Tanya Otsuka has been nominated to be the newest member of the National Credit Union Administration’s board of directors.

On Thursday, President Biden announced Otsuka’s nomination alongside three other candidates for leadership positions within the Department of Defense, U.S. Agency for International Development and the Export Import Bank of the United States.

While in her current role as senior counsel under Sen. Sherrod Brown, D-Ohio, within the Senate Banking, Housing and Urban Affairs Committee, Otsuka has been tasked with managing the legislative body’s work on banking and credit union issues. She has held the position since March 2020.

“As a public servant, Ms. Otsuka has dedicated her entire career to fighting for consumers, credit unions and other small financial institutions and a strong financial system. … She will bring a fresh perspective and support for the president’s work to build an economy centered on working families,” Brown said in a press release on Thursday.

If confirmed, Otsuka would succeed Rodney Hood, whose term on the board officially expired on Aug. 2 of this year. She would also be the first Asian American to sit on the NCUA’s board in the organization’s 53-year history. Hood was appointed as chairman of the NCUA by former U.S. President Trump in 2019, and was succeeded in 2021 by current chairman Todd Harper.

Hood has led the charge on many initiatives to promote financial inclusion during his tenure, such as the debuts of the ACCESS, or Advancing Communities through Credit, Education, Stability and Support office in 2020 and the Office of Innovation and Access in 2021.

Prior to her work with the Senate, Otsuka was a staff attorney and counsel for the Federal Deposit Insurance Corp., joining in May 2010 as a law clerk.

With her experience in the financial services industry and her unique perspective, Otsuka is a “committed public servant and a well-qualified nominee to serve on the NCUA Board,” said Todd Harper, chairman of the NCUA, in a press release on Thursday.

“Tanya’s past work has strengthened the U.S. financial system, protected consumers and advanced the ability of credit unions to innovate and compete,” Harper said.

This year has brought about significant change for the credit union ecosystem as a whole, with the National Association of Federally-Insured Credit Unions and the Credit Union National Association announcing plans to combine and better serve member institutions.

Additionally, the trend of young professionals filling leadership roles across the credit union industry has grown in recent years, as seasoned executives reach retirement age or leave for other opportunities. As a result, these openings create an opportunity for credit unions to get an infusion of fresh perspectives in the top ranks that are more reflective of their changing membership.

“Ms. Otsuka brings a wealth of financial experience and knowledge to the position and will be a valuable resource for NCUA,” Michael Fryzel, a lawyer and former NCUA chairman, said in an emailed statement to American Banker.

Courtesy of Frank Gargano and Ken McCarthy, American Banker

August 15, 2023 — As NCUA board member Rodney Hood’s term comes to a close this month, and with a Democrat expected to take his place, eyes turn to the Biden Administration for news of who that individual might be, though no successor has been named.

Hood served as NCUA Chairman under Trump in 2019 and then as an NCUA board member in 2021 when Todd Harper took over the Chairman position after nomination from President Biden. He also served on the board previously under President George W. Bush from 2005-2009.

Hood acknowledged the end of his term on the NCUA board back in July, remarking on his motivations for joining the board originally and his desire to further the credit union goal of “people helping people.”

“I hope that I have lived up to that commitment by demonstrating a fidelity to the tenets of safety and soundness while also striving to provide access to financial inclusion for the nearly 135 million members of our country’s credit union system,” said Hood. “In the coming weeks, I will begin another season in my life as my term on the NCUA board concludes in August. I would like to thank Lenwood Brooks and Hallie Williams Hailey in Chattanooga for all their hard work and support in my role as Chairman and board member.”

However, despite these remarks, Hood will remain on the NCUA board for the foreseeable future, as the Biden Administration has yet to name a successor. Furthermore, even if one were to be named tomorrow, it could take months for said successor to be confirmed by the Senate.

Hood, for example, was nominated in January 2019, but was not confirmed until March 2019 and was not sworn in until April 2019.

In light of this, Hood has expressed his willingness and intention to remain on the NCUA board in the coming months until his replacement is sworn in. This move is not out of the ordinary, though it is impossible to say how long Hood could unofficially “extend” his term through. Democrat Debbie Matz, for example, served for over a year after her term expired in 2016.

While this may seem inconsequential, considering Hood has already served for several years with the NCUA, it could have ramifications for key NCUA decisions in the upcoming months. Hood ensures a Republican majority on the board, as fellow board member Kyle Hauptman is also a Republican whereas Board Chairman Todd Harper is a Democrat.

Since the beginning of Harper’s term in 2021, he has worked to push through several proposals which have been blocked by the Republican majority. Meaning that Harper will either need to delay certain issues or risk an undesired outcome.

For instance, the NCUA recently requested information relating to climate change risk back in June. This move was led by Harper, and rejected by Hauptman, and while Hood supported the request for information, he made it clear he would not support any rulemaking or further action on it.

Though if Harper does delay decision-making while waiting for Biden to appoint another Democrat, he might have to wait a while, as the White House remains quiet on the topic.

Courtesy of Emily Claus, CUSO Magazine

In recognition of National Homeownership Month, the NCUA is hosting a webinar to discuss federal government efforts to combat bias in home valuations and increase opportunities for homeownership. The webinar will also provide information about relevant resources available for consumers and credit union professionals.

The webinar is titled “Expanding Homeownership Opportunities by Combating Appraisal Bias” and will be held on Wednesday, June 21 at 1 p.m. Eastern.

Panelists include:

Shameka Sutton, Special Assistant to the Executive Director, NCUA
James Park, Executive Director, Federal Financial Institutions Examination Council’s Appraisal Subcommittee
James Wylie, Associate Director for Fair Lending, Federal Housing Finance Agency
David Berenbaum, Deputy Assistant Secretary for Housing Counseling, U.S. Department of Housing and Urban Affairs

Victoria Nahrwold, NCUA’s Associate Director for the Office of Examination and Insurance, will provide opening remarks. Ashley Gordon, NCUA’s Financial Literacy and Outreach Program Officer, will moderate the event.

Registration for this 60-minute webinar is now open.

For federally insured credit unions, median asset growth and growth in shares and deposits declined slightly over the year ending in the first quarter of 2023. At the same time, loans outstanding grew at the median, according to the latest Quarterly U.S. Map Review released today by the National Credit Union Administration.

While aggregate assets in federally insured credit unions continued to grow during the year ending in the first quarter of 2023, at the median, assets declined 0.1 percent. In the year ending in the first quarter of 2022, the median asset growth rate was 5.2 percent. Nationally, shares and deposits continued to increase in the aggregate during the year ending in the first quarter of 2023, while the median growth in shares and deposits was negative 1.0 percent. In the year ending in the first quarter of 2022, the median growth rate in shares and deposits was 5.7 percent.

Loans outstanding rose 13.3 percent at the median over the year ending in the first quarter of 2023. During the previous year, loans grew by 4.6 percent at the median. The median total delinquency rate among federally insured credit unions was 38 basis points at the end of the first quarter of 2023, compared with 32 basis points in the first quarter of 2022.

Overall, 85 percent of federally insured credit unions had positive net income in the first quarter of 2023, compared with 77 percent in the first quarter of 2022. At least 70 percent of credit unions in every state and the District of Columbia had positive net income in the first quarter of 2023. The median annualized return on average assets at federally insured credit unions was 61 basis points in the first quarter of 2023, compared with 42 basis points in the first quarter of 2022.

The NCUA’s Quarterly U.S. Map Review tracks performance indicators for federally insured credit unions in all 50 states and the District of Columbia and includes information on two important state-level economic indicators: the unemployment rate and home prices.

On May 30, 2023, NCUA’s Office of Inspector General issued its semiannual report to Congress covering the six-month period October 2022 through March 2023.

The report provided a general recap of the NCUA, and its OIGs, activities over the six-month period, including: highlights of the conditions present in the federally insured credit union industry, structural changes within NCUA, legislative highlights, audit activity as well as a listing of unimplemented MLR or Audit recommendations outstanding.

Highlights of the report NASCUS believes most relevant, with report page reference for detailed review, include:

AMAC Reestablished as an Independent Office
Page 6

On December 1, 2022, the Asset Management and Assistance Center (AMAC) was pulled out of the Southern Region and made into an independent office under the Field Program Offices. Offices are still located in Austin, Texas. Previous Deputy Cory Phariss (formerly under Southern Region Director Keith Morton) was named AMAC’s new president and now provides independent advisement to the NCUA Board on managing recoveries for the NCUSIF, implementing liquidation payouts, etc.

Charles Vice Selected as Director of Financial Technology and Access
Page 6

On January 3, 2023, former Kentucky Commissioner Charles Vice as named the Director of Financial Technology and Access, a newly established office created to advise the NCUA Board on fintech developments, cryptocurrency, blockchain and distributed ledger technology as well as methodologies to enhance NCUA’s virtual supervision processes and promote technology and other innovations in the industry.

OIG-22-07 FY 2022 Independent Audit of the NCUA’s Compliance with FISMA 2014
Page 13

CliftonLarsonAllen (CLA) performed a review of 20 OMB required core metrics in five security function areas (Identify, Protect, Detect, Respond, and Recover) to determine the effectiveness of the NCUA’s information security program (ISP) and the respective maturity levels. CLA concluded the NCUA ISP achieved an overall level 4- Managed and Measurable maturity level, complied with FISMA, and achieving the minimum to be considered effective overall. Weaknesses noted included the ineffective implementation of a subset of selected controls, especially four new weaknesses that fell in the risk management, identity, access management, and configuration management domains of the FY 2022 core metrics and resulting in four new recommendations to strengthen its ISP.

NCUA Audits Currently In Progress
Page 15

OIG audits currently in process include: NCUA’s Contracting Officer’s Representative (COR) Program; NCUA’s BSA Act Enforcement; Preventing and Detecting Cyber Threats (firewall and SIEM solution effectiveness); NCUA’s Quality Assurance Program and NCUA’s Federal Chartering Activities.

Unfulfilled Recommendations Currently Outstanding

A material number of the unaddressed recommendations outstanding relate to NCUA Information Technology Systems and/or continuity of operations. The following is not an exhaustive list of recommendations outstanding but those considered most substantial.

OIG-22-09 Audit of the NCUA’s Continuity of Operations Program (COOP),
Page 14

As the result of a self-initiated audit of the NCUA’s COOP it was determined a full failover test of NCUA’s IT network should be initiated to ensure potential weaknesses are identified and corrected. Further, the Office of Continuity and Security Management (OCSM) and the Office of the Chief Information Officer (OCIO), the two main offices involved in the COOP and security matters, should work to improve communications between their respective offices. Four recommendations within the report were provided to address the issues identified.

Material Loss Review Significant Recommendations on Which Corrective Action Has Not Been Completed
Page 17

OIG-18-07 FY2018 Federal Information Security Modernization Act Compliance, recommendation #8 – Enforcement of policy to remediate patch and configuration related vulnerabilities within agency defined timeframes.
OIG-22-06 Audit of the NCUA’s Minority Depository Institutions Preservation Program, Recommendation #2 – Implement and document appropriate policies and procedures to validate whether minority depository institutions continue to meet the minority depository institution definition.

Unfulfilled Recommendations Over 6 Months Old.
Page 18

OIG-18-07 FY2018 Federal Information Security Modernization Act Compliance, Recommendation #6—OCSM to complete employee background reinvestigations; #8 – Enforcement of policy to remediate patch and configuration-related vulnerabilities within agency defined timeframes; #9 — OCIO to implement a process to detect and migrate unsupported software to supported platforms; #10 – OCIO to implement a process to identify authorized software in its environment and remove unauthorized software.
OIG-19-10 NCUA Federal Information Security Modernization Act of 2014 Audit; Recommendation #4 – Implement, test, and monitor standard baseline configurations for all platforms in the NCUA IT environment in compliance with established NCUA security standards and document approved deviations from the baseline.
OIG-21-06 Audit of the NCUA’s Governance of Information Technology Initiatives, Recommendation #1 – Document and publish IT Investment Management policies and procedures to include definitions, roles, responsibilities, and processes associated with IT governance and selecting, controlling, and evaluating information technology investments.
OIG-21-09 NCUA Federal Information Security Modernization Act of 2014 Audit, Recommendation #1 – Review Supply Chain Risk Management NIST guidance and update plans, policies, and procedures.; Recommendation #2 – Document and implement a plan to deploy multifactor authentication to address increased risks with personnel teleworking without a PIV card; Recommendation #5 – Complete and issue policies to implement the Controlled Unclassified Information (CUI) program; Recommendation #7 – Redacted recommendation under 5 U.S.C. 552 (b)(7)(E).

Recommendations for Corrective Action Made During the Reporting Period
Page 21

OIG-22-07 NCUA Federal Information Security Modernization Act Audit, Recommendation #1 – Enforce the process to validate that expired MOUs and those expiring are prioritized for review, update, and renewal; Recommendation #2 – Conduct a workload analysis with OCIO and document a staffing plan to allocate sufficient resources to improve its ability to perform remediation of persistent vulnerabilities caused by missing patches, configuration weaknesses, and outdated software; Recommendation #3 – Analyze technologies employed within NCUA operational environment and document a plan to reduce the wide variety of different technologies requiring support and vulnerability remediation; Recommendation #4 – Implement a solution that resolved the privileged access management vulnerability.

OIG-22-09 Audit of NCUA’S Continuity of Operations Program

Report on Non-Material Losses to the NCUSIF
Page 22

Over the covered six-month period, limited reviews of four failed credit unions that incurred losses to the fund in amounts less than $25 million. The initial reviews indicated none of the losses warranted conducting additional audit work as they (1) were not unusual circumstances or (2) reasons identified for failure are already addressed in recommendations to the agency in the MLR Capping report or other MLR reports.

$3.5 Million Available; Credit Unions Should Review Eligibility Before Applying.

Credit unions eligible for Community Development Revolving Loan Fund grants in 2023 can apply between May 1 and June 30, the National Credit Union Administration announced today.

“This year, we have new opportunities for credit unions that are considering applying for a 2023 CDRLF grant,” NCUA Chairman Todd M. Harper said. “Congress more than doubled the CDRLF funding for 2023 and added minority depository credit unions as eligible institutions. So, both low-income credit unions and minority depository institutions can now use CDRLF grants to build capacity, invest in their communities, reach under-resourced populations, and provide their members with products and services to strengthen their economic security.”

The agency will administer approximately $3.5 million in CDRLF grants to the most-qualified applicants, subject to the availability of funds. Grants will be awarded in five categories:

Underserved Outreach (maximum award of $50,000) — Helping credit unions expand safe, fair and affordable access to financial products and services to underserved communities and improve the financial well-being of their members;
MDI Capacity Building (maximum award of $50,000) — Preserving MDI credit unions and increasing their ability to thrive and serve minority populations;
Consumer Financial Protection (maximum award of $10,000) — Ensuring credit unions have the resources and expertise to protect credit union members, raise awareness of potential frauds, and facilitate access to fair and affordable financial services;
Digital Services and Cybersecurity (maximum award of $10,000) — Providing assistance to credit unions to modernize information and security systems to better protect themselves and their members from cyberattacks; and
Training (maximum award of $5,000) — Strengthening credit unions through succession planning, leadership development, staff education, and professional development.

During this year’s funding round, the NCUA is also piloting two new grant initiatives that eligible credit unions may apply for:

Impact Through Innovation (maximum award of $100,000) — A pilot initiative addressing underserved communities by focusing on banking deserts, affordable housing, credit invisibles, and fintechs; and
Small Credit Union Partnership (maximum award of $100,000) — A pilot initiative helping small credit unions pool their resources to help them achieve their growth objectives.

Interested credit unions are encouraged to read the Notice of Funding Opportunity(opens new window). Grant requirements, application instructions, and other important information are available on the grants program page of NCUA.gov. Grant applications must be submitted online through the NCUA’s CyberGrants portal(opens new window). Credit unions with other questions about CDRLF grants may contact the NCUA’s Office of Credit Union Resources and Expansion at [email protected].

Eligibility Requirements

The 2023 CDRLF grant round is open to credit unions with either a low-income designation or certification as a minority depository institution. A credit union applying for a CDRLF grant must have an active account with the System for Award Management, or SAM, and a unique entity identifier number they will receive when they register for a SAM account.

Credit unions with an existing registration with SAM must recertify and maintain an active status annually. There is no charge for the SAM registration and recertification process. SAM users can register or recertify their account by following the instructions for registration(opens new window).

Credit unions with additional questions about the low-income designation may contact the NCUA’s Office of Credit Union Resources and Expansion at [email protected]. Questions about the MDI designation or the NCUA’s MDI Preservation Program should be sent to [email protected].

The NCUA to Host Share Insurance Webinar on April 13

Date: Apr 13, 2023

Time: 2:00 PM

Share insurance is fundamental to the credit union system, and it’s a complex topic. To help credit unions better understand share insurance, the National Credit Union Administration has scheduled a webinar for Thursday, April 13, to discuss how member accounts are covered.

Registration for this webinar is now open. The webinar is scheduled to begin at 2 p.m. Eastern and run approximately 60 minutes. It will be close captioned, and there is no charge. Participants will be able to log in and view the webinar on their computers or mobile devices using the registration link. They should allow pop-ups from this website.

NCUA staff from the Office of Credit Union Resources and Expansion will discuss topics including:

Types of accounts covered by share insurance;
What happens to share insurance coverage when credit unions merge;
What happens to insurance of accounts if a member passes away; and
General information about trusts.

NCUA Regulatory Alert (23-RA-02): Home Mortgage Disclosure Act Data Collection Requirements for Calendar Year 2023

If your credit union makes residential mortgage loans and meets all four criteria outlined below, you must comply with the Consumer Financial Protection Bureau’s (CFPB) Regulation C, which implements the Home Mortgage Disclosure Act (HMDA).

Regulation C requires you to collect HMDA data associated with mortgage loan applications processed during 2023 if:

Your credit union’s total assets as of December 31, 2022, exceeded $54 million;
Your credit union had a home or branch office in a Metropolitan Statistical Area on December 31, 2022;
Your credit union originated at least one home purchase loan (other than temporary financing such as a construction loan) or refinanced a home purchase loan, secured by a first lien on a one-to-four-unit dwelling during 2022; and
Your credit union originated at least 25 covered closed-end mortgage loans in each of the two preceding calendar years (2021 and 2022) or at least 200 covered open-end lines of credit in each of the two preceding calendar years (2021 and 2022).

If your credit union meets all four criteria, you must collect HMDA data during calendar year 2023 and submit the data to the CFPB no later than March 1, 2024.

Read the Regulatory Alert

The National Credit Union Administration on Jan. 31 will host a webinar discussing the 2023 Supervisory Priorities Letter to Credit Unions.

Registration for this event is now open. Christel Orusede, from the NCUA’s Office of Examination and Insurance, will moderate a panel of NCUA subject matter experts who will discuss topics outlining NCUA’s supervisory priorities and other aspects of the agency’s examination program for 2023 to help credit unions prepare for their next NCUA examination.

The “2023 Supervisory Priorities” webinar is scheduled to begin at 2 p.m. Eastern and last approximately 60 minutes. There is no charge. There will be a question-and-answer period afterward.

Participants will be able to log into the webinar and view it on their computers or mobile devices using the registration link. They should allow pop-ups from this website. The webinar will be closed captioned and archived approximately one week following the live event.

Participants can submit questions during the presentation or in advance by emailing [email protected]. The email’s subject line should read, “2023 Supervisory Priorities.” Please email technical questions about accessing the webinar to either [email protected] or [email protected].

NCUA’s Letter to Credit Unions (23-CU-01)

Dear Boards of Directors and Chief Executive Officers:

This letter outlines the NCUA’s supervisory priorities and other updates to the agency’s examination program for 2023. Our focus will be on the areas posing the highest risk to credit union members, the credit union industry, and the National Credit Union Share Insurance Fund (Share Insurance Fund).

The NCUA will conduct examination and supervision activities both onsite and offsite, as appropriate. Examiners will continue to conduct some examination activity offsite when the activity can be completed efficiently and effectively at credit unions that can accommodate offsite work.

The agency’s exam flexibility initiative will continue in 2023, which establishes an extended exam cycle for certain credit unions.¹ The NCUA will also continue our Small Credit Union Exam Program in most federal credit unions with assets under $50 million. For all other credit unions, NCUA examiners will use the agency’s risk-focused examination procedures.

Below are the NCUA’s primary areas of supervisory focus in 2023.

Supervisory Priorities for 2023

Interest Rate Risk

Interest rates rose significantly across the yield curve during 2022, elevating interest rate risk (IRR) and the related exposure to earnings and capital. This sharp rise in rates has amplified market risk because a credit union’s assets and liabilities do not reprice equally, potentially impacting net economic values and credit unions’ projected earnings.

In September 2022, the NCUA issued Letter to Credit Unions 22-CU-09, Updates to Interest Rate Risk Supervisory Framework, and Supervisory Letter 22-01, Updates to Interest Rate Risk Supervisory Framework, updating the NCUA supervisory framework for IRR.

With the April 2022 addition of the Sensitivity to Market Risk, or “S,” component to the CAMELS rating system, the agency has formalized the focus on IRR as a specific rating category separate from liquidity risk.

High levels of IRR can increase your credit union’s liquidity risks, contribute to asset quality deterioration and capital erosion, and put pressure on earnings.

Well-managed credit unions are prudent and proactive in managing IRR and the related risks to capital, asset quality, earnings, and liquidity. As such, examiners will review your credit union’s IRR program for the following key risk management and control activities:

Key assumptions and related data sets are reasonable and well documented.
The credit union’s overall level of IRR exposure is properly measured and controlled.
Results are communicated to decision-makers and the board of directors.
Proactive action is taken to remain within safe and sound policy limits.

Additional references for IRR are in the Examiner’s Guide under Workpapers and Resources.

Liquidity Risk

Higher interest rates have caused a slowdown in prepayments for some loans and investment holdings, which has resulted in reduced cashflows. Large increases in share balances from 20202022 may result in an increased level of share sensitivity and share roll off as market rates continue to rise.

In evaluating the “L” component of the CAMELS rating to determine the adequacy of your credit union’s liquidity risk management framework, examiners will consider the current and prospective sources of liquidity compared to funding needs. Examiners will review your credit union’s liquidity policies, procedures, and risk limits. Examiners will also evaluate the adequacy of your credit union’s liquidity risk management framework relative to the size, complexity, and risk profile of your credit union.

Examiners will assess liquidity management by evaluating:

The potential effects of changing interest rates on the market value of assets and borrowing capacity.
Scenario analysis for liquidity risk modeling, including possible member share migrations (for example, shifts from core deposits into more rate-sensitive accounts).
Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors (for example, changing prepayment speeds).
The appropriateness of contingency funding plans to address any plausible unexpected liquidity shortfalls.

Resources and guidance on liquidity risk can be found in the NCUA’s Examiner’s Guide.

Credit Risk

Credit risk is a supervisory priority for 2023 as high inflation and rising interest rates are putting financial pressure on credit union members. High inflation and the increasing likelihood of an increase in unemployment rates could negatively impact borrowers’ ability to repay outstanding debt. Rising interest rates could also result in higher loan payments for borrowers.

NCUA examiners will review the soundness of existing lending programs, any adjustments your credit union made to loan underwriting standards and portfolio monitoring practices, and loan workout strategies for borrowers facing financial hardships. NCUA examiners will carefully consider all factors in evaluating your credit union’s efforts to provide relief for borrowers, including whether the efforts were reasonable and conducted with proper controls and management oversight.

For more information and additional resources, see the following:

Press release, Agencies Issue Interagency Policy Statement on Allowances for Credit Losses and Interagency Guidance on Credit Risk Review Systems
NCUA Letter to Credit Unions 20-CU-13, Working with Borrowers Affected by the COVID-19 Pandemic
NCUA Letter to Credit Unions 14-CU-08, Home Equity Lines of Credit Nearing Their End-of-Draw Period
NCUA Letter to Credit Unions 10-CU-07, Commercial Real Estate Loan Workouts
NCUA Letter to Credit Unions 10-CU-03, Concentration Risk
NCUA Letter to Credit Unions 07-CU-06, Working with Residential Mortgage Borrowers
NCUA Letter to Credit Unions 03-CU-01, Loan Charge-off Guidance

Fraud Prevention and Detection

Fraud risks remain elevated. As such, the NCUA will continue our efforts to review internal controls and separation of duties. In 2023, the agency will also implement a management questionnaire designed to enhance the identification of fraud red flags, material supervisory concerns, or other potential new risks to which your credit union may be exposed.

This questionnaire will help protect credit unions and reduce potential losses to the Share Insurance Fund. The questionnaire will be sent to credit unions in the pre-examination planning stage for all full-scope exams along with the Items Needed List, including on joint exams with State Supervisory Authorities (SSAs). Credit unions only need to complete one questionnaire per examination. If an SSA uses a similar questionnaire, the federal and state examiners will coordinate to decide which questionnaire the credit union will complete to reduce duplication.

Credit unions will typically receive the questionnaire through MERIT’s survey function, and the credit union CEO or another senior executive will complete, sign, and then return the questionnaire through MERIT’s survey function. Examiners will review the credit union’s responses in the pre-examination planning process to refine the scope of the examination, as appropriate.

For more fraud prevention resources, visit the NCUA’s Fraud Prevention Resources page.

Information Security (Cybersecurity)

Cybersecurity risks remain a significant, persistent, and ever-evolving threat to the financial system. Credit union technology-related operating environments are increasing in complexity. Your credit union can protect itself with a cybersecurity program that evolves and adapts to the changing threat environment.

The NCUA will continue to have cybersecurity as an examination priority. Examiners will evaluate whether credit unions have established adequate information security programs to protect members and the credit union. To strengthen the examination process for cybersecurity, the NCUA developed and tested updated Information Security Examination procedures tailored to institutions of varying size and complexity. Examiners will use these new procedures in 2023.

Additionally, credit unions are encouraged to remain very vigilant and continue to adapt their ability to respond to evolving cybersecurity threats. Your credit union may conduct voluntary, cybersecurity self-assessments using the Automated Cybersecurity Evaluation Toolbox. The toolbox works in coordination with and will prepare you for an Information Security Examination.

For more cybersecurity information and resources, including the new examination procedures, visit the NCUA’s Cybersecurity Resources webpage.

Consumer Financial Protection

The NCUA will continue to review compliance with applicable consumer financial protection laws and regulations for federal credit unions that the NCUA has under its consumer financial protection supervision authority. Examiners will continue to review your credit union’s compliance with Flood Disaster Protection Act requirements, including disclosure requirements, as we continue to evolve our understanding of the impact of climate-related financial risk on credit unions, credit union members, and the Share Insurance Fund.

Examiners will also consider trends in violations identified through examinations and member complaints, emerging issues, and any recent changes to regulatory requirements to establish priorities. Accordingly, in 2023 examiners will focus on areas related to:

Overdraft programs.
Fair lending, including review of residential real estate appraisals for any bias.
The Truth in Lending Act.
The Fair Credit Reporting Act.

In 2022, examiners requested information about a credit union’s policies and procedures governing its overdraft programs. In 2023, examiners will expand the review of credit unions’ overdraft programs, including website advertising, balance calculation methods, and settlement processes. The NCUA will also evaluate any adjustments credit unions have made to their overdraft programs to address consumer compliance risk and potential consumer harm from unanticipated overdraft fees.

Regarding fair lending, examiners will review policies and practices for steering or loan pricing discrimination risk factors.² In addition, examiners will assess a credit union’s policies and practices related to residential real estate appraisals and conduct a tailored file review to evaluate the consistency, fairness, and accuracy of the appraisals a credit union obtains.

Examiners will additionally evaluate compliance with Truth in Lending Act requirements and disclosures related to auto lending for certain credit unions that have experienced high auto loan growth over the past year. Examiners will also review credit reporting protections under the Fair Credit Reporting Act related to furnishing, adverse action notices, risk-based pricing, and consumer rights disclosures.

Other Updates

Current Expected Credit Loss Implementation

Credit unions are required to implement the Financial Accounting Standards Board’s Accounting Standards Update No. 2016-13, Topic 326, Financial Instruments – Credit Losses, commonly referred to as Current Expected Credit Loss (CECL) for financial reporting years starting after December 15, 2022. Most credit unions adopted CECL on January 1, 2023.

Under the NCUA’s CECL Transition Rule, federally insured credit unions with assets of less than $10 million are generally not required to implement CECL. For credit unions below this threshold, the rule requires “any reasonable reserve methodology (incurred loss), provided it adequately covers known and probable loan losses.”³ Federally insured, state-chartered credit unions should refer to state law on Generally Accepted Accounting Principles (GAAP) requirements and CECL standard applicability, as those requirements may be more restrictive.

Examiners will evaluate the adequacy of your credit union’s Allowance for Credit Losses (ACL) on loans and leases by reviewing:

ACL policies and procedures.
Documentation of an ACL reserving methodology, including logic for model selection and related input data, modeling assumptions, and qualitative adjustments.
Adherence to GAAP (if applicable).

If your credit union’s ACL is independently reviewed by the Supervisory Committee or an internal or external auditor, examiners will also consider the results of that review as part of their evaluation.

As applicable, examiners may also review your credit union’s adjustment to undivided earnings (retained earnings) in relation to the CECL Transition Rule.

A variety of CECL resources are available for credit unions, including:

FASB’s Accounting Standards Update 2016-13, Topic 326, Financial Instruments – Credit Losses
FASB Staff Q&A, Topic 326, No. 1: Whether the Weighted-Average Remaining Maturity Method Is an Acceptable Method to Estimate Expected Credit Losses
FASB Staff Q&A, Topic 326, No. 2: Developing an Estimate of Expected Credit Losses on Financial Assets
NCUA Letter to Credit Unions 17-CU-05, Frequently Asked Questions on the New Accounting Standard on Financial Instruments Credit Losses
NCUA Letter to Credit Union 22-CU-10, Simplified CECL Tool for Credit Unions

Succession Planning

The credit union system continues to experience an ongoing trend of consolidation. The NCUA has found that inadequate succession planning is often a reason for credit union consolidations, especially in smaller credit unions. Succession planning can be critical to the continued operation of credit unions, especially those with senior leaders who may be retiring soon. A credit union’s failure to plan for the transition of its management and board officials could come with high costs. Conversely, good succession planning confers a variety of benefits, including ensuring organizational viability over the long term.

During 2023, examiners will request information about a credit union’s approach to succession planning for senior leaders, including any written succession plan the credit union has established. This information will help the NCUA further understand succession planning activities and needs in the credit union system.

Examiners will not evaluate this information or any formal or informal succession plans developed by credit unions beyond what would normally be considered in assigning the Management component of the CAMELS rating.⁴ Also, examiners will not issue an Examiner’s Finding or Document of Resolution if the credit union has not conducted succession planning, or the planning is not adequate, unless the credit union is in violation of its own policy for conducting succession planning or administering any such plan(s).

Support for Small Credit Unions and Minority Depository Institutions

In 2023, the NCUA will continue its Small Credit Union and Minority Depository Institutions (MDIs) support program, which the agency implemented in 2022 to support and preserve these credit unions. Credit unions with less than $100 million in assets and MDIs are uniquely positioned to improve the financial well-being of underserved communities by offering their members access to safe, fair, and affordable credit and other financial services and products. The NCUA’s program focuses assistance on identifying available resources, providing training and guidance, and supporting credit union management in their efforts to address operational matters. We expect the additional benefits of the program to include:

Greater awareness of the unique needs of small credit unions and MDIs and their role in serving underserved communities.
Expanded opportunities for these credit unions to receive support through NCUA grants, training, and other initiatives.
Furthering partnerships with organizations and industry mentors that can support small credit unions and MDIs.

Additionally, the agency has developed MDI-specific exam procedures to guide examiners during their supervision of MDIs. Preserving small credit unions and MDIs is fundamental to the NCUA’s mission.

Post-Examination Survey

Credit union feedback helps the NCUA evaluate the effectiveness of our examination processes and improves communication with credit unions. In September 2021, the NCUA initiated a post-examination survey pilot to gather feedback on examinations. In addition to pilot survey responses, the NCUA has conducted focus groups comprised of senior credit union staff and NCUA examination staff to gather input. In 2023, the NCUA will update the post-examination survey to continue obtaining feedback from credit unions on their NCUA examinations. As a reminder, federal credit unions may record their exam exit meetings provided they comply with applicable laws and regulations for recording and provide a copy of the recording to the NCUA. These recordings can be useful to both credit unions and the NCUA. NCUA examiners will agree to the recording of the exam exit meetings, and the NCUA will monitor how often exam exit meetings are recorded.

Conclusion

The NCUA will continue our ongoing enhancements to how the agency supervises and supports your credit union and its members as the agency adopts innovations and incorporates efficiencies in our exam program. The NCUA’s primary mission of protecting the system of cooperative credit and its member-owners through effective chartering, supervision, regulation, and insurance can only be achieved by adapting to technological and economic changes.

Should you have any questions about the NCUA’s supervisory priorities for 2023, please contact your NCUA examiner or regional office.

Sincerely,

Todd M. Harper
Chairman

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.

All-In on DEI & ACCESS

Join us November 2-4, 2022, for the NCUA’S third summit focused on DEI. The theme of this year’s event is All-In on DEI & ACCESS. ACCESS represents NCUA’s initiative for Advancing Communities through Credit, Education, Stability and Support.

Click here to register and for more information.

This two-and-a-half day, hybrid event will bring together professionals from credit unions and other stakeholders to:

promote the value proposition of diversity, equity, and inclusion;
share DEI and financial inclusion best practices; and
develop solutions to industry-specific challenges.

The Summit will include panel discussions with experts in diversity, equity, and inclusion along with fireside chats, roundtables, and keynote speakers. Session topics cover a wide range of DEI-related areas like how to build a successful DEI program; including programs for the LGBTQ+ and disability communities; cryptocurrency and the unbanked; digital access; and inclusive lending. Speakers include NCUA Chairman Todd M. Harper, Vice Chairman Kyle Hauptman, and Board Member Rodney E. Hood.

“Diversity, equity, and inclusion are vital to strategy, sustainable growth, innovation, talent acquisition, and retention throughout the financial services system. To help credit unions advance DEI, the 2022 Summit will bring together prominent speakers to share their thought leadership on DEI. This year, we will also have a special track designed to support credit unions designated as minority depository institutions. Whether you are a DEI advocate or an MDI credit union, or both, this event is a can’t miss opportunity.”

— Todd M. Harper, Chairman

Final Rule: Asset Threshold for Determining the Appropriate Supervisory Office;
Office of National Examinations and Supervision (ONES)

Read NASCUS Legislative and Regulatory Affairs Department Summary Here
August 3, 2022

The NCUA Board is amending its regulations to revise the $10 billion asset threshold used for assigning supervision of consumer federally insured credit unions (FICUs) to the Office of National Examinations and Supervision (ONES). The rule does not alter any regulatory requirements for covered credit unions. The rule only applies to FICUs whose assets are $10 billion or more. The rule provides that covered credit unions with less than $15 billion in total assets, referred to as Tier I credit unions, will be supervised by the appropriate NCUA Regional Office. Credit unions with $15 billion or more in total assets, considered Tier II and Tier III, will continue to be supervised by ONES.

The final rule is effective January 1, 2023, and can be found in its entirety here.