The National Credit Union Administration is proposing to vastly expand its power in a proposed rule governing credit union bank purchases by including Federally Insured, State-Chartered Credit Unions (FISCUs) in the rule, the National Association of State Credit Union Supervisors charged this week.
State regulators have the primary responsibility for supervising FISCUs, Brian Knight, NASCUS executive vice president and general counsel said in commenting on the NCUA’s proposed rule. FISCUs are state financial institutions and normally would be governed by state rules and laws.
“However, with the advent of this rulemaking, NCUA takes distressingly large strides down a path that appropriates for itself powers and authorities that properly reside with the states,” Knight wrote.
In January, the NCUA issued a proposed rule governing bank purchases by credit unions. At the time, agency officials said that the proposal simply clarified existing rules.
The purchase of banks by credit unions has garnered a great deal of attention in the financial community, particularly among banks, who contend that the deals allow tax-exempt credit unions to vastly increase their business, at the expense of their obligation to serve people of modest means.
NASCUS said that an overwhelming majority of the purchases have involved credit unions that are FISCUs. Between 2012 and 2018, 18 of the 20 credit unions that purchased banks were FISCUs. “Presuming the trend continues in comparable fashion, NCUA’s rule would have a disproportionate impact on FISCUs and the state system,” Knight wrote.
“The proposed rule fails to adequately distinguish between state and federal charters, ignores the practical business need for expeditious supervisory and regulatory approvals, has the potential to weaken board governance, and is in parts overly vague,” he continued. “Most troubling is the extent to which the proposed rule would usurp state authority by reaching far beyond a reasonable safety and soundness nexus,” he added.
Knight said that NCUA is trying to assert its authority to supplant state rules, adding that would be a bad idea since state agencies are the primary prudential regulator for FISCUs. For transactions involving such credit unions, the NCUA should concentrate on evaluating the safety and soundness of the institutions, he wrote.