Frequently Asked Questions for Federally Insured Credit Unions

Asset Threshold Interchange Fee Relief

Does Regulation II’s small issuer exemption apply to my credit union?

Regulation II’s small issuer exemption applies to all debit card issuing credit unions with total assets less than $10 billion. Under the banking agencies’ Temporary Asset Threshold final rule, the small issuer exemption continues to apply to credit unions with assets less than $10 billion in total assets as of December 31, 2019, but exceed that amount after this date. The relief period remains in effect through December 31, 2021.

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What happens to my credit union on January 01, 2022?

Unless extended, the small issuer exemption will no longer apply to any credit union with more than $10 billion in total assets on January 01, 2022. If a credit union’s assets exceeded $10 billion prior to this date, but fall below this amount by the relief’s expiration, the small issuer exemption remains in place.

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Does my credit union have to comply with the large issuer debit card interchange fee and routing regulations on the Temporary Asset Threshold expiration date?

Debit card issuers covered by the Temporary Asset Threshold who exceed $10 billion in assets at expiration are allowed a six-month transition period as provided for in 12 CFR 235.5(a)(3). Therefore, the issuer’s compliance with the Board’s rules regarding debit card interchange fee and routing is required by July 1, 2022.

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Credit Union Operations

May a federal credit union restrict access to or close its facilities? Are there guidelines for operating or reopening facilities during the pandemic?

Yes. A federal credit union may adopt reasonable measures to safeguard the health and safety of its staff and members. Credit unions taking these measures, however, must apply the policy in a consistent manner. Generally, federal credit unions should follow the direction of any federal, state, or local authorities with respect to social distancing or related measures. The NCUA encourages credit unions to consult the Center for Disease Control and Prevention’s (CDC’s) guidelines when considering extra health and safety precautions or procedures (for example, social distancing, gloves, face masks, sneeze guards, cleaning, etc.).

No federal law or regulation requires federal credit unions to be open certain hours or days or prevents a federal credit union from closing its offices. Credit unions have the flexibility to make reasonable, good faith decisions to close branches and offer members services via other channels, including phone, ATMs, or online and mobile platforms. This can include situations where advance notice is infeasible, as a closure may need to occur quickly. Decisions to close branches can be ratified by the credit union board by email or at the next board meeting.

The CDC posts and updates guidance for businesses and employers, including those seeking to resume normal or phased business operations. The CDC also has a page dedicated to businesses and workplaces, including a decision tool to assist in your decisions about partial or full reopening of operations. In addition, the Financial Services Sector Coordinating Council provided a guide for U.S. financial services firms to assist in determining how to safely return workers to offices and other facilities.

Providing regularly updated information about the operating status of the credit union, branch offices, remote access facilities, and mobile and online services as pandemic conditions evolve could be helpful to members. Posting this information on the credit union’s website, providing recorded information on its customer support lines, and pushing notifications out to members that have signed up for alerts are just some of the ways credit unions can help members.

Credit unions do not need to notify the NCUA of branch closures unless there is an interruption in vital member services exceeding two days, in which case, credit unions have five days to notify their regional director as set forth in 12 C.F.R. 748.1(b). Federally insured, state-chartered credit unions may be subject to different requirements under state law or regulation.

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Are there any guidelines on limiting Supervisory Committee work plans during the COVID-19 pandemic? Will keeping committee members out of a credit union’s office during this period cause problems later with examiners?

A credit union may adopt reasonable measures to safeguard the health and safety of its staff and members. Credit unions should follow the direction of any federal, state, or local authorities with respect to social distancing or related measures.

To complete their work plans, Supervisory Committees at federal credit unions should work with credit union management to develop options, including using a virtual environment, observing federal, state, or local social distancing guidelines or related measures while in the office, or postponing work as necessary. Examiners will be flexible and reasonable with credit unions where work plans were not completed. If you have any questions, please contact your examiner or regional office. For state-chartered credit unions, please contact your state supervisory authority.

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Are credit unions and their employees considered part of the “critical infrastructure workforce”? Does NCUA have guidance regarding who should be in the office, work remotely, or is not required to work during this pandemic?

The NCUA’s Letter to Credit Unions 20-CU-03 – Identification of Essential Critical Infrastructure Workers During COVID-19, can help credit unions and their industry partners identify critical infrastructure sectors and essential workers, which are needed to maintain the services and functions Americans depend on daily and support the resilience of critical infrastructure sectors during the COVID-19 pandemic response.

The NCUA letter references the U.S. Department of Homeland Security’s guidance on defining essential critical infrastructure workers. The ability of such workers to continue to work during periods of community restriction, access management, social distancing, or closure orders/directives is crucial to community resilience and continuity of essential functions.

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How can I report if a credit union branch has suspended all operations?

The CUOnline Profile SITES tab has a site-level operational status indicator. Credit unions should report a site’s operational status as “Normal” if it is offering any member services, including online, telephone, or drive-through. A site should be reported as “Suspended – Emergency” only if all operations have ceased and there are no other means of providing member services at the site.

Detailed information describing the filing process, including filing deadlines, Call Report forms, and a User’s Guide on available on the NCUA.gov CUOnline webpage. Please contact your district examiner, regional office, or state regulator with Call Report-related questions.

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Are credit unions allowed to cash checks for non-members?

Yes. Section 701.30 of the NCUA’s regulations provides authority for federal credit unions to cash checks and money orders to persons within their field of membership regardless of membership status. Federal credit unions may charge a fee for these services.

State-chartered credit unions should consult with their state supervisory authority.

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Are credit unions allowed to use eSignature tools to digitally serve members in the COVID-19 pandemic?

Yes, eSignature tools are federal and state recognized tools to allow members to digitally sign for many electronic transactions, such as certain loan documents or membership account agreements. The Electronic Signatures in Global and National Commerce (E-SIGN) Act was enacted in 2000 and provides a general rule of validity regarding electronic records and signatures for transactions in or affecting interstate or foreign commerce. The NCUA provided a Regulatory Alert on the E-SIGN Act in March of 2001. In addition to this federal law, each state may have their own laws governing electronic signatures. A credit union should review all applicable federal and state laws before implementing eSignature tools and services.

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Credit unions usually complete testing of their Business Continuity and Disaster Recovery plans annually. In the past, this has been completed with in-person enterprise level meetings, breakout sessions, tabletop simulations, etc. Is the NCUA providing any adjustments or modifications to the testing requirements due to COVID-19?

Effective training, testing and exercising of a credit union’s business continuity plan and/or disaster recovery plan should consist of both tabletop and functional exercises. Tabletop exercises are discussion-based, where personnel meet in a classroom or breakout groups to discuss their roles during an emergency, and their response to a particular emergency. Functional exercises, which include both full-scale and limited-scale exercises, allow personnel to validate their operational readiness for an emergency in a simulated operational environment.

Partial or complete virtual environments can be leveraged for both under normal and unique circumstances such as COVID-19. The difference in the exercise is not based on physical proximity, but rather on the complexity, scope, and realistic ability to achieve the business continuity and resilience objectives of the credit union. Those objections should be determined and agreed upon by the credit union’s governance and management personnel.

Refer to the Federal Financial Institutions Examination Council’s IT Examination Handbook and the National Institute of Standards and Technology’s Guide to Test, Training, and Exercise Programs for IT Plans and Capabilities.

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Mergers

During the COVID-19 pandemic, can a federal credit union post member meeting notices exclusively by electronic means rather than use hard copy notices?

Hard copy, or paper, notices are not required for all credit union members, only for those members who have not opted in to electronic statements and notices. The Federal Credit Union Bylaws permit much of the flexibility for sending out notices during the coronavirus pandemic. Article IV Section 2 of the Bylaws provides that meeting notices may be sent by electronic mail to members who have opted to receive statements and notices electronically.

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What options does a merging credit union have for a merger membership vote during the COVID-19 pandemic?

There are two primary options:

First, a merging credit union can postpone the meeting. A postcard notice (or email for those members who have opted in to e-statements and other communications) is acceptable. The merging credit union can notify the members when it knows the date of the rescheduled meeting, but the notification must occur at least seven days in advance. The merging credit union does not have to send the entire package again to the NCUA’s regional office.

Second, the merging credit union can hold a virtual meeting. The agency has provided an emergency bylaw amendment for federal credit unions. Refer to Letter to Federal Credit Unions 20-FCU-02 – NCUA Actions Related to COVID-19 – Annual Meeting Flexibility.

The letter states a federal credit union may adopt a standard bylaw amendment for an emergency exception to in-person quorum requirements. The letter applies to all meetings, not just annual meetings, with the exception of member expulsion meetings. The letter states general quorum requirements must still be met for virtual meetings. Letter to Federal Credit Unions 20-FCU-04 – Federal Credit Union Meeting Flexibility During the COVID-19 Pandemic – extended the bylaw amendment for meetings in 2021.

Under 12 C.F.R. § 708b.106(b), the merging credit union must hold an in-person membership vote meeting. If a credit union chooses to hold this meeting virtually under the approved emergency bylaw amendment, the credit union must have “the technological capacity to facilitate virtual meeting attendance, voting, and participation.” Accordingly, the credit union must provide some mechanism so that a member attending the virtual meeting can vote during the meeting, such as voice votes, text-to-vote, or chat room message options.

In addition, electronic voting is an option under the standard federal credit union bylaws. However, federal credit unions cannot make electronic voting the only option for members, because some members may not have opted into electronic notices and may not have access to an electronic device to vote. The mechanisms for voting will depend on which option the federal credit union has selected in its bylaws, but all of those options require a non-electronic way to access voting.

State-chartered, federally insured credit unions may have different requirements under their laws. These credit unions should check with their respective NCUA regional offices and their state supervisory authorities on handling these issues.

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Will NCUA accept electronically signed merger forms?

Yes, the NCUA will accept electronically signed forms to meet the requirements under 12 C.F.R. § 708b, as permitted under the Electronic Signatures in Global and National Commerce (E-Sign) Act.

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Can a credit union submit a non-notarized signed merger agreement (NCUA 6304) during the COVID-19 pandemic?

The NCUA understands that some credit unions may not have the capability to sign up for certain electronic services. The agency’s regional offices will consider these difficulties on a case-by-case basis, provided the credit union provides sufficient evidence. If the regional office finds that signing and providing the required documents under 12 C.F.R. § 708b poses a hardship for the credit union, staff will consider alternative ways the credit union can submit documentation.

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Will the NCUA consider alternatives if a credit union lacks the resources to sign up for electronic signature services, scan, or fax a document?

The NCUA notes that obtaining e-signatures and access to notarization services will not be difficult for most credit unions, even with social distancing and stay-at-home orders. Readily available commercial platforms provide electronic signatures that meet the requirements of the Electronic Signatures in Global and National Commerce (E-Sign) Act. These platforms also operate on smart phones.

Similarly, remote online notarization services are available in many states. At least 14 states permitted remote online notarization before the pandemic, generally requiring the use of a dedicated remote online notarization software platform.4 Another 12 states have established rules to temporarily allow for remote online notarization during the crisis.5 For more details on required procedures, see the list compiled by the National Notary Association.

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Examination & Supervision

What impact is COVID-19 having on the NCUA’s examination and supervision program?

Given the current state of the COVID-19 pandemic, and after consultation with our public health consultant, the agency is prepared to move into its first phase of resuming onsite operations (Phase 1) in some areas of the country beginning July 19, 2021.

As part of Phase 1, NCUA staff and contractors will be permitted to volunteer to work onsite at credit unions. During Phase 1, staff may only volunteer to work onsite in locations where public health data indicates pandemic conditions have sufficiently moderated.

To the extent possible, the NCUA will respect a credit union’s preference to not have examination staff onsite during this phase. However, the NCUA reserves the right to conduct onsite work at a credit union if necessary to address a serious and time-sensitive matter.

Please refer to LTCU 21-CU-06 NCUA to Implement Phase One of Resuming Onsite Operations for additional information.

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What technology can credit unions use to share exam documents with their examiners?

Examiners and credit unions can easily and safely exchange information through the NCUA’s Secure File Transfer Portal (SFTP), a protected workspace where NCUA staff and partners can share large or sensitive files. A credit union guide for using the SFTP portal is available online, and provides instructions how to access and use the portal. And while the SFTP is the preferred system for exchanging information, other secure methods may be used to share examination documents.

For example, NCUA examiners can initiate an encrypted email exchange using the Zix Gateway (Zixit). Recipients without Zixit will receive an email notification and, if they are first-time users, will be required to register an account to receive the secure email message(s). Upon signing in, returning users must enter their password to receive the secure email message. To respond securely, recipients must use the link within the original encrypted email message. When creating password-protected zip files, strong passwords should be used. NCUA examiners must also use strong passwords that meet current agency requirements.

Additionally, credit union file transfer portals are permitted under certain conditions. NCUA examiners may use a CU’s portal or other non-portable electronic transmission solution to download electronic documents that contain personally identifiable information (PII). NCUA staff will not use a credit union or third party provided solution to upload or transfer any electronic documents (whether they contain PII or not) to the credit union or third party.

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NCUA Letter to Credit Unions 20-CU-05 notes outreach from examiners will take place between March 30 and April 10, and will serve as a baseline for monitoring each credit union’s condition. How will this process work?

As outlined in NCUA Letter to Credit Unions 20-CU-05, examiners will periodically contact each federal credit union to discuss its operational and financial status, including whether assistance is needed due to the COVID-19 pandemic or any associated challenges. For state-chartered credit unions, the NCUA will work with the appropriate state supervisory authority to conduct these assessments. By following a process that involves asking a specific set of questions, examiners will capture key details about how the credit union is affected by COVID-19, and then based on that information, the NCUA will direct resources where it is most needed. As credit unions work through COVID-19-related challenges, open lines of communication are of utmost importance. The information requested as part of this outreach effort should take a minimal amount of credit union staff time. Before initiating contact, examiners will review the credit union’s website to glean as much information as possible about its operational status, thereby leading to a more productive conversation. If information has already been provided to your league, you may forward that to your examiner. While more information may be needed, the sharing of these requests will help us conduct these assessments more efficiently.

The initial outreach and subsequent outreach conducted in May 2020, announced in NCUA Letter to Credit Unions 20-CU-12, have ended. The NCUA will notify credit unions if another outreach will be conducted.

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What if COVID-19 disrupts a credit union’s ability to file its quarterly Call Report on a timely basis?

Recognizing that some credit unions may experience operational disruptions due to the impact of COVID-19, credit unions that anticipate a delayed submission should contact their NCUA regional office before the filing deadline and inform the NCUA’s Office of Examination and Insurance at CallReportLateFiler@ncua.gov. Along with notifying the NCUA, state-chartered credit unions should contact their respective state regulator.

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For credit union audits that were engaged before the change to Part 715 of the NCUA Rules and Regulations took effect, will there will be exceptions for credit unions that cannot meet the 120-day deadline for audit reports due to the COVID-19 pandemic?

Part 715 of the NCUA Rules and Regulations was amended by the NCUA Board on September 19, 2019. The amended rule removed the 120-day restriction. Therefore, credit unions and accounting professionals can agree on a reasonable timeframe for delivering an audit report, taking into consideration the impact of the COVID-19 pandemic, for all audits with a December 31, 2019 effective date and going forward. Examiners will not take exception to an audit report that is delivered later than the agreed upon date in the engagement letter.

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What options do credit unions and external auditors have to deliver an audit report to examiners?

Credit unions and external auditors can deliver audit reports using the RIVIO clearinghouse, which allows credit unions to authorize the release of audit reports from external auditors directly to examiners or other third-parties. External auditors may also use the Secure File Transfer Portal to send the audit report. To use the workspace, please contact your examiner.

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Was the deadline for credit unions to submit their annual capital plan and/or stress testing extended in 2020?

Yes, NCUA extended the deadline for credit unions required to submit their annual capital plan and/or stress testing results from May 31 to Aug. 31, 2020. The Office of National Examinations and Supervision (ONES) will individually contact credit unions meeting the criteria.

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Will credit unions be given additional time to file required Bank Secrecy Act (BSA) reports?

The Financial Crimes Enforcement Network (FinCEN) provided guidance on March 16, 2020 requesting financial institutions, including credit unions affected by the COVID-19 pandemic, contact FinCEN and their NCUA examiner as soon as possible they are concerned about their ability to file required Bank Secrecy Act (BSA) reports timely. FinCEN updated their guidance on April 3, 2020 regarding compliance with BSA obligations, beneficial ownership information collection requirements for existing customers, BSA reporting obligations, and updates to currency transaction report (CTR) filing obligations. FinCEN issued a notice related to COVID-19 on May 18, 2020, including BSA reporting obligations, SAR filing instructions, information sharing, and reporting COVID-19-related criminal activity. FinCEN provides regular updates on BSA reporting issues and scams related to the COVID-19 pandemic on their website.

Additionally, FinCEN has created a COVID-19-specific online contact mechanism for financial institutions to communicate their COVID-19-related concerns while adhering to their BSA obligations. Credit unions wishing to communicate such concerns must go to FinCEN's website, click on “Need Assistance,” and select “COVID19” in the subject drop-down list. Such COVID-19-related communications are strongly encouraged, but not required. Throughout the COVID-19 pandemic, FinCEN’s Regulatory Support Section will continue to support financial institutions, and credit unions are encouraged to keep FinCEN, their NCUA examiner, and state regulator (if applicable) informed as their circumstances change. FinCEN also advises credit unions to remain alert about transactions that could be malicious or fraudulent in nature, as some unscrupulous actors may seize on the national COVID-19 emergency as an opportunity to prey on consumers.

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Because of the COVID-19 pandemic, NCUA examiners conducted my credit union’s entire exam offsite, saving thousands of dollars in travel costs. As a result, will NCUA adjust or refund my annual operating fee?

The operating fee charged to federal credit unions (FCUs) is based upon the following:

  • The total assets reported in each credit union’s December 31 call report for the previous year;
  • The operating fee methodology and regulations previously adopted by the NCUA Board; and
  • The operating budget approved by the NCUA Board.

The fee is not directly related to the time spent on any specific examinations, nor the costs incurred by NCUA examiners executing those examinations. The actual cost of any specific examination would vary widely based on a number of factors, and there is significant work that goes into the examinations process outside of what a credit union sees in any particular exam. The NCUA does not track the cost of each individual exam. At the NCUA Board’s discretion, any potential savings from one year may be applied as a reduction to future year costs.

More information about the methodology used to calculate the operating fee is available on pages 61 to 64 in the NCUA’s budget for 2020 and pages 60 to 63 in the NCUA’s budget for 2021.

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Was the deadline for updating the CUSO Registry extended?

Yes, the deadline to register for the CUSO Registry was extended to May 26, 2020. CUSOs that have not registered or updated their registration received an automated email from noreply@ncua.gov announcing the extension. Credit unions and CUSOs with questions may contact CUSORegistry@ncua.gov.

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Regulatory Relief

What types of regulatory relief are available with regards to appraisals for mortgage lending?

The NCUA Board approved an interim final rule on April 16, 2020, and a final rule on September 17, 2020, to temporarily defer the requirement to obtain real estate-related appraisals and evaluations. The Board extended this temporary relief to allow credit unions to extend financing to creditworthy households and businesses quickly in the wake of the national emergency declared in connection with the COVID-19 pandemic. The final rule deferred the requirement to obtain an appraisal or evaluation for up to 120 days following the closing of a transaction for certain residential and commercial real estate transactions. Credit unions were encouraged to make best efforts to obtain a reliable valuation of real property collateral before closing the loan, consistent with safe and sound practices. Transactions closed on or before December 31, 2020, were eligible for deferral.

The federal financial regulatory agencies issued a joint statement on April 14, 2020, to address challenges relating to appraisals and evaluations for real estate-related financial transactions affected by the COVID-19 pandemic. The interagency statement outlines other flexibilities in industry appraisal standards and in the agencies’ appraisal regulations and describes temporary changes to Fannie Mae and Freddie Mac appraisal standards that can help lenders during this challenging time.

In addition, the NCUA Board approved a final rule on April 16, 2020, that increased the threshold below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000. Consistent with the requirement for other transactions that fall below applicable appraisal thresholds, federally insured credit unions will be required to obtain written estimates of market value of the real estate collateral that are consistent with safe and sound practices instead of an appraisal unless another exception applies under the NCUA’s appraisal regulation.

Letter to Credit Unions 20-CU-10 – Residential Appraisals Threshold Increase and Other COVID-19 Related Relief Measures provides details on this regulatory relief.

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What types of temporary regulatory relief has the NCUA Board approved as a result of the COVID-19 pandemic?

Where possible, the NCUA is providing temporary regulatory relief to the extent allowed under the Federal Credit Union Act, while still maintaining the safety and soundness of the credit union system. Letter to Credit Unions 20-CU-09 – Temporary Regulatory Relief in Response to the COVID-19 Pandemic provides detailed information on temporary regulatory relief efforts. The regulatory relief efforts include changes to the following regulations:

  • 701.36 Federal credit union occupancy and disposal of acquired and abandoned premises. The NCUA Board amended the timeframe for FCUs to apply for waiver of occupancy and disposal of acquired and abandoned premises. Any days that fall within the date of the temporary final rule’s publication in the Federal Register and December 31, 2020, will not be counted for purposes of determining a federal credit union’s compliance with the required time periods described § 701.36(c). On December 17, 2020, the NCUA Board approved extending this relief until December 31, 2021.
  • 701.23(b) Purchase, sale, and pledge of eligible obligations – Purchase. The NCUA Board amended this section to permit well-capitalized federal credit unions that have a composite rating of 1, 2, or 3 to purchase eligible obligations of nonmembers from a federally insured credit union and from a liquidating credit union. The NCUA Board also amended § 701.23 to permit a federal credit union to purchase, in whole or in part, and within the limitations of its board of directors’ written purchase policies, eligible obligations pursuant to § 701.23(b)(1)(i) or § 701.23(b)(2)(i) without regard to whether the purchasing credit union is empowered to grant such loans. Loans purchased under this authority will therefore not count against the limit in § 701.23(b)(4) of 5 percent of the unimpaired capital and surplus of the purchaser. This authority originally extended through December 31, 2020, at which time any purchases made under this authority will be grandfathered. On December 17, 2020, the NCUA Board approved extending this relief until December 31, 2021. Subject to safety and soundness considerations, a federal credit union may hold any loans purchased under this temporary authority.
  • 701.22 Loan Participations. The NCUA Board amended the aggregate amount of loan participations a FICU may purchase from any one originating lender, below which a waiver from the Regional Director is not required, to the greater of $5 million or 200 percent of the credit union’s net worth. On December 17, 2020, the NCUA Board approved extending this relief until December 31, 2021. On January 1, 2022, the relief will no longer be in place. If a credit union exceeds the greater of $5 million or 100 percent of its net worth on January 1, 2022, it may not purchase additional loan participations from that originating lender until it reduces its concentration to the greater of $5 million or 100 percent of net worth or obtains a waiver from the NCUA Regional Director.
  • 700, 702, 708a, 708b, and 790 Asset Thresholds. On March 18, 2021, the NCUA Board approved an interim final rule permitting federally insured credit unions to use asset data as of March 31, 2020, to determine the applicability of certain regulatory asset thresholds during calendar years 2021 and 2022. This data will determine applicability of capital planning and stress testing requirements under the NCUA’s regulations and regional or national supervision of federally insured credit unions. This regulatory relief is in response to the unprecedented balance sheet growth due to increased personal savings rates and economic stimulus because of the COVID-19 pandemic. The interim final rule became effective March 23, 2021, except one change that becomes effective January 1, 2022.

The relief measures described above apply to federally insured, state-chartered credit unions to the extent they are subject to the NCUA regulations described in this letter. State-chartered credit unions must still comply with applicable state regulations unless the state supervisory authority has provided relief.

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What types of regulatory relief are available regarding Prompt Corrective Action or Part 702 of NCUA’s regulations?

On May 21, 2020, the NCUA Board approved an interim final rule containing two temporary changes to the NCUA’s prompt corrective action (PCA) regulations, which expired on December 31, 2020. On April 16, 2021, the NCUA Board approved an interim final rule extending the temporary changes until March 31, 2022. The agency understands that some credit unions may experience a reduction in earnings and capital due to their COVID-19 response efforts (such as waived fee income, forbearance on loan payments, or an unexpected increase in expenses).

The first change amends Section 702.201 to waive the earnings retention requirement for any credit union that is “adequately capitalized.” On April 26, 2021, the NCUA Board approved an administrative order reducing the amount of earnings retention required for credit unions classified as adequately capitalized to zero. Under this order, an adequately capitalized credit union that is unable to meet the earnings retention requirement will not have to submit a written application requesting approval to decrease its earnings retention amount. However, if a credit union poses an undue risk to the Share Insurance Fund or exhibits material safety and soundness concerns, the Regional Director may require the credit union to submit an earnings transfer waiver request in accordance with § 702.201(b). The NCUA will notify credit unions that will be required to submit a waiver request to the Regional Director at least 45 calendar days prior to the end of the quarter.

The second modifies § 702.206(c) with respect to net worth restoration plans. For credit unions that experience a decline in their net worth ratio predominantly due to share growth, the NCUA Board will temporarily permit a credit union to submit a streamlined NWRP plan attesting that its reduction in the net worth ratio was predominantly caused by share growth and that such share growth is a temporary condition due to COVID-19. Federally insured, state-chartered credit unions must comply with applicable state requirements when submitting NWRPs for state supervisory authority approval and the NCUA will consult with the applicable state supervisory authority when considering whether to approve a NWRP.

These provisions went into effect on April 19, 2021. Letter to Credit Unions 21-CU-04 Renewal of Prompt Corrective Action Relief provides important details on these temporary rule changes, including the criteria for submitting a streamlined NWRP.

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How does the Asset Threshold interim final rule give me relief from NCUA Rules and Regulations Part 702, Subpart E?

The interim final rule allows federally insured credit unions to use their total assets, as reported on their March 31, 2020 Call Report, to determine the applicability of the provisions in Part 702, Subpart E for calendar year 2022. Specifically, if a credit union’s reported assets on March 31, 2020, were less than $10 billion, but are now over $10 billion, the earliest the credit union would be subject to the requirements of Subpart E is January 1, 2023. Credit unions whose assets were greater than $10 billion on March 31, 2020, are still subject to ONES’ supervision and responsible for complying with Part 702 Subpart E, but may use their assets as reported on March 31, 2020 to determine applicable capital planning and stress testing requirements as a Tier I, II, or III credit union.

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Does the transfer limit of six transactions required by Regulation D – Reserve Requirements of Depository Institutions (12 CFR part 204) still apply?

The Federal Reserve Board announced an interim final rule on April 24, 2020 to amend Regulation D by removing the limit on convenient transfers from the “savings deposit” definition. The previous limit was six transfers per month. For credit unions, a “savings deposit” means a regular share account. NCUA’s Regulatory Alert 20-RA-02 – Federal Reserve Board Issues Rule Allowing Credit Unions to Remove the Monthly Limit on Savings Withdrawals provides details on this change.

The interim final rule permits credit unions to suspend the enforcement of the six transfer limit and begin allowing members to make an unlimited number of convenient transfers and withdrawals from their regular share accounts. However, credit unions should be aware of the impact of this interim final rule on account agreements and related matters. The Federal Reserve Board has provided some frequently asked questions and answers, which will be updated as needed. 

There are no mandatory changes to deposit reporting associated with the amendments. Credit unions can use their discretion on whether to classify an account as a transaction account or savings deposit account and report them on the quarterly Call Report accordingly. Refer to the Call Report instructions and the Federal Reserve Board’s current FAQs #4, #5, and #9 for more information. The AIRES questionnaire and Examiner’s Guide have not been updated to reflect this change.

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Did the Consumer Financial Protection Bureau (CFPB) offer flexibility to quarterly Home Mortgage Disclosure Act (HMDA) filers in 2020?

Yes. On March 26, 2020, the CFPB announced the Bureau will not expect quarterly information reporting by certain mortgage lenders as required under HMDA and Regulation C. While quarterly reporting was postponed, credit unions were expected to continue collecting and recording HMDA data in anticipation of making an annual submission. As of April 1, 2021, the CFPB rescinded this temporary flexibility.

The rescission also instructs all financial institutions required to file quarterly to do so beginning with their 2021 first quarter data, due on or before May 31, 2021, for all covered loans and applications with a final action taken date between January 1 and March 31, 2021.

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Paycheck Protection Program (PPP)

What is the Paycheck Protection Program?

The Small Business Administration’s Paycheck Protection Program provides loans to help small businesses struggling in the wake of the COVID-19 pandemic.

Visit the United States Treasury and Small Business Administration websites for additional information. The SBA has issued many interim final rules on the Paycheck Protection Program. In addition, the SBA periodically updates the Frequently Asked Questions for Lenders and Borrowers.

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How does a credit union become a Paycheck Protection Program lender?

Credit unions, particularly those that had difficulties during the initial funding round, should review the SBA’s Lender Agreement (Federally Insured Depository Institutions, Federally Insured Credit Union, Farm Credit Institutions). Being approved to be a PPP lender and understanding how to use SBA portals as soon as possible can improve a credit union’s ability to make PPP loans and meet the needs of the small businesses they serve.

NCUA updated its Letter to Credit Unions 20-CU-06, Small Business Administration Loan Programs to Help Small Businesses and Members During the COVID-19 Pandemic, with additional information from the Small Business Administration (SBA) on how to become a Paycheck Protection Program (PPP) lender. In addition, NCUA developed a helpful presentation to assist credit unions in becoming a PPP lender.

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Are credit unions eligible to apply for Paycheck Protection Loans from the Small Business Administration?

At this time, credit unions are not eligible to apply for Paycheck Protection Loans. Please refer to the SBA’s website for additional information.

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Do the Equal Credit Opportunity Act (ECOA) and Regulation B requirements apply to the SBA’s Paycheck Protection Program (PPP) loans?

Yes. When working with loan applicants, lenders, including credit unions, must adhere to fair lending laws and other applicable legal requirements.

The purpose of ECOA and Regulation B is to promote the availability of credit to all creditworthy applicants without regard to specified prohibited bases for discrimination. ECOA and Regulation B prohibit discrimination against an applicant on a prohibited basis regarding any aspect of a credit transaction, and prohibit discouraging a reasonable person, on a prohibited basis, from making or pursuing an application. See 12 C.F.R § 1002.4(a), (b). The prohibition on lending discrimination in ECOA and Regulation B applies to all lenders and to both business and consumer loans. We encourage you to visit the SBA’s website for more information on PPP loans.

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What is the reporting process through which Payroll Protection Program (PPP) lenders will report on PPP loans and collect the processing fee on fully disbursed loans?

The SBA published a procedural notice to provide guidance to lenders on PPP loan reporting, the fees paid to lenders, and the process to request payment of those fees.

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Where can I find information on the Federal Reserve Paycheck Protection Program Liquidity Facility (PPPLF)?

The Federal Reserve is supplying liquidity to participating financial institutions, including credit unions, through term financing backed by PPP loans to small businesses. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions, including credit unions.

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Where can I find information on Paycheck Protection Program (PPP) whole loan and participation sales?

The Small Business Administration (SBA) provides guidance on PPP whole loan sales and PPP participation sales on their website.

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What is the Paycheck Protection Program (PPP) Flexibility Act, and what does it mean for credit unions?

The Paycheck Protection Program (PPP) Flexibility Act of 2020 provides small businesses with more time and flexibility to use PPP funds by modifying certain CARES Act provisions related to loan forgiveness and payroll tax deferral for borrowers. The modifications include the following:

  • Extends the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
  • Lowers the percentage of a borrower’s loan proceeds that must be used for payroll costs and the percentage of the loan forgiveness amount that must have been spent on payroll costs during the 24-week loan forgiveness covered period, in both cases, from 75 percent to 60 percent.
    • If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
  • Extends the maturity limit of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020, from two years to five years.
  • Extends the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
  • Provides a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020.
    • This applies to situations arising from compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to the COVID–19 pandemic.
  • Provides a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.

Credit unions may review the new interim final rule implementing these changes and access the SBA's website to see the revised lender application, borrower application, and loan forgiveness application.

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How should credit unions account and report for regulatory reporting purposes fees received in connection with a Paycheck Protection Program loan?

Credit unions are reminded that for recognition and measurement purposes, the regulatory reporting requirements applicable to the Call Report should conform to U.S. GAAP for credit unions $10 million or greater in assets. Accordingly, the accounting and reporting for fees received in connection with a PPP loan will depend on the credit union’s intent and accounting for the loan.

Credit unions that account for the loan as a loan held for investment should account and report the fees received as a loan origination fee in accordance with ASC Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. As a result, the fee received should be deferred and recognized over the life of the related loan or the estimated life of the related loans, if the criteria in ASC Section 310-20-35 is met, as an adjustment of interest income. On June 30, 2020, the American Institute of Certified Public Accountants and its Depository Institutions Expert Panel released a Technical Questions and Answers that discussed the accounting for the fee received or receivable from the SBA for originating the loan.

To the extent a credit union originates a PPP loan with the intent to sell and accounts for the loan at the lower of cost or fair value, fees received should be deferred until the loan is sold, rather than recognized as an adjustment of interest income.

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Should the guarantee provided by the Paycheck Protection Program (PPP) be considered in a credit union’s allowance for loan and lease losses or allowance for credit losses methodology?

For credit unions that have not adopted ASU 2016-13, the PPP guarantee should be considered in determining the allowance for loan and leases in accordance with ASC Topic 450. For credit unions that have adopted ASU 2016-13, ASC Section 326-20-30 describes that the estimate of expected credit losses should reflect how credit enhancements mitigate expected credit losses on financial assets. Accordingly, the PPP guarantee should be considered in estimating credit losses on the originated loan. On June 30, 2020, the American Institute of Certified Public Accountants and its Depository Institutions Expert Panel released a Technical Questions and Answers that discussed the SBA guarantee and its interaction in estimating credit losses on the associated loan.

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How should credit unions account for PPP loan forgiveness when the notification of forgiveness is provided or a portion of the loan is transferred to the SBA?

For regulatory reporting purposes, PPP loans should continue to be accounted for as loan receivables recognizing payments from the borrower or the SBA. Payments received from the borrower or the SBA prior to the maturity of the loan, other than required payments of principal and interest, are considered prepayments of the loan. Based on the premise that the SBA is considered one of the counterparties, or co-borrower, to the loan agreement in a PPP loan, if the borrower provides the credit union and SBA with documentation supporting that it has met the condition of forgiveness, payments received from the SBA should be accounted and reported similar to payments received from the borrower. Accordingly, payments received prior to the loan’s maturity from the borrower or the SBA, either full or partial, should be accounted and reported as a prepayment. Unamortized loan origination fees should be accounted for in accordance with ASC Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs.

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What are the provisions of the Consolidated Appropriations Act, 2021 relating to the Paycheck Protection Program (PPP)?

The Economic Aid Act, included in the Consolidated Appropriations Act, 2021, authorizes up to $284 billion toward job retention and certain other expenses through March 31, 2021, and allows certain existing PPP borrowers to apply for a Second Draw PPP Loan. The Act also sets aside funds for new and smaller borrowers, for borrowers in low- and moderate-income communities, and for community and smaller lenders.

Key updates to the program can be found in the SBA’s January 8, 2021 press release. You can also view the Ask the Regulators webinar held on January 11, 2021. The slide deck, available through the webinar link, contains useful information on PPP updates, forms, and other resources.

The PPP re-opened the week of January 11, 2021, for new borrowers and certain existing PPP borrowers. The PPP opened to lenders with $1 billion or less in assets on January 15 and all participating lenders January 19, 2021. The SBA provides regular updates to information and resources for lenders participating in the PPP on their website. For additional information, visit the SBA’s website.

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Who is eligible for a Paycheck Protection Program (PPP) loan under the Economic Aid Act section of the Consolidated Appropriations Act, 2021?

The Economic Aid Act, included in the Consolidated Appropriations Act, 2021, distinguishes two types of PPP loans, First and Second Draw, and they each have different criteria:

First Draw Eligibility
The following entities affected by Coronavirus (COVID-19) may be eligible:

  • Sole proprietors, independent contractors, and self-employed persons
  • Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
    • 500 employees, or
    • That meets the SBA industry size standard if more than 500
  • Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location.

Second Draw Eligibility
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:

  • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
  • Has no more than 300 employees; and
  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
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Coronavirus Aid, Relief, and Economic Security (CARES) Act

How does the Coronavirus Aid, Relief, and Economic Security (CARES) Act affect my credit union?

The CARES Act contains numerous provisions to help workers, families, and businesses, including credit unions. Along with provisions for unemployment insurance benefits and loan guarantee programs, it contains provisions to support healthcare workers, fund COVID-19 testing, and assist severely distressed sectors of the economy. The Consolidated Appropriations Act, 2021 extended several provisions of the CARES Act. The NCUA issued Letter to Credit Unions, 20-CU-07 – Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on April 7, 2020, and Letter to Credit Unions 21-CU-01, Summary of the Consolidated Appropriations Act, 2021, on January 7, 2021. Below are some of the provisions affecting credit unions directly:

  • Central Liquidity Facility (§ 4016): The changes brought by the CARES Act afford significant liquidity support to the entire credit union system as we work through the COVID-19 pandemic. The Central Liquidity Facility (CLF) can borrow from the United States Treasury and make loans to member credit unions and the National Credit Union Share Insurance Fund. This ability to borrow was an essential element of the NCUA’s and credit union system’s ability to work through the last financial crisis. The CARES Act makes four amendments to the CLF, all of which were extended by the Consolidated Appropriations Act, 2021 (CAA), until December 31, 2021:
    • Increases the CLF’s maximum legal borrowing authority.
    • Permits temporary access for corporate credit unions, as Agent members to borrow for their own needs.
    • Provides greater flexibility and affordability to Agent members to join and serve smaller groups of their covered institutions than their entire memberships.
    • Provides more clarity and flexibility about the purposes for which the NCUA Board can approve loans by removing the phrase “the Board shall not approve an application for credit the intent of which is to expand credit union portfolios.”

The NCUA Board approved an interim final rule on March 18, 2021, to amend the NCUA’s CLF regulation to reflect the extensions made by the CAA. As the changes listed above are statutory in nature, such changes are self-effectuating and are effective immediately. Changes to the NCUA’s regulations are for consistency purposes only.

  • Insured Deposits Threshold (§ 4008(b)): The CARES Act permitted the NCUA Board, in coordination with the Federal Deposit Insurance Corporation (FDIC) to increase by an unlimited amount, or such lower amount as the Board approves, the share insurance coverage on any non-interest bearing transaction accounts in any federally insured credit union. This provision expired December 31, 2020.
  • Temporary Relief from Trouble Debt Restructurings (§ 4013): The law permits financial institutions, including credit unions, to suspend the requirements for categorizing certain loan modifications related to the COVID-19 pandemic as troubled debt restructures. The federal financial regulatory agencies, including the NCUA, issued a revised interagency statement providing guidance on April 7, 2020. This provision has been extended to the earlier of January 1, 2022, or the date that is 60 days after the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates.
  • Paycheck Protection Program (§§ 1102 and 1109): The CARES Act authorizes the Small Business Administration (SBA) to create a loan guarantee program, the Paycheck Protection Program (PPP), to help certain affected businesses meet payroll needs and utilities (including employee salaries, sick leave, other paid leave, and health insurance expenses) resulting from the COVID-19 pandemic. Entities may include small businesses, 501(c)(3) non-profit organizations, veterans organizations described in Section 501(c)(19) of the Internal Revenue Code, Tribal business concerns described in 31(b)(2)(C) of the Small Business Act, independent contractors, and the self-employed. The Consolidated Appropriations Act, 2021 extended and expanded the PPP loan program. Visit the United States Treasury and Small Business Administration websites for additional information.
  • Optional Temporary Relief from Current Expected Credit Losses (CECL) (§ 4014): Credit unions are not currently required to comply with the Current Expected Credit Loss (CECL), also known as Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2016-13 (“Measurement of Credit Losses on Financial Instruments”), until January 1, 2023. However, an extension to the CARES Act provides relief from the requirement to comply with CECL until the earlier of January 1, 2022 or the termination of the COVID-19 public health emergency.

Along with the above, the CARES Act includes the following consumer protections:

  • Credit Protection During COVID-19 (§ 4021): The CARES Act requires credit report agency data providers, including credit unions, to report loan modifications resulting from the COVID-19 pandemic as “current” or as the status reported before the accommodation unless the consumer becomes current. This requirement applies throughout the period of accommodation. The loan modifications may include, but are not limited to, forbearance and modified payments. This requirement applies only to accounts for which the consumer has fulfilled requirements of the forbearance or modified payment agreements. This protection is available beginning January 31, 2020, and ends 120 days after enactment or 120 days after the date the national emergency declaration for COVID-19 is terminated, whichever occurs later.
  • Consumer Right to Request Forbearance and Foreclosure Moratorium on Single Family Mortgages (§ 4022): The CARES Act covers applicable mortgages purchased by Fannie Mae and Freddie Mac, insured or guaranteed by HUD, VA, or USDA, or made directly by the USDA. It provides an initial period of up to 180 days of forbearance for borrowers of a federally backed mortgage who experience a financial hardship related to the COVID-19 pandemic. Borrowers may request forbearance on the federally backed mortgage affirming that the borrower is experiencing the financial hardship during the COVID–19 emergency. Borrowers are not required to provide further documentation. Borrowers may also be entitled to receive one or more extensions of that forbearance upon request.

    The CARES Act provided an initial 60-day moratorium prohibiting foreclosures on all single family federally backed mortgage loans, beginning on March 18, 2020. The foreclosure moratoriums have been extended. For more information, please visit the CFPB’s Mortgage Relief page.
  • Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans (§ 4023): The CARES Act provides up to 90 days’ forbearance for borrowers with a federally backed multifamily mortgage loan who experience a financial hardship. Borrowers who receive forbearance may not evict or charge late fees to tenants for the duration of the forbearance period. Applicable mortgages include loans to real property designed for five or more families that are purchased, insured, or assisted by Fannie Mae, Freddie Mac, the U.S. Department of Housing and Urban Development (HUD), or any other federal agency. This requirement terminated December 31, 2020.

The federal financial regulatory agencies released an interagency statement providing needed regulatory flexibility to enable mortgage servicers, including credit unions, to work with struggling consumers affective by the COVID-19 pandemic.

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Do credit unions qualify for the tax credits in the CARES Act? If a credit union decided to close a branch or reduce branch services (such as lobby transactions), does this affect their ability to qualify? In addition, are credit unions eligible for the refundable credit of $10,000 per employee for 50 percent of wages paid from March 13 through December 31?

Section 2301 of the CARES Act provides for credits against employment taxes for “eligible employers” and has provisions that specifically address non-profit organizations. We recommend contacting a tax advisor and/or reviewing IRS guidance for more information.

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Families First Coronavirus Response Act (FFCRA)

How can a credit union apply for an exemption to the Families First Coronavirus Response Act (FFCRA) and the expansion of the Family and Medical Leave Act (FMLA), which now applies to employers with fewer than 50 employees?

The FFCRA was implemented by the U.S. Department of Labor. We recommend contacting an advisor on employment law matters and/or reviewing detailed guidance from the Department of Labor, which also issued a temporary rule on April 1, 2020, that addressed exemptions for small employers. The requirement that employers provide paid sick leave and expanded family and medical leave under the FFCRA expired on Dec. 31, 2020. Please visit the Wage and Hour Division’s FFCRA Questions and Answers page to learn more about workers’ and employers’ rights and responsibilities after this date.

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Credit Union Assistance

Are NCUA grants available to help credit unions affected by COVID-19?

As of July 15, 2020, funding for the COVID-19 urgent need grants initiative has been fully utilized and new applications will no longer be accepted. The NCUA has completed the review process for COVID-19 urgent need grant applications received and notified credit unions of its decisions on those applications by email.

Urgent need grants are available for events not related to the pandemic, until funds are exhausted. Federally insured, low-income-designated credit unions may apply for grants up to $7,500 for emergency and natural disaster relief.

Eligible credit unions wishing to apply for urgent needs grants should review the NCUA’s Urgent Need Grants Guidelines. Apply through the agency’s CyberGrants portal.

Credit unions with questions should contact the Office of Credit Union Resources and Expansion by email at CUREApps@ncua.gov.

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Will the NCUA allow credit unions to apply for streamlined Community Development Financial Institution (CDFI) certification in 2021?

Yes, the NCUA will accept applications from eligible credit unions that want to qualify to use the agency’s streamlined process for Community Development Financial Institution certification from January 24 through April 3, 2021.

Federally insured, low-income-designated credit unions can find all the necessary information about CDFI qualification in the NCUA’s online program guide. Credit unions that obtain CDFI certification can apply for training and competitive award programs provided by the CDFI Fund.

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Credit Union Liquidity

What options do credit unions have to manage any impact on liquidity of the COVID-19 situation?

In light of the current environment, credit unions should evaluate their contingent liquidity plans. They should also monitor their standard sources of funding to determine if a contingent source from a backup provider may be necessary and if so, become reacquainted with how such access works. For credit unions with access, the Federal Reserve’s discount window is available to assist with eligible depository institutions, including credit unions. Federal Reserve lending to depository institutions plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy.

By providing ready access to a backup source of funding, the discount window helps depository institutions manage their liquidity risks efficiently and avoid actions that have negative consequences for their customers. Thus, the discount window supports the smooth flow of credit to households and businesses. Providing liquidity in this way is one of the original purposes of the Federal Reserve System and other central banks. Additionally, credit unions that are members of the Central Liquidity Facility can borrow funds for their liquidity needs and membership is open to all credit unions.

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Can a credit union use the NCUA’s Central Liquidity Facility (CLF) for contingent liquidity purposes?

Yes, the purpose of the Central Liquidity Facility (CLF) is to improve general financial stability by providing credit unions a source of loans to meet their liquidity needs and encourage savings, support consumer and mortgage lending, and provide basic financial resources to all segments of the economy. To that end, access to the CLF is voluntary and open to all credit unions that join and purchase a prescribed amount of stock. There are two types of CLF membership: natural-person credit unions (a “regular” member) and corporate credit unions (an “agent” member). Natural-person credit unions can borrow from the CLF either directly as a regular member or indirectly through an agent member.

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What are the important changes to the Central Liquidity Facility?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27, 2020, brought important changes to the Central Liquidity Facility (CLF). It amended the Subchapter III of the Federal Credit Union Act. The CARES Act made four amendments, and the Consolidated Appropriations Act, 2021 (CAA) extended these through December 31, 2021:

  • Increased the CLF’s maximum legal borrowing authority.
  • Permitted temporary access for corporate credit unions, as agent members to borrow for their own needs.
  • Provided greater flexibility and affordability to agent members to join and serve smaller groups of their covered institutions than their entire memberships.
  • Provided more clarity and flexibility about the purposes for which the NCUA Board can approve loans by removing the phrase “the Board shall not approve an application for credit the intent of which is to expand credit union portfolios.”

In addition, the NCUA Board approved an interim final rule of Part 725 of the NCUA’s Rules and Regulations on April 13, 2020, that provided additional enhancements to the CLF:

  • Permanently eliminated the six-month waiting period for a new member to receive a loan.
  • Temporarily amended the waiting period to withdraw from membership.
  • Permanently eased collateral requirements for certain assets securing CLF loans.

The NCUA Board approved another interim final rule on March 18, 2021, to amend the NCUA’s CLF regulation to reflect the extensions made by the CAA. The 2021 interim final rule also extended the temporary waiting period to withdraw from membership. Letter to Credit Unions 20-CU-08 – Enhancements to Central Liquidity Facility Membership and Borrowing Authority provides details on these changes.

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Why is it important for my credit union to join the Central Liquidity Facility?

The NCUA encourages credit unions to join the Central Liquidity Facility (CLF) as soon as possible. Membership is voluntary and open to all credit unions that purchase a prescribed amount of stock. Visit the CLF website for details on the changes and review the CLF Operating Circulars and Forms for more information on joining the CLF.

The CLF is a unique public/private mixed-ownership entity and it can only be effective when membership is sufficiently large to create the critical mass of capital amounts we need to achieve sizable borrowing authority.

By joining the CLF, you will help the credit union system as a whole. How is this possible?

  • The more capital subscriptions the CLF has, the higher the borrowing authority we have to provide liquidity assistance to credit unions. Currently, the borrowing authority is about $10 billion. If most credit unions join, it could be over $100 billion.
  • Increased CLF subscriptions will provide the credit union system and the Share Insurance Fund a vital contingent source of funds to assist with system-wide liquidity events.
    • The CLF has increased borrowing capacity from 12 times the CLF’s capital to 16 times its capital. That’s a tremendous boost on top of the other flexibility we’ve gained.
    • Access to liquidity becomes crucial if counterparty trust in the financial markets begins to decline and those market sources potentially decline or disappear.
    • The ability for the Share Insurance Fund to borrow from the CLF was a key part in the success of the credit union system during the last financial crisis.

In short, CLF membership bolsters the NCUA’s ability to help both individual credit unions and the Share Insurance Fund.

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How does my credit union sign up for the Central Liquidity Facility?

NCUA staff are available to help you in joining the Central Liquidity Facility or answering questions about these initiatives. Visit the Central Liquidity Facility website for details on the changes and review the CLF Operating Circulars and Forms for more information on joining the CLF. In addition, you can email us at clfmail@ncua.gov.

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How do the changes to the Central Liquidity Facility make joining it more affordable?

Becoming a member of the Central Liquidity Facility (CLF) is affordable, relatively easy, and economically feasible. It is a form of liquidity insurance, the strength of which increases as the membership grows. Credit unions who join in 2021 can join as a regular member, gain access to liquidity advances immediately (instead of waiting six months), and terminate their membership within six months or by December 31, 2021, whichever comes sooner. Any credit union who joins the CLF in 2021 and remains a member after December 31, 2021, or any credit union that joined between April 29, 2020, and December 31, 2020, may immediately withdraw from membership until December 31, 2022. By amending the notice periods for terminating membership, the NCUA has made it easier to join the CLF, even for a temporary period, but also end your membership if that is necessary and important to your institution after the COVID-19 crisis is resolved.

While a credit union has to buy capital stock to become a regular member, you only have to pay in one half of the subscription amount. The paid-in requirement works out to be about one quarter of one percent of your assets (though it’s actually based on your total shares and undivided earnings). One quarter of one percent is your cash outlay. The CLF gets to leverage that dollar amount 32 times because the multiplier of 16 is based on the total stock subscription, not just the paid-in portion.

You hold the on-call portion on your balance sheet and keep it in short-duration assets. The NCUA won’t be asking for it since we can borrow what we need from the Federal Financing Bank. We will pay a quarterly dividend that reflects short-term market rates. The CLF’s earnings come from its investment of stock proceeds (and retained earnings) into a laddered Treasury portfolio. Our dividend is a function of what we earn, same as you. But, after covering our costs (including retained earnings contributions) we will pay excess earnings out to our members.

We’ve been provided flexibility in the law to be more accommodating when approving a loan advance request, without concern for whether the borrowing increases your “net” portfolios. This allows us more discretion in approving loan requests if we are satisfied you made reasonable efforts to tap your primary sources first. In uncertain times, primary sources may become reduced or even canceled, so a backup source is prudent. We’ve eased the collateral requirements on some assets to make borrowing more aligned with the Discount Window’s requirements. This could translate to an increase in what you can borrow against your unencumbered assets, depending on what you pledge. This is a permanent change to the regulation.

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If a credit union affected by the impact of COVID-19 decides to sell investment securities that were classified as "held to maturity" (HTM) to meet its liquidity needs, will that credit union’s intent to hold other investment securities to maturity be questioned?

Under normal circumstances, the sale of any HTM investment would call into question a credit union’s intent to hold its remaining HTM investments to maturity. However, ASC Section 320-10-25 indicates that events that are isolated, nonrecurring, and unusual for the reporting enterprise that could not be reasonably anticipated may cause an enterprise to sell or transfer an HTM debt security without necessarily calling into question its intent to hold other HTM debt securities to maturity. ASC Section 320-10-25 specifically states that extremely remote disaster scenarios should not be anticipated by an entity in deciding whether it has the positive intent and ability to hold a debt security to maturity.

Accordingly, in this situation, the sale of any HTM investment security would not necessarily call into question the credit union’s intent to hold its remaining HTM investment securities until maturity. Credit unions are encouraged to maintain documentation memorializing the intent and purpose of transactions involving the sale of HTM investment securities.

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Share Insurance Coverage

Does the NCUA have resources to assist credit unions and consumers with Share Insurance Fund questions?

The NCUA consumer website, MyCreditUnion.gov, contains a share insurance toolkit page, which gives consumers information on share insurance, including an online share insurance estimator. For additional questions about NCUA’s share insurance coverage, call 1.800.755.1030, option 1, Monday through Friday, 8 a.m. to 5 p.m., or send an email to dcamail@ncua.gov. In 2018, the NCUA Office of Credit Union Resources and Expansion conducted two share insurance webinars and those events are archived on NCUA’s Learning Management Service website. Scroll down the page and under the webinar section, select Share Insurance, Part 1 and Share Insurance, Part 2.

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Cybersecurity, Frauds, and Scams

Are there any coronavirus (COVID-19) scams that credit unions and consumers should be aware of?

On March 6, 2020, the Cybersecurity and Infrastructure Security Agency (CISA) released an alert reminding individuals to remain vigilant for scams related to the coronavirus (COVID-19). Cyber actors may send emails with malicious attachments or links to fraudulent websites to trick victims into revealing sensitive information or donating to fraudulent charities or causes. Credit unions and their members are advised to be wary of social media pleas, texts, or calls related to COVID-19, and use extreme caution in handling any email with a COVID-19-related subject line, attachment, or hyperlink.

On December 28, 2020, FinCEN issued a notice asking financial institutions to stay alert to COVID-19 vaccine-related scams and cyberattacks. Fraudsters have offered, for a fee, to provide potential victims with the vaccine sooner than permitted under the applicable vaccine distribution plan. Financial institutions and their customers should also be alert to phishing schemes luring victims with fraudulent information about COVID-19 vaccines. FinCEN regularly provides COVID-19-related advisories and notices to keep financial institutions aware of COVID-19-related fraud and scams. For more information visit FinCEN’s Coronavirus Updates page.

CISA encourages individuals to remain vigilant and take the following precautions.

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How are cyber criminals taking advantage of the COVID-19 pandemic?

Criminals are using a range of strategies, including phishing attacks, social engineering, exploiting vulnerabilities with malicious code such as ransomware, and business email compromises.

On April 14, 2020, the NCUA issued Risk Alert 20-Risk-01 – Cybersecurity Considerations for Remote Work to assist the industry. The FBI warns of these attacks with the following alerts:

Additional cybersecurity law enforcement alerts can be found at the FBI’s Internet Crime Compliant Center (IC3).

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What resources can I send to my members to protect their personal and financial information when using mobile banking applications?

While mobile banking has been progressively on the rise in recent years, usage has increased during the COVID-19 pandemic. With the benefits of mobile banking comes risk by cyber criminals of exploiting consumers new to these methods of banking. The Federal Bureau of Investigation has issued Public Service Announcement I-061020-PSA highlighting methods of cyber-attacks on mobile banking as well as a few protection tips. Additional information associated with security protections for privacy and mobile device applications are available on the Department of Homeland Security Cybersecurity and Infrastructure Security Agency’s Security Tip (ST19-003).

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Emergency Capital Investment Program

What is the Emergency Capital Investment Program, and where can I find more information?

As part of the Consolidated Appropriations Act, 2021, the Emergency Capital Investment Program was created to encourage low-income and community financial institutions serving low- and moderate-income communities to augment their efforts to support small businesses and consumers in their communities that may be disproportionately impacted by the economic effects of the COVID-19 pandemic.

NCUA hosted a webinar on February 3, 2021, providing additional details on program terms and requirements, credit union eligibility, secondary capital requirements, and the application process. Webinar presentation slides are archived here. Additional information can be found on the Treasury’s website. Credit unions with questions about secondary capital and the relationship to the ECIP may contact their NCUA regional office. For questions about ECIP and to receive program updates, please contact ECIPInquiries@treasury.gov.

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Lending and Loan Servicing

Is a credit union allowed to offer a small dollar loan special for only those members who are not working as a result of the COVID-19 pandemic?

The answer depends on a number of facts. If the planned loan program treats applicants or prospective applicants differently on a prohibited basis, it is likely impermissible. Prohibited basis means race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract); the fact that all or part of the applicant's income derives from any public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

Even if there is no difference in treatment, if the planned loan program disproportionately excludes or burdens applicants or prospective applicants on a prohibited basis, it may also be impermissible. For more information about disparate impact, please contact our Office of Consumer Financial Protection at 703.518.1140 or ComplianceMail@ncua.gov.

The federal financial institution regulatory agencies issued principles for offering small-dollar loans in a responsible manner on May 20, 2020.

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Are loan modifications under the CARES Act or April 7, 2020 Revised Interagency Statement considered TDRs?

The flowchart below provides a visual representation of the evaluation process for loan modifications under the CARES Act or the April 7, 2020 Revised Interagency Statement. Credit unions should also consult with their CPA for guidance and assistance regarding appropriate TDR identification and ALLL funding.

This graphic describes how Section 4013 of the CARES Act and the April 7, 2020 Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Interagency Statement) affect troubled debt restructuring (TDR) classifications and reserve expectations, in flow-chart format. This graphic is an example to help illustrate key concepts. Reserve decisions will depend on specific facts and circumstances. If you have questions about this material, consult with your CPA.

The first determination addresses whether the modification meets Section 4013 CARES Act criteria. The CARES Act criteria has three elements:

  1. The loan modification was made as a result of COVID-19;

  2. The loan modification was made between March 1, 2020 and the earlier of January 1, 2022, or the 60th day after the end of the COVID-19 national emergency declared by the President; and

  3. The borrower was not more than 30 days past due on contractual payments as of December 31, 2019.

If a loan modification satisfies these criteria, the loan modification is generally not considered a troubled debt restructuring, or TDR. These loan modifications would be reserved under ASC Subtopic 450-20 (pooling) or ASB Subtopic 310-10 (individually).

If a loan modification does not meet all three of the CARES Act criteria or the credit union elects not to apply Section 4013, the next determination addresses whether the modification meets the criteria outlined in the Interagency Statement. The Interagency Statement criteria has three elements:

  1. The loan modification was made in response to COVID-19;

  2. The borrower was current (less than 30 days past due) on contractual payments when the modification program was implemented; and

  3. The loan modification is short-term (e.g. six months).

If a loan modification satisfies these criteria, the loan modification is generally not considered a troubled debt restructuring, or TDR. These loan modifications would be reserved under ASC Subtopic 450-20 (pooling) or ASB Subtopic 310-10 (individually).

If, however, a loan modification does not satisfy the criteria of the CARES Act or the Interagency Statement, refer to ASC Subtopic 310-40 to make a determination regarding whether the modification should be considered a TDR. The two criteria under ASC Subtopic 310-40 that apply here are:

  1. The debtor is experiencing financial difficulties; and

  2. The creditor, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider.

If the modification is a TDR, measure impairment under ASC Subtopic 310-40 (individually). If the modification is not a TDR, the modification should be reserved under ASC Subtopic 450-20 (pooling) or 310-10 (individually).

 
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Can a borrower pay off a payday alternative loan (PAL) I with a new PAL II?

No. The NCUA’s PAL regulations expressly prohibit rolling a PAL over, which includes paying off a PAL with another PAL.

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Can a credit union offer loan extensions on payday alternative loans (PALs)?

The PALs rules outlined in the NCUA’s Rules and Regulations Parts 701.21 (c)(7)(iii) and 701.21(c)(7)(iv) permit an extension up to the maximum maturity limit (six months for a PALs I, and 12 months for a PALs II), as long as the loan is extended, and not rolled over. For example, a credit union can extend a PALs I that is two months into its term up to an additional four months as long as the total length of the loan does not exceed six months. Credit unions cannot extend any additional funds or charge any fees for the extension.

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Does a credit union have the flexibility to extend the 45-day charge-off of courtesy pay negative balances?

Letter to Credit Unions 05-CU-03 – Overdraft Protection (Bounce Protection) Programs provides that a credit union should generally charge off overdraft balances when it considers them uncollectible and should do so no later than 60 days from the date the member overdrew the account. The charge-off should occur when the debt appears uncollectible, even if this is before the 60 days has lapsed.

Federal credit unions have the flexibility to convert the negative balance into a loan in accordance with Section 701.21 of the NCUA’s Rules and Regulations. This regulation currently requires that federal credit unions have policies in place to require the member to cover the overdraft or obtain an approved loan from the credit union within a maximum of 45 days. However, the NCUA will not criticize federal credit unions if they exceed the 45 days while acting in good faith to address member needs. Credit unions are encouraged to work constructively with members affected by the COVID-19 pandemic. This may include waiving overdraft fees and loan application fees, or lowering interest rates. State-chartered credit unions should comply with state law and contact their state supervisory authority with any questions.

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Due to the COVID-19 pandemic, our credit union deferred the repossession of vehicles for 90 days. Should the credit union account for the repossessed vehicle now or wait until the vehicle is repossessed to fund the allowance for loan and lease loss (ALLL) account?

The decision to defer repossessions is a business decision for a credit union. For accounting purposes, the allowance for loan and lease loss (ALLL) should already reflect what the credit union expects to charge-off on the loan (net the amount you expect to recover by selling the vehicle).

After repossessing a vehicle, a credit union may have a better estimate of auction or sale proceeds. At that time, the difference between the estimated proceeds and the loan balance are charged-off and the remaining loan balance is transferred from a loan account to collateral in process of liquidation account. Credit unions should also consult with their CPA for guidance and assistance regarding accounting for collateral in process of liquidation and appropriate ALLL funding.

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Due to the COVID-19 pandemic, our credit union granted a substantial number of extensions for consumer loans. Some members informed the credit union they are unemployed. As a credit union, we anticipate elevated delinquency and loan losses related to unemployment. Is it permissible to increase the allowance for loan and lease loss (ALLL) now?

Yes, credit unions can use qualitative and environmental (Q&E) factors to adjust historical loss factors to reflect changes in risk exposure (for example, an increase in the unemployment rate or a natural disaster). Q&E factors can include all known relevant internal and external factors that may affect loan collectability, as well as the particular risks inherent in different kinds of lending.

Credit unions can tie a Q&E factor directly to the local unemployment rate to reflect changes in the related risk exposure. Another example of how to estimate Q&E factors is the use of proxy data from other credit unions or community banks impacted by previous economic downturns or disasters. A credit union could estimate a Q&E factor using net charge-offs from Call Reports during a specific time period to extrapolate a basis point adjustment for its own loan portfolio.

Regardless of the Q&E factors used, credit unions must document sufficient and objective evidence to support the amount of an adjustment and explain why it was necessary to reflect current information, events, circumstances, and conditions in the loss measurements. Credit unions should also consult with their CPA for guidance and assistance regarding appropriate ALLL funding.

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How does FEMA Bulletin W-20002, which extends the grace period to renew National Flood Insurance Program (NFIP) policies from 30 days to 120 days due to COVID-19, affect the force placement requirement under the Flood Disaster Protection Act and the implementing regulation?

On March 29, 2020, FEMA announced in Bulletin W-20002 that the grace period to renew NFIP policies that expire between February 13, 2020 and June 15, 2020 (the FEMA emergency period) has been extended from 30 days to 120 days. A borrower will be covered by the NFIP policy if the flood insurance premium is paid before the 120-day grace period expires.

Under the NCUA’s flood insurance regulations, a credit union must notify a borrower if a designated loan is not covered by a sufficient amount of flood insurance, and the borrower must provide evidence of sufficient coverage within 45 days after notification or the credit union must force place flood insurance. For NFIP policies that expire during the FEMA emergency period, the following guidance applies:

  • A credit union may provide the required notice to the borrower after determining the policy has expired, noting that the NFIP grace period has been extended for 120 days and that force placement will not occur until after the end of the 120-day period. Alternatively, a credit union may provide the required notice to the borrower at least 45 days before the end of the 120-day grace period.
  • The credit union must force place flood insurance on the borrower’s behalf if the borrower does not pay the premium by the end of the 120-day grace period.
  • If a credit union force places flood insurance for NFIP policies that expire during the FEMA emergency period prior to the expiration of the 120-day grace period and the borrower pays the premium by the end of the 120-day grace period, the credit union must refund the borrower for any overlapping flood insurance coverage.

The NCUA does not expect to take supervisory or enforcement action against a credit union for violating the flood insurance force placement requirements, provided that the circumstances were related to COVID-19, the credit union has made good-faith efforts to support borrowers and comply with the flood insurance requirements, and the credit union has responded to any needed corrective action. This approach is consistent with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised).

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If a credit union provides a low-interest installment loan to allow a borrower to defer a mortgage payment, and the loan is secured by the property, does the installment loan fall under RESPA guidelines?

Generally, these loans are subject to RESPA. However, without knowing more about the loan, we don’t know whether an exemption or partial exemption for certain mortgage loans applies. Credit unions should review 12 CFR § 1024.5(b) and 12 CFR § 1024.5(d) to determine whether an exemption or partial exemption for certain mortgage loans would apply.

Such loans are also generally subject to the Truth in Lending Act, as implemented by Regulation Z, 12 CFR Part 1026. Credit unions should consult with a compliance expert to determine the exact circumstances of each loan.

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Should credit unions adjust their allowance for loan and lease loss (ALLL) methodology to account for loans modified under the CARES Act or the April 7, 2020 Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus?

It depends. Determining an appropriate allowance for loan and lease loss (ALLL) account balance involves a high degree of management judgment. Credit unions should continue to maintain an appropriate ALLL account in accordance with ASC Subtopic 450-20 (loss contingencies) or ASC Subtopic 310-10 (loan impairment). Because the ALLL is an estimate designed to cover potential losses based on historical losses that have not yet occurred, each credit union must evaluate modified loans for collectability based on facts and circumstances as of the evaluation date.

Credit union management may consider adjusting their ALLL by incorporating qualitative and environmental (Q&E) factors for the ALLL. Options to adjust Q&E factors could include using proxy data of other credit unions that suffered economic downturns during prior natural disasters such as Hurricane Katrina, or local unemployment rates. As always, management should fully support their ALLL methodology with appropriate documentation.

Loans modified under the CARES Act and the April 7, 2020 Interagency Statement are generally not considered troubled debt restructurings (TDRs), meaning they would not be evaluated for individual impairment. In some circumstances, it may be appropriate for a credit union to pool loans modified under the CARES Act that share risk characteristics for allowance estimates. Alternatively, it may be appropriate to include the modified loans in the same pools they were reflected before being modified.

The flowchart below provides a visual representation of the evaluation process. Credit unions should also consult with their CPA for guidance and assistance regarding appropriate TDR identification and ALLL funding.

This graphic describes how Section 4013 of the CARES Act and the April 7, 2020 Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Interagency Statement) affect troubled debt restructuring (TDR) classifications and reserve expectations, in flow-chart format. This graphic is an example to help illustrate key concepts. Reserve decisions will depend on specific facts and circumstances. If you have questions about this material, consult with your CPA.

The first determination addresses whether the modification meets Section 4013 CARES Act criteria. The CARES Act criteria has three elements:

  1. The loan modification was made as a result of COVID-19;

  2. The loan modification was made between March 1, 2020 and the earlier of January 1, 2022, or the 60th day after the end of the COVID-19 national emergency declared by the President; and

  3. The borrower was not more than 30 days past due on contractual payments as of December 31, 2019.

If a loan modification satisfies these criteria, the loan modification is generally not considered a troubled debt restructuring, or TDR. These loan modifications would be reserved under ASC Subtopic 450-20 (pooling) or ASB Subtopic 310-10 (individually).

If a loan modification does not meet all three of the CARES Act criteria or the credit union elects not to apply Section 4013, the next determination addresses whether the modification meets the criteria outlined in the Interagency Statement. The Interagency Statement criteria has three elements:

  1. The loan modification was made in response to COVID-19;

  2. The borrower was current (less than 30 days past due) on contractual payments when the modification program was implemented; and

  3. The loan modification is short-term (e.g. six months).

If a loan modification satisfies these criteria, the loan modification is generally not considered a troubled debt restructuring, or TDR. These loan modifications would be reserved under ASC Subtopic 450-20 (pooling) or ASB Subtopic 310-10 (individually).

If, however, a loan modification does not satisfy the criteria of the CARES Act or the Interagency Statement, refer to ASC Subtopic 310-40 to make a determination regarding whether the modification should be considered a TDR. The two criteria under ASC Subtopic 310-40 that apply here are:

  1. The debtor is experiencing financial difficulties; and

  2. The creditor, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider.

If the modification is a TDR, measure impairment under ASC Subtopic 310-40 (individually). If the modification is not a TDR, the modification should be reserved under ASC Subtopic 450-20 (pooling) or 310-10 (individually).

 
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What guidance is there to help mortgage servicers work with struggling consumers affected by the COVID-19 pandemic?

The federal financial institutions regulatory agencies and the state financial regulators issued a joint policy statement on April 3, 2020, providing regulatory flexibility and guidance to assist mortgage servicers, including credit unions. The policy statement clarifies that the regulatory agencies do not intend to take supervisory or enforcement action against mortgage servicers for delays in sending certain early intervention and loss mitigation notices, or for taking certain actions relating to loss mitigation set out in the mortgage servicing rules, as long as servicers are making good faith efforts to provide these notices and take these actions within a reasonable time.

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What guidance has been provided on working with borrowers affected by the COVID-19 pandemic?

The federal financial institution regulatory agencies and the state banking regulators issued an updated interagency statement on April 7, 2020 encouraging financial institutions, including credit unions, to work collaboratively with borrowers affected by COVID-19 and providing additional information regarding loan modifications and troubled debt restructurings.

The NCUA’s Letter to Credit Unions, 20-CU-04 – Responsible Small-Dollar Lending in Response to COVID-19 (issued on March 26, 2020) outlines an additional joint statement from the federal financial regulators and encourages credit unions to use responsible small-dollar lending to help meet the credit needs of consumers and small business members during the pandemic. The federal financial institution regulatory agencies issued principles for offering small-dollar loans in a responsible manner on May 20, 2020. Letter to Credit Unions 20-CU-15 – Principles for Making Responsible Small-Dollar Loans (issued on May 22, 2020) provides additional information on this topic.

Letter to Credit Unions 20-CU-13 – Working with Borrowers Affected by the COVID-19 Pandemic (issued on April 30, 2020) describes a variety of strategies credit unions can use to work with borrowers who experience financial hardship because of the COVID-19 pandemic.

The federal financial institution regulatory agencies issued an interagency statement on August 3, 2020, on additional loan accommodations related to COVID-19. The joint statement provides prudent risk management and consumer protection principles for financial institutions to consider while working with affected borrowers that, when appropriate, can ease a borrower’s cash flow pressures and improve their capacity to service their debt.

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If a credit union works with its borrowers by extending maturities or payments or creating balloon payments due to COVID-19, would the credit union be required to make a new flood zone determination and provide new notices of special flood hazards for the extended loan?

Under the NCUA’s regulation 12 CFR Part 760, flood insurance requirements are generally triggered upon the making, increasing, renewing, or extending of any designated loan. If a credit union modifies a loan by extending the loan term, then this change is a triggering event, and flood insurance requirements would apply, provided no other existing exception to the requirements under the NCUA’s regulation is applicable. Such requirements may include establishing escrow for flood insurance payments and fees, making a flood zone determination on the property securing the loan, or providing the notice of special flood hazards to the borrower. The federal flood statutes and the NCUA’s implementing regulation do not provide for a waiver of these requirements in emergency situations.

However, consistent with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), the NCUA will take into account the unique circumstances impacting borrowers and institutions resulting from COVID-19. The NCUA expects that supervisory feedback for credit unions will be focused on identifying issues, correcting deficiencies, and ensuring appropriate remediation to consumers. The NCUA does not expect to take supervisory or enforcement action against a credit union for violating the flood insurance force placement requirements, provided that the circumstances were related to COVID-19, the credit union has made good-faith efforts to support borrowers and comply with the flood insurance requirements, and the credit union has responded to any needed corrective action.

Note: Federal credit unions must consider the maturity limits in the Federal Credit Union Act (12 USC § 1757(5)) and 12 CFR § 701.21 when they extend the term of any designated loan.

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If a loan modification is considered a troubled debt restructuring (TDR), should a credit union remove it from allowance for loan and lease loss (ALLL) pooling and evaluate it individually?

Yes, generally accepted accounting principles (GAAP) stipulates that financial institutions should remove troubled debt restructuring (TDR)s from the original allowance for loan and lease loss (ALLL) homogeneous pool they were in and measure them for impairment individually per ASC 310-40. Under ASC 310-40, when a loan is classified as a TDR, a credit union will measure impairment based on one of two methods:

  • the present value of expected future cash flows discounted at the loan's effective interest rate; or
  • the fair value of the collateral less costs to sell (appropriate for collateral dependent loans when repayment is expected solely by sale of the underlying collateral).

The flowchart below provides a visual representation of the evaluation process. Credit unions should also consult with their CPA for guidance and assistance regarding appropriate TDR identification and ALLL funding.

This graphic describes how Section 4013 of the CARES Act and the April 7, 2020 Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Interagency Statement) affect troubled debt restructuring (TDR) classifications and reserve expectations, in flow-chart format. This graphic is an example to help illustrate key concepts. Reserve decisions will depend on specific facts and circumstances. If you have questions about this material, consult with your CPA.

The first determination addresses whether the modification meets Section 4013 CARES Act criteria. The CARES Act criteria has three elements:

  1. The loan modification was made as a result of COVID-19;

  2. The loan modification was made between March 1, 2020 and the earlier of January 1, 2022, or the 60th day after the end of the COVID-19 national emergency declared by the President; and

  3. The borrower was not more than 30 days past due on contractual payments as of December 31, 2019.

If a loan modification satisfies these criteria, the loan modification is generally not considered a troubled debt restructuring, or TDR. These loan modifications would be reserved under ASC Subtopic 450-20 (pooling) or ASB Subtopic 310-10 (individually).

If a loan modification does not meet all three of the CARES Act criteria or the credit union elects not to apply Section 4013, the next determination addresses whether the modification meets the criteria outlined in the Interagency Statement. The Interagency Statement criteria has three elements:

  1. The loan modification was made in response to COVID-19;

  2. The borrower was current (less than 30 days past due) on contractual payments when the modification program was implemented; and

  3. The loan modification is short-term (e.g. six months).

If a loan modification satisfies these criteria, the loan modification is generally not considered a troubled debt restructuring, or TDR. These loan modifications would be reserved under ASC Subtopic 450-20 (pooling) or ASB Subtopic 310-10 (individually).

If, however, a loan modification does not satisfy the criteria of the CARES Act or the Interagency Statement, refer to ASC Subtopic 310-40 to make a determination regarding whether the modification should be considered a TDR. The two criteria under ASC Subtopic 310-40 that apply here are:

  1. The debtor is experiencing financial difficulties; and

  2. The creditor, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider.

If the modification is a TDR, measure impairment under ASC Subtopic 310-40 (individually). If the modification is not a TDR, the modification should be reserved under ASC Subtopic 450-20 (pooling) or 310-10 (individually).

 
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Is a credit union permitted to issue an adverse action notice if it temporarily suspends a line of credit during a payment deferral or modification period on the credit line and does not report this activity to a credit reporting agency, or would doing so violate the CARES Act or any other law or regulation?

The temporary suspension of the member’s HELOC or other line of credit could be an adverse action under the Equal Credit Opportunity Act and Regulation B. If the temporary suspension of a member’s HELOC or other line of credit qualifies as an adverse action, the Equal Credit Opportunity Act and Regulation B require the credit union to issue an adverse action notice to the member. Although the CARES Act prohibits reporting of certain negative information during the COVID-19 pandemic, sending an adverse action notice to a member is not a credit reporting activity. The CARES Act contains provisions about reporting certain credit obligations as current, and reporting others as having the same status as when the accommodation was made. You can review these CARES Act provisions, which are in the Fair Credit Reporting Act, at 15 U.S.C. § 1681s-2(a)(1)(F)(ii).

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What guidance has been provided related to funding the allowance for loan and lease loss (ALLL) account during the COVID-19 pandemic?

The Federal Financial Institutions Examination Council (FFIEC) issued a Statement on Additional Loan Accommodations Related to COVID-19 on August 3, 2020, providing guidance on accounting, including maintenance of appropriate ALLL or allowance for credit losses (ACL), as applicable. The NCUA will continue to evaluate opportunities to provide additional guidance and information on how credit unions can work with borrowers, and the related accounting implications of doing so, throughout the COVID-19 pandemic. It is important to note that the NCUA cannot provide prescriptive calculations for credit unions, because the ALLL is based on a management’s best estimate, which considers a credit union’s individual facts and circumstances. Credit unions should also consult with their CPA for guidance and assistance regarding appropriate ALLL funding.

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What loan modifications are categorized as Troubled Debt Restructuring (TDR) loan?

Under FASB Accounting Standards Codification (ASC 310-40), both the following conditions must be met for a loan to be considered a TDR:

  • The borrower is experiencing financial difficulty.
  • The creditor has granted a concession (except for an insignificant delay in payment) on an existing loan.
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What relief did Section 4013 of the CARES Act provide to credit unions pertaining to loan modifications?

Section 4013 of the CARES Act permitted financial institutions, including federally insured credit unions, to suspend the requirement to categorize certain loan modifications related to the COVID-19 pandemic as TDRs through December 31, 2020. This authority, among others provided under the CARES Act, was subsequently extended through January 2, 2022, under the Consolidated Appropriations Act, 2021. NCUA Letter to Credit Unions 21-CU-01, Summary of the Consolidated Appropriations Act, 2021, contains details on the extended provisions.

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What loan modifications are eligible for relief under Section 4013 of the CARES Act?

A loan modification is eligible under Section 4013 of the CARES Act if a loan restructuring is related to COVID-19, the loan was not more than 30 days past due as of December 31, 2019, and the restructuring was executed between March 1, 2020, and the earlier of 60 days after the termination of the national emergency or January 1, 2022. This flexibility extends to all loan modifications that meet the following criteria, irrespective of the loan type.

  • Forbearance arrangements;
  • Repayment plans;
  • Interest rate modifications;
  • Any other similar arrangements that defer or delay the payment of principal or interest occurring during the allowable period.
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What are the reserve requirements associated with TDR loans and non-TDR loan modifications?

Regardless of whether a loan modification is eligible under Section 4013 of the CARES Act or meets the definition of a TDR under ASC 310-40, a credit union must evaluate the collectability of each loan, and must maintain an adequate allowance for loan and lease losses account in accordance with ASC 450-20 (Loss Contingencies), and/or ASC 310-10 (Loan Impairment).

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Is every loan forbearance considered a loan modification?

Yes, a loan forbearance is considered a loan modification, as the arrangement is a modification of a loan’s original agreement. Loan forbearance agreements temporarily reduce or suspend a borrower’s payments, allowing borrowers a temporary pause in making payments and reprieve period. At the end of the forbearance period, payments typically resume as normal.

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Is every loan modification considered a loan forbearance?

No, loan modifications typically entail lenders making changes to the terms of a loan, some of which include changes that are permanent. Loan modifications could include temporary modifications such as forbearance arrangements for a certain number of payment, or more permanent restructurings such as interest rate modifications, or lowering the payment amount and extending the term of the loan. However, if the loan modification meets the criteria for CARES Act as noted above, it is to be reported in Call Report accounts CV0001 and CV0002.

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Is a credit union required to grant loan forbearance requests from members?

Credit unions are encouraged to work with impacted borrowers who have experienced financial hardship because of the COVID-19 pandemic, from offering additional funding to making temporary or permanent loan modifications. As a reminder, NCUA examiners will not criticize a credit union’s efforts to provide prudent relief for borrowers when such efforts are conducted in a reasonable manner with proper controls and management oversight.

However, credit union policies should continue to address the use of loan workout strategies and outline risk management practices. Policies should clearly define borrower eligibility requirements, set aggregate program limits, and establish sound controls to ensure loan workout actions are structured properly. A credit union’s risk-monitoring practices for modified loans should:

  • Be commensurate with the level of complexity and nature of its lending activities;
  • Maintain safe and sound lending practices; and
  • Comply with regulatory reporting requirements.
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What are the reporting requirements associated with loan modifications eligible for relief under Section 4013 of the CARES Act?

Section 4013 of the CARES Act suspended the GAAP standards to eliminate the burden of tracking and reporting TDRs.

For a loan to be modified under Section 4013 of the CARES Act, all of the following must be true:

  • The loan had to exist prior to 12/31/2019
  • The loan could not be more than 30 days past due as of 12/31/2019
  • The loan modification request must be made explicitly due to COVID-19 (illness, job loss, temporary shutdowns, etc.)
  • The loan modification must have been executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency concerning the COVID-19 outbreak declared by the President on March 13, 2020, under the National Emergencies Act or (B) January 1, 2022.

Additionally, Section 4013 reporting is applicable for the term of the loan modification. Loan modifications include forbearance, an interest rate modification, and any other similar arrangement that defers or delays the payment of principal or interest. Once the term of a Section 4013 eligible loan modification ends, credit unions should no longer report the loan in Call Report accounts CV0001 and CV0002.

Example of a Section 4013 Loan Modification: A credit union member’s job site shuts down due to a COVID-19 outbreak and causes a financial hardship for the member. The member contacts the lending credit union and requests some type of forbearance or modification on a loan that existed prior to 12/31/2019 (and was not more than 30 days past due on 12/31/2019). At the credit union’s discretion, they grant a Section 4013 loan modification for the member. In normal economic times, this type of loan modification would have been reported as a troubled debt restructuring (TDR), but due to the CARES Act, these specific section 4013 loan modifications are not reported as TDRs. These Section 4013 loan modifications are to be reported in CV0001 and CV0002.

Types of Loans modified under Section 4013 of the CARES Act: Section 4013 CARES Act, can apply to any of the loans that make up Call Report Account 025B1* shown below (except for PPP loans – which did not exist prior to 12/31/2019):

Call Report Account 025B1
*This table shows the breakdown of loans that total to Account 025B1. Accounts 025B and 025B1 must equal.

Reporting Instructions for CV0001 and CV0002. For the loans reported in Total Loans & Leases (Account 025B), report the number and amount of loan modifications granted consistent with Section 4013 of the 2020 CARES Act.

Call Report Account 025B

Maintaining the delinquency status of a Section 4013 Loan modification:

  • If the loan was delinquent before the modification, maintain that delinquency status and continue to report the loan in the appropriate delinquency days-late category on the Delinquency schedule (pages 8 or 9) until the end of the modification period.
  • If the loan is current, do not report these loans on the Delinquency schedule (pages 8 or 9)
  • If the loan was delinquent and is subsequently brought current during the modification period, discontinue reporting these loans on the Delinquency schedule (pages 8 or 9).
  • Do not report these loans on Schedule A (Section 5, Troubled Debt Restructured Loans).
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If a credit union grants a payment deferral (Skip-a-Pay) for a month or two but the member starts making payments again should those loans be reported on page 6 of the Call Report as eligible loan modifications under Section 4013 of the CARES Act?

It depends. Report it on page 6 of the Call Report as eligible loan modifications under Section 4013 of the CARES Act if it was outstanding in deferral status at quarter end. For example, if the credit union grants skip-a-pay in July and the member skips the August payment but is back on track in September, the loan is no longer in the deferral mode at the September quarter end and therefore would not be “outstanding” as a modified loan per the CARES Act. If however, the credit union granted skip-a-pay in August, the member skips their September payment and begins paying in October, the outstanding balance as of September 30th would be listed as a modification on the Call Report provided it was modified using the provisions in the CARES Act. If you simply do skip-a-pay and follow guidance of the interagency statement don’t record those loans on page 6 of the Call Report form.

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A credit union modified a loan on April 15, 2020, with new due date of November 15, 2020. The member missed their November 15, 2020 payment. At December 31, 2020, is this loan 45 days delinquent or 225 days delinquent?

Assuming the loan was current at the modification date of April 15, this loan would be reported on the December 31, 2020 Call Report as 45 days past due. The loan’s payment date is governed by the due date stipulated in the loan agreement. Since the new due date of November 15, 2020 was missed, it is 45 days past due as of December 31, 2020.

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Does the NCUA have additional information or instructions on the reporting requirements associated with loan modifications not eligible under Section 4013 of the CARES Act?

If a loan modification is not eligible under Section 4013 of the CARES Act, a credit union should still evaluate the loan restructuring and reporting requirements under ASC 310-40, or consider the revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.

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Economic Impact Payments

Can a credit union use economic impact payment funds cover overdrafts, past-due debts or other liabilities?

Because the legal restrictions vary for the different economic impact payments, we recommend you consult legal counsel before using these payments to cover any type of member debt. State chartered credit unions must comply with state law and consult their state supervisory authority with any questions.

All credit unions are encouraged to work with members who are negatively impacted by the COVID-19 pandemic. In addition, credit unions should consider the potential for negative publicity and increased reputation risk by electing to use stimulus payments for obligations the member owes the credit union. EIPs provide a lifeline for Americans struggling to buy food and pay their bills during an overwhelming financial crisis. Credit unions that intercept EIPs to cover overdrafts or past due obligations will deny their members these needed funds. Credit unions should consider whether their long-term interests are served by compounding the economic impact on members.

Many credit unions have continued to prioritize their members’ well-being during the pandemic. They proactively took steps to ensure member access to all EIP funds, some going as far as restoring funds seized before they could adjust their automated systems. Those credit unions understand that the strength of the credit union system lies with member security.

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What should a credit union do if we receive an economic impact payment/stimulus check for a closed account or a deceased member?

Credit unions should follow the U.S. Department of the Treasury, Bureau of the Fiscal Service, Green Book rules for processing economic impact payments, commonly referred to as stimulus checks. In short, this means:

  • Deposit the payment if the account number is a match.
  • Return “account not found” for closed account items.
  • Return deceased member items. For deceased members, the U.S. Department of the Treasury, Bureau of the Fiscal Service’s frequently asked questions states that unless the account is closed, you should generally post the funds in accordance with the payment instructions. Recipients should return funds for deceased parties to the IRS, as described in the IRS’s Economic Impact Payment page

In addition, NACHA developed a list of pandemic-related frequently asked questions to assist financial institutions, including credit unions, on stimulus payments.

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Credit Union Meetings

What flexibilities exist for federal credit unions in planning annual meetings?

Based on President Trump’s March 13, 2020 national emergency proclamation, the NCUA authorized a federal credit union to adopt, by a two-thirds vote of its board of directors, a bylaw amendment to Article IV without undergoing further bylaw approval processes with the NCUA. Federal credit unions choosing to adopt this amendment should ensure that the cross-citations conform to their version of the bylaws. Please refer to Letter to Federal Credit Unions, 20-FCU-02 – NCUA Actions Related to COVID-19 – Annual Meeting Flexibility for details. The NCUA further notified federal credit unions that they may invoke the provisions of such a bylaw amendment at any point during the year 2021 for meetings occurring in 2021, if a majority of the board of directors so resolves for each meeting in Letter to Federal Credit Unions 20-FCU-04 – Federal Credit Union Meeting Flexibility During the COVID-19 Pandemic.

A federal credit union also has flexibility to postpone its annual meeting. While there is no law or regulation that prohibits a federal credit union from postponing its annual meeting, it should provide notice of the rescheduled meeting as required in the Federal Credit Union Bylaws. Under current circumstances, a federal credit union might consider postponing its annual meeting. For example, a federal credit union could delay its 2021 annual meeting to December 2021 and still meet the annual meeting requirement.

Article IV, § 2 of the FCU Bylaws provides that notices for meetings may be sent by electronic mail to members who have opted to receive statements and notices electronically. So, a paper mailing is not required for all members, only those members who have not opted in to receive electronic statements and notices.

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What flexibilities exist for federal credit union monthly board of directors meetings?

Federal Credit Unions have the option of meeting virtually through 2021. Letter to Federal Credit Unions 20-FCU-04 – Federal Credit Union Meeting Flexibility During the COVID-19 Pandemic – extends the relief measures outlined in Letter to Federal Credit Unions, 20-FCU-02 NCUA Actions Related to COVID-19 – Annual Meeting Flexibility.

Under this authority, a federal credit union may adopt, by a two-thirds vote of its board of directors, a bylaw amendment to Article IV without additional approvals by the NCUA. Letter 20-FCU-04 describes new optional language related to board of directors’ meetings the NCUA added to the amendment allowing credit unions to hold the required in-person regular meeting of the board of directors virtually as well.

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If a federal credit union delays its annual meeting and election, what happens to the federal credit union’s Board?

Under the Federal Credit Union Bylaws, the term of a director continues until “the election and qualification of successors.” Accordingly, if a federal credit union delays an annual meeting, the current directors’ terms continue until the federal credit union holds its meeting and election. If a vacancy exists on the Board, the federal credit union may fill it by a majority vote of the remaining directors. Directors appointed in this manner, however, hold office only until the next annual meeting.

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Footnotes


4 As of March 26, 2020, the following states have enacted and fully implemented permanent remote online notarization laws and/or rules: Virginia, Texas, Nevada, Michigan, Minnesota, Montana, Ohio, Tennessee, Florida, Idaho, Kentucky, Oklahoma and North Dakota. South Dakota has enacted RON laws, but South Dakota limits RON to notarizing paper documents only.
5 The states with temporary authorizations to perform remote online notarizations are Alabama, Colorado, Connecticut, Illinois, Iowa, Maryland, New Hampshire, New York, Pennsylvania, Vermont, Washington and Wisconsin.

Last modified on
07/19/21