NCUA Fidelity and Bond Coverage: Is There a Policy for That?

Can a credit union consider the marital status of a Washington and Idaho resident when underwriting a loan?

10/29/2019

Hand holding the word "compliance."

The National Credit Union Administration’s final rule amending credit unions’ fidelity and bond coverage went into effect on Oct. 22. The final rule strengthened the role of the board of directors for federally insured credit unions in the oversight of fidelity and other insurance coverage.

The board of directors of a credit union is responsible for annually reviewing all applications for the purchase or renewal of coverage to ensure that there is adequate coverage. The board approval of the purchase and renewal of coverage should be documented in the form of a board resolution in the board meeting minutes. The final rule changes the standard practice of employees signing renewal documents.  Employees can no longer sign any renewals. Those must be signed by a non-employee and one that is different from the signatory that signed the prior renewal.

Any new purchases of bond coverage or renewals will need to be a board resolution which needs to be noted in the meeting minutes.

This has led to some questions on a model policy that incorporates these changes. Look no further than CU PolicyPro model Policy 1220: Bond and Insurance Coverage. This policy was updated on Oct 1. to include the changes from the NCUA’s final rule.

Question of the Week:

Q. Can a credit union consider the marital status of a Washington and Idaho resident when underwriting a loan?

A. Yes. Although the Equal Credit Opportunity Act states that when an applicant applies for individual unsecured credit, the credit union is prohibited from inquiring about the applicant’s marital status, there are two exceptions.

A credit union can consider the applicant’s marital status if the applicant resides in a community property state or is relying on property located in such a state as a basis for repayment of the credit requested. Washington and Idaho are community property states. If an application is for other than individual unsecured credit, a credit union may inquire about the applicant’s marital status, but may use only the terms married, unmarried, and separated.

A community property state requires that any property acquired after marriage by either spouse, is owned equally by each spouse. Community property law prohibits a spouse from creating community debt without the consent of the other spouse. A spouse cannot buy or sell community real property without the other spouse joining in the transaction. Further, a spouse cannot create a security interest in any community household goods, furnishings, appliances, or a community mobile home unless the other spouse joins in executing the agreement. Therefore, a credit union can require the signature of both spouses in order to make the community property available to satisfy the loan in the event of default. Otherwise, the applicant must have sufficient separate property (property acquired before marriage, gifts or inheritance) to qualify for the loan without regard to community property.

Oregon is not a community property state, so credit unions would not inquire about marital status.

Legal Briefs

National Credit Union Administration

NCUA Board Approves Public Unit and Nonmember Shares Final Rule

The NCUA Board is amending the NCUA’s public unit and nonmember share rule to allow federal credit unions to receive public unit and nonmember shares up to 50 percent of the credit union’s net amount of paid-in and unimpaired capital and surplus less any public unit and nonmember shares.

NCUA Board Approves Proposed FOM Rule

The NCUA Board is proposing to amend its chartering and field of membership rules to re-adopt a provision to allow an applicant to designate a Combined Statistical Area, or an individual, contiguous portion thereof, as a well-defined local community, provided that the chosen area has a population of 2.5 million or less.

Financial Account Standards Board

FASB Approves CECL Effective Date Delay

FASB approved the delay in CECL effective date. Credit unions will now have until Jan. 1, 2023, to prepare to implement CECL.

FASB Announces Upcoming CECL Implementation Workshops and Webinars

The CECL Implementation Workshops are a series of 90 to 120-minute interactive sessions presented by FASB staff experts at various conferences and other venues around the country. The workshops focus on credit loss reserve estimation techniques, including the weighted average remaining maturity method; answers to frequently asked questions; and other common implementation issues credit unions may face. There will also be a Dec. 19 webinar in conjunction with CUNA.

Consumer Financial Protection Bureau

CFPB to Host Symposium on Nov. 6

The CFPB will hold a symposium on Section 1071 of the Dodd-Frank Act. Section 1071 amended the Equal Credit Opportunity Act to require financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of Oct. 23. The last update before this was Oct. 14.

­­­­­­­­­­­­­­­­­­Questions? Contact the Compliance Hotline: 1.800.546.4465; [email protected].