Credit union regulator joins bank brethren in aiming to codify elimination of ‘reputation risk’

Codifying the elimination of reputation risk from the supervisory program of the federal credit union regulator is the aim of a notice of proposed rulemaking unveiled Monday by the agency

In a release, the National Credit Union Administration (NCUA) said the proposal would also prohibit the agency from instructing credit unions to close accounts, refrain from providing, or altogether terminating products and services based on a person or entity’s protected class or political views.

“NCUA has determined that assessing reputation risk is subjective, ambiguous, and lacking in measurable criteria,” the agency said. “The proposed rule is intended to ground NCUA’s supervision and examination programs in data-driven conclusions to eliminate the risk of individual perspectives driving the supervisory process.”

In September, the agency erased reputation risk from consideration in supervision and exams of credit unions in its Letter to Credit Unions (LTCU) (Sept. 26; 25-CU-05). However, the agency said then, while its employees would no longer focus on reputation risk in supervising and examining credit unions, the agency will “continue to include key review areas historically classified under reputation risk, like financial liability associated with active litigation and insider abuse, as part of an examination as necessary.”

The credit union regulator now joins two federal banking agencies in proposing to ban reputation risk by rule (the Office of the Comptroller of the Currency [OCC] and the Federal Deposit Insurance Corp. [FDIC]). Both published their proposals two weeks ago.

Reputation Risk Proposed Rule Submitted to Federal Register