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The Financial Accounting Standards Board's (FASB) current expected credit loss (CECL) standard will have a negative impact on community-based financial institutions, said witnesses and lawmakers during a House Financial Services subcommittee hearing yesterday on the subject. NAFCU has repeatedly told FASB, lawmakers and regulators that credit unions should not be within the scope of the standard.

The impact CECL will have on financial institutions and the economy was the topic of yesterday's Financial Institutions and Consumer Credit Subcommittee hearing. This accounting standard requires financial institutions – including credit unions – to record expected losses whenever they make a new loan. This is causing concern within the industry as it could mean financial institutions may have to either raise more capital or lend less.

Hearing witnesses including Joseph Stieven, CEO of Stieven Capital Advisors LP, and Bill Nelson, executive vice president and chief economist at The Bank Policy Institute, both noted that larger financial institutions are having trouble preparing for this standard and said smaller financial institutions – especially those focused on small-business lending and other services typically offered by smaller institutions – will have an especially difficult time complying with CECL.

NAFCU Executive Vice President of Government Affairs and General Counsel Carrie Hunt outlined credit unions' concerns regarding CECL in a letter to the subcommittee ahead of Tuesday's hearing, noting that it "is an unnecessarily complex accounting method for credit unions and only adds to mounting regulatory stress."

Hunt also highlighted findings from a NAFCU survey that found that credit unions expect to collect 22 percent more data points than they currently do under the CECL standard, and more than half believe the standard will have a negative impact on their profitability.

NAFCU has devoted considerable time and resources to educate credit unions on CECL requirements, and to share the industry's concerns with FASB. The association has also shared concerns with the NCUA and Federal Reserve, and has worked to obtain certain changes and more guidance on the standard.

As a result of NAFCU's efforts, some flexibility in the standard has been achieved: FASB recently 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 clarifies that operating lease receivables are not covered within the scope of CECL – a clarification welcomed by NAFCU.