Regulatory and Other Assessments Indicate ASI Has Had Adequate Reserves and Strong Claims- Paying Ability

		Regulators Have Not Cited Concerns about ASI

The Ohio Department of Insurance’s most recent examination of ASI,  which covered 2008–2012, did not identify any deficiencies in ASI’s  financial condition and determined that ASI’s reserves for losses were  consistent with Ohio’s legal requirements and were adequate and  appropriate. However, in the event of  potential impairment of ASI’s funding, Ohio law allows ASI to charge a  special assessment, with regulator approval, against the credit unions it  insures. The actuarial firm conducts a study of the adequacy of ASI’s capital every 3 years, which looks at  the company as a whole and its ability to pay present and future  claims for losses experienced by the credit unions it insures, under  different economic scenarios; and an annual study of ASI’s loss experience to help estimate loss  reserves and render an annual statement of actuarial opinion on the  adequacy of its loss reserves. Credit Unions We Reviewed Largely Complied with Disclosure Requirements, but Some Disclosure Provisions Lack Specificity

Privately insured credit unions we reviewed largely complied with  requirements to disclose that they are not federally insured. For example, 45 of the 47 credit unions  displayed a disclosure at teller windows. However, 7 of the 17 credit unions we visited that  had drive-through windows did not have disclosures at the window (see  fig. We also observed that the dimensions and font sizes of the disclosure  signage varied among credit unions, with some having signage too small  to be easily read, or not placed conspicuously. CFPB does not provide official signage to privately insured credit unions  and Regulation I does not specify signage dimensions or font size  requirements. Disclosures on websites. We also reviewed 102 privately insured credit  union websites and found that almost all of these websites complied with  CFPB’s requirement to disclose on their main Internet page that the  institution is not federally insured. On our visits to privately  insured credit unions we obtained printed materials (such as brochures,  promotional flyers, and newsletters which could be considered  advertisements), and 8 of the 36 credit unions from which we obtained  samples of printed materials had at least one item that did not contain a  disclosure. Further, there  may continue to be confusion about what constitutes “advertising” and  whether certain printed materials are required to include disclosures. By clarifying  Regulation I, CFPB would facilitate state credit union supervisor  monitoring and credit union compliance and would better ensure that  consumers were informed that their deposits are not federally insured. CFPB  should issue guidance to (1) clarify whether drive-through windows  require disclosures; (2) describe what constitutes clear and conspicuous  disclosure, including minimum signage dimensions and font size for  disclosures; and (3) explain and provide examples of which  communications are advertising. Appendix I: Objectives, Scope, and Methodology

This report (1) discusses regulatory and other assessments of American  Share Insurance (ASI), the sole private deposit insurer, and (2) examines  the level of compliance with disclosure requirements by credit unions that  do not have federal deposit insurance. The Fixing America’s Surface  Transportation Act (FAST Act) includes a provision for us to review  private deposit insurers and privately insured credit unions’ disclosure  compliance in the United States. To review information about the credit unions that ASI insures, we  reviewed CAMEL ratings for privately and federally insured credit unions  for 2006–2015. We also used financial data from SNL Financial (2011–2015) to analyze selected financial indicators for privately and federally  insured credit unions. To determine compliance with disclosure requirements, we identified  disclosure requirements for credit unions that do not have federal deposit  insurance by reviewing the Federal Deposit Insurance Act disclosure  provisions and the Bureau of Consumer Financial Protection’s (CFPB)  corresponding Regulation I.
Why GAO Did This Study

The Federal Deposit Insurance Act requires privately insured credit unions to disclose to consumers that they do not have federal deposit insurance and CFPB has implemented regulations on these requirements. The Fixing America's Surface Transportation Act includes a provision for GAO to review private deposit insurers and privately insured credit unions' compliance with disclosures. This report (1) discusses regulatory and other assessments of ASI, the sole private insurer, and (2) examines the level of compliance with disclosure requirements for privately insured credit unions. GAO reviewed documentation from and interviewed federal and state regulators, ASI management, and ASI's third-party actuarial firm. GAO reviewed certain key methods and assumptions used by the actuarial firm. GAO also analyzed regulatory ratings (2006–2015) and selected financial data (2011–2015) on privately and federally insured credit unions. In addition, GAO reviewed 102 websites for all privately insured credit unions that had websites, conducted unannounced site visits at 47 credit unions (selected based largely on asset size and geography), and reviewed printed materials from 36 of the credit unions it visited that had materials readily available.

What GAO Found

About 2 percent of credit unions (125) have private deposit insurance, which is provided by one company—American Share Insurance (ASI). Regulatory and other assessments have suggested that ASI's reserves have been adequate and that the company has had a strong ability to cover present and future losses for the credit unions it insures. The most recent examination of ASI by its primary regulator (Ohio Department of Insurance) determined that ASI's reserves for losses were adequate and appropriate and consistent with legal requirements. An independent actuarial firm hired by ASI reported that it had a strong ability to cover losses under different economic scenarios. The Ohio regulator and the actuarial firm both noted risk factors that could affect ASI's financial condition, including changes in macroeconomic conditions or major losses by the largest credit unions it insures. In the event of financial difficulties, Ohio law allows ASI to tap into additional sources of funding, including lines of credit and special assessments from its insured credit unions.
Privately insured credit unions largely complied with the Bureau of Consumer Financial Protection (CFPB) requirements to disclose that they do not have federal deposit insurance. For instance, 45 of 47 credit unions GAO visited displayed required disclosures at teller windows (see fig.), and 99 of 102 websites GAO reviewed included the disclosure on their main Internet page, as required. However, 7 of 17 credit unions with drive-through windows that GAO visited did not have disclosure signs at these windows. Additionally, printed materials (such as brochures and flyers) GAO reviewed from 8 of 36 credit unions did not include disclosures. The regulations require all advertising to include a disclosure, but do not define what constitutes advertising. In some cases, disclosure signs or text size were too small to be easily read, or were not placed conspicuously. CFPB's regulations on disclosures for privately insured credit unions do not specify signage dimensions or font size. Without clear disclosure requirements, state credit union supervisors and credit unions may not be consistent in how they interpret disclosure requirements and some consumers may not be informed that their deposits are not federally insured.

What GAO Recommends

GAO recommends that CFPB issue guidance for privately insured credit unions to clarify whether drive-through windows require disclosure, describe what constitutes clear and conspicuous disclosure, including minimum signage dimensions and font size, and explain and provide examples of which communications are advertising. CFPB agreed with these recommendations.