by Amy Kleinschmit, Director of Compliance

Small Entity/Small Credit Union Definition. The NCUA adopted a final rule that will amend Interpretive Ruling and Policy Statement (IRPS) 87-2, as amended by IRPS 03-2, and two NCUA regulations that apply asset thresholds. The final rule is effective 30 days after it is published in the Federal Register.

Since 2003, NCUA has defined “small entity” as a credit union with less than $10 million in assets.  This final rule and IRPS 13-1 redefines “small entity” as a credit union with less than $50 million in assets.  By way of background, the Regulatory Flexibility Act (RFA), was enacted by Congress in 1980 and was amended by the Small Business Regulatory Enforcement Fairness Act of 1996, P.L. 104-121.  “The RFA requires federal agencies to determine whether a proposed or final rule will have a significant economic impact on a substantial number of small entities.  If so, agencies must prepare an analysis that describes the rule’s impact on small entities.  The analysis must include descriptions of any significant alternatives that minimize the impact.  This requirement encourages federal agencies to give special consideration to the ability of smaller entities to absorb compliance burden imposed by new rules.” NCUA Final Rule, RIN: 3133-AE07, page 4.  With this final rule approximately 4,670 Federally Insured Credit Unions with less than $50 million in assets will come within the RFA’s mandates, that is an increase of approximately 2,270 additional Federally Insured Credit Unions.

This final rule also will require the NCUA to review and consider adjusting the asset threshold that it uses to define small entities on a regular basis.  Specifically, IRPS 87-2, Section II, paragraph 2 is amended to provide: “…NCUA will designate credit unions with less than $50 million in assets as small entities…Within two years of the effective date of the increase to $50 million, the NCUA Board will review and consider adjusting the asset threshold it uses to define small entities for purposes of analyzing whether a regulation will have a significant economic impact on a substantial number of small entities.  Thereafter, the NCUA Board will conduct reviews of the asset threshold every three years.”

12 CFR Parts 702, 741 and 791 are also amended under this final rule. The threshold under §702.103 – Prompt Corrective Action, Applicability of risk-based net worth requirement is increased from $10 million to $50 million. Part 741 – Requirements for Insurance is amended with regard to the requirement for Interest Rate Risk policy. Specifically, §741.3(b)(5) is amended to provide, “The existence of a written interest rate risk policy (“IRR policy”) and an effective interest rate risk management program (“effective IRR program”) as part of asset liability management.  Federally insured credit unions (“FICUs”) with assets of more than $50 million, as measured by the most recent Call Report filing, must adopt a written IRR policy and implement an effective IRR program.  Appendix B to this Part 741 provides guidance on how to develop an IRR policy and an effective IRR program.  The guidance describes widely accepted best practices in the management of interest rate risk for the benefit of all FICUs.”  Thus, the final rule exempts FICUs of $50 million or less in assets from the requirements of 12 CFR 741.3(b)(5), NCUA’s interest rate risk rule.  The final rule streamlines the tiered system in the interest rate risk rule by simply requiring all FICUs with more than $50 million in assets to adopt an interest rate risk policy and program.  FICUs with $50 million or less in assets are not subject to interest rate risk requirements by regulation, regardless of their first mortgage loans and investment maturities.

Low-income Designation. The NCUA Board also approved a rule to extend the time period in which a federal credit union may accept a low-income designation from 30 days to 90 days.  This rule is also effective 30 days after publication in the Federal Register. §701.34, Designation of low-income status; Acceptance of secondary capital accounts by low-income designated credit unions, is amended to read, “(a) Designation of low-income status. (1) Based on data obtained through examinations, NCUA will notify a federal credit union that it qualifies for designation as a low-income credit union if a majority of its membership qualifies as low-income members.  A federal credit union that wishes to receive the designation must notify NCUA in writing within 90 days of receipt of any NCUA notifications.”

Share Insurance. Technical amendments were made to the NCUA’s rules and regulations to conform with changes made to NCUA’s standard maximum share insurance amount by the Dodd-Frank Act (increased from $100,000 to $250,000) regarding share insurance on various kinds of treasure accounts under §701.37(c).

Troubled Condition. The NCUA adopted a final rule that will amend the definition of “troubled condition.”  Prior to this final rule, only State Supervisory Authorities could make the determination that a federally insured state chartered credit union was in “troubled condition.” Now either NCUA or a State Supervisory Authority is permitted to designate a FISCU in “troubled condition”, “thus expanding NCUA’s opportunity to act preemptively to ensure that the officials who take control of a FISCU in “troubled condition” are qualified to address its troubles. This gives the National Credit Union Share Insurance Fund (NCUSIF) a further measure of protection against the risk of loss.”  The Federal Credit Union Act (the Act) requires a credit union in “troubled condition” to give NCUA notice and an opportunity to disapprove a change of credit union officials.

Should you have any questions or concerns on these or any other compliance issue, please do not hesitate to contact Amy Kleinschmit at akleinschmit@cuad.coop or 701.214.9721.