Removing Barriers Blog

Unpacking the CUNA/League Effort to Secure Flexibility for Pandemic-Induced PCA Challenges
Posted April 08, 2021 by CUNA Advocacy

By Ryan Donovan, Chief Advocacy Officer 

For the last 13 months, CUNA/League advocacy has been focused on ensuring that policy supported credit union member service during and after the COVID-19 pandemic, and we saw success in many areas including provisions related to troubled debt restructuring, expanded CLF authorities, and authorizing credit unions to lend through the Paycheck Protection Program.  These efforts garnered a great deal of the headline exposure over the last year, and they have had significant impact on credit unions’ ability to improve their members financial well-being during this unprecedented crisis. 

But there were several efforts which didn’t get as much attention, like the work CUNA and the Leagues have done together, largely behind the scenes, to encourage NCUA to provide flexibility for credit unions impacted by pandemic related growth. 

COVID-19 Economic Impact Put Downward Pressure on Credit Union Capital 
We all know that the economic consequences of the pandemic have had an impact on credit unions and their members, and there is significant anxiety that the downward pressure on credit union capital will continue into 2021. 

In 2020, 95% of credit unions reported asset increases; the median asset growth for all credit unions was 14.3% during the year. 91% of credit unions reported a decline in their net worth ratio; the median decline was 108 basis points. The median credit union net worth ratio nationally fell from 12.0% to 10.9%.  Even still, 99.3% of credit union assets remain in credit unions with net worth above 7% at the end of 2020, which is nearly unchanged from the 99.7% level at the start of the year.  

NCUA Provided Temporary Relief, but Allowed it to Expire 
Even though the number of credit unions that have dropped below 7% remains extraordinarily small, the adverse impact of the crisis on credit union financials speak clearly to the need to advocate for flexibility related to prompt corrective action requirements.  We have known this was possible from the beginning of the crisis, which is why, CUNA and the leagues have engaged NCUA and Congress to encourage as much flexibility as possible for otherwise healthy credit unions approaching 7% net worth as a direct result of the pandemic. These efforts included countless meetings conducted with NCUA and Hill staff, at least six letters to the agency and the Hill, and the development of a potential legislative remedy. 

As a result of our efforts, in May 2020, NCUA also approved an interim final rule that provided relief related to PCA by: (1) permitting the NCUA Board to temporarily waive the earnings retention requirement for adequately capitalized credit unions, and (2) allowing certain credit unions to submit simplified net worth restoration plans.  

In July 2020, NCUA updated supervisory guidance issued that reflected the economic conditions resulting from the COVID-19 pandemic. The revised priorities directed NCUA staff to focus examination activities on areas posing elevated risk to the credit union industry and the National Credit Union Share Insurance Fund given the disrupted environment. Further, the guidance suggested staff provide credit unions flexibility where appropriate during routine examinations. 

These steps were helpful but, sadly, NCUA allowed the interim final rule to expire at the end of the year. 

CUNA and the Leagues Renew the Push for PCA Flexibility 
Expiration of the interim final rule and the implementation of additional economic impact payments alarmed us.  When NCUA did not extend flexibility at their January or February board meetings, we encouraged credit union advocates at the CUNA GAC to discuss with lawmakers and regulators the impact COVID-19 and economic impact payments were having on their credit union and members. We were heartened to hear several lawmakers – including committee leadership – tell credit unions and leagues that they will encourage NCUA to renew the temporary flexibility provided in 2020.   

In follow-up to the GAC effort, CUNA and all of the state credit union leagues wrote NCUA Chairman Harper to encourage renewal of the interim final rule and expansion of the accommodations the agency has provided. To highlight the urgency of this matter, CUNA’s Small Credit Union Committee met with NCUA Chairman Harper this week to discuss this and other issues.  Jim Nussle and senior CUNA staff also met with the Chairman and Vice Chairman Hauptman to push the matter as well.  And, CUNA and California League staff will be meeting with House Financial Services Committee staff to address the matter. 

Thankfully, Chairman Harper recently indicated the agency will soon take action to reinstitute capital relief.  In the next few weeks, we expect to learn more about what NCUA is willing and able to do to provide flexibility to credit unions.  It’s not clear whether they will simply extend the previous temporary rule or whether they will expand that flexibility to include suggestions that CUNA and the leagues made in March.   

Where do we go from here? 
Whatever steps NCUA takes now will help in the short-term, but in the long-term the constrictive statutory capital requirements hamstring the agency from nimbly responding to crisis-induced capital challenges.  This is why, true to our 360-degree advocacy strategy, we haven’t focused our efforts solely on the NCUA.   

In July 2020, we sent legislative language to then-Senate Banking Committee Chairman Mike Crapo and current Chairman Sherrod Brown outlining statutory changes that would help NCUA go even further to accommodate credit unions. This language was developed largely based on legislation introduced in the aftermath of Hurricane Katrina, which illustrates the fact that there is a structural flaw in the Federal Credit Union Act that needs to be addressed. 

Even though we pressed hard, together with the Northwest Credit Union Association and other leagues, Congress chose not to include a substantial banking title in the Consolidated Appropriations Act of 2021, and our language did not advance. 

Coming out of this crisis, Congress and the administration will surely look closely at how policy was adjusted to help regulated entities navigate the challenges they faced. There are a lot of lessons to be learned here, and hopefully opportunity to put in place some flexibility for the agency and credit unions to navigate future crisis.  In the meantime, we will continue our efforts to get NCUA to do everything they can to help credit unions facing pandemic-induced PCA challenges and work with Congress to provide additional accommodations as appropriate. 

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