Top credit union regulator calls for CECL exemption

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Rodney Hood, chairman of the National Credit Union Administration, is pushing for credit unions to be exempt entirely from the Current Expected Credit Losses methodology.

NCUA Chairman Rodney Hood
NCUA Chairman Rodney Hood

In an April 30 letter to Russell Golden, chairman of the Financial Accounting Standards Board, Hood argued that “compliance costs associated with implementing CECL overwhelmingly exceed the benefits” and that there will be an immediate “negative impact on net worth.”

He asked for, at a minimum, a “private company council alternative” that uses the “framework of the incurred loss methodology,” according to the letter.

“I respectfully urge the FASB to consider providing a permanent exemption of CECL implementation for credit unions,” Hood added.

Credit unions and their advocates have long pushed for the CECL standard not to apply to credit unions or for a delay in implementation so institutions could properly prepare. Those complaints have continued as the coronavirus pandemic has decimated the U.S. economy.

CECL, which requires lenders to estimate their anticipated losses over the life of a loan, are scheduled to go into effect in January 2023 for credit unions. FASB granted the industry a one-year delay in 2019.

The additional time credit unions were given to prepare for CECL is now being used to help members during the coronavirus pandemic, Hood said.

“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.”

Nearly 70% of the roughly 5,200 credit unions the NCUA oversees hold less than $100 million in assets, and the regulator uses the incurred loss model for its exams. Smaller institutions could face challenges in data collection needed to comply with CECL, the letter argued.

Because of that, even using the weighted average remaining maturity method will be difficult.

“In short, CECL provides insufficient advantages over the incurred loss model to support implementing CECL in the credit union system, especially under the current economic conditions,” Hood wrote.

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CECL Coronavirus Law and regulation Compliance Lending Loan-loss provisions FASB NCUA