Important Credit Union Regulatory Hot Topics

June 26, 2023

credit union regulatory


As a credit union, staying up to date on regulatory trends and concerns is crucial to ensure compliance and avoid penalties. With the ever-changing landscape of financial regulations, it can be challenging to keep track of the latest developments. That’s why we’ve compiled a list of key credit union regulatory hot topics to help you navigate through the current environment.

By keeping yourself informed about these developments, you’ll be better equipped to manage risks and maintain your institution’s reputation as a safe and reliable financial partner for your members. Let’s dive in.

Credit Union Regulatory Hot Topics: Severance Agreement Changes

Recently, the National Labor Relations Board (NLRB) reversed a decision from 2020 that had restricted the language in severance agreements that “prohibits ex-employees from saying disparaging things about the old boss.”

Essentially, the law was put back to its previous iterations because the law was believed to be too restrictive. This protects employees from being required to sign severance agreements that include these prohibitions.

According to the NLRB, “It’s long been understood…that employers cannot ask individual employees to choose between receiving benefits and exercising their rights.” Several banking regulatory agencies are looking into similar policies in recent months as financial wellness declines in many areas of the U.S. due to rising costs and interest rates.

This underscores the importance of updating employee and employer policies and agreements to ensure they stay compliant with changing laws and regulations.

Assessing Loan Delinquency in Mergers

There has been some talk recently about how the valuation and evaluation of delinquent loans and potentially delinquent loans are handled during mergers and acquisitions under the current expected credit losses (CECL) methodology.

Currently, a credit union that is acquired and seems to be performing well, or at least at sustainable levels, will need to include a prediction for how many of the loans being acquired may end up delinquent after the transition. This is based on a concept called Purchased Credit Delinquencies (PCD)

Conversely, acquiring a poorly performing lending program and credit union currently means that no further predictions or analyses must be made – the delinquencies are assumed to have already been in effect at the time of the merger. This has the potential to undervalue CUs performing well and overvalue CUs that are performing badly, according to several critics in the financial industry.

NCUA 2023 Supervisory Priorities: Interest Rate and Liquidity Risk

In January, the National Credit Union Administration (NCUA) shared a list of supervisory priorities for 2023.

Two of the top items are interest rate risk and liquidity risk. Since interest rates rose quickly throughout 2022, this increased interest rate risk (IRR) as well as the exposure to earnings and capital in related scenarios.

NCUA has urged credit unions to be proactive in managing IRR and will be reviewing credit union IRR programs for risk management and control activities to ensure:

  • Key assumptions and related data sets are reasonable and well-documented.
  • The credit union’s overall level of IRR exposure is properly measured and controlled.
  • Results are communicated to decision-makers and the board of directors.
  • Proactive action is taken to remain within safe and sound policy limits.

You can see the examiner’s guide for interest rate risk here.

Liquidity risk is also addressed in the examiner’s guide. Since higher interest rates reduce cashflows for many institutions, NCUA is telling credit union leaders to focus on and do a thorough audit of their CU’s liquidity risk management framework and to update and amend it as needed for the current markets.

NCUA 2023 Supervisory Priorities: Fraud Prevention and Detection

Fraud and cybersecurity threats continue to increase in volume year after year. And the NCUA has included some new items because of these elevated risks.

The first includes the implementation of a management questionnaire “designed to enhance identification of fraud red flags, material supervisory concerns, or other potential new risks.” The goal of this questionnaire is to help protect credit unions and prevent potential losses. To reduce instances of duplication, federal and state examiners will be coordinating to ensure all the bases get covered, but time and resources are not wasted.

Overdraft and NSF Fee Regulations

Regulatory agencies are scrutinizing the use and applications of overdraft and NSF fees as well. They are looking to establish whether credit unions’ usage is considered unfair under the Unfair Deceptive and Abusive Acts & Practices.

This doesn’t necessarily mean your credit union should abandon them, but it does warrant an assessment of your current fee structures and applications to ensure they don’t have the potential to be labeled as unfair.

Keep an Eye on Compliance

Keeping your members safe and thriving is a top priority for your credit union. And keeping your operations and data protocols compliant with current regulations, or exceeding them, is a main component.

And as credit unions continue their digital transformation journeys, it’s crucial to have top-level software in place to help with that.

IMS uses Polaris Sonar to help credit unions maintain compliance:

  • You can automate with machine learning and policies
  • Identify sensitive data exposure
  •  Accelerate compliance with privacy laws
  • And more

Reach out to us today with questions or let us walk you through our services and their features, all made specifically with your credit union in mind!

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