Dual Exams Prompt Fear and Loathing in North Carolina
For another week, the dispute over the CAMEL rating disclosure involving the NCUA, the North Carolina Credit Union Division and the $23 billion State Employees’ Credit Union of Raleigh, N.C., continued to roil the state’s CUs as managers expressed new frustration and anxiety over dual exams.
“This is all a tempest in a teapot, and we’re the teabag,” said Joy Watts, president/CEO of the $78 million Carolina Postal CU of Charlotte, N.C., one of 52 state-chartered CUs subjected to lengthy, unscheduled NCUA exams, some of which began Jan. 21.
The CU executives described an NCUA “blitzkrieg” of mostly Midwest examiners fanning across the state to do the exams that resulted from the NCUA-state regulator conflict. As one put it, this controversy “should have been resolved long ago by reasonable adults.”
Under its new policy, the NCUA sent examiners to the state-chartered federally insured CUs because that SECU’s September disclosure of its CAMEL 2 score meant the agency could no longer rely on dual exams with state regulators.
In describing her experience, Watts, said a rotating group of five examiners spent seven days combing her credit union’s books, and for her “this was a first. We’ve never had a separate NCUA exam.”
The examiners “were courteous, helpful and tried to educate us on what they were doing,” but it created a great amount of stress and seemed unnecessary and a waste, said Watts.
Like others assured by the NCUA that the credit union had done nothing wrong, Watts said she was confident her own healthy CU had nothing to hide. “But since we never had anything like this before, I was a little worried. And I kept asking the examiners if they got all the information they needed.”
Watts, who is a director of the North Carolina Credit Union League, which last week joined the negotiations to settle the dual exam dispute, said the extra exam will not cost the credit union directly. However, the fees will come from the overhead transfer portion of the stabilization expense. The examiners visiting Carolina Postal had told her a yearly visit would be a routine from now on, she said.
Watts called that a step toward undermining dual charters. Small state charters “may as well apply for a federal charter rather than go through this,” she said.
Echoing Watts on the unnecessary nature of the NCUA exams, Jack Braswell, president/CEO of the $230 million Members CU of Winston-Salem, N.C., called the NCUA move a knee-jerk reaction to a situation comparable to “parents fighting but ending up slapping the children.”
He said three examiners were at his shop last week and found no apparent issues. Braswell said he understood the NCUA examiners had been in the state for four weeks after being brought in from Ohio and Indiana.
Genice DeCorte, president/CEO of the $28 million Greensboro Health Care CU, said the NCUA examiners were in her CU for two weeks poring over the books, but why they did this is all very puzzling.”
In a Feb. 6 letter to both Jerrie Jay, administrator of the state’s Credit Union Division, and Herb Yolles, NCUA’s Atlanta Regional director, the North Carolina league pleaded for resolution of the NCUA-SECU fracas. It also complained about the experiences of “our state-chartered credit unions receiving conflicting guidance or no guidance at all on issues ranging from how to amend a Call Report to the sharing of state-federal exam findings.”
“Our credit unions will be faced with new conflicts throughout the year,” wrote John Radebaugh, president/CEO of the league. He added, this “conflicting operational environment is a natural consequence of having two regulators that are not working together.”
For her part, Jay, the top state regulator, stood her ground during the week by telling the league’s Feb.1 town hall meeting that she remains deeply troubled by the NCUA moves and she is still awaiting the scheduling of a special resolution meeting involving top counsel representing her agency, the state attorney general and ranking NCUA attorneys.
“I requested such a meeting last year and have not had a response to that request,” Jay told Credit Union Times.
CUNA urged the NCUA and state regulator to meet soon to resolve the dispute. Saying that no credit union “should be disadvantaged by the actions of a regulator,” CUNA President/CEO Bill Cheney, in a Feb. 7 letter, asked NCUA Chairman Debbie Matz to have the agency’s staff meet with North Carolina regulators.
NCUA Chairman Debbie Matz said the agency had no choice but to end its joint exams with the North Carolina regulator because it “violated the trust,” by allowing State Employees’ CU to release its CAMEL rating.
“We apologize for any inconvenience as a result of our action, but the decision to allow the release of the CAMEL rating is a violation of our policies and the sacred trust that existed,” Matz said during a virtual town hall meeting. “Once that trust was violated, we had no confidence in our relationship with the regulator. We cannot have a relationship with regulator who doesn’t honor our regulations.”
She said the state regulator could end the dispute by suspending the pilot program allowing State Employees’ CU to release its CAMEL rating and order the credit union to remove the rating from its website.
NCUA Executive Director David Marquis said the release of ratings has a chilling effect on the agency’s ability to resolve problems at certain credit unions. Marquis said the additional examinations won’t lead to higher assessments because it is a routine shifting of agency resources.
Credit unions can be forthcoming and disclose a great deal about their financial condition rather than release their CAMEL ratings, said Bill Brooks, a former credit union CEO and NCUA examiner.
“There are better ways to get information out to your members. Releasing the rating isn’t transparent, it’s stupid,” said Brooks, the former CEO of Government Printing Office FCU and Lafayette FCU.
However, he said the NCUA’s actions in response to the release of the CAMEL rating were excessive. “This issue is so blown out of proportion that I am mortified by the regulators actions. It is regulatory chutzpah to suggest that their harsh action...is anything but retaliatory,” he added.
Meanwhile, remaining firm and vocal on the NCUA clash was Jim Blaine, the president/CEO of State Employees’, who defended the CU’s CAMEL disclosure as arising from a long-held public policy on member disclosure of financial data.