(June 6, 2007 – New Orleans, LA) During the most recent Outreach Task Force Town Hall Meeting in New Orleans, NCUA Board Member Gigi Hyland acknowledged that agency needs to do more to change its examination process in order to put Washington policy into practice in the field.
“Policy and practice have to be aligned,” she stated, echoing an argument laid out in a January 2007 policy paper issued by the National Federation of Community Development Credit Unions (the Federation) shortly after formation of the Outreach Task Force. “The Federation was ahead of the game in preparing a good, substantive paper,” she said.
The New Orleans Town Hall meeting, which coincided with the Federation’s 33rd Annual Conference on Serving the Underserved, was the first of the town hall meetings being held across the country to be heavily attended by representatives of CDCUs, which serve the nation’s poorest communities.
According to Federation Executive Director, Clifford Rosenthal, “changing the culture of NCUA” is at the top of the organization’s agenda. “If policy is not aligned with practice, we’re wasting our time,” he said after the Town Hall meeting. “We can’t have fine-sounding principles on one hand and on the other hand see small, low-income credit unions being merged away.”
Changing the examination process, is bound to cause the agency “a little bit of pain,” Hyland said, but explained that she has been meeting with NCUA officials at various levels throughout the country in an effort to achieve the necessary alignment of policy and practice. “I believe they sincerely want to help,” she said.
Some Federation members, long frustrated by the disconnect between the public statements of NCUA Board members and the way examinations of low-income and community development credit unions are actually carried out, insisted that the message is still not getting through. This, they told her, acts as a roadblock to serving the poor for both low-income and mainstream credit unions alike.
Melissa Marquez, CEO of Genesee Co-op FCU and Chairman of the Federation's Governmental Affairs Committee presents her group's responses during NCUA's Town Hall Meeting.
Melissa Marquez, CEO of Genesee Co-op FCU (Rochester, NY) and Chairman of the Federation’s Governmental Affairs Committee, noted that the New Orleans Town Hall Meeting had brought together representatives from larger “mainstream” credit unions that want to serve the poor as well as representatives from CDCUs already focused on those communities.
She related the concerns of one “mainstream” credit union representative who acknowledged their institution is not serving its low-income members, because they fear being penalized by their examiner if they accepts the higher delinquency rates and write offs that generally go with lending to the poor.
“If we are going to serve the low-income community, we need to know that examiners are not going to see that as a negative and penalize our credit union,” Marquez said.
Secondary Capital a Key Concern
The agency’s restrictive policies on secondary capital – equity-like subordinated debt that has been crucial to the growth of many low-income credit unions – also came under fire from meeting participants.
“It seems NCUA doesn’t like secondary capital,” said Terri Portillo, CEO of the $1 million Women’s Southwest FCU (Dallas, TX), “but without [secondary capital] the credit union would be in trouble. It is a big benefit. We have a plan – but it’s been more difficult with NCUA.”
At the meeting Marquez also called on the agency to use a portion of its Community Development Revolving Loan Fund for secondary capital investments in CDCUs. “It would be a natural use of those funds,” she told Hyland. “The Federation regularly shares risk with its members we believe that it was Congress’ intent for NCUA to be doing similarly with the revolving loan fund.”
Time for a Change
CDCU participants at the meeting also argued that the CAMEL rating system does not reflect the service low-income designated and community development credit unions uniquely provide, and Hyland appeared to agree.
“The agency feels CAMEL needs to be amended slightly and should not be used as a means for determining how you meet your mission,” she said. “CAMEL says only one thing: how risky you are to the insurance fund; and a CAMEL 1 may not be the best way to show how you serve your members.”
Hyland’s Town Hall Meetings come at a time when the credit union movement is facing unprecedented challenges: stagnating membership, mergers and receiverships of small institutions, and conversions to mutual savings banks by some of the largest. “We are at a crossroads for the system,” the Board Member said. “It is time to make critical decisions because it is a critical time.”
Rosenthal also acknowledged that at the same time, CDCUs also have to change. “The Federation has been at it for 33 years,” he argued. “What worked in 1974 is not what will work today. CDCUs must be adaptable.”
© 2007 National Federation of Community Development Credit Unions.