NCUA Releases 2020 Supervisory Priorities

New priorities help prepare credit unions for upcoming regulatory examinations.

1/14/20

The National Credit Union Administration issued Letter to Credit Unions 20-CU-01, which provides insight into the NCUA’s supervisory priorities for 2020. This information is useful in helping credit unions prepare for their next NCUA exam.

In addition, the Letter to Credit Unions provides updates on the NCUA’s exam modernization initiatives and statutory and regulatory updates.

2020 Supervisory Priorities

BSA/AML Compliance – BSA/AML compliance will continue to be a priority. NCUA examiners will conduct BSA/AML reviews during every exam. Ongoing emphasis will focus on customer due diligence and beneficial ownership requirements. In addition, the NCUA will continue to focus on proper filing of SARs and CTRs.

Consumer Financial Protection – The NCUA has identified several specific consumer financial protection regulations that will be reviewed in examinations. In 2020, NCUA examiners are required, at minimum, to review compliance with the following consumer protection regulations:

  • Electronic Fund Transfer Act (Regulation E): Examiners will evaluate Electronic Fund Transfer (EFT) policies and procedures and review initial account disclosures. Examiners will also review compliance with Regulation E’s error resolution procedures for when consumers assert an error.
  • Fair Credit Reporting Act (FCRA): Examiners will review credit reporting policies and procedures. If applicable, examiners will also review the accuracy of reporting to credit bureaus, particularly the date of first delinquency.
  • Gramm-Leach-Bliley (Privacy Act): Examiners will continue to assess compliance with Gramm-Leach-Bliley to evaluate credit union protection of non-public personal information about consumers.
  • Small-Dollar Lending (Including Payday Alternative Lending): Examiners will test for compliance with NCUA Payday Alternative Lending (PALs) rules and interest rate cap. In addition, examiners will determine whether a credit unions’ short-term, small-dollar loan programs that are not PALs comply with regulatory requirements.
  • Truth in Lending Act (Regulation Z): Examiners will evaluate credit union practices concerning annual percentage rates and late charges. These reviews will assess how credit unions apply loan payments to principal, interest, fees, and other charges, and whether the application is consistent with the written agreement and disclosures. Examiners will also review whether credit unions appropriately levy late fees, as well as test whether credit unions are accurately disclosing finance charges and annual percentage rates.
  • Military Lending Act (MLA) and Servicemembers Civil Relief Act (SCRA): MLA and SCRA have been a supervisory priority since 2017 and will remain so for 2020. For credit unions that have not received a recent review, examiners will review credit union compliance with the MLA and SCRA.

Credit Risk – NCUA examiners will place emphasis on the review of the credit unions’ loan underwriting standards and procedures, verifying that credit unions properly analyze the ability of borrowers to meet debt service requirements without undue reliance on the value of any collateral, in particular. In addition, examiners will continue to review concentration risk exposure during each examination.

Current Expected Credit Losses – Even with the delay in the effective date for credit unions to comply with CECL, examiners will continue to discuss with credit union management their plans to implement CECL.

Information Systems and Assurance (Cybersecurity) – In 2018, the NCUA began using the Automated Cybersecurity Examination Tool (ACET) to assess credit unions’ cybersecurity maturity. An updated version will be released in 2020, and credit unions will be able to complete self-assessments using the new ACET. In 2020, the NCUA will begin completing assessments for credit unions with assets over $100 million.

LIBOR Cessation Planning – Examiners will assess credit unions’ exposure and planning related to the discontinuation of LIBOR. The review will cover:

  • Identification of all LIBOR-related transactions, including both on- and off-balance sheet exposures (number of transactions and balance amounts).
  • Planning, governance, senior executive engagement, budgeting, accounting, and addressment of other impacts related to the transition and discontinuance of LIBOR.

Liquidity Risk – For 2020 examinations, examiners will review credit union liquidity management and planning for credit unions with low levels of on-balance sheet liquidity, in particular.

Modernization Updates

NCUA Connect – NCUA Connect is a secure, common entry point for authorized users to access NCUA applications. In 2020, NCUA Connect will be made available to all credit unions and state regulators.

MERIT – The NCUA has conducted a limited launch of the agency’s new examination platform, the Modern Examination and Risk Identification Tool (MERIT). MERIT will be released to all examination staff in the second half of 2020.

Other Modernization Initiatives – The NCUA’s Enterprise Solution Modernization program has several other initiatives underway to improve and modernize legacy agency systems, such as CUOnline.

Statutory and Regulatory Updates

With a number of recent changes to laws and regulations, the NCUA indicated that the examination program has been updated to reflect these changes. The changes highlighted in the Letter to Credit Unions include:

  • Commercial Real Estate Appraisal Rule
  • Private Flood Insurance Rule
  • Public Unit and Nonmember Shares Rule
  • Serving Hemp Businesses
  • Supervisory Committee Audits Rule

Question of the Week

Q. Is there a limit on how many direct deposits an account can receive from the IRS for tax refunds?

A. Yes. In order to combat fraud and identity theft, the Internal Revenue Service (IRS) limits the number of tax refunds that can be deposited to a single financial account to just three direct deposits. If the IRS receives refund requests beyond the limit for the same account, the IRS will issue a notice to the taxpayer informing them that the account has exceeded the direct deposit limits and that they will receive a paper check in approximately four weeks.

Legal Briefs

National Credit Union Administration (NCUA)

Operating Fee Schedule Adjusted for 2020
The NCUA released Letter to Federal Credit Unions 20-FCU-01, which discusses the 2020 Operating Fee Schedule that will help federal credit unions calculate the exact amount for the credit unions’ 2020 operating fee.

2020 Supervisory Priorities
The NCUA released Letter to Credit Union 20-CU-01, which describes the NCUA’s supervisory priorities for 2020 that can assist credit unions in preparing for their next NCUA exam. Not only does the letter to credit unions discuss the 2020 supervisory priorities (BSA, Consumer Financial Protection, Credit Risk, CECL, Cybersecurity, LIBOR Cessation Planning, and Liquidity Risk), but it also includes information on the NCUA’s modernization program and statutory and regulatory updates.

Other Supervisory Committee Audits
The NCUA issued a regulatory alert to inform federally insured credit unions about the newly published Other Supervisory Committee Audit Minimum Procedures Guide.

Consumer Financial Protection Bureau (CFPB)

Advisory Committees Solicitation of Application for Membership
The CFPB invites the public to apply for membership for appointment to its Consumer Advisory Board, Community Bank Advisory Council, Credit Union Advisory Council, and Academic Research Council.

Washington State Department of Financial Institutions Division of Credit Unions (Division)

Strategic Initiatives and Exam Focus for 2020
The DCU released DCU Bulletin B-20-01, which lists the Division’s strategic initiatives and examination focus for 2020. The initiatives include: Successfully Implement the Restructure of the Division, Perform More Offsite Exam Work, Successfully Implement Using the New NCUA MERIT, and Reconfigure How IT Security Exams are Performed. The Division’s exam focus for 2020 includes Cybersecurity, Consumer Protection Law Compliance, Liquidity, and Business Continuity/Disaster Recovery Testing.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of Jan. 10. The last update prior to this was Jan. 3. ­­­­­­­­­­­­­­­­­­

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