ALEXANDRIA, Va.–With the “historic” vote by the NCUA board to return more than $700 million to credit unions this year, now come a host of other questions: How much will each CU receive, what will credit unions do with the unbudgeted bonus money, and should a payout even be taking place this year at all?
As CUToday.info reported here, NCUA plans to make an equity distribution to credit unions from the NCUSIF of $735.7 million to be paid in the third quarter of this year.
The payout reflects excess funds in the National Credit Union Share Insurance Fund following the 2017 merger with the Temporary Corporate Credit Union Stabilization Fund, created nearly a decade ago to hold special assessments on credit unions following the failure of five corporate credit unions during the financial crisis. The payout is not a “rebate” of those assessments, which have been spent, both NCUA board members emphasized during their remarks Thursday.
At least one person objecting to the NCUA plan has stated that the move to change the NCUSIF’s Normal Operating Level to 1.39% from 1.30% will allow the NCUSIF to retain $1 billion the agency would otherwise have to return.
The amount each credit union will receive has not yet been announced, with NCUA saying funds will be returned on a pro rata basis and that it will unveil an online calculator CUs will be able to use later this year.
What will credit unions do with the money? Answers range from building capital (especially at smaller CUs) to returning it to members directly or indirectly through product/fee discounts and better rates to uncertainty.
What CEOs Have Said
As CUToday.info reported earlier, CEOs say they will meet with their boards and then make decisions.
“We are close to 11% capital now, and I don’t know if our board feels the need to go much above that,” said Greg Smith, CEO of PSECU in Harrisburg, Penn. “If that is the case, they would probably choose to return a refund to our members.”
For more on what CEOs had to say, go here.
One credit union has even pledged to donate its refund to charity, and is challenging other credit unions to do the same.
What Research Has Shown
Mike Schenk, CUNA senior economist, told CUToday.info that based on research the trade association has conducted on what CUs might do with extra, unplanned-for money, CEOs are bent on using funds to give back more to members and provide even better service. (Schenk emphasized the research was not conducted in relation to a potential NCUSIF equity distribution.)
Mike Schenk, CUNA
In addition, they wanted the money sooner than later to put it to work now.
“First and foremost they told us they’d use it to increase deposit yield—give it back to members in higher deposit rates,” said Schenk.
But just as many CEOs (25%) said they use extra funds to enhance alternative delivery channels.
“Basically enhance access to the credit union,” said Schenk. “So mobile deposit capture and things like that.”
Schenk also noted that other uses for the money, CEOs said, would be for better loan rates, more marketing and building capital.
Money Being Left on Table?
But should a payout even be made? Are impatient credit unions opting to take money now rather than the more money to be had if they wait? While CUNA has been supportive of the 2018 payouts, NAFCU has opposed the proposal, and even after the board voted 2-0 to return the $735 million to credit unions, Dan Berger, CEO of NAFCU, issued a statement saying, "While we are grateful credit unions will get some money back soon, NAFCU will continue to aggressively fight for credit unions to get all their money back, not just the small portion they're due to receive."
In a thinly veiled reference to NAFCU, CUNA CEO Jim Nussle tweeted, "Advocacy brings equity distributions totaling $735.7 million starting 3rd quarter. Had @TheNCUA listened to others CUs would be facing $1.33 billion premium assessment this yr. @CUNA was the ONLY trade association to advocate for 2018 refunds."
Even more outspoken has been a group of credit unions led by Chip Filson, co-founder and chairman of Callahan & Associates AND…, who contacted NCUA’s Inspector General to voice concerns that NCUA will retain the bulk of the initial surplus resulting from its decision to merge the Temporary Corporate Credit Union Stabilization Fund into the NCUSIF. In all, 19 credit unions calling themselves the “Coalition to Appeal NCUA Board Action” signed the letter to the IG’s Office that requests an independent review of NCUA’s actions.
A full copy of the group’s letter can be found in CUToday.info’s The Gov here.
Filson, who served as NCUA’s Director of the Office of Programs, as president of the Central Liquidity Facility, and as CEO of the NCUSIF during his career at NCUA from 1981-1985, told CUToday.info he believes more credit unions haven’t stepped up to challenge NCUA because they are counting on getting money back this year.
“I think NCUA saying we will give you a little bit now feels more convenient than waiting another four years for a big amount,” said Filson. “Unfortunately, that let this whole precedent set in.”
Filson noted that the retained funds exceed $2.6 billion, according to a Sept. 30 KPMG audit, and that NCUA’s plan projects a $600 million to $800 million return to credit unions that funded the corporate CU Stabilization Plan.
Filson argues that the fundamental issue behind the group’s challenge is “whose money is this?”
“The idea that NCUA can retain recoveries because they are administrator of the recovery, I think, is contrary not only to the entire history of the NCUA, but to common sense,” asserted Filson. “The administrator does not get to claim that since they did a super job, the recoveries should then go to them rather than credit unions. Credit unions spent over $10 billion—that is documentable, that is not hypothetical. For NCUA to say it’s their recovery would set an unfortunate precedent, and I think a lot of credit unions are missing out on the significance that this event has for future activities by NCUA.”
The full story on Filson and the group of 19 CUs that argue credit unions are leaving money on the table can be found here.
Filson, who has written a series of articles analyzing the decision to merge the two funds, has suggested as much as $1 billion that would otherwise be returned to credit unions will not be as the result of the change in the NCUSIF Normal Operating Level to 1.39% from 1.30%. For more, go here.
Credit Unions Spoke 'Resoundingly'
CUToday.info asked CUNA’s Schenk if he thought it might have been better for CUs if NCUA waited a few more years to give more back to credit unions, and he replied, “It doesn’t matter what I think when our credit unions resoundingly told us they’d rather have the money sooner to put it to work building membership and enhancing relationships with members.”
That credit unions are even having this debate in 2018 was not a part of anyone’s forecast until very recently. NCUA had long maintained that if there were to be any distributions from the Corporate Fund/NCUSIF it would be in 2021, at the earliest.
“I suspect…no one realistically thought this day would be here, that there would be $4 billion in (legal) recoveries or that underlying securities would recover,” said NCUA Chairman J. Mark McWatters during the board meeting in which he and board member Rick Metsger voted to return the $735 million.
For the full report on the NCUA vote and what is ahead, go here.