WASHINGTON – NCUA on Friday issued a report to the Senate Banking Committee defending the agency’s opposition to proposed legislation that would create a new examinations appeals process and a national Ombudsman where dissatisfied credit unions and banks could appeal their regulators’ examination findings.
The report, requested by Senate Banking Committee Chairman Tim Johnson, D-S.D., concludes that credit unions already have adequate opportunities to appeal NCUA examination findings through both the supervisory review process and the agency’s ombudsman, which also fields complaints from individual credit union members about their credit union.
The Senate panel requested the internal review by NCUA, as well as the banking regulators, as they are considering a bill that was introduced in the House that would require regulators to provide final examination reports faster, set uniform exam standards and create an office of financial institutions exams appeal. NCUA and the bank regulators all oppose the bill – which was endorsed by both CUNA and NAFCU – as costly and unnecessary.
The new report, issued by the Office of the Inspector General at NCUA, concludes that NCUA already has clear standards and policies for conducting and grading examinations, and several policies in place allowing credit unions to appeal their final exams.
Many of the complaints of inconsistencies in the examinations process cited by credit unions can be attributed to separate policies set out by NCUA’s five regions – which the IG says should be resolved by a National Supervision Policy Manual issued earlier this year. The report also concludes many of the differences in examinations can be attributed to the agency’s risk-based exams, which review each credit unions based on their individual risk profile.
“In addition, we determined NCUA has an adequate appeals process, which allows credit unions to question examination results,” said the report.
“We determined that NCUA has an appeals process where credit unions can question examination results through informal and formal channels,” said the report. “Specifically, NCUA has in place a two-tiered appeal process which encourages that disputes over examiner determinations get resolved at the regional office level and at the Central Office level through the [Supervisory Review Committee].”
Under the supervisory review process, a credit union may file an appeal to the SRC either 30 days after the regional director has made its determination, or 60 days after contacting the regional office if the region has not made a determination. If the examination was conducted by a state examiner, the region will turn over the appeal to the appropriate state regulatory authority. The SRC consists of three members of NCUA’s senior staff appointed by the NCUA Chairman. Each member of the SRC has one vote and a quorum (two members) must be present at each meeting, which is held in person or via teleconference. A majority vote of the full SRC (two votes) is required for action on an appeal.
The report does cite several minor shortfalls in agency procedures, such as an inability to track the number of days exam issues have been open; that NCUA executive management would benefit from a new reporting requirement on regional determinations; that the supervisory review committee needs an electronic system of record to document decisions made by the Committee; and that the Ombudsman position does not organizationally report directly to either the agency’s highest-ranking official or the NCUA Board, as required by the criteria which originally established the position.
In February testimony before the House Financial Services Committee, NCUA Executive Director David Marquis said the agency opposes the examinations reform bill because it could prove costly and slow down the resolution of troubled credit unions, in some cases long enough to preclude NCUA from saving them. He said NCUA would have to spend more on legal staff, as well as outside experts, to respond to exam appeals under the bill.
Sen. Johnson asked the financial regulators – the FDIC, the Comptroller of the Currency, the Treasury Department, the Federal Reserve and the Consumer Financial Protection Bureau – as well as NCUA, to conduct their own internal reviews of their examinations processes before the Senate considers drafting its own bill.