WASHINGTON-While NCUA and the credit union community focused on different aspects of the October 2003 General Accounting Office report on the credit union industry, there was agreement that the industry is overall in good shape. "NCUA is gratified that the GAO concludes in its report that `the credit union industry has improved since the GAO's last report in 1991, and the federal share insurance fund appears financially stable,' " NCUA Chairman Dennis Dollar wrote in the agency's letter responding to the study, Credit Unions: Financial Condition Has Improved, But Opportunities Exist To Enhance Oversight And Share Insurance Management and its recommendations. Similarly a letter signed by the heads of the three major national credit union trade associations-CUNA President and CEO Dan Mica, NAFCU President and CEO Fred Becker, and Acting-NASCUS President and CEO Mary Martha Fortney-stated, " Based on undeniable facts, the study finds credit unions and the National Credit Union Share Insurance Fund in robust financial condition that has been improving over the last decade. In that regard, there is considerable positive information about the credit union system, which is a tribute to credit union management and service to their members, as well as to the fiduciary watchfulness of the [NCUA]." The trades also noted that GAO provided NCUA few recommendations for changes. GAO recommended that NCUA use "tangible indicators" to determine the level of credit union service to the underserved. In response, the agency argued, "Implementation of these recommendations would require that NCUA impose substantial expanded recordkeeping and reporting burdens on federally insured credit unions. NCUA does not believe the burdens are cost-justified. However, we will carefully consider whether there are additional ways of using existing data to determine the success of credit union in providing greater access to service in underserved areas." Both the regulator and trade associations' letters pointed out flaws in using Home Mortgage Disclosure Act data, including that reporting does not apply to financial institutions under $31 million in assets, which excluded approximately 3,800 small credit unions "many of which have a low income designation or other specific emphasis on serving those of limited means," according to NCUA. Dollar also pointed out that NCUA had started an internal working group to find different ways to use existing data. "We found that the barometer, the measurer and the gauge that GAO chose wasn't particularly well-suited for the task that was at hand." CUNA Associate General Counsel Mary Dunn said in an audioconference with reporters. "So we're suggesting that if you're going to look at HMDA data, look at the loan approval rate, rather than the proportion of total loans that are granted to low- and moderate-income individuals." GAO's second suggestion was that NCUA continue to work with the other Federal Financial Institutions Examination Council agencies regarding risk-focused programs and examine how other regulators dealt with problems in the past. NCUA's letter promised to continue to work with the other FFIEC agencies to develop staff training curriculums. One internal group is working to review and assess other agency's programs for specialized examiners. Dollar also pointed out that the agency is consulting with the Federal Deposit Insurance Corporation to refine its methods of calculating the NCUSIF's loss reserves, which stemmed from another GAO recommendation. The chairman's letter also explained that NCUA had already implemented changes to the process of setting the overhead transfer rate to conform to GAO's recommendations, including making it an annual process and refining the rate-setting process. The credit union community had long complained that the OTR process was done behind closed doors, until this year when NCUA bathed it in light for them, which all parties concerned are hoping will lead to more consistency. NCUSIF Fine As Is Finally, with regard to GAO's suggestion for risk-based pricing of federal share insurance, the agency pointed out that it requires a statutory change as the Federal Credit Union Act currently requires uniform pricing and credit union member deposits of 1%. "The mutual nature of the NCUSIF's statutory model is consistent with the ownership and provides a cost-sharing model upon which credit unions themselves are based," Dollar added. "The current NCUSIF model has been very successful, resulting in a healthy fund and industry. Since the point of any pricing change to the NCUSIF model would be to address perceived inequities, not to improve the already sound financial condition of the fund or address any operational concerns of the insurance fund, stakeholders should have an active role in considering this issue." CUNA, NAFCU, and NASCUS joined forces to submit a letter to GAO clearly expressing their uniform opposition to the American Bankers Association being consulted on a study that is not related to the marketplace or the effect of credit unions on banks. "[W]hile the study's objectives do not call for a comparison of credit union and bank activities, the GAO's report begins with the agency's observation that distinctions have blurred between credit unions on the one hand and banks and thrifts on the other. This is a charge often leveled by banker groups and, based on the stated objectives of the study, is irrelevant to the report GAO was asked to undertake." The trades' letter reiterates the objectives of the study requested by Senator Paul Sarbanes (D-Md.), which included: * The financial condition of the credit union system; * The extent to which credit unions make credit more available to individuals of modest means; * The impact of the Credit Union Membership Access Act on field of membership requirements for federal credit unions; * Changes in NCUA's examination and supervision processes in response to trends in the credit union system; * The financial condition of the National Credit Union Share Insurance Fund; and * Risks associated with private insurance. The joint letter also stated that the study seems to imply that credit unions should only serve the underserved. "While credit unions do serve the underserved, relevant federal and state laws are clear that credit union services are not limited to that group alone," the letter read. CUNA, NAFCU, and NASCUS also expressed concern that GAO did not explain how the information from each third party contacted was used. The joint letter said, "We are concerned that credit unions not be viewed by the GAO, the Congress or others who read this report through a lens provided by the ABA.It is no secret that some banker groups have made it a top priority to curtail the ability of credit unions to provide services to consumers, including initiating 21 lawsuits in 14 states and federal district court. We are concerned that, regrettably, the distorted portrait of credit unions that the ABA and other bank groups have tried to perpetuate may have influenced this report." The letter also charged that GAO is perpetuating ABA's misinterpretation of the Federal Credit Union Act when it comes to the necessity to charter new credit unions rather than a group joining an existing credit union. [email protected]