Compliance Blog

Happy Friday, compliance friends! We made it through another week. Take a deep breath and enjoy this fairly short blog.

Two weeks ago (I think it’s been two weeks; these days are a blur) we blogged on the interagency statement on loan modifications and TDR reporting. On Tuesday, federal agencies, including the NCUA, published a revised statement, rendering the previous statement inactive. Luckily, this statement does not completely change the guidance previously issued, but rather clarifies a few issues.

This revised interagency statement clarifies the interaction between the March 22nd interagency statement and section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),  regarding temporary relief from troubled debt restructurings (TDRs), and added guidance regarding the agencies’ views on consumer protection considerations.

Troubled Debt Restructurings

Under section 4013 of the CARES Act, a credit union may elect to suspend TDR requirements under U.S. generally accepted accounting principles (GAAP) for loan modifications related to the coronavirus pandemic and suspend any such determination regarding loans modified as a result of the effects of the coronavirus during the applicable period.

To suspend TDR determinations and requirements under GAAP and consider a loan modification a “section 4013 loan”, the modification must be:

(1) related to COVID-19;

(2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and

(3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020 (applicable period).

The guidance clarifies that credit unions do not have to report section 4013 loans as TDRs on regulatory reports, but should still maintain records to identify section 4013 loans. For loan modifications that are not classified as section 4013 loans, credit unions should conduct an analysis to determine whether these loans would be considered TDRs. As explained in our previous blog post, not all loan modifications will result in TDRs, and credit unions making this determination should review all the terms and conditions of the modification and consult with their accountants for assistance.

Consumer Protection Considerations

The revised interagency statement went on to add considerations surrounding consumer protection in a new subsection entitled “Working with Customers: Consumer Protection Considerations.” The guidance emphasizes that although lenders should work with members to improve their financial stability during this pandemic, “lenders and servicers should adhere to consumer protection requirements, including fair lending laws, to provide the opportunity for all borrowers to benefit from these arrangements.”

The statement also emphasizes that supervising agencies- including NCUA- will consider credit unions’ efforts to adopt to the current crisis, help members, and follow consumer compliance rules. Supervisory efforts will focus on identifying and correcting deficiencies and ensuring remedies for members, where necessary. The guidance adds: “the agencies do not expect to take a consumer compliance public enforcement action against an institution, provided that the circumstances were related to the National Emergency and that the institution made good faith efforts to support borrowers and comply with the consumer protection requirements, as well as responded to any needed corrective action.” This offers a glimmer of hope that examiners may not attempt to take serious supervisory action against credit unions attempting to help their members.

We have seen credit unions performing a balancing act that includes: keeping their employees safe, making loan modifications that increase the chances of members keeping their businesses and homes, maintaining safety and soundness policies, complying with consumer protection and fair lending laws, and more. Regulators will keep these efforts in mind as they examine credit unions and issue further guidance.

For more information on the pandemic and how its affecting the credit union industry, check out NAFCU’s Coronavirus page, which is updated regularly with blogs, FAQs, and other important information.