Proposed Rule Summary

Supervisory Review Committee

Prepared by NASCUS Legislative & Regulatory Affairs Department
July 2017

NCUA is proposing to expand the subjects appealable to the Supervisory Review Committee and provide credit unions an option for additional review by the Director of NCUA’s Office of Examination and Insurance (E&I). The proposed rule would:

  1. expand the number of material supervisory determinations appealable to the SRC;
  2. create an optional intermediate level of review before an appeal is brought to the SRC;
  3. change the nature and composition of the SRC; and
  4. provide for an optional appeal to the NCUA Board

The proposed rule would be codified as Subpart A to part 746. The Board is requesting comment on all aspects of this proposed rule.

NCUA’s proposed rule may be read here. The proposed rule is open for comment until August 7, 2017.

Summary

Section 309(a) of the Riegle Community Development and Regulatory Improvement Act of 1994 (Riegle Act) required NCUA and the other federal banking agencies to establish internal processes by which supervised institutions could appeal material supervisory determinations. The first appeal process was adopted by NCUA in IRPS 95-1 setting the Supervisory Review Committee (SRC) at 3 members appointed by the NCUA Chairman with the authority to review matters specifically listed as material supervisory determinations in the Riegle Act. Material supervisory determinations includes composite CAMEL ratings of 3, 4, or 5, and the component ratings. In 2002, NCUA expanded the jurisdiction of the SRC to include decisions by a regional director to revoke a credit union’s Regulatory Flexibility Program (RegFlex). In 2011, NCUA published the current IRPS 11-1 expanding appeal process again to include denials of Technical Assistance Grant (TAG) reimbursements by the Director of the Office of Small Credit Union Initiatives (OSCUI).

Material Supervisory Determinations

NCUA proposes expanding the term supervisory determinations to include determinations that may affect the capital, earnings, operating flexibility, or that may otherwise affect the nature and level of supervisory oversight of a federally insured credit union (FICU). Certain exceptions would be made for material supervisory determinations that are specifically excluded by the Riegle Act or where other appeals procedures exist.

The proposal would also limit a FICU’s ability to appeal component CAMEL ratings. Component ratings are currently eligible for appeal, but this proposal would limit CAMEL ratings appeals to only composite 3, 4, or 5 ratings, unless the component rating could trigger a supervisory action.

The proposed rule excludes the following from appeal process as established therein:

  1. Pursuant to the Riegle Act, the decision to appoint a conservator or liquidating agent for a FICU and the decision to take prompt corrective action
  2. Enforcement-related actions and decisions, including appeals related to the underlying facts and circumstances that form the basis of a recommended or pending enforcement action
  3. Supervisory determinations for which other appeals procedures exist such as a capital classification for prompt corrective action purposes

Review by the Director of E&I Before Appeal

NCUA is proposing an optional intermediate level of review by the Director of E&I, or his or her designee, before a FICU appeals to the SRC. A decision by the Director of E&I would be made in writing with no oral presentations from either party. If the FICU or program office is unsatisfied with that decision the case may then be appealed to the SRC.

Composition of the Supervisory Review Committee

The proposed rule would restructure the SRC by:

  1. Creating a rotating SRC pool of at least eight NCUA senior staff and appointed by the NCUA Chairman
  2. Designating the Secretary of the Board as the permanent SRC Chairman who would select three SRC members from the SRC pool to hear a particular appeal (the Secretary of the Board would also be a member of the SRC pool and be eligible to serve as a member of the SRC for a particular appeal)
  3. Designating the Special Counsel to the General Counsel as a permanent non-voting member of each SRC to advise each SRC on procedural and legal matters

The SRC Chairman would not be permitted to select SRC members from the program office that rendered the decision that is the subject of the appeal to hear that appeal. Likewise, in cases where the FICU requested review by the Director of E&I, staff from E&I would be ineligible to serve as SRC members for that appeal.

The presence of two SRC members (physically, telephonically, or by video conference) would be required as a quorum, and a majority of votes present would be required for action on an appeal. Either a credit union or an NCUA Program office can appeal an adverse decision from the E&I Director to the SRC.

The Review

The burden of proof in an appeal would fall on the Petitioner (the party appealing). An appeal may be dismissed if it is not filed on time, if the basis for the appeal is not discernable, if the petitioner asks to withdraw the request in writing, or at the discretion of the Director of E&I, the SRC, or the Board if, for example, a party to the appeal acted in bad faith.

Supervisory or Enforcement Actions Not Affected

Under the proposed rule, an appeal at any level would not affect, delay, or impede any formal or informal supervisory or enforcement action in progress, nor would it affect NCUA’s authority to take any supervisory or enforcement action against a FICU.  However, an appeal would delay action on a FICU’s request for waiver or expanded authority unless the FICU specifically requests that it not.

Appeal of the SRC Decision to the NCUA Board

Within 30 days of receiving the determination of the SRC, a party may file a request for the NCUA Board to hear the appeal. At least 1 NCUA Board member must agree to hear the appeal in order for the petition to be granted. SRC denial of a technical assistance grant are not appealable.

Coordination with State Authorities

Proposed § 746.113 provides that in the event that a joint NCUA/SSA material supervisory determination becomes the subject of a request for review under the appeals process, NCUA will promptly notify the SSA of the request for review, provide the SSA with a copy of the request and any other related materials, solicit the SSA’s views regarding the merits of the request before making a determination. The SSA will also be promptly notified of the decision and generally kept informed throughout the process.