By Ray Birch
WASHINGTON–A group of credit unions has contacted NCUA’s Inspector General to challenge the agency’s move to retain the bulk of the initial surplus resulting from its decision to merge two insurance funds.
Chip Filson believes the IG’s Office has both good reason and the authority to review the decision.
At issue is NCUA’s decision in September to merge the Temporary Corporate Credit Union Stability Fund (TCCUSF) into the National Credit Union Share Insurance Fund (SIF), a move welcomed by many credit unions, as it means payouts and refunds will be made to credit unions in 2018.
As CUToday.info reported, 19 credit unions have appealed the NCUA decision. The letter was sent to the IG by the “Coalition to Appeal NCUA Board Action” and was led by Callahan & Associates, where Filson is co-founder and now chairman.
“Will the Inspector General look at this? That is the big question,” said Filson. “We did a little bit of research on the Inspector General Act and it is our belief this definitely falls within the purview of the IG as described in the Act.”
Correct Move
The Nov. 16 appeal letter was sent to the NCUA’s Inspector General citing its authority under the Inspector General Act of 1978 to review agency actions that involve “fraud, waste, abuse, and illegal” activity.
Filson emphasized that appealing to the IG is the correct move to protect money he says belongs to credit unions.
“Within the agency structure today, the IG is literally the only quasi-independent authority we could find, since the board already made this decision (on the fund surplus),” said Filson. “This obviously is an unprecedented event. But we think the principle is so strong and the multiple precedents this would set (if the NCUA decision went unchallenged) are so potentially disadvantageous to credit union members, that at least this first step should be attempted with the Inspector General. We don’t know what the IG’s response will be, but (this matter) certainly falls within the matters laid out in the Inspector General Act.”
Filson 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.
The letter notes that the 2009 TCCUSF Enabling Act states, “These provisions are intended to ensure that the activities of the Fund are restricted to resolving problems in the corporate credit union system, and not used for other purposes, such as for dealing with natural person credit union problems.”
Chip Filson
The letter further notes that the independent IG review is also necessary because the NCUA has a conflict of interest by deciding to retain funds for its own use.
Money On Horizon
What may be swaying more credit unions not to challenge NCUA’s decision is the fact they are expected to begin getting money back next year, Filson said.
“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.”
Next Steps?
Would there be a next step for the coalition if the IG does not review the appeal, or if the appeal is rejected? Filson said that decision has not been made.
“We want to see what the IG says first—will they actually address the issues that have been raised or sufficiently address them?” asked Filson, noting that the appeal clearly spells out that NCUA’s decision to retain much of the surplus is contrary to the statutory intent of the legislation that established the TCCUSF.
“I don’t see a way around that point,” said Filson. “But we have to wait to see what kind of response we get from the IG. This topic is so consequential that it is hard for me to see that we would not want to look at next options should the IG dismiss our appeal.”
If the IG appeal fails, Filson said the 19 CUs that signed the appeal would be consulted.
“We’d show them what the IG said and then look at ways to proceed,” said Filson.
The 19 initial signers are from eight states and range in size from just more than $100 million to greater than $10 billion. The full copy of the letter can be found in CUToday.info’s The Gov.
Filson said the majority of the credit unions backing the appeal approached Callahan & Associates following a Callahan’s website article written by Filson that addressed the TCCUSF rebates.
Filson suggested that more credit unions did not respond to his article and then back the appeal because NCUA has done “a very good job politically positioning this as a partial benefit to credit unions.”
Medallion Losses
But what about another scenario? For instance, could NCUA be holding onto the surplus due in part to fears over potential NSUSIF losses from taxi-medallion loans?
“I have no idea,” said Filson. “I think it was a convenient circumstance that caused them to take this action, suggesting that the NOL (Normal Operating Level) needed to be increased. We have been out of the financial crisis, officially, for seven years and at no point in that time did NCUA indicate the basic structure of the NOL wasn’t adequate. So what is the justification for rethinking the NOL? I think there is plenty of resilience and balances in the Share Insurance Fund to take care of any conceivable problems that are out there, taxi medallion or otherwise. But NCUA can always find ways to spend the money, that has never been an issue.”
NCUA referred CUToday.info to the Inspector General’s office for comment.