The availability of an appeal of an NCUA examination to an administrative law judge and then to the FFIEC's ombudsman may not be the panacea that credit unions seem to assume.
Section 3 of HR 3461 provides that the ombudsman would determine the “merits of the appeal on the record, after an opportunity for a hearing before an independent administrative law judge,” and that the evidentiary hearing before the administrative law judge would be conducted under the procedures set forth in the Administrative Procedures Act, including the burden of proof and the receipt of testimony and exhibits.
The ALJ would recommend to the ombudsman "what determination should be made," and the ALJ, in making that recommendation, "shall not defer to the opinions of the examiner or agency but shall independently determine the appropriateness of the agency's decision.”
First, however, the idea of an independent administrative law judge may be illusory. The ALJs would be federal employees who may or may not have any experience or expertise regarding financial institutions. It is possible that the judge may even be a former NCUA lawyer. In addition, the ALJs may be predisposed to favor the NCUA's position.
Second, the FFIEC's ombudsman will review ALJ's findings. The legal standard that will govern that review will be important in determining how much weight the ALJ's findings may be accorded in any event. HR 3461, however, does not state a standard on which the ombudsman will base a decision.
Third, while the NCUA has cited the expense of more detailed examinations and ALJ hearings in opposing HR 3461, there is another expense issue: the expense to a credit union of appealing an examination report to an ALJ. A hearing before an ALJ would be a formal evidentiary proceeding for which the credit union would need to retain legal counsel. It may also want to retain accountants or other experts to testify.
In brief, for credit unions, HR 3461's creation of an avenue for appealing an NCUA examination to an ALJ, if enacted, may not yield the benefits that some credit unions and trade associations now perceive in the potential ALJ hearings.
Gary W. Klotz
Attorney at Law
Community Choice CU
Farmington Hills, Mich.