NCUA’s proposed rule to prohibit credit unions from operating out of private residences has wide-reaching effects not only for the 74 home-based federal credit unions, but for every credit union operating in this country. Absent any legitimate safety and soundness reason, NCUA is legislating its vision of how and where a financial cooperative can best serve its members, usurping a role that belongs to the credit union’s board of directors.
NCUA chairperson Debbie Matz shared her rational long after the comment period ended. (emphasis added)
“Times have changed and financial institutions have changed as well and if you are stuck in the past, that means you are not growing, and you are not serving your members well and they would probably receive better services from a different credit union,” Matz told the Credit Union Times for an April article.
This interpretation of NCUA’s legal reach condemns home-based credit unions as well as, conceivably, any credit union the regulator believes is not serving its members as NCUA thinks it should.
The Core Purpose Of Consumer-Driven Financial Alternatives
But what does NCUA’s rule really mean for the credit union charter? How will this action affect future citizens whose entrepreneurial spirits lead them to band together and follow credit unions’ time-honored role of organizing and operating their own cooperative financial services? Randy Karnes, president/CEO of CU*Answers, says:
“It is not about the fact that I believe 500 [credit unions] will pop up tomorrow — it is about the fact that I support their right to start, exist, and maintain a credit union charter. It is about the fact that I do not believe the NCUA gets to make the call on what is relevant — it is here to serve American consumers in their right to form and maintain a financial cooperative. When a regulatory body decides it makes the call on whether a charter is relevant, then the spirit of renewal is dead and the spirit of our pioneers is dead. Also dead is the hope that, should we need more credit unions in the future, there will a fair process or will to foster them.”
The Cooperative Model Protects Members Large And Small
The member-owner credit union model not only resolves the inherent banking conflict between customer value and shareholder return but also enables all sizes and types of groups to manage their own financial needs. Financial cooperatives start with no capital — only members’ desire to help one another.
Instead of celebrating and supporting this diversity of cooperative efforts, NCUA is eliminating this spirit of innovation and choice. To effectively outlaw the operations of 74 long-standing credit unions, NCUA has depreciated their heritage, ridiculed their present circumstances, and mocked their future hopes. In the April Credit Union Times article, Matz provided her view of these institutions, saying “I think that’s what it [a home-based credit union] is — history. You know the buggy-whip was useful in its time. It’s not useful anymore ... .” This is a sad commentary from an agency whose goal should be to promote and defend the cooperative model of financial services.
At the December 2013 NCUA board meeting, the memorandum supporting the new rule described home-based credit unions as unsafe for examiners, citing “aggressive animals, lack of proper seating, lighting and restroom access; ... exposure to allergens, poorly maintained driveways that pose hazards to examiners’ vehicles, and low clearances or dilapidated stairways to access basement home offices.”
Such a profile, which NCUA board member Michael Fryzel challenged factually, raises the question of why the issue has come up now, after 80 years of federal credit union operational experience.
Out Of The Loop. Not Really Trying.
The denigration of home-based credit unions goes beyond their heritage and work environment. Matz also questioned the commitment of a manager who denied NCUA’s statement that all home-based credit unions had been contacted prior to the rule. When the manager said she had only heard about the rule from her league, the Matz offered this explanation:
“That means that she doesn’t keep in touch with anything NCUA is doing, that she doesn’t read the things we send her, that she has no means of being communicated with — the fact that the leagues had to get in touch with her means that she is pretty much out of the loop, that she is not really trying to stay on top of credit union issues, because if she was in any way on top of issues, if she even read our NCUA report once a month, she would know that this is an issue that affects her credit union.”
Matz excused NCUA’s possible shortcomings by saying, “We think we know how many [home-based credit unions] there are, but they don’t have to self-identify on the call report.”
If NCUA is performing an annual exam of every credit union, why wouldn’t it know this information?
Stand Up For Those Who Are Not Like Us
Matz’ declaration that “home-based institutions are history” implies the government, not the member-owners, determines whether a credit union continues. This should serve as a challenge to every credit union regardless of size. This rule imposes one person’s standards of “modern-day expectations” for what makes a cooperative credit union a relevant financial institution. Nothing could be more hurtful to the future of our volunteer-led, cooperative industry than to take away the entrepreneurial spirit that creates each institution and causes it to thrive.
What will NCUA’s next rule require? Fixed operating hours or a minimum number of full-time employees? Specific product offerings or required board diversity? A fixed amount of specific capital for each asset acquired?
One solution might be for the leagues serving the 21 states with home-based credit unions to reach out and assist these cooperatives with conversion to state charters. But, ultimately, the industry needs an NCUA board with the wisdom and commitment to respect the industry it regulates. More importantly, the industry needs an NCUA board that believes in the distinct, vital role a cooperative financial design plays for citizens, communities, and the nation’s economy. America does not need 6,300 more banks.
Playing With The Facts. Withholding Critical Data.
At the December 2013 NCUA board meeting, Fryzel challenged the agency’s factual presentation of home-based credit union examiner safety as well as the legal basis for requiring a credit union to have a publicly available office. Neither Matz nor board member Rick Metsger responded.
Moreover, NCUA’s conduct regarding Freedom of Information Act requests on this proposal suggests its portrayal of the situation might not have been fully informed. On January 15, 2014, Callahan & Associates submitted a Freedom of Information Act (FOIA) request for the names of the home-based credit unions affected by NCUA’s proposed rule. This was denied in full on Feb. 10.
NCUA subsequently provided CUNA the names of all the credit unions, which CUNA confirmed in writing. Callahan filed an FOIA appeal on March 7, pointing out NCUA had already provided the information to an outside party. On April 9, NCUA finally provided Callahan with an updated list of 74 home-based federal credit unions and later posted this list to its website.
Why did NCUA withhold the information at first yet provide it to CUNA?
Why did it only disclose the data long after the 30-day comment period had ended?
Was the FOIA delay a tactic to limit contact with the affected credit unions, thus preventing them from telling their story and preparing a rebuttal to the rule?
The credit union industry deserves a regulatory board that believes in and demands a fair rulemaking process — one that encourages and welcomes open discussion. By withholding public information until after comments were due, NCUA undermined the ability to provide factual, fully informed comment on the rule and its impact. In addition, it prevented affected institutions from knowing if they were on the list. This gives an appearance of a failure of due process that NCUA should want to correct. If not, then it should be a matter for review by the inspector general or congressional policymakers.
If the regulator can take such a capricious action regarding the issue of home-based financial cooperatives, what might be next for others? Is it time to let Congress know what’s going on?
Click to view a full list of affected credit unions.