TEMPLE, Texas — NCUA's warning that it will fine credit unions filing late call reports by as much as $1 million per day is drawing support as well as criticism from industry leaders, with one executive describing the agency as "tone deaf."
Many credit union CEOs said the NCUA is warranted in establishing some form of a penalty to end chronic late filing, reduce examiner costs and allow the agency to release data in a timely manner.
But a number of executives described the fines as excessive, constructed without credit union input, and threatening the profitability — if not the viability — of some small credit unions.
"The fines are stiff but I don't blame NCUA," said Tony Hale, CEO of the $225 million Texell CU. "A deadline is a deadline. However, I so clearly see the irony in this too. It's exactly like NSF fees. The regulators are quick to judge if they deem a CU is overly reliant on charging fees to members. And Congress is quick to criticize NSF fees. But we know they are avoidable with the right behavior — Same thing with these call report fines."
To ensure credit unions file their call reports on time, NCUA last week issued a new letter (Letter 14-CU-03) to the industry that outlined fines for filing late call reports. Fines would begin after the April 25, 2014, filing date. Institutions that file late this month, after Jan. 24, will receive a warning letter.
NCUA Board Chairman Debbie Matz explained in the letter that $1 million daily is the maximum fine.
Matz said that late filings of quarterly call report and profile data have become "a serious problem," adding late filing impacts NCUA's ability to conduct effective off-site supervision and delays the release of quarterly industry data to the general public. It also drains NCUA resources.
For the third-quarter 2013 reporting cycle, 1,075 federally insured credit unions, ranging from large to small, filed their reports after the Oct. 22 deadline. That was up from the 893 that filed late in second-quarter cycle. (NCUA data also showed that 1,177 institutions missed the filing deadline in the first-quarter cycle of last year compared with a whopping 1,744 in the fourth quarter of 2012.)
Hale said he was "shocked" to see how many credit unions file late. "I believe late filers create undue burden on the regulator because it forces examiners to follow-up with each CU and delays their ability to glimpse into the latest quarter's performance."
But Hale thinks credit unions that may struggle with filing deadlines, particularly small ones, would benefit from NCUA limiting changes to the 5300 to once every two years.
"That might enable core processor vendors to automate call report output more easily than they do today. With all the technology we have at our disposal, the call report should be more automated than it is. It's not productive work, yet I don't dispute the value of the information for regulators."
NCUA 'Not Being Helpful'
Cindy Brock, CEO of the $70 million Financial Builders FCU in Kokomo, Ind., said NCUA is "not being helpful" to small credit unions with the fines.
"I see a big part of late filing due to NCUA's call report process being confusing. The agency frequently changes what it is looking for in reports. These fines are too stiff and ridiculous. In 2012 my accountant of 30 years retired and the employee that took her place was not as qualified as I would have liked. So our 5300 was late a day or two for about three reporting files."
Carolyn Mikesell, CEO of the $27 million Public Service CU in Fort Wayne., Ind., that has never filed late, said the fines are high and can eat into the bottom line of small shops.
"For some of us smaller CUs, $2,000 could be all we have in our bottom line for one month. I do believe that NCUA needs to have some sort of penalty for credit unions not complying with the deadlines. Monetary fines make sense, as they are the easiest to enforce. But one million dollars? We would be out of business very quickly. That said, at the end of the day the threat of the penalties should force CUs to get their reports done in a timely manner."
At $85 million-asset Omega FCU in Pittsburgh, CEO Troy Garvin said his CU has never filed late and is not concerned about the potential fines.
"I think the NCUA makes some great points on the cost of examiners' time with follow-up and proper monitoring," Garvin said "To me, though, the fines seem a little excessive. Unfortunately if late filing it is that big of a problem, then it may require those types of fines to ensure it doesn't happen."
Looking For 'Checks And Balances'
But Garvin would like to see some "checks and balances" with these potential penalties.
"I don't like when one side is the judge, jury and executioner. And I think the fine should be based on asset size of the organization so no credit union can say NCUA is out to get them. This would provide transparency and let everyone know what to expect should they file late. [As the fines are written] fines look like they can be subjective, based on who determines them, and therefore inconsistent at best."
Dan McGowan, EVP & CFO at the $180 million Pioneer West Virginia FCU in Charleston, W.Va., said he is not aware of his credit union filing late in any of the three years he has been on board.
"But that's not to say that some unforeseen event like the current contaminated water crisis we're experiencing in West Virginia couldn't impact our ability to meet the deadline. And, there may be other unusual, but quite reasonable, circumstances where a credit union may need to keep the books open a bit longer than usual. In these cases, I would certainly hope the regulators would waive any potential penalties as they've indicated they will."
McGowan wondered if some of the penalties' intent is to eliminate "poorly managed and questionably viable credit unions."
"If an institution can't get its act together enough to consistently file a 5300 report on time and doesn't have the resources to functionally conduct business as a business, then that credit union should be merged into a more efficiently operated credit union which can better serve members," he said.
Looking back more than 10 years, Jim Blaine, CEO of the $27 billion State Employees' CU in Raleigh, N.C., does not recall SECU ever filing late.
"Certainly all credit unions should file required reports in a timely fashion — period. But, the published 'guidance' unfortunately appears to confirm that the agency is, at best, sensitivity challenged and unquestionably tone deaf — which is a problem they need to overcome."
