Sarah Snell Cooke, Founder/CEO, The Credit Union Connection
Following former NCUA Board Member Todd Harper’s dismissal from the NCUA Board, he and fellow dismissed Board Member Tanya Otsuka have filed a lawsuit to regain their positions. Harper was interviewed today at the Brookings Institute by the Center on Regulation and Markets Senior Fellow Aaron Klein, who was obviously sympathetic to the two board members as a matter of policy and politics.
I like Todd as a person and professional I have worked with. He helped me, as a cub reporter, get a word in edgewise at a scrum with Congressman Kanjorski when an obnoxious competitor was monopolizing all the time with unrelated questions about football. (Go Commanders!) And I still appreciate his assistance and recognize his intelligence. However, as a just-left-of-center Democrat, I don’t see eye-to-eye with his policymaking.
Political Interference Undermines Regulatory Boards
First, I agree the NCUA needs three board members to run at optimum speed, and summarily removing two without having replacements lined up is unconscionable (if not illegal, but I’m no lawyer). I’m a big believer in playing by the rules.
Second, I believe the NCUA should remain a so-called independent regulator to remain above the political fray (I am naïve, lol). People’s faith in the financial services industry should not sway whichever way the political winds blow—or literally right before a board meeting.
Harper said his concern was the creeping erosion of the bipartisan, independent nature of financial regulatory boards. He reflected on recent efforts to remove Democratic commissioners from independent agencies like the NCUA, leaving only Republican members in place.
Harper added that the Trump Administration will have more control over the NCUA, including pressure and possible oversight from the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA), subjecting the agency to stricter cost-benefit reviews. That level of external control would delay or derail rules.
“It chips away at the notion that we should have regulatory experts who are there over a period of time to build up knowledge,” Harper said. This stability and independence were built into the structure of these agencies by Congress precisely to shield them from politics.
Harper compared it to the Reagan-era handling of the savings and loan crisis, when political interference delayed recognition of systemic risks, ultimately worsening the fallout. Agencies like the NCUA have historically had the power to submit testimony to Congress without White House review to avoid regulatory smokescreens.
Third, it’s odd that the NCUA was singled out; it’s usually the last agency to get any attention at all. Chairman Dennis Dollar served more than 7 years of a 6-year term, and a replacement still hadn’t been named. That hyperlink goes to my 2004 coverage when I was the Washington, DC, reporter at Credit Union Times. Hat tip to Henry Meier, Esq., who was researching the current situation and came across the old article.
Context Is Key
Fourth, while I genuinely believe his earnestness in support of credit unions, the former NCUA Board Member kinda threw credit unions under the bus, highlighting individual bad actors or not providing context to determine if they even were bad actors. The overdraft data from credit unions that’s circulated in academia and mainstream news was held up as to why credit unions needed to disclose the data. I lean toward not disclosing, BUT if you are going to it needs context. The median overdraft and NSF fees as a percent of total revenue for credit unions larger than $1 billion in assets was 3.5% of total revenue; the highest was 18.2%.
During the interview, Harper noted that while banks over a certain size have long been required to report this data, credit unions had been exempt—until his tenure.
“I always viewed transparency as sunshine,” he said. Under his leadership, the NCUA began collecting this data for credit unions with over $1 billion in assets, creating parity between banks and credit unions in regulatory reporting.
As a former journalist and First Amendment advocate, I say, ‘Hell, yeah!’
But be fair. One credit union that earns 18% of its income from overdraft and NSF fees is not the average credit union; it’s one – or, more likely, a handful of credit unions. There are always bad actors, inadequate oversight by the board, bad businesspeople, whatever. Highlighting that one credit union as the reason for additional oversight is unfair to the vast majority who run their businesses as the charter and their volunteer board made up of members deems they should. There are other ways to fix any issues at the credit unions that have them.
AND, we also don’t know how many members taking advantage of overdrafts were initially turned away from traditional financial services options by big banks and the like? Fortunately, they found their way into a credit union, not payday loan shops, car title lenders or pawnshops. The big banks will turn away these people precisely because they don’t have enough money in their bank accounts. And I believe this is who credit unions should serve, right?
Plus, as I know (Please check out our Advocacy page and donate to the Melanoma Research Alliance for Melanoma Awareness Month in May!) and Harper pointed out, too much sun causes cancer. A handful of credit unions should not negate all the fantastic stories we know are out there. (Here, I’ll plead once again for credit unions to stop talking about sharing their stories and actually do it! Credit unions are literally at stake right now.)
Credit unions are supposed to serve all the members in their field of members, including those of modest means. That doesn’t mean they should do it for free. THAT is bad business.
Overdrafting an account has value, and it should be treated as such. What I don’t understand is the all-or-nothing attitude of most Democrats – that there is no middle ground between $100s in fees from payday lenders and banks and credit unions that are “supposed to be” handing out money for free. Meanwhile, payday lenders in the 30 states where they’re still permitted have grown to nearly 2X the number of stores compared to McDonald’s or Starbucks, while the number of banks and credit unions shrinks.
I do agree with Harper on this right here: “If you become overreliant on fees, you’re getting lazy,” Harper said. “Credit unions are supposed to be making loans. Loans are hard. Fees are easy.” And where I disagree is that, within reason, the measure of ‘reliance’ is a business decision for the credit union.
Governance Matters Now More Than Ever
The economic waters are muddy in the US, and the NCUA only has one board member, Chairman Kyle Hauptman, which adds tremendous uncertainty that threatens to stall key decisions.
“We’re operating without a quorum,” Harper warned, highlighting that while essential functions like examinations and emergency liquidations can proceed, other critical responsibilities such as rulemaking and oversight of troubled credit unions are effectively paralyzed. That’s no small matter—especially when, according to Harper, $112 billion in credit union assets are tied up in institutions with elevated risk profiles.
The credit union trade groups’ response has been telling. While organizations like Inclusiv, which represents community development credit unions, have decried the situation as potentially unlawful, the larger and more general America’s Credit Unions have taken a more cautious wait-and-see approach. This silence is particularly striking considering America’s Credit Unions, formerly CUNA and NAFCU, have long advocated for a board rather than a single director at the Consumer Financial Protection Bureau (CFPB). Harper suggested the lack of urgency from America’s Credit Unions on the NCUA case suggests a selective application of principles based on short-term outcomes.
DOGE This
Harper also raised concerns about upcoming agency downsizing via the Department of Government Efficiency (DOGE), which will reduce the number of NCUA examiners and further strain its ability to monitor CAMELS 4 and 5 credit unions. Fewer examiners could mean less frequent exams—an obvious red flag when dealing with 5% of credit unions’ assets in CAMELS 3, 4 and 5 credit unions. In light of this, Harper advocated for reassessing the normal operating level of the fund (1.33%), advocating for letting interest accrue rather than refunding excess to credit unions.
Executive compensation, stadium naming deals, self-dealing, CRA, bank acquisitions, multi-billion-dollar mergers, vendor oversight and more hot takes were among the issues the former NCUA Board Member and one-time Chairman wants to investigate should he be returned to the board. He tellingly said ‘once’ he’s returned to the board; he’s confident in his legal stance.
Taking a Strategic View of the NCUA as a Credit Union Leader
The NCUA leadership shake-up has triggered a wave of questions across the credit union industry. I was at NACUSO’s Reimagine conference when it happened. The first session after the news of the dismissals was whispered across the ballroom was on fire drills and scenario planning by Rebecca Ryan, founder of NEXT Generation Consulting. Watch my exclusive interview with her here: NCUA Disruption Sparks Future-Focused Strategies For Credit Unions.
Harper stated during the Brookings Institute interview that he was unlawfully removed and would not offboard while the legal challenge was pending. Watch my interview with attorney Brian Lauer of Messick, Lauer and Smith and his initial response to the news of the NCUA Board dismissals while we were at NACUSO’s Reimagine.
At the same time, current NCUA Chairman Kyle Hauptman’s agenda is somewhat of a mystery, leaving uncertainty about pending rules, recently passed rules (succession planning for one, which Hauptman voted against) and broader agency direction.
For Washington, this is just politics – and why most people hate politics. For credit union leaders, this isn’t just politics—it’s a strategic inflection point.
Hauptman is a Republican, which generally means less regulation; this is also what President Trump, who named him Chairman, has promised. He also served on the President’s transition team in 2016.
The Tax-Exemption Debate Is Real This Time
And while the president is not pro-tax per se, he is on a mission to eliminate government waste. Could the credit union federal income tax exemption be one of those excessive expenses?
After 26 years as a DC reporter, a credit union board member and a credit union advocate, I can say taxation is gaining traction like never before. And all the Washington insiders who have or will watch Harper’s interview calling out the error of credit unions’ ways after the American Bankers Association and/or Independent Community Bankers of America lobbyists show it to them, it does not paint credit unions in a positive light. (AGAIN, this is why credit unions MUST share your stories! If you don’t know how, contact me to discuss.)
Harper said during the interview, “Credit unions are in the most perilous place that they’ve been on the taxation issue in the 25 or 26 years that I’ve worked on credit union policy.”
Many credit unions, especially the largest ones, already have backup plans in place should credit unions be taxed. Credit unions might only be taxed at the same IRS Subchapter T rate as thrifts and mutual banks. However, suppose credit unions are taxed at the same rate as banks. Why wouldn’t they convert to become friendlier banks and leverage all the additional benefits, like increased business lending and access to the markets, that our for-profit brethren have used to grow all these years? What’s the cost-benefit of the Subchapter T charter with limited powers and full-blown corporate-level taxation?
The credit union sector faces a convergence of financial, reputational and political risks while navigating economic uncertainty caused largely by the chaos in Washington. Whether it’s the threat of taxation or shifting compliance oversight, credit union leaders should prepare for a more complex operating environment.