Letters of Understanding and Agreement (LUAs)

Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

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Hello, this is Samantha Shares. This episode covers N C U A’s Enforcement Manual on Letters of Understanding and agreement – also known as L U A’s.

The following is an audio version of that advisory and the press release. This podcast is educational and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated, whose team has over two hundred and Forty years of National Credit Union Administration experience. We assist our clients with N C U A so they save time and money. If you are worried about a recent, upcoming or in process N C U A examination, reach out to learn how they can assist at Mark Treichel DOT COM. Also check out our other podcast called With Flying Colors where we provide tips on how to achieve success with N C U A.

And now the Enforcement manual on L U A’s.

What is a Letter of Understanding and Agreement?

An L U A is a bilateral document signed by the credit union's board of directors and the regional director (RD). The credit union agrees to take, or not take, a certain specified action(s). RDs often issue L U As when credit unions have not adequately responded to less severe measures, such as Documents of Resolution. N C U A also requires L U As for newly chartered credit unions and for the granting of permanent special assistance.

Delegation of Authority SUP 16 authorizes RDs to enter into L U As with elected and appointed officials of FCUs and FISCUs. RDs discuss and negotiate publication with credit unions to prevent unfair surprises to credit unions and their officials. The

RDs will address the issue of publication in every L U A between N C U A and a credit union by including one of the following three provisions:2

1. This L U A will not be published.

2. This L U A will be published.

3. The RD is reserving for a reasonable time his/her right to publish this L U A.3•

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2 Minor modifications and variations of the listed provisions that clearly communicate the same ideas are acceptable.

3 This third provision can also specify the period of time within which the RD will decide whether to publish the L U A or can correlate publication to a specified event (or the failure of an event to occur).

a. Required Letter of Understanding and Agreement provisions

This section is redacted.

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b. Published Letter of Understanding and Agreement

The FCU Act §206(s)(1)(A), 12 U.S.C. §1786(s)(1)(A), requires the N C U A Board to publish and make available to the public "any written agreement or other written statement for which a violation may be enforced by the Board unless the Board, in its discretion, determines that publication would be contrary to the public interest." L U As must be published if violations are to be considered enforceable. The N C U A Board may take administrative actions against credit unions or officials when they fail to meet terms of published L U As. Violations of the terms of a published L U A alone are grounds for administrative action and, although not required, the L U A should include language to that effect as stated above.

N C U A may enforce a published L U A by bringing an enforcement action, such as a cease and desist order or civil money penalty, and proving noncompliance with the published L U A.

These publication requirements apply to all L U As, including those issued to newly chartered credit unions, as well as those issued in connection with special assistance. N C U A may take an enforcement action, even if the L U A is not published, if the credit union fails to comply with the terms of the L U A and the credit union's conduct constitutes a material safety and soundness violation or violation of law or regulation.

While not required by the delegation, the regions should provide the Office of General Counsel and E&I with a draft of an L U A considered for publication two business days prior to its delivery to the officials of the credit union for signature.

c. Non-Published Letters of Understanding and Agreement

Non-published L U As are not enforceable. The mere violation of a non-published L U A is not grounds for a formal enforcement action, but may serve as the basis for developing grounds for a formal enforcement action if underlying safety and soundness concerns or violations of statutes or regulations exist.

The FCU Act provides that N C U A may enforce the terms of an unpublished L U A if the N C U A Board approves non-publication based upon a finding that publication would be contrary to the public interest. If the RD recommends to the N C U A Board that an L U A not be published because publication would be contrary to the public interest, and the N C U A Board issues this determination, the L U A will still be enforceable. The RD's recommendation must clearly show why publication would be contrary to the public interest. The FCU Act requires a quarterly written report to Congress to summarize all non-published L U As that are enforceable under this exception. This exception to publication should be used rarely and only when conditions justify a conclusion that non-publication is in the public interest.

d. L U As with Federally Insured State-Chartered Credit Unions (FISCUs)

N C U A may independently or jointly with the S S A’S issue an L U A to a FISCU. The requirement for publication applies if N C U A attempts to take action based on a violation of the terms of the L U A. Therefore, RDs will include one of the three publication provisions discussed above in all L U As issued jointly with N C U A and a S S A’S

This concludes the N C U A’s Enforcement manual on L U A’s.

If your Credit union could use assistance with your exam, reach out to Mark Treichel on LinkedIn, or at mark Treichel dot com. This is Samantha Shares and we Tha...