Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

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Hello, this is Samantha Shares. This episode covers N C U A’s authority to Involuntarily Liquidate a Credit Union.

 
The following is an audio version of N.C.U.A.’s Liquidation authorities.    This podcast is educational and is not legal advice.  We are sponsored by Credit Union Exam Solutions Incorporated, whose team has over two hundred and Forty years of National Credit Union  Administration experience.  We assist our clients with N C U A so they save time and money.  If you are worried about a recent, upcoming or in process N C U A examination, reach out to learn how they can assist at Mark Treichel DOT COM.  Also check out our other podcast called With Flying Colors where we provide tips on how to achieve success with N C U A.
 
And now liquidations.

 

INVOLUNTARY  LIQUIDATIONS


1.     What is the purpose of this chapter?

This chapter provides guidance in processing involuntary liquidations.
 


2.    What are the types of involuntary liquidations?

a.     Title I involuntary

 
Undersection120 of the FCU Act, 12 U.S.C. section1766, the NCUA Board can place a solvent federal credit union into involuntary liquidation for violations of its charter, its bylaws, the FCU Act, or the NCUA Rules and Regulations. Also, under section120, 12 U.S.C. section1766, the NCUA Board can place a federal credit union into involuntary liquidation upon finding that the board or liquidating agent did not conduct a voluntary liquidation in an orderly or efficient manner or in the best interests of the members.
 
The rules and regulations relating to these administrative proceedings are contained in NCUA Rules and Regulations section747, Subpart E. The effect of this action is the elimination of a federal credit union as a legal entity after due process provided for by section120(b) of the FCU Act, 12 U.S.C. section1766, and Part 747, Subpart E, of the NCUA Rules and Regulations. It is the most drastic enforcement action that can be taken against a solvent federal credit union.
 
Since Title I liquidation is not a commonly used administrative action, examiner involvement will differ from case-to-case.

b.    Title II involuntary

 
Section 207 of the FCU Act, 12 U.S.C. section1787, requires the NCUA Board to close for liquidation any federal credit union it deems bankrupt or insolvent. In these cases, the NCUA Board must also appoint itself as liquidating agent. In addition, the NCUA



Board can accept appointment as liquidating agent of a bankrupt or insolvent federally-insured, state-chartered credit union.

c.     Purchase and assumption

 
A purchase and assumption (P&A) is an action similar to a merger, but unlike a merger the NCUA Board places the credit union into involuntary liquidation first. In a P&A, another credit union or another financial institution assumes all or part of the assets, liabilities, and shares.
 

 
3.    What are the goals for an involuntary liquidation?

The primary goals of an involuntary liquidation are:

 
►   Prompt return of members' shares.

►   Payment to the creditors.
►   Disposition of the remaining assets to the NCUSIF.
 
 
 

 

4.    What are the grounds for an involuntary liquidation of an insolvent credit union pursuant to section207 of FCU Act?

The grounds for this most severe action is insolvency or bankruptcy as defined in
section700.2(e) of NCUA Rules and Regulations.

 
For a liquidation pursuant to section207, 12 U.S.C. 1787, of the FCU Act, the credit union has no right to a pre-closure administrative hearing. The federal credit union's charter is immediately revoked and the credit union is placed into involuntary liquidation. The credit union may, however, challenge the action in U.S. District Court within 10 days. It is critical, therefore, that the finding of insolvency be based upon tangible evidence and indisputable circumstances using the most current information available.
 
The examiner prepares a supplemental memorandum for the liquidation package that contains all significant data to support the recommended action, including an analysis of the various exceptions to insolvency set forth in section700.2(e) of the regulations. It is imperative that the administrative record adequately supports insolvency. The examiner must be prepared to testify in court to establish the reasonableness of the insolvency calculation. For this reason, involuntary liquidations require the concurrence of the Office of General Counsel to ensure that the liquidation package is legally sufficient.



A Notice of Revocation of Charter and Involuntary Liquidation and Appointment of a Liquidating Agent will be served on the federal credit union. The order is effective immediately upon service, and all assets, books and records of the credit union immediately become the property of the NCUA. Agents for the Liquidating Agent will be appointed as provided in section207(a) of the FCU Act, 12 U.S.C. section1787.
 

 
5.     What are the grounds for an involuntary liquidation of a solvent credit union?

Pursuant to the authority in section120(b)(1) of the FCU Act, 12 U.S.C. section1766(b)(1), the NCUA Board may suspend or revoke the charter of a federal credit union that has violated any provision of its charter, its bylaws, the FCU Act, or NCUA regulations. This type of action may also be taken for reasons of bankruptcy, but generally liquidation of insolvent credit unions are initiated under section207 of the FCU Act, 12 U.S.C. section1787.
Examples of conditions that may warrant recommending revocation of charter in a solvent credit union include:

►   Abandonment of the credit union's operations and affairs by the officials.

►   Plant closing and officials refusing to vote to present the question of liquidation to the members. Such plant closing may force insolvency under the concept of an ongoing concern, or may cause a dissipation of the assets and expose the creditors and the NCUSIF to a greater than normal risk.

►   Other specific serious violations of its charter, its bylaws, the FCU Act, or regulations that cannot be reversed and that may cause insolvency.

►   Serious operational deficiencies that the officials have not acted to correct and which, if allowed to continue, may cause insolvency.

 
Abandonment shall be deemed to have occurred when all or most of the elected and the appointed officials have demonstrated by their actions, or failure to act, an intent to end operations. Proof is evidenced when an active quorum cannot or will not be formed by the remaining officials.
 
The examiner recommends a Notice of Intent to Revoke Charter whenever the timeframe for due process will not create a greater risk of loss to the members, the creditors, and the NCUSIF than exists at the time of the recommendation. The examiner should be aware that the credit union will continue to conduct business during the effective time of this notice.
 
The examiner determines whether or not a greater risk for loss exists by allowing the credit union to conduct business in the interim based on the conditions and the circumstances in each case. However, if a greater risk for loss is likely to exist, a recommendation for conservatorship or a Notice of Suspension of Charter and Intent to Revoke Charter and Place Into Involuntary Liquidation may be appropriate.



The credit union has 40 days from the date the Notice of Intent is served to:

 
►    File a written statement with NCUA setting forth the reasons why it should not be placed into involuntary liquidation; or

►   In lieu of a written statement, request that an oral hearing be conducted in accordance with Part 747 of the NCUA Rules and Regulations; or

►   Consent to the Notice by resolution of its board of directors.

 
The written statement, request for an oral hearing, or consent must be accompanied by a certified copy of a resolution by the board, signed by the president and the secretary authorizing such statement, request, or consent.

 
At the time of delivery of the Notice, the examiner advises the officials of their options and of the timeframes in which their options must be exercised. The examiner makes it known to the officials that if the credit union fails to exercise any of its alternatives as provided in the NCUA Rules and Regulations within the prescribed timeframes, it will be deemed to have consented to the action being sought by NCUA.
 

 

6.     What is involved in an involuntary liquidation of a state-chartered federally insured credit union?

When the appropriate state authority declares an insured state credit union insolvent or bankrupt, the state usually appoints the NCUA Board as liquidating agent, receiver, or conservator. Under delegated authority, the president of AMAC becomes the liquidating agent in these cases.
 
See Chapter 5 of this Manual, Administering PCA Directives and Related Actions, for guidance in placing a FISCU into liquidation under PCA.
 
 
This concludes the NCUA liquidation authorities.  
 
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.
 
 
 
 


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What is Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC?

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 N C U A’s authority
to Involuntarily Liquidate a Credit Union.

The following is an audio version of
N.C.U.A.’s Liquidation authorities.

This podcast is educational
and is not legal advice.

We are sponsored by Credit Union
Exam Solutions Incorporated, whose

team has over two hundred and
Forty years of National Credit

Union Administration experience.

We assist our clients with N C
U A so they save time and money.

If you are worried about a recent,
upcoming or in process N C U A

examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

Also check out our other podcast called
With Flying Colors where we provide tips

on how to achieve success with N C U A.

And now liquidations.

1.

What is the purpose of this chapter?

This chapter provides guidance in
processing involuntary liquidations.

2.

What are the types of
involuntary liquidations?

a.

Title I involuntary

Undersection120 of the FCU Act, 12 U.S.C.

section1766, the NCUA Board can place
a solvent federal credit union into

involuntary liquidation for violations
of its charter, its bylaws, the FCU

Act, or the NCUA Rules and Regulations.

Also, under section120, 12 U.S.C.

section1766, the NCUA Board can place
a federal credit union into involuntary

liquidation upon finding that the
board or liquidating agent did not

conduct a voluntary liquidation in
an orderly or efficient manner or in

the best interests of the members.

The rules and regulations relating
to these administrative proceedings

are contained in NCUA Rules and
Regulations section747, Subpart E.

The effect of this action is the
elimination of a federal credit

union as a legal entity after due
process provided for by section120(b)

of the FCU Act, 12 U.S.C.

section1766, and Part 747, Subpart
E, of the NCUA Rules and Regulations.

It is the most drastic enforcement
action that can be taken against

a solvent federal credit union.

Since Title I liquidation is not
a commonly used administrative

action, examiner involvement
will differ from case-to-case.

b.

Title II involuntary

Section 207 of the FCU Act, 12 U.S.C.

section1787, requires the NCUA Board to
close for liquidation any federal credit

union it deems bankrupt or insolvent.

In these cases, the NCUA Board must also
appoint itself as liquidating agent.

In addition, the NCUA

Board can accept appointment as
liquidating agent of a bankrupt

or insolvent federally-insured,
state-chartered credit union.

c.

Purchase and assumption

A purchase and assumption (P&A) is an
action similar to a merger, but unlike a

merger the NCUA Board places the credit
union into involuntary liquidation first.

In a P&A, another credit union or another
financial institution assumes all or part

of the assets, liabilities, and shares.

3.

What are the goals for an
involuntary liquidation?

The primary goals of an
involuntary liquidation are:

► Prompt return of members' shares.

► Payment to the creditors.

► Disposition of the remaining
assets to the NCUSIF.

4.

What are the grounds for an involuntary
liquidation of an insolvent credit

union pursuant to section207 of FCU Act?

The grounds for this most severe action
is insolvency or bankruptcy as defined in

section700.2(e) of NCUA
Rules and Regulations.

For a liquidation pursuant
to section207, 12 U.S.C.

1787, of the FCU Act, the
credit union has no right to a

pre-closure administrative hearing.

The federal credit union's charter is
immediately revoked and the credit union

is placed into involuntary liquidation.

The credit union may, however,
challenge the action in U.S.

District Court within 10 days.

It is critical, therefore, that
the finding of insolvency be

based upon tangible evidence and
indisputable circumstances using the

most current information available.

The examiner prepares a supplemental
memorandum for the liquidation package

that contains all significant data
to support the recommended action,

including an analysis of the various
exceptions to insolvency set forth in

section700.2(e) of the regulations.

It is imperative that the administrative
record adequately supports insolvency.

The examiner must be prepared to testify
in court to establish the reasonableness

of the insolvency calculation.

For this reason, involuntary liquidations
require the concurrence of the Office

of General Counsel to ensure that the
liquidation package is legally sufficient.

A Notice of Revocation of Charter
and Involuntary Liquidation and

Appointment of a Liquidating Agent will
be served on the federal credit union.

The order is effective immediately
upon service, and all assets, books and

records of the credit union immediately
become the property of the NCUA.

Agents for the Liquidating Agent
will be appointed as provided in

section207(a) of the FCU Act, 12 U.S.C.

section1787.

5.

What are the grounds for an involuntary
liquidation of a solvent credit union?

Pursuant to the authority in
section120(b)(1) of the FCU Act, 12 U.S.C.

section1766(b)(1), the NCUA Board may
suspend or revoke the charter of a

federal credit union that has violated
any provision of its charter, its

bylaws, the FCU Act, or NCUA regulations.

This type of action may also be
taken for reasons of bankruptcy, but

generally liquidation of insolvent
credit unions are initiated under

section207 of the FCU Act, 12 U.S.C.

section1787.

Examples of conditions that may warrant
recommending revocation of charter

in a solvent credit union include:

► Abandonment of the credit union's
operations and affairs by the officials.

► Plant closing and officials refusing
to vote to present the question

of liquidation to the members.

Such plant closing may force insolvency
under the concept of an ongoing concern,

or may cause a dissipation of the
assets and expose the creditors and the

NCUSIF to a greater than normal risk.

► Other specific serious violations
of its charter, its bylaws, the FCU

Act, or regulations that cannot be
reversed and that may cause insolvency.

► Serious operational deficiencies
that the officials have not acted

to correct and which, if allowed
to continue, may cause insolvency.

Abandonment shall be deemed to have
occurred when all or most of the

elected and the appointed officials have
demonstrated by their actions, or failure

to act, an intent to end operations.

Proof is evidenced when an active
quorum cannot or will not be

formed by the remaining officials.

The examiner recommends a Notice of
Intent to Revoke Charter whenever the

timeframe for due process will not create
a greater risk of loss to the members,

the creditors, and the NCUSIF than
exists at the time of the recommendation.

The examiner should be aware that
the credit union will continue

to conduct business during the
effective time of this notice.

The examiner determines whether or not a
greater risk for loss exists by allowing

the credit union to conduct business
in the interim based on the conditions

and the circumstances in each case.

However, if a greater risk for loss
is likely to exist, a recommendation

for conservatorship or a Notice of
Suspension of Charter and Intent to

Revoke Charter and Place Into Involuntary
Liquidation may be appropriate.

The credit union has 40 days from the
date the Notice of Intent is served to:

► File a written statement with NCUA setting
forth the reasons why it should not be

placed into involuntary liquidation; or

► In lieu of a written statement,
request that an oral hearing be

conducted in accordance with Part 747
of the NCUA Rules and Regulations; or

► Consent to the Notice by resolution
of its board of directors.

The written statement, request for
an oral hearing, or consent must be

accompanied by a certified copy of a
resolution by the board, signed by the

president and the secretary authorizing
such statement, request, or consent.

At the time of delivery of the Notice,
the examiner advises the officials of

their options and of the timeframes in
which their options must be exercised.

The examiner makes it known to the
officials that if the credit union fails

to exercise any of its alternatives as
provided in the NCUA Rules and Regulations

within the prescribed timeframes,
it will be deemed to have consented

to the action being sought by NCUA.

6.

What is involved in an involuntary
liquidation of a state-chartered

federally insured credit union?

When the appropriate state authority
declares an insured state credit union

insolvent or bankrupt, the state usually
appoints the NCUA Board as liquidating

agent, receiver, or conservator.

Under delegated authority, the
president of AMAC becomes the

liquidating agent in these cases.

See Chapter 5 of this Manual,
Administering PCA Directives and Related

Actions, for guidance in placing a
FISCU into liquidation under PCA.

This concludes the NCUA
liquidation authorities.

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.