NCUA Board Member Todd M. Harper speaks to the agency’s proposed budget and consumer protection issues at the Dec. 12 board meeting.
As Prepared for Delivery on December 12, 2019
Rendell, thank you for your presentation.
From my perspective, there are a number of good things in the NCUA 2020–2021 Budget, including:
- Pay comparability for NCUA staff (merit increases),
- Funding for the new MERIT examination system and training for the examiners who will use that system,
- Funding for additional cybersecurity policy staff, and
- Funding to reimburse NCUA staff for a portion of their professional liability insurance.
But I also have concerns about this budget and today’s meeting. In fact, today’s meeting is really one in which we will delay and do little. We will delay the implementation of the risk-based capital rule yet again, and we will do little in this budget to strengthen consumer compliance reviews. Accordingly, I will vote against the budget because it does nothing to strengthen consumer financial protection.
In its comment letter on the proposed NCUA budget, Americans for Financial Reform Education Fund makes the case simply and elegantly: “Strong consumer protections and robust supervision of financial institutions are vitally important, both for individual borrowers and for the health of the whole economy.” I couldn’t agree more.
Yet for more than three decades, the NCUA has focused its examination program primarily on safety-and-soundness reviews. 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 319 credit unions exceeding $1 billion in assets having 73 million members.
As the National Community Reinvestment Coalition noted in its comment letter, “[t]he lack of change implies that the NCUA is not keeping pace with the growing number of large credit unions and the changing dynamic of the industry that it regulates.” Once again, I couldn’t agree more.
With respect to large, complex credit unions, the time has come for us to put continuous improvement into practice. As the largest credit unions continue to grow in size, the time has come for the NCUA to evolve its consumer compliance program.
What is more, the NCUA’s current method of examining for compliance with consumer financial protection laws in a credit union with total assets of $10 billion or less differs from other depository institutions’ regulators, which complete regularly scheduled, risk-focused consumer compliance reviews, and assign a separate consumer compliance rating outside of the CAMEL process for such depository institutions under their jurisdiction. If you don’t measure it, you can’t manage to it, and we aren’t giving large, complex credit unions a tool they need to manage consumer compliance performance.
The NCUA’s approach to consumer financial protection reviews also runs counter to the congressionally mandated mission of the Federal Financial Institutions Examination Council, which works to develop uniform standards and processes across all financial institution regulators. That’s one of the reasons why Americans for Financial Reform Education Fund notes in its comment letter, “[l]ike banks and other financial institutions, credit unions are required to comply with the consumer protections that Congress put in place to protect families from the predatory practices, discriminatory lending, and unscrupulous behavior.”
To address these issues, I requested that a proposal to add three new full-time employees in the Office of Consumer Financial Protection in 2020 be included in the staff draft budget that the agency released for comment. These employees would develop a dedicated consumer compliance examination program for large, complex credit unions, which the agency would later launch.
Because my request to include the proposal for comment in the staff draft budget was denied, I subsequently released the proposal myself and requested public comment. The proposal received a number of comments. Not surprisingly, there were comments in support of and in opposition to the enhanced consumer compliance proposal.
I would reiterate that the proposal was meant to be the first step in a longer process to determine how to strengthen the NCUA’s consumer compliance program appropriately. Ultimately, I’m deeply disappointed that after negotiating for almost two weeks and seemingly reaching an agreement to add two staff to the Office of Consumer Financial Protection, that agreement is not reflected in the budget before us today.
In operating as a Board, we each bring different perspectives to the table. When we sincerely consider those different perspectives with open minds, we can reach the compromise needed to make better decisions as a group. That’s what’s called the wisdom of the crowd, and that’s one of the reasons why Congress vested leadership of the NCUA in a Board.
For the good of the credit union system and its members, I intend to continue the dialogue I started in September about strengthening the NCUA’s consumer compliance program. As the credit union system evolves, so must its regulator. When we revisit budgetary matters in the future, I hope I’m not disappointed again.