May 19, 2021

NAFCU to NCUA: Modernization, reforms needed to ensure healthy industry

Dan BergerNAFCU President and CEO Dan Berger wrote the NCUA Board Tuesday detailing several of the association's priorities to ensure credit unions can effectively support members recovering from the coronavirus pandemic while maintaining the integrity and health of the industry.

Berger called on the NCUA to address several areas, including COVID-related relief, capital reform, field of membership reform, and regulations related to incentive plans.

COVID relief

Under COVID relief, Berger stressed that "time is of the essence" as he called for the agency to finalize its proposed rule allowing the capitalization of interest. The NCUA issued the proposed rule in November 2020 that would allow for the capitalization of interest in connection with loan workouts and modifications and would provide credit unions with the ability to better help their members meet payment obligations on all types of member loans.

Berger reiterated NAFCU's support for this reform in order to provide "fair and efficient loan modification options to credit union members as they exit forbearance programs following a COVID-19 related hardship" and "alleviate many operational challenges for credit unions and potential confusion and hardship for borrowers."

"This request is further bolstered by the fact that almost every comment submitted in response to the proposed rule clearly expressed support for the change," Berger wrote. "NAFCU certainly appreciates that the NCUA is currently dealing with many pressing issues, but the near-unanimous chorus of support for the proposed rule should make reviewing comments straight-forward and justifies a quick finalization.

Berger also called on the NCUA to finalize its proposed rule to remove the 45-day limit in its requirements for an overdraft policy in the agency's lending rule, as it will allow federal credit unions "to streamline processes related to reviewing these accounts, establish reasonable repayment periods and lending processes related to these negative balances, and, most importantly, offer members who are struggling financially with flexibility and understanding as they work with them."

Capital reforms

NAFCU continues to fight for relief for credit unions related to the current expected credit loss (CECL) standard and Berger thanked the NCUA for its efforts to mitigate harmful impacts of the standard on credit unions' capital and net worth. He urged the agency to consider a longer phase-in period with more flexible examination procedures than its current 3-year phase-in proposal.

NAFCU remains in close contact with the NCUA, Financial Accounting Standards Board (FASB) and lawmakers on the issue. Tomorrow, FASB is hosting a roundtable on the issue that NAFCU will monitor.

In addition to CECL, Berger also shared the association's perspective on risk-based capital (RBC) requirements and efforts to simplify them. NAFCU recently wrote the NCUA as the agency considers two approaches to simplify the RBC rule, and Berger further detailed how the NCUA could address the issue before the RBC rule takes effect in 2022 and provide timely relief to the industry.

Field of membership reform

Berger reiterated NAFCU's call for all credit unions to have the ability to add underserved areas to their fields of membership (FOMs), stressing that the pandemic has made this type of reform critical. He also detailed the association's support for the NCUA's service facility proposal as it "provides clarity, consistency, and the appropriate recognition of technological advances and the current operation of shared branching" while also further modernizing FOM rules to include online and mobile banking platforms in service facility reform efforts to ensure credit unions can meet members' needs and compete in an increasingly digital world.

"As the economic effects of the pandemic endure and the credit union industry continues to experience growing consolidation, credit unions need the tools and mechanism to reach new consumers who are not currently being served," Berger wrote. "The current field of membership process is burdensome, difficult to navigate, and unnecessarily restrictive. Field of membership is an important part of what makes credit unions unique, but it should not be used as a stricture against healthy credit union growth and improving access to credit unions for underserved communities."

The final issue Berger raised to the NCUA Board is compensation in connection with loans to members and lines of credit to members. The NCUA in 2019 issued an advance notice of proposed rulemaking on the issue and Berger said the agency should move forward in the rulemaking process. "Flexibility in compensation regulations is essential to credit unions' ability to attract and promote skilled employees and cultivate better organization-wide employee performance" while still defending against bad loan practices.

As credit unions' leading federal advocate, NAFCU will continue to fight to secure the tools and flexibilities credit unions need to help members and thrive.