Washington State DCU Issues Examination Focus Update

The update provides more details on the four focus areas examiners will review amid the pandemic.

6/9/20

The Washington State Department of Financial Institution’s Division of Credit Unions (DCU) has issued DCU Bulletin B-20-02,which provides more detail regarding the specific items examiners will review in light of the COVID-19 pandemic. The four 2020 exam focus areas are listed in the bulletin which also emphasizes the importance of making adjustments to the allowance for loan and lease losses funding analysis during an economic downturn.

The DCU’s 2020 examination focus areas continue to be:
  1. Cybersecurity
  2. Consumer protection law compliance
  3. Liquidity
  4. Business Continuity/Disaster Recover Testing

Cybersecurity
The pandemic has shifted credit union operations to a never seen before telework environment. Telework and remote access can pose greater exposure to the credit union’s network, systems and data. The DCU is recommending that credit unions review their network protections and determine if enhancements are needed to align with this new telework environment.

Consumer Protection Law Compliance
Many credit unions are taking action to assist members during the COVID-19 pandemic. The focus of the DCU review will include the policies and/or procedures for implementing the relief options offered by the credit union.

Liquidity
Credit unions have recently experienced an increase in deposits and decreased loan demand leading to increased cash and short-term investments. Examiners will review the credit union’s liquidity policy, procedures and practices for compliance with the liquidity and funding plan requirements that are listed in the NCUA’s regulations, and if need be, discuss the credit union’s plans for putting to use any excess liquidity.

Business Continuity/Disaster Recovery Testing
The DCU is recommending that credit unions review and update their business continuity plans (BCPs) accordingly to determine if any additional actions should be taken to minimize the potential adverse effects of the pandemic.

Allowance for Loan and Lease Loss Account Funding Considerations
Credit unions should be proactive in evaluating and considering adjustments to their ALLL funding methodology during an economic downturn in order to better predict future loan losses. DCU examiners will discuss with management whether the credit union has adjusted its ALLL account funding analysis due to expected losses because of the COVID-19 pandemic. If so, examiners will want to know what factors were involved in the decision to increase the ALLL account balance. ALLL account funding should take into consideration qualitative and environmental factors, such as economic, political, geographical and industrial factors. Examiners will consider the credit union’s size, its lending program complexity, and the inherent risks in its loan portfolio when evaluating the credit union’s ALLL funding analysis.

Question of the Week

Q. We are going to institute a new fee for non-member check cashing. Do we have to send out a 30-day advance change in terms notice?

A. No. Truth in Savings only requires the credit union to send a change in terms notice for any change in a term that is required to be disclosed under 707.4, if the change may reduce the annual percentage yield or adversely affect the member. However, a fee for non-member check cashing would not fall into this category.

The credit union would want to update its fee schedule and make the non-member aware of the fee prior to cashing the check.

Related Links

12 CFR 707.4
12 CFR 707.5
Truth in Savings Commentary

Legal Briefs

National Credit Union Administration (NCUA)

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Consumer Financial Protection Bureau (CFPB)

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NACHA

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Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of June 8. The last update prior to this was May 27.

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