Download and read McWatters' entire column, and the rest of December issue of The NCUA Report here.

"My perspective is simple – the NCUA should conduct appeals before an impartial tribunal where both sides are represented by their counsel and others advisors," he told CU Times. "Take a look at the controversy surrounding the SEC's use of administrative law judges. The NCUA falls well short of even the ALJ standard."

The Republican board member said he supports the Financial Institutions Examination Fairness and Reform Act, introduced in both the Senate and the House of Representatives. That bill would provide credit unions with the information used as the basis for decisions in an examination and establish an exam appeals ombudsman at the Federal Financial Institution Examination Council.

However, McWatters added, the NCUA does not need to wait for a new law to improve its exam process.

He outlined three steps the NCUA could take under its own authority. First, McWatters wrote, the agency could seek general comments from credit unions and other stakeholders regarding exam appeals through the rulemaking process. Then, the NCUA could use those comments to develop a proposed rule and put the proposal out for a second comment period, from which a final rule would be written. The final rule could be included in the agency's rolling regulatory review, he added.

The final rule should address the following issues, McWatters wrote:

1. All of the rights of a credit union in challenging examiner findings and directives, including the use of counsel and other advisers;
2. The right of all credit unions to representation by counsel and other advisers in all appeals proceedings, including those before the NCUA board;
3. The right of all credit unions to receive a timely written determination of all appeals proceedings, including those before the NCUA board;
4. A requirement that the NCUA examiner must provide a list to the credit union, along with the written exam report, of all the authorities relied upon to support directives, and respond to credit unions' questions regarding those authorities. As practical, NCUA examiners should also provide other information relied upon, as well as data sources;
5. A requirement that NCUA staff provide regular reports to the NCUA board in a public meeting and to the credit union community and public on the use of the appeals process, including the number of appeals, issues appealed, length of time each appeal took and how the issues were resolved. The reports should also include appeals to regional directors as well as to the Supervisory Review Committee;
6. The NCUA board should appoint all members of the Supervisory Review Committee and the ombudsman should report to the NCUA board quarterly.
7. The NCUA Ombudsman should not serve on the Supervisory Review Committee.

NCUA Chairman Debbie Matz told CU Times in an emailed statement the NCUA in recent years has improved the appeals process, and as a result, both the number of appeals and the percentage of appeals decided in credit unions' favor have increased substantially. For example, she said, during the past year, 40% of appeals to regional directors were decided in credit unions' favor.

Matz also stressed that the agency has improved explanation of the exam process.

"The front page of every exam report now informs credit union officials of their appeal rights, and credit unions are successfully exercising those rights on multiple levels," Matz said.

Matz outlined six appeal channels provided by the NCUA, and added that the vast majority of issues are resolved on the first two levels before the need to formally appeal in writing. The six include:

1. Examiner. The NCUA encourages credit union management to provide ongoing feedback during each exam, and to work with the examiner to resolve issues before the final report is written. If a credit union official believes a pending exam report, rating or administrative action cannot be justified by the facts, the examiner may be convinced to make changes before submitting the exam report to the supervisory examiner.
2. Supervisory Examiner. Credit union officials are encouraged to bring any concerns about their exam or their examiner to their supervisory examiner. The supervisory examiner's primary job is to evaluate every exam and every examiner. To protect credit unions from retaliation, the NCUA has a zero-tolerance policy. Zero tolerance means examiners may not take action against a credit union for using any formal or informal appeal channel. If a supervisor finds that an examiner has retaliated with unreasonable action against a credit union, that examiner will face disciplinary action.
3. Regional Director. If a credit union sends an appeal letter to the NCUA regional director, the RD will weigh the facts and issue a decision in writing.
4. Office of General Counsel. If the exam complaint involves a legal issue, credit union officials may write to the NCUA's Office of General Counsel ([email protected]) at any time.
5. Office of Examination and Insurance. If the exam complaint involves a safety and soundness matter, credit union officials may write to the NCUA's Office of Examination and Insurance ([email protected]) at any time.
6. Supervisory Review Committee. If complaints about CAMEL ratings or allowance funding are not resolved at any other level, credit unions may file formal appeals and make presentations to the NCUA's Supervisory Review Committee. Comprised of senior NCUA Central Office staff who are outside the exam program, the committee invites credit union officials to state their case in person. After listening to both sides and reviewing the facts, the committee reconsiders and informs the regional office of its decision.

Matz stressed few exam appeals are elevated to NCUA headquarters because they are resolved more efficiently in the field.

"In the end, (the) NCUA's exam appeal process is similar to the complaint process at a credit union," Matz said. "When a credit union member has an issue with a teller, credit unions typically encourage the teller to work it out directly with the member or speak to the teller's immediate supervisor. If that fails, the member may ask to speak with the teller's branch manager. Credit unions don't usually encourage the member to go directly to the credit union's board as the first resort. Most complaints are thus resolved in the field, without the need for formal appeals to supervisory committee members or board members."

McWatters said he will expand upon the topic in his January column.