The contingency legal fees paid by the NCUA for lawsuits seeking damages relating to the failed corporate credit unions are excessive and negotiations to lower them have failed, NCUA Board Chairman J. Mark McWatters conceded Wednesday.
The agency has paid more than $1 billion Korein Tillery and Kellogg, Huber, Hansen, Todd, Evans & Figel.
"Neither my fellow NCUA board member Rick Metsger nor I were involved in either vetting outside counsel or negotiating the terms of the corporate credit union related-legal services agreements," McWatters said, following a story in Politico that said the House Financial Services Committee is investigating the fees.
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"The agency should continue its efforts to negotiate a fair and transparent modification of these legal services agreements, where outside counsel has received, to date, over $1.1 billion in fees," McWatters said. "In my view, these fees are regrettably excessive, yet our good faith efforts to reach an equitable accord with the recipient law firms have not succeeded."
Neither law firm responded to a request for comment.
McWatters said that Metsger did not participate in the hiring of outside counsel, he failed to say that Metsger has endorsed the decision.
"In hindsight, it is hard to see how NCUA could have brought these cases at all without the contingency fee arrangement," Metsger wrote in a letter last year to then-Rep. Mick Mulvaney (R-S.C.).
Mulvaney who now serves as director of the Office of Management and Budget in the Trump Administration.
McWatters made his comments, even though the NCUA has gone to great pains to defend the legal fees, including a dedicated page on its website that features comments from former board members and a letter from the then-department's Inspector General to then-House Oversight Chairman Darrell Issa (R-Calif) saying the fees were justified.
Issa had questioned the fees in 2012.
Now, the Financial Services Committee is raising similar questions.
Politico published a March letter from Rep. Ann Wagner (R-Mo.) chairman of the committee's Oversight and Investigations Subcommittee, directing the agency to provide the committee with all records related to the legal fees incurred as a result of the lawsuits.
NCUA has said that as conservator and liquidating agent for the five failed corporate credit unions, the agency has a fiduciary responsibility to collect debts and obligations owed to the credit unions. The agency said that it filed 26 complaints against 32 defendants.
As of Jan. 31, the board had collected more than $4.3 billion, with legal fees amounting to about $1 billion, or 23.2% of the amount collected.
In her letter to McWatters, Wagner said the fees raise serious questions about the propriety of the legal arrangements.
However, the NCUA's then-Inspector General, William DeSarno found the costs justified.
"We believe that the contingency fee arrangement the Conservator entered into with the firms was a cost-effective arrangement, was reasonable in light of the uniqueness of the litigation, and did not result in member credit unions paying, in effect, unnecessarily high legal fees," he wrote in a February 2013 letter to Issa.
The IG said that the agency should have interviewed additional law firms before selecting the two, but also found that there was no political consideration in their hiring.
Former NCUA board members also supported the decision to hire outside counsel.
"Had we not retained these law firms, there would have been no recoveries and all federally insured credit unions would have had to pay much more to resolve the corporate crisis," said former board member Debbie Matz, who became chairman of the board in the wake of the corporate credit union crisis.
Former board Chairman Michael Fryzel, who chaired the board at the start of the corporate crisis, also endorsed the decision to hire the lawyers.
"For those who believe that the fees earned by the attorneys are high, they need to understand that is the way the legal system works," wrote Fryzel, who later became a member of the Trump Administration's NCUA transition team. "In a suit for damages, attorneys earn a percentage of what they recover. The more they get for a client, the more they earn for themselves. It is an incentive-based system that encourages a greater effort. Had they charged an hourly rate or the recovery was minimal, many would complain that NCUA wasted credit union funds."
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