Compliance Blog

Jan 26, 2022

New Year’s Resolutions Part 3: NCUA

Over the past few weeks we’ve blogged about the “New Year’s Resolutions” – i.e. the rulemaking agendas – of both FinCEN and the CFPB. Today we’ll round out this topic by discussing the National Credit Union Administration’s (NCUA) Fall 2021 Rulemaking Agenda, which was published last month. For a full picture of the NCUA’s plans for 2022, it would also be useful to consider the NCUA’s Supervisory Priorities for 2022, which we blogged about last week.

NCUA’s Fall 2021 rulemaking agenda is lengthy compared to FinCEN’s and the CFPB’s. Because this blog is focused on forthcoming actions in 2022, and for the sake of brevity, I will exclude any rulemaking activity on the agenda that has already been completed (such as final rules adopted by the NCUA Board in November or December 2021). Let’s look at what we can expect in 2022:

  • Automated Valuation Models (AVMs): NCUA as well as other federal regulators are planning to solicit comments via a proposed rule that would “implement quality control standards for the use” of AVMs by mortgage originators and the secondary market. Interestingly, the Fall 2021 agenda states that a Notice of Proposed Rulemaking (NPRM) could be expected in November 2021 – however, no such NPRM has been published.
  • Investment Flexibility: NCUA is considering a proposed rule – estimated to be published around June 2022 – that would update Part 703 of the NCUA regulations to provide “more flexible investment options” for federal credit unions (FCUs), by addressing existing provisions which may be “overly restrictive and unnecessary from a safety and soundness perspective.”
  • Purchase, Sale and Pledge of Loans: This proposed rule is predicted to be published around April 2022. According to NCUA, it would “clarify federal credit unions' authority to purchase, sell, and pledge loans--including loan participations and eligible obligations.” The agenda does not provide any further information on what “clarifying” those authorities would entail. Notably, loan participations are one of NCUA’s Supervisory Priorities for 2022, including encouraging credit unions to “utilize safe-and-sound practices as they manage their loan participation portfolios.”
  • Compensation for Loans and Lines of Credit: NCUA expects to issue a proposed rule around April 2022 that will “modernize” the agency’s rules regarding compensation in connection with loans and lines of credit for credit union members. Currently, section 701.21(c)(8)(i) prohibits FCU employees, officials, and their family members from receiving compensation for specific loans made by the FCU with some limited exceptions (such as allowing a written incentive program approved by the board of directors). This proposed rule will follow-up on an Advanced Notice of Propose Rulemaking published by NCUA back in April 2019.
  • Golden Parachutes and Indemnification Payments: NCUA predicts it may publish a proposed rule in June 2022 that will update Part 750 of the NCUA regulations, which contain the prohibition on certain golden parachute and indemnification payments. The agenda states these changes will improve the organization of Part 750 and would add a section on merger-related financial arrangements, among other things.
  • Rules of Practice in Adjudicatory Proceedings: NCUA, along with the other federal financial regulators, plans to publish a proposed rule to update the Uniform Rules of Practice and Procedure for proceedings before the Office of Financial Institution Adjudication. The current rules are found in Part 109 of the OCC regulations. The agenda states that these rules have not been update in nearly 25 years.
  • Digital Assets: In July 2021, NCUA published a request for information regarding decentralized finance and digital assets (such as cryptocurrencies) and their relation to the credit union industry. Comments were due in September 2021. The regulatory agenda states that NCUA will reviewed the comments received and decide what proposals – in any – should be made. The estimated publication date for a proposed rule (if there are any proposals) is June 2022.
  • Mergers and Asset Acquisitions: In January 2020, NCUA published a proposed rule that would add a new subpart to Part 708a of the NCUA regulations, addressing merger or “combination transactions” between federally-insured credit unions (FICUs) and non-credit union institutions, such as banks. The proposal would also extend the scope of section 741.8 – which discusses purchase and assumption of the loans, deposits, and liabilities of another institution – to cover assets purchases from non-FICU entities. The agenda predicts a final rule on this topic will be published in February 2022.
  • Flood Insurance: NCUA, along with other federal financial regulators, is planning to publish a final action to “reorganize, revise, and expand” the Interagency Flood Insurance FAQs. A proposed rule on this topic was published in July 2020. Additionally, the agencies requested comment on several supplemental Q&As in March 2021, which we blogged about at the time. The Fall 2021 agenda predicted a final action on this topic in November 2021, but no such action was taken.
  • Central Liquidity Facility: The agenda includes a final action to extend temporary relief regarding the Central Liquidity Facility (CLF), which was set to expire on December 31, 2021. In response to the COVID-19 pandemic, NCUA issued this temporary relief which was designed to “make membership [in the CLF] more advantageous.” In November 2021, NCUA called on Congress to make the CLF enhancements permanent.  While NCUA did pass a temporary final rule in December to extend some COVID-19 temporary relief through 2022, the CLF enhancements were not part of that rule.
  • Temporary Prompt Corrective Action and Net Worth Restoration Relief: In response to the COVID-19 pandemic, NCUA made two temporary changes to its Prompt Corrective Action (PCA) regulations, with the goal of helping ensure credit unions “remain operational and liquid.” According to the fall agenda, the changes waived the earnings retention requirement for well-capitalized FICUs and also “modified submission requirements for certain net worth restoration plans.” The current relief is set to expire on March 31, 2022. The agenda predicts that NCUA will take final action on this topic in March 2022.
  • Overdraft Policy: NCUA is considering a rule which would remove the requirement in section 701.21(c)(3) that a FCU’s overdraft policy set a time limit, not to exceed 45 days, for a member to deposit funds or receive an approved loan from the FCU to cover the overdraft. Instead, NCUA would replace it with a requirement that an FCU establish a time that is “reasonable and applicable to all members.” NCUA issued a proposed rule on this topic in January 2021, with a comment period that closed in mid-February 2021. NCUA expects a final rule on this topic around June 2022.
  • SAR Filing Exemptions: In January 2021, NCUA issued a proposed rule in which proposed a system in which NCUA could issue exemptions from filing reports for Suspicious Activity Reports (SARs). According to the rule, the exemption would be available to FICUs which develop “innovative solutions to meeting the requirements of the Bank Secrecy Act.” The rule noted, however, that an exemption from NCUA would not exempt FICUs from the SAR filing requirements under FinCEN’s regulations. According to the regulatory agenda, NCUA expects a final rule on these proposed SAR exemptions in March 2022.
  • Temporary Asset Thresholds: In response to the COVID-19 pandemic, NCUA issued an interim final rule that would allow credit unions to use their financial data as of March 31, 2020 when determining if they are subject to capital planning and stress testing requirements. The agenda predicts a final action on this topic in March 2022.

Between the regulatory agenda described above and the NCUA’s 2022 supervisory priorities, NCUA will have a lot to focus on in 2022. Keep checking the Compliance Blog for more analysis of compliance-related developments.

About the Author

Nick St. John, NCCO, NCBSO, Director of Regulatory Compliance, NAFCU

Nick St. John, Regulatory Compliance Counsel, NAFCUNick St. John, was named Director of Regulatory Compliance in August 2022. In this role, Nick helps credit unions with a variety of compliance issues.

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