Newsroom
NAFCU shares concerns, recommendations on OTR methodology, fee structure with NCUA
NAFCU's Andrew Morris stressed the need for an accurate and equitable overhead transfer rate (OTR) methodology and offered recommendations on the NCUA's proposed clarifications related to how the methodology is applied to apportion operating fees charged to federal credit unions (FCUs) in a letter to the agency following a request for comment (RFC) issued at the NCUA Board's July meeting.
The NCUA finalized and adopted revisions to its OTR methodology, which focuses on assigning a percentage share of the agency’s work to insurance costs in four categories of activities, in 2017. This adoption marked a departure from the well-established Examination Time Survey (ETS), which was a metrics-based approach driven by assessments of individual regulations and other measures.
NAFCU previously expressed concerns about eliminating a data-oriented assessment of insurance-related activities under the ETS in 2017, suggesting it would be “harder to track how much time examiners actually spend on insurance-related activities.”
"An appropriately tailored OTR helps allocate supervisory costs within our industry’s dual charter system, but prudent management of the NCUA budget remains the best avenue to reduce costs to credit unions," wrote Morris, NAFCU’s senior counsel for research and policy. "NAFCU continues to urge prioritization of an accurate and equitable OTR methodology, but we also recommend that the agency continue to explore opportunities to reduce expenses.
"While the NCUA is not currently proposing to modify the current OTR methodology, NAFCU recognizes that there will always be a diverse range of stakeholder perspectives on how the formula should be tailored,” added Morris.
Morris urged the NCUA to operate in a fiscally prudent manner to reduce waste and ensure FCUs’ operating fees are not excessive. He suggested the agency revisit its 2021 budget draft, which proposed a 3.8 percent increase over the 2020 budget, given the operational stress created by the coronavirus pandemic, the agency should consider the difficulties FCUs are facing and their ability to pay operating fees.
On the operating fee schedule and methodology, Morris offered several recommendations, including:
- considering how the effect of excess share growth resulting from the pandemic might distort proposed changes in the calibration of asset tiers, as part of the current three-tier operating fee schedule;
- ensuring that reallocation of revenue associated with any recalibration of the operating fee exemption threshold is offset with proportional reductions in the agency’s budget to the maximum extent practicable; and
- making adjustments to the rate tier thresholds through a calculation of total assets based on the four most recently reported quarters.
For more information, NAFCU sent members a Regulatory Alert to highlight the RFC and offer detailed background information on the OTR and operating fee.
The association will continue to work with the agency to ensure a fair, common-sense OTR methodology.