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Report on NCUA's Exam & Complaint Process

The Office of Inspector General (OIG) at the National Credit Union Administration (NCUA) has issued a report on the agency’s examination and complaint processes. The report was requested by Chairman of the Senate Banking Committee Tim Johnson (D-SD).  Senator Johnson requested the study of “small” institutions and a similar request was sent to the OIG at Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation.  The existence of the OIG is required by statute and is independent of the agency in which it is housed.  The report of the NCUA OIG included natural person credit unions with assets of $1 billion or less, which is 97% of all federally insured credit unions.

According to the report, the NCUA OIG focused on NCUA’s examination process and the ability of insured credit unions to question examination results.  It does not appear that any credit union was questioned or consulted in preparing the report. Instead, the NCUA OIG interviewed and obtained documentation from the NCUA Office of Executive Director (Dave Marquis), the Office of Examination and Insurance (Larry Fazio), the Office of Consumer Protection (Kent Buckham), and Office of General Counsel (Mike McKenna) and each of NCUA’s five regional offices.  The OIG said it also reviewed agency “policies and procedures” relating to examinations and processes for credit unions to lodge complaints about their examiner or examination.  The OIG coordinated with the other agencies subject to the Senate Banking Committee’s request.

Here are key findings from the report:

• The NCUA OIG said NCUA’s examination process has “clear standards and policies” to conduct examinations.
• The report said, though, that there are “inconsistencies in the manner in which NCUA carries out procedures to implement it policies.”
• The OIG did not make recommendations regarding those inconsistencies, however, because it says the NCUA National Supervision Policy Manual, introduced to examiners in April, addressed the inconsistences. CUNA has requested that the manual be available to credit unions; the agency has not released it to credit unions yet but we anticipate sections of the manual will be accessible shortly. 
• The report said NCUA has an “adequate appeals process.”
• However, the report found that NCUA does not keep statistical information on informal examination complaints and has no written guidance that regional offices should keep statistics on their determinations.
• The report said that based on correspondence logs in the regions, the regions handle on average six exam-related complaints annually (does that seem really low to anyone?) and 85% of them are resolved in favor of NCUA (the only surprise there is that the percentage is not higher.)
• The OIG recommended that NCUA set up a national reporting requirement that each regional office provide to the Office of Examination and Insurance specific details on disputed examination issues that are brought by a credit union to the Regional Director.
• The report also addressed the agency’s Supervisory Review Committee (SRC), which is also required by statute. The report says the SRC handles material supervisory determinations.  Two appeals were received during the period of the OIG’s review, one in 2009 and one in 2010 and both were upheld.
• The report found that the “SRC’s record keeping is in need of significant improvement” and recommended that an electronic system of records for all SRC related activities be developed and maintained.

In addition, the report also looked at the NCUA’s Ombudsman, which is created by statute. The Ombudsman’s duties include following up on SRC decisions in an effort to police any retaliation, addressing external complaints of a regulatory nature, and referring complaints outside the Ombudsman’s jurisdiction to the appropriate agency officials.

The report notes that the Ombudsman, according to agency policy, is supposed to be reporting to the NCUA Board Chairman but has not done so. The report recommends that the reporting structure of the Ombudsman be changed to ensure the position reports to the Chairman or to the Board.

CUNA has a number of concerns about the report’s findings.  The report indicates that there are many issues that need to be addressed at the agency regarding examinations, such as clarifying and improving the appeals process, the role of the Ombudsman and ensuring that examination standards are clear and transparent.  CUNA will be following-up on this report after our Examination and Supervision Subcommittee reviews it in detail.

In the meantime,CUNA would like to hear from you on your reaction to this report. Specific examples you can provide regarding examination issues or concerns, or difficulties in appealing an examination directive or finding would be very useful.  Please email them to CUNA Deputy General Counsel Mary Dunn.

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