I watched nearly every Congressional hearing leading up to the notorious Dodd-Frank Act, including the acrimonious eleventh-hour insertion of Section 342 by the then-majority Democrats. The legislation as a whole, and especially Section 342, was meant to be punitive. This diversity rule would arrive in the polarized contextual environment which includes the run-up to the 2016 presidential election. It is also during a time when the Republicans, most of whom vociferously dislike the Dodd-Frank Act, have majorities in both chambers of Congress, and a pro-Dodd-Frank Act Democrat serves as president. The interagency diversity rule is more likely to be divisive, than uniting.

Like the disputed, statistically-based disparate impact theory used in fair lending enforcement that is currently under review by the U.S. Supreme Court, the interagency OMWI diversity rule likely violates the Administrative Procedures Act restricting federal agencies from exceeding the powers given them by statute, and the extremely important Fourteenth Amendment Equal Protection Clause. The very second that a final diversity rule exists, it will face a contentious legal battle. Federal civil rights law prevents credit unions from making hiring or contracting decisions based on race, ethnicity, or sex. Increasing a protected group’s numbers simply to increase diversity is not a compelling interest sufficient to justify racial or gender discrimination.

In justifying the need for the diversity rule, Mr. Brantley quoted one short phrase found in both the FDIC’s Office of Inspector General’s 84-page November 2014 report entitled, “The FDIC’s Efforts to Provide Equal Opportunity and Achieve Senior Management Diversity,” and in the 62-page Office of the Comptroller of the Currency’s December 2014 audit entitled, “Review of OCC’s Personnel Practices.” What was something of a puzzle why he did not mention the NCUA OIG’s 64-page November 2014 report entitled, “Review of NCUA’s Efforts to Promote Equal Opportunity and Achieve Diversity in Senior Management.” If he had read it, he would have realized that the agency’s acting OMWI Director had not been sitting on her hands last year. She had been extremely busy.

One also learns from the NCUA’s report, as well as from the other banking agencies reports, just how complex it is to comply with the federal government’s recruiting and hiring requirements, even without consideration of the OMWI expectations. According to the FDIC, “Title 5 of the United States Code, section 2301(b)(1) provides that federal recruitment should be from qualified individuals from appropriate sources in an endeavor to achieve a workforce from all segments of society, and selection and advancement should be determined solely on the basis of relative ability, knowledge, and skills, after fair and open competition which assures that all receive equal opportunity. As the nation’s largest employer, the federal government has an obligation to lead by example. Seeking to attain a diverse, qualified workforce is a cornerstone of the merit-based civil service.”

The NCUA is a relatively small government agency with a geographically-dispersed workforce. Our geographically-vast nation does not represent state-by-state and county-by-county, the demographics of the statistical civilian labor force. Neither the NCUA nor individual credit unions will readily “measure-up” to the Section 342 quotas. Hello, reputation risk.

Preferential hiring and contracting, based on statistical quotas, should not exist in the federal government. Unfortunately, thanks to Section 342 and other bad laws, it does. And if the interagency diversity rule mandated by Section 342 imposes those wrong-headed and costly burdens on credit unions hiring and contracting, it will be yet another disruption that the industry can chalk up to the awful Dodd-Frank Act, and the special interest groups that perceived that they benefit from it, but really don’t. Credit union members of all ethnicities and genders will be the ultimate losers from this misguided government policy.

Marvin Umholtz

Umholtz Strategic Planning & Consulting Services

Olympia, Wash.