Final Rule Summary

Supervisory Review Committee

Prepared by NASCUS Legislative & Regulatory Affairs Department
November 2017

NCUA has finalized new regulations governing procedures for appealing material supervisory determinations to the NCUA’s Supervisory Review Committee (SRC). The new rule, Part 746 Subpart A, applies to federally insured state chartered credit unions (FISCUs) although there is no cross reference in Part 741.

NCUA’s new rules for the SRC review create a rotating pool of SRC members, formalizes the hearing process, provides for an interim review before an SRC appeal, and allows for appeal of the SRC decision to the NCUA Board.

When the rule becomes effective in January, 2018, NCUA’s current SRC governing document, Interpretive Ruling and Policy Statement 12-1 will be withdrawn.

The Supervisory Review Committee final rule may be read here. The rule becomes effective January 1, 2018

Summary
                 
NCUA and the federal banking agencies were directed by the Riegle Community Development and Regulatory Improvement Act of 1994 to establish appeals procedures for the review of ‘‘material supervisory determinations’’ made by the agencies. In 1995 NCUA issued its first Interpretive Ruling and Policy Statement (IRPS) setting out its appeals procedures for the review of material supervisory determinations. Prior to the publication of this current final rule, the latest iteration of NCUA’s SRC process was governed by IRPS 11-1 and IRPS 12-1.

The new final rule and SRC process has expanded the number of material supervisory determinations made by NCUA that are appealable to the SRC and provided FICUs with an opportunity to seek review by the Director of E&I. To accommodate the increased workload of the SRC, NCUA has increased the size of the SRC to include a rotating pool of at least eight NCUA senior staff.

Under the new SRC rules, a federally insure credit union (FICU) may appeal a material supervisory determinations made by NCUA staff to the SRC, and then possibly to the NCUA Board. “Material supervisory determination’’ means a written decision by a NCUA program office that may significantly affect the capital, earnings, operating flexibility, or that may otherwise affect the nature or level of supervisory oversight of an insured credit union. This includes:

  • A composite examination rating of 3, 4, or 5
  • A determination relating to the adequacy of loan loss reserve provisions
  • The classification of loans and other assets
  • A determination regarding a FICU’s consumer protection compliance
  • A determination on a waiver request or an application for additional authority

A FICU may not use the SRC process to appeal:

  • Determinations for which an independent right to appeal exists such as a decision to appoint a conservator or liquidating agent; or
  • A decision to take prompt corrective action pursuant to section 216 of the FCUA
  • Enforcement actions and decisions
  • A composite examination rating of 1 or 2
  • A component rating unless the component rating has a significant adverse effect on the nature or level of supervisory oversight of a FICU
  • The scope and timing of supervisory contacts
  • Preliminary exam conclusions communicated to the FICU before the final exam is issued
  • Formal and informal rulemakings pursuant to the APA

Standard of Review, Discovery, and Dismissal

At each phase of review, each reviewing authority shall make an independent decision regarding whether the material supervisory determination that is being appealed was appropriate. The reviewing authority shall give no deference to the legal or factual conclusions of the program office or a subordinate reviewing authority. However, throughout the process, the burden of proof lies with the FICU.  A decision by the reviewing authority shall be based exclusively on the administrative record consisting of all written submissions by a FICU and a program office, decisions by subordinate reviewing authorities, and transcripts of the oral hearing before the SRC (if oral hearing held).

No part of the rule is intended to create any right to discovery or similar process.

An appeal may be dismissed by written notice if:

  • it is not timely filed
  • the basis for the appeal is not discernable
  • the FICU asks to withdraw the request in writing
  • the FICU fails to provide additional information as requested pursuant to the rule
  • the FICU engages in bad faith
  • the FICU fails to state a material supervisory determination to be appealed

Supervisory and Enforcement Actions

Nothing in the SRC rules is intended to affect, delay, or impede any formal or informal supervisory or enforcement action in progress or affect NCUA’s authority to take any supervisory or enforcement action against an insured credit union.

State Supervisory Authority (SSA)

For appeals where consultation with the appropriate SSA is required, the administrative record shall also consist of any written submissions by the SSA.

Filing an Appeal to the SRC

Before filing an appeal to the SRC, or requesting review by the director of E&I, a FICU must make a written request for reconsideration from the appropriate program office that issued/made the material determination to which the FICU objects. The written request must be made within 30 calendar days after receiving an examination report containing the subject to be appealed and must include:

  • A statement of the facts on which the request for reconsideration is based
  • A statement of the basis for the material supervisory determination to which the FICU objects and the alleged error in such determination
  • Any other evidence relied upon by the FICU that was not previously provided to the appropriate program office making the material supervisory determination

The NCUA program office has 30 calendar days after receiving the FICU request for reconsideration to issue a written decision, stating the reasons for the decision, and providing notice of the FICU’s right to file a request for review by the Director of E&I or file an appeal with the SRC. If a written decision is not issued within 30 calendar days, the request for reconsideration will be deemed to have been denied.

  • Review by Director of E&I – After receiving the written decision from the Program Office Prior, a FICU has the option to request the Director of E&I to review the matter before the FICU files an official appeal to the SRC. The FICU has 30 calendar days to make this request (in writing). In addition to containing the basis for the request for review, the written request must contain a certification that the FICU’s board of directors authorized the request for review to be filed.

In reviewing the matter, the Director of E&I has 15 days from receipt of the request to ask for additional information from the appropriate program office or the FICU. Any party asked for additional information has 15 days to respond. The Director of E&I generally has 30 days to render a decision (the deadline is extended if additional information is sought).

If the Director of E&I finds against the FICU, or if the FICU had decided to skip the E&I review, the FICU may file an appeal to the SRC. The FICU has 30 days from the triggering event (rejected reconsideration or rejected/negative E&I review) to file the written request of appeal to the SRC. The request is filed with the Secretary of the NCUA Board and must include:

  • A statement that the FICU is filing an appeal with the SRC
  • A statement of the facts on which the appeal is based
  • A statement of the basis for the determination to which the FICU objects and the alleged error in such determination
  • Any other evidence relied upon by the FICU that was not previously provided to the appropriate program office or, if applicable, the Director of the Office of Examination and Insurance
  • A certification that the FICU’s board has authorized the appeal to be filed

The SRC Hearing of an Appeal

An appeal to the SRC will be governed by the following procedures:

  • The SRC may request additional information from either of the parties within 15 calendar days after the filing of an appeal (and parties have 15 days to submit the materials)
  • Unless the FICU requests an all written hearing, the SRC will hear oral presentations from the parties at NCUA headquarters. During an oral hearing, the FICU presents first and each side will be given equal amount of time (some of which may be reserved for rebuttal).
  • The FICU may choose any 2 individuals to represent it at the oral presentation to the SRC
  • The SRC will issue decisions in writing within 30 calendar days after the oral presentation of the appeal or 30 calendar days from receipt of the request of appeal if the FICU chose to have the appeal decided solely on the written record
  • The SRC shall publish its decisions on NCUA’s Web site with appropriate redactions to protect confidential or exempt information. Previously published decisions may be cited as precedent in future appeals.
  • If need be, the SRC may consult with E&I or the Office of General Counsel if the matter on appeal involves legal or policy interpretations

Composition of Supervisory Review Committee

The NCUA Chairman will select at least eight NCUA senior staff to comprise the SRC pool, not to include Regional Directors, Associate Regional Directors, the Executive Director, the Deputy Executive Director, the General Counsel, the Director of the Office of Examination and Insurance, or a senior policy advisor or chief of staff to a Board Member. From this pool, three members will be chosen to hear any given appeal. A Special Counsel named by the NCUA General Counsel shall serve as a permanent nonvoting member of the SRC to advise the SRC on procedural and legal matters.

Appeal to the NCUA Board

If the SRC finds against the FICU, the FICU may request an appeal to the NCUA Board. The FICU has 30 days to request an appeal to the NCUA Board. At least 1 NCUA Board member must agree to hear the appeal in order for the Board to accept the appeal.

A FICU’s written request for an appeal to the NCUA Board must include:

  • A statement of the facts on which the appeal is based
  • A statement of the determination to which the FICU objects and the alleged error in such determination
  • A certification that the FICU’s board of directors has authorized the appeal

When submitting its written request for an appeal of an SRC determination to the NCUA Board, the FICU may also request an oral hearing before the Board. The request for an oral hearing must should good cause for an oral hearing and state why the appeal may not be presented adequately in writing. If the request is granted, the hearing will take place at NCUA.

After considering the record, the oral presentations (if requested and granted) and any other information requested to be submitted to the NCUA Board, the NCUA Board will issue a decision within 90 days. Decisions on appeals will be published on the NCUA website pursuant to the same protocols as discussed above for publication of SRC decisions.

State Regulators

The NCUA SRC appeal process applies only to NCUA material supervisory determinations. It does not include determinations/actions of state regulatory agencies. If a supervisory determination that is subject to a request for review or appeal pursuant to these procedures is the product of a joint NCUA/state determination, NCUA will immediately notify the state regulator (providing copies of all relevant materials and the request for review) and solicit the state regulator’s views regarding the merits of the appeal.

Any NCUA determination on review/appeal affects only the NCUA’s actions. NCUA will notify the state regulator of its decision with respect to NCUA’s involvement in the determination and leave the FICU and state to resolve issues between them.