New Legislation Would Delay CECL for CUs Posted by AVCU on 2:02 PM

CUNA maintains its longstanding position that the current expected credit loss (CECL) standard is inappropriate for credit unions and backed a bill Wednesday that would require the standard to be delayed and studied by the Securities and Exchange Commission along with the federal financial regulators, including the NCUA. Sen. Thom Tillis (R-N.C.) introduced the Continued Encouragement for Consumer Lending Act (S. 1564) Tuesday.

CECL is a new accounting standard that changes the accounting for credit losses, recognizing lifetime expected credit losses instead of the current “incurred-loss” approach. CUNA is concerned with both the compliance burden the new standard will bring, as well as its effect on the financial standing of credit unions.

“CECL is intended to address delayed recognition of credit losses resulting in insufficient funding of the allowance accounts of certain covered entities. However, underfunding of allowance accounts has not generally been an issue for credit unions. Further, the typical user of a credit union’s financial statements is not a public investor—such as with large, public banks—but instead is the credit union’s prudential regulator, the National Credit Union Administration.”

The letter notes that CUNA understands that the Financial Accounting Standards Board (FASB), which issued the standard, is an independent entity but Congress should utilize its authority to “improve CECL, or at a minimum, ensure there is sufficient, relevant information regarding CECL’s impact from which future decisions can be made.”

The letter also quotes recent CUNA research showing that nearly one in five credit unions expect CECL to negatively impact credit unions’ members ability to obtain credit.

As it currently stands, CECL is set to take effect on 1/1/20 for publicly traded banks and 1/1/22 for privately held banks and credit unions. The delay would make compliance optional for credit unions while the study is being conducted.  So far, Sens. Jerry Moran, R-Kan., Kevin Cramer, R-N.D., Tom Cotton, R-Ark., David Perdue, R-Ga., and Mike Rounds, R-S.D., have signed on as co-sponsors for Tillis’ bill to delay CECL until further study. Rep. Blaine Luetkemeyer, R-Mo., is floating similar legislation in the House.