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This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello, this is Samantha Shares.
This episode covers Comprehensive
List of Issues Facing the Credit Union
Movement, a letter from America's Credit
Unions to N C U A Chairman John Crews,
dated October fifth, twenty twenty-six.
The following is an audio
version of that document.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
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Union Administration experience.
We assist our clients with N C
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And now the document.
This letter is from Scott F.
Simpson, President and C E O
of America's Credit Unions.
It is dated October fifth, twenty
twenty-six, and is addressed to the
Honorable John Crews, Chairman of the
National Credit Union Administration.
The subject is Comprehensive List of
Issues Facing the Credit Union Movement.
Dear Chairman Crews.
On behalf of America's Credit Unions,
I am writing to ensure you are aware
of the various issues the credit
union movement is currently facing.
As you begin your tenure at the N C U
A, we look forward to working with you
to strengthen the operating environment
for credit unions and ensure that the
federal regulatory structure allows
credit unions of all sizes to safely
and effectively serve their members.
America's Credit Unions is the
voice of consumers' best option for
financial services: credit unions.
We advocate for policies that allow
the industry to effectively meet
the needs of their over one hundred
forty-six million members nationwide.
We have provided below several of our
highest priorities for the N C U A.
We have also included an appendix
identifying additional regulatory
and supervisory issues that we
encourage the Board to address.
Primary issues.
Number one, capital reform
and regulatory capital parity.
Capital reform remains a top
priority for America's Credit Unions.
Credit unions are fundamentally different
from stock-owned financial institutions
because they rely primarily on retained
earnings to build regulatory capital.
This makes it especially important that
capital requirements reflect actual
risk and do not unnecessarily tie up
resources that could otherwise be used to
lend to members, invest in communities,
and support responsible growth.
Recent actions by the federal
banking regulators make this
issue even more important.
In April, the banking agencies finalized a
rule lowering the Community Bank Leverage
Ratio from nine percent to eight percent,
which became effective July first.
The agencies explained that the
change would reduce regulatory burden
and provide qualifying community
banks with greater flexibility while
maintaining strong capital standards.
The N C U A's comparable Complex
Credit Union Leverage Ratio, or C
C U L R, remains at nine percent.
We urge the N C U A to lower the C C U L
R to eight percent so similarly situated
credit unions are not left operating
under a more restrictive simplified
capital standard than community banks.
We also urge the N C U A to modernize
its subordinated debt rule to make
this source of capital more practical
and accessible, particularly for
smaller low-income credit unions.
The current process can make relatively
small offerings unnecessarily expensive
by requiring specialized legal and
consulting assistance, detailed
offering documents, and significant
application and compliance work.
The N C U A should consider a more
streamlined process for smaller
offerings and offerings to sophisticated
investors, similar to the approach
available to national banks.
The agency should also consider pilot
programs or other approaches that
would allow credit unions to test new
subordinated debt structures while
maintaining appropriate safeguards.
The N C U A should also
revisit the fixed-dollar
thresholds in its capital rules.
The five hundred million dollar threshold
used to determine whether a credit union
is complex has not changed since twenty
eighteen, meaning ordinary industry
growth continues to bring more credit
unions within the risk-based capital
framework even where their underlying
risk has not materially changed.
The same concern applies to the
capital-planning and stress-testing
thresholds, which currently begin at
ten billion dollars, with additional
requirements applying at fifteen billion
dollars and twenty billion dollars.
We urge the N C U A to update these
thresholds to reflect inflation
and industry growth and establish a
regular process for reviewing them
so they do not become outdated again.
Strong capital is essential to
protecting members and the National
Credit Union Share Insurance Fund.
Our goal is not to weaken capital
standards, but to ensure that those
standards keep pace with changes in
economic conditions, industry growth, and
the treatment of comparable institutions.
We encourage the N C U A to follow
the banking agencies' lead in
providing capital relief while
maintaining safety and soundness.
Number two, risk-focused
examinations, C A M E L S reform,
and relief for small credit unions.
We appreciate your emphasis on risk-based,
principles-based examinations that
move away from a check-the-box approach
and focus on material financial risk.
A strong examination program is
essential to protecting members and
the Share Insurance Fund, but it
works best when examiner resources and
credit union resources are focused on
issues that present real financial,
operational, or compliance risk.
The N C U A has already taken several
positive steps in this direction
by expanding examination-cycle
flexibility for healthy, well-managed
credit unions; reducing its reliance
on reputation risk; and emphasizing
risk-focused supervision in its twenty
twenty-six supervisory priorities.
We support those changes and encourage
the agency to ensure they are consistently
reflected by examiners in the field.
Examination scope, staffing, document
requests, specialist reviews, and
follow-up monitoring should be based
on the size, complexity, condition, and
actual risk profile of the credit union.
A small, healthy credit union should
not experience an examination designed
around the operations of a much larger
institution, and continued small size
or limited growth should not itself
be treated as a management weakness.
The recently proposed interagency
third-party risk management guidance
reflects this same approach by
emphasizing that oversight should focus
on the actual risk of a particular
relationship, recognizing that some
risk may reasonably be accepted.
While we are still developing our comments
on the proposed guidance, we encourage
the N C U A to apply this same risk-based
approach across all areas of supervision.
We also urge the N C U A to fully
implement and preserve the expanded
examination-cycle flexibility that
can allow certain qualifying credit
unions to go approximately twenty-four
months between examinations.
Longer cycles for healthy credit
unions allow N C U A examiners to
devote more attention to those credit
unions that present greater risk
while reducing unnecessary disruption
for well-managed credit unions.
Further, repeated post-Call Report
questionnaires, ninety-day monitoring,
and duplicative information requests
should be limited to situations where
there is a clear risk-based need.
The ongoing review of the C A M E
L S rating system presents another
opportunity to make important changes.
The Federal Financial Institutions
Examination Council's, or F F I E C's,
pending proposal would reduce the special
weight currently given to the Management
component, focus ratings more clearly
on material financial risk, and limit
the impact of specialty-review findings
that do not present material risk.
America's Credit Unions supports that
direction and has asked for clear
examiner guidance and consistent
implementation by both the N C U A
and state supervisory authorities.
There is also an increasing disparity
between the examination standards
for banks and credit unions.
In August, the Office of the Comptroller
of the Currency, or O C C, and the
Federal Deposit Insurance Corporation,
or F D I C, finalized a rule, effective
November second, establishing clearer
standards for unsafe or unsound practices
and formal examination findings, with
an emphasis on material financial risk
and violations of law or regulation.
We have urged the N C U A to provide
comparable clarity for credit unions.
Specifically, we request the N C U A
issue guidance and undertake rulemaking
analogous to, first, the O C C's new
approach to examination frequency
and scope for community banks, and
second, the joint O C C and F D I
C rule defining unsafe or unsound
practice and revising the framework
for Matters Requiring Attention.
These initiatives by the banking
regulators are designed to reduce
unnecessary regulatory burden and ensure
supervisory focus on material risks.
As such, we urge the N
C U A to follow suit.
Number three, field of membership,
chartering, and credit union growth.
A strong and competitive federal
charter is essential to the long-term
health of the credit union system.
Credit unions need reasonable
opportunities to grow, diversify
their membership, and reach consumers
who would benefit from access to
cooperative financial services.
This is particularly important as state
charters continue to evolve and technology
changes where and how consumers interact
with their financial institutions.
The federal charter needs to
keep pace with changes in how
consumers access financial services.
We urge the N C U A to continue using its
existing authority to remove nonstatutory
barriers to field of membership growth and
make the federal charter more competitive.
This includes simplifying field of
membership applications, improving
the speed and predictability of
agency decisions, expanding workable
options for serving underserved
communities, and better recognizing
digital delivery channels.
The N C U A's pending associational
common bond proposal is a good example
of this approach because it would
eliminate an automatic barrier for
certain associations and instead allow
eligibility to be evaluated based
on the circumstances of the group.
America's Credit Unions supports
the proposal and has asked the N C
U A to provide clear examples and
guidance in the final rule so the
new standard is applied consistently.
Chartering of new credit unions
is also a critical issue area.
We appreciate your continued focus on de
novo chartering and the N C U A's recent
efforts to improve the process, including
the provisional charter pilot program and
the launch of the first phase of its new
chartering system, which allows organizing
groups to obtain preliminary approval of
their proposed field of membership before
completing a full charter application.
We are further encouraged by the agency's
intent to achieve a fully automated
chartering system in twenty twenty-seven.
These are important improvements,
particularly because organizers often
must spend significant time and money
before knowing whether a proposed
field of membership will be accepted.
However, we believe there is more
that can be done in this space.
In July, America's Credit Unions provided
the N C U A with detailed recommendations
addressing the chartering process
itself, early capital and liquidity
challenges, support for newly chartered
institutions, and better data to identify
where de novo efforts encounter problems.
The goal should not simply
be to approve more charters.
Newly chartered credit unions also
need a realistic path to obtain capital
and liquidity, begin operations, and
become sustainable credit unions.
Number four, innovation,
fintech investment authority,
and stablecoin implementation.
Credit unions must be able to
compete and innovate in a financial
services marketplace that is
increasingly driven by technology.
We appreciate your continued focus
on innovation and your recognition
that, as stablecoins, digital assets,
artificial intelligence, and other
technologies evolve, credit unions
need clear guidance and sufficient
flexibility to safely provide the modern
financial services members expect.
Ensuring credit unions have access
to these technologies should be
an important part of that effort.
One longstanding challenge is the limited
ability of federal credit unions to
invest directly in fintech companies.
Existing rules generally force these
investments through a credit union
service organization, or C U S O,
where federal credit unions are subject
to an aggregate investment limit.
That approach works well for many
traditional C U S O s but can make it
difficult for credit unions to invest
in newer technology providers alongside
banks and other market participants.
We urge the N C U A to modernize
its investment rule to permit
appropriately limited investments in
fintech companies providing services
associated with the routine operations
of credit unions, subject to reasonable
safety-and-soundness protections.
Implementation of the GENIUS Act
is another immediate opportunity to
ensure credit unions are not placed
at a competitive disadvantage.
The N C U A has issued proposals
addressing licensing of permitted
payment stablecoin issuers, or P P S
I s, operational and risk-management
standards, reserves, capital, redemptions,
custody, and related requirements.
America's Credit Unions has urged the
agency to preserve flexible structures
for credit union participation, avoid
unnecessarily requiring all permissible
stablecoin activity to fit within existing
C U S O rules, clarify the treatment
of reserve assets under the C U S O
investment limit, and ensure that final
rules account for the unique structure
of credit union shares and capital.
The final rules should also provide
clear treatment of tokenized credit union
shares, reasonable flexibility when fraud
is suspected during a redemption request,
and parity between credit union share
accounts and bank deposits where the
GENIUS Act requires comparable treatment.
Treasury and other federal regulators
are also working to implement the
GENIUS Act, making coordination
important as the rules are finalized.
We encourage the N C U A to give credit
unions a clear and workable path to adopt
new technologies while maintaining safety
and soundness and remaining competitive
with banks and nonbank providers.
Number five, B S A, A M L,
and C F T modernization.
America's Credit Unions strongly
supports effective efforts to combat
money laundering, terrorist financing,
fraud, and other illicit finance.
Credit unions devote significant
resources to these responsibilities
and understand their importance to
law enforcement and national security.
At the same time, the current Bank
Secrecy Act, or B S A, framework often
requires substantial resources to be
spent on routine filings and technical
compliance rather than on the activity
that presents the greatest risk.
We appreciate your recognition that
B S A supervision is an area where
the N C U A can move away from a
check-the-box approach and focus more
directly on the risks and activities
that warrant the greatest attention.
The regulatory environment is currently
moving in a positive direction.
In April, FinCEN issued a new
anti-money laundering and countering
the financing of terrorism, or A
M L and C F T, program proposal
intended to shift the framework toward
effectiveness and higher-risk activity.
The N C U A, O C C, and F D I C
issued a parallel proposal for
the institutions they supervise.
The proposals would give credit
unions more flexibility in managing
their A M L and C F T programs
and limit significant supervisory
action for problems implementing
a properly established program to
significant or systemic failures.
We urge the N C U A to ensure
these changes lead to meaningful
improvements in examination practices,
not just changes to the regulations.
An isolated technical deficiency
should not automatically be treated
as evidence that a credit union's A
M L and C F T program is ineffective.
Examiners should respect reasonable,
documented, risk-based decisions and
should not substitute their own preferred
methodology where a credit union has an
effective program appropriate to its size,
complexity, membership, and risk profile.
Clear examiner training will be
particularly important for smaller
credit unions, which do not have the
compliance staffing or resources of the
nation's largest financial institutions.
There is also a broader need to
modernize the reporting system itself.
America's Credit Unions has urged FinCEN
to simplify and update the suspicious
activity report, or S A R, and currency
transaction report, or C T R, forms
and filing processes, including by
eliminating redundant or low-value
data fields, clarifying confusing
requirements, and allowing greater
use of standardized or streamlined
reporting for routine activity.
According to a recent America's
Credit Unions member survey, most
respondents file more than one thousand
S A R s and C T R s annually and
spend approximately seven hundred
hours preparing these reports.
Respondents reported a median of
twenty minutes to complete a C T R,
more than double FinCEN's estimate.
We have also encouraged FinCEN to consider
simplified reporting options for certain
lower-risk transactions and greater
flexibility for smaller institutions.
These changes would reduce unnecessary
compliance burdens while improving
the quality and usefulness of the
information provided to law enforcement.
We continue to support increasing the C
T R threshold to thirty thousand dollars
and the relevant S A R threshold to ten
thousand dollars, with periodic inflation
adjustments, along with simplifying
forms and filing processes and improving
feedback to reporting institutions.
Number six, N C U A budget
restraint and reorganization.
America's Credit Unions appreciates
the significant steps the N C U A has
taken over the past year to reduce
agency costs and improve efficiency.
The twenty twenty-six combined budget
is nearly eighty million dollars below
twenty twenty-five levels, authorized
staffing has been reduced by two
hundred eighty-eight positions, and
federal credit union operating fees
are down roughly twenty-five percent.
As we detailed in a previous letter
to the agency, the N C U A's ongoing
reorganization provides an opportunity
to build a leaner and more risk-focused
agency, rather than simply operate
the same way with fewer employees.
Examiner time and agency resources should
be concentrated on credit unions and
activities presenting the greatest risk,
while healthy, lower-risk credit unions
should benefit from longer examination
cycles, greater use of off-site analytics,
and appropriately tailored supervision.
As the agency evaluates where workforce
reductions have created challenges,
it should also identify functions
that can be reduced, consolidated,
or handled differently without
weakening safety and soundness.
The reorganization should
also improve accountability
and service to credit unions.
We encourage the N C U A to continue
incorporating stakeholder feedback
as the new structure is implemented
and to establish clear measures
for important agency processes,
including examination timeliness and
responsiveness to credit union inquiries.
Regularly assessing whether the
reorganization is producing the intended
efficiencies will help ensure that
changes translate into better supervision
rather than simply a smaller agency.
Budget discipline should continue
alongside these organizational changes.
Because the N C U A is funded by the
credit unions it regulates and insures,
expenditures should remain closely
tied to the agency's core mission.
The agency should continue looking
for savings through appropriate use
of off-site and hybrid examinations,
exercise restraint in administrative
and travel spending, and ensure that
major technology and capital investments
lead to measurable improvements
in efficiency and supervision.
Continued transparency around staffing,
contracts, capital projects, the Overhead
Transfer Rate, and other major costs
will also help credit unions understand
how their funds are being used.
The same discipline should apply
to the Share Insurance Fund.
America's Credit Unions continues to
support a normal operating level of one
point three zero percent and believes
decisions concerning the Fund should be
based on transparent, objective analysis
of expected losses and system conditions.
A strong Share Insurance Fund is
essential, but holding more credit union
capital in the Fund than is reasonably
necessary has a real cost because those
dollars come from the same retained
earnings credit unions rely on to maintain
capital, make loans, and serve members.
Number seven, continue
the Deregulation Project.
America's Credit Unions strongly supports
the N C U A's Deregulation Project and
appreciates the progress made so far.
The project has produced more than
thirty proposed rulemakings, and
the Board approved its first group
of eleven final rules in August.
This is an important start, but there
are still a number of pending proposals
as well as additional opportunities
to simplify or eliminate outdated and
unnecessarily burdensome requirements.
We appreciate your commitment to continue
the project and address some of the
more significant issues that remain.
We encourage the N C U A to complete
the pending rulemakings and move
beyond the initial changes to address
more complicated regulations that
limit credit unions' flexibility
or impose unnecessary costs.
We also encourage the agency to
continue working with the industry
to develop updates that provide
meaningful and lasting relief.
As the project continues, the N C U
A should look for opportunities to
give credit unions greater flexibility
in meeting regulatory requirements.
Rules should reflect a credit union's
size, complexity, activities, and risk
rather than requiring all institutions
to follow the same processes.
This is particularly important for
small credit unions, where even
relatively simple requirements
can impose significant costs.
Finally, the Deregulation Project
should become part of the N C U
A's regular approach to regulation
rather than a one-time exercise.
The agency should continue reviewing its
rules, considering their actual costs and
benefits, and seeking industry feedback
on areas where further changes are needed.
Again, congratulations on your
confirmation and designation as Chairman.
We look forward to working with you
on these and other issues affecting
credit unions and their members.
Should you or your office need
any additional information, please
do not hesitate to contact me or
America's Credit Unions' Head of
Regulatory Advocacy, James Akin.
Sincerely, Scott F.
Simpson, President and C E O.
The letter includes an appendix
of additional regulatory
and supervisory priorities.
Appendix item one, C I S A
cyber incident reporting.
America's Credit Unions supports
appropriately tailored cybersecurity
standards and maintains that credit
unions should qualify for the
substantially similar reporting
exception, which would eliminate
redundant reporting requirements.
The N C U A already implements the
technical safeguards requirements of
the Gramm-Leach-Bliley Act, or G L B A,
which overlap with the Cyber Incident
Reporting for Critical Infrastructure
Act's, or C I R C I A's, reporting of
substantial cyber incidents, making such
C I R C I A requirements duplicative.
Eliminating duplicative requirements
would allow credit unions to focus
on investigating and containing
attacks rather than preparing multiple
reports covering the same event.
America's Credit Unions urged the N
C U A to make conforming amendments
to its regulations to ensure that
credit unions qualify for C I R C I
A's substantially similar reporting
exception and that the Cybersecurity and
Infrastructure Security Agency, or C I S
A, should broadly apply this exception.
The N C U A acknowledged in the preamble
of its rulemaking on Cyber Incident
Notification Requirements for Federally
Insured Credit Unions its efforts to align
its cyber incident reporting requirements
with C I R C I A requirements to provide
uniform reporting between agencies.
Appendix item two, the
Central Liquidity Facility.
America's Credit Unions recommends
that the N C U A shorten the Central
Liquidity Facility's, or C L F's,
approval timelines, reinforce that a
credit union's use of the C L F carries
no stigma, and support legislation that
would permanently restore the C L F
enhancements enacted in the CARES Act,
including the authority of corporate
credit unions to act as agent members.
These enhancements, which expired at
the end of twenty twenty-one, permitted
corporate credit unions acting as agents
to purchase C L F stock on behalf of a
subset of their member credit unions,
which reduced the cost of agent membership
and extended C L F access to credit
unions that had not joined individually.
As of October twenty twenty-one,
eighty-two percent of federally insured
credit unions had access to the C L F.
After the enhancements expired, as of
July thirty-first, twenty twenty-six,
the C L F had four hundred fifty-two
regular members, no agent members,
and statutory borrowing authority of
twenty-three point five billion dollars.
America's Credit Unions requests that
Chairman Crews support legislation
that would reinstate the CARES Act
enhancements to the C L F, such as the
C L F Enhancement Act introduced by
Senators Alex Padilla and Kevin Cramer.
Reinstating the enhancements would
expand the number of credit unions able
to obtain emergency liquidity from the
C L F during a period of market stress.
Appendix item three, third-party vendor
oversight and information sharing.
Credit unions manage third-party
risk under a well-developed
supervisory framework.
N C U A guidance has long required credit
unions to conduct risk assessment and
planning, due diligence, and ongoing risk
measurement, monitoring, and controls for
third-party relationships commensurate
with the credit union's size, complexity,
and risk profile, and the N C U A examines
credit unions' vendor management practices
as part of its regular supervision.
America's Credit Unions continues,
however, to strongly oppose granting
the N C U A direct examination
and supervision authority over
third-party vendors and C U S O s.
Our longstanding position, expressed
repeatedly in letters to Congress,
is that the N C U A should direct
its focus where its expertise lies,
which is regulating credit unions.
Credit unions fund the N C U A's budget
and implementing vendor examination
authority would require the agency
to hire examiners with technology
expertise it does not currently possess.
Credit unions and their members would
ultimately bear those costs, which
is why we oppose broad grants of
vendor supervision authority that are
designed to replicate the language
of the Bank Service Company Act.
The N C U A may be able to obtain
high-impact information concerning
the most widely used vendors from
other federal banking regulators
who conduct joint examinations of
large technology service providers.
The major core providers serving
credit unions are subject to existing
interagency examination processes.
Removing barriers to interagency
information sharing would be
a more cost-effective way of
enhancing the N C U A's supervisory
insights concerning third parties.
Appendix item four, supervisory
committee audits and verifications.
As part of its Deregulation Project,
the N C U A proposed amendments to its
supervisory committee audit rule to reduce
regulatory burdens by removing redundant
and overly prescriptive provisions.
In our February ninth, twenty twenty-six,
letter to the N C U A, we supported
the Board's proposed changes to amend
the definition of internal control
so that it would no longer include
a list of five specific components
of an internal control structure.
We have also asked that the N C
U A consider updating outdated
terminology in that rule to clarify
that account verification may be
conducted using electronic and
system-based methods to accommodate
the modern ways credit unions maintain
and provide access to information.
Appendix item five, safeguarding
member information and
unauthorized access guidance.
Appendixes A and B of the N C U A's
security program rule currently serve
as the primary regulatory text used
to describe the recommended design
of credit union information security
programs, including policies addressing
unauthorized access to member information.
While this guidance is helpful to
credit unions, we recommend the N
C U A better delineate statutorily
required compliance elements, that
is, the safeguard provisions found
in the G L B A, from those that are
offered as guidance or best practices
to eliminate confusion and provide
credit unions with greater flexibility.
We agree with the N C U A's deregulatory
proposals to remove Appendix A and
B from the agency's Code of Federal
Regulations and reissue their respective
contents as Letters to Credit Unions.
As mentioned in a previous letter to
the N C U A, the nonbinding nature of
guidance can present advantages, allowing
the N C U A to update guidance without
a notice-and-comment rulemaking process.
However, we would caution against
an approach that invites frequent
revisions to the reissued text,
notwithstanding its status as guidance.
Changes that involve granular
descriptions of security controls
could place additional burdens on
credit unions or create confusion
regarding supervisory expectations.
Appendix item six, succession planning.
America's Credit Unions recommends
that the Board rescind the Succession
Planning Final Rule and repropose a
revised, guidance-based framework.
Although the final rule requires
succession plans to be commensurate with
each credit union's size, complexity, and
risk profile, a universal mandate imposes
a generic approach that may provide
little value to some credit unions.
Credit unions would be better served
if the Board reissued the rule's
provisions as nonbinding guidance,
consistent with the approach of
the federal banking regulators.
Appendix item seven,
fidelity bond requirements.
One of the most problematic requirements
in the fidelity bond and insurance
coverage rule is the mandate that board
members personally sign fidelity bond
renewal and related documentation.
The N C U A should modernize
these provisions by focusing
on substantive oversight rather
than procedural formalities.
For example, in lieu of individual
board signatures, the agency could
require that the board receive a
summary of coverage, limits, and any
material changes at the time of renewal.
At a minimum, credit unions should
be permitted to delegate bond
review and renewal responsibilities
to management, the supervisory
committee, or another appropriate
body, subject to board oversight.
Appendix item eight, small
credit union examination relief
and supervisory due process.
America's Credit Unions has concerns
about several examination practices
that fall most heavily on small
credit unions and recommends that
the N C U A provide relief from them.
Small credit union members frequently
report that the N C U A assigns large
numbers of newly hired examiners
to examinations of small credit
unions for training purposes.
Each examiner submits document requests
and questions to credit union staff, and
at a small credit union the employees
who answer those requests are the same
employees who serve members, so each hour
spent responding to trainee examiners
is an hour taken from member service.
We have further received reports
that examinations of small credit
unions often last longer and review
more matters unrelated to safety and
soundness than the credit union's
size and risk profile warrant.
America's Credit Unions recommends
that the N C U A limit the number
of trainee examiners assigned to any
small credit union examination, set
expectations for the length and staffing
of small credit union examinations
based on asset size and risk, and
limit examination scope to matters
that bear on safety and soundness or on
compliance with statute or regulation.
Additionally, member credit unions
report that N C U A examiners often
press credit unions to exceed what
statute and regulation require by
rejecting simple in-house methods of
meeting a requirement and urging credit
unions to retain costly third-party
vendors, auditors, or consultants.
Examiners also cite guidance, examination
manuals, or other nonbinding sources as
the basis for findings, although the N
C U A's rule on the role of supervisory
guidance provides that guidance does not
have the force and effect of law and that
the N C U A will not criticize a credit
union for failing to follow guidance.
Finally, members have raised concerns
with examiners pressuring credit unions
to hold net worth above the levels the
capital adequacy rule requires, which
leads credit unions to defer capital
expenditures that would serve members.
Each of these practices requires a
credit union to spend money or hold
capital beyond what the law requires,
and a small credit union's limited
income means that each dollar spent in
this way reduces the funds available
for member services by a larger
proportion than at a larger institution.
America's Credit Unions recommends that
the N C U A direct examiners to accept
any method that satisfies the applicable
requirement, base every finding on a
specific statute or regulation, and
refrain from pressing a credit union
to hold net worth above the capital
adequacy rule's levels unless the
examiner documents a specific safety and
soundness concern at that credit union.
Appendix item nine, Call Report
and data collection modernization.
America's Credit Unions recommends the
agency focus on reducing unnecessary
reporting burdens, improving clarity,
and enhancing consistency across the
Call Report and related instructions.
Specifically, we support eliminating
duplicative reporting requirements,
incorporating automation and materiality
thresholds to reduce manual data
entry, standardizing calculations
and reporting methodologies, and
aligning Call Report requirements
more closely with U S G A A P.
We also encourage the N C U A to provide
clearer guidance on several longstanding
interpretive issues, including loan
classifications, borrowing capacity,
C U S O-related reporting, pledged
assets, delinquency calculations,
and commercial loan reporting.
Appendix item ten, current
expected credit losses.
Current Expected Credit Losses,
or C E C L, compliance costs for
credit unions can result in strained
capital ratios and a potential
reduction in credit availability,
while providing little benefit.
America's Credit Unions also notes
that C E C L implementation costs are
burdensome for credit unions because
many credit unions lack the resources to
purchase third-party C E C L solutions.
Broader access to the N C U A C E C
L Tool would aid in reducing costs.
The N C U A addressed some of these
concerns through clarifying that the C
E C L Tool was available to a broader
range of credit union asset sizes.
Notably, in line with America's Credit
Unions' recommendation, the N C U
A adopted guidance recognizing the
permissibility of independent internal
validation of C E C L methodologies.
Appendix item eleven, loan participations.
Many credit unions express confusion
regarding the limitations and
requirements on loan participations.
Further clarifications could increase
credit union understanding around
topics including a description of
the rules that are to be followed to
purchase or sell a pool of loans; more
information on what constitutes empowered
to grant in the loan participation
rule; and additional information on
what happens if a credit union sells
its interest in a loan participation.
Additionally, America's Credit
Unions supports removing prescriptive
requirements around loan participations,
such as limits on the aggregate amount
of loan participations that can be
purchased by a single borrower or group
and limits on the aggregate amount of
loan participations that can be purchased
from any one originating lender.
Removing prescriptive requirements
promotes flexibility for credit unions
to balance risk according to the
best interest of their membership.
Appendix item twelve,
overdraft cure period.
At present, the N C U A provides that
a federal credit union can advance
money to a member to cover an account
deficit without having a credit
application on file if the credit union
has a written overdraft policy with a
maximum of forty-five days for a member
to either deposit funds or obtain an
approved loan to cover an overdraft.
America's Credit Unions supports
adjusting the N C U A's current
overdraft policy rule to allow credit
unions to replace the forty-five-day
cure period with a timeframe that is
reasonable and universally applicable.
Although the N C U A originally proposed
this change during the COVID-19 pandemic,
America's Credit Unions believes that
extending overdraft protection ultimately
protects consumers purchasing goods
and services in situations when payment
exceeds a consumer's available balance.
In our August twenty-first, twenty
twenty-four, letter to the N C U A,
we requested that the Board consider
the discrepancy between the N C U
A's forty-five-day timeframe and the
sixty-day allowance provided by G A A P.
Providing credit unions with the
flexibility to determine their own
overdraft timelines avoids operational
burdens and assists member relief.
Appendix item thirteen, field
of membership modernization.
The N C U A's field of membership
rules have a significant impact on
the growth prospects of federal credit
unions and have sometimes struggled
to keep pace with the evolving nature
of modern banking relationships.
The N C U A should consider changes
to its field of membership rules
that better accommodate consumers'
predominantly digital mode of
interaction with credit unions.
On January eleventh, twenty
twenty-one, the N C U A issued a
proposed rule seeking comment on
potential changes to the definition
of a service facility for multiple
common bond, or M C B, credit unions.
Under the Federal Credit Union Act, a
requirement for adding a group to an
M C B federal credit union is that the
credit union must be within reasonable
proximity to the location of the group
whenever practicable and consistent with
reasonable standards for the safe and
sound operation of the credit union.
The Chartering Manual interprets the
term reasonable proximity as requiring
the group to be within reasonable
geographic proximity of the credit union.
The Chartering Manual then explains
this means that the group must be
within the service area of one of the
credit union's service facilities.
The proposed rule sought comment on
whether a service facility should
be interpreted to include a website
or other online banking interface.
Although the N C U A ultimately did
not pursue any interpretive change
related to this question when it
finalized the proposal, it noted that
the Board is mindful of the increased
usage of digital banking platforms
by credit union members and will
continue to monitor the situation.
America's Credit Unions asks
that the agency once again invite
comment on this interpretive issue.
Appendix item fourteen,
membership eligibility
following the death of a member.
America's Credit Unions recommends
that the N C U A amend the Chartering
and Field of Membership Manual to make
every immediate family and household
member of a deceased member eligible for
membership, to broaden the definition
of immediate family to include a wider
range of legal and blood relatives,
and to make any person whom a member
designates as a payable-on-death or
in-trust-for beneficiary on the member's
share account eligible for membership,
with eligibility beginning when the
member makes the designation and
continuing after the member's death.
Under the current Manual, when a federal
credit union member dies, only the
member's spouse remains eligible for
membership, and any other immediate
family member becomes ineligible, even
if that family member was eligible
to join while the member was living.
The credit union may pay the deceased
member's funds to a designated
beneficiary, but a beneficiary who
is outside the field of membership
cannot open an account at the credit
union, so the beneficiary must
withdraw the funds and deposit them
at another institution, most often an
institution other than a credit union.
The volume of these outflows will
increase as credit union members age:
Cerulli Associates projects one hundred
twenty-four trillion dollars in wealth
transfers through twenty forty-eight,
of which one hundred five trillion
dollars is projected to pass to heirs.
In twenty twenty-three, the N C U A
proposed to make every member of a
decedent's immediate family and household
eligible for membership for six months
following the decedent's death, but the
N C U A has not finalized that proposal.
Making beneficiaries eligible at the
time of designation would allow a
beneficiary to join while the member
is living, which would remove the
need for a grieving family member
to complete a membership application
within a fixed period after the death.
Each of these changes would be limited to
persons who have a family, household, or
designated relationship with an existing
member, and would permit credit unions to
retain funds that are already on deposit.
Appendix item fifteen,
fintech investment authority.
Credit unions face growing competitive
and operational challenges from two
major sources: first, restrictive
investment authorities that limit
their ability to acquire meaningful
ownership interests in technology
service providers; and second, increasing
concentration among core vendors.
Current N C U A regulations cap C
U S O investments at one percent
of a federal credit union's
paid-in and unimpaired capital and
surplus, while state investment
limits vary for state-chartered,
federally insured credit unions.
We have noted that the federal limit
restricts federal credit unions' ability
to guide development of innovative
technologies that encompass cybersecurity
tools, lending platforms, and emerging
digital asset services compared
to banks and nonbank competitors.
As just one example of how the
investment cap limits potential
credit union innovation, the N C
U A has recently grappled with its
effect on how the operations of an
N C U A-Licensed P P S I are funded.
Because the GENIUS Act limits federal
credit union stablecoin issuance to
subsidiary P P S I s, a credit union's
capitalization of the P P S I with
adequate reserves is potentially subject
to the one percent threshold, restricting
federal credit union participation.
In twenty twenty-four, America's Credit
Unions and the National Association
of Credit Union Service Organizations,
or N A C U S O, recommended that the
N C U A revise its investment rule to
allow additional types of investment
in fintech vendors outside the C U S O
investment limits in the C U S O rule.
The Federal Credit Union Act permits
investments in organizations that
provide services related to the
routine operations of credit unions.
Innovative fintech services,
including automated underwriting,
digital accounts, and artificial
intelligence, could fall within the
permitted routine operations category.
N C U A action to clearly authorize
investments in these types of routine
services, independent of the C U S O
investment limit, would help balance
the competitive disparity that currently
exists between credit unions and
other financial services providers.
Appendix item sixteen, Home Mortgage
Disclosure Act reporting threshold.
America's Credit Unions has urged the
Consumer Financial Protection Bureau,
or C F P B, to reopen its rulemaking
to reassess the institutional coverage
threshold for closed-end mortgage loans.
We believe the current twenty-five-loan
threshold is not suited to the
operational realities of small lenders
and poses significant compliance
costs that are difficult to absorb
and ultimately limit a credit union's
capacity to serve its members.
We have requested that the C F
P B increase the closed-end Home
Mortgage Disclosure Act, or H M D A,
reporting threshold to at least five
hundred loans and have encouraged
the Bureau to seek targeted industry
input on potential adjustments.
While we recognize that the N C U A does
not have independent authority on H M D
A rulemaking, we request that the N C U
A work with the C F P B to take action
to increase the reporting threshold in
alignment with our previous requests.
Appendix item seventeen,
advertising and digital delivery.
As part of its broader deregulation
initiative, the N C U A Board has
issued a proposed rule to streamline
its advertising and notice of insured
status rule by eliminating the section
that contains the requirement for
the official advertising statement,
and revising the rule's scope
section to remove related references.
America's Credit Unions supports
the elimination of the official
advertising statement requirement,
and removing this requirement will
provide additional flexibility,
while preserving the core safeguards
that protect credit union member
awareness of federal share insurance.
Appendix item eighteen, a floating federal
credit union interest rate ceiling.
America's Credit Unions recommends
that the N C U A Board replace the
fixed eighteen percent loan interest
rate ceiling with a floating ceiling
that adjusts automatically with market
interest rates, such as a ceiling set
at a fixed spread above the prime rate.
The Federal Credit Union Act limits
federal credit unions to a fifteen
percent interest rate ceiling unless
the N C U A Board establishes a
higher rate after considering certain
statutory criteria, and the Board
must reconsider that determination
at least every eighteen months.
The ceiling has remained at
eighteen percent since May nineteen
eighty-seven, and the Board has voted
twenty-four times to maintain it.
Because a fixed ceiling does not change
when market rates rise, an increase in
the prime rate and in credit unions'
cost of funds narrows the difference
between what a credit union pays for funds
and the most it may charge on a loan.
When that difference narrows, a credit
union cannot price a loan to a higher-risk
borrower to cover the credit union's
cost of funds and expected losses
without exceeding the ceiling, so the
credit union declines the loan, and the
borrower obtains credit from lenders
that are more costly and less regulated.
As of September thirtieth, twenty
twenty-five, seventy-six percent of
federal credit unions had issued loans
with interest rates above fifteen
percent, and those loans carried an
average interest rate of seventeen
point three zero percent, which
is close to the current ceiling.
A floating ceiling would rise and fall
with market rates, which would allow
federal credit unions to continue lending
to the same members in every interest
rate environment and would remove
the risk that the ceiling reverts to
fifteen percent if the Board does not
act before a temporary ceiling expires.
No fixed ceiling the N C U A could
set would permanently resolve the
problems that the Federal Credit Union
Act's fifteen percent rate creates for
federal credit unions and their members;
only a floating ceiling would do so.
If the Board does not adopt a floating
ceiling, America's Credit Unions requests
that the Board continue to maintain the
ceiling at no less than eighteen percent.
Appendix item nineteen, loan
compensation and commission requirements.
America's Credit Unions expressed support
for the N C U A's proposed rule to amend
the section of its lending rule that
limits credit union official and employee
compensation in connection with loans to
members and lines of credit to members.
However, we maintain that additional
clarity is needed in a few areas.
Specifically, the N C U A should provide
further guidance regarding the meaning
of unsafe or unsound compensation
practices, confirm that lending-related
metrics may be used as part of a balanced
performance framework without creating
supervisory concerns, and ensure that
incentive compensation arrangements
for senior management are evaluated
consistently across examinations.
We also support the agency's adoption
of a principles-based approach
but note that credit unions still
need clear guidance so they know
how it can and should be applied.
Finally, we urge the N C U A to establish
clear and consistent examiner expectations
and offer additional flexibility
regarding board oversight, internal
controls, and documentation requirements,
particularly for smaller credit unions.
Appendix item twenty,
nondiscrimination requirements.
America's Credit Unions supports
the N C U A's proposal to remove its
nondiscrimination rule, which includes
nondiscrimination requirements for loans
and appraisals; advertising, notices,
and logos related to nondiscrimination;
and guidelines for compliance with
the Fair Housing Act, or F H A.
While the Board's original intent
was to periodically update these
rules to keep up with changes to the
F H A, it has not been substantively
amended since two thousand one.
Reliance on outdated provisions
may inadvertently leave a credit
union noncompliant with current
nondiscrimination requirements
enumerated in the F H A, exposing the
credit union to examiner, supervisory,
or other adverse consequences.
Appendix item twenty-one, funding
and borrowing flexibility.
America's Credit Unions recommends
that the N C U A finalize two
proposals from the fourth round
of its Deregulation Project.
The first would remove the requirement
in the public unit and nonmember shares
provision that a credit union's board
adopt a written plan for the intended
use of public unit and nonmember shares
before the credit union receives those
shares if, together with any borrowings,
they would exceed seventy percent of
paid-in and unimpaired capital and
surplus, while leaving the aggregate
limits on those shares unchanged.
The second would remove the maximum
borrowing authority requirement in
the share insurance rules, which
limits aggregate borrowing from any
source to fifty percent of paid-in and
unimpaired capital and surplus as a
condition of federal share insurance.
For federal credit unions, that
requirement duplicates the statutory
borrowing limit in the Federal Credit
Union Act, which would continue to
apply, and for federally insured
state-chartered credit unions, it
imposes a federal borrowing limit in
addition to any limit set by state law.
America's Credit Unions supports
finalizing the public unit and nonmember
share proposal because a credit union
board that relies on these funding sources
already manages them through the credit
union's liquidity and asset-liability
management policies, which examiners
review, so the separate written plan
adds preparation time for credit union
staff and board members without adding
a safeguard that does not already exist.
Removing the requirement would allow
each board to manage public unit and
nonmember shares under its own policies
within the existing aggregate limits.
America's Credit Unions supports
finalizing the borrowing authority
proposal because removing that requirement
would eliminate a duplicative limit
and waiver process for federal credit
unions and would allow state law to
govern the borrowing authority of
state-chartered credit unions, consistent
with the dual chartering system,
without reducing safety and soundness.
Appendix item twenty-two,
catastrophic act reporting.
America's Credit Unions generally supports
the streamlining and modernization of
catastrophic act reporting requirements
for federally insured credit unions
because this would reduce compliance
burdens for credit unions and reallocate
these resources to disaster recovery.
We urge the N C U A to provide greater
flexibility around reporting deadlines
and eliminate duplicative reporting when
a cyber incident also qualifies as a
catastrophic act that already triggers
other N C U A reporting requirements.
Appendix item twenty-three, low-income
designation and C D R L F access.
The Community Development Revolving
Loan Fund, or C D R L F, application
process is burdensome for our members.
Streamlining the process by standardizing
documentation, providing clearer
guidance, and leveraging technology for
submissions and reporting would ensure
that resources flow more quickly to credit
unions best positioned to deploy them.
America's Credit Unions also
recommends that the agency adopt
other approaches for credit unions to
qualify for low-income designation.
For example, we support the N C U
A providing increased transparency
related to additional information and
resources our members may provide to
demonstrate their low-income designation.
We also suggest that the N C U A consider
a decrease in the current threshold for
qualifying as a low-income credit union.
Appendix item twenty-four,
member inspection rights.
America's Credit Unions supports
retaining the N C U A's member inspection
rights rule because it provides a
uniform framework for governing member
inspection rights and reduces uncertainty
that could arise from state laws that
would otherwise fill regulatory gaps.
However, we ask that the N C U
A modernize the rule to preserve
legitimate member oversight, while still
reducing opportunities for burdensome
or abusive inspection requests that
consume credit union bandwidth.
Notably, the N C U A released a legal
opinion letter, which states that credit
union members have inspection rights
that are similar to those available
to shareholders of a corporation.
Appendix item twenty-five, the Consumer
Assistance Center complaint process.
America's Credit Unions recommends the
N C U A introduce procedural guardrails
on the Consumer Assistance Center, or
C A C, intake process to mitigate the
growing volume of complaints driven by
artificial intelligence-generated search
results presenting federal complaint
channels as a first option and social
media content directing consumers
to bypass institutional solutions to
move straight to federal regulators.
In our May twenty-first, twenty
twenty-six, letter, we recommended that
the Board amend the C A C complaint form
to require the complainant to certify
that they have attempted to resolve the
matter directly with the credit union
and if no such attempt is documented,
return the complaint to the consumer
with instructions to engage the credit
union's consumer assistance function.
Further, we requested that the N C U
A update its public-facing materials,
including the C A C web pages and
any related consumer guides, to state
plainly that members are expected
to contact their credit union
directly before escalating a matter.
Appendix item twenty-six, commercial
member business lending modernization.
The N C U A's member business loan
rule incorporates the statutory cap
on the total amount of member business
loans a credit union may extend.
Many of the underwriting requirements
contained in that rule have not
kept pace with the development of
the small business lending market.
As a result, current
regulations are outdated.
America's Credit Unions urges the N
C U A to provide greater flexibility
for credit unions that underwrite
small dollar business loans.
Specifically, as we have previously
recommended, we request that the N C
U A amend the rule's definitions to
increase the threshold for net aggregate
business loans that are excluded
from the definition of a commercial
loan from fifty thousand dollars to
two hundred fifty thousand dollars.
Appendix item twenty-seven,
appraisal modernization.
Consistent with our prior recommendations
related to the Executive Order, Promoting
Access to Mortgage Credit, America's
Credit Unions encourages the agency to
ensure that its appraisal requirements
remain aligned with those of the
federal banking and housing regulators.
We also encourage the N C U A to
revisit its implementation of automated
valuation model, or A V M, requirements.
The N C U A's appraisal rule requires
A V M s used in covered transactions
to comply with quality control
standards designed to address risks
such as inaccuracy and discrimination.
However, credit unions typically do not
design, develop, or control A V M s and
instead rely on third-party vendors that
are responsible for the underlying models.
Accordingly, the N C U A should
calibrate its requirements to ensure
that compliance obligations are
appropriately allocated to the entities
that develop and control A V M s.
Appendix item twenty-eight,
unsafe or unsound practices.
America's Credit Unions recommends that
the N C U A adopt a regulatory definition
of unsafe or unsound practice for
purposes of the enforcement provisions
of the Federal Credit Union Act and a
standard for documents of resolution and
other examination findings, comparable
to the final rule that the O C C and
the F D I C jointly adopted on August
twenty-seventh, twenty twenty-six.
That rule defines unsafe or
unsound practice for purposes of
the enforcement provisions of the
Federal Deposit Insurance Act, sets a
uniform standard for issuing matters
requiring attention, and takes effect
November second, twenty twenty-six.
Under the rule, an unsafe or unsound
practice includes a practice, act, or
failure to act that, if continued, is
likely to negatively affect a bank's
ability to avoid receivership and
present a material risk of loss to the
Deposit Insurance Fund, and the risk
that a practice will materially harm
an institution's financial condition
must be more than speculative or merely
possible before the agencies may issue
a supervisory criticism on that basis.
After reviewing its outstanding
supervisory criticisms against the
new standard, the F D I C concluded
that a large majority did not
meet it and would be closed out.
The N C U A has not adopted a comparable
definition or standard, so N C U A
examiners may continue to issue findings
against credit unions for practices that
present no material risk to a credit
union's financial condition or to the
National Credit Union Share Insurance
Fund, including findings that the O
C C and F D I C could no longer issue
against a bank for the same practice.
Each such finding requires a credit
union to devote staff time and
money to a corrective action, and
credit unions would bear those
costs while competing banks do not.
Adopting a comparable standard would
direct examiner attention and credit
union resources to practices that
present material financial risk
and would give credit unions the
same clarity about what conduct may
support a supervisory criticism or
enforcement action that banks now have.
Appendix item twenty-nine, loan
participation prepayment penalties.
For many years, the N C U A has
permitted federal credit unions
to participate in loans containing
prepayment penalties but requires the
credit union to forgo its share of any
penalty and have that amount forgiven.
This can create problems when a
federal credit union participates in
a commercial loan originated by a bank
or state-chartered credit union that is
allowed to charge a prepayment penalty.
We ask the N C U A to revisit this
longstanding interpretation and consider
allowing more flexibility when the
federal credit union is a participant
rather than the originating lender.
This concludes the document.
If your credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and
we thank you for listening.