NCUA's Enforcement Options and Philosophy

Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

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Hello, this is Samantha Shares. This episode covers N C U A’s Enforcement Action Philosophy per its redacted Enforcement Manual.

The following is an audio version of that advisory and the press release. This podcast is educational and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated, whose team has over two hundred and Forty years of National Credit Union Administration experience. We assist our clients with N C U A so they save time and money. If you are worried about a recent, upcoming or in process N C U A examination, reach out to learn how they can assist at Mark Treichel DOT COM. Also check out our other podcast called With Flying Colors where we provide tips on how to achieve success with N C U A.

And now the N C U A’s enforcement philosophy and enforcement alternatives.

What is the agency's philosophy on enforcement actions?

N C U A must deal with a credit union's problems before they become fatal. Success requires appropriate action and timing. It also requires clear communications between N C U A and the credit union's senior management and board of directors. Enforcement actions focus special attention on the problems or weaknesses and prompts corrections by credit union officials and management. Once N C U A staff identifies and communicates problems or weaknesses to the credit union, senior management and the board of directors are to correct them promptly.

The examination report is the first step in determining if an enforcement action is necessary. The actions a credit union takes or agrees to take in response to the examination report will help determine whether to take enforcement action and if so, what type.

Enforcement actions may be taken as a result of findings in an examination report or other supervision contact. Field staff need not wait for the completion of the formal examination or follow-up examination report to initiate these actions.

This manual provides guidance in selecting the action or combination of actions best suited to accomplish corrective or remedial measures. The manual also promotes consistency while preserving flexibility for specific circumstances. N C U A's long-term supervision strategy takes into consideration not only the measures needed to address the credit union's problems currently but also what measures will be needed in the future if the credit union's problems develop into serious supervisory issues threatening viability.

Certain types of enforcement action may also provide better transitions to more severe supervisory responses later if the condition of the credit union warrants. This manual provides guidance on the long-term strategy aspects of documentation for enforcement actions. The documentation of earlier enforcement actions, of failure to comply, and of the consequences for the credit union of that failure is an important part of establishing the record for more severe subsequent action.

1. What enforcement actions are available?

Enforcement actions fall into two broad categories: informal and formal.

a. Informal enforcement actions

Use Informal enforcement actions when a credit union's overall condition is sound, but written commitments from the board of directors is needed to ensure that it will correct problems and weaknesses identified by N C U A staff. These enforcement actions provide a credit union with more explicit guidance and direction than is normally contained in an examination report. Agreement to an informal action is evidence of the board's commitment to correct problems before they hurt the credit union's performance or cause further decline in its financial condition.

Regional directors (RD) are delegated the authority to issue informal enforcement actions. Informal enforcement actions are:

► Regional director letters.

► Non-published letter of understanding and agreement.

► Establishment of special reserves

► Preliminary warning letters.

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b. Formal enforcement actions

The N C U A may use a wide variety of formal enforcement actions to support its supervisory objectives. Unlike most informal actions, formal enforcement actions are authorized by statute (mandated in some cases), are generally more severe, and are disclosed to the public. Also, formal actions are enforceable through other formal enforcement actions, such as the assessment of civil money penalties, and

may require litigation before an administrative law judge or a federal district court. Formal actions against a credit union are:

► Published letters of understanding and agreement.

► Cease and desist orders.

► Civil money penalties.

► Prompt Corrective Action (PCA) directives.

► Termination of insurance.

► Conservatorship.

► Liquidation.

2. How do I determine the appropriate type of enforcement actions to use?

Tailor the enforcement action to the institution. Design an action to correct deficiencies and return the credit union to a safe and sound condition as soon as possible. Normally start with the lowest level of enforcement needed to correct the credit union's problems. Enforcement actions normally rise from informal to formal as the administrative record develops, but you may start with formal actions.

Determining the appropriate informal or formal action depends on:

► The overall condition of the credit union (both current and projected).

► The severity of the credit union's weaknesses.

► Whether the board and management demonstrate the commitment and ability to correct the weaknesses.

► The existence of previously identified but unaddressed weaknesses.

► The credit union's composite CAMEL rating.

If a credit union fails to comply with an informal enforcement action within the specified time and doesn't justify the delay, promptly proceed with a formal enforcement action.

If a credit union fails to comply with a formal enforcement action, use even stronger actions, such as:

► Assessing civil money penalties against the board of directors and credit union management.

► Enforcing the action in federal court.

► Starting a new enforcement action such as...