Expose on McWatters' expenses 'hurts NCUA's reputation'

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Credit unions are playing it cool regarding a recent high-profile story on expenses at the National Credit Union Administration.

The Washington Post story, which ran Jan. 20, is based on a report following an anonymous whistleblower’s complaints to NCUA’s inspector general calling out “extravagant” expenses from J. Mark McWatters, chairman of the NCUA, and his chief of staff, Sarah Vega.

Expenses that were highlighted included $11,000 for two round-trip tickets to a conference in Vienna, a $250 UberBlack ride, and a $450 meal for three that included $43 pieces of fish and a $45 glass of whisky. The pair are said to have expensed more than $2,500 in alcohol alone during 2016 and 2017, even though NCUA policies ban employees from being reimbursed for alcohol.

NCUA declined to comment on the story but a page on the regulator's website linking to the inspector general's report emphasizes that neither McWatters nor Vega broke any laws or agency rules.

The story comes as credit unions and their trade associations continue to complain about NCUA’s increasing budget even as its staff shrinks.

But industry observers hoped that the issue being raised could lead to changes on the board, including additional members with different backgrounds.

“We’re inured to the excesses of government,” said one credit union executive who agreed to speak anonymously.

Credit Union Journal reached out to more than a dozen CEOs at institutions from across the asset spectrum and more than half declined to discuss the matter on the record. The executive who spoke with CU Journal anonymously said his colleagues' hesitation to call out NCUA may in part be because “you never want to piss off your regulator – that’s why we have CUNA and NAFCU. They’re supposed to be beating them up so we don’t have to be known.”

The National Association of Federally-Insured Credit Unions declined to comment. The Credit Union National Association declined an interview request and offered only a statement, saying in part “the report served as a catalyst for correcting the questionable behavior and clarifying the agency’s guidelines.”

Asked why so many of the major trade groups have stayed quiet on this issue, the credit union executive said it may simply be that the trade groups are picking their battles.
While the story raises some “concerning” issues surrounding behaviors at NCUA, said Lucy Ito, president and CEO at the National Association of State Credit Union Supervisors, the bulk of the agency’s budget increases in recent years have gone toward important initiatives intended to benefit institutions of all sizes.

The regulator’s budget is roughly $335 million for 2019, up about 4 percent from 2018. When 2019’s budget was proposed in September, the regulator argued that inflation has “matched or outpaced” increases in its budget since 2017.

“Where recent increases have been allocated to is in cybersecurity and virtual examinations – technology and infrastructure necessary for that kind of defense and functionality,” said Ito. “That to me is where the significant dollars are. Given the age of NCUA’s AIRES [examination] program and other technologies, it’s not surprising the budget has gone up.”

Ito said NASCUS has not been contacted by any credit unions in regard to the Post story and she downplayed the possibility that institutions may be hesitant to comment for fear of retribution. What’s more likely, she suggested, is that credit union leaders are weighing this story against what they’ve seen from the federal regulator in recent years – including increased transparency and extended exam cycles.

This isn’t the first time the Post has published stories that have shown McWatters in a negative light. A 2018 story attempted to show a disconnect between McWatters and the agency by highlighting the fact that he primarily works from his home in Texas and travels to Virginia for board meetings rather than working full-time at the regulator’s headquarters.

Some who spoke to CU Journal for this story said the Post article might merely be an attempt to make the Trump administration look bad. McWatters was elevated to chairman by President Trump, but he was first appointed to the NCUA board by President Obama. Obama later nominated him for a spot at the Export-Import Bank, but that nomination never moved forward and was dropped following President Trump’s election.

Geoff Bacino, a Washington-based credit union consultant and former NCUA board member, called the story “sensationalistic.” He emphasized that no rules were broken and noted that Washington isn’t exactly a cheap place to do business.

“Forty-five dollars for Dover sole, $43 for halibut – that’s about the going rate at any decent restaurant in town,” said Bacino. “It wasn’t like they were having a $195 piece of Kobe steak flown in on a private jet and massaged on its way over here. That’s about the going rate.”

The credit union executive who spoke with CU Journal noted that the expenses outlined in the Post story were “a drop in the bucket.”

“It hurts their reputation as being decision makers, but we all think all government bureaucrats do this,” the executive added. “It’s kind of expected, I guess. On my list of things that bother me in a day, this isn’t one of them.”

If there’s an upside to this, many said, it’s that it could lead to additional scrutiny of – and even changes to – the NCUA board.

Janet Mount, CEO of $17 million-asset Vermillion FCU in Vermillion, S.D., suggested credit unions have more important things to worry about than what NCUA staff spends on travel, but noted this could be an opportunity to change how the board conducts its affairs.

“Since I really have no idea how things work in Washington D.C. or what the costs are for the area, it’s hard for me to say what is extravagant,” she said in an email. “I do believe that there absolutely needs to be limits. My suggestion would have been that he and others be given a budget. Receipts would still need to be presented for reimbursement, but when the funds are gone they are gone. I think he needs to be given the freedom to decide what each situation calls for and be able to meet that need while staying within the limits of his budget.”

NASCUS’s Ito added that she hopes the minor scandal spurs CUs to better “monitor NCUA spending, because it is credit unions’ money,” she said, adding that NASCUS continues to push for expansion of the full board from three to five members, including a seat designated for someone with experience working in the state CU system.

"It definitely makes the industry look silly,” the anonymous executive said, adding that “it shows maybe you need credit union movement people on the board.”

This story was updated at 11:00 A.M. on Jan. 23.

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Revenue and expenses Law and regulation Workplace culture Mark McWatters NCUA