At its Jan. 15, 2015, board meeting, NCUA approved in a 2-1 vote to reissue a revised proposed risk-based capital rule. Two of the board members chair Debbie Matz and vice-chair Rick Metsger used an outside legal opinion from the Paul Hastings LLP law firm to support their view that NCUA has the authority to make the rule as drafted. The third board member, Mark McWatters, has read the Hastings opinion but disagrees with its conclusions. McWatters presented a detailed rebuttal citing both statutory interpretation and Congressional commentary for his nay vote.

Initially, Matz said she wanted to release the opinion but the law firm would not permit it. In his statement, McWatters responded to the use of the opinion as follows:

Regrettably, I am apparently not permitted to disclose the opinion letter itself or discuss the substance, analysis or conclusions provided in the opinion letter, even though NCUA and, as such, the credit union community, has committed to pay $150,000.00 to date for the legal services rendered. If you are troubled by this misallocation of limited credit union resources and the complete absence of transparency, trust me, you are not alone.

In response to a Freedom of Information Action request, NCUA publicly released the opinion on Jan. 20. Click here to read to the Hastings opinion regarding NCUAs revised proposed RBC rule.

Not The First Secret Opinion

Although NCUA eventually released the legal opinion of outside counsel regarding the agencys authority when it comes to risk-based capital, the legal opinions of outside counsel regarding regulatory overreach in other instances remain secret.

At the Nov. 21, 2013, NCUA board meeting, then-board member Michael Fryzel clearly stated that the opinion of outside counsel underpinned his decision to support the CUSO regulation revisions: legal opinion was obtained, and I had an opportunity to read it as well as other board members and staff. My conclusion from reading it is we did have the legal authority. Click here to read more about that meeting and rule.

NCUA delayed its initial proposal for the CUSO rule changes for almost two years while it determined whether it had the legal basis to pass the rule. Concern regarding NCUAs statutory authority was widespread; however, NCUA did not publicly release the legal analysis it used to establish said authority.

Callahan & Associates issued a FOIA request for a copy of the opinion on January 15, 2014. NCUA deferred action on January 30, saying it needed more time to reply. After hearing nothing, Callahan wrote again asking for specific payment information and what firm NCUA used.

On March 21, NCUA replied that it paid the Washington, DC, law firm of Kellogg, Huber, Hansen, Todd, Evans & Figel two payments totaling $31,365 from credit union funds. But it refused to send the opinion.

On April 4, 2014, Callahan filed an appeal with NCUA, stating in part:

Withholding this vital information (the legal opinion) upon which the NCUA Board and staff relied and without explaining to the public the legal reasoning behind the statutory authority is not only contrary to the open meeting process, but is inconsistent with the concept of transparent and open government authority. Without this opinion credit unions are unaware of the scope or basis for NCUAs presumed authority.

On May 7, 2014, General Counsel Mike McKenna invoked exemption 5 of FOIA, which permits an agency to withhold inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency.

The letter then proceeds with two pages of case law that refers to this standard.

Im not unsympathetic to the notion that NCUA could and should disclose the opinion, says a former NCUA attorney. Not having seen it, Im not sure what the anticipated harm could be .

A Dangerous Precedent

Transparency is critical to responsible democratic governance. Referring in a public meeting to a secret opinion that cannot be disclosed compromises the whole process of an open meeting and jeopardizes the meaningful exchange of views. People can assert any opinion they want without observers having the means to determine which points of view might be valid.

Matz used the Hastings opinion in her opening remarks, before the other board members spoke, as a basis for her support of the rule. NCUA initially kept that report private. McWatters presented a reasoned and detailed contrary position. He made his arguments public.

How can credit unions, Congress, or even the general public know what to believe about NCUAs statutory interpretation and scope until they understand the basis of each board members vote?

In any organization, but especially in a government agency that has summary authority over the firms it regulates, keeping secret the basis for policy decisions undermines the essence of democratic government. To say a document supports ones position but then not make that document available is contrary to democratic government.

Moreover, it is antithetical to the role of a regulator making broad policy judgments and whose position relies on the trust and confidence of the credit union community to hide its logic from public scrutiny. Holding back these opinions gives the impression that board members are not confident in their own judgment and have something to hide.

Cooperatives are expected to practice and follow democratic principles that is an essential part of their design. Regulators that treat the industry like a theocracy in which only the regulators are entitled to interpret the sacred texts will not long last. Releasing the Hastings opinion is a first step. But what about the others?

The Importance Of Being Public

Why did private proceedings start to usurp public hearings? Because we let them. Read NCUA Refuses FOIA Request For New CUSO Ruleto learn why this is a dangerous precedent.

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