Credit Union Exam Solutions Presents With Flying Colors

Treichel: Hey everyone, this is Mark Trico
with another episode with Flying Colors.

I'm excited to be here with John Ney
MC, John Ney, LLC, formerly of NCA,

formerly of cuna and credit union.

Guru.

He knows a lot about what is
going on in, in Washington, DC

a guru, how would get a guru.

I put that on my business

McKechnie: cards now.

Treichel: That's a technical term.

John it's great to have
you back on the show today.

McKechnie: And

Treichel: we're recording this right
before GAC we'll both be there.

I believe that I will be publishing this.

I'll be publishing this before GAC.

Maybe I'll do it on the weekend so
that the regular listeners when they're

flying in can listen to with flying
colors and the wisdom that we're going

to share with the listeners today.

So I just set the bar real high.

So Mark, there is

McKechnie: no shortage
of stuff to talk about.

You're right.

You alluded to that.

It's.

Uncertainty is the word of the
day for everybody, not just not

just for Washington generally,
but also credit unions.

We have just an enormous amount of
issues that are yet to be resolved.

Clearly the recent changes where
the Trump administration has

made some pronouncements about
certain independent agencies, N.

C.

U.

A.

included Although he hasn't, the media
coverage has been a bit misleading

from our perspective, because they
don't mention NCUA, and, I think we

both know that NCUA in the pecking
order of the federal regulatory

universe, NCUA does not rate as
high as some other banking agencies.

But nonetheless, there's just a sense that
the deck is being reshuffled right now

and I think writing should be concerned.

The executive order that came out where
the president asserts more control over.

That's one issue, and I think
it's yet to be seen how much of

a real change that's going to be.

The thing I'm much more focused on
and much more concerned about is

the consolidation of regulators.

That could be significant, and I think
every scenario I play out in my head,

it ends up negative for credit unions.

And I'll tell you why.

Treichel: Yeah.

So walk through that.

So you're talking, there's
discussions out there.

That it was that Scott has
been asked to to look at the

possibility of consolidation.

Can you walk through what it is you've
heard relative to that, that initiative

and then why you're viewing it as a
possible losing game and more than 1 way.

McKechnie: Since the election, there
has been an undercurrent of buzz

among people on Capitol Hill and
among people who were, at the time,

about to enter the administration.

Now they're in the administration,
but there was always an undercurrent

of, We're going to look at possible
consolidation of the regulators.

We're going to look at merging agencies.

We're going to look at restructuring.

Whatever terminology they used,
you got a sense that they wanted

to look at the financial regulatory
landscape and make it simpler.

And I think the idea If the Trump
people were on the call, they say it's

going to be a more efficient and a
more cost effective way to do things.

And so yes, there's been this, like I
said, an undercurrent that broke out into

the open last week where the wall street
journal and Bloomberg and other major

media began to cover the possibility
based on their conversations on Capitol

Hill, that that the administration wanted
to roll FDIC and OCC into a treasury,

a new department within the treasury.

And that's with the Wall
Street Journal article.

They specified OCC and
FDIC, and that's it.

That's all they said.

I happen to be, I think by good
fortune I was on Capitol Hill the night

before that article appeared, and I
saw one of Senator Tim Scott's staff.

Senator Scott is the chairman
of the Senate Banking Committee.

And his staff talked more
expansively about that.

That's all they said.

FDIC, OCC, they mentioned CFPB, they
mentioned the bank supervisory element

of the Fed, the Federal Reserve has a
bank supervisor in it, and they would

peel that out, but this person who knows
I, he knows I work in the credit union

world, he also knows I used to work at
NCUA, and he said, don't think that NCUA

and the credit union regulator would
escape that just because Most of the

talk is centered on the bank regulators.

And

Treichel: Yeah.

Just because they don't say
the wave will take NCUA.

If it takes every other banking regulator
the fact that NCUA is not mentioned is

an afterthought of the existence of NCUA.

It's not a, we're going
to keep them separate.

McKechnie: That's right.

And it's not necessarily meant to be
insulting or denigrate us, although,

and sometimes being small means we're
out of the way and not thought of.

But in this case, as you, you allude
to, you're going to have a combination.

You're going to have a bringing
together of similar functions.

And again I'm just genuinely worried
and very negative about that for

the, a couple simple reasons.

One, if we lose the share insurance fund,
the share insurance fund, the credit

unions have maintained, nurtured, paid
into, kept and the industry and the

agency have both created a very stable.

Financial backstop for people who
deposit their money in credit unions.

That would be brought into the
FDIC system and I don't think

it would be to our benefit.

The bank dominated FD deposit insurance
fund would most likely just take

our money and put into something
that's much more suitable for the

banking industry and not for us.

People who will run that
are used to regulating.

And supervising the banking industry.

I think it's gonna be a no
brainer that our share insurance

fund gets sucked in there.

And secondly, and I think you
probably can speak to this better

than I can the actual supervision
and regulation of credit unions.

You have an NC way that, I know
the industry has ups and downs

with our regulators as it should,
any kind of healthy relationship

between an industry and a regulator.

Means that you're going to have
sometimes some hiccups, but generally

people know that NCUA is run by
credit is a regular that, that

looks at credit units as distinct.

unique cooperative financial institutions.

I don't think you're going to
have any of that mentality in

a bank dominated regulator.

Treichel: Yeah I would agree with that.

Plus the power players at the new
agency are going to be from the bank

side, not from the credit union side.

At the beginning it's, again
presuming this happens, right?

This is a, this is the worst case scenario
of everybody's woven together sometime.

Probably with the vote to do it within
the first two years before midterms.

And if it goes down this path, but you
talk about the exam side of it I recall

the number was either 30 or 35% and
that's the, if you looked at pick a number

of $3 billion credit union versus a $3
billion bank or a $5 billion credit union

versus a $5 billion bank, NCUA spends.

Between 30 to 35 percent less
hours examining that institution.

So you're all other things being the
same because under Doge and under the

right sizing of government, there may
be less of a footprint ultimately.

Once that dust settles the burden of
being a bank, as far as how frequently

the, how many hours the examiner
spend there is about 135 hours for

every hundred hours that NCOA spends.

And that means 35 percent more
questions 35 percent more analysis.

More burden onto the backs
of the credit unions.

If indeed that number was to stay the
same and everybody was rolled together.

McKechnie: Sure, and then certain
regulations that don't pertain

to credit unions may come to
pertain to for instance, CRA.

Correct.

Some of the bank secrecy
provisions that are more, more

esoteric could be applied to us.

I just think.

In the new, this brave new world,
there's going to be a matrix of

how to examine institutions, and
that's going to be a bank matrix.

It's not going to have any, it's
not going to have any accounting

for the uniqueness of credit unions,
the cooperative not for profit

structure, the member ownership, etc.

I just I think this could be the
practical end of what we know as

credit unions, if it comes to pass.

Now, You raise an interesting
point a second ago.

You said if it happens, there's going to
be there's certain things the president

can do with a stroke of a pen, but
there's a lot of other things that have

to be changed in the law on Capitol Hill.

And I think that there's going
to be at least an opportunity for

credit unions to make our case.

To our friends on the hill that this is
not a good idea that do what you will to

the banks If you want to homogenize their
system if you want to homogenize their

regulatory structure Go ahead, but credit
unions are not banks and they shouldn't

be regulated or insured like that I will
also make an interesting point I talked

to Senator Scott's people who, again,
the Chairman of the Banking Committee has

apparently, although it's not official,
but he's, the word is he's been tasked

with coming up with some legislative
blueprints and by the administration.

And I said to the guy what I just said
to you, which is, we're not banks and,

the banks may say we're banks, they're
simply not taxed, and I disagree with

that but he did concede a good point,
or at least I hope it was a good point

that, credit union just treats its
members as members and not customers.

And he said that's it.

He's he thought for a second.

I could tell it got the wheels turning
just something as basic as that.

We have members.

We don't have customers and,
from that point forward, I think

we can at least make a case.

If Congress wants to do this, it's
going to be a mistake that they're

going to regret because it's going to
really deprive the consumer marketplace.

Treichel: And one of the, there's
many strengths of the credit union

industry, the credit union movement,
whatever you want to call it, that

member side of it is part of it.

The ability to bring so many
people to Washington, D.

C.

to hike the hill is a,
is another part of it.

And that's coming up.

We're recording this.

10 days, nine days, a certain
number, a week and a half away

from when GAC is kicking off.

I'm sure that's probably some of the
things that those folks that are going

to be visiting the Dems and the Ds
and the Rs are going to be saying,

Hey, don't sweep us up in this.

We are different making this a
really this GAC, and perhaps the

next one as important of a couple of.

of visits to Washington D.

C.

as the movement might ever have.

McKechnie: That's a good point, and I
will re emphasize something I've been

saying for many years, and that is
that the best advocates credit unions

have are not those of us who wander
around Capitol Hill or at the agency.

The best advocates we have are the credit
union people who come to town like you

just described, and members of Congress
want to hear from them, and they want

to hear their stories from back home.

They want to hear what impact credit
unions make on their communities, and I

think in this case, Our people will have
an opportunity to make a very compelling

case for why we need a distinct regulator.

And I think they're going to make
a strong case on the tax argument.

Treichel: So let's look at a matrix.

It's NCOAs rolled into another
regulator and credit unions are

taxed on this axis and this axis is
they're, they aren't, and they aren't.

So the, what are the odds of.

I described those axes wrong, but
what are the, so one combination is

they're taxed and they're rolled in.

Another one is they're not
taxed and they're not rolled in.

And one of them is one of those things
happens and the other doesn't vice versa.

So how do you see what is it lawn sausage?

The, do you see some negotiate people are
saying, no, we shouldn't be rolled in.

We shouldn't be taxed.

And then the closer you get to, to the
final act is one of those things happens.

And one of those things doesn't.

McKechnie: For one thing, the law
and sausages comment is terrific.

People misattribute that to Mark Twain.

You didn't.

But some people do.

Everybody if they wanna make a
quote, they usually attribute it

to either Mark Twain or Yogi Berra.

And in this case it's not Mark
Twain, it's actually Bismark

who said laws and sausages.

Okay.

Or things you don't want to be watch made.

It's, look, I think we're gonna win on.

I feel very confident about the
tax issue even though I think

there is real danger up ahead.

I think that the tax arguments that
credit unions can bring to Washington,

once Congress focuses on it, they're
going to realize it's just not worth

really stirring up a political hornet's
nest with the credit union system.

I think we've got not only economic
substantive arguments, which is that

we benefit consumers every day In
the way we serve them and we help

them I think we help the entire
marketplace by being in the marketplace.

I think we help drive bank behavior
in a better direction But besides

that I think we also have a political
case to make there's an average

of about 250 20, 000 credit union
members in every congressional

district in the United States.

We can sit across the desk from
a congressman and say, look, if

you eliminate the credit union tax
exemption, you're going to raise taxes on

essentially 220, 000 of your constituents.

And that's a pretty daunting
thing to put in front of them,

especially with Republicans.

And I've been very upfront in saying
with a lot of Republicans on the Hill.

People send Republicans to
Congress to cut people's taxes.

They don't send them here to raise
taxes, and that's exactly what

you're going to be doing if you
do something to our tax exemption.

So let's just start with that, that even
though there's nothing on paper quite

yet with the tax reform, I think in the
between now and the end of March, there is

going to be at least a draft legislation.

Our goal is to try to
keep creditors out of it.

The banks are trying hard to Put us in it.

And I will also unfortunately mention
that the ones, the two issues I have heard

where the banks appear to have gotten
some traction with members of Congress

are on the credit unions purchasing banks.

And also some of the stadium naming
rights issues, and I don't say either

of them with any great pleasure because
I think there's they're both defensible

activities, but I can just tell that
since last fall, a lot of lawmakers

and their staffs who have generally
been friendly to credit unions.

Have expressed some concerns and
misgivings about that So we're gonna have

to make sure we try extra hard at this
gac And other times to make the case as

to why those are not Reasons why they
should do something to our tax exemption

Again, I feel i'm a cautiously optimistic
person on this I feel like when we bring

our people to washington and make our
case good things are going to happen.

But this is a tricky environment
and I think the fact that you

have A broad tax reform on the
table has made it more dangerous.

We heard a lot of people in the
hill say that while they may not

necessarily favor our tax exemption,
or I'm sorry, they may not favor

doing something to our tax exemption.

They've all cautioned us to be very
vigilant because they're in the words

of 1 of our best friends, they're taking
a 360 degree view of the tax code.

Everything potentially
could be on the table.

Treichel: And when they do that
final countdown, they have to try

and get it as balanced as they can.

There's numbers involved.

And if they can look at it and say,
this will save us X and it helps us

do these other things we want to do.

And you haven't slowed that role.

That's where it can get
real problematic there.

McKechnie: We, you have to be very basic
and just Being, yeah, it was the Woody

Allen theory of lobby just, showing up
is 90 percent of it and we just have to

get our people here and I feel and also
let's not think of this as an episode

where you come to Washington, you check
the box, you go back home, we need to stay

engaged throughout and I'm not even saying
just through the middle of the year.

I think that a tax bill could be resolved
Before the summer, but that doesn't

mean we can go back in the woodwork.

If we win, we just have to
constantly be engaged and involved.

That's been my mantra ever since I
worked for CUNA back in the late 80s.

It's just a political
involvement is not an episode.

It's a process.

Treichel: The I can't not say this
with a reference to Yogi Bear.

I wrote, I wrote down my
favorite Yogi ism, which is

that nobody goes there anymore.

Nobody goes there anymore.

It's

McKechnie: too crowded.

It's too crowded.

Yeah.

But he also says prediction, predictions
are hard, especially about the future.

And so you asked me about what's
going to happen with all those

different possible outcomes.

Yeah, and I will say I'm
nervous about the legislative

horse trading that could go on.

I think.

One senior congressional staffer in the
last week said something about how the

banking trades, one of the bank trades,
is trying to shop an idea that we don't

tax all credit unions, but just what
they call the big mega credit unions.

And I guess they're trying to
come up with an asset threshold of

credit unions over which they're
taxed, under which they're not.

That, that concerns me.

I don't know.

I don't.

I don't think that's going to get
traction, but we have to make sure it

doesn't, but that kind of stuff that goes
on in the back rooms and the legislative

process, we have to worry about that.

And again, the other ingredient we're
stirring into the pot is is that

consolidation issue we talked about?

What if somebody dangles out
the possibility of keeping

the regulator independent in
exchange for something else?

I don't know what I don't know, but.

These are all concerning possibilities.

And again, it's, but we've, we as a
movement have been preparing for many

years for these kind of situations.

Credit unions have invested a lot of
time and effort and money into this.

This is why we've done it all.

Let's get, but we have to
now use it, get to work.

Treichel: Dust off the play
to play book and update it.

And and keep the playbook out.

Like you said don't put it back
and keep singing that mantra.

When you talk about, what's big
whatever the word was you used, it

wasn't big, but let's only text.

McKechnie: They call them mega credit,

Treichel: So when they look, if they
go, okay let's figure out what mega is.

You, sometimes you try and not
create new definitions, right?

So would it, you, when someone says,
what might somebody say is mega, the

first threshold could be 15 billion.

Those that report to ones
that's an NCAA internal.

The second could be the 10 billion
CFPB bright line, CFPB is not

something anybody's quoting right
now in the, in this administration.

So maybe the 10 falls away.

So then maybe it falls to what
NCAA calls as complex, which

is 500 million and above.

A higher number you don't want any of
them tax, but a lesser number is better.

But once they start, they
get into the discussion of

that's what we're going to do.

Then they got to come up with a
number and somebody's going to

fall on the wrong side of that.

Somebody's going to fall
on the right side of it.

And there are credit unions
that have tried to stay below

10 billion, avoid CFPB, tried
to stay below 15 to avoid ones.

They'll be doing the same if there's
some, artificial number that it becomes.

Is determined as Megan.

You're right

McKechnie: on all those counts.

You make now.

I've spent a career reminding
Congress that a credit union.

That's a 100Million is no
different than a credit union.

That's 100Billion and that the structure
and how they're the member ownership

and how they relate to their members.

That's the important thing to think about.

So I'm not going to get into a
size discussion with anybody.

Yeah, you don't

Treichel: want to go there.

It's just a wrong.

Yeah.

Yeah.

Yeah.

McKechnie: So I'm very adamant about that.

But I would be remiss if I didn't
tell your listeners that the banks

are trying to start that discussion
and we need to be aware of that.

Like I said I'm guardedly optimistic.

I know what crediting
people are capable of.

I re, I was at CUNA back during the famous
HR 1151 which was over 25 years ago now.

But that's, that was a
great victory for all of us.

I was on Capitol Hill as a very
junior staffer back in 1986 when

the last real challenge to the
credit union tax exemption occurred.

Credit unions actually
were put into the tax bill.

You had this grand bargain between Ronald
Reagan and Democratic House Ways and

Means Committee Chairman Dan Rostenkowski.

That was for a few weeks
we were in a tax bill.

You may not, a lot of our people may
not remember this, but credit unions

really had to fight heck to get
out of it and mounted a pretty good

grassroots campaign, if I can remember
being on the other side of the desk.

But, this is something that matters
to credit unions and I think we're

going to rise to that occasion.

Treichel: Yeah, I think if it's if it
becomes about effort, I think credit

unions will rise to the occasion, but it's
challenging and choppy waters right now.

Any other D.

C.

Things that you can think of.

We talked a little bit
about some of the orders.

N.

C.

A.

Has a hiring freeze.

Every agency has a hiring freeze.

They're looking at the size of their.

Their workforce that's going to
create, create some exam challenges.

What happens in these times you
talked about bank purchases,

triggering challenges on Capitol Hill.

What happens when you have a hiring freeze
is the exams become the only thing that.

Matters.

So anything that's not exam
gets pushed past longer.

So merger decisions, field membership
decisions any anything not meat

and potatoes relative to the safety
and sound is getting the exam done

is what they're gonna have to be
looking at doing rolling forward.

McKechnie: You're right about that.

I, you remind me CFPB, of course, has been
in the news a lot, and it should, it has

been in the news for its entire existence.

It's a very controversial entity.

I think it's overstated when some people
say that CFPB is going to completely be

done away with, because it's in statute.

It's in the law.

That can't happen without
a change in the law.

But I, what I do think is going to
happen under the Trump administration

is that agency is not only going to
become smaller, but I think it's become

less aggressive towards regulating
conduct in the financial marketplace.

And I think it's going to be also
become much more focused on fraud.

And abusive consumers, which
I think that's healthy.

I think it's hard for me I can't imagine
even some of the most strident critics

of cfpb to say we don't need to police
that of course We need to police that

and maybe if cfpb becomes more Of an
enforcement type agency and less of a

marketplace police officer, maybe that
will take some of the heat away from CFPB.

I'd love to see CFPB eventually become
a five member commission where you have

a mixture of Democrats and Republicans.

I think you'd have a little bit less of
a lightning rod there and a little bit

of less of a controversial approach.

Even the prior director Rohit Chopra.

He was a.

A pleasant guy to talk to and
I think he was an earnest guy,

but boy he stirred up a lot of
controversy with a lot of his actions.

And I think he knew he was, he
was a deliberately provocative

person in those ways.

And I'd like to see a less inflammatory
CFPB somewhere in the future where we have

it as a more sober and staid consumer.

And really something that can
help the consumer when there are

problems, but not dictating to a
consumer what they can or can't buy.

Treichel: Yeah, I'll vote for that.

And what was it recently?

I learned, or if I knew it before
I'd forgotten it, that they

basically turn the spigot off.

From the Fed, right?

They said, we don't we have enough cash.

We don't need any more cash to
conduct our essential business.

And that is decided by 1 person who
is the director of CFPB, as opposed

to it being discussed with a vote of
5 that have both these and ours on

McKechnie: it.

You got to remember that when CFPB
was envisioned by a law professor

at Harvard named Elizabeth Warren,
she wanted it to be insulated from

the congressional funding process.

And, she thought that would mean it stays
away from any kind of political pressures.

But as you say, now that if you have
a director in there who wants to do

what you just described, they did it.

They turned off the Fed Fund.

The Federal Reserve, under the law, is
obligated to give whatever CFPB wants up

to, I think, 12 percent of the Fed budget.

And CFPB's new director said,
we don't need the money anymore.

I think the outcome there may have
reminded some of the CFPB's defenders

on Capitol Hill, like Senator
Warren, that maybe we do need to

get it into the regular process.

And that might safeguards
funding in the future.

Treichel: That makes sense.

Yeah the approach that she thought
would keep it away from scrutiny

actually made it more subject to it.

So

McKechnie: yeah.

Somebody is playing 3d chess.

Treichel: Well, which goes to the, I said
this to somebody recently, Debbie mass

was a board member left and came back.

Rodney hood was a board
member left and came back.

When they came back, they
understood the game much better.

Not only did they learn things while
they were gone, they had learned

things when they were there, right?

And we talked, I mentioned the
mid, midterms, the presidents

typically have a two year window.

If they have control Trump does to get
things done, but they came in knowing

what they wanted to get done knowing
where they had been told you can't do

that before and figured out there's
got to be a way and put bright minds

on it and are taking an anvil to some
things that last time they thought

they couldn't touch that's my idea.

McKechnie: That's an excellent analysis.

I think that the administration
this time is much more.

They've learned from mistakes in the past.

They made assumptions
about the bureaucracy that

didn't turn out to be true.

And there were, I hope I don't get
people on one side of the political

aisle, but angry at me, but I think
they found out That some of the career

folks here in Washington were really
hostile to what Trump tried to do.

And so they, in the first
term, so they tried to stop it.

This time Trump is addressing that by
getting rid of some of those people.

And I know it's painful.

And it's a messy situation.

And I think you also have
the overlay of the COVID.

Stay at home telework in the backdrop.

Treichel: Yeah.

Yeah, the perfect

McKechnie: storm.

Treichel: Yeah, it's

McKechnie: every right.

Everything is now coming together.

And this is an exciting time.

I would I'm not going to lie.

I like the excitement
and the exhilaration.

I know it's painful in some
ways to go through this.

But, I got into government affairs
and politics when I was just out

of college because I liked the.

The thrill of it all.

This, you and I were colleagues at NCA
during the financial crisis in 2008 2009.

And while it was a nerve
wracking time, it was also very,

it was fascinating every day.

If

Treichel: you're an adrenaline
junkie, you live for some of this.

stuff.

A lot of regulators, a lot of
people that that like Washington D.

C.

Like you and I are do
like that adrenaline.

So it is exciting times.

The dust will settle and
then we'll figure it out.

McKechnie: We will.

Next time we'll know more.

Treichel: Next time we'll know more.

So john, thanks so much.

I will see you at GAC and listeners
come see John and I we can, if you

wanna talk about this or anything else.

John, I wanna thank you so much for Thank
you being available on short notice here.

McKechnie: Always great seeing you.

Take care.

Treichel: Yep.

And listeners, I want to
thank you for listening.

As always, this is Mark TriCal
signing off with flying colors.