CRT) securitization framework for the GSEs. A new proposed rule includes modifications of certain provisions related to guarantees on commingled securities, multifamily mortgage exposures secured by properties with government subsidies, derivatives and cleared transactions, and credit scores. These proposed amendments would clarify certain aspects of the ERCF and help to further align it with the risks faced by the GSEs. NAFCU was supportive of the ERCF and will review these proposed modifications and provide comment to the FHFA.
  • Fannie Mae updates Selling Guide: The updated Selling Guide provides credit unions and other institutions selling to the enterprise more options for property valuations than just traditional appraisals, including value acceptance (formerly appraisal waivers), value acceptance plus property data, and hybrid appraisals. For the new value acceptance plus property data option, third parties are authorized to collect data at the property site as long as lenders verify they have a background check, have been “professionally trained” and are competent to do that collection. This data can only be submitted through the Property Data API. Fannie Mae’s Desktop Underwriter will be updated April 15 to support these alternatives. NAFCU has recommended additional ways to modernize appraisals to expand access and streamline the process.
  • Effective date for rule on new GSE activities, products delayed: After finalizing its rule requiring the GSEs to obtain prior approval before offering new products to the market or engaging in new activities in December, the agency has delayed the effective date of the rule until April 28.
CFPB flags issues with delivery of public benefits

The CFPB released a new issue spotlight outlining how issues with financial products used to deliver public benefits, like Social Security and unemployment compensation, can limit individuals’ ability to fully access assistance provided through those programs.

The report flagged the use of prepaid cards to deliver benefits may subject consumers to high fees and reduce the amount of funds received. It also highlighted that fees can vary across states and lead to significant variation in program structure and delivery. Further complicating issues are inadequate customer service, including in instances of fraud, and lack of choice for how the consumer receives their benefits.

In addition, the CFPB’s analysis showed only six banks contract with states for unemployment government-administered prepaid cards. While four companies were under contract to provide EBT cards to states in 2022, just two companies held more than 95% of the EBT contracts. NAFCU will continue to advocate for a regulatory framework that allows credit union prepaid issuers to provide affordable products and high-quality customer service.

Fed Govs. Waller, Jefferson discuss inflation

Federal Reserve Govs. Christopher Waller and Phillip Jefferson gave speeches this week focused on inflation and its impact on the economy. In Waller’s speech to the Mid-Size Bank Coalition of America Thursday, he said economic data released over the past month – on the labor market, consumer prices, and retail sales – “challenged [his] view…that the Federal Open Market Committee (FOMC) was making significant progress in moderating economic activity and reducing inflation.”

“I would be very pleased if the data we receive on inflation and the labor market this month show signs of moderation, which would suggest that the February data releases were just a bump in the road and that progress is continuing,” Waller said. “But wishful thinking is not a substitute for hard evidence, in the form of economic data. After seeing promising signs of progress, we cannot risk a revival of inflation. Policymakers must remain data dependent, so my view will depend on what the data say.”

Jefferson, giving a lecture at Harvard University, outlined ways of measuring inflation, recent inflation data, and how the Fed is managing inflation to achieve its dual-mandate goals of price stability and maximum employment. He argued that changing the Fed’s 2 percent inflation target “would damage the central bank’s credibility” and reiterated his commitment to getting inflation back to its 2 percent target.