Credit unions will likely begin implementing the FinancialAccounting Standards Board's current expected credit loss standardin December 2019. But the industry still does not yet know exactlywhat it will be implementing.

Though the alterations to the draft, unveiled during the FASB'sTransition Resource Group for Credit Losses meeting on April 1, area step in the right direction, more could be done to address theconcerns of credit unions.

Under the CECL standard, the allowance for loan and lease losseswould reflect a credit union's current estimate of the contractualcash flows that it doesn't expect to collect. This estimate wouldbe based upon management's expectations after considering pastevents, current conditions, and reasonable and supportableforecasts.

Throughout the process of creating this accounting standard,NAFCU has repeatedly asked the board to consider the uniquestructure of credit unions as member-owned, not-for-profitinstitutions. NAFCU holds that credit unions should not be subjectto the proposed accounting update as the costs far outweigh thebenefits.

However, even if the FASB won't consider the special structureof credit unions specifically, at a minimum, the lack oftransparency surrounding the proposal warrants a delay inimplementation and the release of an updated exposure draft forpublic comment.

NAFCU believes that in order to facilitate a smooth transitionto the new method of credit loss accounting, it is critical thatcredit unions be provided enough time to ensure they are adequatelyprepared by the effective date. Given the delay in finalization,NAFCU has asked the board to delay implementation of the CECLstandard for one year.

During the FASB's April TRG meeting, FASB Member Lawrence Smithsaid the board may consider reopening the discussion on thestandard's implementation date. NAFCU encourages suchdiscussions.

The association has also urged the board to issue an updatedcredit losses exposure draft, with any and all changes made as aresult of board action, in order to solicit additional publiccomments. The opportunity to publicly comment on an updated draftwould benefit both credit unions and other stakeholders.

Credit unions have communicated to NAFCU a lengthy list ofconcerns over the accounting standard and how it will impactservice to their more than 103 million member-owners. For example,this proposal will result in an increase in credit unionallowances, in turn misleading members and potentially affectingcredit union regulatory capital requirements. Also, this proposedstandard will potentially impose significant costs on credit unionsby requiring increased data collection, implementation of newrecording systems and the hiring and training of additionalpersonnel.

Since credit unions are focused on meeting members' needs andnot profits, the primary reader of credit unions' financialstatements is the NCUA – not individual or institutional investors.Because of this, this standard – geared toward publicly heldentities – will be difficult and costly to apply to creditunions.

Also, since credit unions do not currently compile the bulk ofthe information the proposal would require them to consider, thenew standard stands to impose a significant and unnecessary costburden on the industry.

Lawmakers have also relayed their concerns to the FASB on thisproposal. In February, Reps. Scott Tipton (R-Colo.) and PatrickMurphy (D-Fla.), and 60 other House members sent a NAFCU-endorsedletter to the FASB raising concerns about how the CECL standardcould hurt credit unions and community banks.

Credit union representatives are also speaking up about theaccounting standard. NAFCU-member credit union representativesserving on the association's regulatory and legislative committeestold the board in a letter earlier this month that issuing anupdated draft for public comment is both “necessary and important.”These two NAFCU committees are working groups made up of more than50 credit union professionals.

The committees, as well as NAFCU, have also pointed the FASB tothe Administrative Procedure Act, which requires federal agenciesto engage in subsequent comment periods if changes are made to arule that make it no longer a logical outgrowth of the initialproposal. While the FASB is a private, nonprofit organization andis not subject to the requirements of the act, the FASB shouldstill voluntarily issue any updated exposure draft for publiccomment prior to finalization.

As work on this draft continues, NAFCU urges the FASB to workclosely with the credit union industry and allow it to voiceconcerns and suggestions as often as possible on this issue.

Alexander Monterrubio is director of regulatory affairs forNAFCU. He can be reached at 703-842-2244 [email protected].