# Request for Comment Regarding Overhead Transfer Rate Methodology > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2016-01626 ## Record - **Collection:** Federal Register - **Document type:** Notice - **Published:** January 27, 2016 - **Citation:** 81 FR 4804 ## Text NATIONAL CREDIT UNION ADMINISTRATION Request for Comment Regarding Overhead Transfer Rate Methodology AGENCY: National Credit Union Administration (NCUA). ACTION: Request for comment. SUMMARY: The NCUA Operating Budget has two primary funding mechanisms: (1) An Overhead Transfer, which is funded by federal credit unions (FCUs) and federally insured state-chartered credit unions (FISCUs); and (2) annual Operating Fees, which are charged only to FCUs. In a voluntary effort to invite input from stakeholders representing federal and state-chartered credit unions, the NCUA Board (Board) is simultaneously requesting comments on the methodologies for both funding mechanisms in separate notices in the Federal Register. This request for comments focuses on the methodology NCUA uses to determine the Overhead Transfer Rate (OTR). To facilitate comments, the Board is also assembling and describing its existing OTR methodologies and processes, which are also available on NCUA's Web site. The Board applies the OTR to NCUA's Operating Budget to determine the portion of the budget that will be funded from the National Credit Union Share Insurance Fund (NCUSIF). The Board invites comments on all aspects of the OTR methodology and any alternatives commenters may offer. Areas the Board specifically seeks comments on include: • Whether the OTR should continue to be determined using a formula-driven approach, or instead be set largely at the discretion of the Board; • The definition NCUA uses for insurance-related activities; • Adjustments or changes to the current calculation; and • Alternate methodologies to arrive at an accurate and fair allocation of costs. To be most instructive to the Board, commenters are encouraged to provide the specific basis for their comments and recommendations, as well as documentation to support their proposed adjustments or alternatives. DATES: Comments must be received on or before April 26, 2016 to be assured of consideration. ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only): • NCUA Web Site: https://www.ncua.gov/about/pages/board-comments.aspx. Follow the instructions for submitting comments. • Email: Address to boardcomments@ncua.gov. Include “[Your name]—Comments on OTR Methodology” in the email subject line. • Fax: (703) 518-6319. Include your name and the following subject line: “Comments on OTR Methodology.” • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. • Hand Delivery/Courier: Same as mail address. Public Inspection: You can view all public comments on NCUA's Web site at https://www.ncua.gov/about/pages/board-comments.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments at NCUA's headquarters at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518-6360 or send an e-mail to EIMail@ncua.gov. FOR FURTHER INFORMATION CONTACT: Russell Moore, Loss/Risk Analysis Officer, Office of Examination and Insurance, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-6383. Authority: 12 U.S.C. 1783(a); 1766(j)(3). SUPPLEMENTARY INFORMATION: NCUA charters, regulates and insures deposits in federal credit unions (FCUs) and insures deposits in state-chartered credit unions that have their shares insured through the NCUSIF. To cover expenses related to its statutory mission, the Board adopts an Operating Budget in the fall of each year. The Federal Credit Union Act (FCU Act) authorizes two primary sources to fund the Operating Budget: (1) Requisitions from the NCUSIF “for such administrative and other expenses incurred in carrying out the purposes of [Title II of the FCU Act] as [the Board] may determine to be proper”; 1 and (2) “fees and assessments (including income earned on insurance deposits) levied on insured credit unions under [the FCU Act].” 2 Among the fees levied under the FCU Act are annual Operating Fees, which are required for FCUs under 12 U.S.C. 1755 “and may be expended by the Board to defray the expenses incurred in carrying out the provisions of [the FCU Act,] including the examination and supervision of [FCUs].” Taken together, these dual funding authorities effectively require the Board to determine which expenses are appropriately paid from each source, though these two provisions give the Board broad discretion in this. 1 12 U.S.C. 1783(a). 2 12 U.S.C. 1766(j)(3). Other sources of income for the Operating Budget include interest income, funds from publication sales, parking fee income, and rental income. To determine an appropriate division of expenses between these two funding sources, the Board uses the OTR methodology described in this publication. This version of the OTR methodology was first adopted by the Board in 2003 and refined in 2013. The OTR represents the allocation formula the Board uses to determine which expenses are properly characterized as insurance related and charged to the NCUSIF under Title II, rather than collected through annual Operating Fees. 3 Only two statutory provisions limit the Board's discretion with respect to NCUSIF requisitions for NCUA's Operating Budget and, hence, the OTR. First, expenses funded from the NCUSIF must carry out the purposes of Title II of the FCU Act, which relate to share insurance. 4 Second, NCUA must fund at least some part of its Operating Budget through fees charged pursuant to 12 U.S.C. 1766(j)(3). 5 NCUA has not imposed any additional policy or regulatory limitations on its discretion for determining the OTR. 3 Annual Operating Fees must “be determined according to a schedule, or schedules, or other method determined by the NCUA Board to be appropriate, which gives due consideration to the expenses of the [NCUA] in carrying out its responsibilities under the [FCU Act] and to the ability of [FCUs] to pay the fee.” 1755(b). The NCUA Board's methodology for determining the aggregate amount of Operating Fees is discussed in a separate Federal Register publication. 4 12 U.S.C. 1783(a). 5 Accord 12 U.S.C. 1755(a) (“In accordance with rules prescribed by the Board, each [FCU] shall pay to the [NCUA] an annual operating fee which may be composed of one or more charges identified as to the function or functions for which assessed.”). Third, while not a legal requirement, the current Board policy is to use a cost-accounting methodology that by design is both neutral and equitable with respect to credit union charter types. The methodology satisfies the two legal requirements identified above. First, the funds transferred from the NCUSIF must relate to NCUA's insurance functions. The Board notes the breadth of that category, and each expense funded from the OTR in accordance with the formula explained herein, reasonably relates to insurance for purposes of 12 U.S.C. 1783(a). NCUA's definition of “insurance related examination procedures” that fall under Title II includes “examination or supervision contact procedures [that] address safety and soundness issues.” Safety and soundness terminology is sprinkled throughout Title II of the FCU Act with respect to NCUA's insurance-related responsibilities. 6 As such, this definition is contained within the broad swath of 12 U.S.C. 1783(a), which simply requires that an expense be “incurred in carrying out the purposes of [Title II]” on share insurance to be eligible for OTR coverage. Similarly, “insurance regulatory related examination procedures” are defined in the OTR methodology as those that assess compliance with regulations that “address safety and soundness issues.” This secondary definition expressly excludes procedures that assess compliance with regulations “designed to protect consumers directly.” Therefore, this supplemental definition narrows, rather than expands, the procedures that the OTR methodology includes under Title II, since some consumer protection regulations may also be directed at safety and soundness. Further, neither the activities the OTR methodology identifies as examples of examination or supervision procedures that address safety and soundness, nor any of the NCUA-specific regulations classified as “insurance regulatory” related in the regulation mapping in Appendix A, fall outside of this definition. 6 See, e.g., 12 U.S.C. 1781(c)(2) (referencing “unsafe and unsound” financial condition and policies in connection with applications for insurance); 1782(a)(6)(b) (referencing the phrase “unsafe and unsound” in connection with a failure to obtain an outside, independent audit); 1786 (addressing “unsafe or unsound practices” or “safety and soundness” in connection with termination of insurance, orders to cease and desist, prohibition and removal orders, civil money penalties, and delay in publication of final orders); 1787(b)(2)(D) (authorizing the Board to take actions as conservator to put an insured credit union “in a sound and solvent condition”); 1790d(h)(1) (referencing “safety and soundness” in relation to prompt corrective action and reclassification of a credit union's net worth category). Second, at least some part of the Operating Budget comes from fees charged to insured credit unions under 12 U.S.C. 1755. The imposition of the annual Operating Fees on FCUs and their use to pay expenses in the Operating Budget is sufficient evidence of the proper exercise of the Board's discretion under these two limitations. Within these broad statutory bounds, the Board is seeking additional public input on its OTR methodology through Federal Register processes. Since its inception, NCUA has taken the position that the OTR is not a legislative rule under the Administrative Procedure Act (APA) and is, therefore, exempt from notice and comment rulemaking processes. 7 As such, NCUA has never used notice and comment rulemaking to establish either an individual determination of the OTR or the general methodology used to calculate the OTR. However, the OTR has been explained, discussed, and reviewed in various public records, including in annual Board Action Memorandums related to budget matters, independent evaluations, and other documents available in public records and on NCUA's Web site. 8 Beyond its APA obligations, the Board has chosen to solicit public comments on the OTR processes and methodologies through this Federal Register publication. 7 NCUA's legal analysis with respect to the OTR and APA process is available at the following Web page: https://www.ncua.gov/Legal/Documents/Opinion/OL2015-0818.pdf. Note that even where not subject to notice and comment procedures, the APA provides that “[a]gency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review.” 5 U.S.C. 704. The scope of such a review is set forth in 5 U.S.C. 706. 8 Materials related to the OTR can be found at the following NCUA Web page: https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx. Table of Contents I. Overview II. Context For OTR III. History IV. Detailed Discussion of OTR Methodology a. Examination Time Survey b. Workload Budget c. Financial Budget d. Calculation of Insurance and Non-Insurance Costs e. Allocation of Insurance and Non-Insurance Costs f. Calculating the OTR g. State Supervisory Authority (SSA) Imputed Value V. Request for Comment VI. Appendix A—Mapping of Regulations VII. Appendix B—Examination Time Survey Instructions I. Overview NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise FCUs. With the backing of the full faith and credit of the United States, NCUA also operates and manages the NCUSIF. Congress enacted Title II of the FCU Act on October 19, 1970. 9 Title II established the NCUSIF, requiring all federal credit unions to immediately apply for insurance and permitting the Board to insure accounts in state-chartered credit unions. After enactment of Title II, the Board established an allocation formula, the Overhead Transfer Rate, to determine the amount of the Operating Budget that it would requisition from the NCUSIF for insurance-related expenses. Over time, the Board has refined the OTR process to ensure the equitable allocation of costs between NCUA's dual roles of insurer (insurance related activities) and regulator that charters federal credit unions (non-insurance related activities). 9 Section 1783(a) of the FCU Act created the NCUSIF and authorized the NCUA Board to use the fund to pay for “such administrative and other expenses incurred in carrying out the purposes of [Title II] as it may determine to be proper”. NCUA's current methodology, in place since 2003 and refined in 2013, determines the OTR using the results of an examiner time survey (ETS). The ETS captures the time NCUA spends examining and supervising FCUs, carrying out its dual mission as insurer of federally insured credit unions (FICUs), and the chartering authority for federal credit unions. The OTR methodology also factors in the following: • The value to the NCUSIF of the insurance-related work performed by state supervisory authorities (SSAs). • The cost of NCUA resources and programs with different allocation factors from the examination and supervision program. • The distribution of insured shares between FCUs and federally insured state-chartered credit unions (FISCUs). • Operational costs charged directly to the NCUSIF. The goal of the methodology is to create a comprehensive and equitable calculation and allocation of costs to set the OTR annually within a framework that can be administered at minimal cost. II. Context for the OTR There is a distinct overlap between the historical role of a regulator, concerned with enforcing laws and implementing public policy, and that of an insurer. Though not motivated by the associated financial liability that comes with the role of insurer, regulators address threats to the viability of their financial institutions to protect consumers and their jurisdiction's economy. This focus on viability benefits the insurer. The primary roles of an insurer are to protect depositors and the taxpayer, and contribute to the stability of the financial system. Before the advent of federal deposit insurance, federal financial institution regulators were concerned with protecting the stability of the financial system by “regulating” it. Thus, financial institution examinations focused on ensuring (1) statutes and regulations were followed to protect consumers, and (2) institutions were viable to protect consumer deposits, preserve access to financial services, and safeguard the stability of the economy. 10 10 The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks. On its Web site, the OCC lists its mission as ensuring that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. Similarly, the Board of Governors of the Federal Reserve System has supervisory and regulatory authority over a wide range of financial institutions, including state-chartered banks that are members of the Federal Reserve System, bank holding companies, thrift holding companies and foreign banking organizations that have a branch, agency, a commercial lending company subsidiary or a bank subsidiary in the United States. On its Web site, The Federal Reserve states its mission is to provide the nation with a safer, more flexible, and more stable monetary and financial system. One of its four stated general duties is supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers. On its Web site, the Federal Deposit Insurance Corporation states its mission is to maintain stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection, making large and complex financial institutions resolvable, and managing receiverships. NCUA has a unique dual role in that it serves as both the regulator of FCUs and the insurer of FCUs and FISCUs. Given this dual role, it is appropriate to allocate examination and supervision costs between the NCUSIF and Operating Fees charged to FCUs. The policy rationale for this allocation is supported by various provisions of the FCU Act. In Title II of the FCU Act, Congress established the NCUSIF and housed it within NCUA for administration by the NCUA Board. 11 Congress envisioned efficiencies from this arrangement, as well as NCUA's partnership with state regulators. Evidence of this intent to streamline can be found in 12 U.S.C. 1782(a)(5), which requires reports FCUs must file under Title I of the FCU Act to be prepared so “that they can be used for share insurance purposes.” Similarly, this provision requires NCUA to use the reports filed by FISCUs with their state regulators “for share insurance purposes . . . [t]o the maximum extent feasible. . . .” 12 11 12 U.S.C. 1783. 12 12 U.S.C. 1782(a)(5). Congress also recognized that, in addition to losses related to credit union failures, the NCUSIF would incur expenses related to its administration, including examination staff and other employees. Title II empowers the NCUA Board to determine the proper allocation of “administrative and other expenses incurred” under Title II that may be funded by direct requisitions from the NCUSIF. 13 Title II further subjects the resources expended for “insurance purposes” to the Board's discretion by empowering the Board to “appoint examiners who shall have power, on its behalf, to examine any insured credit union, any credit union making application for insurance of its member accounts, or any closed insured credit union whenever in the judgment of the Board an examination is necessary to determine the condition of any such credit union. . . .” 14 Title I confirms this design by requiring that salaries and expenses of the Board and NCUA employees “be paid from fees and assessments (including income earned on insurance deposits) levied on insured credit unions under [the FCU Act].” 15 In addition to assessments charged to all insured credit unions simply by nature of their NCUSIF insurance, Title I requires an annual Operating Fee charged to FCUs in recognition of the additional duties required of NCUA under Title I with respect to FCUs. 16 13 12 U.S.C. 1783(a). 14 12 U.S.C. 1784(a) (emphasis added).); see also 1789(a)(7). 15 § 1766(j)(3) (emphasis added). 16 § 1755. NCUA also has the authority to promulgate rules and regulations to carry out the provisions of Title II. 17 Accordingly, the NCUA Board has approved rules and regulations that specifically address safety and soundness and protect the NCUSIF. 18 17 § 1789(a) 18 NCUA staff have mapped all examination related rules and regulations to one of two categories: insurance regulatory related, or non-insurance and consumer regulatory related. This regulatory mapping provides the key basis for determining how examination time is measured for purposes of the budgetary Overhead Transfer Rate. Under the discretion vested in it under the FCU Act, the NCUA Board's primary motivation for the agency's regulations and examination program has been managing risk to the NCUSIF posed by all insured credit unions, whether state chartered or federal. The Board notes that NCUA's role as insurer is best fulfilled by a proactive approach to preventing losses, in addition to paying the post-failure obligations that NCUSIF insurance coverage requires. Since the implementation of federal share insurance in 1970, the NCUA Board has instituted a much more proactive examination and supervision program geared toward safety and soundness, which focuses on insurance related issues. In 2002, the NCUA Board strengthened its commitment to fulfilling NCUA's role as insurer by implementing the Risk-Focused Examination Program. This program bases examination scope and timing to a large extent on the risks an institution poses to the NCUSIF. The OTR's portion of NCUA's Operating Budget, including its changes over time, reflects the Board's fulfillment of its insurance responsibilities under the FCU Act under evolving economic and legislative circumstances. III. History The NCUSIF was established in 1970 through an amendment to the FCU Act. Section 203(a) of the FCU Act, 12 U.S.C. 1783(a), created the NCUSIF and authorized the Board to use it to pay for “such administrative and other expenses incurred in carrying out the purposes of [the FCU Act] as it may determine to be proper.” In 1972, a Government Accountability Office (GAO) audit 19 recommended NCUA adopt a method of allocating costs between NCUA and the newly formed NCUSIF. Between 1973 and 1980, various cost allocation methods were employed, including direct charges to the NCUSIF for insurance expenses, including costs to close institutions, liquidation and merger costs, and, examiner time spent supervising—as opposed to examining—institutions. Starting in 1981, the OTR ranged between 30 and 34 percent, and stayed in that range through 1984. 19 http://www.gao.gov/assets/210/203181.pdf. From 1985 through 1994, NCUA's Office of Examination and Insurance (E&I) coordinated an annual ETS to determine an appropriate factor for apportioning the agency's total operating expenses. Examiners completed 1,000 to 1,200 survey forms each year. The survey results supported a transfer rate between 50.1 percent and 60.4 percent for insurance related activities; however, the NCUA Board maintained the OTR at 50 percent. In 1994, and again in 1997, the NCUA Board approved conducting examiner time surveys once every three years. Three-year surveys covered fiscal years 1995 through 1997 and fiscal years 1998 through 2000. During that period, the OTR remained at 50 percent through 2000. The NCUA Board then voted to resume annual examiner time surveys in 2000 and expanded the survey to include more examiners, as well as central and regional office staff. The fiscal year 2000 survey results supported a transfer rate of 66.72 percent. After 15 years of holding the transfer rate at 50 percent, the NCUA Board increased the transfer rate to 66.72 percent for fiscal year 2001. The Board also decided to hire an independent party to assess the OTR process. Deloitte & Touche's review of the OTR process was issued on September 5, 2001 and included several recommendations to improve the OTR process. 20 These recommendations were implemented in 2002. 20 The full independent report from Deloitte is available on NCUA's Web site: https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2001DeloitteReportonOTRProcess.pdf. In 2002, as a result of the Deloitte & Touche review, NCUA automated the examiner time survey 21 and enhanced examiner training and guidance. The agency also initiated a task force to conduct a comprehensive review of the OTR, in part to better define insurance-related activities. In October 2003, GAO issued report GAO-04-91 22 recommending continuous improvement of the process for and documentation of the OTR, updating the rate annually, and completing the examiner time surveys with full representation. Noting the task force review, NCUA agreed to set the rate annually, improve the methodology and documentation, and ensure examiner time survey sampling was statistically valid. 21 The examiner time survey process is discussed in detail later in this document. 22 http://www.gao.gov/new.items/d0491.pdf. The agency task force completed its review of the OTR in 2003 and recommended a revised, comprehensive methodology for calculating the OTR annually. 23 The NCUA Board received comments from credit union trade groups 24 on the proposed revised methodology and ultimately approved adoption of the revised methodology and an OTR of 59.8 percent for fiscal year 2004 at the November 20, 2003, open Board meeting. 25 23 The pre-decisional staff proposal is available on NCUA's Web site: https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/Additional%20Documents/2003%20Task%20Force%20Proposal.pdf. 24 A summary of the comments received is available on NCUA's Web site: https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/Additional%20Documents/2003%20Summary%20of%20Pre-Adoption%20OTR%20Stakeholder%20Meeting%20Comments.pdf. 25 https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2003OTRBAM.pdf. Using the revised methodology approved in 2003, the OTR approved annually by the NCUA Board ranged between 52.0 percent and 57.2 percent for fiscal years 2005 through 2010. The NCUA Board approved funding for an independent review of the OTR at the November 2009 open Board meeting. PricewaterhouseCoopers issued its first of two reports to NCUA in January 2011. 26 Based on the 2011 PricewaterhouseCoopers report, the definitions used in the examiner time survey were clarified over the next two ETS cycles. 26 https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2011PwCOTRReview.pdf. The 2010-2011 ETS cycle defined insurance-related and non-insurance related activities as follows: 27 27 As described in the ETS section, the ETS cycle runs from June 1, Year 1 to May 31, Year 2. The PricewaterhouseCoopers report was issued mid-cycle, January 2011. Insurance Related Examination Procedures —Insurance Related examination or supervision contact procedures address safety and soundness issues. On the time survey forms, respondents should classify the time used to evaluate safety and soundness as “insurance related.” “Insurance Related” time is • Evaluating financial trends and Call Report data • Determining the credit union's solvency position • Evaluating risks, and potential costs, the credit union presents to the NCUSIF (when appropriate) • Assessing management's efforts to protect earnings and net worth by identifying, evaluating, controlling, and monitoring internal and external risks • Assessing management's abilities to develop strong policies and a reliable internal control structure Non-Insurance Related Examination Procedures —Non-Insurance Related examination or supervision contact procedures address compliance with the laws and regulations that NCUA enforces. On the survey forms, respondents should classify the time used to evaluate issues not related to safety and soundness • Compliance with consumer protection laws, NCUA Rules and Regulations, the FCU Act, and Bylaws • Review of previously cited regulatory violations, areas of concern, and corrective actions taken • Call report accuracy and timeliness After the issuance of the PricewaterhouseCoopers report in January 2011, NCUA improved the ETS Instruction definitions for insurance and non-insurance related activities for the 2011-2012 ETS cycle. Specifically, new categories were established to help examiners distinguish between regulations established to protect the NCUSIF, labeled “insurance regulatory”, from regulations established to provide consumer protection or otherwise govern how federal credit unions operate, labeled “consumer regulatory.” This resulted in a more accurate assessment of insurance related activities (including insurance-regulatory) and consumer regulatory or non-insurance related activities. NCUA solicited comments from representatives of key stakeholders on the proposed changes to the definitions of the agency's activities as they related to the OTR methodology. 28 The 2011-2012 ETS Instructions contained the following definitions: 28 This included the Credit Union National Association, the National Association of Federal Credit Unions, the National Association of State Credit Union Supervisors, and the National Federation of Community Development Credit Unions. Insurance Related Examination Procedures —No change from 2010-2011 ETS Instruction definition stated above. Insurance Regulatory Related Examination Procedures —Insurance Regulatory related examination or supervision contact procedures address regulations that are not designed to protect consumers directly. This includes assessing compliance with all regulations outside of consumer oriented regulations—see listing of consumer regulations in the following section—Consumer Regulatory examination procedures. Insurance Regulatory related regulations include those regulations that address safety and soundness issues. Examples include (this is not all inclusive): • 701.21—Loans to Members and Lines of Credit to Members ○ Includes total loan limit to one individual, limitation on maturity, rate of interest, and security. • 702—Prompt Corrective Action ○ Establishes net worth categories and mandatory and discretionary supervisory actions • 703—Investments and Deposit Activities ○ Establishes permissible investments and requires credit analysis prior to purchase and requires ongoing monitoring of securities • 712—Credit Union Service Organizations ○ Establishes investment and loan limits as well as outlines permissible activities • 713—Fidelity Bond and Insurance Coverage ○ Requires minimum bond coverage • 715—Supervisory Committee Audits and Verifications • 722—Appraisals ○ Establishes minimum appraisal standards based on loan size • 723—Member Business Loans ○ Establishes prohibited activities, requires specific policies and sets overall loan limits as well as limits to one member or group of associated members Consumer Regulatory Related Examination Procedures —Consumer Regulatory Related examination or supervision contact procedures address compliance with consumer regulations. The regulations include: • Reg. B—Equal Credit Opportunity Act • BSA—Bank Secrecy Act • Reg. C—Home Mortgage Disclosure Act • Reg. CC—Expedited Funds Availability • COPPA—Children's Online Privacy Protection Act • Reg. D—Reserve Requirements • Reg. E—Electronic Funds Transfer Act • FACTA—Fair and Accurate Credit Transactions Act • FCPR—Fair Credit Practice Rule • FCRA—Fair Credit Reporting Act • FDCPA—Fair Debt Collections Practices Act • FDPA—Flood Disaster Protection Act • FHA—Fair Housing Act • GLBA—Gramm-Leach Bliley Act • HOEPA—Home Ownership and Equity Protection Act • HOPA—Home Owner's Protection Act • Reg. M—Consumer Leasing • OFAC—Office of Foreign Asset Control • PCFI—Privacy of Consumer Financial Information • RFPA—Right to Financial Privacy Act • SCRA—Service Members Civil Relief Act • Reg.—X Real Estate Settlement Procedures Act • Credit Card Act • Unlawful Internet Gaming Enforcement Act • SAFE Act—Secure and Fair Enforcement for Mortgage Licensing Act • Reg.—Z Truth in Lending • Rules and Regulations Part 706—Credit Practices • Rules and Regulations Part 707—Truth in Savings • Rules and Regulations Part 717—Fair Credit Reporting In 2012, the Office of Examination and Insurance (E&I) further clarified the application of the insurance-related and non-insurance related definitions in the ETS. Specifically, all relevant NCUA regulations were explicitly mapped to the survey classifications to provide more uniformity and consistency of reporting. This breakdown and mapping of regulations was consistent with the existing overall definitions of insurance-related and non-insurance related activities. The primary definitions did not change; the regulations were merely explicitly mapped based on the overarching definitions. This clarification resulted in more consistency by respondents on the ETS. Appendix A contains the mapping provided to ETS participants. In 2013, NCUA also obtained an independent review of the mapping of the regulations from PricewaterhouseCoopers. 29 The mapping of NCUA's regulations outlined in the PricewaterhouseCoopers October 2, 2013 report, is available on NCUA's Web site. 29 https://www.ncua.gov/About/Documents/Budget/2013/2013ETSAnalysis.pdf. Based on the validated mapping of NCUA regulations to guide examiners in completing the annual time survey, the average survey results for insurance related activities increased from 67 percent to 88 percent of examiner time. This resulted in an OTR for 2014 of 69.2 percent, which was approved at the November 2013 open NCUA Board meeting. The OTR rose to 71.8 percent for 2015 and to 73.1 percent for 2016. Figure 1 shows the trends in the OTR since 2004. 30 30 The dollar amount of the OTR in this graph is based on the NCUA Board approved budget, not actual expenditures. The OTR is applied to actual expenses incurred each month. EN27JA16.000 Since the creation of the NCUSIF in 1970, NCUA's allocation of funds between its dual roles has evolved to address changes in the credit union system and changes to NCUA operations. As credit unions have become larger and more complex, the potential risk to the NCUSIF has increased. As a result, NCUA's operations have adapted. This has resulted in an increased focus on insurance-related activities, and this focus remains in place today. The FCU Act and NCUA Rules and Regulations have also evolved in recent history, and as a result, the agency has placed more of a focus on safeguarding the NCUSIF. In particular: 1. The Credit Union Membership Access Act (CUMAA) was enacted into law in 1998. 31 This law resulted in new obligations on credit unions and NCUA designed to protect the NCUSIF, such as: 31 https://www.ncua.gov/Resources/Documents/LCU1998-16.pdf. a. Imposing new requirements on federally insured credit unions with respect to financial statements and audits, and member business loans. 32 32 CUMAA imposed a new aggregate limit on a credit union's outstanding member business loans of the lesser of 1.75 times the credit union's net worth or 12.25% of the credit union's total assets. b. Establishing a new system of tiered capital requirements for all federally insured credit unions. 33 33 A net worth standard of 7 percent of assets was established for insured credit unions, as well as risk-based capital standards for “complex” credit unions as defined by NCUA. For credit unions not meeting these standards, progressively more stringent “prompt corrective action” requirements apply. 2. During the aftermath of the financial crisis, from 2010 to 2015, the NCUA Board strengthened critical safety and soundness rules, such as: a. Codifying interest rate risk guidance into a rule ensuring that federally insured credit unions holding the vast majority of the credit union system's assets have appropriate policies to manage interest rate risk in adverse scenarios. b. Designing a targeted emergency liquidity rule ensuring that federally insured credit unions at various asset levels have scalable contingency plans to tap reliable sources of liquidity during a crisis. c. Establishing concentration limits and required due diligence on loan participations. 3. From 2011 through 2015, NCUA also modernized various regulations to provide credit unions with more flexibility and authority. 34 While these modernized rules reduced compliance burdens, they resulted in examiners devoting more time to ensuring safety and soundness through the examination process rather than relying on regulatory limits. For example, NCUA: 34 https://www.ncua.gov/newsroom/Pages/RegulatoryModernizationInitiativeResults.pdf. a. Expanded regulatory relief eligibility for small and non-complex credit unions. b. Eliminated the fixed assets cap for FCUs. c. Eased troubled debt restructuring rules. d. Authorized “plain-vanilla” derivatives for FCUs. Since 2001, various independent third-party assessments have also resulted in recommendations to improve and refine the OTR methodology, most of which NCUA has adopted. 35 NCUA is now seeking public comment on the current OTR methodology, as described throughout the remainder of this document, for possible additional improvement. 35 For a discussion of recommendations not adopted and the associated rationale, see the Overhead Transfer Rate (OTR)—Timeline on NCUA's website at https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/overhead-transfer-rate-chronology.pdf . IV. Detailed Discussion of OTR Methodology a. Examination Time Survey NCUA's mission is to foster the safety and soundness of federally insured credit unions, which is primarily achieved through its examination program. Consequently, the majority of NCUA's resources are dedicated to the examination and supervision of federally insured credit unions. Examiners expend time on both regulatory and insurance activities during examinations and supervision contacts at FCUs. Therefore, one of the key components needed to calculate the cost for NCUA's regulatory role and insurance roles is the annual ETS. The ETS applies only to FCU examination and supervision contacts, as examinations (insurance reviews) of FISCUs have by definition the sole purpose of managing risk to the NCUSIF. The Board invites comment on the existing ETS process. Since its inception in 1985, the ETS evolved from a manually completed form to the automated system used now. From 1985 to 1994, NCUA collected 1,000 to 1,200 manually completed survey forms annually. Survey forms were completed by participants for each FCU examination (work classification code [WCC] 10) and each FCU supervision contact (WCC 22). Since survey results were consistent, NCUA reduced the sample size considerably and instead of annual collection, moved to a 3-year cycle. In 1994, 1997, and 2000, the sample size ranged from 60 to 100 survey forms. There were no surveys completed in 2001. In 2001 Deloitte & Touche completed a study of the ETS process and concluded it was reasonable and appropriate for use in allocating NCUA's costs between insurance-related and regulatory-related activities. 36 The study included some recommendations to enhance the survey process, such as automating the survey form, improving communications, and varying the period of collection, but did not recommend any changes to the survey's content. NCUA implemented those recommendations. 36 The Deloitte & Touche Study is available on NCUA's public website. https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2001DeloitteReportonOTRProcess.pdf. In 2002, E&I randomly selected one Supervisory Examiner (SE) group (via lottery draw) from each region to participate in the survey process. The regions selected three experienced Principal Examiners (PEs) from these SE groups to complete surveys for all FCU examination and supervision contacts initiated and completed during the ETS period. Since 2002, the participating SE groups in each region have rotated annually. The annual rotation ensures representative coverage of the population of FCUs across each region while minimizing the burden on field staff. From 1985 through 2000, examiners completed time surveys during a set period, often occurring near the end of the exam program year. Starting in 2002, examiners completed surveys for all examination and supervision contacts they conducted during a 12-month period that starts on June 1, and ends on May 31, of the following year. Utilizing groups from all of NCUA's regions and collecting the data throughout a 12-month period provides a variety of FCUs, completion dates, and geographic locations resulting in a sample that better represents the entire population. Prior to introducing the automated form, NCUA did not provide formal training to survey participants. Beginning in 2002, E&I held a training session and a subsequent teleconference for the selected participants, their supervisors, and a regional office analyst from each region. E&I also dedicated an email address for examiners to use to request help with the survey. In addition, E&I created a shared electronic database to store information such as answers to Frequently Asked Questions (FAQs), summary reports, and training information. Since 2002, communications regarding the survey process have improved, which helps to ensure consistent application and reliable results. E&I provides training prior to the start of every ETS cycle; including: • A discussion of the objectives of the ETS and its importance in determining the OTR, • how to access and complete the ETS form, • how to classify examination and supervision activities, • how to correct data if necessary, • a review of tools for reporting hours, • expectations of the ETS participants, and • resources available to the participants. The instructions provided to the ETS participants are included in Appendix B. As previously discussed, the NCUA Board approved funding for an independent review of the OTR at the November 2009 open Board meeting. PricewaterhouseCoopers' January 2011 report resulted in several changes to the ETS. 37 The definitions used in the ETS were modified to more clearly define the work of NCUA's examination staff. Specifically, all relevant NCUA regulations were explicitly mapped to the survey classifications to provide more uniformity and consistency of reporting. The report also recommended that NCUA use sample sizes that are consistent with the calculated sample sizes for the two main types of activities (i.e. programs) under survey, and specifically, that NCUA consider increasing the sample sizes for the federal supervision program. To improve the confidence interval, E&I chose one additional SE group per region to increase the number of supervision surveys. As the report concluded the examination survey size met the desired confidence level, the additional SE group was instructed to upload only the supervision contacts the PEs completed during the ETS period. This reduced the overall burden of completing the surveys for additional examinations. 37 https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2011PwCOTRReview.pdf . At the end of each ETS period, NCUA monitors the results of the time study to ensure the sample size is statistically valid. Using the ETS examination upload report, NCUA calculates the mean and standard deviation for percentage of consumer regulatory hours of the WCC 10 examination uploads. For the most recent ETS period, there were 142 WCC 10 examination uploads with a total of 2,621.6 consumer regulatory hours. The mean was calculated to be 13.37 percent and the standard deviation was 9.09 percent. A statistically valid sample size is calculated for 99 percent, 95 percent, and 90 percent confidence intervals using these statistics, the corresponding Z factor from a standard normal distribution table, and a 3 percent margin of error. Table 1 illustrates the calculations for the most recent ETS period. NCUA's sample size of 142 exceeds the 60.92 necessary to achieve a 99 percent confidence interval. Table 1—Sample Size C Confidence interval P = (100%-C)/2 Confidence factor X Mean S Standard deviation Z From standard normal tables E Margin of error N = ((Z*S)/e) 2 Sample size 99% 0.005 13.37 9.09 2.576 3.00 60.92 95% 0.025 13.37 9.09 1.960 3.00 35.27 90% 0.050 13.37 9.09 1.645 3.00 24.84 NCUA also performs these calculations for the sample size for WCC 22 supervision contact uploads. Using the ETS WCC 22 upload report, NCUA calculates the mean and standard deviation for percentage of consumer regulatory hours of the WCC 22 supervision contact uploads. For the most recent ETS period, there were 100 WCC 22 uploads with a total of 350.4 consumer regulatory hours. The mean was calculated to be 16.9 percent and the standard deviation was 30.9 percent. Based on these statistics, NCUA's sample size produces a confidence interval of approximately 69 percent. To achieve a 95 percent confidence interval with 3 percent margin of error, would require approximately 408 uploads. NCUA accepts a lower confidence interval for the WCC 22 uploads because the WCC 10 examination program is the primary focus of the time study and to reduce the burden on field staff. Also, the combined WCC 10 and WCC 22 contacts result in a sample size of 242 uploads with total of 2,972 hours. The mean of the combined sample calculated to be 14.84 percent and the standard deviation was 21.07 percent. Using these statistics, a sample size of 151 provides a greater than 99 percent confidence level. The sample size is sufficient to provide reliable results. In 2013, NCUA also obtained an independent review of the mapping of the regulations. 38 The mapping of NCUA's regulations is outlined in PricewaterhouseCoopers' October 2, 2013 report, which is available on NCUA's website and in Appendix A of this document. E&I reviews the regulatory mapping prior to the beginning of each ETS cycle for any necessary updates. 39 Going forward, NCUA intends to clearly state in the preamble to proposed rules whether a rule is promulgated under its Title II authority (insurance) or its Title I authority (regulatory). 38 https://www.ncua.gov/About/Documents/Budget/2013/2013ETSAnalysis.pdf . 39 The current mapping has not been updated for NCUA's most recent final rules. Similar to other activities not explicitly classified in the ETS instructions, ETS participants defer to the overarching definitions of insurance and non-insurance related activities provided in the ETS instructions (see Appendix B) to appropriately allocate time as insurance or non-insurance. As stated earlier, two SE groups from each region participate in the ETS process. One group uploads both FCU examination contacts and FCU on-site supervision contacts while the second SE group uploads only FCU on-site supervision contacts. All PEs in the selected groups participate in the survey. PEs are selected because they possess the necessary level of experience to ensure accurate results where examiner judgment is necessary. If an SE group has less than four PEs, a second group is added to ensure an adequate number of examinations and supervision contacts are uploaded for a statistically relevant sample. The participating SE groups rotate each year in alphabetical order (Group A one year, Group B the next year, etc.) to ensure a fair distribution of work and to ensure a wider number of FCUs are captured in the survey over time. PEs who transfer to a different SE group during the ETS period continue uploading surveys until the survey cycle ends. However, PEs from a non-participating group that transfer into a group participating in the ETS do not upload any time surveys. NCUA utilizes its Automated Integrated Regulatory Examination System (AIRES) examination system to capture the ETS information. There are twelve categories of activities on the survey form, modeled on the risk-based examination program. The scope categories are: 1. Planning/Scope Development 2. Call Report Review 3. Supervisory Committee Review 4. Financial Analysis 5. Loan Analysis 6. Investment Analysis 7. Liquidity Analysis 8. Asset Liability Management 9. Compliance 10. Information Systems Technology 11. Management Analysis 12. Contact Report/Joint Conference/Follow-Up Procedures For each examination or supervision contact, the examiner inputs the hours spent on insurance, insurance regulatory related and non-insurance and consumer regulatory related activities in each of the categories. A full year's worth of survey results are used to calculate the percentage of hours devoted to regulatory and insurance-related (insurance and regulatory) activities for the Federal Examination and Federal Supervision Programs. As previously mentioned, the ETS period runs from June 1 to May 31. Only examinations started after June 1 and completed and uploaded by the following May 31 are included in the survey to maintain consistency. Results of the ETS The ETS is used to determine the percentage of Workload Budget Hours related to regulatory and insurance-related tasks for the following two programs: • Federal Examination (WCC 10); and • Federal Supervision (WCC 22). NCUA uses a full year's worth of survey results when determining the regulatory cost driver applied to the budgeted workload hours for its Core Programs and Special Programs. The Workload Budget is discussed later in this document. The results of the ETS concluded on May 31, 2015 are illustrated in Table 2. Table 2—Results of ETS Contact type (WCC) Total surveys collected Insurance related % Non-insurance related % (regulatory) Examination (WCC 10) 142 86.83 13.17 Supervision (WCC 22) 100 87.21 12.79 Total 242 86.87 13.13 Table 3 shows the ETS results by the scope categories. Table 3—ETS Results by Scope Category Time category results Insurance related % Non-insurance related % (regulatory) Planning/Scope Development 85.95 14.05 Call Report Review 95.61 4.39 Supervisory Committee 94.61 5.9 Financial Analysis 96.98 3.02 Loan Analysis 93.65 6.35 Investment Analysis 93.05 6.95 Liquidity Analysis 93.84 6.16 Asset Liability Management 96.15 3.85 Compliance 41.28 58.72 Information Systems Technology 81.28 18.72 Management 90.73 9.27 Examination Report/JC/Follow-Up 89.85 10.15 Total 86.87 13.13 NCUA also reviews the ETS results by CAMEL code. For the most recent ETS period, NCUA calculated the number of contacts by CAMEL Code as a percentage of the sample size. The results are documented in Table 4. The percentage of WCC 10 examinations by CAMEL code correlate strongly with the total FICU population at May 31, 2015. As expected the percentage of WCC 22 supervision contacts is weighted more heavily toward CAMEL 3 and CAMEL 4 FICUs since supervision is focused on credit unions with financial and operational weaknesses. Table 4—CAMEL Code Distribution CAMEL code Percent of sample WCC 10 examination (%) WCC 22 supervision (%) Total FICU population (%) 1 & 2 71.83 22.00 73.56 3 24.65 51.00 22.41 4 3.52 27.00 3.90 5 0.00 0.00 0.13 As Table 2 and Table 3 show, the ETS determined NCUA examiners spend 86.87 percent of their time on insurance related activities and 13.13 percent of their time on non-insurance related activities during examinations and supervision contacts between June 1, 2014 and May 31, 2015. As the next section will describe, the results of the ETS are applied to NCUA's budgeted workload program hours to determine the agency's budgeted hours for insurance and non-insurance related activities. b. Workload Program Hours This step in NCUA's OTR calculation determines the percentage of work the agency expects to perform in insurance and non-insurance related activities. Specifically, the results of the ETS, 40 and the assessment of work performed for other programs administered by other offices 41 are applied to the workload program hours derived from NCUA's annual resource budget. This results in a weighted average of program hours devoted to NCUA's regulatory and insurance roles. 40 Discussed in Section IV.a. 41 Including programs administered by the Office of Small Credit Union Initiatives (OSCUI) and the Office of Consumer Protection (OCP) as discussed in Section IV.c. NCUA's annual resource budget is a comprehensive workload analysis that captures the amount of time budgeted to conduct examinations and supervision of federally insured credit unions, and other programs necessary to carry out NCUA's dual mission as insurer and regulator. The annual resource budget estimates hours in three major categories: 42 42 Time budgeted for core and special programs is considered productive time, while administrative hours are considered non-productive time. These classifications are used during the SSA Imputed Value step of the OTR calculation. 1. Core Programs includes NCUA's FCU and FISCU examinations and on- and off-site supervision. 2. Special Programs includes NCUA's specialized examination programs in the areas of capital markets, information systems, and lending, credit union service organization (CUSO) reviews, chartering and field of membership, and small credit union development. 3. Administrative includes NCUA field staff time related to training and staff development, leave, and travel. The annual resource budget process starts with a planning session with management representatives from each field office, 43 OCP and E&I. During the planning session, resource requirements for programs such as focused areas of review, 44 central office details, and working groups are vetted. Examination and supervision requirements are also reviewed and guidance is issued to all field staff. NCUA field staff review each FICU in their district 45 to determine the anticipated number of workload hours 46 needed for the next calendar year. The workload estimates are refined by field management to ensure consistency. Field offices submit their final resource budget proposals to E&I for review and analysis. E&I reviews the program recommendations from the field offices and submits any recommendations for adjustments to the Executive Director. The final resource budget for each field office establishes the foundation for their budget requests and is used to allocate the results of the ETS. 43 Field office refers to each of NCUA's five Regional Offices and the Office of National Examinations and Supervision (ONES). 44 Each year NCUA issues a Letter to Credit Unions outlining the Supervisory Priorities for the year. https://www.ncua.gov/regulation-supervision/Pages/policy-compliance/communications/letters-to-credit-unions/2016/01.aspx . 45 NCUA examiners are assigned a district of specific FCUs and FISCUs and are responsible for managing examination and supervision of the credit unions assigned to their district. 46 Workload hours include hours for examinations, on- and off-site supervision, and reviews by regional and national specialized examiners. Table 5 shows the 2016 budgeted hours for NCUA's core and special programs and how those hours are allocated to non-insurance related activities based on the results of the ETS. Administrative time is not allocated in this step of the OTR calculation. Table 5—Allocation of Budgeted Program Hours 2016 budgeted workload hours Non-insurance percent Non-insurance hours 47 Allocation basis Core Programs 728,556 na 70,691 Sum of Core Programs Federal Examination 454,115 13.17% 59,807 Examiner time survey Federal Supervision 53,687 12.79% 6,867 Examiner time survey State Exam & Supervision 175,722 0% 0 FISCU work is insurance-related State Exam Review 5,321 0% 0 FISCU work is insurance-related 5300 Program—FCU 30,503 13.17% 4,017 Uses FCU examination results from examiner time survey 5300 Program—FISCU 9,208 0% 0 FISCU work is insurance-related Special Programs 35,637 na 2,607 Sum of Special Programs Regional Lending Specialists 4,190 13.17% 552 Allocation based on % from time surveys Regional Capital Market Specialists 4,130 0% 0 NCUSIF risk management program Regional Information Systems Officers 3,320 13.17% 437 Allocation based on % from time surveys Field of Membership & Chartering 500 100.00% 500 Regulatory program Small Credit Unions 18,633 6.00% 1,118 Allocation based on OSCUI's time reporting results CUSO Examinations 4,864 0% 0 NCUSIF risk management program Total Core & Special Programs 764,193 na 48 73,298 Percent of 2016 core and special programs devoted to NCUA's Non-Insurance Role 9.6% = 73,298 ÷ 764,193 Detailed Explanation of Allocation Basis Table 5 shows how NCUA's core and special program hours are allocated to non-insurance and thereby insurance related activities. A detailed explanation of the allocation basis for each core program and special program is outlined below. 47 Numbers may not reconcile exactly due to rounding. 48 These are the budgeted hours allocated to insurance-related, regulatory work in 2016. Core Programs NCUA's federal examination and federal supervision programs' non-insurance related activities are allocated at 13.17 percent and 12.79 percent, respectively, based on the results of the ETS. 49 The results of the ETS from June 2014 to May 2015 determined that examiners spent 13.17 percent of their time on non-insurance related activities during the examination of FCUs and 12.79 percent of their time on non-insurance related activities during the supervision of FCUs. These percentages (13.17 percent and 12.79 percent) are respectively applied to the 2016 budgeted hours for federal examinations and federal supervision to determine the number of hours for non-insurance related activities. 49 The results of the time study are documented in Tables 2 and 3. NCUA examiners conduct examinations and supervision of FISCUs, and generally do so in conjunction with the governing state supervisory authority (SSA). It is also NCUA's policy to conduct reviews of examinations completed by the SSA. NCUA's FISCU related work (examinations, supervision and state exam reviews) is solely associated with the agency's role as an insurer. For purposes of calculating the OTR, 100 percent of the budgeted hours for FISCU examinations, supervision and state examination reviews are allocated to insurance-related activities. All federally insured credit unions file quarterly 5300 Call Reports with NCUA. NCUA examiners are responsible for performing quarterly reviews of the 5300 Call Report information for all federally insured credit unions in their district. For FCUs, NCUA examiners are also responsible for validating the information submitted by the FCUs. For this reason, more time is budgeted for the federal 5300 program than for the state 5300 program. An extension of the examination program, the budgeted hours for the federal 5300 program are allocated as insurance and non-insurance hours based on the results of the ETS for federal examinations. Thus, 13.17 percent of federal 5300 program hours are allocated to non-insurance activities. Consistently, the budgeted hours for the state 5300 program are allocated the same as the FISCU examination program, 100 percent to insurance related activities. Special Programs Regional lending, information technology and capital market specialists participate in the examination and supervision of federally insured credit unions to perform focused reviews of more complex areas of credit union operations. Regional specialists do not participate in the ETS. The work performed by regional lending and information technology specialists is a combination of insurance and non-insurance related activities. Therefore, the budgeted hours for regional lending specialists and regional information systems officers is allocated conservatively at 13.17 percent for non-insurance related activities, based on the ETS results. The work performed by regional capital market specialists is focused on credit unions' asset liability management and serves as a risk management program for the NCUSIF. Thus, budgeted hours for regional capital market specialists is allocated 100 percent to insurance-related activities. NCUA budgets hours for examiners to support OCP with chartering and field of membership applications and expansion requests. One-hundred percent of the hours budgeted for examiners to assist with this activity are allocated to NCUA's non-insurance function. NCUA also budgets hours for examiners to support OSCUI with providing assistance to small credit unions. The budgeted hours for examiner participation in the small credit union program are allocated to insurance and non-insurance related activities on the same basis as the OSCUI programs. As described in the financial budget section, OSCUI conducts its own time survey each year and has determined that 6 percent of its work should be allocated to non-insurance related activities. Thus, NCUA allocates 6 percent of these budgeted workload hours to non-insurance related activities. The agency's CUSO examination program is a risk-management program focused on protecting the NCUSIF (NCUA does not charter and has no regulatory authority over CUSOs). Thus, 100 percent of the hours budgeted for CUSO examinations is allocated to insurance related activities. As Table 5 shows, the combination of non-insurance workload hours for core and special programs is compared to the overall workload budget for those programs, to develop the overall weighted average of non-insurance related work across all programs. The percentage of non-insurance activities derived from the ETS and the annual resource budget are applied to NCUA's Operating Budget as outlined in the Financial Budget section. c. Financial Budget NCUA's budget process uses the agency's strategic goals and objectives set forth in the NCUA Strategic Plan as a framework to ensure agency priorities and initiatives drive resulting resource needs and allocations. The annual budget provides the resources to execute the strategic plan and undertake tasks in NCUA's major programs. Each NCUA office develops a budget request identifying resources required to support NCUA's mission and strategic goals and objectives. These budgets are developed using zero-based budgeting techniques to ensure each office's requirements are individually justified and consistent with the agency's overall strategic plan. One of the primary inputs in the development of the financial budget is the workload analysis described in the workload budget section. The final workload analysis establishes the foundation for the field office budget requests in addition to establishing the amount of work related to insurance and non-insurance related activities for the OTR. The workload analysis is also used to develop personnel and travel costs, and all offices develop cost estimates for fixed and recurring items such as rent or leased property, operations and maintenance, repair on owned facilities, supplies, telecommunications, and other administrative and contracted services costs. Information related to NCUA's budget process, including detailed information on the NCUA Board-approved 2016 Operating Budget are available on the agency's Web site. 50 50 https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx. Table 6 shows how NCUA's 2016 Operating Budget is allocated to non-insurance related activities, using the weighted average derived from the core and special programs (9.6 percent) and the results of the assessment of insurance and non-insurance related activities for programs administered by other offices. The allocation basis for all offices is outlined in detail below Table 6. The Board invites comment on the current process for allocating NCUA's Operating Budget used in the OTR calculation. Table 6—Allocation of NCUA Operating Budget Cost area 2016 Financial Budget Dollar budget ($M) Non-insurance percent Non-insurance cost ($M) All Regional Costs: Based on non-insurance related portion of core and special programs $155.49 9.6% $14.91 Asset Management Assistance Center and Assistance Program: Manages liquidation payouts, assets acquired from liquidations and assistance programs, and recoveries for the NCUSIF $6.92 0% $0 Office of Consumer Protection: Primarily non-insurance (regulatory) function i.e. chartering/FOM—net of work related to share insurance coverage for members and FISCUs $9.54 82.3% $7.86 Office of Small Credit Union Initiatives: Ensures small credit unions operate in safe and sound manner through its consulting program. However, it also addresses consumer regulatory issues $6.37 6.0% $0.38 Office of National Examinations and Supervision: NCUSIF risk management function to supervise corporate credit unions and large natural person credit unions. CFPB examines the natural person credit unions assigned to this office for consumer compliance $10.48 0% $0 Office of Minority and Women Inclusion $2.94 86.0% $2.53 All Other Offices 51 : Based on non-insurance percent of core and special programs $99.18 9.6% $9.51 Total 2016 NCUA Budget $290.92 $35.19 Explanation of Allocation Basis For Financial Budget Regional Offices The financial budget for the agency's five regional offices is allocated based on the weighted average of non-insurance and insurance related activities calculated in the workload budget section. Resources in the regions execute NCUA's core and special programs, thus, the budgeted costs related to these programs should receive the same allocation basis as the programs themselves—as determined by the ETS. The budget for the regional offices is allocated at 9.6 percent for non-insurance related activities. AMAC NCUA conducts credit union liquidations and performs management and recovery of assets through the Asset Management and Assistance Center (AMAC). AMAC assists NCUA regional offices with the review of large, complex loan portfolios and actual or potential bond claims. It also participates extensively in the operational phases of conservatorships and records reconstruction. The purpose of AMAC is to manage and reduce costs to the NCUSIF and credit union members of credit union failures. Thus, 100 percent of AMAC's activities are allocated as insurance-related. 51 The weighted average, previously determined, is applied to all other cost centers (CFO, human resources, etc.) as these are overhead functions that support the agency's mission. OCP OCP is responsible for NCUA's consumer financial literacy efforts, consumer inquiries and complaints, consumer protection compliance and rulemaking, fair lending examinations, interagency coordination and outreach, chartering and field-of-membership matters, low-income designations, charter conversions and bylaw amendments. OCP monitors time performing insurance related activities, insurance-regulatory related activities, and consumer-regulatory related activities by division. OCP has four divisions: • Consumer Affairs, • Consumer Compliance Policy and Outreach, • Consumer Access, and • Consumer Access South The Division of Consumer Access and Division of Consumer Access South do not specifically track the amount of time devoted to insurance related, insurance regulatory related, and consumer regulatory related issues. Instead, these divisions have developed estimates by using standard factors based on the type of work inherent in each project category. The divisions assume the following, based on a blend of time among Consumer Access Analysts, Technicians, and Specialists: • 25 percent of time is devoted to determining if any safety and soundness issues exist when processing various chartering and field of membership expansion applications; • 10 percent of time is devoted to addressing insurance related questions, membership concerns, and bylaw disputes directly relevant to consumer related regulatory concerns; and • The remaining 65 percent of time is devoted to regulatory issues primarily pertaining to reviewing applications for new charters and charter expansions to ensure the proposals are consistent with regulatory requirements. To a lesser extent, the Divisions of Consumer Access associate this time with the enforcement of NCUA's chartering policies. The Division of Consumer Compliance Policy and Outreach focuses on consumer regulatory related issues and does not regularly work on matters categorized as insurance related or insurance-regulatory related in the ETS instructions. This division spends 100 percent of productive time addressing regulations the ETS instructions classify as consumer-regulatory related regulations. These regulations include regulations implementing the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the Truth in Lending Act, and the Real Estate Settlement Procedures Act. Therefore, OCP estimates this division spends 100 percent of its time on consumer regulatory related issues. The Division of Consumer Affairs develops estimates based on the number of inquiries, complaints and telephone calls processed by staff, and the average amount of time needed to address those contacts. OCP estimates the Division of Consumer Affairs spends: • 5 percent of the division's time addressing share insurance questions received from consumers; • 90 percent on consumer-regulatory related activities; and • 5 percent of time administering the Financial Literacy Program. Based on the allocation method described above, 82.3 percent of OCP's work is non-insurance related. This 82.3 percent is applied to the OCP Operating Budget to determine the allocation of costs between insurance and non-insurance related activities. OSCUI OSCUI supports the success of small credit unions through its four main functional areas—training, grants and loans, partnership and outreach, and consulting. The office only monitors ETS activities for its consulting function. The other program areas do not regularly work on matters categorized as insurance related, insurance-regulatory related or consumer-regulatory related functions but provide support for the consulting function. OSCUI monitors time related to the ETS categories through data collected during credit union consulting contacts. Since the consulting work covers a wide range of topics (many of which don't cleanly fit into an ETS activity category), OSCUI developed a weighting system to measure ETS related activity. The weighting system identifies the percentage of time allocated to each of the three ETS categories for each consulting topic. OSCUI consultants (Economic Development Specialists) record consulting time by topic. Time is allocated to the ETS categories by multiplying the number of consulting hours per topic, by the percentage of time allocated for the topic. The assumptions for monitoring and allocation of time to ETS categories, and used to develop the weighting system, are as follows: • Consulting assistance that helps credit unions address safety and soundness issues is catalogued as an insurance related activity. • Consulting assistance that addresses regulations that are not designed to protect the consumer directly are catalogued as insurance-regulatory related activity. • Consulting assistance that addresses regulations that are designed to protect the consumer directly are catalogued as consumer-regulatory related activity. Table 7 documents each consulting topic and OSCUI's assumptions for the ETS activity related to the topic. For example, OSCUI assigns consulting work on asset liability management to an insurance-related activity so it is weighted at 100 percent in that area; consulting work related to investments is weighted 50 percent insurance related and 50 percent insurance-regulatory related. OSCUI's Economic Development Specialists completed 11,003 hours of assistance to credit unions enrolled in the OSCUI Consulting Program during the ETS cycle ending on May 31, 2015. The hours were allocated as follows: • 7,952 (72 percent) insurance related activities addressing safety and soundness issues. • 2,434 (22 percent) insurance-regulatory related activities. • 617 (6 percent) consumer-regulatory related activities. Based on the allocation method described above, 6 percent of OSCUI's work is non-insurance (consumer regulatory) related. This 6 percent is applied to OSCUI's Operating Budget to determine the allocation of costs between insurance and non-insurance related activities. Table 7—OSCUI Time Allocation Consulting type of work Percent insurance related activity Percent insurance-regulatory related activity Percent consumer-regulatory related activity Asset Liability Management 100 0 0 BSA/OFAC 0 0 100 Budgeting 100 0 0 Collections 75 25 0 Consumer Compliance 0 0 100 Credit Committee 60 20 20 Disaster Recovery 70 20 10 FOM Expansion 50 50 0 Grant Writing 100 0 0 Internal Controls 100 0 0 Investments 50 50 0 Lending 70 20 10 Low-Income Designation 0 100 0 Marketing 50 40 10 Merger Guidance 50 50 0 New Product Development 70 20 10 Net Worth Restoration Plan (NWRP)/Prompt Corrective Action (PCA) 0 100 0 Operational Assistance Other 70 20 10 Other Policies 70 20 10 Recordkeeping 100 0 0 Relocation of Home Base CUs 100 0 0 Secondary Capital 50 50 0 Strategic Issues Other 100 0 0 Strategic Planning 100 0 0 Succession Planning 70 20 10 Technology 70 20 10 Training 70 20 10 Training Board 70 20 10 Training Staff 70 20 10 Training Supervisory Committee 70 20 10 ONES ONES oversees the unique examination and supervision issues related to consumer credit unions with assets greater than $10 billion and all corporate credit unions. ONES was established on January 1, 2013, but was not assigned responsibility for consumer credit unions with $10 billion or more in assets until January 1, 2014. ONES did not complete time surveys for its large natural person credit unions in 2014 or 2015, but will complete time surveys for all its large natural person credit unions in 2016. ONES does not have the ability to automatically complete and submit the ETS for corporate credit unions since the corporate examination program is not integrated into AIRES. ONES staff manually completed the time survey two consecutive years (2011 and 2012) for all corporate credit unions following the E&I instructions. ONES found the percentages of time allocated for the activities using the E&I guidance did not substantially change year to year and used the information from these two measurement periods as a baseline for estimating and reporting the time allocated to Insurance Related, Insurance Regulatory Related, and Consumer Regulatory Related activities for the calendar years 2013, 2014, and 2015. ONES will complete time surveys in 2016 for both corporate credit unions and assigned natural person FCUs. Because corporate credit unions do not perform and are not responsible for Consumer Regulatory issues, this category is reported as zero. The remaining time is allocated between Insurance Related and Insurance Regulatory Related activities. ONES provides a report of corporate credit unions with a table that breaks out the following information: • Total Examination and Supervision hours • Total Insurance Related hours • Total Insurance Regulatory Related hours, and • Total Consumer Regulatory Related hours. ONES reports the information for each corporate credit union. Total examination and supervision hours are reviewed. The time allocations derived from the 2011 and 2012 time surveys are applied to determine the specific amounts of time reported for each category. ONES also reviews each corporate credit union individually to ensure there were no special circumstances that would have warranted a deviation from the original surveyed estimates. ONES' estimates for the most recent ETS period are shown in Table 8. Table 8—Ones Time Allocation Corporate credit union Total examination and supervision hours Insurance related hours Insurance regulatory related hours Consumer regulatory related hours A 1654 1316 338 0 B 1124 942 182 0 C 1192 1007 186 0 D 1053 913 140 0 E 1353 945 409 0 F 769 514 256 0 G 567 332 235 0 H 981 788 194 0 I 575 387 188 0 J 621 415 205 0 K 95 6 89 0 L 694 607 87 0 M 481 357 124 0 N 919 712 207 0 Totals 12,077 9,239 2,838 0 % of Total 76.5% 23.5% 0.0% Based on the allocation method described above, 100 percent of ONES' work is insurance related. This percentage is applied to ONES' Operating Budget to determine the allocation of costs between insurance and non-insurance related activities. Office of Women and Minority Inclusion (OMWI) OMWI oversees the agency's equal employment opportunity program and all matters relating to measuring, monitoring and establishing policies for diversity in the agency's management, employment and business activities as well as responsibility for assessing the diversity policies and practices of entities regulated by the agency and preserving credit unions designated as minority depository institutions. OMWI does not monitor time related to the ETS categories but does estimate staff time spent on insurance related and non-insurance related activities. The insurance related time is primarily time spent administering and reporting to Congress on various programs, including the agency's Minority Depository Institution Preservation Program and responding to requests related to insurance-regulatory issues. Staff working on tasks related to these activities includes the OMWI Director, one Diversity Outreach Program Analyst, and one Management Analyst. OMWI estimates the percentage of time spent on these programs as compared to the total time spent performing all tasks and responsibilities for the Diversity Outreach Program Analyst, Management Analyst, and OMWI Director. OMWI applies the estimated percentage of time allotted to insurance activities to its total estimated working hours. Then, those hours are compared to the estimated number of total hours worked by all OMWI staff. OMWI's time estimates for the most recent ETS period resulted in the following allocation: • 14 percent of staff time spent on insurance related activities; and • 86 percent of time is spent on non-insurance activities. Based on the allocation method described above, 86 percent of OMWI's work is non-insurance related. This percentage is applied to OMWI's Operating Budget to determine the allocation of costs between insurance and non-insurance related activities. All Other Offices NCUA's remaining offices do not provide estimates on their insurance and non-insurance related activities. Rather, because these offices are support functions for NCUA's main program—the examination and supervision of credit unions—the same allocation basis used for the regional offices is used to determine the costs of insurance and non-insurance related activities for these support functions. The budgeted costs for the offices of the NCUA Board, Executive Director, General Counsel, Chief Financial Officer, Chief Information Officer and Chief Economist as well as Human Resources, Examination and Insurance, Public and Congressional Affairs, and Continuity and Security Management are allocated at 9.6 percent non-insurance related activities for purposes of calculating the OTR. Combining the calculation steps in the workload program hours and financial budget section, the OTR methodology thus far has established the amount of NCUA's Operating Budget related to insurance and non-insurance related activities. NCUA's 2016 Operating Budget of $290.92 million includes $35.19 million allocated to non-insurance (regulatory) activities. The remaining $255.73 million of NCUA's Operating Budget is allocated to insurance-related activities. Identifying the portion of NCUA's Operating Budget allocated to insurance-related activities is the first step in determining NCUA's total insurance related costs. Consideration must also be given to the direct costs to the NCUSIF and the SSA Imputed Value, discussed in the next section. d. Calculating NCUSIF Insurance and Non-Insurance Costs Based on the ETS results for NCUA's core programs, the determination of insurance and non-insurance activities for special and other programs (Section IV.b) and applying the percentage of insurance and non-insurance activities to NCUA's Operating Budget (Section IV.c), the agency arrives at the dollar amount of insurance related costs included in the NCUA Operating Budget. As noted above, for 2016, this amount is $255.73 million (NCUA's 2016 Operating Budget of $290.92 million less non-insurance related costs of $35.19 million). In addition to NCUA budgeted costs, there are operational costs charged directly to the NCUSIF which must be added to the insurance related portion of NCUA's Operating Budget when calculating the total cost of providing insurance. For 2016, these direct operational costs are budgeted at $1.56 million. The NCUSIF directly pays for the costs associated with SSA staff attendance at NCUA-sponsored training and the related travel expenses ($1.4 million), as well as SSA computer and related equipment leases ($0.16 million). These direct operational costs must be factored into the total operational costs of providing NCUSIF insurance, which needs to be absorbed by all FICUs. NCUA does not include credit union failure related costs 52 in the calculation, as these losses (charges to the NCUSIF) are already allocated based on the mutual nature of NCUSIF deposit insurance and are not costs of operating the NCUSIF. 52 Payouts on insured shares of failed institutions. This step of the calculation results in total insurance related costs to be absorbed by all FICUs of $257.29 million. 53 See Table 9. 53 Budgeted amounts are used to calculate the OTR; however, the OTR is applied to actual expenses incurred each month. Table 9—NCUSIF Costs [millions] 2016 NCUA Operating Budget $290.92 Non-Insurance Related Costs −35.19 Table 6. Direct Operational Charges to NCUSIF +1.56 Budgeted costs for SSA training, travel, and equipment. Total 2016 Budgeted Insurance Related Costs 257.29 e. Allocation of Insurance Costs This step of the OTR methodology is designed to calculate the total cost of providing share insurance, including work currently performed by SSAs, and then allocate these costs on an insured shares basis between FCUs and FISCUs. The steps in the OTR methodology thus far have determined the total budgeted operating costs and direct charges applicable to NCUA's role as insurer to be absorbed by all FICUs, $257.29 million. During the revision to the OTR methodology in 2003, the agency concluded it is appropriate to recognize NCUA relies on SSAs, to the fullest extent possible, to perform insurance related supervision of FISCUs. The cost NCUA, and thus the NCUSIF, avoids 54 should be taken into account when determining and allocating the total cost of providing NCUSIF insurance. The calculation of this imputed SSA value is a multi-step process outlined in Section IV.g, SSA Imputed Value. In 2016, the SSA imputed value is $40.6 million. 54 NCUA relies on SSA examination work. Different SSAs are funded by various means, such as fees paid by state-chartered credit unions or through general state tax revenues. The OTR methodology also considers that the most fair and appropriate basis to allocate the cost of providing NCUSIF insurance between FCUs and FISCUs is the distribution of insured shares. This is consistent with the mutual nature of the insurance provided by the NCUSIF, and the statutory allocation method for any NCUSIF premiums and dividends. Section IV.d, Calculation of Insurance and Non-Insurance NCUSIF Costs, determined NCUA's cost to fulfill its role as insurer is $257.29 million. However, the value provided by NCUA's reliance on SSA work should be factored in to determine the total cost to the federally insured credit union system of providing NCUSIF insurance. To do this, the imputed value of the insurance related work performed by the SSAs ($40.60 million) 55 is added to the total budgeted insurance related costs ($257.29 million): 55 The calculation of the SSA imputed value is discuss in detail in Section IV.g. Table 10—Total Cost of Providing NCUSIF Insurance [millions] Total 2016 Budgeted Insurance Related Costs $257.29 Table 9. SSA Imputed Value + $40.60 Value NCUA places on worked performed by SSAs. Table 32. Total Cost of Providing NCUSIF Insurance $297.89 The total cost of providing NCUSIF insurance must be allocated between FCUs and FISCUs. As mentioned, the allocation is based on their respective proportions of insured shares. FCUs and FISCUs represent 52.3 percent and 47.7 percent, 56 respectively, of the $935 billion in NCUSIF insured shares as of June 30, 2015. Thus, the distribution of costs is as follows: 56 Based on insured shares reported on NCUA's 5300 Call Report as of June 30, 2015. Table 11—Allocation of Total Costs of Providing NCUSIF Insurance FCUs FISCUs Total Cost of Providing NCUSIF Insurance (millions) $297.89 Table 10. Proportion of insured shares × 52.3% × 47.7% Allocated total insurance costs (millions) $155.80 $142.09 FISCUs are responsible for $142.09 million of the total costs of providing NCUSIF insurance. However, SSAs are providing $40.6 million worth of imputed value toward the cost of providing NCUSIF share insurance. Therefore, FISCUs are responsible for absorbing only $101.49 million of the total insurance costs: Table 12—Net Cost of NCUSIF Insurance for FISCUs [millions] FISCU portion of total insurance costs $142.09 Table 11. SSA Imputed Value − $40.60 Table 32. Net Cost of NCUSIF Insurance for FISCUs $101.49 f. Calculating the OTR This final step of the OTR methodology computes the OTR as a percentage of the NCUA Operating Budget. Section IV.e, Allocation of Insurance and Non-Insurance Costs, determined the net cost of providing NCUSIF insurance to be absorbed by FISCUs through the OTR is $101.49 million. This amount divided by the percentage of total insured shares held by FISCUs (47.7 percent) results in the total dollar cost to be absorbed by the NCUSIF for providing insurance to all federally insured credit unions. To state it another way, if FISCUs are responsible for 47.7 percent of the cost of providing NCUSIF insurance, and this represents $101.49 million, then the dollar amount of NCUA costs to be absorbed by the NCUSIF, through the OTR, must equal $212.78. 57 See Table 13. 57 Mathematically, this computation must be used to arrive at the total costs (based on budget) to be absorbed by the NCUSIF, through the OTR, since this amount is the unknown to be solved for based on the addition of imputed, but not actual, costs to the budget. Table 13—Costs To Be Absorbed by the NCUSIF, Through the OTR Net Cost of NCUSIF Insurance for FISCUs (millions) $101.49 Table 12. FISCU Proportion ÷ 47.7% Table 11. Costs to be Absorbed by the NCUSIF, through the OTR (millions) $212.78 Now that the dollar amount of the NCUA budget to be absorbed by the NCUSIF via the OTR has been calculated, the Overhead Transfer Rate itself, as a percentage of the budget can be calculated. The dollar amount of the NCUA budget to be absorbed by the NCUSIF ($212.78 million) divided by the total NCUA Budget ($290.92 million) equals the rate at which actual expenses will be funded by the NCUSIF as they are incurred each month (73.1 percent). This rate is what is called the OTR. Table 14—Overhead Transfer Rate Costs to be Absorbed by the NCUSIF, through the OTR (millions) $212.78 Table 13. NCUA Operating Budget ÷ $290.92 Table 9. Overhead Transfer Rate 73.1% Table 14 illustrates that 73.1 percent of NCUA's operating expenses, $212.78 million based on the 2016 budget, are funded by the NCUSIF via the OTR. The remaining 26.9 percent of NCUA's operating expenses, $78.14 million based on the 2016 budget, must be funded by other sources, primarily the FCU Operating Fee. 58 Thus, the explicit and implicit distribution of total Operating Budget costs for FCUs and FISCUs is 65.1 percent and 34.9 percent, respectively. 58 Other funding sources, in addition to the FCU Operating Fee (including federal corporate credit union Operating Fees) and fees collected for various services and publications. Table 15—Operating Budget Distribution Portion of 2016 operating budget covered by: FCUs FISCUs FCU Operating Fee 26.9% 0.0% OTR × Percent of Insured Shares 38.2% (73.1% × 52.3%) 34.9% (73.1% × 47.7%) Total 65.1% 34.9% g. SSA Imputed Value To develop an OTR that properly reflects the total cost to insured credit unions of providing NCUSIF insurance, it is necessary to factor in the value of the insurance related supervision provided by state examination programs and relied upon by NCUA in managing the NCUSIF. NCUA developed a four step process to calculate (impute) the value of the insurance work performed by SSAs that NCUA relies upon. The imputed value derived from these calculations is factored into the calculation of the OTR as discussed in Section IV.e. NCUA determined the best measure available for the value of state examination programs to the NCUSIF is what it would cost NCUA to perform this work. 59 An alternative measure of the value of this work is the actual cost of SSA supervision programs. However, these do not necessarily reflect the value to NCUA in managing the NCUSIF 60 and are not readily available to NCUA. The Board invites comment on the methodology for determining the SSA imputed value including proposals for alternative methods for valuing the insurance work performed by SSAs in the OTR calculation. 59 NCUA realizes that the imputed value may be higher or lower than what SSAs actually spend to conduct insurance related supervision programs NCUA relies upon. Nonetheless, the relevant factor for purposes of computing the OTR is the value to the NCUSIF derived from this work. 60 Another consideration is the fact each SSA program may not represent the same percentage of insurance related supervision of institutions based on each state's unique program and cost structure, necessitating separate regulatory and insurance cost factors be calculated for each state. Such an endeavor would be costly and would require each SSA to divulge detailed financial and operating information, which they may not be inclined to provide. Throughout this discussion, we will present the calculations used to determine the values for the 2016 OTR. In these calculations we use the following information: • Average exam time based on 2014 actual results, • percentage of exam time used for insurance work based on the 2015 ETS results, and • budget projections for 2016. Step 1—NCUA FISCU Workload Projection The first step in this process is to determine the workload required for NCUA to examine all FISCUs. To calculate this figure, NCUA determines the examination hours that field staff expended on FCUs by asset size and CAMEL rating. The results for 2014 are documented in Table 16. Table 16—FCU Average Examination Time (Hours) for 2014 Asset range (millions) <$10 $10-$100 $100-$250 $250-$500 >$500 CAMEL 1 39 80 162 192 408 CAMEL 2 41 88 186 234 445 CAMEL 3 45 100 223 279 407 CAMEL 4 65 142 312 225 438 CAMEL 5 109 219 0 0 0 NCUA then determines the distribution of FISCUs using the same asset and CAMEL rating categories. The distribution for 2014 is documented in Table 17. Table 17—Number of FISCUs in Each Category [as of December 2014] Asset range (millions) <$10 $10-$100 $100-$250 $250-$500 >$500 CAMEL 1 54 99 45 30 83 CAMEL 2 342 664 205 102 147 CAMEL 3 188 230 46 16 12 CAMEL 4 40 32 5 2 4 CAMEL 5 0 0 0 0 0 The average examination time estimates from Table 16 are then applied to the distribution of FISCUs in Table 17 using the same asset and CAMEL rating categories. This provides an estimate of the examination time needed if NCUA were to conduct all of the state examination work on the same basis employed for FCUs. Based on the average examination hours for FCUs and the number of FISCUs in each asset and CAMEL category, NCUA would have needed 318,573 hours to complete examinations of all FISCUS in the same manner as it examined FCUs in 2014. The estimated hours are documented in Table 18. 61 Numbers may not add up exactly due to rounding. Table 18—Projected FISCU Exam Hours Asset range (millions) <$10M $10-$100 $100-$250 $250-$500 >$500 Totals 61 CAMEL 1 2,116 7,911 7,295 5,766 33,898 56,986 CAMEL 2 13,982 58,225 38,232 23,845 65,408 199,692 CAMEL 3 8,499 22,889 10,256 4,465 4,882 50,992 CAMEL 4 2,616 4,530 1,558 449 1,750 10,902 CAMEL 5 Totals 27,213 93,555 57,340 34,526 105,938 318,573 Step 2—Allocation of Projected Fiscu Exam Hours Step 1 calculated that it would take 318,573 hours for NCUA to conduct examinations in all FISCUs. However, not all examination time is used to meet NCUA's role as insurer. The ETS results for cycle ending on May 31, 2015, indicate that 86.83 percent of examination time was used to meet NCUA's needs in managing risks to the NCUSIF. For consistency and fairness, this same distribution is applied to FISCUs when determining the total time it would take NCUA to supervise FISCUs to meet its role as insurer, resulting in 276,617 hours for insurance related time. Table 19 illustrates this calculation. Table 19—Projected FISCU Exam Hours Using ETS Hours Gross FISCU Exam Hours 318,573 Times Insurance Factor Based on Exam Survey × 86.83% Equals Total Insurance Hours = 276,617 NCUA also estimates total FISCU examination time by multiplying current NCUA budgeted FISCU examination time 62 by two. This reflects that FISCU examinations are conducted jointly with the SSA, and that all NCUA examination time is for insurance purposes. Table 20 documents this calculation. 62 From the 2016 NCUA Workload Budget. Table 20—Projected FISCU Exam Hours Using Multiplier Hours Current Budgeted FISCU Insurance Hours 149,914 Times 2 (Assuming Joint Examinations and 50/50 time split with SSA) × 2 Equals Projected Examination Insurance Hours for State Program = 299,828 The result of the calculation in Table 20 is compared to the result from Table 19 and the greater of the two numbers is selected, in this case 299,828 hours, from Table 20. Using the greater of the two results benefits the SSA imputed value as it requires more resources and, therefore, increases the imputed value. Next, NCUA takes the results from the previous step and subtracts the current budgeted state examination program hours since they are already included in the resource budget. NCUA also makes an adjustment for additional FISCU supervision hours. NCUA's 2016 workload program budgets 25,808 hours for FISCU supervision. Since supervision is typically performed jointly with SSAs, NCUA would need an additional 25,808 hours. The result is the number of additional insurance hours necessary for NCUA to examine and supervise all FISCUs without any SSA assistance. The calculation for the 2016 OTR indicates NCUA would need an additional 175,722 hours to complete all the FISCU work. The calculation is illustrated in Table 21. Table 21—Additional Hours for FISCU Insurance Work Hours Projected FISCU Insurance Hours 299,828 Less Current Budgeted FISCU Examination Hours − 149,914 Plus Additional FISCU Supervision Hours + 25,808 Equals Total Additional FISCU Insurance Hours = 175,722 Finally, NCUA deducts the time budgeted for FISCU examination report reviews to arrive at the net additional insurance hours needed to complete all FISCU examinations and supervision. 63 The FISCU examination report review time would no longer be needed if NCUA performed the FISCU examinations. NCUA's 2016 workload budget contained 5,231 hours for FISCU examination report review. Deducting those hours from the results from Table 21 results in net additional insurance hours of 170,401. This calculation is illustrated in Table 22. 63 As part of its fiduciary responsibility, NCUA examiners review all state examination reports. This time is assigned to work classification code 26. Table 22—Net Additional Hours for FISCU Insurance Work Hours Total Additional FISCU Insurance Hours 175,722 Less Current Budgeted FISCU Examination Review Hours − 5,321 Equals Net Additional FISCU Insurance Hours = 170,401 Step 3—Projected Additional Staff Required The next step in the calculation is to determine how many additional full-time equivalent (FTE) examiners are needed to complete the net additional FISCU insurance hours calculated in Step 2. To accomplish this, NCUA first calculates the total annual productive work hours for an FTE examiner. Total Core and Special Workload hours from the Workload Budget must be divided by Total Estimated Workload Hours to determine the productivity ratio. 64 The productivity ratio for 2016 is 52.7 percent. The productivity ratio calculation is illustrated in Table 23. 64 Total workload hours include various leave benefits, training, and administrative time. Table 23—Examiner Productivity Ratio Budgeted Core and Special Workload Program Hours 764,193 Divided by Total Budgeted Workload Program Hours ÷ 1,448,716 Equals the Productivity Ratio 52.7% Applying the productivity ratio to the total annual work hours for an examiner FTE results in the number of productive hours per year for each examiner. The budgeted productive hours for an examiner for 2016 is 1,097. This calculation is illustrated in Table 24. Table 24—Productive Hours per FTE Total Annual Work Hours per examiner FTE 2,080 Times the Productivity Ratio × 52.7% Equals Annual Productive Hours per examiner FTE = 1,097 The additional number of examiner FTEs necessary to complete the net additional FISCU insurance work is calculated by dividing the net additional FISCU insurance hours from Table 22 in Step 2 by the annual productive hours per FTE. The 2016 OTR calculation resulted in 155.3 additional examiner FTEs needed to complete the additional insurance work in FISCUs. Table 25 illustrates this calculation. Table 25—Examiner FTEs Needed for Additional FISCU Work Net Additional FISCU Insurance Hours 170,401 Divided by Annual Productive Hours per FTE ÷ 1,097 Equals Additional Examiner FTEs Needed = 155.3 Adding an additional 155.3 examiners would necessitate additional staffing in other areas, including additional Supervisory Examiners and Regional Office staff. Based on NCUA's staffing patterns and organizational structure, the following ratios of examiners to other regional positions were used to determine additional staffing needs and costs. The ratios are documented in Table 26. Table 26—Other Regional FTEs Needed Additional staff needed Ratio examiners to position FTEs per position Examiners 1/1 155.3 Supervisory Examiners 1/9 17.3 Regional Office Analysts 1/15 10.4 Regional Office Directors 1/25 6.2 Other Regional Support Staff 1/20 7.8 Total Number of Additional Regional FTEs Needed 196.9 Step 4—Dollar Amount of the SSA Imputed Value The next step is to calculate the dollar amount of the SSA imputed value. The first step in this process is to calculate the average cost per regional FTE. The average cost is based on the actual budget for regional offices and field staff and includes employee pay and benefits, travel, rent, communications, utilities, administrative, and contracted services. The average cost of a regional FTE for the 2016 OTR calculation was $185,508 based on 838.2 FTEs. The calculation is illustrated in Table 27. Table 27—Annual Cost per Regional FTE Total Cost of Regions (2016 budget) $155,492,604 Divided by FTEs in Regions (2016 budget) ÷ 838.2 Equals Annual Cost Per Regional FTE = $185,508 Next, NCUA applies the annual cost per regional FTE to the total number of additional FTEs necessary if NCUA were to complete all FISCU examinations and supervision. In Table 26, NCUA calculated the total number of regional FTEs to be 196.9 for 2016. Multiplying the additional FTEs by the average projected cost per FTE results in additional regional costs of $36,525,336 for 2016. Table 28 illustrates this calculation. Table 28—Total Additional Regional Cost Projected Average Cost per FTE for 2016 $185,508 Times Additional FTEs Needed × 196.9 Equals Total Additional Regional Cost = $36,525,336 The additional regional staffing would also have an impact on the workload of the following NCUA central offices: • Office of Human Resources, • Office of the Chief Financial Officer Division of Financial Control, and • Office of the Chief Information Officer Division of IT Operations. Adding 196.6 additional staff members to NCUA would represent a 15.6 percent increase in staffing. This percentage increase is calculated by dividing the number of additional regional FTEs by NCUA's existing number of FTEs, which was 1,260.2 for the 2016 OTR calculation. Table 29 illustrates the calculation. Table 29—Percentage Increase in FTEs Office Budget Additional FTEs Needed 196.9 Divided by Current Number of FTEs ÷ 1,260.2 Equals the Percentage Increase in FTEs = 15.6% The workload will increase for the central offices indicated above, as these offices directly support staff by processing personnel actions, providing computer support, and processing payroll and travel vouchers. 65 Therefore, NCUA applies the 15.6 percent increase to each of the above office's budget to account for additional resources and workload. The combined budgets for these three offices for 2016 was $36,064,124. The projected increase in cost for 2016 based on the 15.6 percent increase was $5,634,664. The calculations are shown in Table 30. 65 Other central offices are considered sufficiently scalable or not directly impacted to absorb such an increase in regional positions without needing additional staff. Table 30—Additional Central Office Costs Office Budget Office of Human Resources $15,547,400 Plus Office of the Chief Financial Officer Division of Financial Control + $7,956,891 Plus Office of the Chief Information Officer Division of IT Operations + $12,559,833 Equals Total Other Office Budgets Affected = $36,064,124 Times 15.6 percent × 15.6% Equals Additional Central Office Costs = $5,634,664 In addition to the increases in certain costs, there would be some areas of savings to NCUA if it conducted all of the insurance related FISCU work. There would be no need to pay for the training of state examiners, or provide SSAs with computers and other equipment. The cost savings projected for the 2016 OTR calculation was $1,562,408. Table 31shows the breakdown of the cost savings. Table 31—Total Cost Savings SSA Training and Travel $1,400,000 Plus SSA Computer Leases + $162,408 Equals Total Cost Savings = $1,562,408 The SSA imputed value is calculated by adding the additional regional and central office costs from Table 28 and 30 and then subtracting the cost savings from Table 31. The SSA imputed value for the 2016 OTR is $40,597,592. Table 32 illustrates the calculation. Table 32—SSA Imputed Value Additional cost area Cost Additional Regional Costs $36,525,336 Plus Additional Central Office Costs + $5,634,664 Less SSA Training and Equipment Cost − $1,562,408 Equals Imputed SSA Value = $40,597,592 The SSA Imputed Value of $40.6 million is used to determine the total costs to NCUA of providing NCUSIF insurance (Table 10) and to determine the net cost of NCUSIF insurance for FISCUs (Table 12). As previously discussed in Section IV.e, Allocation of Insurance and Non-Insurance Costs, NCUA includes the SSA Imputed Value in the OTR calculation to account for NCUA's reliance, to the fullest extent possible, on SSAs to perform much of the insurance related supervision of FISCUs. Therefore, the costs NCUA and thereby the NCUSIF avoid are taken into account when determining and allocating the total cost of providing NCUSIF insurance. V. Request For Comment The Board invites comments on all issues discussed in this document. In particular, the Board solicits specific comments on the OTR's allocation of insurance and non-insurance related activities to the Operating Budget and the methodology used to determine the value of the work performed in FISCUs by SSAs. Further, commenters should not feel constrained to limit their comments to the issues discussed above. Rather, commenters are encouraged to discuss any other relevant OTR issues they believe NCUA should consider. Commenters are encouraged to provide documentation to support any alternatives they may suggest to adjust the existing methodology or components therein. By the National Credit Union Administration Board on January 21, 2016. Gerard Poliquin, Secretary of the Board. VI. Appendix A—Mapping of NCUA Regulations In its January 20, 2011, Overhead Transfer Rate Review, PricewaterhouseCoopers recommended that NCUA consider steps aimed at making the OTR methodology more transparent, along with all of the assumptions and steps that are utilized. In response, NCUA modified the classification of insurance and non-insurance related activities in May 2011 for the 2011-2012 ETS by establishing Insurance Related Activities, Insurance Regulatory Related Activities and Consumer Regulatory Related Activities. These definitions are mapped to the NCUA Regulations and were distributed to ETS participants as part of the ETS Instructions. The mapping of regulations deemed part of the examination process and distributed to the time study participants for the ETS period covering June 1, 2014 to May 31, 2015, is provided below. Footnotes have been added to provide additional insight. The current mapping has not yet been updated for NCUA's most recent final rules. Similar to other activities not explicitly classified in the ETS instructions, ETS participants defer to the overarching definitions of insurance and non-insurance related activities provided in the ETS instructions (see Appendix B) to appropriately allocate time as insurance or non-insurance. NCUA Regulation Part Insurance regulatory related Non-insurance and consumer regulatory related Description § Part 701—Organization and Operations of FCUs 66 .1—Federal credit union chartering, field of membership modifications, and conversions X This part addresses the location of NCUA's chartering and field of membership policies .2—Federal Credit Union Bylaws X Requires FCU's to operate in accordance with their approved bylaws. .3—Member inspection of credit union books, records, and minutes X This part grants a group of members the right to inspect the books and records of an FCU. .4-.5—Reserved .6—Fees paid by federal credit unions X This section establishes the fees to be paid by the credit union to the NCUA. .7-.13—Reserved .14—Change in official or senior executive officer in credit unions that are newly chartered or are in troubled condition X This section establishes parameters under which a newly chartered credit union or a troubled credit union must operate with regard to management decisions and operations. .15-.18—Reserved .19—Benefits for employees of federal credit unions X This section allows a FCU to pay employees certain benefits as part of their employment with the FCU. .20—Suretyship and guaranty X This section establishes the ability of a FCU to enter into suretyship and guaranty agreements under certain conditions and limitations. .21—Loans to members and lines of credit to members X This section establishes the parameters for a FCU's overall lending program. .22—Loan participation X This section establishes the ability of an FCU to enter into loan participation agreements, and establishes limitations and parameters under which an FCU can do so. .23—Purchase, sale, and pledge of eligible obligations X This section of the regulation establishes the ability of an FCU to purchase, sell, or pledge eligible obligations (loans) of the FCU. .24—Refund of interest X This section of the regulations authorizes an FCU to refund interest to members under certain conditions. .25—Charitable contributions and donations X This sections grants authority of an FCU to make charitable contributions. .26—Credit union service contracts X This sections grants authority for an FCU to enter into service contracts with other FCUs. .27-.29—Reserved .30—Services for nonmembers within the field of membership X This section grants authority to FCUs to provide limited services to non-members within their field of membership. .31—Nondiscrimination requirements X This section prohibits an FCU from discriminating against a person or group of persons and establishes parameters under which it must operate to ensure non-discrimination and notify others of its non-discrimination policies. .32—Payment on shares by public units and nonmembers X This section grants permission to FCUs to receive payments on shares from public units. .33—Reimbursement, insurance, and indemnification of officials and employees X This section establishes the parameters under which an FCU may compensate officials, and volunteers. .34—Designation of low-income status; acceptance of secondary capital accounts by low-income designated credit unions X Grants permission to LICU's to accept secondary capital accounts. 67 .35—Share, share draft, and share certificate accounts X Regulation grants permission for credit unions to offer share, share draft and certificate accounts to members. .36—FCU Ownership of fixed assets X Sets parameters and limitations on a FCU's ownership and treatment of fixed assets 37—Treasury Tax and Loan Depositaries; Depositaries and Financial Agents of the Government X Grants permission for FCU's to act as Treasury tax and loan depositary as well as a depositary of public money. .38—Borrowed funds from natural persons X Grants permission for FCU's to borrow funds from natural persons. .39—Statutory lien X Grants permission to an FCU to establish a lien against the property of members to secure a financial obligation to the FCU by that member. § 702—Prompt Corrective Action 68 .1—Authority, purpose, scope and other supervisory authority This Part of the NCUA regulations (including subparts A, B, C and D) deals exclusively with safety and soundness issues that impact directly or indirectly the financial condition of the credit union. .2 Definitions Subpart A .101—Measures and effective date of net worth classification X .102—Statutory net worth categories X .103—Applicability of net worth req't X .104—Risk portfolios defined X .105 Weighted-average life of investments X .106—Standard calculation of risk-based net worth requirement X .107—Alternative components for standard calculation X .108—Risk mitigation credit X Subpart B—Mandatory and Discretionary Supervisory Actions .201—Prompt corrective action for “adequately capitalized” credit unions X .202—Prompt corrective action for “undercapitalized” credit unions X .203—Prompt corrective action for “significantly undercapitalized” credit unions X .204—Prompt corrective action for “critically undercapitalized” credit unions X .205—Consultation with State officials on proposed prompt corrective action X .206—Net worth restoration plans X Subpart C—Alternative Prompt Corrective Action for New Credit Unions .301—Scope and definition .302—Net worth categories for new credit unions X .303—Prompt corrective action for “adequately capitalized” new credit unions X .304—Prompt corrective action for “moderately capitalized,” “marginally capitalized” or “minimally capitalized” new credit unions X .305—Prompt corrective action for “uncapitalized” new credit unions X .306—Revised business plans for new credit unions X .307—Incentives for new credit unions X Subpart—D Reserves .401—Reserves .402 Full and fair disclosure of financial condition X .403—Payment of dividends X § 703—Investment and Deposit Activities 69 .1—Purpose and scope This part of NCUAs regulations deal with investment and deposit permissions of FCU's and the compliance or non-compliance with this section impacts either directly, or indirectly, the financial condition of the credit union. .2—Definitions .3—Investment policies X .4—Recordkeeping and documentation requirements X .5—Discretionary control over Investments and investment advisers X .6—Credit Analysis X § 704—Corporate Credit Unions 70 .1—Scope This entire part of NCUAs regulations sets parameters on the financial operations of corporate credit unions. The compliance or non-compliance with this section could impact directly, or indirectly, the financial condition of the corporate credit union. .2—Definitions .3—Corporate Credit Union Capital X .4—Prompt Corrective Action X .5—Investments X .6—Credit Risk Management X .7—Lending X .8—Asset-Liability Management X .9—Liquidity Management X .10—Investment Action Plan X .11—Corporate CUSO's X .12—Permissible Services X .13—Board Responsibilities X .14—Representation X .15—Audit Requirements X .16—Contract/Written Agreements X .17—State-chartered corporate credit unions X .18—Fidelity bond coverage X .19—Disclosure of executive compensation X .20—Reserved X .21—Enterprise Risk Management X .22—Membership Fees X § 706—Credit Practices 71 .1—Definitions This entire section protects the member from unfair or deceptive acts by an FCU as well as compliance with other federal law designed to protect the consumer (member). .2—Unfair credit practices X .3—Unfair or deceptive cosigner practices X .4—Late charges X § 707—Truth in Savings 72 .1—Authority, purpose, coverage and effect on state laws This entire section protects the member from unfair or deceptive acts by an FCU as well as compliance with other federal law. .2—Definitions X .3—General disclosure requirements X .4—Account disclosures X .5—Subsequent disclosures X .6—Periodic statement disclosures X .7—Payment of dividends X .8—Advertising X .9—Enforcement and record retention X .10—Reserved .11—Additional disclosure requirements for overdraft services X § 712—Credit Union Service Organizations 73 .1—what does this part cover? This entire section of NCUAs regulations deal with the structure and operations of a CUSO. The compliance or non-compliance with these regulations could have a direct or indirect impact on the financial condition of an FCU. .2—How much can an FCU invest in or loan to CUSOs, and what parties may participate? X .3—What are the characteristics of and what requirements apply to CUSOs? X .4—What must an FCU and a CUSO do to maintain separate corporate identities? X .5—What activities and services are preapproved for CUSOs? X .6—What activities and services and prohibited for CUSOs? X .7—Reserved .8—What transaction and comp. limits apply to an FCU and a CUSO? X .9—When must an FCU comply with this part? X .10—How can a state supervisory authority obtain an exemption for state chartered credit unions from compliance with § 712.3(d)(3)? X § 713—Fidelity Bond and Insurance Coverage for Federal Credit Unions 74 .1—What is the scope of this section? This entire section of NCUA's regulations requires credit unions to obtain fidelity bond insurance coverage. This coverage protects the credit union from covered losses and therefore protects the NCUSIF. .2—What are the responsibilities of a credit union's board of directors under this section? X .3—What bond coverage must a credit union have? X .4—What bond forms may be used? X .5—What is the required minimum dollar amount of coverage? X .6—What is the permissible deduction? X .7—May the NCUA Board require a credit union to secure additional insurance coverage? X § 714—Leasing 75 .1—What does this part cover? This entire section of NCUAs regulations deals with the ability of FCUs to enter into leasing agreements and sets parameters on types of leases and limitations on financial arrangements. The compliance or non-compliance with this part could have a direct or indirect impact on the financial condition of the credit union. .2—What are the permissible leasing arrangements? X .3—Must you own the leased property in an indirect leasing arrangement? X .4—What are the lease requirements? X .5—What is required if you rely on an estimated residual value greater than 25% of the original cost of the leased property? X .6—Are you required to retain salvage powers over the leased property? X .7—What are the insurance requirements applicable to leasing? X .8—Are the early payment provisions, or interest rate provisions, applicable in leasing arrangements? X .9—Are indirect leasing arrangements subject to the purchase of eligible obligation limit? X .10—What other laws must you comply with when engaged in leasing? X § 715—Supervisory Committee Audits and Verifications 76 .1—Scope of this part This entire section of NCUAs regulations deals with the roles and responsibilities of the Supervisory Committee which are designed to ensure the safe and sound operation of an FCU. .2—Definitions used in this part X .3—General responsibilities of the Supervisory Committee X .4—Audit responsibility of the Supervisory Committee X .5—Audit of Federal Credit Unions X .6—Audit of Federally-insured State-chartered credit unions X .7—Supervisory Committee audit alternatives to a financial statement audit X .8—Requirements for verification of accounts and passbooks X .9—Assistance from outside, compensated person X .10—Audit report and working paper maintenance and access X .11—Sanctions for failure to comply with this part X .12—Statutory audit remedies for Federal credit unions X § 716—Privacy of Consumer Financial Information 77 1. Purpose and scope This entire section of NCUA's regulations deals with an FCU's communication with its members and the safeguarding of member information. .2 Model privacy form and examples .3 Definitions Subpart A—Privacy and Opt Out Notices .4—Initial privacy notice to consumers required X .5 Annual privacy notices to members required X .6 Information to be included in privacy notices X .7—Form of opt out notice to consumers and opt out methods X .8—Revised privacy notices X .9—Delivering privacy and opt out notices X Subpart B—Limits on Disclosures .10—Limits on disclosure of nonpublic information to third parties X .11—Limits on re-disclosure and reuse of information X .12—Limits on sharing of account number information for marketing purposes X Subpart C—Exceptions .13—Exception to opt out requirements for service providers and joint marketing X .14—Exceptions to notice and opt out requirements for processing transactions X .15—Other exceptions to notice and opt out requirements X Subpart D—Relation to Other Laws; Effective Date .16—Protection of Fair Credit Reporting Act X .17—Relation to state laws X .18—Effective date; transition rule X § 717—Fair Credit Reporting 78 .1 Purpose, scope and effective dates. This entire section of NCUAs regulations, including Subparts A through I, deals with the implementation of the Fair Credit Reporting Act which is designed to protect consumers (members) from unfair or deceptive practices. .2—Examples .3—Definitions Subpart B Reserved Subpart C—Affiliate Marketing .20—Coverage and definitions X .21—Affiliate marketing opt-out and exceptions X .22—Scope and duration of opt-out X .23—Contents of opt-out notice; consolidated and equivalent notices X .24—Reasonable opportunity to opt-out X .25—Reasonable and simple methods of opting out X .26—Delivery of opt-out notices X .27—Renewal of opt-out X 28—Effective date, compliance date, and prospective application X Subpart D—Medical Information .30—Obtaining or using medical information in connection with a determination of eligibility for credit X .31—Limits on re-disclosure of information X .32—Sharing medical information with affiliates X Subpart E—Duties of Furnishers of Information .40—Scope .41—Definitions .42—Reasonable policies and procedures concerning the accuracy and integrity of furnished information X .43—Direct Disputes X Subparts F-H Reserved Subpart I—Duties of Users of Consumer Reports Regarding Address Discrepancies and Records Disposal .80-.81 Reserved .82—Duties of users regarding address discrepancies. X .83—Disposal of consumer information X .84-.89 Reserved .90—Duties regarding the detection, prevention, and mitigation of identity theft. X .91—Duties of card issuers regarding changes of address X § 722—Appraisals 79 .1—Authority, Scope and Pur [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2016-01626. Public record. Not legal advice.