Ryan Tracy is a former Wall Street Journal Reporter and now a freelance financial reporter.
His interview with Chair Kyle Hauptman in February was published February 28, in the Capital Account, a paid subscription service. The full interview was provided by NCUA’s public affairs office as published in the newsletter.
The Q and A is very candid and covers most of the top regulatory issues from taxation, to bank purchases and OD fees. Hauptman is asked about his future plans. There were no questions on the state of the industry or specific credit union performance topics.
Please post your reactions or questions you might like to see asked in the comments section at the end of the article.
The Writer’s Introduction
Friday Q and A: This is a singular moment to be in charge of a financial regulator. In just five weeks, the president has issued a flurry of orders to federal agencies, calling on them to reduce their staffing, bring employees back to the office and start running all their major actions through the White House. The very idea of an “independent agency” has been called into question.
This week, we sat down with one of the new Trump administration officials grappling with those directives. Kyle Hauptman was tapped by the president soon after the inauguration to head the NCUA, where he’s been on the board since 2020.
The promotion doesn’t exactly mean he’s fully in charge: The other two members are both Democrats, putting him in an unusual spot. Still, Hauptman is no stranger to jobs that come with challenges. His office decor includes a frame preserving two of his old business cards, one from Lehman Brothers where he worked until 2008 and another from Mitt Romney’s ill-fated campaign for president.
Hauptman’s response to Trump’s executive orders is pretty simple. He plans to comply. But he also explains how the credit union overseer’s track record is a bit different than other financial watchdogs. . . One top goal: stamping out regulation by enforcement. What follows is our (lightly edited and condensed) conversation.
The Q and A
(subheads added)
Capitol Account: How do you describe the NCUA for people who don’t know what it is?
Kyle Hauptman: When I’m at conferences, like with fintech, I say it over and over again: `You know what the FDIC is for banks?’ It’s like that, except that we insure about 4,500 credit unions – and are the regulator for about two-thirds of those…The rest are state chartered. There’s about the same number of credit unions and banks in America…but there’s 10 times as much money in the bank system…There’s no such thing as a trillion dollar credit union.
Hauptman’s Prior Career
CA: How did you get into this job? You worked in finance earlier, and then on Capitol Hill.
KH: I’m a career switcher, and one of those people who is finally doing what they should be doing. I was a bond trader for years. I was mediocre at it…My first love was always policy and politics.
CA: You were working at Lehman Brothers when it filed for bankruptcy in 2008? Did that drive you back to Washington?
KH: Being at Lehman during the collapse reignited my interest in policy, [by seeing] just how D.C.-dependent those final weeks and months and days were.
How Hauptman Views the Chair’s Role
CA: You’re now the chairman of a three-person board, with the other two members being Democrats. How are you approaching it?
KH: This place wasn’t all that partisan to start with, but it definitely changes some of my priorities in terms of what’s feasible. There’s some internal things that I think we can get done. I’ve noticed with all the executive orders, talking to other agencies, that some of them vest a lot of power in the chair. [The NCUA] is more board-centric.
CA: How are you handling Trump’s executive orders?
KH: We’re just going through them one by one, complying. Not trying to get in the news.
CA: Is the sheer volume of the directives overwhelming?
KH: We do what we have to do. They provide some opportunities for us too.
CA: One of the orders tells independent agencies to run their rules and legal interpretations through the OMB. Some people have described that as a sea change. How do you assess it?
KH: My plan is to comply…My guess is for the short term, the administration would probably like any rules that I put through. On the other hand, I don’t know, given [that] I’m a minority chairman, there will be particularly impactful rulemakings happening or ones that would be controversial.
NCUA Staff Changes
CA: How are NCUA employees handling the return to office mandate?
KH: We’re a little different than other agencies…the majority of our staff is what the government calls mobile workforce. Meaning they’re not supposed to be in an office.
CA: What’s their job?
KH: Examiners. They’re in all 50 states…They’re not supposed to be in a chair at a desk any more than a park ranger or a lifeguard at a national seashore… We only have three physical offices in this country, Tempe, Austin and here.
CA: How many people work in your Northern Virginia headquarters?
KH: Put aside contractors, I believe about 650…We’re about 1,200 employees [overall].
CA: This is the first week workers at NCUA are back full-time. What are you hearing?
KH: It’s definitely a change for some because, outside of the Covid period where the office was literally locked…anybody who wanted to be in the office always could. So [the return] would only affect those who obviously didn’t want to be.
CA: Do you think you’re going to lose people?
KH: Possibly…I don’t have any data yet.
NCUA and Trump Policy
CA: What’s your view on how NCUA fits in with the administration’s broader push to streamline the administrative state?
KH: At least at the financial regulators, there’s a perception [that] some of them got out over their skis versus what they were statutorily required to do. We are above all things an insurer. So as an insurer, we don’t have any incentive to do [things like] regulation by enforcement.
CA: What do you mean by that?
KH: We have no interest in having credit unions have reduced capital, which is what would happen if you fine them $50 million for something. They may deserve it, but they’re down $50 million in capital. That’s the same as $50 million of loans that went bad they had to write off. Some of the problems I think the administration is trying to root out were less of an issue here.
CA: Industry has spent the past four years complaining about the Biden financial regulators taking an enforcement-first approach. Do you see that changing now?
KH: There [are] two kinds of regulators: honest ones and ones that do regulation by enforcement…Myself, and I know some of my new colleagues who are running other regulators believe that in America, the sequence of events is: Write rules, then enforce them.
CA: Have you run into other agencies doing things that you’d call regulation via enforcement?
KH: There was a settlement between the [CFPB] and Wells Fargo. And in the settlement, Wells Fargo had to, regardless of state law, deal with auto loans a certain way…Our examiners and credit unions were saying, okay, is this the new policy?
CA: Was it?
KH: I asked the CFPB…What do I tell my examiners, and what do we tell the credit unions? And the answer was, ‘Send them the Wells Fargo settlement and a link to our supervisory priorities.’
CA: The upshot is they should have issued a rule?
KH: Not one employee of any regulator would think it was fair, if you got pulled over for a speeding ticket and said, ‘What’s the speed limit, officer?’ And he said, ‘Oh no, there’s no speed limit posted. A year ago, someone you never heard of got a ticket and you were supposed to be aware of how that applied to you.’ That’s not how it’s supposed to be.
On Digital Assets
CA: What do you think of how the NCUA approached digital assets over the last few years?
KH: I’m proud that we are not part of [or] even talked about in Operation Choke Point 2.0 [concerning debanking allegations]. No one’s mentioning us.
CA: How about on the policy side?
KH: We put out two pieces of positive guidance, which during the last four years were two more than anybody else put out…The other banking agencies put out something that caused a lot of harm. [The policy] said you must get written notice of non-disapproval before engaging in – and then it had a fairly broad list – distributed ledger technology, digital assets. I know that banks went pencils down.
CA: Are you in favor of credit unions dabbling in digital assets?
KH: I’m pro-what this country’s about, which is people innovating and experimenting. There’s going to be problems…Every country in the world has auto fatalities. Only some of them have auto industries. The negatives that come from new technologies are certainly going to exist. I don’t mean to minimize them…but the worst thing that can happen is to get all the downside and very little of the upside.
On OD Fees
CA: Your Democratic predecessor set a new requirement, which you opposed, that larger credit unions publicly disclose the income they receive from overdraft fees. Will you change that?
KH: That is my goal.
CA: Isn’t more transparency a good thing?
KH: There [are several] constituencies for publicly putting the gross dollar amount [out]. Number one are journalists, to write click-bait articles that are often devoid of any business or economic sense. The second is people who get political benefit for claiming they’re helping consumers. The third would be law firms that want to charge money. I’m not aware, as a fiduciary of our Share Insurance Fund, that my job is to do the bidding of any of those three groups. We like non-interest income.
CA: What’s your take on the efforts to cut so-called junk fees?
KH: The people promoting these policies will be last in line to help you when you’re short on money…Government itself far and away charges the highest late fees if you’re short on money. Treats you the worst. And it’s not even close.
CA: What’s the impact on credit unions?
KH: Some have eliminated [overdraft] fees entirely, and that’s their prerogative…What they don’t need is somebody [in] the nation’s capital trying to shame them one way or the other.
On Mergers
CA: Credit unions have been buying more and more banks, a trend that has provoked a lot of opposition, especially from community lenders. How does the NCUA deal with mergers?
KH: Our sole role is [to determine]: does the acquisition present a threat to our insurance fund?
CA: The banking industry says that these deals underscore how credit unions get too many tax and regulatory exemptions.
KH: With banks and credit unions, I don’t get involved in any of that back and forth. If the president had, four years ago, suggested I work at the FDIC instead of here, I would’ve considered that. But unless you have more pull than I do. you don’t get to pick and choose what appointments come your way.
CA: So you’re staying out of the fight?
KH: Banks have significant advantages over credit unions, and credit unions have advantages over banks. Banks have higher interest rates that they’re allowed to charge. Credit unions have a lower interest rate cap. Banks can use stock, which is the preferable way to do acquisitions. We know this because 90 percent of bank acquisitions are done using stock.
On Taxation
CA: What about the tax issue?
KH: Some credit unions wind up having as much tax paid as banks. Because if they distribute all of their net income to their members, then that’s basically an S Corp. They’re all paying individual income tax on that…A credit union has an advantage in that if they retain some of that, they don’t pay corporate income tax on that. However, by definition, the issue…has lessened with a 21 percent corporate income tax rate, rather than 35.
On Fields of Membership
CA: There have also been a lot of complaints about credit unions expanding their field of membership – the legal definition of who can join the institution.
KH: Some states like New York have very broad fields of membership. They make it very broad: If you are a mammal that walks upright on your hind legs and you live in the state, you can be a member. That’s a state issue. That’s their prerogative.
CA: What’s your take?
KH: As a general matter the further you get from a focused community, you lose the credit union touch. Because the reason that…delinquencies are lower for what looks like a certain credit risk is because it’s inside the community – a fellow church member, a fellow member of your immigrant community.
CA: What’s an example?
KH: There are nine, I believe, ethnic Ukrainian credit unions…40 percent of their customer service calls are in Russian or Ukrainian. The Ukrainian refugees coming over since the war [don’t speak] English, are unemployed, credit invisible. Everyone would turn them down…The Ukrainian credit unions not only are giving them checking accounts – share accounts is what they call them – but unsecured credit cards. And these folks are doing what new immigrants have always done. They’re driving for Uber Eats and hustling and doing jobs – and they have lower delinquency rates than the average…That is the credit union difference right there.
On His Future Plans
CA: Your term ends in about six months, that’s a pretty short time to be in charge. Do you want to be reappointed?
KH: I think there are a lot of great candidates out there that deserve a shot.
CA: What does that mean?
KH: I don’t plan on leaving for the foreseeable future…The person I took over the seat for was there 17 months after the term ended…I’m going to assume I’ll stick around as long as feasible for my replacement to come. I would be flattered, but I’ve made clear that I’ll do something else with my life and that there are other people who deserve a shot.
CA: What do you do when you’re not running an agency?
KH: I have a 4-year-old who keeps me busy…He comes in here once in a while, and he’s figured out which offices have candy and which ones don’t.
