FR 2021-01867

The document from the Federal Register involves a rule adopted by the National Credit Union Administration (NCUA) to clarify the use and role of supervisory guidance within the credit union sector. This guidance is distinct from laws and regulations in that it does not create binding legal obligations. Rather, it serves as a helpful resource to communicate expectations and best practices. The final rule aims to maintain the utility of such guidance as a tool for both examiners and credit unions.

General Summary

The NCUA's rule codifies an interagency initiative that reaffirmed the difference between supervisory guidance and enforceable regulations, following an original statement from 2018. Unlike laws, which have the force of law and must be adhered to, supervisory guidance is primarily informational — it outlines expectations without creating legal obligations. The rule emphasizes that while the NCUA will not enforce laws based on supervisory guidance, it remains an essential tool for relaying best practices and forward-looking standards in operations and risk management within credit unions.

Significant Issues and Concerns

The document is characterized by complex legal language that might be challenging for the general public to understand. It reiterates the distinction between guidance and regulation multiple times, which could result in reader confusion. Additionally, the explanation of how supervisory guidance differs from interpretive rules lacks clarity and practical examples that could aid understanding. Legal references abound throughout the text, potentially alienating readers unfamiliar with them. The distinction between making supervisory criticisms "on the basis of" versus merely "referencing" guidance seems nuanced and might be hard to apply in the real world.

Furthermore, while the document makes clear how supervisory guidance should and should not be applied, it fails to provide practical examples that might help credit unions and other stakeholders see how the rule would function in practice. Although not part of the rulemaking, comments about consistency and coordination with other regulators highlight ongoing concerns that remain unaddressed.

Impact on the Public

Broadly, this rule will likely have limited direct impact on the public since it pertains mainly to the internal workings and guidance of credit union supervisors. However, it may influence how credit unions are supervised and criticized, potentially affecting how these institutions are perceived in terms of operational safety and customer protection.

Impact on Specific Stakeholders

For credit unions, this rule presents a clear reaffirmation that they will not be legally penalized for failing to meet non-binding guidance standards. This could alleviate concerns about facing formal enforcement actions for deviations from supervisory guidance, encouraging innovation within safe bounds. However, it might also create discomfort for institutions uneasy about the subjective nature of supervisory criticisms and the potential for inconsistency among examiners.

On the regulatory side, examiners may appreciate the clear statement on the non-binding nature of guidance, which might streamline their focus on statutory compliance rather than ancillary critiques via supervisory channels.

Overall, the rule seeks to balance clarity in supervisory expectations with flexibility for credit unions to manage risks prudently without fear of undue legal consequences. However, the effectiveness of these provisions will depend on consistent application by examiners and understanding from the credit unions themselves.

In reviewing the document, financial aspects appear primarily in the context of regulatory flexibility and the evaluation of what constitutes a "major rule" under the Congressional Review Act. These references shape an understanding of the rule's economic impact and its potential consequences for small entities and broader economic activities.

The document specifies that a Regulatory Flexibility Analysis is generally required to assess the impact of a rule on small entities. However, in this case, such an analysis is deemed unnecessary because the National Credit Union Administration (NCUA) certifies that the final rule will not have a significant economic impact on a substantial number of small entities. The NCUA defines small entities for this purpose as those federally insured credit unions with assets of less than $100 million. This reference suggests that the rule is expected to have a minimal financial impact on small credit unions, thereby exempting it from the requirement to undergo a detailed economic impact analysis.

Additionally, a key financial reference regards the rule's status under the Congressional Review Act. This act mandates a review of whether a rule qualifies as a "major rule.” A rule is deemed "major" if it is likely to generate an annual economic effect of $100,000,000 or more or leads to significant cost increases for consumers and various governmental or geographic entities. In this document, the NCUA indicates that the rule will be submitted to the Office of Management and Budget (OMB) to determine if it meets these criteria.

These financial references relate to some of the broader issues noted in the text. For instance, the consideration of economic impacts ties into concerns about the consistency of rule enforcement across different regions. While those concerns fall outside the direct scope of this rulemaking, there’s an implicit reassurance that the financial impacts have been evaluated to prevent undue burden on small credit unions across regions.

Moreover, the document discusses the importance of ensuring that supervisory guidance does not lead to unfounded financial pressures by reinforcing that such guidance is not legally binding. This is closely related to issues of clarity and the distinction between regulations and guidance, emphasizing that there will be no financial penalties for non-compliance with supervisory guidance.

In summary, the document's financial references focus on ensuring that the rule's implementation does not impose significant costs on small entities or the broader economy. Furthermore, these references highlight the NCUA's efforts to maintain financial stability and predictability for the entities it regulates, aligning with the broader themes of regulatory clarity and fair application.