The $32 million Commodore Perry Federal Credit Union told Credit Union Times March 26 that it has withdrawn its exam appeal to the NCUA Board.
Commodore Perry President Tom Renz stressed the decision does not reflect a change in the credit union’s position regarding its 2011 examination results. The Oak Harbor, Ohio-based credit union still alleges examiner Roger A. Clark retaliated in the form of a riskier CAMEL score after Commodore Perry officials reported he had harassed and bullied employees.
“We believe those results were tainted, and we can show that factual errors were made by the NCUA throughout the appellate process,” Renz said.
The credit union appealed its 2011 exam results all the way to the NCUA’s Supervisory Review Committee, which heard the case Nov. 7, 2012, but officially denied the appeal Dec. 19. However, NCUA Chairman Debbie Matz granted Commodore Perry a 60-day extension to work out some details with Regional Director Herb Yolles and set a new deadline of March 18.
So why give up the fight? Renz said the 5,000-member credit union will abandon the NCUA’s “flawed, expensive and contentious” appellate process and will instead devote resources toward working constructively to improve the process for the benefit of the industry.
“It is our belief that these problems are more important to the industry than the CAMEL scores in question, which have since improved, are to our organization,” he said.
NCUA Public Affairs Spokesman John Fairbanks said March 26 that the NCUA had just received the credit union’s letter notifying the agency it had officially scrapped the appeal fight and would provide a response after a careful review.
Going forward, Renz said Commodore Perry officials will work in close collaboration with the Ohio Credit Union League and CUNA in pursuit of regulatory and legislative changes to the exam appeals process.
OCUL President/CEO Paul Mercer said the credit union’s decision to drop its appeal is a positive one because Commodore Perry needs to move forward and focus on serving its members.
The credit union’s willingness to make its experience public and share it with the league have helped the advocacy effort by revealing how the examination and appeals process works on real-world level, Mercer said.
Renz, who nabbed the Credit Union Times’ 2013 Trailblazer Award for Political Action, identified three key areas in which the NCUA needs to improve the appeals process. They include a lack of procedural due process, overly vague guidelines for CAMEL scores and the inability of credit unions to appeal issues not addressed in earlier appellate rulings.
The weak procedural due process protections are arguably the most critical issue, said Renz, who holds a law degree from Cleveland’s Case Western Reserve School of Law.
“Absent clear and strong due process protections, credit unions exist in a condition of extraordinary strategic vulnerability,” Renz said. “Due process is central to the American justice system, and while we recognize that the NCUA does afford credit unions some level of due process, more meaningful protections are essential.”
Ambiguity in examination guidelines for issuing CAMEL scores is a two-sided blade, Renz said. He said he agrees that examiners need flexibility to look beyond the standardized hard numbers used in the old matrix system but added too much flexibility creates an opportunity for abuse.
“Instead, we believe a middle of the road approach is best,” he said. “The Examination Fairness Act included a provision that required an examiner to cite the regulations that a credit union is violating and could act as a starting point for reforming the process. A system in which examiner guidance is integral to yearly examinations, but where best practice ideas and advice do not act as a grounds for punitive action, seems more appropriate than the current system.”
Mercer said while he can appreciate Renz’s position given his experience, he remembers when credit unions lobbied away from the old CAMEL score matrix and thinks the current subjective exam methods used by examiners to assess risk are beneficial overall, because they allow credit unions to tell the story behind the numbers.
However, Mercer stressed that objectivity in the exam process elevates the need for a fair appeals process that provides procedural due process for credit unions. Creating an Ombudsman position outside the NCUA, as set forth in the Exam Fairness Act, would eliminate bias within the agency’s appeals system, he said. The bill was introduced in the House in 2011 and gained significant support, attracting 192 co-sponsors. In the Senate, a similar bill was introduced in 2012 and had 14 co-sponsors. The Exam Fairness Act has not yet been introduced in the 113th Congress.
While Renz called NCUA Chairman Debbie Matz, Board Member Michael Fryzel and other high-ranking officials “attentive, respectful, and responsive professionals that legitimately want the best for our industry,” he also said Commodore Perry’s dedication to improving the process should be a call to the NCUA to open the doors to discussion of these topics.