WASHINGTON—CUNA reported that its call for credit unions to weigh in on a proposed current expected credit loss (CECL) standard has resulted in more than 850 letters to the Financial Accounting Standards Board (FASB) so far, with credit unions nationwide sharing how the proposal will impact them.
Proposed by FASB, the CECL proposal would utilize a single “expected loss” measurement for the recognition of credit losses, which would replace the multiple existing impairment models in U.S. generally accepted accounting principles that generally use an “incurred loss” approach.
CUNA detailed key concerns raised in the letters, including the cost to comply with the new changes exceeding any benefit that would be derived from the proposed change, an issue raised in a letter from Chris McCreary, president of United Consumers CU, Independence, Mo.
“The actual ability of my mid-sized credit union to comply with the complexities inherent in the CECL model may require us to get outside expertise which only adds to the cost,” McCreary wrote.
Michael Powell, senior vice president/chief lending officer at Harborstone CU, Lakewood, Wash., said the proposal would require Harborstone to hold additional capital well above its current loan loss reserves, which he said is likely to have “significant consequences on lending."
CUNA shared Other concerns brought up by credit unions:
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That the proposal will make it more difficult for credit union members receiving financial statements to understand the financials of their credit union;
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Decreased capital because of the increased provisions for loan loss;
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The flaws in requiring an upfront recognition of loan loaded, but the lack of recognition of the net present value of the economic gains from expected interest income, which seemed to some a one-sided approach that will only serve to damage the ability of credit unions to serve their membership;
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A lack of adequate historical figures to construct a model to forecast expected losses accurately; and
- The lower net income levels of smaller credit unions resulting in the disappearance of these small institutions;