Wendell “Bucky” Sebastian, executive director of the National Credit Union Foundation, calls current regulators both too expansive and too inflexible and says they represent the biggest challenge facing CUs overall.
The former credit union CEO and regulator resigns from the NCUF as of the end of June.
“There is always a balance to strike between having a regulator which is a cheerleader for the industry and having a regulator which misplaces its own agenda for that of the industry,” Sebastian explained, indicating that, in his view, some regulators at the federal level have done just that.
Sebastian did not name any regulators directly, but said too many regulators failed to consider what a credit union is seeking to do with or through a given product or service. He cited as examples some type of short-term, low-dollar loans that critics have called payday loans but which he said actually help credit union members avoid third party payday lending firms.
He also cited what he said were excessive provisions for loan losses that credit unions have been forced to carry, mentioning specifically the Arrowhead Central Credit Union in California.
Arrowhead Central, a $755 million, 116,000-member credit union, recently emerged from the conservatorship where it had been held since 2007.
“I read recently where Arrowhead was returned to its members,” Sebastian said. “But I never thought that the credit union should have been conserved. I think to have to return the credit union to its members is wrong because it never should have been taken from them.”
Sebastian argued that time and a recovering economy have done more to heal credit unions that regulators considered troubled than anything that regulators or additional regulations have done.
What happened is that time passed, things got better, Sebastian contended. The credit unions were never as bad off as regulators thought they were. Then the credit unions got better and then the regulators got to clap themselves on the back for the good job they said they did, he added.
Sebastian did not dwell on his experience as CEO of Florida’s GTE Financial FCU (then GTE FCU) but mentioned that a regulatory move from using a five-year average to calculate provisions from loan losses to one year was a big part of what led the credit union to close branches and lay off staff.
“We moved millions of dollars into provisions for loan losses that should not have been there and those moves on paper helped drive real-world casualties: branch closings and layoffs,” he said.
Sebastian argued that credit unions need regulator who are less focused on writing new regulations and more centered on looking into what credit unions are actually doing with their members.
By way of example, he contended that a “good examiner” should be able to meet with a credit union's senior management team and tell within an hour whether or not that credit union is in trouble.
“The very first thing an examination team should do is meet with the entire senior management team,” said Sebastian, who served as executive director and general counsel at the NCUA from 1981 to 1985.
“Any good examiner is going to know within an hour talking to those people if they know what they doing – now they are still going to have to check, but they should have a good idea of the overall management level,” he said.