Is an LUA an Enforcement Action?

A published Letter of Understanding and Agreement (LUA) is a formal enforcement action. An unpublished one is not, at least not under the vocabulary the National Credit Union Administration (NCUA) uses in its supervision manual, though the agency’s own Enforcement Manual puts unpublished LUAs on its list of informal enforcement actions.

Where the NSPM draws the line

The National Supervision Policy Manual (NSPM) 26.0 sorts administrative remedies into informal actions and formal actions. On the informal side sit the Document of Resolution (DOR), the Regional Director letter, the non-published LUA, and the Preliminary Warning Letter (PWL). On the formal side sit the published LUA, cease and desist (C&D) orders, civil money penalties, involuntary liquidation, conservatorship, removal or prohibition, and termination of insurance (Administrative Remedies, p. 5).

The next page settles the terminology. Formal actions, NSPM 26.0 says, are also known as enforcement actions (Administrative Remedies, p. 6). In the LUA section itself, the manual describes officials agreeing to the listed corrective actions in lieu of the agency taking formal administrative action, then adds the qualifier that this assumes an unpublished LUA, because a published LUA is a formal administrative action (Administrative Remedies, p. 8).

The Enforcement Manual answers the question differently

NCUA Instruction 4820, the Enforcement Manual, states that enforcement actions fall into two broad categories, informal and formal. It then lists the informal enforcement actions: Regional Director letters, non-published LUAs, establishment of special reserves, and preliminary warning letters (Chapter 1).

So the unpublished LUA is an enforcement action under Instruction 4820 and is not one under the NSPM’s usage. NSPM 26.0 directs staff to 4820 for processing formal administrative actions, so both are in force. If you are told an unpublished LUA is not an enforcement action, that is defensible under the manual and wrong under the Enforcement Manual. The consequences turn on enforceability rather than on the label.

What publication buys NCUA

Section 206(s)(1)(A) of the Federal Credit Union Act, 12 U.S.C. §1786(s)(1)(A), requires the NCUA Board to publish any written agreement for which a violation may be enforced, unless the Board finds publication contrary to the public interest. The Enforcement Manual states the consequence directly: LUAs must be published if violations are to be considered enforceable. With a published LUA in place, NCUA can bring a cease and desist order or a civil money penalty and prove noncompliance with the LUA itself (Chapter 2).

Non-published LUAs are not enforceable that way. Violating one is not by itself grounds for a formal enforcement action, although it may serve as the basis for developing grounds where the underlying conduct is a safety and soundness problem or a violation of law or regulation. One narrow exception exists. If the NCUA Board approves non-publication on a finding that publication would be contrary to the public interest, the LUA stays enforceable, and the Federal Credit Union Act requires a quarterly written report to Congress summarizing those cases.

An unpublished LUA still costs you

If a credit union fails to comply with an LUA, examiners are to discuss the need for additional enforcement action with the supervisory examiner, and at a minimum the CAMELS ratings must reflect management’s failure to comply (Administrative Remedies, p. 15). Failure to correct problem areas within the LUA’s timeframes is grounds for recommending elevated action, which the manual says could be a published LUA, a C&D order, a civil money penalty, or involuntary liquidation (Administrative Remedies, p. 13).

That compliance sentence appears twice in NSPM 26.0 with different force. Administrative Remedies says the ratings must reflect the failure. The Examination Reports version says they should (p. 216), and it carries the more recent revision date. Plan around the stronger reading.

Declining to sign does not put you back where you started. The manual tells examiners to draft a PWL when problems are serious or persistent and the board is unwilling to sign an LUA, and it describes the PWL as support for formal action such as a published LUA or a C&D order (Administrative Remedies, p. 15).

What the label does not tell you

Todd Miller, a former NCUA supervisory examiner and director of special actions, puts the practical marker earlier than the formal and informal split. By the time an LUA is on the table, the agency considers the problem severe, and in most cases the credit union is going to be classified as troubled. Todd describes the published LUA as the step that opens the door for NCUA to take the more severe actions.

Steve Farrar, a former problem case officer and director of special actions, points to the timeframes. Under a DOR, missing a date with a documented and reasonable explanation can be worked through. Under an LUA it is a different problem, and the board needs to understand every commitment and every deadline before it signs.

A published LUA also reads harshly, because it is written to. The boilerplate reserves NCUA’s right to remove officials and assess civil money penalties. Publication is not announced the way a conservatorship is, but the trade press goes looking, and writes about what it finds.

The argument NCUA has handed you

NSPM 26.0 added a section that did not appear in the prior manual, headed No Regulation by Enforcement (Administrative Remedies, pp. 1–2). It states that enforcement actions should occur only where there is material risk or likely material harm to the credit union’s financial condition, clear and significant violations of law or regulation, or a breach of fiduciary duty. It adds that staff will not take enforcement actions to boost the agency’s enforcement totals and that the agency will not seek to set or clarify policy through enforcement.

That language is worth raising before you sign anything, and its limits are real. It is manual policy rather than regulation, it creates no appeal right, and it was added recently enough that an examiner working from habit may not have it in mind. Treat it as an argument for the conversation rather than a defense after the LUA is executed.

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