The National Credit Union Administration’s $1 billion in legal fees are coming under fire once again.
Republican members of Congress are reportedly asking questions about why the credit union regulator has paid more than $1 billion to attorneys as it has sought to recover losses from faulty mortgage-backed securities sold to several corporate credit unions that ultimately failed as a result of the housing crisis.
“The payment of over $1 billion in legal fees to private counsel raises serious questions about the propriety of the NCUA’s legal fee arrangements, including whether the arrangements were in the best interest of the NCUA,” U.S. Rep. Ann Wagner (R-Mo.) wrote in a letter to NCUA Chairman J. Mark McWatters earlier this year.
In a statement provided to Credit Union Journal, McWatters said the agency was attempting to renegotiate “a fair and transparent modification of these legal services agreements,” adding that neither he nor Board Member Rick Metsger “were involved in vetting outside counsel or negotiating the terms of the corporate credit union-related legal services agreements.”
McWatters called the fees “regrettably excessive, yet our good-faith efforts to reach an equitable accord with the recipient law firms have not succeeded.”
The two firms involved are Korein Tilery of St. Louis and Chicago, and Kellogg, Huber, Hansen, Todd, Evans and Figel of Washington D.C. Neither firm has returned Credit Union Journal’s calls requesting comment on the matter.
Wagner’s March letter included a request for documents linked to NCUA’s legal arrangements, including records of how firms were selected and all communications between the agency and law firms. House Financial Services Committee Jeb Hensarling subsequently wrote McWatters (and, later, other financial regulators) asking that communications between the committee and the agency be kept private. Earlier in his career before joining NCUA, McWatters served as legal counsel for Hensarling.
Wagner and Hensarling’s offices have not yet responded to CU Journal’s requests for comment.
This isn’t the first time the agency has found itself in hot water with Congress regarding corporate recoveries. Five years ago, U.S. Rep. Darrel Issa called out the regulator over out-of-court settlements it received related to the corporates’ collapse.
Trades caught off guard?
Wagner and Hensarling's inquiries into the matter do not appear to have been spurred by concerned credit unions.
According to Amy McLard, executive director of advocacy at the Heartland Credit Union Association, which serves CUs in Kansas and Missouri, no credit unions in the Show Me State have contacted the league with concerns about the high attorney’s fees, suggesting that credit unions did not lobby the Missouri Republican to act on this matter.
“I think if a credit union had specific concerns they would have reached out to us regarding those,” she told CU Journal.
For its part, HCUA only became aware of Wagner’s letter to McWatters when it was first reported in the news.
“That’s when we first learned about her inquiry about this,” said McLard. “We’ve had a positive and productive relationship with the congresswoman since she was first elected, but we did not request that she look into NCUA’s legal recovery process and we have not played a role in this inquiry with the regulator.”
The Credit Union National Association had no comment on the possibility of Congressional inquires into the legal fees, but CUNA Chief Policy Officer Bill Hampel previously defended the regulator, noting that “given the complexity and uncertainties involved in litigation of this kind, it’s hard to say whether the NCUA’s approach to obtaining recoveries in these cases was the most cost effective. However, if they had not pursued these cases they would never have recovered the substantial sums that they did, and pursuing them without a contingency arrangement would have been very difficult.”
To date, NCUA has recovered more than $5 billion before accounting for legal fees.
In a statement to CU Journal, Carriie Hunt, executive vice president of government affairs and general counsel for the National Association of Federally-Insured Credit Unions said "NAFCU would support any additional attempts by the NCUA to restructure legal agreements if it could result in getting monies back to credit unions."