CECL, operating fee proposals, OTR request issued at NCUA meeting

July 30, 2020

NCUA issued proposals on the current expected credit loss (CECL) transition methodology and fees paid by federal credit unions, in addition to finalizing its field-of-membership rule Thursday. The board also issued a request for comment on overhead transfer rate (OTR) and operating fee methodologies and received a briefing on the 2020 mid-session budget.

The CECL proposed rule would phase-in the day-one adverse effects on regulatory capital that may CECL methodology. It would phase-in the day-one effects on a federally insured credit union’s net worth ratio over a three-year period to determine a credit union’s net worth classification for prompt corrective action.

The phase-in would only be applied to those federally insured credit unions that adopt CECL for the fiscal years beginning on or after Dec. 15, 2022, is the deadline established for CECL’s implementation. Credit unions that decide to adopt CECL for the fiscal years beginning before that date would not be eligible for the phase-in.

Federally insured credit unions with less than $10 million in assets would no longer be required to determine their charges for loan losses under GAAP. Instead, these credit unions could use any reasonable reserve methodology if it adequately covers known and probable loan losses.

Comments on the proposed rule are due 60 days after publication in the Federal Register.

The operating fee proposal would:

  • Exclude from a federal credit union’s total assets any loan under the Small Business Administration’s Paycheck Protection Program (PPP) or similar future programs approved for exclusion by the NCUA board when calculating the annual operating fee;
  • Delete from the current regulation references to the Credit Union System Investment Program and the Credit Union Homeowners Affordability Relief Program, both of which no longer exist; and
  • Amend the period used for the calculation of a federal credit union’s total assets when determining the annual operating fee, calculated as the average total assets reported in a federal credit union’s previous four Call Reports available at the time the NCUA Board approves the agency’s budget for the upcoming year.

NCUA also issued a request for comment on the methodologies for computing the OTR and determining the annual operating fee schedule, which are the two mechanisms used to fund the agency’s budget.

Comments on both the proposal and request for comment will be due within 60 days of their publication in the Federal Register.

According to the 2020 mid-session budget, NCUA estimates it will have a small budget surplus in the Operating Fund at the end of the year due to a reduction in the employee travel because of COVID-19. The budget for the National Credit Union Share Insurance Fund administrative expenses may also see some savings due to the reduction in travel.