CUNA, NAFCU: Credit Unions Need Help to Stay Healthy During Pandemic

The NCUA must provide more regulatory leeway to credit unions to help provide needed services to members as they weather the pandemic, CUNA and NAFCU officials said Wednesday.

“It may take years for consumers to recover from the economic consequences of COVID-19, social distancing, lockdowns and unemployment,” CUNA President/CEO Jim Nussle said in a letter to NCUA Chairman Rodney Hood on Wednesday. “Credit unions must dedicate the next several months and years to ensuring members have the necessary resources available to them as they recover from this crisis.”

NAFCU Chief Economist and Vice President of Research Curt Long said the trade group supports the agency giving credit unions more tools for balance sheet management.

Credit unions have been seeking assistance from Congress with proposals ranging from a temporary increase in their member business lending cap to automatic forgiveness for loans under $150,000 made under the Paycheck Protection Program.

However, the next round of stimulus legislation has stalled on Capitol Hill.

Credit unions also have been seeking assistance from the NCUA, and some of Nussle’s requests repeat ones made earlier this year.

Nussle said CUNA is worried about the NCUA’s equity ratio suffering a temporary drop and urged the NCUA to “forebear” on any assessments the board may decide to impose.

NCUA officials told the agency board Thursday that the equity level has dropped to 1.22%. The agency is required to establish a restoration plan if the equity ratio dips below 1.20%. That plan could include premiums federally insured credit unions would have to pay.

Long said NAFCU officials are pleased that the agency has not imposed a premium payment.

“NAFCU would be opposed to a premium charge right now based on the influx of deposits and are pleased the NCUA agrees. This is an ongoing issue and NAFCU supports the NCUA providing credit unions with more tools for balance sheet management,” Long said in the letter.

In his letter, Nussle outlined other issues he would like the NCUA to address — some of which NAFCU also has supported.

Nussle said that since the pandemic began, credit unions have been flooded with deposits from members’ economic stimulus checks and a decrease in spending. Credit unions, he said, are increasingly investing these funds in zero- and low-risk assets. The deposits and investments have resulted in a decrease in the net worth ratio at some credit unions.

He asked the NCUA to exclude these investments from the net worth ratio, adding that federal banking regulators already have done that. He also asked the agency to amend the definition of “total assets” to exclude zero- and low-risk assets.

“Credit unions are not in the business of turning away members or their deposits, but this is a possible though unfortunate alternative that could stem declining net worth ratios,” Nussle warned.

Nussle also repeated a request — made in two previous letters — that the NCUA permit credit unions to capitalize interest on consumer mortgage loans in connection with modifications during the pandemic.

Nussle also repeated an earlier request that the NCUA delay imposition of its Risk-Based Capital rule until Jan. 1, 2023, at the earliest. He said CUNA continues to believe that the rule is not needed at all.

In his letter, Nussle asked Hood to revisit a plan that would give credit unions more flexibility in overdraft policies. Hood recently proposed such a plan, but it died after he could not get a second on his motion to approve it.

And he asked that the NCUA drop the requirement that a person be a member of a credit union for 30 days before they may receive one type of payday alternative loan based on the agency’s model.

“This change would ensure credit unions have the flexibility necessary to meet the emergency credit needs of new credit union members,” he wrote.

The agency also should permit credit unions to allow Payday Alternative Loan borrowers who have borrowed the maximum permitted to refinance loans into other low-cost emergency credit products, or to possibly extend loan terms.