NCUA Issues Proposed Rules: RBC and Loans to Members

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On Aug. 2 the National Credit Union Administration (NCUA) Board issued a proposed rule that will delay the effective date of the Risk-Based Capital (RBC) rule for one year, to Jan. 1, 2020.

While this is a positive move, the California and Nevada Credit Union Leagues continue to support legislation that would delay the rule for two years. In addition, the Leagues recommend delaying the rule until after the NCUA issues a final rule regarding the use of supplemental capital for RBC purposes, and until after the effective date of the Financial Accounting Standards Board’s (FASB) Current Expected Credit Losses (CECL) accounting standard so that credit unions have the opportunity to understand and coordinate compliance with the FASB rule
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The proposal also amends the definition of a “complex” credit union, increasing the asset threshold, to $500 million. This change exempts an additional 1,026 credit unions for a total of 90 percent of all federally insured credit unions. Under the definition of “complex,” the proposed rule eliminates two indicators the NCUA now feels do not necessarily relate to complexity:

  • Internet banking.
  • Investments with maturities greater than 5 years where the investments are more than 1 percent of total assets.

The proposed rule also revises four other indicators:

  • Substituted commercial loans for member business loans.
  • Replaced participation loans with participation loans sold.
  • Excluded first-lien mortgages from interest-only loans.
  • Narrowed real estate loans to sold mortgages.

In reviewing the “complexity index,” NCUA notes that 92 percent of all federally insured credit unions with assets greater than $500 million engage in four or more complex activities. These credit unions also hold 85 percent of the industry’s complex assets and liabilities, and 76 percent of total assets.

The proposed rule will have a 30-day comment period once it is published in the Federal Register.

Loans to Members
The NCUA Board also proposed amended regulations for loans and lines of credit to members.

The proposal seeks comment on whether the agency should provide longer maturity limits for 1-4 family real estate loans and other loans such as home improvement, mobile home, and second-mortgage loans.

The proposal also streamlines and clarifies three aspects of the rule:

  • Identifying in one section the various maturity limits applicable to federal credit union loans.
  • Clarifying that the maturity for a new loan under Generally Accepted Accounting Principles (GAAP) is calculated from the new date of origination.
  • Expressing clearly the limits for loans to a single borrower or group of associated borrowers under the general limits, loan participations, and commercial loans.

The proposed rule will have a 60-day comment period once it is published in the Federal Register.

The Leagues will post full summaries of both proposed rules in PowerComment, where you can review the proposals and write and send your comment letters directly to the NCUA.

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