(a) The NCUA will not criticize, formally or informally, or take adverse action against an institution on the basis of reputation risk.

(b) The NCUA will not require, instruct, or encourage an institution, or any employee of an institution, to:

(1) Refrain from contracting or doing business with a third party, including an institution-affiliated party, on the basis of reputation risk;

(2) Terminate a contract or discontinue doing business with a third party, including an institution-affiliated party, on the basis of reputation risk;

(3) Sign a contract or initiate doing business with a third party, including an institution-affiliated party, on the basis of reputation risk; or

(4) Modify the terms or conditions under which it contracts or does business with a third party, including an institution-affiliated party, on the basis of reputation risk.

(c) The NCUA will not require, instruct, or encourage an institution, or any employee of an institution, to terminate a contract with, discontinue doing business with, sign a contract with, initiate doing business with, modify the terms under which it will do business with a person or entity, or take any action or refrain from taking any action on the basis of the person's or entity's political, social, cultural, or religious views or beliefs, constitutionally protected speech, or on the basis of the person or entity's involvement in politically disfavored but lawful business activities based on reputation risk.

(d) The prohibitions in paragraphs (a) through (c) of this section apply only to actions taken on the bases described in paragraphs (a) through (c), and the prohibition in paragraph (c) shall not apply with respect to persons, entities, or jurisdictions sanctioned by the Office of Foreign Assets Control.

(e) The prohibitions in paragraphs (a) through (c) of this section apply only to actions taken on the bases described in paragraphs (a) through (c), and the prohibition in paragraph (c) shall not apply with respect to actions taken to comply with statutory or regulatory field of membership requirements, administration of Community Development Revolving Loan Fund activities, or any other application or decision where Federal law mandates the NCUA to consider criteria such as character and fitness or integrity.

(f) Nothing in this section shall restrict the NCUA's authority to implement, administer, and enforce the provisions of subchapter II of chapter 53 of title 31, United States Code.

(g) The NCUA will not take any supervisory action or other adverse action against an institution, a group of institutions, or the institution-affiliated parties of any institution that is designed to punish, discourage, or encourage an individual or group from engaging in any lawful political, social, cultural, or religious activities or lawful business activities, constitutionally protected speech, or, for political reasons, lawful business activities that are disfavored by the agency or any of its personnel.

(h) The following definitions apply to this section:

(1) Adverse action includes:

(i) Any negative feedback delivered by or on behalf of the NCUA to an institution, including in an NCUA-issued report of examination or a formal or informal enforcement action;

(ii) A downgrade, or contribution to a downgrade, of any supervisory rating, including, but not limited to:

(A) Any NCUA rating under the CAMELS ratings system; and

(B) Any NCUA rating under any other rating system;

(iii) A denial of a filing under any of the NCUA's regulations in this chapter;

(iv) Inclusion of a condition on a share insurance application or other approval;

(v) Imposition of additional approval requirements;

(vi) Any other heightened requirements on an activity or change;

(vii) Any reclassification of a well-capitalized federally insured credit union or imposition of a discretionary supervisory action under NCUA's prompt corrective action rules (12 CFR part 702); and

(viii) Any action that negatively impacts the institution, or an institution-affiliated party, or treats the institution differently than similarly situated peers.

(2) Doing business with means an institution:

(i) Providing any product or service, including account services;

(ii) Contracting with a third party for the third party to provide a product or service;

(iii) Providing discounted or free products or services to customers or third parties, including charitable activities;

(iv) Entering into, maintaining, modifying, or terminating an employment relationship; or

(v) Any other similar business activity that involves an institution's member or accountholder or a third party.

(3) Institution-affiliated party means the same as in section 206 of the Federal Credit Union Act (12 U.S.C. 1786(r)).

(4) Institution means an entity for which the NCUA makes or will make supervisory determinations or other decisions, either solely or jointly.

(5) Reputation risk means any risk, regardless of how the risk is labeled by the credit union or regulators, that an action or activity, or combination of actions or activities, or lack of actions or activities, of a credit union could negatively impact public perception of the credit union for reasons not clearly and directly related to the financial or operational condition of the institution.

The National Credit Union Administration is responsible for promoting safety and soundness and effective consumer protection at Federal credit unions. The NCUA is issuing this statement to explain the role of supervisory guidance and to describe its approach to supervisory guidance.

(1) The NCUA issue various types of supervisory guidance, including interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions, to their respective supervised institutions. A law or regulation has the force and effect of law. 1 Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the NCUA do not take enforcement actions based on supervisory guidance. Rather, supervisory guidance outlines the NCUA's supervisory expectations or priorities and articulates the agency's general views regarding appropriate practices for a given subject area. Supervisory guidance often provides examples of practices that the agency generally considers consistent with safety-and-soundness standards or other applicable laws and regulations, including those designed to protect consumers. Supervised institutions at times request supervisory guidance, and such guidance is important to provide insight to industry, as well as supervisory staff, in a transparent way that helps to ensure consistency in the supervisory approach.

(2) The NCUA is clarifying the following policies and practices related to supervisory guidance:

(i) The NCUA intends to limit the use of numerical thresholds or other “bright-lines” in describing expectations in supervisory guidance. Where numerical thresholds are used, the NCUA intends to clarify that the thresholds are exemplary only and not suggestive of requirements. The agency will continue to use numerical thresholds to tailor, and otherwise make clear, the applicability of supervisory guidance or programs to supervised institutions, and as required by statute.

(ii) Examiners will not criticize (through the issuance of matters requiring attention, matters requiring immediate attention, matters requiring board attention, documents of resolution, and supervisory recommendations) a supervised financial institution for, and the NCUA will not issue an enforcement action on the basis of, a “violation” of or “non-compliance” with supervisory guidance. In some situations, examiners may reference (including in writing) supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations.

(iii) Supervisory criticisms should continue to be specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.

(iv) The NCUA also has at times sought, and may continue to seek, public comment on supervisory guidance. Seeking public comment on supervisory guidance does not mean that the guidance is intended to be a regulation or have the force and effect of law. The comment process helps the agency to improve its understanding of an issue, to gather information on institutions' risk management practices, or to seek ways to achieve a supervisory objective most effectively and with the least burden on institutions.

(v) The NCUA will aim to reduce the issuance of multiple supervisory guidance documents on the same topic and will generally limit such multiple issuances going forward.

(3) The NCUA will continue efforts to make the role of supervisory guidance clear in their communications to examiners and to supervised financial institutions and encourage supervised institutions with questions about this statement or any applicable supervisory guidance to discuss the questions with their appropriate agency contact.