NCUA dual exams and the burden on small credit unions

August 27, 2012 at 12:15 pm

The News & Observer issued an article discussing the ongoing dispute between the National Credit Union Administration (NCUA) and the North Carolina Credit Union Division (NCCUD) over the release of state-issued ratings for one of the largest credit unions, State Employees’ Credit Union (SECU). (We have mentioned this issue previously here and here.) At the heart of the dispute is whether or not SECU was legally allowed to issue the CAMEL rating– the rating used to determine the safety and soundness of credit unions– that the NCCUD had issued. While the federally-issued CAMEL ratings are not allowed to be disclosed, the state regulator had given SECU permission to release their rating in the name of transparency. NCUA did not respond well.

Since then, NCUA has conducted examinations of all of the state-chartered credit unions in North Carolina. Previously, state-chartered credit unions were examined by the NCCUD and NCUA would only conduct its own examinations if it was deemed necessary on a case by case  basis. Now, credit unions– large and small– are facing two sets of examinations. The article includes a very good description of how this burdens small credit unions:

On the face of it, one more financial review might seem like a good thing to the credit unions’ members. But for the smaller credit unions – more than half average just six employees – it has been a drain. The reviews, conducted in January and February, often lasted six to 10 days and chewed up more than 40 hours of staff time, with follow-ups on the agency’s findings still being resolved in some cases. It’s akin to an individual being audited twice by the IRS in a single year – by two different IRS agents.

Most importantly, the state’s credit unions were already in good standing, and would not have triggered the NCUA exam to begin with. For small credit unions, the burden of dealing with these additional exams and follow up is significant. Their staff time and resources are being diverted away from member services.

History and politics aside, the consequences for state-chartered credit unions and their members need to be addressed. Are the dual exams an effective or beneficial use of NCUA or the credit unions’ resources? The costs here, particularly given the safety and soundness of the state’s credit unions, seem to outweigh the benefits. Questions about policy and regulation should certainly be investigated and answered– but not at the expense of the state’s credit unions.

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Entry filed under: Credit Unions, Financial Reform. Tags: , .

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