Time for a reckoning at the NCUA

It’s more than a good read. It’s a veritable potboiler, an eye-popping, can’t put it down, page turning expose. And, at least until some NCUA insider is willing to blow the whistle on the sleight of hand, it will have to serve as the Pentagon Papers of the credit union movement. I’m talking about the independent legal study of the National Credit Union Administration’s (NCUA) authority to allocate costs to the National Credit Union Share Insurance Fund (NCUSIF) written by CUNA’s legal team for the National Association of State Chartered Credit Unions (NASCUS). Yes, I mean the “Over-the-top” Overhead Transfer Rate, which was bumped from an already egregious 50% to 67% in October of 2000. With the release of this independent study, the plain facts have been laid bare for all fair-minded credit unionists to see. NCUA can no longer continue to muddy the water, as they have done in the past, about the mixing of monies from the insurance fund to cover its spiraling operations costs. The thin justification for the pillaging of funds of all federally insured credit unions to feed the bloated bureaucracy of a federal agency is finally the elephant in the middle of the room. While I believe it may be both necessary and reasonable to recover some costs for administering the insurance fund, the power that NCUA has extracted from Title II – the legislation that created the Fund in 1970 – has gone virtually unchecked for more than 15 years. It’s always been clear to those interested enough to look at this that there is a minor part of NCUA’s budget associated with providing deposit insurance for state chartered credit unions. But those state charters already undergo rigorous safety and soundness examinations by state regulatory agencies, which they must also support. They are subsequently penalized then, when part of the 1% deposit they pay into the Fund is used to cover the costs of supervising federal credit unions. Beware the NCUA’s continuing effort to label opposition to the hike in the overhead transfer rate as an effort by state charters and the trade association that represents them, NASCUS, as an effort to drive a wedge between federal CUs and state chartered CUs. This is not an “us versus them” problem. That’s a Red Herring. There has been vocal opposition to the rising OTR for some 15-years now, and the system is still doing just fine, thank you. It is not a fight put forward solely by NASCUS, either. Many others have raised this issue. This inequity must be opposed by all federally insured credit unions because it is their money, or rather, the members’ money that is being spent. CUNA’s lawyers had to walk a fine line – the line of objectivity – always difficult when the material with which you must work is so heavily weighted with politics. While some federal credit union CEOs may want to keep their heads in the sand, enlightened ones understand the chicanery and insidiousness of what has been done. The NCUA raised the rate in the dark of night. There is no accountability for how they spend CU money in general, and even less about how they allocate costs to either insurance and/or regulatory expense budgets. The NCUA has given only vague descriptions of what it means by costs allocated to “safety and soundness” and “insurance-related.” Not unlike our federal government’s structure, the NCUA is divided into three parts. Title I of the FCU Act gives them chartering and supervisory powers over federal credit unions. Title II created the NCUSIF and gives NCUA the authority to administer the NCUSIF. The third part is the CLF. Are we all supposed to have collective amnesia? Wasn’t the NCUA concerned with safety and soundness long before the insurance fund was created? The costs of examining FCUs were to be borne by the operating fees paid by those federally chartered CUs. Title II was never meant to be used to grant NCUA authority over state chartered credit unions, but that is exactly how it has been used. This is a states’ rights issue. Although Title II prohibits NCUA from regulating state charters, the insurance clause is being used to limit the powers given to state chartered credit unions by their respective state agencies and legislatures. As the study finds, the term `insurance related’ “should not be used as a catch-all phrase into which NCUA can toss the majority of its activities in order to have the NCUSIF fund them.” Because Congress allowed (through Title II) earnings on the NCUSIF to be used to supplement monies raised by operating fees to cover agency needs, some at NCUA have boldly stated that all of its costs could be allocated to the Fund. Perhaps that is their plan, as some 67% of NCUA’s budget is already covered by the Fund. Will they approach 100% in just a few more incremental raises? The study finds that while “some costs may be allocated to the NCUSIF, NCUA does not have carte blanche to ignore the language of Title I and attribute a major part of the agency’s costs to the NCUSIF.” So, should the NCUSIF “reimburse state regulators, as it does NCUA, in order to preserve the symmetry created by the Act’s directive that NCUA rely on exam reports under Title I and those required by state regulators?” I’m sure the agency would balk at that suggestion. They don’t like their authority or procedures being questioned. But neither do state charters enjoy partially subsidizing the costs of supervising federal credit unions. Let’s start by recognizing that credit unions need to speak up on this issue. Our insurance fund is being whittled away by an out-of-control federal agency. They must be made to be more fiscally responsible, period. No one is asking for, and should not expect, a free ride. All credit unions must pay a fair share. But clearly, NCUA is strengthened by offering a financial incentive for a federal charter (lower fees), even if they cannot admit it. Allowing this situation to continue only makes it worse. NCUA should address its budgetary problems head-on, and stop relying on the NCUSIF to bail them out. The jig is up. I sure hope it doesn’t come to a full-blown lawsuit against the agency to make it address and rectify this unfairness.