NCUA’s Harper says exam audits merit new consumer protection programs

Todd Harper, the chairman of the National Credit Union Administration, on Tuesday reiterated his call for the regulator to do more work around consumer protections.

“The NCUA must create a dedicated program to supervise for compliance with consumer financial protection and fair lending laws,” Harper said in remarks during the Credit Union National Association’s online Governmental Affairs Conference. “In doing so, we will better protect consumers’ interests, ensure that the credit union system lives up to its commitment to serve members and provide a comparable level of consumer protection oversight as federal bank regulators.”

NCUA Chairman Todd Harper, speaking during CUNA’s online Governmental Affairs Conference

Harper noted that the agency performed quality control reviews of randomly selected exam reports in 2020 and “observed several issues suggesting that some credit unions may not be paying attention to consumer financial protection as closely as warranted.”

The agency found what Harper called “notable shortfalls” in compliance with the Fair Credit Reporting Act, the Electronic Fund Transfer Act and the Truth in Lending Act, and while Harper called for the creation of new consumer protection programs at the agency, he did not announce any specific initiatives in his remarks.

Any new program is likely to come up against stiff opposition. Most of the industry – including other members of the NCUA board – remains staunchly opposed to the agency expanding its role as a consumer watchdog. Later in the day, Ryan Donovan, CUNA’s chief advocacy officer, suggested any new efforts from the regulator on that front would be “redundant examination activities that will not enhance consumer protection.”

Elsewhere in his remarks, Harper praised the industry’s performance during the COVID-19 pandemic but said the economic recovery has sputtered, which could cause problems for credit unions. That’s due in part to interest rates remaining low for the foreseeable future, which could make managing interest rate risk a challenge, while sustained high unemployment levels could cut into loan demand and affect credit quality on existing loans.

Up until now, Harper said, the agency has focused primarily on protecting staff and contractors’ health and safety, assessing the pandemic’s impact on credit union members and operations, and analyzing how the outbreak might impact financial conditions at the institutions NCUA oversees, as well as the National Credit Union Share Insurance Fund. Moving forward, NCUA will be “actively monitoring” credit unions with ties to troubled sectors of the economy, including oil and gas, travel and leisure, and agriculture, to name a few.

“We are also focusing on credit unions with elevated risks, such as those credit unions with large concentrations of commercial real estate loans relative to assets,” added Harper. “One thing that seems likely is that, as during past recessions, credit union performance will lag the unemployment rate by one to two years. Accordingly, your credit union should pay careful attention to capital, asset quality, earnings and liquidity.”

The industry has not had liquidity problems in the year since the pandemic began and delinquencies at most institutions remain low, though many in the industry have suggested that problems could arise later this year as efforts from the federal government intended to prop up the economy come to an end.

The other two members of the NCUA board, Rodney Hood and Vice Chairman Kyle Hauptman, are scheduled to speak on Wednesday.

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