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MCUA Files Letter with the FASB—Credit Loss Proposal Will Hurt Credit Unions

The Missouri Credit Union Association (MCUA) strongly opposes a proposal to change the methodology for recognizing and reporting credit impairment.  In a comment letter filed last week, MCUA urged the Financial Accounting Standards Board (FASB) not to proceed with its proposed accounting standards update.

As noted in the letter, the FASB’s proposal is the most critical regulatory concern credit unions have faced in quite some time, including rules or proposals that have been issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the proposal, covered entities will be expected to estimate the present value of cash flows associated with all loans and other assets that are not expected to be collected over the life of the loan or asset. The reporting entity would consider past events, current conditions, historical loss experiences, the borrower’s credit worthiness, forecasts of expected credit losses, and predictions about the economy. Credit loss reporting would not reflect a worst-case scenario or a best-case scenario and could not be based solely on the most likely outcome, even though financial reporting on that basis seems to be reasonable and rational.