By Frank J. Diekmann
Just what will NCUA be looking at this year when it comes to overdraft programs? What are credit unions similar to one popular Bible story? Will agency examiners be poking around with consumer protection questions this year?
I had a chance to sit down with NCUA Chairman Todd Harper during CUNA’s GAC in Washington recently and ask him about some of those issues and more. Below is how he responded.
One Big Change in Just Two Years
Among the biggest changes since CUNA last held an in-person GAC in 2020 has been how much the overdraft market has changed. Just two years ago the debate wasn’t over whether to charge someone for bouncing a check, it was how much. Now, especially among the biggest banks and some credit unions, a new strategy of not charging or charging a low fee has bounced to the forefront of offerings.
For the largest of credit unions, with efficiencies and ROA, they have the option to eat the fee income. But for many midsize and smaller CUs, the NSF fee income is a necessary part of the diet. It’s a quandary for many CU leaders, especially as a slow tide rolls in of large banks and some credit unions changing their pricing and dropping their fees. What can a CU leader do?
Harper noted the data show that for many CUs NSF fees make up 25% or so of their income.
“That’s the average. There are going to be credit unions that are above that, there are going to be credit unions that are below,” he said. “Regardless, the market is moving and credit unions are going to have to move with it or they're going to potentially lose those members. So, they've got to start thinking about this now.
The Job of the Regulator
“Part of my job as the regulator is to remind people of what's happening and help them to understand that they need to change their methods,” Harper continued. “I have talked about the fact they need to start looking at different revenue streams, because I recognize this is an important part of the balance sheet for many credit unions.
“Benjamin Franklin said, ‘If you fail to plan you plan to fail,’ and if you're not thinking about what you're going to do in changing those revenue streams and know that it's going to take time to move the ship. Whether your credit union is $30 million, $50 million, $100 million or if you are a billion-dollar-plus credit union, it's going to take time to make those changes, Harper continued. “I was talking with one CEO who has made the switch and it was an 18-month process for them before they decided to publicly announce it to their members and then move forward with the plan.”
Examiners’ Focus in 2022
So, just what should credit unions prepare for when it comes to being examined in 2022 and beyond?
“We are doing a deeper dive into overdrafts so that we can collect information. We’ll be looking at policies and procedures, and certainly at the communications credit unions have with their members over overdraft fees,” Harper said. “We’re going to use that information that we collect this year to do an even deeper dive next year so that we can sort of focus it on what are the key issues that we're seeing out there.
“There is one credit that received a considerable amount of press in the past, where it was charging and receiving a large amount of its income from overdraft fees and yet it was also at the same time to giving discounts on jumbo mortgages to executives at that company. It's concerning. This is about lifting people up and that's what I want to see.”
The Corporate Resolution
On the same day Harper was speaking to GAC the agency announced it was returning more than $500 million to certain credit unions as corporate resolution program winds down.
Will there ever be an end to the now more-than-a-decade-old effort to deal with the corporate CU crisis?
“In terms of the timeline for the process, we are trying to get money out the door as soon as practical. We have to make sure a couple of things occur first. One of them is litigation. There are a number of these securities that we are still holding on which litigation is pending and we need to hold those securities until that litigation is wound down. But we are winding down the (NCUA Guaranteed Notes) program. In fact, we are moving staff that was working on the NGN program to other places in the agency,” said Harper.
A ’Miracle’
Will there finally be a date when the last of the more than a decade-old corporate crisis is finally done and there is nothing left to pay out?
“Yes, and in some ways it’s a miracle if you really think about it,” responded Harper. “At the depth of the crisis we realized what a loss this was going to be and we had to go to Congress and ask for a $6 billion line of credit, because if we didn’t we were going to see credit unions that went under as we had to true-up the share insurance fund. It is a great success story for the agency in terms of getting this program resolved, getting as much as we’ve gotten.
“One part of that is we have managed the assets well. We’ve sold them at the right points in time. I don’t think we can lose sight of the fact we were the first federal financial institutions agency to go to court and challenge the securitizers, and we won those cases and we got settlements out of them. That’s a big deal for credit unions. In some ways it’s a David vs. Goliath victory.”
Consumer Protection Questions
One area where there has certainly been pushback and even some grumbling has come in response to Harper’s focus on compliance with consumer protection laws and his call for credit unions to receive greater scrutiny. Even the two other NCUA board members—both Republican appointees—have been critical, saying there is no evidence of any consumer protection violations by CUs against their own members.
But Harper remains undeterred, and in his remarks at both the monthly agency board meetings and in public at various events, such as GAC, he frequently speaks to his support of consumer protection oversight.
Asked what he hears from credit unions on the issue, Harper said, “I think for a lot of them there is the fear of the unknown and that is some of what is happening. When they say, ‘Oh, you’re going to come in and you’re going to do more in terms of consumer protection,’ the way we have our system built right now, we pick two, three, or four discreet consumer protections per year and we go out and examine on them. In that examination cycle you get those done. In another year we change. So, OK, what do you do with those CUs that have an 18-month cycle? Are they getting looked at?
Taking a Step Back
“To me, it’s important that we step back and look at this comprehensively,” he continued. “Instead of looking at each of these issues discreetly, we should take a look at the entire program. You don’t do it necessarily on an annual basis. You do it on a rolling, several-year basis and you take a look at where you are and you get better consumer compliance, or you get better results, because you understand how your systems are working together. That’s key for me.”
Harper said he believes reviews of compliance with consumer protection laws is particularly important at the largest credit unions.
“I think we can perhaps keep the individual, smaller CU and do a small bucket each year. But as you grow in size, and particularly as you go up to the CFPB (supervision asset threshold), what I worry about is that we are not handing the baton to the CFPB. That we don’t say to the CFPB, ‘We’ve gone in, we’ve kicked the tires for you, here’s what you need to look at’,” Harper said. “We can be that assistant to the regulator. That’s also so it isn’t as much of a shock going into the CFPB supervision. What I have heard is that credit unions that cross that threshold are surprised at how many hours are being spent. I don’t want those credit unions to be surprised. I want them to be prepared and I want them to protect consumers.”
What About Spillover Effect?
For credit unions already subject to CFPB supervision and for those simply worrying about the spillover effect, I heard from several CU leaders at GAC concerned the Bureau is becoming too aggressive under the new administration.
Harper said he has heard a different version of that concern.
“What I hear more out of the industry is that they're trying to figure out the consumer rules. They want to do the right thing but they need help, and certainly it's our job as a regulator to help them understand where they made a misstep,” said the NCUA chairman. “I talked about it in the speech (at GAC) whereby over the last year we resolved fair lending issues that affected 64,000 credit union members. Some of them were pretty simple little things, like they had an automated loan underwriting system, except they said that for people over 70 we're going to do a manual review. We worked with them, the credit unions worked up restitution plans. We actually had to go to the Justice Department and they looked at it. We said, ‘We got it under control. ‘We took it back and are working it out with the credit unions to make sure they're following through on that commitment.”
Living Large? That Depends
Several times during our discussion Harper referred to “large” credit unions. Just what qualifies as “large” depends on the credit union, and few believe they are “large” enough. So how does Harper define it?
“Part of my job is how to scale regulation. I recognize that 64% of our credit unions are under $100 million in size, and if you go above a billion dollars in size that's about 400 credit unions at this point in time,” he said. “And then you've got that middle part. I don't know the number there, but probably where I start to think about it is $500 million. It could be a billion. It’s somewhere in between there's where I start to think about it.”
Frank J. Diekmann is Cooperator in Chief of CUToday.info and can be reached at Frank@CUToday.info. Mr. Diekmann is also author of several new book, including the brand new “The Last Lyric,” a humorous satire about a murder investigation at the Rock & Roll Hall of Fame in which every line of dialogue is either a classic pop/rock song title or lyric. Available on Amazon, Apple iBook, Barnes & Noble and Smashwords. Mr. Diekmann is also author of a non-fiction compilation of the very best & worst he has seen and heard in covering more than 500 CU meetings and conferences, “501 Name Tags: How Everything You Need to Know About Business Can Be Learned at a Conference & Forgotten in the Trade Show.” It is available on Amazon, Barnes & Noble, Apple, Lulu, and Smashwords.