Smaller CUs Say NCUA, Examiners Inconsistent

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PITTSBURGH-According to some small credit unions, there is a disconnect between the direction NCUA is providing examiners on evaluating small CUs and what field staff are actually doing.

Leaders of community development and low-income credit unions shared just that concern, and others, with NCUA Chairman Debbie Matz during a plenary session at the 36th Annual Conference on Serving the Underserved. Dan Morrisey, CEO of the $1.7-million Queen of Peace Arlington FCU in Arlington, Va., stood up in front of 300 attendees and pointed out to the chairman that his examiner acknowledged she had never read the supervisory letter issued by Matz early in the year, which stated that examiners should consider the special challenges small credit unions face. "That tells me that examiners are not reading what they get from the top," Morrisey said. "I was treated fairly during my exam. But I just asked my examiner if she had seen the letter."

Fair treatment is a greater concern for Helen Godfrey-Smith, CEO of the $85-million Shreveport FCU in Shreveport, La. "There are many small credit unions that serve low-income communities that were thriving prior to the assessments. Now they are under Net Worth Restoration Plans and they may not make it. It is very distressing. It's happening all over our country and we are pretending that it is not. We have to find a way to help the small credit union survive. NCUA is finding ways to help the corporates. I would like to see more energy placed on natural-person credit union survival."

At the $744,000 Citizens Choice FCU in Natchez, Miss., CEO Permelia Murphy has been feeling the regulatory heat. "We have 50% in capital, but because we have more than 5% in fixed assets-what we spent on our new building-we were put under corrective action. The auditor came in and said you need to consider merger, and we were given a Camel 4 rating."

Murphy claimed the examiner showed no sensitivity to the special needs of small credit unions. "Think about it-5% is almost nothing with our assets. You can't build a building for $30,000."

In her comments to attendees, Matz said NCUA leadership understands the challenges facing small credit unions, pointing to new extended ranges on grants available through the Community Development Revolving Loan Fund, last-minute NCUA actions to modify rules so to ensure the fullest possible CDCU participation in the Community Development Capital Initiative, and the supervisory letter.

"The NCUA remains committed to helping small credit unions maintain their niche in the evolving marketplace," stated Matz. "That's why in January I issued the instructional letter to our examiners spelling out how I expect them to evaluate small credit unions. The letter emphasizes that community development and low-income credit unions face challenges that differ from those of most large credit unions, and reminds examiners that they should take that fact into account."

Matz acknowledged that she has learned of instances in which examiners have not followed the letter. "But I believe most examiners get it. And I can tell you that they have heard this message directly from me, in person."

Clifford Rosenthal, CEO of the National Federation of Community Development Credit Unions, said he hears many member CUs complain that examiners have not read the supervisory letter or disregard it. "There are two messages out there-one is safety and soundness and tough love from the NCUA, and the other is that you have to understand the particular operating characteristics of low-income credit unions. In most cases that we are aware of, examiners will give far more weight to safety and soundness. Given the choice between two messages, what they hear is: 'Don't allow losses to mount.'"

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