updated 10/11/13 01:04 PM
EXAM REPORT MODERNIZATION LETTER
Leagues Review NCUA's Changes
Last week the National Credit Union Administration (NCUA) issued its Letter to CUs 13-CU-09— Examination Report Modernization, which announced changes intended to streamline examination reports, improve clarity and communication of critical and material items, and improve processes related to issuing and following up on examination reports.
Sharon Lindeman, Vice President of Regulatory Advocacy for the California and Nevada Credit Union Leagues
The NCUA noted that before making the changes, they considered feedback from credit union industry officials, as well as specific report recommendations by the Government Accountability Office (GAO) and NCUA’s Office of Inspector General (OIG).
One change highlighted in the letter: The Document of Resolution (DOR) and Examiner’s Findings will now be stand-alone documents. The expectation is that having a separate DOR document to focus on will improve clarity and communication of critical and material items, and help credit unions implement timely corrective action plans.
Outstanding DOR Items
Another specific change outlined in the letter is that examiners are now required to follow up with credit union officials on outstanding DOR items within 120 days after the timeframe for completion has passed. Revised Chapter 13 of the National Supervision Policy Manual (page 8) expands on this:
  • When Do I Have To Follow Up On DOR Items?
    Generally, examiners should follow-up on DOR items within 120 days after the timeframe for completion has passed. In the case of CAMEL 3, 4, and 5 credit unions, the current follow-up supervision requirements outlined in Chapter 1 will allow for adequate follow up on DORs.
  • In CAMEL 1 and 2 credit unions with a DOR, the examiner should evaluate whether a CAMEL 1 or 2 rating is warranted. If it is, the examiner can set the timeframe for completion to coincide with the next scheduled contact or examination. If the DOR is so severe that it needs to be completed sooner than before the next scheduled contact or examination, examiners will follow-up within 120 days of the timeframe for completion.
The Leagues' Review
The California and Nevada Credit Union Leagues have noted the manual left the door open for examiners to issue DORs based on opinion rather than failure to meet specific requirements addressed in law, regulation, or guidance. The manual (page 12) states that when drafting a DOR, an examiner shall:
  • Cite the specific section of the FCU Act, NCUA Rules and Regulations, FCU Bylaws, or other authority (including NCUA-issued guidance such as Letters to Credit Unions). For those problems not specifically addressed in law, regulation, or other specific regulatory guidance examiners should cite Section 206(b)(1) of the FCU Act or Section 741.3 of NCUA’s Rules and Regulations1.(emphasis added) If the credit union violates more than one of the above, the examiner should cite the highest authority. Appendix 20B provides additional information on citations.
  • Footnote 1: Section 206(b)(1) of the Act gives NCUA the ability to terminate insurance for unsafe and unsound practices. Even though a DOR may not lead to termination of insurance, the Act implies credit unions must operate in a safe and sound manner as a condition of insurance. Section 741.3 of the Rules and Regulations also requires credit unions operate in a safe and sound manner as a condition of insurance. (emphasis added)
"We are disappointed with this language," said Sharon Lindeman, vice president of regulatory advocacy for the Leagues. "It was our hope that any examination improvements would include that all findings be supported by specific laws or regulations. The Leagues will continue to advocate for this with the NCUA."
On a positive note, Lindeman was pleased to see the manual specifically state that unresolved Examiner’s Findings should not be automatically escalated to a DOR. Of course, numerous uncorrected findings could be reflected in a credit union’s management rating and/or as a separate DOR issue. In discussing what should be included in/excluded from a DOR, the manual (page 7) states:
  • Examiners should not escalate unresolved Examiner’s Findings to a DOR merely because they have gone unresolved. Numerous uncorrected Examiner’s Findings can be indicative of uncooperative or ineffective management and may impact a credit union’s CAMEL and/or risk ratings. A DOR to address uncooperative or ineffective management may be warranted in these circumstances.
  • If circumstances change and the unresolved Examiner’s Finding subsequently meets the criteria for a DOR, examiners should document the problem and corrective action in the DOR.
The Leagues encourage all credit unions to review Letter to CUs 13-CU-09— Examination Report Modernization and its attachments.
    © 2014 California Credit Union League