Creating Awareness Among Regulators

We want those who have an impact on CUs to understand what sets CUs apart.

November 12, 2013

One of the most valuable services your national trade association performs—in conjunction with the leagues—is to explain how credit unions are different from other financial institutions.

This function is at the core of our efforts to “create awareness,” one of the three shared agenda items under our vision initiative, Unite for Good, which sees Americans choosing credit unions as their best financial partner.

A big part of creating awareness is explaining credit unions to consumers. But that’s not all there is to it. It’s also about ensuring those who have an impact on credit unions—lawmakers, regulators, the press, and more—understand what sets credit unions apart, and how actions that apply to other financials might have a very different impact on credit unions.

Case in point: The Financial Accounting Standards Board (FASB) earlier this year proposed a guide for evaluating financial accounting and reporting for private companies. The guide has implications for credit unions. It considers differences between publicly traded entities and private ones (such as credit unions). The distinctions between the two create separate needs for financial information on the part of stakeholders— such as investors (banks and other publicly traded entities), and members (credit unions).

Immediately at stake is whether the guide defines or considers credit unions “nonpublic entities” (as opposed to “not-for-profit” organizations), which would make credit unions eligible for potential accounting and financial reporting alternatives, reducing their regulatory burden.

The key is to ensure the regulator— FASB, in this case—understands what credit unions are about.

In our comment letter to FASB, we emphasized that the needs of those seeking information from credit unions (boards, members, and federal and state regulators) are significantly different from those seeking information from publicly held institutions (potential investors). We pointed out credit unions operate under stringent restrictions that are generally addressed in statutory and regulatory requirements. This results in straightforward balance sheets.

We also repeated how credit unions are unique, in that they’re not-for-profit cooperatives that don’t issue stock for public investment, and thus aren’t motivated to maximize profits for investors.

These differences are important to entities. “How these distinctions will be affected should be fully considered when accounting standards are developed,” we wrote.

A prominent example: Changes in the value of loans and other assets—reflecting virtually all possible, even if not probable, losses— might be important information for investors of certain complex companies to glean from companies’ financial statements. (This is what FASB has proposed in another accounting standard, “Financial Instruments—Credit Losses.”)

But such an approach for credit unions, we argued, would result in an inaccurate depiction of losses, especially since credit unions generally have low delinquency and default rates—and such anticipated losses might never materialize.

“Moreover, the overstatement of possible credit losses would also result in excessive funding of Allowance for Loan and Lease Loss Accounts, diverting funds that could be used for additional loans or other services,” we wrote. “This would be a very negative development that would be necessitated only because an accounting standard required it— not because it was important to credit union members, or regulators.”

And that’s the heart of it: Credit unions, owned by their members, are responsible for reporting to them, not the marketplace.

In a perfect world, everyone would “get” the credit union difference. But we know how far from perfection we are—and it’s why “creating awareness” about the credit union difference is part of our day’s work.

That’s something CUNA supports you in doing, every day.