CUNA Uses Coronavirus to Push Legislative Priorities

Rahm Emanuel is quoted as saying "You never want a serious crisis to go to waste."

It appears that the Credit Union National Association (CUNA) has taken his quote to heart.

The credit union trade group is using the coronavirus to push their agenda to increase the ability of credit unions to make business loans and gain access to secondary capital.

In a March 19 letter to Congress, CUNA urged Congress to:

• Enact legislation exempting credit union business loans made during federally declared disasters and emergencies from the Credit Union Member Business Lending Cap;
• Enact legislation to exempt fully government-guaranteed loans made through programs at the Small Business Administration, Department of Agriculture and other agencies from the Credit Union Member Business Lending Cap; and
• Ensure that any new small business lending programs created through the Small Business Administration or other government agencies include an opportunity for credit unions to participate.

In addition, CUNA called on Congress to pass legislation giving all credit union access to secondary capital for the purpose of prompt corrective action during this national emergency. Currently, only low-income credit unions have the authority to access secondary capital. All other credit unions can only build capital through retained earnings.

Read the letter.

CUNA Claims MBL Victory, Then Seeks More Holes in MBL Cap

After declaring victory with respect to the member business loan (MBL) fight, the Credit Union National Association (CUNA) appears to have reversed course.

CUNA is claiming that the enactment of S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act, and the National Credit Union Administration's amended member business loan rule have given credit unions ample opportunity to make business loans. In fact, CUNA stated that these two events gave credit unions greater business lending authority than they would have received by just raising the MBL cap from 12.25 percent of assets to 27.5 percent of assets.

Here is what CUNA wrote on January 6, 2019:

"Importantly, this legislation ... carried a major charter enhancement provision, exempting one- to four-family non-owner occupied loans from the member business lending cap. Taken together with our success on the NCUA’s MBL rule, which exempts from the cap loan participations purchased from other credit unions, we can officially declare final victory on the system’s 20-year battle to restore credit union business authority. Indeed, these two changes will provide more cap space than we had been seeking in the old Royce-Udall legislation that aimed to raise the cap to 27.5%."

Now, CUNA is supporting a bill that would exclude business loans to veterans from the aggregate MBL cap.

If that was victory, what's next on CUNA's wish list?

CU Volunteer Junket in Montego Bay

The Credit Union National Association (CUNA) is hosting its Volunteer Conference in Montego Bay, Jamaica.

The conference is scheduled for January 13 thru 16 at the Hilton Rose Hall Resort and Spa.

The price to the conference for CUNA member is $1795, while the non-member price is $3,590.

Room rates per day at the Hotel are $359 for a single and $430 for a double.

Along with educational sessions, the conference will include an optional catamaran cruise. In addition, the hotel has a championship golf course, water sports, and other amenities.

CUNA stated that credit union board members, supervisory committee members, and CEOs would benefit from this Caribbean junket.

CULAC to Spend $1.8 Million for Vulnerable Incumbents

The political action committee for the Credit Union National Association will spend $1.8 million in independent expenditures supporting vulnerable incumbent members of Congress, according to The Hill.

An independent expenditure is a political campaign communication that expressly advocates for the election or defeat of a clearly identified candidate that is not made in cooperation, consultation or concert with or at the request or suggestion of a candidate, candidate's authorized committee or political party.

The Credit Union Legislative Action Committee (CULAC) has bought digital, radio and mail ads backing vulnerable Democratic Senators Jon Tester (MT) and Joe Donnelly (IN) and Republican Representatives Pete Sessions (TX) and Steve Chabot (OH).

All four of these members of Congress have championed legislation supported by credit unions.

For example, CULAC will spend $525,000 on digital ads and direct mail supporting Donnelly.

The Hill mentions other candidates that are being supported by CULAC.

Read the article.

Read the press release with links to ads.

McWatters Cites Accomplishments and Promises to Work Cooperatively with CUs

In a speech on February 26 at the Credit Union National Association's Government Affairs Conference, National Credit Union Administration (NCUA) Chairman McWatters highlighted the agencies accomplishments and promised continuing cooperation between NCUA and credit union stakeholders.

Chairman Mcwatters promised the attendees of continued inclusion, accountability, and transparency in the agency's decision-making.

He further reassured the audience that "[w]hile we may agree to disagree on certain issues, please understand your voices are heard."

Chairman McWatters commented that credit unions and community banks could work together in good faith to address common challenges facing Main Street financial institutions.

Accomplishments over the last year include closing the Temporary Corporate Credit Union Stabilization Fund four years early, payment of an equity distribution of $736 million to credit unions, and the avoidance of a premium assessment of $1.3 million. He also pointed out the restructuring efforts at the agency.

However, the speech did not break any new ground on forthcoming regulatory initiatives at NCUA.

Read the speech.

CUNA Letter Fails to Address Non-Disclosure of Executive Pay at FCUs

A letter by the Credit Union National Association (CUNA) to Senator Hatch (R - UT) fails to address why federal credit unions should not be required to disclose senior executive compensation. The letter also discusssd how credit unions have evolved over time.

CUNA wrote Senator Hatch on February 6 in response to Senator Hatch's January 31 letter to National Credit Union Administration (NCUA). See my January 31 blog post on Senator Hatch's letter.

Senator Hatch noted that federal credit unions, unlike most tax-exempt organizations, do not file an informational return with the Internal Revenue Service, which includes information on senior management compensation. Senator Hatch wrote that in 2006, the Government Accountability Office (GAO) recommended that the NCUA require federal credit unions to disclose senior executive compensation; but NCUA failed to implement this recommendation. Hatch pointed out that such disclosures would ensure that federal credit unions were a good steward of their tax benefit. In other words, the taxpayer subsidy is not being diverted to excessive pay but rather towards the public policy mission of credit unions.

But CUNA's letter does not directly address the topic of disclosure of executive pay (see page 2 of the letter -- link below).

Instead CUNA states that credit unions need to be able to attract and retain quality talent. Further, credit unions, unlike publicly-traded banks, cannot issue stock or stock options as part of their executive compensation packages. Therefore, when evaluating executive compensations packages, these factors should be taken into consideration.

Additionally, CUNA states that executive pay is determined by credit union boards, who are accountable to the members, and that credit unions are closely supervised and examined by federal and state regulators.

However, if credit union boards were accountable to their members, then NCUA would not have proposed a rule requiring merger-related compensation to be disclosed to members.

CUNA's letter failed to provide a cogent argument as to why federal credit unions should not be required to disclose executive compensation.

Read the letter.

Caribbean Junket for CU Volunteers and Board Members

The Credit Union National Association is holding its volunteer conference in Punta Cuna, Dominican Republic.

The conference started on January 28, 2018 and will be held at Hotel Melia Caribe Tropical.

Hotel room rate for a single occupancy is $200 per night or $360 per person per night for a double occupancy room.

The hotel advertises pristine beaches, a championship golf course, and casino.

The opening day of the conference has a half day snorkeling cruise for attendees and their guests.

[Update, an earlier version of this post had the room rates reversed for single versus double occupancy.]

Oops! CU Trade Groups Retract Statement Saying ICBA Had Missed the Appeals Deadline

Credit union trade groups issued a correction after saying the legal deadline had passed for community bankers to file an appeal in their lawsuit against the National Credit Union Administration's Member Business Loan rule.

In a statement, the Credit Union National Association and National Association of Federally-Insured Credit Unions acknowledged that the Independent Community Bankers of America (ICBA) has until March 27 to appeal the case.

In an earlier statement, the credit union trade groups had stated that ICBA had missed a February 23 deadline to appeal the case.

Read the statement.

McWatters Outlines His 15-Point Plan for Loosening CU Regulation

National Credit Union Administration (NCUA) Acting Chairman J. Mark McWatters discussed his 15-point plan of loosening credit union regulation at the Credit Union National Association's Governmental Affairs Conference in Washington, D.C.

Acting Chairman McWatters stated that the goal is "to reduce the regulatory and supervisory burden on the credit union community without threatening the safety and soundness of the National Credit Union Share Insurance Fund."

Addressing credit union fears about a possible premium assessment this year, McWatters stated that it is his top priority in 2017 to merge the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) into the National Credit Union Share Insurance Fund (NCUSIF). He stated that such a merger would allow NCUA to minimize or avoid a premium assessment this year and would start a multi-year process of rebating surplus funds from the NCUSIF to federally insured credit unions But before the NCUA Board votes to close the Stabilization Fund, the agency needed to thoroughly research and evaluate accounting, legal, and financial issues.

Another elements of his plan would include revisiting the agency's controversial risk-based net worth regulation and other needlessly burdensome rules.

McWatters also stated that the agency would abolish its examination reliance on “best practices,” which lack statutory or regulatory support.

He called on the agency to develop an improved appeals process for examinations and other matters of controversy. In addition, NCUA needs to create a credit union advisory council in order for the agency to hear and learn from credit unions.

The agency should require all merger solicitation documents to provide, without limitation, a discussion of any change-in-control payments and other management compensation awards and agreements, and that such disclosures are written in plain language and delivered to voting members in a reasonable time prior to the scheduled merger vote.

He further stated that NCUA would support updating the Federal Credit Union Act to foster credit union opportunity and growth.

Read McWatters' speech.

Jammin' in Jamaica

Credit union volunteers are Jammin' in Jamaica.

Credit Union National Association's Volunteer Conference is being held in Montego Bay, Jamaica at the Hilton Rose Hall Resort and Spa.

The all-inclusive resort is located between scenic mountains and turquoise Caribbean waters of Jamaica.

Hotel room rates per night are $319 for a single room or $375 for a double room.

The conference is scheduled to run from January 15 thru January 18. There is a pre-conference workshop on January 14.

Taxpayers are subsidizing this Caribbean junket for credit union officials.

CUNA's Alternative Reality

Once again, the Credit Union National Association (CUNA) has removed all doubt that it lives in a different reality from the rest of us.

In CUNA's July 12 testimony before the House Financial Service Committee, Jim Nussle, president and CEO of CUNA, stated that during the financial crisis the National Credit Union Share Insurance Fund (NCUSIF) remained well funded -- as the NCUSIF fund ratio was above 1.20 percent of insured deposits over that time period.

However, CUNA is not allowed to rewrite history about what happened during the financial crisis.

CUNA's testimony neglected to mention that the NCUSIF was bailed out by Congress in 2009 with the creation of the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). This shifted the cost of the corporate credit union debacle from the NCUSIF to the Stabilization Fund.

Without the creation of the Stabilization Fund, the NCUSIF ratio was going to drop to 0.31 percent for 2009 with the failures of two corporate credit unions, WesCorp and U.S. Central.

Moreover, the NCUSIF ratio would have fallen further, maybe going into the red, because three other corporate credit unions failed.

CUNA also conveniently forgot to mention that the Stabilization Fund borrowed billions of dollars from the U.S. Treasury to help resolve these five failed corporate credit unions. In fact, the Stabilization Fund still has $1 billion in borrowings outstanding.

So, the reality is that the NCUSIF was bailed out during the financial crisis and the industry tapped the Treasury to help resolve the corporate credit union debacle.

Matz: We Reset the Default Switch to Yes

In a speech to the Credit Union National Association's Government Affairs Conference, National Credit Union Administration (NCUA) Chairman Debbie Matz stated that NCUA had to reset the default switch to yes.

Chairman Matz told the credit union audience that to make it easier for credit unions to serve their members, NCUA needed to reset the default switch to "yes."

She noted that "[t]oo often in the past, that default switch was set to "no.""

Chairman Matz said:

You asked us to remove the fixed-assets limit. So, yes, we did. You asked us to remove member-business lending limits not required by law. So, yes, we did. You asked us to expand the definition of a "small credit union." So, yes, we did. Now, three out of every four credit unions can qualify for regulatory relief in any future NCUA rulemaking.

If your credit union meets the criteria for a low-income designation, now all you have to do is say yes. By flipping that regulatory switch to yes, we’ve doubled the number of low-income credit unions over the past four years.

And, incidentally, by earning a low-income designation, nearly half of all federally chartered credit unions are now exempt from the statutory member-business lending cap.

She further stated that NCUA will continue to listen to credit unions and will make changes that will benefit you.

This eagerness to accommodate the requests of credit unions will only re-enforce bankers' views that NCUA is a cheerleader regulator.

Also, Chairman Matz in her remarks identified two crucial issues that will determine the future of credit unions -- making millennials into members and adopting strong cybersecurity.

Read the speech.

CUs Lobby Congress, Avoid Paying DC Hotel Occupancy Tax

The Credit Union National Association's Government Affairs Conference (GAC) kicked off on Sunday. The GAC runs from February 21 thru February 25.

It is estimated that nearly 5,000 individuals will attend the GAC.

Credit union officials from around the country are descending on Washington, D.C. to lobby Congress about preserving the credit union industry's tax exemption, which is estimated to cost almost $27 billion over the next decade, and for greater powers, such as expanded business lending authority.

In addition, officials from federal credit unions attending the GAC are exempt from state and local taxes assessed to room charges, as long as the final payment is made by a federal credit union-issued check, share draft or credit card.

The hotel occupancy tax rate in Washington, D.C. is 14.5 percent. The price for a room per night at official GAC hotels ranges from a low of $265 to a high of $329. This means that each night the District of Columbia could lose between $38.43 and $47.71 in occupancy tax revenue per room.

It is outrageous that officials from federal credit unions can come to Washington to lobby Congress about preserving their tax exemption, while avoiding paying local hotel taxes.

Does CUNA Really Believe NCUA Is a Prudent Regulator?

In an op ed appearing in The Hill, the president and CEO of the Credit Union National Association (CUNA), Jim Nussle, defended the National Credit Union Administration (NCUA) as a prudent regulator.

Nussle's opinion piece was in response to an earlier editorial by Frank Keating, president and CEO of the American Bankers Association, that called NCUA a cheerleader regulator.

If you look up the term "prudent", it is defined as acting with or showing care and thought for the future. An alternative definition is wise or judicious in practical affairs; sagacious; discreet or circumspect; sober.

However, actions speak louder than words.

CUNA's withering assault on NCUA on numerous issues ranging from risk-based capital requirements to third party vendor supervisory authority to NCUA's budget raises serious doubt that CUNA really believes NCUA is a prudent regulator.

CUNA Rebukes NCUA Chairman's Heresy

The Credit Union National Association (CUNA) yesterday denounced heretical statements by National Credit Union Administration (NCUA) Chairman Debbie Matz, as she strayed from the dogma of credit unions being member-owned.

In response to questions regarding NCUA's budget from Representatives David Scott (D-GA) and John M. "Mick" Mulvaney (R-SC) during a congressional oversight hearing on July 23, Debbie Matz stated that she did not believe that credit unions were necessarily representing their members, when credit unions asked NCUA to cut its budget.

CUNA decided that this blasphemy could not go unchallenged.

In a statement from Jim Nussle, CUNA's CEO and president, said: "I certainly hope that NCUA Chair Debbie Matz misspoke at the hearing today. If she didn’t, it’s outrageous that Chair Matz would tell Congress she does not believe credit unions represent their members under the respectful questioning of Representatives Scott and Mulvaney. I can’t believe I need to remind her that the nation’s credit unions are member-owned."

It is obvious that CUNA is hoping that Matz will recant from her heresy that credit unions do not necessarily represent the interests of their members.

But I need to remind CUNA, just because a credit union is member-owned; it does not mean that management's interest is aligned with the interest of the owners. In economics, this is called the principal-agent problem.

CUNA's Alternative Universe

In reading the risk-based capital comment letter from the Credit Union National Association (CUNA), I came to the conclusion that this trade association is operating in an alternative universe from the rest of us.

CUNA writes:

"From 2008 to 2012 the NCUSIF fund balance never fell below its historical range of 1.2% to 1.3% of insured deposits, despite the failures of 124 credit unions. This stability in the fund ratio was accomplished with just two share insurance premiums, in 2009 and 2010, totaling 24 basis points of insured shares."

However, this comment by CUNA is disingenuous.

It fails to take into consideration that the cost of the corporate credit union debacle was transferred from the NCUSIF to the Temporary Corporate Credit Union Stabilization Fund (TCCUSF).

If the losses from the corporate credit union debacle stayed with the NCUSIF, the equity ratio would have fallen to 0.11 percent of insured deposits, according to NCUA analysis. This would have been well below the normal operating level set in law for the NCUSIF.

In addition, credit unions paid $4.8 billion in assessments to the TCCUSF.

Maybe in CUNA's alternative universe, the corporate credit union fiasco did not happen. But for the rest of us with our feet firmly planted in reality, we know that without the corporate credit union bailout, the NCUSIF equity ratio would have fallen sharply below the normal operating level.

Matz: Count Subordinated Debt as Supplemental Capital for Risk-Based Capital Ratio

In a speech to the Credit Union National Association's Government Affairs Conference, the National Credit Union Administration Chairman Debbie Matz stated that in 2015 the agency will allow complex credit unions to count subordinated debt as supplemental capital for the risk-based capital ratio.

She noted that this will require three changes. "First, we would need to provide consumer protections. Second, we would need to change the order of Share Insurance Fund payout priorities to recognize that supplemental capital accounts are not insured. And third, we would need to set prudent standards for credit unions to offer subordinated debt to supplement their risk-based capital."

Furthermore, she stated that the agency is exploring "ways to increase access to secondary capital for low-income credit unions this year. This could include regulatory relief to make secondary capital more attractive to potential investors in low-income credit unions, whether federally or state-chartered."

I will be interested in seeing NCUA's legal analysis on how credit unions, other than low-income credit unions, have the legal basis to count subordinated debt as supplemental capital.

Read the speech.

CUNA Could Not Save Senator Udall and Other CU Supporters

The Credit Union National Association (CUNA) spent $1.2 million on independent expenditures and $1.4 million on partisan communications during this mid-term election cycle.

Despite these expenditures, some high-profile credit union supporters lost their elections.

The biggest loss on election night was Senator Mark Udall (D), who is the chief Senate sponsor of a bill that would increase the credit union member business lending cap from 12.25 percent of assets to 27.5 percent of assets. Senator Udall was defeated by Rep. Cory Gardner (R) in the Colorado Senate race. CUNA spent $400,000 on direct mail to credit union members urging them to support Udall.

In the Iowa Senate race, CUNA-supported Rep. Bruce Braley (D) was defeated by Republican Iowa State Senator Joni Ernst. CUNA spent approximately $265,000 on a series of eight mailers for Rep. Braley, who is a cosponsor of several pro-credit union bills in the House of Representatives.

In California's 25th District, Republican Tony Strickland lost to fellow Republican Steve Knight. CUNA spent $99,000 for Rep. Strickland with the money going to direct mail production and postage.

In Florida, Rep. Steve Southerland (R) lost his bid for a third term in the 2nd District, falling to Democrat Gwen Graham. CUNA spent $176,340 in television advertisements for Rep. Southerland.

CUNA Spending Big This Election Cycle

Forget about the image of credit unions being the little guy, credit unions have become a big-time special interest group in Washington, D.C.

According to a story in The Hill, the Credit Union National Association (CUNA) and its political action committee, the Credit Union Legislative Action Council, have spent $5.6 million during the 2014 election cycle.

The article notes that "[s]o far, $3 million has been spent on direct PAC contributions, $1.2 million on independent expenditures and $1.4 million on partisan communications.

More than 80 separate pieces of direct mail, resulting in more than 2.1 million individual mailings, have been sent to more than 417,000 credit union members" in several tight races."

Beyond direct mailings, the article also points out that CUNA is running television, radio and online advertisements for candidates.

Clearly, if tax-exempt credit unions can spend almost $6 million to influence election outcomes, then credit unions can afford to pay corporate income taxes.

Read the article.

CUNA's Whacky Idea

During a hearing on April 10, CUNA floated in its testimony a proposal to raise the de minimus threshold for a business loan to $500,000 and to index it to inflation going forward.

Currently, the de minimus threshold is $50,000. That means the total of all such extensions of credit to a borrower or an associated member less than $50,000 does not count against the member business loan cap of 12.25 percent of assets.

An increase in the de minimus threshold from $50,000 to $500,000 would represent a substantial expansion in the credit union business lending authority. This would significantly free up credit unions to make large commercial loans; because loans under $500,000 would no longer count against the cap. This would further move credit unions away from their mission of meeting the credit needs of consumers, especially those of modest means.

Moreover, raising the threshold would pose a significant safety and soundness risk to the National Credit Union Share Insurance Fund (NCUSIF). These loans would no longer be subject to the National Credit Union Administration's Member Business Loan regulation, because they would no longer be defined as member business loans.

While most people would agree that business loans under $50,000 don't pose a material risk to the NCUSIF, the same cannot be said for loans of $500,000.

Rather than raising the threshold, Congress should eliminate the de minimus member business loan threshold. All business loans made by credit unions should count against the member business loan cap.