During the NCUA's Oct. 25 board meeting, the regulator proposed an interagency rule that would require credit unions with more than 100 employees to report diversity self-assessments, which the NCUA would compile into a report for Congress. Approximately 600 federally insured credit unions were affected. NCUA Board Chairman Debbie Matz said the examination process would not be used to assess diversity.
The rule, which was mandated by the Dodd-Frank Act, has drawn both supporters and detractors. Below are two opinions recently published in Credit Union Times. Please add your opinions in the comment section below.
Let's Help Make Them Do It
by Mark Brantley
Municipal Credit Union Chairman and Vice Chair of the African-American Credit Union Coalition
Last year, we celebrated the 50th anniversary of the historic March on Washington first conceived years earlier by labor and civil rights leader A. Philip Randolph. The meeting between Randolph and then-President Franklin Delano Roosevelt on the issue of diversity resulted in FDR's response “I agree with everything you have said. Now, make me do it.”
Soon thereafter, Randolph called for what was to be the first Washington, D.C., gathering. His goal was to diversify the armed forces and open the doors of economic opportunity for African-Americans related to the business activities of World War II. In exchange for Randolph's canceling that planned march, FDR issued Executive Order 8802 to end discrimination in the defense industries and government. Randolph was successful in making FDR do it!
However, decades later we find ourselves addressing the same issue; not in the armed forces, but in financial institutions across the country. It is now our time to help make them do it.
On Dec. 19, 2013, the NCUA issued a joint press release with its regulatory counterparts extending the period to submit comments in response to the Proposed Interagency Policy Statement on the diversity practices and policies of the entities they regulate pursuant to Section 342 of the Dodd-Frank Act. The original deadline did not take into account the holidays of the last quarter. Hence, the Dec. 24, 2013, deadline was moved to Feb. 7, 2014.
Section 342 of the Dodd-Frank Act directed each of the federal regulators to establish an Office of Minority and Women Inclusion that shall be responsible for all matters of the agency relating to diversity in management, employment, and business activities. This responsibility included assessing the diversity policies and practices of those entities (e.g., credit unions) regulated by each of the regulatory agencies. However, Section III of the PIPS titled “Proposed Approach to Assessment,” recommends a self-assessment, voluntary disclosure method for credit unions and other regulated entities. The proposed approach renders Section 342 ineffective.
Skeptics of diversity standards and practices fear that Section 342 will impose quotas. For example, in October 2013, the National Review Online posted the article “Dodd-Frank's ‘Diversity’ Quotas.” But this “set aside” assertion could not be further from the truth. It is true that Europe is in the process of imposing gender-based quotas for board diversity. As a matter of fact, according to the Harvard Law School Forum on Corporate Governance and Financial Regulation, in an article titled, “Developments Regarding Gender Diversity on Public Boards,” the European Commission is poised to require public company boards to be comprised of at least 40% women by 2017. Failure to reach that goal could result in sanctions. However, the same article pointed out that the United Kingdom has been resistant to such a proposed law and highlighted the country's willingness “to rely on corporate initiatives to promote board diversity.”
Former British trade minister Lord Davies recommended that companies set their own goals but strongly suggested they be required to report annually on their diversity practices. Moreover, he is quoted as saying that “government must reserve the right to introduce more prescriptive alternatives if the recommended business-led approach does not achieve significant change.”
Financial regulators should permit the entities they regulate the opportunity to create business-led strategies to achieve significant diversity progress. However, this approach must also include mandatory reporting. An example of a business-led strategy can be found in the National Football League.
The policy requires that at least one minority be interviewed for a top coaching or management operations position. Last year marked the 10th anniversary of the rule and since its inception, the number of minority head coaches successfully doubled from 2003 to the present, more than in the prior 75 years of the league's history. Neither quotas nor set asides were involved. Rather, the competitive playing field of opportunity was expanded to include minority candidates.
I encourage all who are interested in the sustainability of the credit union movement to join the conversation. The NCUA and other financial regulators want to hear from our trade organizations, advocacy groups, public interest associations, academia, and you. Our regulators need your help to “make them do it.”
Mark Brantley is board chairman at Municipal Credit Union in New York and vice chair of the African-American Credit Union Coalition. He can be reached at email@example.com or (347) 835-2047.
Read more: Diversity Standards Are a Compliance Nightmare
Diversity Standards Are a Compliance Nightmare
by Marvin Umholtz
President/CEO of Umholtz Strategic Planning & Consulting Services
The Credit Union Times recently published a guest editorial (Let’s Help Make Them Do It, Jan. 22, 2014) the basic premise of which was that the federal government should make credit unions and other financial institutions implement diversity policies and practices as mandated by Section 342 of the highly partisan and still controversial Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
In reality, that point of view was misguided and ill-informed. The “Proposed Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies” developed by the NCUA’s and other banking regulators’ Offices of Minority and Women Inclusion are a compliance nightmare that should be keeping credit union CEOs and chief compliance officers awake at night.
It is bad rulemaking that is based upon bad law that will lead to lots of bad lawsuits.
And I am not the only one who thinks so.
In a Nov. 4, 2013 letter to the Office of the Comptroller of the Currency, four members of the eight-member U.S. Commission on Civil Rights writing for themselves and not for the entire Commission said, “We urge that the Proposed Interagency Policy Statement be changed so that it does not require or encourage the use of classifications and preferences based on race, ethnicity, and sex by financial institutions or any other regulated entities. Further, the Proposed Statement should affirmatively state that the Department of the Treasury, the Federal Reserve, the FDIC, the National Credit Union Administration, the Bureau of Consumer Protection, and the SEC should not assess the diversity policies and practice of regulated entities based on the entities’ use of numerical goals, metrics, or percentages with regard to diversity in hiring or contracting, because such goals and metrics may lead to unlawful discrimination by the regulated entities.”
The four Commissioners cited many examples, statutes, and court cases to support their position. They went so far as to state that such classifications and preferences by the government raised serious constitutional concerns.
The Commissioners also said, “Banks and other regulated entities will be caught in a double bind. On the one hand, their regulators in the Agencies will monitor their diversity efforts in hiring and contracting based on ‘metrics’ and ‘percentages,’ i.e., based on numerical quotas. On the other hand, federal civil rights law prevents these financial institutions from making hiring or contracting decisions based on race, ethnicity, or sex.”
After citing several court cases as examples the Commissioners concluded, “Increasing a group’s numbers in order to increase diversity is not a compelling interest sufficient to justify racial discrimination against members of another group.” They closed by urging the agencies to substantially revamp the proposal.
In a Dec. 20, 2013 letter to the Securities and Exchange Commission the Chamber of Commerce of the United States of America, better known as the U.S. Chamber, identified many serious concerns with the “legally hazardous” joint standards. Among other issues, the Chamber worried about undefined and vague terminology in the rule, the potential for “reverse discrimination,” prescriptive rather than supposedly “voluntary” self-assessments, the potential legal liability from mandated public disclosures, as well as the potential for exposing trade secrets to competing entities.
Questions were also raised concerning what the agencies would do with the diversity assessment information once they had it – especially in examination and enforcement matters. The U.S. Chamber was also particularly concerned that the agencies appeared not to understand the complexities of contemporary supply chains and the difficulties in mapping those suppliers’ diversity policies and practices as required by the proposed rule. That should be more than enough to give any “regulated entity’s” chief compliance officer a splitting headache, but that’s just the tip of this nightmarish “unintended consequences” iceberg.
The Dodd-Frank Act Section 342 Interagency Proposed Joint Diversity Standards appear more likely to lead to costly and complex compliance burdens, escalated reputation risks, and increased litigation exposures than they do to any tangible societal benefits. This joint proposal represents, like the Dodd-Frank Act Section 342 itself, a very flawed and brazen intrusion into credit union governance practices that would best be left to each credit union’s own board of directors to decide. These highly-questionable OMWI mandates and the NCUA’s pending “assessment” of federally insured credit unions’ diversity policies and practices are a disastrous public policy train wreck that seems almost impossible to avoid unless the regulatory agencies totally reverse course.
Marvin Umholtz is president/CEO of Umholtz Strategic Planning & Consulting Services. He can be reached at (360) 951-9111 or firstname.lastname@example.org.