Matz: NCUA to emphasize examiner practices for low-income credit unions

<p>INDIANAPOLIS – NCUA Board Member Deborah Matz told the annual meeting of the National Federation of Community Development Credit Unions (NFCDCU) that NCUA planned to explicitly train its examiners to stop using certain practices that community development credit unions (CDCUs) allege they do. CDCUs have alleged that the agency’s examiners have used peer averages to adversely impact a credit union’s rating and have occasionally lowered a credit union’s CAMEL rating because the examiner wanted to be able to go back on site. CDCUs have also suggested that NCUA on the one hand encourages risk-based lending and has then cited the credit union when that lending has led to a rise in the credit union’s delinquencies. “Let me be clear,” Matz said. “These approaches are not acceptable.” Matz’s comments came after a meeting Matz held in mid-May with NFCDCU, CUNA, NAFCU, and with David Marquis, head of NCUA’s examinations and insurance department, and NCUA Executive Director Len Skiles. It was during that meeting, Matz said, that in “open candid dialog” the agency learned in detail about these complaints. Matz called the May meeting “very timely” because of the extensive training the agency plans for all its examiners in August. “These issues will now be included in the training, and our examiners will be advised that to the extent that they occur, these practices must be halted at once.” In particular, Matz said, the examiners will be educated that “just because a practice is risky does not mean that a credit union should not do it.” Matz told the meeting that if a credit union has a “well thought out plan,” “adequate reserves” to cover possible losses and a “concurrence” among the board of directors to assume the risk, “even if the venture fails, it should not affect the credit union’s ratio.” Matz called this understanding especially important for CDCUs since they are, “by definition, making loans that are considered riskier than other loans.” Peer averages, she said, were only to be used as “a basis of comparison” between credit unions and not to rate the institution, and CAMEL ratings are not mechanisms to increase supervision of or punish credit unions. “So, hopefully, as a result of my meeting on examination issues, you will experience some changes in your examination procedures in the coming year,” Matz said. “If not, I want to know about it.” Moving to the topic of partnerships between larger and smaller credit unions, Matz turned the traditional understandings of the institutions’ roles in such partnerships upside down. Instead of the big helping the small, she suggested, evidence she had seen in her recent travels around the country led her to believe the small can teach the large. “Community development credit unions know the products and marketing techniques necessary to serve low-income people and communities,” she said. Matz’s comments came one day after comments made by NCUA Chairman Dennis Dollar in which he praised CDCU’s and predicted they would be among the areas of future credit union growth. Consolidation in the business and industrial sectors, matched to some extent by consolidation among credit unions, would act to prevent the development of new credit unions in those areas, Dollar argued. “So where will our new credit unions come from?” he asked. “They will come from communities. They will come from faith based organizations, and we are seeing a strong reaction and approval in this area. They will come from the Hispanic community and Hispanic organizations.” Dollar told the NFCDCU Meeting that NCUA had 14 applications for new credit unions pending. “I know that does not sound like a lot, but that is considerably ahead of where we have been the last several years,” he said. [email protected]</p>