If you haven’t read it yet, Vic Pantea expressed his displeasure with Todd Harper and his statements decrying the CUSO rule that was recently passed 2-1.

I agree Harper has been a breath of fresh air as to the hope for the future of our industry and ALL credit unions, but his response here is straight out of the NCUA we all see as an agency that will never save a single credit union. They simply quote the status quo that change is never right for today; it is always clouded by the view of the long term and that once approved, nothing can be adjusted.

The NCUA is an organization of no vision for making a series of moves, or being confident in their ability to adapt and modify solutions once they get rolling. One and done in their opinions as if they were the Supreme Court setting precedent. Instead they should be acting consistently to try new things, then improve on and rethink them for current organizations that need innovations, not trust in the tried-and-found-lacking approaches that are leading only to the consolidation of our industry.

Everything is a slippery slope, and will too quickly get out of control before they can adjust—because they cannot adjust—they simply copy others or stick to the guns that will doom the players who need change the most.

Harper should show more faith in the future, and the need to adapt the agency for living and adapting solutions based on new leadership traditions at the NCUA. Ninety percent of all credit union opportunities that will be sourced to credit union balance sheets and income statements will come from indirect outlets in the future, and hopefully from collaborative industry organized outlets. Why not start with CUSOs as the major player in sourcing opportunities to credit unions? Do it now, evaluate them often, and adjust while there are still credit unions to save.

Car dealers might have made the concept of indirect a negative one for some, but others may find ways to source members, source loans, source all account types, and service income to credit unions with different results. One day an industry that aggregates opportunity sourcing as well as maximizing direct opportunity might be the model even the NCUA counts on.

As non-credit union industry players make more and more proposals to create opportunities centers for credit unions to draw on—such as third party sourced Neobank vendors—our industry and regulatory leaders might regret shutting out industry efforts to be the primary players that would fit our industry’s motivations, ethics, and constant investment for all credit union ships to rise. Trust CUSOs, do it now.

Harper is wrong here…. Tell Me Why I’m Wrong!

Yesterday, Chip Filson published a piece concerning the NCUA’s actions in dealing with NYC credit unions that dealt in taxi medallion loans. In attempting to cram in an expensive and short-term solution, the NCUA and its board have given up on cooperative solutions despite many interested parties seeking to do just that.

As Chip mentions: “Members of Congress, the New York City Council, the union representing the taxi drivers, CUNA and three credit union leagues have all written or spoken up asking NCUA to do what is in the borrowers’ best interests. They have all sought a collaborative solution with the borrowers, not an outright sale of the portfolio.”

Here’s how I see it:

The NCUA is in a corner

Over the last few years the marketplace has come to expect them to be self-serving and quick to wash their hands of their responsibility to our members, our industry, and our economy by simply shipping the work-outs of challenged members to anyone but the credit union industry. Their propensity to allow third parties to bank big profits on these situations and take a hero’s bow for their quick actions is now becoming an act we have all seen too many times. Their lack of good faith as fosters of credit union members — as to the returns from members’ hard work — has led to a loss of goodwill between our system and the member who act as consumer-owners for the future. Yes the NCUA is in a corner, but do they care?

The NCUA board is silent and sulking in the shadows of that corner

Not sure of their role or their ability to lead the board once again pushes bureaucrats in front of the microphones to relay the NCUA’s position and approach to the problem. “Go ahead, deliver the news, but make it clear that the board is leading the charge. By the way, what is our position and why?” After years and years of workout tactics that follow the liquidate and transfer approach, the board has lost its will to debate new approaches on their watch. Short terms, political efficiencies, and no desire to be anything more than a “bureaucrat’s” friend has left the board in the shadows when these moments arrive.

The NCUA is putting us all in a corner

We are cooperatives and cooperatives live with members, not simply manage them as an investor would. Investors speed to liquidate, speed forward to the next best thing, and minimize losses like there is no consequence to the people who are washed away and robbed of a chance to work it out.  And as the NCUA prepares to wash it all away again with the help of the investors’ “math and mystique”, we all lose. Not on paper, but in spirit. We lose the respect we have built by standing by those who want the chance to work it out, live it out. The NCUA is putting us all in a corner, sucking us into their vision of “burn to earn”, and in the end washing away generations of hope and respect over and over, one crisis at a time. And the view from the corner for the true of heart cooperatives sucks.

Is that how you see it? Tell Me Why I’m Wrong!

Yesterday, I shared a letter to the NCUA from the Ohio Credit Union League and my translation of the formal language to more blunt terms. Today, Vic Pantea shared his comments on the budget:

Dear Sir:

I watched with great interest as the new 3-person board and staff reviewed the 2020-2021 version of the NCUA budget last week.  New faces both at and behind the board table and as seems to be tradition, a lot of empty seats to the front.  The scene, the presentation documentation and the speech took me back to the past.

“My budget comments are basically linked to prior statements that a budget driven by a strategic plan that includes few measurable milestones, that fails to identify who is accountable for the accomplishment or failure of those strategic objectives in specific timeframes and that fails to provide us all with the economic and financial benefits achieved by the dollars spent, is fundamentally flawed from its very beginning.” CU*Answers, Budget Comments, November 7, 2016

I must admit that the current budget and staff comments do a good job of recognizing the fact that the budget, by necessity, is linked to the strategic plan.  That fact is mentioned often.  That the budget is linked to a plan that lacks imagination, innovative thought and excitement for goals that will drive the recognition that NCUA has no peers is a shame.  A plan that differentiates itself and drives it to a level of excellence that highlights not only its own uniqueness as a regulatory agency but the very uniqueness and nature of the network of cooperative organizations it regulates.  Instead, those of us who have paid attention, we get a document that is surely cut and pasted from the recent past, same old ………. same old.

I guess that the reason that credit unions don’t flood you with comments and overflow the Duke Street board room for your open meeting is that in those years that you have taken the opportunity to publicly share the budget you have also failed to make any significant changes based on our comments before you vote on the budget only a few weeks later.  You have never reported why projects and changes to examination protocols and tools are not delivered on a timely basis or how much project delays or failures have cost our members.  We certainly agree with the recent witness testimony from NAFCU that the budget process lacks any mechanism for reporting back the ROI on multi-million-dollar projects to the credit unions who are paying for them.  The ESS project was first introduced in the 2016 budget at a projected cost of $20+ M, the 2019 budget was $22.0 M and the 2020 budget has another $15.8 million.  Can anyone tell us what the impact that investment will be on personnel and examination costs in 2021 and beyond?  What will be the impact on losses to the fund because of the millions of dollars of new analytics and virtual examination strategies?  Will we finally see a real reduction in examination man-hours as the new tools eliminate or reduce field exams?

Can state chartered/federally insured CUs see a serious reduction the OTR?  Will new real-time predictive modeling reduce the NOL?  How much and who’s responsible?  When will it happen?  Surely the common sense comments from NASCUS, that it seems impossible that examining one $1.5 B credit union costs more than 3 examinations at three unique $500 M CUs rings true with you?  That this ridiculous excuse that the complexity of larger credit unions justifies the ever increasing spend and is not being addressed by millions of dollars of investment in new expert systems and productivity gains is a false premise.

It is the height of embarrassment that the agency responsibility for the public health of all credit unions makes no mention in strategic plan or budget of the need for new charters.  We work closely with de novo credit unions and there is no excuse for the undermanned and seemingly unappreciated effort for those Americans who wish to continue the collaborative goal of sharing a not-for-profit financial services alternative with friends and family of a common bond.  The extra time and money spent to encourage and promote new charters is certainly in the budget, it’s just earmarked for some other, less worthy expense. Being volunteer organizations is hard enough but when bureaucratic barriers delay and befuddle their efforts it is easy to see the discouragement.  The risk to the fund created by new credit unions is de minimus.  Our history is that failed startups are usually merged with existing CUs and that the small asset CUs hardly pose any real financial threat to our $16B + share insurance fund.  Instead of barriers, the agency needs to guarantee a de novo program that it will take no longer than 90 days to gain approval and that their agency and insurer will concentrate on supervision strategies that encourage success and growth rather than decline, failure or eventual merger.

Another failure in the budget process, and much like the above-mentioned “complexity” measurement, is the continued use of a ratio of insured credit union deposit to the agency budget.  The use of this ratio as justification for budget increases is unfounded and unproven to support the future safety and soundness of credit unions.  The fact that it continues to be the singular measurement of support for years of escalating costs is the very proof that the strategic plan and the leadership of the agency, both political and professional staff, lacks any differentiating vision from the past and is not continuously looking for new ways to evaluate agency performance.  Unless the new Chairman gives us reason to think otherwise, this alone is reason for credit unions to lack confidence in leadership and looking forward to significant changes in that same leadership. 

The challenges of the current century cannot be overcome by the same tired regulatory practices of the past.  The time has come for this agency to be held accountable for not only the stewardship of OUR $16.7 B share insurance fund, but the evolution of regulatory practices that recognize that credit unions are not banks.

Regards,

Victor J. Pantea

Manager of Marketplace Alliances