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NCUA Chairman Todd M. Harper Remarks at the American Association of Credit Union Leagues’ Winter Meeting

December 2021
NCUA Chairman Todd M. Harper Remarks at the American Association of Credit Union Leagues’ Winter Meeting

As Prepared for Delivery on December 2, 2021

Hello, everyone! Thank you for inviting me to join you virtually today.

I hope that all of you, your families, your employees, and your credit union members are safe after what has been an extraordinary and unprecedented 21 months. Twenty-one. That’s a good reminder that 2021 is also almost over.

When we begin the New Year in just four weeks, let us hope that we will all be able achieve a new normal, whatever that may be. Despite the many challenges of the last 21 months, 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 each of you not to let down your guard.

U.S. Economic Situation and Near-Term Outlook

Since experiencing a sizable economic contraction at the start of the pandemic, the economy has continued its recovery. 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. That said, the labor force is still short about 3 million workers, compared with its February 2020 peak, and the labor force participation rate has hovered near a four-decade low for more than a year. Nevertheless, the economic outlook is still relatively positive.

But, the pandemic-induced recession hit poorest households the hardest, and for these households, many of whom are credit union 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, and the system must prepare for the challenges ahead.

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 your credit union members to continue working with their members who are having financial difficulties. 

To support these efforts, the NCUA has instructed its 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 credit unions 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 credit union members in their homes and prevent losses on the books of credit unions. In fact, 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.

Inflation and Interest Rate Risk

Another area that credit unions should monitor carefully is inflation and the potential for interest rate risk. 

It has been almost 40 years since most Americans had to worry about inflation. Yet, inflation remains elevated at 6.2 percent, according to the consumer price index. Consumer inflation expectations are at a 13-year high, but consumer optimism about future income growth has improved, likely reflecting recent wage gains and improving labor market conditions. 

Inflation is widely expected to ease in the coming year, but persistently high inflation could lead the Federal Reserve’s Federal Open Market Committee to remove monetary policy accommodation earlier and more aggressively than expected, boosting short-term interest rates. Tighter credit conditions typically constrain consumer and business borrowing and spending and cause economic growth to slow. 

If short-term rates rise more than long-term rates, the yield curve will flatten, putting downward pressure on credit union net interest margins. Although economic forecasts point to a near-term steepening of the yield curve, the overall interest rate environment will remain challenging, particularly for credit unions that rely on investment income.

The ability to manage interest rate risk will remain a crucial determinant of credit union performance going forward. To remain on a sound footing, credit unions will also need to continue to pay careful attention to capital, asset quality, earnings, and liquidity.

Succession Planning

As all of you know, while the credit union industry continues to grow, it also 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 has now picked up.

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 managers 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. As such, I encourage you to raise the issue of succession planning in your organizations’ meetings and conventions and for your member credit unions to review their current policies or formally adopt new ones. 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

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. 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 industry groups, consumer advocates, and civil rights organizations 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 also 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 must 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.

Consumer Financial Protection

Equally vital to the members of credit unions is consumer financial protection and fair and equal access to credit.

In 2020, NCUA examiners completed targeted reviews in all risk-focused and small credit union examinations to evaluate compliance with various consumer financial protection laws and regulations. The NCUA then performed quality control reviews on randomly selected examination reports. We observed several issues suggesting that some credit unions may not be paying attention to consumer financial protection as closely as warranted. In some cases, the NCUA’s examiners found weaknesses in credit unions’ compliance management systems, which can lead to compliance issues, violations, or harm to consumers if not adequately addressed. 

If left unchecked, issues such as deficient recordkeeping, or inadequate training, or weak internal review or audit processes could lead to heightened risks. Based on those findings, we observed notable shortfalls in particular in complying with the Fair Credit Reporting Act, Electronic Fund Transfer Act, and Truth in Lending Act. 

Credit unions with Fair Credit Reporting Act problems typically did not establish and implement reasonable written policies and procedures about the accurate reporting of member information to a consumer reporting agency, potentially affecting the credit scores of consumers and their ability to obtain fairly priced credit. Credit unions with Electronic Fund Transfer Act issues typically did not promptly investigate errors or provide complete disclosures, preventing members and consumers from understanding their accounts and leading to expensive fees. And, credit unions with Truth in Lending Act problems typically did not provide complete and accurate disclosures to their members or correctly calculate the finance charge for certain consumer loans, potentially increasing the overall cost of credit for the consumer.

To address these and other issues, especially as the industry grows in complexity, the NCUA must create a dedicated program to supervise for compliance with consumer financial protection and fair lending laws. Also, just as we recently separated the liquidity and market sensitivity components by adopting the CAMELS rating system in September, I am hopeful that we will eventually pursue a similar action for the management component of the CAMELS rating when examining the largest credit unions.

Currently, the NCUA folds its analysis of a credit union’s consumer compliance performance into the management rating component. In contrast, the federal banking agencies have created a separate consumer compliance scoring system outside of the CAMELS process. For complex credit unions, the NCUA should pursue a similar path. In doing so, we will better protect consumers’ interests, ensure that the credit union system lives up to its commitment to serve members, and provide a comparable level of consumer protection oversight as federal bank regulators.

Embracing DEI in the Credit Union System

Just one month ago at the start of November, the NCUA hosted its second DEI Summit. 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. 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 for the creation of fair and innovative products and services to better meet the needs of credit union 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.


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 your credit unions provide financial services and products to their members. And, it has also changed the way in which the NCUA conducts examinations and thinks about risk. As we continue to emerge from the pandemic, I encourage all credit unions to heed the age-old advice of a “stitch in time saving nine” by acting quickly to mitigate problems when they develop.

Finally, I encourage credit unions to stay focused on the needs of their members and their communities. The members and communities that your credit unions serve will remember who supported them during their times of need, and that loyalty will lead to a brighter and more prosperous future.

Thank you again for allowing me to join you virtually today. Be safe. Be well. Be kind. Thank you!

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