NCUA Releases 2022 Supervisory Priorities

The National Credit Union Administration issued Letter to Credit Unions 22-CU-02 to provide credit unions with insight into the NCUA’s Exam Program Updates and Supervisory Focuses for 2022.

Exam Program Updates

  • NCUA Connect & MERIT – In 2021, the NCUA trained all NCUA and state regulators on its new examination platform, the Modern Examination and Risk Identification Tool (MERIT). In 2022, credit unions will use the new MERIT platform and its related systems during examinations.
  • Recording of Official Meetings – Within the NCUA Examiner’s Guide, credit unions may record their meetings, including exit interviews and joint conferences. It is asked that the credit union officials ask for examiner concurrence before recording the meeting.
  • CAMELS Update – The NCUA finalized a rule which added the “S” component (Market Sensitivity) to the existing CAMEL rating system and redefined the “L” component. The CAMELS rating will be used for examinations starting on or after April 1.

2022 Supervisory Priorities

  • Credit Risk – Examiners will continue to review credit unions’ risk-management and mitigation efforts. NCUA examiners will focus on adjustments credit unions made to lending programs to address borrowers facing financial hardship. NCUA examiners will also focus on reviewing policies that address the use of loan workout strategies, risk-management practices, and new strategies implemented to provide funds to borrowers under distress, including programs authorized under the CARES Act and extended in the Consolidated Appropriations Act, 2021. In particular, NCUA examiners will evaluate credit unions’ controls, reporting, and tracking of these programs.
  • Information Security (Cybersecurity) – Cybersecurity risks remain a significant threat to the financial system. The review of credit union information security practices continues to be a priority for the NCUA. The NCUA continues to develop updated information security examination procedures that are tailored to institutions of varying size and complexity. These procedures will continue to be piloted in 2022, with the goal of having them finalized in 2022.
  • Payment Systems – Changes in payment systems may increase the risk of fraud, illicit use, and breaches of data security. The NCUA examiners will include an increased focus on payment systems and steps credit unions are taking to reduce the risks.
  • BSA/AML – Bank Secrecy Act and Anti-Money Laundering compliance will continue to be national priorities. NCUA examiners conduct BSA compliance and AML/CFT reviews during every examination and take appropriate action, when necessary, to ensure credit unions meet their obligations.
  • Capital Adequacy and Risk-Based Capital Rule Implementation – NCUA examiners will be mindful of the effects of recent excess share growth on net worth and risk-based capital (RBC) ratios. NCUA examiners will ensure that credit unions are evaluating the impact of their COVID-19 response and relief efforts on their capital position and financial stability. Starting Jan. 1, 2022, the risk-based capital requirements are into effect for complex credit unions. NCUA examiners will review the accuracy of complex credit unions’ reporting for the new data elements required in the risk-based capital schedule of the Call Report.
  • Loan Loss Reserving – NCUA examiners will be evaluating the adequacy of credit unions’ Allowance for Loan and Lease Losses (ALLL) accounts by reviewing:
    • ALLL policies and procedures;
    • Documentation of an ALLL reserving methodology, including modeling assumptions and qualitative factor adjustments;
    • Adherence to generally accepted accounting principles; and
    • Independent reviews of credit union reserving methodology and documentation practices by the Supervisory Committee or by an internal or external auditor.

Examiners will also discuss credit unions’ preparations to implement CECL.

  • Consumer Financial Protection – In 2022, examiners will focus on areas related to:
    • COVID-19 pandemic,
    • Fair lending,
    • Servicemembers Civil Relief Act,
    • Fair Credit Reporting Act, and
    • Overdraft programs.

NCUA examiners will review mortgage forbearances and other loan accommodations credit unions have provided to their members during the COVID-19 pandemic, as well as the credit union’s reporting of these accommodations under the CARES Act amendments to the Fair Credit Reporting Act. Examiners will evaluate a credit union’s policies and procedures, as applicable, regarding the temporary COVID-19 Mortgage Servicing Rule.

Examiners will identify fair lending policies and practices that indicate discrimination risk or loan portfolio and underwriting discrimination risk. In addition, examiners will assess whether a credit union has policies and procedures to evaluate the consistency, fairness, and accuracy of the appraisals it obtains.

Examiners will request information about a credit union’s policies and procedures governing its overdraft programs and the monitoring tools and audit of its overdraft programs, as well as the communications it provides to consumers about such programs.

  • Loan Participations – NCUA examiners will verify that credit unions have evaluated the risk in the loan participation transactions and how that risk fits within the tolerance levels established by the credit union’s board. At a transactional level, each loan participation must have separate and distinct records for individual payments, including principal, interest, fees, escrows, and other information relating to individual loans.
  • Fraud – The NCUA will review credit union efforts to deter and detect fraud, including internal controls and separation of duties. Transaction testing will be part of the examination procedures.
  • London Inter-Bank Offered Rate (LIBOR) Transition – During 2022, NCUA examiners will focus on credit unions with significant LIBOR exposure or inadequate fallback language.
  • Interest Rate Risk – Examiners will focus on credit unions’ modeling and plans to manage interest rate risk.

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

Compliance Alerts

National Credit Union Administration

NCUA’s 2022 Supervisory Priorities: The NCUA released Letter to Credit Unions 22-CU-02 which details the agency’s supervisory priorities for 2022. Areas highlighted in the letter include Credit Risk Management, Information Security, Payment Systems, BSA Compliance, Capital Adequacy and Risk-Based Capital Rule Implementation, Loan Loss Reserving, Consumer Financial Protection, Loan Participations, Fraud, LIBOR Transition and, Interest Rate Risk

Operating Fee Schedule Adjusted for 2022: The NCUA announced and approved a new budget which will see a 23.7% decrease in operating fees paid by federal credit unions.

Consumer Financial Protection Bureau

Report on Diversity and Inclusion Within Financial Services: The CFPB released a report using publicly available diversity and inclusion information of financial institutions by industry segments. The report segmented financial institutions into Large, Medium, and Small. The ratings were based on Organizational Commitment to Diversity and Inclusion, Workforce Profile and Employment Practice, Supplier Diversity, and Practices to Promote Transparency of Organizational Diversity and Inclusion. The report also includes best practice recommendations.

Federal Reserve Board

FRB Releases Discussion Paper that Examines the Pros and Cons of a Potential U.S. Central Bank Digital Currency (CBDC): The FRB released a discussion paper that examines the pros and cons of a potential U.S. central bank digital currency, or CBDC. The paper summarizes the current state of the domestic payments system and discusses the different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies. It concludes by examining the potential benefits and risks of a CBDC, and identifies specific policy considerations.

Federal Financial Institutions Examination Council

FFIEC Issues Statement of Principles on Examination Information Requests: The FFIEC issued a statement announcing best practices for requesting examination information from supervised entities, and a common authentication solution for secure access to the FFIEC members’ supervision systems.

The statement presents the results of the final phase of the Examination Modernization Project in which FFIEC members addressed the feedback provided by supervised entities regarding examination requests and authentication requirements for FFIEC members’ supervision systems.

Interagency Statement of Principles on Examination Information Requests

Office of Foreign Assets Control

OFAC has updated the SDN list as of Jan. 21. The last update prior to this was Jan. 12.

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

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