CUs Pan Consumer Protection Plan

As credit union officials reviewed the agency’s proposed 2020 budget, they delivered a vehement message to the agency board: They do not want or need consumer protection examinations.

Board Member Todd Harper, the panel’s lone Democrat, has proposed adding three new staff members at the agency to help develop a consumer protection examination.

Harper has said other federal banking regulators have such tests. Other regulators schedule risk-focused consumer protection reviews and assign a separate consumer compliance rating, according to Harper.

He also has said the NCUA’s policy also differs from the congressionally-mandated FFIEC. That council aims to develop uniform standards for financial regulators.

“For more than three decades, the NCUA has focused its examination program primarily on safety and soundness reviews,” Harper said when he asked commenters on the agency’s proposed 2020 budget to weigh in on his proposal. “This policy worked well when the NCUA oversaw a large number of small credit unions serving a limited field of membership with only a few basic financial products, but today’s credit unions are larger and more complex, with 317 credit unions exceeding $1 billion in assets having 71.7 million members,” Harper said.

But as credit union officials submitted comments on the budget plan, they made it clear that Harper’s proposal should be discarded.

“Adding an additional exam will burden our credit union,” Jessica Barile, vice president, compliance officer and corporate counsel at Virginia Credit Union, wrote in commenting on the budget. “An exam of the kind proposed would require significant dedicated time from the compliance staff to respond to requests, meet with examiners, review findings, etc.”

The credit union is headquartered in North Chesterfield, Va., and has more than $3 billion in assets.

While some credit union officials commented on other parts of the budget, they reserved their strongest comments for the Harper plan.

Overall, the NCUA has proposed a 2020 agency operating budget of $316.2 million, an $11.8 million increase over the board-approved 2019 budget. That amounts to a 3.9% increase over 2019.

The operating budget is projected to increase to $326 million in 2021. In total, the agency proposed a 2020 budget of $347.7 million, a $3.9 million boost over the board-approved 2019 budget.

The NCUA posted the budget on its website and accepted comments until Dec. 2. It held a hearing on the plan on Nov. 20.

At that hearing, credit union trade groups did not address Harper’s plan in detail and criticized the agency for inconsistent examinations.

“Inconsistency in the interpretation and application of rules and regulations are especially challenging for credit unions that have new examiners,” CUNA Chief Economist Mike Schenk told the board. “These inconsistencies can throw strategic plans off track resulting in significant service disruption and misallocation of resources.”

Curt Long, NAFCU’s chief economist and vice president of research, said the group’s members are also complaining about problems with examinations.

“In recent years, while the pace of rulemaking has slowed, the burden on the examination side has increased,” he told the board. “Although reducing regulation has improved flexibility, NAFCU’s member credit unions have found that consistency and certainty have also decreased.”

But in some ways, Harper’s plan overshadowed the rest of the budget, as credit union officials addressed the plan in written comments.

Credit unions are extremely sensitive when it comes to consumer laws and good business practices, wrote Juan Carlos Campos, general counsel and compliance officer at BELLCO Credit Union, a $4.9 billion institution headquartered in Greenwood Village, Colo.

Campos said the NCUA already reviews consumer complaints from various sources, including the CFPB. He suggested that the agency only conduct consumer protection examinations when they are warranted because of specific problems.

Credit unions would have to hire additional compliance employees if such a test were instituted, according to John McKenzie, president of the Indiana Credit Union League.

“Adding a separate examination for credit unions will require significant investment in systems, personnel and associated expenses going forward to implement, resulting in increased expenses for the agency, with minimal benefit to [the] NCUA’s core mission to ensure the safety and soundness of the credit union system,” McKenzie told the agency.

And he said there is no demonstrated need for the exam.

“We have not seen any compelling evidence of credit union consumer compliance management not being sufficiently monitored by the current examination procedures, and do not feel separating this area into a separate exam provides any overarching benefit to the credit union system,” he said.

Harper, however, received support for his proposal from community bankers.

“Gaps in regulatory coverage create conflicting standards that confuse and potentially harm consumers and create competitive disparities,” Rebeca Romero Rainey, president/CEO of the Independent Community Bankers of America, wrote.

She said the NCUA’s most recent study showed that of the 457,000 hours spent examining federal credit unions, only 55,000 hours were spent on non-insurance, compliance-related matters.

By comparison in 2018, she said, the FDIC conducted 1,200 compliance and fair lending exams and the Federal Reserve conducted about 250.

She said that the FDIC’s program focuses on bank activities and products that pose the greatest potential risk of consumer harm or need additional supervisory attention.

And she said the ICBA is not convinced by the argument that since members own their credit unions, there is not as much need for compliance oversight as there is at banks.

The ICBA has launched an aggressive campaign to convince policymakers to “Wake Up” to the need to better regulate and tax credit unions the same way most banks are taxed.

The executive director of a banking consulting group complained that credit unions do not want to hire him because they believe the agency will not sanction them.

“I represent over 85 banks in six states and all of them have committed resources to outside audits, personnel, systems, etc. to help them be compliant with the rules and be ready for the enhanced examinations,” wrote Shaun Harms, executive director of Bankers Assurance, a Sherwood, Ark.-based consulting group. “You just don’t see this with credit unions.”