Senate Banking Committee ranking Republican Sen. Pat Toomey of Pennsylvania on Tuesday blasted financial regulators, particularly National Credit Union Administration Chairman Todd Harper, for emphasizing that climate change poses a risk to the stability of the financial system.
“Most credit unions are small institutions that serve their local communities,” he said, citing Harper’s recent comments that credit unions might need to change their fields of membership as a result of climate change. Toomey added “The suggestion that their fields of membership need to change because of climate change does not result from any actual risk assessment; it’s simply based on politics.”
Harper defended his position
“Financial regulators, like the NCUA, have a responsibility to foster resiliency to all material risks to financial institutions, including those related to climate change,” he said. “By measuring, monitoring, and mitigating such risks, the NCUA can fulfill its core obligations of maintaining the safety and soundness of credit unions, protecting consumers, and safeguarding the Share Insurance Fund.”
Toomey said a recent Biden Administration Executive Order would politicize the financial regulatory process. “It presupposes the conclusion that there is, in fact, climate-related financial stability risk that’s not being properly accounted for by either institutions or regulators, and it pressures supposedly independent agencies to enact backdoor environmental policy without appropriate accountability and while these agencies lack any expertise in environmental matters,” Toomey said.
But Harper said that climate change and shifts in energy policy could have a major impact on some credit unions. For instance, he said, he grew up near an oil refinery, adding that there is a credit union linked to that refinery. He said that as the nation’s dependence on oil decreases, he is concerned about the financial health of that credit union.
He also said that as NCUA examiners do their work, they should examine whether the number of homes in flood plains in a particular area pose a risk to the credit union’s stability. “Over time, climate change will affect the value of collateral like homes and commercial properties, especially in areas affected by extreme weather,” Harper said, in his written testimony.
Senate Banking Committee member Sen. Thom Tillis, R-N.C., questioned whether Harper should be tackling major issues such as climate change, since his term as a board member technically has expired.
The climate change issue also has divided the NCUA board, according to sources familiar with the agency. Those sources said that the board recently delayed consideration of the agency’s strategic plan because Harper wanted a stronger statement on climate change than his Republican colleagues wanted.
During the hearing and in his testimony, Harper touched on several issues. He said that:
- Legislation recently introduced by Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, that would cap interest on consumer loans at 36% would have no impact on credit unions. Most credit union loans are capped at 18% interest and that loans modeled after the agency’s Payday Alternative Loan program are capped at 28% interest.
- The NCUA is developing a proposal to enhance consumer compliance exam procedures for the largest credit unions that are not examined by the Consumer Financial Protection Bureau. He thinks the agency should perform targeted consumer protection compliance exams at every credit union.
- Congress should give the NCUA power to provide oversight of Credit Union Service Organizations and third-party vendors. “Currently, the NCUA may only examine CUSOs and third-party vendors with their permission, and vendors, at times, decline these requests,” he said. “Further, vendors can reject the agency’s recommendations to implement appropriate corrective actions to mitigate identified risks.”
- Congress should give the NCUA board more power to manage the agency’s Share Insurance Fund. He said that Congress should give the board the power to impose a premium on credit unions even if the fund’s equity ratio exceeds 1.30%. “Based on the current interest-rate environment, even with a return to modest insured share growth levels and relatively low credit union failure losses to the fund, the agency expects the equity ratio to continue its downward trajectory,” he said.