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Report Stresses Solid Underwriting, Risk Management, Monitoring and Training

ALEXANDRIA, Va. (April 12, 2016) – Credit unions may have opportunities to serve members who need to build credit histories, according to a new report by the National Credit Union Administration.

Serving the Credit-Invisible, available online here (opens new window), explains how credit unions can build loan programs—based on sound underwriting, appropriate risk management, loan monitoring and staff training—that can help them reach this underserved population. The report details how to evaluate a loan applicant who is “credit-invisible” and describes best practices for serving these members within the normal boundaries of safety and soundness.

“Automated credit scoring models unintentionally shut out millions of young borrowers and other consumers whose timely payments are not being reported to credit bureaus,” said NCUA Board Chairman Debbie Matz. “The lack of a credit score can subject these consumers to costly loan pricing in the form of higher interest rates and fees. Other lenders ignore ‘credit-invisible’ consumers altogether. Yet, credit unions using more traditional underwriting may find that ‘credit-invisible’ applicants are indeed creditworthy. I encourage credit union officials to consider the strategies in our report as part of their efforts to serve everyone in their field of membership.”

“Nearly 20 percent of the American adult population doesn’t have a credit score,” said William Myers, Director of NCUA’s Office of Small Credit Union Initiatives. “This paper explores safe methods for bringing these people and their families into the credit union system.”

Credit-invisible consumers may lack credit scores because they have limited or incomplete credit histories. They are not necessarily subprime borrowers, but their credit activity may not be reported to a credit bureau. Nonetheless, these consumers may have a good history of making timely payments for expenses like rent, insurance and utilities. The Consumer Financial Protection Bureau reported in 2015 (opens new window)that as many as 26 million Americans may fall into this category.

NCUA’s Office of Small Credit Union Initiatives prepared the report. The office fosters credit union development and the effective delivery of financial services for small credit unions, new credit unions, minority depository institutions and credit unions with a low-income designation.

ALEXANDRIA, Va. (April 12, 2016) – The National Credit Union Administration will receive $50.3 million in damages and interest from Credit Suisse for claims arising from losses to Members United and Southwest corporate credit unions related to purchases of residential mortgage-backed securities.

“NCUA’s litigation efforts fulfill its statutory obligation to secure recoveries for credit unions and help protect consumers,” NCUA Board Chairman Debbie Matz said. “These efforts will continue. We will aggressively pursue recoveries against the Wall Street firms that contributed to the corporate crisis and work to minimize net losses and provide a future rebate to credit unions.”

The NCUA Board initiated litigation as liquidating agent for the failed corporate credit unions. In March, NCUA accepted Credit Suisse’s offer of judgment of $29 million in damages. With the addition of prejudgment interest determined by the Court, the amount to be paid by Credit Suisse increased to $50.3 million. Credit Suisse will also be liable for attorneys’ fees and expenses in an amount to be determined.

NCUA has obtained more than $3 billion in legal recoveries in litigation related to the sale of faulty securities to corporate credit unions. Net proceeds from these recoveries are used to pay claims against the failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund. Recoveries by the Stabilization Fund reduce the likelihood of assessments charged to federally insured credit unions to pay for the losses caused by corporate credit union failures.

NCUA still has litigation pending in federal court in Kansas against Credit Suisse for sales of faulty residential mortgage-backed securities to U.S. Central, Southwest and WesCorp corporate credit unions. The agency has additional lawsuits pending against several other firms based on the sale of faulty securities. NCUA also has pending litigation against various residential mortgage-backed securities trustees and LIBOR banks related to corporate credit union losses. NCUA was the first federal financial institutions regulator to recover losses from investments in these securities on behalf of failed financial institutions.

#NCUAChat to Educate Consumers on Protecting Wallets, Personal Information

ALEXANDRIA, Va. (April 14, 2016) – To help consumers protect their money and personal information from consumer financial fraud, which affects millions of Americans each year, the National Credit Union Administration will host a live Twitter chat.

The Twitter chat is scheduled for Wednesday, April 27, beginning at 11 a.m. Eastern. Credit unions and consumers can follow @MyCUgov (opens new window) and contribute to the conversation using the #NCUAChat hashtag on Twitter. Participants can submit questions in advance to [email protected]. During the chat, NCUA will share tips from MyCreditUnion.gov (opens new window) on how consumers can protect their finances (opens new window) and resources available on the agency’s Fraud Prevention Center (opens new window).

The Twitter chat is part of NCUA’s activities during Financial Literacy Month. Consumers can visit NCUA’s MyCreditUnion.gov (opens new window) and the agency’s financial literacy site, Pocket Cents (opens new window), at any time to get more information about saving, borrowing and managing credit.

Under the Federal Credit Union Act, promoting financial literacy is a core credit union mission. While credit unions serve the needs of their members and promote financial literacy within the communities they serve, NCUA works to reinforce credit union efforts, raise consumer awareness and increase access to credit union services. NCUA also participates in national financial literacy initiatives, including the Financial Literacy and Education Commission, an interagency group created by Congress to improve the nation’s financial literacy and education.

ALEXANDRIA, Va. (April 15, 2016) – The National Credit Union Administration will receive $69.8 million from UBS in damages and interest for claims arising from losses to Members United and Southwest, two corporate credit unions that failed during the financial crisis, related to purchases of residential mortgage-backed securities.

“Part of NCUA’s comprehensive strategy for resolving the corporate crisis has been an aggressive litigation effort to secure recoveries from the Wall Street firms whose sale of faulty securities precipitated the crisis,” NCUA Board Chairman Debbie Matz said. “Because of our ongoing efforts to hold responsible parties accountable, we are minimizing net losses to credit unions and should ultimately be able to provide a future rebate to credit unions for their Temporary Corporate Credit Union Stabilization Fund assessments.”

As liquidating agent for Members United and Southwest, the NCUA Board initiated litigation against UBS. In February, NCUA accepted UBS’s offer of judgment of $33 million in damages. With the addition of prejudgment interest determined by the court, the amount to be paid by UBS increased to $69.8 million. UBS will also be liable for attorneys’ fees and expenses in an amount to be determined.

To date, NCUA has obtained more than $3.1 billion in legal recoveries in litigation related to the sale of faulty securities to corporate credit unions. NCUA uses the net proceeds from these settlements to repay the Stabilization Fund’s outstanding borrowings from the U.S. Treasury and to decrease the amount that surviving credit unions must pay to recoup the losses of the corporate credit union system.

NCUA still has litigation pending against UBS in federal court in Kansas for sales of faulty residential mortgage-backed securities to U.S. Central and WesCorp corporate credit unions. The agency has additional lawsuits pending against several other firms based on the sale of faulty securities. NCUA also has pending litigation against various residential mortgage-backed securities trustees and LIBOR banks related to corporate credit union losses.
NCUA was the first federal depository institutions regulator to recover losses from investments in these securities on behalf of failed financial institutions.

Read the Latest Issue of NCUA’s Newsletter Online

ALEXANDRIA, Va. (April 19, 2016) – The latest issue of the National Credit Union Administration’s monthly newsletter details the recent changes made by the Department of Defense that will extend the protections of the Military Lending Act to a broader range of closed-end and open-end credit union products.

The April 2016 issue of The NCUA Report is now available online here (opens new window).

The agency’s newsletter features columns from NCUA Board Chairman Debbie Matz, Vice Chairman Rick Metsger and Board Member J. Mark McWatters. It also contains articles from several NCUA offices on the agency’s initiatives and information on supervisory, regulatory and compliance issues that are important to all federally insured credit unions.

Articles in this month’s issue include:

• Chairman’s Corner: Leaving NCUA with Confidence in Credit Unions’ Future
• Regulatory Modernization Initiative Results 2011–2016
• Vice Chairman Metsger’s Perspective: Well Done, Good and Faithful Public Servant
• Board Member McWatters’ Perspective: Time to Focus on Smart Regulation
• Board Actions: New Rule Provides Credit Unions More Flexibility in Bank Note Investments
• Keeping Your Credit Union’s Profile Updated Can Have a Big Impact
• Looking for New Community Development Partners? Have You Considered EPA?
• Regulatory Capital Transition Date Approaching for Corporates
• Lessons of Financial Literacy Month Are Important All Year

Published monthly, The NCUA Report is NCUA’s flagship publication. The newsletter highlights important Board actions and key issues that credit union managers, staff and volunteers need to know. Interested readers can subscribe to the online version of the newsletter here (opens new window). Previous issues of The NCUA Report are available online at http://go.usa.gov/cghah (opens new window).

ALEXANDRIA, Va. (April 19, 2016) – The National Credit Union Administration has selected Cherie Freed as Regional Director of the agency’s Region V office in Tempe, Arizona.

Freed will be replacing current Regional Director Elizabeth Whitehead, who will retire in May. Region V covers Alaska, Arizona, California, Guam, Hawaii, Idaho, Nevada, Oregon, Utah and Washington.

“Credit unions and their members will be well-served by Cherie Freed, a long-time veteran of NCUA who brings 29 years of experience to her new position,” NCUA Board Chairman Debbie Matz said. “She has consistently carried out her duties with excellence, and she has a wealth of experience at many levels of the agency.

“I also want to thank Liz Whitehead for 28 years of dedicated service to NCUA and the credit union system,” Matz said. “She’s been an enthusiastic and capable leader in our Region V office, and we wish her all the best in her future endeavors.”

Freed joined NCUA in 1987 as a credit union examiner, following two years in the private sector. Before her selection as Regional Director, she served as the associate regional director for operations in Region V. Her career at NCUA has included serving as the agency’s acting deputy executive director, Region V director of supervision, a loss risk analysis officer, a corporate credit union examiner and a problem case officer.

Freed holds a bachelor’s degree in accounting from Northwest Missouri State University. She is a graduate of NCUA’s Management Development Program has been cited for numerous awards for her leadership skills during her career with the agency.

ALEXANDRIA, Va. (April 20, 2016) – National Credit Union Administration Board members have agreed to reschedule the closed Board meeting set for Thursday, April 21, 2016.

The closed Board meeting will now begin at 9 a.m. Eastern, instead of the originally scheduled 11:15 a.m. Eastern.

The April open Board meeting will be held at its originally scheduled time of 10 a.m. Eastern.

Agendas for both meetings are available online here.

Board Action Bulletin

The NCUA Board approved the purchase and assumption by Avadian Credit Union of American Bank of Huntsville.

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. NCUA also live streams, archives and posts

videos of open Board meetings online.

Board Action Bulletin

NCUA Board Briefed on Share Insurance Fund’s Continued Strong Performance

ALEXANDRIA, Va. (April 21, 2016) – The National Credit Union Administration Board held its fourth open meeting of 2016 at the agency’s headquarters here today and approved two items:

• A proposed rule to provide regulatory relief to federal credit unions by eliminating the full occupancy requirement in the current occupancy rule.
• A proposed joint agency rule under the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate in federally insured credit unions with assets of $1 billion or greater incentive-based compensation plans that encourage inappropriate risk-taking

The Chief Financial Officer also briefed the Board on the performance of the National Credit Union Share Insurance Fund, which had a net income of $24 million in the first quarter of 2016 and a decline in the provision for insurance losses

Proposed Occupancy Rule Change Provides Regulatory Relief

A proposed rule (Parts 701 and 721) unanimously approved by the NCUA Board would provide regulatory relief by eliminating the requirement in the occupancy rule that federal credit unions must plan for and eventually reach full occupancy of acquired premises.

“This proposal is an excellent example of how NCUA carefully listens and, where prudent, responds to stakeholders seeking regulatory relief,” NCUA Board Chairman Debbie Matz said. “This proposed rule would remove an outdated regulatory requirement, cut unnecessary paperwork, and empower credit union boards to make their own business decisions.”

The proposed rule retains the current regulatory timeframes for the partial occupancy of premises, but it modifies the definition of “partially occupy” to mean occupation and use, on a full-time basis, of at least 50 percent of a premises by a federal credit union or by a combination of the credit union and a credit union service organization in which the credit union has a controlling interest.

“In my travels during my two terms on the NCUA Board,” Matz said, “I have seen businesses operating successfully in mixed-use buildings, where street-level space is used for retail operations and an upper floor is used for commercial rentals or private residences. As long as credit union officials have a plan to occupy at least half of each property, they should decide how to use the incidental portion.”

Comments on the proposed rule, available online
here (opens new window), must be received within 60 days of publication in the Federal Register.

Proposed Incentive Compensation Rule Exempts 96 Percent of Credit Unions

NCUA Board members unanimously approved a proposed rule (Parts 741 and 751), mandated by section 956 of the Dodd-Frank Act, that would require federally insured credit unions with assets of $1 billion or more to provide NCUA with information about the structure of future incentive-based executive compensation programs.

The Dodd-Frank Act requires NCUA and five other federal financial regulators to act jointly to prohibit incentive-based compensation payment arrangements in financial institutions with $1 billion or more in assets that the agencies determine encourage inappropriate risks by providing excessive compensation or that could lead to material financial loss.

“This proposed rule will not affect the vast majority of credit unions,” Matz said. “In fact, the proposed rule exempts 96 percent of credit unions because they have less than $1 billion in assets. Thus, most credit unions would experience no regulatory changes under the proposal.”

The proposed rule supersedes an earlier rule proposed by regulators in 2011.

“It was challenging to develop a rule that both meets the mandate of the law and at the same time is focused and fair,” Matz said. “NCUA responded to stakeholder comments after the first proposed rule, and we were able to make significant modifications to take into account the uniqueness of credit unions operating in the financial services marketplace.”

The proposed rule creates a tiered system by dividing financial institutions covered under the rule into three categories, each with separate requirements:

• Level 1: institutions with assets of $250 billion and above;
• Level 2: institutions with assets of at least $50 billion and below $250 billion; and
• Level 3: institutions with assets of at least $1 billion and below $50 billion.

Only 258 federally insured credit unions have assets above $1 billion. Of those, only one federally insured credit union falls into Level 2. No federally insured credit union is classified as a Level 1 institution under the proposed rule.

The proposed rule does not affect base salary or base benefit plans. Incentive-based compensation plans that existed before the effective date of the final rule will not be affected. The rule would not affect newly created incentive compensation plans at a covered credit union until the first day of the first calendar quarter beginning 18 months after the final rule has become effective.

Institutions covered by the proposed rule would be required to create records documenting the structure of all incentive-based compensation plans, retain those records for seven years, and provide them to NCUA upon the agency’s request.

Boards of directors of covered credit unions or a committee thereof would be required to exercise oversight of such compensation plans. The proposed rule includes a provision to address equitable tax treatment for incentive-based compensation plans in covered credit unions.

For institutions that fall into the Level 1 and Level 2 categories, the proposed rule would require that a portion of the incentive-based compensation under such plans be deferred for up to four years, and in cases of employee fraud, intentional misrepresentation or misconduct resulting in significant financial or reputational harm to the institution, some or all of the compensation would be subject to claw-back recovery.

A summary of the applicability of the incentive-based compensation proposed rule to federally insured credit unions is available online
here (opens new window). Comments on the proposed rule, available online
here (opens new window), must be received by July 22.

Share Insurance Fund Continues Strong Positive Trends

The National Credit Union Share Insurance Fund was in a strong position during the first quarter of 2016, due to stable income and expenses, continued improvement in federally insured credit unions’ performance and a decline in insurance and guarantee program liabilities.

For the first quarter of 2016, the Share Insurance Fund had an equity ratio of 1.29 percent. NCUA calculated the equity ratio on an insured share base of $961.3 billion.

First-quarter investment and other income was $57.3 million. Operating expenses were $48 million. The provision for insurance losses was reduced by $14.7 million.

Backed by the full faith and credit of the United States, the Share Insurance Fund insures the deposits of more than 102 million account holders up to $250,000 in federally insured credit unions.

Overall, the amount of assets in CAMEL codes 3, 4 and 5 credit unions decreased 54.4 percent since reaching a high of $205.6 billion in September 2010. The continuation of these positive trends and other factors contributed to a net decrease of $12.7 million, or 7.7 percent, in the Share Insurance Fund’s reserve for loan losses in the first quarter.

For the first quarter of 2016:

• The number of CAMEL codes 4 and 5 credit unions fell 15.5 percent from the first quarter of 2015 to 218 from 258.
• Assets in CAMEL codes 4 and 5 credit unions fell 32.8 percent from the first quarter of 2015 to $7.8 billion from $11.6 billion.
• The number of CAMEL code 3 credit unions declined 9.2 percent from the first quarter of 2015 to 1,212 from 1,335.
• Assets in CAMEL code 3 credit unions declined 6.3 percent from the first quarter of 2015 to $86 billion from $91.8 billion.

There were five involuntary liquidations and assisted mergers in the first quarter of 2016, compared to three in the first quarter of 2015. The total amount of losses associated with failures in the first quarter was $4.7 million, compared to $1.7 million in the first quarter of 2015. Fraud was a contributing factor in four of these five failures.

The first-quarter figures are preliminary and unaudited.

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. NCUA also live streams, archives and posts

videos of open Board meetings online.

ALEXANDRIA, Va. (April 22, 2016) – The video recording of the March 2016 open meeting of the National Credit Union Administration Board is now available on the agency’s website.
Archived videos of past Board meetings may be viewed here, and each video remains on the site for one year.

At the March open meeting, the NCUA Board unanimously approved two items:

• A final rule to provide greater flexibility and regulatory relief for federal credit unions that invest in bank notes.
• Two temporary management positions to lead and coordinate NCUA’s Enterprise Solutions Modernization Program to upgrade technology, improve efficiency and reduce examination costs.

The Chief Operating Officer also briefed the Board on the performance of the Temporary Corporate Credit Union Stabilization Fund, which finished 2015 in a positive net position.

NCUA posts these videos as part of the agency’s ongoing efforts to provide transparency and to allow those unable to attend Board meetings the opportunity to become better informed. An interval between the meeting and posting is necessary for the videos to comply with Section 508 of the Rehabilitation Act for the hearing and visually impaired.

The Board Actions page of NCUA’s website has more information, including Board agendas, which are posted at least one week in advance of each open meeting, copies of Board Action Bulletins, which summarize the meetings, copies of Board memorandums and other documents.