DCU Releases 2021 Exam Focus and Strategic Initiatives

The Division of Credit Unions for the Washington State Department of Financial Institutions released DCU Bulletin B-21-01, which provide an overview of the Division’s examination focus and continued initiatives for 2021.

Exam Focus:

Allowance for Loan and Lease Losses:

In anticipation of a possible economic downturn, DCU examiners will discuss with management whether the credit union had adjusted ALLL account funding analysis due to expected losses because of the pandemic.

Changes in Asset Quality:

As credit unions have worked with their members, many have implemented options such as forbearance, skip a pay, and modification agreements. Examiners will review underwriting at loan origination and the how pandemic related programs were implemented, what monitoring is in place and what the credit union is anticipating for future payments.

Potential Interest Rate Risk Changes:

Examiners will closely evaluate and review each credit union’s overall IRR management program and balance sheet composition and analyze compliance with NCUA regulations.

Examiners will review the following main factors when evaluating a credit union’s overall IRR level and its IRR management program:

  • The current and projected levels of net income and net worth;
  • The ability of management, including the board of directors, to manage and control IRR;
  • The ability of staff and management to accurately measure and assess IRR exposure;
  • The credit union’s current IRR trend; and
  • Whether the credit union’s asset liability management and IRR strategies and practices are consistent with anticipated market interest rate changes and board approved IRR tolerance limits.


Credit unions have recently experienced an unprecedented increase in deposits coupled with 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 listed in NCUA regulations.

Network Security/CyberSecurity:

DCU recommends that credit unions review their network protections and determine if enhancements are needed to align with this new telework environment. Some specific review areas of network protections will include at least the following:

  • Policies and procedures for remote access, including how to process a remote access request and remote access termination.
  • Review of network authentication, password limitations, and privacy law safeguards.
  • Review and updating monitoring systems.
  • Review and updating incident response plans.
  • Limiting a user’s access rights to what is necessary for them to do their work.

Performing Comprehensive Review of New Program Offerings and Vendors:

Examiners will closely review new program offerings, especially new lending programs, to assess whether risks are properly managed and controlled. Examiners will also evaluate whether satisfactory due diligence is performed on new vendors and whether effective vendor oversight is performed on an ongoing basis.

Credit unions must be proactive in performing due diligence over new programs and vendors, rather than being reactive in nature when problems occur. Examiners will factor the credit union’s ability to do this into their CAMELS ratings.

Consumer Compliance:

The Division conducts compliance reviews in two different ways: either as part of the safety and soundness exam or as a stand-alone compliance exam. Stand-alone consumer compliance exams for credit unions with $500 million or over in assets are scheduled on a periodic basis. These exams are usually concurrent with the safety and soundness exams.

The compliance reviews conducted as part of the safety and soundness review will focus on:

  • Bank Secrecy Act
  • Loss mitigation policies and procedures – loan forbearance, modifications and skip a pay
  • Updated CFPB rules for Qualified Mortgages (QM) and Ability to Repay (ATR)
  • Regulation E and overdraft procedures

The stand-alone consumer compliance exams will focus on:

  • Compliance management system
  • Third party due diligence
  • Truth in Lending / Real Estate Settlements Procedures Act
  • Fair Credit Reporting Act
Question of the Week
Q. What should be done if an IRS refund direct deposit went into an account that does not belong to the intended recipient?

A. This will depend on where the error occurred. But, in all cases, the person who received the deposit in error is not entitled to the funds.

If the credit union made the error, then per Regulation E, the credit union must correct the error.

If the IRS made the error, the person who filed the tax return needs to contact the IRS customer service at 800-829-1040. The IRS will issue a recall of the direct deposit and send the return filer a new refund by check.

If the filer entered the incorrect routing or account number: The IRS assumes no responsibility for tax preparer or taxpayer errors and will not provide any help in this situation. It is the responsibility of the person filing the return to verify the account and routing number and double check for accuracy. While the IRS suggests the filer work directly with the respective financial institution to recover the funds, the credit union also has no responsibility for the error. Due to privacy, you are not allowed to provide any information concerning the member whose account the payment went into. You can possibly work as an intermediary, but ultimately this is a civil issue between the filer and the person to whose account they directed the payment to be made.

Related Links

12 CFR 1005.11
IRS FAQ Refund Inquiries- IRS error
IRS FAQ Refund Inquiries- Wrong Account Number

 Legal Briefs

National Credit Union Administration

Submission of 2020 HMDA Data
The NCUA released Regulatory Alert 21-RA-03 to remind credit unions subject to the HMDA requirements in calendar year 2020 that they must submit loan/application register data to the CFPB by March 1.

Division of Credit Unions Washington State Department of Financial Institutions

Strategic Initiatives and Exam Focus for 2021
The DCU issued DCU Bulletin B-21-01 which provides an update on the Division’s 2020 strategic initiatives and provides and overview of the examination focus and continued initiatives for 2021.

Washington State Department of Financial Institutions 

Four Amended Guidance to Washington State Regulated and Exempt Residential Mortgage Loan Servicers Regarding Support for Consumers Impacted by COVID-19
The DFI released amended guidance which replaces the previous guidance that was issued on December 21, 2020 and will be effective until the state is no longer operating under a state of emergency. This amended guidance urges all mortgage servicers to continue to do their part to alleviate the adverse impact caused by COVID-19 on consumers. Servicers are urged to take reasonable and prudent actions, subject to the requirements of any related guarantees or insurance policies, to support those adversely impacted mortgagors.

Federal Housing Finance Agency

FHFA Extends Foreclosure and REO Eviction Moratoriums and COVID Forbearance Period
The FHFA extended the moratoriums on single-family foreclosures and REO evictions until March 31. In addition, the FHFA announced that borrowers with mortgages backed by Fannie Mae or Freddie Mac may be eligible for an additional forbearance extension of up to three months.

FHFA Further Extends COVID- Related Loan Flexibilities
The FHFA extended several loan origination flexibilities until March 3. These include alternative appraisals on purchase and rate term refinance loans, alternative methods for documenting income and verifying employment before loan closing and expanding the use of power of attorney to assist with loan closing.

Office of Foreign Assets Control

OFAC has updated the SDN list as of Feb. 11. The last update prior to this was Jan. 19.

Questions? Contact the Compliance Hotline: 1.800.546.4465; compliance@nwcua.org.

Posted in Compliance News, Compliance News.