In March 2020, November 2020, and November 2021, the NCUA issued three letters to federal credit unions providing flexibility during the pandemic related to annual meetings.1 In those letters, the NCUA recognized that the COVID-19 pandemic had created challenges for federal credit unions and their members. As a result, the NCUA provided federal credit unions with the flexibility to conduct their membership and board of director meetings completely virtually. This emergency exemption will expire on December 31, 2022.
Specifically, in those actions the NCUA provided that a federal credit union could adopt at any time, by a two-thirds vote of its board of directors, and without additional NCUA approvals, a bylaw amendment to Article IV of the NCUA’s Federal Credit Union Bylaws. The letters to federal credit unions provided specific wording for the bylaw amendment.
In addition, the NCUA has issued several meeting-related notifications to federal credit unions since 2020 in connection with the COVID-19 pandemic. Specifically, the NCUA stated in those notifications that if a federal credit union had adopted the above-referenced bylaw amendment, then it was appropriate for that federal credit union to invoke its provisions for meetings if a majority of its board of directors so resolved for each such meeting. The NCUA noted that general quorum requirements still had to be met for “virtual-only” meetings.
The NCUA does not believe that current circumstances continue to warrant federal credit unions to invoke the subject bylaw provision beyond year-end 2022. Federal credit unions that have already adopted the bylaw amendment may retain it in their bylaws, but it will not be applicable after the end of 2022 unless NCUA issues a new notification allowing federal credit unions to invoke it.
Although “virtual-only” member meetings will no longer be an option, the NCUA reminds federal credit unions that they may choose to hold hybrid meetings if that suits their needs.2 Hybrid meetings consist of a meeting held virtually in conjunction with an in-person component for members who wish to or need to attend that way. While general quorum requirements still must be met for hybrid meetings, federal credit unions may count attendees at both the virtual and in-person components toward those requirements. A hybrid meeting format could preserve federal credit union resources and reduce the effort required to hold meetings without disenfranchising those members for whom virtual attendance is difficult or impossible. Federal credit unions must also consider whether their current bylaws authorize hybrid meetings or whether bylaw changes will be necessary.
Additionally, the NCUA’s Federal Credit Union Bylaws permit federal credit union boards to conduct “virtual-only” meetings for all but one of their board meetings per calendar year. Further, if a quorum of the directors is physically present at the one required in-person meeting, then the remaining directors may attend that meeting virtually.3
Finally, the NCUA’s Federal Credit Union Bylaws permit flexibility for distributing member notices. Specifically, the bylaws provide that notices for member meetings may be sent by electronic mail to members who have opted to receive statements and notices electronically.4 As such, a paper mailing is not required for all members, only those members who have not opted to receive electronic statements and notices.
If you have any questions or concerns, please contact your NCUA Regional Office.
1 Letter to Federal Credit Unions, 20-FCU-02, “NCUA Actions Related to COVID-19 – Annual Meeting Flexibility;” Letter to Federal Credit Unions, 20-FCU-04, “Federal Credit Union Meeting Flexibility During the COVID-19 Pandemic;” Letter to Federal Credit Unions, 21-FCU-06, “Federal Credit Union Meeting Flexibility in 2022 Due to the COVID-19 Pandemic.”
2 12 C.F.R. Part 701, Appendix A, Official NCUA Commentary, Article V.
3 Id. Article VI, § 5.
4 Id. Article IV, § 2.
LTCU: (22-CU-04) Equal Credit Opportunity Act Nondiscrimination Requirements
February 2022
The Equal Credit Opportunity Act (ECOA) promotes the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); to the fact that all or part of the applicant’s income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. ECOA prohibits creditor practices that discriminate on the basis of any of these factors. The National Credit Union Administration (NCUA) supervises for compliance with and enforces ECOA with respect to federal credit unions that have $10 billion or less in total assets. Additionally, ECOA requires the NCUA to refer certain violations to the U.S. Department of Justice (DOJ).
ECOA prohibits discrimination in any aspect of a credit transaction. It applies to any extension of credit, including extensions of credit to small businesses, corporations, partnerships, and trusts.
Disparate treatment occurs when a lender treats a credit applicant or prospective applicant differently based on one of the prohibited bases defined in ECOA. The existence of illegal disparate treatment may be established either by statements, policies, or guidelines revealing that a lender explicitly considered prohibited factors, or by differences in treatment that are not fully explained by legitimate nondiscriminatory factors. It does not require showing that the treatment was motivated by prejudice or a conscious intention to discriminate against a person beyond the difference in treatment itself.
The LTCU notes five fair lending risk areas that credit unions should be aware of:
Applicant Marital Status: Except as otherwise permitted or required by law, a creditor must evaluate married and unmarried applicants using the same standards. However, A creditor may consider an applicant’s or joint applicant’s marital status to determine the creditor’s rights and remedies applicable to a particular extension of credit.
Applicant Age: Except as permitted, a creditor cannot take into account an applicant’s age, provided the applicant has the capacity to enter into a binding contract. Credit unions using automated underwriting systems should ensure the system’s settings comply with ECOA’s requirements and do not result in age discrimination.
Income Consideration: Creditors may not discount or exclude from consideration the income of an applicant or the spouse of an applicant because of a prohibited basis or because the income is derived from part-time employment or is an annuity, pension, or other retirement benefit. However, a creditor may consider the amount and probable continuance of any income in evaluating an applicant’s creditworthiness.
Redlining: “Redlining,” as defined by DOJ, is an illegal practice in which lenders avoid providing services to individuals living in communities of color because of the race or national origin of the people who live in those communities. Credit unions, especially those with fields of membership defined by, or partially defined by, geography, such as community charters and underserved areas, must ensure they provide equal access to credit in the areas defined by their fields of membership.
Indirect Lending: Credit unions with indirect lending programs use various methods to compensate automobile dealers for loan transactions, including the use of discretionary markups – which allow dealers to establish their own compensation by increasing the interest rate above the credit union “buy rate” on a discretionary basis, within an established limit. Discretionary markups allow a dealer to affect the cost of financing on an individual and discretionary basis. For this reason, the use of discretionary markups presents fair lending risks not usually associated with flat fee or flat percentage compensation structures. Credit unions that permit discretionary markups should ensure their fair lending compliance management systems are sufficiently robust to enable the credit union to measure and address prohibited basis pricing disparities.
For more information on managing compliance risks, see NCUA Letter to Credit Unions, 17-CU-02, Risk-Focused Examinations and Compliance Risk. For information on fair lending risk factors, including compliance program risk factors and overt indicators of discrimination, see the Interagency Fair Lending Examination Procedures.
The full statement with a breakdown of all applicable details can be read here.
LTCU: (22-CU-03) Special Purpose Credit Programs
February 2022
NCUA’s LTCU outlines the interagency statement reminding creditors of the ability under the Equal Credit Opportunity Act (ECOA) and Regulation B to establish special purpose credit programs (SPCPs) to meet the credit needs of economically or socially disadvantaged consumers and commercial enterprises. The SPCPs create a narrow exception to the ECOA prohibition against discriminating against an applicant on a prohibited basis and Regulation B’s prohibition against considering “race, color, religion, national origin, or sex … in any aspect of a credit transaction.”
The statement explains that ECOA and Regulation B permit creditors to extend special purpose credit offered pursuant to:
- Any credit assistance program expressly authorized by federal or state law for the benefit of an economically disadvantaged class of persons;
- Any credit assistance program offered by a not-for-profit organization for the benefit of its members or an economically disadvantaged class of persons; or
- Any special purpose credit program offered by a for-profit organization, or in which such an organization participates to meet special social needs, if it meets certain standards prescribed in regulations by the Consumer Financial Protection Bureau (CFPB).
Credit unions, as not-for-profit organizations, fall under the second category, although some programs that credit unions participate in may also fall under the first.
For more on SPCPs, see the CFPB website: https://www.consumerfinance.gov/rules-policy/regulations/1002/8/.
The full statement can be read here.
(Dec. 17, 2021) Self-testing of credit unions’ cybersecurity preparedness through an application released in October costs nothing and can be downloaded via NCUA’s website, the agency said in a letter this week to federally insured credit unions.
The Automated Cybersecurity Evaluation Toolbox (ACET) was created to help credit unions conduct a maturity assessment that aligns with the Federal Financial Information Council’s (FFIEC) Cybersecurity Assessment Tool, NCUA said in letter 21-CU-15, signed by agency board Chairman Todd Harper. It said the toolbox can be used by institutions of all sizes and complexity to determine and measure their information and cybersecurity preparedness against several industry standards and best practices.
The agency said the assessment incorporates cybersecurity standards and practices established for financial institutions: It includes practices found in the FFIEC IT Examination Handbooks, regulatory guidance, and leading industry standards like the National Institute of Standards and Technology (NIST) Cybersecurity Framework.
“While we highly encourage the use and implementation of the maturity assessment for a credit union to determine its information and cybersecurity preparedness level, it is only a self-assessment,” according to the letter. “Credit unions are not required to use the Toolbox or complete the maturity assessment. However, it can provide insight into additional steps a credit union may consider taking to strengthen its overall security posture.”
LINK:
(Dec. 17, 2021) To clarify existing authority about federally insured credit unions (FICUs) establishing relationships with third-party providers of digital asset services to their members, NCUA issued a letter to credit unions Thursday.
The agency, in letter to credit unions (LTCU) 21-CU-16 said the relationships are allowed under current regulation “provided certain conditions are met.”
“This includes third-party provided services to allow FICU members to buy, sell, and hold uninsured digital assets with the third-party provider outside of the FICU,” NCUA wrote. “Digital assets are one of many terms used to describe distributed ledger technology (DLT) based tokens.”
The agency said its role as an insurer does not prohibit FICUs from establishing the relationships. “The authority for federal credit unions (FCUs) to establish these relationships is described in section II of this letter,” the agency wrote.
“The authority for federally insured, state-chartered credit unions (FISCUs) to establish these relationships will depend upon the laws and regulations of their states,” it added.
LINK:
Relationships with Third Parties that Provide Services Related to Digital Assets
(Nov. 5, 2021) Credit unions are encouraged to participate in the free program that helps members address their federal income taxes; credit unions have until Nov. 15 to contact the IRS about their interest in participating, NCUA said this week.
In its letter to credit unions (LTCU) 21-CU-12, the agency said the IRS Volunteer Income Tax Assistance (VITA) program provides education for consumers on refundable credits, including the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The agency noted that the refundable federal tax credits can provide thousands of dollars to working individuals and families with low to moderate incomes.
The letter outlines the benefits of participating in the VITA program (which NCUA described as potential for attracting new members, asset- and wealth-building opportunities for members and greater financial education and financial stability for members, among other things), and lists the ways credit unions may participate, and methods for doing so.
NASCUS has posted a summary of the letter (available to members only).
LINK:
NASCUS Summary, NCUA LTCU 21-CU-12 (members only)
(Oct. 22, 2021) Actions credit unions, banks and nonbanks alike should consider taking to ensure safe-and-sound practices during the transition away from the LIBOR reference rate were outlined in joint guidance this week by NCUA, the federal bank regulators, state credit union and bank regulators and the CFPB.
NCUA covered the joint statement in letter to credit unions (LTCU) 21-CU-10, Interagency Statement on LIBOR Transition. In the letter, NCUA noted that the regulators are emphasizing the expectation that credit unions and other supervised institutions with exposure to LIBOR (the London Interbank Offered Rate) will continue to progress toward an orderly transition away from LIBOR toward an alternative reference rate.
“The NCUA encourages all federally insured credit unions to transition away from using U.S. dollar LIBOR as a reference rate as soon as possible, but no later than Dec. 31, 2021, and to ensure existing contracts have robust fallback language that includes a clearly defined alternative reference rate,” the NCUA letter states.
LIBOR will be discontinued for new contracts after Dec. 31; existing contracts using LIBOR after that date must transition to an alternative by June 30, 2023.
CFPB said it joined the letter to highlight the consumer risks posed by the discontinuation of LIBOR, and urged credit unions, banks and nonbanks alike to continue their efforts to transition to alternative reference rates to mitigate consumer protection.
“The financial services industry uses LIBOR as a reference interest rate for many consumer financial products including mortgage loans, reverse mortgages, home equity lines of credit, credit cards, and student loans,” CFPB said in a press release. “The approaching discontinuation of most LIBOR tenors in June 2023 presents financial, legal, operational, and consumer protection risks. Additionally, consumers may not know when the transition from LIBOR will occur or how institutions will calculate their interest rates if they do not issue required disclosures to consumers.”
The regulators’ joint statement, among other things, urges financial institutions to ensure that no new contracts utilizing a LIBOR index reference rate are entered into after Dec. 31 – the day LIBOR becomes defunct. NCUA and the other regulators outlined supervisory considerations for financial institutions in transitioning away from LIBOR. Among them: clarification on the meaning of new LIBOR contracts, which stated that contracts entered into on or before Dec. 31 should either use a reference rate other than LIBOR or have fallback language that provides for use of a “strong and clearly defined alternative reference rate after LIBOR’s discontinuation.”
The statement also outlines considerations when assessing the appropriateness of alternative reference rates, expectations for fallback language and more.
Also this week, the OCC released an updated self-assessment tool to aid banks in their LIBOR transition. According to the agency, the tool is aimed at evaluating bank preparedness to deal with the end of the rate, particularly by helping banks evaluate their management processes for identifying and mitigating LIBOR transition risks.
LINKS:
NCUA LTCU 21-CU-10: Interagency Statement on LIBOR Transition
Joint Statement on Managing the LIBOR Transition
CFPB Joins Other Financial Regulatory Agencies in Issuing Statement on Discontinuation of LIBOR
LIBOR Transition: Updated Self-Assessment Tool for Banks
(Oct. 1, 2021) “Critical information” for compliance with expiring pandemic-era protection programs for homeowners are addressed in a letter to credit unions from NCUA this week.
The letter (LTCU 21-CU-09), sent to all federally insured credit unions, provides lenders and mortgage servicers with the information. Among the key points noted:
- The deadline was Thursday (Sept. 30) to grant forbearance through provisions of the Coronavirus Aid Relief and Economic Security Act (CARES Act). Section 4022 of the act, as amended, the agency noted, provides homeowners with federally backed mortgages the option to temporarily suspend their monthly mortgage payments up to 18 months. Borrowers who have not previously been in forbearance have until Thursday to request assistance.
- 4013 CARES Act loans may be modified – including forbearance – until Jan. 1 without designating the modification as a “troubled debt restructuring” (TDR) under certain criteria. Those include: the loan existed before Dec. 31, 2019; the modification is related to COVID-19; the borrower was less than 30 days past due as of Dec. 31, 2019; and the modification is executed between March 1, 2020 and the earlier of Jan. 1, 2022, or 60 days after the date of termination of the national emergency concerning COVID–19 outbreak declared by the president on March 13, 2020.
- The moratorium foreclosure expired July 31. However, the agency pointed out, the Consumer Financial Protection Bureau (CFPB) recently issued a final rule temporarily amending certain mortgage servicing requirements under Regulation X to assist borrowers affected by COVID-19. “Among other amendments, the final rule establishes temporary special COVID-19 loss mitigation procedural safeguards to ensure that a borrower has a meaningful opportunity to pursue loss mitigation options,” the letter states. It adds that, between Aug. 31 and year’s end, a servicer must meet at least one of the specified safeguards before initiating any judicial or non-judicial foreclosure processes where a borrower became more than 120 days delinquent on or after March 1, 2020.
- Although the eviction moratorium expired Thursday, its aim, the letter notes, is to keep people in their homes even after the home has been foreclosed.
The letter also outlines other homeowner and renter assistance programs, which NCUA said provides nearly $10 billion in assistance to keep owners in their homes. The money may be used, NCUA pointed out, for mortgage payments, utilities, insurance, and other needs.
LINK:
(Aug. 20, 2021) Summaries of three recent issuances from NCUA – on capitalizing loans, the rollout of the new examination tool, and on mortgage servicing rules – were published by NASCUS this week.
All three are available to members only. The summaries cover issuances – two letters to credit unions and one regulatory alert – issued by the agency over the last three weeks or so.
Early this month, the agency issued letter to credit unions (LTCU) 21-CU-07, which outlined limits on capitalization of loans to members. In particular, the letter pointed out, the financing of fees and commissions continue to be prohibited for federally insured credit unions, despite adoption of the new rule earlier this year allowing capitalization of loan interest. In the letter, the agency said that maintaining the prohibition on capitalization of fees “is an important consumer protection feature of the rule for member borrowers.”
In June, the agency’s board voted unanimously to lift the prohibition of capitalization of interest in connection with loan workouts and modifications; the rule took effect July 30. The change was made, NCUA said, to give borrowers additional access to loan workouts, perhaps caused by the economic disruption caused by the coronavirus crisis.
The second letter (LTCU 21-CU-08) summarized listed the new applications (and their implementation) the agency is employing for assisting in exams and communicating to credit unions. The letter, issued just last week, noted that the agency would begin transitioning to its new Modern Examination and Risk Identification Tool (MERIT) exam tool and other applications meant to modernize and streamline the agency’s operations. The other tools include the Data Exchange Application (DEXA), the Administrative Portal, and the Consumer Access Process and Reporting Information System (CAPRIS) for federal credit unions.
The letter also offers insights about who at credit unions can use the new tools, and how the tools integrate with state supervisory authority (SSA) examination and supervision programs.
The third item summarized by NASCUS and published this week is of a regulatory alert (21-RA-08), which urges review of CFPB mortgage servicing rules. According to the alert, credit unions are urged to review the June 30 rule temporarily amending certain mortgage servicing requirements under the bureau’s Regulation X to assist borrowers affected by the COVID-19 emergency. The alert noted that the CFPB rule — which takes effect Aug. 31 — only applies to servicers that service mortgages secured by a borrower’s principal residence and does not apply to small servicers.
LINKS:
NASCUS summary: LTCU 21-CU-07, Capitalization of Unpaid Interest (members only)
NASCUS summary: LTCU 21-CU-08, Implementation of Modernized Systems (members only)
NASCUS summary: 21-RA-07 Equal Credit Opportunity Act (Regulation B) (members only)
(Aug. 6, 2021) The financing of fees and commissions continue to be prohibited for federally insured credit unions, despite adoption of a new rule earlier this year allowing capitalization of loan interest, NCUA said in a letter issued Thursday.
In Letter to Credit Unions 21-CU-07, the agency said that maintaining the prohibition on capitalization of fees “is an important consumer protection feature of the rule for member borrowers.”
In June, the agency’s board voted unanimously to lift the prohibition of capitalization of interest in connection with loan workouts and modifications; the rule took effect late last week (July 30). The change was made, NCUA said, to give borrowers additional access to loan workouts, perhaps caused by the economic disruption caused by the coronavirus crisis.
The rule also sets documentation requirements to help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan.
Although the final rule prohibits capitalizing loan fees and commissions, the letter notes it does continue to allow advances to cover third-party fees to protect loan collateral, such as for force-placed insurance or property taxes.
The letter also suggests that “a prudently underwritten and appropriately managed loan modification, consistent with safe and sound lending practices” is the best approach for helping borrowers.
Other key points of the letter include:
- All documentation for loan capitalizations, including required disclosures, must be accurate, clear and conspicuous, “and consistent with applicable federal and state laws and regulations.” The agency said any adverse credit reporting must be accurate and comply with the requirements of the Fair Credit Reporting Act, and, when applicable, state law.
- Credit unions should document why capitalizing interest is the best course of action when determining the terms of the modification. “Further, the rule requires the credit union’s policy ensure that a credit union makes loan workout decisions based on a borrower’s renewed willingness and ability to repay the loan,” the letter states.
- A credit union’s policy must also establish limits on the number of modifications permitted for an individual loan. “If a credit union restructures an individual loan more than once a year or twice in five years, examiners will expect the documentation to reflect the borrower’s continued willingness and ability to repay the loan,” the letter states.
NASCUS wrote in its comment letter on the proposal earlier this year, that it had the capacity to provide credit unions with greater flexibility to work with economically distressed members (including those affected by the coronavirus crisis). “That enhanced flexibility benefits distressed credit union borrowers by expanding the options for repayment programs as the member regains their economic footing,” NASCUS wrote.
LINK:
NCUA Letter to Credit Unions 21-CU-07: Capitalization of Unpaid Interest
(July 16, 2021) The “first phase” of NCUA’s plan to resume onsite operations – including exams — will begin Monday, the agency said this week, with staff and contractors permitted to volunteer to work onsite in locations where pandemic conditions have “sufficiently moderated,” the agency’s chairman said in a Letter to Credit Unions Wednesday.
In a letter to credit unions (NCUA letter 21-CU-06), NCUA Board Chairman Todd Harper said the determination of whether conditions have sufficiently moderated will be based on public health data for those areas.
“To the extent they exceed the NCUA’s safety protocols for Phase 1, NCUA staff working onsite in credit unions will generally be expected to follow credit union policies related to safety and security,” Harper wrote. “To the extent possible, the NCUA will respect a credit union’s preference to not have examination staff onsite during this phase. However, the NCUA reserves the right to conduct onsite work at a credit union if necessary to address a serious and time-sensitive matter.”
NCUA will continue to maintain heightened safeguards in its facilities to ensure the health and safety of staff and any visitors, the letter states. It also points out that the agency will continue to monitor conditions and inform credit unions of any changes in how it plans to conduct operations, “including examination procedures and protocols affected by the pandemic.”
NASCUS has already prepared a summary of the letter (available to members only).
LINKS:
(May 21, 2021) Stopping the use of LIBOR as a reference rate as soon as possible as a year-end expiration date looms is encouraged for all federally insured credit unions, NCUA said in letters released this week.
In the first (a Letter to Credit Unions (LTCU)), the agency said failure by credit unions to prepare for disruptions of the London Interbank Offered Rate (LIBOR) “could undermine a federally insured credit union’s financial stability, and safety and soundness.” LIBOR is a reference rate used by many financial institutions – including credit unions – to set rates on such financial products as adjustable mortgages and student loans (which NCUA said “make up a significant portion of LIBOR-indexed loans owned by credit unions.”) The rate is scheduled to be phased out at the end of this year (legacy contracts using the rate are scheduled to stop using the rate by mid-2023) because assumptions it uses have become unreliable in reflecting current economic and financial conditions.
“The LIBOR transition is a significant event that credit unions should manage carefully,” the LTCU, signed by Board Chairman Harper, states. It notes that the FFIEC has issued a statement which recommends that new financial contracts use a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation.
Harper said the second letter released Monday by the agency, a “Supervisory Letter” (SL No. 21-01 – the first of the year), “provides the supervision framework examiners will use to evaluate a credit union’s risk management processes and planning regarding the transition from LIBOR.” The guidance in that letter, Harper stated, applies to all federally insured credit unions.
The supervisory letter outlines the background, potential LIBOR exposure for credit unions, and examination considerations – but offers no endorsement of a specific replacement for USD LIBOR. (That includes use of the Federal Reserve-developed Secured Overnight Financing Rate (SOFR), which was created specifically as a replacement for LIBOR.)
“A credit union may use a reference rate for its loans and member shares that it determines is appropriate for its risk management and member needs,” the supervisory letter states. “All LIBOR-based contracts that mature after December 31, 2021 (one-week and two-month) and June 30, 2023 (one-, three-, six- and 12-month) should include contractual language that provides for use of a robust fallback rate.”
LINKS:
NCUA Letter to Credit Unions 21-CU-03: LIBOR transition