A letter from NASCUS to the NCUA may have drawn just the kind ofattention to the OTR methodology that NASCUS President/CEO Lucy Itohad hoped for.

Ito released a statement Monday calling out the NCUA after General CounselMike McKenna told NASCUS in a letter that the NCUA would notrelease all documents pertaining to the methodology and how itcalculates the overhead transfer rate due to “attorney workproduct.” The NCUA deemed it privileged and confidentialinformation that was exempted from the Freedom of InformationAct.

NASCUS disagreed.

Ito claimed the NCUA “is choosing to shield its reasoningregarding its legal responsibilities under the AdministrativeProcedure Act from stakeholders.”

“Earlier this year, NASCUS released a detailed legal analysisfrom a respected Washington, D.C., law firm which concluded thatthe OTR is a 'rule' under the APA definition and, therefore,properly subject to formal public notice and comment to the sameextent as NCUA's proposed RBC and MBL rules,” Ito wrote. “In yourletter, you dismiss NASCUS' 'continuing' requests, citing budgetaryexemptions to the APA and the confidentiality of your work productin a manner that implies NASCUS' attempt to bring completetransparency to this important issue lacks good faith.”

“To be clear, the OTR is no mere budgetary issue involving anagency's internal allocation of funds granted by Congress. The OTRis a cost allocation mechanism that takes credit union money fromthe insurance fund – money that could be available to cover losses,or to generate earnings to accelerate repayment of Treasuryborrowings and hasten a return to dividends for credit unions,” shecontinued. “Furthermore, that NCUA is using those funds to fullysubsidize the safety and soundness examination of federal creditunions rather than charging those examination costs in the form ofan operating fee means state chartered credit unions aresubsidizing the federal system. These are very real, and verysignificant issues, deserving of a thorough legal and policyexplanation from NCUA.”

On Tuesday, NCUA Public Affairs Specialist John Fairbanksclarified the NCUA's position and said there were 23 documentsrelated to the OTR posted on the NCUA website, including threeindependent analyses of the OTR methodology.

The NCUA argued that internal legal memos from the generalcounsel to the NCUA board were protected by attorney-clientprivilege.

What is the difference between McKenna's description of attorneywork product and Fairbanks' description of attorney-clientprivilege?

According to the Administrative Office of theU.S. Courts on behalf of the Federal Judiciary, attorney-clientprivilege is used when legal advice is sought, while work productcovers “materials prepared by anyone at the direction of attorneywhere future litigation was (a) distinct possibility.”

“Under NCUA rules (Section 792.11(a) (5)), the agency maywithhold written materials prepared by NCUA attorneys,” Fairbankswrote in response to CU Times. “This rule preservesthe ability of agency attorneys to engage in full and frank writtencommunications with NCUA officials and employees. It istherefore under NCUA rules under which we have determined that thewritten advice provided by the Office of General Counsel to the board on the applicability of APA notice and commentprocesses to the OTR be withheld, regardless of any party'sdecision to pursue litigation.”

Fairbanks said the NCUA recognizes the need for transparencyrelated to the OTR, which is why the agency posted more than 20documents in the budget section ofNCUA's website.

“In the near future, (the) NCUA will also issue and post on ourwebsite a legal opinion about the applicability of theAdministrative Procedure Act's notice and comment process todetermining the OTR,” he said.

“(The) NCUA has gone to great lengths to ensure the impartialityof the OTR. During Chairman (Debbie) Matz' terms on the NCUAboard, (the) NCUA has submitted the OTR methodology to threeindependent analyses. PricewaterhouseCoopers in 2011concluded, 'Based on PwC's review, there was no reasonable basis toconclude that the OTR Methodology … favors or disadvantages any onetype of credit unions (i.e. federal versus state chartered) overanother.

“In 2013, PwC said, 'The NCUA rules and regulations matrixaligns consistently with the insurance and regulatory activitiesand provides a documented basis supporting the allocation ofexaminer time between insurance and regulatory activities.'”

NCUA Board Member Mark McWatters sided withNASCUS, and said absent truly compelling circumstances to thecontrary, he saw no reason for the NCUA to not submit the OTR forpublic comment. He further said the NCUA should not “hide behind alegal opinion regarding the supposed inapplicability of the APA,and disclose the OTR methodology without invoking anattorney-client or work-product privilege.”

“Further, the agency should not rely on an accounting firmfor legal advice concerning the OTR. Simply put, the agency shouldthoughtfully and thoroughly describe the OTR methodology and letthe credit union community and general public comment for therecord. The agency will make the final determination as to thecalculation of the OTR and I see no harm in subjecting the agency'sOTR methodology to public comment as a proposed rule under theAPA,” McWatters said.

McWatters said he will continue to advocate for transparency andsaid the NCUA's refusal to articulate the methodology underminesits credibility.

“As I have stated before, (the) NCUA should not use a 'documentdump' as the functional equivalent of a thoughtfully drafted APAproposed rule,” he said. “Also, there's an inherent inconsistencybetween claims of transparent disclosure on the one hand and hidingbehind an attorney-client and work-product privilege on the other.So, what's the standard of transparency suggested by the agency –full transparency regarding the OTR methodology or some type ofsort of/kind of disclosure subject to redactions by attorneys? Wesaw what redactions accomplished in the PwC report – key elementsof the PwC analysis were removed from public scrutiny simplybecause of the embarrassment factor to the agency.”

Fairbanks said that in response to feedback from the creditunion community, as well as to obtain more frequent public inputgoing forward, Matz testified that the NCUA will solicit commentson the OTR methodology every three years in conjunction with thepublic review of the agency's strategic plan, starting in January2016.

“(The) NCUA will carefully consider and respond to all commentsreceived as part of this process,” he said.

Ito argued that wasn't good enough.

“While I appreciate Chairman Matz' pledge to solicit andconsider public comment on the OTR methodology every three years aspart of NCUA's strategic planning process, that approach does notallow stakeholders to comment before the OTR changes and does notobligate the NCUA to respond to the concerns raised,” she wrote inher letter to the NCUA.