NCUA 2020 Regulatory Review

NCUA 2020 Regulatory Review

Prepared by NASCUS Legislative & Regulatory Affairs Department
February 2020

The NCUA’s Office of General Counsel maintains a rolling review schedule that identifies one-third of NCUA’s existing regulations for review each year and provides notice to the public of those regulations under review for public comment.

NCUA’s Regulatory Review is a not an exclusive list of NCUA rulemaking this year. The agency also engages in discretionary rulemaking as it deems necessary.

NCUA’s complete NCUA Regulatory Review (2020) is available on NCUA’s website. NCUA will be reviewing its regulations Part 711 thru Part 747. NASCUS notes that several of these provisions were recently subject to discretionary rulemaking in 2019. However, even though they were recently subject to NCA rulemaking, NASCUS will still submit its views on improvements that may be made to those rules as well.

Part 741 is among the provisions scheduled for review. NASCUS believes the inclusion of § 741 allows for comment on every FISCU rule incorporated by reference.

Comments on NCUA’s 2020 regulatory review are due to NCUA by August 3, 2020.

 In 2017, NCUA published a summary of the agency’s evaluation of the Regulatory Review process. That report is available here.[1]

Summary

  • 711 Management Official Interlocks – Applies to FISCUs by incorporation in § 741.209. The Management Interlocks rule generally prohibits an individual from serving in a senior executive position of a credit union and another depository institution (non-credit union).
  • 712 Credit Union Service Organizations (CUSOs) – Applies in part to FISCUs by incorporation in § 741.222. The CUSO rules in Part 712 that apply to FISCUs by incorporation include § 712.2(d)(2)(ii), § 712.3(d), § 712.4 and § 712.11(b) and (c). These are the provisions that require credit unions to maintain corporate separateness from their CUSOs, and to contractually obligate their CUSOs to submit annual reports to NCUA and to provide NCUA and state regulators access to the CUSOs’ books and records.
  • 713 Fidelity Bond and Insurance Coverage for Federal Insured Credit Unions – Applies to FISCUs by incorporation in § 741.201, which directs FISCUs to follow the “minimum fidelity bond coverage stated in part 713.3, 713.5, and 713.6.” NCUA published a new final Fidelity Bond rule in July 2019. The final rule further extended the application of the rule to FISCUs, mandated a board signature on bond contracts, created a sunset of NCUA approval of bond forms, and mandate bond contracts contain an extension of discovery provisions.
  • 714 Leasing – Does not apply to FISCUs.
  • 715 Supervisory Committee Audits and Verifications – Applies to FISCUs by incorporation in § 741.202. These provisions include the requirements that FISCUs obtain either annual supervisory committee audits, or independent audits, depending on their asset size. It also requires verification of accounts at least once every two years. In September 2019, NCUA finalized changes to Part 715 Supervisory Committee rules.
  • 717 Fair Credit Reporting – Does not apply to FISCUs.
  • 721 Incidental Powers – Does not apply to FISCUs.
  • 722 Appraisals – Applies to FISCUs by incorporation in § 741.203. The rule requires FISCUs to obtain written appraisals for commercial real estate transactions involving loans with $1 million+ and residential real estate transactions involving loans of $250k+. NCUA recently proposed raising the residential real estate threshold to $400k.
  • 723 Member Business Loans – Applies to FISCUs by incorporation in § 741.203, Minimum Loan Policy Requirements. In May of 2018, NCUA published a comprehensive rewrite of its MBL rule. In NCUA’s view, the new rule marked a change from a prescriptive approach to a principle-based approach.
  • 724 Trustees and Custodians of Certain Tax-Advantaged Savings Plans – Does not apply to FISCUs.
  • 725 National Credit Union Administration Central Liquidity Facility – Applies to FISCUs by incorporation in § 741.210.
  • 740 Accuracy of Advertising and Notice of Insured Status – Applies to FISCUs by incorporation in § 741.211. These provisions prescribe the official share insurance signage and accuracy in advertising.
  • 741 Requirements for Insurance – References all rules applicable to FISCUs. NASCUS encourages state system stakeholders to include comments on any NCUA FISCU rule incorporated by reference in § 741, as well as to comment on the organization of NCUA’s rules.
  • 745 Share Insurance and Appendix – Applies to FISCUs by incorporation in § 741.212. These provisions describe the amount of coverage and describes the various accounts covered by NCUA administered share insurance.
  • 746 Appeals Procedures – In October 2017, NCUA finalized a new rule, § 746, establishing a formalized appeals process for FICUs in relation to NCUA supervisory determinations. This is the first time this rule has come up for review under NCUA’s Regulatory Review process.
  • 747 Administrative Actions, Adjudicative Hearings, Rules of Practice and Procedure, and Investigations – Applies to FISCUs by incorporation in § 741.3(a) and § 741.213. NCUA’s §747 is made up of subparts A-M. Of these, subpart E applies only to FCUs. The remaining subparts, applicable to FISCUs, include the following:
    • Subpart A addresses the administrative procedure related to, and due process afforded, credit unions subject to an administrative order by NCUA. The provisions create recourse to an administrative law judge and the right of parties to have counsel and call witnesses.
    • Subparts B & C limit discovery to document production, controls the adjudication of NCUA liquidation orders, and provides that NCUA may terminate insurance for 1) Engaging or having engaged in unsafe or unsound practices, is in unsafe or unsound condition, or has violated any applicable law, regulation, or order.
    • Subpart D provides for removal of official charged in state or federal court for a crime of dishonesty.
    • Subpart G allows a prevailing party to seek attorney fees.
    • Subpart H governs investigations conducted by the NCUA Board or its designee.
    • Subpart I governs witnesses in an NCUA investigation.
    • Subpart J applies to a credit union’s notice to NCUA to add or replace an official pursuant to § 1790a and § 700.2 where the credit union either has been chartered less than 2 years; or is in “troubled condition,” as defined by §701.14.
    • Subpart K requires NCUA to adjust CMPs to the rate of inflation.
    • Subpart L establishes the rules & procedures for FICUs subject to discretionary action under PCA. Credit unions are provided the right to a hearing before the NCUA board and the right to call witnesses. Credit unions may also seek the determination of the NCUA Ombudsman. Subpart L also requires NCUA copy state regulators all related notices to a SCU under the provision.
    • Subpart M establishes the rules and procedures for NCUA’s imposition of discretionary PCA actions against a corporate credit union.

[1] NASCUS has been told NCUA will no longer publish these summaries of the previous year’s Regulatory Review process.

NCUA Proposed Rule: Subpart D to Part 708a Combination Transactions with Non-Credit Unions; Credit Union Asset Acquisitions 

Prepared by NASCUS Legislative & Regulatory Affairs Department
February 2020

NCUA is proposing to add a new Subpart D to § 708a of its Rules & Regulations to clarify the NCUA’s procedures and the requirements related to transactions where a federally insured credit union (FICU) assumes the assets and liabilities of a bank or other non-credit union entity (combination) or where the FICU merges or otherwise consolidates with a non-credit union entity. Existing § 708a applies to federally insured state credit unions (FISCUs) by reference in § 741.208.[1]

The proposed Subpart D would be comprised of the following 5 sections:

  • 708a.401 Definitions
  • 708a.402 Approval Required for Combination Transactions
  • 708a.403 Submission to the NCUA
  • 708a.404 Assumption of Deposits; Federal Share Insurance Required
  • 708a.405 Federal Credit Union Membership

NCUA proposes applying all provisions to FISCUs except proposed § 708a.405.

The proposal would also amend § 741.8 of the NCUA’s regulations to clarify other applicable regulations and apply a 6 factor test for approval for § 741.8 transactions.

The proposed rule may be read here. Comments are due to NCUA March 30, 2020.

Summary

The incidents of FICUs purchasing some, or all, of the assets and liabilities of a bank remain relatively rare with respect to the annual number of credit union mergers and the number of intra bank M&A activities.

CU Purchased All Bank Assets & Liabilities CU Purchased Some of the Bank Asset and Liabilities (for example branches)  

Bank M&A Activity in the Given Year
2020 9 pending (2/1/20) 8 pending (2/1/20) —-
2019 11 4 179
2018 7 1 249
2017 3 1 261
2016 2 4 247
2015 2 1 284
2014 1 1 303
2013 2 3 252

 

Until now, the only NCUA rule on point was § 741.8 which requires NCUA Regional Director (RD) approval before a FICU may assume an assignment of deposits, shares, or liabilities from and privately insured credit union or any bank or other non-FICU depository entity. NCUA notes that the experience it has gained in approving the 43 previous transactions informs the current proposed rulemaking.

 

NCUA is also proposing to expand § 741.8 to apply to all asset purchases, not only loan purchases and liability assumptions. NCUA notes that in reviewing credit union/bank combination transactions, its staff have occasionally identified non-loan assets that are problematic, either because they are impermissible for FICUs or because they would pose undue risk to the FICU. [emphasis added by NASCUS]

 

The Federal Credit Union Act

Section 205 of the Federal Credit Union Act (FCUA) states:

  • Except as provided in paragraph (2), no insured credit union shall, without the prior approval of the Board— (A) merge or consolidate with any noninsured credit union or institution; (B) assume liability to pay any member accounts in, or similar liabilities of, any noninsured credit union or institution; (C) transfer assets to any noninsured credit union or institution in consideration of the assumption of liabilities for any portion of the member accounts in such insured credit union; or (D) convert into a noninsured credit union or institution.
  • See 12 U.S.C 1785(b)(1)

Pursuant to the FCUA, when considering whether to approve an assumption of liabilities as described above, the NCUA Board must consider 6 factors:

  • the history, financial condition, and management policies of the credit union
  • the adequacy of the credit union’s reserves
  • the economic advisability of the transaction
  • the general character and fitness of the credit union’s management
  • the convenience and needs of the members to be served by the credit union
  • whether the credit union is a cooperative association organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes.[2]

 Subpart D

Proposed Subpart D would have 5 provisions:

  • Proposed § 708a.401 Definitions

This provision defines what NCUA would consider a “combination transaction” covered by the rule, a definition for a “credit union” and “non-credit union” and a definition for “Regional director.”

A “combination transaction” would mean “any transaction in which a credit union does one or more of the following: Merges or consolidates with any non-credit union; assumes liability to pay any deposits in, or similar liabilities of, any non-credit union; or transfers assets to any noncredit union in consideration of the assumption of liabilities for any portion of the member accounts in the insured credit union.”

NCUA intends the term “combination transaction’’ to differentiate Subpart D transactions from other types of transactions such as mergers between FICUs, mergers between FICUs and privately insured credit unions (PICUs), FICU conversions to banks, and FICU purchases of loans that are not part of a merger or consolidation

A “credit union” would have the same meaning as an insured credit union § 101 of the FCUA and would be defined by referencing the FCUA rather than incorporating the definition in its entirety in the proposed rule.[3]

“Non-credit union” would be defined as any financial institution that is not a Federal credit union or a State credit union, as those terms are defined in § 101 of the FCUA.[4]

The definition of “Regional director” includes NCUA RDs and the Director of ONES.

  • Proposed § 708a.402 Approval Required for Combination Transactions

This provision would require NCUA and state regulator prior approval for a combination transaction. The proposal does not specify the order in which those approvals must be obtained nor does it provide a timeframe within which NCUA approve or deny the transaction.

The proposed rule incorporates the FCUA provision listing 6 factors the NCUA must weigh when considering a request for approval for a combination transaction. The first 4 factors are related to safety and soundness:

  • the history, financial condition, and management policies of the credit union
  • the adequacy of the credit union’s reserves
  • the economic advisability of the transaction
  • the general character and fitness of the credit union’s management

The remaining 2 factors are not safety and soundness related:

 

  • the convenience and needs of the members to be served by the credit union
  • whether the credit union is a cooperative association organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes

 

NCUA explicitly notes the last 2 factors are not safety and soundness. In so noting, NCUA says it reserves the right to object to a transaction, or portions of a transaction, even absent safety and soundness concerns.

 

Paragraph (c) of the proposal would require FICUs hold a vote of their board of directors before the FICU submits its application package to NCUA and the state.

 

  • Proposed § 708a.403 Submission to the NCUA

This section addresses issues related to the FICU’s membership, permissible powers, and the duties of the FICU’s board.

 

A credit union seeking to acquire the assets and liabilities of bank or otherwise engage in a combination transaction must submit a request to its state regulator and NCUA Regional Director. The request to NCUA must:

 

  • explain the credit union’s plan for converting the bank customers to credit union members
  • include a balance sheet and income statement for each institution; a combined financial statement showing the transaction’s potential impact on the credit union’s net worth; a summary of the credit union’s due diligence process, and support for the transaction price
  • include a delinquent loan summary for any assets involved in the transaction; and an analysis of the adequacy of the credit union’s ALLL account
  • list any of the other institution’s assets that would be impermissible for the credit union to hold under the FCUA and/or state law and explain the plan to dispose of those impermissible assets in advance of the transaction
  • include a list of bank shareholders
  • include any other information the NCUA RD requests in his or her discretion

 

The credit union’s request for approval must also include a certification signed by each of the credit union’s directors that voted in favor of the combination transaction. The certification must include:

 

  • a statement that each director signing the certification supports the proposed transaction & believes it’s in the best interests of the current & potential members
  • a statement that credit union management has adequately explained the transaction’s expected effect on the credit union’s net worth and balance sheet, as well as how the purchase price was determined
  • a description of all materials submitted to NCUA with the certification
  • a statement that each director signing the certification had the opportunity to review all relevant facts about the transaction before voting on it
  • A statement that none of the director signing the certification has any financial or personal interest in the transaction

 

The proposal also suggests that additional requirements may be published in NCUA’s NSPM.

 

  • 404 Insurance of Deposits

This provision deals with share insurance of the new members’ deposits. The proposal requires the FICU to demonstrate that any customer deposits it assumes will be insured by the NCUSIF as of the transaction close. NCUA notes that generally, FICUs do not have authority to hold non-insured deposits and that the FDIC will not approve a transaction unless the bank customers’ deposits transferred to the credit union will have immediate NCUSIF coverage.

 

  • Proposed § 708a.405 Federal Credit Union Membership

This provision applies only to FCUs. Under the proposal, FCUs must first demonstrate that depositors are within the FCU’s FOM and then explain how the depositor will become a member. NCUA’s long held position has generally required that to become a member of the FCU the other entity’s customer must affirmatively act through an authoritative vote in the affirmative by a majority of the bank customers (akin to a merger vote for credit unions) or individual consent before the closing of a combination transaction.

 

Section 741.8 Purchase of Assets and Assumption of Liabilities

In addition to creating a new Subpart D for combination transactions, the proposal makes changes to existing § 741.8. The proposed changes would:

 

  • Add “purchase of assets” other than loans to the list of authorized transactions for which FICUs must receive NCUA pre-approval (the current list is comprised of purchasing loans or assuming an assignment of deposits, shares, or liabilities from non a FICU)
  • Revises existing paragraph (c) to reference the other NCUA regulations that apply to each particular type of transaction:

 

  • For a merger or consolidation with the type of institution listed in § 741.8(a)(2) credit unions must comply with § 708a Subpart D
  • For a merger or consolidation with an institution of the type listed in § 741.8(a)(1), credit unions must comply with § 708b
  • For assumptions of deposits or other liabilities, not part of a merger or consolidation, from the type of institution listed in § 741.8(a)(2), credit unions must comply with Subpart D of part 708a
  • For purchases of loans, not part of a merger or consolidation, from the type of institution listed in § 741.8(a)(1) and (a)(2), credit unions must comply with § 701.23
  • For purchase of other assets, not part of a merger or consolidation, from the type of institution listed in § 741.8(a)(1) and (a)(2), credit unions must comply with § 703 or § 721

 

  • Adds a new paragraph (d) to enumerate the statutory factors NCUA must consider when evaluating transactions (the same 6 considerations noted above for combinations). NCUA would consider the 6 factors FOR ALL §741.8 transactions

-End-

[1] Part 741.208 reads in full:

Any credit union which is insured pursuant to title II of the Act and which merges with another credit union or non-credit union institution, and any state-chartered credit union which voluntarily terminates its status as a federally insured credit union, or converts from federal insurance to other insurance from a government or private source authorized to insure member accounts, shall adhere to the applicable requirements stated in section 206 of the Act and parts 708a and 708b of this chapter concerning mergers and voluntary termination or conversion of insured status.

 

[2] 12 U.S.C. 1785(c). As discussed below in this summary, these same 6 factors will now be applied to § 741.8 transactions as well.

[3] The definition in 12 U.S.C. 1752(7) reads as follows:

“The term “insured credit union” means any credit union the member accounts of which are insured in accordance with the provisions of subchapter II of this chapter, and the term “noninsured credit union” means any credit union the member accounts of which are not so insured;”

[4] The definitions in 12 U.S.C. 1752(1) and 1752(6) respectively are as follows:

“Federal credit union” means a cooperative association organized in accordance with the provisions of this chapter for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes; and The terms “State credit union” and “State chartered credit union” mean a credit union organized and operated according to the laws of any State, the District of Columbia, the several territories and possessions of the United States, the Panama Canal Zone, or the Commonwealth of Puerto Rico, which laws provide for the organization of credit unions similar in principle and objectives to Federal credit unions.

20-RA-01 Other Supervisory Committee Audits

January 2020

In September 2019, NCUA published a final rule making changes to the Supervisory Committee regulations in Part 715. In the final rule, NCUA is replacing the Supervisory Committee Guide with an Appendix to the rule, eliminating the “Balance Sheet Audit” and the “Report on Examination of Internal Controls Over Call Reporting”, and eliminating the 120-day deadline for third-party written audit reports to be delivered to the credit union.

The rule, which applies to FISCUs by way of reference in Part 741.202, took effect January 6, 2020.

NCUA’s Part 715 establishes share insurance audit requirements for FISCUs and general audit requirements for FCUs:

Type of charter Asset size Minimum audit required to fulfill supervisory committee audit responsibility Part 715
section
FCU $500 Million or more Financial statement audit per GAAS by independent, State-licensed person §715.5
Less than $500 Million but greater than $10 Million Either financial statement audit or other supervisory committee audit
$10 Million or less Supervisory committee audit.
FISCU $500 Million or more Financial statement audit per GAAS by independent, State licensed person §715.6
Less than $500 Million Supervisory committee audit unless audit prescribed by State law is more stringent

 

For credit unions fulfilling Part 715 obligations with a Supervisory Committee Audit, new § 715.7 requires those audits to comply with the requirements of an Appendix to Part 715. The Appendix establishes the minimum procedures which must be performed for Other Supervisory Committee Audits, including:

  • Review of Board minutes for material changes to the credit union’s activities
  • Test and confirm asset and liability accounts such as: loans, cash on deposit, investments, shares, and borrowings
  • Test material equity, income and expense accounts;
  • Test for unrecorded liabilities;
    • Review key internal controls including at a minimum: bank reconciliations procedures, cash controls, dormant account controls, wire and ACH transfer controls, loan approval and disbursement procedures, controls over accounts of employees and officials, other real estate owned, and foreclosed and repossessed assets
  • Test mathematical accuracy of the allowance for loan and lease loss account and ensure the methodology is properly applied;
  • Test loan delinquency and charge-offs.

To help credit unions comply with the Appendix requirements, NCUA has published an Other Supervisory Committee Audit Minimum Procedures Guide. The 26-page Guide expands on the Appendix to help credit unions meet audit requirements.

Summary: Proposed Rule re: Remittance Transfers Under the Electronic Fund Transfers Act (Regulation E)

12 CFR Part 1005

The Consumer Financial Protection Bureau (CFPB)

Prepared by the NASCUS Legislative & Regulatory Affairs Department

January 2020

The Consumer Financial Protection Bureau (CFPB) is proposing changes to the Remittance rule to mitigate the effects of the expiration of a statutory exception that allows insured institutions to disclose estimates instead of exact amounts to consumers.  The exception is scheduled to expire on July 21, 2020.

In addition, the Bureau is proposing to increase a safe harbor threshold in the Rule related to whether a person makes remittance transfers in the normal course of its business, which would have the effect of reducing compliance costs for entities that make a limited number of remittance transfers annually.

Comments must be received by January 21, 2020.  The proposed rule can be found here and the unofficial redline version of the proposed rule can be found here.

Summary

The Electronic Fund Transfer Act (EFTA), as amended by Dodd Frank, establishes certain protections for consumers sending international money transfers or remittance transfers.  The Bureau’s remittance rule (Regulation E) implements these protections.  The Bureau is proposing several amendments to the remittance rule.

First, the Bureau is proposing to increase a safe harbor threshold in the rule which would have the effect of reducing compliance costs for entities that make a limited number of remittance transfers annually.  Currently, the rule provides a safe harbor that exempts “persons” from the rule requirements if the person provided 100 or fewer remittance transfers in the previous calendar year and provides 100 or fewer remittance transfers in the current calendar year.  The Bureau is proposing to adjust the safe harbor threshold from 100 transfers to 500 transfers annually.

Second, the Bureau is proposing changes to the Rule to mitigate the effects of the expiration of a statutory exception that allows insured institutions to disclose estimates of the exchange rate and covered third party fees to customers instead of exact amounts.  The exception is due to expire on July 21, 2020.  The proposal would adopt a permanent exception that would permit insured institutions to estimate the exchange rate and third party fees for remittance transfers to certain countries under certain conditions.

Comments Requested

The Bureau is seeking comment on a number of items including (but not limited to):

  • Proposal to increase the normal course of business safe harbor threshold
  • Data or other evidence that would assist it in determining what number would be most appropriate for the safe harbor threshold
  • Whether its proposal to increase the safe harbor threshold would in fact help reduce burden for banks/credit unions that provide transfers only as an accommodation to their customers?
  • Whether any banks/credit unions exited the market or limited the number of remittance transfers provided as a result of compliance costs associated with the remittance rule? And, if so, whether they would reenter the market or lift the limits they placed on their remittance transfer services if the Bureau raised the safe harbor threshold as proposed?
  • Whether entities that would no longer be covered under the remittance rule would discontinue providing the disclosures, cancellation rights or error resolution protections that they are currently required to provide pursuant to the rule? If such entities would continue providing consumer protections for some or all of their remittance transfers, the Bureau seeks comment on what those protections would be.
  • Whether any additional clarification or guidance regarding the proposed revised safe harbor threshold is needed and, if so, what specifically should be addressed?
  • Whether and to what extent providers have encountered transitional issues when qualifying for the existing safe harbor after complying with the rule? Whether providers who expect to qualify for the proposed revised safe harbor anticipate any transitional issues?

 

 

 

 

 

 

 

 

 

Letters to Credit Unions 20-CU-01 NCUA Supervisory Priorities for 2020

January 2020

 NCUA has published a Letter to Credit Unions (LTCU) identifying the agency’s supervisory priorities for 2020. The LTCU also updates stakeholders on NCUA’s efforts to modernize its examination and supervision program.

NCUA identified seven supervisory priorities for 2020. Six of the priorities are carried over from the 2019. The seven 2020 supervisory priorities are:

  • BSA/AML
  • Consumer Financial Protection
  • Credit Risk
  • Current Expected Credit Losses
  • Information Systems and Cyber Security
  • Liquidity
  • The End of LIBOR (new for 2020)

NCUA will continue to operate under the extended exam cycle. For FISCUs, this means an NCUA exam cycle of 8-12 months for FISCUs with:

  • Assets greater than $1 billion;
  • Composite NCUA CAMEL code 4 or 5 with assets greater than $50 million; or
  • Composite NCUA CAMEL code 3 with assets greater than $250 million.

All other FISCUs will be on a risk-based exam cycle (and at least once every 5 years). See LTCU 16-CU-12 for more information on NCUA’s risk-based exam program. Credit unions < $50 million will continue to be examined under the Small Credit Union Exam Program procedures.

NCUA’s 2020 Supervisory Priorities

Bank Secrecy Act Compliance/Anti-Money Laundering

NCUA requires its examiners review BSA/AML on every exam. NCUA, and states, have MOUs in place with FinCEN and BSA/AML continues to be a priority for policy makers in Washington, DC. Credit unions should be aware of the following joint statements issued by federal regulators in 2018 and 2019 on BSA related issues:

Furthermore, in 2020, NCUA is emphasizing customer due diligence and beneficial ownership compliance requirements as well as the timely and accurate filing of SARs and CTRs. Additional developments for 2020:

NCUA has resources available: Bank Secrecy Act Resources. To enhance understanding of BSA/AML/OFAC examination and compliance obligations, NASCUS’ 2020 BSA Conference will be held November 9-12, 2020, in Ft. Lauderdale, Florida. NASCUS’ BSA Conference, presented jointly with CUNA, is the largest credit union specific BSA conference in the country.

Consumer Financial Protection

NCUA conducts risk-focused reviews of applicable consumer financial protection regulations during every NCUA examination. In addition, each year NCUA rotates consumer protection regulations to emphasize in examinations. In 2020, in addition to any risk-focused regulations identified for review, NCUA examiners will also focus on:

  • Electronic Fund Transfer Act (Regulation E).NCUA examiners will evaluate Electronic Fund Transfer (EFT) policies & procedures, review initial account disclosures, & review Reg. E’s error resolution procedures.
  • Fair Credit Reporting Act (FCRA).NCUA examiners will review credit reporting policies and procedures and the accuracy of reporting to credit bureaus.
  • Gramm-Leach-Bliley (GLBA).NCUA examiners will continue to assess compliance with GLBA and credit union protection of member non-public personal information.
  • Small dollar lending (including PAL Lending).NCUA examiners will test for compliance with NCUA PALs rules and interest rate cap and evaluate any non-PALs lending programs.
  • Truth in Lending Act (Regulation Z).NCUA examiners will evaluate credit union practices related to:
  • annual percentage rates and late charges and related siclosures
  • how loan payments are applied to principal
  • interest, fees and other charges, and late fees
  • whether the application is consistent with the agreement and disclosures
  • Military Lending Act (MLA) & Servicemembers Civil Relief Act (SCRA).NCUA will review credit union compliance with the MLA and SCRA.

Resources are available at NCUA’s Consumer Compliance resources webpage.

Credit Risk

In 2020, NCUA examiners will place emphasis on the review of the credit union’s loan underwriting standards and procedures. In particular, examiners will verify if credit unions properly analyzed borrowers’ ability to meet debt service requirements without undue reliance on the value of any collateral. NCUA will also be implementing enhanced examination procedures for credit unions with very high concentrations in specific loan types. For more information, see NCUA LTCU 10-CU-03, Concentration Risk.

Current Expected Credit Losses

FASB has delayed CELC until January 2023 for credit unions. However, NCUA examiners will continue to discuss CECL implementation plans with credit unions.

For more information, see the April 2019 Interagency FAQs.

 Information Systems and Assurance (Cybersecurity)

An updated version of ACET will deployed in 2020. In early 2020, Credit unions will be able to access the system thru N NCUA’s website to complete self- assessments. From 2018 to the present, NCUA has conducted cybersecurity maturity assessments for credit unions with assets of $250 million or greater. In 2020, the NCUA will continue completing these assessments for credit unions with assets over $250 million and begin completing assessments for credit unions with assets over $100 million. The initial maturity assessment cycle will be completed in 2021. Starting in 2022, the agency will refresh the maturity assessments following the same cycle. NCUA will also be piloting new procedures in 2020 to evaluate critical security controls during examinations between maturity assessments.

For more information, visit the NCUA’s Cybersecurity Resources website.

LIBOR Cessation Planning

As NASCUS has be discussing with its members, the LIBOR index is ending in 2021. This has the potential to disrupt credit union involved LIBOR -based products and contracts such as loans, investments, derivatives, deposits, and borrowings. Credit unions should be proactively transitioning away from instruments using LIBOR as a reference rate. NCUA examiners will assess credit unions’ exposure and planning related to the discontinuance of LIBOR.

Liquidity Risk

Credit unions continue to exhibit lower levels of on-balance-sheet liquidity due, in part, to strong loan growth trends and increased competition for traditional, low-cost deposits. In 2020, NCUA examiners will review liquidity management & planning by evaluating:

  • effects of changing interest rates on the market value of assets & borrowing capacity;
  • Scenario analysis for liquidity risk modeling, including possible member share migrations and scenario analysis for changes in cash flow projections
  • The appropriateness of contingency funding plans

 NCUA Exam Modernization

  •  NCUA Connect – In 2019, the NCUA began piloting a new secure user portal, NCUA Connect. In 2020 NCUA Connect will be made available to all credit unions and state regulators.
  • MERIT – The Modern Examination and Risk Identification Tool (MERIT). MERIT will be released to all examination staff in the second half of 2020. Credit unions will be able to use MERIT to send files or updates to examiners and access examination reports.

For more information, see  NCUA Connect & MERIT. In addition, NCUA has several other initiatives underway such as CUOnline (the Profile and Call Report). See  Examination Modernization Initiatives.

 Statutory and Regulatory Updates

There have been recent changes to laws and regulations applicable to credit unions.

  • Commercial Real Estate Appraisal Rule – Effective October 22, 2019, new final rule § 722 increased the appraisal threshold for commercial real estate transactions from $250,000 to $1 million. Now for commercial loans under $1 million credit unions may choose to conduct a written estimate of market value or obtain an appraisal by a state-licensed appraiser. The final rule increases the standards for thequalifications and independence of individuals conducting written estimates of market value.
  • Private Flood Insurance Rule – Under new private flood insurance rules credit unions must accept certain flood insurance policies from private providers. For other policies from private providers, credit unions have the option to accept the insurance if the policy meets certain criteria. For more information, see the NCUA Regulatory Alert, 19-RA-01, Flood Insurance Alternatives.
  • Public Unit and Nonmember Shares Rule – The NCUA approved a final rule amending Section 701.32 regarding public unit and nonmember shares. Effective January 29, 2020, federally insured credit unions generally can accept public unit and nonmember shares in an amount up to 50% of paid-in and unimpaired capital and surplus, less any public unit or nonmember shares, or $3 million, whichever is greater. If public unit and nonmember shares, combined with borrowings exceeds 70% then a written plan must be kept.
  •  Serving Hemp Businesses – Credit unions may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp-related businesses within their FOM. The NCUA encourages credit unions to thoughtfully consider whether they are able to safely and properly serve hemp-related businesses. In 2020, NCUA examiners will be collecting data through the examination process concerning the types of services credit unions are providing to hemp-related businesses. See NCUA Regulatory Alert, 19-RA-02, Serving Hemp Businesses, and the USDA’s website.
  • Supervisory Committee Audits Rule – NCUA has amended § 715 to provide additional flexibility to FICUs regarding financial statement audits. These amendments go into effect January 6, 2020.The NCUA has issued a new guide to assist supervisory committees in conducting other supervisory committee audits.

Letters to Credit Unions No.: 19-CU-01 Supervisory Priorities 2019

January 2019

NCUA has published the first Letter to Credit Unions of 2019 to provide stakeholders an overview of the agency’s supervisory priorities for the year. As discussed in more detail below, NCUA’s supervisory priorities for 2019 include:

  • BSA/AML Compliance
  • Credit Concentration
  • Consumer Compliance
  • CECL
  • Information Systems
  • Liquidity & Interest Rate Risk

NCUA also notes that the extended examination cycle introduced in 2017 will be fully implemented in 2019. (See LTCU 16-CU-12 and NASCUS summary). In addition, NCUA examiners will continue to use the small credit union exam program procedures for most credit unions with assets under $50 million and a risk focused examination for all others. NCUA examiners will have increased flexibility to conduct suitable examination work offsite. (see NCUA’s Flexible Examination Program (FLEX) pilot).

NASCUS notes that most FISCU examinations will continue to be conducted primarily by state examiners.

Bank Secrecy Act Compliance

NCUA will enhance its scrutiny of BSA/AML compliance, especially the beneficial owner compliance. (see LTCU 18-CU-02). NCUA also has information on its Bank Secrecy Act website.

Concentrations of Credit

NCUA will focus on large concentrations of loan products and concentrations of specific risk characteristics. If excessive levels of credit concentration risk are identified, examiners will work with credit union management to identify strategies to mitigate the risk. (See LTCU 10-CU-03 Concentration Risk).

Consumer Compliance

NCUA examiners will continue to perform limited reviews of HMDA quarterly Loan/Application Registers, or full-year Loan/Application Registers, taking into account the partial exemptions that took effect on May 24, 2018. (See Consumer Financial Protection Update 18-01). NCUA will also continue to focus on Military Lending Act compliance. (See NCUA Regulatory Alerts 16-RA-04, Guidance on Regulatory Changes Affecting Military Lenders and 16-RA-06, Department of Defense’s Interpretive Guidance on Military Lending Act Limitations on Terms of Consumer Credit Extended to Service Members and Dependents)

NCUA examiners will review credit unions’ compliance with Regulation B’s notification requirements following adverse action taken on consumer credit applications and overdraft policies and procedures for compliance with Regulation E. (See NCUA’s Consumer Compliance Regulatory Resources website).

 Current Expected Credit Losses (CECL)

NCUA examiners will inquire about credit union efforts to prepare for FASB’s January 1, 2022 effective date for CECL and how the changes alter ALLL funding needs. (See LTCU 17-CU-05, and LTCU 16-CU-13 on CECL).

Information Systems and Assurance

NCUA will continue to assess credit union cybersecurity maturity using the Automated Cybersecurity Examination Toolbox (ACET) for credit union with over $250 million in assets that have not previously received an assessment. NCUA will also be focusing on

credit union IT risk management and credit union oversight of third-party service provider arrangements. (See NCUA’s Cybersecurity Resources website).

 

Liquidity and Interest Rate Risks

In assessing credit union liquidity and interest rate risk management, NCUA will consider:

 

  • The potential effects of rising interest rates on the market value of assets that affect changes to net worth and borrowing capacity
  • Member preference shifts to shares with more market sensitivity
  • Management’s ability to meet liquidity needs given the increased competitive pressures that affect share balances

 

​-End-

 

Letters to Credit Unions 19-CU-04 Use of Alternative Data in Credit Underwriting

December 2019

NCUA, FRB, CFPB, FDIC, and the OCC have issued a joint statement on the use of alternative data by financial institutions in determining a borrowers’ creditworthiness. The joint statement focuses on the benefits and risks to financial institutions of using such data and the expectation that financial institutions develop a compliance program for managing the risks of alternative data.

Alternative data “means information not typically found in the consumer’s credit files of the nationwide consumer reporting agencies or customarily provided by consumers as part of applications for credit.”

The joint statement states that alternative data is being used (or considered) for credit underwriting, as well as in fraud detection, marketing, pricing, servicing, and account management. The use of alternative data:

  • may improve the speed, cost and accuracy of credit decisions
  • may help evaluating potential borrowers who may not obtain credit in the mainstream credit system
  • may enable consumers to obtain additional products or more favorable pricing/terms based on enhanced assessments of repayment capacity

Banks and credit unions using alternative data must ensure that usage is consistent with safe and sound operations. Appropriate controls should include a rigorous assessment of the quality and suitability of the data. The appropriateness of the data models should also be evaluated. The federal agencies acknowledge that in some cases the use of alternative data may present no greater risk than the use of traditional data. For example, automating the use of cash flow data to better evaluate borrowers’ ability to repay loans is at it’s a core a longstanding underwriting principle.

The guidance provides several additional resources for managing risks associated with models, including those that may leverage alternative data:

Use of such data may implicate several consumer protection statues and regulations including fair lending laws, prohibitions against unfair, deceptive, or abusive acts or practices, and the Fair Credit Reporting Act. A well-designed compliance management program can help provide the financial institution a thorough analysis of relevant consumer protection laws and regulations to ensure firms understand the opportunities, risks and compliance requirements before using alternative data.

Some alternative data, such as cash flow data, may present lower risks than other data. However, some alternative data may warrant more robust compliance management including appropriate testing, monitoring and controls.

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Schedule of Events – Pending
Joint Leadership & Staff Contacts Directory (Internal Copy)
Joint Leadership & Staff Directory (Public Copy) – update pending
NASCUS Legislative Tracking List
Credit Union & Associate Members List
Committees Roster – update pending
Forms (Conflict of Interest, Emergency Contact, etc.)

Summary: Final Rule re: Home Mortgage Disclosures Act’s (HMDA) Temporary Exceptions for Smaller Institutions

12 CFR Part 1003

Consumer Financial Protection Bureau

Prepared by the NASCUS Legislative & Regulatory Division

December 2019

The Consumer Financial Protection Bureau (CFPB) is amending Regulation C to extend the temporary data reporting threshold for open end lines of credit to January 1, 2022.  The Bureau is also incorporating into Regulation C the interpretations and procedures from the interpretive and procedural rule that the Bureau issued on August 31, 2019 and further implementing the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA).

Most provisions of the final rule become effective on January 1, 2020.  However, amendments to Section 1003 become effective on January 1, 2022.  The final rule can be found here.

Summary

Regulation C, which implements HMDA, includes institutional and transactional coverage thresholds that determine whether financial institutions are required to collect, record and report any HMDA data on closed-end mortgage loans and open-end lines of credit.  Under EGRRCPA, Congress added partial exemptions from HMDA’s requirements that exempt certain insured depository institutions and insured credit unions from reporting some but not all HMDA data for certain transactions.  The final rule incorporates into Regulation C and implements further the EGRRCPA partial exemptions, as well as extending (for two years) a temporary adjustment to Regulation C’s institutional and transactional coverage threshold for open-end lines of credit.

Extension of the Temporary Adjustment to Open-End Coverage Threshold

Under its 2015 HMDA rule, the Bureau established institutional and transactional coverage thresholds in Regulation C that determined whether a financial institution would need to report any data under HMDA.  The 2015 rule set the closed-end reporting threshold to at least 25 loans in each of the two preceding yeas and the open-end threshold to at least 100 open-end lines of credit in each of the two preceding years.  However, before the thresholds under the 2015 rule became effective, the Bureau temporarily increased the open-end reporting threshold to at least 500 open-end lines of credit for two years (calendar years 2018 and 2019).  The Bureau believes that in the interim, extending the current temporary increase in the open-end coverage threshold for an additional two years will allow the Bureau to consider fully the appropriate level for the permanent open-end coverage threshold for data collected beginning January 1, 2022.

The final rule extends to January 1, 2022, the current temporary threshold of at least 500 open-end lines of credit for open-end institutional and transactional coverage.  The Bureau intends to issue a separate final rule to address permanent coverage thresholds for open-end lines of credit and closed end mortgage loans in the future.

 Implementation of Partial Exemptions

 The final rule also implements further the partial exemptions from HMDA’s requirements provided for under the EGRRCPA.  In 2018, the Bureau issued an interpretive and procedural rule to implement and clarify the EGRRCPA amendments to HMDA.  The 2018 HMDA rule clarifies that insured depository institutions and insured credit unions covered by a partial exemption have the option of reporting exempt data fields as long as they report all data fields within any exempt data point for which they report data; clarifies that only loans and lines of credit that are otherwise HMDA reportable count toward the thresholds for the partial exemptions; clarifies which of the data points in Regulation C are covered by the partial exemptions; designates a non-universal loan identifier for partially exempt transactions for institutions that choose not to report a universal loan identifier; and clarifies the exception to the partial exemptions for insured depository institutions with less than satisfactory examination histories under the Community Reinvestment Act (CRA) of 1977.

The final rule incorporates into Regulation C these interpretations and procedures, with minor adjustments, by adding new Section 1003.3(d) relating to the partial exemptions and making various amendments to the data compilation requirements in Section 1003.4.  The final rule further implements the EGRRCPA by addressing certain additional interpretive issues relating to the partial exemptions that the 2018 HMDA rule did not specifically address such as how to determine whether a partial exemption applies to a transaction after a merger or acquisition.

 

 

 

 

 

 

 

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Monthly Financials

FY2025
FY2024
FY2023
 FY2022
 FY2021
 FY2020
 FY2019
 FY2018
 FY2017
 FY2016
 FY2015

Annual Budgets

FY2024 (Approved December 2023)FY2023 (Approved December 2022)FY2022 (Approved December 2021)
FY2021 (Approved December 2020)
FY2020 (Revised May 2020)
FY2020 (Approved December 2019)
FY2019 (Approved December 2018)

Annual Financial Statements

FY2022 NASCUS-NISCUE Financial Statements- Financial Review Report
FY2021 NASCUS-NISCUE Financial Statements – Audit Report
FY2020 NASCUS-NISCUE Financial Statements – Financial Review Report
FY2019 NASCUS-NISCUE Financial Statements – Financial Review Report
FY2018 NASCUS-NISCUE Financial Statements – Audit Report
FY2017 NASCUS-NISCUE Financial Statements – Financial Review Report
FY2016 NASCUS-NISCUE Financial Statements – Financial Review Report
FY2015 NASCUS-NISCUE Financial Statements – Audit Report
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NCUA Final IRPS Summary

Interpretive Ruling & Policy Statement 19-1

2nd Chance IRPS

Prepared by NASCUS Legislative & Regulatory Affairs Department

November 2019

 NCUA has finalized its revisions to the agency’s Interpretive Ruling and Policy Statement (IRPS) regarding statutory prohibitions imposed by § 205(d) of the Federal Credit Union Act (FCUA). Section 205(d) prohibits, except with the prior written consent of the Board, any person who has been convicted of any criminal offense involving dishonesty or breach of trust, or who has entered into a pretrial diversion or similar program in connection with a prosecution for such offense, from participating in the affairs of an insured credit union.

The final IRPS 19-1 may be read here.

With publication of final IRPS 19-1, NCUA is rescinding existing IRPS 08-1. The new IRPS is effective January 2, 2020.

Summary

Pursuant to § 205(d)(1) of the FCUA, except with the prior written consent of the Board, a person who has been convicted of any criminal offense involving dishonesty or breach of trust, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense may not:

  • Become, or continue as, an institution-affiliated party with respect to any insured credit union; or
  • Otherwise participate, directly or indirectly, in the conduct of the affairs of any insured credit union.

NCUA has chosen to provide greater opportunity for individuals with past indiscretions to participate in the affairs of a federally insured credit union.

Covered Persons

The final IRPS clarifies the that an independent contractor is a covered person if the contractor influences or controls the management or affairs of the credit union. In addition, a person who does not meet the definition of an “institution affiliated party” might also be prohibited by § 205 if he or she is participating in the conduct of the affairs of a credit union. Under the final IRPS, NCUA will continue to define institution affiliated party separately from “participation in the conduct of the affairs of a credit union” and make determinations on a case-by-case basis.

Offenses Covered

In order for an application to be considered by the NCUA Board, the case must be considered final by the procedures of the applicable jurisdiction. All of the sentencing requirements associated with a conviction or conditions imposed by the pretrial diversion or similar program, including, but not limited to, imprisonment, fines, condition of rehabilitation, and probation requirements, must be completed before the Board will deliberate a consent application.

Offenses not Covered

Currently, where the covered offense is considered de minimis, approval is automatically granted, and an application for NCUA’s consent is not required. The final IRPS modifies exceptions for de minimis offenses in two ways:

  • By updating the general criteria for the exception
  • By expanding the scope of the exception to include additional offenses to qualify as de minimis offenses

Currently, a de minimis offense is defined by the following five criteria:

  • there is only one conviction or entry into a pretrial diversion program of record for a covered offense;
  • the offense was punishable by imprisonment for a term of less than one year and/or a fine of less than $1,000, and the punishment imposed by the court did not include incarceration;
  • the conviction or pretrial diversion program was entered at least five years prior to the date an application would otherwise be required;
  • the offense did not involve an insured depository institution or insured credit union;
  • the Board or the FDIC has not previously denied consent under Section 205(d) of the FCU Act or Section 19 of the FDIA

The final Second Chance IRPS updates these by modifying criterion #2 to allow those offenses punishable by imprisonment for a term of one year or less and/or a fine of $2,500 or less, and those offenses punishable by three days or less of jail time, to meet the  de minimis definition.

Expanding the De Minimis Exceptions

The final Second Chance IRPS expands the exception for offenses not requiring submission of an application to NCUA.

  • Age at time of covered offense – A person with a covered conviction or program entry that occurred when the individual was 21 years of age or younger at the time of the conviction or program entry, and who otherwise meets the general de minimis criteria, qualifies for this de minimis exception if:
    • the conviction or program entry was at least 30 months prior to the date an application would otherwise be required; and
    • all sentencing or program requirements have been met prior to the date an application would otherwise be required.
  • Bad checks – A conviction for writing bad checks will be considered de minimis if:
    • there is no other conviction or pretrial diversion program entry subject to Section 205(d)
    • the aggregate total face value of all bad checks $1,000 or less
    • no depository institution or credit union was a payee on any of the bad checks
  • Small-dollar, simple theft – Under the final Second Chance IRPS, a simple theft of goods, services and/or currency (or other monetary instrument) will be considered de minimis where the following conditions are met:
    • the aggregate value of the currency, goods, and/or services taken was $500 or less at the time of conviction or program entry
    • the person has no other conviction or program entry described in Section 205(d)
    • it has been 5 years since the conviction or program entry (or 30 months in the case of a person 21 years or younger at the time of the conviction or program entry)
    • it does not involve a depository institution or credit union

The offenses of burglary, forgery, robbery, identity theft, and fraud are excluded from the simple theft exception.

  • Use of a fake I.D – The use of a fake, false, or altered identification card by a person under the legal age to obtain or purchase alcohol, or to enter a premises where alcohol is served and age appropriate identification is required will be considered de minimis provided there is no other conviction or program entry for the covered offense.
  • Simple misdemeanor drug possession – The IRPS classifies as de minimis those convictions or entries for drug offenses meeting the following conditions:
  • the person has no other conviction/program entry described in § 205(d)
  • the single conviction or program entry for simple possession of a controlled substance was classified as a misdemeanor and did not involve the illegal distribution (including an intent to distribute), sale, trafficking, or manufacture of a controlled substance or other related offense
  • it has been 5 years since the conviction or program entry (or 30 months in the case of a person 21 years or younger at the time of the conviction or program entry).

Convictions or program entries for intent to distribute, illegal distribution, illegal sale or trafficking of a controlled substance, or illegal manufacture of a controlled substance will continue to require an application for the Board’s consent, unless otherwise qualifying as de minimis.

Expunged Convictions

The final IRPS clarifies the circumstances under which a conviction is deemed expunged for purposes of § 205(d). If an order of expungement has been issued in regard to a conviction or program entry and is intended by the language in the order itself, or in the legislative provisions under which the order was issued, to be a complete expungement, then it is considered expunged for the purposed of the final IRPS. If the jurisdiction’s expungement statute or the court allows the use of the conviction or program entry for a subsequent purpose, then the conviction has not been expunged.

Conditional Offers

The final rule allows credit unions to extend a conditional offer of employment contingent on the completion of a satisfactory background check to determine if the applicant is barred by § 205(d). However, the job applicant may not commence work for or be employed by the credit union until the applicant is determined to not be barred under § 205(d) or receives consent from the NCUA Board.

Distinguishing between Sponsored and Individual Applications

The final IRPS clarifies that generally, the insured credit union will file an application for NCUA consent for a § 205(d) applicant. The credit union submits the request to its NCUA Regional Office. Under certain circumstances, an individual may apply to NCUA in their own right for consent. In that case, the individual would submit the application to the NCUA regional Director for the area in which the applicant lives.

Delegation

NCUA is delegating consent authority for § 205(d) applications submitted by credit unions as the sponsor of an individual to the Program Office (Region) for submitting credit union. However, the NCUA Board will retain consent authority for individually filed applications for consent.

In the final IRPS, NCUA has also made changes to the application forms used to submit both sponsored and individual requests for consent.

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