Lone NCUA Democrat Harper Perseveres

Seven months into his term as an NCUA board member, Todd Harper is establishing his regulatory priorities, even if he has been on the losing end of a handful of issues.

As the lone Democrat on the three-member board, Harper, a former NCUA director of the Office of Public and Congressional Affairs, has disagreed with his Republican colleagues several times, although he has yet to provoke the partisan strife that plagued the board the last time the panel had three members.

Harper recently sat down with CU Times to discuss the direction he would like the board to take.

Most recently, Harper has called on the board to increase its focus on consumer protection, contending that the agency is far behind the efforts of other financial regulators, which have dedicated consumer protection exams for institutions under their control.

“Just as we have safety and soundness responsibilities, we have consumer financial protection responsibilities,” he said in the interview.

On the other hand, Harper said, the NCUA only identifies a few consumer protection issues each year and does not conduct a separate exam.

“We look at a couple of things each year,” he said.

Harper has called for a dedicated staff for consumer protection compliance and wants the board to consider the issue when it votes on the 2020 agency budget. The agency did not include funding for the staff in its 2020 budget plan, released last month.

Harper said as an example, the taxi driver debacle in New York, N.Y., demonstrated the need for improved consumer protection for sole-proprietor businesses.

As a board member, Harper was on the losing side of votes to further delay the agency’s Risk-Based Capital rule and to increase the appraisal threshold for certain transactions.

But those policy disagreements did not lead to high-pitched arguments that occurred between former Democratic Chair Debbie Matz and Republican J. Mark McWatters, who is still on the board. While he was on the agency staff, Harper worked for Matz.

Harper has been critical of the Trump Administration for issuing an executive order requiring independent agencies such as the NCUA to submit proposed rules to the Office of Management and Budget before they are issued to determine if they were major rules that needed additional review, including an examination by Congress.

“(The) NCUA is an independent agency and we should continue to operate as an independent agency,” he said.

He added that the NCUA has had a tradition of attempting to comply with Executive Orders as long as they did not infringe upon the agency’s responsibilities.

He said he believed the agency should submit proposed rules to OMB only after the board approves them, as has been the current practice.

Neither Board Chairman Rodney Hood nor McWatters said they were concerned with the order.

“For me that was important; the chairman felt otherwise,” Harper said.

Harper identified several other issues that he views as high priorities for the board.

He said cybersecurity is “the thing that worries me the most.” He added, “I don’t want the credit union system to be the gateway for a virus or some issue coming in.”

He said he is particularly concerned because the NCUA does not have authority over third-party vendors. He said all three members of the board want Congress to give the agency that power, adding he was encouraged when his two colleagues on the board said they would send a letter to Capitol Hill requesting the change.

Harper also said he is paying particularly close attention to the issues of capital and liquidity at credit unions.

“You can go under if you don’t have enough capital,” he said. “You can go under if you don’t have enough capital liquidity.”

He mentioned one metric, which he said could serve as a warning sign. During the financial crisis, credit union loan-to-share ratio bottomed out at 66%, he said. At the end of last year, it had climbed to 85%. As the figure climbs closer to 100%, credit unions should become concerned.

“Credit unions need to think about what their liquidity is and how to make sure they have enough liquidity,” he added.

He said the NCUA board may need to raise the issue before it becomes more serious. “It’s better to set those things up in advance than to try to do them at the last minute,” he said.

Harper also said he is concerned about rising consumer debt, which has reached $4 trillion, as well as the soaring federal debt, adding that the federal debt could crowd out other priorities.

“When we hit that bump in the economy, and we will hit that bump in the economy … with so much consumer debt out there, some people will get in trouble,” he said.

Harper said he is not spending much time worrying about the increasing number of bank attacks on the credit union system, stating it is up to credit unions, not the NCUA, to fend off those attacks, although he did have one piece of advice: Any response to those attacks should focus on anecdotes.

“The most effective way to talk about issues is through stories,” he said, adding that so far, he has visited 11 states since being confirmed as a member of the board.

During those visits, he has placed an emphasis on meeting with officials from individual credit unions and state regulators.

The Independent Community Bankers of America has focused much of its criticism on the role of the NCUA, contending that the agency has operated more as a cheerleader for the industry than an effective regulator.

Harper said he is not worried about such allegations.

“My job is to protect safety and soundness,” he said. “It’s not to listen to the arguments banks are making. And I am protecting safety and soundness.”