Examiners will apply additional scrutiny to credit unions with material exposure to higher-risk forms of auto lending.
Specifically, examiners will focus on portfolios with the following concentrations:
NCUA cautions credit unions to be aware of concentration risk, which it considers any single exposure or group of exposures with the potential to produce losses large enough—relative to capital, total assets, or overall risk level—to threaten a financial institution’s health or ability to maintain its core operations.
Examiners need to ascertain whether the board of directors and management understand and actively manage concentration risk. More detail is available in NCUA’s Letter to Credit Unions No. 10-CU-03.
NCUA’s revised regulation for commercial lending—Part 723: Member Business Loans; Commercial Lending—went into effect Jan. 1, 2017.
It reflects a principles-based approach to regulation. The agency designed it to provide greater flexibility to credit unions to meet their members’ needs through prudent risk-management practices.
Examiners will continue to focus on the credit union’s commercial loan policies and procedures along with assessing the effectiveness of the credit union’s risk management processes.
Credit union officials should be prepared to ensure the policy, practices, and staffing are appropriate for the type of commercial loans their credit union offers.
NCUA’s online Examiner’s Guide provides guidance on the principles of sound commercial lending and NCUA’s supervisory expectations for sound risk-management practices.
Examiners should assess whether a credit union’s:
For more information, see NCUA Letter to Credit Unions No. 16-CU-11 that discusses the addition of member business loans guidance to the Examiner’s Guide.
Beginning in the second quarter, examiners will perform limited reviews of quarterly loan/application registers (LAR), when applicable.
They will evaluate federal credit unions’ good faith efforts to comply with the Consumer Financial Protection Bureau’s October 2015 and August 2017 amendments to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA).
NCUA’s review of 2018 HMDA data will be diagnostic in nature, designed to help credit unions identify compliance weaknesses in collecting 2018 data for submission in 2019, and will credit good faith compliance efforts.
NCUA recognizes the significant systems and operational challenges needed to adjust to the revised regulation for HMDA data collected
in 2018 and reported in 2019.
Therefore, the agency doesn’t intend to cite violations for data errors found in the quarterly LARs, nor require data resubmission unless data errors are material.
NCUA also doesn’t intend to assess penalties with respect to errors in data collected in 2018 and reported in 2019.
Collection and submission of the 2018 HMDA data will provide credit unions an opportunity to identify any gaps in their implementation of amended Regulation C and make improvements in their HMDA compliance management systems for future years.
For data collected in 2017, credit unions will submit their reports in 2018 in accordance with the current Regulation C using the bureau’s HMDA platform.
Examiners will also evaluate credit unions’ efforts to comply with the Military Lending Act’s restrictions against the use of certain contract terms, as well as the credit card provisions for which compliance began in October 2017.
Examiners also will review credit unions’ overdraft policies and procedures for compliance with Regulation E.
JARED IHRIG is CUNA's chief compliance officer. Contact him at 202-508-6732.