A Year in Regulatory Review
It seems strange to think we’re wrapping up another year. By the time this reaches your desk, I imagine the snow will already be flying (sorry for mentioning the dreaded “s” word if we haven’t seen it yet). The Farmer’s Almanac is predicting another volatile, cold and rather moody winter, which sounds a lot like the rulemaking agendas of regulatory agencies.
Twenty-nineteen proved to be another interesting year with several proposed and final rules, and a promise of more changes to come. Let’s start with the Financial Accounting Standards Board (FASB). We don’t often hear much from FASB since it’s a private organization and not a federal regulatory agency, so when we do hear something it’s likely to have a significant impact.
For those who aren’t entirely familiar with what I’m talking about, FASB is a private organization standard-setting body whose primary purpose is to establish and improve accounting standards known as Generally Accepted Accounting Principles (GAAP). Credit unions follow GAAP and are audited in accordance with them. In June 2016, FASB issued a new standard, Current Expected Credit Loss (CECL). Under this new model, credit unions will be required to use historical information, current conditions and reasonable forecasts to estimate the “expected” loss over the life of the loan. In short, this change will mean significantly greater data requirements and changes to accounting methodologies to accurately account for losses.
Due to the significant impact CECL will have on credit unions (as well as community banks), the industry has been advocating to FASB for an exemption. While no exemptions have been issued, FASB has agreed to delay the implementation of CECL until January 2023.
Moving on to more positive news, the NCUA Board has been busy this year with a few regulatory relief efforts. With a new board chairman, Rodney Hood, and new board member, Todd Harper, the board has issued several proposed and final rules. Noteworthy final rules include one addressing Supervisory Committee Audits. The final rule implements recommendations outlined in the NCUA’s Regulatory Reform Task Force Agenda and will provide additional flexibility and relief to federally insured credit unions.
The NCUA Board also adopted a final rule regarding the Federal Credit Union Bylaws that updates, clarifies and simplifies the bylaws. It also updates and conforms them to numerous legal opinions issued by the Office of General Counsel and provides federal credit unions with greater flexibility while also removing outdated and obsolete provisions.
Additionally, the NCUA Board adopted a final rule establishing a Payday Alternative Loan (PALS) II program separate from the NCUA’s existing PALS I program. As proposed and adopted, the PALS II program provides for the following:
- Loan amounts up to $2,000
- Loan terms up to 12 months
- Eliminates the minimum membership requirement – PALS I requires a minimum membership of at least 1 month
- No more than 3 loans in a rolling six-month period to a single borrower
- A credit union may not make more than one PAL (PAL I or PAL II) loan to a borrower at a time
The NCUA Board has also signaled it will be issuing proposed rules regarding alternative capital and Credit Union Service Organizations (CUSOs) while we also await a final rule delaying the Agency’s Risk Based Capital Rule.
If you’re still with me, we’re almost done. The Consumer Financial Protection Bureau (CFPB) also remained busy through 2019. Under new leadership, the CFPB has started evaluating overdraft regulations, specifically the opt-in form for ATM and one-time debit transactions. Earlier this year, the CFPB sought comment on the regulatory burden of its overdraft regulation. The topic of overdrafts remains very volatile and we will keep a close eye on potential regulation.
The CFPB also issued proposed rules with request for comment addressing the burden of the Home Mortgage Disclosure Act (HMDA) and associated data points. Additionally, the CFPB signaled potential rulemaking regarding Unfair Deceptive Abusive Acts or Practices (UDAAP). UDAAP has been utilized by the CFPB to issue enforcement actions against institutions it does not directly regulate.
With the ability to “regulate through enforcement,” we hope to see a change in this process as most credit unions are not under regulation or examination by the CFPB. The Bureau has signaled any UDAAP regulation will be a longer-term project yet remains a priority on its rulemaking agenda.
Congratulations. We made it through another year! Thanks for hanging in there with me. We’re in this together and the Michigan Credit Union League is here to help with your compliance needs through InfoSight, Policy Pro, ComplySight, AffirmX and our Compliance Helpline.