Critics say NCUA budget fails to reflect post-COVID realities

The industry is calling on the National Credit Union Administration to take greater steps to reduce its budget as the agency prepares for a scheduled vote Thursday on titshe 2021-2022 spending proposal.

Pushback to the annual budget proposal has become a ritual of sorts for the credit union movement. The budget continues to rise and institutions and trade associations consistently ask for the agency to find ways to bring costs down, but by and large those changes aren’t happening. Much of that reflects the fact that credit unions themselves fund the agency, and while NCUA has in recent years resumed public budget briefings, the industry itself doesn’t have much leverage to force the regulator to bring costs down.

Comment letters submitted to the agency outlined a variety of ways the regulator could move forward with cutting costs. NCUA is forecasting a slight reduction to next year’s budget thanks to a surplus of travel funds as a result of on-site examinations being curtailed in 2020. But many commenters suggested the agency is leaning too heavily on that anomaly and not making more sweeping changes that will have an impact beyond just a single year.

“The projected budget increases for 2022 signify that the agency is not adopting lessons learned from the pandemic and is instead headed in the wrong direction with respect to operating an efficient budget,” wrote Curt Long, chief economist at the National Association of Federally-Insured Credit Unions. “The $10.8 million increase in proposed 2022 travel costs should be scrutinized using cost-benefit analysis that considers the benefit of focusing on improving the agency’s virtual exam process now versus the cost of continuing to send examiners across the country for in-person exams.”

Long’s comments echo remarks he made during the regulator’s public budget briefing earlier this month.

There are also concerns that NCUA hasn’t adopted budgets in recent years that reflect a decline in the number of institutions it oversees. The number of credit unions has declined by roughly 30% between 2010 and 2019.

“As the number of credit unions continues to decline and remote exams are being performed, NCUA needs to implement an increasingly efficient and effective examination process, building on steps already taken, that reduces costs and NCUA’s budget,” wrote John McKenzie, president of the Indiana Credit Union League. “The pandemic has shown that remote examinations can be effectively performed by examiners. We encourage NCUA to continue to streamline the exam process by performing as much of the exam as possible remotely. As has been seen in 2020, remote examinations result in significant cost savings to NCUA.”

Paul Mercer and Chris Noble, president and general counsel, respectively, of the Ohio Credit Union League, reminded the agency that the pandemic shouldn’t be the only time the agency looks to save money.

“NCUA should keep in mind that the cost-cutting reflected in the budget does not have to be limited to times of crisis,” they wrote. “Although the proposed budget cuts are welcome, the current budget is an anomaly when it comes to NCUA’s history of large, sustained budget increases.”

However, some commenters also reflected on the fact that after years of credit unions asking for spending reductions, the agency hasn’t made substantial progress toward those goals. Indeed, while 26 credit unions and industry groups commented on last year’s proposal, fewer than 10 submitted letters this year. However, that figure falls in line with averages in recent years, with 2019 being an outlier.

“With a few exceptions we find the 2021-2022 proposed budget lacks any recognition or consideration of the comments we made last year,” wrote Victor Pantea, manager of marketplace alliances at the credit union service organization CU*Answers.

He added, “One of our comments last year concerned the lack of any budget support for goals that would increase and improve the chartering process for de novo credits unions and strategies that would support the vitality and survival of small or struggling credit unions. We think that the agency, in its own interest, should be concerned about the continuing consolidation of credit unions and any potential scenarios which might eliminate the need of NCUA itself.”

He went on to chastise the agency for devoting inadequate resources to credit union chartering, noting that just one new credit union was launched during 2020, which Pantea said was “not only disappointing but an embarrassment to us all.”

Chairs of other federal banking regulators continue to allocate resources for de novo institutions while NCUA talks about advancing new credit unions but puts minimal action behind those words, he said.

“We think and expect that [NCUA’s Office of Credit Union Resources and Expansion] must play a bigger role in both strategy and budget in this budget and all future budgets,” Pantea said.

Board member Todd Harper is widely expected to be elevated to the chairmanship following President-elect Joe Biden’s inauguration, and Harper has long touted what he sees as the need for NCUA to play a broader role in advancing consumer protections. Some comment letters pushed back against that, indicating the industry and the agency could find themselves at odds in the year to come.

“If the agency is suggesting credit union consumer compliance has become a risk area warranting an increased expenditure of agency resources, then it must show its work,” wrote Mike Schenk, chief economist at the Credit Union National Association. “No study that we are aware of reveals credit unions broadly, intentionally engage in behaviors aimed at systemically harming consumers. Individual instances of concern can undoubtedly be cited but these exceptions certainly do not prove the rule.”

NCUA’s 2021-2022 budget proposal does not specify any increases in costs related to consumer protections, though that topic remains one of the regulator’s key supervisory priorities.

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