A bill to revamp the examination process and allow appeals to an administrative law judge would raise NCUSIF premiums, give examiners less flexibility and raise administrative costs, NCUA Executive Director David Marquis told lawmakers on Wednesday.
In testimony Wednesday before a House subcommittee Marquis said the bill’s provision that creates additional appeals processes would add more regulatory layers that would increase costs without any assurance of greater effectiveness.
“Again, this change would cause examiners to fully document each and every finding, and examination costs would increase,’’ he said.
In addition, Marquis said, the measure could be “disruptive to our existing internal consultation process and possibly stimulate greater appeals of examination filings, both increasing the risk to the NCUSIF and costs to the industry.’’
The measure would also mandate that the NCUA and other agencies cannot put a commercial loan in nonaccrual status just because the collateral has decreased in value. It also requires the regulator to remove a modified or restructured commercial loan from nonaccrual status if the borrower demonstrates that it can regularly repay the loan.
Marquis added that this provision may “create bright lines that may permit financial institutions to ignore other available information about the borrower that should be properly factored into evaluations of a commercial loan’s collectability. There is a risk that some institutions may game the system by structuring loans in a way to make it more difficult to properly provision for losses.’’
He also said that his agency has a strong appeals process and plans to issue a revamped manual for its examiners later this year.
The hearing was held by the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit. The panel’s chairman, Rep. Shelley Moore Capito (R-W.Va.) and ranking Democrat Rep. Carolyn Maloney (D-N.Y.) are the lead sponsors of the measure.
Under the bill, a financial institution that is unhappy with the results of its examination would have the right to appeal it to an administrative law judge who would submit his or her findings to the ombudsman of the Federal Financial Institutions Examination Council (FFIEC), which is made up of representatives of federal and state regulatory entities. NCUA Chairman Debbie Matz is the council’s current chairman.
Representatives of CUNA and NAFCU testified in favor of the bill at the hearing.