Why We are Asking NCUA to Stop Putting Full Fair-lending Exams on the Smallest CUs

By Doug Wadsworth

The Endangered Small Credit Union Defense is asking the NCUA to stop putting full fair-lending examinations on the smallest credit unions unless there is reasonable evidence or suspicion of different treatment — not just an unadjusted denial ratio.

In a Sept. 30 letter to NCUA Chairman John Crews, and in a parallel note to ACU, DCUC, NSCUA and Go West, ESCUD said this request is about resource allocation, not examiner conduct (the examiner was very professional and courteous). The problem is that despite a tighter NCUA budget, they are stacking a specialized fair-lending review on top of the fair-lending work already done in an ordinary exam.

NCUA is a great regulator, and we appreciate them, and especially their recent deregulation progress which has delivered some real relief. This is the next practical step: allocating their resources where they are most likely to change member outcomes without disproportionally burdening the smallest credit unions.

One Example

The case is a 15-employee federal credit union, asked not to be named in this article. NCUA completed a fair-lending examination effective June 30, 2026. The shop originates about 20 mortgages a year and perhaps 60 small home-equity loans, which is very low volume compared to the multi-billion-dollar credit unions that surround it.  This small credit union has no specialized compliance department, so the CEO spent at least 50 hours on the review, before even counting the lost work that did not get done.

The credit union says the exam wrapped up without any serious findings, and nobody was found to have been affected in any negative way. You know, the typical sorts of things: Minor policy language recommendations, some improvement to their automated underwriting parameters and some bugs to work out with their core system capabilities.

So why was this small credit union selected for this additional burdensome exam, anyway? The best they can gather, it was because of the number of Hispanic loan application denials in the HMDA data they provided (but not a ratio to approvals). The small credit union serves a market with a large Hispanic population and makes loans to borrowers who use ITINs, so a higher share of Hispanic applications is expected. 

The same data, the credit unions says, show a higher approval rate of Hispanic mortgages than surrounding large credit union peers. Volume and peer performance or even the ratio of approvals or denials, did not appear to drive the selection of them for the additional exam. 

A Warning Over Being Targeted

In a follow-up to the examiner this week, the credit union CEO warned the NCUA that targeting credit unions for extra exams based on denial counts alone can push a small shop to ask whether those programs are worth the regulatory cost and risk. It has not dropped them, but points out that if other small credit unions do, what lenders will step in to serve these unique needs?

To summarize, a large credit union absorbs a specialized review inside a compliance department, while a 15-person shop absorbs it in the CEO’s week. Regular examinations already look at fair lending, and targeting a small credit union with a second exam should require clear evidence that someone was treated differently, and even then it could be resolved during a normal exam.

Three Asks

The Sept.. 30 letter from ESCUD asks Chairman Crews for three changes regarding how they treat small credit unions, and asks the trades support this request using this small credit union example:

• A materiality screen before small credit unions are targeted with an extra Fair Lending examination, including perhaps register size, peer approval rates, approval ratios and community mix (not denial counts alone).
• A distinction between a “referral to manual underwriting” versus an actual credit denial in automated processes.
• If there is problem related to HMDA core computer system data compilation, the NCUA needn’t send in an exam team, rather just request the credit union have their vendor fix it (via email or phone call).

Not Ignoring ECOA or HMDA

We are not asking NCUA to ignore ECOA or HMDA. We are asking the agency to allocate examination intensity to actual consumer harm. In this instance, there was no harmed borrower, or even any evidence apparently sufficient to justify the extra exam.

When it comes to small credit unions, save those hours for where the biggest impact can be made, or at least for when legitimate red flags are uncovered during routine normal examinations.”

Doug Wadsworth is president of Tri-CU Union in Kennewick, Wash., and president/founder of the Endangered Small Credit Union Defense. His handbook for small credit union officials, The Board Member Bible, is available on Amazon. ESCUD advocates regulatory relief for small credit unions under $500 million in assets. It is endorsed by 38 small credit unions across the nation, representing more than 250,000 members and $2 billion in combined assets. Wadsworth can be reached at [email protected].