NASCUS Staff Archives - Page 29 of 34

NCUA Interim Final Rule: Part 725 Central Liquidity Facility

Prepared by NASCUS Legislative & Regulatory Affairs Department
April 2020

NCUA has published an Interim Final Rule (IFR) making changes to NCUA’s Central Liquidity Facility (CLF). The IFR makes implementing changes pursuant to temporary changes made to the CLF by § 4016 of HR 748, the CARES Act. The CLF is governed by Title III of the Federal Credit Union Act (FCUA) and Part 725. Both federally and privately insured credit unions may access the CLF.

The CARES Act made 4 changes to Title III that all will sunset on December 31, 2020:

Increased the CLF maximum borrowing authority to 16 times stock and surplus
Permits corporate credit unions to borrow for their own needs
Provides greater flexibility and affordability to corporate credit unions to serve as agents by allowing smaller pools of stock subscription
Provides NCUA more flexibility in approving loans by eliminating the limitation on borrowing to expand portfolios

In addition, NCUA’s IFR also made the following 3 changes to the CLF:

Eliminated the 6-month waiting period for a new member to receive a loan
Expedited credit union’s ability to terminate its membership in the CLF
Eased collateral requirements for certain assets securing loans

The Interim Final Rule proposed rule may be read here. Comments are due to NCUA 60 days after publication in the Federal Register. As of April 24, 2020, the rule has not been published in the Federal Register.

Summary

NCUA is making changes to the CLF that will allow corporate credit unions to join the CLF directly in their own right for a temporary period as well as changing the rules for subscriptions when a corporate credit union acts an agent for its natural person credit union members. The changes related to corporate credit unions will sunset on December 31, 2020. NCUA is also making changes to allow credit union joining the CLF to immediately seek an advance of funds. Currently, a credit union must be subscribed for 6 months before seeking an advance.

Changes Related to Corporate Credit Unions

In accordance with the CARES Act, NCUA is amending the definition of “Liquidity needs” in § 725.2(i) to remove the words “primarily serving natural persons.” This change allows corporate credit unions to access the CLF directly for their own borrowing needs until December 31, 2020. In addition, § 725.17(b)(2) will be amended to make clear that a corporate may apply for a CLF advance for its own liquidity needs.

Should a corporate seek to borrow from the CLF for its own liquidity needs, § 725.4 is being amended to require the corporate subscribe to CLF stock in an amount equal to .5% the corporate’s paid-in and unimpaired capital and surplus.

In addition, NCUA will make cohering changes to Parts 725.18(a) and 725.19(b) to apply to agent loans the same creditworthiness and collateral requirements that currently apply to CLF advances to natural person credit union members.

Once the provision sunsets, a corporate agent may not request any additional CLF advances for its own liquidity needs and must continue to follow the terms of the borrowings outstanding.

NCUA is also changing the subscription requirement for corporate credit unions to act as agent for natural person credit unions. Currently, § 725.4(a)(2) requires the corporate credit union agent to subscribe to the capital stock of the CLF in an amount equal to .5%

of the paid-in and unimpaired capital and surplus of all its natural person credit union members (except those that subscribe to CLF stock directly or have designated another corporate as their agent). Under NCUA’s changes, the NCUA will designate the group of credit unions which are considered covered by the corporate credit union’s agency and that group will serve as the basis for calculating the subscription amount required for purchase. This implements the changes made by the CARES Act to § 1795c(b)(2) of the FCUA. This change also sunsets on December 31, 2020.

Upon the sunset of this modified agent provision, any corporate credit union that became an agent under this provision must, within one-year from the sunset date, either:

purchase CLF stock in accordance with the terms of whatever post sunset regulation is implemented; or
terminate its membership in the facility

NCUA specifically seeks comment on whether the one-year time frame is sufficient, or whether a longer or shorter timeframe is warranted.

Regular Membership Requirements

NCUA is eliminating the current § 725.3 six-month waiting period on obtaining CLF advances for a credit union that becomes a regular member. Now a credit union that becomes a member of the CLF may immediately seek an advance from the facility.

Under the FCU Act and current § 725.6 a credit union member may terminate its membership in the after a specified notice period based upon the amount of subscription:

% of CLF Stock Held by Credit Union

Notice Period

Less than 5% total CLF stock

Membership terminates 6 months after giving written notice to NCUA

5% or more of total CLF stock

Membership terminates 24 months after giving NCUA written notice

NCUA is enacting a temporary change to the waiting periods for terminating CLF membership.

The Board is amending the waiting periods for a credit union to terminate its membership in the CLF between publication of the rule in the Federal Register and January 1, 2022. The temporary termination rules will be as follows:

Between May 2020 and December 31, 2020

Any credit union, regardless of its percentage of CLF stock ownership may terminate its membership on the sooner of 6 months written notice or on December 31, 2020

Between January 1, 2021 and December 31, 2021

Any credit union “still a member” on December 31, 2020 may terminate its membership immediately upon notifying NCUA

After January 1, 2022

CLF membership termination will revert to the pre-amendment 6 month and 24 month notice and waiting periods

NCUA is also changing the collateral requires for advances from the CLF. NCUA will publish a collateral table on its website. The collateral required will vary based upon the types of assets the member credit union has available to secure the advance. Depending on the types of assets held by a CLF member, this change by NCUA might ease the collateral requirements which in turn might result in a higher borrowing capacity for the credit union seeking an advance.

Currently, § 725.19(a) requires collateralization of 110% of all outstanding advances without regard to the nature of the assets being pledged.

NCUA Proposed Rule: Part 704 Corporate Credit Unions

Prepared by NASCUS Legislative & Regulatory Affairs Department
April 2020

NCUA is proposing changes to Part 704, the Corporate Credit Union Rule. The rule applies to state-chartered corporate credit unions by reference in Part 741.206. This proposal represents the 4^th revision to corporate credit union rules since the economic crisis of 2008.

NCUA’s proposal would:

Permit corporate credit unions to make de minimis investments in natural person credit union CUSOs without those CUSOs being regulated as corporate CUSOs
Expands the category of senior staff eligible to serve on a corporate’s board
Removes experience and independence requirements for the enterprise risk management officer
Establishes rules for corporate investment in subordinated debt of natural person credit unions
Reduces the time horizon of NII modelling from 2 years to 1 year
Create a new Appendix D to the listing all approved corporate CUSO services
Clarifies the prohibition against investments in collateralized debt obligations as applying to both loans and debt securities

The proposed rule may be read here. Comments are due to NCUA July 27, 2020.

** Note, the comment period was extended to July 27, 2020 in a subsequent filing.

Summary

NCUA Proposes easing the limitations on corporate credit union CUSO investments

Part 704.11 governs corporate credit union CUSOs. A corporate credit union CUSO is defined as an entity that is 1) at least partly owned by a corporate credit; 2) primarily serves credit unions; 3) restricts its services to those related to the normal course of business of credit unions; and 4) is structured as a corporation, limited liability company, or limited partnership under state law.

There is no exception under § 704 for de minimis investments by a corporate credit union into another entity. If the corporate credit union invests, the entity is a corporate CUSO and must meet the other requirements of Part 704.11.

The proposed rule amends the definition of corporate CUSO to allow a corporate credit union to make a de minimis non-controlling investment in a natural credit union CUSO without the CUSO being deemed a corporate CUSO. NCUA cites several benefits to the credit union system from this rule change:

Natural person CUSOs have greater flexibility than corporate CUSOs which may better facilitate innovation, product, and service development
Corporate credit union participation in the natural person CUSO pool allows corporates to access innovative development while providing natural person credit unions a larger pool of investors and collaborators

NCUA will make conforming changes to § 704.2 Definitions and to References in § 704.5, § 704.6, and § 704.7

To recognize that corporate credit unions would be allowed to hold de minimis non-controlling investments in natural person credit union CUSOs, NCUA would expand and revise the CUSO definitions in § 704.2. The proposal defines a “Corporate CUSO” as a CUSO where:

a corporate owns 25% of the CUSOs stock or equity
the CUSO a consolidated CUSOSO
a corporate credit union has the power, directly or indirectly, to direct the CUSO’s management or policies
the aggregate corporate credit union ownership meets or exceeds 50% of the CUSO’s contributed equity, stock, or membership interests

NCUA would also add a definition for a “CUSO” to reflect that corporates might invest in a natural person credit union CUSO WITHOUT a controlling interest. Finally, the existing definition of “Consolidated Credit Union Service Organization” would be amended to include any CUSO whether a corporate CUSO or a natural person credit union CUSO.

Rule would replace the term corporate CUSO with CUSO to apply to both corporate and natural person credit union CUSOs for purposes of the credit risk management, investments, and lending provisions of the rule.

The proposal would create a new definition for “natural person credit union subordinated debt instrument” referring to any debt instrument issued by a natural person credit union pursuant to such rules for federally insured credit unions.

The proposal would change the defined term “collateralized debt obligation” to “collateralized loan or debt obligation,” to clarify that the prohibition applies to both loans and debt securities.

Part 704.11 would be Reorganized

The proposed changes to § 704.11 clarify that certain requirements apply to a corporate credit union’s investment in or lending to both a corporate CUSO and a natural person credit union CUSO while certain requirements apply only to either natural person CUSOs or corporate CUSOs.

Part 704.11(a) would be amended to make clear that the existing aggregate investment and loan limits apply to the aggregate of a corporate’s loans and investments to all CUSOs whether corporate or natural person.

Part 704.11(b) would require corporate credit unions comply with § 723.4 due diligence requirements

Part 704.11(c) would require corporate credit union investments in natural person credit union CUSOs comport to Part 712 as well. NCUA states that the corporate credit union’s investment in a FISCU’s CUSO would also be subject to § 712.

Part § 704.11(e) would designate any subsidiary of a corporate CUSO as a corporate CUSO and apply § 704 to all tiers of a corporate CUSO.

Part 704.19 Disclosure of Executive Compensation

Under the proposed rule, § 704.19 would require that the disclosure of certain employees’ compensation include BOTH compensation from a corporate CUSO and a natural person credit union CUSO. However while current § 704.11(g) requires a corporate CUSO to disclose compensation paid to any employees that are also employees of a corporate credit union lending to or investing in the CUSO, natural person credit union CUSOs will not be required under the Corporate Credit Union rule to disclose such information. Corporate credit unions would be responsible for getting this information from a natural person credit union CUSO.

Part 704.14 Corporate Credit Union Board Representation

Part 704.14 currently requires credit union representatives on the corporate’s board must hold the position of chief executive officer, chief financial officer, chief operating officer, or treasurer/manager at a member credit union. Under the proposal, NCUA would no longer expressly limit the corporate credit union board to the above stated positions. The proposed rule would require the credit union representative board members by any person in a senior staff position at a member credit union. The rule would list the above positions as examples and add two new positions to the list: chief information officer and chief risk officer.

Part 704.21 Enterprise Risk Management

Since 2011 § 704.21 has required corporate credit unions develop and follow an enterprise risk management policy, establish an enterprise risk management committee (ERMC) and include an independent risk management expert on that committee. The current rule included a prescriptive list of qualifications for the risk management expert as well as a requirement the expert be “independent” of the corporate credit union. NCUA no longer believes that it is necessary for prescriptive experience requirements and for the risk management expert to be independent of the corporate credit union. The proposed rule would require the enterprise risk management committee include a risk management expert who can report directly to the board of directors and whose experience is commensurate with the size and complexity of the corporate. In other words, the risk management expert may now be an insider. NCUA will evaluate the adequacy of a corporate credit union’s enterprise risk management practices through the supervisory process.

Natural Person Credit Union Subordinated Debt Instruments

Corporate credit unions may purchase subordinated debt instruments of natural person credit unions under a corporate credit union’s lending authority. The proposed rule does not explicitly state that a corporate credit union may purchase a natural person credit union subordinate debt instrument because NCUA believes corporate credit unions’ lending authority is currently sufficiently broad to include purchasing subordinated debt instruments.

Under the proposal, the revised definition of “Tier I Capital” would require corporate credit unions fully deduct the amount of the subordinated debt instrument from its tier 1 capital to ensure consistent treatment between investments in the capital of other corporate credit unions and natural person credit unions.

New Appendix D: Approved Corporate CUSO Activities

Current § 704.11 requires that a corporate CUSO agree to limit its services to brokerage services, investment advisory services, and other categories of services as preapproved by NCUA and published on NCUA’s Website. NCUA now proposes replacing the list on the agency’s website with a new Appendix D that would list all approved services and any conditional approvals. NCUA is not making any changes to the list, only republishing the list as part of the rule text.

Net Interest Income Modeling

Under current § 704.8, every quarter, a corporate credit union must perform net interest income (NII) modeling to project earnings in multiple interest rate environments for a period of no less than two years. Corporates are also subject to weighted average life limits for asset maturities of a maximum two years maturity. Because of the overlap of these two requirements, NCUA proposes to only require NII modeling for 1 year instead of two.

NCUA’s Request for Comments

NCUA is particularly interested in comments on proposed thresholds and definitions as well as specifically on the following:

Is the proposed definition of corporate CUSO appropriate? Does it capture the types of corporate credit union investments most likely to pose systemic risk and is 25% the proper threshold for designating a CUSO a corporate CUSO?
How do corporate credit unions structure their investment in CUSOs? Is it generally through stock? Contributed equity? Membership interests? Are there any types of typical ownership interests excluded from the proposed rule?
Can Corporates comply with annual disclosure compensation rules without receiving compensation information from the natural person CUSOs?
Should the rule prohibit corporate credit union investment is subordinated debt?
Is the definition of natural person credit union subordinated debt instrument appropriate?
Is the timeframe proposed for NII modeling appropriate?

Letters to Credit Unions 20-CU-10 Residential Appraisals Threshold Increase & Other COVID-19 Related Relief Measures

April 2020

NCUA issued LTCU 20-CU-10 to provide information on regulatory relief provided by 2 rules published in April related to residential real estate transactions. The guidance also provides information on additional appraisal relief provided by Fannie Mae, Freddie Mac, and other federal agencies in response to the disruptions of the real estate valuation process caused by the COVID-19 pandemic.

NCUA’s appraisal rules are established by Part 722 and Part 741.203.

Final Rule: Real Estate Appraisal Threshold

The final rule increases the appraisal threshold for residential real estate from $250,000 to $400,000, bringing credit unions on par with the banking threshold. For residential real estate transactions of $400k or more, the new requires:

an appraisal from a state-certified appraiser if the transaction is complex
an appraisal from a state-licensed appraiser non-complex transactions

Appraisals must comply with the Uniform Standards of Professional Appraisal Practice (USPAP). Current USPAP standards allow for a desktop and exterior-only appraisals.

For transactions below $400k, credit unions have the option of obtaining either an appraisal or a written estimate of market value. Written estimates of market value must:

be conducted by an individual who is 1) qualified to perform the valuation, and 2) independent of the transaction
contain a reliable estimate of the property’s market value supported by documentation, analysis, and a physical inspection
contain sufficient information for the CU to make a prudent credit decision

Interim Final Rule: Deferment of Appraisals and Evaluations

The recently issued NCUA Interim Final Rule (IFR) allows credit unions to defer appraisals and written estimates of market value for transactions requiring such valuations for up to 120 days after closing. The IFR is intended to grant relief due the extraordinary circumstances of the COVID-19 outbreak and bring credit unions on par with the temporary rules for banks.

The IFR expires on December 31, 2020 and any transactions closing on that date would have to be appraised by April 30, 2021. The 120-day deferment applies to all residential real estate loans, and all commercial real estate loans except acquisition, development, construction loans. There is no limit on transaction size. NCUA stresses that credit unions will still be expected to underwrite real estate loans prudently.

If a credit union engages an appraiser to conduct a desktop or exterior-only appraisal, it should seek those services at the time of the loan rather than delaying the 120 days.

The Interagency Statement on Appraisal and Evaluation Flexibilities

On April 14, 2020, the NCUA and other banking agencies released an interagency statement on appraisal flexibility for FIs during the COVID-19 pandemic In addition to noting the USPAP guidelines allowing for non-physical inspection appraisals and NCUA’s relief (discussed above) the interagency guidance also notes that certain residential mortgages that qualify for sale to Fannie Mae and Freddie Mac can utilize appraisals with exterior-only inspections, desktop appraisals, and appraisal waivers.

Updated Appraisal Flexibilities from Other Federal Agencies

In addition HUD, the VA, and the Agriculture Department have issued guidance on appraisal flexibility that closely align with the appraisal flexibilities offered by Fannie Mae and Freddie Mac, including desktop appraisals and exterior-only inspections for certain real estate transactions. See:

Letters to Credit Unions 20-CU-09 Temporary Regulatory Relief in Response to the COVID-19 Pandemic

April 2020

NCUA’s guidance reviews actions the agency has taken to provide “temporary regulatory relief” to federally insured credit unions (FICUs) during the COVID-19 crisis. Many of the relief provisions were approved by the NCUA Board during its April meeting.

701.36 FCU Occupancy & Disposal of Acquired Premises [FCU only]

FCUs cannot retain premises that are not being used to conduct credit union business unless they are granted a waiver from NCUA. NCUA has amended the timeframe for calculating the need for such waivers so that delays that fall within the date of the temporary final rule’s publication in the Federal Register and December 31, 2020, will not be counted for purposes of determining a FCU’s compliance with § 701.36(c).

701.23(b) Purchase of Eligible Obligations [Likely FCU only]

Part 701.23(b)(2) permits well-capitalized FCUs with a composite CAMEL rating of 1 or 2 to purchase eligible obligations, without regard to whether they are obligations of its members, from another FICU or a liquidating credit union. NCUA has expanded the eligibility to include composite CAMEL 3 FCUs. NCUA will also allow FCUs to purchase eligible obligations pursuant to § 701.23(b)(1)(i) or § 701.23(b)(2)(i) without regard to whether the purchasing credit union is empowered to grant such loans.

Loans purchased under this broader authority will not count against the § 701.23(b)(4) limit of 5% of the unimpaired capita/surplus. This authority expires on December 31, 2020, at which time any purchases made under this authority will be grandfathered.

For FISCUs, § 701.23(b)(1) is referred to in Part 741.8 as a classification of loans not requiring the pre-approval of the NCUA for purchase. Although NCUA’s rules are a bit ambiguous on this point, it does not appear this affects regulatory relief effects FISCUs.

701.22 Loan Participations [Benefits FISCUs]

NCUA is raising the § 701.22(b)(5) limit of a FICU’s aggregate amount of loan participation purchased from any one originating lender to $5 million or 100% of the credit union’s net worth, unless a waiver is obtained from the NCUA RD. NCUA has temporarily increased the limit, until December 31, 2020, below which a waiver is not required to the greater of $5 million or 200% of the credit union’s net worth. Part 701.22 applies to FISCUs by reference in § 741.8.

NCUA notes in its guidance that additional relief available to FICUs includes:

Annual Supervisory Committee Audit Reports – In 2019 NCUA eliminated the requirement that annual audits be delivered within 120 days of the end of the year. NCUA will take into account that COVID-19 may delay audit delivery beyond the time established in the retention letter for NCUA mandated audits.
Late Call Report Civil Money Penalties – The NCUA will not take action against any credit union for submitting the March 31 Call Report after the respective filing deadline as long as the report is submitted within 30 days of the April 26, 2020, file date. SCUs should contact their state regulators if delayed.
Miscellaneous Policy and Review Requirements – NCUA will not take exception to policy changes that are made in the long-term best interests of a credit union and its members or if credit unions may need to make exceptions to their policies to assist members affected by the pandemic.

NASCUS hosted two Legislative and Regulatory Committee calls, featuring attorneys from the Washington law firm Venable LLP on April 10 and April 15. Questions from state regulators, credit unions, and state leagues related to operating during the COVID-19 crisis were answered.

Letters to Credit Unions 20-CU-07 Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

April 2020

NCUA published LTCU 20-CU-07 to summarize HR 748, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provisions that affect credit unions.

Central Liquidity Facility (CLF) (§ 4016)

The CARES Act made changes to NCUA’s Central Liquidity Facility (CLF) that will sunset on December 31, 2020. The CLF was created by Title III of the Federal Credit Union Act (FCUA) and governed by Part 725 of the NCUA Rules & Regulations. Information on the CLF may be found on the NCUA’s CLF Page. Four changes were made to the CLF:

Corporate credit unions were granted temporary access to the CLF. The CARES Act removed the FCUA’s “primarily serving natural persons” requirement which had prohibited corporate credit union access.
The CLF’s membership rules were amended to make it easier for a corporate credit union to serve as an agent for natural person credit union members by allowing the corporate to only pay the subscription of its credit union members that want access to the CLF instead of all of its members.
The prohibition against approval of application “intended to expand the balance sheet” was replaced with a requirement the applicant first make reasonable efforts to use primary sources of liquidity, including balance sheet and market funding sources.
The NCUA’s CLF borrowing authority was increased to 16x the subscribed capital stock and surplus of the CLF.

Insured Deposits Threshold (§ 4008(b)):

NCUA may, in coordination with the FDIC, raise the share insurance limit on any non-interest bearing transaction accounts in FICUs until December 31, 2020. NCUA will evaluate whether an increase is needed as the COVID-19 pandemic evolves.

Temporary Relief from Troubled Debt Restructurings (§ 4013):

The CARES Act permits financial institutions to suspend the requirement to categorize certain loan modifications related to the COVID-19 pandemic as troubled debt restructurings. NCUA has issued a separate statement on the TDR issue.

Paycheck Protection Program (§ 1102 and § 1109):

The CARES Act authorized SBA to create the Paycheck Protection Program (PPP), a loan guarantee program that helps qualifying small businesses meet payroll needs & utilities resulting from the COVID-19 pandemic. NCUA has released separate guidance on this program. More information may also be found at the United States Treasury and Small Business Administration websites.

Optional Temporary Relief from CECL (§ 4014):

The CARES Act delays compliance with CECL (FASB Update No. 2016-13 “Measurement of Credit Losses on Financial Instruments”) until December 31, 2020. However, credit unions are not currently required to comply with CECL.

Credit Protection During COVID-19 (§ 4021):

The CARES Act requires institutions reporting to the credit bureaus to report loan modifications resulting from the COVID-19 pandemic as “current” or as the status reported before the accommodation unless the consumer becomes current. This requirement applies throughout the period of accommodation so long as the borrower fulfills requirements of the forbearance or modification.

Foreclosure Moratorium on Single Family Mortgages and Consumer Right to Request Forbearance (§ 4022):

The CARES Act prohibits foreclosures on all single family, federally backed mortgage loans for 60 days, beginning on March 18, 2020, and ending on May 17, 2020. It provides up to 180 days of forbearance for borrowers of a federally backed mortgage who experience a financial hardship related to the COVID-19 pandemic. This relief ends on the earlier of 12/31/2020 or when the COVID-19 health emergency is terminated.

Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans (§ 4023):

The CARES Act provides up to 90 days’ forbearance for borrowers with a federally backed, multifamily mortgage loan who experience a financial hardship. Borrowers who receive forbearance may not evict or charge late fees to tenants for the duration of the forbearance period. This relief ends on the earlier of December 31, 2020 or when the COVID-19 public health emergency is terminated.

Letters to Credit Unions 20-CU-06 Loan Programs to Help Small Businesses and Members During the COVID-19 Pandemic

April 2020

NCUA’s LTCU 20-CU-06 provides credit unions information on the SBA’s Payroll Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program. SBA has issued an interim final rule outlining the PPP effective upon publication in the Federal Register and open for public comment for 30 days after publication.

Small businesses may apply for PPP loans beginning 4/3/2020 and independent contractors/self-employed individuals may apply beginning 4/10/2020. Borrowers may apply through 6/30/202 or until all available PPP funds are exhausted.

NCUA asserts the agency will not criticize credit unions that make a good faith effort to administer the SBA programs to assist members in a prudent manner.

Paycheck Protection Program

Although the PPP will be administered by the SBA’s 7(a) loan program, there are several substantive differences between PPP and traditional 7(a) loans:

Unlike a 7(a) loan, PPP loans are 100% guaranteed (as such, the loans do not count toward the commercial loan cap)
The full principal amount of a PPP loan may qualify for loan forgiveness
PPP loans may be as large as $10 million (twice the amount of a 7(a) loan)
PPP loans will be available to eligible borrowers on a first-come/first-served basis
Lenders must comply with the applicable lender obligations set forth in the interim final rule but will be held harmless for any borrower’s failure to comply with program criteria
Lender Eligibility Criteria

current SBA 7(a) lenders are automatically approved to make PPP loans. Other FICUs may apply to lend under the PPP by submitting a CARES Act Section 1102 Lender Agreement and will be automatically approved to participate so long as they are not in troubled condition or under enforcement action. The SBA’s interim rules also have qualification procedures for CUSOs to make loans.

Note: “Financial businesses primarily engaged in the business of lending…” cannot borrow under the PPP due to SBA regulations.

Loan Terms

Differences in loan terms, conditions, processes and guarantees between PPP and other 7(a) loans include:

Loan Amount	Maximum PPP loan amount is $10 million
Majority	PPP loan maturity is 2 years
Repayment	PPP repayment commences 6 months from the date of disbursement
Lender Guarantee	PPP guarantee is 100%
Collateral	No PPP collateral is required
Interest Rate	PPP interest rate is 100 basis points or 1%
Processing	PPP loans will be processed by all lenders under delegated authority and lenders are permitted to rely on borrower certifications to determine borrower eligibility and the use of loan proceeds
Personal Guarantee	PPP does not require borrower’s personal guarantee

Processing: Loan Forgiveness

Loan forgiveness under the PPP can include the full principal amount as well as accrued interest. The forgiveness is subject to limitations on use of funds and conditions in the SBA’s interim rule. The SBA will also be issuing additional guidance on loan forgiveness in the future.

Lender Compensation

Lender compensation from the SBA for processing PPP loans will be based on loan balance outstanding at the time of final disbursement:

Loans $350k and less	5%
Loans Greater than $350k up to $2 m	3%
Loans Greater than $2m	1%

COVID-19 Economic Injury Disaster Loans

Small businesses affected by COVID-19 may also be eligible for additional assistance through the SBA’s Economic Injury Disaster Loan. These loans can be up to $10,000 and do not have to be repaid.

Letters to Credit Unions 20-CU-04 Responsible Small-Dollar Lending in Response to COVID-19

March 2020

NCUA issued LTCU 20-CU-04 to alert credit unions that NCUA and the other federal financial regulators issued a Joint Statement Encouraging Small Dollar Lending in Response to COVID-19. NCUA encourages credit unions to offer responsible small-dollar loans to consumer and small business members.

NCUA notes that credit unions have the ability to help members meet small dollar needs for unexpected expenses by offering a variety of products such as:

Open-end lines of credit
Closed-end installment loans
Single payment loans

NCUA notes that federal credit unions have the option of offering NCUA PALs I and II loans.

NCUA also encourages credit unions to consider workout strategies designed to help borrowers experiencing financial distress. NCUA stresses that credit unions should offer products in a manner that is safe, sound, and fair to members while complying with all applicable laws and regulations.

The Joint Statement was issued by Federal Reserve Board, the FDIC, the NCUA, the OCC and the CFPB on March 26, 2020. The Statement focused on short term small dollar loans was a follow-up to a March 9, 2020 Joint Statement issued by the agencies encouraging institutions to meet the financial needs of their customers/members impacted by the COVID-19 crisis.

Letters to Credit Unions 20-CU-03 Identification of Essential Critical Infrastructure Workers During COVID-19

March 2020

NCUA released LTCU 20-CU-03 to provide credit unions information on identifying and credentialing essential employees during the COVID-19 pandemic. In an effort to limit the spread of the corona virus, some states and localities have order residents to stay home and limited work schedules.

These limitations on the general public contain exceptions for critical infrastructure workers: organizations, entities, industries, and workers needed to maintain critical services and functions for the public.

Relevant resources on critical infrastructure workers and industries include:

Department of Homeland Security March 19, 2020 CISA Memo
Department of Treasury March 22, 2020 Memorandum for Financial Services Sector

**NASCUS Note: After LTCU 20-CU-03 was issued, Homeland Security issued an updated CISA Memo dated March 28, 2020.

For the financial services and information technology sectors, CISA identified the following essential critical infrastructure workers:

Financial Services

Workers who are needed to process and maintain systems for processing financial transactions and services (e.g., payment, clearing, and settlement; wholesale funding; insurance services; and capital markets activities)
Workers who are needed to provide consumer access to banking and lending services, including ATMs, and to move currency and payments (e.g., armored cash carriers)
Workers who support financial operations, such as those staffing data and security operations centers

The guidance includes lists of other critical sectors and workers including information technology.

NCUA has resources on its website under “Other COVID-19 Resources”.

July 2023

June 2023

May 2023

April 2023

March 2023

February 2023

January 2023

Letters to Credit Unions 20-CU-02 NCUA Actions Related to COVID-19

March 2020

LTCU 20-CU-02 describes the agency’s initial response to the COVID-19 crisis and refers credit unions to 17 previously issued guidance on disaster recovery, business continuity, and serving distressed communities. This guidance covers: 1) working with members, 2) FAQs, 3) NCUA’s supervision program, and 4) NCUA’s operational status.

1) Working with Members

NCUA examiners will not criticize a credit union’s efforts to provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight. Such efforts may include:

Waiving ATM fees & increasing ATM daily cash withdrawal limits
Waiving overdraft fees & early withdrawal penalties on time deposits
Waiving availability restrictions on insurance checks
Easing restrictions on cashing out-of-state and non-member checks
Easing credit terms for new loans for members who qualify
Offering or expanding payday alternative loan programs
Increasing credit card limits for creditworthy borrowers
Waiving late fees for credit card and other loan balances
Offering payment accommodations such as allowing borrowers to defer or skip some payments, or extending the payment due dates

2) Information Website and Frequently Asked Questions

NCUA has created a page on the agency’s website to host COVID-19 guidance. NCUA has also issued Frequently Asked Questions (FAQ) addressing numerous issues.

3) NCUA’s Examination and Supervision Program

As credit unions implement expanded telework programs and limit external visitors, NCUA will limit examination and supervision work over the coming weeks to offsite procedures only (except for exigent circumstances). In addition:

NCUA Examiners will work with credit union staff to facilitate the secure exchange of information needed to conduct offsite examination work
NCUA will be mindful of the impact examiner requests may have on credit union working to meet the challenges of the COVID-19 crisis
NCUA will be mindful of the impact of COVID-19 on credit union conditions and take that into consideration in evaluating remedial supervisory actions

4) NCUA’s Operational Status

Effective through March 30, 2020, NCUA headquarters and regional office staff will telework. Credit unions should submit information to the NCUA in electronic form to the maximum extent possible. The agency has setup electronic mailboxes in each region and the central office for that purpose. Credit unions should note that NCUA may use “digital certification” signatures on documents.

StateFocus is a monthly NASCUS publication that highlights legislative and regulatory activities in the states. Each edition explores different states and various issues related to the state credit union system.

September 30, 2020 State Focus: What’s Happening in the States?

August 11, 2020 State Focus: What’s Happening in the States?

July 1, 2020 StateFocus: What’s Happening in the States?

May 28, 2020 StateFocus: What’s Happening in the States?

April 21, 2020 StateFocus State Wage Garnishment Guidance

April 16, 2020 StateFocus: State Paycheck Protection Program Guidance

March 31, 2020 StateFocus: State Responses to COVID-19

February 27, 2020 StateFocus: What’s Happening in the States?

January 29, 2020 StateFocus: What’s Happening in the States?