Association Hosts Small-Credit-Union Roundtables

The Northwest Credit Union Association (NWCUA) recently concluded a series of small-credit-union roundtables held throughout Oregon and Washington. Hosted by NWCUA CEO John Annaloro, the roundtables served as a forum for CEOs of credit unions with less than $100 million in assets to discuss issues of particular concern to their operations.

“This opportunity for candid discussion left the Association with a clear sense of current issues most concerning to smaller credit unions,” Annaloro said. “We can’t thank the participants enough for their time and insights and look forward to working in partnership to help voice these concerns.”

Some of the hottest issues included examination practices, regulatory burdens, insurance, National Credit Union Administration (NCUA) accountability, and field of membership. Some of the perspectives expressed include:

1. Examination Issues

  • Inconsistency between examiners: Credit unions mentioned being OK’d for a policy one year and dinged on those same approved approaches in the next exam.
  • New Examiners: Credit unions—especially small credit unions—feel the impact of the constant influx of new examiners. These exams can take longer and are often much less tailored to the specific institution.
  • Examine the credit union, not all credit unions: With the large number of new examiners and the increased concern for protecting the National Credit Union Share Insurance Fund (NCUSIF), small credit unions find themselves being asked to put together plans and policies for programs and services they don’t offer, and/or for risks not present on their balance sheets.
  • Standard for assigning ratings and evaluations: Credit unions have found that CAMEL ratings and being “well capitalized” no longer mean the same thing.
  • Stick to safety and soundness: Examiners come in with a “social mission” rather than a commitment to safety and soundness. As a result, the NCUA takes on the role of “social worker,” trying to train CEOs instead of examine practices.
  • Troubled Debt Restructuring (TDR): TDR accounting needs to be consistent and clearly applied.
  • Documents of Resolution (DORs): There has been a tremendous increase and perhaps an unjustifiable overuse of DORs. When CAMEL 1 and 2 credit unions receive DORs for “garden variety” findings, the use of these contracts seems unnecessarily harsh and designed more to antagonistically assert the unquestionable authority of the regulator than to fix issues. In some cases, the contracts are written prior to the exam. While originally meant to be an agreement between a credit union and an examiner on changes needed before the next regular exam, they are instead being used inconsistently and more frequently than before.
  • Standard Best Practices: Credit unions find themselves being subject to the activities of other credit unions. Examiners may see a good program or policy at one credit union and try to apply that to all credit unions. Exams should stick to standard examination areas.
  • Unprofessionalism/uncertainty of role in joint exams: The relationship with and between federal and state examiners must be carefully maintained. Credit unions expressed concern that the relationship between credit union and examiner must remain strong and respectful, while the relationship between examiners during joint exams is important as well. Competition between and disrespect of other agencies should be minimized while on-site at credit unions. This issue was most often attributed to federal examiners.
  • Ability to address exam reports before finalized: Credit unions would appreciate the opportunity to review draft exam findings prior to their finalization. While they may currently be allowed a short time to do so (although lately this has often not been the case), a longer review would benefit the credit union as well as the examiner.

2. Regulatory Burden

  • Credit unions cannot keep up with the quantity and requirements of new directives: All credit unions have expressed concern about the crushing weight of regulatory burden. This is especially true with small credit unions. In many cases, the CEO ends up taking on compliance and may even have to pick which ways the credit union works to ensure compliance, potentially letting some fall by the wayside.
  • Regulating by “guidance”: The NCUA has increasingly used Federal Financial Institutions Examination Council (FFIEC) guidance as a way to implement new policies and procedures. Equally, items equivalent to new rules are showing up in the NCUA Examiners Guide. Also, NCUA letters are prone to mission drift, prescribing actions on matters only tangentially related to the subject matter. All of these practices are skipping the proposal and comment process completely. Credit unions are held to the standards as put forth in this method of shadow regulation and mutation of the rulemaking process as defined in statute, perhaps a violation by the NCUA.
  • Vendor due diligence: Small credit unions find this process lengthy and burdensome, and many have trouble completing it to the NCUA’s standards. Small credit unions would like to be able to piggyback on the due diligence done by larger institutions, potentially developing an approved vendor list.

3. Insurance Issues

  • Consider risk-based premiums: Some small credit unions expressed concern that they are assessed on the level of risk of other credit unions rather than on their own potential impact on the NCUSIF. Joint and Several liability gives simple credit unions massive risk exposures beyond their own control and operations. Vanilla credit unions pose less of a threat to the insurance fund and would like to be assessed as such. This was an issue of much debate throughout the meetings.

4. NCUA Budget Concerns

  • Accountability: The NCUA is fully funded by credit unions, yet credit unions feel they have very little impact on, or accountability from, the NCUA. Credit unions urged the NCUA to be highly accountable with budget decisions and use funds in a prudent way. Concerns about the NCUA’s questionable decision to hire spokespeople and then not use them effectively were raised, as was alarm related to the NCUA’s going into troubled credit unions without a plan. Well-run credit unions should be returned to an 18-month exam cycle for budget efficiency.
  • Artificially helping a special few: It appears there is more support, grant money, funding and/or forbearing on credit unions the NCUA believes to have a higher social mission. The Office of Small Credit Unions does not seem to support all small credit unions equally, but everyone bears the costs.
  • Definition of “small credit union”: The NCUA’s threshold for what constitutes a “small credit union” should be raised from the outdated figure of $10 million in assets up to $50 or $100 million. Times have changed, and the rules should keep pace.

5. Field of Membership

  • Ability to retain and serve members: In order to serve the needs of members, more flexible field of membership is necessary. Credit unions want the flexibility to serve their audience, whether it be a small select employee group (SEG) or a community. Serving niche populations is key to the makeup of small (and even large) credit unions.
  • Acknowledging specialized services: Some credit unions serve a niche market and have an expertise in that product, such as mortgage lending, agriculture loans, or providing basic services to low-income areas, and they need to retain the flexibility to provide those services without strict balance sheet limitations.

Questions? Contact Director of Regulatory Advocacy Jaycee Winn: 503.350.2209,

Posted in NCUA.