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On October 19, the NCUA Board unanimously approved adoption of a final rule relating to existing appeals procedures. The final rule, in seeking to enhance due process and align appellate practices with other federal financial regulators, expands the number of supervisory determinations eligible for appeal to the Supervisory Review Committee, adds an additional level of intermediate supervisory review by the Director of Examination & Insurance, and permits direct oral appeals to the NCUA Board. The rule will become effective on January 1, 2018.
The final rule notably expands the volume of appealable material supervisory determinations to include most agency decisions that could “significantly affect” capital, earnings, operating flexibility, or the nature or level of supervisory oversight of a federally-insured credit union (FICU). Examples of significant material determinations could include, but are not limited to composite exam ratings of 3,4, or 5; adequacy of loan-loss reserve provisions, loan and asset classifications; compliance with federal consumer protection laws and regulations; waiver request or application of additional authority; appeal that does not raise a material supervisory determination.
The rule specifically excludes from coverage of a material supervisory determination the following: composite examination rating of 1 or 2, component exam rating unless such rating has a significant adverse effect on the nature or level of supervisory oversight, scope and timing of supervisory contacts, appointment of a conservator or liquidating agent, prompt corrective action decision, enforcement-related actions and decisions, preliminary examination conclusions communicated prior to a final written report, formal and informal rulemakings, FOIA requests, and determinations for which other appeals procedures exist.
Standard of Review
The reviewing authority is tasked with assessing whether a credit union has passed the threshold test for material harm. Where an agency determination is subject to the sole discretion of a program office, however, Administrative Procedure Act appellate procedures would remain intact.
While the proposed rule provided a de novo standard of review for each stage of the SRC process, the final rule clarifies that opting to bypass the optional, intermediate level of review shall not be invoked as a basis to deny an otherwise proper appeal. For most appeals, the administrative record comprises the petitioner credit union and the relevant program office; with a state-chartered (but federally-insured) credit union, documentation may include the relevant state-level authority as well. Intermediate supervisory rulings and transcripts of any oral hearings would also be submitted as part of the administrative record, subject to review by the appellate authority.
Legal opinions are excluded from the record. Bad faith actions such as withholding evidence would be grounds for dismissal at any level of appellate review. Program office level review remains the first avenue of appeal. A determination made by the Director of Examination & Insurance may only be appealed by a FICU (a program office cannot appeal to the Board after such intermediate review.) Appeals to the Supervisory Review Committee (SRC) must be made in writing within 30 calendar days after a final decision is made.
Supervisory Review Committee
THE SRC will comprise a rotating pool of 8 senior staff (excluding Regional Director, Associate Regional Director, Executive Director, Deputy Executive Director, General Counsel, Director of Examination & Insurance, or a senior policy advisor or chief of staff to a Board Member) at NCUA, each with two-year terms, with a reappointment option after the initial two-year term. The Chairman shall be responsible for designating three Committee members from among the pool to hear a particular appeal. In addition to publishing written decisions (as redacted) of the SRC, NCUA shall provide a summary of each appeal as well as the final decision. Rejected appeals, however, need not be published. While the SRC Chair will be authorized to adopt supplemental procedural rules relating to the SRC appeals process, no supplemental rules would be authorized to in any way limit FICU rights under the process.
Appeals to the Board
Appeals of adverse decisions by the SRC must be filed within 30 calendar days. A Board Member must then agree to hear an appeal request within 20 calendar days for the appeal to move forward; if a Board Member does not agree to such a hearing, the appeal would be deemed denied. Appellate requests must include a statement of facts, basis for the material supervisory determination objected, and the alleged error in findings. Appeals documents may be amended or supplemented in writing within 15 calendar days from the date of receipt of the appeal by the Secretary of the Board.
A separate request for an oral hearing is provided in cases where cause can be shown that a written presentation could not adequately convey the concerns at hand. At least one Board Member would need to approve the oral hearing request within 20 days. Should a request for an oral hearing be denied, the Board could still review an appeal based on the written record, provided at least one Board Member agreed to hear the appeal. Oral arguments may be conducted via tele-/video-conference, as well as in person at NCUA HQ.
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