How NCUA is tackling the coronavirus

Much of the National Credit Union Administration's focus in recent months has shifted to how the agency responds to the coronavirus. The board's next monthly meeting, scheduled for Thursday, is likely to be no exception.

This time around, however, the panel will take up matters less directly related to the pandemic and its economic fallout.

Along with the quarterly report on the National Credit Union Share Insurance Fund and a proposal on joint ownership share accounts, NCUA is also expected to examine two issues that could become crucial in the months ahead.

The first, an interim final rule on overdraft policies, could have a widespread impact on credit union members dealing with reduced incomes as a result of the pandemic. The latter, an interim final rule on prompt corrective action, could be impactful later on if credit unions begin to see sustained losses or significant drops in capital as a result of the current economic crisis.

Ed. Coverage of the meeting can be found here.

Until then, the following is an outline of some of the actions NCUA has taken to address the coronavirus and how some of those measures have been received.

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Raising concerns about cyber threats
The pandemic has served as an opportunity for the regulator to revisit one of its longest-running legislative requests: third-party vendor oversight.

During the agency’s April board meeting, board member Todd Harper suggested that with credit unions focused on responding to the COVID-19 crisis they “have less time to conduct due diligence to respond to problems with their vendors…. Now is the time to authorize NCUA to supervise credit union third-party vendors. Doing so will close a regulatory blind spot and better protect the safety and soundness of the credit union system.”

The board has been asking for those powers since at least the late 1990s but Congress has yet to grant them this authority. However, draft legislation last year would have given NCUA along with the Federal Housing Finance Agency that oversight but the proposal never moved forward.

NCUA has also raised concerns about increased cyber threats as more credit union professionals work from home due to the pandemic.

In prepared marks for recent testimony before the Senate Banking Committee, Rodney Hood, chairman of NCUA, said the outbreak “necessitates a heightened cybersecurity posture on the part of both the agency and industry, with a particular focus on credit union banking services, remote workers, and internal agency supervision and examination operations.”

In a letter to credit unions earlier this spring, the agency also flagged malware attacks, phishing scams and other threats remote workers face as particular concerns.

“Employees working remotely have a responsibility to address cybersecurity risks for their home networks, personal computing devices and other internet-connected devices,” Hood wrote.
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Grants and loans to support the industry
NCUA is also doling out cash in the form of grants and loans to help institutions during the pandemic.

In March, the regulator announced it was offering credit unions different types of awards, including urgent needs grants and funding to support local communities.

For the urgent needs funding, credit unions can receive up to $7,500 for different initiatives, such as investing in hardware and other equipment to provide services from a remote location and developing marketing materials to reassure members that their deposits are safe during the coronavirus crisis. Institutions could also use the money to pay for consulting services to develop programs to help small businesses and others affected by the pandemic.

The agency is also offering $4 million in loans and $800,000 in grants for credit unions with a low-income designation to aid their communities. Projects that could qualify for this funding include helping schools serve children in need, paying for costs tied to moving operations to a remote spot or providing financial assistance to members working the hospitality or service industries.

These loans, which can be for up to $250,000, have zero interest with a maturity of three years. The grants are up to $10,000 and are awarded on an ongoing basis until Friday’s deadline.

Finally, another $700,000 is being awarded for training, digital services, cybersecurity and other efforts from May 1 through the end of next month.
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Joining the fight against CECL
The coronavirus crisis has given the industry a powerful advocate in its fight against having to implement the current expected credit losses methodology.

Hood sent a letter last month to Russell Golden, chairman of the Financial Accounting Standards Board, the agency responsible for CECL, arguing that credit unions should be exempt from the new standard.

He cited the coronavirus pandemic as part of his reasoning. CECL is currently slated to go into effect in January 2023 for credit unions after FASB granted the industry a one-year delay in 2019.

But credit unions are now using that extra time to grapple with the fallout from the coronavirus, rather than prepare for the new standard, Hood wrote.

“Even before the current pandemic, credit unions had approached the NCUA with concerns about the unintended consequences of requiring credit unions to implement CECL,” Hood wrote. “In our current environment, I am especially concerned that adopting CECL will have a chilling effect on lending, including loans to low-income borrowers.”

Additionally, the majority of credit unions are small and are likely to face issues with collecting data necessary to comply with CECL, which requires lenders to estimate their potential losses over the life of a loan, Hood argued.

Hood also argued that the cost of complying with the new standards would “overwhelmingly exceed the benefits” and that credit unions’ net worth would take a hit. If a complete exemption wasn’t granted, he suggested that credit unions follow an alternative that uses the “framework of the incurred loss methodology.”
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Where Congress can step in
NCUA's Harper has also called for measures that would allow credit unions to more easily expand their fields of membership to help consumers impacted by the crisis.

A recent letter from Harper called for Congress to allow federally chartered single common-bond and community-chartered CUs to add underserved areas to their FOM. Multiple common bond CUs are currently the only institutions able to do this.

Mark McWatters, another board member, echoed that sentiment during the agency’s April board meeting, noting that such a move could help expand access to federally insured financial services for consumers of modest means during an economic crisis.

Harper and McWatters have both put forward other legislative requests as well, including calling for temporary provisions in the CARES Act related to the agency’s Central Liquidity Facility to be extended until at least the end of 2021. Harper suggested during last month’s meeting that the changes have been helpful “but may be too short in length, because liquidity needs seem likely to hit their highest point next year,” he said.

McWatters said lawmakers could help the industry by creating a more permanent facility that the agency could deploy on an as-needed basis or by permanently restructuring the CLF to that end.
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A little extra time
The agency has also relaxed deadlines on a number of items as credit unions deal with the crisis.

For starters, CUs had extra time to file their first-quarter call reports without fear of facing civil monetary penalties for tardiness. Those reports were due April 26 but the agency extended that date by 30 days “in recognition that some credit unions may experience operational disruptions due to the impact of COVID-19,” NCUA said in an April 17 letter to credit unions. That move mirrors similar actions taken by other federal banking regulators.

Two high-profile proposals from the NCUA board have also received extended comment periods. A proposal to streamline guidance on credit union-bank acquisitions originally had a deadline of March 30 but was extended to May 29 and subsequently kicked to June 15. It is unclear whether it will be extended further.

Similarly, a rule governing how corporate credit unions can invest in credit union service organizations has been pushed to July 27, while a rule on subordinated debt does not have a comment deadline until July 8.
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Facing some heat in the spotlight
Despite NCUA’s efforts to help the industry during the pandemic, its response has still been criticized by some.

The Independent Community Bankers of America has complained that the regulator used the chaos of the coronavirus to overstep by changing how it calculates a credit union’s low-income designation. NCUA announced earlier this month it will now include members of the military in these calculations.

"The NCUA's changes — made without a formal rule subject to public review and comment — is another example of this captive regulator expanding the powers of credit unions well beyond the limits established by Congress to justify their tax exemption,” Rebeca Romero Rainey, president and CEO of the trade group, said in a press release earlier this month.

Sen. Sherrod Brown seemed to echo some of those sentiments during a Senate Banking Committee hearing last week. The Ohio Democrat suggested that NCUA was using the current crisis as cover to eliminate safeguards Congress had implemented after the last recession.

“The NCUA is also rolling back some of the very protections we put in place in response to our last financial crisis — reducing and delaying rules that protect real estate borrowers, and lowering capital and loan reserve standards that ensure that credit unions can lend in their communities during a downturn,” Brown said during the hearing.

During the hearing, Hood testified that certain measures the regulator has taken, such as changes to rules for appraisals, will help both credit unions and borrowers. The board approved an interim rule that allows institutions to delay appraisals for mortgages for up to four months after the loan closes. And the agency has also considered a final rule that would increase the threshold needed for an appraisal from $250,000 to $400,000, though that measure predates the coronavirus.

Hood also asked Congress for a variety of other measures, such as raising the member business lending cap, making temporary changes to the Central Liquidity Facility permanent and decreasing requirements for being considered well and adequately capitalized.
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