ALEXANDRIA, Va.–NCUA Chairman Rodney E. Hood is calling on the Financial Accounting Standards Board (FASB) to exempt credit unions from complying with the current expected credit losses methodology, or CECL.
“I believe the compliance costs associated with implementing CECL overwhelmingly exceed the benefits,” Hood wrote. “Even before the current pandemic, credit unions had approached the NCUA with concerns about the unintended consequences of requiring credit unions to implement CECL. In our current environment, I am especially concerned that adopting CECL will have a chilling effect on lending, including loans to low-income borrowers.
“Additionally, for most credit unions, implementing CECL will have an immediate negative impact on net worth. Although FASB enabled credit unions to delay implementation of CECL until January 1, 2023, the additional time credit unions were afforded to collect data, review data processing systems, and analyze various model(s) is now being used supporting the credit and depository needs of their members,” the letter to FASB Chairman Russell G. Golden continues. “This critical work is being performed under the additional constraints imposed by strict social distancing protocols and stay-at-home orders. Thus, I urge the FASB to provide needed relief to all credit unions by providing, at a minimum, a Private Company Council alternative that retains the framework of the incurred loss methodology.”
‘Insufficient Advantages’
In the letter, Hood further stated NCUA uses the incurred loss model when it supervises and examines the 5,236 credit unions under its purview for safety and soundness — nearly 70% of which are less than $100 million in assets. Attempting to recognize all expected credit losses is fraught with data collection challenges for the smallest credit unions that the agency supervises, Hood said.
“In short, CECL provides insufficient advantages over the incurred loss model to support implementing CECL in the credit union system, especially under the current economic conditions,” Hood wrote. “I respectfully urge the FASB to consider providing a permanent exemption of CECL implementation for credit unions.”
Chairman Hood’s letter to FASB Chairman Russell G. Golden is available on the NCUA’s website.
NAFCU Response
In response, NAFCU President and CEO Dan Berger said, “We applaud NCUA Chairman Rodney Hood for urging the Financial Accounting Standards Board to exempt credit unions from complying with FASB’s CECL standard. NAFCU has pushed hard for credit unions to be exempt from this onerous and costly accounting standard as it could place significant strains on credit unions’ capital levels, particularly amid the coronavirus pandemic.”