losses at the time a loan or financial instrument is recorded. Theeffective date of CECL has beenpushed back until January 2023for credit unions.
The CECL standard could havea chilling effect on lending, including loans to low-income borrowers, Hood wrote in a letter toRussel Golden, then-chairman ofFASB earlier this year.
“I believe the compliance costsassociated with implementingCECL overwhelmingly exceedthe benefits,” Hood wrote in hisletter.
He said he was worried aboutthe impact of CECL even beforethe coronavirus crisis, but that theeconomic impact of the pandemicmakes the exemption even moreurgent. He said credit unions havehad to begin preparing for the implementation of CECL – a task thathas become even more difficult asa result of social distancing andstay-at-home orders.
He urged that at a minimum,the standards board allow creditunions to use an alternative thatretains the current frameworkthey use.
As late as September, Hoodsaid he had met with newFASB Chairman Richard Jonesto push the accounting boardto exempt credit unions fromthe standard. While Hood saidJones acknowledged that CECLlikely would hit credit unionshard, he did not promise to revisit the issue.
And of course, exempting credit unions would lead to a hugefight among financial institutions that also would demand anexemption.
Members of Congress also have
weighed in on CECL. Rep. Blaine
Luetkemeyer (R-Mo.), the ranking
Republican on the House Con-
sumer Protection and Financial
Institutions Subcommittee, in-
troduced legislation in July that
would abolish CECL.
“This standard is bad for insti-
tutions, bad for investors and bad
for everyday Americans,” he said.
“It is time we eliminate this harm-
ful accounting standard once and
The bill was referred to the
House Financial Services Com-
mittee, which has not considered
The legislation followed a letter that Luetkemeyer and subcommittee chairman Rep. Gregory Meeks (D-N.Y.) sent to FASBasking the board to work withfinancial regulators to study theimpact of the new accountingstandard.
For instance, they said, if smalland midsize financial institutionscurb lending and restrict credit,lower-income people would seethe cost of borrowing increase orevaporate.
Meanwhile, the NCUA boardhas issued a proposed rule thatmembers hope will help cushionthe blow.
The rule, according to theNCUA, was narrowly tailoredto mitigate the impact of CECLon the Prompt Corrective Action classification of a federally-insured credit union’s net worth.The rule mirrored a rule adoptedby other banking regulators.
“Specifically, the proposed rulewould provide that, for purposesof the PCA regulations, the Boardwill phase in the day-one effectson a FICU’s net worth ratio overa three-year period,” the NCUAboard said. The phase-in wouldonly apply to federally-insuredcredit unions that adopt the CECLmethodology on or after Dec. 15,2022.
Comments on the proposedrule were due last month. In comments filed with the agency, creditunion officials took an “it’s betterthan nothing” approach.
“As we have stated in previous
comment letters to FASB, we be-
lieve that this new standard is a
solution in search of a problem
that does not exist within credit
unions,” Indiana Credit Union
League President John McKenzie
He said historically, creditunions have weathered economiccrises very well. And he expressedconcern that when CECL goesinto effect, credit unions will over-fund allowance accounts.
“The end result will be lowerreported earnings, and reducedcapital for credit unions as theyimplement these onerous standards,” he added.
Nonetheless, McKenzie commended the NCUA for tryingto help credit unions with thetransition to the new accountingstandard.
He also endorsed the NCUA’splan to exempt credit unionswith less than $10 million inassets.
“For some credit unions, implementing CECL will have animmediate and negative impacton net worth and its ability toserve members and communities during a time of unparalleled economic turmoil,” JoniSenkpeil, SVP of member solutions at the Illinois Credit UnionLeague, told the NCUA.
Many credit unions are expe-
riencing rapid increases in de-
posits, resulting in a decrease
in their net worth, according to
Tim Tacheny, general counsel
for the Minnesota Credit Union
Network. He said the general
consensus is that a complete
economic recovery from the
coronavirus crisis will take sev-
eral years. That means credit
unions still will be dealing with
net worth issues when CECL is
scheduled to go into effect, he
The NCUA should consider themultitude of issues that couldhave an impact on credit unioncapital during the next three yearsand adopt flexible standards forthe examination of credit unioncapital, Andrew Morris, NAFCU’ssenior counsel for research andpolicy, told the agency.
And then, there’s the consideration of the compliance costof adapting to the new rule, according to Luke Martone, CUNA’ssenior director of advocacy andcounsel. Martone said creditunions will have to use scarceresources to analyze their loanportfolios and project life of loanlosses.
He added that CECL is likely tohave an impact on a lender’s ability to assist low- and moderate-income people.
“A completely unintended,though real, consequence ofCECL is that it will force lendersto be more discerning of potentialborrowers with less than perfectcredit,” he added. n
CECLCONT. FROM PAGE 1
Y The CECL standard could have a negativeeffect on CU lending, including loans tolow-income borrowers.
Y As of now, CECL is scheduled to go live forcredit unions in January 2023.
Y The NCUA is attempting to mitigate CECLimpacts with a rule of its own.
The NCUA’s headquarters in Alexandria, Va.
‘I believe thecompliance costsassociated withimplementing CECLoverwhelmingly exceedthe benefits.’