NCUA Finalizes Appraisal Rule and Fidelity Bonds; Proposes “Second Chances IRPS”

The NCUA Board recently issued a proposed IRPS regarding prohibitions imposed by section 205(d), adopted final rules on real estate appraisals and fidelity bonds, and approved its 2019 mid-session budget.

Proposed IRPS – Guidance Regarding Prohibitions Imposed by FCU Act § 205(d)

The Board issued a proposed Interpretive Ruling and Policy Statement, referred to as the “Second Chances IRPS.” The proposed IRPS would update and revise the existing IRPS (IRPS 08-1) regarding statutory prohibitions imposed by § 205(d) of the FCU Act, which prohibits, except with prior NCUA Board approval, any person who has been convicted of any criminal offense involving dishonesty or breach of trust, or who has entered into a pretrial diversion or similar program in connection with a prosecution for such offense, from participating in the affairs of an insured credit union.

The proposed IRPS would replace the existing IRPS in an effort to reduce regulatory burden. The proposed IRPS would amend and expand the current de minimis exception to reduce the scope and number of offenses that would require an application to the NCUA Board. Specifically, the proposed IRPS would not require an application for:

  • Insufficient funds checks of aggregate moderate value;
  • Small dollar simple theft;
  • False identification
  • Simple drug possession; and
  • Isolated minor offenses committed by covered persons as young adults.

NCUA will accept public comments on the proposed IRPS for 60 days following publication in the Federal Register.

Final Rule – Real Estate Appraisals [Part 722]

The Board adopted a long-awaited final rule requiring real estate appraisals for certain transactions. Specifically, the final rule, adopted largely as proposed:

  • Increases the threshold below which appraisals are not required for commercial real estate transactions from $250,000 to $1,000,000;
  • Restructures the rule to enhance clarity;
  • Exempts from the rule certain federally related transactions involving real estate in a rural area; and
  • Makes conforming amendments to the definitions section.

The final rule does not adopt a proposed change that would have replaced the current § 722.3(a)(5) exemption for certain existing extensions of credit with an exemption based on whether a transaction is not considered a “new loan” under GAAP.

The final rule will be effective 90 days following publication in the Federal Register.

Final Rule – Fidelity Bonds [Parts 704, 713]

The Board adopted a final rule on fidelity bonds under Part 704 for corporate credit unions and Part 713 for natural person credit unions. Specifically, the final rule:

  • Strengthens a board of directors’ oversight of a FICU’s fidelity bond coverage;
  • Ensures an adequate period to discover and file fidelity bond claims following a FICU’s liquidation;
  • Codifies a 2017 legal opinion that permits a natural person credit union’s fidelity bond to include coverage for certain CUSOs; and
  • Addresses Board approval of bond forms.

The final rule includes the following changes from the proposed rule aimed at reducing regulatory burden:

  • Does not require a credit union’s supervisory committee to review its fidelity bond renewal;
  • Reduced the mandatory discovery period from two years to one year following a credit union’s involuntary liquidation; and
  • Provides increased flexibility to the provision that sunsets Board approval of fidelity bond forms.

The final rule will be effective 90 days following publication in the Federal Register.