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What Are Civil Money Penalties?



What Are Civil Money Penalties?


Civil money penalties (CMPs) are one of the National Credit Union Administration’s formal enforcement tools. They are monetary fines assessed when a credit union or an institution-affiliated party violates laws, regulations, or NCUA orders.

The authority for CMPs comes from Section 206(k) of the Federal Credit Union Act (12 U.S.C. § 1786(k)), which grants the National Credit Union Administration Board the power to assess penalties. The procedural rules governing CMP administrative hearings are found in NCUA Rules and Regulations, Part 747, Subpart A.

The NCUA Board may assess civil money penalties against either:

  • An insured credit union, or

  • An institution-affiliated party, such as a director, officer, employee, committee member, consultant, or other individual participating in the conduct of the credit union’s affairs.


The Three Tiers of Civil Money Penalties


The Federal Credit Union Act establishes three tiers of civil money penalties, based on the severity of the conduct and its impact.

First TierA first-tier penalty may be assessed when a credit union or institution-affiliated party violates:

  • A law or regulation,

  • A final order of the NCUA Board,

  • A published agreement with the Board (such as a published Letter of Understanding and Agreement), or

  • A condition imposed in writing by the Board in connection with an application approval (such as an Insurance Agreement).

The maximum penalty is $5,000 per day for each day the violation continues. First-tier penalties often arise in operational compliance situations, such as repeated submission of late or materially inaccurate call reports, particularly when issues persist after warnings.

Second TierSecond-tier penalties apply when a first-tier violation is accompanied by more serious conduct. This includes situations where the credit union or institution-affiliated party:

  • Engages in reckless conduct or breaches a fiduciary duty, and

  • The violation is part of a pattern of misconduct, causes more than a minimal loss to the credit union, or results in a monetary gain or other benefit to the institution-affiliated party.

In these cases, the NCUA Board may assess a civil money penalty of up to $25,000 per day for each day of the violation.

Third TierThird-tier penalties are reserved for the most serious misconduct. They may be assessed when a credit union or institution-affiliated party:

  • Knowingly commits a first-tier violation,

  • Knowingly engages in unsafe or unsound practices,

  • Knowingly breaches a fiduciary duty, or

  • Knowingly or recklessly causes a substantial loss to the credit union or a substantial monetary gain or other benefit to a party.

The maximum penalty is $1,000,000 per day for each day of the violation, or, in the case of a credit union, 1 percent of total assets, whichever is less.


How Are Civil Money Penalties Assessed?


Civil money penalties follow a defined administrative process designed to provide notice, due process, and an opportunity to be heard.

The typical process unfolds as follows:

  1. The regional director notifies the credit union or institution-affiliated party of the intent to recommend that the NCUA Board issue a civil money penalty and requests a written response.

  2. The NCUA Board issues a Notice of Assessment, outlining the legal basis and factual findings supporting the proposed penalty.

  3. The assessed party has 90 days to make payment, but may request a hearing within 20 days of receiving the notice.

  4. If a hearing is requested, an administrative law judge conducts a formal administrative hearing.

  5. Following the hearing, the administrative law judge submits a recommended decision to the NCUA Board.

  6. The NCUA Board reviews the record and issues a final order.

  7. The credit union or institution-affiliated party may appeal the final order to the U.S. Court of Appeals within 20 days of receipt.


Practical takeaway: Civil money penalties escalate quickly based on intent, severity, and impact. What may begin as a compliance issue can evolve into a significant financial and reputational event if violations persist, involve fiduciary breaches, or result in losses or personal gain.

 
 
 
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