Regulators Update CECL FAQ

Until CECL becomes effective, credit unions must continue to follow current Allowance for Loan and Lease Losses methodology.

4/9/2019

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The National Credit Union Association, along with other Federal Financial regulators, recently released updates to the Current Expected Credit Loss (CECL) FAQs. The updates build on the FAQs that were already issued in 2016 and 2017 and include:

  • Updates to questions 4, 18, 34, and 35
  • New FAQs 38-46

Until CECL becomes effective, credit unions must continue to follow the current Allowance for Loan and Lease Losses (ALLL) methodology. At this time, the effective date for credit unions to start using CECL is for fiscal years beginning Dec. 15, 2021, including interim periods within those fiscal years.

While there is no requirement, credit unions may wish to run a parallel run (dry run) of CECL to see how their loans and allowances will fare under the new standard. The parallel runs should demonstrate the difference between credit unions’ current ALLL approach and CECL. This should help credit unions explore any gaps and make strategic decisions about controls, pricing, products, and underwriting.

A good parallel run should have three guiding principles:

  • Planning resources to allow a parallel run in tandem with current business processes;
  • Ensuring that credit unions’ CECL process works;
  • And making sure that credit unions have two full parallel cycles before they go live with CECL.

Don’t forget there is an “Ask the Regulators” CECL webinar on April 11. Credit unions may register for the webinar here: https://www.ncua.gov/newsroom/press-release/2019/registration-open-april-11-cecl-webinar.

Question of the Week

Q. If there are two members on a joint account, and one joint account owner acting alone wants us to either close the account or to remove the other member, should we do this?

A. An account is a contract, and an account with two joint owners is an account between three entities: joint owner No. 1, joint owner No. 2, and the credit union. Even though joint owner No. 1 and the credit union are agreeing to close the account or to remove the other joint owner’s name, if joint owner No. 2 has not agreed to do this, then the other two people are breaching the contract. However, the credit union can add language to its Membership and Account Agreement that says that one member can close the account. If this language is in the agreement, then the credit union will not be liable if it allows one member to close the account.

Legal Briefs

National Credit Union Administration (NCUA)
NCUA released the final rule making updates to 701.21 and published updated CECL FAQs on its website.

Federal Reserve Board (FRB)
Federal Banking agencies issued a proposed rule to limit interconnectedness of large banking organizations and reduce the impact from failure of the largest banking organizations.

Office of Foreign Assets Control (OFAC)
OFAC has updated the SDN list as of April 5. The last update prior to this was March 26.

Questions? Contact the Compliance Hotline: 1.800.546.4465; compliance@nwcua.org.