NCUA Chairman Todd M. Harper at the NCUA's headquarters in Alexandria, Virginia.
As Prepared for Delivery on November 12, 2021
Thank you for that kind introduction, Larry, and hello, everyone! It is a pleasure to be with you this afternoon.
It is also hard to believe that 2021 is nearly over. I hope that all of you, your families, and your credit unions’ employees and members are safe after what has been an extraordinary 20 months. Despite many challenges, credit unions have pressed forward, doing their part to support their members and the communities they serve.
And, so far, the system, overall, has weathered the pandemic fairly well and remains well-capitalized. But, we know that the pandemic has disproportionately affected communities of color, and I must also caution everyone that we are not out of the woods just yet.
Before we get to the questions, I want to discuss the economic outlook, focusing on those most impacted by the COVID-19 pandemic. I will also outline the need for your credit unions to continue working with your members, and review the NCUA’s initiatives to support small, low-income, and minority depository institutions, including the agency’s recent actions related to the Emergency Capital Investment Program. Finally, I will highlight the issues of appraisal bias, the wealth gap, and financial literacy and education before concluding my remarks with a focus on diversity, equity, inclusion, and belonging within the credit union system and the broader financial services sector.
U.S. Economic Situation and Near-Term Outlook
Since experiencing a sizable economic contraction at the start of the pandemic, the economy has continued to recover. And, it has surpassed its pre-pandemic peak in size. More than 18 million jobs have been added back to non-farm payrolls, and the unemployment rate fell to 4.6 percent in October.
While the economic outlook is relatively positive, the pandemic-induced recession hit poorest households the hardest, and for these households, many of whom are your members, the recovery could take much longer to take root. Improving labor market conditions have helped many households to make ends meet once again, but pandemic-relief efforts like forbearance programs, moratoriums on evictions and foreclosures, and supplemental unemployment insurance payments also provided critical support. The expiration of these support programs will lead to financial stress for many and that stress could lead to rising delinquencies and charge-offs at federally insured credit unions. Low-income households and communities of color are especially vulnerable.
Research by the Federal Reserve Bank of New York shows that mortgage borrowers lingering in forbearance tend to have lower credit scores and live in lower-income communities. What is more, the share of subprime borrowers in forbearance jumped from one in four in June 2020 to two in five in June 2021. And, mortgages held by borrowers living in the lowest income neighborhoods are more likely to be in forbearance than mortgages in higher income areas. Additionally, data from the Census Bureau’s Household Pulse Survey showed that one out of three adults surveyed in late September and early October of this year reported that they live in households where eviction or foreclosure is either “very” or “somewhat likely” in the next two months.
That is very concerning.
Working with Borrowers
With its cooperative spirit and mission, credit unions are well positioned to prevent families from falling between the cracks. Therefore, I urge all of you to continue working with your members who are having financial difficulties in the months ahead. To support such efforts, the NCUA has instructed examiners to refrain from criticizing a credit union’s efforts to provide prudent relief for members, when conducted in a reasonable manner with proper controls and management oversight.
Additionally, targeted relief measures, like our recently finalized capitalization of interest rule, give your credit union an additional tool when working to address financial difficulties. When done in conjunction with other mitigation tools like lowering interest rates and extending maturities, the capitalization of interest can help keep your members in their homes. For borrowers experiencing financial hardship, a prudently underwritten and appropriately managed loan modification, consistent with consumer financial protection laws and safe-and-sound lending practices, is often a win for the borrower, a win for the credit union, and a win for communities and our economy.
Supporting Small, Low-income and MDI Credit Unions
In my speeches and statements, I have often said that the NCUA must work to advance economic equity and justice, a goal that fully aligns with the credit union system’s mission of meeting the credit and savings needs of members, especially those of modest means.
One way that we are achieving this objective within the NCUA is through our support of small, low-income, and minority depository institutions, which play an essential role in providing safe, fair, and affordable financial services to urban, rural, and underserved communities throughout the country. In 2021, the NCUA awarded $1.5 million in Community Development Revolving Loan Fund grants. These grants are now helping 105 low-income credit unions expand their outreach to underserved communities and improve their digital services and security.
Revolving Loan Funds also support the agency’s MDI Mentoring Grants, and the application period for these grants remains open. This year, the NCUA will make approximately $100,000 available to low-income credit unions with the MDI designation to support mentoring relationships which allow larger, more experienced MDI credit unions to assist smaller MDIs in becoming more resilient and growing. The deadline to apply for this funding is November 14. I encourage all eligible credit unions to consider applying for this worthwhile program.
Although relatively small in size, Revolving Loan Fund grants make a big difference in supporting the credit unions that receive them. And, demand for these grants regularly exceeds supply. As such, I have requested that the Congress increase appropriations for these grants to $10 million. With more funding, the agency could increase the number of credit unions receiving grants and increase the size of the grants it makes, thus deepening the program’s impact in underserved communities.
Recent Changes to Support Credit Unions Using ECIP
Another way the agency is supporting low-income and MDI credit unions is through our regulatory policies. Recently, the NCUA Board approved a proposed change to the agency’s subordinated debt rule that would benefit eligible MDI and community-development credit unions participating in the Treasury Department’s Emergency Capital Investment Program, also known as ECIP. We also recently issued new guidance clarifying the ability of eligible credit unions to receive 30-year subordinated debt investments from the ECIP program. This change in policy will allow ECIP participating credit unions to fulfill the mission of the program and advance economic equity and justice.
We recognize the transformational value of this seed money for underserved communities. Going forward, therefore, the NCUA will pursue additional action to permit ECIP funding to count as regulatory capital for the entire time it is held. This could help many eligible credit unions improve their capabilities and develop new products and services that meet the needs of their members and communities. I look forward to working with my fellow Board Members on this important issue, and to seeing new initiatives to build wealth take root with ECIP funding.
Succession Planning
As all of you know, the credit union industry unfortunately continues to consolidate. This is a long-term trend also seen in the banking sector, and it has been a constant for more than three decades now, regardless of the economic or regulatory cycle. While the COVID-19 pandemic somewhat slowed mergers, the pace of mergers is now increasing.
One of the reasons why so many mergers are occurring is the lack of succession planning—especially in smaller credit unions. Overall, about one in five credit unions lack CEO succession plans. And, some data indicates that a large proportion of credit union CEOs and executives are Baby Boomers who will be part of a retirement wave that has already started. With these retirements, flat budgets, and tight labor markets made even tighter in the wake of the pandemic, there is a real need for credit unions of all sizes to focus on succession planning, especially if we want to curtail credit union mergers.
I learned long ago that to “be prepared” is to be a good scout. As such, I encourage you to raise the issue of succession planning in board discussions and to review your current policies or formally adopt a new one. Additionally, I am working with my fellow Board members and the NCUA staff on a potential rule related to succession planning. If we want to ensure small credit unions can thrive in the marketplace and in their communities, then we need to address the lack of succession planning within the industry.
Combating Appraisal Bias
Another priority for the NCUA is addressing economic equity and justice. In my remarks, I often note that increasing homeownership among communities of color is vital to closing the wealth gap. According to the U.S. Census Bureau, nearly three out of four non-Hispanic, white households own their homes. In stark contrast, less than one in two Black and Hispanic households have achieved the dream of homeownership.
People of color have long been denied equitable access to our housing system, including the appraisal system. Through my work on appraisal policy issues over two decades, I have found that the presence of bias in home appraisals is a significant obstacle to closing the wealth gap and creating sustainable homeownership.
A recent Freddie Mac study of 12 million appraisals found that homes in Black and Latino neighborhoods are valued lower than similar properties in white communities, and multiple media investigations about this problem have reached the same conclusion. If we are going to fix this well-documented problem, then the NCUA must engage with stakeholders to explore the reasons for these inequities and develop viable solutions to address this problem.
More than a decade ago, in the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress enacted reforms to address problems in the appraisal industry, and many consumer and civil rights advocates supported those reforms. Among other things, Congress strengthened the powers of the Federal Financial Institutions Examination Council’s Appraisal Subcommittee, which supervises state regulatory programs. Those reforms addressed appraisal independence and appraisal inflation. However, as the Freddie Mac study and other reports demonstrate, we continue to see stresses in the appraisal system, including bias based on race.
At the NCUA, we are studying the causes of the disparities in appraisal and valuation services to inform our future policymaking. We are also working with other agencies on joint rules to establish quality control standards for automated valuation models. Additionally, as a member of the multi-agency Property Appraisal and Valuation Equity Task Force, the NCUA is committed to combatting any form of discrimination in appraisals by ensuring that government oversight and industry practices advance equity in real estate valuations, tackling valuation bias through consumer education and practitioner training, ensuring equity in valuation by making available high-quality data, and creating a comprehensive approach to combating valuation bias through enforcement and other efforts.
Since joining the NCUA Board in 2019, I have spoken with thousands of credit union leaders, employees, regulators, and members about the importance of financial inclusion, economic equity, and necessary reforms to the appraisal system. Existing statutes like the Fair Housing Act, the Equal Credit Opportunity Act, and Title 11 of the Financial Institutions Reform, Recovery, and Enforcement Act aim to address this problem. To achieve lasting change, we should use these laws to regulate, supervise, and enforce against appraisal bias.
Addressing bias within the appraisal system is a critical step in addressing the wealth gap and ending centuries of systemic financial and economic discrimination. It is important work, and it is long overdue.
Financial Education and Literacy
Beyond rulemakings and supervision, we must also address financial education and literacy, if we are to succeed in advancing economic equity and justice. Our economy and financial system are becoming increasingly complex, making the need for a solid foundation of personal finance knowledge more essential than ever before. Survey after survey has shown many young people do not have a basic understanding of financial concepts or know how to apply them to real-life financial situations. And, only 17 states currently require high school students to complete a personal finance course before graduation.
In speeches, I often talk about my parents — Dr. Ronald and Christine Small — and the lessons they taught me. I would like to share a story about them and an important lesson I learned about managing money. In 1974, we moved to a new neighborhood, and I started earning two dollars each week for completing chores. Two blocks away from our house was a candy store, a mighty temptation for a seven-year-old. Soon, to pay for my purchases, I was spending my entire allowance and even dipping into my other assets — a collection of silver quarters, nickels, and dimes.
So, when the holidays arrived, I had no money for gifts. Fortunately, I obtained an interest-free loan from a local cooperative — the “Bank of Mom and Dad” — and learned important lessons about budgeting and saving that changed my habits. Soon, I was teaching my older brother about compound interest and calling banks to determine which paid the highest interest on deposits.
Looking back, I recognize how lucky I was to learn about budgeting and saving at an early age. Unfortunately, many Americans do not learn these lessons in either the home or the classroom. That is why the NCUA works to support credit union efforts, raise consumer awareness of financial education and inclusion issues, and increase access to safe, fair, and affordable financial services.
The NCUA also serves on the Financial Literacy and Education Commission and supports implementation of the U.S. National Strategy on Financial Literacy, which includes addressing disparities in financial literacy among communities of color and other groups to promote broader financial inclusion in the economy. We are additionally working with public and non-profit partners like America Saves, Military Saves, JumpStart, the CFPB, and others.
Addressing the deficiencies in financial education and the lack of savings in America is an enormous task and one that will take the combined efforts of policymakers on the federal, state and local levels, as well as non-profits, financial institutions, parents, educators, community organizations, and leaders of industry. But, it is vital that we take on this challenge, so that we can ensure that all Americans have the possibility of financial security and stability. Such stability is good for our society and good for our democracy.
Embracing DEI in the Credit Union System
Finally, the NCUA hosted its second DEI Summit just last week. I know many of you attended and took part in the event as participants, panelists, or presenters.
The summit was an excellent opportunity for all of us in the credit union community to share experiences, expertise, successes, and challenges facing the credit union system and the broader financial services industry when it comes to promoting greater diversity, equity, inclusion, and belonging.
At their core, diversity, equity, inclusion, and belonging are far more than policies and principles. They are fundamental practices — and behaviors — that must be acted upon each day. As I said during the summit, intentions are meaningless without concrete actions and behaviors to support these values and to bring about change. In that regard, I am heartened by the progress we have seen within the credit union system, including the establishment of the DEI Collective, the creation of AACUC’s Cross-Cultural Exchange Program, and the ongoing efforts of Maurice Smith and others to establish diversity, equity, and inclusion as an eighth principle within the cooperative system.
The credit union movement can advance diversity, equity, inclusion and belonging by implementing these principles internally within your organizations, externally with your members, and even more broadly, within the promise of the credit union movement. Diversity, equity, inclusion, belonging — as well as economic equity and justice — are vital to the continued health and success of the credit union system, especially in terms of strategy, sustainable growth, innovation, talent acquisition, and employee retention. DEI allows you to attract employees and volunteers from a broader talent pool. DEI gives you broader perspectives that lead to better decisions. And, DEI will allow your credit union to create fair and innovative products and services to better meet the needs of your members as our country becomes more and more diverse.
Greater diversity, equity, inclusion, and belonging in the credit union system and the broader financial services sector will not happen overnight or by happenstance. It will a take concerted effort by all of us, and one that will require us to move beyond our own swim lanes and comfort zones. But, these efforts will ensure that the cooperative nature of the credit union system lives up to its full potential. I look forward to working with all of you on these noble endeavors.
Conclusion
In closing, the COVID-19 pandemic and its economic fallout have changed almost everything, from how we live, work, and socialize, to how we think about, and plan for, the future. It has also changed the way in which you provide financial services and products to your members. And, it has changed the way in which the NCUA conducts examinations and thinks about risk.
As we continue to emerge from the pandemic, I encourage all of you to focus on the fundamentals of serving your members and communities. They will remember who supported them during their times of need, and that loyalty will lead to a brighter and more prosperous future for your credit union, your members, and your community.
That concludes my remarks. I look forward to your questions.