NCUA’s Hypocrisy Causes A Firestorm

In the light of day, NCUA’s disclosure that FIS received an information technology supervisory letter from the FDIC doesn’t appear threatening. Is that good or bad?

This past week the NCUA forwarded to credit unions an FDIC report on FIS. For most of us, the FDIC report is the kind of thing we consider confidential, something similar to what we get from our own regulator that we are not supposed to disclose. In this case, the NCUA took a different tack.

As the CEO of a CUSO, I’m already wondering what a new relationship with the NCUA will mean to my organization, so the FIS report raises many questions.Should the government use its regulatory power to issue buyer beware notices to motivate businesses to resolve issues? Does this include opinions on issues of good management practices? And can the government control the echo effect of this information? A bad report is news; will it still be news if the situation is significantly improved?

That’s one strike against releasing such reports as a general practice.

On one hand it makes sense that credit unions and banks would want more information about which vendors are doing well, which are not, and which ones should be avoided.

That’s one point for doing this as a general practice. But in this case, did the NCUA give enough guidance to help with the buying decision? Does this set a precedent we want NCUA to repeat?

Why has the government to this point not wanted the American consumer to be knowledgeable about the unsatisfactory risk management of banks and credit unions? It might be because regulators are worried about shouldering the responsibility for an opinion formed a little too easily or a harsh critique made a little too hastily. As a CUSO vendor, I would want to argue with the NCUA if its actions would ruin my brand unnecessarily, especially if it was hesitant to tell American consumers about the ratings of credit unions or banks for fear of undermining consumer confidence. Credit unions as consumers? No problem undermining their confidence. Credit union members as consumers? Bigproblem undermining their confidence. Can the regulator have it both ways?

Our industry needs great regulation. Our industry needs great regulators. Our industry needs consumers and owners to have confidence about why our solutions fit their lives. I have no inside knowledge about the practices of FIS, and I have no direct opinion about the details of the case, but I do believe regulators should not have it both ways. To publicize the weaknesses or malpractice of a vendor in order to protect a consumer is a practice that must be used judiciously and consistently.

I hope someone in Washington is considering how this FIS case might affect the credit union industry should the NCUA obtain more oversight of vendors and use that power to influence consumers. Will the NCUA act without responsibility for the correctness and consequences of its comments?

I am a proponent of regulators and rating systems being more open for consumers, and I support State Employees Credit Union using a CAMEL ratio to highlight a competitive difference. I am shocked the NCUA would consider it a dreadful breach to disclose a CAMEL score yet find it acceptable to distribute this FDIC report. If it is wrong to differentiate financial institutions on the confidential comments of an examination because it might overtly affect consumer scrutiny, how is this any different?

I am not commenting on the details of the report or on FIS. My questions and comments are meant to address our need as industry leaders to influence regulator practices so we can keep our reputations and businesses strong. If we want transparency for our buying decisions as credit unions and CUSOs, then we should demand the same for our members. Does the NCUA believe its comments about credit unions will stand in the light of day? Right now, the NCUA seems confident bullying operators behind closed doors. What do we want NCUA to do?

Once again, I remind us all that we are the system. We should use our voice to make sure all parts of the system work for our members: the owners of our cooperatives.

April 13, 2012

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