NCUA Board finalizes rules, issues ‘Second Chance’ proposal

July 18, 2019

The NCUA Bboard Thursday finalized two rules and issued a proposed Interpretive Ruling and Policy Statement (IPRS) called the “Second Chance” IRPS. Both rules finalized by NCUA reflect changes requested by CUNA in its comment letters.

NCUA’s final rule on real estate appraisals was adopted largely as proposed. However, it does not adopt a proposed change that would replace the current exemption for existing extensions of credit with a different exemption. CUNA strongly opposed this proposed change in its comment letter on the proposal.

The rule:

  • Increases the threshold below which appraisals are not required for commercial real estate transactions to $1 million, up from $250,000;
  • Restructures the rule to enhance clarity;
  • Exempts from the rule certain federally related transactions involving real estate in a rural area; and
  • Makes conforming amendments to the definitions section.

“We thank the NCUA board for finalizing the appraisals rule and taking into account our suggestion that the agency leave the current exemption for existing extensions of credit as it currently exists,” said CUNA Chief Advocacy Officer Ryan Donovan. “Raising the threshold for required appraisals for commercials loans and making it easier for credit unions to determine whether, and if so by whom, an appraisal is required will benefit credit unions and their members.”

NCUA finalized its fidelity bonds rule as well, a rule that:

  • Ensures an adequate period to discover and file fidelity bond claims following a FICU’s liquidation;
  • Codifies a 2017 legal opinion that permits a natural person credit union’s fidelity bond to include coverage for certain CUSOs; and
  • Addresses Board approval of bond forms.

The final rule incorporates several changes from the proposed rule designed to reduce regulatory burden, including not requiring a supervisory committee to review a fidelity bond renewal, reducing the mandatory discovery period to one year following an involuntary liquidation and providing increased flexibility to a provision that sunsets board approval of fidelity bond forms.

“The fidelity bonds rule finalized by NCUA today reflects engagement from CUNA, leagues and credit unions, as the modifications from the proposed rule will reduce regulatory burdens for many credit unions,” Donovan said. “We appreciate NCUA’s efforts to update and strengthen its fidelity bonds policies.”

Both final rules will become effective 90 days after being published in the Federal Register.

The proposed IRPS would update and revise update and revise the existing IRPS regarding statutory prohibitions imposed by the Federal Credit Union Act, which prohibits, except with prior NCUA Board approval, any person who has been convicted of any criminal offense involving dishonesty or breach of trust, or who has entered into a pretrial diversion or similar program in connection with a prosecution for such offense, from participating in the affairs of an insured credit union.

It would amend and expand the current de minimis exception to reduce the scope and number of offenses that would require an application to the NCUA Board.

Specifically, the proposed IRPS would not require an application for:

  • Insufficient funds checks of aggregate moderate value;
  • Small dollar simple theft;
  • False identification
  • Simple drug possession; and
  • Isolated minor offenses committed by covered persons as young adults.

Comments on the IRPS will be accepted for 60 days following its publication in the Federal Register. NCUA will accept public comments on the proposed IRPS for 60 days following publication in the Federal Register.

The board also voted to approve its 2019 mid-session budget and to rename its Office of Public and Congressional Affairs the Office of External Affairs and Communications.

The board will not meet in August, the next meeting is scheduled for Sept. 19.