The Credit Union Journal's
Initial reports indicate
I want to stress that the 18-month exam request CCUA made is about a lot more than just returning to an 18-month cycle for well-run credit unions. Yes, our letter highlighted how a longer exam cycle could potentially play a role in reducing the agency's budget. We also touched on the undeniable improved health of the CU system and how that must be recognized in the exam cycle thought process. But maybe most importantly, we stressed the importance of data and how the regulator can leverage data to become a more effective examiner in the future.
It's easy to criticize NCUA in this age of regulatory burden. Regulatory burden is having a dollars-and-cents impact on consumers as organizations spend more time and resources to deal with compliance. But most credit union leaders also recognize that the regulator has a difficult job to do and that a cookie-cutter approach to examination does not work.
That is why a dialogue on the exam process is so vital. It's one of the key aspects of regulatory burden and uniquely one that NCUA has the administrative authority to amend.
I speak to credit union leaders often about the exam process and no one is advocating for the regulator not to be on site or for a lax oversight environment, but the frequency, number of days on site, and number of examiners is a concern, especially for historically well-run credit unions. The system has many perennial CAMEL 1 and 2 credit unions that are seeing the examiners every 12 months, even though nothing significant has changed in their business model or with their leadership. Credit unions are also dealing with exams that last many weeks rather than one or two because of scheduling conflicts of examiners and specialists. As one CEO put it to me recently, "It's disruptive to us, it's disruptive to them. If they were coming in every 18 months they would have a better opportunity to schedule a team for a set time, not a 'schedule-as-we-go' type like we often see now."
Others wonder why the agency couldn't have more frequent communication with CUs throughout the year rather than confining engagement into a 12-month exam. Data could be a key driver to that communication. NCUA can certainly analyze marketplace economic data where a credit union operates to identify regional trends, and utilize AIRES and call report data to spot trends at the CU. Most credit unions would welcome a call or visit at any time if the regulator sees something troubling or notable in the data, rather than bottlenecking into a 12-month exam. Some credit union CEOs even stress that they wish the agency knew their business model better and would welcome ongoing dialogue with the regulator.
One area the agency will consistently cite as needing on-site supervision is fraud. Interestingly, some of the biggest frauds to hit credit unions emanated overseas in remote places and were first flagged by other federal agencies, like the FBI. Major frauds are often not discovered by an on-site examiner. That's no fault of NCUA. Cyberattacks and outside fraud attacks can come at any time. NCUA will also talk about the need to be on-site to pick up on internal fraud. Many CUs, especially of the larger variety, have qualified audits that are as rigorous as, if not more so than the exam process, that are designed to detect fraud. NCUA does and can certainly access those audits. Many fraud experts argue that the best protection against internal fraud is not regulators, but the people who work and volunteer at the credit union. There must be messaging internally that employees and volunteers can safely be whistleblowers on fraud or mischievous behavior, and of course there is no better protection than sound internal controls.
There are a lot of ways to protect the National Credit Union Share Insurance Fund, which is what all credit unions want, but being on-site every 12 months at every credit union may be doing more harm than good by not focusing the resources on where they need to be and by not evolving the exam process to reflect our data rich environment. With tools like remote deposit capture and online banking, credit union members can do almost all business remotely with a credit union. NCUA should explore more remote regulation and frequent communication to reduce exam time on-site and allow credit unions to do what they do best-serve their members. Most importantly, regular analysis of data will result in a safer system.
It's time for a true dialogue on the examination process. If the only answer is to be on site longer and more frequently, than the agency is not adopting to a changing environment as credit unions have had to adopt to a changing environment.
Paul Gentile is president/CEO of the Cooperative Credit Union
Association. He can be reached at
