NCUA Approves Interagency Guidance on Current Expected Credit Losses

Credit unions should review the policy statement as it applies to financial assets.

2/25/2020

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The National Credit Union Administration, along with the other federal financial institution regulators, approved an Interagency Policy Statement on Allowances for Credit Losses.

The interagency policy statement becomes applicable to a credit union upon the adoption of the Financial Accounting Standards Board’s (FASB) current expected credit losses (CECL). The policy statement describes the measurement of expected losses under the CECL methodology and the accounting for impairment on available-for-sale debt securities. In addition, the policy describes the design, documentation, and validation of expected credit loss estimation processes, including the internal controls over those processes; the maintenance of appropriate allowance for credit losses (ACL); the responsibilities of boards of directors and management; and examiner reviews of ACLs.

The CECL methodology described in FASB ASC Topic 326 applies to financial assets measured at amortized cost, net investments in leases, and off-balance-sheet credit exposures including:

  • Financing receivables such as loans held-for-investment;
  • Overdrawn deposit accounts (i.e. overdrafts) that are reclassified as held for investment loans;
  • Held-to-maturity debt securities;
  • Receivables that result from revenue transactions within the scope of Topic 606 on revenue from contracts with customers and Topic 610 on other income, which applies, for example, to the sale of foreclosed real estate;
  • Reinsurance recoverables that result from insurance transactions within the scope of Topic 944 on insurance;
  • Receivables related to repurchase agreements and securities lending agreements within the scope of Topic 860 on transfers and servicing;
  • Net investments in leases recognized by a lessor in accordance with Topic 842 on leases; and
  • Off-balance-sheet credit exposures including off-balance-sheet loan commitments, standby letters of credit, financial guarantees not accounted for as insurance, and other similar instruments, except for those within the scope of Topic 815 on derivatives and hedging.

The CECL methodology does not apply to the following financial assets:

  • Financial assets measured at fair value through net income, including those assets for which the fair value option has been elected;
  • Available-for-sale debt securities;
  • Loans held-for-sale;
  • Policy loan receivables of an insurance entity;
  • Loans and receivables between entities under common control; or
  • Receivables arising from operating leases.

Question of the Week

Q. Who is the member or customer when an account is opened by an individual who has power of attorney?

A. It depends. A FAQ released by FinCEN regarding the customer identification program (CIP) sheds some light on this issue:

The CIP rule provides that a “customer” generally is “a person that opens a new account.” When an account is opened by an individual who has power of attorney for a competent person, the individual with a power-of-attorney is merely an agent acting on behalf of the person that opens the account. Therefore, the “customer” will be the named owner of the account rather than the individual with a power of attorney over the account. By contrast, an individual with power of attorney will be the “customer” if the account is opened for a person who lacks legal capacity. 31 C.F.R. § 1020.100(c)(1)(i).

Resources

31 CFR 1010.100(c)

31 CFR 1020.220

FinCEN Guidance on Customer Identification Regulations

Legal Briefs

National Credit Union Administration (NCUA)

Interagency Policy Statement on Allowances for Credit Losses
The NCUA board approved an interagency policy statement that provides supervisory guidance to financial institutions measuring credit losses under the current expected credit loss (CECL) methodology and on changes in accounting standards. The policy statement is effective at the time of each institution’s adoption of CECL.

February 2020 Board Results
The NCUA released the board results from the February 2020 board meeting, which focused on the following: the status of the share insurance fund, a study that shows credit union members pay lower interest rates on mortgages, the interagency CECL policy statement, and a proposed rule that makes corporate credit union regulation changes.

Consumer Financial Protection Bureau (CFPB)

Five Ways to Recognize a Social Security Scam
The CFPB released a consumer blog post aimed to help people learn how they can protect themselves and others from Social Security scams.

Symposium on Consumer Access to Financial Records
The CFPB will host a symposium on Feb. 26, to elicit a variety of perspectives on the current and future state of the market for services based on consumer-authorized use of financial data.

Supplemental Proposed Rule on Time-Barred Debt
The CFPB issued a supplemental proposal for changes to activities of debt collectors and require debt collectors to make certain disclosures when collecting on time-barred debts.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of Feb. 20. The last update prior to this was Feb. 18.

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