10 Ways to Avoid an NCUA Document of Resolution

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WFC 10 Ways to Avoid an NCUA Document of Resolution
[00:00:00] Do you want to maximize your success with NCUA? Join Mark Treichel as he shares with you the insider's view on passing your exam with Flying Colors. The With Flying Colors podcast is sponsored by Credit Union Exam Solutions by Mark Treichel. If you would like to work directly with the Credit Union Exam Solutions team and receive support to optimize your results with NCUA so you save time and money, visit us at marktreichel.
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Treichel: Hey everyone, this is Mark Treichel with another episode of With Flying Colors. I'm recording this at, , just afternoon, Eastern, March 17th. Just got off the beach, , brought my notebook with me. , in my long career, I had different ways of keeping track of things, but when I started consulting, gosh, three and a half years ago, I started using a college ruled composition notebooks, one for each month, and it allows me to go [00:01:00] back and, , find things much easier.
And instead of writing it on a sticky notes or starting some electronic file, it's proven to be the best system that I've got anyway, in that I have a updated list that I update every month of potential podcasts. That I want to do. And, , I had a note that said three ways to avoid getting a document resolution and sitting on the beach, , watching, the waves, watching people walk by, I took out my pen and I actually came up with 10 ways to avoid a document resolution.
And that's what I'm going to talk to here, just in case my throat gets a little scratchy. I'm going to, open up a polar seltzer, which was on sale at Publix this week. Here we go. , There's the seltzer.
Take a sip before we get going. All right. 10 ways to avoid a document or resolution. Well, first, , so what is a document resolution? Obviously most of the listeners know that, but it's. Part of the examination report and short of getting something that is a formal, , [00:02:00] action by NCUA, like a letter of understanding, it is, , the most aggressive, required action by a credit union as part of an examination.
Now, a Code 1 can get a document resolution, a Code 5 can get a document resolution, which means credit unions in the middle can get a resolution. Document resolutions, of course, code ones and code twos oftentimes don't usually for your code three, you are going to get some document resolutions. Although I've seen that not be the case.
I've also seen that recently. So anyway, so the reasons for a document resolution safety and soundness concern compliance concern, inadequate management or board oversight are three broad areas that will trigger a document resolution. However, let's kind of dive into that. The first item I had written down was a violation of the Federal Credit Union Act.
or a violation of an N. C. U. A. Regulation. , file that under commit. No minor blunders. Obviously, you need to know what your policies are. We'll get to that. You need to know what the regulations are and you need to follow the Federal Credit Union [00:03:00] Act situations like this. Put a lot of discretion into the hands of the examiner because there are some instances where if you violate a regulation or a law, they have to give you a document of resolution.
And that an example, the best example of that is Bank Secrecy Act, where they have agreements with FinCEN that they will do that type of take that type of action. So in that situation, the examiner can't even Negotiate with you, but other examples of violations of regulations would be a violation of the commercial loan rule.
And you see that on occasion when someone gets into a new program, and they don't understand the documentation requirements or the follow up requirements of commercial lending. , the theory is and the concept is commercial loans. You put more eggs in, in, in one basket, commercial loans, , can be more complicated to review.
Commercial loans require a certain level of expertise. So if you don't follow the regulation, you can cause a loss to the, to the credit union, , some credit unions ultimately have caused loss to the [00:04:00] insurance fund, so the NCUA will act. Fairly aggressively when it relates to a regulation violation of commercial loans, for example.
Now, sometimes you might see NCUA negotiate that down to a different type of document in the examination, but I'll get to that shortly. Another no no that you very rarely get any leeway on not being a document resolution is if you have issues tied to your audit. NCUA takes that very seriously, , and, typically we'll have that in a document or resolution or higher if there were flaws in your audit, you didn't do your audit timely, et cetera, or, the verification of accounts, which falls into the responsibilities of the supervisory committee or the audit committee, , for state charters that might call it that.
All right. So, so violation of the act, violation of regulation. Number two, a violation of your own policy is sometimes you might do a policy limit as squishy, , and might not document exceptions to it. If you do have [00:05:00] exceptions to policies, NCUA is typically going to ask you to track those, monitor those.
NCUA has criticized credit unions for not following their own policies, viewing their policies as a goal. For example, we'll have a loan to asset ratio of 80. You go to 81 the next month, you change it in your policy to 85. , six months later, you go to 86 and then you change it to 90. Now, can you make changes like that?
Yes, but NCUA is going to expect the board be involved. , that there be good corporate governance around that and that it's not just, oops, we went over and we want to keep making these. You need to have logic behind that. And if you don't, NCUA will criticize you most likely in some way, shape or form, and it could rise to a level of a document of resolution.
Now, Over the last few years, I've seen several instances in conversations with credit unions where credit unions had a strategic plan, their strategic plan said we're going to do A, B, and C, and then the results of the year were they [00:06:00] did, instead of doing A, B, and C, they did A, D, and F, and maybe Z, and then went back and did B and C for good measure, and it wasn't exactly what the board approved at the credit union for their strategic plan, And then opportunities came about where, let's say, marijuana banking, let's say, opportunity to do a merger, merger of a bank, acquisition of a bank, where that was not in the strategic plan.
And as a result, maybe some other things, didn't get done that, that could have been done or should have been done. Gotten done. I've seen SUA be critical of, a board and a credit union, not following their strategic plan. Ironically, there's not a lot of references to the requirement of strategic plans, which by the way, they're not, they're just, of course, sound business practices.
So, but that has, has popped up. So. So number one, comply with the act of regulation. Number two, comply with your own policies
And number three, comply with your strategic plan or revise your [00:07:00] strategic plan or make your strategic plan a little bit more flexible. Number four, , how do you avoid a document resolution? Communicate well. Communicate well with NCUA. If you're contemplating a new program, reach out to the examiner.
Talk to the supervisory examiner. Make sure they're aware that you're contemplating these things. Sometimes they'll see best practices in other institutions and share some ideas that will improve your implementation. Reminds me of a quote by a former NCUA board member who said when we were negotiating with NCUA's union, familiarity breeds consent.
So, when you have a good relationship where you show that you are going to communicate well with them, you can get more leeway. That works with NCUA. That works with your teenage kids. , so anyway, communicate, communicate, communicate, , make sure that if you have a new program that you are in contact with NCUA relative to that.
They're not going to bless policies and procedures and different things, but they will tell you what they've learned and they've seen a lot of things. So do that. [00:08:00] Number five, negotiate, negotiate, negotiate, right? So you get a document resolution. It's a draft. Okay. Thank you. That is a first draft, right?
You might have a better idea on how to deal with something. You also may be able to convince them that instead of a document resolution, here's fact a, that you didn't consider fact B that you didn't consider. And maybe we can put it into an examiner finding instead of a document resolution. Now, why would you want to do that?
It's a little. Less draconian, it's a little less likely to impact your camel code. And, , it's just a better place to have it in an examiner findings. Another thing you can do too, is, okay, number one, maybe it shouldn't be a document resolution. It should be an examiner finding. And Oh, by the way, we fixed it before the exam was done.
Sometimes they'll take that out of the exam in its entirety. Sometimes they'll just say, this was a problem. You dealt with it when we were here and now it's done. So negotiate number five, number six, training, training, training. Make sure your board is trained. Make [00:09:00] sure your staff is trained, whether that's through, , the new America's credit unions, whether that's through NASCS, whether that's through leagues, whether that's through hiring consultants, there's a lot of good consultants and a lot of good areas out there that can give you a deep dive on different things.
So, don't crimp your budget on training. Make sure your staff have the resources to do what they need to do. That's that's common sense, right? Numbers eight, subscribe to NCUA express. That alerts you when regs regulations are proposed, that alerts you when NCA is going to do a webinar that alerts you when a regulation is final.
And it's a good way, , to keep track of what's out there, , and, forward it onto your staff so they can develop a plan, , to resolve before NCUA comes in, , because again, you're expected to stay up, tore up to date on those new regulations . Number seven, subscribe to my podcasts.
Of course, I've got two podcasts out there. Now, this one is with flying colors where we assist our credit [00:10:00] unions, , with NCUA exam type issues so that they can save time and money. Number two is an AI driven podcast, which is more audio book style, , hosted by, , Samantha shares. And that podcast is called credit union regulatory guidance, which is again, audio books on NCUA related, or, , Financial institution related issuances, that are still relevant or are new that, you may want to, , study and, , understand.
So again, subscribe to the podcast, just hit subscribe. I'd appreciate that. Hey, if you could give me a rating, if you like it too, that would be great. The more ratings you get, , the more, Apple and Spotify, , like to share, , your podcast, , when people do searches. All right, accounting problems. I mentioned people have issues with their audit.
NCUA is going to do a document resolution, so the best way to make sure you don't, , in this arena to make sure you don't get a document resolution is to make sure your, , your main accounts are reconciled. And that you have your audits done timely. If you go back and look at my [00:11:00] podcast about CamelCo downgrades, , oftentimes when that happens, one of the NCUA board members will ask the chief financial officer, so what's driving this trend?
And they will speak to operational issues, management issues, accounting issues. And , oh, by the way, that's happening in some large credit unions, over a billion, , again, commit no minor blunders and SUA will not only react to accounting problems, they will overreact because that can lead to fraud. That can lead to losses at the insurance fund.
And, , really, , other than BSA, probably the least likely thing that they will negotiate on is accounting issues until they are done. All right. So that was number nine, number 10. Give them access to you. If you're the CEO and they can't pick your brain, can't talk to you, you're not available during the day or you're not even there during the examination.
NCUA is not going to like that. Do they have access to your C suite? A lot of credit unions, particularly bigger credit unions, , now have a chief risk officer who's [00:12:00] responsible to, to liaison, with government, , agencies. That's great. But they should understand, , what makes you tick as a CEO or a number two.
Again, it goes back to communication, right? If you communicate well with NCUA at all levels, your examination will go better. Alright, so those are ten, ten ways to avoid a document resolution. I'll summarize them here for you. Number one, comply with the federal credit union act and regulation and regulations.
Number two, apply with policy. Number three, live within what you approved in your strategic plan. Number four, communicate with N. C. U. A. Number five, negotiate with N. C. U. A. Number six, train yourself and your staff and your board. Number seven, subscribe to NCUA express number eight. Listen to my podcasts, subscribe.
If you'd like number nine, avoid accounting problems and number 10, provide them access to you so they understand what's going on, , at the highest [00:13:00] levels of the credit union, that's a show of respect to the examiner. And it is appreciated. And I've seen that go awry over my 34 years at NCA, my additional four years doing this while that adds up to 38, a couple more years.
We'll be at 40 in the industry. All right, everybody. , I enjoyed, updating you on my, , Brain dump on document resolutions. We're seeing more of them. We're seeing more code threes. I'm going to do a podcast on code threes coming up here soon.
All right, I'm going to go back out to the beach. I hope you have a great, great, week of March 18th, , at your credit union normally, by the way. Okay, here we go. I digress. Normally, by the way, NCA would've a board meeting this week, but for some reason they are not having a board meeting.
I make reference to that and a post on LinkedIn. By the way, follow me on LinkedIn. I'm the on LinkedIn a lot, but I did a poll. Asking the industry if N. C. U. A. Should be doing separate consumer compliance exams and ratings. And so far, more than half the people responding and I've got more responses than normal are that no, they shouldn't do it.
I think [00:14:00] one in six was saying every credit union should do it. About 3 percent were saying those over a billion. And whatever the other, the remaining amount is 50, 16, 20, 70, about 30%. We're saying it should be 5 billion and above, which is probably where they'll land by the way, but I'll have more on that.
All right. Enough rambling about, consumer compliance. That's a podcast coming up on that. I, as always, I hope you enjoyed listening. I will listen again soon. This is Mark Treichel signing off with flying colors.
Thank you for joining us on this episode of with flying colors, subscribe on your favorite podcast app to hear future episodes where subject matter experts of all varieties will provide tips on how to achieve success with NCUA. If you would like to learn more about how we assist credit unions, check out our services at marktreichel.

10 Ways to Avoid an NCUA Document of Resolution
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