ALEXANDRIA, Va. (6/3/13)--National Credit Union Administration Chairman Debbie Matz urged the Financial Accounting Standards Board (FASB) to strongly consider how proposed credit impairment recognition changes could impact small- and medium-sized credit unions, and their ability to serve members of modest means, in a Friday letter to the board.
Matz said the compliance costs that this proposal could create are a particular concern for the agency. The NCUA also has safety and soundness concerns regarding the proposal, she added.
The Credit Union National Association strongly opposes the FASB rule because it would be detrimental to the credit union system and could have serious, unintended consequences for borrowers and the economy.
It is an unusual step for the NCUA to weigh in in this manner with FASB, an action that is likely to draw extra attention from the accounting body.
The NCUA makes points similar to those CUNA has made about how the FASB plan would unnecessarily burden the resources of credit unions and have the unintended consequence of reducing available credit options for consumers during this time of economic rebuilding.
The FASB proposal would update accounting standards regarding financial reporting of expected credit losses on loans and other financial assets held by financial institutions, including credit unions. The proposed model would utilize a single "expected loss" measurement for the recognition of credit losses. It would replace the multiple existing impairment models in U.S. generally accepted accounting principles that generally use an "incurred loss" approach.
Under the proposal, the reporting entity would be required to estimate the cash flows that it does not expect to collect, using all available information, including historical experience and forecasts about the future.
Matz in the agency letter noted that many small- and medium-sized credit unions lack the resources to perform complex economic analysis at the time of loan underwriting. This lack of resources could force these credit unions to make the difficult choice of paying third-party economic consultants, or cutting back on their lending activities.
"Either choice would result in lower net income and reduced services to consumers, which would threaten the viability of these institutions over the long term," the NCUA chairman noted.
"Since credit unions were the only federally insured financial institutions to increase lending throughout the recent economic downturn, discouraging credit union lending would negatively impact consumers going forward," she wrote.
CUNA welcomed the NCUA's letter to FASB. Last week, CUNA urged FASB to drop its proposal, calling it "the most critical regulatory concern credit unions have faced in quite some time, including rules or proposals that have been issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act."