Cease & Desist Orders - NCUA's Enforcement Manual
Samantha: Hello, this is Samantha Shares.
This episode covers N C U Aâs Authority
to issue cease and desist orders as
outlined in its enforcement manual.
The following is an audio version
of that portion of the manual.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
Forty years of National Credit
Union Administration experience.
We assist our clients with N C
U A so they save time and money.
If you are worried about a recent,
upcoming or in process N C U A
examination, reach out to learn how they
can assist at Mark Treichel DOT COM.
Also check out our other podcast called
With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now cease and desist orders.
1.
What is a Cease and Desist Order?
A Cease and Desist (C AND D) Order
normally requires the credit union
to stop illegal or unsafe or unsound
activities which caused or is likely
to cause more than a minimal financial
loss to, or have a significant adverse
effect on, the insured credit union.
A document called Notice of Charges and
Hearing sets out the specific charges and
statement of facts supporting the charges.
The Notice also arranges for
an administrative hearing.
The C AND D contains the
required corrective actions.
The C AND D action is designed to
address only actions necessary to
correct the most significant items.
A C AND D Order can be issued
against an insured credit union or
an institution-affiliated party.
The term institution-affiliated
party means any of the following:
⺠Any committee member, director,
officer, or employee of, or agent
for, an insured credit union.
⺠Any consultant, joint venture partner, and
any other person as determined by the N C
U A Board who participates in the conduct
of the affairs of an insured credit union.
⺠Any independent contractor who knowingly
or recklessly participates in any
violation of any law or regulation,
any breach of fiduciary duty, or
any unsafe or unsound practice.
The types of violations most likely to
be remedied by a C AND D Order include:
⺠Failure to maintain
adequate books and records.
⺠Deficient appraisal reports.
⺠Transactions involving
conflicts of interest.
⺠Inadequate due diligence.
⺠Inadequate control and
oversight of operations.
There is a great deal of flexibility
in what actions N C U A may require.
In addition to ordering a cessation
of certain activities, a C AND
D Order may require affirmative
corrective action, including:
⺠Making restitution or provide
reimbursement, indemnification,
or guarantee against loss
under specific conditions.
⺠Restricting growth.
⺠Rescinding an agreement or contract.
⺠Disposing of any loan or asset.
⺠Employing qualified officers or employees.
⺠Taking such other action N C U
A determines to be appropriate.
Orders to Cease and Desist
are issued pursuant to the FCU
Act section206(e), 12 U.S.C.
section1786(e).
The provisions for the C AND D Order
are set out in article-by-article
form and prescribe those restrictions
and corrective and remedial measures
necessary to correct deficiencies or
violations in the credit union and
return it to a safe and sound condition.
Violations of a C AND D Order can
provide the legal basis for assessing
civil money penalties (CMPs) against
directors, officers, and other
institution-affiliated parties.
A C AND D Order may also be enforced
through application to a U.S.
district court.
Moreover, a willful violation of a
Final C AND D Order is itself grounds
for conservatorship under the FCU
Act section206(h)(1)(D), 12 U.S.C.
section1786(h)(1)(D).
There are three types of cease and
desist orders available to N C U A:
a.
Consent Order
A Consent Order is an Order to Cease and
Desist that is entered into and becomes
final through the board of directors'
execution of a Stipulation and Consent
document on behalf of the credit union.
This type of order also requires
the issuance of a Notice of Charges.
The N C U A Board issues the
Consent Order without the need
for an administrative hearing.
The Consent Order becomes effective
at the time specified in the Order.
b.
Final (Permanent) Cease and Desist Order
Aside from its title, a Final C AND
D Order is identical in form and
legal effect to a Consent Order.
However, a Final C AND D Order is imposed
on an involuntary basis after issuance
of a Notice of Charges, a hearing
before an administrative law judge,
and a final decision and order
issued by the N C U A Board.
A Final C AND D Order is effective 30
days after service upon the credit union.
Any Final C AND D Order is
subject to review by a U.S.
Court of Appeals.
c.
Temporary Cease and Desist Order
A Temporary C AND D Order is an
interim order issued by the N C U
A pursuant to its authority under
the FCU Act section206(f), 12 U.S.C.
section1786(f), and is used to
impose measures immediately pending
resolution of a Final C AND D Order.
Such orders are typically used
only when immediately necessary
to protect the credit union
against ongoing or expected harm.
A Temporary C AND D Order
may be challenged in U.S.
District Court within 10 days of issuance,
but it is effective upon issuance and
remains in effect unless overturned by the
court or until a final order is in place.
To issue a temporary order, N C
U A must also issue a Notice of
Charges initiating a proceeding
to obtain a Final C AND D Order.
In order to issue a Temporary C
AND D Order, N C U A must determine
that the violation or threatened
violation or the unsafe or unsound
practice(s) is likely to either:
⺠Cause insolvency or significant
dissipation of assets or earnings.
⺠Weaken the condition of the credit
union or otherwise prejudice the
interest of the credit union's members.
The FCU Act section206(f)(3), 12 U.S.C.
section1786(f)(3), provides for
the issuance of a Temporary C AND D
Order when an insured credit union's
books and records are so incomplete
or inaccurate that the financial
condition of the credit union or
details or the purpose of any material
transaction can not be determined.
This section also applies when a
credit union does not provide adequate
access to the books and records.
2.
What are the grounds for issuance
of a Cease and Desist Order?
The grounds for a cease and
desist action are set forth in
the FCU Act section206(e)(1), 12
U.S.C.
section1786(e)(1).
A C AND D Order can be issued
if any insured credit union or
institution-affiliated party is either:
⺠Engaging in or has engaged in, or the
examiner has reasonable cause to believe
that the credit union or the persons
involved are about to engage in, an unsafe
or an unsound practice in conducting
the business of the credit union.
⺠Violating or has violated, or the examiner
has reasonable cause to believe that
the credit union or persons involved
are about to violate a law, a rule,
a regulation, any condition imposed
in writing by the N C U A Board, or
any written agreement entered into
with the N C U A Board, as long as the
agreement has been published in
accordance with the FCU Act 206(s), 12
U.S.C.
section section1786(s).
The FCU Act section206(q)(3), 12 U.S.C.
section1786(q)(3), requires that the N C
U A shall issue a cease and desist order
requiring correction of certain Bank
Secrecy Act problems, such as failure to
establish a program or failure to correct
a problem with its procedures that have
previously been identified by an examiner.
3.
How are Cease and Desist Orders processed?
N C U A Rules and Regulations
section747, Subpart A, contains the
rules and regulations governing cease
and desist administrative hearings.
a.
Delegation of Authority
N C U A Delegation of Authority
SUP 8 provides regional directors,
with the prior concurrence from
General Counsel, the authority to:
(1) Issue Notice of Charges
and Hearing for C AND D orders.
(2) Issue and remove Temporary C
AND D Orders pending completion
of the administrative procedures.
The N C U A Board must approve
the issuance, modification, and
termination of Final C AND D Orders.
b.
Documentation Needed
This section is redacted.
c.
Mechanics for Final (permanent) Cease
and Desist Order and Consent Order
Final C AND D Orders are
processed in the following manner:
1.
Notice of Charges is issued
setting out charges and statement
of facts supporting charges.
Notice fixes a time and place for
a hearing between 30 and 60 days.
2.
Respondent may consent, in which case a
final order is issued by the Board without
the need for an administrative hearing.
If no consent, a hearing is held before
an Administrative Law Judge (ALJ).
3.
ALJ sends Recommended Decision and
hearing record to the N C U A Board.
4.
Within 90 days the Board must
render its final decision.
The Board may disagree with
the ALJ, but the decision must
be supported by the evidence.
5.
Appeal by the respondent,
within 30 days after service
of the final order, to the U.S.
Court of Appeals.
The respondent must prove N C U A acted
in an arbitrary and capricious manner.
The Order is in effect unless
stayed or modified by the court.
6.
Order is effective 30 days
after service on respondent.
Violation of Order could result
in civil money penalties of up
to one million dollars per day.
d.
Mechanics for Temporary
Cease and Desist Order
Temporary C AND D Orders are
processed in the following manner:
1.
The regional director, with GC
concurrence, issues Temporary Cease and
Desist Order, usually along with the
Notice of Charges and Hearing which starts
the normal C AND D administrative process.
2.
The administrative process for the
Final Cease and Desist Order continues
while the credit union is subject
to the temporary restrictions.
Even if a court modifies or lifts the
temporary order, the Notice of Charges
and Hearing is still in effect and the
administrative process goes forward.
e.
Violations of Cease and Desist Orders
If an institution or individual
fails to comply with a final
order, N C U A may seek enforcement
through federal district court.
If the court determines that a
violation, threatened violation, or
failure to obey has occurred, by law
the court must enforce the order.
In addition, any credit union or
individual that violates the terms of
any final C AND D can be ordered by N C
U A to pay a civil money penalty of up
to one million dollars a day for each
day the violation continues, provided
specific statutory criteria are met.
f.
Removing Cease and Desist Orders
The N C U A Board may withdraw
a C AND D at any time during
the administrative process.
A Temporary C AND D Order terminates
automatically when the charges in the
notice initiating the proceeding for
the Final C AND D Order are dismissed by
the agency or when a Final C AND D Order
against the same party becomes effective.
If the N C U A Board approved the
issuance of the C AND D action,
the removal action will need to
be approved by the N C U A Board
This concludes the N C U A enforcement
manual on Cease and desist orders.
If your Credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and
we Thank you for listening.
