By Todd M. Harper
When in London, I’ve always found it funny to hear the “mind the gap” announcement when boarding the Underground. Now, as an NCUA board member, I realize just how important that message is.
The National Credit Union Administration Board recently proposed a rule that would guide credit union purchases of bank assets and liabilities. The proposed combination transaction rule is an important proposal and worthy of consideration. However, it exposes an important gap in the supervision of credit unions — former consumers of the acquired banks will not have the same level of consumer financial protection oversight in their new credit union.
The Federal Deposit Insurance Corporation supervises many of the banks that are part of these deals for consumer compliance. That agency has a consumer compliance program that is more robust than the NCUA’s program. The FDIC conducts regular, dedicated consumer compliance reviews that are separate and apart from safety and soundness exams. The FDIC also has hundreds of examiners committed to conducting these exams. Finally, the FDIC assigns the bank a separate rating on consumer compliance outside of the CAMELS rating system.
Everyone Deserves Same Protection
Do the new members of the acquiring credit union deserve to have the same level of consumer financial protection oversight at their new financial institution as they had at their bank? Yes, they do. Should the new members of the acquiring credit union have the same level of consumer financial protection at their new financial institution as they had at their bank? Yes, they should. Should all credit union members have this level of protection? Actually, yes, they should.
The NCUA’s current method of examining for compliance with consumer financial protection laws in a credit union with less than $10 billion in assets differs from other depository institutions’ regulators. The NCUA splits up its consumer compliance exams. The Office of Consumer Financial Protection conducts the fair lending exams, and the NCUA regional offices conduct the rest of the consumer compliance exams as part of the safety and soundness exam program.
But, in any given year, these regional consumer compliance exams only cover some of the many consumer financial protection laws on the books. It’s also worth noting that only 15 or so regional examiners are consumer compliance subject matter experts.
A ‘Light Touch’
For 2020, the NCUA has budgeted for 30 fair lending exams. To put a finer point on that number: as of Sept. 30, 2019, there were 5,281 federally insured credit unions — with 10 supervised by the Consumer Financial Protection Bureau. Light-touch, to say the least. As I noted previously, these fair lending exams are disconnected from the annual safety and soundness and consumer compliance exam process. It’s very confusing, right?
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.
All of that is not to say that this proposed rule on combination transactions doesn’t create clearer rules for the road or that I do not support it. It does, and I do. In fact, the proposed rule has provisions that ensure that conflicts of interest are avoided. To prevent self-dealing, the proposal would require a statement from the board of directors signing the certification that they do not have a pecuniary or personal interest in the transaction.
Another Guardrail
Another important guardrail in this proposed rule would require the credit union to develop a plan for the disposal of impermissible assets. Because these potentially problematic assets could pose an undue risk to the federally insured credit union and the Share Insurance Fund, they must be addressed up-front.
But the fact remains that these former bank consumers will be entering into a different dynamic when it comes to consumer financial protection oversight — a critical and unfortunate gap that the NCUA board must address.
It’s time for the NCUA’s consumer protection program to evolve. That’s why I am minding the gap and pushing to develop a dedicated consumer compliance examination program for large, complex credit unions. We must ensure that consumers receive strong consumer financial protection no matter where they do business.
Todd M. Harper is a Board Member of the National Credit Union Administration.