NCUA Updates its 2020 Supervisory Priorities

The updated priorities include BSA and CARES Act compliance, consumer financial protection, credit risk management, cybersecurity, and more.

7/21/2020Hand holding the word "compliance."

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.

Cybersecurity

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.

Liquidity Risk

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.

Related Links

IRS FAQ- Charitable Organizations

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