NCUA Addresses Troubled Debt Restructuring and RegFlex at May Monthly Meeting

May 24, 2012 -   The National Credit Union Administration (NCUA) Board held its monthly meeting on May 24 to address two final rules and one final interpretative ruling and policy statement (IRPS). The NCUA also provided an insurance fund report.

Final Rule - Part 741, Troubled Debt Restructuring

The NCUA Board approved a final rule regarding troubled debt restructuring (TDR) requiring all federally insured credit unions (FICUs) to maintain written policies that address the management of loan workout arrangements and nonaccrual policies for loans, consistent with industry practice or Federal Financial Institutions Examination Council (FFIEC) requirements. This final rule also includes an IRPS incorporated as an appendix to assist FICUs in complying with this rule including information on regulatory reporting of TDRs on Call Reports.

The final rule, Section 741.3, details the new requirements for a written policies for TDRs. The IRPS associated with this final rule includes four areas. First, it discusses written loan workout policy requirements, such as developing a TDR policy and practice commensurate with the credit union's size and complexity and in line with the credit union's broader risk mitigation strategies. Second, the IRPS discusses regulatory reporting of workout loans including TDR past due status, reducing the current, dual and often manual tracking burden associated with reporting of TDR loans. Third, the IRPS addresses loan nonaccrual policies. The final rule and IRPS require a FICU to adopt written nonaccrual policies that specifically address the discontinuance of interest accrual on loans past due by 90 days or more, as well as the requirements for returning such loans (including member business loan workouts) to accrual status. Fourth, the IRPS includes a glossary of terms.

To view the final rule and IRPS, follow this link to NCUA's website. The compliance date for the written TDR policies is October 1, 2012 and December 31, 2012 to collect nonaccrual status data.

Final Rule, Parts 701, 703, 742, RegFlex Relief

The NCUA Board approved this final rule eliminating its Regulatory Flexibility Program (RegFlex) and charitable contribution rules for federal credit unions. Previously, the RegFlex rules only applied to certain qualifying FCUs. In accordance with the NCUA's Regulatory Modernization Initiative, this action is aimed at providing regulatory relief by removing certain regulatory restrictions. It applies to FCU rules regarding eligible obligations, charitable contributions, nonmember deposits, fixed assets, investments, incidental powers and member business loans. NASCUS continues to encourage NCUA to consider regulatory relief for federally insured, state-chartered credit unions, as well. You can see some of our recommendations to the agency here. Following the approval of this final rule, the NCUA Board approved a direct final IRPS to remove appeals of Regulatory Flexibility Program (RegFlex) designations from the purview of NCUA’s supervisory review committee.

Insurance Fund Report

NCUA Chief Financial Officer Mary Ann Woodson provided a March 31, 2012 report of the National Credit Union Share Insurance Fund (NCUSIF). As of March 31, 2012, the NCUSIF equity ratio was 1.32%. The number of CAMEL Code 4/5 credit unions decreased a net of 13 to 396 from the end of 2011, representing 2.98% of total insured shares as of March 31, 2012. CAMEL Code 3 credit unions also decreased a net of 79 since the end of 2011 and represent a slightly lower total of insured shares from 15.90% (12/31/12) to 15.13% (3/31/12). Seven credit unions have failed in 2012 at a cost of $5.1 million to the insurance fund. Sixteen credit unions failed in 2011, and 28 failed in both 2009 and 2010, respectively. To see more statistics from the insurance fund report, follow this link.