Hubris is defined, briefly, as wanton insolence or arrogance. It is certainly an appropriate description of action taken recently by the board of the National Credit Union Association (NCUA), as it tries to do by regulation what Congress has opted not to do by legislation. This affront of the checks and balances built into our system of government boils down to legislation by regulatory fiat. George Washington would spin in his grave at what our governmental bureaucracy has evolved into over the past 240 years. Worse, the NCUA action is indicative of what we have been seeing the past 10 years or so … it is not an anomaly.
What the NCUA has done, essentially, is to gut the credit union member business lending caps that were clearly established by legislation in Credit Union Membership Access Act of 1998, which primarily allowed credit unions to accept multiple groups as part of their membership, thus effectively eliminating the historical requirement of a common bond of members of a credit union. The legislation set the member business lending cap at 1.75 times the credit union’s net worth, or at 12.25 percent of the credit union’s total assets. Business loans under $50,000 were exempt from this calculation, as were any portion of loans with government guarantees, such as Small Business Administration loans.
The banking industry fought hard back in 1998 to defeat the act, but it passed with little opposition in Congress. Since then, the banking industry has singularly cried foul to Congress, and the issue has not been taken up again. However, each year there are bills introduced to increase or eliminate the member business lending cap available to credit unions. The frustrating part about the NCUA decision to wade into this issue is the sheer gall of collectively thumbing their noses at Congress, which has historically set the laws for how banks and credit unions must operate. Regulators ‒ such as the NCUA, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. ‒ enforce the laws; they do not establish laws. NCUA apparently has determined that it does not need permission from Congress.
I have been involved in countless conversations with banking regulators at all levels, and I can assure you that other regulators do not share this philosophy. Time and time again, when we have asked for some form of relief from a regulation, regulators have said that we need to go to Congress, because all they can do is follow Congress’s will. In other words, regulators are simply doing what they believe Congress gave them authority to do. Clearly the NCUA does not ascribe to that logic. The NCUA has become an industry advocate, rather than a regulator tasked with the safety and soundness of the institutions they regulate, let alone any consumer protection concerns.
I believe that Congress eventually would have lifted or eliminated the member business lending limit, but there would have been a big price for it. That price would likely have been total or partial elimination of the federal tax exemption that credit unions continue to enjoy. However, there was no mention of the federal tax exemption in the proposed rule from the NCUA.
It is way past time for banks and credit unions to be put on level playing fields for product offerings, taxation, access to capital and regulation. And it is high time that regulators stay within their realm by regulating laws passed by Congress, rather than by creating law through regulation.
– S. Joe DeHaven