NCUA Board Approves ‘Second Chance’ Rule, Simplifies Share Insurance Regulations

During its September meeting Thursday, NCUA Board members approved a final rule that incorporates a second chance for those people with minor or older criminal offenses seeking employment at a credit union.

The Board unanimously approved a final rule, which codifies Section 205(d) of the Federal Credit Union Act and incorporates the NCUA’s Second Chance Interpretive Ruling and Policy Statement (IRPS 19-1) and the Fair Hiring in Banking Act. “This rule allows people with convictions for certain minor or older offenses to work in the credit union industry without applying for the NCUA Board’s approval,” according to the NCUA.

NCUA Chairman Todd Harper said, “Providing career opportunities for those who want nothing more than a second chance — to be responsible, to earn an honest wage and to pursue a rewarding career in the credit union system — is a tale of redemption and inspiration. It’s also a matter of equity. And, it proves people have the capacity to make amends and change the direction of their lives for the better.”

According to the NCUA, the final rule also:

• Excludes minor offenses, including certain designated lesser offenses, from the scope of Section 205(d), and excludes most drug-possession offenses and older misdemeanors from the “dishonesty or breach of trust” category of covered crimes.
• Amends regulations governing the conditions under which newly chartered or troubled federally insured credit unions must notify the NCUA of any proposed changes to its board of directors, committee members or senior executive staff.

The final rule will go into effect 30 days after it’s published in the Federal Register.

Simplifying Share Insurance Regulations

Also on Thursday, Board members approved a final rule to simplify the agency’s share insurance regulations by creating a “trust accounts” category to “provide Share Insurance Fund coverage of funds in both revocable and irrevocable trusts deposited at federally insured credit unions in the accounts of members or those otherwise eligible to maintain insured accounts.”

According to a statement from the NCUA, “The rule aligns the Share Insurance Fund coverage provided to federally insured credit union members’ revocable and irrevocable trust accounts with the coverage provided to consumers who maintain revocable and irrevocable trust accounts at federally insured banks.”

Harper said, “This final rule simplifies the share insurance regulations and brings the National Credit Union Share Insurance Fund and the Federal Deposit Insurance Corporation’s Deposit Insurance Fund into greater alignment. That’s a positive change not only for credit union staff who will have streamlined procedures when working on such trust accounts, but it’s also a benefit for credit union members who will better understand their coverage options.”

According to details provided by the NCUA, the final rule also provides:

• Consistent share insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender.
• More flexibility for the NCUA to consider various records in determining share insurance coverage in liquidations.

Changes to the Share Insurance Fund coverage of trust accounts are effective on Dec. 1, 2026, according to the NCUA.

Share Insurance Fund Financial Update

Board members received a financial status and performance briefing of the Share Insurance Fund on Thursday.

According to information presented by the agency’s CFO, Eugene Schied, the year-to-date net income of the Share Insurance Fund (SIF) was $154.3 million, with a net position of $21.3 billion as of June 30.

Total assets of the SIF dropped from $21.6 billion to $21.5 billion in Q2 and the equity ratio stood at 1.28% as of June 30.

Looking at projections for the rest of the year, Schied stated the projected equity ratio for the SIF to also be 1.28% on Dec. 31.

“The Share Insurance Fund’s performance in the second quarter of 2024 mirrors much of the industry’s financial performance during the same period. The fund, like the credit union system, is doing well overall, but there are warning signs that we must all heed,” Harper said. “What especially concerns me is the increasing number of complex credit unions with $500 million or more in assets falling into the troubled category — CAMELS code 4 or 5 ratings — this last quarter.”

Other data reported to the Board from the second quarter included:

• The number of composite CAMELS coded 4 and 5 credit unions increased from 125 to 136 in the second quarter of 2024. Assets for these credit unions increased from $7.0 billion to $19.6 billion in the second quarter of 2024.
• The number of composite CAMELS coded 3 credit unions decreased from 760 to 743 in the second quarter of 2024. Assets for these credit unions increased from $176.9 billion to $191.1 billion in the second quarter of 2024.

As of June 30, according to the NCUA, two federally insured credit union failures cost the SIF approximately $2 million in losses.

READ MORE: The full financial update on the Share Insurance Fund as of June 30, 2024