A Democratic Congress, a One-Member NCUA Board, and the Exam Pendulum

Democrats took the House and Senate on Tuesday, sweeping both chambers at the expense of the party in the White House. The Friday after, I sat down with John McKechnie and Geoff Bacino, both formerly of NCUA, to talk through what it means for credit unions and for the agency that examines them.

John has seen this before. He points to 1994, when Republicans took both chambers under President Clinton, and 2006, when Democrats did it under President George W. Bush. Unusual, he said, but not unprecedented.

Oversight comes to NCUA

Senator Elizabeth Warren is expected, though not confirmed, to chair Senate Banking. Maxine Waters is likely to chair House Financial Services. John spent the two days after the election on the Hill, and staff from both parties told him to expect a lot of oversight from both chambers.

For NCUA, that oversight already has a starting point. Warren wrote the NCUA Inspector General asking how the agency operated for eight or 10 days without any board members. I haven't seen the response made public. With the gavel, she can hold hearings, and Chairman John Crews could end up in front of the committee.

Geoff noted that people who have met Crews describe him as competent and qualified, and agency staff seem to like him. His concern is that Crews could be painted with the brush of being there because everyone else was removed. Geoff wasn't sure that would be unfriendly to credit unions. He thought it might be unfriendly to the policy, and to the way actions have been taken over the last two years.

The board question

With a Democratic Senate now confirming nominees, John sees two options for the White House: leave NCUA with a one-member board, or nominate one Democrat and one Republican, which would still preserve a Republican majority. He has no indication the president will do the second. His conclusion, offered without claiming inside knowledge, is that it's not out of the question NCUA runs with one board member for the next two years.

The lawsuit by former board members Harper and Otsuka is still open. Geoff thinks it holds up nominations more than anything, or at least gives the White House a handy reason to wait. Longer term, he worries the Supreme Court's decision on removing independent agency board members will affect who is willing to take these jobs. He also expects that a Democratic administration in 2029 would ask Republican board members to resign. In a way, the nuclear option. Now everyone keeps pressing the button.

"Credit union friendly" depends on the issue

John's framework is worth keeping. On credit union activities and powers, especially when the banks are attacking, Democrats are more in line with credit unions. On regulatory balance, Republicans are. Look at CFPB. Look at overdraft. It's a balancing act, and the message has to be tailored to who you're talking to.

Geoff's rule for what passes: 218 in the House, 51 in the Senate, and the president's signature. Democrats don't have the votes to override a veto. That still leaves things to watch. John expects pro-consumer bills on overdraft and interest rate caps, including a 10% credit card cap Senator Warren is expected to push, which John thinks the president would sign. The idea behind the Credit Card Competition Act is still alive. A lame-duck move is not likely, John said, but not impossible. On the tax exemption, John sees less threat this Congress, pointing to Senator Ron Wyden's commitment to it.

The exam side

This is where I spend my time. Exams have gotten shorter. The coding has gotten kinder. NCUA may not be citing safety and soundness as a concern as much as it did in the past. The proposed CAMELS rule, the way it's written, looks backward at data as opposed to forward at risk.

John's read is that the deregulatory direction continues as long as Chairman Crews constitutes the board. Further out is a different question. If the White House goes Democrat in 2028, you probably see a bigger CFPB, and you probably see NCUA get bigger. We've seen that pendulum swing before. It could come swinging back in 2029.

Geoff tells his clients to stay the course and not get too excited. The CEOs who have been around a while understand it's a pendulum.

The full conversation is on With Flying Colors, wherever you listen and on YouTube. If you'd like to talk through what any of this means for your next exam, CUES can help.