A Direct Line Blog

Both NCUA and the Montana Division of Banking have laid out their exam priorities for 2018.  As board members, this should interest you since you have oversight of the safety and soundness and financial health of your credit union. It may warrant a conversation with management to see if your credit union is on track or in need of resources in any of the areas of focus. That will help ensure a successful exam for your credit union, whether you are a state or federally chartered institution.

Federal Focus
NCUA recently issued Letter 17-CU-09  to clarify its exam priorities. In addition to the usual suspects on their list – cybersecurity, Bank Secrecy Act, interest rate risk, and internal controls and fraud prevention — NCUA also included auto lending this year. That is surprising since auto lending is not typically discussed as a risky product; but, with the changes many financial institutions made to programs in recent years to attract borrowers and grow lending, the scrutiny makes sense.

In its letter, NCUA stated that examiners “will apply additional scrutiny to credit unions with material exposure to higher risk forms of auto lending. Specifically, examiners will focus on portfolios with the following concentrations: extended loan maturities of over 7 years, high loan-to-value, near-prime or subprime, and indirect lending programs” and referred to their Letter 10-CU-03 Concentration Risk for more information.

In the “good news” portion of the letter, NCUA noted they will be flexible with filing errors under the new HMDA reporting requirements and examiners will also “evaluate credit unions’ efforts to comply with the Military Lending Act’s restrictions against the use of certain contract terms, as well as the credit card provisions for which compliance began in October 2017.”

State Focus
The Montana Division of Banking sent out an email last week notifying state-chartered credit unions about its exam focus for the coming year. It echoed much of what NCUA stated and also noted that they continue to move to a fully offsite exam process. One note from Bureau Chief Rick Christianson’s message was that the division “will continue its focus on internal controls, board meeting minutes and annual policy approval by the board.” Tips for board minutes are available on their website.

We appreciate hearing about your exam experiences in case an unexpected topic comes up. It’s also nice to know whether we are steering credit unions down the right path with resources. Please reach out to me if you have feedback after your exit interview.