(Jan. 28, 2022) While acknowledging that industry consolidation and regulation related to climate change are two risks NCUA should consider in the context of its five-year strategic plan, NASCUS wrote to the agency this week in part cautioning against over-regulation in both areas that might weaken services to members overall.
NASCUS made the points to the agency in a comment letter on the NCUA 2022-2026 draft strategic plan.
Regarding risk from industry consolidation, NASCUS told the agency that a measure of voluntary and strategic consolidation can strengthen the credit union system overall. However, the association said, too much regulation can be a burden that drives some credit unions to seek a merger. Such regulatory burden, NASCUS indicated, can weaken the dual chartering system particularly as federal rules preempt those of the states.
“As state autonomy is curbed by preemption, the credit union system becomes homogenized, eliminating possible alternatives to merger for overburdened credit unions,” NASCUS wrote. “Any regulations that are going to be preemptive must be precisely calibrated to avoid inappropriately hindering effective state supervision. Minimizing preemption of state regulatory and supervisory authority could materially mitigate some of the pressures that drive credit union mergers.”
On climate change, NASCUS urged the agency not to discourage service to entire communities or markets as NCUA works to deal with climate change-related effects on industries and on consumer preferences. In particular, NASCUS wrote, the agency should steer clear of suggestions that services to the agricultural sector should be de-risked.
“NASCUS has concerns that NCUA comments regarding climate change could easily be misconstrued as suggesting credit unions should de-risk agricultural communities and members,” NASCUS wrote.
“Depriving farming communities of local financial services and discouraging agricultural lending is not sound policy and runs contrary to NCUA’s self-stated second strategic goal of improving the financial well-being of individuals and communities through access to affordable and equitable financial products and services,” the association added. “In many cases, agricultural communities have limited access to financial institutions and fewer commercial and consumer credit choices. Encouraging credit unions to de-risk these communities would only further diminish their already limited options. In addition, for some small farms, the prospect of climate change is precisely the reason they need access to commercial credit to facilitate transition to climate-resistant crops.”
In other comments, NASCUS wrote:
- Under goal 1 (ensuring a safe, sound viable credit union system), NCUA should include qualifying language that acknowledges the possibility of reduced risk resulting from growth.
- Under goal 2 (improving financial well-being of members and their communities), supporting financial services for agriculturally based communities is consistent with the goal, and that that strengthening the dual chartering system will spur innovation, strengthen the credit union system, and benefit members. NASCUS also said it welcomed NCUA’s statement that it would streamline its new credit union chartering process. However, NASCUS also said the agency should bifurcate its charter application and share insurance application process to make it easier for prospective credit union founders to understand the state chartering and NCUA share insurance requirements.
- Under goal 3 (maximizing the agency’s performance), the agency should continue working with state regulators “to develop the supervision program of the future and to ensure examiner training is robust and timely.”