Timeless Wisdom: Serious Disconnects

“There are some serious disconnects going on, ones that imperil the safety and soundness of credit unions. One is the disconnect between members and their credit unions. The other is between credit unions and their regulators. . . Regulatory systems are bureaucratic and not market driven. The regulators are not so cognizant of just how rapid the changes in the real world are. They are focused on a bookkeeper’s definition of safety and soundness.”

Ed Callahan, Callahan Report, May 1999

Infinity FCU: Merger Rhetoric Hides Critical Fact

Maine’s first credit union, Telephone Workers, founded in 1921, is now Infinity FCU with $341 million in assets. Since 2019, the credit union has been pursuing an out-of-state merger.  Its latest effort is to combine with the $1.2 billion Deere Employees CU in Moline, IL, over 1,300 miles away. The reasons for this unusual combination were explained by Elizabeth Hayes, CEO, in an interview reported by CUToday on January 31, 2021.

Among her comments in the article are the following:

Hayes said when local credit unions merge there is often “overlap” that can reduce the effectiveness of the combination.

“Merging with a credit union out-of-state gives you advantages,”  Hayes stated. “One is the increase in intellectual capital. I can’t stress that enough.”

Hayes said with the out-of-state combination there is going to be no reduction in offices, no reduction in staff, and the chance for her existing 90-person team to be part of a larger organization with greater opportunities to grow and remain with the credit union.

Infinity FCU will keep its name and local control. Hayes will stay on as Maine market president.

Hayes said keeping the credit union’s name was important to Infinity. “We can keep our brand, which is important. There are a lot of members who feel very vested in their credit union and they will continue to feel vested with Infinity.”

Infinity does not need a merger to be successful, said Hayes, “We are financially sound with 9.71% capital. We’re growing and we have a strong, young management team. It’s not like everybody’s retiring. The difference here for us has been it’s a strategic move to find a partner that allows us to compete.”

Increased local competition drove Infinity a few years ago to begin considering a merger as a growth strategy. “And as I said, one of the things we decided on is that we didn’t need to be necessarily the surviving credit union. But we wanted to have local control of our brand and over our products and services.”

Hayes said the fact that Infinity is proposing to merge with another CU in Moline has nothing to do with wanting to become part of the Illinois market.

The FAQ’s and Member Notice

The themes of independence and local control are repeated on Infinity’s website under merger FAQ’s:

Infinity walked away from the Vibrant 2019 proposed merger, “because it would not have allowed us to maintain local control.” And,  “Infinity is in the fortunate position of being independently strong. . .”

“There will be no reduction in the number of employees in Maine. . .Maine’s interest will continue to be represented by senior leadership and board members living in Maine. . .we recognize the importance of local control and maintaining Maine’s distinct character and flavor.  All five Infinity FCU branches will remain open.

The products and services you use today will remain unchanged.  You will have access to the same online banking and routing number.”

The Continuing Credit Union

As presented in the merger FAQ’s: “Deere Employees Credit Union serves John Deere’s 60,000 world-wide employees.  Membership is an exclusive benefit for current and retired Deere employees, John Deere Dealers, contractors, employees of their wholly owned subsidiaries or joint ventures of John Deere , and the immediate family members.”

Under the credit union’s logo is the phrase:  Exclusively for the John Deere Family.  The credit union’s nine board members are all current employees of Deere and Company. Kurt Lewin has been President CEO of the credit union since October 1995, or over 25 years.

It is unclear what Deere achieves from this merger.  That should be a warning signal.

The Reality Behind the Rhetoric

Deere is a very successful employer-based credit union, still closely integrated in all respects with the sponsor.

Infinity FCU’s official Special Meeting notice calling members to vote on the proposal clearly states that “all assets and liabilities will be merged with and into the Continuing Credit Union”(Deere).

The Notice contains not a single factual example of a better rate, product or service.  How Deere’s branch network near the company’s facilities in Illinois, Iowa, Florida and North Carolina benefits Maine’s members is not explained.  All of Infinity FCU’s net worth $34.2 million at Dec. 2020 “will be transferred to the continuing credit union” upon merging.

Members are told nothing about what Infinity CEO Hayes means by “a true collaboration.” In fact , just the opposite; the credit union provides repeated assurances that everything about Infinity will remain the same–the employees, branches, leadership, products and services, and Maine “character and flavor” are all unchanged.

Why would a long-standing sponsor-based credit union want to be a “sugar daddy” for a community credit union over 1,000 miles away?   Infinity adds no meaningful size to Deere; what does Deere gain by sending dollars to an “affiliate” that states it will remain independent, under local leadership? With a community based FOM?

What areas of “true collaboration” have been explored?  Has the Deere team even conducted on site due diligence, and if so, why are none of those supposed opportunities mentioned?

Once Infinity FCU broke off its announced engagement with Vibrant CU in 2019, why did this Deere Employees focused credit union step up so readily to volunteer as the new spouse?  What about Illinois is so attractive to Maine credit union folk?

One Unstated Truth About this Merger

If the documentation Infinity provided its members in the FAQ’s and Meeting Notice were presented as a sound business concept in any college course, it would be graded an F.  All rhetoric, no substance, no facts.  Ideas without any evidence of reality or relevance to either credit union.

Did the two boards receive more details about this proposal?  If not, how can they exercise their fiduciary responsibility of due care? What did the CEO’s tell them?  If the directors had more details, why were the member-owners kept in the dark?

However one thing is certain:  if Infinity’s members vote to merge with this Illinois credit union, they will no longer have any role in governance, voting, or say in the leadership of the credit union they are being forced to join.

Illinois state charters allow proxy voting in all actions normally voted upon by members.  All proxies are signed over to the board of directors who control their use. The board then votes these proxies to fill vacancies or even to approve mergers.  Proxy votes are weighted by shares.  No more democratic one-member, one-vote as in a FCU charter.

It is clear then why all of the stress on independence, local control.  Maine “flavor” and continuity of services.  This empty rhetoric is a charade to disguise this loss of member control.  Proxies are not allowed in FCU’s.

If this fundamental change in member voting had been explained, might members then ask why they should give up control of their credit union and its $34 million in collective wealth for no specific benefit and no say in the future?

This essential fact has been completely ignored, and that absence raises a more fundamental question of integrity–what else has been left out of the story?

Finally, why would any credit union leader spend three years seeking a merger, while claiming in the same CUToday interview, that one is unnecessary to be successful?

After 100 years of Maine members’ loyalty creating over $34 million of cooperative wealth “paid forward” to benefit future residents, this proposal lacks both coherence and honesty.  The 18,200 Infinity members should vote NO on the merger and retain real independence and local control.

Two Observations: Positive Mood and the Opportunity of “Local” Scale 

A CEO’s March 2021 Comment to the Board:

“Almost daily the mood all around us is improving – not from the messages that the media and our government push on us, but from the fact that teammates announce with beaming faces that they got vaccinated, that they recognize more and more people have gotten vaccinated, and that the momentum for things to improve is local and real (not national, not a mirage of bias).”

A Thought about Future Living Environments (from: Building Back Better, You Say? It’s All About Scale) By James Howard Kunstler

“The good news is there is another way (than big city or suburban life), and it’s a better way: the traditional town, where all kinds of businesses can be integrated healthily and happily with houses and apartments; where most of the things you need from day-to-day are within a five-minute walk; and where everything is at a much more humane scale. There are thousands of towns across the USA that once formed the basis of what we considered most valuable about American life: places worth caring about, places that you could confidently call your home. Most of them are in terrible shape these days, because for most of the past century, Americans have been settling in the big cities and the suburbs. Dis-investment has been savage in small-town America.

But that is the next frontier for redevelopment and should be of special interest to New Urbanists.(and credit unions) Get in early and avoid the rush. These small towns, and even small cities, are sitting there waiting to be reactivated with much of their infrastructure intact and already properly scaled to the more austere conditions we face going forward. The renovations can be accomplished at the small scale, building lot by building lot, without requiring absurd amounts of capital.”


NCUA’s Most Important Function Needs Transparent Reassessment

NCUA has developed a bad habit as a public agency.  It fails to report any details of its most vital activities when engaged with problem credit unions. This covers conservatorships, liquidations and other important supervisory activities. Total silence on these critical functions raises the question of what is NCUA trying to hide?

The Latest Example

Last week the credit union press reported the details from court hearings of IBEW Local 712 FCU, a 56-year old charter with $7.6 million in assets when closed in May 2020. Key facts from the Credit Union Times account:

  • The CEO’s embezzlement began May 2017, five months into the position, and lasted until March 2020.
  • The fraud was primarily from cash advances on credit cards (presumably from the credit union) of $589,222 in 2018 and $1,085,549 in 2019.
  • Total theft $2,099,437.
  • Credit union was $7.6 million with 3,000 members when “merged-assumed” in May 2020.
  • Court documents did not reveal how the embezzlement was uncovered, how it was concealed or what was done with the money.
  • IBEW Local 712 FCU’s March 2020 Call report shows a loss of $2,099,437 presumably from the NCUA examiner’s review of the situation.

Under current practice, NCUA had no comment last May when assigning the credit union’s remnants to West Penn P&P FCU just down the road.  In offloading  the responsibility for this failure to West Penn, the transaction increased West Penn’s assets from $14.2 to $23.4 million and immediately reduced its net worth ratio from 16.1% to 10.2%.

Not the First Time  

From a July 10,2014, NCUA press release on another IBEW FCU liquidation: “The National Credit Union Administration today liquidated IBEW Local 816 Federal Credit Union of Paducah, Kentucky. . .

“NCUA made the decision to liquidate IBEW Local 816 Federal Credit Union and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations. . .

“IBEW Local 816 Federal Credit Union served 929 members and had assets of approximately $6.3 million. Chartered in 1954, IBEW Local 816 Federal Credit Union served members, employees and their families of the International Brotherhood of Electrical Workers, AFL-CIO, in Paducah.

In September 2015, a year later, the facts are reported in a CUToday story, again from court documents and not NCUA, the regulator:

  • Debra C. Pyfrom, the former manager of the IBEW Local 816 Federal Credit Union, pleaded guilty in a to a single charge of bank fraud.
  • Restitution promised by Pyfrom: $600,520.
  • Pyfrom admitted to issuing loans to herself and to her daughter and posting false payments to conceal the fraud and make payments appear current on IBEW’s books.

What Is the Real Problem?

NCUA’s most important function is examinations. This responsibility consumes the majority of the agency’s employees and budget. Its effectiveness is augmented by quarterly call reports and numerous other supervisory and administrative interactions.  When examinations are only fill-in-the-blank financial analysis or completing check lists of required activities, the entire basis for the exam is compromised.

The most critical aspect of any well-done exam is judgment: what to look at beyond numbers and how far to follow up areas of uncertainty. Then the skill in presenting reasoned judgments to the credit union’s leadership team, if changes are necessary, even when no apparent issue of safety and soundness is evident.

Using Fraud as an Excuse

The most devastating example to date of this “fraud” cover for examination shortcomings is the case of the $40 million CBS Employees FCU in 2018.  The fraud began in 2000 and according to the LA Times account: “was first exposed on March 6, (2019) when a credit union employee discovered a $35,000 check made payable to the manager. The employee then conducted an audit and discovered $3.775 million in checks made payable to CEO Rostohar between January 2018 and March (2019). Those checks included the forged signature of another employee, who did not give consent.”

The $40 million figure in the story is the $25 million taken plus interest lost on the stolen funds.    The CEO had been managing insured share accounts and paying interest for members that were 150% greater, over time, than the amounts on the books examiners reviewed for decades.  Common sense should have alerted a casual reviewer that the transaction activity did not square with the reported balances.

IBEW Local 712 FCU’s demise in last week’s CU Times is just the most recent example suggesting the examinations basics are not sufficient.  In this case, 2017, 2018, 2019, 2020: four exams.  CEO takings amounted to over 25% of the credit unions assets in this period.

Reviewing the accounts of the CEO, senior managers and Board members is a standard, essential examiner responsibility.  So obvious is self-dealing in money management that for the first half century of credit union charters, many state laws prohibited officers and directors from borrowing from their own institution-they had to borrow from Central credit unions established just for this purpose.

Were these reviews not done?  How were the cash advances on credit cards hidden? Was the examiner properly trained? Where was the supervisory examiner’s review? How often has this occurred in the Region?

Instead of confronting these examples of agency shortcomings, NCUA conceals its mistakes by perfunctorily assuring all accounts are insured up to $250,000.  The agency charges off the losses from their institutional failures to the NCUSIF-that is all other credit unions.  Only later, sometimes years afterwards, are the myriad details released demonstrating the scope and length of the misdeeds and multiple examination misses.

Why An Annual Exam Contact is Essential

Some trade groups, credit unions and even NCUA board members have suggested extending exam frequency up to as much as 18 months,  as a cost savings measure or as a reward for a prior top exam rating.

I believe an annual exam contact is essential for two reasons.  A “contact” proportionate to the circumstances of each credit union reminds all concerned that the regulator is watching.  As one CEO commented, it keeps honest people honest.

But more importantly, when over 95% of credit unions are rated camel codes 1 and 2, this is an opportunity for both sides to learn what is going on in real time, not 30-90 days later from call reports. This learning can be as mundane as following a credit union’s PPP loan activity, its assimilation of a merger or future plans to change a major technology provider or engage a new partner venture.

The key skill of judgment is developed from the experience of seeing multiple examples of how institutions respond to both universal and individual circumstances. Observing proactive examples, or passive responses, to common challenges makes the examiner more competent when providing an informed external point of view.

The board must reverse the agency practice of hiding or covering up problem resolutions. Let the light in. If NCUA continues to bury problem credit unions out of sight, sooner or later it will run out of space to place the remains, or out of bodies to bury.

Quick Thoughts for a Monday


A leader without followers is a person out for a walk.

The Federal Government and Money

Spending is the most bipartisan activity.   Only in Washington is every question of competence reduced to a budget line item.

Members and Cooperative Democracy

The alternative to active members is  passive subjects.

Pandemics and Unmooring

Economic calamity can lead to the search for easy solutions. When unchecked by democratic norms, those in power can  default to the illusions of false prophets promising a future without uncertainty.

Revolution versus Democratic Change

Destruction is easy, persuasion is hard.

Regulatory Decisions

Choices made without options are actions lacking accountability.

Crises Are Twice Lived Through

The first time as experienced firsthand be all participants. The second time when the losses are clear, people endeavor to ask what have we learned?


The reconciliation of order and freedom; the union of individual enterprise within a community, pragmatism with idealism, creating multiples paths to a better society.

Covid-The Great Pause

When to “fast” means to go slow, recenter our purpose and continue on the journey to something better.

The Medical Community’s Wisdom

When all else fails, ask the patient.



Harper’s Resume Part IV:  Blurring Fact and Myth as Director of PACA

The Wall Street Journal headline and subtitle suggested something very bad was going on in the credit union system:

Credit Unions Ramp Up Risk

Lenders Loosen Lending Standards, Increase Exposure to Longer-Term Assets  By Ryan Tracy June 5, 2014

The following lead paragraphs cites NCUA as the primary source:

“Credit unions in search of higher returns are loosening lending standards and piling into longer-term assets, exposing the firms to potentially significant losses if interest rates rise and worrying regulators in the process.

Such moves are raising concerns at the National Credit Union Administration, the sector’s regulator, which said a rise in interest rates could make loans and investments unprofitable. Some analysts also said credit unions likely are unaware of the risk they are taking on because they largely avoided the housing downturn. That has raised worries that lax underwriting standards could fuel another bubble.

“I am concerned that the message [about rates] is either not getting through, or it’s getting through and they are just choosing not to do anything about it,” said Debbie Matz, chairman of the NCUA, who has long sounded the alarm about the industry’s exposure to interest-rate risk.

“Credit unions’ net holdings of long-term assets, a measure of exposure to rising interest rates, rose to an all-time high at the end of 2013 to 35.85% of total assets, according to the NCUA. The increase comes as some credit unions are adopting lax standards for mortgage and home-equity loans and lines of credit reminiscent of those leading up to the financial crisis, according to interviews. Credit unions also are extending the duration on investments like mortgage bonds, regulatory data show.”

The Backstory

In response to the regulator’s alarming and authoritative outlook, Jim Blaine printed an internal NCUA document in which senior staff celebrated, in an email high-five, this external PR coup.  The full blog can be found here under the ironic title, NCUA Ramps Up Risk.  A brief excerpt follows.  Reader comments to the post provide even more context for this PR exercise:

“Story’s up!…”

Seems that “a bunch of the boys” over at the Agency were breathless with excitement, waiting for the WSJ article to appear!

An interesting little group spending their Thursday evening [6/5/2014 – the day before publication!] playing with matches, waiting to read this little firestorm-creating, napalm piece.

NCUA Misleads the Public

Further down the Journal article is a calming quote from a Callahan executive:

“Jay Johnson, executive vice president at Callahan & Associates, a firm that advises the sector, said credit unions are prepared for a rise in interest rates because they have to hold capital against potential losses, and they also are holding short-term assets that could provide cash in a pinch, including more than 40% of investments in short-term holdings that mature in less than one year. “For the most part, I would say that [credit unions] are extremely ultraconservative,” he said.”

Contrast this NCUA created assessment in the Journal with the official portrayal  of the real state of credit unions by Chairman Matz in her opening paragraph in the agency’s 2014 Annual Report:

“In 2014, the U.S. credit union system also had one of its strongest years in recent memory. Membership continued to rise, reaching 99.3 million members. Delinquencies and charge-offs continued to fall, and the overall credit union system had its best year-over-year loan growth in nearly a decade at 10.4 percent. Federally insured credit unions also had aggregate net income of $8.8 billion, the best performance ever. As a result, our country’s federally insured credit unions ended 2014 with a healthy net worth ratio of 10.97 percent and more than $1.1 trillion in assets.”

Banging the Drums of Fear

This PR misinformation effort occurred at the same time NCUA had to withdraw and rethink its first risk-based capital RBC rule proposal.  Over 2,050 comment letters (the most ever on a rule) were submitted, all with substantive criticism.

As a result, the agency backed off and said it would make significant changes in what became the RBC-2 proposal.

Forecasting a future of doom and gloom or hyping a present crisis is unfortunately an all-too-frequent regulatory temptation. Predicting negativity creates an aura of expertise.   It elevates the power of the regulator.  Crises enable overreach of authority.

There is no downside to predictions of future problems especially by regulators.  If nothing happens, then the warning worked,  everyone feels OK and no-harm-no foul for an erroneous judgment.  If there is a downtrend, then one can claim prescience and proven expertise about the future.

An example of this crisis-hyperbole was trotted out  in the March 2020 NCUA board meeting.  The staff provided “background context” to the 2008-2009  corporate crisis.  They opened by stating there was a $50 billion difference between the book and market value of corporate investments at some point in the Great Recession. They proclaimed that if the agency had let those corporates fail, then this “loss” would have caused thousands of credit unions to also liquidate.

That possibility was never an option, but a wonderful story to justify any and all subsequent actions. In fact the agency’s auditor presented the collective corporate TCCUSF potential deficit at yearend 2009 as $6.9 Bn in the firm’s opinion released in early 2010.  By dramatically exaggerating risks in an event, NCUA avoids addressing its mutual responsibility for the state of affairs.

Banging the rhetorical drums is a political tactic unfortunately tempting in a democracy.   When those in authority say things are bad and can get worse, it legitimizes the exercise of unbounded and unexamined power. Due process is not an option.  For the ‘house is on fire” echoing Blaine’s metaphorical critique.

The person with the responsibility for Congressional and Public Affairs when this article placement occurred was Todd Harper, current NCUA Chair.

I will next look at a continuing policy priority he has championed, the immediate implementation of the final RBC rule on credit unions.  NCUA cited FDIC as the precedent for this rule in 2014.  Yet the FDIC completely eliminated this standard of capital adequacy for banks under $10 billion three years ago stating it was so ineffective to that even collecting the data was no longer necessary.

Todd Harper’s 90 Day Audition as NCUA Chairman-Part III: The Commander’s Call

In his February DCUC 2021 speech, Todd Harper stated: “As the COVID-19 pandemic rages on, we must smartly, pragmatically, and expeditiously address the economic fallout within the credit union system. To that end, when I first became Chairman, I issued my Commander’s Call to the agency.”

What will this Call entail? What do events from his previous NCUA tenure as senior policy advisor and PACA director for Chairman Matz suggest about his views on America’s credit union system?

Closing Home-Based Credit Unions by Rule

The Debbie Matz era was marked by a lack of transparency, catastrophic corporate liquidations and an avalanche of new regulations. One of the policies was a regulatory vendetta against small credit unions. The first effort in December 2013, was described on creditunions.com:

“At its December 2013 meeting, the NCUA board voted 2-to-1 for a proposed new rule (12 CFR part 701.40) that would do away with credit unions’ ability to operate from homes. The 30-day comment period is over. If finalized as presented, the rule would immediately require home-based credit unions to provide a public exam location. Within two years, the proposal dictates that all federal credit unions must “obtain and maintain a business office not located on the premises of a private residence.”

When a FOIA request was filed for the names of the 81 federal credit unions which NCUA cited as the basis for the rule, the response was: “Your request is denied in full.”

NCUA’s Office for Small Credit Union Initiatives (OSCUI) supported the rule which explicitly contradicted its own mission: this office “supports the success of small credit unions … (and) recognizes the unique role small, low-income designated and new credit unions play in the lives of their members and communities. We are committed to helping these credit unions not only survive but thrive.”

The NCUA’s New Philosophy and Misinformation

The regulation’s goal as stated: “the proposed rule intends to ensure all FCUs operate in a manner consistent with modern-day expectations for insured financial institutions.” The term “modern-day” was not otherwise defined.

Then Chairman Matz told the Credit Union Times in an April 7, 2014, article: “Times have changed, and financial institutions have changed as well and if you are stuck in the past, that means you are not growing, and you are not serving your members well and they would probably receive better services from a different credit union.”

The rule’s premise was based on inaccurate and misleading facts: “NCUA asserts home-based credit unions are “stuck in the past,” but the fact these credit unions have an average charter length of 55 years and have survived the Great Depression, World War II, the Vietnam War, and the Great Recession tells a more meaningful story.”

Bestowing the Regulator’s Imprimatur

One CEO strongly opposed this vague, regulator-imposed “modern-day” criteria noted that one effect would be to kill all new charter activity:

It is not about the fact that I believe 500 [credit unions] will pop up tomorrow — it is about the fact that I support their right to start, exist, and maintain a credit union charter. It is about the fact that I do not believe the NCUA gets to make the call on what is relevant — it is here to serve American consumers in their right to form and maintain a financial cooperative. When a regulatory body decides it makes the call on whether a charter is relevant, then the spirit of renewal is dead and the spirit of our pioneers is dead. Also dead is the hope that, should we need more credit unions in the future, there will a fair process or will to foster them.” 

In the seven years after this rule was proposed, NCUA has approved been only 15 new charters. In the seven years prior to this, there were 57. In 2020 only one new charter was granted.

Where is Chairman Harper on This Issue Today?

In his DCUC speech last month, Harper stated: “My whole heart is in the mission of the NCUA and its vital work.”

It is hard to know a person’s heart. Chair Matz, whom Harper advised, defended the rule for months after passage. The credit union system objected strongly, not just the several hundred smaller credit unions that would be shut down. The effort eventually died without explanation from the agency.

What was senior policy advisor Harper’s role in this rulemaking? What is his position today? Does he support the agency policy to eliminate small credit unions? Is this “modern-day” criteria a standard he believes the regulator should determine? What is his view on new charters?

It is vital that credit unions know what Harper understands as “the mission of NCUA and its vital work.”

NCUA’s efforts to eliminate smaller credit unions did not end with this rule. Shortly thereafter, OSCUI undertook another initiative described tomorrow in NCUA, Oxymorons, Truth.

Harper’s Resume: NCUA’s Relations with Credit Unions Under Matz’ Leadership

A five-minute excerpt from this 2015 House Congressional oversight hearing captures NCUA’s leadership team’s approach to credit unions. Answers to Congressman Mulvaney’s questions illustrate the agency’s duplicity in providing information, misuse of FOIA and failure to post the agency budget for public review.

Chairman Matz deflects all these documented “mistakes” to staff. When asked if it might be helpful to have direct credit union input and communication on the Agency’s budget, Matz replies, “it would not be effective.”

Todd Harper sits to Matz’s left alongside her other senior staff. His role: Director of the Office of Public and Congressional Affairs and Chief Policy Advisor to the Chairman (2011-2017).


CUNA’s Long Standing Concerns Submitted Prior to the Hearing

CUNA’s public announcement of the hearing included the following concerns: the agency’s budget, the RBC rule, OTR, the corporate stabilization fund, examination issues, and the imposition of “systemically significant” bank regulations on credit unions.

NCUA Chairman Matz to Testify Before House Committee

Posted July 19, 2015 by CUNA Advocacy

It’s been six years since the last time NCUA held a hearing on its budget; it’s been almost four years since an NCUA Chairman has testified before the House Financial Services Committee. On Friday, that will change when NCUA Chairman Matz testifies before the House Financial Services Committee. And, while the hearing is not the venue we had been seeking for stakeholders to weigh in on the agency’s budget, it would be reasonable to expect that the budget will be among the several topics Members hone in on. Without a doubt, the spotlight will be on NCUA and credit unions Friday morning.

In advance of the hearing, we met with Committee staff and Members over the last several weeks to raise concerns and opportunities we see at NCUA. Much of our conversations have focused on recent rulemakings and proposals, including the RBC2 proposal and our concerns with respect to NCUA’s legal authority to issue the rule and the capital adequacy provision that was added to the revised proposal. We have discussed our recent comment letter on the proposed rule on Interest on Lawyer Trust Accounts (IOLTAs) and our belief that even without the enactment of the IOLTA legislation last year, NCUA has the authority to extend share insurance coverage to prepaid debit accounts. 

We have also raised concerns that the RBC2 proposal and the agency’s view of “systemically significant” seems to suggest the agency is simply copying bank regulation without much regard for the characteristics that make credit unions different. No credit union represents a system risk to the financial system, but the agency is applying standards to the largest credit unions that rival requirements on the huge, systemically significant banks.

During these meetings, a host of other issues have been raised by Members including NCUA’s handling of the corporate stabilization fund, examination issues, and the overhead transfer rate. . .

We intend to submit a letter to the Committee in advance of the hearing highlighting these and other issues. 

Tomorrow I will describe NCUA’s efforts in December 2013 to close 81 home-based credit union by passing a new rule.

Todd Harper’s 90 Day Audition to Continue as NCUA Chairman

President Biden’s appointment of Todd Harper as NCUA chair on January 25 is not the final step in the process.

Harper’s term ends on April 10, 2021.  Three options can occur. 1) Nothing, and Harper just continues in place. 2) A new democratic nominee is selected by the Biden administration. This would require Senate approval and likely take months. 3) Harper could be reappointed–an option contested by those who read the Federal Credit Union Act as preventing successive appointments.

Harper’s Audition

The NCUA Chairman’s role is vital. His leadership, oversight of the agency, spokesperson roles and competence will affect the industry’s direction, reputation and public standing.

Whatever the future course, his three months as chair will provide credit union’s first-hand experience with his leadership style. But there is also other data to draw upon.

Harper frequently touts his prior NCUA credentials. He introduced himself in his February 2021 DCUC speech by saying: “I’ve spent nearly a decade at the NCUA and worked on credit union policy issues for more than 20 years.”

So, what does Harper’s NCUA resume include?

The Team Harper Ran With

Ed Callahan described his management and industry relationships as: “Run with good people and good things will happen.” Implicit, of course, is the reverse possibility.

The photo below is Chairman Matz and her senior NCUA staff at a House Financial Services hearing in July 2015.

From left to right:

Rendell Jones: then CFO, now deputy executive director and COO at the agency. Joined NCUA in 2014 after positions at Homeland Security and the Justice Department.

Mark Treichel: Executive director, retired in 2020 after 33 years at NCUA. Now a credit union consultant presenting himself as Helping Credit Union CEOs Achieve the Best Possible Examination Results So They Save Time and Money His capabilities as outlined in an email solicitation to credit unions:

I know how NCUA thinks and why they think it.
 know the examination process inside and out.
I know how to communicate and negotiate with NCUA.
I know how to get NCUA to YES instead of NO.
If I can help you in anyway just hit REPLY and let me know?

Steve Bosack: Matz’s Chief of Staff. Left NCUA in 2016 to join PenFed as Special Advisor to the President & Chief Communications Officer.

Todd Harper: Joined NCUA in February 2011 as Matz’s Director of the Office of Public and Congressional Affairs (PACA)and Chief Policy Advisor   (2011 until 2017).

Michael McKenna: General Counsel; retired in 2019 from an NCUA career prior to the release of a February 2020 IG report on his improper behavior with staff and unprofessional conduct.

Matz’s Post-NCUA Positions as a Bank-Finance Director

Upon leaving NCUA in April 2016, she was appointed (in November) to the Board of the Mutual of Omaha Bank where she is Vice Chairman of the Risk and Compliance Committee and a member of the Audit Committee. In addition, she has served on the Advisory Board of OpenDoor Trading (a start-up providing a platform for the resale of U.S. Treasury bonds), since January 2017. In October 2020 she joined RenoFi, a home-renovation fintech firm based in Philadelphia, as a strategic advisor.

Her appointment at RenoFi came as the company works to extend its reach in the credit union industry. RenoFi’s platform is intended to let lenders offer home-renovation loans to borrowers based on the house’s after-renovation value. The company’s press release said Matz will work to deepen its relationships with existing credit union clients and make inroads with new customers.

This Team’s Policy Initiatives

In follow up posts I will review  agency initiatives during Harper’s tenure on Matz’s staff. Tomorrow an excerpt from the House Committee hearing pictured above will illustrate this leadership team’s approach to the industry. In addition I will also provide one trade association’s concerns they hoped would be covered in this public testimony.

Comments from Finland & America on Credit Union Governance

This observation on America’s credit unions is from Leo Sammallahti​, Marketing Manager, for the Coop Exchange Leo lives  in Finland.

“When I first read about a “Credit Union Governance Modernization Act” I was optimistic that this would help ensure there is more democratic accountability in the form of open and contested elections. Unfortunately this seems not be the case.  Rather the focus is making expelling credit union members easier.

“I totally support being able to expel abusive and violent members to protect the staff.  If there has been cases where this has been made too difficult they should be tackled with better legislation. If the new act is limited to cases like this, I totally support it.

“However, I’m concerned whether the act could be used by incumbents to solidify their positions by expelling critical members seeking to challenge them? I’m not saying this is the case, just interested whether such risk is involved. I also question the language used in it, talking about how credit unions should have more control over their members. Shouldn’t it be the other way around–how to ensure members have more control over their credit unions?

“I believe that perhaps more than ever,  American democracy would benefit from revitalization of credit union democracy. Instead of focusing on polarizing politics, credit unions could foster vibrant democratic practices rooted in their local communities, without party political point scoring and division.

We also need to encourage young people with skills and ideas to stand for the board for this to work out. This is the most educated generation in the history of the country, so I’m sure there are more than enough qualified candidates to stand for the board.”

A Second Observation

Apropos to Leo’s last comment, last week I received the following email from a senior credit union employee:

“CU’s are supposed to be democratically governed through the election of member chosen representatives. Due to  a possible age-driven mass exodus of board members, it appears that replacement of these directors is a coming problem.

“Director replacements are full of issues such as the CEO filtering and controlling who gets nominated; or the  nominating committees filtering applicants, NOT by qualifications, but by other unknown criteria. And anyone not nominated must solicit petitions to get on the ballot, an almost  impossible process that is frankly a JOKE.

“I am mentoring a midlevel credit union leader in (state).  He has been trying to offer his youthful vision and services  to a credit union board by getting on the ballot.  The push back he is receiving from many angles is sad and upsetting to me.  This young man could add significant value.”

My Comment

Are these two observations on the lack of young people on boards just a coincidence?   Or is this  generational absence in credit union governance glaringly obvious to anyone taking note?