The National Association of Federally Insured Credit Unions (Nafcu) has asked the Financial Accounting Standards Board (FASB) to delay the implementation of a new credit loss accounting standard to enable credit unions to prepare to adopt these.
In a letter to the board, Nafcu president and CEO Dan Berger said the implementation deadline of the current expected credit loss (CECL) standard might pose challenges to some credit unions, particularly smaller ones.
Issued by FASB in 2016, the standard focuses on estimation of expected losses over the life of the loans, while the current standard relies on incurred losses. Credit unions were initially told to comply by 2022 but FASB’s proposal would extend that by one year.
“A one-year delay of CECL’s effective date will provide much needed relief by granting credit unions additional time to train staff, develop models for different loan pools, and conduct parallel runs,” said Mr Berger.
“For many smaller credit unions, this additional time is critical to ensure a smooth transition and prepare for the disruption that increased allowances may have on capital.”
FASB has met with its Not-for-Profit Advisory Committee to discuss the proposed Accounting Standards Update (ASU) to delay the CECL standard by one year.
“Credit unions are subject to a statutorily defined capital framework that places limits on the NCUA’s ability to mitigate CECL’s impact on net worth without accompanying action from the FASB. This is because net worth is defined as a credit union’s ‘retained earnings balance, as determined under generally accepted accounting principles’,” said Mr Berger.
The Credit Union National Association (Cuna), another trade body, has also written to FASB in response to the proposed delay of the standard for credit unions.
“We appreciate the board’s recognition of the challenges entities – of all sizes and complexity – are encouraging as they work to implement changes necessary to comply with these standards. Thus, we support the supposed changes to the effective dates, as such changes would be consistent with the Board’s proposed new effective date philosophy,” read the letter.
However, Cuna added that it still viewed the application of the standard to credit unions as inappropriate, arguing that underfunding of allowance accounts had not been an issue for credit unions.
The letter added that CECL would hinder credit unions’ ability to serve low and moderate income borrowers since the new standard forces lenders to be more discerning of borrowers will less than perfect credit.
Cuna also called on FASB to work with the regulator for credit unions – the Nationa Credit Union Administration – to develop compliance resources for the sector.
“Even with the proposed delay, it is critical that credit unions have sufficient guidance well ahead of the effective date,” added the letter.
According to Cuna, CECL is the biggest compliance challenge for credit unions in the USA.