ALEXANDRIA, Va.–Upon NCUA's announcement of a 9.85% hike in the federal credit union operating fees at the recent November board meeting, NAFCU pointed out that the figure only accounts for the average credit union. The fees could range from 9.85% for a federal credit union with $1 million in assets to 14.18% for a federal credit union with $1 billion in assets before taking asset growth into account, NAFCU asserted.
Tun Wai, NAFCU chief economist. said the fastest growing and largest credit unions would face a significant increase in their operating fees, particularly those over $10 billion in assets. There are only two federal credit unions of that size: $31.5 billion Navy Federal Credit Union and $10.5 billion Pentagon Federal Credit Union, according to NCUA's third quarter Call Reports. Federal credit unions fund NCUA's operating fee. "Fairness is something to be achieved and this raises the question of fairness," Wai said.
"The operating fee scale is based on assets of each category…then add on top of it the amount of the second category. In other words its cumulative," Wai explained. So, looking at a chart here labeled 'Operating Fee Schedule for FY 2007,' these two credit unions, and some others, will pay the amounts captured in all three of the top asset categories combined.
NCUA's official operating fee schedule for 2008 is not available yet but in the Board Action Memorandum, the agency states it will adjust the buckets upward 6% from 2007 to account for average asset growth.
NCUA Chief Financial Officer Dennis Winans explained, "This operating fee scale has been in place since the mid 70s." But it has been anything but static, he said, because NCUA looks at if every year to adjust for anticipated federal credit union asset growth.
"We have actually recently looked at it," NCUA Deputy Financial Officer Mike McNeill said. NCUA discussed the structure with the Office of Thrift Supervision and state regulators and the methods are roughly the same, he said.
For example, McNeill said the agency realized that an institution like Navy Federal would be paying 13% to 14% more because of the NCUA formula. But the other methods the agency looked at in its review would either have the smaller credit unions paying "substantially more" or Navy Federal would be paying five times as much.
However, based on calculations from NAFCU's operating fee estimator–available free on its Web site under the 'Economic Trends & Analysis' section of www.nafcu.org–finds Navy Federal paying far more than that even. At yearend 2006, Navy Federal had $27.1 billion in assets NCUA records state and paid an operating fee of approximately $743,427 based on NCUA's operating fee calculator. Operating fees are based on year-end assets but, based on the third quarter data available, Navy Federal experienced a nearly 16% increase in assets to $31.5 billion, resulting in an estimated operating fee of $924,426–a 24.35% increase.
"We recognize that it's good to have a regulator interested in safety and soundness," Navy Federal Vice President of Compliance and Public Policy Bill Briscoe said. "We recognize that as we grow, so will our operating fee." In fact, he noted that as of the end of October, Navy Federal was up to 18% asset growth and the figure is expected to continue to climb through the end of the year.
As to the question of fairness, Briscoe added, "Navy Federal believes smaller credit unions are important to the credit union movement. They probably have a struggle in other ways." At this point, he said, Navy Federal feels the formula is fair and sees no need to change it.
He pointed out that the overhead transfer rate–the amount of the NCUA budget NCUSIF funds for insurance-related matters–decreased to 52% from 53.5% while the budget increased. Given those facts the operating fee is bound to increase. The NCUA Board approved a 4.35% budget increase over 2007 at the November board meeting as well. The agency's budget was set at $158.6 million for fiscal year 2008; increased staffing, a labor agreement, and a large capital acquisition accounted for a large chunk of the increase.
Pentagon Federal Credit Union will also be smarting from an estimated 19.75% increase in its operating fee over last year, based on third quarter figures at this point, from $392,228 to $469,691. Pentagon's assets grew 12.38% to $10.5 billion as of Oct. 30, 2007.
At press time, officials from Pentagon Federal Credit had not returned calls for comment.
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