overview of ncua’s regulations and supervisory authority...

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE 1-1

SECTION 1 – OVERVIEW OF NCUA’S REGULATIONS

AND SUPERVISORY AUTHORITY


Credit unions are subject to many federal laws and regulations that are discussed throughout the RegTraC books. This book focuses on the laws, regulations, policies, and procedures required by the National Credit Union Administration (NCUA), although a few of the regulations are discussed in detail in other books, as appropriate. All of NCUA’s regulations apply to federal credit unions. Selected regulations apply also to federally insured, state-chartered credit unions (FISCUs).

In order to track down the particular provisions of laws, regulations, or agency policies and understand the compli-ance requirements, it is very important to have an overall understanding of the different NCUA documents governing credit union operations. This section provides on overview.

Federal Laws, Regulations, and Other Documents That Control Credit Union Operations

The Federal Credit Union Act

The importance of the Federal Credit Union Act

NCUA’s authority to issue regulations is established by the Federal Credit Union (FCU) Act, the compilation of federal laws that specifically apply to credit unions. The FCU Act was first passed by Congress in 1934 and has

been amended a number of times since then. The FCU Act is defined in the pre-amble as “An Act to establish a Federal Credit Union System, to establish a fur-ther market for securities of the United States and to make more available to people of small means credit for provi-dent purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States.” In order to change the language of the Act and to become law, both the U.S. House of Representatives and the U.S. Senate must pass identical bills, and the president must then sign the legislation to make it a public law.

To appreciate the importance Congress and the president have to the operations of credit unions, consider some of the significant amendments to the FCU Act in the past 30 years:

• March 1970 — Creation of the “National Credit Union Administration” as an independent agency run by an administrator, replac-ing the Bureau of Federal Credit Unions, which was under the U.S. Department of Health, Education, and Welfare.

• October 1970 — Creation of federal share insurance.

• November 1978 — Creation of the three-member NCUA board to run the agency and establishment of the “National Credit Union Central Liquidity Facility.”

Section 1 – Overview of NCUA’s Regulations and Supervisory Authority

NOTE:

This section applies to all federally insured credit unions.

http://www.ncua.gov

http://www.ncua.gov


SECTION 1 – OVERVIEW OF NCUA’S REGULATIONS AND SUPERVISORY AUTHORITY

• March 1980 — Increase of the (then)12% interest-rate limit that could be charged by FCUs on loans, increase of share insurance from $40,000 to $100,000, and phasing out the cap on dividend rates.

• August 1989 — Increase in NCUA’s enforcement powers and the penal-ties that can be imposed on federally insured credit unions experiencing problems.

• August 1998 — Restoration of NCUA’s authority to allow multiple-group fields of membership.

• May 2009 – Creation of a “Temporary Corporate Credit Union Stabilization Fund.” (A “corporate credit union” is a credit union that only provides services to other credit unions, not to consumers.)

The August 1998 amendments to the FCU Act are known as the “Credit Union Membership Access Act” (CUMAA). Credit unions became the most active they had ever been in the legislative process in 1997 and 1998 in order to persuade Congress to pass H.R. 1151 (the bill number given by the House of Representatives when the credit union bill was first introduced). The purpose of H.R. 1151 was to reverse the 1998 U.S. Supreme Court ruling that stated NCUA lacked the authority under the Federal Credit Union Act to allow multiple groups to be served by the same federal credit union.

Persuading Congress to pass a sim-ple bill is rarely an easy process, and CUMAA is an example of Congress trying to address competing interests, in this case the banking industry vs. the credit

union movement. What started as a two-page bill ended up upon passage as a law dozens of pages in length. Section 5 of this book addresses CUMAA and NCUA’s field-of-membership policies in depth.

The structure of the Federal Credit Union Act

The FCU Act is part of the massive United States Code of all the federal laws that cover taxation, environmental protection, bankruptcy, consumer dis-closures, criminal laws, and the like. Title 12 of the U.S. Code covers all the federal banking laws; the FCU Act starts at 12 USC 1751 and runs through 12 USC 1795. NCUA publishes an 80-page booklet, “The Federal Credit Union Act,” which contains the full FCU Act with an index. The Act is also found on NCUA’s website. See Appendix 1-A of this sec-tion for information on finding NCUA Resources.

Almost every key provision affecting the operations of credit unions in the FCU Act is explained and elaborated upon by the NCUA board. The FCU Act gives the NCUA board authority to issue regulations, bylaws, and guidelines to implement the provisions of the law. Therefore, it is not essential that credit unions become intimately familiar with the language of the Federal Credit Union Act. However, you should have a general understanding of what is contained in the federal law in order to understand where NCUA may, and may not, have flexibility to allow a particular service.

The FCU Act is divided into three parts (called “titles”). In addition to the U.S. Code citations described above, the FCU Act is also sequentially numbered.



You will get a feel for the parallel cita-tions in the numbered references below.

Title I – General Provisions

(Sections 1752-1772 of the U.S. Code and Sections 101-131 of the Federal Credit Union Act)

This part of the FCU Act covers a wide range of provisions, establishing the duties and powers of the NCUA and, in general terms, the powers of federal credit unions (FCUs) as well as restric-tions on their operations. Title I covers:

• The organization and powers of the three-member NCUA board. Board members are nominated by the presi-dent, subject to confirmation by the U.S. Senate. The president designates one as chairperson. Each board mem-ber serves for a six-year term and can-not be reappointed. No more than two members of the board can be from the same political party.

• The organization of a federal credit union as a corporation.

• The authority of NCUA to assess each FCU an annual operating fee to cover the costs of running the agency.

• The authority of NCUA to supervise and examine FCUs.

• The powers of an FCU — a very important list which is summarized in figure 1.1.

• Limitations on member business loans.

• The requirement that NCUA issue FCU bylaws.

• Field-of-membership authority and

limitations.

• The requirement that every FCU hold a membership meeting at least annually.

• The requirement that the FCU be man-aged by a board of directors, a supervi-sory committee, and, where the bylaws so provide, a credit committee.

• The requirement that the board of directors select board officers, as specified in the FCU’s bylaws, with the limitation that only one member of the board of directors can be compensated as an officer of the board.

• Powers and duties of the FCU’s board of directors.

• Powers and duties of the credit committee, if provided for in the FCU’s bylaws.

• Powers and duties of the supervisory committee.

• The authority to pay dividends after providing for required reserves.

• The expulsion of members.

• Accounts of minors.

• The powers of NCUA to:

4 Issue regulations to carry out the law.

4 Issue regulations to govern corpo-rate credit union operations.

4 Handle involuntary and voluntary FCU liquidations.

4 Require FCUs to keep books and records as the agency specifies.

4 Require FCUs to carry fidelity bond coverage.

• The authority of FCUs to hold Treasury Department tax and loan accounts.



• The tax exemption of FCUs.

• The possible allotment of space in fed-eral buildings for FCUs requiring that 95% of the members served by the FCU office be federal employees, fed-eral retirees, or their families.

• The procedures to be followed to con-vert from a federal to a state-chartered credit union or from a state-chartered to a federal credit union.

• The NCUA board’s authority to man-age the Community Development Revolving Loan Fund for credit unions.

• The possible forfeiture of the credit union’s charter for money-laundering offenses.

The most important part of Title I of the Federal Credit Union Act affect-ing the day-to-day operations of federal credit unions is the list of specific pow-ers in Section 1757. These powers are summarized in figure 1.1 and form the basis of many of NCUA’s regulations.

Title II – Share Insurance

(Sections 1781-1790 of the U.S. Code and Sections 201-216 of the Federal Credit Union Act)

This part of the Federal Credit Union Act covers share insurance and NCUA’s enforcement powers. The structure of this title is very disorganized because Congress over the years has added provi-sions without adding new subtitles. Even experienced credit union lawyers find it challenging to locate particular provi-sions in Title II. Share insurance require-ments are explained in depth in section 2 of this book. This title includes:

• The conditions that state-chartered credit unions must meet to qualify for federal share insurance. Share insur-ance coverage has been permanently increased to $250,000.

• The administration by NCUA of the National Credit Union Share Insurance Fund (NCUSIF) including insurance premium charges.

• The administration of the Temporary Corporate Credit Union Stabilization Fund.

• The power of NCUA to examine all fed-erally insured credit unions.

• Criminal and civil penalties for viola-tion of laws concerning the safety and soundness of federally insured credit unions.

• Authority for all federally insured cred-it unions to offer share draft accounts, the only membership service that the FCU Act specifically authorizes for state-chartered credit unions.

• Authority for NCUA to require the involuntary merger of an insured credit union in danger of insolvency.

• A range of enforcement powers that NCUA can use against federally insured credit unions and “institution-affiliated parties” including issuance of cease-and-desist orders, removal or suspension from office, and civil money penalties.

• Requirements for enforcement of the Bank Secrecy Act’s currency transac-tions reporting provisions.

• NCUA’s authority to serve as the con-servator or liquidating agent of an



Figure 1.1

Summary of the Powers Assigned a Federal Credit Union by the Federal Credit Union Act

Note: State-chartered credit unions have to look to their state laws and regulations to deter-mine their authorized powers. In most cases, the authorized powers are similar to those enu-merated below. With the exception of share draft authority, the FCU Act does not grant pow-ers to state-chartered credit unions.Federal credit unions are authorized by law to exercise the following powers:

• To make contracts, to sue and be sued, and to use a corporate seal.

• To purchase, hold, and dispose of property necessary or incidental to its operations.

• To make loans to its members, subject to extensive limitations on types, maturities, interest, and the like (including the FCU usury ceiling, currently set by the NCUA Board at 18%).

• To receive funds from members, other credit unions, government agencies — or in the case of designated credit unions serving low-income areas — nonmembers; and to hold funds in share accounts, share certificates, or share draft accounts.

• To invest its funds, but only in investments itemized in the Act.

• To make deposits in federally insured banks with certain exceptions for credit unions operating overseas.

• To borrow from any sources, up to 50% of paid-in capital and unimpaired surplus (including the FCU usury ceiling, currently set by the NCUA Board at 18%)

• To levy late charges for late loan payments.

• To impress and enforce a lien against a member’s account to the extent of any loan made, often referred to as the “statutory lien.”

• To sell travelers checks and money orders, and other money transfer instruments, to cash checks and money orders, to provide check-cashing services, and to provide wire tranfer services to members and to other people who are within the field of membership.

• To purchase, sell, or pledge eligible obligations of members and to purchase from liquidating credit unions notes of members, up to an aggregate of 5% of unimpaired capital and surplus.

• To sell credit union assets or purchase another credit union’s assets or liabilities.



insured credit union experiencing seri-ous problems including procedures for the payment of insured deposits.

• Special assistance from the NCUSIF, often called “208 assistance” in ref-erence to the statutory provision that authorizes NCUA to make loans to, purchase assets from, or establish accounts in, insured credit unions experiencing difficulty.

• Authority of insured credit unions to serve as depositaries of public money and fiscal agents of the U.S. govern-ment.

• Authority of NCUA to disapprove of any directors, committee members, and senior executive officers of newly char-tered, federally insured credit unions and insured credit unions experiencing problems, as determined by the most recent examination.

• Protection to employees of federally insured credit unions from discharge or employment discrimination for pro-viding information to NCUA or to the U.S. Justice Department “regarding any possible violation of any law or regulation by the credit union or any

director, officer, or employee of the credit union.”

• “Prompt corrective action.”

Title III — Central Liquidity Facility

(Section 1795 of the U.S. Code and Sections 301-312 of the Federal Credit Union Act)

This part of the Federal Credit Union Act created the Central Liquidity Facility (CLF) in 1978, which is administered by the NCUA board. The CLF was the “Maytag repairman” of the credit union movement for much of its 30-year exis-tence. It was established to address the economic conditions of the 1970s when credit unions were so loaned-up that they were borrowing funds in order to address member loan demands. Until 2008, the CLF has had relatively few requests for its services since its incep-tion, primarily because of the changing economic environment, but also because of the development of the corporate credit union system. With the economic challenge facing all financial institutions in 2008, the CLF’s access to govern-ment borrowing was greatly expanded to help provide support to credit unions

• To invest in mortgage-backed securities.

• To provide technical assistance to credit unions in Poland and Hungary.

• To exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated, often referred to as the “incidental powers clause.”

Virtually all of these are subject to additional clarification and/or limitations by regulations issued by the NCUA Board.



and their members.Membership in the CLF is voluntary

and open to all credit unions. Credit unions may access the CLF either through direct membership or through an agent member. Agent membership is available only to corporate credit unions. When a corporate credit union becomes an agent member, its member credit unions also gain CLF access.

The CLF is authorized to lend money to natural-person credit unions for the following types of liquidity needs:

• Short-term adjustment credit, to assist in meeting temporary requirements for funds.

• Seasonal credit, to assist in meeting seasonal needs for funds arising from expected patterns of movement in deposits and loans.

• Protracted adjustment credit, for unusual or emergency circumstances of a longer-term nature resulting from national, regional, or local difficulties.

The CLF may not lend to a credit union for the purpose of expanding the credit union’s portfolio. The CLF may also lend to the National Credit Union Share Insurance Fund (NCUSIF) or private credit union insurance funds. NCUA regulations require that the CLF take a first-priority security interest in specific assets of the credit union with a net book value at least equal to 110% of the amount owed to the CLF. Some spe-cific programs were launched by the CLF at the end of 2008 to provide additional liquidity assistance and aid to struggling homeowners.

The CLF’s lending activities are funded by its capital and, if necessary,

borrowing. All liabilities NCUA incurs on behalf of the CLF are backed by the full faith and credit of the U.S. Further infor-mation about current CLF activities can be found on NCUA’s website.

Important provisions in the Federal Credit Union Act not addressed elsewhere in this book

Q. Does a state-chartered credit union receive any specific authority to offer membership services from the Federal Credit Union Act even if its state law does not authorize the credit union to exercise that power?

A. In virtually all cases, the state-chartered credit union has to look to state law to have the authority to exercise specific powers. The one conspicuous exception to this general statement is share-draft authority. In an unusual move (in 1980), when Congress authorized share draft accounts, it included the authority in Title II of the FCU Act which applies to all insured credit unions.

Q. What if the Federal Credit Union Act is silent about whether a federal credit union can offer a specific ser-vice? Is the federal credit union free to do so? Can NCUA authorize the service?

A. As a general rule, an FCU cannot offer a service not specifically authorized by the law. However, the “incidental powers” clause (the last power listed in figure 1.1) is an extremely important inclusion of authority for the federal credit union to provide other products and services that might not expressly be authorized in the law. The “manage-ment” section of this book provides infor-



mation about NCUA’s interpretation of what constitutes “incidental activities” beyond other authorized services speci-fied in the Federal Credit Union Act and NCUA’s regulations.

Q. From what taxes are credit unions exempt by federal law?

A. Here is some guidance on how to deter-mine what federal, state and local taxes (that may or may not actually be called “taxes”) are ones that a federal credit union has to pay. State chartered credit unions have to look to their own state laws to determine their tax liabilities for state and local taxes.

The Federal Credit Union Act contains a specific provision covering the taxation of federal credit unions (12 USC §1768, Section 122 of the Federal Credit Union Act). The section states:

The federal credit unions organized hereunder, their property, their fran-chises, capital, reserves, surpluses, and other funds, and their income shall be exempt from all taxation now or here-after imposed by the United States or by any State, Territorial, or local taxing authority; except that any real property and any tangible personal property of such federal credit unions shall be sub-ject to Federal, State, Territorial, and local taxation to the same extent as other similar property is taxed.

Real property taxes: Federal credit unions are subject to real estate taxes on property that they own to the same extent as other businesses.

Tangible personal property taxes: Federal credit unions are subject to the same taxes as other businesses pay on tangible personal property taxes.

Tangible personal property taxes, per-haps referred to as “ad valorem” taxes in some states, are based on the value of property owned by the taxpayer. How does the federal credit union determine what is “tangible personal property”? State law defines the property that is subject to taxation – it might include vehicles, furniture, fixtures, perhaps leased equipment, etc.

Sales taxes: The U.S. Supreme Court ruled in 1937 that federal instrumen-talities, which include federal credit unions, are not subject to state and local sales taxes where the “legal incidence” of owing the tax falls on the purchasing federal instrumentality. (NCUA legal opinion letter 94-0716, July 19, 1994 to the State of Virginia addresses this issue.)

Complications: Things get a little more complicated in determining taxa-tion after these three rules. A federal credit union may get monthly utility bills with things called “taxes” and “fees.” The federal credit union must pay some of these assessments, but is exempt from others. This obviously raises dis-putes, and a local attorney should assist the federal credit union in analyzing what are and are not exempt tax items. Often, there are state regulatory rulings or court decisions that help the lawyer determine how to categorize a “tax.”

As a general analysis, a state or local tax that is imposed directly on a consumer or business is a tax the FCU is exempt from—unless, of course, it is a tax on real estate or personal property that the federal credit union owns. In legalese, federal credit unions are exempt from taxes where the “legal incidence” for actually paying the tax would fall on the

http://www.ncua.gov/Legal/OpinionLetters/OL1994-0604.pdf




federal credit union itself. For instance, a federal credit union is exempt from sales tax that is charged to other busi-nesses for the purchase of office sup-plies, this is the analysis the Supreme Court used to exclude federal instrumen-talities from sales taxes.

However, a tax (which may be called a “fee”) which is levied on some other entity—such as the electric company—that the entity decides to pass on to its users is not a tax the federal credit union is exempt from paying. Because of restrictions that limit utility compa-nies from simply raising rates, often it is easier for the company just to pass-through the expense on the bill as a line item, often with the word “tax” included so that people will be unhappy with the taxing authority, not the company. This distinction is exactly why a credit union will need the assistance of counsel in determining the difference, since regula-tory rulings and court cases in your state may determine the application of a par-ticular tax to federal credit unions.

Hotel taxes: One often asked ques-tion is whether federal credit union employees and volunteers have to pay the various state and local government taxes that hotels are required to charge for overnight stays. The answer is “no,” federal credit unions do not have to pay these taxes as long as the hotel receives direct payment from the federal credit union (such as by a credit card issued in the federal credit union’s name where the credit union, not the employee, is billed). The mere fact that the employee or volunteer will be reimbursed by the federal credit union is not adequate in order to obtain the exemption from state and local hotel taxes. This rule parallels

the rule applicable to federal govern-ment employees who travel. There are a few states and cities that have spe-cifically exempted federal government employees from paying taxes, regard-less of how billing occurs, which would therefore exempt federal credit union employees and volunteers as well.

NCUA has on its website a “Tax Exemption Letter” that federal credit unions can use to help explain this issue to hotels, as well as a 1993 legal opin-ion letter (No. 93-0708) on this issue. Nevertheless, this exemption continues to be disputed by some hotels, espe-cially due to the fact that if the hotel exempts an organization in error, the hotel is still liable for paying the taxes owed. NCUA has made clear (see, for instance, Legal Opinion Letter No. 97-0511) that it typically does not get involved in disputes about whether state and local taxes are payable by a federal credit union.

Federal income taxes: Federal credit unions are exempt from federal income taxes as “federal instrumentalities.” (See Section 501(c)(1) of the Internal Revenue Code for those organizations that include a tax-exemption specifically in their enabling act, which is stated in the Federal Credit Union Act and quoted above). State chartered credit unions are specifically exempt from federal income taxes under Section 501(c)(14) of the Code.

UBIT: Unlike federal credit unions, state chartered credit unions are sub-ject to the federal “unrelated business income tax” (UBIT) provisions in Section 511-514 of the Code, because only federal instrumentalities are exempt from UBIT. Until recently, the Internal

http://www.ncua.gov/Legal/GuidesEtc/GuidesManuals/TaxExemptLetter.pdf

http://www.ncua.gov/Legal/GuidesEtc/GuidesManuals/TaxExemptLetter.pdf







Revenue Service only audited an occa-sional state chartered credit union for possible UBIT liability. But in 2007 the IRS began issuing numerous tax adviso-ries stating that credit unions owe UBIT on income from a number of products and services, particularly involving the sales of insurance. Two credit union lawsuits challenging the IRS position on a number of products and services were filed in 2008. In one lawsuit, a Wisconsin jury ruled for the credit union, and the IRS did not appeal. The second lawsuit is underway in Colorado.

State chartered credit unions are required to file with the IRS annually the Form 990, an annual information return for tax-exempt organizations. Federal credit unions are not required to file 990 forms. A few state regulators filed “a group 990 form” on behalf of their state-chartered credit unions.

Federal excise taxes: Whether a federal credit union has to pay a federal excise tax will depend on the “legal inci-dence” analysis. There is an old 1973 Internal Revenue Ruling, Rev. Rul. 73-431 (one of the few official analy-ses of this issue), that rules that federal credit unions are not subject to federal telephone usage excise taxes, where the obligation to pay falls on the person or business having the telephone. The rul-ing differentiates between the federal excise tax imposed on communications services under Section 4251 of the Internal Revenue Code—which the IRS says federal credit unions are exempt from paying—and other federal excise taxes imposed on retailers and manufac-turers which may be passed on to subse-quent purchasers.

Moreover, that 1973 IRS ruling spe-

cifically states that federal credit unions are not exempt from the “taxes” or “fees” imposed under the Airport and Airway Revenue Act of 1970, on such things as fuel surcharges and airport fees because they are not considered to be taxes but rather “are generally viewed as user charges properly applicable.”

Q. Does the United States Government stand behind the National Credit Union Share Insurance Fund (NCUSIF)?

A. Although Congress has said so on a number of occasions over the years, in 2006 the law was changed to make it very clear that the federal government stands behind bank deposit insurance and credit union share insurance. The official sign required by NCUA explic-itly states not only that funds in federally insured credit unions are insured to at least $250,000, but also that the funds are backed by the full faith and credit of the U.S. government. (Congress had temporarily raised federal insurance cov-erage from $100,000 to $250,000 in 2007, and made the increase permanent in mid-2010.)

NCUA Regulations

While it is generally unnecessary for credit unions to ponder the statutory language found in the Federal Credit Union Act, it is essential that credit unions understand NCUA’s regulations in order to understand what they are authorized —and not authorized—to do. In addition, FCUs need to understand the requirements of several interpretive rulings (such as the field-of-membership requirements) and the FCU bylaws.

http://www.irs.gov/pub/irs-pdf/f990.pdf

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These regulations, policies, and proce-dures are the focus of this book.

NCUA is an independent agency of the executive branch of the U.S. gov-ernment. The Federal Credit Union Act gives the NCUA board broad authority to issue regulations and other guidance to direct the operations of federal credit unions and to assure the safe and sound operations of federally insured credit unions. When addressing issues that will have a substantial impact on credit union operations, NCUA will issue a reg-ulation to govern the particular topic.

The list of NCUA regulations

Appendix 1-B provides a list of all NCUA regulations. This chart includes the citations to the specific regulations, which are found in NCUA’s manual enti-tled Rules and Regulations. The manual and periodic updates are provided to all federally insured credit unions. The complete Rules and Regulations manual is also found on NCUA’s website.

As you can see from Appendix 1-B, all NCUA regulations are numbered in the “700” series. This is because they are found in the massive Code of Federal Regulations (CFR) at 12 CFR §700 through §795. The rest of Part 12 of the Code covers all other federal bank-ing regulations. Regulation Z (Truth In Lending), for instance, is found at 12 CFR §226, under the Federal Reserve Board’s regulations. The “§” symbol means “section.”

This chart also notes by a check mark (4) which regulations apply not only to federally chartered credit unions, but also to state-chartered credit unions that are federally insured (FISCUs). NCUA has broad authority to decide which

areas of credit union operations have such a significant impact on the safety and soundness of the credit union that the regulation should apply to state-chartered credit unions as a condition of maintaining federal share insurance.

How a regulation is adopted

The “Administrative Procedures Act” covers most aspects of the procedures that the NCUA—and all federal agen-cies—must follow to adopt a final regu-lation. Federal agencies are also gov-erned by the Regulatory Flexibility Act, the Paperwork Reduction Act, and the Government in the Sunshine Act. The requirements of all these laws are incor-porated into procedures found in Section 791 of NCUA’s regulations.

Generally, the procedures for develop-ing a regulation are these:

• The agency staff will develop a pro-posal in consultation with individual NCUA Board members. Proposed regulations are most often generated because of a change in the law, a safe-ty and soundness concern, or a need to clarify an existing agency directive.

• The NCUA Board is required to publish an agenda announcing that the board will be considering a proposed regula-tion.

• The board must consider at a public meeting (an “open” meeting) whether it will propose a regulation for public comment. If a majority of the NCUA Board (that is, two members) agrees to seek public comments, the proposed regulation will be published in the Federal Register, the official govern-ment publication of all proposed and

http://www.ncua.gov/Legal/Regs/Pages/Regulations.aspx

http://www.federalregister.gov



final regulations issued by all federal agencies.

• Proposed regulations are to be issued for a minimum of 30 days for what is generally referred to as the “notice and comment period.” Typically, proposed regulations are open for comment between 30 days and 120 days.

• NCUA staff then reviews the written comments received and usually within a few months after the end of the comment period, proposes in another open meeting a final regulation for the NCUA Board to consider.

• The board can accept, reject, or amend the staff proposal. In order for a regulation to be finalized, it must be approved by the majority of the NCUA Board. If it is approved, it will be published as a final regulation in the Federal Register.

• NCUA is required by law to give an effective date of at least 30 days after publication in the Register, giv-ing credit unions an opportunity to hear about the change. NCUA can, and often does, give a longer period between when the NCUA Board approves a new regulation and when credit unions must comply with it, especially if the regulation will require changes in procedures, forms, or train-ing. A period shorter than 30 days is allowed when: (1) the regulation grants an exemption or relieves a restriction; (2) the rule is an “Interpretive Ruling or Policy Statement” (IRPS discussed below); or (3) when the NCUA Board finds “good cause” to have an effec-tive date earlier than thirty days.

The NCUA Board has authority to issue regulations immediately without any comment period (called “interim final regulations”) if it feels the notice and public procedures are “impracti-cable, unnecessary, or contrary to the public interest.” Two examples of when NCUA has issued “interim final regula-tions” are the member business loan (MBL) regulations issued in September 1998 to comply with Congressionally mandated changes as a result of the passage of CUMAA the month before, and the Truth In Savings amendments issued in December 1998, which were also changes to conform to statutory amendments.

These two regulations became final regulations on the date they were pub-lished in the Federal Register, contrary to normal practice, which means that credit unions had to immediately comply with them. However, as required with “interim final regulations,” NCUA solic-ited public comments after the effective dates of the two regulations. The agency did make some changes in the MBL rules before issuing a final regulation in June 1999 in response to issues raised by credit unions and their trade associa-tions in their written comments, but the agency found no reason to amend the TISA interim regulation when it became a final regulation in July 1999.

Occasionally, NCUA may issue an “advance notice of proposed rulemak-ing” (ANPR) to request comment on an issue prior to writing a proposed regula-tion. This process allows NCUA or any federal agency to gather the public’s thoughts and opinions on how it might address a complex or major issue. For instance, in early 2009 in response to



the problems of corporate credit unions (which provide wholesale services to credit unions, not consumers), NCUA announced it was evaluating and recon-sidering the role of corporates in the credit union system. NCUA sought com-ments for 60 days on what services and functions corporates should be permit-ted in the future. NCUA released in the fall of 2009 a formal proposed regula-tion amending Section 704, which are the regulations governing corporates’ capital, permissible services, lending, governance, and so forth. NCUA final-ized corporate regulatory amendments in the fall of 2010, then issued some addi-tional revisions in 2011 to its corporate regulations. This shows that regulatory revisions are an on-going process.

CUNA and your state credit union league closely monitor what the NCUA board and staff are considering. CUNA files comments on everything that the agency proposes, and relies on input from CUNA committees, leagues, and individual credit unions to formulate an association position. The reality is, few credit unions are heard from during the proposed regulation stage, which means that sometimes NCUA fails to under-stand the operational impact a particu-lar proposal will have on credit unions. More credit unions, especially those with designated compliance specialists, need to take the time to review and comment on proposed regulations.

Interpretive rulings and policy statements

The NCUA Board may issue an Interpretive Ruling and Policy Statement (IRPS) to provide the agency’s interpre-

tation of what the Federal Credit Union Act means on a particular subject. Not all IRPSs are published in the Federal Register for public comment before being finalized. Generally, it is within NCUA’s discretion whether to first request comment on an IRPS. However, a public comment period has been the common practice in recent years. In these cases, the IRPS will be published as a proposal in the Federal Register, just as would be done for a proposed regulation.

An IRPS may apply only to federal credit unions or to all federally insured credit unions, depending on the subject matter. Credit unions are expected to comply and follow the guidance provided in the IRPS, but the IRPS may not be as comprehensive as a formal regulation, leaving some questions unanswered.

NCUA has published dozens of IRPSs since the first one was published in 1979. The IRPS number indicates the year of issuance, and the suffix indicates the order of the IRPS issued during that year. NCUA lists on its website which ones are currently in effect and which ones are withdrawn. A few of the ones “withdrawn” were converted into regu-lations, such as the ones on charitable contributions (became § 701.25 of NCUA’s regulations) and statutory liens (became §701.39).

IRPSs over time have been issued to serve as commentary to explain a law, to address a particular area of concern such as investment practices, or to be a joint policy statement from all the fed-eral banking agencies. IRPSs that do continue to be in force include:

• IRPS 11-2, New requirements and processes for chartering Corporate



Credit Unions

• IRPS 11-1, NCUA’s Supervisory Review Committee to handle certain appeals form credit unions (updated earlier IRPSs)

• IRPS 10-1, Field of membership change on the criteria to determine a federal community credit union

• IRPS 08-1, Guidance Regarding Prohi-bitions Imposed by Section 205(d) of the Federal Credit Union Act (prohibit-ing anyone who has been convicted of any criminal offense involving dishon-esty or breach of trust from being an institution-affiliated party – employee, volunteer, etc.– of an insured credit union without the written consent of NCUA).

• IRPS 08-2, Chartering and Field of Membership manual modifications to update and clarify the process of approving federal credit union service to “underserved areas.”

• IRPS 06-1, Field of Membership Change.

• IRPS 03-3, Qualified Financial Contracts.

• IRPS 03-1, Chartering and Field of Membership Manual.

• IRPS 02-3, Allowance for Loan and Lease Losses.

• IRPS 98-2, Supervisory Policy State-ment on Investment Securities and End-User Derivative Activities, April 16, 1998.

• IRPS 87-1, Guidelines for Compliance with Federal Bank Bribery Law, October 1987.

• IRPS 83-1, Truth-in-Lending Enforcement Guidelines and

Restitution Review Procedures, February 1983.

• IRPS 82-4, State Unclaimed Property Laws, June 1982.

• IRPS 81-3, State-Chartered Federally Insured Credit Unions as “Most Favored Lenders,” April 1981.

A full list of NCUA interpretive rulings can be found on the agency’s website (www.ncua.gov).

Letters to Credit UnionsThe NCUA Board issues “Letters to

Credit Unions” on a wide range of sub-jects in order to: (1) provide clarifying information about a specific regula-tion; (2) express concern about how credit unions are complying with certain developments; (3) issue warnings; or (4) announce changes in accounting rules, operating fee assessments, or examination procedures. Letter to Credit Unions No. 12-CU-01 on the agency’s “Supervisory Focus” is a good example of useful information—it explains the expectations examiners will have in 2012 on how credit unions are managing inter-est rate, liquidity and concentration risks.

Letters may be addressed specifically to federal credit unions or to all feder-ally insured credit unions, depending on the topic. Up until 1996, Letters were numbered consecutively. Since 1996, Letters have been numbered similarly to IRPSs, starting with the year, followed by either “FCU” or “CU,” and then a sequential number.

Below is a list of the topics that NCUA covered in Letters to Credit Unions in 2011 and through January 2013.

https://www.ncua.gov/regulation-supervision/Pages/policy-compliance/communications/letters-to-credit-unions/2012/01.aspx

https://www.ncua.gov/regulation-supervision/Pages/policy-compliance/communications/letters-to-credit-unions/2012/01.aspx



Recent Letters to Credit Unions13-CU-01 Supervisory Focus for 201312-CU-14 Scheduled Expiration of the

Temporary Corporate Credit Union Share Guarantee and Unlimited Insurance on Noninterest-Bearing Transaction Accounts

12-CU-13 Projected 2013 NCUSIF Premium and Corporate Stabilization Fund Assessment Range

12-CU-12 Changes Planned for Upcoming Call Reports

12-CU-11 Interest Rate Risk Policy and Program Frequently Asked Questions

12-CU-10 Changes to Central Liquidity Facility Access and Emergency Liquidity Proposed Rule

12-CU-09 2012 Corporate Stabilization Fund Assessment

12-CU-08 State of the Credit Union Industry

12-CU-07 Mortgage Servicing Practices Impacting Military Homeowners

12-CU-06 Update of Transitioning U.S. Central Bridge Corporate Federal Credit Union Automated Clearing House (ACH) Services

12-CU-05 Interest Rate Risk Policy and Program Requirements

12-CU-04 NCUA Grants Available for Low-Income Credit Unions

12-CU-03 Temporary Corporate Credit Union Share Guarantee Expires December 31, 2012

12-CU-02 Transitioning U.S. Central Bridge Federal Credit Union Automated Clearing House (ACH) Services

12-CU-01 Supervisory Focus for 201211-CU-17 NCUA Office of Consumer

Protection11-CU- 16 State of the Credit Union

Industry11-CU-15 Changes to U.S. Savings Bond

Sales11-CU-14 Temporary Corporate Credit

Union Stabilization Fund Assessment

11-CU-13 Emergency Financial Services for Disaster Victims

11-CU-12 Disclosing CAMEL Ratings to Federally Insured State Credit Unions

11-CU-11 Impact of U.S. Debt Downgrade11-CU-10 Federal Reserve Bank Excess

Balance Accounts Fact Sheet 11-CU-09 Online Member Authentication

Guidance, Compliance Required by January 2012

11-CU-08 Voluntary Prepayment of Assessments Program

11-CU-07 State of the Credit Union Industry

11-CU-06 Technical Assistance Initiatives 11-CU-05 Planning and Preparedness for a

Potential Government Shutdown 11-CU-04 Financial Education and

Financial Literacy Initiative 11-CU-03 State of the Credit Union

Industry 11-CU-02 Call Report Modifications 11-CU-01 Residential Mortgage

Foreclosure Concerns

Letters to Federal Credit Unions13-FCU-01 Operating Fee Schedule for

201312-FCU-04 Permissible Interest Rate

Ceiling12-FCU-03 Small Credit Union

Examination Program12-FCU-02 Multi-Featured Open-End

Lending (MFOEL)

http://www.ncua.gov/Resources/CUs/Pages/LTFCU2013.aspx



12-FCU-01 Operating Fee Scale Reduced for FY 2012

12-FCU-01 Operating Fee Scale Reduced for FY 2012

11-FCU-04 Permissible Interest Rate Ceiling

11-FCU-03 Community Charter Conversions and Expansions

11-FCU-02 Duties of Federal Credit Union Boards of Directors

11-FCU-01 Operating Fee Schedule for FY 2011

All of NCUA’s Letters to Credit Unions back to 1975 are found on the agency’s website under “The Resource Connection for Credit Unions.” A very helpful addition is that the website list includes a column telling you if the let-ter is “active” (still current, accurate, and relevant), “inactive” (outdated, but useful from an historical or reference perspective), or “cancelled.”

Regulatory Alerts

Since 1996, NCUA has been issuing “Regulatory Alerts” to advise all federal-ly insured credit unions about regulatory changes by other federal agencies that affect credit union compliance require-ments, and to publish joint advisories that NCUA has developed with other federal banking agencies about emerg-ing problems. Similar to the number-ing of IRPSs, the Regulatory Alerts are numbered by year and then sequentially. Since 1996 NCUA has issued about 100 Regulatory Alerts. All of the Alerts since 1996 can be found on NCUA’s website under “Reference Information.” To give you an idea of the types of topics covered, the Alerts issued in 2011 and through January 2013 were:

Regulatory Alerts13-RA-02 Submission of 2012 Home

Mortgage Disclosure Act (HMDA) Data

13-RA-01 Home Mortgage Disclosure Act (HMDA) Data Collection Requirements for Calendar Year 2013

12-RA-04 CFPB’s New Remittance Transfers Rule

12-RA-03 New Flexibility in Loan Originator Compensation Rules and Pension Plan Payments


12-RA-01 Submission of 2011 Home Mortgage Disclosure Act (HMDA) Data

12-RA-03 New Flexibility in Loan Originator Compensation Rules and Pension Plan Payments


12-RA-01 Submission of 2011 Home Mortgage Disclosure Act (HMDA) Data

11-RA-04 Garnishment of Accounts Containing Federal Benefits Payments

11-RA-03 Security Incidents Prevention and Detection


11-RA-01 Submission of 2010 Home Mortgage Disclosure Act (HMDA) Data for Credit Unions Over $39 Million in Assets

http://www.ncua.gov/Legal/Regs/Pages/RA2013.aspx



NCUA legal opinion letters

NCUA’s Office of General Counsel issues “legal opinion letters”(LOL). These opinion letters are in response to specific written inquiries from credit unions, lawyers, trade associations, and other interested parties. You may occasionally hear these letters referred to as “private opinion letters” or POLs. Unlike all the other NCUA compliance documents already discussed, NCUA’s legal opinion letters are not distributed to credit unions. When the answer is sent to the person making the inquiry, the opinion letter is posted on NCUA’s website under “Latest Headlines.” Legal opinion letters going back to the early 1990s are found under “The Reference Connection for Credit Unions” on NCUA’s website and are readily search-able by topic. CUNA summarizes the opinion letters in the association’s “Comp Blog” and many other credit union publications also publicize the most interesting opinion letters. Legal opinion letters are numbered by year issued and then generally by month.

Any question can be asked to NCUA and most will be answered, such as, is a particular service authorized? Is the credit union properly interpreting an NCUA regulation? Can the credit union board conduct its business in a certain way? Some of these letters come into the NCUA’s regional offices, some to the NCUA Board members, but most are addressed directly to the NCUA general counsel’s office, the department within NCUA that answers inquiries regard-ing interpretations of the Federal Credit Union Act and the agency’s implement-ing regulations and policies. NCUA does

not give interpretations of other federal laws, even though credit unions must comply with those laws.

While these legal opinions do not have the effect of regulations, they represent the NCUA staff’s interpretation of the law and regulations. The letters are often helpful in further clarifying an existing regulation. Although we are not aware of any lawsuit relying upon an NCUA interpretation from a legal opinion letter, certainly a court would defer to an NCUA Legal Opinion Letter, allowing a credit union to rely upon a statement in the let-ter to undertake a service.

Credit unions and their trade associa-tions have taken issue with a number of letters issued by the NCUA general counsel’s office over the years. Some legal opinion letters are highly con-troversial because they are contrary to longstanding practices of credit unions of which NCUA legal staff may not be aware at the time the letter is issued. Remember, the inquiries are not subject to public notice and comments before they are answered. In fact, oftentimes only the letter writer knows that the inquiry has been made. Occasionally, the agency will reverse an opinion letter in subsequent months. Sometimes sev-eral years elapse between similar inqui-ries, and the agency’s legal staff gives a different answer to the second inquiry.

Also sometimes it may take some time and a new regulation to reverse an opinion letter. The classic example is the 1989 opinion letter asserting that spouse travel reimbursement for federal credit union board members is imper-missible compensation. It took until 1992 to reverse that opinion, and the NCUA board had to issue a new regu-

https://compliancecommunity.cuna.org/compliancecommunity/home?ssopc=1



lation amending its existing rules on board compensation in order to achieve a reversal. A July 1997 opinion letter (97-0508), stating it is impermissible to honor share drafts on overdrawn accounts without a loan agreement was contrary to many credit unions’ practic-es, and some examiners began to write credit unions up in their examination reports for violating the opinion letter. CUNA lobbied NCUA to reverse its inter-pretation and in 2000 NCUA issued a regulation to allow FCUs to honor share drafts without a loan agreement, if the credit union adopts a written policy.

Two controversial letters released in 1999 address the permissibility of imaging as a record storage method (99-0443) and the requirement of paying dividends to a member who has caused a loss to the credit union (99-0448). The letter on imaging, fortunately uses the words “recommends” and “consult local counsel,” which gives a credit union flexibility in using business judg-ment on how to store and retrieve paper documents. The 1999 letter on paying dividends is NCUA’s legal interpreta-tion that the Truth In Savings Act and NCUA regulations require the payment of dividends on the account of a mem-ber who has caused a loss to the credit union. This letter differs from a 1991 opinion letter answering the same ques-tion because the TISA regulation was adopted in 1993.

These letters show that there is some judgment involved in how much weight credit unions need to give individual opinion letters. Also, remember that most credit unions will not know about the letter unless they monitor NCUA’s website, or an examiner cites the letter

to a credit union with a practice contrary to the staff opinion letter. It is very use-ful for credit union compliance staff to check NCUA’s website regularly to see what new information has been released.

CUNA strongly advises anyone who is considering writing to NCUA for its opin-ion on how a regulation works, whether a service is allowed, or whether the credit union is operating in conformance with NCUA’s expectations, to first contact your league, CUNA, or an outside attor-ney to discuss if the question is one that should be posed to the agency.

Freedom of Information requests

The Freedom of Information Act (FOIA) is a federal law that allows any person to obtain records of a federal agency. The agency may only withhold records that are exempt from disclosure under the law, such as examination reports, employee personnel records, and confidential business information. NCUA’s response to an FOIA request often appear as an opinion letter, which is why FOIA is mentioned here. Section 792 of NCUA’s regulations govern the procedures for requesting information under this law.

NCUA has a publication titled A Handbook for Obtaining Information from NCUA (which is found on NCUA’s web site www.ncua.gov). All FOIA requests have to be in writing and addressed to NCUA’s Office of General Counsel. Generally, NCUA says that it should not take more than 20 business days for a response. There can be a search and compilation fee; the fee schedule is also posted on the agency’s website.




http://www.ncua.gov/Pages/default.aspx



Standard bylaws (applicable only to federal credit unions)

NCUA issues standard bylaws for fed-eral credit unions. Credit unions have some flexibility in choosing among bylaws provisions published by the agency before 1999, in 1999, in 2006, or in 2007. A federal credit union can request that the agency approve a nonconforming bylaw provision. The federal credit union bylaws are discussed in Section 3 of this book. State-chartered credit unions must look to their state requirements.

Other NCUA publications of particular importance

In addition to the NCUA publications already listed, there are three more that credit unions should be aware of:

Accounting Manual for Federal Credit Unions—The Accounting Manual, pub-lished in 1997, contains some useful infor-mation beyond strictly accounting practic-es. In 2002 the agency rewrote the manual to apply only to federal credit unions with assets under $10 million. Credit unions with $10 million or more in assets are required to follow generally accepted accounting principles (GAAP). NCUA occa-sionally issues Accounting Bulletins that are targeted to small credit unions, but may contain important information such as NCUA’s position on accounting for the impairment to the NCUSIF in early 2009.

The NCUA Examiner’s Guide — This is the document that examiners work from in assessing the financial condition of feder-ally insured credit unions. It is extremely useful in allowing credit unions to prepare

for examinations. NCUA introduced a risk-focused examination program in 2002 and made major revisions in the Examiner’s Guide. The Examiner’s Guide and NCUA’s “AIRES” examination questionnaires are found on NCUA’s website at www.ncua.gov. “AIRES” stands for “Automated Integrated Regulatory Examination Software.”

Supervisory Committee Guide for Federal Credit Unions — Although the title suggests this would only be useful to FCUs, this detailed guide by NCUA instructs all super-visory committees on how to carry out their audit and verification responsibilities. The guide was last updated in 1999. Additional worksheets for the guide are found on NCUA’s website. See section 5 of this book for an explanation of the supervisory com-mittee requirements.

Examination Authority

Key questions

Q. What is NCUA’s authority to examine federal credit unions?

A. Section 1784 of the Federal Credit Union Act specifically authorizes NCUA to examine credit unions. Today NCUA typically examines all federally chartered credit unions every 12 months.

Q. What is NCUA’s authority to examine federally insured, state-chartered credit unions (FISCUs)?

A. Title II of the Federal Credit Union Act authorizes NCUA to insure the member accounts of state-chartered credit unions to the same degree as it does for federal credit unions and subjects insured credit unions to NCUA’s examination author-

http://www.ncua.gov/Legal/GuidesEtc/Pages/Accounting-Manual.aspx

http://www.ncua.gov/Legal/GuidesEtc/Pages/Accounting-Manual.aspx

http://www.ncua.gov/Legal/GuidesEtc/Pages/Examiners-Guide.aspx

http://www.ncua.gov/DataApps/Pages/AIRES.aspx

http://www.ncua.gov/DataApps/Pages/AIRES.aspx



www.ncua.gov/Legal/GuidesEtc/GuidesManuals/Supcomm.pdf

www.ncua.gov/Legal/GuidesEtc/GuidesManuals/Supcomm.pdf

http://www.ncua.gov



ity contained in 12 USC §1784. Section 741 of NCUA’s regulations also address-es this access, and any state-chartered credit union seeking federal insurance at some point will have completed NCUA’s “Application and Agreement for Insurance of Accounts,” which includes a provision specifically advising the FISCU of NCUA’s right to examine the credit union. The contract agreement requires the state-chartered credit union to main-tain the reserves required for federally chartered credit unions as well as any special reserves that may be required by NCUA. This includes special reserves for investments that do not conform to those permitted for federal credit unions. The contract states that a FISCU agrees “to comply with the requirements of Title II (Share Insurance) of the Federal Credit Union Act and of regulations prescribed by the NCUA Board pursuant thereto.” See Appendix 1-B for regulations (checked items) that a state-chartered credit union must follow. Coverage by federal share insurance triggers NCUA’s authority to examine a state-chartered credit union. However, since state credit unions are already subject to thorough examination and supervision by state credit union agen-cies, it would be a tremendous duplica-tion of effort and a waste of resources if NCUA were to examine all 3,000 FISCUs in addition to the 5,000 federal credit unions that it must supervise and examine. The federal law encourages NCUA to rely upon the state credit union regulators to help carry out its insurance duties. A number of years ago NCUA and the National Association of

State Credit Union Supervisors (NASCUS) developed a “Document of Cooperation” that sets forth policies to coordinate NCUA’s and state exam-iners’ oversight of FISCUs. It states: “It is recognized and agreed that the regu-lation and examination of state-char-tered credit unions properly belongs to and is the primary responsibility of the state.” Therefore, the Document of Cooperation and agreements between NCUA regional offices and the respec-tive state supervisory authorities limit NCUA’s review to only some state-chartered credit unions. For a number of years the Document of Cooperation contained specific criteria on what asset size and financial condition of a FISCU would trigger a joint examination or separate insurance review by NCUA. Those specific criteria have been eliminated by the document and it now states:

A certain percentage of [federally insured, state-chartered] credit unions of varying size and coding will be scheduled to determine the condition of credit unions insured by the NCUSIF. Many fac-tors will be considered in making this assessment: [state examiner] accreditation, staffing, training, experience level, insurance losses, examination cycles, and economic conditions within a state.

Typically, about 15% of all FISCUs will see NCUA examiners each year but this percentage will vary depending on the conditions of the credit unions. This sampling provides NCUA with some quality control and a level

http://www.ncua.gov/Legal/GuidesEtc/CharteringAndFOMForms/NCUA_9500.pdf

http://www.ncua.gov/Legal/GuidesEtc/CharteringAndFOMForms/NCUA_9500.pdf

http://www.nascus.org/pdf/DOC2007.pdf

http://www.nascus.org/pdf/DOC2007.pdf



of comfort with the thoroughness of state examinations. The federal agency can focus its resources on where it feels there may be greater risk exposure for the NCUSIF. NCUA primarily monitors FISCUs through a review of the examina-tion reports provided by state regu-lators and through the Financial Performance Reports (FPRs) devel-oped from the call report data that all federally insured credit unions must provide quarterly. In October 2016, NCUA issued exam guidance designed to enhance coordination of FISCUs. NCUA stat-ed that they would coordinate the completion of FISCU examinations with state supervisors in accordance with the states’ scheduling practic-es, which typically ranges from 12 to 18 months. They also stated that exams would occur less frequently than once every five years, except for credit unions that meet one of the following criteria:• Greater than $1 billion in assets;• Composite CAMEL code of 4 or 5

with assets greater than $50 mil-lion; or

• Composite CAMEL code of 3 with assets greater than $250 million.

For credit unions that meet one of the above criteria, their examina-tions will generally begin between 8 and 12 months from the prior completion date.

Q. What are “call reports” and “finan-cial performance reports”?

A. NCUA requires all federally insured credit unions to submit Financial and Statistical Reports (often referred to

as “call reports”) on a quarterly basis to summarize their financial and statistical data. These reports are also called “5300 reports” because Form 5300 is used by NCUA and state credit union regulators to collect the information. Individual states may have additional information required on their 5300 call reports. The informa-tion is used by NCUA and state regulators to monitor credit unions, identify trends, and make comparisons. Call report data is publicly available information. Credit unions receive periodic Financial Performance Reports (FPRs) drawn from the call report data. These reports provide a five-year review of data and show how credit union “peers” are doing. FPRs compare credit unions of similar size and highlight extreme variances and negative trends. You can be sure that examiners will point out notable differences, so manage-ment should be knowledgeable about the credit union’s FPR. Be ready either to explain why such trends do not present a problem for the credit union or to show the examiner that the credit union is tak-ing steps to reverse negative trends.

Q. How does an NCUA insurance review of state-chartered credit unions differ from an NCUA examination of federal credit unions?

A. NCUA examiners typically will enter a state-chartered credit union as part of a “joint examination” team with state examiners. The norm is that a state examiner will be the designated “examiner-in-charge” (EIC), although in some instances the state regulator will ask that an NCUA examiner be the lead examiner. In a joint examination

http://www.ncua.gov/DataApps/FPR/Pages/default.aspx

http://www.ncua.gov/DataApps/FPR/Pages/default.aspx

https://www.ncua.gov/regulation-supervision/Pages/regulatory-reporting/cu-online.aspx

https://www.ncua.gov/regulation-supervision/Pages/regulatory-reporting/cu-online.aspx

http://www.ncua.gov/DataApps/fpr/Pages/default.aspx

http://www.ncua.gov/DataApps/fpr/Pages/default.aspx



the NCUA regional office and the state regulator will have agreed to procedures for the joint examination and will have identified any specific NCUA safety and soundness concerns with the particular FISCU. NCUA will independently perform at times what it calls an “insurance review” of a FISCU. The NCUA Examiner’s Guide says for these reviews “NCUA normally limits the scope of an insurance review to safety and soundness (risk) issues and does not address regulatory issues unless they present a risk that may affect the NCUSIF.” NCUA says it only conducts a complete examination of a FISCU at the specific request of the state regulator. State-chartered credit unions often ask what is the difference between an NCUA insurance review and a full-blown examination. The NCUA Examiner’s Guide provides some insights into what NCUA considers the distinction to be. The guide states:

NCUA limits its concerns to safety and soundness issues that could have a material effect on the FISCU’s operation. Generally, safety and soundness concerns focus on asset quality, positive earnings, and adequate reserves…Specific safety and soundness areas to address in addition to those discussed in Part 741 of NCUA Rules and Regulations include the following:

• Weak or declining capital.

• Weak or negative net income.

• Unfavorable earnings trends.

• High or increasing loan delinquency.

• High or increasing loan losses.

• Inadequate lending policies and procedures.

• Weak loan documentation and underwriting practices.

• Unsafe investments, policies, or practices.

The guide emphatically states that

[a]n insurance review is not an examination…The roles [of the examiners] are not the same…The concept of an insurance review is similar to a follow-up examination of a federal credit union where examin-ers only address the problem areas.

NCUA says that state and federal regulators assume joint responsibil-ity for safety and soundness issues. However, if a state law or regulation does not prohibit a credit union policy or action that NCUA considers unsafe, the NCUA examiner will cite it as a problem in the report to officials at the end of the examination and will expect to see corrective action taken. If NCUA conducts an indepen-dent insurance review, the report will be solely that of the NCUA examiner. State regulators will be immediately informed of NCUA’s findings and rec-ommendations. It is NCUA’s policy to hold a conference with credit union officials within 30 days of complet-ing the insurance review. NCUA does not discuss with, or disclose to, Non-FISCU officials the CAMEL ratings its examiner assigned to the credit union; those CAMEL ratings may differ from those assigned by the state examiner.

Q. How can a federally insured credit



union appeal an examination finding or CAMEL rating?

A. Congress passed a law in 1994 estab-lishing an appeals process for federally insured credit unions. The process is currently spelled out in NCUA’s Inter-pretive Ruling and Policy Statement (IRPS) #11-1, “Guidelines for the Super-visory Review Committee.” The appeals process has been rarely used. The three-member Supervisory Review Committee is composed of three senior staff members who are not regional office personnel (because the regions manage the examination corps). The examiner is required to inform credit union officials about their right to appeal “material super-visory determinations.” These are defined as CAMEL composite scores of 3, 4, and 5, as well as their indi-vidual components. In addition, the adequacy of the Allowance for Loan and Lease Losses and the classifica-tion of any “significant” loan may be appealed, with the credit union being able to decide if the loan is “signifi-cant.” The following is a summary of the procedural steps in making an appeal.

• To start the appeals’ process, a credit union must contact the regional office within 30 days of the examiner’s final determination. In the case of a FISCU, the regional office will verify that the determina-tion being appealed was made by a federal examiner and not by a state examiner. If the decision was made by the state, the appeal will be turned over to the state regulator to handle according to the state’s own

procedures.

• If the regional office finds in favor of the examiner, the credit union may appeal the region’s determi-nation to the Supervisory Review Committee. Such an appeal must be filed within 30 days of the region’s decision. A credit union is also entitled to appeal to the com-mittee if the regional office fails to respond to its initial appeal within 60 days of submission. Credit union officials are well advised to ascer-tain and confirm the dates on which appeals are due. Failure to respond by the proper date will result in los-ing the appeal. An appeal must be authorized by the credit union’s board of directors and made in writ-ing to the NCUA central office in Alexandria, Va. The credit union can make a personal appearance. The issue under dispute remains in effect pending the appeal. This means that the agency can proceed with any action including formal administrative actions during the appeal period.

• The Supervisory Review Committee makes its determination on the appeal. It must do so within 30 days from the date the appeal is received or 30 days from the date additional information that has been requested by the committee is received from the regional office or the credit union. Decisions can be appealed by either side to the NCUA board. For years credit unions expressed concern about retaliation if they disputed an examiner’s findings and

http://www.ncua.gov/Legal/Documents/IRPS/IRPS2011-1.pdf





requested corrective actions. IRPS 11-1 states that “[a]ny retaliation by NCUA staff against a credit union making any type of appeal will sub-ject the employee to appropriate disciplinary or remedial action by the appropriate supervisor,” up to and including dismissal.

Q. Can a credit union publicize its exam-ination report and CAMEL rating?

A. No, it cannot. NCUA legal opinion let-ter 97-0951 states:

NCUA’s regulations prohibit the release of NCUA examination reports… A credit union’s CAMEL rating is part of the NCUA examina-tion and, therefore, a credit union is also prohibited from disclosing it. Even though examination reports which contain the CAMEL ratings are made available to credit unions for their use, they remain the prop-erty of NCUA.

Q. What is the role of NCUA’s “ombuds-man”?

A. NCUA rotates among its career staff someone who is designated as “NCUA’s Ombudsman” (who has other regular duties, but in this role is independent from the agency’s regional and central office operations). The ombudsman is tasked with investigating complaints and recommending solutions that relate to regulatory issues that cannot be resolved by the regional office, but the person has no authority to actually resolve com-plaints or even advocate a solution. And the ombudsman doesn’t get involved in any reviews where processes are already established by regulations or interpretive

rules, involves an enforcement action, or litigation. There isn’t any evidence that the agency ombudsman has served much of a role in NCUA’s operations over the years. NCUA’s website provides a simple form someone who wants to file a complaint can use.

Q. What is the role of NCUA’s Office of Consumer Protection (OCP)?

A. NCUA began forming this office in 2010 and in 2011 built up its staff and moved functions that had traditionally be handled by the regional offices or other offices of NCUA to OCP. The office con-sists of two divisions — the Division of Consumer Compliance and Outreach and Division of Consumer Access.

The Division of Consumer Compli-ance and Outreach will be responsible for:

1. Consumer compliance policy, program and rulemaking;

2. Fair Lending examinations;

3. Interagency liaison for consumer pro-tection and compliance issues;

4. Member complaint call center

5. Financial literacy programs; and

6. Ombudsman duties.

The Division of Consumer Access will be responsible for:

1. New charters;

2. Charter conversions;

3. Field of membership expansions

4. Bylaw amendments; and

5. Low income designations

This means that NCUA’s chartering and field of membership issues are now centralized in the NCUA’s main office. Moreover, the OCP expects to

NCUA ENFORCEMENT TOOLS

• Letters of Understanding and Agreement (LUAs)

• Cease and Desist Orders

• Removal and Prohibition Orders

• Civil Money Penalties

• Conservatorship

• Order for Special Reserves

• Termination of Insurance

• Involuntary Liquidation





coordinate some of its responsibili-ties with the new Consumer Financial Protection Bureau, such as the han-dling of member complaints. NCUA’s Office of Consumer Protection is further explained in Letter to Credit Unions 11-CU-17.

Enforcement Authority

Title II of the Federal Credit Union Act and NCUA’s Rules and Regulations Section 747 provides the agency with a wide range of actions that enables it to protect credit unions, their members, creditors, the NCUSIF, and the credit union movement in general.

The agency can provide special assis-tance to the credit unions, such as waiv-ers and charges to reserves, that would otherwise be impermissible by cash assistance via establishing a special account to record losses in excess of reserves and undivided earnings, and by cash assistance from the NCUSIF, often referred to as “208 assistance” after the section of the FCU Act.

This section briefly summarizes the enforcement tools available to NCUA. A challenge based on a Letter of Understanding and Agreement (referred to as an “LUA”) is the key one that even a healthy credit union may occasionally find itself facing.

Letters of Understanding and Agreement (LUAs)

A “Letter of Understanding and Agreement” (LUA) is a “voluntary” agreement between the credit union and the regulator that requires the

credit union to take specified corrective actions to address identified problems. The LUA basically takes all or part of the Document of Resolution section of the examination report one step further and reduces it to an enforce-able contract between the credit union and the regulatory agency. Both NCUA and state regulators enter into Letters of Understanding and Agreement but the state may call them by another name, particularly “Memoranda of Understanding and Agreement” (MUA). Typically, every member of the board of directors will be required to sign the LUA/MUA.

LUAs/MUAs are voluntary in name only, and the consequences of failing to follow and fulfill the terms of the con-tract are severe. No board of directors should sign an LUA unless it determines that every corrective action listed can be completed within the timetable speci-fied. NCUA does a disservice if it sets unrealistic goals or timetables. Often it is the timetable, not the required action, which causes the practical difficulty to the credit union. A board of directors should never sign an LUA when it is first presented by the examiner. The board should review it thoroughly and analyze every provision consulting with staff and discussing whether alternative plans of action and/or timetables should be requested. Credit union officials should provide the examiner with specific sup-port for why they believe the timetables proposed by the regulator are unwork-able for the credit union. This informa-tion should help in establishing a mutu-ally agreeable time line.

Every federally insured credit union coded a CAMEL 4 or 5 will undoubtedly

http://www.ncua.gov/Resources/Documents/LCU2011-17.pdf

http://www.ncua.gov/Resources/Documents/LCU2011-17.pdf



be operating under an LUA. Other situ-ations also trigger the issuance of an LUA. For instance, newly chartered cred-it unions operate under LUAs. In rare cases, CAMEL-coded 3 credit unions may also be subject to an LUA. And in 1998 NCUA imposed LUAs on several credit unions the agency concluded were failing to prepare adequately for the year 2000 data processing conversion.

Remember, the LUA is a contract. If the credit union does not follow all its terms and conditions, NCUA can show the court that the “agreed upon” provi-sions were not met. Therefore, an LUA is not to be entered into lightly. The credit union board can refuse to sign the LUA. However, in that case, the federal or state regulator would likely proceed to take one of the formal administra-tive actions discussed below against the credit union and its officials.

There is an enforcement difference between an LUA which NCUA “pub-lishes”—that is, makes public—and one that is not publicly released. Basically, the difference is that it is easier for NCUA to take the published LUA to the next enforcement step. Enforcement of either type of LUA is achieved by the NCUA bringing an administrative action against the credit union such as a Cease and Desist Order or the imposition of civil money penalties for failure to com-ply with an LUA provision. However, in the case of a nonpublished LUA, NCUA will need to establish not only that the credit union failed to comply with the LUA’s provision, but also that the credit union’s conduct constitutes an unsafe and unsound practice and/or violates a law or regulation. A published LUA only requires that NCUA prove a credit

union’s noncompliance with the LUA. NCUA issues its “published” LUAs on its website.

The credit union facing an LUA should seek to include a provision that the LUA will not be published. Also, the credit union should establish a termina-tion date in the LUA rather than allow it to remain in effect indefinitely.

Cease and Desist Orders

A Cease and Desist order, or C&D, prohibits a credit union from engaging in the activity or activities described in the order. It may require the credit union to take affirmative action to correct any condition resulting from the violation, including requirements to: (1) make res-titution; (2) restrict growth; (3) rescind agreements or contracts; (4) dispose of loans or assets; and/or (5) employ quali-fied personnel. The decision to issue an order is made by the NCUA Board after a hearing. The credit union can appeal the NCUA Board’s decision to the United States Court of Appeals. Cease and Desist Orders can also be issued against “institution-affiliated parties.”

Definition of an “institution-affiliated party”

NCUA has the authority to bring enforcement actions not only against credit unions but also against “insti-tution-affiliated parties.” These are defined by law as:

• Directors, committee members, employees, and persons “participating in the affairs of the credit union.”

• Independent contractors, including attorneys, appraisers, and accoun-

http://www.ncua.gov/Legal/pages/LUA.aspx



tants, who knowingly or recklessly par-ticipate in a violation of a law, a regu-lation, a breach of fiduciary duty, or any unsafe or unsound practice. That violation or breach must have caused, or be likely to cause, a more than mini-mal financial loss to the credit union, or have a significant adverse effect upon the credit union.

If the NCUA Board determines that a violation or a practice by the credit union or institution-affiliated party is likely to cause insolvency or a significant dissipation of the credit union’s earnings or assets before a hearing can be held, the board can issue a Temporary Cease and Desist Order. The temporary order remains in effect during the course of the hearing that will take place to deter-mine if a regular Cease and Desist Order should be issued. The credit union has the right to appeal the issuance of the temporary C&D order with the United States District Court within ten days of being served with it.

Violations of a C&D order can result in the imposition of civil money penalties.

Removal and Prohibition Orders

The NCUA board can remove mem-bers of the credit union board and paid staff, through a Removal Order after notice and a hearing. A Prohibition Order is somewhat broader and can be brought against institution-affiliated par-ties including individuals who are not officials or personnel of the credit union. These orders permanently ban a person from serving or being employed by any federally insured financial institution. The NCUA board may issue an immedi-ate Removal or Prohibition Order when

it determines immediate action is nec-essary to protect the credit union. The hearing follows. This is the enforcement action most used by NCUA to address serious problems at federally insured credit unions.

Prohibition Orders can be used to ban individuals whom the NCUA board has shown to have:

• Violated any law, regulation, C&D order, or written agreement between the credit union and the NCUA (which can include LUAs).

• Engaged in any unsafe or unsound practice.

• Breached their fiduciary duty to the credit union.

The standards against which these actions will be measured are that the actions: (1) caused the credit union to suffer financial loss or damage; (2) prej-udiced the members’ interests; or (3) allowed the person to receive financial gain or other benefit. The person can appeal a Removal or Prohibition Order to the U.S. Court of Appeals.

Civil money penalties

NCUA has authority to assess civil money penalties (CMPs) against a federally insured credit union or any institution-affiliated party. There is a three-tier CMP scheme by which NCUA can impose fines ranging from $5,000 a day up to $1 million a day:

• First tier. A credit union or an institu-tion-affiliated party which violates a law or a regulation, a final order of the NCUA board, a published agreement with the board (such as a LUA that



has been made public), or a condi-tion imposed in a published writing by the board in connection with the granting of any application (such as the Insurance Agreement signed by FISCUs) may be fined not more than $5,000 for each day of violation. This penalty can also be imposed on credit unions that repeatedly submit late or substantially inaccurate call reports.

• Second tier. Civil money penalties can run up to $25,000 a day. These can be assessed for any first-tier violations if the credit union or institution-affili-ated party exhibits reckless conduct, a breach of fiduciary duty, or if the viola-tion or practice indicates a pattern of misconduct, causes more than a mini-mal loss to the credit union, or results in monetary gain or other benefit to the institution-affiliated party.

• Third tier. Penalties ranging up to $1 million a day or in the case of a credit union the lesser of $1 million a day or 1% of assets, would apply to knowing or reckless violations with a substantial loss to the credit union or substantial gain to an institution-affiliated party.

The process to impose CMPs requires that the NCUA board issue a Notice of Assessment, setting forth the bases for the assessment. The assessed party or parties (which can be the credit union and/or institution-affiliated parties) have 90 days to pay but may request a hear-ing within 20 days. If a party requests a hearing, an administrative judge will hold a hearing and make a recom-mendation to the NCUA Board. The board will issue a final order. The credit union or the institution-affiliated party

being assessed the CMP may appeal the board’s ruling to the U.S. Court of Appeals within 20 days of the order.

Conservatorship

In a handful of cases the NCUA Board takes immediate control of a federally insured credit union. No notice or hear-ing is required, but the credit union can seek an injunction from the U.S. District Court within 10 days to set aside the board’s seizure of the credit union. If the credit union is an FISCU, the Federal Credit Union Act requires written approval of the state regulatory agency for any conservatorship action. If the state does not approve NCUA’s request within 30 days and the NCUA has responded to the state’s written rea-sons if any for withholding approval, the NCUA board can by a unanimous vote place the credit union in conservatorship without state approval.

NCUA will take the radical step of conservatorship for one of several reasons: (1) to protect the members’ financial interests when a credit union’s management has abandoned the credit union or does not have the capability to resolve successfully severe financial problems; (2) to protect the NCUSIF; (3) to respond to a resolution by the credit union’s board of directors asking that the agency run the credit union; (4) to act when a credit union has willfully vio-lated a final cease and desist order; or (5) to act when management conceals or refuses to make available the books and records of the credit union for inspection by an examiner.

Order for Special Reserves



The NCUA Board is authorized to require both federal credit unions and FISCUs to maintain special reserves when necessary to protect the inter-est of members. The Order to Establish Special Reserves is designed to prevent further deterioration of the credit union’s financial condition.

This order for additional reserving may be necessary when NCUA believes that: (1) established reserves are insufficient to protect the credit union’s soundness; (2) the credit union may be intention-ally ignoring the need to build sufficient reserves; and (3) the credit union is refinancing or extending loans or misrep-resenting facts that if properly disclosed would have a material effect on the finan-cial condition of the credit union.

NCUA will issue an order that reserves be established in an account entitled “Special Reserve for Losses.” Generally, the order to establish these special reserves will affect the credit union’s ability to pay dividends.

Termination of insurance

The possibility of termination of NCUSIF insurance by the NCUA Board is an administrative action that only applies to FISCUs. For FISCUs, termi-nation of insurance is the most severe action NCUA can initiate. Unless the state allows the FISCU to participate in another share insurance program, NCUA’s move to terminate NCUSIF insurance would likely force the FISCU into involuntary liquidation. Because federal credit unions are required by fed-eral law to maintain NCUSIF coverage, termination of insurance for a federal credit union would be involuntary liqui-

dation for all practical purposes.The grounds for termination of insur-

ance are essentially the same as for a C&D order. In fact this step by NCUA could be the continuation of a C&D order if the credit union officials refuse to comply as directed. Examples of condi-tions that might warrant a recommenda-tion to the NCUA Board to issue a Notice of Intent to Terminate Insured Status are: (1) insolvency and the unwilling-ness of the FISCU or state regulator to place the credit union into liquidation; (2) abandonment of the credit union’s operations by elected officials with no action by the state officials; and (3) seri-ous violations of the law with no action by the state regulator.

The notice to terminate sets out the facts and establishes a time and place for an administrative hearing within 30 to 60 days. The administrative judge will then file a recommended decision and the NCUA Board will then issue a final order. The credit union can appeal to the U.S. Court of Appeals but the order is effective unless modified by the NCUA Board or court. NCUSIF insurance con-tinues for one year from the date of the termination for current shares but no new shares are insured.

Involuntary liquidation

The NCUA Board has the authority to close a federal credit union that is insol-vent which eliminates the credit union as a legal entity. NCUA does not have the authority to take this action against a FISCU. The federal credit union has no right to a preclosure hearing but can challenge the agency’s action in U.S. District Court within 10 days.



Figure 1.2Enforcement Authority for a Variety of Federal Laws Applicable to Credit Unions

Applicable Laws and Enforcement Authorities FCUs FISCUs NFICUs

B — Equal Credit Opportunity* NCUA FTC FTC

BSA — Bank Secrecy Act NCUA NCUA1 TREAS

C — Home Mortgage Disclosure Act* NCUA2 NCUA2 NCUA2

CC — Expedited Funds Availability Act NCUA NCUA FED

D — Reserves on Transaction Accounts FED FED FED

E — Electronic Funds Transfer Act* NCUA FTC FTC

FCPR — Fair Credit Practice Rule* NCUA FTC FTC

FCRA — Fair Credit Reporting Act* NCUA FTC FTC

FDCPA — Fair Debt Collection Practices Act* NCUA FTC FTC

FDPA — Flood Disaster Protection Act NCUA NCUA FHA/DVA

FHA — Fair Housing Act HUD HUD HUD

HIDC — Holder in Due Course FTC FTC FTC

M — Consumer Leasing* NCUA FTC FTC

Privacy of Consumer Financial Information* NCUA NCUA FTC

RESPA — Real Estate Settlement and Procedures Act* HUD HUD HUD

SAFE — Secure and Fair Enforcement for NCUA NCUA NCUA Mortgage Licensing Act *

RFPA — Right to Financial Privacy Act PCA PCA PCA

SSRA — Soldiers and Sailors Relief Act PCA PCA PCA

TISA — Truth In Savings Act NCUA NCUA NCUA

Z — Truth In Lending Act* NCUA FTC FTC

LEGEND:Note: Although NCUA is not the primary enforcer under some of these regulations, NCUA can under Title II of the FCU Act take cease and desist action for violations of any law.

* Rulemaking — Shifted to the Consumer Financial Protection Bureau July 2011, but CFPB only has enforcement authority for credit unions with over $10 billion in assets. The enforcement authority of HUD and the FTC for various regulations may be subject to further clarification.

1 For those FISCUs examined by NCUA. 2 Enforcement authority also applies to CUSOs.

From the NCUA Examiners Guide

FCU Federal Credit UnionFED Federal Reserve BoardFHA Federal Housing AdministrationFISCU Federally Insured, State Credit UnionFTC Federal Trade Commission

HUD Department of Housing and Urban DevelopmentNFICU Not Federally Insured Credit UnionPCA Private Cause of ActionTREAS Treasury DepartmentDVA Department of Veterans Affairs



The NCUA Board also has the author-ity to place a solvent federal credit union into involuntary liquidation and to revoke its charter. NCUA can take such an action if a federal credit union has violated any provision of its charter, its bylaws, the Federal Credit Union Act, or NCUA regulations. Examples of condi-tions that may warrant the revocation of a solvent federal credit union’s charter include: (1) abandonment of the credit union’s operations by officials; (2) plant closings that jeopardize the future of the credit union where officials refuse to present the question of liquidation to the membership; and (3) serious operational deficiencies that may cause insolvency and that the officials have not acted upon to correct.

If NCUA pursues this course, it

issues a Notice of Intent to Revoke (or Suspend) Charter and Intent to Place into Involuntary Liquidation. The credit union has forty days in which to file a written statement stating why it should not be liquidated, or to request a hear-ing, or to consent to the liquidation by board resolution. If there is only a writ-ten statement, the NCUA Board will render a decision within forty-five days. If a hearing is requested, an adminis-trative law judge will hold the hearing and make a recommended decision to the NCUA Board. The NCUA Board will issue a final order. Circumstances may require NCUA to issue an immediate order suspending the charter to protect the interests of members, but the notice and hearing could proceed. In such instances, an agent, usually a senior

Figure 1.3 NCUA-Issued Compliance Documents

• The credit union’s charter

• The credit union’s bylaws

• The Federal Credit Union Act

• NCUA’s Rules and Regulations

• NCUA’s “The Federal Credit Union Handbook”

• NCUA’s “Chartering and Field of Membership Manual”

• NCUA’s “Examiner’s Guide”

• NCUA’s “Accounting Manual for Federal Credit Unions”

• One or more copies for members of NCUA’s pamphlet “Your Insured Funds”

• NCUA’s “Supervisory Committee Guide for Federal Credit Unions”

• A compilation of NCUA’s periodic “Letters to Credit Unions,” “Regulatory Alerts,” and “Interpretive Ruling and Policy Statements” (IRPSs)

Most of these documents are found on NCUA’s website, or can be ordered from the agency.

http://www.ncua.gov/Legal/Documents/fcu_act.pdf

http://www.ncua.gov/Legal/Regs/pages/Regulations.aspx

http://www.ncua.gov/Legal/GuidesEtc/GuidesManuals/fcu_handbook.pdf

http://www.ncua.gov/Legal/GuidesEtc/Pages/Chartering-Manual.aspx

http://www.ncua.gov/Legal/GuidesEtc/AccountingManuals/Index.pdf

http://www.ncua.gov/Legal/GuidesEtc/GuidesManuals/NCUAYourInsuredFunds.pdf

http://www.ncua.gov/Legal/GuidesEtc/GuidesManuals/supcomm.pdf

www.ncua.gov/Resources/CUs/Pages/LTFCU2013.aspx

http://www.ncua.gov/Legal/Regs/pages/RA2013.aspx

http://www.ncua.gov/Legal/Regs/Pages/IRPS.aspx



examiner, will be appointed to maintain the records and keep the credit union open for restricted business.

NCUA will usually pursue a merger or a “purchase and assumption” when a federal credit union cannot feasibly continue operating. In a merger, the credit union’s assets and liabilities, as well as the members’ and creditors’ rights, are transferred to the continuing credit union. A purchase and assump-tion (“P&A”) is when a credit union buys only certain identified assets (such as loans) and assumes only certain liabili-ties (such as members’ accounts) after a credit union is placed in liquidation. The NCUSIF takes over the remaining assets and liabilities.

Other laws and federal enforcement responsibilities

Many of the laws discussed through-out the other RegTraC books have their own penalties, if the credit union fails to comply with their requirements. If significant enough, violations of those laws will be considered a safety and soundness problem and also trigger the exercise of NCUA’s general enforcement authority. Violations of currency-transac-tion reporting is one recent example.

The chart in Appendix 1-B summa-rizes all the regulations that are issued by NCUA that involve the operations of federal credit unions and the safety and soundness of all federally insured credit unions. NCUA is the enforcement agency for all of those regulations. Figure 1.2 lists many other regulations with which all federally insured credit unions must comply, and indicates which federal agency is charged with enforcing the law

for federal credit unions (FCUs), feder-ally insured state-chartered credit unions (FISCUs), and nonfederally insured credit unions (of which there are about 200 in the United States today). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 went into effect in July 2011, which shifts rule-making authority to the newly-created Consumer Financial Protection Bureau (CFPB) for 17 existing federal consumer protec-tion laws, including several where NCUA previously had rule-making authority. Supervision and enforcement of these laws are only shifted for credit unions with over $10 billion in assets (currently only three credit unions are impacted).

ResourcesAppendix 1-A reproduces from

NCUA’s website the agency’s home page. Compliance specialists need to mark it as a “favorite” and regularly visit the “News” section to see if new infor-mation has been added.

Every federal credit union should have readily available the resources, as itemized in figure 1.3, to use as refer-ences to determine compliance with the range of NCUA regulations and policies. State-chartered, federally insured credit unions will want to have most of these references in addition to the appropriate state laws, regulations and guidance for compliance purposes.

Review

NCUA is an independent agency of the executive branch of the U.S. Government. The Federal Credit Union



Act (FCU Act) gives the NCUA its authority to issue regulations, bylaws, and other guidelines to implement the provisions of the law.

The FCU Act has three titles. Title I, General Provisions, establishes the duties and powers of the NCUA and, in general terms, the powers of federal credit unions and restrictions on their operations. Title II, Share Insurance, covers the condi-tions and requirements for obtaining share insurance, the authority of NCUA to examine federally insured credit unions and NCUA’s enforcement powers. Title III, Central Liquidity Facility, created the CLF, which can lend money to credit unions for short-term credit, seasonal adjustment credit, or protracted adjust-ment credit.

NCUA issues many documents that credit unions need to review in order to be in compliance with the agency’s requirements:

• NCUA issues regulations to govern a particular topic that will have a substantial impact on credit union operations. To adopt a regulation, the agency staff will first develop a propos-al and the board will publish the pro-posed regulation in the Federal Register and seek public comment for thirty to 120 days. NCUA reviews the written comments, then proposes a final regu-lation. The NCUA Board can accept (with a majority vote), reject, or amend the staff proposal. If approved, it will be published as a final regulation in the Federal Register.

• Interpretive Rulings and Policy Statements (IRPSs) provide the agency’s interpretation on what the law means on a particular subject.

Although an IRPS is not as compre-hensive as a formal regulation, credit unions are expected to comply and fol-low the guidance provided in the IRPS.

• “Letters to Credit Unions” are issued by the NCUA board to provide clarify-ing information about a specific regu-lation, to express concern about credit union compliance, to issue warnings, or to announce changes in accounting rules, operating fee assessments, or examination procedures.

• Regulatory Alerts advise credit unions about changes to regulations by other federal agencies that affect credit union compliance requirements and publish joint advisories that NCUA has developed with other federal banking agencies about emerging problems.

• NCUA responds to specific written inquiries with NCUA legal opinion let-ters. They represent the NCUA staff’s interpretation of the law and regula-tions that can help clarify existing regulations. These letters are posted on NCUA’s web site, but are not dis-tributed to credit unions.

The FCU Act gives NCUA the author-ity to supervise and examine federal credit unions and to examine state-char-tered credit unions that have NCUSIF insurance. Credit unions are required to file periodic financial and statisti-cal reports with NCUA on Form 5300 (“call reports”). Financial Performance Reports (FPRs) are drawn from the call report data and give a five-year review of data and compare credit unions of simi-lar size and highlight extreme variances and negative trends.

NCUA has a variety of enforcement



tools available to protect credit unions, their membership, creditors, the NCUSIF, and the credit union movement in gen-eral. Published and nonpublished LUAs are agreements between the credit union and the regulator that requires the credit union to take specific corrective action. Cease and Desist Orders prohibit a credit union from engaging in the activ-ity or activities described in the order, or require the credit union to correct a condition resulting from a violation. Violations of these orders can result in civil money penalties. A removal and prohibition order removes members of the credit union board and paid staff after notice and a hearing. NCUA may assess civil money penalties (CMP) against federally insured credit unions or any institution-affiliated party.



Appendix 1-A

Sample Reference Page from the National Credit Union Administration Website at www.ncua.gov



Appendix 1-B

Summary of NCUA’s Rules and Regulations

4 = Compliance required by all federally insured credit unions

Regulation Citation to NCUA Coverage by CUNA’s Regulations RegTraC

Field of Membership and chartering § 701.1 Section 5, this book

Federal credit union bylaws §701.2 Section 3, this book

Member access to records §701.3 Section 3, this book

General authorities and duties of federal credit union directors §701.4 Section 3, this book

FCU Operating fee § 701.6 Not covered

4 Changes of officials of new or problem credit unions § 701.14 Section 2, this book

Retirement benefits for employees § 701.19 Section 3, this book

4 Surety and guaranty § 701.20 Not covered

Loans to members § 701.21 See Consumer Lending

4 Prohibited fees § 701.21 (c)(8) Section 3, this book

4 Nonpreferential loans § 701.21 (d)(5) Section 3, this book

Loan participations § 701.22 See Consumer Lending

Purchase and sale of eligible obligations § 701.23 See Consumer Lending

Refund of interest § 701.24 Section 3, this book

Credit union service contracts § 701.26 Section 7, this book

Services for non-members within the field of membership § 701.30 Section 3 this book

Nondiscrimination requirements § 701.31 See Consumer Lending & Mortgage Lending

4 Accounts held by public units and nonmembers § 701.32 Section 4, this book

Reimbursement, insurance, and indemnification of officials § 701.33 Section 3, this book and employees

4 Designation of low-income status § 701.34 Section 5, this book

Share, share drafts, and share certificate accounts § 701.35 See Deposit Accts.




Fixed assets § 701.36 Section 3, this book

Treasury tax and loan accounts § 701.37 Not Covered

Borrowed funds from natural persons § 701.38 Section 2, this book

Statutory liens § 701.39 See Consumer Lending

4 Prompt corrective action/capital/reserves § 702 Not covered

1 Investments § 703 Section 3, this book

4 Corporate credit unions § 704 Not covered

4 Community Development Revolving Loan Program § 705 Not covered

2 Credit practices § 706 See Consumer Lending

43 Truth In Savings § 707 See Deposit Accts.

4 Conversions to a mutual savings bank § 708a Not covered

4 Mergers of federally insured credit unions or voluntary termination of federal insurance § 708b Not covered

4 Involuntary liquidations and handling claims § 709 Not covered

Voluntary liquidations § 710 Not covered

4 Management official interlocks § 711 Section 3, this book

4 4 Credit union service organizations (CUSOs) § 712 Section 7, this book

4 Fidelity bond and insurance coverage § 713 Section 2, this book

Leasing § 714 See Consumer Lending

4 Supervisory committees, audits, and verifications § 715 Section 4, this book

5 Fair Credit Reporting § 717 Se Consumer Lending

Incidental Powers § 721 Section 3, this book

4 6 Appraisals § 722 See Mortgage Lending

4 Member business loans § 723 See Consumer Lending

Trustees and custodians of IRA accounts and 401(k) plan § 724 Not covered

4 Central Liquidity Facility § 725 Section 1, this book




4 Advertising § 740 Section 2, this book

4 Requirements for NCUSIF coverage § 741 Section 2, this book

4 Share insurance coverage § 745 Section 2, this book

4 NCUA’s administrative actions, and investigations § 747 Section 1, this book

4 Security programs and reports of crimes, catastrophes, § 748 See General Operations and Bank Secrecy Act compliance

4 Records preservation program § 749 Section 3, this book

4 Golden parachute and indemnification payments §750 Not Covered

4 Flood insurance § 760 See Mortgage Lending

Organization of NCUA § 790 Section 1, this book

NCUA’s rules of procedures (comments on rules) § 791 Section 1, this book

Freedom of Information Act (FOIA) and Privacy Act § 792 Section 1, this book

Tort claims against U.S. Government § 793 Not covered

1 Special reserves may be required by § 741.3 if the state credit union’s investment powers or other authority creates additional risks to the NCUSIF.

2 NCUA’s Credit Practices regulation (§706) relies on the Federal Trade Commission’s unfair and deceptive practices authority which may, at some point, transfer to the Consumer Financial Protection Bureau.

3 NCUA’s Truth in Savings regulations apply to all credit unions, even those not federally insured.4 Although the CUSO regulations generally only apply to federal credit unions, in 2009 NCUA extended certain pro-

visions to all federally insured credit unions, so that the agency has adequate access to CUSO books and records (state regulators can request an exemption), the ability to review CUSO internal controls, and has adequate assur-ances that CUSOs are operated as separate legal entities.

5 Much of the FCRA rule-making authority has moved to the CFPB, but §717.83 on disposal of consumer informa-tion, §717.90 on identity theft, and §717.91 on address changes on credit and debit cards will remain with NCUA.

6 While the federal banking agencies and NCUA retain authority to issue appraisal regulations, the CFPB has been given additional authority to issue appraisal rules, which eventually are expected to be incorporated into NCUA’s rules.



Overview of NCUA’s Regulations and Supervisory Authority

Quiz/Study Guide

1. The Central Liquidity Facility was established to address the economic conditions of the 1970s and to lend money to credit unions under certain circumstances. What are the three circumstances listed in this book?

_____________________________________________________________________

_____________________________________________________________________

2. Federal credit unions are subject to what kinds of federal, state, or local taxes under the Federal Credit Union Act?

_____________________________________________________________________

_____________________________________________________________________

3. Because state-chartered credit unions are not “federal instrumentalities” what tax are they subject to that federally chartered credit unions are not?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________



4. NCUA issues many documents that credit unions need to review in order to be in compliance with the agency’s requirements. Match the listed documents with the correct description.

NCUA Rules and Regulations a. advise federally insured credit unions about regulatory changes affecting their compliance requirements.

Interpretive Rulings and Policy Statements

b. written responses to inquiries made to NCUA rep-resenting their legal staff’s interpretation of the law and regulations that are posted on the NCUA website but not sent directly to credit unions.

Letters to Credit Unions c. NCUA directives that govern a particular topic and have a substantial impact on credit union operations.

Regulatory Alerts d. issued by the NCUA board to provide clarifying information about a specific regulation, express concern about credit union compliance, issue warnings, or announce changes in accounting rules, operating fee assessments or examination procedures and generally sent to all federally insured credit unions.

Legal Opinion Letters e. provide NCUA interpretations on what a law means on a particular subject generally requiring credit unions to comply and follow the guidance provided in them.

5. The Federal Credit Union Act gives the NCUA authority to issue regulations and other guidance to direct the operations of federal credit unions and federally insured state-chartered credit unions. What is the difference between a “final regulation” and an “interim final regulation”?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________



6. If a state-chartered credit union has federal share insurance, NCUA has the right to examine the credit union, but in most cases the NCUA relies on the state regulator to actually do the examination.

p Yes p No

7. What is the difference between a “call report” and a “financial performance report”?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________



8. NCUA has a variety of enforcement tools available to protect credit unions, their membership, creditors, the NCUSIF, and the credit union movement in general. Match the following enforcement tools to the correct definition.

Letters of Understanding and Agreement

a. applies only to FISCUs and could mean the invol-untary liquidation of the credit union

Cease and Desist Orders b. the NCUA Board takes immediate control of a fed-erally insured credit union with no notice or hear-ing required.

Removal and Prohibition Orders

c. prohibits a credit union from engaging in an activ-ity described in the order and/or requires the cor-rection of a condition resulting from a violation.

Civil Money Penalties d. agreements between the credit union and the reg-ulator that require the credit union to take specific corrective action.

Conservatorship e. the authority to close an insolvent federal credit union eliminating that credit union as a legal entity.

Order for Special Reserves f. a three-tier penalty program against federally insured credit unions or institution-affiliated party ranging from $5,000 to $1 million a day.

Termination of Insurance g. an order to remove a credit union board member or employee after a notice and hearing and an order to ban credit union officials and employees as well as affiliated parties from serving or being employed by any federally insured financial insti-tution.

Involuntary Liquidation h. the NCUA Board requires a federal or federally insured state-chartered credit union to maintain special reserves to protect the interests of the members.

9. When NCUA is faced with liquidating a credit union or merging it with another healthy credit union, what is the agency’s preference?

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Overview of NCUA’s Regulations and Supervisory Authority

Answer Key

1. Short-term adjustment credit to help meet temporary requirements for funds; seasonal credit to help meet seasonal needs for funds; and protracted adjustment credit to help meet needs in unusual or emergency circumstances of longer-term nature. (Page 1-8)

2. FCUs are exempt from federal and state income taxes and franchise taxes but are subject to the same real property taxes and personal property taxes that are imposed on other businesses. (Page 1-9)

3. Unrelated business income taxes — UBIT (Page 1-10)

4. NCUA Rules and Regulations — c (Page 1-11)

Interpretive Rulings and Policy Statements — e (Page 1-14)

Letters to Credit Unions — d (Page 1-15)

Regulatory Alerts — a (Page 1-17)

Legal Opinion Letters — b (Page 1-18)

5. A final regulation is issued after an official “notice and comment period” of 30 days to 120 days giving credit unions at least 30 days before compliance is mandatory. An “interim final regulation” is issued because of a pressing agency concern such as a safety or soundness problem or the enactment of a new law. (Page 1-13)

6. Yes. (Page 1-22)

7. Call reports — the Financial and Statistical Report — NCUA requires all federally insured credit unions to submit a summary of their financial and statistical data quarterly.

Financial Performance Report — a report drawn from the call report data providing credit unions a five-year review of the data and showing how the credit union’s peers are performing. (Page 1-22)

8. Letters of Understanding and Agreement — d (Page 1-26)



Cease and desist orders — c (Page 1-27)

Removal and Prohibition Orders — g (Page 1-28)

Civil Money Penalties — f (Page 1-28)

Conservatorship — b (Page 1-29)

Order for Special Reserves — h (Page 1-29)

Termination of Insurance — a (Page 1-30)

Involuntary Liquidation — e (Page 1-30)

9. NCUA will usually pursue a merger or purchase and assumption when a federal credit union cannot feasibly continue operating. (Page 1-33)