Samantha: Hello, this is Samantha Shares.
This episode covers N C U Aâs Authority to issue cease and desist orders as
outlined in its enforcement manual.
The following is an audio version of that portion of the manual.
This podcast is educational and is not legal advice.
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And now cease and desist orders.
1.
What is a Cease and Desist Order?
A Cease and Desist (C AND D) Order normally requires the credit union
to stop illegal or unsafe or unsound activities which caused or is likely
to cause more than a minimal financial loss to, or have a significant adverse
effect on, the insured credit union.
A document called Notice of Charges and Hearing sets out the specific charges and
statement of facts supporting the charges.
The Notice also arranges for an administrative hearing.
The C AND D contains the required corrective actions.
The C AND D action is designed to address only actions necessary to
correct the most significant items.
A C AND D Order can be issued against an insured credit union or
an institution-affiliated party.
The term institution-affiliated party means any of the following:
âº Any committee member, director, officer, or employee of, or agent
for, an insured credit union.
âº Any consultant, joint venture partner, and any other person as determined by the N C
U A Board who participates in the conduct of the affairs of an insured credit union.
âº Any independent contractor who knowingly or recklessly participates in any
violation of any law or regulation, any breach of fiduciary duty, or
any unsafe or unsound practice.
The types of violations most likely to be remedied by a C AND D Order include:
âº Failure to maintain adequate books and records.
âº Deficient appraisal reports.
âº Transactions involving conflicts of interest.
âº Inadequate due diligence.
âº Inadequate control and oversight of operations.
There is a great deal of flexibility in what actions N C U A may require.
In addition to ordering a cessation of certain activities, a C AND
D Order may require affirmative corrective action, including:
âº Making restitution or provide reimbursement, indemnification,
or guarantee against loss under specific conditions.
âº Restricting growth.
âº Rescinding an agreement or contract.
âº Disposing of any loan or asset.
âº Employing qualified officers or employees.
âº Taking such other action N C U A determines to be appropriate.
Orders to Cease and Desist are issued pursuant to the FCU
Act section206(e), 12 U.S.C.
section1786(e).
The provisions for the C AND D Order are set out in article-by-article
form and prescribe those restrictions and corrective and remedial measures
necessary to correct deficiencies or violations in the credit union and
return it to a safe and sound condition.
Violations of a C AND D Order can provide the legal basis for assessing
civil money penalties (CMPs) against directors, officers, and other
institution-affiliated parties.
A C AND D Order may also be enforced through application to a U.S.
district court.
Moreover, a willful violation of a Final C AND D Order is itself grounds
for conservatorship under the FCU Act section206(h)(1)(D), 12 U.S.C.
section1786(h)(1)(D).
There are three types of cease and desist orders available to N C U A:
a.
Consent Order
A Consent Order is an Order to Cease and Desist that is entered into and becomes
final through the board of directors' execution of a Stipulation and Consent
document on behalf of the credit union.
This type of order also requires the issuance of a Notice of Charges.
The N C U A Board issues the Consent Order without the need
for an administrative hearing.
The Consent Order becomes effective at the time specified in the Order.
b.
Final (Permanent) Cease and Desist Order
Aside from its title, a Final C AND D Order is identical in form and
legal effect to a Consent Order.
However, a Final C AND D Order is imposed on an involuntary basis after issuance
of a Notice of Charges, a hearing before an administrative law judge,
and a final decision and order issued by the N C U A Board.
A Final C AND D Order is effective 30 days after service upon the credit union.
Any Final C AND D Order is subject to review by a U.S.
Court of Appeals.
c.
Temporary Cease and Desist Order
A Temporary C AND D Order is an interim order issued by the N C U
A pursuant to its authority under the FCU Act section206(f), 12 U.S.C.
section1786(f), and is used to impose measures immediately pending
resolution of a Final C AND D Order.
Such orders are typically used only when immediately necessary
to protect the credit union against ongoing or expected harm.
A Temporary C AND D Order may be challenged in U.S.
District Court within 10 days of issuance, but it is effective upon issuance and
remains in effect unless overturned by the court or until a final order is in place.
To issue a temporary order, N C U A must also issue a Notice of
Charges initiating a proceeding to obtain a Final C AND D Order.
In order to issue a Temporary C AND D Order, N C U A must determine
that the violation or threatened violation or the unsafe or unsound
practice(s) is likely to either:
âº Cause insolvency or significant dissipation of assets or earnings.
âº Weaken the condition of the credit union or otherwise prejudice the
interest of the credit union's members.
The FCU Act section206(f)(3), 12 U.S.C.
section1786(f)(3), provides for the issuance of a Temporary C AND D
Order when an insured credit union's books and records are so incomplete
or inaccurate that the financial condition of the credit union or
details or the purpose of any material transaction can not be determined.
This section also applies when a credit union does not provide adequate
access to the books and records.
2.
What are the grounds for issuance of a Cease and Desist Order?
The grounds for a cease and desist action are set forth in
the FCU Act section206(e)(1), 12
U.S.C.
section1786(e)(1).
A C AND D Order can be issued if any insured credit union or
institution-affiliated party is either:
âº Engaging in or has engaged in, or the examiner has reasonable cause to believe
that the credit union or the persons involved are about to engage in, an unsafe
or an unsound practice in conducting the business of the credit union.
âº Violating or has violated, or the examiner has reasonable cause to believe that
the credit union or persons involved are about to violate a law, a rule,
a regulation, any condition imposed in writing by the N C U A Board, or
any written agreement entered into with the N C U A Board, as long as the
agreement has been published in accordance with the FCU Act 206(s), 12
U.S.C.
section section1786(s).
The FCU Act section206(q)(3), 12 U.S.C.
section1786(q)(3), requires that the N C U A shall issue a cease and desist order
requiring correction of certain Bank Secrecy Act problems, such as failure to
establish a program or failure to correct a problem with its procedures that have
previously been identified by an examiner.
3.
How are Cease and Desist Orders processed?
N C U A Rules and Regulations section747, Subpart A, contains the
rules and regulations governing cease and desist administrative hearings.
a.
Delegation of Authority
N C U A Delegation of Authority SUP 8 provides regional directors,
with the prior concurrence from General Counsel, the authority to:
(1) Issue Notice of Charges and Hearing for C AND D orders.
(2) Issue and remove Temporary C AND D Orders pending completion
of the administrative procedures.
The N C U A Board must approve the issuance, modification, and
termination of Final C AND D Orders.
b.
Documentation Needed
This section is redacted.
c.
Mechanics for Final (permanent) Cease and Desist Order and Consent Order
Final C AND D Orders are processed in the following manner:
1.
Notice of Charges is issued setting out charges and statement
of facts supporting charges.
Notice fixes a time and place for a hearing between 30 and 60 days.
2.
Respondent may consent, in which case a final order is issued by the Board without
the need for an administrative hearing.
If no consent, a hearing is held before an Administrative Law Judge (ALJ).
3.
ALJ sends Recommended Decision and hearing record to the N C U A Board.
4.
Within 90 days the Board must render its final decision.
The Board may disagree with the ALJ, but the decision must
be supported by the evidence.
5.
Appeal by the respondent, within 30 days after service
of the final order, to the U.S.
Court of Appeals.
The respondent must prove N C U A acted in an arbitrary and capricious manner.
The Order is in effect unless stayed or modified by the court.
6.
Order is effective 30 days after service on respondent.
Violation of Order could result in civil money penalties of up
to one million dollars per day.
d.
Mechanics for Temporary Cease and Desist Order
Temporary C AND D Orders are processed in the following manner:
1.
The regional director, with GC concurrence, issues Temporary Cease and
Desist Order, usually along with the Notice of Charges and Hearing which starts
the normal C AND D administrative process.
2.
The administrative process for the Final Cease and Desist Order continues
while the credit union is subject to the temporary restrictions.
Even if a court modifies or lifts the temporary order, the Notice of Charges
and Hearing is still in effect and the administrative process goes forward.
e.
Violations of Cease and Desist Orders
If an institution or individual fails to comply with a final
order, N C U A may seek enforcement through federal district court.
If the court determines that a violation, threatened violation, or
failure to obey has occurred, by law the court must enforce the order.
In addition, any credit union or individual that violates the terms of
any final C AND D can be ordered by N C U A to pay a civil money penalty of up
to one million dollars a day for each day the violation continues, provided
specific statutory criteria are met.
f.
Removing Cease and Desist Orders
The N C U A Board may withdraw a C AND D at any time during
the administrative process.
A Temporary C AND D Order terminates automatically when the charges in the
notice initiating the proceeding for the Final C AND D Order are dismissed by
the agency or when a Final C AND D Order against the same party becomes effective.
If the N C U A Board approved the issuance of the C AND D action,
the removal action will need to be approved by the N C U A Board
This concludes the N C U A enforcement manual on Cease and desist orders.
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.