The NCUA’s newest proposal didn’t come with fireworks, but it might be one of the most impactful regulatory moves of the year. By formally eliminating reputation risk from supervision, the agency is swapping subjectivity for something every credit union employee can appreciate: clarity. This proposal isn’t just bureaucratic housekeeping to align with the NCUA’s September announcement. It is a fundamental shift toward objective, measurable regulatory standards that credit unions have been requesting for years.
What Happened
The NCUA issued a Notice of Proposed Rulemaking that formally codifies what the agency announced on September 25th: reputation risk is officially dead as a supervisory tool. But the proposal goes further, creating explicit anti-debanking protections and establishing clear guardrails around what examiners can and cannot do.
The “Why” Behind the Move
Let’s be honest: reputation risk was always the regulatory equivalent of “I know it when I see it.” The NCUA finally acknowledged what credit unions have long argued: assessing reputation risk is “subjective, ambiguous, and lacks measurable criteria.” Translation: it was too often in the eye of the beholder, creating unpredictable examination outcomes.
The agency’s new approach prioritizes “data-driven conclusions” over individual perspectives. For compliance officers who’ve spent sleepless nights wondering how an examiner might interpret their institution’s “reputation,” this is the closest thing to predictability we’ve seen in a while.
The Anti-Debanking Shield
Here’s where things get particularly interesting. The proposed rule explicitly prohibits the NCUA from instructing credit unions to close accounts or terminate services based on a customer’s protected class status or political views. This isn’t just about reputation risk; it’s about preventing politically motivated “debanking.”
This provision directly implements Executive Order 14331, “Guaranteeing Fair Banking for All Americans,” but it also reflects broader concerns about financial institutions being pressured to cut ties with certain industries or political viewpoints. Credit unions now have regulatory cover to serve members based on legitimate business criteria, not political considerations.
What Stays, What Goes
The NCUA isn’t throwing the baby out with the bathwater. Issues previously categorized under reputation risk—like financial liability from active litigation or insider abuse—will still be examined when they pose actual safety and soundness concerns. The difference? These will be evaluated as concrete financial risks, not nebulous reputational concerns.
Think of it this way: if your credit union faces a lawsuit that could result in significant financial damages, that’s still an examination issue. But if your credit union serves a controversial but legal industry, that’s no longer grounds for supervisory concern.
The Broader Regulatory Context
This move fits perfectly with the current administration’s deregulatory agenda and the NCUA’s recent “No Regulation-by-Enforcement” policy. We’re seeing a consistent theme: clearer rules, more predictable outcomes, and less subjective interpretation.
The timing also aligns with similar moves by other banking regulators. The FDIC and OCC have proposed rules limiting the use of reputation risk, creating a more uniform approach across the federal banking system.
Practical Implications for Credit Unions If the Proposal Is Finalized
For Compliance Officers:
- Review current policies that may reference reputation risk
- Update board reporting to focus on measurable risks
- Document business decisions based on objective criteria
For Management:
- Consider previously avoided but legal business opportunities
- Strengthen documentation of member due diligence processes
- Prepare for examinations focused on quantifiable risks
For Boards:
- Review risk appetite statements for reputation risk references
- Focus governance discussions on measurable risk metrics
- Consider strategic opportunities previously constrained by reputation concerns
What’s Next
The proposed rule is now open for public comment through December 22, 2025.
Credit unions should consider engaging in the comment process, particularly to provide examples of how reputation risk assessments previously created uncertainty or limited legitimate business activities.
The Bottom Line
This proposed rule represents more than regulatory cleanup—it’s a fundamental shift toward objective, fair supervision. For an industry built on serving members regardless of their political views or controversial but legal business activities, this provides welcome clarity and protection.
The NCUA deserves credit for acknowledging that good regulation requires clear, measurable standards. This proposal lets credit unions focus on what they do best: serve their members and communities without worrying about subjective regulatory second-guessing.
Until Next Time
From the big picture to the fine print, we’ve got you covered. Thanks for reading, and CU in the next post.
Reach out to me at jeremy.newman@nycua.org Let’s talk.