Regulatory Relief Priorities

Small Credit Unions are in Danger of Extinction

Reduced regulatory burdens will lower our compliance costs, improve operational efficiency, and allow us to better focus on serving members who need it most, for generations to come. Some areas for which we are advocating for regulatory relief are as follows (with further details linked lower on this page):

Target Audience: Congress (Click the heading of each, for further details and examples)

These priorities involve changes to federal statutes or rules set by agencies like FinCEN, CFPB, or under laws such as the Bank Secrecy Act, Home Mortgage Disclosure Act, SAFE Act, Dodd-Frank Act, and Truth in Lending Act. Advocating to Congress is most effective for legislative amendments to thresholds, exemptions, or requirements, particularly for small credit unions under $500 million in assets, which face disproportionate compliance costs relative to their size and risk profile 

• BSA Compliance: Increase the CTR reporting threshold (set by BSA statute and FinCEN authority, small credit unions under $500 million in assets bear high costs for low-volume transactions).

• HMDA Reporting: Exempt small credit unions and revert to the 500 mortgages-per-year threshold (thresholds amended by Congress via EGRRCPA; CFPB implements; this would relieve burdens on small credit unions under $500 million, as emphasized in the 2018 EGRRCPA, which exempted institutions with under 500 originations to reduce reporting for low-volume lenders).

• NMLS: Reduce tracking and reporting requirements for small credit unions (rooted in SAFE Act passed by Congress; CFPB/NCUA enforce; disproportionately affects small credit unions under $500 million offering low-volume mortgages, as highlighted in NAFCU's regulatory relief activity pushing for exemptions in bills like the TAILOR Act).

• Qualified Mortgage (Price Controls): Exempt small credit unions from mortgage rate pricing controls under Regulation Z, HOEPA, or CFPB rules (established by Dodd-Frank Act; small credit unions under $500 million struggle with complex pricing for modest-risk loans).

• Mortgage Escrow: Exempt small credit unions from escrow requirements (part of TILA/Regulation Z, amended by Congress; eases complexity for small credit unions under $500 million).

Target Audience: NCUA & DFI  (Click the heading of each, for further details and examples)

These priorities relate to NCUA-specific regulations, examination practices, and enforcement policies under the Federal Credit Union Act and NCUA rules (e.g., Parts 713, 715, 722, 741). Lobbying the NCUA Board for small credit unions under $500 million in assets, which represent minimal risk to the NCUSIF but face outsized burdens.

• CECL: Increase the compliance exemption threshold from $10 million to $500 million in assets (NCUA sets and enforces exemptions). We appreciate the "in-house" model NCUA developed for CUs under $100 million, but full exemption is warranted.

• Punitive & Irrelevant Documents of Resolution: Limit DOR issuance to specific serious cases (reduces conflict for small credit unions under $500 million, aligned with NCUA's Regulatory Modernization Initiative for less burdensome oversight).  IE: To cases where: (1) the CEO refuses compliance; (2) findings persist from prior exams; (3) issues pose immediate and significant safety risks; or (4) trust in management is lacking (requiring board involvement). 

• Reduced Examination Burden: Shorten exams, reduce frequency, and focus on safety/soundness for small credit unions (DFI conducts exams for state-chartered CUs; coordinates with NCUA; minimizes strain on small credit unions under $500 million posing minimal risk). 

  1. (*Progress being made: Doug offered concrete input  to NCUA Chairman Kyle Hauptman in person, and in the NCUA Town Hall in in 2025) 

• Troubled Debt Reporting: Small CUs under $500 million in assets, face significant regulatory burdens from Troubled Debt Restructuring TDR/(MBEFD framework under CECL and FASB ASU 2022-02.   These obligations create barriers to serving members by discouraging loan modifications for those in financial hardship, as many small credit unions, like mine, simply avoid them to evade the extra reporting and risks of regulatory scrutiny.  We urge regulators to grant an exemption from MBEFD/TDR reporting for credit unions under $500 million, allowing us to focus on flexible, member-centered lending without unnecessary administrative hurdles.

• ALM/Rate Shocks: Eliminate requirements for income simulations or NEV analysis for small credit unions; accept simple GAP Analysis ( simplifies processes for small credit unions under $500 million).

• Over-Compliance Pressure: Reduce examiners' push for "best practices" beyond basic regulations (NCUA examiner guidance and practices; allows flexibility for small credit unions under $500 million, as advocated in NCUA's three-year regulatory review cycles).  Direct examiners to prioritize safety/soundness regulations, allowing flexible, in-house compliance for lower-risk areas and de-emphasizing minor issues.

• Reduce Supervisory Volunteer Expectations: Lower pressure on unpaid volunteers beyond simple tasks (NCUA sets expectations for supervisory committees; eases retention issues for small credit unions under $500 million).

• Bi-Annual Account Verification Audit & Reconciliation*: Eliminate as redundant (required under NCUA supervisory committee rules; redundant for small credit unions under $500 million with modern fraud prevention).     

  1. (*Due to our ESCUD advocacy efforts, this was partially solved and addressed after our input, as part of the NCUA Reg Relief proposals - December 2025)

• NACHA Audit: Eliminate annual audit requirement as redundant (enforced by NCUA examination procedures; unnecessary for small credit unions under $500 million using automated systems).

• NACHA Fraud Monitoring: New regulations (effective March 2026) are requiring complex new auditing of ACH transactions, likely requiring expensive 3rd parties, which small CUs may not be able to reasonably afford. Small credit union ACH volume is low, and they should be exempt from these burdensome new regulations, or at least allowed to handle fraud as they have in the past, as justified by their ability (which has been sufficient). 

• Bond Insurance Board Signatures: Eliminate new regulatory hoops for bond renewal (adopted by NCUA in Part 713; reduces paperwork for small credit unions under $500 million).

• Eliminate “Private” Supervisory Interviews: Include CEO in meetings with Supervisory Committees (NCUA examination practices; prevents misunderstandings in small credit unions under $500 million, per NCUA's supervisory letters).

• Duplication of BSA Audits: Our CPA AUP Supervisory Audits already do a full BSA audit every 18 months, why does the NCUA have to re-hash the entire/exact thing?

• Double-Duty of Examiners state/federal: For state credit unions, does the NCUA really need to come to the entire audit? This sometimes results in 5-10 examiners at a tiny credit unions, for weeks at a time, effectively crippling their ability to do business.  Is that necessary? Is it good use of NCUA resources (limited budgeting and staffing)?

• Reduced Exam Prep Lists: Prior to exams, small credit unions are asked to fill out pages and pages of checklists, with hundreds of obscure regulatory items that usually don't even pertain to small credit unions (completely irrelevant). In addition, small CUs are supposed to provide (upload), exhaustive lists of documents and verifications, often for items the examiner may not even bother looking at (or they they request again because they didn't look). Who does all this work - the highest paid employee, the CEO (pulling them away from running the credit union for multiple days, before the exam even starts). We request a shortened list for small CUs, pertaining to areas of high significance that are relevant for small CUs.  

• Document Retention: What a nightmare, and not just because of the space savings and cost (boxes and boxes of 50 year old statements and microfiche and closed loans), but the rules are confusing and ambiguous. Some added simplicity, clarity and relief in this area would be very welcome.

Are there other burdensome regulations, which seem to have little or no impact on your safety or soundness?  Let us know!

Additional details on each regulatory relief priority is listed below:

• BSA Compliance: 

Increase the CTR reporting threshold (set by BSA statute and FinCEN authority, small credit unions under $500 million in assets bear high costs for low-volume transactions).

The $10k amount for filing Currency Transaction Reports (CTR) hasn't changed in 15 years, although with inflation it should be about $20,000 now.  Every year the relative amount is smaller, and we do more of them.  Small credit unions spend hundreds of hours filing these, every year, and each one is a lengthy form that must be exactly completed in every aspect, within a 15-day timelines, or you risk serious repercussions from the examiners.   Plus, we are required to provide BSA training for all our volunteer board and supervisory committee every year... but how useful is that training? Do our officials retain any of that information, or is there any chance they will *ever* need to?  We already hire an independent CPA to do a BSA audit every year, why is this duplicated by the NCUA, with a continuous severe emphasis resulting in DORs?  Responding to this pressure, even simple official training is being outsourced at small credit unions, at significant expense.

• CEO D Feedback:  Totally agree with this! That CTR limit should be raised. I only have 1 back-office employee and she spends a lot of time on these. She’s got a million other duties, so raising the limit would help lessen the burden of so many CTR’s to file. BSA training for the Board and Supervisory Committee is a waste of time. They do not retain it, nor do they ever use it, since they are not working in the CU on a daily basis.  We have to hire a CPA to do the BSA audit annually, because the Supervisory Comm doesn’t really know what to look for anyway.

• HMDA Reporting: 

Exempt small credit unions and revert to the 500 mortgages-per-year threshold (thresholds amended by Congress via EGRRCPA; CFPB implements; this would relieve burdens on small credit unions under $500 million, as emphasized in the 2018 EGRRCPA, which exempted institutions with under 500 originations to reduce reporting for low-volume lenders).

• CEO Feedback Summary (Doug Wadsworth): Despite my very small size, I am now required to do perform HMDA tracking and reporting every year, this is an enormous, complicated and expensive time-waster.  The minimum required number of mortgages or home equity loans per year used to be 500, then it dropped to 100, then just last year, to 25.  We are tiny, we book all our mortgage or home equity loans in-house (we don’t do anything with the secondary market), yet, we have a HMDA reporting burden… and most of it requires manual entry (as we can’t afford the fancy automated software tracking tools).  Why did the number of mortgages  necessitating reporting drop from 500, down to 25 in the past few years? Are they *trying* to put tiny credit unions out of business?

Summary: The Home Mortgage Disclosure Act (HMDA) reporting threshold requirements have been radically reduced in the past few years, and is now so low that even tiny credit unions are required to comply with this onerous reporting burden, even if they only finance a couple dozen tiny home equity loans in a year (rarely even an actual mortgage).  Not only is the gathering and reporting of this data excessively burdensome and costly to small credit unions, but the tiny amount of data being gathered is insignificant and immaterial to the collecting agencies.  Severely burdensome and costly reporting requirements like this are destroying the long-term viability of small credit unions.

Proposal: I request the HMDA Reporting threshold for Loan-Volume be increased back to the levels that existed prior to 2021, namely: Only if the institution originated more than 500 closed-end mortgage loans in each of the two preceding calendar years.

Background: I recognize that collecting large amounts of housing data from large institutions is valuable for detecting economic trends and illegal discrimination.  However, the thresholds for reporting has recently become so low, it is suffocating small credit unions without providing significant amounts of data to be of any material value to the agencies.

The determination of whether an federally regulated institution is subject to these reporting rules is subject to 4 factors: The asset size (about $50M), whether it is located inside an MSA (Metropolitan Statistical Area), whether they have done a single home purchase loan in the previous year (yes, just 1), and the Loan-Volume threshold (in each of the preceding two years).

However, this Loan-Volume threshold isn’t just based on the number of actual home ‘first” mortgages, rather it includes any tiny home equity loan secured by a deed of trust (even tiny $5,000 home improvement equity loans). 

Prior to 2021, the Loan-Volume threshold for these “mortgages” was 500, then a couple years later it dropped to 200, then down 100, and finally in 2023 it dropped to only 25 loans! If a tiny credit union does 25 tiny home equity loans and a single home loan purchase per year, they are now subject to HMDA reporting!  Such small numbers of tiny loans, by tiny institutions… this data cannot provide any significant or material value to the agencies collecting it, while suffocating small credit unions. 

Reporting Burden: The HMDA requirements are the most burdensome and costly reporting burden confronting our entire credit union, likely even higher than the Bank Secrecy Act itself.  First, it requires a special LEI identifying code purchased from Bloomberg Financial (which is only needed for HMDA reporting), which needs to be renewed at an additional expense every year.  In addition there is a complicated Login.Gov FFIEC reporting portal that requires a complicated registration process to maintain HMDA reporting (of course, being built by the government, it is non-intuitive, redundant and slow), which takes several days to arrange, as well. Then, the process of reporting requires many hours of data testing and formatting with their special LAR File tool, which we have to download, and follow a complicated process which I have to “re-learn” every year (since we only use it once per year).  Prior to the actual reporting we have to collect mass amounts of data on *EVERY SINGLE* person who applies for any type of home equity loan (2nd), or mortgage refinance, or home purchase.  Pages of data that collected and then input manually by an employee, as well as manually keying in the exact address on a special website to search for the census tract, which changes every year, to input into a system as well. We have to guess their gender and nationality, and race, in multiple ways, with dozens of complicated definitions with tricky interactions required, which then generates a 100-page error report from our data system, from which nearly every application needs multiple MANUALLY entered data corrections, until our data is even ready for the “LAR File formatting tool.” 

If I had to estimate, I would say that despite our tiny credit union size, small number of “eligible” loans, and a mortgage department staff of only a SINGLE employee, HMDA probably costs us 100 hours per year.

Case Study: My credit union is only about $73M in Assets, and we operate out of a single small office building, with only 14 employees (including myself).  We cannot afford expensive special mortgage software websites or data filtering systems for our small volume and size, we cannot even reasonably afford to abide by secondary market standards, so we book everything “in-house,” with manual entry data entry processes by our tiny mortgage department.  Regardless, even if we only originated a *single* mortgage home purchase in the previous year and only a couple dozen small $5,000 HVAC home equity loans in each of the preceding two years… we are subject to HMDA Reporting.  We would then be required to spend a hundred hours per year trying to comply with this burdensome reporting requirement, instead of using our small number of employees to actually serve our members, and stay profitable and healthy.

Partial Exemption Note: It might be argued that since our loan-volume threshold is still under 500, we are at least eligible for the “partial exemption” of data reporting, which slightly reduces the number of data points requiring collection.  However… the data points still required represent the bulk of the reporting anyway, so we are only “exempt” from 10% of the burden, which is a nearly insignificant exemption.

The Net Effect: Small credit unions provide a valuable financial service to their membership, often offering more flexible loan solutions than large institutions, to people who would not qualify at large institutions due to poor credit or unique situations.  Small credit unions also typically offer “in-house” financing (mortgages not sold on the secondary market), which many people value, and which provides competition in the marketplace (helping everyone).

Small credit unions faced with HMDA reporting will either be discouraged from entering the home or mortgage marketplace altogether (to avoid the costly reporting burden), or will comply with the reporting burden and then struggle to remain profitable. 

Either result leads to fewer options for our members, as well as the eventual irrelevance or demise of small credit unions, as we are merged into larger organizations… leaving those people of modest means, underserved again.  

Please, increase the Loan-Volume Threshold of small credit unions back to 500, where it was prior to 2021, so that small credit unions like mine can afford to compete in the marketplace, and so we can provide valuable and flexible home loan options to our members.

• NMLS: 

Reduce tracking and reporting requirements for small credit unions (rooted in SAFE Act passed by Congress; CFPB/NCUA enforce; disproportionately affects small credit unions under $500 million offering low-volume mortgages, as highlighted in NAFCU's regulatory relief activity pushing for exemptions in bills like the TAILOR Act).

The National Mortgage Registry… Possibly the most complicated, non-intuitive, labor-intensive, time-wasting website ever created in bureaucrat history.  It requires CU employee who even *talks* about a home equity loan, to go through this highly complex registration process with this national system, pay a fee to enroll, fingerprints, and then annual renewal, plus annual renewal expense of institution.  Their website is impossible to navigate the website every visit requires a call for technical support, (they keep publishing instruction BOOKS, that don’t help).  In addition, regulations require every single document, through every stage of the mortgage lending process, to have the unique NMLS number of each different employee and the institution, and it is particularly challenging (at a small CU) to configure different loan systems and documents types to pull this information in, and of course it is something that the NCUA examiners militantly examine, and threaten DORs on in case there is one in 20 documents that somehow there was a computer bug with… And honestly, has any person in history ever received any value from this?  How many mortgage applicants “look up” that NMLS number after they come apply at a small Credit Union?  This regulation originated with some CYA politician who wanted their name on a piece of legislation, so they would look good to their voters after the 2008 housing crash.  IE: A solution, without a problem.

CEO A Feedback: This one is extremely frustrating! We don’t even offer mortgages in-house, but have to have this NMLS # to even talk to Members about how our mortgage process with our 3rd party works. Currently I’m the only one with a NMLS # and have been trying for the past YEAR to get 2 of my staff registered! They’ve [NMLS] lost the applications one time, lost fingerprints another time, and we’ve gone through the entire process, 3 times so far. It takes time (my staff have to be given time off to go get their fingerprints, which is not local) and we’ve paid the application fee 3 times now too! And they still don’t have their NMLS #’s!!

Proposal: Exempt any small federal credit unions (under $500M in Assets) from needing to comply with the regulations or register their institutions or employees with the NMLS (The Nationwide Mortgage Licensing System & Registry). 

Background: As a knee-jerk political reaction to the 2008 housing crash, the NMLS was created… a nationwide registration system to track/detect fly-by-night individuals engaged in fraudulent mortgages. However, the 2008 Housing Crash was caused by giant banks doing millions of subprime mortgages then bundling them into risky mortgage-backed security investments to sell. The Crash had *nothing* to do with crooked fraudulent independent mortgage lenders who needed to be tracked with a registry.  The NMLS was a very costly solution in need of a problem!  Has this entire expensive regulatory registry served any significant purpose, for anyone? 

Since the inception of the NMLS, I would challenge whether any mortgage applicant in the last 17 years has *ever* looked up a Mortgage Loan Officer’s NMLS number in the process of applying for a mortgage and even if a microscopically small number of people have, that they have realized any benefit from doing so.  Despite the non-existent value this NMLS Registry gives to consumers, it represents millions of hours of wasted time and money by all the financial institutions in the nation, not to mention the thousands of hours spent by examiners ensuring compliance.  The most egregious impact of this regulation, is the costly burden on small credit unions.  

Despite the absence of any significant consumer benefit, all small credit unions that even *discuss* a mortgage or home equity loan with a single member, are required by this regulation to do the following:

1.      Register their institution and relevant employees with the NMLS… but you can’t just do this online… rather, each employee must set appointments and go to law enforcement to get fingerprinted, and then pay a fee, and then another half dozen burdensome online steps to properly link them to the financial institution (back and forth).  Every year thereafter, financial institutions must log in again (once per year), and of course the password has expired every time (because that is the only time we login), and then we must pay annual fees for the institution and individual registered employees all over again.

2.      It should be noted, the NMLS website and registration or renewal process is the most non-intuitive, difficult and confusing website and process I have ever encountered In. My. Entire. Life.   I have been a successful CEO for 17 years, I have a business degree, I am pretty tech savvy…. it doesn’t matter, I have to call their support line to walk me through the insanely confusing maze of steps on their confusing website every single time, just to do a standard annual renewal.  Also, it requires some complicated special 3rd party “VIP ACCESS” password verification, and have to call them directly and reassign any time you get a new computer, which takes hours. And then, consider how much tax money has been wasted by the NMLS trying to compensate for their horrible website, by writing “help guides” (entire books)?  The website and entire registration process should be scrapped, or at least redesigned by an actual for-profit business that knows how to make processes simple and intuitive.

3.      Then every financial institution must ensure that each of the dozens of mortgage documents related to these loans, have the special institution and employee NMLS number listed (which changes by the employee, since different employees handle applicants through the process). These different credit union loan documents aren’t in one place, they are sometimes generated between a combination of paper, electronic and automated systems through multiple steps on different days. We aren’t just talking about just the loan agreement either, but also the application, the TILA documents, the early disclosures and even the paper copy of a Deed of Trust… each must have the proper NMLS numbers for any related employees and the institution.   Now, consider what happens when you change your software system, or change an employee, all the documents and systems must be updated, or you are again “out of compliance.”

4.      Then, small credit unions must comply by conducting an annual SAFE audit, to review their compliance, that every relevant employee is registered each year.  If you don’t conduct this annual audit, you are again “out of compliance.”

5.      And then… every time an NCUA examiner comes, they look over every single document with a magnifying glass and write you up as “out of compliance with a severe and urgent matter” when it is just this ridiculous requirement which no consumer even knows exists.   Even just at my tiny credit union, how many hundreds of hours have we wasted complying with this regulation… while none of our members or applicants have ever noticed the NMLS number, let alone used it for anything. Again, I challenge whether any significant number of people have derived any benefit from the NMLS number, in the entire United States, in 17 years.

This entire NMLS registry system and regulation is still just a solution in need of a problem, which costs the industry (and thus, our members) untold amounts of money and time, without providing any benefit to anyone… except those employed by this agency, funded by our tax money.

• Qualified Mortgage (Price Controls): 

Exempt small credit unions from mortgage rate pricing controls under Regulation Z, HOEPA, or CFPB rules (established by Dodd-Frank Act; small credit unions under $500 million struggle with complex pricing for modest-risk loans).

• Regulation changes several years ago made it essentially impossible to charge any member an interest rate on a mortgage rate more than about 2% higher than the average. There are instances when we want to  help a high risk member of modest means and terrible credit, with a small balance mortgage.  Since the interest rate might be over 8 or 9% though..  We are no longer allowed to help these underserved.   Do you have any concept of how complicated the regulations around pricing mortgages, have become? 

  1. CEO Feedback (Doug Wadsworth) My own credit union abandoned most of our real estate lending a few years ago as well, because the new regulations and compliance were so burdensome and expensive. Now most of our HVAC lending does not involve a deed of trust, rather is  “UCC” secured. The security isn’t as good, but the time and money we save by simplifying and speeding up the process, is well worth the risk.  

  2. CEO F Feedback: My small CU does not do our mortgages in-house, due to all the compliance and regulations and not enough staff to get trained to offer them, so we partner with Consolidated Community CU to process our mortgages.  So, we lose the opportunity to offer this product in-house to our members and many of them want to speak to someone in person, not over the phone to a 3rd party.

• Mortgage Escrow: 

Exempt small credit unions from escrow requirements (part of TILA/Regulation Z, amended by Congress; eases complexity for small credit unions under $500 million).

Summary of a Letter "Case Study" of the Current Mortgage Escrow Burden on Small CUs

Around 2015, our credit union began offered escrow services to comply with the 2013 HPML escrow mandate, incurring significant financial and operational costs. While we qualify for the asset and loan volume criteria under the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155), the condition prohibiting institutions with existing escrow practices from claiming the exemption has left us unable to discontinue this burdensome service for any HPMLs we originate. We seek a tailored regulatory solution to alleviate these costs, enabling us to better serve our members and fulfill our community mission.

Our Situation

In 2015, Tri-CU (then Tri-Cities Community Federal Credit Union), began offering HPMLs to expand mortgage access for our members, many of whom rely on us for affordable credit. The 2013 CFPB rule required creditors to establish escrow accounts for property taxes and insurance for first-lien HPMLs, with exemptions available for those meeting specific criteria, including operating predominantly in rural or underserved areas. Although our credit union had assets below the $2 billion threshold (only $50 Million) and originated fewer than 500 first-lien covered transactions annually (only about 20 per year), we were ineligible for the exemption because the Tri-Cities, Washington Metropolitan Statistical Area (Benton and Franklin Counties) does not qualify as rural or underserved, given its urbanized population and active mortgage market.

Many of our members were being denied mortgages due to poor credit scores, and we wanted them to realize the dream of owning a home. To comply with the 2013 rule, we invested heavily in escrow servicing infrastructure, including software, compliance systems, and staff resources to meet Truth in Lending Act (TILA) requirements. These efforts have been costly and time-intensive, straining our limited operational capacity as a small credit union. Despite these challenges, we implemented escrow services to serve our members and adhere to federal regulations.

The enactment of S.2155 in 2018, finalized by the CFPB in 2021, offered hope for relief. The new exemption for insured credit unions with assets ≤$10 billion and ≤1,000 first-lien originations eliminated the rural/underserved requirement, aligning with our operational profile. Our credit union meets these criteria, however, the exemption’s condition that institutions must not maintain escrow accounts for HPMLs they currently service disqualifies us, as we have serviced HPMLs with escrow accounts since 2015. As a result, we are required to continue offering escrow services for any new HPMLs we originate, perpetuating a significant financial and operational burden. By complying with the initial regulation, we were essentially tricked and trapped, as it caused us to be ineligible for the later exemption, which would have been provided by the modified rule.

Impact on Our Credit Union

The mandatory escrow requirement for HPMLs imposes ongoing challenges:

• Financial Burden: Escrow servicing requires continuous investment in technology, compliance, and personnel. These costs are particularly onerous for a small credit union with limited economies of scale, diverting resources from member-focused initiatives like lower loan rates or community programs.

• Operational Demands: Managing escrow accounts involves complex tasks, such as tracking tax and insurance payments, disbursing funds, and ensuring TILA compliance, which consume significant staff time and reduce our capacity to prioritize lending and member services.

• Inequitable Outcome: Institutions that did not offer HPMLs or escrow services prior to 2018 can now originate HPMLs without escrow under the S.2155 exemption, enjoying a cost advantage. Our compliance with the 2013 rule inadvertently locks us into an expensive practice, creating an unintended penalty for acting in good faith.

This situation limits our ability to compete effectively and serve our Tri-Cities members, who rely on us for accessible and affordable financial products.

Proposed Regulatory Relief

To address this challenge, we respectfully propose that NCUA assist in effectuating the CFPB to amend Regulation Z or issue interpretive guidance to provide relief for small credit unions in our position. Specifically, we suggest:

• Phase-Out Option: Allow credit unions that implemented escrow services to comply with the 2013 rule to phase out escrow accounts for new HPMLs, provided they meet the 2018 exemption’s asset, volume, and portfolio retention criteria. A transition period (e.g., 2–3 years) could ensure continuity for existing escrowed loans while relieving the obligation for future originations.

• Exemption for Pre-2018 Escrow Providers: Modify the “no prior escrow” condition to exempt credit unions servicing HPMLs with escrow accounts established solely to comply with the 2013 rule, recognizing that such practices were not voluntary but mandated.

• Alternative Consumer Protections: Permit small credit unions to adopt alternative measures, such as borrower education programs or payment monitoring systems, in lieu of mandatory escrow accounts, ensuring consumer safeguards while reducing operational costs.

These solutions would provide equitable relief, align with S.2155’s intent to reduce burdens on small institutions, and enable us to maintain robust consumer protections through tailored approaches suited to our community-focused model.

Conclusion

Tri-CU is committed to serving our members of modest-means while complying with federal regulations, but the ongoing requirement to provide escrow services for HPMLs imposes a disproportionate burden. We respectfully urge the NCUA to effectuate the CFPB to consider our proposed solutions—a phase-out option, exemption for pre-2018 escrow providers, or alternative protections—to provide relief for small credit unions like ours. Such changes would enhance our ability to serve our community while maintaining the consumer safeguards central to the CFPB’s mission.

Follow up note on the "trap"

The GoWest compliance team and they found a special exemption buried in the fine print, which I wasn't aware of (but apparently I am the only credit union they know of that got stuck in that trap). Although it is a gray area, there is probably enough of a loophole that we COULD completely stop offering escrow, even on those "higher priced" mortgage loans (B,C,D credit), however it would be an "all or nothing" scenario. The existing ones would be grandfathered in, but we would have to completely stop doing any new ones... even if a borrower wanted it.  

TDR/MBEFD Troubled Debt Reporting: 

Federal credit unions, particularly those under $500 million in assets, face significant regulatory burdens from the shift away from traditional Troubled Debt Restructuring (TDR) accounting to the new "modifications to borrowers experiencing financial difficulty" (MBEFD) framework under CECL and FASB ASU 2022-02. These rules require detailed identification and classification of struggling borrowers, ongoing 12-month monitoring of modified loans, and quarterly disclosures in the NCUA Call Report (Form 5300), including breakdowns by loan type and performance metrics. For small credit unions with limited staff, manual processes, and constrained budgets, this demands substantial time for policy updates, training, data aggregation, and compliance checks—often leading to higher costs for audits or software, disproportionate to their size and resources.

These obligations create barriers to serving members by discouraging loan modifications for those in financial hardship, as many small credit unions, like mine, simply avoid them to evade the extra reporting and risks of regulatory scrutiny. This results in higher defaults, member credit damage, and reduced community support, undermining our mission while larger institutions absorb the costs more easily. We urge regulators and legislators to grant an exemption from MBEFD/TDR reporting for credit unions under $500 million, allowing us to focus on flexible, member-centered lending without unnecessary administrative hurdles.

• CECL: 

Increase the compliance exemption threshold from $10 million to $500 million in assets (NCUA sets and enforces exemptions). We appreciate the "in-house" model NCUA developed for CUs under $100 million, but full exemption is warranted.

• The old calculation method of ALLL (Allowance for Loan Loss), worked fine for small credit unions (actually it was better moving risk analysis for us), but this new CECL method is so complex and burdensome, that it forced nearly all small credit unions to hire 3rd parties, at considerable expense.  How much value is CECL, for a small and simple CU?

  1. CEO A Feedback: I am using the newly offered NCUA CECL calculation tool, but it is cumbersome and the last Examiner told me I wasn’t doing it correctly, even though I followed the directions and he couldn’t explain what I needed to do differently.  He also told me I needed to use the Peer Averages and I said, NO, those don’t fit our credit union.

  2. CEO B Feedback: My grouping is up to $50M in assets. Even at that, we’re not comparing apples to apples and my CU membership/environment is different than that of others. Please don’t tell me my delinquencies are too high, my expenses are too high, etc. and then you write me up for that and bring down my Management CAMEL score. Each CU has a different membership and we cater to those needs, which are probably different everywhere. We are a very healthy CU with 19% Capital, so back off!

Exempt Small Credit Unions from CECL (completely)

Cited Existing Regulations: GAP Analysis: Authorized under 12 CFR § 741.3(b)(5) and Appendix B to Part 741 for interest rate risk (IRR) assessments, permitting simple GAP analysis for non-complex federally insured credit unions, particularly those under $500M in assets, as a risk-based alternative to complex ALM methods (NCUA Letter to Credit Unions 12-CU-05).

CECL: Required under 12 CFR § 702.402 for credit unions with assets ≥$10M, aligning with GAAP (ASC 326), per Section 202(a)(6)(C)(ii) of the Federal Credit Union Act (12 U.S.C. § 1782(a)(6)(C)(ii)), with NCUA discretion to allow alternatives like historical loss methodology if no less stringent (NCUA Letter to Credit Unions 23-CU-01).

Requested Reform: Exempt small credit unions under $500M in assets from complying with CECL, completely.

Benefit to Small CU: There is no value to small credit unions in complying with CECL, the Historic “Incurred Loss” method was perfectly sufficient for decades, this entire regulation was designed for large complex credit unions, and now small ones must comply at significant expense, costing up to $10,000 per year (with no value).

Benefit to NCUA: These simple methods of compliance should not take any more time to audit than those performed by 3rd parties.

Examples: Every small credit ECUD has asked, agrees: We are spending so much time and money on complying with CECL, while it provides zero benefit to our credit union or any impact on our safety and soundness. The historic “incurred loss” method worked fine, why were we not exempt to begin with? Can we just revert back to that and save $5,000 to $15,000 every year?

Note: There is a “carve out” exemption for an “in-house” calculations of CECL available on the NCUA website, but this is only for CUs under $100 million, and due to it's simplified calculation method, it ends up requiring a significantly greater allowance (20% higher), which is a significant expense for a small CU. 

• Punitive & Irrelevant Documents of Resolution: 

Limit DOR issuance to specific serious cases (reduces conflict for small credit unions under $500 million, aligned with NCUA's Regulatory Modernization Initiative for less burdensome oversight).  IE: To cases where: (1) the CEO refuses compliance; (2) findings persist from prior exams; (3) issues pose immediate and significant safety risks; or (4) trust in management is lacking (requiring board involvement). 

Regulation Citation and Basis: FCUA § 206(b)(1) and NSPM allow NCUA discretion to focus on material risks, rather than low-importance items. NSPM specifies DORs for serious and/or recurring problems requiring timely correction, while isolated or technical violations (e.g., nonsignificant BSA issues) can be addressed with normal Examiner's Findings. Requested Reform: Limit DOR issuance on small credit unions under $500 million, to serious findings that present urgent and significant risk to safety and soundness (particularly for repeat findings, or if the CEO can’t be trusted to fix them). Stop considering *any* BSA related clerical errors as automatically necessitating a full DOR.

Benefit to small CUs: DORs immediately “raise the temperature” of any examination, while also triggering a cascade of extra work for the small credit union. The extra work and deadlines (often for issues with no urgency or clear impact on safety and soundness) cripples the small CUs ability to operate productively, as they scramble to address the DOR.

Benefit to NCUA: DOR issuance also triggers a cascading amount of extra time, work and expense work for NCUA examiners, as well as frequently causing a breakdown of communication.

• Examples: CEO Feedback from Doug Wadsworth (myself): Anytime there is ANY missing tiny problem or clerical error related to the BSA, examiners turn it into a DOR, even when it’s clearly not a systemic issue. For example, my last NCUA exam was only a few weeks after my CPA AUP audit and we had only filed a single SAR during the past year. Well, apparently after giving it to our CPA Auditor for his audit (he reviewed and acknowledged we had done it in his audit records and report), we then misfiled the original copy when putting away his audit papers. Our NCUA examiner demanded we produce it, and wouldn’t accept that it was lost. He essentially threatened a DOR if we couldn’t produce the original full copy (even though he could see that CPA had just verified we had done it correctly, and he verified we had submitted it by looking at the BSA online database). Multiple employees (we only have about a dozen) wasted hours searching through hundreds of electronic and paper documents and files… but we finally found it (among the other CTRs we had put away after the CPA audit). What a waste of valuable time, trying to avoid the threat of his pointless DOR. Next time I am tempted to just say: “Fine, issue your DOR, because it isn’t worth my wasting hours of my employees time so you can check the box on something that is totally unrelated to our safety or soundness, anyway.” The problem is… that DORs go to the board of directors (CEO boss), and makes us look bad, and since the board decides our wages, the examiner really has leverage with DOR threats, like a gun to our head.

• Anonymous CEO Feedback: [The NCUA issued a DOR on us because] our cash and shortterm investment ratio was well below policy, and we didn’t properly document in our Board minutes that we were borrowing at Catalyst Corporate Credit Union. (Though we discussed it in every [board] meeting). We had many things already in place to increase deposits such as CD specials, etc, but they made us do a 12-month cash flow projection and written plan of what we were going to do to improve liquidity, even though I already did one when they were here [onsite]. Mind you, we have $14 Million in other investments, [as well as] LOCs (lines of credit, to assist with liquidity needs) at Catalyst Corporate Credit Union and Oppenheimer (our investment company) but they still let me have it! [The DOR was also issued because] I missed a few things, such as the proper ALCO minutes documentation, and needed to do a better job documenting that we discussed the borrowings in our Board minutes. 

• Anonymous CEO Feedback (summary of verbal discussion): This CEO of a $26M credit union (just this year) was written a DOR because her board meeting minutes were too short. IE: They wanted her to write more. She had to fight back hard, as it was going to make her ineligible for a low-income CU grant she had applied for. She eventually got her NCUA District Supervisor to admit (during their joint conference), that she was sufficiently capitalized, with safe and sound past and present business practice, along with a fully engaged and knowledgeable board, so they finally agreed to reduce it to just a "finding." The process wasted many hours of her time, and caused unnecessary friction. [Note from Doug: I ooked at these “deficient” board minutes, and they were just as detailed as my own are every month, and my board minutes have never been questioned by any NCUA examiner.] 

• Anonymous CEO Feedback: I had an examiner write a DOR and told me I was basically not allowed to use my account as a member because on my app I would transfer money $30 at a time for some other employees to watch my dog when I'd go out of town! They literally told me I should pull cash and pay people in cash (which I think is more sketchy if I'm always pulling cash and I can note that it is for Doggo on the memo from my app). I was very unhappy! I should be allowed to be a member of my own credit union, because my supervisory committee is VERY active and looks at my account at least quarterly. Then I got a DOR and the way it was written is that EACH and EVERY employee account should be monitored every month by the Supervisory Committee. Although my examiners acknowledged the regulation didn’t actually require this, they wanted to see it more often... though they already do it every quarter! Things like this to me are very unreasonable and unfair and not what they would EVER give a DOR to anyone else for or even request or think it a good idea. It is very much an overreach. [Note from Doug: the frequency being required by the examiner is clear over-compliance pressure].

• Anonymous CEO Feedback: Historically, NCUA examiners provided examples or resources to help credit unions address findings or Documents of Resolution (DORs). That practice ceased in the early 2000s. Today, credit unions are expected to interpret vague directives without guidance, consuming valuable time and resources. If NCUA has a specific expectation, it should be clearly communicated with examples—especially for institutions with limited staffing. The cumulative effect of [practices like this] is a regulatory environment that feels punitive rather than supportive. Small credit unions are not asking for exemption from oversight—we are asking for oversight that is proportionate, consistent, and respectful of our scale and structure. The current approach risks driving small institutions out of existence, not because they are unsafe or unsound, but because they are overburdened by one-size-fits-all regulation.

• Reduced Examination Burden*: 

Shorten exams, reduce frequency, and focus on safety/soundness for small credit unions (DFI conducts exams for state-chartered CUs; coordinates with NCUA; minimizes strain on small credit unions under $500 million posing minimal risk).  

*ALREADY PARTIALLY SOLVED BY THE NCUA, AFTER INPUT FROM ESCUD (WHEN DOUG MET WITH CHAIRMAN HAUPTMAN), AND A FEW MONTHS LATER THEY SET THEIR NEW BUDGET AND INTENT TO EXTEND THE EXAMINATION CYCLE FOR HEALTHY SMALL CUS (NOVEMBER 2025), THANK YOU!

Requested Reform: Reduce the examination frequency and examiner staffing level at high performing small credit unions (under $500 million in assets, CAMEL 1 or 2). We propose only a single NCUA examiner be scheduled every 2 years, for healthy small credit unions.

Benefit to small CUs: This would allow small CUs to better thrive because lengthy and frequent examinations are a crippling burden for their limited staff, while their simple operations don’t justify multiple examiners being on site for two full weeks every year, as well as additional “off-site” examination time of 2 more weeks. Benefit to NCUA: Not only can the NCUA save money and free up available staff for large credit unios, but small credit unions present very little risk to the NCUSIF,

Examples: Ask *any* small federal credit union, but for myself, every 15-month two examiners show up, and stay on site for an entire two weeks, plus multiple additional weeks of asking for information to be uploaded, lengthy questionnaires asking about hundreds of regulations to be completed, etc. This compliance burden drains limited critical resources from our small CU.

• 1. Anonymous CU CEO: NCUA Board guidance has indicated that credit unions with a CAMEL rating of 2 or better should be examined every 18–24 months. Yet [my small CU] continued to receive annual exams until very recently. When questioned, we were told this was due to our “complexity”—a vague rationale that contradicts both our asset size and operational simplicity. Moreover, examiners admitted they suspected issues but could not identify any. This approach fosters distrust and creates undue stress for small credit union teams. The cumulative effect of [this practice] is a regulatory environment that feels punitive rather than supportive. Small credit unions are not asking for exemption from oversight—we are asking for oversight that is proportionate, consistent, and respectful of our scale and structure. The current approach risks driving small institutions out of existence, not because they are unsafe or unsound, but because they are overburdened by one-size-fits-all regulation.

• ALM/Rate Shocks: 

Eliminate requirements for income simulations or NEV analysis for small credit unions; accept simple GAP Analysis ( simplifies processes for small credit unions under $500 million).

We are all expected to conduct “rate shock analysis” on our loan portfolios and income statement. The examiner expectations for small credit unions are so high, we can no longer use the simple in-house GAP method, but have to hire a 3rd party to preform it.  This adds significant time or expense to small CUs. How much value is there for a small CU?

• CEO C Feedback:  I also have to pay a 3rd party to do all the ALM calculations to stay in compliance.  Most times I quickly peruse the lengthy report and then put it away for the Examiner, just to meet their requirement. I don’t think they even know how to read the report.

Exempt Small CUs for ALM Rate Shock/NEV Analysis

Regulation Citation and Basis: 12 CFR § 741.3(b)(5) and Appendix B to Part 741, mandates an IRR policy and program tailored to the complexity of the credit union, with flexibility to use simpler methods like GAP analysis for non-complex institutions. Supported by Section 107(15) of the FCUA (12 U.S.C. § 1757(15)) and NCUA Letter to Credit Unions 12- CU-05, which emphasize risk-based approaches.

Requested Reform: We propose the NCUA accept the simple “GAP analysis” in-house method for small credit unions under $250 million, rather than expensive and complex ALM/IRR/NEV Analysis.

Benefit to Small CUs: Small CUs must hire expensive third parties to conduct these complex rate-shock analysis, despite no benefit or advantage for them, because of the simple balance sheets of these small CUs. If a small credit union ever had a demonstrably more complex balance sheet, the NCUA Examiner would be free to require the full ALM/IRR/NEV analysis, on a case-by-case basis. The current exemption only applies to small CUs under $10 million, it should be increased up to $250 million.

Benefit to NCUA: A simple GAP Analysis takes only minutes to review, rather than NCUA examiners having to review the lengthier and more complex ALM Rate Shock/NEV and supporting calculations, so this saves time for NCUA Examiners.

Example: My $73 million credit union (in a single office with only 14 employees), pays nearly $12,000 each year to pay for these complex analysis, despite a simple balance sheet of only 3-year maximum term bank CD investments and standard loans. For smaller or struggling credit unions, this staggering expense could represent half their annual net income, despite the fact it provides little or no value to our simple CUs.

Anonymous CEO Feedback: We were required to outsource our Asset Liability Management (ALM) and CECL reporting due to perceived lack of sophistication. Yet, the outsourced expert reports—spanning 35–50 pages—were criticized by examiners. These reports have not altered our operational decisions, as their content largely reflects commonsense insights already known to management. Small credit union CEOs are deeply involved in every aspect of operations and may use simpler terminology, but that does not equate to lack of understanding. These reports appear to serve the regulator more than the institution, replacing meaningful engagement with paperwork. The cumulative effect of [practices like this] is a regulatory environment that feels punitive rather than supportive. Small credit unions are not asking for exemption from oversight—we are asking for oversight that is proportionate, consistent, and respectful of our scale and structure. The current approach risks driving small institutions out of existence, not because they are unsafe or unsound, but because they are overburdened by one-size-fits-all regulation.

• Over-Compliance Pressure: 

Reduce examiners' push for "best practices" beyond basic regulations (NCUA examiner guidance and practices; allows flexibility for small credit unions under $500 million, as advocated in NCUA's three-year regulatory review cycles).  Direct examiners to prioritize safety/soundness regulations, allowing flexible, in-house compliance for lower-risk areas and de-emphasizing minor issues.

Regulation: There is no specific regulation, but examiner practice (at least in the NW region) has been to pressure even small credit unions, to do more than the minimum regulation requires, or to pressure them to out-source compliance at significant cost, even areas that provide little value to safety or soundness.

Requested Reform: We implore the NCUA to issue guidance directing examiners to prioritize safety/soundness regulations for small credit unions, allowing flexible, in-house compliance solutions to be acceptable for lower-risk areas and de-emphasizing low importance regulatory compliance (not push outsourcing as the solution).

Benefit to Small CU: Without examiners recognizing that regulatory hierarchies exist (e.g., prioritizing lending risks over minutiae), this inflates burdens, treating trivial items as severe and ignoring small credit unions' resource constraints. Over time, this erodes profitability,  forcing mergers as accumulated costs outpace revenues—small credit unions can't afford the "infinity" of escalating requirements and checklists that don’t impact our safety or soundness.

Benefit to NCUA: If the NCUA examiners are instructed to distinguish between low importance and high importance regulations and then allow minimal compliance for a small and simple credit union, they will be able to complete their exams faster, saving time and reducing staffing needs.

• Examples: Anonymous CEO Feedback: Despite our intimate understanding of member behavior, we were advised to increase the number of Suspicious Activity Reports (SARs) filed—not based on actual suspicious activity, but seemingly to meet a quota or expectation. SARs are a critical compliance tool, but they should not be submitted arbitrarily to satisfy regulatory optics. This undermines the intent of the regulation and burdens small credit unions with  necessary administrative tasks. The cumulative effect of [this practice] is a regulatory environment that feels punitive rather than supportive. Small credit unions are not asking for exemption from oversight—we are asking for oversight that is proportionate, consistent, and respectful of our scale and structure. The current approach risks driving small institutions out of existence, not because they are unsafe or unsound, but because they are overburdened by one-size-fits-all regulation. 

• Anonymous CEO Feedback: We were required to outsource our Asset Liability Management (ALM) and CECL reporting due to perceived lack of sophistication. Yet, the outsourced expert reports—spanning 35–50 pages—were criticized by examiners. These reports have not altered our operational decisions, as their content largely reflects commonsense insights already known to management. Small credit union CEOs are deeply involved in every aspect of operations and may use simpler terminology, but that does not equate to lack of understanding. These reports appear to serve the regulator more than the institution, replacing meaningful engagement with paperwork. The cumulative effect of [practices like this] is a regulatory environment that feels punitive rather than supportive. Small credit unions are not asking for exemption from oversight—we are asking for oversight that is proportionate, consistent, and respectful of our scale and structure. The current approach risks driving small institutions out of existence, not because they are unsafe or unsound, but because they are overburdened by one-size-fits-all regulation

• CEO Feedback (Doug Wadsworth, myself): We are required to do an “Account Verification Audit” every other year. By regulation, we must contact all our members, communicating that if they find an error on their account or statement, they should contact our Supervisory Committee. We have always easily complied with this regulation by simply including this message on a monthly statement, when needed. My method is free, cheap, easy and fully compliant (as long as it is reviewed afterwards by a Supervisory Committee member). Well,  my examiners tried to push me into writing a full policy and procedure for this simple compliance task, which would include step by step procedures including a detailed and fully documented formal reconciliation of all the mailers, with work papers retained, oversight, supervisory sign-off, etc. Alternatively, they suggested I pay a 3rd party CPA Auditor to accomplish this task for us. Yes, this would make their future examinations *really* easy and fast to examine, but such over-compliance would cost us excessive time and money. After much convincing, they agreed to accept my internal method of compliance, but it had to be a battle, because they were pushing for “over” compliance.  *NOTE: This one just partially solved by NCUA, ESCUD was instrumental in this positive change (as confirmed by NCUA Chairman to Doug Wadsworth)! Dec 2025

• CEO Feedback (Doug Wadsworth, myself): Examiners spend a huge portion of their time ensuring credit unions follow the Bank Secrecy Act to the “letter” (even though 3rd party BSA audits are already completed yearly by a professional CPA). At a small credit union, it is rare to have large amounts of suspicious money laundering happening, because we know our members, and we catch suspicious activity early (before reaching “SAR level” of $5k+). Thus, since forever, we only need to file about 1 SAR (Suspicious Activity Report) per  year. Well, our NCUA examiners must get a lot of pressure from higher NCUA management to be extra militant and push “over-compliance,” because for the 2nd yearly NCUA exam now, they have tried to push us to keep a written log and document (with dates, evidence, justification, mental reasoning), every time we decide to NOT file a SAR. Yes, you read that correctly: to fully document every time we did *not* need to file a SAR. Please imagine how labor intensive and costly such a process would be for a small credit union, and it isn’t even required by regulation. Examiners also frequently pressure small credit unions to outsource compliance in many other areas, which could be simply and inexpensively accomplished inhouse (if the examiners were more flexible for small credit unions). For instance: Vendor Management, Board Training, BSA Training, Closed Account Audits, Bi-Annual Account Verification, as well as risk assessment and audits for IT, ID Theft, BSA, NACHA, etc.

• Reduce Unrealistic Supervisory Volunteer Expectations: 

Lower pressure on unpaid volunteers beyond simple tasks (NCUA sets expectations for supervisory committees; eases retention issues for small credit unions under $500 million).

Regulation Citation & Basis: Under Section 115 of the FCUA (12 U.S.C. § 1761d) and 12 CFR §§ 715.3, 715.4, 715.7, 715.8, 715.9, the Supervisory Committee is authorized to outsource complex audit responsibilities, such as the annual “agreed-upon procedures” CPA and BSA Audit, with the Supervisory volunteers primarily overseeing these efforts. Beyond that, limited simple tasks by these volunteers should be permitted for small credit unions, by the flexibility in 12 CFR Part 715.

Requested Reform: We appeal for relaxation on Part 715 guidance, to limit Supervisory Volunteer duties and expectations of small credit unions (under $500 million) to essentials (e.g., periodic cash counts and audit reviews).

Benefit to small CUs: Unrealistic demands on unpaid volunteers (such as expecting deep regulatory knowledge and overly labor-intensive audits) lead to retention crises. Small credit unions rely on these volunteers for basic tasks like surprise cash counts, but examiner pressure for the volunteers to “over-comply” either makes them quit, or the small credit union ends up outsourcing more duties to CPAs at significant expense, for items that provide little value and little impact to safety or soundness.

Benefit to NCUA: NCUA examiners could waste less time grilling unpaid volunteers on duties and expectations which they will never find satisfactory based on current unrealistic expectations.

Examples:

• Anonymous CEO Feedback: They [NCUA] have been especially critical of all my volunteers; I lost one board member and almost another SC because the expectations are high, and these volunteers feel in-over-their-head, so to speak. Anonymous CEO Feedback: [Due to NCUA pressure,] …we have outsourced these functions to our external auditors and they do a quarterly audit to cover everything except the cash audits since the auditors are remote… It can be a tough balance especially for smaller credit unions where finding volunteers can be difficult and the volunteers can become overwhelmed and it might drive them away. I hope there will be more of an understanding about this and they will consider more about the complexity of the credit union and the mitigating controls the credit union has in place. [Note from Doug: Unnecessary and costly outsourcing expenses increased from pressure “over-compliance” pressure]

• Anonymous CEO Feedback: I’m just thankful to have 3 volunteers to fill the positions to meet compliance. I have a spreadsheet of items for them to review each month, and they do come in and complete those…. again, just to meet compliance. They are not highly trained to really know the regulations and what they need to look for or recommend any changes. Most times, I’m answering their questions and they sign off. Quarterly Supervisory Committee meetings are a joke. They go through the motions and I type up some minutes and call it good. Again, just meeting compliance. For surprise cash counts, my committee will do 1, once a month, but we also perform surprise cash counts on EVERY teller, every month. (Me, my Asst Mgr and my bookkeeper take turns and rotate which employee drawer we count. We document this for the committee). [Note from Doug: the frequency being required by the examiner is clear overcompliance pressure]

• Bi-Annual Account Verification Audit & Reconciliation: 

*AT LEAST PARTIALLY DUE TO ESCUD ADVOCACY WITH THE NCUA - THIS ONE IS PARTIALLY SOLVED, THANK YOU!  

Eliminate as redundant (required under NCUA supervisory committee rules; redundant for small credit unions under $500 million with modern fraud prevention).

In the distant past (before computers and internet), credit unions mailed out their account statements by hand, from their main office.  There was a regulation that every two years the credit union send out an “alert” to members to report any account errors to the Supervisory Committee (to their personal address), and there should be some kind of “reconciliation” of the mailed statements.  I assume this reconciliation was to make sure statements weren’t being withheld by fraudulent employees (on accounts that are being defrauded).

Well, Credit Unions now mail statements through 3rd parties, and there are multiple other audit layers (also being audited by the NCUA) to check for address changes, statement “no mail” account listings, etc. to detect and catch fraud.  In addition, with the internet and multiple other agencies, there are multiple ways for members to alert regulators to errors or suspicious activities.  In addition, sending CU mail to a volunteer home or PO box presents increased risk (do they keep it secure at home, are they checking their PO box regularly enough)?  I think this regulation is probably 100% irrelevant, with how technology and mailing has changed over the past 50 years, and with the other internal mail fraud audit controls in place.

I have had auditors try to pressure over-compliance on this in the past, one year they pressured me to make the “return address” on that run of statements, be the Supervisory PO Box.  This then exploded, because members started mailing check deposits and loan payments to the return address they saw on their statements – which sat in the supervisory committee PO box for weeks, until they checked it (late payments, credit scores damaged, etc.)! This entire regulation has become more problematic than helpful, in my opinion.

Remove The Biennial Account Verification Requirement In the distant past (before computers and internet), credit unions mailed out their account statements by hand, from their main o ice. There was a regulation that every two years the credit union send out an “alert” to members to report any account errors to the Supervisory Committee (to their personal address), and there should be some kind of “reconciliation” of the mailed statements. I assume this reconciliation was to make sure statements weren’t being withheld by fraudulent employees (on accounts that are being defrauded). Well, Credit Unions now mail statements through 3rd parties, and there are multiple other audit layers (also being audited by the NCUA) to check for address changes, statement “no mail” account listings, etc. to detect and catch fraud. In addition, with the internet and multiple other agencies, there are multiple ways for members to alert regulators to errors or suspicious activities. In addition, sending CU mail to a volunteer home or PO box presents increased risk (do they keep it secure at home, are they checking their PO box regularly enough)? I think this regulation is probably 100% irrelevant, with how technology and mailing has changed over the past 50 years, and with the other internal mail fraud audit controls in place.

Proposal: Stop requiring small credit unions from complying with this obsolete and redundant regulation – which just causes more work, more findings and even DORs.

Regulatory Basis:12 CFR § 715.8 requires Supervisory Committee to verify (or cause verification of) members' accounts at least once every two years, using methods like statements notifying members to contact the committee if discrepancies exist (negative confirmation). Based on FCUA Section 115 (12 U.S.C. § 1761d). NCUA Authority for Exemption/Flexibility is limited because this is statutory under FCUA, so no full exemption might be possible, but regulation allows flexible methods (e.g., sampling, outsourcing) and NCUA can interpret leniently for small credit unions if low risk.

• NACHA Audit: 

Eliminate annual audit requirement as redundant (enforced by NCUA examination procedures; unnecessary for small credit unions under $500 million using automated systems).

Advances in computer technology now enable even the smallest and simplest credit union to offer ACH origination (internally or with a 3rd party).  These systems are fully automated computer programs that have the different regulatory codes “hard coded” into them. However, an ancient/obsolete regulation still requires credit unions to conduct a lengthy audit, which is redundant, in every sense of the word… hours spent searching databases, printing paper, to prove that the computer is doing what it is programmed to do (when the systems are essentially foolproof, anyway)?

NACHA Audit Exemption Request

Advances in computer technology now enable even the smallest and simplest credit union to offer ACH origination (internally or with a 3rd party). These systems are fully automated computer programs that have the different regulatory codes “hard coded” into them. However, an ancient/obsolete regulation still requires credit unions to conduct a lengthy audit, which is redundant, in every sense of the word… hours spent searching databases, printing paper, to prove that the computer is doing what it is programmed to do (when the systems are essentially foolproof, anyway)?

Proposal: Exempt small credit unions (under $500 million), from conducting the annual NACHA audit.

Regulatory Basis: NACHA Operating Rules (Appendix Eight), requiring annual ACH rules compliance audit for participating institutions (e.g., RDFIs/ODFIs). NCUA examines compliance under general safety and soundness authority (12 U.S.C. § 1786) and insurability criteria (12 CFR § 741.4), as referenced in NCUA Examiner's Guide (ACH Review Procedures) and supervisory audits (12 CFR Part 715, if ACH is material). NCUA Authority for Exemption/Flexibility is limited; NACHA is a private association, not federal regulation. NCUA lacks direct authority to exempt but can exercise supervisory discretion (e.g., via risk-based exams per NSPM) to reduce enforcement for low-risk, small credit unions if no material NCUSIF threat.

• Bond Insurance Board Signatures: 

Eliminate new regulatory hoops for bond renewal (adopted by NCUA in Part 713; reduces paperwork for small credit unions under $500 million).

Many years ago, apparently one credit union somewhere, doctored their bond insurance renewal documents, so their credit union wasn’t adequately insured, and there was a loss.  For all these past years, every year the NCUA examiners would review our bond insurance to ensure they meet the regulation, and the board of directors have never really had to be involved. 

Until now… a few years ago the NCUA decided to complicate the regulation, and developed a series of new regulatory hoops we have to jump through, and which requires board involvement, appointing a different official signatory each year, obtaining paper/ink signatures on the renewal, documentation in board minutes, etc… or you risk getting “written up” for not doing it exactly right.  However… despite the regulations being 100 times more complicated and burdensome now, it is just as ineffective in reducing the risk of a loss! There is no benefit to anyone, just more work, longer examinations and more DORs.

Many years ago, apparently one credit union somewhere, doctored their bond insurance renewal documents, so their credit union wasn’t adequately insured, and there was a loss. For all these past years, every year the NCUA examiners would review our bond insurance to ensure they meet the regulation, and the board of directors have never really had to be involved. Until now. A few years ago the NCUA decided to complicate the regulation, and developed a series of new regulatory hoops we have to jump through, and which requires board involvement, appointing a different official signatory each year, obtaining paper/ink signatures on the renewal, documentation in board minutes, etc… or you risk getting “written up” for not doing it exactly right. However, despite the regulations being 100 times more complicated and burdensome now, it is just as ineffective in reducing the risk of a loss! There is no benefit to anyone, just more work, longer examinations and more DORs.

Proposal: Exempt small credit unions from the complex new bond renewal procedure and signature requirements.

Regulatory Basis: 12 CFR § 713.3, requiring board approval of fidelity bond purchase/renewal, delegation of one non-employee board member to sign attestation, and rotation (no consecutive signatures by the same director). Stemming from FCUA Section 113 (12 U.S.C. § 1761b) for bond coverage, with 2019 final rule updates. As an NCUA regulation, the Board can amend via rulemaking (12 U.S.C. § 1766(a)) or grant case-by-case waivers under discretion for small, low-risk credit unions if safety/soundness is maintained.

• Anonymous CEO Feedback: I got dinged by an Examiner the first time, then have been following their “rules” for the last couple of years. I also got dinged because even though the Board member signed all the documents and there was a motion in the Board Minutes to approve, the minutes stated that “[The CEO] presented the Bond Renewal for discussion.” Rather than that “Board Member” presenting the renewal. This is ridiculous!!

• Eliminate “Private” Supervisory Interviews: 

Include CEO in meetings with Supervisory Committees (NCUA examination practices; prevents misunderstandings in small credit unions under $500 million, per NCUA's supervisory letters).

Examiner & Volunteer Interviews Allow CEO Presence

Regulation: There is no regulation prohibiting the CEO from accompanying examiner interviews with credit unions volunteers, if requested by the volunteer. The current “practice” of NCUA examiners is to prohibit it, and require complete privacy in all cases.

Requested Reform: If requested by Supervisory Volunteers or Board Members, CEO presence should be allowed in examiner interviews. Examiners can give their phone number to the volunteer to ensure they are available privately later, if there are any concerns which need to be discussed without the CEO (without his knowledge).

Benefit to Small CU: Even when these unpaid volunteers *are* performing perfectly acceptable audits and meeting supervisory compliance requirements, the current practice of the NCUA examiners is to privately “grill” them which leads to the unpaid volunteer feeling overwhelmed, unqualified, and stressed out. In addition, NCUA examiners sometimes put "over-compliance” pressure on these volunteers during that private meeting, leading to the CEO then having to "push back" against advice of excessive overcompliance coming from their own volunteers. This leads to breakdowns in communication between all parties, is more likely to lead to the resignation of the volunteer and always leads to more unnecessary work for small credit unions.

Benefit to NCUA: Having the CEO accompany these interviews will lead to less confusion, less “false positive” findings, less communication frustration and thus saved time and expense for the NCUA. 

Examples:

• Anonymous CEO Feedback: They [NCUA examiners] put my supervisory chair in the hotseat, she came out totally shaken up and almost quit. Apparently, they asked her about certain specific regulations, and she got them mixed up, so they kept questioning her more and more. I hope she doesn’t quit; she comes in faithfully multiple times per year, and does the audits that are required, and it is so hard to find anyone willing to do that much!

• Anonymous CEO Feedback: I do believe their [NCUA] expectations are unrealistic. My Examiner …pulls my Supervisory chair into the office and grills him. Usually, I try to brief him ahead of time and explain, “less is more. Don’t offer any information that you’re not asked and keep your answers short.” I feel like they [NCUA Examiners] try to “trick” them into finding something, that they can write us up for.

• CEO Feedback from Doug Wadsworth (myself): A few years ago, we had an examiner in the private interview with my Supervisory Chair literally and explicitly challenged her qualifications for the "job," so my volunteer had to list all her experience in bookkeeping and running her small business. She came out very shaken up and upset, and explained how she felt like she had been in the “hotseat” getting criticized for an hour. She almost quit that night, but I convinced her to stay (and I had to complain to the NCUA examiner's supervisor). Even in my most recent NCUA exam, although my current examiners are kind and personable, it was still a stressful "hot seat" for my volunteer, because she didn't recognize the specialized regulatory terms they were using to distinguish between different types of audits she had been performing. If I was able to sit in with her during the interview, I could have cleared up so much miscommunication and relieved her. In addition, the examiners pushed her to "over-comply" in a few areas, which was not necessary, but now puts me in an awkward situation, after the fact. For example, my examiner suggested to my Supervisory Volunteer, that a great thing to do in a periodic audit, would be to do our Corporate Credit Union bank reconciliation… this is one of the most challenging and time-consuming tasks in the entire credit union, and a single reconciliation takes approximately 20 hours per month. Our poor volunteer came back a few weeks after the NCUA examination, and wasted 2 hours trying to re-reconcile our statement because the NCUA had suggested it, she didn’t get through a single day, and finally gave up, deflated and disappointed. Of course, as the CEO, I must allow her to audit whatever she wants, even when it is insane. The past couple years when I explain to my examiners the difficulty of replacing volunteers, they *have told me* it “should be easy because people would want it on their resume." ?!  Perhaps credit unions with hundreds of thousands of members can find someone, but I only have 5,000 members, and this is always a significant challenge. We don't want to lose our existing ones!

• Double-Duty of Examiners state/federal: 

For state credit unions, does the NCUA really need to come to the entire audit? This sometimes results in 5-10 examiners at a tiny credit unions, for weeks at a time, effectively crippling their ability to do business.  Is that necessary? Is it good use of NCUA resources (limited budgeting and staffing)?

Stop Duplicating State DFI Examinations: Regulation Citation & Basis: Section 201 of the Federal Credit Union Act 12 CFR § 741.1, the NCUA is directed to utilize state examinations to the maximum extent feasible to fulfill oversight of the National Credit Union Share Insurance Fund (NCUSIF). Additionally, Section 204(d) (12 U.S.C. § 1784(d)) and Section 205 (12 U.S.C. § 1785) support reliance on state reports, as reinforced by the NCUA’s Alternating Examination Pilot Program (NCUA National Supervision Policy Manual).

Requested Reform: We request that the NCUA rely solely on state Department of Financial Institutions (DFI) examination results for small, low-risk state-chartered federally insured credit unions with assets under $500 million, rather than conducting joint or duplicative examinations.

Benefit to small CUs: Being examined by large teams from combined regulatory agencies (NCUA & DFI) cripples small credit unions ability to operate productively, for multiple weeks every year, draining the resources needed to serve members and be competitive, for multiple weeks every year.

Benefit to NCUA: By accepting DFI examination results, the NCUA would significantly reduce NCUA staffing needs and budget expenses.

• Example from Anonymous CEO: Some of our tiny credit unions (with single offices and less than a dozen employees) have ended up with up to 5-9 examiners on-site, simultaneously, for two and a half weeks, drilling them with questions, asking for documents, etc. The number of examiners swarming them is nearly as many as the employees that work there, and it essentially shuts down the credit union for multiple weeks.