Samantha: Hello, this is Samantha Shares.
This episode covers N C U Aâs examiner guidance on Preliminary Warning
Letters to Credit Unions Per the National Supervision Policy Manual.
The following is an audio version of that guidance.
This podcast is educational and is not legal advice.
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And now the guidance.
Preliminary Warning Letter Per National Supervision Policy Manual
Examiners will draft a P W L when a credit unionâs problems are serious
or per- sistent and a credit unionâs board is unwilling to sign an LUA.
A P W L will sup- port formal administrative action such as a
published LUA or Cease and Desist order.
A P W L is a warning of potential formal administrative action if
corrective action is not taken.
If formal administrative action is taken, then the P W L is auto-
matically removed and all action items in it will be incorporated into
the formal administrative action.
There may be rare instances where both a P W L and a formal administrative
action are necessary to address separate supervisory concerns.
Examiners will only recommend that their supervisor issue a P W L as a result
of a regular examination, follow-up examination, or supervision contact.
Sample P W Ls and a BSA-specific P W L are provided as resources
for this section of the NSPM.
A P W L is written from the perspective of the RD, and includes:
â¢ Direct, concise, and clear language
â¢ A list of the serious area(s) of concern and citation of the Federal
Credit Union Act or regulation violated
â¢ When the primary problem area is poor management, include the fol- lowing
text: "Your credit union is operating in an unsafe and unsound manner for
which substantial, immediate, and corrective action must be taken.
It is the board of directorsâ responsibility, as the body providing
general direction and control for the credit union, to take
necessary cor- rective actions."
â¢ A statement of impending administrative action by the NCUA
â¢ Required actions and timeframes for resolving the area(s) of concern
DOS Responsibilities
â¢ Review P W Ls for appropriateness and process for RD approval
â¢ Discuss all material changes with the supervisor
Exam Staff Responsibilities
â¢ Obtain supervisor and ARD concurrence for a P W L before preparing a let- ter
â¢ E-mail draft P W L to the supervisor for review when initiating the PSR1
process
â¢ The supervisor will review the report to ensure the P W L is appropriate and
supported and then forward it to their regionâs DOS2 mailbox when notifying
DOS the PSR is ready for DOS review.
Last updated October 14, 2021
Deliver a Preliminary Warning Letter
The supervisor will determine whether to hand-deliver or mail a P W L
based on the severity of the issues.
For hand-delivered P W Ls:
â¢ The supervisor will notify DOS3 of the planned meeting date so the letter
is dated accordingly (approximately two to three weeks from the date exam
staff4 submits the draft letter to DOS)
â¢ Once the letter is approved and signed by the RD, DOS will mail one ori-
ginal copy of the letter directly to the supervisor for hand-delivery and
provide scanned copies to the examiner and supervisor for recordkeeping
â¢ The examiner and the supervisor will deliver the P W L onsite to
discuss the contents of the letter (usually at a formal meeting with the
credit unionâs board of directors)
â¢ Following the meeting, the examiner will distribute the original, signed copy of
the P W L to the credit union officials.
â¢ The examiner and supervisor maintain scanned copies of the
signed P W L For mailed P W Ls:
â¢ DOS will send the letter to the board chairperson and copy the CEO5 as
appropriate
â¢ In special cases, DOS may send the P W L to each board member.
â¢ DOS will provide scanned copies to the examiner and supervisor for their records
â¢ The examiner and supervisor will maintain scanned copies of the signed P W L
Supervision Contacts for a Credit Union with a P W L
As described in the LUA section of the NSPM, the frequency of examinations,
follow-up examinations, and onsite supervision contacts is driven by
a credit unionâs CAMELS1 ratings and overall risk to the NCUSIF2.
Examiners will con- sider any outstanding administrative action
when planning supervision and assigning the CAMELS ratings.
If an examiner encounters a credit union with an outstanding administrative action
(and associated risk) and the risk is not reflected in the CAMELS rating (which
drives the frequency of supervision), they will discuss with their supervisor
and plan their supervision accordingly.
Unless there are extenuating circumstances, and approved by the
ARD, super- vision of credit unions with outstanding administrative actions
will be in line with national policy for CAMELS 3, 4, and 5 credit unions
(perform a follow-up examination at least every 120 or 180 days (from
completion date to start date).
Examiners will:
â¢ Prepare and distribute the examination or supervision contact
reports in the same manner as other examinations and supervision contacts
â¢ Document compliance with the P W L in the Status Update during each con- tact
â¢ The status of each item will be listed as resolved or unresolved.
Exam- iners will include comments to support completion status.
â¢ Document recommendations for future action such as continue, modify,
terminate the P W L, or proceed with elevated or formal administrative action
â¢ Examiners will refrain from recommending a P W L be reissued, rewritten, or allowed
to remain outstanding for long periods (usually no longer than 12 months).
â¢ Recommend removal of the P W L when it is confirmed during a follow-up examination
or regular examination the officials have corrected the prob- lem areas and
prepare a draft letter for the RD's signature explaining the recommendation
â¢ Recommend escalated administrative action if a credit union has not
cor- rected the problem areas within the timeframes outlined in the P W L
â¢ Escalated administrative action may include a published LUA, Cease and
Desist order, civil money penalty, involuntary liquidation, or others.
Refer to NCUA Instruction 4820, Enforcement Manual, for processing
pro- cedures for civil money penalties, involuntary liquidations,
con- servatorships, etc.
Terminating a Preliminary Warning Letter
When a credit union meets the specific performance standards
outlined in a P W L, examiners will recommend termination of the P W L.
Examiners will recom- mend the termination of a P W L only after they
complete an examination or contact supported by adequate work papers
showing the credit union has cor- rected the problems cited in the P W L.
When conditions warrant the termination of a P W L, the examiner will prepare
a draft P W L removal letter to the credit union explaining why
the RD is remov- ing the P W L.
The examiner will forward the draft letter to the supervisor with an
explanation in the email supporting their recommendation to terminate the P W L.
After review, the supervisor will forward the draft letter to DOS1 Mail for
review and processing for RD signature.
This concludes the N C U Aâs examiner guidance on Preliminary Warning
Letters to Credit Unions Per the National Supervision Policy Manual.
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.