At the beginning of each year, pundits rely on the old trusty trends they saw over the last year, what they see for the coming year and New Year’s resolutions. That’s what readers expect and there’s a comfort in getting what you expect.
The NCUA "welcomed" a GAO report that essentially said the agency was unprepared to deal with the corporate crisis and has been less than transparent during the corporate resolution process. This report confirms accusations from all corners of the industry regarding the agency’s flow of information.
The Wall Street Journal caught wind of it and ran a piece on Jan. 5. The article reported, “The GAO said a lack of documentation opened the regulator to ‘questions about its ability to effectively estimate the total costs of the failures and determine whether the credit unions will be able to pay for these losses.’” Not the kind of national attention you want to grab as membership growth has surrged following the last few months.
WSJ also stated, “The rebuke from the Government Accountability Office, the investigative arm of Congress, highlights the distrust between the regulator–the National Credit Union Administration–and many of its members, who say they worry the final cleanup tally will be higher than they have been led to believe.” The matter is certainly a trend I’ve heard over the last couple of years from credit union executives and others, and it goes beyond the natural tension between the regulator and the regulated. State regulators, whose budgets are crunched, are even trying to take advantage of this distrust by wooing credit unions from the federal charter to a state charter, as reported recently in Kentucky and New York.
On top of the GAO report during the last week of December, while many were killing the last of their vacation time and busy spreading holiday cheer, the NCUA publicly released the results of the KPMG audit of the corporate stabilization fund financial statements. The report, months past due, was unqualified. However, KPMG did point out a significant deficiency related to the “lack of sufficient preparation for the accounting and reporting of Corporate System Resolution Program.” Callahan’s Chip Filson delved into the report, noting the $1.5 billion increase in the loss provision and accuses the agency of causing the projected 23% increase in losses.
This mistrust is strong enough to drive more, and increasingly larger, credit unions to seriously study the mutual savings bank option. Unfortunately. this is a subject credit union leaders considering the move are refusing to discuss publicly for the record as they fear a figurative bull’s eye will be tattooed on their chests. If CUNA, to a lesser degree NAFCU, and other absolute opponents are not even going to allow executives to feel free to publicly discuss the matter for fear of retribution, then their problems cannot be resolved and very likely the institutions will still convert. Healthy discussion with those studying this move and their motivations behind it–which I truly believe are not necessarily based in greed–is what is needed to clear the air on the matter (see Henry Wirz’ Guest Opinion on page 12). Someone from among the potentially converting credit unions needs to be brave enough to stand up and change the direction of the conversation. Unfortunately, I predict no one will because they feel the credit union machine is too strong.
It’s something like trying to inject a legitimate third-party view in Washington. Take for example President Barack Obama’s controversial “recess” appointment of Richard Cordray as director of the Consumer Financial Protection Bureau when the Congress was not technically in recess but in pro-forma session. The Chamber of Commerce is reportedly ready to sue, and the Republicans are mustering a hue and cry against the evil Democrats. A voice of reason in the middle or any comparably sized third party would help alleviate the political gamesmanship. In any case, the launch of this agency has been a big mess that will only get messier.
Upon Cordray’s appointment, NAFCU issued a statement that it looks forward to working with him and pointing out that the CFPB now has the authority to “focus on the entities that truly need regulation.” Not so fast, say some observers. Dodd-Frank specifically said the bureau will need a director who has been confirmed by the Senate before it can move forward with new business.
Dodd-Frank has complicated more than the CFPB though. Following the required debit interchange cap, Bank of America got slammed for attempting a $5 debit card fee, pushing consumers to go local. Many have moved their financial business to credit unions, a trend that occurred late last year and I forecast will continue for some time provided credit unions do the legwork.
A recent report in the Los Angeles Times said BofA is cutting off small business owners’ lines of credit, something the institution has denied in an interview with Credit Union Times, saying they simply are enforcing a previously announced maturity date on some lines of credit. This is yet another prime opportunity for credit unions to step up for the small business owners within their fields of membership. Though some credit unions have made big headline with big MBL losses, others have successful programs that can be replicated. Be a positive disruption in the sagging economy.