NCUA has had a bad few weeks, to put it nicely. Right after it was revealed that the agency failed to catch a 20-year $40 million embezzlement scheme at CBS Employees Federal Credit Union, a new report by the Office of NCUA’s Inspector General poured salt on this already embarrassing wound. The report, which analyzes the causes of failed credit unions and the loss of $765.5 million to the National Share Insurance Fund over the last year, does anything but sing NCUA’s praises. In fact, the credible Inspector General blames these alarming, reoccurring industry issues on a lack of oversight by NCUA altogether. All of this as credit unions have the nerve to say they should be exempt from other oversight, like from the Consumer Financial Protection Bureau, because of NCUA!
The IG report conducted a Material Loss Review of three federally insured credit unions: Melrose Credit Union, LOMTO Federal Credit Union and Bay Ride Federal Credit Union, all of which were liquidated in 2018 due to their greedy involvements in taxi medallion lending. According to the report, “NCUA may have mitigated the loss to the Share Insurance Fund had they taken a more timely and aggressive supervisory approach regarding the credit unions’ concentration risks in their loan portfolios.” Translation? NCUA didn’t do its homework when it came to just how risky the taxi medallion loans were for these credit unions and their members. Instead, NCUA sat back with a naïve, blind faith that things would work out.
But the agency, as we know, was sorely mistaken. NCUA failed to regulate credit unions’ “unsafe and unsound lending practices, ineffective risk management, and repeat violations of certain NCUA member business lending regulations.” The agency not only failed to provide knowledgeable insight and direction to credit unions, but in doing so, it also failed the members it was established to protect – costing a total loss of $765.5 million at the end of the day.
To further emphasize NCUA’s incompetence, the report goes on to say that even when the regulator eventually recognized the forewarnings, it didn’t act fast enough. It took the agency almost three years to send credit unions a letter expressing its concerns with the safety and soundness of the taxi medallion loans. A lot can happen within three years, and many people’s financial security was on the line here. What took NCUA so long to draft a simple letter that could have prevented many of these problems down the road?
And even when NCUA finally sent the letter, the report notes it “did not provide definitive regulatory authority needed to cause significant changes to be made within the credit unions,” or in other words, the letter came off as more of a suggestion rather than a demand. And with a major lack of force from an agency that’s already perceived as a kid glove regulator, credit unions felt no pressure to pay the issue any mind. These large, profit-driven credit unions aren’t scared of their own regulator, so therefore, they dismiss any signs of regulations heading their way.
With the release of this report, the government has rubber-stamped issues we’ve continuously raised about NCUA not doing its job efficiently and effectively. And while we applaud the Inspector General for publicizing this huge problem, taxi medallion loan failures are only one example of NCUA falling asleep at the wheel. We’ve seen it again and again with embezzlement and fraud cases, severely stretched field of membership restrictions, and ridiculous mergers and acquisitions, just to name a few. More than $750 million is hardly a small loss, especially considering that this money is backed by taxpayers’ wallets. Hopefully this report will have NCUA take notice and force the regulator to make some real changes. But if history tells us anything, we can almost guarantee the agency will continue doing what it’s doing (or actually not doing). It’s time for Congress to step in and finally do something about this powerless regulatory agency.