A maelstrom of uncertainty has engulfed the National Credit Union Administration (NCUA) following the abrupt removal of board members Todd Harper and Tanya Otsuka. This upheaval has not only paralyzed the agency’s ability to enact new policies but has also ignited a debate about the extent of political influence over this crucial regulatory body.
In an interview with Brian Lauer of Messick, Lauer and Smith provided valuable insights into the complex legal and political ramifications of this situation. Lauer explained that the NCUA, established by an act of Congress, is designed to be an independent agency within the executive branch, shielded from political fluctuations to ensure stability within the financial services sector. However, the recent firings have starkly challenged this notion of independence.
The removal of Harper and Otsuka, described by Harper as “wrong” and “politically motivated,” has triggered a wave of concern about the future of credit union regulation. With the NCUA board now reduced to a single member, Chairman Kyle Hauptman, the agency is effectively prevented from implementing any new rules or policy changes. Lauer emphasized this regulatory stagnation, noting that while the NCUA can continue its supervisory and examination functions, it cannot address emerging issues or adapt to the evolving needs of the credit union industry.
Read more on Harper’s comments and news analysis of the subject here: “NCUA in Crisis: “Wrongful” Firings Leave Credit Union Watchdog Crippled”
This impasse creates a challenging environment for credit unions. Strategic planning becomes difficult in the absence of clear regulatory direction, and initiatives requiring NCUA approval face indefinite delays. Moreover, as the referenced article points out, this situation may lead to increased scrutiny of existing rules and heightened advocacy efforts to ensure the appointment of impartial board members who prioritize the credit union model.
Lauer raised a critical question about the constitutionality of the firings, highlighting that the NCUA board members are appointed for six-year terms and can only be removed “with cause.” This legal challenge could lead to a protracted battle, potentially reaching the Supreme Court, further prolonging the uncertainty surrounding the NCUA.
Adding another layer of complexity, there are discussions about potentially merging the NCUA with other banking regulators, a move that could fundamentally reshape the regulatory landscape for credit unions. While the Treasury Secretary has expressed opposition to this idea, the possibility remains, injecting additional instability into the situation.
Despite the turmoil, Lauer offered a message of reassurance to the credit union community. He stressed the importance of focusing on innovation and serving members, emphasizing that the core principles of the credit union industry remain unchanged. While the regulatory landscape may be in flux, the fundamental mission of credit unions to provide value to their members endures.
Read economist Rebecca Ryan’s take on the events here – “NCUA Disruption Sparks Future-Focused Strategies for Credit Unions”
Disclosure: Transcript below is automatically generated
Sarah Snell Cooke
Hey guys, I’m here with The Credit Union Connection, and I’m sitting with Brian Lauer of Messick, Lauer and Smith, welcome. Thanks. Great to be here. Great to have you. This is, I think, your second venture with us,
Sarah Snell Cooke 00:15
personally, in person, right? So we’re in NICU, so reimagine, which has been, I thought, an awesome theme this morning. However, it’s been broken up a little bit by the by the news that the NCUA is now down to one Chairman seems to be being reimagined. Exactly There you go. That’s right in and then they had the scenario planning exercise. So that was great.
Sarah Snell Cooke 00:39
So Brian, question for you as a legal guy, legal Eagle,
Sarah Snell Cooke 00:47
what’s happening? I mean, some people were asking me about the constitutionality of removing them. You know, what happens to the seats, then that kind of stuff. What is your thoughts on all that? Yeah, sure. So the NCUA is, in fact, a independent agency. There are several of them in the in the executive branch. The idea being that Congress formed the agency to be a part of the executive branch, but independent from the politics of the executive branch. So in other words, the focus of those agencies are pretty stable. And in the financial services area, that’s generally a good thing, right? Stability is a good thing. So when you talk about the constitutionality of this, it was an act of Congress that formed the NCUA. Within that act, it states that the NCUA board members will serve a six year term. They cannot be removed except for with cause. So there will absolutely be litigation surrounding these firings, I guess I should say, for those that don’t know, right,
Brian Lauer01:50
board member Harper and board member Otsuka were terminated or removed from the agency board by the Trump administration today, and they’re the two Democratic positions on the board. So I’m thinking, you know, obviously there’s Doge going around. Everybody knows about that. You know, where they’re downsizing agencies. Do you think this is that, or do you think this is political, or both?
Brian Lauer 02:16
I actually think this is probably more political than it is Doge.
Brian Lauer 02:21
The NCUA is an independent agency, and it also is not part of the appropriations, so which means that it’s not an act of Congress that is but funding the budget of the NCUA. It’s actually assessments from the credit unions that they that they regulate, that funds the agency. So there’s not really Doge, like,
Brian Lauer 02:40
you know, reductions in cost. Now, Doge, did I understand go into the NCUA? But I think that was probably more on the efficiency side, rather than the than the saving of budgetary funds. I think this was probably more political, similar to what happened at the FTC and at the National Labor Relations Board. The Trump administration does seem to have the philosophy and approach that every agency under the executive branch should not be independent from the way he politically and philosophically wants the government to be run, and so by removing the democratic board members from the NCUA and other boards that I just described, he’s looking, I believe, to try and fill positions on those boards with individuals that will carry out his political philosophy. And some of those have been reinstated, I believe, by a judge. I thought I read this morning. I was reading about that there, the litigation is back and forth. I’m not sure what status is at the FTC, I think the National Labor Relations Board, they’re and they’re being litigated actually in different courts. So it’s not all one case. So and judges are actually, you know, acting in different matters. So
Brian Lauer 03:53
there may have been some reinstatements, there may have been some stays of the of the removals. It will most certainly go all the way to the Supreme Court to determine whether the firings were constitutional right. So we will likely see the same thing under or with regard to these firings at the NCUA. But
Brian Lauer 04:14
there’s a question of whether board member Harper and oatska have the funds and and proclivity to sue. You know, they don’t have to sue, but it would be on them.
Sarah Snell Cooke 04:28
And so the agency now can’t do anything
Sarah Snell Cooke 04:34
which is good and bad. I guess they’re gonna be putting out some big, heavy regs. That’s right. Oh, go ahead, yeah, for the foreseeable future, the agency will not be able to take any official board action. So they can’t remove a reg either. They can’t remove regs. They can’t Institute regs. They can.
Brian Lauer 04:53
They can institute guidance. They can’t have a board meeting, right? There’s you’re not allowed to have a board the answer is not permitted.
Brian Lauer 05:00
Have a board meeting without a quorum, and a quorum is a majority of the board, and there’s only one right? So presumably, unless they take the position that the board is one now and so there’s always a quorum, but I don’t think that’s how it’s going to work. They’re not going to be able to meet or make and take any action. It will be really more stagnation, and Chairman Hoffman will be handcuffed. He won’t be able to really do much. And this is Wednesday. Tomorrow would have been the board meeting.
Sarah Snell Cooke 05:27
And I think, you know, take it full circle there. One of the items on the agenda was going to be the doge move, as far as slimming down the agency and creating efficiencies there. Yes, I think that’s right. I do think that the chairman will have some ability to still act on reductions in staff, because the chairman of the board, regardless of the makeup of the board, has the control of the agency by statute. So the chairman really runs the agency, and then it’s the board that’s only acting on board level decisions. So I’m a suit. My assumption is that Chairman Hauptman will still work toward, or move toward those staff reductions that have been announced around the GAC.
Sarah Snell Cooke 06:11
And since they can’t have a quorum, and he is the quorum, he can’t talk to himself. Yeah,
Sarah Snell Cooke 06:19
right. Sunshine Act in the shower
Sarah Snell Cooke 06:23
anyway. So,
Brian Lauer 06:26
so as far as implications, there have been a couple of things that have been talked about. Obviously, yes, Doge, I don’t think I mean for all the government is in debt. The staff of those two board members is not making up that 35 36 billion, trillion, excuse me, dollars and again, not funded by, not funded by the federal government anyway, which calls into question, can Doge go in there?
Sarah Snell Cooke 06:50
So I think there’s a lot of questions around Doge that are being bandied about. And I think there are some litigation, you know, some court cases, some litigation out there with regard to Doge and whether they can go into different agencies. I’m not an expert on that aspect of the law as to whether they can go into an agency or not. I all I can say in this context is that they that, my understanding is that they did, in fact, go into the agency, and they are there trying to work on efficiencies for the government, I mean, for that agency as well, but it’s not clear, you know, whether they have the authority to hire and fire like they’ve done in some of the of the more traditional agencies. And
Brian Lauer 07:33
it was really interesting, because the independent agencies were set up independently, so they would be free of the political swings, we’ll call it
Sarah Snell Cooke 07:44
BS, that goes on so and now they’re all up in the politics of it, at the NCUA,
Sarah Snell Cooke 07:52
but also with that, the credit unions. I mean, are we just stagnant? What like? How can they plan for anything as far as their compliance and regulation,
Brian Lauer 08:04
that kind of stuff, right? Yeah, so I think that there are a lot of rules on the books right now that you need to still comply with. Compliance is still a thing, and enforcement will continue. Exams will continue, and the like. So you can’t act as though the NCUA doesn’t exist anymore, it still exists in its in its current form. This is really more around the rule making and policy decisions of the NCUA that will be stagnant, meaning that there are rules, like you said earlier, if there are rules you don’t like, there aren’t going to be changes to those. And if there are rules that you do, like
Sarah Snell Cooke 08:42
Chairman Hoffman voted against the succession planning role was the one in my head. Yeah. So, yeah. And then also, I mean, in addition to Doge and slowing down the government, we’re also, there was talk, I’m not sure where the status is now of merging the banking regulators together. And I know treasury secretary came out and said he’s not in favor of that. But yeah, I mean, if he he has to, President Trump would have to appoint at least one Democrat to the board. Now he could pick somebody who’s more center centric,
Sarah Snell Cooke 09:14
so he might get
Sarah Snell Cooke 09:16
easier, easier to get his policy decisions and persuasions in effect at the agency.
Brian Lauer 09:25
But yeah, to get rid of both of them, I’m kind of thinking, Is he still going to look at merging those agencies together? Yeah, so you’re so first, you’re absolutely right there there is as part of the independent agency Act, or the Act and the independent agency, there are always two members of one party and one member of the other party, from a political appointee perspective, on the NCUA board, and in fact, Todd Harper was appointed by President Trump in his first term as the Democrat sitting on the board with both Ron.
Brian Lauer 10:00
Hood. And
Brian Lauer 10:02
so there they will likely, you know, in the in the sort of more standard approach, they will likely be looking to nominate two new board members that are more in line with President Trump’s political philosophy, even at the, you know, from the with the Democratic point. But I do think that this sort of chaotic approach to or these firings and the chaos that it creates does, in fact,
Brian Lauer 10:33
make you think that maybe this is one step toward the consolidation of the agencies. It’s been discussed with regard to the FDIC as well, which is another independent agency that maybe the FDIC should come under, under Treasury, and so the NCUA could potentially fall into that, into that realm as well. But you’re right, the Treasury Secretary, Secretary has said that he’s not in favor of that. So, you know, obviously, he could be convinced potentially. You know, he serves at the will of the president. Will with the President. That’s correct. But for right now, I think we will look more toward the concept of appointing two new board members. But it does call into question how much authority even a reconstituted board will have given the potential for litigation from the two fired board members. You can see a scenario where a reconstituted board is passing or taking away rules, right, like the succession rule you said, or or maybe they’re implementing rules. And you know, if we figure out in litigation, or we come to find out in litigation that the courts say these terminations were not constitutional, are any of those rules or or revocations of rules valid, right? So I do think we’re going to be in an no matter what, we’re going to be in an extended period
Brian Lauer 12:04
of uncertainty and instability. Hurry up and wait.
Brian Lauer 12:10
And I do, I should say too that now
Brian Lauer 12:14
there’s, there’s an argument that these firings were not constitutional right. But I will also say that if the NCUA were to be folded into the treasury, that would take an act of Congress in order to to implement that. So it’s not just an executive order, right? Well, and I was because I was referencing the OTS when I forget who it was,
Brian Lauer 12:37
took the woman who was the chairman at the time at the Office of Thrift Supervision and just removed her and merged in the agency. So correct, but that was, that was part of an act of Congress that was in the Dodd Frank Act that that OTS was was eliminated. So while,
Brian Lauer 12:54
you know, some may complain or argue that that should or shouldn’t have been done, it was done by Congress, which is what would have to happen here with the NCUA. Alright? So, you know, we’re at NICU, so I’m going to totally change gears,
Sarah Snell Cooke 13:06
and the theme has been the CUSO reimagine. Obviously, like you said, they’re reimagining the NCUA right now. But you know, you’re, you’re, you know, I see you, as JT mentioned earlier, you know You’re the lawyer to all the CUSOs or your firm is
Sarah Snell Cooke 13:22
so how are you reimagining CUSOs and serving them?
Brian Lauer 13:29
That’s a great question. So, you know, we, we do represent quite a few credit unions and CUSOs in this space around, around the country. I think the latest trend is, is digital? Digital Transformation credit unions using CUSOs and the CUSO powers to be able to invest in financial technology and invest in their delivery channels. It’s been sort of the trend for the last four or five years, maybe even further back. But as as the technology environment evolves, so does the CUSO environment with it. And so I think that that is really where most of the evolution will occur. Yeah. And what’s been interesting, too, I’ve noticed in the last couple years at least, there are a lot of private companies that either spin off or become CUSOs as well, looking to which is fascinating. People actually looking to serve credit unions, intent with intent. All right, you know, what’s interesting is that they, a lot of a lot of private companies, figured out that credit, the crediting space, is a great space to work in. It’s much easier and more accessible than the banking space. If you’re in the you know, if you’re in a, in a, b to b, kind of a business. And once they encounter the crediting space, they’re like, Wow, I’d rather, I’d rather build and grow here first and then branch out into the banking space, you know, for for additional growth, and we’re just good people to work with. Awesome. Okay, I’ll give you a final thoughts. What do you want to leave our credit union audience with? Well, I think the most important thing is to is to remember that we are still the same credit industry we were. We.
Brian Lauer 15:00
For today, and we need to keep thinking about what the future is, you know, using CUSOs to create non interest income and innovate and and that’s the most important thing. And the regulatory stuff, I think will, will will follow as it as, as the dust settles, we’ll figure out where that is, but I think we’ll be close to where we’re working, yeah, and in the meantime, control what we can right. Thanks so much for your time. For j pal, absolutely no problem. I.