Letter of Understanding & Agreement LUAs

# Demystifying Letters of Understanding and Agreement (LUAs) with NCUA

In the latest episode of "With Flying Colors," host Mark Treichel sits down with former NCUA insiders Steve Farrar and Todd Miller to shed light on a critical topic for credit unions: Letters of Understanding and Agreement (LUAs). This blog post summarizes key insights from their discussion, providing valuable information for credit union leaders and financial professionals.

## What are LUAs?

Letters of Understanding and Agreement are formal agreements between the National Credit Union Administration (NCUA) and credit unions. They're typically issued when the NCUA identifies severe problems that need addressing. While usually reserved for troubled credit unions, LUAs can occasionally be issued for compliance reasons as well.

## Key Characteristics of LUAs

1. **Formal Nature**: LUAs are more serious than informal actions and often indicate that a credit union is classified as "troubled."

2. **Publication**: Formal LUAs are typically published by NCUA, which can have significant reputational implications for credit unions.

3. **Content**: LUAs describe major issues and required corrective actions, complete with specific timelines.

4. **Language**: Published LUAs often contain strict, one-sided language that gives NCUA significant authority.

5. **Board Responsibility**: All board members are bound by an LUA, even those who vote against it.

## Navigating the LUA Process

If your credit union is faced with an LUA, our experts suggest the following:

1. **Understand the Terms**: Carefully review all requirements and timelines before signing.

2. **Negotiate**: If possible, try to negotiate terms with NCUA before finalizing the agreement.

3. **Take Your Time**: Request reasonable time to review the draft LUA with your board.

4. **Seek Advice**: Consider consulting attorneys or credit union advisors for guidance.

5. **Be Aware of Risks**: Understand the potential reputational risks, especially with published LUAs.

## Current Trends

In the current economic climate, our experts noted that NCUA may be issuing more LUAs. Factors contributing to this trend include:

- Lingering effects of COVID-19 on credit union operations

- Recent bank failures

- An inverted yield curve

- Rising delinquencies

## Conclusion

Understanding LUAs is crucial for credit union leaders, especially in today's challenging economic environment. By knowing what to expect and how to navigate the process, you can better protect your institution and serve your members.

Remember, if you're facing an LUA or have concerns about potential regulatory actions, don't hesitate to seek professional advice. Your response to these challenges can significantly impact your credit union's future.

Stay informed, stay prepared, and keep flying with colors!

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*Want to learn more? Listen to the full episode of "With Flying Colors" featuring Steve Farrar and Todd Miller for an in-depth discussion on LUAs and other NCUA administrative actions.*

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