A bill to revamp the examination process and allow appeals to anadministrative law judge would raise NCUSIF premiums, giveexaminers less flexibility and raise administrative costs, NCUAExecutive Director David Marquis told lawmakers on Wednesday.

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In testimony Wednesday before a House subcommittee Marquis saidthe bill's provision that creates additional appeals processeswould add more regulatory layers that would increase costs withoutany assurance of greater effectiveness.

“Again, this change would cause examiners to fully document eachand every finding, and examination costs would increase,'' hesaid.

In addition, Marquis said, the measure could be “disruptive toour existing internal consultation process and possibly stimulategreater appeals of examination filings, both increasing the risk tothe NCUSIF and costs to the industry.''

The measure would also mandate that the NCUA and other agenciescannot put a commercial loan in nonaccrual status just because thecollateral has decreased in value. It also requires the regulatorto remove a modified or restructured commercial loan fromnonaccrual status if the borrower demonstrates that it canregularly repay the loan.

Marquis added that this provision may “create bright lines thatmay permit financial institutions to ignore other availableinformation about the borrower that should be properly factoredinto evaluations of a commercial loan's collectability. There is arisk that some institutions may game the system by structuringloans in a way to make it more difficult to properly provision forlosses.''

He also said that his agency has a strong appeals process andplans to issue a revamped manual for its examiners later thisyear.

The hearing was held by the House Financial Services Committee'sSubcommittee on Financial Institutions and Consumer Credit. The panel's chairman, Rep. Shelley Moore Capito (R-W.Va.) andranking Democrat Rep. Carolyn Maloney (D-N.Y.) are the leadsponsors of the measure.

Under the bill, a financial institution that is unhappy with the resultsof its examination would have the right to appeal it to anadministrative law judge who would submit his or her findings tothe ombudsman of the Federal Financial Institutions ExaminationCouncil (FFIEC), which is made up of representatives of federal andstate regulatory entities. NCUA Chairman Debbie Matz is thecouncil's current chairman.

Representatives of CUNA and NAFCU testified in favor of thebill at the hearing.