NCUA Issues Temporary Regulatory Relief in Response to COVID-19 Crisis

The NCUA recently issued a temporary final rule, easing certain regulatory requirements to assist federally-insured credit unions (FICUs) and federal credit unions (FCUs) during the COVID-19 crisis.  The changes made by the rule are effective through December 31, 2020.

The rule raised the aggregate amount of loan participations that a FICU may purchase from any individual originating lender to the greater of $5 million or 200% of the FICUs net worth.  Normally, the limit is the greater of $5 million or 100% of the FICUs net worth.  The NCUA stated that it believes temporarily raising the limit will help stabilize FICUs during the COVID-19 crisis without causing undue additional risks to the safety and soundness of the credit union system.

Under the NCUA’s regulations, a FICU can generally purchase an eligible obligation from any source, provided the FICU was empowered to grant or refinance the loan within 60 days of its purchase.  The rule temporarily suspends the refinancing requirement.  The NCUA explained that temporarily suspending the requirement would “promote the extension of credit and flow of liquidity in the credit union system generally.”

Additionally, with respect to FCUs, the NCUA’s regulations generally require that purchased eligible obligations be obligations of the purchasing FCU’s members. However, there is an exception to this requirement for well-capitalized FCU’s with composite CAMEL ratings of 1 or 2.  The rule expands this exception and authorizes FCUs with CAMEL ratings of 1, 2, or 3 to purchase eligible obligations regardless of whether the obligations belong to the purchasing FCU’s members.

Moreover, the NCUA’s regulations generally state that if an FCU purchases properties to support its internal operations or service its members, it must partially occupy them within six years of acquisition.  An FCU must also make diligent efforts to dispose of abandoned properties and properties that it does not intend to use in transacting business.  The NCUA noted that the COVID-19 pandemic and the physical distancing measures implemented by the states have made it difficult for FCUs to comply with these requirements.  Accordingly, the NCUA is temporarily tolling the regulatory mandated timeframes so that any days between April 21, 2020, and December 31, 2020, will not count for purposes of determining an FCU’s compliance with the regulatory timeframe requirements.