In the last week of Congress’s lame-duck session, a bill to amend the Federal Credit Union Act was passed unanimously by both houses of Congress. Senate bill S. 4036, which was sent to President Obama on Dec. 28, must be signed on or before January 8 to become law.
Despite public descriptions of the bill as "technical amendments," this bill will fundamentally alter the way NCUA assesses premiums for the Corporate Stabilization Fund, uses 208 Assistance, and allows the NCUSIF to follow non-GAAP accounting rules.
In 2009, when the Corporate stabilization bill was introduced as part of the Helping Families Save Their Homes Act of 2009, the rationale was that it would allow the $6 billion costs to be spread out for up to seven years. What happened as a result of the bill was completely different. Callahan’s Special Report on NCUA's Corporate action detailed as much. NCUA nationalized the corporate network, sold off the most valuable assets, tripled (or more) the audited $6.4 billion costs, and has told credit unions that if they want a corporate network it will have to be recapitalized.
This new bill would enable the same kind of restructuring that was done in the corporate network for natural person credit unions. Because of the inherent structural flaw in the NCUA’s regulatory setup, there is no accountability or governance of NCUA actions. This bill will just increase NCUA’s ability to spend without limit, due process, or accountability.
Three Areas of Concern
The following are the three main areas where further questions must be asked.
1. a) This is not a technical amendment but a substantive change in the way Corporate Stabilization premiums are assessed. Credit unions were originally told that the NCUA needed borrowing authority to fund the Corporate Stabilization effort. Now the law is changed so that NCUA can “assess a special premium with respect to each insured credit union that is reasonably calculated to make any pending or future expenditure . . . which shall be payable not later than 60 days after the date of the assessment.” No borrowing required.
“Any” pending or future expenditure — no limits — which is “reasonably” calculated. The Agency has given estimates of the corporate losses as low as $4.2 billion and in one interview as high as $50 billion. The Agency routinely uses internal models and stress tests, or external studies, to justify its premiums but has never made the details and assumptions of these analyses available.
If borrowings are needed to fund the corporate stabilization, why wouldn’t credit unions want these from the Treasury, the lowest cost of funds? If it wasn't needed, then why wasn’t the $30 billion authority cancelled in this legislation? Or does NCUA now have authority both to borrow and to pre-assess?
There were no facts, circumstances or other explanation that would make this extraordinarily open-ended assessment capability either understandable or capable of oversight by anyone.
In addition NCUA is given open-ended authority to assess premiums for repayments under the Corporate Stabilization program, again without limit. So does this include the NGN notes? All of the other borrowings and programs retroactively included in the Corporate Stabilization guarantee, including HARP and SIP, and the corporate share guarantees? When and where does the authority to borrow and to assess end?
b) Amending the Net Worth definition of the Federal Credit Union Act is never a technical item. It is the single most pivotal section of the Act at certain times. To assert that this amendment is necessary to include 208 assistance in net worth calculations is not factually correct. All kinds of 208 assistance have been, and continue to be, part of net worth including loan guarantees, loss sharing agreements, asset purchases and so on. Even capital gifts are recognized as net income. So why is this needed? What does “least cost” mean? Why is this term added? What is the definition? Who determines the "least cost"?
This net worth amendment, along with the so-called accounting change, will permit NCUA to take actions over natural person credit unions in the same unilateral manner that the corporates were taken away from their owners, had their capital and retained earnings confiscated and saw their duly elected board members dismissed without due process.
The amendment that permits the NCUSIF to conserve any credit union, without consolidation as required under GAAP accounting, means that these operations continue to be hidden, costs transferred beyond the Agency’s balance sheets, and a whole new set of institutions run without any accounting, auditing or oversight by anyone. Shortly, NCUA will be overseeing more than $30 billion in liquidation estates being managed under contract outside any reporting or transparency of any kind. This process will now be available for the rest of the system.
2. The entire legislative process was done without public discussion or debate about the reasons for or the implications of the changes. This is dangerous. Anyone is now free to interpret what the reasons for the changes are and what words like “reasonable,” “any,” or “least cost” mean in any context.
For Congress to have enacted this open-ended legislation to assess credit union premiums in light of the Corporate actions— which were done without any Congressional oversight or review — means that the new Congress has its work cut out for it. Someone is asleep at the switch.
3. The reference to a study, with four areas of attention, by the Comptroller General is not only meaningless but also just kicks the can down the road for dealing with the real issue — the lack of NCUA governance or accountability.
The OIG reports for material losses on NCUA have not only been meaningless exercises but also, in the case of WesCorp, a complete whitewash. The Comptroller’s report can be written today. It will refer to their five previous reports on the Agency and say the comptroller's wisdom was not implemented. If so, these problems would not have occurred. They will recommend more rules, more examiners, and more government.
Credit unions, not some government agency, must make the case for change at NCUA. No comptroller general, OIG or other study by a government entity or contractor will represent credit union or member interests. Government agencies have one primary preoccupation: self-perpetuation. They do not represent credit unions, members, the credit union system or the public policy role credit unions perform.
Actions Needed Now
So what should credit unions do? Get a hold of your Congressman, your Senator or any staffer and ask them to take a second look at Senate Bill S. 4036. The bill was passed without discussion; there is no known reason for any of the provisions that have been publically debated; and the wording is so loose, that it will only become more contentious down the road.
This bill has nothing to do with transparency, jobs or efficiency by NCUA or for credit unions. It has everything to do with NCUA’s to spend without accountability or oversight. Worst of all, the bill was passed by a Congress that is no longer around — another example of the inherent structural flaw that exists in the credit union regulatory system of no external oversight.