May 01, 2020

NCUA chairman backs NAFCU's call for CU CECL exemption

Rodney Hood
NCUA Chairman Rodney Hood

NCUA Chairman Rodney Hood Thursday called on the Financial Accounting Standards Board (FASB) to exempt credit unions from the current expected credit loss (CECL) standard. Since 2016, when the standard was issued, NAFCU has continuously urged FASB to exempt credit unions from the standard due to their unique capital framework and the negative impact the standard could have on the industry.

"We applaud NCUA Chairman Rodney Hood for urging the Financial Accounting Standards Board to exempt credit unions from complying with FASB's CECL standard," said NAFCU President and CEO Dan Berger. "NAFCU has pushed hard for credit unions to be exempt from this onerous and costly accounting standard as it could place significant strains on credit unions' capital levels, particularly amid the coronavirus pandemic."

NAFCU has worked closely with the NCUA to reduce CECL's burden on the industry, most recently asking the agency to press FASB for more relief for credit unions in a discussion with NCUA Board Member J. Mark McWatters last week. NAFCU also reiterated its CECL concerns to Hood during a February meeting; NAFCU has consistently shared these concerns with Hood since he took office last year.

Amid the coronavirus pandemic, NAFCU and lawmakers have raised concerns about CECL compliance hindering financial institutions' ability to effectively address consumers' financial needs. The CARES Act provided temporary relief under CECL through the end of the year, but the standard isn't effective for credit unions until 2023. NAFCU has included an extended delay for credit unions in its recommendations to Congress for future relief packages.

In his letter to FASB, Hood said "the compliance costs associated with implementing CECL overwhelmingly exceed the benefits. Even before the current pandemic, credit unions had approached the NCUA with concerns about the unintended consequences of requiring credit unions to implement CECL."

"In our current environment, I am especially concerned that adopting CECL will have a chilling effect on lending, including loans to low-income borrowers," Hood added.

Given that almost 70 percent of credit unions under the NCUA's supervision are under $100 million in total assets and will face significant data collection challenges under CECL, Hood argued that the standard "provides insufficient advantages over the incurred loss model to support implementing CECL in the credit union system."

NAFCU maintains that credit unions should not be subject to CECL and will continue to work with FASB and the NCUA to obtain relief for the industry. The association has numerous resources available to credit unions as they prepare to implement the standard.