December 05, 2019

CECL, serving communities in need discussed by Hood, FI regulators at hearing

Hood testifying
NCUA Board Chairman Rodney Hood testified before the House Financial Services Committee Wednesday.

NCUA Chairman Rodney Hood and other financial regulators testified before the House Financial Services Committee Wednesday sharing insights into the safety and soundness of the U.S. financial system and how institutions are prioritizing diversity and inclusion in financial services.

Ahead of the hearing, which also featured FDIC Chairman Jelena McWilliams and Federal Reserve Vice Chair for Supervision Randal Quarles, NAFCU shared with lawmakers its advocacy priorities and issues the association would like the NCUA to address.

The current expected credit loss (CECL) standard and NCUA's risk-based capital (RBC) rule were among issues flagged by NAFCU that lawmakers inquired about during the hearing.

  • CECL: Several lawmakers asked how the regulators plan to address implementation of the standard and mitigate potential negative impacts. As the implementation date is now delayed – to 2023 for credit unions – regulators indicated their intent to phase-in the standard's negative impact on net worth ratios. According to the NCUA's fall rulemaking agenda, the agency plans to propose a rule in January to adopt this approach. NAFCU has previously met with NCUA on this issue and will continue to work with the agency, the Financial Accounting Standards Board, and lawmakers to obtain more relief and guidance for credit unions.
  • RBC: Rep. Alma Adams, D-N.C., asked Hood about the NCUA's delay of its RBC rule, which the board could finalize at next week's board meeting (agenda will be released later today) making the effective date Jan. 1, 2022. Hood said credit unions' net worth ratio is strong and delaying the rule wouldn't cause safety or soundness issues, while it would give the NCUA Board more time to explore innovative solutions to capital reform.

In addition to these issues, a large portion of the discussion was focused on ensuring all Americans, including minority and underserved communities, have access to financial services. The discussion covered topics such as Minority Depository Institutions (MDIs), the Community Reinvestment Act (CRA), payday lending, and second chance initiatives.

  • MDIs: As lawmakers questioned the drop in MDIs over the past decade, Hood touted more than 500 credit unions are designated as MDIs and the NCUA's new mentoring program to support these institutions. In October, a NAFCU witness shared with a House Financial Services subcommittee the critical role MDIs play in serving diverse and underserved communities.
  • CRA: Credit unions are not subject to the CRA because of their mission to support individuals and communities, Hood said. The credit union industry seeks out opportunities to serve people of low- and moderate-incomes willingly and "do not need government fiat to encourage them to do the right thing." NAFCU consistently works to set the record straight on the differences between credit unions and banks as the banking industry continues to lobby to have their requirements relaxed while trying to put those same requirements on credit unions. Of note, the association has actively opposed extending CRA regulations to credit unions as they do not engage in the illegal and discriminatory practices of banks.
  • Payday lending: Given many Americans can't afford a $400 unexpected expense forcing some to turn to predatory lenders, Hood highlighted the NCUA's newly expanded payday alternative loan (PALs) program to offer safe, affordable short-term, small-dollar loans. NAFCU is supportive of flexible PALs parameters so credit unions can develop options that meet their members' needs.
  • Second chance initiatives: The NCUA recently finalized its "second chance" interpretive ruling and policy statement that makes it easier for credit unions to hire employees with prior criminal offenses that pose no safety or soundness concerns. Hood said the NCUA is committed to creating opportunities to allow individuals to seek gainful employment, gain access to financial services, and achieve upward mobility.

During his testimony, Hood also defended recent bank sales to credit unions, which he noted are voluntary and protect consumers in those communities from being left without access to financial services and therefore vulnerable to predatory practices. He reiterated credit unions' limitations related to field of membership, capital retention, and member business lending, and that their growth and competitiveness in the market can be attributed to their safe, affordable products and services and community involvement. He also touted credit unions' leadership in supporting members with emergency financial services during government shutdowns before regulators instructed them to.

Hood, McWilliams, and Quarles are set to testify today before the Senate Banking Committee; NAFCU again shared credit unions' priorities with lawmakers ahead of the hearing. It is set to begin at 10 a.m. Eastern.