Should credit unions have a say in their regulator's business?
A financial deregulation bill that could become law next year would require the U.S. credit-union regulator to submit its budget to public comment, a change that critics say gives the industry a platform for influencing its overseer.
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The new budget process for the National Credit Union Administration has broader implications because it could set a precedent for other agencies that watch over the financial sector, such as the Consumer Financial Protection Bureau.
The NCUA currently holds public meetings on its budget voluntarily, but the bill would formalize that process.
Financial regulators like NCUA are generally funded by fees on the industries they oversee. Some, such as the consumer bureau, set their own budgets, while others must win approval from Congress. If the bill becomes law, the NCUA will be the only financial regulator required to hold a public hearing where industry can weigh in on spending.
"It is like letting the fox guard the henhouse. It is an attack on the core of independent oversight," said Debbie Matz, who was chairman of the NCUA from 2009 to 2016.
Sen. Dean Heller (R., Nev.) inserted the provision into a broader financial-regulation bill that has bipartisan support. "This would ensure that Nevada credit union members will always have their voices heard in Washington, D.C.," he said in a statement.
Mr. Heller co-sponsored similar legislation with Sen. Mark Warner (D., Va.) in 2015. Mr. Warner declined to comment. He said in 2015 that public hearings on the regulator's budget make sense "since credit union members are ultimately responsible for funding the NCUA through assessments on their institutions."
Credit unions are not-for-profit lenders, owned by their members.
Mr. Heller's provision amends the 1934 Federal Credit Union Act to require the NCUA to publish a detailed draft of its budget each year, and hold a public hearing on the spending plan where credit unions or others can comment on it.
The NCUA held annual briefings voluntarily on its budget in the past, starting in 2002, the agency says. Ms. Matz in 2009 stopped the practice, which she saw as allowing inappropriate influence.
Her decision was criticized by politically powerful credit unions, which have lobbied Mr. Heller and others to make budget hearings a legal requirement.
After Ms. Matz left, the NCUA restarted the public budget briefings. Its current governing board, which has two members and one vacant seat, is divided on the Senate bill.
NCUA Chairman Mark McWatters, a Republican, said he believes the regulator has a transparent budget process, but "I appreciate that Congress may question whether future boards will continue that approach."
Rick Metsger, the Democratic NCUA board member, said "the legislation directs NCUA to do what we are already doing voluntarily, but increases the cost for credit unions by requiring everything to be published in the Federal Register rather than just posting it on our public website."
Credit unions see budget hearings as a way to ensure the NCUA is accountable for its spending decisions.
"Credit unions would dispute the fact that we are able to tell the regulator what to do," said Ryan Donovan, chief advocacy officer at the Credit Union National Association trade group. Rather, he says, the group analyzes the budget and sheds light on areas where the agency could be more efficient, like travel expenses.
"I'm not sure we would object to a similar process" at other agencies, he said.
NCUA's operating budget was $178 million in 2009, when Ms. Matz stopped holding the briefings. It grew rapidly as the agency responded to the 2008 financial crisis and at a slower rate in more recent years. It is set at about $298 million for 2018.
Credit unions generally have argued the agency spends too much -- at least in recent history. A 2004 Government Accountability Office report said that credit unions, seeking to lower their costs, were raising concerns about the number of NCUA staff and their salaries.
This year, Jim Nussle, president of the credit union trade group, told the regulator, "We believe there is immense capacity for NCUA to reduce its footprint."
The bill containing Mr. Heller's provision passed the Senate Banking Committee on Dec. 5, and could be taken up by the full Senate in 2018.
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(END) Dow Jones Newswires
December 26, 2017 00:19 ET (05:19 GMT)