NCUA Board Approves Interim Final Rule on Prompt Corrective Action

The NCUA board on Friday approved an interim final rule designed to assist credit unions that could face enforcement of prompt corrective action regulations as a result of a huge influx of deposits of coronavirus Economic Impact Payments.

The board approved the interim final rule by notation, meaning that they did it without holding a public meeting. The rule had been listed on the board’s agenda for its April 22 meeting.

An NCUA spokesperson said the board had determined that there is an immediate need for the rule and decided not to wait until the April 22 meeting to adopt it. The board and agency staff will hold a public briefing on the rule at the April 22 meeting.

The rule will become effective when it is published in the Federal Register and it will expire on March 31, 2022. There is a 60-day comment period on the rule even though it will become effective once it is published.

The rule in large part mirrors one that the NCUA board adopted last year, as credit unions faced an influx of deposits caused by members’ receiving Economic Impact Payments. The rule expired at the end of last year.

Board members said that the rule is again needed because members have received additional Economic Impact Payments that were included in the coronavirus economic stimulus legislation enacted in December.

“The latest round of stimulus spending has further expanded credit unions’ balance sheets. As a result, many well-run credit unions with positive earnings now have lower net worth ratios,” NCUA Chairman Todd Harper said. “Given the continued uncertainty with the pandemic and share growth many credit unions are seeing, this targeted, tailored and temporary rule will provide critical relief so eligible credit unions can focus their limited resources on their members’ needs instead of planning for earnings transfers and developing detailed net worth restoration plans.”

“We get it. We understand what’s happening right now,” Vice Chairman Kyle Hauptman said. “As credit unions continue to support their members during this difficult time, many are concerned with the challenges they will face if their net worth ratio drops below the well-capitalized level.”

“Because of the pandemic, I am concerned that credit unions may temporarily fall below the well-capitalized level and become subject to various prompt corrective action requirements,” board member Rodney Hood said. “While this temporary relief wasn’t widely utilized last year when it expired, it now appears we need this tool now for credit unions.

The interim final rule temporarily reduces the earnings retention requirement for federally-insured credit unions that are adequately capitalized. Those credit unions unable to meet the earnings retention requirement will not have to submit a written application requesting approval to decrease their earnings retention amount.

However, if a credit union poses an undue risk to the Share Insurance Fund or exhibits safety and soundness concerns, an NCUA regional director may require the credit union to submit that request.

The second part of the rule temporarily permits an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized largely because of share growth.

Credit union trade groups have supported the changes.

“The decline in credit union net worth ratios due to the crisis warranted this additional flexibility and will help credit unions remain focused on serving their members,” CUNA President/CEO Jim Nussle said.”

NAFCU also supported the rule when it was first adopted last year.

“While the industry is safe and sound, it is imperative that credit unions have an environment where they can continue to focus their efforts on assisting members in financial need and managing their operations without grappling with administrative burdens,” NAFCU Director of Regulatory Affairs Ann Kossachev said at the time.