Board Financial Literacy Deadline Looms

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WASHINGTON-This week will mark the deadline for compliance with the first-ever rules requiring that board members at federal credit unions demonstrate they are financially literate and can read a balance sheet.

The rules, enacted by NCUA in the wake of numerous natural-person CU failures in which boards seemingly were unaware of the actual nature of their credit union's financial performance, require directors to have a "working familiarity with basic finance and accounting practices."

The agency told Credit Union Journal it has not yet begun tracking compliance with NCUA Rule 701.4 but will begin doing so after the July 27 implementation date.

NCUA sent a Letter to Federal Credit Unions (11-FCU-02) in February regarding financial literacy requirements. David Small, NCUA spokesman and assistant director, public affairs, told Credit Union Journal "Our examination staff is using the letter to credit unions and the regulation itself as their underpinnings in the examination. For individual credit unions, if the examiners find violations, they are addressing them there. We have not done any aggregating of data at the national level."

To date, more than 4,000 people have attended an NCUA-sponsored financial literacy program for directors, and another 300 have participated online. The agency's Office of Small Credit Unions has also been conducting workshops. Numerous other providers, including state and national associations, have also quickly rolled out financial literacy programs for directors in the wake of the new rules, and Small said board members alternatively may take those, as well.

"Generally, the workshops are being received very well based on post-workshop survey feedback," he said. "In 2010 we held 50 financial literacy clinics, with 2,504 people attending from 656 CUs. So far in 2011, we have held 17 workshops with 1,655 attending."

Board financial literacy programs have been developed by several trade associations and vendors, Small noted, adding, "Even state-chartered CUs, which are not obligated to comply, are taking this initiative seriously."

CUs 'Ready to Meet Requirement'

NAFCU has issued 1,410 financial literacy certificates to date. Jay Morris, SVP of communications for the trade group, said the NAFCU Certificate of Financial Literacy for Directors is given to those who have attended one of its Webcasts or breakout sessions on financial literacy/reading financial statements.

"The program has done quite well," he said. "It is our feeling that the vast majority of credit unions are ready to meet this new requirement, either because of training programs they already have in place or because of education offered by NAFCU and other providers, including the NCUA itself."

The National Association of State Credit Union Supervisors (NASCUS) has been holding Directors Colleges for board members since 2008, according to Kate Hartig, VP of public relations and legislative affairs. She said state regulators the trade group works with suggested it create the program long before the NCUA requirement.

"There is a recognition that the environment is becoming much more difficult to keep up with," she said. "There are many complex issues directors need to deal with."

In the last three years NASCUS has hosted approximately 12 colleges, with 900 directors trained.

"We have been to some states a couple of times," said Hartig. "It is a great program. The agenda includes compliance issues and financial statement review. Usually the regulator from that state discusses the exam process."

The next scheduled NASCUS Directors College will take place in Illinois.

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