Board Approves Final Rules on Fair Hiring in Banking and Simplification of Share Insurance for Trust Accounts

Board Action Bulletin

Board Briefed on Share Insurance Fund and 2024 Mid-Session Budget

ALEXANDRIA, Va. (Sept. 19, 2024) - The National Credit Union Administration Board held its sixth open meeting of 2024 and approved:

• A final rule incorporating its Second Chance Interpretive Ruling and Policy Statement and the Fair Hiring in Banking Act into its regulations.
• A final rule that would simplify share insurance regulations by establishing a "trust accounts" category.

In addition, the NCUA's Chief Financial Officer briefed the Board on both the performance of the National Credit Union Share Insurance Fund during the second quarter of 2024 and the 2024 mid-session budget.

Rule Provides Second Chance for Those Seeking Employment in Credit Unions

The NCUA Board unanimously approved a final rule that codifies Section 205(d) of the Federal Credit Union Act and incorporates the NCUA's Second Chance Interpretive Ruling and Policy Statement (IRPS 19-1) and the Fair Hiring in Banking Act into the agency's regulations. This rule allows people with convictions for certain minor or older offenses to work in the credit union industry without applying for the NCUA Board's approval.

"Providing career opportunities for those who want nothing more than a second chance - to be responsible, to earn an honest wage, and to pursue a rewarding career in the credit union system - is a tale of redemption and inspiration," NCUA Chairman Todd M. Harper said. "It's also a matter of equity. And, it proves people have the capacity to make amends and change the direction of their lives for the better."

Section 205(d) generally prohibits, except with the prior written consent of the NCUA Board, a person who has been convicted of or has a program entry for certain criminal offenses involving dishonesty or breach of trust from participating in the affairs of a credit union. The final rule addresses the individuals and types of offenses covered by Section 205(d) and the NCUA's procedures for reviewing a consent application.

The final rule also:

• Excludes minor offenses, including certain designated lesser offenses, from the scope of Section 205(d), and excludes most drug-possession offenses and older misdemeanors from the "dishonesty or breach of trust" category of covered crimes.
• Amends regulations governing the conditions under which newly chartered or troubled federally insured credit unions must notify the NCUA of any proposed changes to its board of directors, committee members, or senior executive staff.

With the issuance of this final rule, IRPS 19-1 is rescinded. This final rule is effective 30 days following its publication in the Federal Register.

Final Rule Simplifies Share Insurance Regulations; Aligns with FDIC Coverage of Trust Accounts

The NCUA unanimously approved a final rule that simplifies the NCUA's share insurance regulations by establishing a "trust accounts" category. The trust accounts category would provide Share Insurance Fund coverage of funds in both revocable and irrevocable trusts deposited at federally insured credit unions in the accounts of members or those otherwise eligible to maintain insured accounts. The rule aligns the Share Insurance Fund coverage provided to federally insured credit union members' revocable and irrevocable trust accounts with the coverage provided to consumers who maintain revocable and irrevocable trust accounts at federally insured banks.

"This final rule simplifies the share insurance regulations and brings the National Credit Union Share Insurance Fund and the Federal Deposit Insurance Corporation's Deposit Insurance Fund into greater alignment," Chairman Harper said. "That's a positive change not only for credit union staff who will have streamlined procedures when working on such trust accounts, but it's also a benefit for credit union members who will better understand their coverage options."

The final rule also provides:

• Consistent share insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender.
• More flexibility for the NCUA to consider various records in determining share insurance coverage in liquidations.

The changes to the trust account and mortgage servicing account provisions in the NCUA's Share Insurance Fund regulations align with changes the FDIC previously adopted, which took effect on April 1, 2024.

The changes to the Share Insurance Fund coverage of trust accounts are effective on December 1, 2026. The changes related to the Share Insurance Fund coverage of mortgage servicing accounts and the records the NCUA considers are effective 30 days following publication in the Federal Register.

Share Insurance Fund's Equity Ratio Projected at 1.28 Percent

The Chief Financial Officer briefed the NCUA Board on the performance of the Share Insurance Fund and the status of its equity ratio, noting that the fund reported a year-to-date net income of $154.3 million and a net position of $21.3 billion as of June 30, 2024. The Share Insurance Fund's total assets decreased from $21.6 billion to $21.5 billion in the second quarter. The equity ratio is updated on a semi-annual basis. As of June 30, 2024, the equity ratio was 1.28 percent.

"The Share Insurance Fund's performance in the second quarter of 2024 mirrors much of the industry's financial performance during the same period. The fund, like the credit union system, is doing well overall, but there are warning signs that we must all heed," Chairman Harper said. "What especially concerns me is the increasing number of complex credit unions with $500 million or more in assets falling into the troubled category - CAMELS code 4 or 5 ratings - this last quarter."

The quarterly report also included an equity ratio projection. For December 31, 2024, the projected equity ratio for the Share Insurance Fund is projected to be 1.28 percent.

Additionally, for the second quarter of 2024:

• The number of composite CAMELS coded 4 and 5 credit unions increased from 125 to 136 in the second quarter of 2024. Assets for these credit unions increased from $7.0 billion to $19.6 billion in the second quarter of 2024.
• The number of composite CAMELS coded 3 credit unions decreased from 760 to 743 in the second quarter of 2024. Assets for these credit unions increased from $176.9 billion to $191.1 billion in the second quarter of 2024.

As of June 30, 2024, two federally insured credit union failures cost the Share Insurance Fund approximately $2.0 million in losses.

The second quarter figures are preliminary and unaudited. Additional information on the performance of the Share Insurance Fund is available on the NCUA's website.

Credit Union Profile and Call Report Changes Reminders

The NCUA published a Federal Register notice requesting comments on proposed Credit Union Profile changes for the December 2024 cycle. The comment period ends on September 24, 2024. Comments may be submitted through the Federal Register portal.

The NCUA recently published a Federal Register notice requesting comments on proposed Call Report changes for the March 2025 cycle. The comment period ends on November 15, 2024. Comments may be submitted through the Federal Register portal.

Details of the proposed Credit Union Profile and Call Report changes are available on the CUOnline webpage.

Follow @TheNCUA on X, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives, and posts videos of open Board meetings online.

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