NORWALK, Conn. (2/5/16)--Credit Union National Association (CUNA) Senior Director of Advocacy Luke Martone and Susan Hannigan, senior vice president/chief financial officer of Jeanne D’Arc CU, Lowell, Mass., brought a credit union perspective to a policy discussion Thursday about accounting for credit impairment.
The Financial Accounting Standards Board (FASB) is considering a proposal issued in 2012 that would require a forward-looking, current expected credit loss (CECL) model instead of the current "incurred loss" approach. As a result of concerns raised by CUNA and others in the financial services industry, FASB conducted a roundtable Thursday to discuss the impact of the pending changes (News Now Feb. 1).
Highlighting the unique nature of credit unions, Hannigan told the room the importance of understanding how the proposed standard will adversely affect credit unions and other smaller reporting entities that will be covered by the change.
Specifically, Hannigan cited the increased cost to credit unions, as well as concerns related to auditability and regulatory oversight, as a result of the proposal.
However, after the meeting Hannigan noted that she is "somewhat encouraged" by comments from the board and regulators that the proposed standard will not mandate a specific model under the CECL standard and that there is not an expectation that the model needs to be complex or that implementation would be the same at each institution. The board understood the need to include in the final standard examples that demonstrate simplified and practical approach that is scalable to credit unions, she said.
CUNA Chief Advocacy Officer Ryan Donovan said that CUNA would be seeking assurance from the National Credit Union Administration (NCUA) that it would not expect credit unions to use complex models.
In addition to Hannigan--the only credit union attendee--others participating in the roundtable included all seven FASB board members, FASB staff, federal financial regulators, including the NCUA, audit representatives and community bank representatives.
Last week 62 lawmakers signed a CUNA-supported letter to FASB expressing concerns with the proposal. The letter was the result of efforts from CUNA and the Independent Community Bankers of America (ICBA) to ask FASB to consider the proposal’s impact. The CUNA-ICBA joint effort and its success was featured in the Feb. 2 issue of American Banker.
The FASB roundtable represents the third meeting CUNA has had with FASB to discuss credit union concerns with the credit impairment proposal. CUNA has informed the standards board that, as written, the CECL plan would impose damaging costs on credit unions and other small lenders and contract credit available for consumer purchases and business expansions.
The roundtable was part of FASB's review of the costs and benefit associated with the proposed standard. FASB expects to issue a final standard in the second quarter of this year.