US credit unions should be exempt from the current expected credit losses methodology (CECL), movement lobbyists have told the Financial Accounting Standards Board (FASB).
In a letter to FASB on 30 April, the chair of the National Credit Union Administration (NCUA), Rodney E Hood, raised concerns about the measure, which requires lenders to estimate their anticipated losses over the life of a loan, and its potential impact on credit unions.
“I believe the compliance costs associated with implementing CECL overwhelmingly exceed the benefits,” he 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.”
He added that for most credit unions, implementing CECL would have an immediate negative impact on net worth. FASB enabled credit unions to delay implementation of CECL until 1 January 2023. However, the Covid-19 outbreak has impacted the sector’s ability to use the additional time to collect data and review processes, having to focus on supporting the credit and depository needs of members affected by the pandemic.
“This critical work is being performed under the additional constraints imposed by strict social distancing protocols and stay-at-home orders,” wrote Mr Hood.
“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,” read the letter.
NCUA, which acts as the national regulator for 5,236 credit unions, uses the incurred loss model when it supervises and examines the sector. According to NCUA, 70% of these credit unions are less than US$100m (£79m) in assets. The regulator is worried that implementing CECL would bring data collection challenges for the smallest credit unions it supervises.
“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,” said Mr Hood. “I respectfully urge the FASB to consider providing a permanent exemption of CECL implementation for credit unions,”
The letter was welcomed by the sector, including apex body the National Association of Federally-Insured Credit Unions (NAFCU), which has been urging FASB to exempt credit unions from the standard since 2016.
President and CEO Dan Berger said: “We applaud 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.”
