Harper says risk-based capital for credit unions needed now; agency should step up on consumer financial protection

The Democratic member of the board that leads the federal credit union regulatory agency on Tuesday criticized the agency’s proposed delay of a final risk-based capital rule for credit unions and said the agency needs to do more in its approach to consumer financial protection, which is “not comparable” to that of banking regulators.

Speaking Tuesday before a Washington gathering of trade association representatives and others involved in housing and finance policy, Todd Harper, on the National Credit Union Administration (NCUA) Board since April, reiterated his concerns over the agency’s June proposal to delay until 2022 the implementation of a risk-based capital rule that had most recently been scheduled to take effect Jan. 1, 2020.

Pointing to signs of a potential recession despite today’s generally positive economic outlook, Harper said financial institutions and regulators need to be forward-looking on matters of regulation. “For the NCUA, it follows that we must ensure that federally insured credit unions and the [National Credit Union] Share Insurance Fund have the capital needed to withstand the next downturn,” he said.

Harper pointed, for example, to losses at several federally insured credit unions that had heavy concentrations in taxi-medallion lending. He said those failed institutions held significant concentrations of taxi-medallion loans on their books, “as much as 97% of all loans in at least one instance,” Harper stated in his prepared remarks. Losses from these institutions’ failures cost the share insurance fund an estimated $765.5 million.

“[I]t is time for us to move ahead to protect the Share Insurance Fund before there is a problem, rather than assessing premiums after the fact as we did during the Great Recession,” Harper said.

On consumer financial protection, Harper said NCUA’s approach to examining and enforcing consumer financial protection laws and rules in credit unions with less than $10 billion in assets is “not comparable” to the federal banking regulators and “runs counter to the congressionally mandated mission of the Federal Financial Institutions Examination Council, which works to ‘prescribe uniform principles, standards, and report forms’ across all types of financial institutions.” NCUA is part of the FFIEC.

Harper said the banking agencies complete regularly scheduled risk-focused consumer compliance reviews and assign a separate consumer compliance rating outside of the CAMEL process. NCUA decades ago conducted full consumer financial protection compliance reviews as part of its examination program, he said, but the program has increasingly focused on safety and soundness over time. “This policy may have worked well when the NCUA oversaw a large number of small credit unions serving a limited field of membership with only a few basic financial products, but today’s credit unions are larger and more complex,” he said.

Harper, noting that 576 insured credit unions have more than $500 million in assets, and 317 exceed $1 billion in assets, said NCUA should “evolve” its approach to consumer financial protection and increase guidance to improve compliance with consumer financial protection laws.

He acknowledged the agency’s 2010 creation of a consumer compliance office and use since 2013 of selected consumer compliance reviews during regular exams, but he said more can be done.

“Although credit unions are owned by their members, management’s actions may not always align with the consumers’ best interests and the requirements of federal regulations,” he said. “That’s why I believe that the NCUA Board should work to ensure greater consistency in supervising consumer financial protection matters. In doing so, we will better safeguard member interests; especially as credit unions grow in size, scale, and scope.”

He said he hopes to begin a “constructive conversation” with the credit union system about how the agency should evolve its consumer financial protection efforts. “Such changes, in my view, should take into account the unique nature of credit unions, their mission, and ownership structure and operations,” he said. “I invite anyone interested in these matters to reach out to me and share their concerns and solutions.”

NCUA Board Member Todd M. Harper Remarks – Women in Housing and Finance Policy Lunch