NEWS, EVENTS, PUBLICATIONS & EMERGING ISSUES

SW&M EMERGING ISSUE
May 7, 2010

NCUA PUBLISHES A LETTER OF UNDERSTANDING AND AGREEMENT

On April 20, 2010, the NCUA published a Letter of Understanding and Agreement entered into by Kappa Alpha Psi Federal Credit Union. The timing of the NCUA action is significant because the LUA was originally signed approximately 10 months earlier. While we have seen many LUAs in which the NCUA has “reserved the option to publish,” this is the first time such a delayed publication has occurred. In part, this reflects a change in the NCUA’s general practice, as signaled by a statement made by Chairman Debbie Matz in November, 2009: “Whenever necessary, NCUA examiners will be taking public administrative actions to ensure compliance.”

Published LUAs differ from unpublished LUAs in the burden on the NCUA to enforce them. Enforcement of an unpublished LUA requires an additional showing that the credit union was engaged in unsafe or unsound practices or violations of law, whereas published LUAs are enforceable as merely contracts with the NCUA. At the same time, published enforcement documents can threaten liquidity or cause publicity problems that are unnecessary for the NCUA’s goals. The NCUA thus uses publication as a way to get the attention of a recalcitrant credit union.

With increased regulatory scrutiny across the board, even credit unions with healthy financials are experiencing administrative actions not seen in recent times, including LUAs and Orders. We can expect to see increasing administrative attention even as the economy turns around. As LUAs are negotiated documents, your credit union should ensure that it can live with all of the action items and time-frames. There is no longer any guarantee that the NCUA will not publish LUAs, and the language you agree to could become public.

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