Compliance Blog

COVID-19 Loan Accommodations Continue

Happy Middle Child Day! You're not the wise elder, nor the adorable baby of the family but we still appreciate you!

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Speaking of appreciation, thousands of borrowers are grateful for the efforts of credit unions as the pandemic continues. Over the past few months, many credit unions have been offering loan modifications and accommodations for members affected by the COVID-19 pandemic. These options have included renewable forbearance periods, elimination of fees, reduction of interest rates, reduction of payment amounts, increased lines of credit and more. Unfortunately, with the continued impact on the economy, many credit union members are still out of work or facing financial hardship.

Last week, NCUA along with other federal regulators, issued a joint statement on additional loan accommodations related to COVID-19. Regulators encourage credit unions and other financial institutions to continue offering accommodations for affected borrowers. The statement describes principles for working with borrowers in a safe and sound manner to reduce the long-term impact of current financial challenges: prudent risk management practices, well-structured and sustainable accommodations, consumer protection, accounting and regulatory reporting and internal control systems. These are all important for credit unions, but I will narrow today’s discussion to consumer protection and internal control systems.

Consumer protection

As accommodations continue, credit unions have inquired about making multiple accommodations for a single member, reaching out to members to let them know about modification options, and updating credit union lending policies. If your credit union has been focused on some of these activities, you will be glad to hear the regulators are encouraging these actions.  The agencies note accommodation includes “any agreement to defer one or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract or provide other assistance or relief to a borrower who is experiencing a financial challenge.” The consumer protection discussion outlines some information that may be particularly helpful for credit unions looking to continue making accommodations. The statement discusses consumer focused activities that may provide members with support while allowing the credit union to manage these changes. Here are some things credit unions can do to manage risks while offering accommodations:

·       Provide loan modification options and other accommodations that are affordable and sustainable,

·       Clearly communicate with members to inform them of available options,

·       Provide disclosures in a timely manner before the end of an accommodation to allow members to consider next steps,

·       Consistently evaluate members’ financial condition and ability to repay when offering modified payment terms,

·       Ensure the credit union’s policies reflect the options offered to members and align with applicable laws and regulations,

·       Train employees on compliance and operational procedures,

·       Review risk, audit, and member complaint systems, and update these systems as necessary, and

·       Provide accurate information to members and servicers to ensure post-transfer servicing aligns with agreement with the members.

Internal Control Systems

I will emphasize one more of the principles that aligns closely with the concerns of our compliance and risk audience, internal control systems. The joint statement explains that credit unions should have internal control systems in place to monitor quality assurance, credit risk, operation risk, and compliance risks. These systems should be commensurate with the size, complexity and risk tolerances of each credit union. This means there is no one size-fits-all approach to managing these risks and credit unions should be ready to evaluate how their control systems are working toward the overall regulatory requirements of the lending, compliance, audit and other related departments within the credit union. The regulators, in their joint statement, have emphasized that testing should inform the credit union about how well it’s systems are working, and may include items such as processing accommodations fairly and consistently, evaluating servicing systems, and clearly communicating with borrowers.

If your credit union is offering modifications and accommodations for members affected by the COVID-19 pandemic, review the joint statement and procedures to ensure continued risk management and safe and sound lending practices.

About the Author

Loran Jackson, NCCO, Senior Regulatory Compliance Counsel, NAFCU

Loran Jackson, Regulatory Compliance Counsel

Loran Jackson joined NAFCU as Regulatory Compliance Counsel in April 2019 and was named Senior Regulatory Compliance Counsel in February 2021. In her role, she provides daily compliance assistance to member credit unions on a variety of topics. She also writes articles for NAFCU publications and presents at NAFCU conferences

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