Harper Blasts Agency Rulemaking, as NCUA Board Approves CUSO, Risk-Based Capital Proposals

As the NCUA board met for what is likely Rodney Hood’s last meeting as chairman, NCUA Board Member Todd Harper accused the agency of rushing poorly conceived, “half-baked” proposals on Risk-Based Capital and CUSOs for board consideration.

“Once again, we are presented with a proposal that is bad public policy, has nothing to do with helping credit unions and their members weather the economic crisis caused by the COVID-19 pandemic, and is half-baked,” Harper said as the board considered a proposed rule to increase the definition of “complex” credit union from to one that has $50 million in assets to one that has $500 million in assets.

Left unsaid was the fact that when President-elect Joe Biden is sworn in next week, Harper is likely to become board chairman — a position that will allow him to set the board’s agenda. As such, Thursday’s meeting was the last one for Hood to be able to easily bring proposals he favors to the board.

Harper objected to several of the proposals that were adopted, with Republicans Hood and Kyle Hauptman voting in favor of them.

Hauptman made it clear that no matter who chairs the NCUA board, he opposes a strict regulatory regime.

“Every time we and government transfer power over here we are taking food off the table of some family in America,” he said at one point of the meeting. “And putting a steak dinner [on the table] for a lobbyist in D.C.” He said too much wealth is concentrated in the Washington region — something he wants the NCUA to address.

The board adopted a proposed rule that will expand the types of activities that CUSOs can engage in. The proposed rule would allow CUSOs to originate any type of loan that a federal credit union may originate and would provide the agency board with more flexibility in determining the legal activities of CUSOs.

Harper said the rule would allow CUSOs to become indirect auto lenders and payday lenders, adding that the NCUA has no authority to supervise the organizations for compliance with consumer protection laws.

“I would like to examine why we are even considering this proposal today. It is certainly not COVID related,” he said. “There is no economic analysis to make the business case for expanding this unfettered lending authority.”

He added, “Why are we spending our time and valuable staff time on another proposal that is not ready for prime time?”

Hauptman and Hood voted in favor of the proposed rule, while Hauptman said it is “unfounded” that CUSOs would do anything to harm credit union members.

The board also approved a proposed rule that would increase the threshold for defining a credit union as “complex” from $50 million in assets to $500 million in assets.

Credit union assets have soared during the pandemic, Kathryn Metzger, an NCUA risk manager, told the board. As a result, using the $50 million threshold, an additional 284 credit unions would be subject to any risk-based net worth requirement in NCUA rules.

Hood said that increasing the threshold would conform to his regulatory philosophy of “effective but not excessive” rules.

Harper said the proposal is ill-timed because it would lower capital standards during an economic crisis caused by the pandemic.

Hauptman disagreed, saying he did not see any substantial harm in approving the proposal.

The board also approved an advance notice of proposed rulemaking to make changes to the long-delayed NCUA Risk-Based Capital Rule. One possible change would replace the rule with a risk-based leverage ratio requirement, which, according to the proposal, would “use relevant risk attribute thresholds to determine which complex credit unions would be required to hold additional capital.”

A second approach would be modeled after the community bank leverage ratio framework.

Harper also opposed this plan.

“While our standards for risk-based capital do not need to be identical to those of the other federal banking agencies, the Federal Credit Union Act requires that they be at least comparable,” he said.

The board also approved a proposed rule that would add “sensitivity to market risk” to the CAMEL system used to rate federally-insured credit unions.

The board also was briefed on the agency’s annual performance plan, and received an update on the agency’s ACCESS initiative to make the credit union system more inclusive.

Some two hours after the meeting began, the agency lost the audio feed it was using for remote meetings during the pandemic. The feed was restored after more than an hour delay.