j mark mcwatters credit union champion With just a year and a half under his belt as an NCUA board member, J. Mark McWatters has used his voice on the board to champion credit unions – something that has often resulted in praise from the very group he regulates.

McWatters was nominated to the board by President Obama in January 2014 and confirmed in June of that year. He took office as the latest NCUA board member on Aug. 26, 2014, despite being new to the credit union industry.

He is licensed to practice law in Texas, where he earned a J.D. degree from the University of Texas at Austin School of Law; and in New York, where he received an LL.M. degree from both Columbia University School of Law and New York University School of Law. Additionally, he is a Certified Public Accountant in Texas.

McWatters is no stranger to Washington. Prior to joining the board, he was a member of the Troubled Asset Relief Program Congressional Oversight Panel and served as counsel to Rep. Jeb Hensarling (R-Texas). Additionally, he was the Assistant Dean for Graduate Programs and a Professor of Practice at the Southern Methodist University Dedman School of Law, as well as an Adjunct Professor at the SMU Cox School of Business.

As a frequent contributor to CU Times, he is often quick to offer comments on a host of regulatory issues. He is also quite familiar with controversy, as he sometimes can be found in the middle of contentious discussions during board meetings.

In January, Obama announced he intends to nominate McWatters to the board of directors of the Export-Import Bank of the United States. In a CU Times poll, 76% of respondents said the potential loss of McWatters to the Export-Import Bank is a disappointment and that they are worried about the future of the NCUA. A small portion, 10%, said he is disruptive to the board. While McWatters was unable to comment about the nomination, he did answer some questions from CU Times on the credit union industry and current regulatory climate.

CU Times: Do you think credit unions contribute to income inequality in America? If so, what should the NCUA do about it?

McWatters: No, credit unions do not contribute to income inequality. To me, credit unions lessen income inequality by providing financial services at competitive rates to their members who might otherwise pay far higher rates of interest and fees to payday and other lenders. As I have noted, in an age of burgeoning income inequality, credit unions have a compelling story to tell Congress, the financial services community and the taxpayers.

Remarkably, credit unions have developed business models and plans that specifically target their members, through which they serve the middle class as well as the underserved and otherwise unserved – without the motivation of the Community Reinvestment Act – and in most instances, while earning a profit in a safe and sound manner. I encourage members of the credit union community to tell this story on Capitol Hill.

CU Times: You've said the NCUA needs a better exam appeals process. What, exactly, should be done?

McWatters: The NCUA should respect the due process rights of the credit union community by implementing an examination appeals process pursuant to which each party is represented by counsel before an impartial tribunal. The agency's examination process should allow credit unions to challenge examiner findings and directives in a transparent and fully accountable manner without fear of retaliation or retribution.

CU Times: You're in favor of returning to an 18-month exam cycle. Which credit unions would qualify for that? And why won't the NCUA approve it?

McWatters: The NCUA should conduct onsite examinations as infrequently as prudently possible (for example, every 18 months for certain well-capitalized and well-managed credit unions). The agency should also respect the dual charter system and, as appropriate, rely on examinations conducted by state agencies. The agency should promptly begin the process of determining which subset of credit unions should qualify for an extended examination cycle.

CU Times: You wrote in a recent CU Times editorial that the NCUA should work to preserve minority- and women-owned credit unions. Most Republicans oppose that Dodd-Frank mandate. Why do you support it?

McWatters: Two reasons. First, it's the right thing to do. Second, it's my understanding that these credit unions work to assist the underserved and the unserved by providing their members access to financial services at affordable rates. This helps lessen income inequality which is a bipartisan goal.

CU Times: You also wrote that the NCUA should respect the dual charter system and rely on sister agencies for exams. Are there any specific regulations you feel encroach upon the rights of state regulators? Why is this a problem?

McWatters: State supervisory authorities examine their state chartered credit unions for regulatory purposes. If the NCUA has sufficient confidence in an SSA, the agency should rely on the SSA's regulatory examinations for insurance purposes to the extent reasonable. Any such reliance would decrease the NCUA's operating budget. If the NCUA does not have sufficient confidence in an SSA, the agency should work with the SSA to improve its regulatory examinations to the extent fiscally prudent for the agency.

CU Times: What is your position on the proposed field of membership rule? Does it go too far? Not far enough?

McWatters: Any changes to the agency's FOM regulations must comply with the letter and spirit of the Federal Credit Union Act. Some may argue that the FCUA FOM rules are out of date or that necessary changes to the statute are impossible because Congress is deadlocked. These are issues for Congress to resolve and not a regulator. The agency's actions must fall within the statute.

CU Times: If credit unions are allowed to solicit supplemental capital, will it threaten their not-for-profit status? If so, how? What can be done about that?

McWatters: The FCUA precludes non-low income credit unions from considering secondary capital for purposes of calculating the leverage [net worth] ratio. The NCUA only possesses the regulatory authority to permit non-LICUs to issue supplemental capital for risk-based net worth [risk-based capital] purposes. Given this statutory limitation and the distinct possibility that any supplemental capital rule would incorporate a cap on the amount of supplemental capital that a credit union could issue for RBNW purposes, it seems unlikely that the rule would jeopardize the tax status of credit unions.

While his nomination to the Export-Import Bank of the United States is on hold pending the Senate's scheduling of a hearing on the matter, credit union trade groups have expressed their appreciation for his voice on the board.

Dan Berger, president/CEO of NAFCU, said, “NAFCU and our members appreciate the insight and experience Board Member McWatters brings to the table and the work he has done on credit union issues. He has always been willing to hear our concerns.”

CUNA mirrored NAFCU's sentiment, adding, “It is clear he takes the time to study the issues and the implications for rulemakings and other regulatory actions.”

As he waits for the Senate to take up his nomination to the Export-Import Bank, McWatters said he will continue to work on the critical regulatory issues and policies facing the credit union system.

Instant Insights /

Credit Unions Find a Champion in McWatters

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