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NCUA Proposal On Troubled Condition Designation for State CUs

The Credit Union National Association (CUNA) feels the National Credit Union Administration's (NCUA) proposal that would allow it to designate a state credit union as a CAMEL 4 or 5, and in “troubled condition”  even if the state regulator does not agree is ill-conceived, unjustified and will not significantly further any material safety and soundness goals. That is what CUNA's letter filed on September 28, 2012 said. 

Moreover, CUNA opposed the proposal because it is inconsistent with the Federal Credit Union Act (FCU Act) and Executive Order No. 12612; the agency has not provided sufficient information to justify the need for the proposal; and, it would undermine the credit union dual chartering system.

As stated in its letter, a key consequence of being designated “troubled condition” is that the affected credit union must comply with NCUA’s regulatory provisions regarding changes in officials; this rule allows NCUA to disapprove of new board members and other senior personnel at an affected credit union. However, the agency has additional significant powers to remove or suspend officials and to issue cease and desist orders under 12 U.S.C. 1786, including for state credit unions. These processes for removal, suspension or issuing cease and desist orders seem to afford the officials and the credit unions involved more due process than the agency’s process for disapproving officials.  

Also, under NCUA’s prompt corrective action regulation, the agency has discretionary supervisory authority to dismiss officers and directors for credit unions that are categorized as no more than undercapitalized.  While not all credit unions that would be considered “troubled condition” may have net worth levels no better than undercapitalized, many if not most of them likely would.

“NCUA has operated successfully and does so now without this intrusion on state regulators’ authority," says Bill Cheney, president/CEO of CUNA.  "Moreover, the credit union system is performing very well, particularly in light of the continued weaknesses in the economy. The reality of credit unions’ financial performance undermines the need for any additional safety and soundness rules at this time, including this one."