WASHINGTON–The questions raised by the firings of two NCUA board members have only resulted in more questions for many. Will some states’ attorneys generals become more active? Has a challenging new precedent now been set? Should CUs be careful what they wish for with a one-person board?
All of those questions and the resulting flux, optimism, pessimism and more that have been created by the firing of NCUA board members Tanya Otsuka and Todd Harper led America’s Credit Unions to host a one-hour Q&A webinar on Monday to offer some answers. Or at least the answers that are known at this point.
During the webinar, in which approximately 1,500 people participated, America’s Credit Unions’ President and CEO Jim Nussle, along with Ann Petros, VP-policy engagement and credit union operations with America’s Credit Unions, offered their views and responses to questions credit unions had provided to the group ahead of the event.
The webinar follows an FAQ document the trade association distributed last week that it continues to update, with Nussle describing the current scenario as a “live-fire exercise.”
Here are the questions from credit unions and how Nussle and Petros responded:
Q: What is the legal precedent or interpretation for the president’s removal of the NCUA board members. Bottom line, can he do this?
Nussle: The answer is yes. We believe there is precedent for this both in law as well as in practice. We believe that removing the two board members is something that that the president is able to do
NCUA’s position is a single board member constitutes a quorum when there are no other board members. The agency indicates that Chairman (Kyle) Hauptman is equipped with the required authorities to continue implementing the administration’s priorities and to continue to ensure the safety and soundness of the system.
With actions that require board approval, such as a field of membership requests, there are a number of things that the board routinely will engage in…and we believe they it can continue to operate. The was the precedent that ostensibly was set back in 2001 and 2002, the last time we had a two vacancies.
Q: How will this affect the share insurance fund and/or impact examinations or supervisory priorities?
Petros: Examinations and supervision will continue business as usual. There should be very little if any disruption at all to that process. That is handled entirely by staff at the NCUA.
There is no impact on the share insurance fund; it continues to operate normally because it is not directly affected in any way by the composition of the NCUA board. There is nothing to worry about with the safety and soundness of the credit union industry. Members’ deposits are safe and continue to be ensured.
One minor thing to note that could potentially impact the examination and supervision and that’s what’s going on with the reduction in staffing at the NCUA.
Q: Why were the board members removed?
Nussle: The short answer is we don’t have any additional information as to why. We’ve heard lots of speculation of course and the rumors and all sorts of things but we really don’t have any specific information that we can report to you.
Q: Are you expecting nominations for new board members?
Nussle: It’s our position that we support an independent agency. Nothing changes that. We want an independent agency to govern the safety and soundness of credit unions at the federal level.
Second, we believe the best course for NCUA is to have all three board members. We call on the Trump administration to continue to make appointments and to go through the nomination process. We’ve heard nothing in terms of new appointments.
Q: What is your position on engaging in the nominations process?
Nussle: We’ve done that in the past, meaning the national associations, both CUNA and NAFCU and now America’s Credit Unions, and I’ll be honest with you, it’s been with a certain degree of a spotty effectiveness.
We like to know the people that are involved. We want good people involved. But it’s been my observation that the process has broken down in the last number of years because of partisan differences in the Senate and the result, in my opinion, has been that we haven’t had necessarily the best quality in appointments as much as we’ve had the ones who have been the easiest to confirm. We’ve had a lot of congressional staffers that could get through the process because they were known to the senators themselves.
I’m not sure that’s the best way forward I’d like to see a very robust process for succession at the NCUA and I would hope that we continue to attract very qualified people for those positions.
Q: Is there going to be consolidation of the banking or financial services regulatory agencies?
Nussle: There’s nothing that we have seen read or heard in our advocacy efforts to give that indication at this point this is something we are obviously monitoring.
It goes to the heart of whether or not we believe we will have an independent agency. I will note that our new secretary of the Treasury (Scott Bessent) on March 6th made a statement at the Economic Club of New York that we need a financial regulators singing in unison from the same song sheet, but to be clear this does not mean consolidation of agencies. There is nothing that indicates that would be changed.
(Bessent has also indicated) The best way forward for any of these regulatory agencies is to operate from a statutory mandate and that includes the safety and soundness of credit unions, but also mitigating risks to financial stability and consumer protection.
In my experience, and I think this is the experience of most of the financial services industry, the best way forward for us is to maintain the kind of clarity that we need the consistency and predictability for financial services that has been at the hallmark of undergirding the faith in our system. We need to make sure it’s undergirded through a clear statutory mandate.
Second, (Bessent has also said) that the regulation needs to be efficient…and balanced and appropriate through costs and benefits, which has also been a modern hallmark of the regulatory process…
What we’re talking about here needs to be clearly stated and consistently applied.
Regulators themselves need to continue to work to be efficient in fulfilling their statutory mandate, and that does not require just increasing budgets and increasing staffing over time.
We’re going to continue to monitor all of what the NCUA is doing under any rubric moving forward and we will continue to be strong advocates and watching what they do to make sure the process they use is fair and balanced.
Q: What about merging regulatory oversight into one agency?
Nussle: That would require congressional action. That much has been clear and has been stated both by the administration as well as by Congress itself.
Q: What are chances in this perceived ‘vacuum’ that there would there be more state regulatory action?
Nussle: I’m not sure I can speculate. With regulatory agencies there may be some that might be more apt to do that than others.
Petros: There is a good chance that state attorneys generals are going to be much more aggressive in their enforcement posture because there a perceived void on the federal level, so from that perspective states will likely be more involved in supervision and enforcement
Q: What is ACU’s position and what are you going to do to ensure NCUA remains independent?
Nussle: This has always been a top priority. We’ve rarely had to be concerned about it in a front and center way until the last week or so. This is something we will continue to monitor.
(Nussle outlined some of that in the slide below, which was shared during the webinar.)
Q: What can America’s credit unions and the industry do to reinforce safety and soundness?
Nussle: I can tell you at this point in time there is no indication of any concerns regarding safety and soundness for credit unions, period.
Q: What does future look like? What is Chairman Hauptman going to do?
Nussle: We don’t know. It’s something I would hope the chairman would speak to as quickly as he can. Everyone wants them to come forward with their priorities. I will tell you that one of the things I would look to is the chairman just took office and made it very clear in the outline of his priorities, what he wanted to accomplish as the chairman of NCUA. He made a priority to reexamine the budget process at NCUA and put technology front and center. He wants NCUA to be more open and innovative when it comes to the future of operating NCUA. He wants to charter new credit unions, and has shown real leadership in that regard. He wants to reduce internal agency friction. He wants to do away with regulation by enforcement, which is something we have complained about, mostly related to the CFPB. He also wants to examine and make some adjustments to obligations credit unions have to BSA.
Q: What does all this do to the tax status of credit unions?
Nussle: To me it reinforces are commitment to advocacy and engagement to make sure our message about the credit union difference is heard.
Credit unions have a quarter of a billion dollars of economic impact on our economy as a result of the work that you all do in your neighborhoods, in your communities across the country.
(In looking to the timeline of developments in Washington, Nussle shared this slide, below.)
I would say this is not the most optimistic timeline.
Q: Can a sole member of the NCUA board make rules?
Petros: In theory, Chairman Hauptman can act and take all actions that a three-member or two-member NCUA board could. That includes voting on approving or rescinding rulemakings.
However, if you look at that precedent from 2002 when former Chairman Dennis Dollar was the sole board member for a couple of months, he did not take any action to either rescind or approve a rule. So, should Chairman Hoffman move forward with some sort of rulemaking, whether it is a decision to eliminate an existing regulation or brand new rulemaking, that would be unprecedented.
It doesn’t mean it’s bad or right or wrong, it just means that it is new uncharted territory.
Nussle: Just to be clear, even a single board member would still have to follow the Administrative Procedures At. There is no rule by fiat.
But this can be counterproductive and we need to be careful what we ask for. We can speculate that he might be somebody who would do things that we would like, but we also need to be prepared for a future where this new precedent sets a new precedent for a future president and potential single member of the NCUA board doing things that we don’t like.
That’s why it’s important for us, really important for us to, ensure that we follow a process that is meaningful, that is predictable, that is following the law…and that it can be based in some kind of reality that can be then rationalized or justified going forward.
Ther may be some people out there saying, ‘Well, here’s my list, let’s give it to the new chair and let him have at it.’ I understand why that may be the tendency, but I believe that has is fraught with danger not just during the time where we believe we have a chair that might be open to what we’re looking for, but also a future where we have a chair that might want to tear us apart. I think we need to be careful.
