As fall settles in and year-end planning begins, October is a good time to make sure the systems and processes behind member tax forms, lending, and BSA are ready for the months ahead. This month's main priority for most small credit unions is the new IRS reporting for auto loan interest, which will affect member tax forms early next year and depends on data you capture at origination. The remaining items are lighter: a fidelity bond proposal to watch, a December flood insurance deadline, two new FinCEN alerts, and practical guidance on board reporting under a six-meeting schedule. Most call for focused review rather than major changes.
1. Auto Loan Interest Reporting
What changed: The IRS has issued final rules and the final Form 1098-VLI for the new deduction of up to $10,000 a year in qualified vehicle loan interest. Lenders must report qualifying loans where a member paid $600 or more in interest during the year. The 2025 transition relief does not carry over to 2026.
Which loans qualify: Loans made after 2024 to buy a new vehicle for personal use, secured by a first lien on the vehicle, with final assembly in the United States.
Key clarifications:
Final assembly: You may rely on the VIN (NHTSA VIN Decoder) or the vehicle's label.
Personal use: You may rely on the loan contract unless you have conflicting information.
Negative equity and add-ons: Report only the interest tied to the vehicle purchase. Rolled-in negative equity, cash out, and unrelated add-ons are excluded.
Refinances: A refinance by the same borrower on the same vehicle can qualify, up to the original loan balance.
Deadlines: Borrower statements are due February 1, 2027. If you file 10 or more information returns of any type, you must file electronically.
What to do now:
Confirm how your core and loan origination vendors will flag qualifying loans, calculate interest, and produce the form.
Capture the VIN, new or used status, personal use, and any negative equity or cash out at origination.
Review qualifying loans made since January 1, 2025, and fill in missing data before January.
Prepare a short member service script explaining who receives a form and why.
Why negative equity is hard: If your team is already asking about this, you are not alone. Most core and loan origination systems record the total amount financed, not the portion that paid off a trade-in. The final rule still requires you to report only the interest on the qualifying portion. The IRS considered and declined requests to let lenders report total interest, rely on borrower certifications, or receive a safe harbor for good-faith efforts. At least one major core provider has said it will report interest paid and leave the negative equity and refinance calculations to the credit union.
How the math works: Any down payment is applied to negative equity first, and interest is then split pro rata. For example, a $40,000 vehicle with $6,000 of negative equity and a $4,000 down payment produces a $42,000 loan, of which $40,000 qualifies. About 95 percent of each year's interest is reportable. The rule does not say whether a manufacturer rebate counts like a down payment, so confirm that treatment with your tax advisor.
Why refinances are harder: A refinance qualifies only if the original loan qualified, the same borrower keeps the same vehicle, and only up to the original loan's balance on the date of the refinance. If another lender made the original loan, you likely do not have the purchase contract showing whether the vehicle was new, when it was bought, or whether negative equity was rolled in. The IRS acknowledged this gap and said only that lenders must perform adequate diligence. Useful sources include the payoff statement, the credit report already in your file, title records, and a request to the member for the original contract.
A business decision, not just a compliance task: The requirement is not optional, but how you meet it is a management decision with real cost and risk on both sides. Penalties apply form by form, and the only stated defense is reasonable cause. Full manual research of every file is the most defensible approach and the most expensive. Before deciding, size the problem:
Only 2026 interest is reported, so 2025 loans paid off before January 1, 2026 drop out.
Loans with less than $600 in total 2026 interest need no form, because qualifying interest can only be lower.
Loans with no trade-in payoff, no cash out, and no refinance from another lender usually need only confirmation of the basic facts.
Focus manual file review on what remains: loans with a trade-in payoff, cash out, or a refinance from another lender.
For files where you cannot get what you need, decide with your tax advisor how you will treat them, apply that approach consistently, and keep a record of the steps you took. A written methodology approved by management is your best support if a form is later questioned. Going forward, add structured fields for negative equity, down payment, and refinance history at origination so next year is far easier. If your CEO or lending team has questions about which approach fits your portfolio, send them our way.
2. Fidelity Bond Proposal
What changed: NCUA has proposed simplifying its fidelity bond rules, including requirements for purchases, renewals, approved bond forms, and coverage-level guidance. Adequate coverage would still be required. Comments are due December 14, 2026.
What to do: Nothing yet. Continue your annual board review of bond coverage and revisit policy language once a final rule is issued.
3. Flood Insurance Deadline
What changed: The National Flood Insurance Program is authorized through December 11, 2026. If it lapses, new policies and renewals cannot be issued, which can delay loan closings in flood zones.
What to do: Make sure lending staff know your lapse procedures, especially for mid-December closings.
4. BSA Notes
What changed: FinCEN issued two Iran-related alerts, one on a sanctions-evasion network and one on abuse of religious charity networks. Exposure is limited for most small credit unions but higher if you serve charitable or religious organizations or see cross-border activity.
What to do: Have your BSA officer review the red flags and use the alert-specific key terms in any related SAR.
5. Board Meeting Note
America's Credit Unions has asked NCUA to clarify how the six-meeting option fits with monthly reporting requirements, such as financial statements, SAR notices, loans to officials, and investment reporting. Until NCUA responds, keep meeting those existing obligations.
What this looks like in practice: Fewer meetings do not mean fewer reports. Several requirements run on a monthly calendar or are triggered by an event, not by a meeting. In practice, most credit unions on a reduced schedule will send directors a short packet in each month without a meeting. Directors receive and review it; no vote is needed.
What still goes out monthly or as it happens:
Financial statement: The standard bylaws require the financial officer to submit a monthly financial statement, including a delinquent loan summary, to the board within 20 days after month end.
Investment reports: Securities reports prepared monthly must go to each director, or to the investment committee with a summary to the board.
SAR notices: Notify the board or a designated committee promptly after each filing through a secure channel, then summarize at the next meeting and note it in the minutes.
Next-meeting items: The membership application list must cover everything since the previous meeting, and delegated charge-offs should be reported for ratification at the next regular meeting.
When the board needs to act: Decisions that cannot wait, such as board approval of a loan to an official above the $20,000 threshold, can go to a special meeting held by audio or video conference. If your bylaws follow the standard form, the board may also act without a meeting with unanimous written or electronic consent. If any director objects or abstains, the matter goes to a meeting.
Put it in writing: Adopt a simple board reporting calendar that lists what goes out monthly, what is reviewed at meetings, and what triggers a special meeting. Then check policies that call for monthly board review, such as investment, BSA, and lending policies, so they match your new schedule.
If your bylaws are nonstandard: The points above assume the standard federal credit union bylaws. If yours have been amended, check your own provisions on monthly financial reports, special meetings, and action without a meeting before relying on them.
October Checklist
Confirm your vendor's Form 1098-VLI plan and clean up auto loan data since 2025.
Size your negative equity and refinance population and document how you will handle files with missing information.
Train member service staff on auto loan interest questions before January.
Keep current fidelity bond practices until a final rule is issued.
Review flood insurance lapse procedures before December 11.
Share the FinCEN alerts with your BSA team.
If you are moving to six meetings, set a monthly between-meeting packet and update policies that assume monthly board review.
If you would like help reviewing your Form 1098-VLI readiness, weighing your options on negative equity and refinances, setting up between-meeting board reporting, or updating flood insurance lapse procedures, we are happy to help.
Crimson Oak Strategies provides strategic compliance support and guidance tailored to credit unions. Our mission is simple: To make compliance practical. Contact us to learn how we can help.
