Letters of Understanding and Agreement: What Credit Unions Need to Know

Letters of Understanding and Agreement: What Credit Unions Need to Know

Letters of Understanding and Agreement—commonly referred to as LUAs—are a familiar but often misunderstood supervisory tool used by the National Credit Union Administration. While they are less severe than formal enforcement actions, LUAs carry real implications for governance, public disclosure, and potential enforcement.

This post walks through what LUAs are, when they are used, and—critically—how publication affects enforceability.

Purpose of the LUA Chapter

NCUA’s LUA guidance consolidates and replaces prior instructions, including NCUA Bulletin 481OB, NCUA Instruction 4900.01, and NCUA Instruction 12710.01. The goal is to standardize how LUAs are processed, negotiated, and enforced across regions.

In practice, this guidance clarifies:

• When LUAs are appropriate

• Who has authority to enter into them

• How publication decisions must be handled

• When LUAs are enforceable

What Is a Letter of Understanding and Agreement?

An LUA is a bilateral written agreement between a credit union’s board of directors and the NCUA Regional Director.

By signing an LUA, the credit union agrees to take—or refrain from taking—specific actions. LUAs are often used when:

• A credit union has not adequately addressed issues raised through less severe measures, such as a Document of Resolution

• A credit union is newly chartered

• NCUA grants permanent special assistance

Under Delegation of Authority SUP 16, Regional Directors are authorized to enter into LUAs with officials of both federally chartered and federally insured state-chartered credit unions.

Publication Is Always Addressed

A key feature of every LUA is its publication status.

Regional Directors are required to discuss publication with credit unions and must include one of three provisions in every LUA:

1. The LUA will not be published

2. The LUA will be published

3. The Regional Director reserves the right to publish the LUA within a reasonable time

The third option may specify a decision timeframe or tie publication to a future event—or the failure of an event to occur. Minor wording variations are acceptable as long as the intent is clear.

Required LUA Provisions

While LUAs vary by situation, they must clearly:

• Identify the actions required (or prohibited)

• Assign responsibility

• Establish timelines

• Address publication status

If the LUA is expected to be enforceable through administrative action, publication becomes essential.

Published Letters of Understanding and Agreement

Under Section 206(s)(1)(A) of the Federal Credit Union Act, the NCUA Board must publish any written agreement for which a violation may be enforced, unless the Board determines publication would be contrary to the public interest.

Why this matters:

• Only published LUAs are automatically enforceable

• Failure to comply with a published LUA, by itself, is sufficient grounds for administrative action

• NCUA may enforce a published LUA through actions such as cease-and-desist orders or civil money penalties

Although not strictly required, published LUAs typically include explicit language stating that violations may result in enforcement action.

These publication rules apply to:

• Newly chartered credit unions

• LUAs tied to special assistance

• Any LUA where NCUA intends to rely on noncompliance as a basis for enforcement

As a procedural safeguard, regions are encouraged to provide draft published LUAs to the Office of General Counsel and Examination and Insurance at least two business days before delivering them for signature.

Non-Published Letters of Understanding and Agreement

Non-published LUAs are not enforceable by themselves.

A violation of a non-published LUA:

• Is not grounds for a formal enforcement action on its own

• May be used to help establish broader safety-and-soundness concerns or violations of law

There is a narrow exception. If the NCUA Board formally determines that publication would be contrary to the public interest, a non-published LUA can still be enforceable. When this exception is used:

• The Regional Director must clearly justify why publication would harm the public interest

• NCUA must report these enforceable, non-published LUAs to Congress on a quarterly basis

• The exception is intended to be rare

LUAs with Federally Insured State-Chartered Credit Unions

For federally insured state-chartered credit unions, NCUA may issue LUAs independently or jointly with the state supervisory authority.

If NCUA seeks to enforce an LUA based on noncompliance:

• Publication requirements still apply

As a result, all joint LUAs include one of the same three publication provisions used for federally chartered credit unions.

Why This Matters for Boards and Management

LUAs sit in a gray area between informal supervisory tools and formal enforcement actions—but publication is the line that determines enforceability.

Boards should understand:

• Whether an LUA is published or unpublished

• What triggers publication

• What noncompliance actually means in practice

From a governance perspective, LUAs deserve the same level of attention as any other binding regulatory commitment—particularly when publication is on the table.

If your credit union is negotiating an LUA, already operating under one, or unsure how publication could affect exam or enforcement risk, clarity upfront can prevent surprises later.