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Board Action Bulletin

Proposed Rule to Minimize Potential Effects of CECL Methodology

ALEXANDRIA, Va. (July 30, 2020) – Using a live audio webcast, the National Credit Union Administration Board held its sixth open meeting of 2020 and approved four items:

• A final rule amending the chartering and field-of-membership rules for credit unions applying for a community charter approval, expansion, or conversion.
• A proposed rule that would phase-in the day-one adverse effects on regulatory capital that may result from the adoption of the current expected credit losses accounting methodology over a three year period.
• A proposed rule that amends the NCUA’s regulation governing the assessment of an annual operating fee on federal credit unions.
• A request for comment on the existing overhead transfer rate and the operating fee schedule methodologies.

The Chief Financial Officer also briefed the Board on the agency’s revised budget estimates and expenditures in 2020.

Board Approves Changes to NCUA’s Chartering and Field-of-Membership Regulations

The NCUA Board unanimously approved a final rule that would help facilitate greater access to safe and affordable financial services by changing the agency’s chartering and field-of-membership regulations for community charter approvals, expansions, or conversions.

“Today, with this rule, the Board is taking a critical step in the NCUA’s ongoing work to allow credit unions to alleviate some of the difficulties of low-income and underserved Americans in accessing financial services,” NCUA Chairman Rodney E. Hood said. “I often call financial inclusion the civil rights issue of our time, and this rule will help maintain and expand financial access to more Americans in rural and underserved communities.”

The final rule (opens new window) re-adopts a provision to allow an applicant to designate a combined statistical area, or an individual, contiguous portion thereof, as a well-defined local community if the chosen area has a population of 2.5 million or fewer.  Credit unions that had their combined statistical areas removed from their fields of membership because of litigation will be contacted by the agency to determine if they would like those reinstated. If they would, then NCUA will do so as soon as the rule is effective.

Separately, in accordance with an August 2019 opinion and order issued by the D.C. Circuit Court of Appeals, the final rule provides further explanation and support for the elimination of the requirement to serve a core-based statistical area’s core area, as provided in the agency’s 2016 field-of-membership rule.

The rule also clarifies existing requirements and adds an explicit provision to the NCUA’s field-of-membership regulations to address concerns about potential discrimination in the selection process for combined statistical areas and core-based statistical areas.

This final rule is effective 30 days after publication in the Federal Register.

Proposed Rule Would Phase-in Effects of the CECL

The NCUA Board unanimously approved a proposed rule that would phase-in the day-one adverse effects on regulatory capital that may result from fully implementing the current expected credit losses (CECL) accounting methodology. This proposal is consistent with regulations issued by the federal banking agencies.

“The proposed CECL change has raised serious questions in the credit union industry, as well as among other smaller financial services providers, as it would entail greater complexity, higher costs and a significantly heavier compliance burden, while bringing little additional benefit to the institutions,” Chairman Hood said. “As such, it is unwise to impose a burdensome and costly new regulation on credit unions, particularly smaller institutions in underserved areas, at such a time of great challenge.”

Under the proposed rule (opens new window), the NCUA Board would phase-in the day-one effects on a federally insured credit union’s net worth ratio over a three-year period, under the NCUA’s prompt corrective action regulations. The proposed rule would temporarily mitigate the adverse consequences of the day-one capital adjustments, while requiring that credit unions account for CECL for other purposes, such as on their Call Reports.

The phase-in would only be applied to those federally insured credit unions that adopt the CECL for the fiscal years beginning on or after December 15, 2022, which is the deadline established by the Federal Accounting Standards Board for CECL’s implementation. Credit unions that decide to adopt CECL for the fiscal years beginning before that date would not be eligible for the phase-in.

Under the proposal, federally insured credit unions with less than $10 million in assets would no longer be required to determine their charges for loan losses under GAAP. Instead, these credit unions could use any reasonable reserve methodology if it adequately covers known and probable loan losses.

Comments on the proposed rule are due 60 days after publication in the Federal Register.

Proposed Rule Would Change How NCUA Calculates its Annual Operating Fee

The Board unanimously approved a proposed rule that would amend the NCUA’s regulation governing the assessment of an annual operating fee on federal credit unions.

The proposed rule (opens new window) would amend the current operating fee rule to exclude from a federal credit union’s total assets any loan under the Small Business Administration’s Paycheck Protection Program or similar future programs approved for exclusion by the NCUA Board when calculating the annual operating fee. The proposed rule would also delete from the current regulation references to the Credit Union System Investment Program and the Credit Union Homeowners Affordability Relief Program, both of which no longer exist.

Finally, the proposed rule would amend the period used for the calculation of a federal credit union’s total assets when determining the annual operating fee. Currently, total assets are calculated using a federal credit union’s December 31 Call Report from the preceding year. Under the proposal, total assets would be calculated as the average total assets reported in a federal credit union’s previous four Call Reports available at the time the NCUA Board approves the agency’s budget for the upcoming year.

Comments on the proposed rule are due 60 days after publication in the Federal Register.

NCUA Requests Stakeholder Comments on OTR and Operating Fee Methodologies

The NCUA Board unanimously approved the issuance of a notice and request for comment (opens new window) on the methodologies for computing the overhead transfer rate (OTR) and determining the annual operating fee schedule, which are the two mechanisms used to fund the agency’s budget.

The existing principles-based OTR methodology used by the NCUA was adopted in 2017. The NCUA does not propose any changes to the existing methodology at this time. However, the NCUA Board committed to requesting public comment on the methodology every three years, or when it proposes a change to one or more of the principles.

The NCUA is also requesting stakeholder comment on proposed clarifications to and questions about the methodology it uses to determine how it allocates operating fees charged to federal credit unions.

Comments are due 60 days from publication in the Federal Register.

Briefing Provides Update on NCUA’s Budget at Mid-year

The Chief Financial Officer estimates (opens new window) the NCUA will have a small budget surplus in the Operating Fund at the end of the year due to a reduction in the employee travel because of COVID-19. The budget for the National Credit Union Share Insurance Fund administrative expenses may also see some savings due to the reduction in travel.

The NCUA will continue to refine its estimates for other cost categories and will provide additional information about the agency’s budget and expenses on its website.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.