The Honorable Todd M. Harper Chairman of the National Credit Union Administration Remarks before the CUNA Governmental Affairs Conference

As Prepared for Delivery on February 28, 2022

Hello, everyone, and thank you, Antonio, for that introduction. After two years of hunkering down at home in a pandemic posture, it is good to be here with all of you — live and in-person.

Stay Vigilant

Before I begin today, I want to discuss the current situation in Ukraine. The conflict there has raised concerns about potential cyberattacks here in the U.S., including those against the financial services sector.

Recently, the NCUA circulated a cybersecurity alert from the Department of Homeland Security, the FBI, and the National Security Agency.¹ I cannot stress this enough: All credit unions and vendors, regardless of size, are vulnerable to cyberattacks.

Given the events over the last few days, attacks on financial institutions are potentially imminent. So, all parties within the system must maintain the highest level of alertness. 

And, all entities should report any cyber incidents to the NCUA, the FBI, and the Cybersecurity and Infrastructure Security Agency. More information can be found the NCUA’s cybersecurity resource center at www.ncua.gov/cybersecurity.

Use Your Hammer

Now, as we enter the pandemic’s third year, it is time to assess what we all — government and credit unions — can do to positively shape the industry’s future.

When I began my career in Washington, I quickly became a fan of syndicated columnist Molly Ivins. A true Texan, Molly was known for her biting wit and canny insights.

One of my favorite quotes by her reads: “I think government is a tool, like a hammer. You can use a hammer to build with or you can use a hammer to destroy with. Whether government is good or bad depends on what you use it for and how well you use it.”²

For me, the prudent use of government is critical to creating frameworks that establish the rules of the road and a fair playing field for all involved. Good government must also protect individual rights and consumers.

But government, in this case the NCUA, cannot and should not do it all. And, if you think about it, Molly’s observation also applies to the cooperative movement. Leaders of this industry, like all of you gathered here today, should prudently use your hammers to positively affect the financial prospects of all your members. 

So, in that vein, I want to focus on what the NCUA has recently achieved, what comes next for credit unions and the NCUA, and how we each should use our hammers and other financial-wellness tools moving forward.

Recent and Coming Regulatory Actions

Upon becoming the NCUA Board Chairman last year, I committed to fostering open engagement and seeking win-win compromises whenever practicable. By following these guiding principles, the NCUA Board reached a consensus on several important matters during the past year. 

For example, we adopted a capitalization of interest final rule to give credit unions another tool to aid borrowers facing financial difficulty. We also extended temporary and targeted pandemic-relief measures on capital and loan participations, and we permitted federal credit unions to purchase mortgage servicing assets. 

We also created a simplified measure of capital adequacy for credit unions with more than $500 million in assets, thus allowing the agency’s 2015 risk-based capital regulation to take effect in January. And, we approved the addition of the “S” component to the CAMEL system to better measure a credit union’s sensitivity to market risk and align the NCUA’s ratings with our sister agencies, including several state regulators. 

Together, these and many other regulatory actions last year helped members in need, opened new avenues for credit union growth, and strengthened the system’s overall stability.

This year, the NCUA Board has planned regulatory initiatives on reporting cyber incidents, sensibly growing the field of membership of federal credit unions, supporting the long-term work of community development credit unions, and increasing the threshold for large credit union supervision. Together, these actions will enhance credit union abilities and responsibilities, increase consumer access to affordable credit, improve oversight, and strengthen long-term investments in underserved communities.

Success for the Corporate Resolution

Last year was also an important milestone for the Corporate System Resolution Program, as we began winding down the NCUA Guaranteed Notes program. The success of the corporate resolution is a testament to the leadership shown by previous NCUA Boards and the diligent efforts of the agency’s staff.

In the darkest days of the corporate credit union crisis, very few of us could have imagined the NCUA would return any funds. But, today we announced a distribution of $570 million to the former capital holders of Members United, U.S. Central, Constitution, and Southwest Corporate.³

In all, the NCUA has now recovered and returned nearly $2 billion to federally insured credit unions, and we appear likely to make more distributions in the future.⁴ I encourage you to use this windfall to improve the financial well-being of your members and member businesses by offering safe, fair, and affordable loan products, especially in communities of color, underserved areas, and rural districts. Such efforts will ensure a more equitable recovery and foster greater economic opportunity.

Succession Planning

As a child, I attended Benjamin Franklin Elementary School. While there, I learned that Franklin said, “If you fail to plan, you plan to fail.” He was right. And today, we are seeing what happens when credit unions fail to plan for their futures.

Regardless of the economic or regulatory cycle, the consolidation of credit unions has been a constant for several decades. While the pandemic initially slowed the pace, the number of mergers is now, once again, increasing. One reason why so many mergers are occurring is an absence of succession planning, especially in smaller credit unions. 

To address this situation, the NCUA Board recently proposed a flexible rule requiring succession planning. Although the proposal would only apply to federal credit unions, this rulemaking at its core would help ensure that credit unions of all sizes have strategies in place to fill crucial positions and remain viable for generations to come.

I look forward to reviewing your feedback once the comment period ends on April 4.⁵

To support small, low-income credit unions this year, we will also provide more than $1 million in Revolving Loan Fund grants for cybersecurity, digital services, staff training, and underserved outreach. And, we have increased the time budgeted for examiners to assist small credit unions.

But, slowing consolidation and supporting small credit unions is not just the NCUA’s responsibility. If we are to be successful, it will take the commitment and assistance from credit union leaders. I, therefore, encourage you to partner with and mentor one another. Through these relationships, small credit unions can benefit from greater economies of scale, better technology and infrastructure, and increased access to executive training, strategic consulting, and staff development.

For the system to continue to achieve its full potential, small credit unions must remain viable and at the heart of the movement. That can only be accomplished with a sustained commitment by all of us.

Protecting Consumers

Since joining the Board, I have focused on strengthening the NCUA’s consumer financial protection and fair lending resources. Given the consumer compliance examination program for comparably sized community banks, our program’s scope is insufficient, especially for those credit unions between $1 billion and $10 billion in assets. We should be doing more, and we can do more.

I understand this is not a popular opinion in this room. Many within the industry maintain that the NCUA should primarily focus on its safety-and-soundness mission or that the agency has not demonstrated a significant rationale for a stronger consumer compliance program.

Some also contend that the cooperative nature of credit unions prevents their lending practices from being discriminatory because their primary purpose is to serve their members’ needs. However, the logic that credit unions do not discriminate because they are owned by their members is a dangerous myth and one that should end.

One simply needs to read the trade press over the last few years to know that some credit unions have engaged in discriminatory practices or violated consumer financial protection standards. For example, credit unions have been sued and have paid damages for violating consumer financial protection laws related to age and marital discrimination, overdrafts, and unfair and deceptive acts and practices.⁶

And, in our 2021 examinations, we found violations of consumer compliance rules in nearly 15 percent of federal credit unions.⁷ The most common violations related to credit reporting, truth in lending, electronic fund transfers, and equal credit opportunity rules.

Last year, the NCUA only completed 29 fair lending examinations, less than one percent of all federal credit unions.⁸ Yet, the NCUA also resolved violations involving 64,000 credit union members subjected to unfair practices, leading to approximately $185,000 in restitution and remediation.⁹

What is more, in completed fair lending exams and reviews, we noted compliance management system weaknesses in the majority of cases. Credit unions can — and should — do better.

I am a firm believer in the movement’s statutory mission of meeting the credit and savings needs of members, especially those of modest means. All individuals, regardless of their financial services provider, are entitled by law to have the same level of consumer financial protection. There cannot be one standard for bank customers and a different one for credit union members. Continuing such a dynamic only hurts the credit union members who we all have a duty to protect.

As such, consumer compliance remains a supervisory priority for the NCUA.¹⁰ This year, during every federal credit union examination, examiners will review compliance with COVID-19 consumer-assistance programs, fair lending rules, servicemember protections, and fair credit reporting laws, among others. We will also conduct more fair lending exams and reviews.

Ultimately, a strengthened consumer compliance program is in the long-term best interest of the system and its members. Such a program will also ensure the industry fulfills its commitment to serving members.

Reevaluating Overdrafts

The debate about credit unions and banks charging abusive overdraft and related fees is also at a tipping point. The issue came to a head at the start of the COVID-19 pandemic, after a public outcry over overdraft fees being charged as consumers waited for stimulus payments to clear. And, we should not lose sight of such fees disproportionately harming Black and Hispanic consumers.

In my view, the overdraft fees charged by some federal credit unions are fundamentally detrimental to members and inconsistent with the system’s mission. Moreover, the Consumer Financial Protection Bureau estimates that overdrafts and related fees took $2.4 billion from the pockets of credit union members in 2019.¹¹ That amounted to one-fourth of all fee income for federally insured credit unions.¹²

Punitive overdraft fees can harm consumers, and households hit by frequent charges often have their checking accounts closed. So, such fees can actually lead to financial exclusion, instead of financial inclusion. That runs counter to the system’s purpose.

For that reason, the NCUA has included a review of credit union overdraft programs as a supervisory priority. This year, examiners will request information about overdraft policies and procedures, as well as audits of credit union overdraft programs. We will also review credit union communications with members about such programs. We anticipate using the information gathered this year for a more thorough review of credit unions’ overdraft programs in 2023.

During the last year, a growing number of credit unions and banks have eliminated or greatly decreased their overdraft fees. These institutions understand the need to use their hammers to build the financial future of all their customers.

And, as more and more institutions dramatically decrease or fully drop overdraft fees, consumers will begin to expect your credit union to do the same. I recognize, however, that not all credit unions are ready for this change. Therefore, if your credit union is going to maintain an overdraft program, I encourage you to include features like linking to savings accounts, offering affordable lines of credit or short-term, small-dollar personal loans, and helping your members to build savings.

Also, credit unions and banks that have already made the switch have created new income streams. You, too, can diversify your revenue in creative ways. For starters, increase your membership base and originate more safe, fair, and affordable mortgages and other loans. Once you have made those loans, service them. And, offer other financial products that your members need.

These are just a few ideas. I am certain there are others, so I challenge you all to identify additional ways to lower and eliminate overdraft fees.

Let’s Get It Done

In closing, throughout the pandemic’s many ups and downs, credit unions have pressed ahead, staying true to their members and communities. I thank you for that commitment.

What comes next is a question we all must consider. The pandemic has accelerated several long-standing trends, such as the adoption of digital services and mobile apps and the emergence of fintech competitors. And, the pandemic has drawn attention to long-standing inequities and systemic discrimination.

But, as Albert Einstein once said, “In the midst of every crisis, lies great opportunity.” So, let’s use our hammers and other financial-wellness tools to build the financial prospects of many more Americans. Let’s advance economic equity and justice within the system. And, let’s commit to further enhancing diversity, equity, inclusion, and belonging within the industry.

After these last two years, we have a chance to make important and positive changes to further the promise of the cooperative movement. Let’s seize that prospect together.

Be safe. Be well. Be kind. Thank you.