The NCUA will soon be releasing their Supervisory Priorities for 2021. Based on past priorities, evolving NCUA guidance, and the current economic environment here is what we think will be most important to examiners in 2021.
In response to the COVID-19 pandemic, the NCUA released an update to the 2020 Supervisory Priorities in July of 2020. In this update they included the Coronavirus Aid, Relief and Economic Security Act (CARES Act) that was enacted into law on March 27, 2020. The NCUA indicates that examiners will be looking to see if credit unions are meeting their obligations under the CARES Act including:
- Suspension of identifying loan modifications related to COVID-19 as TDR’s
- Providing PPP loans through the small business administration.
- Changed requirements on reporting loan modifications to credit bureaus.
- Adherence to the foreclosure moratorium.
- Providing forbearance to homeowners adversely affected by COVID-19.
In November of 2020, the NCUA hosted a webinar providing an update on its examination procedures surrounding fair lending and consumer compliance expectations, solidifying their commitment to reviewing your procedures in place in response to the CARES Act.
As provisions provided by the CARES Act continue to be relevant to credit unions, we strongly believe it will be a 2021 supervisory priority.
Consumer Financial Protection
In the July update, the NCUA noted that the impact of the COVID-19 pandemic raises compliance risk for consumers. This risk has not gone away so we believe it will continue to be a priority in 2021. Specific acts that will be emphasized are those that were changed as a result of the pandemic including changes to the Electronic Fund Transfer Act (Regulation E) and Truth in Lending Act (Regulation Z).
Credit Risk Management and Allowance for Loan and Lease Losses
Supervision of credit risk management policies and, in particular, how they have been impacted by COVID-19 will continue to be a supervisory priority in 2021. The update in July included an emphasis on how credit unions were helping members affected by the pandemic as well as reviewing if a credit union’s allowance for loan losses adequately reflects the potential economic losses that may result from COVID-19.
While many Credit Unions hadn’t seen a spike in reportable delinquency or charge offs as of Q3 2020, we believe delinquency and charge off rates will begin to increase in 2021 as the accommodations provided to borrowers expire.
Information Systems and Assurance (Cybersecurity)
In the wake of the SolarWinds cyber-attack, we believe that cybersecurity will continue to be a priority in 2021. In addition, in response to the COVID-19 pandemic, credit unions had to shift their business practices, including more work from home employees. Because of these changes, how a credit union maintains data security will be closely reviewed.
As the COVID-19 pandemic ensues, we believe liquidity risk will continue to be a supervisory priority for 2021. As stated in the July update the examiners will assess a credit unions liquidity risk management as it relates to impacts of COVID-19 including:
- Changes in cash flow
- Liquidity risk modeling
- Effects of low interest rates, declining credit quality on assets, funding costs and borrowing capacity.
- Contingency funding for potential delinquencies and losses resulting from loan modifications and forbearance.
Other priorities we feel will be included are;
- Bank Secrecy Act Compliance/Anti-Money Laundering
- LIBOR Transition Planning
At 2020 Analytics, we help credit unions prepare for their NCUA exam. We provide consultative loan analytics and portfolio stress testing. We provide COVID-19 specific including monitoring and tracking of your skip-a-pay and forbearance loans. We validate your allowance for loan loss and provide qualitative assessments on COVID-19 specific reserve amounts. Contact us today to see how our services can best meet your needs.