Compliance Blog

Written by Alexander Monterrubio, Regulatory Affairs Counsel

Happy Monday! Now that you've had just enough time to read my extra-long blog post from September on the Military Lending Act (MLA) Brandy graciously agreed to let me commandeer the blog under the strict instruction to be brief.

Last week, the Financial Standards Accounting Board (FASB) held a meeting to vote on an effective date for its long-deliberated Current Expected Credit Loss (CECL) model. Under CECL, the allowance for loan and lease losses (ALLL) would reflect the credit union's current estimate of the contractual cash flows that it doesn't expect to collect. This estimate would be based on management's expectations after considering past events, current conditions, and reasonable and supportable forecasts. In other words...

After weighing a number of alternatives, the FASB voted to adopt a staggered implementation of the CECL model. For credit unions, the implementation date is December 15, 2019.

The FASB separated entities into three groups: 1) Public Business Entities (PBEs) that are Securities and Exchange Commission (SEC) Filers; 2) PBEs that are not SEC Filers; and 3) Non-Public Business Organizations (including credit unions). Each group was assigned a separate effective date for adopting the CECL model:

• PBEs that are SEC Filers: fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
• PBEs that are not SEC Filers: fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
• Non-Public Business Organizations: fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

The board also voted to allow early application of the standard for all entities after the first effective date of December 15, 2018.

NAFCU has taken every opportunity to communicate credit union objections to the proposed accounting standard, beginning with its May 2013 official comment letter to the FASB. In this letter, NAFCU insisted that the CECL model would have a uniquely negative impact on the credit union industry [and] credit unions should not be subject to this rule. These concerns were reiterated within NAFCU's comment letters in response to NCUA's second Risk-Based Capital proposal and again during NCUA's 2015 Regulatory Review.

In August, NAFCU organized a conference call between the FASB staff and several credit union representatives in order to press credit union questions, concerns, and recommendations, including the adoption of a delayed effective date for credit unions. It should be noted that a delayed effective date for some entities was ultimately recommended by the FASB staff and subsequently adopted by the Board.

FASB is expected to finalize its credit losses project during the first quarter of 2016.

Stay tuned for more developments!

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NCUA Board Meeting Agenda

In the NCUA's Board meeting later this week, the Board will consider the following matters: 1) Corporate Stabilization Fund Quarterly Report; 2) 2016/2017 Annual Performance Plan; 3) Proposed Rule, Appendix B of Part 701, Chartering and Fields of Membership; 4) NCUA's 2016/2017 Operating Budget and 2016/2017 Corporate Stabilization Fund Oversight Budget; 5) 2016 Overhead Transfer Rate; and 7) 2016 Operating Fee Assessment Scale.

NAFCU's compliance team will be sure to more thoroughly blog about these issues in the near future. NCUA's agenda can be found here.