How exactly will NCUA tackle the new examination schedule set to begin next year?
That was one question addressed by NCUA Chairman Rick Metsger and other representatives from the agency during a recent panel discussion at the California and Nevada Credit Union Leagues' Annual Meeting and Convention in Las Vegas.
When Metsger took over as NCUA chairman, one change he implemented that drew immediate praise from credit unions was a proposal to modify the way examinations are carried out, including the possibility of well-managed CUs being examined less often. At the CCUL/NCUL meeting, Metsger said the initiative was prompted by a simple question: How do we deploy our capital assets to where we need to be?
"There are some credit unions NCUA has not been in for several years, some never. I am concerned about fraud leading to reputation risks for the entire credit union system," he said. "Our team has been working hard analyzing data to identify risks."
For well-managed credit unions, Metsger said he removed the calendar year requirement to help NCUA examiners be "efficient and have flexibility." He said the extended exam cycle will be available to CAMEL 1 or 2 institutions, which must be well-capitalized, and have no formal or informal administrative orders or warning letters. "This will allow a lot of flexibility for state charters. We want to make sure we work with our state partners."
"Overall, this will deploy our assets where they are needed the most," Metsger declared. "Two, this will be a real benefit for our staff, which will help us retain good staff in the long run. It is a real win for credit unions and NCUA, the entire credit union system."
Metsger said one additional benefit of the EFI: in the future, the "exam footprint" will be smaller because examiners will be able to do advance reviews before walking in to credit union.
Asked what CUs can expect from exam trends, Metsger said the quality of the dialogue is "good."
"As the industry continues to consolidate, we have more complex credit unions," he said.
Cherie Freed, NCUA's Region V director, added: "We just finished a two-year effort to hire more specialists. Some specialists will be assigned to certain credit unions that have large programs so the credit unions do not have to tell their story every year. We are committed to train for specialty areas."
Metsger's chief of staff, Michael Radway, also participated in the discussion.
Refunds, Regs and Exam Trends
One question that came up during the panel discussion pertained to refunds for assessments paid to the Corporate Stabilization Fund. NCUA has repeatedly said it will have to wait until 2021, when the Stabilization Fund is set to expire. In the next five years, changes in the economy could change the value of the assets that secure the NCUA Guaranteed Notes Program, which in turn would affect the assets the agency and the Stabilization Fund would have available at that time to make refunds.
One credit union director noted his CU lost money it had in WesCorp when the corporate credit union was conserved and asked if collections NCUA has made related to mortgage-backed securities might be returned to CUs.
Metsger's response: "We have been very, very successful in collections.
Another audience member asked how closely is NCUA working with the Consumer Financial Protection Bureau on rules such as overdraft protection. Metsger said he meets monthly with CFPB Director Richard Cordray. "We offered comments on the payday lending rule," Metsger recalled. "Director Cordray wants information. He and I have a good relationship. We have the same goal — give people access to credit."
With major changes coming to quarterly and annual reporting thanks to the Financial Accounting Standards Board's new (and highly controversial) Current Expected Credit Loss (CECL) standard, Freed said a number of credit unions will be part of a working group.
"We have had a lot of questions about CECL," she said. "When there are big changes such as that, we tell our examiners not to look just at numbers, but at the story behind the numbers."
One CU expressed anxiety about the CFPB possibly making major changes to rules regarding small-dollar loans. Metsger said CFPB has not finalized its rule and added, "We all want the same outcome: we don't want predatory lending. Credit unions want to protect their members. That is why we changed name of one of our departments to Financial Protection and Access. Because if you want to protect against the bad actors, you have to give people access. Credit unions need the ability to provide small-dollar lending that does not put people into a cycle of debt."
Asked about supplemental capital, Metsger said both supplemental capital and risk-based capital raise "extremely complex" issues and said NCUA will issue advance notice of proposed rulemaking in January.
