The National Association of Federally-Insured Credit Union (NAFCU) shared its recommendations regarding a notice of proposed rulemaking (NPR) on the role of supervisory guidance.
The NPR was issued by several agencies: the Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Association (NCUA), the Office of the Comptroller of the Currency, the Treasury, and the Consumer Financial Protection Bureau (CFPB).
The proposed rule would codify an interagency statement made in 2018 and would confirm the agencies “will continue to follow and respect the limits of administrative law in carrying out their supervisory responsibilities,” the NPR stated. The previously issued statement determined agency guidance did not create legally binding obligations for financial institutions, as they are not laws or regulations.
“Supervisory guidance plays a critical role in assisting credit unions to shape their practices, policies, and procedures,” NAFCU Senior Regulatory Affairs Counsel Kaley Schafer wrote in letters to NCUA and CFPB. “Transparent guidance provides a more consistent supervisory approach.”
Schafer requested the agencies better coordinate with other regulators, citing an example where credit unions subject to supervision and examination by the CFPB and the NCUA or a state regulator have had overlapping or consecutive examinations, causing an operational burden on the examinee.
NAFCU also recommended the NCUA expand eligibility of the extended 18-month exam cycle for all well-run, low-risk credit unions and provide credit unions a streamlined, independent appeals process for supervisory and examination determinations. The letter also urged for NCUA to establish security protocols to protect the “integrity and confidentiality of credit union information in the transfer, storage, and use of confidential information.”
NAFCU’s letter to the CFPB addressed similar concerns. In addition to the above recommendations, Schafer also urged the bureau to continue to “encourage examiners to take all necessary steps to identify and advise on deficient practices before they rise to the level of a violation of law or regulation.”
“Examiners should be able to reference supervisory guidance as an example of appropriate practices,” Schafer wrote. “Providing supervisory guidance as a reference is helpful for both the examiner and the credit union and offers greater examination consistency and transparency. However, the risk of ‘regulation by examination’ presents itself if the line between supervisory guidance and regulatory requirement is blurred.
“Deviating from supervisory guidance should not automatically be construed as a deviation from a federal consumer financial law and should not in and of itself form the basis of an enforcement action. Rather, examiners should use regulatory requirements as the basis to assess credit union operations and afford credit unions with the opportunity to demonstrate that their practices, which may deviate from the examples provided in supervisory guidance, nonetheless meet regulatory requirements.”