Getting Your Exam Timely? NCUA Board Talks About this & More

Today I'm going to be chatting about my takeaways from the NCUA board meeting last week, the first meeting for 2024, and also a historic meeting in that it was the first board meeting for Tonya, for Tanya. Otsuka, the new Democrat board member on the NCUA board.

So I'll have some thoughts on what board member Otsuka had to say, of course, chairman Harper, and of course, vice chairman Al Houtman we'll talk a little bit about what it means for fair lending, what it means for consumer compliance, what the hat tip was to what the priorities might be for NCUA in their priority letter that's coming out, a little discussion on recording exam exit meetings.

And the renewed focus on credit unions getting their exam reports in a timely fashion, a reference to the equal footing that they're striving to achieve between consumer compliance and fair lending, excuse me, consumer compliance and safety and soundness. And next steps is that the priority letter will come out, and I'll say what I think that might mean. It's a little bit of a simplified plan, which is a good thing, and then also a discussion of NCUA's vacancy rates, which were brought up.

All right I think one way to get a flavor of how this board meeting went is to go to the press releases that followed from NCUA, and I'm going to pull them up here and give you a little bit of a soundbite from each of the three board members. The summary that NCOA issued for Chairman Harper had this quote, and this is a direct quote from Chairman Harper.

The NCOA in 2024 will continue to address consumer financial protection on equal footing with safety and soundness. In support of this goal, the NCOA will increase the target for fair lending exams by 10, moving from 50 to 60, to ensure credit unions are complying with the laws established to protect consumers against discrimination. Also, the NCOA will continue to focus on rising and continuing challenges within the credit union system.

Those risks include liquidity, interest rate, credit, and compliance risk, as well as the omnipresent cyber security risk. Alright that's in a nutshell, Todd had much more to say, but that's what they highlighted in his press release that caught my attention. My ear caught my eye. So relative to the priorities on last week, I did a podcast on what I think will be in the priorities letter and all of those are there. I think I thought they might also add concentration risk.

Normally, that letter would have come out. Last week the last two or three years at NCOA, that was the week that it would come out. I think chairman Harper was cognizant of the fact that with it being board member Otsuka's first board meeting, that he didn't want to bury the lead, which was her arriving and he also didn't want to bury the lead of the priority letter. So you can expect, in my opinion, to see the priority letter this week.

I'll do a podcast on it coming up, but he referenced what his concerns were, which to me means that he's seen the letter and those things. are in the letter. Now, perhaps there's more, but he highlighted those. As far as the increase from 50 to 60 fair lending exams. Now, last year, they only achieved about half of that. Their goals and their achievements over the last three years range from in the 20s to 35. They're going up to 60.

He asked staff about in a Q and A what qualified is counting towards that number. And the answer was that it could be a standalone fair lending exam.

But also they were going to be counting an expanded scope that they are developing for those credit unions that NCUA is responsible for fair lending and consumer compliance, the biggest ones, and he specifically referenced 5 billion to 10 billion, so they'll have their random sample that they come up with for the direct focused fair lending exams which will count towards the 60 and they will have those exams over of credit unions over 5 billion Between five and 10 billion that will have an

expanded scope and those will count so that's how they're going to drag their numbers up by expanding the scope on the biggest credit unions, by the way, that's something that Todd's wanted to do since he was the he was the champion of a project when I was there of developing a transition for big credit unions into the world of CFPB. There's also just continued reference by Chairman Harper. The quote that I read. Didn't have the equal footing quote or did it? No, it did.

The financial protection on equal footing with safety and soundness. So to me, equal footing means we'll spend as many resources on it. So 60 fair lending exams compared to thousands and thousands of safety and soundness exams. That's not equal footing, nor should there be equal footing. I think but he's raising it into the spotlight that he wants more resources here. I think we'll continue to see.

In the mid year budget, and in the 2025 budget, particularly when you hear what board member Otsuka had to say on this topic this is not going away. The. The importance of consumer compliance at NCUA is going to continue to go up while Chairman Harper is chairman.

All right board member Kyle Hauptman's statement was overall, I'm pleased to see the 2024 plan continues to put greater focus on output and outcome oriented results. I am grateful for the inclusion of Performance Indicator 1. 22 regarding the post examination survey. Safety and soundness is improved by open and transparent communication with credit unions. By further anonymizing the post exam survey responses in 2023. The NCUA continued to normalize the use of the post exam survey.

The hope was simply to improve the survey response rate, but Performance Indicator 1. 22 takes it a step further. It sets the standard for outcome of 90 percent or greater on collaboration, narrative, and timely delivery of the exam report. What gets measured gets done. I continue to urge federal credit unions to record their exit meetings and joint exam conferences.

The recordings are beneficial for the credit unions and the agency as they provide a resource for new examiners, credit union staff, and boards. By not having a To determine what was said, examiners and credit unions can save time and focus on moving forward. So there's themes here that chairman, vice chairman Hauptman has been pushing all along. The survey, he was big on getting the survey out there. He talks about it a lot.

But the fact that the survey establishes measuring in part timely delivery of exam reports. He made reference to them constantly getting paraphrasing here, constantly getting hearing from credit unions that they were in here last year. I still don't have my report and they're coming in a few months and that's consistent with what I'm seeing that I don't know if it was the pandemic that elongated exams getting done more work being off site that elongated getting exams done.

Of course, there's the exam review process which impacts that, but more often than not I'm hearing that credit unions are displeased with the timeline for getting their exam report finalized, and perhaps in that this is a whole nother topic not getting the opportunity to comment on the report the way that NSUA is falling behind, they sometimes Give it to you without an offer.

Give it to credit unions without the opportunity to for them to have an influence on the report, which is part and parcel and integral to the exam process. So again, Chairman, chairman, vice chairman, focusing on the survey, focusing on recording meetings, which he's encouraging everybody to do. He mentions that in merit, they actually have to check whether or not the credit universe recorded it. He wants all federal credit unions to do that because it improves the administrative record.

And yeah. I think his encouragement is a good reason for you to know that NCWA will accept that you do

that. All right. And then new board member Otsuka what she indicated was finally the performance plan has set a target of 60 fair lending exams in 2024. Fair lending exams help ensure credit unions are fairly and equitably reaching all their members. Unfortunately, we've seen that red lining and lending discrimination. continue to be a problem today. This will be an area of focus for me. That's probably the biggest takeaway. This is consistent by the way. And now I've gone off the quote.

This is consistent with what I anticipated would be coming from board member Oscar and a Democrat led board member, excuse me, a democratic led into a board. But this will be an area of focus for me. I support a stronger consumer compliance program, and I'd like to work with the board to continue to strengthen our fair lending and consumer protection efforts. So that's pretty direct, pretty clear. First time she speaks, she says it's about fair lending.

It's about consumer protection, which no surprise. She is a Democrat coming from. Sherrod Brown's camp and not surprised here predicted it, but what will that mean in 2024, more fair lending exams, probably more items in the priority letter on consumer compliance. And then I'm really interested to see what they do in the budget in 2025, which of course doesn't come out till later this year.

Draft in October approved in December, but there's going to be more resources spent on this, particularly again, when chairman Harper says we're going to put consumer compliance on equal footing with safety and soundness 90. 5 percent of NCOA staff are safety and soundness staff and they're different types of people than the people who want consumer who pursue consumer compliance.

They're different breeds, they're different personalities, and it's going to be obvious that they're going to have to hire new people to do this, which is all great. But the pivot is going to be a little bit harder to achieve equal footing or how, I guess it depends how you define. Equal footing.

Chairman Harper talked about vacancy rates that they put a goal of achieving vacancy rates at N. C. Way of 5%. He talked about how they I heard more than a hundred examiners last year to try and improve their staffing levels. He talked about the retirement of the baby boomers, by the way, when some NCUA baby boomers retired at the end of last year last couple of years, they've been added to my team at NCUA of subject matter experts.

I anticipate adding one or two of those here in the first half of 2024. So stay tuned on that. You may hear them on the podcast. But it's great that they start measuring that I will tell you that when I was at N. C. U. A. Chairman W. Matt's watched that closely. But what I'm also seeing pivoting to credit unions, I'm seeing credit unions being criticized for having vacancies at their credit union, and I've never seen that addressed.

In an exam report when I was at NCUA, and I've heard about it a handful of times over the last year, which means NCUA is talking about it internally, and they're being critical of credit unions while at the same time they're having challenges with with hiring at NCUA, and, of the handful of times that I saw it mentioned in credit unions, only one of them really seemed to be a reasonable issue that NCUA was bringing up, so I find that a little bit ironic. Let's see. What else do we have here?

We talked about vacancy rates. We simplified plan. Chairman Harper. I think this is good that they're simplifying the plan. Vice chairman Huffman talked about if everything's a priority, nothing's a priority, which is something I say here a lot on the podcast. Maybe he's listening. Maybe he believes the same thing as I do, but in any event, I'm glad to hear him say that because if everything is a priority, indeed, nothing is a priority talked about equal footing.

Talked about the exam reports timeliness. They want to, by the way, they want to have 90 percent of them timely. And from this, from what I've seen, it's definitely not near that.

And the, so the priority letter should be coming out probably this week. That will become a focus of what Chairman Harper talks about at America's Credit Union slash CUNA slash GAC. He typically builds his speech off that priority letter. Consumer compliance buckle up. They're going to have an expanded footprint. They're also unfair lending, and it's clear that board member Otsuka is big on consumer compliance and big on fair lending and will give Chairman Harper the second vote.

He hasn't had since becoming chairman. So it's going to be interesting to see. where NCWA goes in 2024, but they've hinted very strongly on where that will be. And as I've discussed here consumer compliance, fair lending, and improving the timeliness of examinations.

All right, that's it. This is Mark Treichel signing off with Flying Colors. I appreciate you listening as always, and I hope you'll listen again soon.