NCUA Board Approves Changes to Prompt Corrective Action Requirements

May 2020
NCUA Board Approves Changes to Prompt Corrective Action Requirements

Board Action Bulletin

ALEXANDRIA, Va. (May 21, 2020) – The National Credit Union Administration Board held its fourth open meeting of 2020 today using a live audio webcast and unanimously approved two items:

  • An interim final rule that makes two temporary changes to the agency’s prompt corrective action regulations providing relief to credit unions that temporarily fall below well capitalized.
  • A proposed rule that would provide an alternative method to satisfy the membership card or account signature card requirement.

The Board considered and then tabled an interim final rule that would have permanently amended one of the requirements that a federal credit union must adopt as a part of their written overdraft policy.

The agency’s Acting Chief Financial Officer also briefed the Board on the National Credit Union Share Insurance Fund’s financial performance in the first quarter of 2020.

Changes to Prompt Corrective Action Provide Regulator Relief

The NCUA Board unanimously approved an interim final rule that makes two temporary changes to the agency’s prompt corrective action regulations that provide relief to credit unions that temporarily fall below well capitalized.

“Because of the pandemic, I am concerned that credit unions may temporarily fall below the well-capitalized level and become subject to various prompt corrective action requirements, NCUA Chairman Rodney E. Hood said. “This rule provides relief to those that experience a decline in their net worth ratio because of efforts to help their members or because they have experienced a rapid increase in shares because of the flight to safety.”

This interim rule temporarily reduces the earnings retention requirement for credit unions classified as adequately capitalized. Those credit unions unable to meet the earnings retention requirement will not have to submit a written application requesting approval to decrease its earnings retention amount. If a credit union poses an undue risk to the Share Insurance Fund or exhibits material safety and soundness concerns, the appropriate NCUA Regional Director may require the credit union to submit an earnings transfer waiver request.

These temporary modifications will remain in place until December 31, 2020. By statute, credit unions that fall to less than adequately capitalized must submit a net worth restoration plan to their NCUA Regional Director. The interim final rule temporarily permits an undercapitalized credit union to submit a streamlined net worth restoration plan, demonstrating that the reduction in capital was caused predominantly by share growth and that this is a temporary condition because of the pandemic. If a credit union becomes less than adequately capitalized for reasons other than share growth, they must still submit a net worth restoration plan under the current requirements in NCUA’s regulations.

The interim final rule amending NCUA’s prompt corrective action requirements is effective upon publication in the Federal Register, and there is a 30-day comment period.

Joint-Account Insurance Coverage Proposal Would Reduce Uncertainty

The NCUA Board unanimously approved a proposal that would amend the NCUA’s regulation governing the requirements for a share account to be separately insured as a joint account.

Specifically, the proposed rule would provide an alternative method to satisfy the membership card or account signature-card requirement. The proposal amends the regulation to explicitly provide that the signature-card requirement could be satisfied by information contained in the account records of the insured credit union.

For example, under this proposal, the requirement could be satisfied by evidence that a federally insured credit union has issued a debit card to each co-owner of the account or evidence that each co-owner of the account has conducted transactions using the share account. The proposed rule, if adopted, would assist the NCUA in promptly determining account ownership and level of share insurance coverage for each owner in the event a federally insured credit union’s failure, helping to alleviate delays and uncertainty for members. The proposal would apply to all federally insured credit unions and would not impose any increased burden or new recordkeeping requirements for joint accounts.

Comments on this proposed rule are due 30 days after the publication in the Federal Register.

Share Insurance Fund’s Total Assets Increases

The Share Insurance Fund reported a net income of $1.2 million and a net position of $17.5 billion for the first quarter of 2020. The fund’s total assets increased to $17.7 billion at the end of the quarter from $16.7 billion at the end of the fourth quarter of 2019.

For the first quarter of 2020:

  • The number of CAMEL codes 4 and 5 credit unions decreased to 175 from 190 at the end of the fourth quarter of 2019. Assets for these credit unions decreased from the fourth quarter of 2019 to the first quarter of 2020, from $10.8 billion to $10.4 billion.
  • The number of CAMEL code 3 credit unions decreased to 812 from 838 at the end of the fourth quarter of 2019. Assets for these credit unions increased 2 percent from the fourth quarter of 2019, to $42.6 billion from $41.7 billion.

The first-quarter figures are preliminary and unaudited.

Overdraft Proposal Tabled

The NCUA Board considered an interim final rule that would have permanently amended one of the requirements that a federal credit union must adopt as a part of their written overdraft policy.

The Chairman offered a motion to approve the proposed interim final rule, and it lacked a second. Because this item was tabled, the Chairman reserves the right to bring it before the NCUA Board again.

“While it is rare for an open Board meeting to include an item that does not pass, it does occasionally happen,” said NCUA Chairman Rodney E. Hood. “If I only bring forth ideas to the Board that we know we have the votes for, it does not allow for an honest, open, and full debate. I brought this issue forth because I believe it is important. And the public has a right to transparency on this matter.

“This interim final rule should be approved because the problem is now. The other Board members disagreed. However, the Office of the General Counsel determined that today’s rule was appropriate as an interim final rule and did not violate the Administrative Procedure Act. Therefore, I reserve my right as Chairman to have the Board reconsider this rule if the public thinks this is important.”

The NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

Last modified on
06/18/20