House Financial Services Committee hearing covers CECL issues

The Financial Accounting Standards Board’s (FASB) current expected credit losses (CECL) standard will have a significant impact not only on covered financial institutions but also consumers and the broader economy, CUNA wrote to a House subcommittee this week. The House Financial Services subcommittee on investor protection, entrepreneurship and capital markets conducted a hearing with FASB on Jan. 15.

CECL is new accounting standard that changes the accounting for credit losses, a standard that recognizes lifetime expected credit losses as opposed to the current “incurred-loss” approach. CUNA advocacy helped lead to FASB to delay implementation of CECL for credit unions to January 2023.

“CUNA continues to maintain its longstanding position that application of CECL to credit unions is inappropriate since CECL is intended to address delayed recognition of credit losses resulting in insufficient funding of the allowance accounts of certain covered entities,” the letter reads. “Underfunding of allowance accounts has not generally been an issue for credit unions. Further, the typical user of a credit union’s financial statements is not a public investor—such as with large, public banks—but instead is the credit union’s prudential regulator, the National Credit Union Administration.”

During the hearing, Rep. Blaine Luetekemeyer (R-Mo.) cited a CUNA study showing it will cost credit unions $14-15 billion to implement CECL.

CUNA supports the CECL Consumer Impact and Study Bill of 2019, introduced by Reps. Vicente Gonzalez (D-Texas) and Ted Budd (R-N.C.).

The legislation would delay implementation of CECL by one year and require the Securities and Exchange Commission, in consultation with FASB to conduct a study on:

• The potential effect CECL implementation may have on the accessibility of credit, particularly consumers and small businesses;
• Any potential systematic risks CECL may pose during a recession;
• The potentially disproportionate burden on smaller, less complex financial institutions; and
• The potential competitive effect it might have on the U.S. as a result of differing international accounting standards.