NCUA Chair Says Show Them The Money

The NCUA’s board chair says his top priority in 2017 is returning to credit unions the several billion dollars they’re owed from the regulator’s bailout of corporate credit unions in the Great Recession.

 
 

The NCUA’s board chair says his top priority in 2017 is returning to credit unions the several billion dollars they’re owed from the regulator’s bailout of corporate credit unions in the Great Recession.

Mark McWatters told Tuesday’s morning session at CUNA’s GAC that he also wants the NCUA to require credit unions seeking to merge to be more transparent with members, including about executive payouts.

The board chair in December suggested the Temporary Corporate Credit Union Stability Fund could be merged into the Share Insurance Fund. He repeated that assertion in his address Tuesday and also called for the agency to negotiate a better deal with the attorneys who themselves negotiated the settlements with the Wall Street sellers of the toxic securities that took down five corporate credit unions.

More than $1 billion has gone to attorneys so far.

“This is the highest contingency fee ever paid by the federal government to private sector law firms,” McWatters said in his brief address.

Approximately $3.2 billion in settlements have been negotiated, and there’s another $3.4 billion in surplus legacy assets from the securities the agency itself issued to fund the corporate bailout, in the form of NCUA Guaranteed Notes through the five Asset Managed Estates representing the failed corporates.

The future of the TCCUSF: Merging the corporate credit union fund with the share insurance fund is an idea worth considering. Read more

The NCUA has until 2021 to return the money to the credit unions that invested in those corporates, but McWatters says they shouldn’t have to wait that long. If concerns about sufficient reserves to stop a downward trend in the SIF’s equity ratio and any possible decay in the NGN assets can be assuaged, he’ll support shutting down the TCCUSF this year.

“Additionally, to the extent actual performance of the post-closing Share Insurance Fund permits, this action would begin the multi-year process of rebating surplus funds to federally insured credit unions, putting this money back to work in the community as soon as possible, preferably before the end of the year,” McWatters says. “This is my top priority for 2017.”

Fellow board member Rick Metsger did not mention the corporates issue in his address and when asked afterward said he wasn’t ready to comment on it until the possibilities and implications mentioned by McWatters had been studied.

There are only two board members right now. A third remains to be nominated and approved. McWatters is a Republican appointee. Metsger is a Democrat.

McWatters also waded into the merger waters, saying: “The agency should diligently work to preserve small credit unions, as well as minority- and women-operated credit unions. In addition, the agency should require all merger solicitation documents to provide, without limitation, a discussion of any change-in-control payments and other management compensation awards and agreements, and that such disclosures are written in plain language and delivered to voting members in a reasonable time prior to the scheduled merger vote.”

Some recent mergers have apparently included golden parachute-type payouts to some executives in takeovers of credit unions that were financially sound and essentially sold for pennies on the dollar, according to some observers.

Are America's credit unions for sale? When member-owned financial cooperatives are sold in a fire sale merger, the benefit goes to the buyers, the selling board, and senior managers at the expense of members. Read more.

Metsger, in his address, stressed progress made in the past year in a number of areas, including the new field of membership and member business lending rule, restoring public budget briefings, and implementation of a more flexible examination schedule.

Relief, however, would not seem to be in the offing for those waiting for the demise of the Consumer Financial Protection Bureau, a punching bag for critics who see it as a pillar of bureaucratic excess and regulatory overreach.

A panel of four attorneys who specialize in consumer law and regulatory agencies told an afternoon session on Tuesday they don’t see the CFPB or its embattled director, Richard Cordray, slowing down anytime soon, despite the GOP control of the White House and Congress.

In fact, there’s been a dramatic increase in enforcement activity in the past five months, says Kim Phan, whose practice at Ballard Spahr in Washington includes guiding clients through supervisory and enforcement actions with the CFPB and other regulators.

“It’s full speed ahead there,” she says. “They’re very much in the mindset of doing as much as they can for consumers as long as they can until something changes.”

That could include a final payday lending rule later this year, one that has generated 1.4 million comment letters and could put many businesses out of business. That shouldn’t include credit unions, who already work under a CFPB exemption for the NCUA’s payday alternative loan rules.

Lauren Saunders, who manages the Washington office of the National Consumer Law Center, says she doesn’t expect the rule to affect credit unions much. She, in fact, sees it leveling the playing field for credit unions, whose short-term lending often includes financial education and savings components and not necessarily the speed, ease, and much-higher interest rates of many payday lending shops.

She notes that when Montana voters adopted a 36% loan cap, many payday lenders left the state, whereas credit unions there reported a 25% increase in small-dollar loans.

“We think every loan should be based on ability to repay,” the NCLC attorney says. “Getting rid of these unaffordable loans will help the credit union industry.”

 
 

Feb. 28, 2017


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