What you should know:
- Todd Harper and Tanya Otsuka, the two ousted Democratic board members,
sued the Trump administration in April. - The National Credit Union Administration says a quorum of one
is possible , but legal experts disagree. - The NCUA is banking on a 2002 precedent, where former Chair Dennis Dollar was the
sole board member for two months.
The fallout at the top of the National Credit Union Administration between lone Republican Chair Kyle Hauptman and fired Democratic board members Todd Harper and Tanya Otsuka seems to be counterintuitive to the belief that politics have no place within independent agencies.
But following President Donald Trump's decision to
As per the
This hasn't stopped the NCUA from leaning on a more than 20-year-old precedent, where former NCUA Chair Dennis Dollar led the agency for a two-month period as the sole board member, to justify Hauptman doing the same in the present day.
Tim Oppelt, partner and head of the Glendale, California-based financial institution law firm SW&M, said the Federal Credit Union Act is clear in that "a majority of the board is a quorum, and it has to be a board of three," so a minimum of two board members are needed for any policy-making decisions.
"Overall, a lot of the functions at the NCUA can keep on going … but as of right now, anything that requires board approval like new regulations or field of membership changes can't happen," Oppelt said.
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Evidence of possible dissent among the ranks was apparent following
"In this instance, the previous data collection policy incentivized credit unions to avoid serving the needs of low-income and underserved communities," Hauptman said following the announcement. "These fees can be the best option in a bad situation, saving money and protecting individuals' credit scores."
During the NCUA's March board meeting, both Otsuka and Harper butted heads with Hauptman over the decision, holding that transparency into the fee data is vital for promoting competition in the industry and its removal is detrimental to credit union member owners.
"If the Chairman is unwilling to reverse course, then the overdraft and NSF fee data collected in the exam process at individual credit unions shouldn't be shielded from public release through the Freedom of Information Act," Harper said in
Marci Kawski, partner at law firm Husch Blackwell and leader of its national consumer financial services practice, said, "The whole purpose behind a board like this is to ensure there's no whip-sawing from administration to administration," which she attributes to the NCUA's position as "a steady and responsible regulator."
"Moves like [these layoffs] would impact or create more of a political environment around a regulator that really needs to be steady and responsible, given the awesome responsibilities that a financial institution has," Kawski said.
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As the legal battle between the Trump administration and the former NCUA board members unfolds, executives will soon have their answer as to whether a quorum of one is acceptable.
Below are the latest insights into the saga between current and ousted NCUA officials, and what the legal implications of the court case could mean for other agencies.
Warren, Waters unconvinced NCUA is fully up and running
Democratic Sen. Elizabeth Warren of Massachusetts and Rep. Maxine Waters of California are making pointed arguments that the dual firings of Harper and Otsuka effectively hamstring the agency's ability to govern credit unions.
In a joint letter to the NCUA's Inspector General James Hagen, Warren and Waters say board action requires a quorum of at least two board members according to regulations and statutory language. The NCUA, however, has adopted the position that
Both Democratic officials called for an investigation into the layoffs, which includes gathering documents tied to the decision such as meeting notes, general counsel opinions and analyses on the NCUA's ability to function with only one active board member.
"Specifically, we ask your office to investigate the NCUA's Chairman's authority to continue full agency operations with only one Board member, and if doing so complies with the spirit and letter of the Federal Credit Union Act and its implementing regulations, including 12 C.F.R. § 791.2," Warren and Waters wrote.
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Harper, Otsuka launch lawsuit against Trump over firings
Harper and Otsuka have filed a lawsuit against senior officials in the Trump administration over claims that the dismissals threaten the financial wellbeing of the credit union industry.
The suit filed in the U.S. District Court for the District of Columbia on April 28 alleges Hauptman, NCUA Executive Director Larry Fazio, Treasury Secretary Scott Bessent and other leaders violated the 1978 Credit Union Modernization Act in firing the pair, conflicting with the establishment of a three-member board whose members serve staggered six-year terms with no more than two members belonging to the same political party.
"The NCUA, which safeguards over $2 trillion in assets, stands alongside the Federal Deposit Insurance Corporation and the Federal Reserve System among the Nation's core financial supervisory agencies," the
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Could the NCUA really function under one board member?
Legal experts say while the firings of Harper and Otsuka place the NCUA under Republican control, it also opens the agency to a host of legal challenges over whether it can permissibly function with only one board member.
The NCUA claims that when former
"If [Hauptman] wants to violate NCUA regulation [by taking regulatory action alone] and no one sues, no one's going to stop him," Todd Phillips, an assistant professor at Georgia State University, fellow with the Roosevelt Institute and a former attorney with the FDIC, told American Banker. "But if his actions are challenged by either credit unions or by [community bankers] that could pose problems."
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How exactly is the NCUA limited after Harper, Otsuka firings?
While the NCUA remains without a quorum as defined by statutory law, everything from policy changes to enforcement actions is up in the air.
Debates over the legality of Trump's decision to fire Harper and Otsuka have given rise to the question of what functions can the NCUA still execute under Hauptman's direction. Supervision and examination responsibilities can operate independently of board composition, but policy decisions are most likely on hold for now.
"It doesn't mean that supervisors can't go around and supervise credit unions and make their suggestions, but voting to initiate an enforcement action? It's not clear to me that the NCUA can do that anymore, and certainly can't do a rule-making change to capital rules, participate in some sort of Basel committee process if appropriate," David Zaring, a financial regulation professor at Wharton, told American Banker.
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Trump breaks ground in first presidential firing of NCUA board members
In the NCUA's more than 50-year history, there has hardly been an instance where board members were removed before their term expired due to inherent removal protections. That all changed in April when Trump notified both Democratic board members they were fired.
Harper and Otsuka, whose respective terms were not set to expire until 2027 and 2029, were told via email their positions were terminated on behalf of President Trump by Trent Morse, deputy assistant to the president and deputy director of the White House Presidential Personnel Office.
"This ill-conceived and politically motivated decision to fire me before the end of my term upsets that important regulatory balance and will harm consumers," Harper said in a statement shortly after the announcement went public. "Today is a sad day for our country and the credit union system."
