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CUNA urges FASB: leave CUs out of credit loss reporting proposal

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WASHINGTON (8/22/14)--The Credit Union National Association reiterated its "strongest opposition" to a Financial Accounting Standards Board (FASB) proposal involving credit losses in a letter sent to the board today. The letter, signed by CUNA interim President/CEO Bill Hampel, states that the proposed changes are likely to have a "significant detrimental" impact on a number of credit unions and their members.
 
FASB has proposed credit loss reporting changes that would utilize a single "expected loss" measurement for the recognition of credit losses, replacing the multiple existing impairment models in U.S. generally accepted accounting principles that primarily use an "incurred loss" approach.
 
The newest CUNA letter states that, during the height of the financial crisis, credit unions overfunded their provisions for loan and lease losses and maintained their allowance for loan and lead losses (ALLL) in surplus. This caused credit union earnings to be understated during the recession, and overstated more recently as credit unions work down the overfunded allowance amounts. 
 
Hampel expressed his concern that, to the extent the proposal requires higher levels of the ALLL, the distortions would be
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exacerbated.
 
"This unwarranted increase to many credit unions' ALLLs would directly result in a further reduction in their retained earnings, which are already understated under current accounting standards," Hampel wrote. "A decrease in earnings can lead to a reduced capital ratio, which could trigger prompt corrective action (PCA) implications for numerous credit unions that currently do not have PCA concerns."
 
The letter goes on to say that the proposal, if adopted, could further be compounded by the National Credit Union Administration's risk-based capital proposal, which increase minimum risk-based capital ratios for federally insured credit unions with over $50 million in assets. The NCUA is currently revising the rule based on feedback, making its impact unclear.
 
CUNA stressed in the letter, its official comment letter sent in May and in meetings with FASB,  that most credit unions, as not-for-profit, member-owned cooperatives, may only build net worth through retained earnings under the Federal Credit Act. This makes it more difficult for them to build capital.
 
The letter comes on the heels of an Aug. 15  New York Times  article that indicates FASB could adopt the proposal soon.
 
When available, the letter will be posted on CUNA's comment letters page. Use the resource link to access the page.

CUs part of CFPB's eClosings pilot program

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WASHINGTON (8/22/14)--Two credit unions have been selected as participants for the Consumer Financial Protection Bureau's (CFPB) mortgage eClosing pilot program.

BECU, Tukwila, Wash., with $12.6 billion in assets, and Mountain America CU, West Jordan, Utah, with $3.8 billion in assets, will participate in the three-month program, slated to begin later this year.

The program is designed to explore how the increased use of technology during the mortgage closing process could affect consumer understanding and engagement.

"We believe that eClosings have the potential to create a better process for everyone involved. This eClosing pilot project will provide valuable insight as we work to improve the closing experience for consumers," said CFPB Director Richard Cordray.

The pilot project is a follow-up to a report released in April by the CFPB that outlined areas of difficulty in the closing process, and offered a vision for how electronic closings could help mitigate some areas. The project will study ways eClosings can enable consumer understanding, make processes more efficient and incentivize consumer engagement.

In addition to the two credit unions, two banks, three mortgage companies and five technology vendors that provide eClosing services will participate.

According to the bureau, the eClosing pilot program is not part of a rulemaking process, but is designed to identify best practices in the marketplace.

Use the resource link below to access guidelines for the program.