Improve Credit Union Exam Consistency, Extend Exam Cycle, CU Trades Tell NCUA

As the NCUA moves toward offsite examinations, the agency must improve the consistency of its exams and should extend its exam cycles, credit union trade groups told the agency this week.

“NAFCU members continue to share concerns about exam consistency, even during this year’s virtual exams, making this an issue which should be the central focus of the NCUA’s efforts to transition to virtual exams,” NAFCU Director of Regulatory Affairs Ann Kossachev told the NCUA in a letter.

And NAFCU was not alone in raising the consistency issue.

“We frequently hear from credit unions the need for greater consistency in examinations across the country,” CUNA Senior Director of Advocacy and Counsel Luke Martone told the agency.

The agency has been soliciting comments about how to develop a predominately offsite examination process by using new technology.

“This modernization effort could reduce the regulatory burden and establish technology options that would make it easier for credit unions to provide services to these underserved communities and populations,” the NCUA said.

And agency officials cited their work during the pandemic as evidence that offsite examinations work.

“Examiners were able to successfully perform many elements of the examination program that would otherwise have been performed onsite at the credit union,” they said.

However, the two trade groups said that as the agency moves toward expanded virtual exams, it also needs to address exam consistency.

Kossachev said that in NAFCU’s most recent survey, more than half of the respondents said they were at least somewhat concerned about consistency and 43% said their highest priority for exam changes was more consistent examiner interpretation and application of rules and guidance.

When credit unions are dissatisfied with the results of their exams, they may appeal the decisions. However, NAFCU stated that credit union officials said they often are not informed about the appeal option and that potential examiner retaliation is a barrier to pursuing an appeal.

Martone said the consolidation of NCUA regions has helped increase examination consistency, but that more can be done.

“Credit unions in similar circumstances should encounter similar examination expectations regardless of region, and those expectations should be set in a transparent manner,” Martone wrote.

He said CUNA continues to hear of instances of inconsistency between directives from the NCUA board and examiners in the field. For example, Martone said, the trade group has heard instances where once a credit union drops below 8%, examiners are expressing concern regardless of whether such a decline is the result of an increase in deposits.

That, he said, is not consistent with recent remarks from the board.

The two trade groups also said the NCUA should follow the lead of other banking regulators, which have extended their examination cycles.

“As a consequence, banks now have greater exam flexibility despite credit unions generally having less complex balance sheets,” Kossachev said. NAFCU is pushing for the agency to adopt an 18-month or longer exam cycle for well-run, low-risk credit unions.

Martone agreed that credit unions are extremely concerned about the exam cycle.

“Credit unions deserve the privilege of providing customer service subject to comparable regulatory supervisory thresholds as applied to banking organizations — and this issue continues to be a concern among industry leadership,” he wrote.

For its part, NASCUS officials said they want to ensure that the NCUA relies on state examinations for federally-insured, state-chartered credit unions.

“It will be of critical importance to the success of an offsite examination program for FISCUs that (the) NCUA continue to rely, to the fullest extent, on examinations conducted by state regulators,” Brian Knight, NASCUS’ EVP and general counsel, wrote. “To do otherwise would be to negate any benefit of reduced burden on FISCUs from offsite examination.”