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Why NCUA's Harper wants credit unions to be regulated like banks

Todd Harper is following through on his desire to better align regulatory oversight of credit unions with that of banks.

At the end of October, Harper, a National Credit Union Administration board member, issued a public request for comment on a proposal that would create a "dedicated consumer compliance exam program for large, complex credit unions." Under the initiative, credit unions would face similar regulatory scrutiny that banks currently undergo.

But the industry remains skeptical of the need for the requirements, with some arguing that the additional oversight will lead to more expenses.

“For me there’s an importance to have — and it’s not my only guiding principle — but there’s importance to have at least uniformity between the regulators because you want to see them doing the same things the same way,” Harper said in an interview with Credit Union Journal.

During his NCUA confirmation hearing earlier this year, Harper emphasized that he thought rules and regulations should be “consistent across regulators.” His proposal for stronger consumer compliance oversight is one step in that direction.

When Harper first joined the agency as a staff member in 2011, he was surprised to see that NCUA did not have a dedicated consumer compliance program that gives separate ratings beyond the CAMELS system. His proposal would remedy that by hiring three full-time employees next year that would develop such an examination program within the agency’s Office of Consumer Financial Protection.

Credit unions with at least $10 billion in assets are subject to Consumer Financial Protection Bureau supervisory authority. However, those institutions currently receive little guidance from NCUA on compliance matters.

In fact, one credit union told Harper during a site visit that it “could have used more of NCUA’s help to prepare for CFPB exams,” Harper said.

NCUA mainly looks at safety and soundness issues during exams. Consumer compliance is touched upon but not with enough focus, Harper said. For instance, NCUA has just 30 subject matter experts, Harper said. That's compared with the roughly 450 consumer compliance examiners the Federal Deposit Insurance Corp. employs, according to the banking regulator.

He brought up the issue during NCUA’s October board meeting by criticizing the regulator for not doing enough fair housing exams. Overall he is hoping to see the regulator bulk up its consumer compliance program and dedicate more resources to this area.

“Right now we are only looking at some aspects of consumer compliance, we’re not necessarily conducting a full assessment at how the overall consumer compliance program is working at a credit union,” Harper said.

Harper said his proposal would fix that and better align the agency with what bank regulators do. Currently, bank examiners also emphasize regulatory compliance and not just safety and soundness, said John Zasada, director of compliance consulting at Doeren Mayhew.

“There isn’t a dedicated group testing for regulatory compliance at credit unions like there is for banks,” Zasada said. “So the examiners [at NCUA] are really jack of all trades and they’re not specific to regulatory compliance.”

“[W]ith credit unions until you get above $10 billion, there isn’t the exact testing that is going on that is similar to banks,” he added.

Credit unions ranging from $1 billion to $10 billion in assets would be subject to the new requirements, though Harper acknowledged that his proposal is in the preliminary stages and welcomed input from the industry in determining “what is the right threshold for that entry level when we start doing this.”

But it seems unlikely that the industry will embrace Harper’s call for additional oversight, even if it applies to a small number of institutions. There were over 300 credit unions with $1 billion in assets, Harper said in a press release when he announced the proposal.

Credit unions have until Dec. 2 to respond to the proposal.

“This is an area that NCUA has responsibility for, but it’s also an agency that has finite resources so ultimately, with any organization with finite resources it has to make a determination on where to apply those resources to fulfill the mission of the agency and with consumer protection, so we’re wondering where the problem is,” said Ryan Donovan, chief advocacy officer at the Credit Union National Association.

It’s possible that the proposal would require credit unions to hire additional staff to handle any increased complexity, said Steve Williams, founder of the consulting firm Cornerstone Advisors.

“There’s always a risk when small items get overblown when you have such a microscope focus here,” Williams said. “What is hard for me to understand is that compliance is rigorously covered by the NCUA and state examiners.”

The additional oversight would increase the time and resources an institution spends on examinations, said Mike Lord, CEO and president of State Employees’ Credit Union in Raleigh, N.C.

“Larger does not always mean more complex,” Lord said. “We have one checking account. We have one home equity loan. We have one Visa card.”

The $41 billion-asset credit union would be exempt from Harper’s proposal since it is already over the $10 billion-asset threshold and regulated by the CFPB. But Lord raised concerns that the more consumer compliance oversight by NCUA would be redundant since the regulator already conducts routine examinations.

Lord also questioned if Harper’s proposal could be rolled into the current examination process. Harper said during the interview with the Credit Union Journal that was a possibility.

“There’s no CEO or staff member that isn’t out there that’s all for being compliant — everyone supports that. The question is, what does this mean?” Lord asked.

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