Welcome to Credit Union Conversations! In today’s episode, host Mark Ritter is joined by the industry’s leading expert, Mark Treichel, to uncover the mysteries of the NCUA exam and guide you through its complexities. With insights on risk management, cybersecurity, and evolving regulations, Mark Treichel offers invaluable advice on navigating credit union challenges, especially with a new administration in place. Tune in as they discuss everything from working through exam processes, the impact of office buyouts, to the current state of credit risk and empty office spaces. Plus, get an insider's look into the concept of regulation by enforcement and how credit unions can better manage their cybersecurity efforts. Stay with us to hear Mark's advice on reaching out and getting expert assistance on your next NCUA exam.

IN THIS EPISODE:

(00:00) Introduction 

(01:34) The NCUA exam and a new administration

(09:27) Buyouts and requirements of working in person

(13:27) Credit risk management and empty offices

(19:10) Cybersecurity and regulation by enforcement

(27:53) Connect with Mark Treichel

KEY TAKEAWAYS: 

• The change in administration, particularly moving from one political party to another, significantly influences the NCUA's priorities and approach. This shift often creates chaos as new leadership adjusts priorities and regulations. 
• The NCUA is currently dealing with internal challenges, such as a hiring freeze, regulatory pauses, and staff buyouts. These factors contribute to uncertainty within the agency and affect its ability to fulfill its mission effectively. The chaotic environment could lead to turnover, with highly skilled employees either retiring or leaving for other opportunities.
• There is a focus on "regulation by enforcement," where policies are often clarified through enforcement actions rather than proper regulation. This creates ambiguity and strain on organizations, and there is a push for rules that strictly follow the intent of the law to avoid overreach and unnecessary penalties.

RESOURCE LINKS

Mark Ritter - Website

Mark Ritter - LinkedIn

With Flying Colors - Podcast

Mark Treichel - Website

Credit Union Regulatory Guidance - Podcast

BIO: 

With 33 years of experience at NCUA, I've served in key roles, including Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. Starting as a ground-level examiner, I rose to the organization's top. As Executive Director, I supervised Regional Directors, gaining unparalleled insight into NCUA's operations and decision-making processes.

Our Team

I lead a team of former NCUA experts with a combined experience of over 240 years in credit union regulation and supervision. This wealth of knowledge allows us to provide comprehensive, insider perspectives on all aspects of credit union operations and regulatory compliance.

How We Can Help

We offer assistance with a wide range of credit union challenges, including:

1. Examination preparation and response

2. Regulatory approval processes

3. Document of Resolution (DOR) issues

4. CAMEL code assessments and improvements

5. Risk management (credit, interest rate, liquidity, etc.)

6. Regulatory compliance (BSA, Fair Lending, etc.)

7. Strategic planning and corporate governance

8. Appeals and negotiations with regulators

Areas of Expertise

- NCUA examination priorities and processes

- Large Credit Union Program and ONES transition

- CFPB compliance

- Bank purchases

- Supervisory Committee guidance

- NCUA regulations and Letters to Credit Unions

CUC-Ep. 75 - Regulatory Crystal Ball with Mark Treichel-Transcript

Narrator: Welcome to Credit Union Conversations podcast with your host, Mark Ritter, a forward thinking CEO who excels in helping credit unions, small businesses, and real estate investors succeed. Join Mark as he explores current trends, interviews industry experts, and get fresh insights on optimizing your operations and delivering the best possible services to credit union members.

Mark Ritter: Hello, this is Mark Ritter, your host of Credit Union Conversations. And the CEO of MBFS, a business lending CUSO, uh, based in Pennsylvania, but we have staff and clients all across the United States and Puerto Rico, I'm proud to announce. So we would love to help you out with, uh, however we can help you out with your business members.

Mark Treichel, thanks for returning to Credit Union Conversations. Hey, Mark. It's great to see you. Great to chat with you here and looking forward to a stimulating dialogue of the changes and what's going on in the credit union world and landscape today. Sure. And just for the audience, we're going to try to debrief here and read through the the tea leaves on the NCUA's priorities.

Mark Treichel: Yes, sir. Yes, sir. I'm fully aware. And, uh, I hearken back to the day, uh, when I was there for some administrative changes, uh, while I was leading the agency as executive director and another position. So it's, uh, interesting times. Indeed. What, what is it like behind the scenes? You know, when you go from Ronald Reagan to George Bush.

Mark Treichel: Now, chairman can take a lot of input from staff. Typically they do. They can take a lot of input from other board members. Sometimes they do, sometimes they don't. But as a reminder, the Federal Credit Union Act says that the chairman of the agency is the spokesperson for NCUA. So this year, for example, Chairman Todd Harper, former chairman Todd Harper, knew his time was coming to an end.

It came to an end quicker, I think, than a lot of people thought. But he moved the getting the priority letter out up by about a week to 10 days. So it came out quicker than normal. And that's because he had the pen. So, uh, he, he took the advantage of knowing, uh, how, how the game works. So, so from the priority perspective, um, Who signs the pen and what they put in it is driven by what side of the aisle they come on.

And then Hood to Harper happened after, after I departed. So the, the pivots, when you go, I like to say it was like going from yellow. Yeah, everything was yellow. And the next day, everything was purple, right? They take both sides of the aisle, tends to tend to take a different approach. And, um, it creates. Uh, generally speaking, it creates a little bit of havoc while you're doing some of that pivot.

Uh, and you had an ad and then you're also with an administration where you had Trump who was president for four years, took four years off and comes back. I often say that, you know, when Debbie Matz was a board member, then left and came back as chair, she knew a lot more, you know, the. You know, where the bodies are buried and you know how the place runs.

Trump is of that same ilk right now. He was gone for four years. He knew the job and he knows what to do better and quicker, et cetera, et cetera. And so it gets a little chaotic because when I was there, when Trump came in the first time we had a hiring freeze, we had a pay freeze. And then they ultimately lifted the hiring freeze, you froze regulations.

The junk fees, uh, whether you agree with that or not, uh, on overdrafts and NSFs was attacked at all banking agencies. It was attacked, uh, by NCOA requiring billion dollar credit unions, uh, to file more information. And the letter talks about some things they're going to do on the, uh, on that front, right?

So, uh, the other document that isn't published. Is NCOA exam scope so that exam scope there's this long instruction that says here's what we're going to look at that piggybacks off this letter and it's only an internal document. Well that probably has already come out and it was probably influenced by, uh, by Harper.

So those kinds of discussions are challenging because right now, Hauptman's trying to get his sea legs as chairman. He's trying to. Comply with what the administration wants because he isn't hard. He's supposed to carry the water for the administration. His term is also up in August. So, uh, if he wants to stay in the limelight, he wants to stay in and have an opportunity to maybe go somewhere else.

Uh, you can see it every day. The amount of presidential orders that are coming out, the amount of statements, the things that, that they're doing again, whether you agree or disagree with what they're doing or the politics of it, they came in loaded for bear. And there were four, uh, initiatives that really, um, hit NCUA, the hiring freeze.

Which is more, I mean, if you go out on usajobs. gov and type in any agencies, there are zero jobs being announced right now, federal government zero. Um, there there's a freeze on regulations. They halted the CFPB regulations that had an, have an effective date to go in. So like the NSF fee rule, the, uh, not reporting, uh, uh, medical.

There's a lot of unknowns. So you've got pausing of of Money being spent at institutions and accusos saying hey, this is where we know we have to go We know we need to comply now. There's all these unknowns, you know, and then and then ncua Um, they've beyond freezing the regulations, they've, uh, they're offering buyouts, all the federal agencies and using, I'm using quotes around the term buyouts.

Then a judge has gotten involved because there's some lawsuits tied to it. Do they have the authority to do it? Was it done within, you know, all the, all the, is it protecting all the rights of the federal employees? And there's supposedly, uh, this coming Monday going to be a decision relative to that. So, and, and, you know, I've chatted with folks at NCO that are saying, Hey, I don't know if I'm going to take this.

I, we don't know if it's legit. Um, we don't know if we want to go, but if we do, do decide, and quite frankly, if someone's going to retire in four months. That's the kind of people that are going to go, right? So you don't really get rid of, generally speaking in those situations, you don't get rid of people that weren't going to go anyway, so it actually looks like it's saving money, but it's not.

Are these people going to be able to go? Are they not? We got the lawsuits tied to that. And then even, you know, beyond that, the whole back to the office. Structure. Um, NCUA's structure as an, when I started as an examiner, I went to the credit unions. I went back to my house at the time. I was still right out of college, living at home that first year with a typewriter typing up the reports and that's how far back I go.

Of, of, of an office and there's only three NCUA offices and there's only so much office space. So the agencies are a little bit chaotic there. You've got people that, you know, live in Albany, people that live in Montana that, that were hired to be remote and they're saying you need to get closer to an office.

So where the dust settles on that, uh, the turnover that that might create at NCUA. You know, and you tend to, when there's chaos like this, the, the really, really talented folks, uh, you know, everything's on a bell curve, right? You take the super smart people or the people who can retire, the retirement people will say, you know, I don't want to deal with this chaos.

You've got your super smart people that say, if they, let's say they shrink the force by 10, 15%, the super smart peoples, uh, who are already probably being over relied on are going to be relied on more. Or they're going to believe, cause they're the ones who can go out and say, Hey, I want to go out and work at a credit union.

Is it better? Um, not in the short term for sure. Yeah, when, when I looked at, um, board member Harper's, uh, priorities, you know, some of them were Political like the consumer protection look focusing on minority deposits. I see those. Okay. This is a democratic agenda slant. Some of them. You know, I, we're definitely more apolitical, uh, credit risk, credit risk in cybersecurity, you could throw out [00:14:00] every single year.

Mark Ritter: Uh, and it's just, that that's more of the rotations of, okay, this is our emphasis this time. Um, I really think NCUA missed the mark when it came to credit risk because. It should have been a focus on preparing for credit risk when credit risk, you know, 20 22, 20 21, when it was rock bottom, virtually zero.

And it was the, it had nowhere to go but up. And I think people are, they, they're, they're fighting the last battle. You know, the, the, what your credit risk is, is out the door. With all the growth that there's been in lending, you're right. You want to make sure that your portfolio is strong in the good times.

Um, you know, tied to real estate there, it's easy to look at the stats and say, okay, now you got to watch this closely when you, it's going to be a long run for that portfolio to turn over. So you're exactly right that, you know, the time to do it right is when times are good. And you know, as far as the credit risk, credit risk, um, you know, I've, I've criticized NCOA in the past.

Um, three or four, uh, years ago, I think they had 13 priorities. And as I've always said, if everything's a priority, nothing's a priority. And they didn't, by the way, when they go from five to 13, they don't give the examiners more time and they don't give the credit unions more time. They're just saying everything's important.

25 percent of the words tied to credit risk. So that would tie to what you're saying is you should have been talking about it more earlier, and now you're talking about a lot and the, you know, the, the, the balance sheets are full. Absolutely. You know, in my world, You know, some of the most premier and highest rated credits, uh, in 2021, 2022 were class a office space in major metro areas.

Mark Treichel: Right, right. Well, you know, and I saw, you reminded me of an article I saw recently about New York City and the percentage of, of the premier real estate office. Complexes that are, that have banks in them and all the banks bringing people back to work. And you think about the positive effect of coming back to work, um, the interactions, the growth you get, you know, net net, I think being in the office is a better thing because you develop more, um, but there will be a positive, uh, impact on commercial real estate with people going back.

It was actually because when I was deputy executive director, I got the okay to offer it to people that were in the central office because you couldn't get them to move to DC. So, um, the guy who helps me consult Steve Farr, he was the first person ever to, to get a remote. Position, you know, and then COVID hit, right?

So then jump ahead. So that was 25, 30 years ago, COVID hits and everybody's working remote. And, um, I think generally speaking, remote work works, but when you have abuses around the edges, um, it's kind of like when there's a loss at NCUA and a commercial loan portfolio and it hurts the insurance fund.

Uh, and they're net net having a conversation sitting around a table is better than doing it via zoom or or whatever I wanted to get your a N. C. U. A. Examiner insight into the topic of cyber security. I look at security infrastructure of that. Yes, you there's things you need to do. But I also look at it.

Mark Ritter: To say, if the Chinese red army or a building of Russian hackers say, we're going to go after this on a cyber attack and go after that, there is no infrastructure in the world. You can do to stop that. You would like to think you could you put up, but there's all whatever you do. There's always more. You can do.

I will say, uh, it's been our observation, um, that NCUA. Yeah, so every, every examiner has their pet peeve, but when you get to the, the, the RISOs, the regional information system officers, some of them have different things that they focus on. Um, but they'll tend to be more collaborative, um, sometimes than the safety and soundness examiners.

And everything that they ask you to do has a ticket, a, a, a price, price tag to it. And, but they'll come in this year and they'll say, okay, you, you need to stand up this, you have a, a, an issue here. They come in next year and they look at it and it's like, okay, now that you've written the policies and improved the procedures, these other things have happened and now you need to do two or three more layers.

You need to decide what you can, what you can put, uh, you know, uh, of your limited resources, what's the most amount that you can spend. And based on that, and based on what NCOA is saying, because sometimes they'll say you need to eliminate every risk, right. And that's just not reality. So. It's easy to build a fireproof building.

Mark Ritter: Nobody would ever want to live in it. Right. And you know, I, I won't get hit by a truck if I never leave my condo. Right. So, um, but if I walk out there risks, but I want to walk, you know, I want to cross the street when the lights are green, not red, and that reduces my risk. So there has to be some, some common sense to it.

Uh, and, and consumer compliance in some way, shape or form will always be on this list. But the good news is they've kind of shortened the list this year, uh, which, which is a positive. So I wanted, uh, shortly, uh, actually it might've been the day after, uh, or the day of Kyle Hauptman became chairman. He published his list of priorities, uh, and, and, and more just in a bullet point, but one of them I wanted to get your opinion on in particular.

And last fall. For the first time in 12 years, we had three credit unions in six weeks. Two of them were hit by the CFPB with fines. One of them was hit by the DOJ with fines. And I don't see that as a coincidence. Uh, particularly when some of their, the issues were years, years old. Give me your thoughts.

Mark Treichel: Uh, we're the, we're, without getting into any specifics of any of them that are out there that I thought were, um, silly, I guess I'll say is the best word I can think of at the moment. Made you wince a little bit. Made you wince, made you wince. And, and so, when you read this one, the codifying, uh, to protect regulation by enforcement, um, When I look at this, I think about the Chevron case, uh, at the Supreme Court, which said that, that law overrides everything and you can't take a law that was approved by Congress and then stretch that into a regulation And those, the [00:25:00] regulation goes beyond what the intent of what the law was that was approved by Congress.

The further extrapolation from a regulation is a letter to credit unions. Okay. That says, here's some guidance. Well, NCOA examiners use that guidance, uh, as references back to the exam report. So guidance will come out on third. There there's one that's 15 years old. That's still out there. Third party due diligence and they'll, they'll.

They'll refer to that letter. Well, that letter isn't the law. That letter was never vetted for comment. And so I really think this is him kind of honing in on the fact that there's the Federal Credit Union Act, there's the regulations, but we really shouldn't stretch much beyond that. By the way, NCUA did a webinar yesterday on their priorities.

A, uh, guidance that comes out from one of the banking agencies or something that's already out there where a lawsuit is going to be filed, whether it's through the trade association, organizing it, or a group of credit unions or a group of banks where they push back saying, Hey, this is in violation of Chevron, the regulation.

My, my intuition is telling me that the decision by the conservative Supreme court is going to lead to some things that the Trump administration will do that will then get played out in court and it will link to Chevron in some way, shape, or form. Uh, that's my biggest prediction. I think of how, what Trump is doing might impact, uh, everything, everything that relates to any law, but it can, it.

Can also relate to CFPB, NCA, OCC, FDIC. Well, I think the next year or two is going to be very interesting for one, for, for us to digging in, for helping out, um, tell people where they can listen to your podcast. And if they want some help with an exam, how they can connect with you. You got it. Thanks for that.

My website is marktreichel. com and all my podcasts are there. And I have a labor of love second podcast that I do, which is called credit union. Uh, regulatory, uh, credit union regulatory guidance, and it includes NCUA letters, OCC letters, some things that apply that come up from FDIC, and that one is AI based, so it's picture, uh, an audio book, uh, and, uh, if, Yeah, I've had this out there now for a year.

Uh, the host is Samantha shares. Uh, an AI voice that I, that I utilize and shares comes from, you know, where you might think with credit unions. Um, so those are the two podcasts. And then I'm, I'm on LinkedIn a lot. You can find me just at my name, Mark Treichel, and I've got my company pages there, uh, and reach out to me there.

Uh, you can reach out to me via my website and, uh, check out the podcast. If, if you're listening to this, you like podcasts, I think you'd probably. If you're enjoying Mark's show, you will probably might enjoy one of mine. Well, I got a seven hour flight to Paris next week. So maybe I'll just listen to a credit union regulations.

And, uh, we, we drop our episodes every Tuesday, every other Tuesday. So thank you for joining us. Uh, and we hope to see you soon.

Narrator: Thank you for listening to the credit union conversations podcast. Have a question? Visit mark Ritter. com for more information.