What NCUA Nominee Kyle Hauptman can learn from McWatters’ NCUA Tenure

A reporter asked me what was Mark McWatters’ legacy of his six years on the NCUA Board.

My answer from a credit union point of view: “His promising potential was unmet, and he was a major disappointment in the way he led us on.”

However, there could still be an important lesson for Kyle Hauptman, should he wish to learn from his predecessor’s experience.

The Initial Enthusiasm

When McWatters came to the NCUA Board in August 2014, his critiques of agency practice and policies were well reasoned, documented and on target.

His concerns included a lack of transparency on NCUA’s budget, the OTR calculation, the failure to detect fraud resulting in NCUSIF losses, and the condescending approach of the agency and examiners.

He voted against the agency’s budgets and against the “illegal” RBC rule which were nonetheless approved 2:1.

His most stinging rebuke of NCUA’s leadership was in a May 2015 speech to the Pennsylvania League’s Annual Meeting:

NCUA should not treat members of the credit union community as Victorian era children–speak when you are spoken to and otherwise mind your manners and go off with your nanny—but should, instead renounce its imperious “my-way-or-the-highway” approach and actively solicit input from the community . . .With the strong visceral response within the agency against budget hearings, it seems that some expect masses of credit union community members to charge the NCUA ramparts with pitchforks and flaming torches to free themselves from regulatory serfdom. I, conversely, welcome all comments and criticism from the community.

Regulatory wisdom is not metaphysically bestowed upon an NCUA board member once the gavel falls on his or her senate confirmation. NCUA should not accordingly pretend that it’s a modern-day Oracle of Delphi where all insight of the credit union community begins once you enter the door at 1775 Duke Street in Alexandria, Va.”

Credit unions welcomed this honest assessment. It was their lived experience. At the 2015 GAC, he described his vision for NCUA as having “confidence, courage, and conviction to chart a regulatory path for the credit union community. . . based upon a transparent and fully accountable appreciation of the unique structure and attributes of the cooperative, not-for-profit business model.” He called on NCUA and the credit union community to work together in a new direction through a “collaborative and collegial process with the goal of building trust and inclusiveness.”

Upon being appointed Chairman by President Trump he said, “We best fulfill our obligation to protect America’s $1.3 trillion credit union community. . . by making the NCUA more efficient, effective, transparent and fully accountable.”

Good Intentions Not Realized

All of his intentions to change the agency’s culture were unrealized. Budgets increased every year even after closing two of six regional offices. The largest fraud ever discovered, the $40 million loss at CBS Employees FCU, was addressed only in an IG whitewash. RBC was not repealed, but just kicked down the road. Credit unions were closed and conserved without comment or explanation.

As for the promised annual review of the NCUSIF’s normal operating level, raised in 2017 to 1.38% as a temporary action using unsubstantiated numbers, two more budget cycles have passed with no efforts to reduce back to 1.3%.

Most importantly, when the opportunity came to close the TCCUSF and return up to $3.0 billion to credit union members, he instead kept the funds in the NCUSIF promising future dividends. This action was taken despite more than 2,000 comments opposing the proposal in whole or in part, and only 6 in favor. The era of Victorian Children and regulatory serfdom was fully back.

What Happened to McWatters’ Promise?

I believe two factors contributed to his leadership failures. The first was that his heart did not seem to be in the job. Twice his name was announced for other political appointments, once in a Presidential nomination for the EXIM bank board; and second, as a rumored director for the CFPB.

Throughout this tenure, the Washington Post reported he was working from home in Texas, traveling to DC only for Board meetings or testimony. He was in effect an absentee landlord.

Whether the result of his professional style, his philosophy of the board’s role or just ennui, he ended up adopting the agency thinking he had so decisively and accurately critiqued.

He defended selling 4,000 member loans to a hedge fund. When members showed up at a board meeting, they were shunted to a separate room (with their placards, not pitchforks). He waffled on rescinding the “illegal” RBC: “I concluded this was not the right time for a material diminution in the RBNW capital requirement for credit unions.” (June 2020) He publicly advocated for more resources: self-funding liquidity options for the CLF and a larger NCUSIF.

In August 2018 he spoke to the African American Credit Union Coalition: “ The NCUA has a statutory obligation to preserve minority depository institutions and encourage the creation of new ones, and that it is one we take seriously.” In his June 25, 2020 NCUA board meeting his recommendations for the future of MDIs were merger, merger and merger: “for example five $100 million MDI credit unions could consolidate into one $500 million MDI institution and economies of scale and market force.” So much for statutory obligation.

In leadership, he gave up. No efficiency, effectiveness, transparency, or full accountability achieved.

Why is open to interpretation. Mine would be that he lost any commitment to the credit union mission. His primary goal was protecting the agency and its resources. He became the bureaucrat he had initially challenged so eloquently in Pennsylvania in 2015.

What Kyle Hauptman Might Learn

There are critical questions Hauptman will have to answer that will influence his role as an NCUA board member. Bureaucracies do not like change. There will be constant pressure to conform to the traditional agency verities. That is the option McWatters took.

  1. Is it a part-time or fulltime job? What is my personal commitment to the position?
  2. How do I learn about the different approaches to board members’ responsibilities?
  3. How do I learn most effectively about the history of the industry and agency I am regulating?
  4. What kind of personal staff resources am I given and how do I select them?
  5. To whom am I accountable for my decisions?
  6. What role, if any, do I perform in overseeing the performance of agency staff? What duties are delegated, and which are retained by the board?
  7. What is my view of credit unions’ mission? How do credit unions differ from banks?
  8. How will I measure my effectiveness as a board member?
  9. How will I interact with the industry?
  10. What is my contribution to the agency’s agenda?

How Hauptman approaches his learning curve, the constituencies and resources he approaches and the lessons he takes away in the next six months, will likely determine the direction of the rest of his tenure.

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