Credit Unions Might Sue NCUA Over Secondary Capital Rule

A group of credit unions is fighting back against an NCUA rule that will prevent credit unions from receiving the full benefits a program Congress designed to help banks and credit unions serve more minorities.

One credit union CEO, who was a speaker at a forum Tuesday for community development credit unions, said credit unions are willing to sue the NCUA over the rule.

Ninety credit unions have applied for $3.1 billion from a $9 billion pool called the Emergency Capital Investment Program (ECIP). Congress created ECIP in December 2020 to encourage low- and moderate-income community financial institutions to augment their efforts to support small businesses and consumers in their communities.

The program is limited to Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs). While banks can borrow for 30 years, a new NCUA rule prevents credit unions from secondary capital borrowing for terms greater than 20 years.

The U.S. Treasury Department, which is administering the program, offers funds for 15- or 30-year terms.

In a virtual “Town Hall” sponsored by Inclusiv, a group representing more than 400 CDFI or MDI credit unions, CEOs blasted the NCUA for a rule they argued violated congressional intent, had no basis in statute and effectively reduced the help credit unions could provide to Blacks, Hispanics and other minorities.

Martin Eakes, president/CEO of Self-Help Federal Credit Union in Durham, N.C. ($1.7 billion in assets, 89,525 members), said credit unions are willing to take the NCUA to court to stop it from implementing a rule that is “taking away 50% of the value” of the Treasury program.

Eakes said he’s talked with NCUA lawyers.

“They’re good people,” Eakes said. “They just went out on a limb and their pride prevents them from crawling back to the trunk of the tree.”

Eakes called the 20-year rule “one of the stupidest implementations of legal interpretation I’ve ever seen.”

“It’s impacting the credit unions that need it the most. It’s impacting the people who need it the most. It’s eliminating 15 years of extra protection for the credit union insurance fund. There’s no damned reason whatsoever why this 20-year [rule] makes any sense. There’s no legal justification for it. I think we need to raise holy hell with the NCUA,” Eakes said.

“It’s only pride that keeps them where they are,” he added.

Bill Bynum, president/CEO of Hope Federal Credit Union of Jackson, Miss. ($411.4 million in assets, 35,709 members), said secondary capital has been a key factor providing the loan-loss cushions that have allowed the credit union to expand its lending rapidly to help Black communities across the South.

Bynum estimated the NCUA rule means the credit union will be able to serve about half a million fewer people – about two-thirds of them minorities. And he said other credit unions would also be able to lend to fewer people.

“Spread out over this country, we’re talking about millions of people of color who would be excluded from benefiting from this program,” Bynum said.

Luis Pastor, president/CEO of Latino Community Credit Union in Durham, N.C. ($662.9 million in assets, 101,118 members) said the credit union has helped an immigrant community that has been spurned by federal and local government. He said he had hoped to use the secondary capital to expand its lending to immigrants, but those plans are scuttled by a rule from the NCUA.

“I don’t understand: It’s our own regulators,” he said.

Pastor said he was “tired” of being treated as if CDFI credit unions don’t belong with “the big table guys.” He said he was left with the impression that NCUA officials thought the Treasury’s 30-year secondary capital “is too good for you morons. We don’t want you to use these tools.”

The FDIC allows banks to borrow for such programs for 30 years or forever.

In an Oct. 1 letter to the NCUA, Inclusiv President Cathie Mahon wrote that credit unions also had no limits until December 2020 when the board included secondary capital into the wording of a provision addressing issues about subordinated debt.

“The agency swept secondary capital into that rule despite substantial differences in the nature and intent of these two instruments. This new rule was hastily considered and approved over many concerns raised in comments from industry leaders, including Inclusiv,” Mahon wrote.