Why NCUA’s Silencing Of WesCorp Was A Terrible Mistake And How To Correct It

WesCorp staff, like all corporates, has been devoting much time and resources to analyzing the proposed 704 corporate rule. Read the logic behind their analysis and why NCUA should allow this information to remain public.


WesCorp staff, like all corporates, has been devoting much time and resources to analyzing the proposed 704 corporate rule. Their 25-page analysis was published on December 22, followed by an email letter to WesCorp members on why they "must demand changes to Rule 704." One town hall meeting had been held and more were scheduled.

Then the call came from NCUA Headquarters telling WesCorp to stand down, cancel the town halls, do not speak to CUNA's Corporate Task group and others on the rule, take down the commentary.

I don't know who made the call, let alone who approved it. But this "request-demand" was a terrible mistake for NCUA and the cooperative system.

What WesCorp's Analysis Showed

The logic of WesCorp's three written communications is as follows:

  1. The draft rule would make it impossible for corporates to create value for their members sufficient to meet the income-retained earnings requirements;
  2. Because the earnings outlook is problematic, it would be very difficult to raise any new capital from credit unions;
  3. With no new capital, WesCorp and other corporates would have no future.

In summary, the proposed corporate rule was unworkable.

Why NCUA's Action Is A Mistake

NCUA's silencing of WesCorp undermines the legitimacy of the public rule-making process. The 253-page proposal is outside the scope of most natural person credit unions' professional and management experience. Expert commentary is essential. NCUA's action suggests they do not want to hear or see published points of view that are contrary to their assessment.

Secondly, the request that WesCorp's CEO not make public comment undermines his efforts to rebuild member confidence in WesCorp's leadership team as well as its future.

Thirdly, the process shows an Agency afraid of open debate and different points of view. If this is typical agency bureaucratic behavior, a critical question arises. On how many other issues has contrary evidence and opinion been overridden by senior Agency staff?

The Town Hall meetings, presented as a way for the Agency to listen to what credit unions are actually thinking, are now suspect. Have they just become a form of political theater covering for what the Agency has already decided it wants to do?

How To Correct The Error

There is a very simple way to correct this unfortunate action. A senior person in NCUA needs only to pick up the phone, tell the CEO the Agency made a mistake, and ask that WesCorp rejoin the dialogue.

That is how cooperatives succeed, through collaboration and transparency. Such an action would undo a mistake, which would be quickly forgotten and demonstrate an openness to alternative, and perhaps better, options.

Sample letter to NCUA on Corporate Regs.




Jan. 18, 2010


  • I totally agree. As a $10 million credit union, I do not have the expertise to thoroughly evaluate the proposed rule. I found great value in WesCorp's meeting on the proposed rule as well as the written materials prepared by WesCorp. I was sad for the system when I got Phil's email. Some one at NCUA needs to change the official stance on this topic. I have no other expert to turn to for advice.
    Barbara Bean Argo
  • Well articulated and undebatably reasonable. Thank you for your candid remarks and professional delivery. We need more of you!
    Diane Goss
  • Funny how transparency only applies to us and not to regulators. It's not too different from Deborah Matz shutting down questions she didn't like at the San Diego town hall meeting. Excellent analysis.
    David Green
  • Chip,

    I'm sure the NCUA fellt uncomfortable that the place they are running was so outspoken against their proposal. We had read the Reg and are still struggling with how to comment except "you have got to be kidding me, this proposal is a cyanide pill and a gun to the head for all Corporates." Clearly WesCorp's concerns are accurately stated. However, the NCUA's approach is the same as all of DC during this administration: do as much as you can to blame others, protect your job, and do as much damage as you can to the past.

    Larry Hoffman
  • Is there anybody out there who has applied the suggested rule changes to all the corporates to see the impact and published the results??
    C. J. Marschall
  • Chip: I read closely and commented on the original proposal. Your critical points above are accurate and noteworthy . My Question to you & other Leaders within the Industry: Is any one group taking a lead role in evaluating viable strategic alternatives to the Corporate System if, as a result of NCUA's strategy, the current system doesn't survive? Are we looking at strong regional NPFCU's or Correspondent banks to back us up?
  • It appears to me that the proposed regulation will render the corporates irrelevant; they will not be able to gain enough spread to build any capital and could only gain spread by charging higher fees. The fees would drive most of the dollars out of the corporate system and leave them without the liquidity needed to meet loan demand potentially forcing them to reduce our credit lines.

    We have looked at our alternatives, the Fed for settlement and item processing, the FHLB and the discount window for credit. The down side is the FHLBs have the same investment portfolio problems as the corporates and may end up erasing shareholder value.

    I think our only alternative is to rebuild the corporate system. I just don’t see this regulation as the right vehicle.

    Bruce Cramer
  • A question that keeps one up at night:

    "On how many other issues has contrary evidence and opinion been overridden by senior Agency staff?"
    Elliott Kashner
  • As a $30M credit union who needs WesCorp particularly for payment systems, I relied upon Phil Perkins to help me understand the proposed regs. Now that he has been silenced, I am not sure where to turn. I have seen the NCUA in action when they want something done their way and this is a typical response. We have spent years building a corporate structure so we do not have to do business with banks that want to eliminate us. What do we do now - go to that very same bank for payment processing. What a joke the NCUA has made of the whole process. No wonder no one trusts them anymore.
    Deborah Trapani
  • To Comment 10 & 11:

    Read the article. I don't think Chip Filson is saying that the corporate system is fine and doesn't need an overhaul. His message is about open dialogue and debate about what the new corporate system should be. That is how you arrive at good decisions where actual clear answers are hard (be wary of anyone who claims to have all the answers).

    NCUA's muzzling of Phil Perkins is not in the interest of credit unions and not in the interest of our cooperative system -- it is in the interest of NCUA which may or may not be in the interest of credit unions and our ability to help our members. Now, perhaps Perkins view is in the interest of the Corporates. Still, open sharing of points of view here are important to define an effective INDUSTRY-defined solution.

    If you agree with NCUA's new Corporate Rule and vision then that's fine. However, I think you will find that a majority of managers who have struggle to follow find it completely unworkable.

    Where is leadership at NCUA? The Staff seem to be dictating our cooperatively run and owned system into the ground! When will a Board member put his or her foot down to support what is in the best interest of credit unions helping their members? Assessments and castration of CU options and capabilities don't enable us to serve member needs. The Staff have lost focus and are clinging onto a dangerous view of being judge and system ruler as opposed to system enabler. Their continued running a muck will be the ruin of our system in the coming years.
  • Problem #1: Wescorp, US Central Corp, and all the other corporates were doing exactly what NCUA said they could, and should do. It's as or more much of NCUA's making as it anyone elses, so if it's the "you're the problem" excuse, then NCUA shouldn't be drafting anything, let someone else.

    Problem#2: Why have an 'open forum' and make it a closed forum? It removes any credibility from the process.

    Problem#3: Whatever they do to limit corporates ability to create revenue, will mean further future payments, and they won't come from NCUA, they'll come from us, the struggling natural person credit unions who've borne the brunt of NCUA's folly all along.

    Whatever NCUA does about the 'Corporate Problem' it will wind up with blaming someone else and their hand in our pockets.
    Bill Wade
  • I don't think anyone would disagree that the current system needs reform. However, the most useful way to acheive this is not by silencing those who disagree with the agency - corporate or natural person credit unions. Thank you Chip for your willingness to ask the uncomfortable questions!wei
  • Well said, John Davis!
  • Chip- I strongly disagree with your article on muzzling Perkins. Your basic assumption is that the survival of the corporates in their present model is worthy.

    WRONG!!!! The multi- Corporate model is flawed.

    You should be writing on how to fix the model, not on saving the present system.

    John Davis, SFCU
  • You're all fighting city hall! It's a losing battle, but good luck trying if it makes you all feel better to whine about it. By the way, Davis is right on with his comment.
  • To Comment #16 - NONE!

  • Why should the silencing of Mr. Perkins be a surprise to anyone? He, and all of his staff, are, effectivley, employees of the NCUA. If your staff were to publicly denounce your policies, how long would they be allowed to continue working for you?

    There are many other corporates who still operate only for the benefit of their members. They should be, and will be, speaking up about the deficiencies in this regulation

    Our corporate did have town hall meetings about this proposal, and one of there concerns is that once this is in place for the corporates will it be applied to NPCU's.

    How many of us would survive then?
  • A new Co-op neds to emrge urie of the Corporte Credi union. We are a 6 miilion dollar credit union that hs survived,somtimes thrived, wthout a Coporate Credt Unionfor 80 years. The state leagues (for he most part ) and CUNA need to presen alternatives,but it seems most of them are sleeping together.ratherr than remining faithfull to credit unions themsevles. This adultary is not ging to stop, and needs to stop now or new organizations need to be formed to serve the real interest of credit unions.. Let us not remain in denial any longer like John Edwards, while redit unions faced the 'cancer" of total corporate credit union support while we suffered and who knos what kind of child it will produce but is it one we want to be associated with? I say like Elizabeth Edwards it is time to seperate.Start by not paying your dues, wait til they call you you to ask why and explain why. Tell them to file divorce from their relationship with Corporates.

    Let' s start new orgaizaton on a nationl basis.that will onlyreprestent what it is the best interest of credit unions.

    Dennis Fisher
  • The elimination of a corporate credit union network would be the beginning of the end for natural person credit unions. Are we really so naive to think credit unions would be able to provide the same value to our members if forced to rely on the banking sector to provide services traditionally offered by corporates?
  • No one is saying the Corporate system does not need to be repaired. Let's deal with the realities though and, once again, Chip is spot on. NCUA is an out of control agency intent on protecting the insurance fund at all costs. In other words, NCUA has figured that the best way to be totally risk free is to not have Corporates at all. The proposed Reg has been modeled and it is impossible for a Corporate to stay in business. This is just the tip of the iceberg however, as all of this will trickle down to natural person credit unions both from new, risk adverse regulations similar to what is in the proposed Corporate reg and, in this instance, the loss of our Corporate network which has served all of us well for 35 years prior to the global financial system meltdown. Everyone should be careful. The agency has a strong tendency to retaliate against those who disagree with them and Phil Perkins now has the wounds to prove it.
  • Smaller credit unions need the cost efficiencies in the payment systems. If this goes away in the Corporates, the alternatives in the Fed, Community Banks or Commercial Banks will not be good alternatives. Have you priced these services lately and when was the last good customer service experience you had with any of these? Didn't we learn lessons the first time around? If we all don't speak up the consequences are going to be significant. We thought the NCUSIF assessments are an issue wait until your payment systems costs goes out of control. The proposed legislation will force the Corporates out of business and many small CUs as well. This is real serious and scary regulation.
  • A presence within Wescorp that has never been disclosed publicly - either before or since Wescorp was conserved is that NCUA had auditors officed at Wescorp while the much maligned investment decisions were being made. Why didn't NCUA act to prevent the investment decisions that led to the loss of member capital and the subsequent conservancy? And, how are the investments currently performing? I've heard, quite well. 704 seems more like the nail the NCUA Chairman has always wanted to use to finish off the corporates.
  • If WesCorp had not been in conservatorship, Perkins’ actions would have been totally appropriate. Despite the fact that he was probably 100% accurate in his criticisms about the proposed corporate credit union regulations, Perkins should not have gone public with them. He should have used the existing internal and private NCUA channels to get his concerns to the NCUA Board. His actions seemed politically naive to this jaded political hack. If Perkins actually knew that he was breaking protocols and did it anyway, it might be considered gutsy by some – or much more likely considered cowboy reckless.

    Frankly, NCUA was right about this one and Perkins was lucky to keep his job. The NCUA Board was Perkins’ boss and the proposed regulations were his bosses’ regulations. Compare the situation to a credit union branch manager publicly criticizing the credit union’s lending policies and also organizing a protest march on headquarters. NCUA gave Perkins an honorable way out via his follow up email. He should be grateful for the forgiveness and should now turn his attention to keeping WesCorp focused on serving its members’ liquidity and payment system needs.

    Marvin Umholtz
  • The only comments or opinions the NCUA cares to hear are from a few "very select" and "very large" credit unions. I think the rest of us are wasting our breath. Their intent is to save themselves, not the credit union movement.
  • I just read this article and comments and wonder if the past year or two are being forgotten. NCUA didn't do it's job due to weak regulation and supervision and look at the cost. Now NCUA is trying to have a tight regulation and everyone seems to forget what mess the corporates put us in. I would rather pay a bit more for services and earn a bit less on investments than go through the mess we went through again. If the corporates are really needed then we will be willing to live with a more costly corporate system. If not, then the corporates are not needed. It's our call.
  • In just one year the NCUA has done more to undermine the credit union movement than the ABA was able to accomplish in all those years of lobbying.
  • You have to applaud Phil for taking a risk and talking

    straight .....I would like to know what happened to the NCUA staff that were housed at Wescorp for the last few years....How does a regulator get away with conserving an institution(s) it has had staff on site regulating?? Can someone explain that?