NCUA nominees pledge ‘effective, but not excessive’ regulation

The nominees to the National Credit Union Administration board pledged in Senate confirmation hearing Thursday to immediately review the regulator’s expense reimbursement program following a high-profile scandal at the agency.

Todd Harper, a Democrat, and Rodney Hood, a Republican, took questions from the Senate Banking Committee along with Mark Callabria, who was nominated for director of the Federal Housing Finance Authority, and Bimal Patel, who has been nominated as assistant secretary of the Treasury Department.

Most of the morning’s questioning was directed toward Callabria, though the two NCUA nominees faced probing on several key issues. That included a question about reviewing policies on expensing items at the agency. J. Mark McWatters, NCUA’s chairman, has come under fire recently for some items he has expensed, including a $45 glass of whisky and a $250 UberBlack ride.

The nominees were also asked about controversial appraisal rules, expanding access to financial services, homeownership for rural consumers and regulatory philosophies.

In pledging to review and potentially update the agency’s expense reimbursement policy, Harper cited a belief that rules and regulations should be “consistent across regulators.” That sentiment also cropped up in a question from Sen. Catherine Cortez-Masto, D-Nev., who sought the two nominees’ opinions on a proposed NCUA rule exempting commercial loans of up to $1 million from appraisals. That figure is more than double the threshold for banks, and Cortez-Masto questioned whether that rule, if implemented, could result in a hit to the National Credit Union Share Insurance Fund.

While Hood admitted to not being totally familiar with the rule, he pledged to work with staff at the agency “to understand what they are implying with that exemption.” Harper, on the other hand, said he had similar concerns but also wanted to examine other regulators’ position on the issue.

“For me, consistency across regulators is an important thing,” Harper said.

Sen. Thom Tillis, R-N.C., asked how they would streamline and reduce the regulatory burden. Hood referred to himself as “a safety-and-soundness regulator” and returned to the theme of “effective but not excessive” rulemaking. He pledged to continue the agency’s tradition of reviewing one-third of its rules every year so that all existing policies are considered every three years.

For his part, Harper was quick to emphasize the importance of tailoring the agency’s rules given the wide variety in asset sizes across the industry. That got a positive response from Tillis.

“I worry, post-crisis, about the financial services ecosystem,” Tillis said. “I worry about de novo banks, small banks – and credit unions play an important role in that. Credit unions fared fairly well in that, but they’ve gotten swept up in regulatory action after that.”

In response to questioning from Sen. Tina Smith, D-Minn., both nominees pledged to work to expand financial services access for consumers in rural areas, a project that Hood said was close to his heart. He worked at the Department of Agriculture more than a decade ago before his first stint on the NCUA board.

An NCUA board member from 2005 to 2010, Hood was nominated by President Trump last year but had to be re-nominated again last month after his nomination expired. Harper’s nomination was announced just two weeks ago. That seat was previously intended for John Herrera, nominated by President Obama in 2016, but partisan gridlock amid the election that year kept the nomination from moving forward.

Should Harper and Hood be confirmed, the board will be at full capacity for the first time since April 2016.

Priorities and praise

Along with touching on specific issues in questions from senators, Harper and Hood also used their opening statements to offer a general outline of their regulatory priorities.

“In my view, financial regulators need to be fair and forward looking, innovative, inclusive and independent,” Harper said in his opening statement. He added that they should also be “risk-focused and ready to act expeditiously when necessary, and engaged with all stakeholders to develop effective but not excessive regulation.”

That phrase, “effective but not excessive,” came up repeatedly in remarks from both nominees, and the National Associaiton of State Credit Union Supervisors praised that outlook.

A former aide to U.S. Rep. Paul Kanjorski, who helped push the Credit Union Membership Access Act through Congress in 1998, Harper said his top priorities for the agency included issues of capital, liquidity and cybersecurity. That’s a sign that the new board, if the nominees are confirmed, wouldn’t deviate much from the current one.

Many of Hood’s priorities were aligned with Harper, though he was also focused on issues of consumer protections, providing access to financial services for low- to moderate-income and disabled consumers, and creating additional opportunities to promote financial education and inclusion. NASCUS subsequently lauded him for focusing on those areas.

Written answers to any additional questions senators have for these nominees are due by Feb. 22, and if approved by the committee, a full Senate vote is expected sometime in March.

Harper and Hood’s nominations have been warmly received by the industry. In a statement released as the hearing got underway, Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions, praised Hood’s previous work on the NCUA board and said Harper “possesses a strong understanding of the credit union industry and its unique mission that puts people over profit.”

While the Credit Union National Association did not comment on the two nominees – it has not historically taken a position on nominees’ merits – the trade group released a statement reiterating its belief that the industry is best served by a board with all three seats filled.

The NCUA board has not been at full capacity since former Chairman Debbie Matz left in April 2016. McWatters’ term is set to expire in August. If confirmed, Harper’s term would run until August 2021 while Hood’s would extend to August 2023.