Credit unions have been making national headlines lately, and not for the reasons we might want. You might not realize how much some of these stories affect your credit union or perhaps even all credit unions.

Recently, Sarah Snell Cooke had the chance to talk with veteran editor at the Washington Credit Union Daily, David Baumann, to discuss these recent headlines. Topics covered included the new CDFI application and certification processes and the alleged racism in the mortgage lending department of Navy Federal Credit Union. You may also be surprised to learn that a Supreme Court Case involving the fishing industry could overturn Chevron Deference, affecting credit unions and regulatory practices if it’s overturned.

Read the full transcript below:

Disclosure: Transcript is automatically generated.

Sarah Cooke 00:00

Welcome everybody to The Credit Union Connection. My name is Sarah Snell Cooke. As you will know by now, I've also got an excellent excellent guest here today with me, David Baumann, who is a veteran DC reporter, and been in credit unions for for quite a while now. We work together at the times. Welcome, David.

David Baumann 00:32 Thank you. Happy to be here.

Sarah Cooke 00:34

Yeah, it is excellent to have you because I am still such a policy wonk. At the same time. I can't follow it like I used to. So I mean, first things first, I guess the NCUA board meeting was yesterday. Maybe a little dry, but talk and talk about what the what's going on there because they have the MDI preservation program, but also they NCUSIF report, which is interesting.

David Baumann 00:59

Yeah. They had the Share Insurance Fund report. They decided to keep the equity ratio or the equity ratio reached 1.3%. In at the end of the year, they had forecasted at 1.27%. They're going for at least the time being keep the normal operating level at 1.33%. I guess I think that's right. It Todd Harper, the chairman warned a little bit about the the credit union industry's growth in camel three ratings, which, you know, is on the precipice precipice of showing your credit union is having some trouble. But all in all the Share Insurance Fund was in is in good shape. He said, the MDI program they are trying to focus in on MDI is more. The state policy statement says that when an MDI is failing, the NCUA will search for other MDIs to possibly merge rather than just taking bids from anybody who is interested. They're also making sure that their examiner's realize that they are examining an MDI what that means in the unique characteristics of an MDI. And so yeah, it's gonna be a focus on MDIs, and they're trying to help small credit unions and MDIs continue to thrive. Yeah,

Sarah Cooke 02:56
and that is probably going to be a particular focus during this period of democratic control over the NCUA board. Yeah.

David Baumann 03:06

They're also trying to... Todd Harper his has said that they are talking to the CDFI Fund. In the past, there had been a streamlined application for credit unions, working with the the NCUA and the Treasury Department, streamlined application for CDFI certification. The NCUA ended that when the Treasury Department and the CDFI Fund was reduced, we're redoing the certification and application process because it just didn't make any sense because it was all being redone. Now that the certification process is out there, and the new application is out there. Harper has said that they will be talking to the CDFI Fund about reinstituting some sort of streamlined application. Yeah, that's a

Sarah Cooke 04:08

it was a lot of drama, the CDF the whole CDFI Fund certification process with the back and forth and how complicated was going to be or not being fortunately, I think it turned out much better than people originally expected, but still still some work to it. Yeah,

David Baumann 04:22

yeah. I mean, anything like that, that is technical and you're dealing with, you know, CDFIs. So they may not have the huge budget that other credit unions or banks might have. And so yeah, the certification process is gonna be interesting to see the awards and who gets certified.

Sarah Cooke 04:48

Right, right, because so many credit unions have increased among the CDFIs. Now, so we want to keep them there. Because they're, they're really thriving and they're making the bulk of the loans. Actually I was very happy and impressed to see that. And then one other thing I want to go back to that you touched on was the Share Insurance Fund report. Fund strong. That's not an issue. There is that situation of Camel three, four or five credit unions, not necessarily increasing a number but in assets, which does create a greater risk to the fund. Your thoughts on that? Um,

David Baumann 05:32

yeah, you know, it's basically interest rate risk, is driving it. liquidity risk is driving it. And it is just something that the agency is going to watch carefully. To make sure that the that the Sheeran insurance fund stays healthy. Yeah.

Sarah Cooke 05:57

I wonder too, if it'll increase the number of mergers we're seeing, we've already seen an increase, not necessarily at NCUA's behalf, but just that they're happening. So yeah, thing to see how that affects that. So I'm gonna.. Let's see here. I'll move away from the NCUA for a second because while they're the primary regulator of credit unions, [they're] certainly not the only one. And well, I guess this is still the NCUA but as part of the FFIEC banks and credit unions have kind of received this guidance that there's not a rule right, you correct me if I'm wrong, but it's guidance that they're expected to police the appraisal bias of the appraisers on the mortgages. Just tell me about that. One. I think that's a little curious.

David Baumann 06:46

The Biden administration has had this inter agency task force that has been working on appraisal bias, after several studies showed that there was kind of appalling bias among appraisers. appraiser appraisers are retiring. It's an older population of appraisers, they're largely white, they're largely male. And so this taskforce has been working on ways to number one, increase the diversity and the number of appraisers who are out there. And number two, trying to build more accountability into the system. And so they are this, this guidance that came out, they said did not create any new regulations, but it just wanted to provide clarity to the fact that that banks and credit unions are responsible for, you know, keeping an eye on appraisers, and if they have clear bias that the banks and credit unions do something about it, and that they take complaints about appraisals, seriously, and that they have staff members who were trained in fair housing.

Sarah Cooke 08:17

Yeah, just one more thing for credit unions to keep keep an eye on one, but also sort of sounds like this is not even a trend. It's a thing now a regulation by guidance or regulation by press release.

David Baumann 08:34

Yes. Yeah. Some might say that. And the other side would say that, you know, all of this isn't law. And they're just, you know, making it clear that the banks and credit unions are supposed to enforce the law. And there's been a great deal of hue and cry in both the credit union and the banking industry that that particularly the CFPB, regulates, through enforcement and regulates through through guidance, and doesn't go through the formal regulatory process, which allows for public comments.

Sarah Cooke 09:17

Yeah, public comment, I love reading those sometimes it's a joy.

David Baumann 09:20

Oh, they can be a lot of fun. Particularly on a on a really controversial issue. You can there's there's a boilerplate comment that, you know, 150 people or institutions filed the same exact comment I read one a couple of couple of years ago. That was obviously I don't remember the issue and I don't remember the institution, but it was a boilerplate comment, and they didn't even bother to, you know, fill in their names. You know, it was put the name of institution here, you know, the comment was published.

Sarah Cooke 10:05

Oh, my goodness, ya know, and that is something that we really need to take more seriously individually as institutions, I think, too, is not just laying the trade associations speak for you. And, you know, of course, they are helping credit unions to comment. But when guardians or banks or whoever, don't bother to read the templated income, like, How helpful is that, really? And when you do that kind of stuff? You can't? How can you beat your own when it comes out? Not the way you? Yeah. Yeah. Yeah, so So speaking of mortgages and bias, Navy Federal has made quite the headlines of light. Tell us a little bit about that issue right now.

David Baumann 10:59

CNN had a report in in December, that's that. Blacks were being denied mortgages much, much more frequently than then than white prospective buyers were. Since then, Navy Federal has hired a civil rights lawyer to look into the issue. There's been a great deal of outcry on the hill. Folks on them done, the House Financial Services Committee had sent a letter to Democrats have sent a letter to Patrick McHenry asking that the Navy Federal CEO, be asked to testify at a hearing. On the Senate side, Democrats on the Banking Committee have asked the HUD secretary to investigate. And yesterday, officials from Navy Federal met with the Congressional Black Caucus to discuss the issue. It's not clear what exactly happened during that meeting yesterday, but but Navy Federal sounds like it's trying to respond to this bad publicity. And he's trying to do damage control as much as possible.

Sarah Cooke 12:32

Right. And that's the thing I was gonna mention as well, because if this is a legit problem, it's alleged at this point, basically, but if this is a legit problem, obviously, that's a big issue, but it's also a public relations issue, and not just for Navy fed, but for all the credit unions. Sure,

David Baumann 12:50

sure. I mean, you know, credit union model is, you know, serving people of modest means. And if Navy Federal, which is, you know, the largest credit union isn't doing that. It, it opens up the whole floodgates of bankers arguing that credit unions should be subject to the Community Reinvestment Act, where, you know, where they would have to make public, that sort of information. The bankers have been saying that for for several years. It would have to be enacted into law passed by Congress to a credit union subject to the to the to the CRA, and I don't see any big cry on Capitol Hill yet for for that to happen.

Sarah Cooke 13:52

Yes, that's been going on decades, decades. And the other thing, in addition to CRA that the bankers often wail about is the tax exemption as not for profit institutions. And the Tax Foundation recently came out with a study that says the credit unions aren't earning their tax exemption. Talk a little bit about what their their point of view is, if you will, from that from that report, and then also how you think that's going to play out. Sure.

David Baumann 14:32

Scott Hodge, who is president emeritus of the Tax Foundation recently wrote a report saying that credit unions aren't earning their tax exemption, you can't tell because they're not subject to the CRA. And one of the major points was that credit unions are purchasing community banks and they're able To offer a much better deal because they have this tax exemption. It's it's not new for Scott Hodge or the Tax Foundation to take that position. They've they've had that position for many years. I've not heard any sentiment on the Hill to take up the whole tax exemption issue. You know, that would open a huge can of worms. I'm not sure that members on either side of the hill and either party want to take on that issue. It would be hugely controversial. Yeah, credit union members would, would lobby fiercely and credit unions would lobby fiercely. And the members most likely don't want to appear to be on the side of big banks. So I don't see it going anywhere.

Sarah Cooke 16:07

Right. That tax threat has always been I mean, I want to say always been there pretty much since the beginning of credit unions time in the US. But I mean, and the CDFI Fund, which we were talking about earlier, earlier, they put out a study, recently of the CDFI. All the CDFI institutions, and the credit unions are literally the ones lending the most money to consumers out there. So I think there is a lot of data to prove whether they follow CRI or not there's a lot of data to prove that they are actually earning that for sure.

David Baumann 16:46

The Government Accountability Office, supposedly is conducting a study on all tax exemption, tax expenditures, excuse me, which includes the Credit Union tax exemption, no idea when that report may be done. There's also been pressure for several years on the Office of Management and Budget to evaluate tax expenditures. But OMB has in both administrations, OMB officials have said, look, we got so much else to do. This is not necessarily something that we can take on right now.

Sarah Cooke 17:33

Well, who like they don't like to touch taxes anyway. But, you know, especially in an election year, well, legislation, like you're talking about before CRA taxation would all take legislation. And that's hard enough to pass much less than an election presidential election year for sure.

David Baumann 17:57

Yeah, anything. You know, dealing with credit unions or banking, or a whole host of other issues, most likely will be tucked into larger legislation like, you know, appropriations legislation. There's going to be very little legislating in small

Sarah Cooke 18:18
chunks. Yeah, I think we've had omnibus bills since the 80s. Right? Yes. Yes.

David Baumann 18:26
You know, Ronald Reagan had that huge stack of paper and said, I will not sign another bill like

this. Meanwhile, presidents since Reagan and sign bills like that, yeah,

Sarah Cooke 18:41

40 years is going strong. So those shift over a little bit to fees. In it, you know, I guess from tag paying taxes to receiving fee income. One of the things on the Hill has been interchange the Durbin amendment and he was able to push this through previously for the debit card interchange, now he's going after credit card interchange. What What's the status on that where you see that heading?

David Baumann 19:13

Um, Senator Durbin, Chairman of the Judiciary Committee is going to hold the hearing and in April on his proposal. He's asked the CEOs of Visa, MasterCard and a couple of airlines to come testify. You know, there may be some rattling of cages. It'll be interesting to see if Durbin can get it tucked into some big piece of legislation. But I don't think there is any appetite on the House side to deal with this issue. I think Republicans have said you know, this is this is a non starter So even if they're bringing get it through the Senate, which is unlikely it may well, it'll run into problems on the House side.

Sarah Cooke 20:10

Yeah. Yeah. And it's not just Congress who's going after credit unions fee income? Yeah, you know, it's bad enough, we've had these compressed margins for, you know, decades until recently. And now we can't lend anymore. But there's the fee income that not only Congress, but also the CFPB is going after. We were talking a little bit earlier about what the chairman there might be doing in the next year or so. Talk a little bit about the what are the junk fees, outline those for us what he's considering and what he's considering doing about them.

but also the CFPB is going after. We were talking a little bit earlier about what the chairman there might be doing in the next year or so. Talk a little bit about the what are the junk fees, outline those for us what he's considering and what he's considering doing about them.

David Baumann 20:53

The Biden administration took on the whole issue of junk fees government wide. It was proposed regulations. At the FTC, regulations dealing with ticket fees, you want to go to a concert, there are those fees that are added on make you wonder how much you're actually paying to go to the concert or a sporting event. I'm in financial services, the CFPB has taken on the issue, and has lumped overdraft fees, credit card, late fees, and things like that into the category of junk fees any day now, the CFPB is expected to issue its final rule dealing with credit card late fees. It could drive the late fee down to somewhere in the neighborhood of $8 is what the agency had proposed. They're going to do that fairly soon. Because with the presidential election up in the air, the CFPB wants to get as much done this year in case a Democrat is not elected this year and takes office next year. So I think you're going to see the the credit card late fee sooner rather than later. And I think it'll play into the whole anti junk fee. campaign by the Biden administration, you know, as part of the campaign Biden campaigns effort to demonstrate that the President is looking out for for the common man for you know, for guys, people who want to go to concerts, people want to go to baseball games, people who you know, open their credit card statements and suddenly see fees that they didn't expect. So I think we're gonna see that in a number of fronts.

Sarah Cooke 23:19

Yeah, it's interesting. And the thing is, too, for credit unions, you know, the credit card late fees, they're taking a risk, that you're actually going to pay them there seems like there should be some reasonable fee, they can, they can charge beyond even just, you know, their expenses, which I think is what he's trying to hit on. I mean, not gouge people, obviously, but it is a risk. And it is a service, I think the same for overdrafts, which is another one they're going after. And some credit unions like my credit union, you can have a line of credit tied to your checking account, or you can tie it to your savings account, and they just switched the money over for you if you happen to ever know. And so, we are very not fee dependent in that way. Am I credit union? And there are a lot of ways to handle it, but there are certainly some that you know, are raking in the dough and either again, it's not only a problem of substance, but it's also a PR problem. Yes. Yeah. So, you know, speaking of the CFPB you know, I've read a report from you recently, that they're hiring lawyers, they're beefing up right before this uncertainty. What are they thinking there and what's going on?

David Baumann 25:01

Again, I think, you know, nobody's at the CFPB is is discussing this way, but they're beefing up this year, I think, in part because they're not sure who's going to be director next year. If a Republican is elected, we saw what Donald Trump did with CFPB, a couple of years ago in terms of trying to roll back regulations and putting some vowed opponents of the agency. First is acting director, Mick Mulvaney. And then Cassie, Kathy kraninger, who, interestingly, has become CEOs, CEO of the Florida Bankers Association, fairly recently. So I think they're staffing up so that they have people entrenched at the agency, and it'll be more difficult for someone to come in and start cutting back staff. Yeah,

Sarah Cooke 26:09

yeah, that's a great point. Great point. Because if they're staffers, they're harder to get rid of them political appointees, for sure. Um, so I'm also related, I guess, to the CFPB, to answer to every regulator ever, is the supreme court situation with challenging the chevron doctrine, which has been used by credit unions in the past, in their field of membership, legal situations and whatnot. So talk a little bit about what's going on now with the chevron doctrine. Um,

David Baumann 26:48

it. There are two cases before the Supreme Court, neither of which have to do with financial services, they have to do with fishermen having to pay for monitor federal monitors on their ships. They've challenged that saying there's nothing in law that that requires that. Regulators have said, they have the power under the chevron doctrine doctrine, to interpret federal legislation and issue regulations. So they say they're not overstepping their bounds, the Supreme Court is going to decide the case. And it could go so far as to saying regulate regulators don't have as much power. If Congress doesn't say something, then it's not like you can't issue regulations to impose things. And it'll open up a whole bunch of lawsuits, challenging agency actions, because the courts will then weigh in on those issues, the courts for years after the chevron decision, have referred to the agencies. And that may not be the case again.

Sarah Cooke 28:22

Yeah, that deference has been very important on the field of membership, like I said, other issues that that have affected credit unions directly. But yeah, so interesting how, you know, the fishing industry is now affecting potentially credit unions. So I'm trying to think we have hit on so much Washington stuff today. Anything else is top of mind for you going on in the DC area?

David Baumann 28:49

Well, while we're on the subject of the CFPB, and the Supreme Court, there is the case involving how the CFPB is funded. That's going to be decided probably sometime in June, the CFPB draws its money from the Federal Reserve, and the association representing the payday lenders. Sue the agency saying that's unconstitutional that Congress holds the power of the person if the agency is not funded through annual appropriations, then everything the agency has done as should be nullified, and the court is most likely going to issue a ruling on that decision sometime in June. If they go against the CFPB. It will be interesting to see how why that decision it is because, of course, the NCUA the FDIC. Don't go through the appropriations process either they're there for financed through fees charged to member institutions. And so their funding mechanism could also be in question. And that's expected around June, based on the oral arguments that occurred, it would appear that the justices on both sides of the political spectrum seemed okay with the way the agency is funded, based on questions they asked, but it'll be interesting to see what the decision looks like. Yeah,

Sarah Cooke 30:39

it's certainly important for credit unions to keep an eye on that one as well. Okay, so any final thoughts from you on every anything we've talked about today? I always give my guess final thoughts, election material, whatever you'd like to do an end on, go for it.

David Baumann 31:01

I think in general, it's going to be a year of change in the industry. You've got the two large trade groups merging into one. You've got Democrats taking control of the NCUA board. So it's going to be very interesting to watch. What happens there on the hill? Patrick McHenry, the chairman of the House Financial Services Committee, is not going to be running for reelection. That opens up the top Republican spot for either chairman or ranking Republican member. And that's going to be a much sought after position. On the Senate side. Banking Committee Chairman Sherrod Brown is up for reelection this year. In one of the battleground states that could decide the majority control of the Senate. And so everything is in is in a bit of a turmoil position this year between the election, the trade group and the NCUA. Yeah, I mean, and cute and America's credit unions.

Sarah Cooke 32:19

I think the Governmental Affairs conference is going to be very interesting this coming year. We'll see what they have to say that it is. Alrighty, well, thank you, David, for joining us. Appreciate it.

David Baumann 32:32
I'm happy to do it anytime. Thanks, Sarah.