By Mike Radway

For decades the credit union industry and its trade associations have attacked and undermined the work of the National Credit Union Administration, frequently competing among themselves over who can be most critical.  They have repeatedly accused the agency of overreaching and overregulating.  In doing so, they have played into the hands of their competitors in the financial services marketplace by hamstringing their regulator and making it look weak and ineffective compared to other regulators.

Like children who complain about parental oversight, they forget that supporting the industry does not mean enabling irresponsible and imprudent behavior.  Like good parents, good regulators are supposed to set guidelines to ensure success – and in this case to ensure the safety and soundness of the system and insure the life savings of millions of American families. Regulators are not intended to be lackeys, lapdogs, or handmaidens for anyone, including the [president of the United States.

Voices Silenced

The desire of the industry and its trade associations for weaker regulation were fulfilled when the president silenced the voices of the only Democratic members of the NCUA board, Todd Harper and Tanya Otsuka, by illegally removing them from the NCUA board.  That action has been rightfully appealed as a flagrant violation of the unanimous, bipartisan, Supreme Court decision in the 1935 case Humphrey’s Executor v. U.S.  

In Humphrey’s Executor, the Court ruled 9-0 that President Franklin D. Roosevelt could not fire a member of an independent regulatory agency, the Federal Trade Commission, without cause during their term of office. The Supreme Court held that, “…the intent of the act is to limit the executive power of removal…”

What the Court Held

The unanimous Supreme Court further held that (like the NCUA) the agency was:

…an administrative body created by Congress to carry into effect legislative policies embodied in the statute in accordance with the legislative standard therein prescribed, and to perform other specified duties as a legislative or as a judicial aid. Such a body cannot in any proper sense be characterized as an arm or an eye of the executive. Its duties are performed without executive leave, and, in the contemplation of the statute, must be free from executive control.^[2]

The Court specifically cited the historic Marbury v. Madison decision multiple times in explaining its decision.

The justices also explicitly addressed the question of whether their ruling should apply to other similarly situated independent agencies and positions.  They unanimously stipulated that the decision was intended to cover other agencies and positions like the Interstate Commerce Commission and the Court of Claims^[4]  (the NCUA had not yet been created but was established under a similar framework). 

Could Not Have Been Clearer

The Court could not have been clearer when it added:

We think it plain under the Constitution that illimitable power of removal is not possessed by the President in respect of officers of the character of those just named. The authority of Congress, in creating quasi-legislative or quasi-judicial agencies, to require them to act in discharge of their duties independently of executive control cannot well be doubted, and that authority includes, as an appropriate incident, power to fix the period during which they shall continue in office, and to forbid their removal except for cause in the meantime. For it is quite evident that one who holds his office only during the pleasure of another cannot be depended upon to maintain an attitude of independence against the latter’s will.^[5]

In its opinion the Court cited the fundamental principle of separation of powers, and quoted one of the founding fathers who later served on the Supreme Court:

The fundamental necessity of maintaining each of the three general departments of government entirely free from the control or coercive influence, direct or indirect, of either of the others has often been stressed, and is hardly open to serious question. So much is implied in the very fact of the separation of the powers of these departments by the Constitution, and in the rule which recognizes their essential coequality. The sound application of a principle that makes one master in his own house precludes him from imposing his control in the house of another who is master there. James Wilson, one of the framers of the Constitution and a former justice of this court, said that the independence of each department required that its proceedings “should be free from the remotest influence, direct or indirect, of either of the other two powers.”^[6]

A Powerful Conclusion

In a powerful conclusion, the Supreme Court held:

The power of removal here claimed for the President falls within this principle, since its coercive influence threatens the independence of a commission which is not only wholly disconnected from the executive department, but which, as already fully appears, was created by Congress as a means of carrying into operation legislative and judicial powers, and as an agency of the legislative and judicial departments.

Like the FTC, the NCUA’s leadership is statutorily defined as an independent board whose members serve fixed terms, where no more than two members may be from one party, and where the board exercises quasi-legislative or quasi-judicial authority. In 1978, to strengthen NCUA as an independent regulatory agency, Congress deliberately replaced the single Administrator, who could be removed by the President, with a three-member bipartisan board whose members served fixed terms.

Congress did so explicitly to insulate the board from partisan political pressure and to reinforce our system of checks and balances.  There is no point in having a multi-member board if the President can remove its members willy-nilly.  Congress understands the difference between a single administrator and a multi-member board and has consciously chosen to have multi-member, bipartisan, boards running the NCUA, FDIC, SEC, FTC, Federal Reserve and other independent agencies.  Members of all these boards serve fixed terms.

‘Silence Gives Consent’

In the famous words of the philosopher George Santayana, “Those who forget the past are condemned to repeat it.”  In the 1970s and 1980s the thrift industry and its trade associations similarly undermined the authority of the Federal Home Loan Bank Board (FHLBB) and advocated for the appointment of weak regulators and weak regulation.  The thrift crisis of the 1980s, and the failure of many thrift institutions, resulted in the abolition of the FHLBB.  

The demise of the FHLBB in 1989, and its successor, the Office of Thrift Supervision in 2011, were followed by the virtual disappearance of the thrift industry.  It is quite likely that a similar fate awaits the NCUA and the credit union industry if the NCUA is left twisting in the wind.

In his dialogue Phoebus, Plato wrote, “Silence gives consent.”  Thus, platitudes from the credit union industry and its trade associations about support of an independent regulator ring shallow if at the time their voices are most needed, they refuse to step up and support a bipartisan, independent, regulator by objecting to the illegal removal of board members.

While it has been said that to be an effective NCUA Chair, you need only to be able to count to two, being able to count to three is significantly more important.  

When Regulators are Strongest

Regulators, like courts, are strongest when they act in a unanimous, bipartisan fashion.  

That is why judicial decisions like Marbury v. Madison, McCulloch v. Maryland, Humphrey’s Executor v. U.S., Brown v. Board of Education, Miranda v. Wainright, Loving v. Virginia, and U.S. v. Nixon are so important and are remembered for generations.  They were all unanimous and bipartisan (except for Marbury v. Madisonwhich, while unanimous, was decided by only four justices, all appointed by George Washington and John Adams who were members of the same party).

Similarly, the actions of the NCUA Board have been strongest when they were unanimous and bipartisan, like the decisions of board members D’Amours, Dollar, and Wheat to support broader fields of membership; Matz, Fryzel, and Hyland to create the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) and to sue securities firms; and of Matz, Metsger, and McWatters to expand Member Business Lending and Fields of Membership.  Metsger and McWatters also wound down the TCCUSF, returned billions of dollars to credit unions and their members, reduced the number of NCUA regional offices from five to three, and resolved the failures of the taxi medallion credit unions at no cost to the Share Insurance Fund.

A Difficult Position

Current NCUA Chair Kyle Hauptman is in a difficult situation.  Under the law and NCUA regulations, the NCUA is a three-member board and cannot issue rules or regulations or take significant actions without a majority of its three-member board, and in its regulations a majority is defined as TWO Board members.

He also knows that the president who appointed him chair has previously removed a chair (Mark McWatters) who failed to do his bidding, as well as board members Harper and Otsuka.

The Issue of Survival

The issue at hand is fundamentally the survival of both the NCUA and our nation’s credit unions.  If the rule of law, and the unanimous, bipartisan Humphrey’s Executor decision is not upheld, the NCUA is likely to be dismantled and folded into the FDIC and the Office of the Comptroller of the Currency by the Trump Administration, and our system of not-for-profit cooperative credit – which has survived multiple crises over nearly a century – is likely to wither on the vine.

If credit unions, their members, and their trade associations do not speak up for the rule of law, regulatory independence, and unanimous judicial precedents, who will?

Michael Radway served for more than three decades in financial services and financial services regulation as Chief-of-Staff and Senior Policy Advisor to NCUA Chairman Rick Metsger, Senior Policy Advisor to Board Member Todd Harper, as the Professional Staff Member of the House Financial Services Committee responsible for shepherding the Credit Union Membership Access Act through the House, and as Legislative Director for former Congressman Paul E. Kanjorski, and former Congressman (and later NCUA Chairman) Norman E. D’Amours.  This is his first public comment on credit union issues since he retired six years ago.