WASHINGTON—NCUA Board Chairman Mark McWatters has sent a letter to Ann Wagner (R-MO) to address what he called “inaccuracies” in a recent letter the Independent Community Bankers of America sent to the representative and to “set the record straight.”
The ICBA, referencing the fees the NCUA has paid in its legal contracts, asserted recently in a letter to Wagner that the attorney’s fees paid by the agency burden taxpayers. The group then proceeded to restate its long-running complaints about the tax-exempt status of the nation's not-for-profit, member-owned credit unions, credit union powers generally and credit union member business lending in particular.
As CUToday.info reported here, NCUA has paid $1.1-billion in contingency fees to St. Louis-based Korean Tillery and Washington-based Kellogg, Huber, Hansen, Todd, Evans & Figel, which have represented NCUA in 26 lawsuits filed against various entities seeking damages for failed investments. To date, NCUA has recovered more than $5 billion after placing five corporates into conservatorship a decade ago.
As CUToday.info also reported, following a story first broken by Politico, Wagner has sent a letter to McWatters stating, “The payment of over one billion dollars in legal fees to private counsel raises serious questions about the propriety of the NCUA’s legal fee arrangements, including whether the arrangements were in the best interest of the NCUA.”
In his letter to Wagner, McWatters addresses ICBA President Camden R. Fine’s assertion that over $1 billion in taxpayer money was channeled through the NCUA into inflated legal fees.
“This is not correct,” wrote McWatters Tuesday. “I have made it clear I regard the fees paid to outside counsel to be excessive, and NCUA has endeavored to re-negotiate those contracts. Neither my fellow NCUA board member Rick Metsger nor I were involved in either vetting outside counsel or negotiating the terms of the corporate-credit-union-related legal services agreements. The agency should continue its efforts to negotiate a fair and transparent modification of these legal services agreements, where outside counsel has received, to date, over $1.1 billion in fees. These fees are regrettably excessive, yet our good faith efforts to reach an equitable accord with the recipient law firms have not succeeded. While the fees paid under these contracts may be subject to debate, their source is not. No taxpayer funds were lost through the restructure of the corporate credit unions and no taxpayer money was spent on attorney’s fees, either directly or indirectly. Instead, the funds to pay the legal fees came from the approximately $5 billion in recoveries and were paid from the proceeds of each of the settlements.
“As conservator and liquidating agent for each of the five failed corporate credit unions, the NCUA board has a fiduciary responsibility to collect debts and obligations owed those corporate credit unions,” continued McWatters. “That duty includes using reasonably available legal means to seek recoveries from parties that contributed to the corporate credit unions’ losses. To fulfill this duty, the board filed many lawsuits, primarily against entities that sold faulty residential mortgage-backed securities to the five failed corporates. The NCUA was the first federal financial institution regulator to pursue this type of litigation. The agency’s efforts in obtaining legal recoveries were very successful.”
McWatters noted that the NCUA’s approach to resolving the corporate crisis “shielded” taxpayers from loss.
“During the crisis, Congress created the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) to accrue the losses from the five failed corporate credit unions and assess insured credit unions to pay for such losses over time,” wrote McWatters. “The Stabilization Fund is funded from two primary sources: $4.8 billion in assessments paid by insured credit unions and borrowings on the NCUA’s $6 billion line of credit with the U.S. Department of the Treasury. The Federal Credit Union Act and NCUA regulations require that net proceeds from these recoveries be used to pay claimants against the liquidated corporate credit unions, including the Stabilization Fund. These payments, in the form of assessments and legal recoveries to the Stabilization Fund, have permitted the NCUA to responsibly and prudently meet its obligations as set by Congress. On October 24, 2016, NCUA repaid the U.S. Department of Treasury in full with interest, ensuring no loss to U.S. taxpayers.”
McWatters concluded by stating that to help mitigate further assessments on credit unions, the legal recoveries contributed to the board’s action in July to propose closing the Stabilization Fund in 2017.
“Closing the Stabilization Fund this year could result in a distribution made to insured credit unions in 2018 projected to range from $600 to $800 million,” said McWatters.