NCUA Proposes Change to Definition of "Troubled Condition" for State-Chartered Credit Unions

UPDATED Aug. 6, 2012 - During the National Credit Union Administration’s (NCUA) July Board meeting, the NCUA board voted unanimously to publish a notice of proposed rulemaking to amend the definition of "troubled condition" in §701.14 and elsewhere in NCUA’s regulations. For the most part, the proposed rule would affect only federally insured state-chartered credit unions (FISCUs). The Federal Register notice can be found here. NASCUS has prepared a summary of the proposal here

In 1989 the Federal Credit Union Act (FCUA) was amended to require federally insured credit unions to notify NCUA prior to adding or replacing any senior management official or director if the credit union had been chartered less than two years or if the credit union was "troubled condition" as defined by NCUA. Currently, NCUA defines "troubled condition" as a credit union that has received special assistance or a credit union that has been rated a CAMEL 4 or 5.  For FISCUs , the CAMEL rating that determined whether the credit union met the regulatory definition of "troubled condition" was the rating given by its state regulator.  For corporate credit unions, the rules uses the CRIS rating.  It is the use of the state regulator rating that NCUA proposes changing.

NCUA's proposal would define a FISCU to be in troubled condition when either the state regulator or NCUA assigns it a composite CAMEL rating of 4 or 5 (or CRIS rating for corporates). In effect, the proposed rule allows NCUA to substitute its judgment over that of the state regulatory to designate a FISCU in troubled condition. The proposed rule has a 60-day comment period.

"NASCUS is very concerned about the preemptive nature of NCUA's proposed rulemaking regarding troubled condition FISCUs," said NASCUS President and CEO Mary Martha Fortney. "State regulators are the primary regulator for FISCUs and this proposal appears to presume that the agency's judgment is superior to that of its state regulator partners. Through successive preemptive rule making, NCUA continues to dilute the dual chartering system with little regard for the consequences and implications on the state CU system. That NCUA proposes to further diminish the role of state agencies in the supervision of FISCUs is troublesome from a broad perspective.  We intend to file formal comments and continue to express our concerns to the NCUA Board."

Comments are due Oct. 1, 2012. Feedback is welcome to Brian Knight at