Most non-public business entities aren't required to implement the current expected credit loss (CECL) model until fiscal years starting after Dec. 15, 2020. However, many credit unions are heeding the advice of the NCUA and advancing steps to ensure effective implementation of this major change in estimating losses. The model will require more inputs, assumptions, analysis and documentation, making the option to automate and modernize the process significantly more attractive than under existing standards. Credit unions considering software to comply with the regulations may choose to build their own software solution or work with a third-party vendor. In either case, credit unions have several considerations to help narrow the playing field.

Data

Data is the foundation of historical loss experience calculations. In fact, a credit union's ability to calculate lifetime loss rates as of the implementation date is predicated on the adequacy of yesterday's data. In many instances, however, the historical data required to properly evaluate the performance of various loan types and risk attributes is not available or is riddled with inconsistent or incorrect information. Credit unions will benefit from comparing internal and vendor options for ensuring data adequacy and data retention. Clarify what third-party providers offer for data archives, data architecture and data adequacy services, and compare that to in-house capabilities.