Credit Union Exam Solutions Presents With Flying Colors

Hey everyone.

This is Mark Reel with another
episode of With Flying Colors.

I'm here to talk about Kyle
Hauptman becoming the chair and

designated as NCUA board chairman.

I will speak about what I think that
might mean or not mean for credit unions.

What could be coming or might
not be coming for credit

unions as it relates to that.

And I'll also talk about some of
President Donald Trump's presidential

orders and what that might mean
or does mean for the agency.

So I've talked about on the podcast and
on LinkedIn that, you know, chairman

Harper rushed, in my opinion, the priority
letter so he could get it out under his

term, which I think anybody who was in
that position would do because he probably

knew that it would be happening quick.

Not quite as quick as it did
the change in chairmanship.

You can, you can see that the Trump
administration came in loaded for bear.

One of the things that them having a
four year pause and then coming back

in it's kind of like an NCUA board
member comes back in like Debbie

Matz and Rodney Hood when they came
back for the second, their second,

excuse me, their second stint at NCUA.

They knew where the bodies were buried
and they knew how the agency ran

and they hit the ground running and
they were able to be more effective

that second time they were at NCUA.

So I see Whether you agree or disagree
with, with what this administration

wants to do I believe they will be more
effective because of their history and

because they probably brought in some
people that also can assist them like

the, the power and persuasions et cetera.

So anyway, it happened quick.

Here we are.

And chairman Hauptman, almost said Harper.

Chairman Helpman on January 22nd
released a statement saying he was

honored about being made chairman,
and then he listed his priorities.

His priorities are reexamining
the current NCOA budget process.

Number one.

Number two, convening groups of NCOA
employees to identify achievable internal

efficiencies to reduce unnecessary
frictions in the agency's operations.

I'm going to pause there and
talk about these two items

before I get to the next ones.

But re examining the current
NCOA budgeting process.

So one of the presidential orders kind
of weaves right into this, because

no regulations can be proposed or
acted upon without first seeking the

administration's approval to move
forward on that which will Slow resources

being used for building of regulations,
but they also put a hiring freeze in

place and that hiring freeze is going
to impact basically what will do in

this situation is it will impact.

The examination program last, meaning if
you have an application in for a merger

that's not urgent, or if you have an
application in for a bank purchase that

is not urgent, or if you're asking NCUA
about something that doesn't particularly

tie to the exam program, those items are
going to be put on the bottom and getting

the exam program done will be on top.

Now NCUA did the Sort of tweak what they
can do on billion dollar credit unions

and above, which will provide some
flexibility, but they'd already been

taking advantage of that flexibility.

As I've said here, often, those
changes that they made basically

were like the airlines saying we're
going to add 30 minutes to our

each flight so that it shows that.

that we're on time.

Essentially, that's what ensued
did because they aren't able

to get code fours, code fives
and code threes done on time.

But they built some flexibilities
in for big credit unions

that are code ones and twos.

So as this freezes in place,
however long it will be in place is

unknown and people start leaving.

Then this exam cycle flexibilities will
be taken advantage of, but again, if

it's not an exam item, it might not
get done convening groups of employees

to identify achievable internal
efficiencies to reduce unnecessary

frictions in the agency's processes.

Operations, by the way, friction
is one of my favorite word.

It comes from my love of that
word comes from the book atomic

habits, which is that you need to
eliminate friction on on good things.

You want to happen and you
need to add friction on bad

things, adding bad friction.

On bad things is like not having
any chocolate in the house so that I

have to walk or drive to go get it.

Removing friction is what he's trying
to do so that the agency is more nimble.

That's my word, not his word.

Every board chair that comes
in asked to try and do this.

NCOA has stovepipes, they have
territories just like any organization,

but He's going to be convening
groups of employees to look at this.

What this probably means is you will
get some people at NCUA who are KMA,

meaning they are eligible to retire,
that will speak their mind saying we've

added a layer of nonsense here, we've
added a layer of nonsense here, we've

added a layer of nonsense here, in their
opinion, of course and that they will

try and whittle away at some of that.

I will say that NCUA It appears to have
become a little bit more bureaucratic

over the last few years that things have
slowed down with making sure that every

word is possibly correct in every item.

The, the slowing of things that
came through the chairman's office

under the current structure.

Is something that Kyle help and
might be able to look at when I was

at NC way as executive director,
I had 1 deputy executive director.

They've now have budgeted for 3.

now.

They just lost their deputy
executive director and have a

new person either sitting in or
temporarily assigned into that.

And they have two other
positions at that grade level.

So they might get caught up
in the hiring freeze possibly.

So that might not allow them to
add that, that flexibility there,

but regulations are going to slow
And hiring freeze is in place.

By the way, there's also a
presidential order out there that

talks about returning to the office.

And from what I'm seeing from OPM's
guidance on that, there doesn't seem to

be a lot of flexibility built into that.

And it says that if you are
telework or remote that you need

to move and be in 1 of the nearest
offices will only has 3 offices.

They have Alexandria.

They have Austin, Texas, and
they have Arizona, the Phoenix

Tempe area and so 50 miles.

Is not a very big area of the country
when you only have three offices.

So they have a lot of
remote people at NCUA.

I actually was, the exam
staff have always been remote.

When I started with NCUA back in 1986,
you know, you, you, you do your work

at your house, you go to the credit
unions, and that's how it's been set up.

It's kind of a very unique structure.

So this this return to office,
impacts NCUA in a pretty

material way because of that.

It used to be this way, and I think it's
still still this way at FDIC, is that

the FDIC would have rented offices around
the country where the examiners could

go in and do their exams, and I'm sure
they're even more decentralized than that.

But you know, before President Trump
came in, I did have someone at the

agency asked me what my thoughts were
on how they could achieve shrinking

agencies, and I told them that I didn't
anticipate that they would do what's

called a reduction in force, because the
problem with the reduction in force in

the federal government is you, you have
these bumping rights, so the person,

you eliminate a regional director, for
example, that person can bump into the

associate regional director at, at their
same pace, so you don't save any money.

Then the associate regional director can
dump Can can bump into the supervisory

examiner, then the supervisory
examiner can bump into the the

problem case officer, the specialist,
and it cascades all the way down.

So all that you do is eliminate
the positions at the bottom and

you don't really save any money.

I conjectured at that time that if they
were going to be draconian and aggressive

in this, maybe they'd say, hey, we're
moving the central office to Missouri

and everybody needs to move to Missouri.

That's reports to any office.

That's how you achieve the
turnover because they either move.

And they've got their
spouse that has to move.

I moved for NCUA seven or eight times.

And it got, I mean, it worked out
for me because it led me to being a

regional director and achieving all
that I could at the agency and now

position me for doing what I'm doing,
but not a lot of people want to do that.

So when you tell somebody they have to
move, it could lead to high turnover,

but that could be what the Trump
administration is trying to achieve

to shrink government through Draconian
measures that are within within the rules,

but with there's only there's a lot of
protections as a federal employee, but

if you are told to move, you have to move
and they can they can get rid of you.

Otherwise, they can terminate you.

And if you're eligible for
severance, you can get severance.

I believe if you have less than
25 years, you get severance.

If you're over 25 years, you can
start collecting your pension earlier.

So I know.

There has to be, well, I know there's
a lot of angst at NCUA because of this

return to the office, that's, that
the agency's had to communicate a plan

to OPM by last Friday and it'll be
curious to see how this all plays out.

Quite frankly if The plan of the
Trump administration is as rigid as it

appears to be they can't have everybody
go to those offices because there's

going to be nowhere to put them.

So not only does it, so the, so the
central office building, which is.

Virtually has been empty.

It's my understanding.

They've had people come in
maybe one day, a pay period.

So everybody comes in on
Wednesday or everybody comes in

on Tuesday or they rotate it.

They went from being virtually empty
to having too many people there.

They're going to have to
kind of set up a cubicle.

Cubicle areas.

And then there's how does
the, how does the contract

with the union play into that?

So the union folks may have a little bit
more protection than the management folks.

If they're in management at NCOA,
I expect there not to be a lot

of flexibilities as it relates to
whatever plan they put forward to OPM.

So definitely interesting
times at NCOA right now.

It's more interesting being on the
outside helping credit unions right now.

As it were, I know there's a lot of
stress at federal agencies right now.

But you know, the pendulum had
swung so far with everybody

being remote to the nth degree.

This administration's
trying to swing it back.

There's the, I'm not going to
get into the politics of the

DEI other than to say they.

We're spending a lot of resources
at every agency relative to that,

and they're trying to curtail that.

That's going to create some efficiencies.

They have affinity groups for, you
know, imagine what every group they

might have an affinity group for, where
they can, they can have meetings and

talk about how their affinity group
needs to be treated better, how they

could, how the agency could assist them.

All that soft stuff.

Is going out the window, but it's
going to create some flexibilities.

And that may be one of the
things that Kyle is looking for.

Kyle Houtman, Kyle Houtman, Chairman
Houtman is looking for here.

Okay his 3rd priority promoting
the appropriate use of artificial

intelligence as a tool for NCOA employees.

1 goal is enhancing productivity, but
it's also true that regulators who use

technology are more apt to understand
why the regulated use them now.

Kyle.

Jokingly, you could say, Hey,
maybe NCOA can have AI start

writing the reports for examiners.

And quite frankly, there's probably
some examiners out there that have

contemplated or already doing that.

I don't believe they have any
policies around this area.

I think this is great.

A great priority for him to say, Hey,
we're going to look at how we can use it.

But I love that.

He says That one goal is
enhancing productivity.

But it's also true that regulators who
use technology are more apt to understand

why the reg, why the regulated use them.

So if NCA understands it because
they're using it, they're gonna

understand why credit unions use it.

Whether that's for underwriting, which
NCA and CFPB have been critical of.

Or whether that's for, you know,
data analysis or whatever the

credit unions are using it for.

It's a tool that's not going away.

I think it's exponentially increasing.

You're not hearing anything from me
here that, that you don't already

know, but I, I think it's good.

It's very positive that he's
pointing this as something

that he wants NCWA to look at.

And maybe with some of the other
inefficiencies that he's pointing to,

maybe that's where they can use some of.

Some of this time his next item focusing
on true financial inclusion, which means

removing barriers to denoble credit unions
and removing the pain points that have led

to fewer and fewer small credit unions.

NCOA should be mindful that the only
people who think compliance is easy

are those who don't have to do it.

What are the, what is it they say
about teaching the, those who can

do and those who teach, teach.

I'm saying that tongue in cheek, but
that's kind of what he's saying here.

And so focusing on true financial
inclusion, removing barriers, this

has been studied a lot at NCUA.

I know they've made some progress here.

They've been a little bit more
flexibility getting some new charters out.

And by the way if you're interested
in new charters, I have a podcast

with Keith Stone of the finest who
chartered another credit union in New

Jersey, another police officer credit
union with the assistance of Rick Mum.

And if you're in, if you're listening
and you want to do a new charter,

I highly encourage you to track
that podcast down because it talks

through a good way of doing it.

And those two guys are great resources.

In that regard, I'm all
for new new credit unions.

They, my thoughts when I was at NCA, not
that I could get the federal credit union

act or move the mountains needed to be
moved with the board you know, charter,

a lot of them, you lose a few of them.

It's really budget dust.

If some credit unions fail
because of it, but you get some

new new charters out there.

I was all for spending a little
money to make these things to create

opportunities to make these things work.

And it's probably where he's coming from.

Is he want, you know, if
you lose 200, 000 dollars.

300, 000 there on the insurance fund, but
you have a lot of small credit unions,

which oh, by the way, can tell really
good stories about financial inclusion

that you can go to Capitol Hill and tell
Capitol Hill, Hey this is what's going on.

This is why credit unions are different.

It's those anecdotal, great
stories that get Congress to

pause on taxing credit unions.

And from what I'm hearing.

There's a lot of chatter about credit
unions possibly being taxed, which is

why you should go to America's Credit
Union's Governmental Affairs Conference.

If you're listening to this and you're
going to be there, please reach out to

me because I am planning to be there as
a member of the press for the first time.

I'll be there representing the podcast.

I may actually be recording some podcasts.

If you're listening and want
to record a podcast, reach out

to me at mark at marktreichel.

com or via LinkedIn.

I would love to do some recording of
podcasts there, but it's a very important

year to get to to GAC because of the
merger, because of where we're at in our

country right now, because of the taxation
that could be coming for credit unions.

It's a remote chance, but there's
a lot of chatter about it from

the people that I'm hearing.

And again, when, when.

So many people show up for GAC
and parade through the doors

of their elected leaders.

They give pause to attacking
credit unions because there's other

things that they can focus on,
but you, you, your voice matters.

And it matters most at GAC.

All right.

Codifying next, next priority, codifying
our procedures to protect Americans

from regulation by enforcement.

For example, no enforcement actions
should ever set, even clarify, a policy.

in America and other free societies.

The sequence is set speed limits,
then give speeding tickets.

No one has any obligation to be
aware of someone else's ticket.

So I like what I think he's saying here.

I think he's going to need to
clarify what he means here, but I

can read a lot of things into this.

One of the things I read into this,
and it was pointed out to me by Steve

Farr, who's been on my podcast, is
maybe this is a reference to Chevron.

And as a reminder, Chevron is a Supreme
Court decision that basically says that

agencies can't regulate by issuing letters
to credit unions, that their regulations

can't add layers that were in what was
meant by the actual Act of Congress.

So in this scenario, the Federal
Credit Unit Act is an Act of Congress.

The regulations are put in place to
implement that, and Are ripe for the

opportunity for lawsuits where an agency
overextends what they were supposed

to do at some juncture, according to
what Congress actually intended and

pushing the envelope on regulations
under the way the Supreme Court decided

Chevron isn't going to work anymore.

at least under the
current state of the law.

And at some juncture, different
agencies will push this.

Probably under the Trump
administration, they'll be encouraged

to do so, making it harder to issue
regulations that push the envelope.

But extrapolate that even further.

NCOA's exams are based
on safety and soundness.

They're based on a lot of guidance.

The guidance is not regulation.

It's just guidance.

And even at FDIC, FDIC issues
their guidance publicly.

Which makes it a little bit more binding
than NCUA's because NCUA's just penned

by the chairman theoretically, right?

Staff recommends it or the, the,
or the agency head, the, the chair

decides they want to issue guidance
via a letter to credit unions.

Like the priority letter to credit
unions, like third party an older

one that's out there, third party
you know, how to, how to manage third

party risks, et cetera, et cetera.

All of those those letters are not
regulation, but they're, they are doing

exams by them, they're cited as best
practices, they're cited as you need to

comply with safety and soundness, and
the hook is to, you know, one sentence

in the Federal Credit Union Act that
says it's based on safety and soundness.

Now, as a former regulator in some ways
this scares me a little bit because the

runaway trains of the Code 5 is where
there's an institution that gets out

of control could end up costing more.

But in the same token, NCUA regulates
by these, these policies that are not

regulations that are not acts of Congress.

So I believe this is what
he's pointing to here.

No enforcement action should
ever set, even clarify policy.

There are things that go into
document resolutions that the

board is not aware of being done.

And I think that I think their, their
heart would skip a beat if they saw some

of the things that are out there, quite
frankly, a letter of understanding that

says, you need to do X, Y, and Z, and you
have to have these people on a committee.

You need to do this gets a little.

Full of themselves, for a lack of a better
term in some of these exam things that

they do, and I believe he's referring to
that to try and reign some of that in.

It'd be a difficult time to to be pivoting
at NCA right now, figuring out, okay,

what exactly, that is what their marching
orders are here in the same token.

If you've been an examiner for 2530
years, and you're listening to this,

you're going to keep doing what you do
until someone points out that it's wrong.

If you're a new examiner, maybe there'll
be pivoting in some of the training,

but it's it's hard to move the ship.

That's been going in this direction.

Kyle Hoffman is going to be trying to
do that, but he's got his hands full.

And this is an important area that
I think he wants to take a look at.

All right.

Very curious if he seeks
input from credit unions.

If you do go to GAC and get an
opportunity to talk to him talk

to him about any LUAs or document
resolutions or examiner findings that

you thought were pushing the envelope
so that he's aware of those things.

If he's not aware of them, he
can't do anything about it.

All right.

Next up, making clear that credit unions
and their members are best positions to

assess their community's climate risks.

So, they put in their budget in the
Office of Examination of Insurance,

I believe they were going to add one
position to work on climate risk.

I'm guessing that, well, the hiring
freeze stopped that, but if it didn't,

I'm guessing that the new Chairman
Hautman would have said you're not going

to be filling that one any time soon.

And again, there's two
political sides to that story.

Everybody has their own reality
on what they think the climate

risks are or are not, and Anyway,
they're basically saying you can

do what you want as a credit union.

We're not going to be touching it.

Next up, reassessing NCOA policies that
may even inadvertently dissuade credit

unions from serving low income areas.

This includes language around overdraft
policies, particularly for credit unions

located in states with especially punitive
government late fees and penalties.

I did see there's a press release or
a story on LinkedIn that Hauptmann

tied to states that have especially
punitive government late fees.

I'm going to see if I can find
that by clicking on LinkedIn here.

Bear with me for a moment.

Kyle, you're going to see that if
you're listening, you're going to

see that I'm looking at your profile.

All right, let's see.

Yeah, here it is.

He posted he forwarded something
from the New York state

department of financial services.

He said it may, it may be notable
that like most state governments,

New York state itself charges late
fees and penalties in excess of

what they are outlaw line here.

So, I love this point.

The, the post that he's forwarding
says today, the Department of

Financial Services proposed regulations
to enhance consumer protections

against unfair overdraft fees.

Their proposed regulations eliminate
the most exploitative and deceptive

banking fees, cap overdraft fees,
strengthening customer communications, and

establish stricter transaction process.

processing requirements.

By the way, if they were doing this,
the states that they're doing in this, I

believe, if you're a big credit union in
those states, why haven't you converted

to a multiple common bond credit union
that has a association that allows you

to Freely sign up members in a in a
appropriate legal way as a federal charter

and have to instead of having to deal
with, you know, draconian regulations

like this, but there it goes on to
say targeting unfair and exploitive

overdraft fees and practices strengthens
consumer protections while preserving.

access to essential bank services,
prohibits predatory practices and

improves transparency, fosters
accessible and affordable banking

services for all New Yorkers.

And Kyle's point is, Chairman
Hauptman's point is, that New

York has draconian fees of their
own, yet they're saying that their

financial institutions can't do that.

I love, I love that take.

I think it's very creative and
I think it is very accurate.

So.

The other thing is and I've
talked about it a lot on here.

Chairman Harper and the
Biden administration created

the terms of junk fees.

Chairman Harper talked about how fee
income is a, a concentration risk.

And it's only a concentration risk because
he said it was a concentration risk.

There's, there's things that,
you know, that happened at CFPB

proposing this for larger banks.

Biden continued or if Harris had
been elected, you could continue

to see a full court press on fees.

I think it's great to see that, that
this administration is going to pivot on

fees because fees are a reality of life
will help some credit union survive.

If they're done judiciously, and I
love the fact that you know, one of

the big pluses right now is that there
may be a little bit more breathing

room on fees, which might slow the
parade of mergers that are happening.

So I really, really like that 1.

Lastly help.

Talks about right sizing credit unions
obligations where possible under the Bank

Secrecy Act, including NCOA's regulations
surrounding suspicious activity reports.

I'm very curious what happens here.

I'm thinking that there might
be some inside baseball here.

Where we see President Trump
talking about people on the

right being thrown out of banks.

If you've seen, if you haven't seen
that, you can see it on YouTube or you

can read about it pretty much anywhere.

But.

I believe this has a little bit due to
what is viewed as an overreach of the Bank

Secrecy Act and abuse of SAR activities.

I don't know what I think about
this one yet because I think those

reporting systems do play an important
role in the world of terrorism, etc.

However, you know, if we're going to
open up the world of Bitcoin, etc.,

etc.

Which is a way that people are able
to avoid these SARS you know, I guess,

what's the point of having a strong bank
secrecy act if you can just avoid it by

going to the crypto world and I'm not
going to, other than the fact, you know,

that, that, that Trump and his, his son
Barrett are big into the crypto world.

There's some things that were announced
that I might cover in a different podcast

here relative to that and what it means.

Kyle Hauptman's been big on blockchain.

Kyle Hauptman's been
big on, on, on crypto.

So you can expect to see him
very supportive of fintech, even

though he doesn't really touch
on it here, but I anticipate.

To see that continuing to happen.

So lastly, and I think I put this
on LinkedIn the other day February

6th, I want to say NCOA is having
their webinar on the priority letter.

Typically those are pretty.

Plain vanilla, they read through
the letter, ask questions, they

avoid the difficult questions,
they answer the softball questions,

they get in and they get out.

It's kind of like, you know, being
ahead in a football game and you run

the ball and you run the clock out.

That's how those things go.

They run the clock out.

Well, they've scheduled that.

And they had it planned before
there was a chain in chairmanship.

So now, sometimes those events, typically
under Chairman Harper, those events are

kicked off by the chairman, says some nice
words at the beginning, he departs, and

then they do their reading of the letter.

So what's going to happen with Hauptman?

Is he going to kill that?

Call?

Probably not.

Is he going to do an introduction
and say, hey, I'm reviewing

this letter to credit unions.

There's some changes coming along
the lines of the fee side, which

I'm deemphasizing and maybe just
walk through his priorities.

Will you do an opening?

I would guess that might be what he does.

Could he pull the letter to credit unions?

Because again, every, if you go back on
their website, there are credit, there are

letters to credit unions that are 20 years
old, 15 years old, 10 years old, that

are still active and still cited by NCUA.

They pull them when
they want to pull them.

So, Haltman and then linking this
back to his earlier statement about,

you know, giving tickets and, and not
establishing enforcement actions, not

establishing or clarifying policy.

He could go back and pull
a bunch of these letters.

And a matter of fact, I mean, that, that,
if that was me and I was of the, the bent

that he is, I'd go back and pull a lot of
letters saying, Hey, these aren't binding

anyway, they shouldn't be out there.

Use your own best practices which
then makes it more difficult for

the NCA examiners to use those
as a part of their examination.

I'm not saying that's what he should do.

I'm saying if I was of his political
bent and trying to do what I

think he's trying to do with this,
that's probably what I would do.

So, I'm very curious to
see how that meeting goes.

Is it going to be the
same old play in vanilla?

Or what of those options
I've already discussed?

And just what of those options
I've already discussed?

Might he might he take or which
path might he do in that regard?

All right.

I'm losing my voice here.

I'm so excited about all these things.

I'm trying to think if there
were any other presidential

orders that I was thinking about.

I talked about the hiring freeze.

I talked about return to office.

And I talked about one other one,
which is escaping me at the moment.

Lastly, if you are interested in being on
my podcast while I'm out at GAC, reach out

and we'll see if we can set something up.

All right, this is Mark Treichel.

I appreciate you listening as always.

And I hope you'll listen again soon.