NCUA Clarifies Use of Distributed Ledger Technologies for FCUs

The National Credit Union Administration issued Letter to Credit Unions 22-CU-07 which supports initiatives by federally insured credit unions to better serve their members. The rapid emergence of financial technology is creating opportunities for credit unions to increase the speed of service, improve security, and expand products and services. The NCUA is exploring how the agency can provide clarity around expectations regarding financial technology adoption to not impede safe, fair, and responsible federally insured credit union engagement.

The letter clarifies certain expectations for credit unions contemplating the use of new or emerging distributed ledger technologies (DLT). The NCUA does not prohibit credit unions from developing, procuring, or using DLT. DLT used as an underlying technology by credit unions is not prohibited if it is deployed for permissible activities and in compliance with all applicable laws and regulations, including applicable state laws or state supervisory authority requirements. As with the internet at its inception, the NCUA recognizes that new technologies may transform how credit unions perform traditional financial operations and services.

The letter covers subjects that credit unions need to consider before getting into DLT:

  • Governance, Oversight and Planning
  • Risk and Risk-Mitigation Strategies
    • Information and Cybersecurity Risk
    • Legal and Compliance Risk
    • Strategic and Reputation Risk
    • Liquidity Risk
    • Third-Party Risk

Credit unions must remain alert to new or evolving risks posed by use of an emerging technology or approach. The NCUA expects credit unions to exercise good judgment and apply sound risk-management practices when choosing to offer a new platform, product, or service, including where DLT is part of the underlying technology. These reviews include evaluating the permissibility of the activity itself and the opportunities and risks associated with any underlying technology, such as DLT. Examiners will evaluate the rigor with which credit unions exercised good judgement, applied sound risk management, and executed compliance and risk oversight of acquisition or development and deployment of new systems and technology.

Question of the Week

Q. Can a credit union require a member to purchase GAP insurance when extending an auto loan?

A. Yes. However, if you require the member to purchase any insurance, debt cancellation or GAP, the fee would be considered a finance charge. When you allow the member the option to purchase any of those products, the fee may be excluded from the finance charge as long as the credit union does the following: 1) Discloses in writing that the service is optional; 2) Discloses the amount of the fee and explain any limitations on the term of coverage if it does not run for the full term of the loan; and, 3) Obtains the member’s signature or initials indicating that the member wants to purchase the service.

Additionally, credit unions should consider the ramifications of requiring GAP insurance when extending an auto loan to a member who is on active duty, as it could cause the MAPR to exceed the permissible rate allowed per the Military Lending Act.

Related Links

12 CFR 1026.4(b)(10)
12 CFR 1026.4(d)(3)

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National Credit Union Administration

Federally Insured Credit Union Use of Distributed Ledger Technologies: The NCUA supports initiatives by federally insured credit unions to better serve their members. The rapid emergence of financial technology is creating opportunities for credit unions to increase speed of service, improve security, and expand products and services. In this spirit, the Board is exploring how the agency can provide clarity around expectations regarding financial technology adoption to not impede safe, fair, and responsible federally insured credit union engagement. The letter clarifies certain expectations for credit unions contemplating the use of new or emerging distributed ledger technologies (DLT). The NCUA does not prohibit credit unions from developing, procuring, or using DLT. DLT used as an underlying technology by credit unions is not prohibited if it is deployed for permissible activities and in compliance with all applicable laws and regulations, including applicable state laws or state supervisory authority requirements. As with the internet at its inception, the NCUA recognizes that new technologies may transform how credit unions perform traditional financial operations and services.

Office of Foreign Assets Control

Notice of OFAC Sanctions Actions: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is publishing the names of one entity that has been placed on OFAC’s Specially Designated Nationals and Blocked Persons List based on OFAC’s determination that one or more applicable legal criteria were satisfied. All property and interests in property subject to U.S. jurisdiction of this entity are blocked, and U.S. persons are generally prohibited from engaging in transactions with it. Additionally, OFAC is publishing updates to the identifying information of one entity currently included on the SDN List. All property and interests in property subject to U.S. jurisdiction of this entity remain blocked, and U.S. persons are generally prohibited from engaging in transactions with it.

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

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