NCUA updates CECL Tool Posted by AVCU on 1:15 PM

 The NCUA released updates to its Simplified Current Expected Credit Losses (CECL) Tool. The updates reflect the average loan loss rates for 2021-2023 and the latest life-of-loan —or Weighted Average Remaining Maturity—factors. 

The agency noted that the updates will help credit unions determine the credit loss expense for the first quarter of 2024. It also said the tool helps credit unions with assets under $10 million more accurately measure credit losses and get stronger feedback on loan portfolio management. 

Access the agency’s CECL Resources page for more on CECL. 

New NCUA plan would add millions of credit union members Posted by AVCU on 10:51 AM

 The National Credit Union Administration approved a plan that would expand credit union access to millions more Americans by allowing remote workers to qualify for membership based on their employer's market. 

The agency said the "paid from" proposal and other changes to its chartering and field-of-membership regulations would bring federal charters more in line with state charters. The agency has also proposed allowing more of a deceased credit union member's surviving family members to qualify for membership, and added a simplified application process for de novo community credit unions.

At the board's monthly meeting Thursday, NCUA Chairman Todd Harper said the current federal charter "lags significantly" behind the state charter, and 91 of the 100 largest potential fields of membership in the system are state charters. Roughly 3.3 million more people would be eligible to join a credit union under this proposal, Harper said. 

"Ultimately, it's Congress's decision whether to amend the Federal Credit Union Act's field-of-membership requirements to achieve greater parity with the rules in many states," Harper said. "However, where we can within our existing rules and the law's current requirements, the NCUA board should take appropriate and tailored action to simplify, streamline and strengthen federal chartering options."

But Robert Flock, vice president in the office of strategic engagement for the American Bankers Association, said regardless of the NCUA's intentions, this proposed rule blurs the distinction between credit unions and banks. 

"Further relaxing field-of-membership requirements renders the common bond that ties credit union members together meaningless," Flock said. "And without that common bond, credit unions are indistinguishable from tax-paying community banks, which are also committed to expanding access to financial services in underserved and low-income communities."

The NCUA's proposal would also simplify the application requirements for community-based credit unions by providing a standard form for business and marketing plans. The proposal would also expand the community-based field-of-membership affinities — relationships between a person and their geographic market — to recognize the growth of telecommuting.

"So instead of live, work or worship, the rule would include 'paid from,' so that if I worked for a company that was based in Boston, but I lived in Vermont and worked remotely, I could join that Boston-based community credit union," said Mark Treichel, a former NCUA executive director who now runs Credit Union Exam Solutions.

It is hard to estimate the reach of the changes, but that particular addition to community charters is "material" and will become more important over time, Treichel said.

Sam Brownell, founder of the consultancy CU Collaborate, agreed that aspect of the rule could have the biggest impact on consumers and credit unions.

"That would be a huge win for consumers' access to credit unions and allow more credit unions to provide their services to communities that banks seem to be leaving," Brownell said. 

In another loosening of membership restrictions, the NCUA proposed allowing everyone in the immediate family or household of a credit union member who dies to join the credit union in the six months following that person's death. Under the current rule, only the spouse of a member who dies is eligible for membership.

"This is a very thoughtful change, as it would allow loved ones to maintain a relationship with a credit union that they may only discover when death of a loved one results in a wind-down of affairs at the credit union," Treichel said.

The proposed changes to address the survivorship issue is a "compassionate move" to ensure no credit union member's family has unnecessary burdens to manage when a loved one passes away, said Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions.

To ease a backlog in field-of-membership applications, the NCUA has also asked to implement a template for this process. The proposal includes a technical clarification on the process for the NCUA to review and approve a new charter as well as the new organization's management and officials.

NCUA Vice Chairman Kyle Hauptman said the chartering process is one of his main three priorities, and so he is in favor of policies that make it more likely that a community or group can charter a new, viable credit union.

"Anything that clarifies field of membership also clarifies things for groups seeking a de novo charter," Hauptman said.

Jason Stverak, deputy chief advocacy officer for the Credit Union National Association, said that getting credit union services to more communities across the country is important to CUNA, state leagues and credit unions. He added that CUNA needs to review the proposal in detail. 

The unanimous vote on Thursday allows for a 90-day comment period to begin once agency officials publish the rule in the Federal Register.

NCUA board member Rodney Hood called the proposal a step in the right direction.

"But we have much more to build upon in this rule and from previous field of membership rulemakings," Hood said.

Ken McCarthy-Reporter, Credit Union Journal

What’s New In The 5300 Call Report? Posted by AVCU on 8:53 AM

 The NCUA approved major revisions to the 5300 Call Report that take effect in the first quarter of 2022. These changes involve substantial reorganization and restructuring of most sections of the call report, including the removal, addition, and modification of more than 1,000 combined account codes.

The changes are part of the Call Report Modernization Project that began in 2016. The project aims to reduce the reporting burden for credit unions by:

• Streamlining the call report process.
• Reorganizing and improving data collection.
• Accommodating the complex credit union leverage ratio (CCULR) and the risk-based capital (RBC) schedule.
  

CCULR Versus RBC? Which One Is Right?

Credit unions with less than $500 million in assets are considered non-complex credit unions. The regulatory capitalization rules for these credit unions remain unchanged.

Credit unions with more than $500 million in assets are considered complex credit unions. They must choose between regulatory capitalization formulas — CCULR and RBC.

Complex Credit Union Leverage Ratio (CCULR)

The CCULR was designed to provide a simpler measure of capital adequacy for complex credit unions. If an institution meets the qualifications listed below, it may elect to use the CCULR.

CCULR qualification criteria include:

• A net worth ratio of 9% or greater.
• Off-balance sheet exposures of less than 25% of total assets.
• Trading assets and liabilities less than 5% of total assets.
• Goodwill and other intangible assets less than 2% of total assets.

If  an institution qualifies for and elects the CCULR method, it does not have to complete the RBC schedule.

Risk-Based Capital (RBC)

If an institution has more than $500 million in assets and does not qualify for CCULR or elects not to use the CCULR option, it must complete the more complex RBC schedule on pages 24-28 of the new call report.

A credit union is considered “well-capitalized” if it uses the CCULR method or has an RBC ratio higher than 10%.

Of note: Complex credit unions with more than $500 million in assets are now allowed to issue secondary capital as subordinated debt and count this value toward their RBC calculation. Secondary capital issuance was previously limited only to credit unions with a low-income designation.

Notable Changes To The First Quarter Call Report

The call report changes that took effect between the fourth quarter of 2021 and the first quarter of 2022 are substantial and represent the bulk of the Call Report Modernization Project.

The major areas of change include:

• Expanding information on foreclosed and repossessed assets.
• Removing commercial loans from the real estate lending detail.
• Reducing delinquency and charge-off categories and aligning them with loan types.
• Adjusting indirect loan and participation reporting requirements.
• Restructuring categories for investment portfolio reporting.
• Providing new information on off-balance sheet exposures.
• Adding CCULR and RBC calculation schedules.

Many of these changes involve separating, offering additional detail, and aligning information related to commercial lending.

In addition to these changes, the NCUA reorganized much of the call report. Many schedules moved to new pages and areas, although the account codes themselves remain unchanged.

NCUA plans overdraft scrutiny with a close eye on financial inclusion Posted by AVCU on 10:36 AM

 Regulators at the National Credit Union Administration are taking a deeper look at overdraft programs for 2022 as part of a mission of combating financial exclusion.

The NCUA’s heightened scrutiny of the fee programs comes as financial institutions including Bank of America and Capital One are either modifying their overdraft charges or doing away with them entirely. Combined with competition from challenger banks, this trend has prompted many credit unions to make changes to their own overdraft policies to stay competitive.

Credit union trade organizations like the Credit Union National Association and the National Association of Federally-Insured Credit Unions say that the NCUA’s review of overdrafts is logical when considering the changing climate for the programs.

The NCUA’s decision to focus on overdraft practices aligns with the agency’s past decisions, as well as current initiatives from other regulators such as the Consumer Financial Protection Bureau, according to Alexander Monterrubio, senior director of advocacy and counsel for CUNA.

“The NCUA sets their supervisory priorities every year, and every year they include some element of consumer protection laws and regulations,” which in the past has included the Home Mortgage Disclosure Act and the Military Lending Act, Monterrubio said. “Given the overall environment around overdraft, [such as] the CFPB looking more closely at overdraft fees and fees in general, I think it is not necessarily surprising that the NCUA would follow suit.”

The regulatory focus on the fee programs will prompt credit unions to conduct reviews of their own practices regarding the level of fees situated against members and how they are disclosed to consumers, Monterrubio said.

“The agency needs to understand how these programs are structured, whether disclosures are provided to consumers, whether there are any features that are unfair to consumers and whether a credit union relies too heavily on overdraft fee income,” said Todd Harper, chairman of the NCUA.Bloomberg

Consumer outcry has also been a driving factor behind many institutions’ decision to revise their overdraft programs.

Roughly 52% of consumers said overdraft fees were an unfair penalty that disproportionately impacts those underprivileged consumers, according to a June 2021 survey of 2,200 U.S. adults conducted by the data intelligence firm Morning Consult in Washington.

“Part of the NCUA’s concern here, and the reason why overdraft is included as a supervisory priority for the agency this year, is because they're always taking a look at potential issues of safety and soundness … as they’re looking at consumer complaints, these issues may come up,” said Ann Kossachev, vice president of regulatory affairs for NAFCU.

In addition to addressing consumer complaints and looking for the potential reputational, compliance or litigation risks the practices pose to both the NCUA and the credit union industry as a whole, regulators also need to be aware of the dependency smaller credit unions have on the revenue generated from fees to help subsidize programs like free checking accounts, financial literacy efforts and community investments, Kossachev said.

“The reality is, overdraft is still a significant source of revenue for some smaller credit unions,” Kossachev said.

At CUNA’s Governmental Affairs Conference held in Washington earlier this month, NCUA Chairman Todd Harper discussed the potentially harmful effects of overdraft fees as part of an update on the agency’s supervisory focuses for the coming year.

“Punitive overdraft fees can harm consumers, and households hit by frequent charges often have their checking accounts closed … so, such fees can actually lead to financial exclusion, instead of financial inclusion,” Harper said.

Using the data on overdraft procedures and communication with members aggregated through reviews and audits, the NCUA expects to conduct a more thorough examination of the programs in 2023, Harper said.

“The agency needs to understand how these programs are structured, whether disclosures are provided to consumers, whether there are any features that are unfair to consumers and whether a credit union relies too heavily on overdraft fee income,” leading to potential issues of safety and soundness, Harper said.

For those institutions that still heavily rely on the fees, Harper proposed the institution of additional features such as linking to savings accounts, and offering lower-rate lines of credit and short-term, small-dollar personal loans to provide members with additional windfalls.

NCUA tries to meet credit unions halfway on capital rules Posted by AVCU on 3:57 PM

 The National Credit Union Administration board has approved a proposed rule to allow “complex” credit unions to opt out of its controversial risk-based capital requirements if they maintain a minimum net-worth ratio.

The board by a 3-0 vote issued a notice of proposed rulemaking that would establish the “complex credit union leverage ratio.” Under the measure, credit unions with at least $500 million of assets meeting a leverage ratio of at least 9% can avoid burdensome risk-based standards that go into effect next year.

Officials compared the plan to a similar measure implemented by bank regulators last year. That provides community banks with an off-ramp from complicated risk-based capital requirements if they meet a minimum leverage ratio.

Both the community bank and credit union “standards seek to strike a balance among several objectives including maintaining strong capital levels, protecting safety and soundness and simplifying compliance,” said NCUA Chairman Todd Harper at the board meeting.

At the meeting Thursday, the board also heard a presentation about the potential intersections between blockchains, cryptocurrencies, fintech and credit unions, and issued a request for more information to gain public feedback.

NCUA board member Rodney Hood said his preference would be to table the risk-based capital rule indefinitely or for the board to even consider repealing it. He said it would be eight years old by the time it goes into effect. “The world has changed considerably since 2015.”

The NCUA’s leverage ratio plan attempts to find a middle ground between maintaining capital requirements for larger credit unions while responding to industry complaints that the risk-based capital regime — set to go into effect next year — would pose an undue burden.

The regulator in January redefined “complex” credit unions for purposes of capital requirements by raising the asset threshold from $50 million to $500 million. Credit unions below the new threshold are already exempted from the new risk-based capital regime.

Under the new proposal, complex credit unions could choose between complying with the risk-based standards and the CCULR if their leverage ratio — a measure of net worth — is at least 9% on Jan. 1, 2022. That minimum ratio would gradually increase to 10% by Jan. 1, 2024. The NCUA estimates that about 75% of complex credit unions would initially meet the requirement.

The proposal is subject to a 60-day comment period.

The risk-based capital rule, which was originally approved in 2015, has had its implementation date changed multiple times and is currently slated to take effect Jan. 1, 2022.

But even though the leverage ratio proposal passed unanimously, not all three board members were thrilled with the concept.

Board member Rodney Hood said his preference would be to table the risk-based capital rule indefinitely or for the board to even consider repealing it. He said the risk-based rule would be eight years old by the time it goes into effect.

“The world has changed considerably since 2015,” he said. “The reality is that RBC should be a tool and not a rule.”

Hood ultimately said he would “begrudgingly” vote for the leverage ratio proposal that he called a step in the right direction because it provides an off-ramp for the RBC rule that goes into effect in just six months.

NCUA Vice Chairman Kyle Hauptman said the chief benefit of the proposed rule is that it allows some credit unions to bypass a risk-based capital approach.

“For me, the point of this simpler leverage ratio is that it protects both credit unions and the Share Insurance Fund from the inevitable problems associated with risk-weightings,” he said. “Capital is the holy grail. When a recession hits, the first thing I’d want to know about any deposit-taking institution is how much total capital they have.”

Hauptman also said a simpler capital standard isn’t just useful because it saves time and effort. It’s also a way of protecting the system from the problems inherent in any risk-weighting process, he said.

The NCUA board in January approved an advance notice of proposed rulemaking that solicited comments on two approaches to simplify risk-based capital requirements. One of those was the CCULR. Comment letters on the leverage ratio that the agency received in response to the ANPR were factored into the proposed rule, board members said Thursday.

Credit Union National Association President and CEO Jim Nussle on Thursday said the trade group looks forward to reviewing the proposal and is hopeful the CCULR will allow credit unions flexibility when complying with the risk-based capital rule, “though we continue to believe the rule itself is functionally unnecessary.”

“We support minimizing the compliance burden for credit unions that would otherwise be required to comply with the 2015 rule, and we look forward to submitting more detailed feedback to the NCUA in our comments,” he said.

The National Association of State Credit Union Supervisors said in a May 10 comment letter that parallels between the CCULR and the existing “community bank leverage ratio” are a big advantage.

“The regulatory and commercial experience with the CBLR can help inform the development and implementation of NCUA’s CCULR proposal,” NASCUS wrote.

Meanwhile, the NCUA board also approved a request for information and public comment on digital assets and related technologies for a 60-day comment period.

Along those lines, Hood said the regulator is currently working to hire its first director of innovation and access.

“We recognize these technologies are going to play a growing role in financial services in the years to come,” he said.

Countering banker falsehoods, update on DEI, NCUSIF among topics in letter to House lawmakers Posted by AVCU on 8:53 AM

 CUNA wrote an extensive rebuttal to falsehoods spread by banking trade associations in a letter to the House Financial Services Committee on Tuesday. The letter, sent ahead of the Committee’s Wednesday hearing on oversight of prudential regulators, also gave an update on credit unions’ diversity, equity, and inclusion (DEI) journey, as well as input on the National Credit Union Share Insurance Fund (NCUSIF).

Banks selling to credit unions

While banking trade associations have launched national campaigns and lobbied Congress to cry foul over bank CEOs selling their assets to credit unions, Tuesday’s letter noted how rare these sales are.

“…[W]e don’t quite know what to make of the bank groups’ objection to these transactions given the relative size of this activity,” the letter reads. “ Since 2012, there have been 35 bank sales to credit unions (totaling $4.7 billion) compared to more than 2,000 bank to bank merger and acquisitions (totaling $1.7 trillion); market-based sales to credit unions represent roughly 0.3% of the total asset volume of all bank merger activity during this time period. To say they are making a mountain out of a molehill would be grossly exaggerating the size of a molehill.”

The letter also relayed how these transactions benefit consumers and communities, noting how they prevent the surge in banking deserts over the past two decades, with banks shuttering a net 6,000+ branches since 2004, while a net 1,600 credit union branches have opened in the same period. The letter also notes that 80% of these transactions involve low-income designated credit unions, meaning that a bank selling to a credit union means that not only is a branch likely to remain open, but the credit union is likely to have a particular focus on low-income individuals and families.

Credit union diversity, equity, and inclusion

In addition to setting the record straight on banks selling to credit unions, CUNA provided an update on credit unions’ DEI journey.

The letter shared with lawmakers CUNA’s recent issues brief on gender diversity in credit union leadership✎ EditSign, noting that 51% of credit union CEOs are women, compared to just 3% of bank CEOs, and that 33% of credit union board members were women, versus only 16% at banks.  

The letter also highlighted CUNA research on branch location, noting that 75% of credit union branches are located in middle, moderate, and low-income communities (compared to 70% of banks) and that 76% of credit union branches are in racially and ethnically diverse areas (compared to 71% of banks).

The letter also noted that credit unions are committed to doing more to advance DEI and enhance the financial well-being of their employees, members, and communities.

National Credit Union Share Insurance Fund

Lastly, the letter shared CUNA’s thoughts on the NCUSIF, noting that requests by NCUA Chairman Harper to adjust NCUSIF premium thresholds are drastic, unnecessary, and inappropriate, as adjustments reduce the funds available for credit unions to serve their members.

“…NCUSIF is funded by credit union member deposits, so every dollar over-insuring the fund is a dollar that is not being used to the benefit of credit union members,” the letter reads.

Tuesday’s letter covered several other topics of interest to credit unions, including legislation that would expand financial access, modernizations to the Federal Credit Union Act, and PCA flexibility.

Citing Temporary Influx of Deposits, NCUA Board Delays Release of Equity Ratio Posted by AVCU on 2:11 PM

 The NCUA board will not issue its regularly scheduled update of the agency’s equity ratio this month — an update that could have required the board to take action to shore up the ratio, Chairman Todd Harper said Thursday.

That action could have included charging credit unions a premium.

Speaking at the board’s monthly meeting, Harper said the NCUA will continue to analyze the equity ratio and will review the first quarter Call Reports of federally-insured credit unions, which will be submitted in the coming days.

The board has set the equity ratio’s Normal Operating level at 1.38%. However, largely because of a huge influx of money from pandemic-related assistance, including Economic Impact Payments, the equity ratio stood at 1.26% in February.

Federal law requires the NCUA board to develop a restoration plan if the equity ratio falls below 1.20%.

“The pandemic’s impact on the economy and the government’s related fiscal response has increased uncertainty related to key drivers of the equity ratio, especially insured share growth,” Harper said.

Board Vice Chairman Kyle Hauptman said he realizes that credit union officials are worried about being charged a premium.

“I realize the specter of an insurance premium is weighing heavily on the minds of most credit unions,” he said. “Of course, safety and soundness of the insurance fund is of the utmost importance.”

Hauptman said even if the equity ratio dips below 1.20%, the board would not be required to charge a premium.

Hauptman also presented a new issue for the board to consider. He suggested that the NCUA record examination meetings between the agency and credit unions. He said that credit unions are “universally” in favor of such transparency issues and used the analogy of police body cameras. He suggested that the NCUA consider taking a survey of credit unions to determine their positions on the issue.

“I know that the police and others actually encourage these body cameras,” Hauptman said. “Good cops always want these. It provides transparency.”

No other board member addressed the issue.

At Thursday’s meeting the board also received a briefing on an interim final rule that the board adopted to help credit unions that could face enforcement of prompt corrective action regulations as a result of the influx of coronavirus-related deposits.

The rule in large part mirrors one that the NCUA board adopted last year, as credit unions faced an influx of deposits caused by members’ receiving Economic Impact Payments. The rule expired at the end of last year.

The interim final rule temporarily reduces the earnings retention requirement for federally-insured credit unions that are adequately capitalized. Those credit unions unable to meet the earnings retention requirement will not have to submit a written application requesting approval to decrease their earnings retention amount.

However, if a credit union poses an undue risk to the Share Insurance Fund or exhibits safety and soundness concerns, an NCUA regional director may require the credit union to submit that request.

The second part of the rule temporarily permits an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized largely because of share growth.

“As a result of this change, eligible credit unions will be able to focus their limited resources on serving their members’ needs — especially those of modest means and those disproportionately affected by the pandemic — instead of planning for earnings transfers and developing detailed net worth restoration plans,” Harper said.

Hauptman said nearly all of the growth in credit union shares is in highly liquid, short-term investments that represent little or no risk of loss.

“Not providing net worth flexibility would have resulted in greater statutory and regulatory pressure to increase yields on loans and investments to increase retained earnings and meet regulatory requirements,” he said. “Pressure to reverse net worth ratio trends by reaching for yield during this unprecedented period could in fact be counterproductive.”

Board member Rodney Hood suggested that the board consider decreasing the agency’s Normal Operating Level to 1.30% — a figure that credit union trade groups have endorsed.

He also endorsed the interim final rule. “Today’s rule temporarily streamlines our regulatory requirements for prompt corrective action without introducing undue risk.”

The board also received a cybersecurity update.

CUNA sends recommendations to incoming Biden administration Posted by AVCU on 8:22 AM

•  The incoming Biden administration should consider the impact any policy changes will have on credit unions’ ability to serve their members, CUNA wrote to the Biden transition team Tuesday. CUNA’s recommendations include continued actions from NCUA and the Consumer Financial Protection Bureau (CFPB), as well as recommendations in the housing and diversity, equity, and inclusion arena.

“CUNA strongly encourages this new administration to support and implement further COVID-recovery legislation and policies in 2021 and beyond to ensure credit unions remain in a position to serve their members throughout and after the COVID-19 pandemic,” the letter reads.

CUNA continues to encourage the NCUA to:

• Refrain from National Credit Union Share Insurance Fund (NCUSIF) premium assessments;
• Temporarily exclude certain low-risk assets from the net worth ratio;
• Remove obstacles to consumers accessing the Payday Alternative Loans I Program;
• Allow the use of temporary asset thresholds; and
• Quickly review pending rulemakings.

CUNA recommendations to the CFPB include broad ones, as well as recommendations for specific regulations:

• Avoid implementing new rules that would unnecessarily tie-up compliance resources or add to regulatory burden;
• Suspend unnecessary onsite examination activities and reduce the frequency of requests for examination-related information 
• Expand “good faith efforts to comply” supervision policies to additional areas where credit unions are acting swiftly to assist members in need; and
• Coordinate with other federal banking regulators, especially the NCUA, to issue up-to-date guidance on mortgage servicing; and
•  Effectively use its statutory authority to appropriately tailor regulations to reduce burden or exempt credit unions entirely, as appropriate;

CUNA also covers several specific regulations and actions the CFPB should take:

• Remittances
• Increase the “normal course of business” safe harbor threshold from 500, as finalized, to 1,000 remittance transfers; and
• Eliminate the 30-minute cancellation requirement or provide consumers the ability to opt-out of the mandated waiting period.
• Home Mortgage Disclosure Act (HMDA)
• Allow reporting for Home Equity Lines of Credit (HELOCs) to once again be voluntary;
• Reduce the HMDA data set for credit unions to only data points specifically required by current statute; 
• Increase further the open-end line of credit and closed-end mortgage loan reporting thresholds to exempt credit unions with smaller mortgage lending portfolios from HMDA reporting; and   
• Alter the approach to the privacy balancing test used to determine which HMDA data points will be made available to the public in favor of consumer privacy. 
• Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)
• Solicit stakeholder feedback on an ongoing basis to determine whether the “abusiveness” standard being applied is clear and whether a rulemaking is necessary;
• Clarify that previous enforcement actions or consent orders that conflict with statutory or judicial precedent create no new expectations for compliance; and
• Clarify its authority under the Dodd-Frank Act in regulating the business of insurance and reaffirm that UDAAP is not a backdoor to regulate insurance activities.

The letter also notes credit unions’ critical role in the housing markets, and suggests the following priorities:

• Include mortgage payment assistance to borrowers impacted by the COVID-19 crisis in any stimulus package;
• Include temporary liquidity assistance for mortgage servicers in any stimulus package
• Ensure the Federal Housing Finance Agency’s (FHFA) recapitalization plans for Fannie Mae and Freddie Mac are phased in on a schedule that prevents disruption of the secondary mortgage market; and
• Any amendments to existing housing finance reform plans should ensure that the secondary market remains open to lenders of all sizes on an equitable basis, without allowing Fannie and Freddie to provide discounts based on volume or otherwise charge higher fees to smaller lenders such as credit unions.

CUNA also highlights its commitment, and that of its members, to ensure DEI plays a role in every aspect of the financial services sector.

“Credit unions and all in the financial services sector, including our regulators, must be intentional about increasing diversity and inclusion at leadership, board, and staff levels to continue to reach and better serve an increasingly diverse population and enhance financial inclusion for all,” the letter reads. “We look forward to working with the new administration, Congress and federal regulators as we continue to make diversity, equity, and inclusion an industry top priority.”

NCUA extends COVID relief, approves subordinated debt rule Posted by AVCU on 8:29 AM

 The NCUA board extended its previous COVID-19 relief through the end of 2021, approved its subordinated debt final rule and proposed an overdraft rule, among other items on its agenda Thursday. The board will meet again Friday to vote on the agency’s proposed budget.

“We thank NCUA for taking actions today that will help credit unions increase services to members hit hard by the pandemic,” said CUNA President/CEO Jim Nussle. “The subordinated debt rule will go a long way toward helping credit unions raise additional capital if needed, and the overdraft proposal would provide additional flexibility for credit unions to work with their members.”

Specifically, the extended COVID-19 relief:

• Temporarily raises the maximum aggregate amount of loan participations that a federally insured credit union may purchase from a single originating lender without seeking a waiver from the appropriate Regional Director to the greater of $5 million or 200% of the federally insured credit union’s net worth;
• Temporarily suspends limitations on the types of eligible obligations that a federal credit union may purchase and hold; and
• Pauses the required timeframes for the occupancy or disposition of properties not being used for federal credit union business or that have been abandoned.

The board also issued a proposed overdraft rule that would modify the requirement that a federal credit union’s written overdraft policy establish a time limit, not to exceed 45 calendar days, for a member to either deposit funds or obtain an approved loan from the FCU to cover each overdraft.

The proposal would remove the 45-day limit and replace it with a requirement that the written policy must establish a specific time limit that is both reasonable and applicable to all members, for a member either to deposit funds or obtain an approved loan from the federal credit union to cover each overdraft.

Other highlights of the meeting include:

• A proposed rule that would amend field of membership rules to modernize requirements related to service facilities for multiple common bond federal credit unions;
• A proposed rule on mortgage servicing rights that would allow credit unions to purchase mortgage servicing rights from other federally insured credit unions under certain conditions;
• A board briefing on the 2021 Normal Operating Level, which will remain 1.38%

Proposed Rule on Capitalization of Interest Provides Relief Posted by AVCU on 2:33 PM

 The NCUA Board approved a proposed rule that removes the prohibition on the capitalization of interest in connection with loan workouts and modifications.

“At the onset of the COVID-19 pandemic roughly nine months ago, that priority shifted into high gear as I worked with agency staff on COVID-relief measures that would allow credit unions the flexibility to work with borrowers experiencing economic hardship as a result of the pandemic,” Chairman Rodney E. Hood said. “Today’s proposed rule continues to move toward those relief efforts.”

The Board determined that the current prohibition on authorizing additional advances to finance unpaid interest might be overly burdensome and, in some cases, hamper a federally insured credit union’s good-faith efforts to engage in loan workouts with borrowers facing difficulty because of the economic disruption that the COVID-19 event has caused. Advancing interest may avert the need for alternative actions that would be more harmful to borrowers.

The proposed rule would establish documentation requirements to help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan. The proposed change would apply to workouts of all types of member loans, including commercial and business loans.

6 ways to prepare for credit union exams Posted by AVCU on 8:43 AM

 It’s that time again. The date of your credit union examination is creeping up. In the weeks and days leading up to exam, you stress, worry and run through your exam prep lists.

To help reduce the anxiety leading up to “E-day,” here are six ideas on how to prepare for exams.

• Be aware of exam procedures that have been altered due to the pandemic.

According to NCUA:

• Examiners will work with credit union staff to facilitate the secure exchange of information needed to conduct offsite examination and supervision work until further notice.
• Credit unions are not required to provide documentation or make staff available for discussions with examiners at this time, unless approved by the Office of Executive Director.
• Even if an examination is not scheduled for many months, NCUA staff may contact a credit union to request documentation needed to complete offsite examination activities.
• Examiners may schedule virtual meetings with credit union staff or officials to discuss an examination if the credit union staff and officials are willing and able to do so.

Of course, contact your examiner directly with any questions.

• Ask for an exam request list.

Do this as soon as a date is set. Larger credit unions usually receive these lists, but it does not hurt for medium or smaller sized credit unions to also ask for one in advance. Receiving and acting on this list before the exam begins means you can have everything prepared and labeled when they “walk through the door”— virtually or literally. Your high level of preparation will make things easier for you and your staff - requiring less searching for things at the last moment - and may even brighten the examiner's disposition.

• Review your last exam.

If you received a Document of Resolution (DOR) from your previous exam, is it completed? An examiner may issue a DOR when an unacceptable risk is discovered as part of the exam process. A DOR captures agreements reached between the examiner and the credit union for the timely correction of the identified problem. It includes who is responsible and the time frame for resolution. If you have a previously issued DOR that has not been completed, you should be prepared to explain what actions have been taken to date.

• Communicate with your examiner.

Be proactive! Make a phone call and in a friendly tone of voice, ask the examiner if there are any new areas of focus you should be prepared for. Also, if your examiner is new, give him or her an overview of your credit union – your membership specs, your mission and this year’s business plan. Examiners are busy people, so you should not assume they have done this research on their own.

• Use a CMS to map your credit union’s operating environment.

The mapping feature of some compliance management system (CMS) software solutions allows you to link together all the relevant components of your credit union's operating environment affected by a regulation. Mapping integrates all compliance efforts including impacted policies, processes, required training and risk assessments back to the regulation itself. When an examiner wants to see proof of compliance, one click brings it all into focus, creating a crystal-clear picture of your compliance status.

• Run law/regulation testing templates through your CMS.

Testing templates are another useful component of comprehensive credit union compliance management systems. For example, the Credit Union Compliance Management System PLUSTM (CU CMS+) integrated software solution includes law/regulation testing templates among its robust suite of features. The testing templates, built from AIRES exam questionnaires, deliver exam prep and trial runs so you're ready for exams and conversations. You'll always be up to date.

Hopefully these tips will help reduce the stress and increase the confidence you feel as you get closer to your next E-day! Looking for more help preparing? Visit cuna.org/compliance to learn more about resources CUNA provides to help credit union compliance professionals feel confident in all of their credit union’s operations.

Posted by AVCU on 8:54 AM

 CUNA supports NCUA’s proposed current expected credit loss (CECL) transition methodology, it wrote to the agency Monday. CUNA also strongly supports the proposal’s effective exemption of credit unions with less than $10 million in assets from CECL.  

CECL is a new accounting standard that recognizes lifetime expected credit losses. CUNA has maintained that it is inappropriate for credit unions and will present capital and compliance challenges.

Upon adoption of CECL an institution will record a cumulative-effect adjustment to retained earnings. CUNA believes credit unions will likely experience a (potentially sharp) increase in expected credit losses on the effective date as a result of the day-one adjustment, which could lower prompt corrective action (PCA) classification.

Credit unions are required to comply with CECL for fiscal years beginning after Dec. 15, 2022. NCUA’s proposal would provide that, for the purposes of net worth classification, the agency will phase in over a three-year period the day-one capital effects of CECL.

“A phase-in will alleviate the impact of the day-one adjustment but will not change the overall impact the new accounting methodology will have on credit unions. With that said, we believe a three-year phase-in is appropriate,” CUNA’s letter reads. “Not only does it conform with the flexibility provided by the federal banking agencies, it also provides a sufficient amount of time for credit unions to spread out the effect of the day-one adjustment.”

NCUA’s proposal also exercises its statutory authority under the Federal Credit Union Act to no longer require that credit unions with under $10 million in assets make changes for loan losses. Instead those credit union would be allowed to make such charges under any reasonable reserve methodology (including the current “incurred loss” approach), as long as it adequately covers loan losses.

 “NCUA using its statutory authority to exclude the smallest FICUs from the costly—initial and ongoing—expenses required to comply with CECL is critical,” the letter reads. “While these challenges are not unique to only the smallest FICUs, we recognize the GAAP-exemption threshold of $10 million is explicitly stated in the FCU Act, prohibiting the NCUA from exempting from GAAP credit unions at or above $10 million in assets.”

CUNA’s letter requests NCUA determine whether a credit union that meets $10 million in assets after the CECL effective date is permitted to phase-in CECL for regulatory capital purposes.

Watch for these NCUA exam ‘hot spots’ Posted by AVCU on 3:32 PM

 Jared Ihrig, CUNA's chief compliance officer & counsel explored NCUA exam “hot spots” during the 2020 CUNA Operations & Member Experience Council and CUNA Technology Council Virtual Conference.

NCUA is focusing on error-resolution requirements, timelines, and issues concerning Regulation E, as well as overdraft opt-in disclosures for one-time ATM and debit transactions, he says.

Some credit unions continue to miss filing deadlines of the loan application register (LARs) as required by the Home Mortgage Disclosure Act, and some aren’t updated LARs quarterly.

Additionally, in some instances data fields are not being properly aggregated or captured across credit union loan origination systems, Ihrig says.

Examiners are also noting that in some instances, credit unions aren’t providing adverse action notices related to Regulation B to borrowers with enough reason specificity, resulting in some examination findings for credit unions.

Fair lending exams will likely increase in 2020 and 2021, he notes.

Under the Servicemembers Civil Relief Act, the annual percentage rate reduction must occur as of the effect date of active duty orders, not necessarily the date the member notifies the credit union.

Plus, Reserve and National Guard members are covered under the Military Lending Act and the Servicemembers Civil Relief Act, Ihrig says. Some credit unions misunderstand what constitutes a “covered borrower” under the Military Lending Act.

During CUNA’s discussions with NCUA, the agency reports the second highest number of complaints concern the Fair Credit Reporting Act, he says.

“It’s important to remember that if we contract with third-party vendors and there are mistakes made by our third-party vendors, that does not relieve the credit union from liability in this area,” Ihrig says.

In regard to Fair Lending, credit unions must look across all of their systems, including debt collection and credit scoring, to be sure they’re applied fairly.

Another exam hot spot for regulators is mortgages, Ihrig says. Specific concerns include misrepresentation of credit terms and annual percentage rate, misleading advertised rates and payments as fixed, misrepresentation of the “existence, nature, or amount of cash or credit available” to the consumer, misrepresentation of the “existence or amount of fees or costs to the consumer,” and number of time period of payments over the course of the full term of the loan.

Mortgage servicing is also a point of emphasis, with loss mitigation timing and disclosure requirements, notices and communications to delinquent borrowers, private mortgage insurance release requirements, escrow account calculations and disclosures, successors in interest, periodic statement requirements, and borrowers in bankruptcy disclosures under scrutiny, Ihrig says.

CUNA asks NCUA for additional support for credit unions Posted by AVCU on 8:19 AM

 More than six months into the COVID-19 crisis, the credit union industry continues to face new issues, CUNA wrote to NCUA Chairman Rodney Hood Wednesday. The letter is CUNA’s latest engagement with NCUA on pandemic-related issues, CUNA has sent several previous letters and CUNA leaders have met with Hood and other NCUA staff.

CUNA’s letter reiterates several specific concerns it is hearing from credit unions and members, and includes policy recommendations.

These include asking NCUA to:

• Explore ways to reduce the denominator of the net worth ratio, including by excluding zero- and low-risk assets from the net worth ratio calculation;
• Permit credit unions to capitalize interest on consumer mortgage loans in connection with loan modifications made during the pandemic;
• Further delay the effective date of the risk-based capital rule to, at earliest, Jan. 1, 2023;
• Forbear on any assessments;
• Revisit the recently tabled interim final rule on overdraft policy that would allow credit unions to adopt reasonable, flexible policies for members to resolve overdrawn accounts rather than the current 45-day time limit;
• Issue an interim final rule eliminating the requirement that a borrower be a member of a credit union for at least one month before receiving a Payday Alternative Loan I (PAL I); and
• Provide additional guidance for credit unions assisting financially distressed borrowers with outstanding PALs.

 

Posted by AVCU on 8:37 AM

 Time is running short and as Congress returns during the next two weeks, it has a daunting list of must-do and wants-to-do legislation before members go home for the run-up to Election Day.

The Senate returns this week, while the House is concentrating on remote hearings before returning next week. The Senate is scheduled to be in session 17 days between now and Nov. 3, while the House likely will be in session for 15 days once it returns.

Even in the best of worlds, that is not much time to do serious legislating. Of course, this is not the best of worlds, with the nation bitterly divided just weeks before the election, so it remains unclear how much can be accomplished.

Still, an examination of the wish lists prepared by members of Congress, NCUA Chairman Rodney Hood, as well as CUNA and NAFCU makes it clear that the credit union industry has a lot still on its list.

Kyle Hauptman

Senate Republicans would like to see Hauptman confirmed for a seat on the NCUA sooner rather than later.

The Senate Banking Committee has recommended that Hauptman be confirmed, but Senate GOP leaders have given no indication of when the nomination will go to the full Senate. If Hauptman is confirmed, it likely would mean that Republicans will hold the majority on the board even if former Vice President Joe Biden is elected president.

If Hauptman, by some chance, is not confirmed by the end of the year and Biden is elected, Democrats could control the majority.

Government Funding

Funding for much of the federal government expires on Sept. 30, the end of the fiscal year. The NCUA and CFPB are funded outside the appropriations process, so they will continue to operate even if funding lapses.

Still, credit union advocates are watching a couple of issues closely. The annual Financial Services appropriations measure includes the Community Development Financial Institutions and the NCUA’s Community Development Revolving Loan programs.

The House version of the FY21 spending measure calls for $273.5 million for CDFI — an $11.5 million increase — and $2 million for the revolving loan fund program. However, the Senate has not begun its appropriations process yet.

The House bill also includes a provision that would set aside $2 million to test postal banking —an idea that credit union trade groups have vehemently opposed.

Credit union trade groups have been lobbying senators to keep postal banking out of their funding measure.

Defense Authorization

House and Senate conferees will be working toward a compromise on the massive annual defense authorization bill. The Senate version of the bill would provide the same free rent benefit on military bases that credit unions now receive.

The House bill does not include that provision; banking trade groups have been pushing for conferees to include that provision in any conference agreement, while credit union associations have been lobbying conferees to include the House provision.

Paycheck Protection Program

The PPP still has almost $134 billion it could lend to small businesses, but the authorization for the program expired on Aug. 8. If Congress passes another economic stimulus bill, the authorization and funding for the program could be added to the mix.

Credit union trade groups and other financial services associations also have been pushing for automatic loan forgiveness for all loans under $150,000. However, consumer groups and some Democrats have said the program was vulnerable to fraud and automatic loan forgiveness would remove one piece of the oversight process.

Community Development Financial Institutions

Aside from funding to help CDFIs operate, many Democrats and credit union trade groups are pushing for additional funds for CDFIs to lend. Recent studies have shown that businesses in underserved areas have not received the same level of assistance as businesses in other neighborhoods received.

The SBA reported that CDFIs made more than $3.4 billion in loans during the second round of CDFI lending.

Senate Democrats have introduced legislation that would create a $2 billion CDFI crisis fund to provide additional funding to CDFIs.

Liability Protection

Liability protection has emerged as one of the most contentious issues in negotiations over another stimulus bill. As preliminary talks began, Senate Majority Leader Mitch McConnell (R-Ky.) said that the next stimulus bill must contain protections from liability for business that make good faith efforts to make their facilities coronavirus-proof.

Credit union trade groups and other business associations have thrown their support behind the idea. However, Democrats have been steadfast in their opposition to the idea, with consumer groups siding with the Democrats.

Other Credit Union Proposals

In April, NCUA Chairman Rodney Hood, at the request of Senate Banking Chairman Mike Crapo (R-Id.) submitted a list of proposals that he said would allow credit unions to expand their assistance to members. And credit union trade groups have endorsed many of those proposals.

However, they have not been considered by Congress up until now. They include:

• Making permanent the changes to the NCUA’s Central Liquidity Facility. Credit union trade groups have said that strong liquidity is a key to ensuring that credit unions are able to respond to the needs of small businesses and families.
• Decreasing the level at which credit unions are considered well capitalized from a net-worth ratio of 7% to 6% and adequately capitalized from 6% to 5%.
• Temporarily expanding the credit union Small Business Loan cap.
• Permanently expanding credit union reach for underserved areas by authorizing all credit union-chartered institutions to apply to serve areas designated as underserved.

Offsite examinations would have positive impact on credit unions Posted by AVCU on 9:28 AM

 CUNA anticipates that NCUA moving to more offsite examinations will have a positive impact on the industry, despite an early learning curve. CUNA submitted comments Monday on NCUA’s Request for Information (RFI) on future examinations using technology.

“We are encouraged by the current RFI, as it shows the agency has elevated its focus on shifting to offsite examinations. We are excited for the agency to utilize input received in response to this RFI to develop an implementation strategy that reduces burden while maintaining the agency’s ability to determine whether federally insured credit unions (FICU) are operating safely and soundly and in compliance with applicable laws and regulations," the letter reads. "We believe an examination model that enables examiners to review a credit union’s operational and financial condition from an alternate worksite, such as a home office, is wholly appropriate, given adequate safeguards from both the credit union and the NCUA are in place.”

The letter emphasis the importance of NCUA adhering to “even more rigorous security standards [than FICUs] given the fact that the agency receives sensitive information from all FICUs. It is critical that the agency not only adhere to such standards but also be transparent in its compliance with safeguards. We urge the agency to share information with the industry that is sufficient to allow credit unions and other relevant stakeholders to ensure the agency—including any third-party vendors it works with—follows proper protocols.”

Other highlights of the letter include:

• Credit unions should provide the capabilities necessary for data security and encryption so that data transfers can be made without risk of compromise by outside parties
• NCUA should be more forthcoming on what it plans to review, what data it needs from credit unions and what efforts credit unions can take to correct any compliance issues;
• There is concern that a lack of face-to-face interaction could cause communication challenges. Increased reliance on video communications could be helpful, as could regular onsite meetings at least two or three times a year for a couple of hours per visit;
• For smaller credit unions, there is a concern about the burdensome requests that may be an issue in producing certain information electronically;
• Small credit unions must have the ability to effectively communicate with the NCUA on a regular and as-needed basis. NCUA should incorporate a process for such timely communication into an offsite examination model.

CUNA also recognized recent efforts by NCUA to extend the examination cycle for certain credit unions and urged the agency to extend the credit union asset threshold for the 18-month examination cycle to $3 billion (up from the current $1 billion).

COVID-19 Fraud Schemes Posted by AVCU on 4:08 PM

The NCUA Board is issuing this alert to inform credit unions about the risk of fraud associated with the COVID-19 pandemic. Those committing fraud often attempt to take advantage of opportunities made possible through new or expanded large government programs arising from emergency situations, such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The CARES Act provides many ways for financial institutions to work with members impacted by the pandemic. This alert describes increased risks associated with routine operations, outlines red flags associated with common fraud schemes in major CARES Act programs, provides references and avenues to report fraud or misconduct to the most appropriate authorities, and also provides member education resources.

RISK ALERT

Compliance: NCUA updates 2020 supervisory priorities Posted by AVCU on 7:56 AM

NCUA sent a letter to credit unions (20-CU-22) this week updating the agency’s 2020 supervisory priorities to reflect economic conditions emerging in the wake of the COVID-19 pandemic, as well as other statutory and regulatory changes.

A detailed analysis of the updates can be found on CUNA’s CompBlog.

Updates include:

• Examiners will review a credit unions’ good faith efforts to comply with the CARES Act. When necessary, appropriate actions will be taken to ensure credit unions are meeting their obligations under the new law. Examination areas of interest related to good faith efforts in complying with the following:
• Categorization of certain loan modifications;
• PPP Loans
• Change requirements for reporting loan modifications related to the COVID-19 pandemic to the credit reporting agencies;
• Foreclosure moratorium on all single family, federally backed mortgage loans between March 18, 2020 and May 17, 2020. Fannie Mae, Freddie Mac, FHA, VA and USDA subsequently extended the prohibition to June 30, 2020. The foreclosure moratorium expiration for mortgages purchased by Fannie Mae and Freddie Mac currently extends until August 31, 2020; 
• Up to a 360-day forbearance for borrowers with a single-family, federally backed mortgage loan that experience a financial hardship related to the COVID-19 pandemic; and
• Up to a 90-day forbearance for borrowers with a multifamily, federally backed mortgage loan that experience a financial hardship related to the COVID-19 pandemic.
• NCUA will review the actions taken by credit unions to assist borrowers facing financial hardship. Credit union policies, the use of loan workout strategies, risk management practices, as well as any new strategies that have been implemented to assist borrowers impacted by the pandemic will be reviewed.
• NCUA will not be assessing credit unions’ efforts to transition to the CECL standard until further notice. 
• Allowance for loan and lease loss accounts will be reviewed for adequacy as it relates to the pro-cyclical effects of economic downturns
• Liquidity risk, as the economic impact of the pandemic may result in additional stress on a credit unions balance sheet;
• Consumer compliance reviews will also now include compliance with the changes put in place as a result of the pandemic, including practices relating to the remittance fund transfer rule changes of Regulation E relating and concerning TILA Real Estate Settlement Procedures Act and Regulation Z Rescission rules that permit members to waive the waiting periods.
• As a result of the pandemic, NCUA has transitioned to examining for evaluating critical security controls -- rather than conducting the cybersecurity maturity assessments via ACET;
• NCUA will collect data on the type of services provided to hemp business during the examination process;
• NCUA will continue to conduct BSA/AML reviews during every examination.  Emphasis will continue to be on CDD and beneficial ownership requirements.

NCUA, CFPB release updated rulemaking agendas Posted by AVCU on 7:43 AM

The NCUA and Consumer Financial Protection Bureau (CFPB) released their Spring 2020 rulemaking agendas. The agendas cover regulatory issues the agencies expect to work on in the coming months, but are mostly predictions and can be amended at any time.

The CFPB’s list covers matters it expects to focus on between May 1, 2020 and April 30, 2021. It also includes updates on several major rulemakings, including:

• In September the CFPB plans to take steps toward implementing Section 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act (ECOA) to require a data collection on women-owned, minority-owned, and small businesses;
• In the fall it plans to propose two new rules under the Home Mortgage Disclosure Act (HMDA):
• The rule focuses on the data points that are reported under the 2015 HMDA rule and coverage of certain business or commercial purpose loans;
• The second addresses the public disclosure of HMDA data, in light of consumer privacy interests.
• In October the CFPB expects to take final action on its proposed rule governing the activities of “debt collectors,” as defined under the Fair Debt Collection Practices Act. The proposal would, among other things, address communications in connection with debt collection; and interpret and apply prohibitions on harassment or abuse, false or misleading representations, and unfair practices in debt collection; and
• Later this year the CFPB is considering a proposed rule proposing a new “seasoning” definition of Qualified Mortgage (QM). This definition would create an alternative pathway to QM safe-harbor status for certain mortgages when the borrower has consistently made timely payments for a period.

NCUA’s agenda includes:

• Proposals on automated valuation models, incentive-based compensation arrangements, investment on deposit activities; credit union service organizations, purchase, sale and pledge of loans, compensation in connections with members and lines of credit to members, transition to the current expected credit loss (CECL) methodology, golden parachute and indemnification payments, subordinated debt, joint ownership share accounts, complex credit union leverage ration and corporate credit unions;
• Final rules on residential real estate appraisals, interagency guidance on credit union risk review systems, chartering and field of membership and combination transactions with non-credit unions.

CUNA backs NCUA’s joint ownership for share accounts proposal Posted by AVCU on 7:39 AM

CUNA filed a comment letter on Monday in support of NCUA’s proposed rule on joint ownership for share accounts. The proposal addresses the requirement for separate joint account insurance that each co-owner of a joint account has personally signed a membership card or account signature card. In the event a credit union is unable to produce from its records such membership cards or account signature cards, the proposal would explicitly permit the use of other evidence contained in a credit union’s account records to satisfy the signature card requirement.

“We believe it is important to maintain parity with the regulations applicable to banks on joint account ownership,” the letter reads. “Further, we support the increased flexibility the proposed rule will provide, establishing an alternative method to satisfy the existing signature card requirement.”

The signature card requirement could be satisfied by information contained in the account records of the insured credit union establishing co-ownership of the share account, such as evidence that the credit union has issued a mechanism for accessing the account to each co-owner or evidence of usage of the share account by each co-owner.