Many characterize CECL as the most significant change in accounting rules to hit the financial services industry in decades. The CECL standard will lead to increased compliance costs – both in dollars and staff time – that many credit unions cannot afford. NAFCU has conducted studies and will continue to provide numerous resources for its credit union members as the CECL implementation deadline draws nearer.
NAFCU is committed to making its members’ concerns heard before FASB, the National Credit Union Administration (NCUA), other relevant regulators, and even Congress.
- NAFCU wrote to FASB in December 2021 in support of the proposal to eliminate the TDR accounting guidance for CECL adopters. NAFCU also requested an accelerated effective date for this proposed change and that changes to disclosure requirements be narrowly tailored to avoid unnecessary compliance burdens.
- In November 2021 FASB proposed eliminating the Troubled Debt Restructuring (TDR) accounting guidance for institutions that have adopted CECL, and replacing TDR accounting with an enhanced disclosure requirement. NAFCU analyzed this proposal in a Regulatory Alert.
- In October 2021 NAFCU wrote to FASB requesting that all non-public filers, including credit unions, be exempt from CECL.
- In June 2021, NAFCU sent a letter to FASB requesting a roundtable to discuss the effect of CECL implementation on credit unions and other small financial institutions.
- NAFCU continues to advocate for legislation that would exempt credit unions from the CECL standard or delay CECL implementation.
- In August 2020, NAFCU sent a letter to the House Financial Services Committee in support of Representative Blaine Luetkemeyer (R-MO) in support of his legislation that would eliminate the CECL standard.
- In letters addressed to the NCUA, President Trump, and National Economic Council (NEC) Director Larry Kudlow during the Coronavirus outbreak, NAFCU asked for further delay of CECL.
- In advance of a House Financial Services Subcommittee hearing featuring FASB Chairman Russell Golden in January 2019, NAFCU wrote a letter outlining CECL’s harms regarding credit union lending.
- In December 2019, NAFCU provided comments to the NCUA on its final interagency policy statement regarding CECL.
- In July 2019, NAFCU wrote to the House Financial Services Committee in support of H.R. 3182, the CECL Consumer Impact and Study Bill.
- In June 2019, NAFCU met with lawmakers on Capitol Hill to discuss concerns about credit unions’ unique capital framework, which limits the NCUA’s ability to mitigate CECL’s effect on institutions’ net worth without action from FASB.
- In May 2019, NAFCU met with NCUA’s Office of Examination and Insurance to discuss credit union concerns with CECL and gain a better understanding of the NCUA’s approach to CECL examination.
- In April 2019, NAFCU met with NCUA Board Member Todd Harper and discussed credit union concerns with CECL, as well as the need for CECL guidance and education from the NCUA.
- In February 2019, NAFCU wrote to FASB asking for CECL relief for credit unions because credit unions have a unique capital framework and face certain regulatory constraints.
- NAFCU wrote to the NCUA, detailing NAFCU’s work to help credit unions and asking the agency to work closely with FASB to provide more resources for credit unions.
- NAFCU has met with the Federal Reserve to reiterate credit union concerns with CECL.
- NAFCU wrote to Treasury Secretary Mnuchin ahead of a meeting of the Financial Stability Oversight Council (FSOC), asking the FSOC to consider the implications of CECL and delay implementation.
- Ahead of a December 2018 Congressional hearing on the impact of CECL, NAFCU called for Congress to exempt credit unions from CECL.
FASB historically has been reluctant to create exemptions from its accounting standards. Nevertheless, as a result of NAFCU's efforts, some flexibility in the standard has been achieved. In November 2018, FASB issued a final update to clarify the effective date for its CECL standard, making clear that credit unions would not need to begin reporting data on call reports until the beginning of 2022. The update also clarified that operating lease receivables are not covered within the scope of CECL – a clarification welcomed by NAFCU. In November 2019, FASB issued a NAFCU-sought update that further delays implementation of CECL for credit unions until 2023. NAFCU submitted comments in support of the proposal.
In April 2019, FASB issued an update with CECL amendments related to measurement and presentation of available for sale debt securities within the scope of CECL. The update also clarified guidance related to when an entity should include recoveries when estimating the allowance for credit losses. Also in April 2019, FASB announced that it would not move forward with a proposal put forward by a group of banks outlining an alternative to the income statement impact of the standard that would have provided institutions with additional flexibility. NAFCU remains engaged in evaluating any proposals that emerge and will work with the NCUA and FASB to determine whether these alternatives could help alleviate some of the negative impacts of the CECL standard.
In May 2019, FASB issued an update aimed at easing the transition to CECL by simplifying measurement practices. Credit unions will no longer have to use dual measurement methods for certain financial instruments that are similar. In June 2019, FASB issued a proposed accounting standards update that would make a technical correction to CECL to permit organizations to record negative allowances on purchased financial assets with credit deterioration – an issue raised during a recent stakeholder meeting.
Financial regulators, including the NCUA, understand CECL’s importance to credit unions. Chairman Hood included CECL implementation in the NCUA’s 2020 supervisory priorities, released a new CECL FAQ document to help institutions implement the standard, and held an “Ask the Regulators” webinar to address implementation concerns. The NCUA provided credit unions with a CECL Exam Questionnaire that the agency used during exams in 2019. Furthermore, the banking regulators recently announced the option to phase-in over a three-year period the day-one effects of the CECL standard on regulatory capital. In February 2020, the NCUA Board approved its interagency policy statement on CECL after FASB approved delaying CECL implementation until 2023. NAFCU will advocate for parity for credit unions in all beneficial changes regarding the implementation of the CECL standard.
Congress is also concerned about the impact CECL will have on financial institutions and the economy at large. When NCUA Chairman Rodney Hood testified before the House Financial Services Committee in May 2019, lawmakers from both sides of the aisle expressed concerns with CECL’s potential impact on lending and smaller institutions’ operations. In May 2019, a group of Senators introduced a CECL “stop and study” bill that would require FASB to work with financial regulators to review CECL’s impact and report the findings to Congress. Financial institutions would not be required to comply with the standard until one year after the report is submitted to Congress. In June 2019, a bipartisan group of members of the House of Representatives followed suit and introduced similar legislation.
After successful NAFCU outreach, in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020, Congress provided temporary statutory relief in complying with the CECL standard in 2020. NAFCU continues to advocate that credit unions, as not-for-profit cooperative institutions, should not be subject to the CECL standard. NCUA Chairman Hood shares NAFCU’s view and called for a credit union exemption to the CECL Standard in an April 30, 2020 letter to FASB, stating that “…the compliance costs associated with implementing CECL overwhelmingly exceed the benefits.”