Damn Lies and Statistics: NCUA Is Blurring Lines Between Oversight and Policy Advocacy

And needlessly picking fights with the industry

By Henry Meier, Esq., The Law Office Of Henry Meier

NCUA’s announcement that it would be disclosing overdraft fees charged at larger credit unions is causing quite a stir, and rightfully so.

First, the data dump without context for this information, which occurred on June 5, was hardly useful. All credit unions of more than $1 billion in assets charged more than $900 million in overdraft fees. Without context, that number could be enormous, or it could be nothing.

In reality, the overdraft and Not Sufficient Fund fees accounted for just 3.4% of the income for these credit unions. In the aggregate, large credit unions don’t appear to be charging members a lot of overdraft and NSF fees.

Without knowing their business models, we can’t even speculate as to which institutions are charging “too much” or “too many” so-called junk fees. One credit union charged $0 overdraft fees, but almost 28% of its non-interest income came from NSFs. A casual glance at the list revealed a handful of Community Development Financial Institution-certified credit unions near the top of this list for fee income as a percent of total interest income. These credit unions take a much higher risk than others in their lending to serve their members, typically people with poor or no credit or extremely low incomes. Because of that, they might have to charge more in fees. Another credit union had an 18.6% overdraft and NSF fee income/total income ratio. That’s nearly 20% fee income with more than 18% net worth.

Without context, none of that means a thing except to those who are looking to confirm conclusions that have already been reached, including CU-bashing bankers, consumer advocates, greedy lawyers, journalists, even politicians and regulators.

NCUA Is Kicking Around All the Lines in the Sand

The NCUA’s decision to make credit unions disclose overdraft fees blurs the line between the regulatory steward of safety and soundness and consumer advocate. These are two distinct activities that are not compatible. This is the job of the CFPB, not the NCUA. To the extent the agency is concerned about safety and soundness regarding revenue streams, examiners can get that from the credit union without disclosing it. In fact, during a recent call with reporters, the NCUA said the data was being collected through the Call Report, so there wasn’t a decision to disclose it because they are public.

OK, and the NFL doesn’t make teams release injury reports on Wednesdays to help people betting on Sundays.  

NCUA probably could make a better case of putting the DEI survey into Call Reports than it does for overdrafts and NSF fees.

The move is also part of a broader, more significant and disturbing trend in which regulators are substituting the judgment of credit union CEOs and board members with their own. For all the talk during the same call by the NCUA about the credit union leadership’s decision-making, what the agency is really doing is supplanting credit unions’ collaborative, social-capitalist business model with something much more authoritarian.

The agency’s heavy-handed oversight during this administration is stifling innovation. If the CFPB and the like were around to oversee the credit card industry from the beginning, would there even be one? Imagine if US regulators could decide that Tesla should not be allowed to offer electronic pick-up trucks because there are better ways for the average consumer to spend their money.

As if the credit union community needed one more divisive issue between the large and small institutions, yet the agency is driving another wedge into that fissure! And while the largest credit unions are currently bearing the heavy lifting, the influence of these disclosures will also seep into the smaller ones. The indirect pressure will put them on high alert to lower their fees or else; many won’t survive without the fee income. And this happens precisely when the NCUA says it wants to help smaller credit unions survive.

Finally, and most importantly, the agency is losing trust among the credit unions it regulates. When regulators browbeat the industry instead of working constructively with it to address legitimate safety and soundness concerns, it will cause more significant problems down the line for all. There is a fine line between mandating that credit unions break out specified fees and publishing CAMELS ratings of credit unions that engage in perfectly legal practices with which the NCUA Board of the moment happens to disagree.