Why the ‘No’ Vote on NCUA Home-Based Rule
When developing a rule that will be issued for comment, the NCUA goes through a rigorous process prior to finalizing the proposal. Rules are proposed for a variety of reasons: for safety and soundness, for more effective and efficient regulatory oversight, or to provide new or improved tools necessary for credit unions to thrive into the future.
Staff spends countless hours reading, changing, editing and rereading the proposal. Board briefings are held, questions may be raised and additional changes may be made. Further briefings may take place as the issues and concerns of each board member are attempted to be addressed and satisfied.
This long and arduous process usually results in agreement so that at an open NCUA Board meeting, the proposal is presented, the board asks a few questions and the vote will be unanimous to move the proposed rule forward.
For almost five-and-a-half years, that was the process that was followed, and I have voted in favor of all proposed and final rules.
However, all that changed with the proposed rule on home-based credit unions. I felt there was a lack of effort to reach an agreeable consensus.
The proposed rule has two parts. The first addresses the need to conduct examinations of home-based credit unions outside the home itself. It is believed that examiners should not have to perform an examination within someone's personal residence.
The issue which is paramount to me is examiner safety in the workplace. Examiners shouldn't have to perform their duties and responsibilities at risk of their safety where no one else may be present if help is needed. Furthermore, examiners shouldn't have to work in conditions where the room's temperature or availability of adequate bathroom facilities is in question.
This part of the proposed rule regarding examiner safety is an excellent idea and, in my opinion, long overdue. And to be clear, I support this part of the proposed rule 100%.
However, if examiner safety is of paramount concern to the agency, then it should cover our examiners not only in federally chartered home-based sites but also at state-chartered home-based sites. As currently written the proposed rule only applies to federally chartered home-based credit unions.
In my opinion, state-chartered, home-based sites should also be included. To include state-chartered credit unions wouldn't undermine the dual chartering system or weaken state rights.
If the NCUA Board truly believes a safety issue exists for our examiners, then the rule should apply to all home-based credit unions, federal or state. We shouldn't say to our examiners, “We will afford protection to you in certain places, but not in others”
The second part of the proposed rule would end the existence of home-based credit unions and perhaps put a number of small ones out of business. This part of the proposed rule is where I have serious reservations about how it is drafted. We are interjecting ourselves into the operations of home-based credit unions. I am in favor of having the books and records removed from a home-based credit union to a secure, confidential location whereby the examiner can perform the examination in a safe environment, free from nuisances such as excessive room temperatures or insufficient bathroom facilities. However, this proposed rule would require every credit union to have commercial space.
Again, it's a nice concept, but by the agency trying to minimize this impact of requiring commercial space by suggesting community centers and or not-for-profit locations are viable alternatives, the board is involving itself in where and how these home-based credit unions will continue to operate.
Home-based credit unions are how the industry started. People sat around a kitchen table putting in five, 10, or 20 dollars so that the funds could be used to make loans, helping their members buy the things they needed. Over time, many credit unions have grown and acquired their own commercial spaces. Others, some faith based, some single-employer credit unions, did not grow big enough to move into a location outside of the home. Reasons for this lack of change include limited funds, changes in the economy, employer closings or maybe they were content with their size. For whatever reason, they didn't become one of the bigger institutions, but they remained financially safe and sound.
When the NCUA proposes a rule it should be based on the authority to do so within the Federal Credit Union Act. So, I asked for the specific citation that mandates a credit union have a commercial space. It could not be given to me, as it does not exist. All I received was a verbal statement that NCUA has the broad authority to implement this rule as it relates to safety and soundness, which led me to question this proposed rule further.
I asked if any member of a home-based credit union has complained about access to their financial institution or expressed concern about their personal financial records. Apparently, none have or no evidence could be presented.
I asked how many home-based credit unions would have to close as a result of this rule. I was told some would. After all, commercial space does not come cheap.
But alas, the solution for this problem is to throw money at it. The NCUA's Office of Small Credit Union Initiatives would develop a real estate brochure, assist in helping find space, award grant money to relocate these credit unions and even assist with the rent. It's government at its best. Credit unions and taxpayers have deep pockets. Let them pay so that all credit unions have commercial space.
The issue of fraud at home-based credit union was raised as another reason for the rule. It's a legitimate concern, but let's be honest. If fraud is going to happen, it will happen wherever the credit union is located. In fact, the most recent case of fraud in a credit union occurred in a commercially located one.
I asked about record safety, and few instances of concern could be found. One involved a home-based credit union not having a fireproof filing cabinet. They got one; problem solved and at a lower cost than monthly rent. Another instance involved placing records too close to a water heater. Easy fix: Pick them up and move them away.
The recent incident of finding a weapon and ammunition at a credit union was mentioned, but they failed to say that it was at a commercial credit union facility, not a home-based one.
When it comes to safety and soundness and the protection of the Share Insurance Fund, you cannot find a tougher regulator than me. But when it comes to overreachingce When it comes to safety and soundness and the protection of the Share Insurance Fund, you cannot find a tougher regulator than me. But when it comes to overreaching and preventing safe and sound credit unions from choosing where they operate and telling their boards and members to move out of where they have conducted business for years because a government agency has decided home offices are no longer allowed, it is time to say “no.” And “no” is what I said.
I have the highest respect for the staff at NCUA; they are dedicated, hardworking individuals. They know, however, that I will challenge them on every issue to make sure the action that is proposed is legal, within our authority and serves a legitimate purpose.
President Reagan once said, that “[t]he nine most terrifying words in the English language are: I’m from the government and I’m here to help.”
The proposed rule requiring home-based credit unions to move out, lends great credence to Mr. Reagan's enduring assessment.