NCUA Details Financial Literacy Requirement

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ALEXANDRIA, Va. — As NCUA prepared to release a letter to credit unions further clarifying requirements regarding the new director financial literacy standards for federal credit unions, Credit Union Journal spoke with NCUA Associate General Counsel Paul Peterson to gain insights into the new rule, including how NCUA will enforce the new provisions.

Directors of federal credit unions elected or appointed on or before Jan. 27, 2011, including those directors serving prior to NCUA finalization of the rule, must be in compliance with the financial literacy requirements by July 27, 2011. Directors elected or appointed after Jan. 27 must satisfy the financial literacy requirements within six months following seating.

Credit Union Journal: The new rule states that directors of federal credit unions must have a working familiarity with basic financial and accounting practices, such as the ability to read and understand financial statements. Can you provide more detail on what directors will need to know?
Peterson: In a nutshell, three things.

• Directors must be able to look at financial statements, balance sheet and income statements, and understand what the non-zero line items mean—how they are important to the credit union and what it means if they are changing over time.

• They need to know and understand the types of risks that depository institutions face. There are seven categories of risk listed at the beginning of the federal credit union handbook, such as credit risk, interest rate risk, market risk, and reputation risk.

• They must understand what internal controls are in place at their credit union to deal with those risks.

And just as a reminder, these standards do not apply to state-chartered credit unions.

CUJ: What will credit unions have to do to comply with the new rule when their examiner stops by?
Peterson: Credit unions will need to develop a training policy for their directors. They will have to develop that policy considering the size and complexity of their credit union, and base it on the financial skills their directors have. Some directors may not need any training. For example, if a director is currently a CPA and you put in your training policy that being a CPA is sufficient for a director to meet the new standards, that probably will work. For directors who need financial skills, the policy might say the credit union requires the person complete training courses X, Y, and Z. So the credit union will lay out what it thinks is sufficient training and then document that each director who needs the education has completed the courses.

The only thing NCUA may challenge is whether the policy is sufficient for the complexity of the credit union. In other words, when examiners come in they will not be asking questions of individual directors, they will look at the training policy to see if it meets the needs of the credit union and its board.

CUJ: I assume that means the director training policy should be in place well before July 27 and that directors will need to complete training, if the policy states they need it, by the July deadline?
Peterson: Correct.

CUJ: You have already stated that NCUA will provide training for smaller CUs through a series of workshops run by the Office of Small Credit Union Initiatives?
Peterson: Yes. They will begin in March and run throughout the year. We will not place a bright line on the asset size of the credit union that can assign directors to take these courses. The credit union will have to decide on its own, given its size and complexity, if the training meets their needs. We will also have training DVDs available by the end of June that could be part of a credit union's training policy.

CUJ: Will NCUA permit credit unions to conduct training in-house if they have the skill?
Peterson: That is hard to say. If a credit union has a CPA in-house, for example, and they come up with a detailed lesson plan that covers the key requirements of the new standards, and there is proof that directors completed the training and that there has been some assessment of what they learned, our examiners might be fine with that. It is hard for me to make a general statement about this without knowing the specifics of the credit union. But the rules do not require that directors take external training.

CUJ: Will NCUA deliver guidance to examiners on how they should assess training policies so that examiner decisions regarding these new standards are consistent?
Peterson: At this time we have not developed any specific examiner guidance beyond what is in the latest letter to credit unions. Quite a bit of information is in that letter. I can't say at this time if we will deliver examiner guidance in the future, it may depend on what happens in the coming year and how implementation of the new rule goes.

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