The Credit Union Industry

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NCUA recently announced the operating fee schedule for 2017: an approximately 25% increase over last year’s rate.  Several federal credit unions have inquired about the magnitude of the increase, especially considering it is so much greater than the 4.3% rise in NCUA’s total spending this year.  The operating fee increase is largely driven by a reduction in the Overhead Transfer Rate (OTR) from 73.1% in 2016 to 67.7% in 2017.  The OTR determines the amount of NCUA’s total spending that is paid for out of the Share Insurance Fund.  Any spending NOT covered by the OTR comes from operating fees paid by federal credit unions.  Therefore, the decline in the OTR left more to be funded by operating fees.  Here are the relevant numbers:

1. NCUA’s total budgeted spending for 2017 ($314 million) represents a 4.3% increase over 2016’s $301 million. (These totals include both the operating budget and capital spending).

1.  Had the OTR remained at last year’s 73.1%, operating fees would have risen from $81 million in 2016 to $84.5 million this year, an increase of 4.3%.  In that case, the amount funded from the Share Insurance Fund would also have risen by 4.3%, from $220 million to $229.5 million.

1. However, because the OTR decreased to 67.7%, the amount that must be funded by operating fees will rise from $81 million to $101.4 million, an increase of 25.3%. As a result, the amount funded by the OTR will fall by 3.4%, from $220 million to $212.6 million.  

1. Because this year’s decrease in the OTR follows several years of increases (and resulting reductions in operating fees), the operating fee increase this year reverses operating fee reductions over the past few years.  Total operating fees in 2017 ($101.4 million) will be almost back to where they were in 2013 ($103 million).
   

ADDITIONAL BACKGROUND 

1. The reason for last year’s reduction in the OTR was a change in the findings from NCUA’s annual survey of examiner time.  In the latest survey, examiners spent less time on insurance related activities and more time on non-insurance activities, specifically training and compliance.
   
2. NCUA last year requested comments on possible changes to the methods they use to determine the OTR (CUNA submitted a comprehensive comment letter), but they have not yet made any changes to the methods.  We expect NCUA to revise the methods sometime this year, which will likely lead to another change in the OTR next year.
   
3. Last year’s OTR at 73.1% was the highest it has ever been.  It had been rising from 52% in 2008 to 73.1% in 2016 before this year’s drop to 67.7%.  There was a big jump in 2014, from 59.1% to 69.2% In that year, the amount of the overhead transfer rose by $41 million and operating fees fell by $18 million (see table on previous page).
   
4. Because of the rise of the OTR over the past decade, the amount collected in operating fees in 2016 was roughly equivalent to the operating fees collected in 2008, at about $80 million (see table).  Operating fees had risen to $103 million in 2013 before falling back to a bit more than $80 million in 2014, 2015, and 2016.  Essentially, the large $20.4 million increase in operating fees in 2017 is slightly more than the $18 million reduction in operating fees in 2014.
   
5. The stability of total operating fees from 2008 to 2016 was despite a staggering increase in NCUA’s total budget, which rose by $140 million or 95.4% over the period.  Fully $136 million of that $140 million increase was funded by the OTR.

CONTACTS

Bill Hampel, Chief Policy Officer, CUNA.  bhampel@cuna.coop