Unfortunately, it has become increasingly difficult for the credit union industry to discuss the NCUA board’s regulatory rulemaking without a profusion of expletives. The NCUA’s regulatory pendulum has swung from the overly permissive cheerleading that led to the corporate credit union crisis to the opposite extreme of paralyzing restrictions and business plan- impaling prohibitions. This unending flood of rigid and restrictive rules leaves little doubt that the NCUA board intends to zealously micromanage federally insured credit unions in a compelling demonstration of interventionist government run amok.
In just a few short months of rulemaking, the NCUA has scolded federal credit unions about their financially illiterate boards of directors, reduced legal protections for volunteer board members, made mergers and conversions more complicated and costly, decreed that the NCUA board and senior staff rather than credit union officials know what’s best for every credit union’s members, and asserted that credit unions are not smart enough to decide how many corporate credit unions to which to belong, if any. The NCUA board has also promulgated new rules concerning executive compensation and the use of ratings agencies and established implementation plans for other mandates in the ill-conceived Dodd-Frank Act, such as requiring credit unions to have gender and ethnic diversity policies–with many more burdens to come. And that is just the short list of the credit union industry’s regulatory grievances.
As an example of the agency’s micromanaging at its worst, the comment period recently closed for the NCUA’s proposed new follow-up rules affecting corporate credit unions. It appeared from the 150 comment letters that the two least popular provisions were the one limiting retail credit unions to membership in only one corporate credit union and the one that would require "voluntary" payments for the corporate crisis stabilization from CUSOs, trade associations, cooperatives, and nonfederally insured credit unions–and their expulsion from membership if they didn’t pay up. The NCUA-mandated expulsion looks eerily like a public pillorying characteristic of puritanical colonial times–more suitable for drunkards and witches than for responsibly governed financial institutions.
It would appear that the NCUA board deliberately went out of its way to dramatize what regulatory overreach was all about by upsetting just about everybody in the industry with these two needless and harmful proposed rules. Many of the comment letters severely chastised the NCUA board for its proposals–using words like disingenuous, noncompetitive, anti-free market, inappropriate, inequitable, ill-conceived, nonsensical, unreasonable, unlawful, unfair, unwise, shocking, socialist, heavy-handed, overreaching, sham, shakedown, strong arming and even extortion. The NCUA board has initiated a number of responsible actions to mitigate the corporate credit union crisis, but this proposal isn’t among them. It’s harmful, it’s unfair, and it’s bad public policy. But despite the opposing comment letters it looks like the credit union industry will get stuck with this regulatory overkill.
To adherents of free enterprise it is inappropriate to make the NCUA the marketplace’s judge, jury and executioner. As it applies to rulemaking, the NCUA board should be a hands-off, arms-length regulator that does not force feed its own often ideologically partisan concept of what is best for credit unions. NCUA’s appropriate role in the rulemaking process is a simple one: protect the safety and soundness of consumer members’ savings while staying out of the way of strategic business decisions made by individual credit unions. The NCUA board should minimize regulatory obstacles, reduce compliance burdens and facilitate local business decisions. Instead the NCUA’s top-down micromanaging has itself become unmanageable.
Backed into a corner, many in the credit union industry believe that legal challenges are the only effective way to halt the NCUA’s dangerously restrictive rulemaking juggernaut. As an alternative, one can naively cross one’s fingers and hope that the NCUA board’s currently misaligned rulemaking pendulum has reached its farthest point and will soon swing back to a more balanced approach. Unless the NCUA reverses its gone-too-far rulemaking trajectory soon, the credit union industry’s evolutionary clock will end up going cuckoo as a result of the NCUA’s extreme intervention. According to the doomsday clock hanging precariously on NCUA’s wall, the industry is running out of time to cure this Salvador Dali-esque rulemaking psychosis.
Marvin C. Umholtz is president/CEO of Umholtz Strategic Planning & Consulting Services. Contact: 360-951-9111 or firstname.lastname@example.org