SSA Head Archives - Page 21 of 24

NCUA Risk Alert: 20-Risk-02 COVID-19 Fraud Schemes

August 2020

NCUA issued Risk Alert 20-RA-02 to inform credit unions about fraud risks associated with the COVID-19 pandemic. The economic dislocation resulting from the pandemic, the various government programs implemented to mitigate those effects, and the altered operations of credit unions managing the pandemic present opportunities for criminal elements to exploit vulnerabilities and compromise credit unions and their members.

Financial Institution Fraud

NCUA recommends credit unions review risks related to:

New account fraud, identity theft, cybersecurity risks (NCUA)
Imposter scams and money mule schemes (FinCEN)
Mobile banking application fraud (FBI)

Other federal agencies are good resources on evolving pandemic related fraud trends:

Small Business Administration Loan Fraud

The SBA is administering 2 loan programs, the Paycheck Protection Program and the Economic Injury Disaster Loans, to provide relief to business impacted by the pandemic. The most common red flags for fraud related to these programs are:

PPP applications with manipulated or fraudulent supporting documentation.
PPP applications w/different names that contain nearly identical application information & supporting documentation originating from the same IP address.
Recently established fake businesses with no internet presence & having minor differences between names on the application & business registration documents.
Existing accounts always have low balances with no history of payroll expenses.
New accounts that appear to have been created solely to apply for or receive SBA funds. The accounts had no previous business activity and funds are quickly transferred after receipt of SBA loan proceeds.
After loan advances or proceeds are deposited into an account, funds are immediately withdrawn in cash, wired out, transferred to an investment account, used to purchase luxury assets not associated with typical business-related expenses, or used to start an entirely new business.

Credit unions should report suspected fraud to the SBA Office of the Inspector General (SBA OIG). Additional guidance on PPP loans is available in SBA Procedural Notice 5000-20036. The SBA OIG has also published a lender alert regarding EIDL.

Business Tax Credits Fraud

NCUA’s Risk Alert provides information on the CARES Act Employee Retention Credit and the Credit for Sick and Family Leave. Both programs provide for eligible employers to receive an advance of the credits to help meet weekly payroll. Suspected fraud related to the programs should be reported to IRS Criminal Investigation. Red flags of fraud related to these programs include:

U.S. Treasury check deposits while receiving loan proceeds from SBA programs. Businesses are only allowed to take advantage of the Employee Retention Credit or the PPP program. They may not take advantage of both programs.
Inflated wages or numbers of employees to increase the amount of tax credits or advances received through a U.S. Treasury check.
U.S. Treasury check deposits into accounts with no indication of business or payroll activity.
U.S. Treasury check deposits used to pay personal expenses.

Unemployment Insurance Fraud

The CARES Act provides additional unemployment insurance funding for eligible individuals through multiple unemployment assistance programs including the Pandemic Unemployment Assistance (PUA) program. These programs disburse their benefits by various means are attractive targets for fraud. The most common red flags associated with these programs include:

Account receives unemployment benefits from another state without a reasonable explanation or from multiple other states.
A single account receives unemployment benefits for multiple individuals.
New accounts are opened, or existing accounts lack transactional activity, then suddenly used to collect unemployment benefits.
Imposter schemes, where a fraudster poses as an official entity to defraud victims, such as obtaining personally identifiable information to fraudulently file for unemployment insurance benefits.
Money mules, where an individual knowingly or unknowingly obtains money on behalf of, or at the direction of, someone else to improperly obtain unemployment insurance benefits.

Suspected fraud related to these programs should be reported to the Department of Labor Office of the Inspector General.

Reporting Fraud

In addition to reporting suspected fraud to the appropriate federal agency, credit unions may also contact NCUA’s Fraud Hotline (800.827.9650), an NCUA Regional Office or their SSA.

As appropriate, credit unions should also file SARs with FINCEN with suspected COVID-19 related fraud. SAR filings should include:

The type of fraud or scam (by name if possible; i.e imposter scam)
affected programs
identifying information when possible such as IP addresses

Regulatory Alert 20-RA-06 Treatment of Certain COVID-19-Related Loss Mitigation Options Under the Real Estate Settlement Procedures Act

August 2020

NCUA’s Regulatory Alert notifies credit unions of the CFPB’s interim final rule amending Regulation X (RESPA) that added a temporary exception to Subpart C to Reg X for certain COVID-19-related loss mitigation options. The rule became effective July 1, 2020.The rule allows a loan mortgage servicer to offer a borrower a loss mitigation option based on an evaluation of limited information collected from a borrower if certain criteria are met.

Reg X generally a mortgage loan servicer to exercise reasonable efforts to obtain all documents and information to complete a loss mitigation application from a borrower, and assess the borrower for all loss mitigation options available to the borrower based on the completed application. There are 2 exceptions:

When a servicer has exercised reasonable diligence in obtaining the documents and information to complete a loss mitigation application, but a loss mitigation application remains incomplete for a significant period of time under the circumstances without further progress by a borrower to make the loss mitigation application complete
When a servicer offers a short-term payment forbearance program or a short-term repayment plan to a borrower based upon an evaluation of an incomplete loss mitigation application.

The interim final rule adds a third temporary exception that is designed allow servicers to offer a payment deferral option offered by Fannie Mae and Freddie Mac, at the direction of the Federal Housing Finance Agency (FHFA), and a loss mitigation option for FHA insured loans.

To qualify for the 3^rd exception, a credit union must meet 3 criteria:

Allow a borrower to delay paying all forborne principal and interest payments, and all principal and interest payments that are due and unpaid, until:
- the mortgage loan is refinanced
- the mortgaged property is sold
- the term of the mortgage loan ends
- for a mortgage insured by FHA, the mortgage insurance terminates
Not charge or accrue interest on any amounts a borrower may delay paying through the loss mitigation option; not charge any fee in connection with the loss mitigation option; and waive all existing late charges, penalties, stop payment fees, or similar charges promptly upon a borrower’s acceptance of the loss mitigation option
Terminate any pre-existing delinquency when a borrower accepts the loss mitigation offer

Under the interim final rule, when a borrower accepts a loss mitigation offer, a credit union is not required to comply with requirements of 1024.41(b)(1) and (2), which apply to an application a borrower submitted before the credit union made its loss mitigation offer.

Credit unions must also comply with other Regulation X requirements after a borrower accepts a loss mitigation offer. For example:

If a mortgage loan becomes delinquent again (at any time), a credit union would have to satisfy the early intervention requirements of 1024.39
If the borrower submitted a new loss mitigation application, the credit union would have to comply with the usual loss mitigation procedures

Small Servicer Exemption and the Prohibition on Certain Foreclosure Activities

NCUA notes that credit unions engaged in servicing mortgage loans that qualify as small servicers (they service 5k or fewer loans, all of which they or an affiliate own or originated) are not subject to the provisions of Regulation X relevant to this Regulatory Alert and are not affected by the amendment in the interim final rule. However, a small servicer is subject to the prohibition on certain foreclosure activities in Regulation X.⁵

Credit unions should read the provisions of the interim final rule and Reg X to determine the effect on their operations.

Letter to Credit Unions 20-CU-23 Annual Voluntary Credit Union Diversity Self-Assessment

August 2020

NCUA issued LTCU 20-CU-23 to encourage credit unions to completing NCUA’s Annual Voluntary Credit Union Diversity Self-Assessment. NCUA notes that in 2018, 81 credit unions completed the assessment and last year that number increased to 118. NCUA believes the Diversity Self-Assessment is “a valuable tool for credit unions seeking to make a stronger commitment to diversity, inclusion, and equity” and can help industry strengthen its commitment to those principles.

NCUA aggregates the data from submissions and issues a report on the state of diversity, equity, and inclusion throughout the credit union system. No respondents are identified in the report.

NCUA notes that the Diversity Self-Assessment is available to be completed year-round but that most credit unions complete it at year-end. NCUA encourages credit unions to voluntary commit to completing the Annual Voluntary Credit Union Diversity Self-Assessment by emailing [email protected] and pledging to submit the survey by year-end.

Letters to Credit Unions 20-CU-22 Update to NCUA’s 2020 Supervisory Priorities

July 2020

NCUA issued LTCU 20-CU-22 to update its Supervisory Priorities listed in LTCU 20-CU-01 in light of developments related to the COVID-19 pandemic. NCUA notes that given the challenges presented by the pandemic, the agency will be:

updating the Examiner’s Guide to include additional guidance for examiners and review procedures
scheduling eligible credit unions for examination in accordance with the extended examination cyclepursuant to the 2016 NCUA Exam Flexibility Initiative
conducting risk-focused examinations, concentrating on areas of highest risk, new products and services, and compliance on all other credit unions

Information on the NCUA’s response to the pandemic is available at Coronavirus (COVID-19): Information for Federally Insured Credit Unions and Members.

Updated Exam Priorities for 2020 Q3 and Q4

Bank Secrecy Act Compliance/Anti-Money Laundering

NCUA will continue to conduct BSA/AML reviews with an emphasis on CDD and beneficial ownership requirements (effective May 11, 2018). NCUA will also focus on proper filing of SARs and CTRs and reviews of bi-weekly 314(a) information requests.

(NASCUS Note: On August 3, 2020 FINCEN issued updated FAQs related to CDD.)

NCUA participates on an interagency working group with FinCEN and other FBAs which has to date:

Issued joint statements addressing improved efficiency through shared resources (see LTCU 18-CU-04, Sharing Bank Secrecy Act Resources)
Encouraged innovative approaches to meeting BSA/AML compliance obligations
Promoted risk-focused BSA/AML supervision
Published updates to the BSA Examination Manual

NCUA has a Bank Secrecy Act Resources webpage with additional information.

Coronavirus Aid, Relief and Economic Security Act

NCUA has added the CARES Act as a supervisory priority and its examiners will review credit unions’ good faith efforts to comply with the Act.

For more information, see LTCU 20-CU-07, Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Consumer Financial Protection

NCUA will continue to examine for compliance with applicable consumer financial protection regulations during every examination including:

Electronic Fund Transfer Act (Reg E) – Examiners will evaluate EFT policies & review initial account disclosures & Reg E error resolution
FCRA – Examiners will review credit reporting policies & procedures and the accuracy of reporting to credit bureaus, particularly the date of first delinquency
GLBA – Examiners will evaluate credit union protection of non-public data
Small dollar lending – Examiners will test for compliance with the NCUA PALs rules & review other credit union short-term, small-dollar loan programs
TILA (Reg Z) –Examiners will evaluate whether finance charges and annual percentage rates are accurately disclosed, and late fees are levied appropriately
Military Lending Act (MLA) and Servicemembers Civil Relief Act (SCRA) – For credit unions that have not received a recent review, examiners will review credit union compliance with the MLA and SCRA

NCUA will also emphasize review of the following regulatory changes enacted since the start of the COVID-19 pandemic:

EFT Act (Regulation E) –Examiners will evaluate compliance with the Remittance Transfer Rule safe harbor threshold & fee changes
TILA (Reg Z) –Examiners will also evaluate practices related to recent changes in TRID and Reg Z Rescission rules in response to the pandemic

Credit Risk Management and Allowance for Loan and Lease Losses

NCUA is shifting its priority from reviewing underwriting standards and concentrations risk (NCUA expectations discussed in 10-CU-03, Concentration Risk) to reviewing adequacy of ALLL accounts. Because of the delay to CECL, NCUA will not be assessing transition to the CECL standard until further notice. However, credit unions must still maintain an ALLL account in accordance with FASB ASC Subtopic 450-20 (loss contingencies) and/or ASC 310-10 (loan impairment).

To evaluate the adequacy of credit unions’ ALLL accounts NCUA will review:

ALLL policies and procedures
ALLL reserving methodology & including modeling assumptions
Adherence to GAAP
Independent reviews of credit union reserving methodology and documentation practices by the Supervisory Committee or by an internal or external auditor

NCUA references additional resources, including:

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (revised)
LTCU 20-CU-13, Working with Borrowers Affected by the COVID-19 Pandemic;
NCUA’s Frequently Asked Questions for Federally Insured Credit Unions;
LTCU 02-CU-09, Allowance for Loan and Lease Losses; and
NCUA Accounting Bulletin, 06-01, Interagency Advisory Addressing the ALLL Key Concepts and Requirements.

NCUA will also review credit union policies and the use of loan workout strategies, risk management practices, and new strategies implemented to assist borrowers impacted by the pandemic.

Information Systems and Assurance (Cybersecurity)

NCUA is shifting its focus from performing ACET cybersecurity maturity assessments to evaluating critical security controls. NCUA is also piloting an Information Technology Risk Examination solution for Credit Unions (InTREx-CU) which is intended to harmonizes the IT and Cybersecurity examination procedures shared by the FDIC, FRB, and some state financial regulators to ensure consistent approaches are applied to community financial institutions. The InTREx-CU will be deployed to identify gaps in security safeguards, allowing examiners and credit unions to identify and remediate potential high-risk areas through the identification of critical information security program deficiencies as represented by an array of critical security controls and practices.

The NCUA has also published information on the increased cybersecurity threats resulting from the COVID-19 pandemic. See NCUA’s Cybersecurity Resources website and NCUA’s Frequently Asked Questions for Federally Insured Credit Unions.

LIBOR Transition Planning

On July 1, 2020, FFIEC issued a Joint Statement on Managing the LIBOR Transition that highlighted the risks that will result from the transition away from LIBOR. NCUA will continue assessing credit unions’ exposure and planning related to a transition away from LIBOR using the NCUA’s LIBOR Assessment Workbook.

Liquidity Risk

NCUA will continue to review liquidity risk management and planning in all credit unions, and will place emphasis on:

The effects of loan payment forbearance, loan delinquencies, projected credit losses and loan modifications on liquidity and cash flow forecasting
Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors (for example, changing prepayment speeds)
Scenario analysis for liquidity risk modeling, including changes in share compositions and volumes
The potential effects of low interest rates and the decline of credit quality on the market value of assets, funding costs and borrowing capacity
The adequacy of contingency funding plans to address any potential liquidity shortfalls

More information is available in the NCUA’s Examiner’s Guide.

Serving Hemp-Related Businesses

NCUA will continue to collect data thru the examination process on credit unions serving Hemp businesses. See LTCU 20-CU-19, Additional Guidance Regarding Servicing Hemp-Related Businesses and FinCEN’s June 29, 2020 guidance.

Modernization Updates

NCUA Connect and MERIT

In September 2019, NCUA began piloting both a new user portal (NCUA Connect) and a new examination tool, the Modern Examination and Risk Identification Tool (MERIT).

Following challenges related to the COVID-19 pandemic, the NCUA has delayed the rollout, training and launch of these applications to all examination staff until the second half of 2021. However, the agency will continue to use MERIT in 2020 and 2021 in both a pilot and limited-release capacity.

Additional information about these applications is available on the NCUA website.

NCUA Request for Information (RFI): Strategies for Future Examination & Supervision Utilizing Digital Technology

Prepared by NASCUS Legislative & Regulatory Affairs Department
July 2020

Summary

NCUA has published a Request for information (RFI) to gather stakeholder input as the agency considers alternative procedures to modernize its examination program to improve the program’s efficiency and effectiveness. NCUA seeks to leverage data and technology to transition to a predominately offsite examination and supervision model.

NCUA hopes to:

Reduce burden on credit unions and increase agency efficiency by reducing onsite examination time
Improve offsite supervision capabilities
Provide more consistency and standardization for the examination and supervision process
Improve communication between examiners, credit unions, and state supervisory authorities
Explore and evaluate technology utilization and appetite for adoption.

NCUA will use stakeholder RFI response to:

Refine a strategy for leveraging technology in the future examination and supervision process
Determine how much onsite examination activity would still be required with an examination primarily done offsite
Develop an implementation strategy that reduces burden while maintaining supervisory effectiveness

The RFI may be read here. Comments are due to NCUA August 31, 2020.

Summary

During the traditional onsite examination, conducted generally every 18 months, examiners gather information, conduct analysis, review documents and controls, hold meetings, develop recommendations, and deliver a final report to a credit union’s board of directors. In response to examiner requests, credit unions provide data from multiple sources and in multiple formats. Before 1995, the NCUA collected data from credit unions in written format. In 1995, the agency initiated its first electronic data collection program when it instituted the AIRES Examination Program and encouraged federally insured credit unions to provide member data to examiners electronically:

In October 2016, NCUA issued its Exam Flexibility Initiative report. One of the 10 recommendations made in the report was for NCUA to evaluate alternative approaches to its current examination program by seeking ways to reduce onsite presence. As a result, NCUA piloted the Flexible Examination Program (FLEX) in 2017 to assess examiners’ ability to work remotely on elements of examinations of well-run credit unions that have appropriate technology and platforms to securely provide electronic data.

During the pilot, NCUA states that examiners were, on average, able to reduce their time onsite by 30%. NCUA also learned it needed a secure file transfer portal to support the transmission of data remotely and securely. In July 2018, NCUA deployed a secure file transfer portal, however most of NCUA’s examination work is still conducted onsite (pre-COVID 19).

NCUA developed a secure file transfer portal in July 2018. However, most of the review of credit union information and data is still conducted onsite. In 2018, NCUA established the Virtual Examination Program to explore ways for NCUA to move to a more virtual-based exam program within the next 5-10 years.

NCUA’s goal is to adopt an exam model in which examiners would review a credit union’s operational and financial condition remotely. NCUA is also looking for “innovative methods to augment the agency’s evaluation of a credit union’s financial and operational condition.”

As NCUA considers how to modernize its examination program, its set the following principles:

Evaluate all material risk exposures and compliance matters fully
Leverage new data and analytical techniques to achieve desired supervisory outcomes efficiently and effectively
Optimize the benefits of utilizing technology for examinations without increasing the risk to the safety and soundness of the credit union system
Minimize the burden on supervised institutions

In the RFI, NCUA seeks feedback on the following questions:

What capabilities can federally insured credit unions adopt to facilitate the NCUA’s transition toward more offsite exam work?

What capabilities do you recommend the NCUA adopt to be able to conduct more examination work offsite?

How would such offsite capabilities increase the efficiency and effectiveness of the exam and supervision process from the credit union perspective?

Do you think the NCUA can do significantly more offsite work without compromising its safety and soundness responsibilities?

What credit union data can be provided to examiners to facilitate more

offsite supervision and reduce time onsite during the examination?

(a-b)

(a) What credit union data is currently provided to other parties that NCUA could potentially leverage to reduce the burden on credit unions?

(b) To ease the administrative burden, should the NCUA ask third party service providers for data on credit unions directly?

Are credit unions moving from a physical presence in member services to more reliance on digital or mobile banking platforms? How should the examination program evolve to accommodate these changes?

What other methodologies or approaches should NCUA include in this exam study?

Would credit unions benefit from more clarity and consistency on the timing and types of documents and data examiners need to conduct examinations?

(a-b)

(a) Would it be easier or less burdensome for credit unions to provide documents and data to the NCUA on a more scheduled, flow basis throughout the year so the time spent onsite would be more efficient and the majority of the examination/supervision could primarily be conducted offsite?

(b) If this process could lead to more frequent/ offsite contacts using technology and reduce the time and frequency of full- scope onsite examinations, do you think this would be an improvement and/or less burdensome than the current examination process or cause more disruption?

What do you see as the most significant challenges facing the NCUA’s move to an offsite examination/ supervision model that utilizes technology?

(a-b)

(a) What difficulties do you foresee with moving to a future examination model for federal and state charted credit unions?

(b) How could we better coordinate with the states in this approach?

What concerns do you have, if any, about a diminished NCUA onsite presence, and can these be mitigated?

What impact, positive or negative, do you anticipate this future examination program strategy will have on your credit union and its operation?

Will moving offsite create any noticeable change in credit unions’ ability to provide services to members, particularly during major disruptions, like pandemics?

Are there resiliency tests that can be performed by examiners offsite that could not be performed when examiners are onsite? If so, please detail them.

If rebuilding the examination process from scratch, how might you redesign what is currently done today in order to reduce the burden on credit unions and/or minimize time that examiners need to be onsite at credit unions?

What new or emerging technologies could enable the NCUA to examine a credit union with less time onsite?

Are video and telecommunications capabilities sufficient to maintain good lines of communication between examiners and credit union management and officials with reduced in-person meeting opportunities? What other methods of communication or communication protocols would support quality communications between the credit union and examination staff?

What types of artificial intelligence and/or machine learning techniques are you currently using or anticipate using?

Does the NCUA have regulations/ policies that are sufficiently flexible to allow you to leverage various technological advances such as artificial intelligence, machine learning, process robotics, Fintech, Regtech, and Suptech etc.?

Do the current regulations/policies create unnecessary hurdles or burdens with respect to adopting technology? Are there ways we can update our regulations/policies to help facilitate a greater use of technology?

Do you feel comfortable using the NCUA’s secure file transfer portal as a means to transfer data electronically, including personally identifiable information and confidential credit union data, to NCUA staff?

If not, please provide details regarding your concerns and recommendations on ways the NCUA could mitigate these concerns.

(a-c)

(a) What issues are unique to smaller institutions regarding the use and implementation of innovative products, services, or processes that the NCUA should consider?

(b) Additionally, by moving to an offsite exam posture, will this negatively affect small credit unions that may not have the technology required to transmit requested documentation?

With respect to the future examination model, should the NCUA consider alternative exam approaches for smaller credit unions?

Are there better ways for the NCUA to support your financial inclusion and financial education mission by using technology? Additionally, are there better ways for the NCUA to use technology to help low-income designated credit unions and minority depository institutions to better serve their members?

Do you feel there are circumstances that would disqualify or preclude a credit union from participating in this examination model where the majority of work is completed offsite?

What documentation and measures should be collected and used to assess a credit union’s financial education efforts or programs?

Are there better ways for the NCUA to receive important contextual information regarding how you serve the low-income, underserved, and unbanked communities in your field of membership?

What baseline data protection and privacy safeguards would enable credit unions to comply with consumer protection statutes and federal/state law when sharing data for remote examinations?

How could an offsite posture affect the oversight of consumer financial protection and BSA/anti- money laundering laws and regulations at your credit union? What changes should the NCUA make to address your concerns?

All technology is coupled with internal and external security risks. As credit unions remain diligent in addressing these risks, what can the NCUA do to support credit unions’ security posture?

What cybersecurity challenges do you see with the NCUA moving to this future examination model?

Are there digital banking activities or issues that are not covered by this RFI that the NCUA should address?

(a-c)

In response to the pandemic, the NCUA moved to an offsite posture. Did you participate in an exam during this time?

(a) From your perspective, what has worked well?

(b) What exam steps could continue to be completed offsite after we return to an onsite posture?

Are there issues the NCUA should consider in light of changes in the banking system that have occurred in response to the COVID–19 pandemic?

XXX

NCUA Proposed Rule: Part 745 (741.212 FISCUs) Joint Accounts

Prepared by NASCUS Legislative & Regulatory Affairs Department
June 2020

NCUA is proposing to amend its share insurance regulations, Part 745, related to establishing co-ownership of accounts for share insurance purposes. The proposed rule would provide an alternative method for satisfying the signature card requirement by allowing credit unions to demonstrate co-ownership with information contained in the account records. The change would mirror a 2019 change in FDIC rules for join accounts in FDIC insured banks.

The rule applies to Federally Insured State Credit Unions (FISCUs) by reference in § 741.212

The proposed rule may be read here. Comments are due to NCUA July 6, 2020.

Summary

For a joint account to qualify for individual share insurance coverage for each co-owner, Part 745.8(c) currently requires:

(c) Qualifying joint accounts. A joint account is a qualifying joint account if each of the co-owners has personally signed a membership or account signature card and has a right of withdrawal on the same basis as the other co-owners. The signature requirement does not apply to share certificates, or to any accounts maintained by an agent, nominee, guardian, custodian or conservator on behalf of two or more persons if the records of the credit union properly reflect that the account is so maintained.

Under the proposal, in the event a federally insured credit union (FICU) could not produce membership cards or account signature cards, the FICU would be permitted to use of other documentation in its records to satisfy the signature card requirement. Other documentation could include evidence that each co-owner has been issued a means to access the account such as a debit card to each co-owner of the account or evidence that each co-owner of the account has conducted transactions using the share account.

-End-

Letter to Credit Unions 20-CU-21 Field of Membership Rural Districts

July 2020

As a result of the SCOTUS (Supreme Court of the United States) denial of the ABA appeal of the Appellate decision in the FCU FOM litigation, NCUA will begin reinstating the rural districts for 18 FCUs that had their “new” rural FOMs suspended when the ABA filed suit. NCUA will also renew processing of rural district FOM applications that were in process at the time of suit and immediately begin accepting new applications for the broader FOM for eligible FCU community charters.

FCU Rural District FOM

Under NCUA’s rules, a FCU rural district FOM qualifies if it meets all of the following criteria:

Well defined contiguous geographic boundaries
A total population of 1 million people or less
Either 1) more than 50% of the population resides in census blocks or other geographic units designated as rural by CFPB or Census Bureau; or 2) the district has a population density of 100 persons or fewer per square mile
The boundaries of the proposed FOM do not exceed the contiguous boundaries of the state in which the FCU is headquartered and (including) the immediate neighboring states of the headquarter state

NCUA’s chartering manual contains the rules for FCU FOM and may be found in Appendix B of Part 701.

The SCOTUS decision also permits NCUA to reinstate its FOM provisions for Combined Statistical Areas (CSA), however for the CSA, NCUA will have to re-adopt a final CSA rule. NCUA had proposed a rule in November 2019.

Letter to Credit Unions 20-CU-20: Phased Approach to On-site Operations

June 2020

NCUA issued LTCU 20-CU-20 to inform stakeholders of NCUA’s current “multi-phase transition plan” for resuming its normal on-site operations (Return to Normal Operations or RTNO). NCUA notes that its transition to RTNO may begin as early as July 6, 2020.

In Phase 1 of its RTNO, NCUA will:

continue to encourage both field and office staff to work remotely when possible
place limits on the number of staff working in NCUA offices
implement social distancing and other precautionary measures in offices
will distribute PPEs to both field and office staff

NCUA states that examiners may begin (after July 6) conducting voluntary on-site examinations and that more specific implementation details will be published before that begins. NCUA notes that it will continue to coordinate examination and supervision efforts with SSAs.

Letter to Credit Unions 20-CU-19: Additional Guidance Regarding Servicing Hemp-Related Businesses

June 2020

NCUA has issued an update to guidance for credit unions related to serving Hemp businesses. The original guidance, 19-RA-02, was issued in 2019 after the USDA published its initial Interim Final Rule for growing Hemp pursuant to the 2018 Farm Bill. The updated guidance, LTCU 20-CU-19 provides credit unions with the following 17 FAQs (summarized & edited for brevity):

What is the status of the USDA’s Interim Final Rule on hemp production?

The USDA’s Interim Final Rule (IFR) was issued on 10/31/19 and took effect upon publication. The USDA website has hemp-related resources and a webpage dedicated to rulemaking documents.

Does the IFR mean that hemp can be legally produced in every state?

No. The 2018 Farm Bill did not preempt state or tribal laws regarding the production of hemp that are more stringent than federal law or that may prohibit hemp in its entirety. If permitted by the state, hemp may be grown pursuant to the USDA rules and the 2018 Farm Bill or the 2014 Farm Bill (2014 Farm Bill authority will expire on November 1, 2020).

How can I determine if a state or Native American tribe has submitted a hemp production plan to the USDA for approval?

The USDA provides detailed information on state and Tribal plans submitted for approval on its website.

What if the state or tribal territory we serve has not had a hemp production plan approved by the USDA?

In states that permit hemp production but do not have USDA approved regulatory plans, hemp producers have 2 options:

- They can operate pursuant to the 2014 Farm Bill until November 1, 2020
- They can apply for a license from the USDA directly pursuant to the USDA’s regulatory plan
Who is responsible for ensuring that hemp producers comply with a state, Tribal, or USDA-approved hemp production plan?

In states or Tribal territories with USDA approved plans, enforcement and regulation is conducted by the designated state or Tribal authority. For producers operating under the USDA plan, enforcement and regulation is overseen directly by the USDA.

Aside from hemp production, does the USDA IFR cover other hemp-related businesses such as manufacturing, processing, distribution, shipping, and retail?

No. The USDA only sets forth the requirements for engaging in hemp production as authorized by the 2018 Farm Bill. As noted in the August 2019 NCUA Regulatory Alert regarding Hemp, credit union should be aware of other statutes and regulations that may affect the distribution, shipping, sale, and use of hemp products. In particular, substantial issues may be raised by the Federal Food, Drug, and Cosmetic Act and the Public Health Service Act. The U.S. Food and Drug Administration (FDA) has a webpage dedicated to hemp.

Where can I learn more about FDA requirements applicable to cannabis-derived products, including cannabidiol (CBD)?

The FDA has created a webpage dedicated to cannabis derived products such as CBD. The legality of the sale of CBD is a complicated issue with implications for how the product is used, labeled, and marketed. In addition, whether the CBD is infuse into food and beverages or dietary supplements will determine whether or not the sale of the product violates the Federal Food Drug and Cosmetics Act and other applicable federal regulations related to consumer products and safety.

Has FinCEN provided any guidance related to hemp?

Yes. FinCEN, the Board of Governors of the Federal Reserve System, the FDIC, the OCC, and CSBS issued a joint statement in December, 2019 that aligned with NCUA’s 2019 Regulatory Alert.

Will NCUA examinations conducted in 2020 cover hemp?

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 to help the agency better understand how it can assist credit unions serving hemp-related businesses.

Does the NCUA prohibit credit unions from providing services to hemp-related businesses?

No. Credit unions may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp-related businesses within their fields of membership.

What should a credit union board consider when evaluating whether to provide services to a hemp business?

Credit unions need to be aware of the federal, state, and Native American tribal laws and regulations that apply to any hemp-related businesses they serve and understand the complexities and risks involved.

Can a credit union provide loans to a hemp-related business?

Lending to a lawfully operating hemp-related business is permissible. Such loans are commercial loans subject to § 723 of NCUA’s rules or any state specific commercial lending rules where applicable. Credit unions should understand the complex regulatory regime governing such businesses and remain mindful of the unique risks when underwriting and managing hemp-related loans.

What is the credit union expected to do to ensure the hemp business is operating lawfully?

As they would with any account, credit unions must maintain appropriate due diligence procedures for hemp-related accounts. The extent and nature of the due diligence will likely vary by accounts and is a business decision for the credit union. NCUA suggests credit unions consult legal counsel when determining the appropriate level of due diligence. Credit unions should verify that hemp growers possess a valid state or USDA license to grow hemp. However, credit unions are not expected to serve as the enforcement authority tasked with policing the hemp industry for illegal activity.

Can a credit union decide not to serve hemp-related businesses?

The decision to serve any business is made by each individual credit union.

Is there a list of credit unions that serve hemp-related businesses?

NCUA notes that the agency does not maintain a list of credit unions serving hemp-related businesses “at this time.”

Do credit unions need to file marijuana related SARs on legally operating hemp businesses, provided the activity is not unusual for that business?

No, unless a credit union reasonably believes the hemp business is operating unlawfully and there is no other unusual activity, than a marijuana-related SARs need not be filed.

Where can I learn more?

The USDA has published numerous resources. Credit unions with questions regarding state or Native American tribal laws and regulations should contact the state or Native American tribe government. Credit unions with hemp-related food, drug, and cosmetic questions should contact the FDA.

Letter to Credit Unions 20-CU-18: PCA Regulatory Relief Measures in Response to the COVID-19 Pandemic

June 2020

In May, 2020, the NCUA Board approved changes to the Prompt Corrective Action (PCA) requirements in Part 702 of its Rules and Regulations. Part 702 applies to federally insured state credit union (FISCUs) by reference in § 741.3(a)(1). The Interim Final Rule took effect upon publication on May 28, 2020.

NCUA’s LTCU 20-CU-18 discusses the agency’s Administrative Order temporarily decreasing the earnings retention requirement for adequately capitalized credit unions pursuant to § 702.201(b)(2) as well as the authority for undercapitalized credit unions to submit a streamlined net worth restoration plan (NWRP) if their net worth ratio declined predominantly due to temporary share growth during the COVID-19 pandemic.

Administrative Order & Part 702.201 Adequately Capitalized Credit Unions

Per the Order, between March 31, 2020 and December 31, 2020, adequately capitalized natural person credit unions that are unable to meet the earnings retention requirement may decrease their earnings retention requirement to zero without submitting an application to the NCUA Regional Director. After December 31, 2020, the requirements of part 702 apply as before, including the earnings-retention requirement and the requirement to seek a waiver on case-by-case basis.

Credit unions posing an undue risk to the NCUSIF or exhibiting material safety and soundness issues may be required to submit an application for a decrease in the earnings retention requirement in accordance with § 702.201(b).

Part 702.206(c) & Streamlined Net Worth Restoration Plans

Recognizing that some credit unions may experience substantial COVID-19 related short-term increases in shares from stimulus deposits or consumer flight to safety, NCUA will temporarily permit credit unions to submit a streamlined NWRP. The streamlined NWRP must attest that the reduction in the credit union’s net worth ratio was predominantly caused by share growth and that such share growth is a temporary condition due to COVID-19.

When approving streamlined NWRPs, NCUA Regional Directors will:

verify that the decline in the NWR was driven by an increase in total assets, and that the increase in total assets is attributed to an increase in shares, not borrowings or other sources of funds; and
Consult with the applicable SSA for FISCU submissions.

FISCUs must comply with applicable state requirements when submitting an NWRP for state supervisory authority approval.

Furthermore, NCUA notes the fllowing:

A Credit union expecting a decline in NWR to below 4% should notify their NCUA examiner and submit a NWRP in accordance with 702.206.
NCUA will evaluate compliance with outstanding NWRPs, including those approved under this temporary provision, on a case-by-case basis.
Less than adequately capitalized credit unions continuing to experiencing capital deficiencies may be required to submit a revised NWRP pursuant to 702.206(c).

Regulatory Alert 20-RA-05 Remittance Transfers under the EFT Act

June 2020

NCUA’s Regulatory Alert provides credit unions information regarding changes to the CFPB’s Remittance Rule (Regulation E) which implements the Electronic Fund Transfer Act (EFT Act). The changes take effect July 21, 2020.

The CFPB’s new rule makes the following changes:

The new rule increases the safe harbor threshold, and removes from coverage of the rule, credit unions and banks that provide 500 or fewer transfers annually. This is an increase from the current threshold of 100 or fewer transfers.
Establishes 2 new permanent exceptions to the rule which allow credit unions and banks to disclose estimates of the exchange rate and covered third-party fees instead of exact amounts:
Entities may provide an estimate of the exchange rate for transfers to a particular country if the credit union or bank made 1,000 or fewer transfers in the prior calendar year to the particular country in which the transfer recipients received funds in that country’s local currency and the credit union or bank cannot determine the exact exchange rate for that transaction.
Credit unions and banks may estimate the 3^rd-party fee for a transfer to a designated recipient’s institution if 1) the financial institution made 500 or fewer transfers to the designated recipient’s institution in the prior calendar year; 2) at the time the disclosure must be given the credit union or bank cannot determine the exact amount of the 3^rd-party fee; and 3) the remittance is sent from the sender’s credit union account (not including pre-paid accounts).

Additional Changes

The final rule includes a transition period for credit unions and banks that exceed the new exception thresholds.
The final rule also adds an exception to allow a credit union or bank to estimate 3^rd-party fees when another federal statute or regulation prohibits the institution from determining the exact amount of the fee.
The CFPB will develop improved procedures to consider requests to make changes to the exchange rate countries list.

NCUA’s Office of Consumer Financial Protection may be contacted by phone (703.518.1140) or e-mail ([email protected]).

Letter to Credit Unions 20-CU-17 Update to Offsite Examination and Supervision Approach

May 2020

NCUA is updating its supervisory approach implemented in response to the COVID-19 crisis and originally announced in March in Letter to Credit Unions 20-CU-05, Offsite Examination and Supervision Approach. Notably, NCUA’s updated approach includes a return to issuing Reports of Examination (ROE).

Conducting Work Offsite

NCUA will continue to operate with its employees and contractors working offsite and will continue its general moratorium on new on-site exam work until further notice. However, NCUA may conduct onsite work at a credit union as necessary to address serious or time-sensitive matters. NCUA noted since March 16, 2020 NCUA examiners have conducted offsite examination work at over 100 credit unions. NCUA examiners will continue to be mindful of the impact exam information requests may have on a credit union experiencing operational and staffing challenges associated with the COVID-19 pandemic. NCUA Regional offices will continue to coordinate with SSAs on supervision efforts for FISCUs.

Issuing Examination Reports

NCUA will begin issuing ROEs for the examinations NCUA examiners complete off-site. NCUA reiterated that corrective actions issued to a credit union would consider the impact of the COVID-19 pandemic on the credit union’s operations and financial condition. In announcing this change, NCUA emphasized:

Credit unions would not be criticized for efforts to provide prudent relief for members so long as those relief efforts are conducted in a safe and sound manner. NCUA examiners WILL consider whether a credit union’s relief efforts elevate, or reduce, a credit union’s risk exposure.
Additional risk, even if prudently undertaken, may be reflected in NCUA’s CAMEL rating of the credit union.
TO ensure consistent application of these concepts, NCUA has instituted an enhanced internal review process for all ROEs.

For more information on the CAMEL rating system, see NCUA’s Letter to Credit Unions, 07-CU-12, CAMEL Rating System.

This amended off-site approach became effective on June 1, 2020.