The National Credit Union Administration (NCUA) has proposed new rules that deal with how credit unions handle members’ troubled loans. The new regulations, which have yet to be adopted, stem largely from the economic downturn of recent years, says Michael Carter, director of compliance at the Credit Union Association of New York. During the recession, […]
The National Credit Union Administration (NCUA) has proposed new rules that deal with how credit unions handle members’ troubled loans.
The new regulations, which have yet to be adopted, stem largely from the economic downturn of recent years, says Michael Carter, director of compliance at the Credit Union Association of New York. During the recession, more credit-union members were seeking adjustments to loans because of financial troubles.
Credit unions often have procedures around such adjustments, but the new NCUA proposal will mandate formal, written policies governing how they work, Carter says. Current policies are sometimes more informal.
“It’s something everyone just knows,” Carter says. “We all know that if a member comes in, we’ll work with them. But there is not something in place to say this is how far we’ll go. This is what we’ll do.”
Reaction to the proposal from credit unions has been generally positive, he adds. Some have sought a bit more clarity on some details, but the rules should aid institutions in the long run.
“This is going to be good for credit unions overall,” Carter says. “It is going to give them a standard and it will be something they can work from.”
While the economy has certainly improved from its lowest point, there are still credit-union members seeking loan modifications, Carter says. And if a major crisis does occur again in the future, the new rules will mean credit unions will be better prepared to deal with some of the challenges that come with it.
The proposed rules also change how credit unions will report on troubled loans to the NCUA, says Neil Smith, an attorney with Syracuse–based law firm Mackenzie Hughes, LLP. Current rules require that credit unions report a modified loan under its original terms until a borrower has made six payments under the new terms, Smith explains.
The new rules would allow credit unions to report the loans under the new, modified terms immediately. The move will ease some accounting issues for institutions, Smith notes, since they won’t have to account for loans in multiple ways.
Although the rules haven’t been formally adopted yet, it’s not too early for credit unions to start looking at their policies on troubled-loan arrangements, Smith says. If they don’t have a policy in place yet, they can certainly start formulating one now.
Some items to consider would include how many loan modifications a credit union is willing to take on and what level of risk is involved in adjusting a loan to meet a member’s needs, Smith says.
The NCUA doesn’t have a firm timeline for adopting the new rules, Smith adds. When they go into effect will depend on whether the administration makes any changes to the proposal after reviewing public comments on the plan.
Carter notes that the NCUA has said it will provide for a lengthy implementation period whenever the final rule is issued.