At a time of uncertainty for the economy in general and credit unions in particular, Credit Union Times recently sat down with NAFCU President Fred Becker for a wide-ranging discussion.
Credit Union Times: You've come out very strongly critiquing parts of the Obama administration's plan for a new agency on financial products, earlier than other groups such as CUNA. What prompted you to go out front so quickly?
Fred Becker: We had a number of questions regarding the plan and its impact on credit unions, which are already the most heavily regulated financial institutions. I have spoken with [Assistant Treasury] Secretary [Michael Barr] and with our board and we have a number of issues. The loss of preemption for federally chartered institutions. Who would pay for it? The potential conflict between safety and soundness and consumer protection. Also, the potential for including credit unions under the Community Reinvestment Act.
CU Times: You are allied with the banks on this issue, a bit?
Becker: Not exactly. We don't oppose creating the new agency, like the banks do. Instead, we just don't want us and the banks to be under the purview of the new agency.
CU Times: What are the chances of your proposal passing?
Becker: The administration is coming to a recognition that the entities that they have problems with aren't credit unions; they are those that operate outside the regulatory structure.
CU Times: This is a difficult time for credit unions, what is NAFCU doing to increase its efforts to help them through this period?
Becker: Our continued alliance with FannieMae, which brings our members real returns. We are emphasizing our fiscal responsibility and that we are value based and that most of our products and services are included with dues. Our policies come as a result of input from our members, and we are immediately responsive to their concerns. We pride ourselves on being fast, direct and accurate and giving members news they can use.
CU Times: What worries you in the months ahead?
Becker: We are still operating in very choppy waters. There will be additional losses to the insurance fund because of losses to natural person credit unions. Compared to other parts of the financial services industry, we haven't been impaired as badly, and credit unions are generally well thought of and that helps us when we deal with the government. But the economic recovery has been, and will continue to be, uneven. Credit unions won't go away and we will take advantage of the recovery to gain new members. We are not cutting back like some in banking but are repositioning ourselves.
CU Times: What other fears do you have about things Congress could do?
Becker: Restrictions on interchange and overdraft fees. That would further impact credit unions' bottom line. And if you combine that with the losses facing the insurance fund, that's a lot happening on top of what we've already experienced.
CU Times: How would you assess the NCUA's performance in handling problems that credit unions, especially the corporates, have faced?
Becker: When errors happen often people don't assume responsibility and look for other reasons why things happen. The key is to look ahead and avoid having a repeat of the crisis that faced the thrifts. Under our cooperative structure, if one institution makes a mistake or has problems, we will all be affected. The key is to mitigate risk; one way might be to create a separate insurance fund for the corporates. Part of the situation with the corporates is that they made investments that looked very good at the time that they made them.
CU Times: How could the NCUA be improved?
Becker: Over the past year, by and large, the chairman has done a marvelous job with the other board members in reacting. He got there and the ship torpedoed. It took a big push from him and the board members and the industry to get the staff to recognize that the losses were more significant than first anticipated. Further, you had to find solution and spread it out over several years. Credit unions have evolved a lot in the last 10 years and will continue to evolve. And it sometimes takes a push from the outside to get the bureaucracy to evolve and continue to serve its function.
CU Times: How has NCUA not recognized evolution in the industry?
Becker: More credit unions are getting into mortgages and member business lending and the solution isn't to keep us from doing that but to train people to regulate that properly.
CU Times: What has surprised you about how things have played out in the last few months? What, if any, have been the pleasant surprises?
Becker: Our industry is small and that can be a liability or an asset. Our problems were small to everyone outside the industry and that caused some problems. The magnitude of the problem wasn't as obvious to Congress and some at the agency as it should have been. We didn't want a situation where they thought we were overplaying the magnitude, but we needed to get Congress' attention at the right time and with the right message. Hopefully, because we've been through this, we can mitigate things in the future. My concern is that in a decade, people won't remember what happened.
CU Times: Let's get back to regulatory restructuring, where do you think the overall plan, not just the consumer agency part, will end up?
Becker: I am concerned with the Fed having too much power and am concerned if they can do the job of protecting the system that it is being asked to do. As for the systemic risk regulation, we have systemic risk in our industry but it doesn't cause risk to the financial industry as a whole. As mentioned, we are concerned about the consumer agency. Who is going to pay for it? How much will be transaction based? How much based on asset size? And there are a number of regulations that only apply to credit unions, such as anti-usury laws and a ban on prepayment penalties. Credit unions are member-focused and consumer-focused and having an additional layer of regulation beyond NCUA will make it harder for us.
CU Times: While other trade associations have had to deal with the recession by cutting staff, you've avoided doing that. How have you done things to prepare for tough times?
Becker: We built up substantial net assets and that has helped us, and we've done things such as buying our building which we now own free and clear. We've always been fiscally responsible, even in good times. Our culture here-starting from the top-is very member focused. We focus on spending our members' money like it's our money and do many things without additional costs to members.
CU Times: What about the future of the industry?
Becker: We originally thought the number would flatten at 6,000 but that may not happen. A number of larger credit unions are merging and that will have an impact on the industry and it will continue to get smaller because of the overall economy and merged credit unions have an advantage in terms of economies of scale.
CU Times: Speaking of changed environment, how would you describe your dealings with the new administration?
Becker: The meeting we had with Mr. Barr was as good a meeting as we've had with an assistant secretary since Wayne Abernathy [during the first term of President George W. Bush]...This administration has been very proactive in terms of e-mails when they ask us what we think of proposals. It is good to be reached out to and thought of.
CU Times: How does the Obama administration's approach compare to the Bush administration's?
Becker: The Bush administration wasn't as proactive when they were selling their programs. We are called more often and invited to more things.