Is NCUA on Permanent Vacation?

News & Insights

If you’re driving on a freeway and know there won’t be a cop for miles, will you follow speed limits anyway? Maybe not. And if you run America’s second largest credit union and know the cops either aren’t there or can’t figure out how to run the radar detector, is there any reason to slow down? Definitely not.  

According to the Wall Street Journal, when PenFed employees raised concerns that one of the nation’s largest and fastest growing credit unions was doing little or nothing to prevent fraud and money laundering, management turned a blind eye.

Perhaps this isn’t surprising, given PenFed’s CEO openly brags that he follows a management philosophy of “No Speed Limits.” But what was surprising was the response – or lack thereof – from the outfit charged with regulating credit unions and ensuring compliance, the National Credit Union Association (NCUA).

A recent investigative piece revealed that employees at the almost $25 billion credit union raised concerns about “understaffing, gaps in reporting of potentially suspicious transactions to the government, insufficient monitoring of wire transfers, a lack of anti-money-laundering training for senior leaders and inadequate scrutiny of potentially high-risk customers” in both 2016 and 2017. The response from regulators was crickets, which was better than the reaction of PenFed execs, who nicknamed the employees “Chicken Little” to discredit their claims.

And it gets even worse.

The article states that in 2015 NCUA said the anti-money-laundering program at PenFed was “overall appropriate.” Shortly after NCUA’s analysis, employees at PenFed began tracking and documenting issues and compliance gaps, demonstrating that even those within the industry had no confidence in NCUA’s ability to fairly analyze the program.

If NCUA isn’t carefully examining the basic regulatory programs at one of the largest credit unions in the country, what about the other 5,756 credit unions they’re supposed to be monitoring and regulating? 

Fraud and money laundering aren’t the only laws PenFed ignores in its quest to make as much money as possible.

Credit unions were founded to provide thrift to people who shared a common bond, such as place of work or church. In the case of PenFed—better known as Pentagon Federal Credit Union before their creative rebranding a few years back—that’s military families. Judging by their management philosophy (No Speed Limits!) and slogan (Great Rates for EVERYONE!!  No military service required!!!), which in and of itself makes a mockery of federal regulators, it appears the only thing PenFed requires potential customers to have in common is that they have a pulse.

In the process, the military families the credit union was chartered to serve lose out.

Which brings us back to NCUA. One would think that the people who are responsible for oversight and regulation of the industry would be alarmed by such behavior. But they aren’t. They might not even know about it. It would be one thing if taxpayers weren’t affected by PenFed’s reckless behavior, but they are. PenFed is exempt from federal income taxes, and its risky behavior is enabled because deposits are insured by the taxpayer-backed insurance fund. The fact is, NCUA’s negligence and incompetence puts taxpayers, and credit union members, in more danger.

This is just the latest in a long line of examples of NCUA being asleep at the switch. In the past, multiple CEOs of massive credit unions have been charged with embezzlement and theft, while risky loans to taxi medallions have shuttered credit unions. Throughout all of this, NCUA has continued to hand out “overall appropriate ratings” like candy.

It’s time for the NCUA to rein in big credit unions. If they continue to abdicate their responsibility, Congress needs to step in and find someone who will.