Banks call for investigation of NCUA over low-income designation change

The Independent Community Bankers of America is calling for an investigation into the National Credit Union Administration over the regulator's decision to amend the definition of a low-income credit union.

Earlier this month, the agency said it would include members of the military when calculating the low-income designation. But if that change is allowed, it would benefit the country’s largest credit unions at the expense of community banks and smaller CUs, Rebeca Romero Rainey, president and CEO of the ICBA, said in a letter to James Hagen, NCUA’s inspector general.

“Most disturbing, the agency did not even entertain the opportunity for the public to weigh-in and offer comment on the proposed rulemaking,” Romero Rainey wrote in the letter dated Wednesday.

The ICBA argued that the expanded LICU definition qualifies as rulemaking under the Administrative Procedure Act. That legislation requires a notice-and-comment rulemaking period for any regulatory changes.

Romero Rainey asked that Hagen review the agency’s justification for not following the APA’s notice-and-comment requirements. The letter was also sent to several members of Congress, including Sen. Sherrod Brown, D-Ohio, and Rep. Maxine Waters, D-Calif.

Romero Rainey previously sent a letter to the Senate Banking Committee, arguing that NCUA had overstepped with the LICU change.

There can be exceptions to APA requirements, including matters related to military or foreign affairs, but the ICBA argued that NCUA’s actions "cannot reasonably be considered a military or foreign affairs function of the United States."

“ICBA is concerned about the wider implications of the agency ignoring APA procedure and the trends that this portends,” Romero Rainey wrote, citing the NCUA board rejecting an interim final rule on overdrafts during its May meeting. That rule also did not have a comment period.

NCUA pushed back on ICBA’s criticisms, arguing that the LICU change didn’t alter any regulations and therefore wasn’t subject to the APA.

“Because we did not engage in a rulemaking, the action is not subject to the notice and comment provisions of the Administrative Procedure Act typically applicable in the rulemaking process,” an NCUA spokesman said. “Our action in this matter was changing the methodology and process the agency uses internally to analyze and then determine if current credit union members that are serving in the military qualify as low-income.”

Romero Rainey emphasized that the NCUA has previously followed APA protocol for changing how it calculates the LICU designation and that a banking regulator should be more accommodative to feedback. She added that the NCUA has taken “the easy way out.”

A low-income designation is based on several criteria and comes with several benefits, including an exemption from the member business lending cap. There were 2,605 LICUs at the end of 2019, more than double from a decade earlier.

“ICBA respectfully reiterates our earlier request, to investigate the agency’s justification for not complying with APA notice-and-comment requirements and whether the agency will cure for the apparent violation of law by issuing a notice-and-comment rulemaking,” Romero Rainey concluded in her written remarks.