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This file was generated by Descript 

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Samantha: Hello, this is Samantha Shares.

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This episode covers N C U A’s
proposed rule to eliminate reputation

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risk from its supervisory program.

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The following is an audio
version of that proposal.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
forty years of National Credit

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Union Administration experience.

00:00:26.273 --> 00:00:29.873
We assist our clients with N C
U A so they save time and money.

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

00:00:34.353 --> 00:00:38.653
examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

00:00:39.193 --> 00:00:43.523
Also check out our other podcast called
With Flying Colors where we provide tips

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on how to achieve success with N C U A.

00:00:46.821 --> 00:00:47.981
And now the proposal.

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Summary

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The National Credit Union Administration
Board (Board) is issuing a notice

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of proposed rulemaking to codify
the elimination of reputation

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risk from its supervisory program.

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Among other things, the proposed
rule would prohibit the agency from

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criticizing or taking adverse action
against an institution, defined as an

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entity for which the N C U A makes or
will make supervisory determinations

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or other decisions, either solely or
jointly on the basis of reputation risk.

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The proposed rule would also prohibit
the agency from requiring, instructing,

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or encouraging an institution to close
an account, to refrain from providing an

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account, product, or service, or to modify
or terminate any product or service on the

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basis of a person or entity’s political,
social, cultural, or religious views

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or beliefs, constitutionally protected
speech, or on the basis of politically

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disfavored but lawful business activities
perceived to present reputation risk.

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Supplementary Information

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I.

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Background and Policy Objectives

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Citing reputation risk as a basis for
supervisory criticisms can lead to

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inconsistency and subjectivity in the
examination and supervision process,

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without adding material value from
a safety and soundness perspective.

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To improve the efficiency and
effectiveness of the examination

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and supervision program, the N C U A
has removed reputation risk from its

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supervisory framework and is proposing
to codify this change through regulation.

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These actions align with the requirements
in Executive Order 14331, Guaranteeing

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Fair Banking for All Americans, that
notes the use of reputation risk can be

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a pretext for restricting law-abiding
individuals’ and businesses’ access

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to financial services on the basis
of political or religious beliefs or

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disfavored but lawful business activities.

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Because assessing reputation risk is
subjective, it can lead to confusion

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and is time-consuming to measure for
both examiners and credit unions.

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Reputation risk is ambiguous and
lacks measurable criteria, which

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leaves it too open to interpretation.

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Therefore, the agency’s supervision
for reputation risk could reflect

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individual perspectives rather
than data-driven conclusions.

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Given the difficulty of measuring
reputation risk or quantifying its impact,

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if any, in an accurate and precise way,
it is inappropriate for the agency to

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examine credit unions for this risk.

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While it is important for a credit union
to operate in a manner that member-owners

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view as favorable, credit union management
is generally in the best position to

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identify the business decisions that will
positively influence the membership’s

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perception or opinion of the credit union.

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Examiners are not equipped and should
not be expected to gauge public

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opinion or quantify the impact of
member perception on a credit union’s

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financial and operational condition.

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The highly subjective nature
of these determinations creates

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unpredictability and inconsistency
for regulated entities and introduces

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the potential for political or other
biases into the supervisory process.

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This could result in examiners
implicitly or explicitly encouraging or

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discouraging credit unions to restrict
access to credit union services on the

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basis of examiners’ personal views of
a group’s or individual’s political,

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social, cultural, or religious views
or beliefs, constitutionally protected

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speech, or politically disfavored
but lawful business activities.

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If a credit union alters its
behavior to comply with supervisory

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expectations relating to reputation
risk management, such as by closing an

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account or choosing not to enter into
or continue a business relationship

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with a member or accountholder that
it would otherwise maintain, it is

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forgoing an opportunity to maintain or
build a productive relationship within

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its authorized field of membership
that may otherwise be consistent

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with sound risk management practice.

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Even though reputation risk has been
assessed as part of N C U A’s examination

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and supervision program for decades,
the agency has not seen evidence of

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reputation risk being a primary driver
of unsafe or unsound conditions, or

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posing a material risk to the National
Credit Union Share Insurance Fund.

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From a safety and soundness perspective,
most activities that could negatively

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impact a credit union’s reputation do
so through traditional risk channels

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such as credit risk and liquidity risk.

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These core financial and operational risk
areas are more concrete and measurable and

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allow examiners to more objectively assess
a credit union’s safety and soundness.

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In addition to not enhancing safety
and soundness, focusing on reputation

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risk can distract credit unions and
the agency from devoting resources

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to managing core financial and
operational risks that are quantifiable

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and have been shown to present
significant threats to credit unions.

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In the judgment of the agency, examining
for reputation risk diverts resources that

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could be better spent on other risks that
have been shown to present significant,

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tangible threats to institutions and
that are more easily quantified and

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addressed through regulatory intervention.

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The N C U A is responsible for the
supervision and examination of all

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federally insured credit unions, including
for safety and soundness principles.

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In furtherance of these objectives,
the agency’s supervision should

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focus on concrete risks and more
objective criteria directly related

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to applicable statutory requirements.

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In the agency’s experience, using
reputation risk in its supervisory

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process does not further this mission.

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II.

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Legal Authority

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Under the Federal Credit Union Act (F
C U Act), the N C U A examines all F I

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C Us and is required to ensure that all
F I C Us operate safely and soundly.

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In particular, 12 U.S.C.

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1786(b) compels the agency to
act to correct unsafe or unsound

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conditions or practices in F I C Us.

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Further, under the F C U Act,
the N C U A is the chartering and

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supervisory authority for federal
credit unions and the federal

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supervisory authority for F I C Us.

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The F C U Act grants the N C U A a
broad mandate to issue regulations

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governing both F C Us and F I C Us.

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Section 120 of the F C U Act is a
general grant of regulatory authority,

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and it authorizes the Board to
prescribe rules and regulations for

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the administration of the F C U Act.

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Section 207 of the F C U Act is
a specific grant of authority

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over share insurance coverage,
conservatorships, and liquidations.

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Section 209 of the F C U Act is a plenary
grant of regulatory authority to the

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N C U A to issue rules and regulations
necessary or appropriate to carry out its

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role as share insurer for all F I C Us.

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Accordingly, the F C U Act grants the
Board broad rulemaking authority to ensure

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the credit union industry and the Share
Insurance Fund remain safe and sound.

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Also, the N C U A has statutory
authority to determine whether F I

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C Us are operated in an unsafe or
unsound manner and terminate a F I

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C U’s insurance if a F I C U is not
operated in a safe or sound manner.

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Finally, the Board has the authority
to adopt such rules as it sees fit for

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the transaction of its business, which
includes oversight of the N C U A’s

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supervisory and examination programs.

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III.

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Description of the
Proposed Rule and Changes

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Based on the legal authorities set forth
previously, the subjectivity of reputation

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risk, the limited value of reputational
risk at identifying risks to safety and

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soundness or other statutory mandates,
and the potential for distracting

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examiners and institutions from
examining or managing core financial and

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operational risks, the agency has removed
reputation risk from its supervisory

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framework and is proposing to codify
this change in N C U A’s regulations.

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This proposed rule would be a
regulation as defined in section

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5 of Executive Order 14192.

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The proposed rule would be a
significant regulatory action for the

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purposes of Executive Order 12866.

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The proposed elimination of reputation
risk supervision is deregulatory.

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The proposed rule would not alter or
affect the ability of an institution

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to make business decisions regarding
its members, accountholders, or

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third-party arrangements and to
manage them effectively, consistent

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with safety and soundness and
compliance with applicable laws.

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The proposed rule would prohibit the
agency from criticizing, formally or

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informally, rewarding, using in its
decision-making process, or taking any

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adverse action against institutions
on the basis of reputation risk.

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The agency would be prohibited from
requiring, instructing, or encouraging an

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institution or its employees, to refrain
from contracting with or to terminate

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or modify a contract with a third party,
including an institution-affiliated

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party, on the basis of reputation risk.

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The agency also could not require,
instruct, or encourage an institution

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or its employees to refrain from doing
business with or to terminate or modify

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a business relationship with a third
party, including an institution-affiliated

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party, on the basis of reputation risk.

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The proposed rule would also prevent
the agency from requiring, instructing,

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or encouraging an institution or its
employees to enter into a contract

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or business relationship with a third
party on the basis of reputation risk.

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The proposed rule would further prohibit
the agency from requiring, instructing,

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or encouraging an institution or its
employees to terminate a contract with,

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discontinue doing business with, or
modify the terms under which it will

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do business with a person or entity on
the basis of the person’s or entity’s

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political, social, cultural, or religious
views or beliefs, constitutionally

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protected speech, or on the basis of the
third party’s involvement in politically

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disfavored but lawful business activities
perceived to present reputation risk.

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The proposed rule would also prevent
the agency from requiring, instructing,

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or encouraging an institution or its
employees to engage in or refrain from

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acquiring or terminating a relationship
with any person or entity within

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the credit union’s authorized field
of membership, or person or entity

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the credit union or institution is
otherwise lawfully permitted to serve,

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on the basis of reputation risk.

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This prohibition would not affect
member service requirements and

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limitations related to a credit
union’s field of membership.

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Similarly, this prohibition would
not affect requirements intended to

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prohibit or reject transactions or
accounts associated with Office of

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Foreign Assets Control-sanctioned
persons, entities, or jurisdictions.

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Such prohibitions and rejections would
not be based on the person’s or entity’s

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political, social, cultural, or religious
views or beliefs, constitutionally

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protected speech, or politically
disfavored but lawful business activities

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perceived to present reputation risk.

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The prohibition also does not affect
the agency’s authority to enforce

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the requirements of the provisions of
United States Code title 31, chapter

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53, subchapter II regarding reporting
on monetary transactions, field of

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membership requirements under the F
C U Act, administration of Community

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Development Revolving Loan Fund
activities, or any other application

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decision where federal law mandates
the N C U A to consider criteria such

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as character and fitness or integrity.

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“Adverse action,” as defined by the
proposed rule, would include the provision

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of negative feedback, including written
feedback in a report of examination,

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a document of resolution, oral
feedback, or an enforcement action.

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This definition would only apply to
N C U A-initiated adverse actions.

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N C U A will often jointly examine
federally insured, state-chartered credit

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unions along with the state regulator.

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In these instances, the state
regulator generally will take

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the lead in issuing the report of
examination and any corrective action.

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If the state regulator elects to examine
for reputation risk, N C U A examiners

00:12:41.539 --> 00:12:45.859
will not participate in these discussions
or enforce any resulting supervisory

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actions taken by the state regulator.

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Furthermore, adverse action encompasses
any N C U A-led action of any agency

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employee, including any communication
characterized as informal or preliminary.

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A downgrade (or contribution to a
downgrade) of any supervisory rating,

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including a rating assigned under
N C U A’s CAMELS ratings system

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also would constitute an “adverse
action” under the proposed rule.

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Further, an approval or denial of
a filing, or an imposition of a

00:13:15.725 --> 00:13:19.815
discretionary supervisory action
under prompt corrective action, on

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the basis of “reputation risk” would
constitute an “adverse action” under

00:13:24.075 --> 00:13:27.995
the proposed rule, except where
federal law requires consideration

00:13:27.995 --> 00:13:29.915
of reputation-related criteria.

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This includes any burdensome requirements
placed on an approval, the introduction

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of additional approval requirements,
or any other heightened requirements

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or emphasis on an activity or change.

00:13:42.024 --> 00:13:45.654
The agency is also including a
general “catch-all” for any other

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actions, including approval or denial
of applications, waivers, and other

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agency actions or decisions for any
party, that could impact the party.

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This catch-all is meant to include
actions such as decisions on applications

00:13:59.174 --> 00:14:03.134
for waivers, applications to engage
in certain business activities

00:14:03.174 --> 00:14:06.864
for which supervisory permission
is required, or other regulatory

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decisions affecting institutions.

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The agency believes that most actions
would be covered under the other

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definitions outlined in the regulation
but has included this additional

00:14:16.504 --> 00:14:20.164
“catch-all” to account for any
circumstances that may not be apparent

00:14:20.234 --> 00:14:24.294
or may become applicable as regulatory
and supervisory standards change.

00:14:24.824 --> 00:14:28.554
Additionally, actions subject to this
prohibition would include feedback

00:14:28.584 --> 00:14:32.524
that is oral, a condition attached
to an approval, the introduction of

00:14:32.524 --> 00:14:36.184
new approval requirements, and any
other heightened requirements that

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are intended to force the institution
to address perceived reputation risk.

00:14:40.920 --> 00:14:44.420
The term “doing business with” in
the proposed rule is intended to be

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construed broadly and to include both
business relationships with credit

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union members, accountholders, and
with third-party service providers.

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It is also intended to include the
relationship of an institution with

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organizations or individuals that
the institution is providing with

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charitable donations or services.

00:15:02.840 --> 00:15:06.670
This term is intended to include
both existing business relationships

00:15:06.700 --> 00:15:08.600
and prospective business relations.

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The term “institution-affiliated party”
has the same meaning as in 12 U.S.C.

00:15:15.062 --> 00:15:15.462
1786(r).

00:15:16.327 --> 00:15:20.917
The proposed rule would define “reputation
risk” as the risk, regardless of how

00:15:20.917 --> 00:15:25.327
the risk is labeled by the institution
or by the agency, that an action or

00:15:25.327 --> 00:15:29.667
activity, or combination of actions
or activities, or lack of actions or

00:15:29.667 --> 00:15:33.967
activities, of an institution could
negatively impact public perception of

00:15:33.967 --> 00:15:37.987
the institution for reasons unrelated
to the current or future financial and

00:15:37.987 --> 00:15:40.147
operational condition of the institution.

00:15:40.647 --> 00:15:44.707
This definition is intended to include
not just risks that the agency or the

00:15:44.707 --> 00:15:49.387
institution identify as “reputation
risks,” but any similar risk based

00:15:49.387 --> 00:15:53.047
around concerns regarding the public’s
perception of the institution beyond

00:15:53.047 --> 00:15:56.507
the scope of other risks in the
agency’s supervisory frameworks.

00:15:57.337 --> 00:16:01.517
This definition is not intended to
capture risks posed by public perceptions

00:16:01.517 --> 00:16:05.517
of the institution’s current or future
financial or operational condition

00:16:05.697 --> 00:16:09.397
because such perceptions relate to
risks other than reputation risk.

00:16:10.160 --> 00:16:13.940
For example, public perceptions
that an institution has insufficient

00:16:13.940 --> 00:16:17.690
liquidity and therefore is
susceptible to a run on shares would

00:16:17.690 --> 00:16:19.680
not be considered reputation risk.

00:16:20.404 --> 00:16:24.304
The prohibitions of the proposed rule
would apply to actions taken on the basis

00:16:24.304 --> 00:16:29.664
of reputation risk; political, social,
cultural, or religious views and beliefs;

00:16:30.004 --> 00:16:34.044
constitutionally protected speech;
or based on bias against politically

00:16:34.044 --> 00:16:38.704
disfavored but lawful business activities
perceived to present reputation risk.

00:16:39.174 --> 00:16:43.234
The proposed rule would not prohibit
criticism, supervisory feedback, or

00:16:43.264 --> 00:16:47.034
other actions to address traditional
risk channels related to safety and

00:16:47.034 --> 00:16:51.634
soundness and compliance with applicable
laws, including credit risk, interest

00:16:51.634 --> 00:16:55.714
rate risk, and transaction risk
(including cybersecurity, information

00:16:55.714 --> 00:17:00.114
security, and illicit finance), provided
that such criticism, supervisory

00:17:00.114 --> 00:17:04.334
feedback, or other actions addressing
these other risks is not a pretext by

00:17:04.334 --> 00:17:06.544
examiners aimed at reputation risk.

00:17:07.316 --> 00:17:11.216
Under the proposed rule, the N C U A
would make one conforming amendment

00:17:11.216 --> 00:17:15.656
to the N C U A’s regulations to
eliminate references to reputation risk.

00:17:16.236 --> 00:17:18.886
The conforming amendment would
be made in the stress testing

00:17:18.886 --> 00:17:21.206
requirements for complex credit unions.

00:17:21.746 --> 00:17:27.446
One other N C U A regulation codified
in 12 C F R part 717 refers to

00:17:27.446 --> 00:17:31.346
reputation risk concerning certain
identity theft prevention programs

00:17:31.346 --> 00:17:35.516
required by the Fair and Accurate
Credit Transactions Act of 2003.

00:17:36.096 --> 00:17:40.626
However, by statute, guidelines and
regulations for these programs must occur

00:17:40.626 --> 00:17:45.256
jointly across certain federal agencies,
so no conforming amendment is suggested

00:17:45.256 --> 00:17:48.846
for 12 C F R part 717 at this time.

00:17:49.376 --> 00:17:55.246
The N C U A will consider making changes
to 12 C F R part 717 in a separate,

00:17:55.396 --> 00:17:56.946
joint rulemaking in the future.

00:17:57.286 --> 00:18:01.386
Until that separate, joint rulemaking
occurs, the N C U A expects to

00:18:01.386 --> 00:18:07.366
exercise its discretion in enforcing
12 C F R part 717 by using agency

00:18:07.366 --> 00:18:11.136
resources to assess compliance
without regard to reputation risk.

00:18:11.913 --> 00:18:12.403
IV.

00:18:13.113 --> 00:18:14.313
Expected Effects

00:18:14.915 --> 00:18:15.145
A.

00:18:15.665 --> 00:18:16.255
Background

00:18:17.012 --> 00:18:20.722
As previously discussed, to improve
the efficiency and effectiveness

00:18:20.762 --> 00:18:25.082
of the supervisory framework, the
N C U A is proposing to establish

00:18:25.112 --> 00:18:28.562
a regulation codifying the removal
of reputation risk from its

00:18:28.562 --> 00:18:30.962
examination and supervision programs.

00:18:31.664 --> 00:18:31.884
B.

00:18:32.354 --> 00:18:34.164
Parties Affected by the Proposal

00:18:34.963 --> 00:18:35.118
1.

00:18:35.118 --> 00:18:38.963
N C U A Regulated Entities
Affected by the Rule

00:18:39.668 --> 00:18:45.878
The N C U A currently supervises
2,740 F C Us and 1,630 federally

00:18:45.878 --> 00:18:50.678
insured, state-chartered credit unions
(collectively referred to as F I C Us).

00:18:51.198 --> 00:18:55.778
Because all F I C Us were subject to
reputation risk assessments, the proposed

00:18:55.778 --> 00:18:59.028
rule would affect all 4,370 institutions.

00:18:59.781 --> 00:18:59.966
2.

00:18:59.966 --> 00:19:01.441
Other Parties

00:19:02.100 --> 00:19:06.360
Because the proposed rule aims to remove
the influence of the agency’s reputation

00:19:06.360 --> 00:19:11.130
risk assessments on institutions’ member
and business relationships, N C U A

00:19:11.130 --> 00:19:15.460
concludes that the proposed rule could
potentially affect all F I C Us’ current

00:19:15.490 --> 00:19:17.560
and future members and business partners.

00:19:18.110 --> 00:19:22.160
It would also affect any other
institutions over which the N C U A has

00:19:22.370 --> 00:19:24.540
or may be granted supervisory authority.

00:19:25.263 --> 00:19:25.693
C.

00:19:26.153 --> 00:19:28.483
Current Legal and Regulatory Baselines

00:19:29.179 --> 00:19:35.369
On September 25, 2025, the N C U A
issued Letter to Credit Unions 25–C

00:19:35.369 --> 00:19:39.139
U–05 wherein the agency notified
supervised institutions that it was

00:19:39.139 --> 00:19:43.519
ceasing to use reputation risk in the
examination and supervisory process.

00:19:44.159 --> 00:19:48.459
The N C U A also sent a memo to
staff on that same day, instructing

00:19:48.459 --> 00:19:52.659
staff that they may no longer base
supervisory concerns on reputation risk.

00:19:53.129 --> 00:19:57.229
N C U A employees were notified that
they may not refer to or engage in

00:19:57.229 --> 00:20:01.689
discussions about reputation risk or
similar concepts as part of examinations

00:20:01.689 --> 00:20:05.989
and supervision contacts or other
regulatory or supervisory actions (such

00:20:05.989 --> 00:20:10.319
as waivers, application decisions, or
enforcement actions) for a credit union

00:20:10.369 --> 00:20:12.479
or credit union service organization.

00:20:13.079 --> 00:20:17.399
The agency is in the process of removing
reputation risk from its regulations,

00:20:17.529 --> 00:20:20.199
policies, manuals, and training materials.

00:20:20.928 --> 00:20:24.878
Therefore, the N C U A has already
discontinued reputation risk-based

00:20:24.878 --> 00:20:28.188
supervision as of September 25, 2025.

00:20:28.858 --> 00:20:33.268
The proposed rule would create a formal,
legal mandate to remove reputation risk

00:20:33.268 --> 00:20:35.758
from N C U A’s supervision framework.

00:20:36.378 --> 00:20:40.358
Effectively, there would be no additional
burden, and therefore no compliance

00:20:40.358 --> 00:20:45.788
costs since reputation risk will not be
examined for effective September 25, 2025.

00:20:46.679 --> 00:20:46.989
D.

00:20:47.519 --> 00:20:48.769
Costs and Benefits

00:20:49.409 --> 00:20:53.099
Implementing a regulation to prohibit
the use of reputation risk in the

00:20:53.099 --> 00:20:56.839
examination and supervision program
will remove uncertainty and the

00:20:56.839 --> 00:21:01.349
potential for misuse, which inherently
will provide benefits to F I C Us.

00:21:01.939 --> 00:21:06.209
The removal of reputation risk will
ensure greater consistency and objectivity

00:21:06.209 --> 00:21:10.189
of supervisory decisions, increasing
the predictability for regulated

00:21:10.189 --> 00:21:14.719
institutions to understand and manage
regulators’ supervisory expectations.

00:21:15.059 --> 00:21:18.909
The proposed rule should benefit credit
unions and their members by formally

00:21:18.909 --> 00:21:23.809
eliminating actual or perceived reputation
risk-related regulatory restrictions

00:21:23.859 --> 00:21:27.309
and constraints on member services
that would otherwise be permissible.

00:21:28.099 --> 00:21:32.779
Other than the inherent benefits described
above, the N C U A cannot quantify the

00:21:32.779 --> 00:21:37.589
number of institutions, or the associated
costs, where an institution was criticized

00:21:37.589 --> 00:21:40.019
for activities because of reputation risk.

00:21:40.609 --> 00:21:44.679
Nor does the N C U A have the information
necessary to quantify the number of

00:21:44.679 --> 00:21:48.859
institutions that might make changes to
their operations based on this change.

00:21:49.607 --> 00:21:51.057
This concludes the proposal.

00:21:51.813 --> 00:21:56.003
If your Credit union could use assistance
with your exam, reach out to Mark Treichel

00:21:56.003 --> 00:21:58.713
on LinkedIn, or at mark Treichel dot com.

00:21:59.283 --> 00:22:01.913
This is Samantha Shares and
we Thank you for listening.