SCOTTSDALE, Ariz.–NCUA Chairman Todd Harper urged leaders of the country’s state credit union leagues to pay attention to interest rate risk, to help in the fight against appraisal bias and other issues of equity and fairness, and to play a role in helping address a driver of CU consolidation, the lack of succession planning.
Related to the latter, Harper told the American Association of Credit Union Leagues’ Winter Meeting the agency is considering a rule designed to help resolve the lack of a successor when CU CEOs retire.
Harper, who addressed the meeting virtually, praised credit unions for weathering the pandemic “rather well” before stressing a theme he has made a hallmark since being named chair, observing that the pandemic has “disproportionately affected communities of color.” He called on CU leaders “not to let down your guard.”
The Poorest Hit Hardest
While more than 18 million jobs that have been added back to non-farm payrolls since the beginning of the pandemic, Harper said the economic slowdown has “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…(P)andemic- 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.”
Harper further noted that 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.
“With its cooperative spirit and mission, credit unions are well positioned to prevent families from falling between the cracks,” Harper told the AACUL meeting. “Therefore, I urge all of your credit union members to continue working with their members who are having financial difficulties.”
Harper said NCUA has instructed 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.
Other Issues Covered
Other points touched on during Harper’s remarks included:
- Inflation and Interest Rate Risk. Harper urged credit unions to “monitor carefully for inflation and the potential for interest rate risk…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.”
- Succession Planning. Noting the ongoing consolidation in the number of credit unions, Harper said “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.”
Harper encouraged the league executives to raise the issue of succession planning in their organizations’ meetings and conventions and for your member credit unions to review their current policies or formally adopt new ones.
Harper further said he is working with his fellow board members and the NCUA staff on a potential rule related to succession planning.
- Combating Appraisal Bias. “People of color have long been denied equitable access to our housing system, including the appraisal system,” Harper said. “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…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.”
Harper said NCUA is now studying the causes of the disparities in appraisal and valuation services to inform its future policymaking.
- Consumer Financial Protection. Harper said the results of targeted reviews of CUs suggest 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,” he said.
The chairman again called on NCUA to create a dedicated program to supervise for compliance with consumer financial protection and fair lending laws.