Congress should provide NCUA ability to offer PCA forbearance

September 24, 2021

CUNA encourages Congress to enact legislation that provides flexibility to NCUA to offer forbearance from prompt corrective action to otherwise healthy credit unions impacted by federally declared emergencies or disasters, it wrote to a House Financial Services subcommittee.

The pandemic caused lending to slow and deposits to increase, particularly after economic impact payments were made.

“Deposits are a liability on the books of credit unions which means an increase in deposits puts downward pressure on capital ratios. Lower capital ratios draw supervisory scrutiny,” CUNA’s letter reads. “As a credit union approaches the 7% statutory benchmark to be considered well-capitalized, it must take action to slow the decline—perhaps by disincentivizing deposits—because if the credit union falls below 6%, it must develop a net worth restoration plan per the Federal Credit Union Act.”

CUNA notes that the decline in the capital ratio was not an indicator of an unhealthy credit union but rather the temporary effects of the pandemic and government response.

“As such, NCUA took some steps—which we commend—to provide flexibility to credit unions impacted by economic impact payments and other deposit influxes. However, the law does not permit the agency flexibility to forbear net worth restoration plans in the event a credit union dropped below 6% net worth,” the letter reads.

“The consequence for members of these credit unions is that their credit union is forced to put more resources in reserve which makes fewer resources available to credit union members as we emerge from the crisis. This hampers credit unions’ ability to improve their members’ financial well-being and advance the communities they serve,” it adds.

CUNA has also called on NCUA to pursue such flexibility directly with Congress.