CARY, N.C. -

Last week, the Financial Accounting Standards Board (FASB) unanimously voted to delay implementation of the Current Expected Credit Loss (CECL) accounting standard, but segments of the industry still remained concerned about the regulatory matter.

To recap, FASB is looking to ensure that financial institutions have solid measures in place to ensure they have appropriate reserves for any future losses based on the life of each auto loan. As a result, the board has instituted its new Current Expected Credit Loss model (CECL).

The new model will require higher levels of loan loss reserves and lead to changes in lending practices and portfolio management. It will also require a significant amount of data capture, analysis and modeling to meet the implementation deadline.

An update from the Financial Accounting Standards Board (FASB) indicated its board voted unanimously last week to delay the effective date of the its new Current Expected Credit Loss model (CECL). For smaller, publicly traded companies, the delay is from 2021 to 2023 and from 2022 to 2023 for private companies and nonprofits.

The update also mentioned that large, publicly traded companies such as nationwide banks still would be expected to implement the standard on Jan. 1.

FASB indicated its delay will be official once its final update is published later this fall.

Officials explained the proposed interagency policy statement describes the CECL methodology for determining allowance for credit losses (ACLs) at amortized costs, including loans held for investment, net investments in leases, held-to-maturity debt securities, and certain off-balance sheet credit exposures. It would become effective at the time of each institution’s adoption of CECL.

The proposed policy statement also indicates that:

— Examiners will review the conceptual soundness of the model used in the loss estimation process, including developmental evidence, performing ongoing monitoring activities, including process verification and benchmarking, and analyzing model output;

— Examiners should recognize that the processes, loss estimation methods, and underlying assumptions an institution uses to calculate ACLs require the exercise of a substantial degree of management judgment; and

— It is inappropriate for examiners to seek adjustments to ACLs for the sole purpose of achieving ACL levels that correspond to a peer group median, a target ratio, or a benchmark amount when management has used an appropriate expected credit loss framework to estimate expected credit losses.

Not having a uniform date when all financial services organizations have to comply again triggered concerns.

“With today’s vote to delay CECL implementation for smaller companies, FASB acknowledges the significant challenges of complying with one of the most sweeping accounting changes in year,” said American Bankers Association president and chief executive officer Rob Nichols, though he expressed disappointment that the board failed to extend the implementation delay to all filers as ABA previously sought.

“Major market participants including investors, consumer groups, auditors and financial institutions, as well as members of Congress from both parties, have all called for such a delay given concerns that CECL could harm the broader economy and vulnerable populations in particular,” Nichols added in a news release. “While we view this as a missed opportunity, FASB still has time to do the right thing and put CECL on pause for all companies until it can determine its impact.”

Advocates for credit unions shared some disappointment in the latest development, too. The Credit Union National Association (CUNA) said it supports the delay, but continues to have concerns about CECL, which would use an “expected loss” measurement for the recognition of credit losses.

“CUNA’s longstanding position has been and continues to be that application of CECL to credit unions is inappropriate, and that implementation of the new standard will create compliance challenges, as well as alter the financial standing of credit unions,” CUNA Deputy chief advocacy officer Elizabeth Eurgubian said.

CUNA shared its specific concerns in a September comment letter on the proposed delay, noting that CECL could hinder credit unions and other lenders’ service to low- and moderate-income borrowers.

Earlier this summer, FASB looked to reinforce its position concerning the upcoming mandates placed on banks, credit unions and finance companies in connection with reserving for losses, emphasizing the changes could be implemented without incurring “significant costs.”

In June, FASB issued a proposed Accounting Standards Update (ASU) that included amendments designed to address issues raised by stakeholders, which triggered proposals by federal lawmakers who also were looking to delay these significant accounting changes.

Despite some remaining concerns, the American Financial Services Association (AFSA) still applauded last week’s developments.

“Virtually all stakeholders, from consumer advocates to financial institutions, have called on FASB to delay implementation,” AFSA said on its website. “AFSA is pleased to see that the Board has delayed the implementation but continues to call for a rigorous impact study before moving forward with the standard. AFSA continues to back legislation in Congress to delay implementation until this study is completed.”