Credit Union Exam Solutions Presents With Flying Colors

Mark Treichel: Hey everyone,
this is Mark Teichel with another

episode of With Flying Colors.

Today I'm going to be chatting about my
takeaways from the NCUA board meeting

last week, the first meeting for 2024, and
also a historic meeting in that it was the

first board meeting for Tonya, for Tanya.

Otsuka, the new Democrat board
member on the NCUA board.

So I'll have some thoughts on what
board member Otsuka had to say, of

course, chairman Harper, and of course,
vice chairman Al Houtman we'll talk

a little bit about what it means
for fair lending, what it means for

consumer compliance, what the hat
tip was to what the priorities might

be for NCUA in their priority letter
that's coming out, a little discussion

on recording exam exit meetings.

And the renewed focus on credit
unions getting their exam reports in

a timely fashion, a reference to the
equal footing that they're striving

to achieve between consumer compliance
and fair lending, excuse me, consumer

compliance and safety and soundness.

And next steps is that the priority
letter will come out, and I'll

say what I think that might mean.

It's a little bit of a simplified
plan, which is a good thing, and

then also a discussion of NCUA's
vacancy rates, which were brought up.

All right I think one way to get a flavor
of how this board meeting went is to go

to the press releases that followed from
NCUA, and I'm going to pull them up here

and give you a little bit of a soundbite
from each of the three board members.

The summary that NCOA issued for Chairman
Harper had this quote, and this is

a direct quote from Chairman Harper.

The NCOA in 2024 will continue to address
consumer financial protection on equal

footing with safety and soundness.

In support of this goal, the NCOA will
increase the target for fair lending

exams by 10, moving from 50 to 60,
to ensure credit unions are complying

with the laws established to protect
consumers against discrimination.

Also, the NCOA will continue to focus
on rising and continuing challenges

within the credit union system.

Those risks include liquidity, interest
rate, credit, and compliance risk, as well

as the omnipresent cyber security risk.

Alright that's in a nutshell, Todd
had much more to say, but that's

what they highlighted in his press
release that caught my attention.

My ear caught my eye.

So relative to the priorities on
last week, I did a podcast on what

I think will be in the priorities
letter and all of those are there.

I think I thought they might
also add concentration risk.

Normally, that letter would have come out.

Last week the last two or three
years at NCOA, that was the

week that it would come out.

I think chairman Harper was cognizant of
the fact that with it being board member

Otsuka's first board meeting, that he
didn't want to bury the lead, which was

her arriving and he also didn't want to
bury the lead of the priority letter.

So you can expect, in my opinion, to
see the priority letter this week.

I'll do a podcast on it coming up,
but he referenced what his concerns

were, which to me means that he's
seen the letter and those things.

are in the letter.

Now, perhaps there's more,
but he highlighted those.

As far as the increase from
50 to 60 fair lending exams.

Now, last year, they only
achieved about half of that.

Their goals and their achievements
over the last three years

range from in the 20s to 35.

They're going up to 60.

He asked staff about in a Q and A what
qualified is counting towards that number.

And the answer was that it could
be a standalone fair lending exam.

But also they were going to be counting
an expanded scope that they are developing

for those credit unions that NCUA is
responsible for fair lending and consumer

compliance, the biggest ones, and he
specifically referenced 5 billion to 10

billion, so they'll have their random
sample that they come up with for the

direct focused fair lending exams which
will count towards the 60 and they will

have those exams over of credit unions
over 5 billion Between five and 10 billion

that will have an expanded scope and those
will count so that's how they're going

to drag their numbers up by expanding
the scope on the biggest credit unions,

by the way, that's something that Todd's
wanted to do since he was the he was

the champion of a project when I was
there of developing a transition for big

credit unions into the world of CFPB.

There's also just continued
reference by Chairman Harper.

The quote that I read.

Didn't have the equal
footing quote or did it?

No, it did.

The financial protection on equal
footing with safety and soundness.

So to me, equal footing means we'll
spend as many resources on it.

So 60 fair lending exams compared
to thousands and thousands of

safety and soundness exams.

That's not equal footing, nor
should there be equal footing.

I think but he's raising it
into the spotlight that he

wants more resources here.

I think we'll continue to see.

In the mid year budget, and in the
2025 budget, particularly when you hear

what board member Otsuka had to say
on this topic this is not going away.

The.

The importance of consumer compliance
at NCUA is going to continue to go

up while Chairman Harper is chairman.

All right board member Kyle
Hauptman's statement was overall,

I'm pleased to see the 2024 plan
continues to put greater focus on

output and outcome oriented results.

I am grateful for the inclusion
of Performance Indicator 1.

22 regarding the post examination survey.

Safety and soundness is
improved by open and transparent

communication with credit unions.

By further anonymizing the post
exam survey responses in 2023.

The NCUA continued to normalize
the use of the post exam survey.

The hope was simply to improve
the survey response rate,

but Performance Indicator 1.

22 takes it a step further.

It sets the standard for outcome
of 90 percent or greater on

collaboration, narrative, and
timely delivery of the exam report.

What gets measured gets done.

I continue to urge federal credit
unions to record their exit

meetings and joint exam conferences.

The recordings are beneficial for the
credit unions and the agency as they

provide a resource for new examiners,
credit union staff, and boards.

By not having a To determine what was
said, examiners and credit unions can

save time and focus on moving forward.

So there's themes here that
chairman, vice chairman Hauptman

has been pushing all along.

The survey, he was big on
getting the survey out there.

He talks about it a lot.

But the fact that the survey
establishes measuring in part

timely delivery of exam reports.

He made reference to them constantly
getting paraphrasing here, constantly

getting hearing from credit unions
that they were in here last year.

I still don't have my report and
they're coming in a few months and

that's consistent with what I'm
seeing that I don't know if it was

the pandemic that elongated exams
getting done more work being off site

that elongated getting exams done.

Of course, there's the exam review
process which impacts that, but more

often than not I'm hearing that credit
unions are displeased with the timeline

for getting their exam report finalized,
and perhaps in that this is a whole

nother topic not getting the opportunity
to comment on the report the way that

NSUA is falling behind, they sometimes
Give it to you without an offer.

Give it to credit unions without the
opportunity to for them to have an

influence on the report, which is part and
parcel and integral to the exam process.

So again, Chairman, chairman, vice
chairman, focusing on the survey,

focusing on recording meetings, which
he's encouraging everybody to do.

He mentions that in merit, they
actually have to check whether or

not the credit universe recorded it.

He wants all federal credit unions
to do that because it improves

the administrative record.

And yeah.

I think his encouragement is a
good reason for you to know that

NCWA will accept that you do that.

All right.

And then new board member Otsuka
what she indicated was finally the

performance plan has set a target
of 60 fair lending exams in 2024.

Fair lending exams help ensure
credit unions are fairly and

equitably reaching all their members.

Unfortunately, we've seen that red
lining and lending discrimination.

continue to be a problem today.

This will be an area of focus for me.

That's probably the biggest takeaway.

This is consistent by the way.

And now I've gone off the quote.

This is consistent with what I anticipated
would be coming from board member Oscar

and a Democrat led board member, excuse
me, a democratic led into a board.

But this will be an area of focus for me.

I support a stronger consumer compliance
program, and I'd like to work with the

board to continue to strengthen our fair
lending and consumer protection efforts.

So that's pretty direct, pretty clear.

First time she speaks, she
says it's about fair lending.

It's about consumer
protection, which no surprise.

She is a Democrat coming from.

Sherrod Brown's camp and not surprised
here predicted it, but what will

that mean in 2024, more fair lending
exams, probably more items in the

priority letter on consumer compliance.

And then I'm really interested
to see what they do in the budget

in 2025, which of course doesn't
come out till later this year.

Draft in October approved in December,
but there's going to be more resources

spent on this, particularly again,
when chairman Harper says we're going

to put consumer compliance on equal
footing with safety and soundness 90.

5 percent of NCOA staff are safety and
soundness staff and they're different

types of people than the people who want
consumer who pursue consumer compliance.

They're different breeds, they're
different personalities, and it's

going to be obvious that they're
going to have to hire new people

to do this, which is all great.

But the pivot is going to be a little
bit harder to achieve equal footing or

how, I guess it depends how you define.

Equal footing.

Chairman Harper talked about
vacancy rates that they put a goal

of achieving vacancy rates at N.

C.

Way of 5%.

He talked about how they I heard more
than a hundred examiners last year to

try and improve their staffing levels.

He talked about the retirement of
the baby boomers, by the way, when

some NCUA baby boomers retired at
the end of last year last couple of

years, they've been added to my team
at NCUA of subject matter experts.

I anticipate adding one or two of
those here in the first half of 2024.

So stay tuned on that.

You may hear them on the podcast.

But it's great that they start measuring
that I will tell you that when I was at N.

C.

U.

A.

Chairman W.

Matt's watched that closely.

But what I'm also seeing pivoting
to credit unions, I'm seeing credit

unions being criticized for having
vacancies at their credit union,

and I've never seen that addressed.

In an exam report when I was at NCUA,
and I've heard about it a handful of

times over the last year, which means
NCUA is talking about it internally,

and they're being critical of credit
unions while at the same time they're

having challenges with with hiring at
NCUA, and, of the handful of times that

I saw it mentioned in credit unions,
only one of them really seemed to be a

reasonable issue that NCUA was bringing
up, so I find that a little bit ironic.

Let's see.

What else do we have here?

We talked about vacancy rates.

We simplified plan.

Chairman Harper.

I think this is good that
they're simplifying the plan.

Vice chairman Huffman talked about
if everything's a priority, nothing's

a priority, which is something
I say here a lot on the podcast.

Maybe he's listening.

Maybe he believes the same thing as I
do, but in any event, I'm glad to hear

him say that because if everything
is a priority, indeed, nothing is a

priority talked about equal footing.

Talked about the exam reports timeliness.

They want to, by the way, they want
to have 90 percent of them timely.

And from this, from what I've seen,
it's definitely not near that.

And the, so the priority letter should
be coming out probably this week.

That will become a focus of what
Chairman Harper talks about at America's

Credit Union slash CUNA slash GAC.

He typically builds his speech
off that priority letter.

Consumer compliance buckle up.

They're going to have
an expanded footprint.

They're also unfair lending, and
it's clear that board member Otsuka

is big on consumer compliance and
big on fair lending and will give

Chairman Harper the second vote.

He hasn't had since becoming chairman.

So it's going to be interesting to see.

where NCWA goes in 2024, but
they've hinted very strongly

on where that will be.

And as I've discussed here consumer
compliance, fair lending, and improving

the timeliness of examinations.

All right, that's it.

This is Mark Treichel signing
off with Flying Colors.

I appreciate you listening as always,
and I hope you'll listen again soon.