Credit union prompt corrective action rules eased for COVID-19

An earnings retention requirement would be waived for “adequately capitalized” credit unions and net worth restoration plan requirements eased for some “undercapitalized” credit unions under an interim final rule approved Thursday by the federal credit union regulator’s governing board.

The interim final rule, effective 30 days following its publication in the Federal Register, is aimed at helping ensure that federally insured credit unions (FICUs) remain operational and liquid during the COVID-19 crisis, the National Credit Union Administration said in a rule summary. These temporary rule changes would expire Dec. 31.

Current rules require FICUs that are adequately or less than adequately capitalized to quarterly put a portion of undivided earnings into reserves, action aimed at moving them incrementally toward qualification as well capitalized. This requirement can be waived on a case-by-case basis, but the NCUA Board, under the interim rule, is tapping its authority to apply this more broadly – which it plans to do once the rule takes effect for credit unions classified as adequately capitalized.

This waiver means that adequately capitalized credit unions will not be required to submit applications for a waiver from the earnings retention requirement; the agency’s regional directors, however, will retain authority to subsequently require an application if a particular FICU poses undue risk to the National Credit Union Share Insurance Fund (NCUSIF) “or exhibits material safety and soundness concerns,” according to the rule summary.

With respect to net worth restoration plans, the Federal Credit Union Act provides a broad directive that an FICU that is less than adequately capitalized (has a net worth ratio of 4% to 5.99%) must submit an applicable net worth restoration plan to the NCUA. The agency’s board plans to waive the plan content requirements if the classification is predominantly a result of share growth.

“In these cases, the FICU may submit a significantly simpler net worth restoration plan to the applicable Regional Director noting that the FICU fell to undercapitalized because of share growth,” the rule summary states. “Specifically, a FICU would be required to attest that its reduction in capital was caused by share growth and that such share growth is a temporary condition due to the COVID-19 pandemic.” Regional directors would perform an analysis to determine whether the easing really is justified due to share growth. Meanwhile, federally insured, state-chartered credit unions (FISCUs) must comply with applicable state requirements when submitting net worth restoration plans for state supervisory authority approval, the agency said.

NCUA said the rule is being issued without advance notice-and-comment procedures because of the unprecedented nature and urgency of the COVID-19 pandemic.

Interim final rule, prompt corrective action