NCUA Updates its 2020 Supervisory Priorities
The updated priorities include BSA and CARES Act compliance, consumer financial protection, credit risk management, cybersecurity, and more.
The National Credit Union Administration has issued Letter to Credit Unions 20-CU-22, which provides updates to its 2020 supervisory priorities to reflect economic conditions that emerged in response to the COVID-19 pandemic. The 2020 updated supervisory priorities are:
Bank Secrecy Act Compliance/Anti-Money Laundering
NCUA examiners will continue to focus on BSA/AML reviews in every exam. Customer due diligence and beneficial ownership requirement will continue to be ongoing areas of emphasis.
Coronavirus Aid, Relief, and Economic Security Act
NCUA examiners will review the credit union’s good faith efforts to comply with the CARES Act. There are several CARES Act provisions that directly affect credit unions including:
- Provide greater access to liquidity, and improve the general financial stability of member credit unions through changes to the Central Liquidity Facility;
- Suspend the requirement to categorize certain loan modifications related to the COVID-19 pandemic as troubled debt restructurings (TDRs);
- Authorize the Small Business Administration to create the Paycheck Protection Program, a loan guarantee program to assist eligible businesses;
- Change requirements for reporting loan modifications related to the COVID-19 pandemic to the credit reporting agencies;
- Prohibit foreclosures on all single family, federally backed mortgage loans between March 18 and May 17. Fannie Mae, Freddie Mac, FHA, VA and USDA subsequently extended the prohibition to June 30. The foreclosure moratorium expiration for mortgages purchased by Fannie Mae and Freddie Mac currently extends until Aug. 31;
- Provide up to a 360-day forbearance for borrowers with a single-family, federally backed mortgage loan that experience a financial hardship related to the COVID-19 pandemic; and
- Provide up to a 90-day forbearance for borrowers with a multifamily, federally backed mortgage loan that experience a financial hardship related to the COVID-19 pandemic.
Consumer Financial Protection
The NCUA will continue to examine for compliance with several consumer financial protection regulations:
- Regulation E – Policies and procedures for initial account disclosures as well as error resolution
- Fair Credit Reporting Act – FCRA compliance with a focus on date of first delinquency
- Gramm-Leach-Bliley (Privacy Act) – Looking at protection of non-public personal information
- Small dollar lending – NCUA PAL loans and interest rate caps
- Truth in Lending – Focus on APR and late charges and whether finance charges and annual percentage rates are accurately disclosed, and late fees are levied appropriately
- Military Lending Act and Servicemembers Civil Relief Act – Review of compliance with MLA and SCRA requirements
Credit Risk Management and Allowance for Loan and Lease Losses
In response to the economic impact of COVID-19 and subsequent regulatory and statutory changes, the NCUA is shifting its emphasis to reviewing actions taken by credit unions to assist borrowers facing financial hardship. The NCUA will also review the adequacy of loan and lease losses (ALLL) accounts to address the pro-cyclical effects of economic downturns.
NCUA examiners will review credit union policies and the use of loan workout strategies, risk management practices, and new strategies implemented to assist borrowers impacted by the COVID-19 pandemic, including new programs authorized through the CARES Act. In particular, examiners will evaluate a credit union’s controls, reporting, and tracking of these programs. Examiners will also ensure credit unions have evaluated the impact of COVID-19 pandemic decisions on their capital position and financial stability.
The NCUA will continue to use the Automated Cybersecurity Examination Tool cybersecurity maturity assessments, to evaluate each credit union’s critical controls.
LIBOR Transition Planning
Examiners will continue to assess credit unions’ exposure and planning related to a transition away from LIBOR. For credit unions with exposure to LIBOR, examiners will continue to conduct reviews.
The economic impact of the COVID-19 pandemic may result in additional stress on credit union balance sheets, potentially requiring robust liquidity management over the course of 2020 and into 2021. As a result, examiners will continue to review liquidity risk management and planning in all credit unions, and will place emphasis on:
- The effects of loan payment forbearance, loan delinquencies, projected credit losses and loan modifications on liquidity and cash flow forecasting;
- Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors (for example, changing prepayment speeds);
- Scenario analysis for liquidity risk modeling, including changes in share compositions and volumes;
- The potential effects of low interest rates and the decline of credit quality on the market value of assets, funding costs and borrowing capacity; and
- The adequacy of contingency funding plans to address any potential liquidity shortfalls.
Serving Hemp-Related Businesses
NCUA examiners will continue to collect data through the examination process concerning the types of services credit unions provide to hemp-related businesses.
Question of the Week
Q. Can a credit union open a donation or memorial account? If so, how do we open this type of account?
A. Yes, your credit union can open donation and memorial accounts, but there are many concerns to think about before opening such an account. The first issue is that there is virtually no way for the credit union to set up the account and have it be tax deductible unless someone creates an organization that meets the IRS requirements. Someone would have to go through the steps to obtain a tax id number (TIN) and create a foundation or charity, or something along those lines, before any donations would be tax deductible. This may confuse members who assume that a donation would be tax deductible.
Second, a credit union can open a donation account using the member’s SSN who wanted to create the account, but donors need to be aware that any funds donated to the account belong to the account owner who is not obligated to spend the funds in any particular way. Also, the interest earned on the account, if it were an interest-bearing account, would have to be reported to the IRS using the person’s SSN. Further, if the credit union were to set up the account itself, it could create tax and liability issues, so a consultation with an attorney and tax professional is strongly recommended before engaging in this practice.
Lastly, if a credit union decides to open a donation or memorial account for a member, the credit union should consider that they may get additional requests from other members in the future. As a result, it would be important for the credit union to determine which causes the credit union would be willing to open an account for and create a policy to ensure consistency.
In summary, a credit union can set up a donation account using anyone’s SSN that wants to create the account. The credit union can even direct checks to be made payable to the John Smith Memorial Fund, for example. However, the risk is that the individual who controls the account is not required to use the funds for anything in particular and the donations are not tax deductible unless an actual IRS approved organization is created.
National Credit Union Administration
Updates to NCUA’s 2020 Supervisory Priorities
The NCUA released Letter to Credit Unions 20-CU-22, which provides updates to the NCUA’s 2020 supervisory priorities. The changes reflect the economic conditions that have emerged in response to the COVID-19 pandemic.
COVID-19 Urgent Need Grants Fully Utilized
Funding for the COVID-19 urgent need grants initiative has been fully utilized and new applications will no longer be accepted.
Consumer Financial Protection Bureau
CFPB Releases Online Tool to Help College Students Determine How to Pay for College
The CFPB issued “Your Financial Path to Graduation” web tool designed to help students clearly understand the total cost of attending college and make informed decisions about paying for their education.
CFPB Releases Updated COVID-19 Consumer Complaint Data
The CFPB released an updated Complaint Bulletin of complaints that mentioned coronavirus or related terms.The majority of the complaints were for borrowers struggling with mortgage payments or information reported to credit bureaus, followed by credit cards.
CFPB Releases Annual Regulation Z Threshold Adjustments
The CRPB released the annual Regulation Z threshold adjustments for credit cards, HOEPA, and Qualified Mortgages.
Equifax Data Breach Settlement
A website has been launched for credit unions to file claims in the Equifax Data Breach Settlement.The settlement provides for up to $4.50 per alerted-on payment card as well as up to $5,000 per financial institution for its documented damages claim resulting from PII theft for class members.
Federal Reserve Board
Interim Final Rule Extending SBA PPP Loans to Businesses Owned by Directors
The FRB issued an interim final rule which extended the ability for financial institution SBA PPP Lenders to issue loans to businesses owned by their directors and certain shareholders subject to certain limits, and without favoritism.The IFR allows these loans to be made through Aug. 8.
Internal Revenue Service
IRS Unveils ‘Dirty Dozen’ List of Tax Scams for 2020
The IRS announced its annual “Dirty Dozen” list of tax scams with a special emphasis on aggressive and evolving schemes related to coronavirus tax relief, including Economic Impact Payments.
Financial Crimes Enforcement Network
FinCEN Alerts Financial Institutions to Convertible Virtual Currency Scam Involving Twitter
FinCEN released an alert to financial institutions in light of recent breaches of high-profile Twitter accounts and a convertible currency scam.
Office of Foreign Assets Control
OFAC has updated the SDN list as of July 17. The last update prior to this was July 10.
Questions? Contact the Compliance Hotline: 1.800.546.4465; [email protected].