Compliance Blog

Dec 08, 2021

NCUA Overturns CAMEL Rating On Appeal

This year has seriously flown by!  December is here, and we are knee-deep in the holiday season.  Soon we’ll be making (and breaking) New Year’s resolutions.  Speaking of, I need to set up my planner for 2022 – I’ve got lots of big changes to look forward to, and that calls for plenty of planning.  It really is my favorite time of the year!

Photo of a woman's hand holding a pen, placing a sticky note on a paper planner with a gold binder clip at the top

In a decision and order on appeal published in November, the NCUA resolved a CAMEL rating appeal in favor of an unnamed (redacted) credit union.  The appeal process took almost two full years, with the final decision coming in about one month short of that milestone.

The appeals procedure can be found in Part 746 of NCUA’s regulations, which outlines the steps a credit union must take.  It can be an arduous process, requiring various written submissions, firm deadlines, and oral hearings.  Before a credit union can get to the Supervisory Review Committee (SRC), it must first request reconsideration in writing from the appropriate program office.  From there, the rules permit a credit union to seek review by the Director of the Office of Examination and Insurance (OEI), or the credit union may go directly to the SRC.

The appeal to the SRC must be in writing, and filed with the Secretary of the NCUA Board within 30 calendar days of receiving a written decision by the program office or the Director of the OEI, depending on where the previous decision came from (since the review by the Director of the OEI is not a mandatory step). In this stage of the process, the credit union may submit any additional information or documentation that is requested by the SRC, and an oral hearing will be scheduled, unless the credit union specifically requests the appeal be based entirely on the written record.  The credit union may designate up to two “officers, employees, or other representatives including counsel” to represent them in the oral presentation.  The SRC’s decision, which should be issued in writing within 30 calendar days of the hearing, gets published on NCUA’s website either in redacted form, or as a summary.

The final step in the process, if the credit union has not received a satisfactory decision in any of the previous stages, is an appeal directly to the NCUA Board.  This request for appeal must be submitted to the Secretary of the NCUA in writing to the Secretary of the NCUA Board within 30 calendar days of receiving the SRC’s decision.  At this stage, appeal is discretionary; at least one member of the NCUA Board “must agree to consider an appeal from a decision by the Committee.”  Indeed, some actions are not reviewable: SRC decisions on “the denial of a technical assistance grant reimbursement are final decisions of NCUA and may not be appealed to the Board.”  Another oral hearing may be requested, which the Board may either grant or deny.  If denied, the decision will be made on the written record.  If granted, a hearing date will be scheduled, the credit union will provide notice of its representative for the hearing, and the hearing will be on the record and transcribed.

The Board will issue a written decision within 90 days from the date of the appeal (unless there is a hearing, then within 90 days from the hearing date).  If the NCUA does not issue a decision within the applicable 90-day period, the appeal shall be deemed denied.  The decision will be published on NCUA’s website in redacted form, or as a summary, and published decisions may be cited to, as precedent.

In this case, the credit union accepted this challenge, and completed almost each step (it did not request review by the OEI Director), with the initial CAMEL rating being upheld at each stage, until it reached the NCUA Board.  The decision to reverse the lower decisions and elevate the credit union’s CAMEL rating from a 3 to a 2 was established by a 2-1 majority, with a dissenting opinion published by Chairman Harper, who asserted that “the composite CAMEL 3 is appropriate because there is a rational connection between the relevant data and the CAMEL rating, notwithstanding the fact that the words in the examination report indicated an upgraded CAMEL rating.”  The majority opinion, however, disagreed with the Asset Quality rating determined by the Region, and cited to the credit union’s “solid performance of [it’s] loan portfolio” which inferred that the rating “was based on the quality of the borrowers, rather than the quality of the loans.”  Additionally, the Board cited to “several documented errors on the part of the Region, including miscommunications and breaches of NCUA examination procedures.”  Footnote 26 notes that only “2 of 5 DORs included specific regulatory citations, while 3 of 5 included only general or incomplete citations,” in violation of NCUA regulation and policy.  The majority opinion considered those DORs invalid, and gave them no weight in the appeal.  The majority found “nothing in the record to support this credit union is ‘less capable of withstanding business fluctuation and [is] more vulnerable to outside influences,’” and thus that a CAMEL 2 rating is proper.  This likely gave the credit union extra cause for celebration this season.

About the Author

Rebecca Tetreau, Regulatory Compliance Counsel, NAFCU


Rebecca Tetreau joined NAFCU as regulatory compliance counsel in February 2021.  In this role, Rebecca helps credit unions with a variety of federal regulatory compliance issues.

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