ARLINGTON, Va. – The release by NCUA of a 2011 report by PriceWaterhouseCoopers LLC (PWC) that recommends the agency that “possibly” solicit feedback from stakeholders about how it classifies its “insurance related” and operational activities for the purposes of determining the overhead transfer rate (OTR), gives weight to the need for formal “notice and comment,” according to the National Association of State Credit Union Supervisors (NASCUS).
An unedited version of the 2011 report was made public by NCUA Friday.
According to recommendations of the PWC’s report, titled “Overhead Transfer Rate Review,” NCUA should “consider providing more visibility on how it characterizes its activities to the different industry groups and credit unions. “And,” the report notes, “possibly solicit their feedback with regards to the reasonableness and accuracy of the classifications.”
“Classifications” refers to whether the agency characterizes expenses charged to the National Credit Union Share Insurance Fund as either “insurance related” or “regulatory” in nature.
“NCUA should also consider steps aimed at making the methodology (or determining the OTR) itself more transparent, along with all of the assumptions and steps that are utilized,” the report added. “Possible ways of achieving this include more frequent interactions with the stakeholders through different channels (e.g., meeting, publications, etc.).”
NASCUS President and CEO Lucy Ito said the unredacted version of the PWC report – which, up until Friday, was not publicly available – adds considerable weight to NASCUS’ call for public notice and comment on the OTR.
“More than four years ago, PWC in its report noted that there was ‘dissatisfaction within the industry with respect to NCUA’s efforts to communicate and explain the OTR Methodology in adequate detail,’” Ito said, quoting from the report. “However, the recommendation in the report that NCUA ‘possibly seek feedback’ was not included in any materials made public by the agency until last week. Had the agency followed up on that recommendation, NCUA should have been receiving by now formal feedback on the OTR, which is what our legal analysis finds is required by the agency. It is unfortunate it has taken so long for this view to be revealed by NCUA – and even more unfortunate that the agency has chosen to ignore the recommendation from the report that NCUA itself commissioned.”
In June, NASCUS released a legal analysis which detailed that the OTR is a rulemaking for the purposes of the Administrative Procedure Act (APA). In short, that means the OTR must be subject -- immediately -- to notice in the Federal Register and public comment whenever the agency board takes action on the OTR.
In a timeline on the OTR released by the agency Monday, NCUA stated that, in May 2011, it “reached out to industry groups” for input on expense classifications. “Based on industry feedback and additional staff researched, updated definitions were implemented and made public in 2013,” NCUA wrote.
NASCUS noted that the timeline states that during testimony last week, NCUA Board Chairman Debbie Matz stated that the agency “will solicit comments on the overhead transfer rate methodology every three years in conjunction with the public review of the agency’s strategic plan.”
NASCUS’ Ito, however, reiterated that these approaches are inadequate, and that formal notice and comment is the way to properly deal with the OTR. “State regulators and state-chartered credit unions deserve to know what the elements of the OTR are when developed by NCUA, and have the opportunity to comment on it,” she said.
In other comments, Ito noted that the 2011 PWC report recommended that NCUA “check if the OTR decisions are subject to the Administrative Procedure Act and if formal notice or comments are required of on its OTR calculation process and results.”
“According to the NCUA timeline released Monday, the ‘agency’s General Counsel had already opined in 2001 on this matter,’” Ito said. “Our members would like to review that 14-year-old opinion, so that they may evaluate the merits of the differing legal conclusions between the NCUA’s general counsel, and our outside legal analysis. We urge NCUA to release the opinion as soon as possible.”