NCUA Vice Chairman Says Federal Charter Must Keep up with Changing Times
ORLANDO, Fla. (Feb. 16, 2015) – Modernizing NCUA’s field of membership regulations may have a greater impact on the nation’s credit unions than any other issue before the agency in the next couple of years, NCUA Vice Chairman Rick Metsger told attendees at the Education Credit Union Council’s Annual Conference Monday.
“The dual chartering system works most effectively when both state and federal policies keep pace with changes in the financial marketplace, equalize competitive challenges, and streamline regulatory compliance,” Metsger said. “Many states are advancing their state charters on a biennial basis and thus widening the disparity between who federal and state credit unions in the same market can serve and what they can offer consumers.
“While the overall number of charter changes has gone down the past few years, the pendulum is now skewing heavily from federal to state charters at almost a three-to-one pace over the last four years. Over a similar four-year period a decade ago, conversions ran nearly two-to-one in the other direction.”
Metsger also noted that institutions converting from federal to state charters were significantly larger than institutions converting in the other direction. During the last four years, federal-to-state charters averaged $400 million in assets while state-to-federal charters averaged $150 million in assets.
“While the regulator is bound by statute on many charter issues, other issues can be changed because they are a product of agency interpretation, not statutory mandate,” Metsger said. “Change is particularly appropriate when those interpretations are dated and no longer represent the current financial marketplace.
“Not long ago a key test of underserved areas was how many brick-and-mortar offices peppered a given geographic area. Mobile banking challenges that assumption, as do evolving definitions of rural areas and well defined community. What made sense several decades ago no longer makes sense in a more complex and interconnected world. The federal charter has become devalued and this devaluation needs to be addressed and addressed thoughtfully and carefully.”
The Education Credit Union Council’s members primarily represent the education community so Metsger addressed the issue of college affordability and the complexities of student lending.
He noted that while student grants and loans are at record levels, so is student debt. “In fact, with over $1.25 trillion dollars in student debt in this country, the indebtedness now exceeds the entire credit card debt of the country,” Metsger said.
He said that it does little to help students afford a higher education if every dollar of a student loan is met by their prospective college with an increase of $1.10 in the cost of tuition and fees.
“Grants-in-aid and student loans are meant to bolster a student’s bottom line, not the bottom line of the college or university,” Metsger said.
A number of attendees said that their credit unions were taking a cautious view towards expanding private student loans. Recent data show private student lending is up significantly on a percentage basis among the nation’s federally insured credit unions, but still represents a very small portion of total loans outstanding.
“Education is the great equalizer in our society,” Metsger said. “Our nation must focus on how to restrain the ever-rising cost of education so that grants and loans to students serve their purpose of making access to higher education a reality and not a pathway to indebtedness. Excessive student debt will also make it more difficult for the next generation to buy cars or achieve the American dream of home ownership. This could have a significant long-term impact on both families and credit unions and other financial intermediaries.”
The Vice Chairman reminded the audience that NCUA board meetings will now be streamed live beginning with the February meeting. “We are not likely to be a threat to the morning soap operas, but I hope credit union executives and directors across the country will take the opportunity to observe our deliberations in real time,” Metsger said.
“This will give interested parties an opportunity to assess issues through their own analysis rather than through the filters of others. It is true transparency in action. I hope it will broaden the discussion around the country.”
NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the United States, NCUA operates and manages the National Credit Union Share
Insurance Fund, insuring the deposits of account holders in all federal credit unions and the overwhelming majority of
state-chartered credit unions. At MyCreditUnion.gov, NCUA also educates the public on consumer protection and financial literacy issues.