Credit Unions Should Understand DORs Before Accepting
It was recently reported that 75% of all credit unions are under some form of administrative action from the NCUA. Administrative action includes documents of resolution, letters of understanding and agreement and cease and desist orders. It seems that documents of resolution, in particular, have become a routine and frequent NCUA enforcement tool. For many credit union leaders, you are getting your first experience with this regulatory treatment. If you are seeing a DOR for the first time, don't panic. It is important that you make every effort to fully understand the NCUA's objectives before signing.
From a practical perspective, credit union boards and management should view a DOR as a contract between their organizations and the NCUA. The NCUA Examiner's Guide mentions concepts like agreement and acceptance. The guide instructs examiners to reach an agreement with the credit union on the DOR. A contract is an agreement between two or more parties to act or refrain from an action.
To form a valid contract, the transaction should contain some essential elements. An enforceable contract includes an offer, an acceptance and consideration (which is also called a bargained-for-exchange.) The most challenging element for NCUA enforcement is the mutual assent element. This is the area where I believe credit unions should focus their attention before accepting a proposed DOR.
A showing of mutual assent is necessary for there to be an enforceable contract. Mutual assent must be expressed to the point that all parties fully understand the other's intentions. The law of contracts focuses on the reasonable meaning of the parties' words and actions.
Mutual assent is important from the standpoint that performance is often judged based on the intention of the parties. When the NCUA returns to see whether your CU performed the provisions of the DOR, there may be frustration on both sides if neither had a clear understanding of what was intended.
Having an understanding of the examiner's intent will help you determine if your credit union can indeed perform in the time frame given. If you have misunderstood what deliverables are being mandated, you could find yourself in breach of the agreement. A breach of a contract with the NCUA could raise all sorts of ugly consequences.
If your credit union receives a DOR from the NCUA, make every effort to understand what the examiner is requesting of you. Ask lots of questions. Study the writing carefully. Making an effort to fully understand the agreement from the beginning may save heartburn in the end.
Maurice R. Smith
Local Government FCU