Should You Appeal, or Fix It and Move On?

Appeal when the item costs real money, restricts your ability to serve members or build capital and earnings, or reaches outside the credit union to something like a Federal Home Loan Bank credit line or an executive performance goal. Fix it and move on when compliance costs less than the fight, which is most of the time.

Start with what the item costs you

A client once described sorting every National Credit Union Administration (NCUA) comment into three buckets: a great idea worth adopting, a mediocre idea, or a bad idea that will hurt the credit union and its members. Only the bottom two require a decision, and that decision comes up over and over in a single exam.

Todd Miller ran the same arithmetic as a supervisory examiner. When his examiners brought him a Document of Resolution (DOR), one of the first things he looked at was whether the item would cost more money than it was worth. Appeals take time, and time costs money. If the fix is a small policy or procedural change, writing it into the policy is usually cheaper than proving the examiner wrong.

Set the report down for a night and reread it the next day before deciding anything.

What the appeal costs you

Every stage gives you 30 days and gives NCUA longer. The response windows, per the National Supervision Policy Manual (NSPM) 26.0 and NCUA regulation part 746:

●       You: 30 days at every stage

●       Regional Director: 30 calendar days on material supervisory determinations, 60 calendar days on all other examination complaints (Examination Complaints, p. 213)

●       Office of Examination and Insurance or the Supervisory Review Committee: 60 days

●       NCUA Board: 90 days

Run that clock on a report delivered March 31. You appeal by the end of April, hear back at the end of May, reach the Supervisory Review Committee in June, get an answer in July, appeal to the NCUA Board in August, and have a decision at the end of November. An oral hearing adds roughly 45 days at each stage where one is available. NCUA has sometimes completed the next exam and upgraded the credit union before the appeal concluded.

Two things before you start that clock. NCUA has taken the position that the 30 days begins when you receive the draft, so treat the day you learn your code as day one. And filing an appeal suspends nothing. You still have to comply with the report while you contest it.

Who reads it first

NSPM 26.0 makes the supervisory examiner responsible for investigating all complaints, unless the supervisory examiner is named in the complaint, in which case the associate regional director for programs or a designee may handle it (Examination Complaints, p. 214). The first person reviewing your argument supervised the exam that produced it.

Tie goes to the runner, the same way it does when a member complains about one of your employees: where the facts are close, you support your own staff, because morale is real. NCUA works the same way. Odds improve as you move up the chain, best at the NCUA Board and next at the Supervisory Review Committee, partly because the higher levels sit further from the people who wrote the report.

Disagreeing has a price even if you never file

The Disagreements section of the manual sets out what happens when you dig in during the exam. If management will not agree to an examiner-developed corrective action plan, the examiner-in-charge will weigh management’s failure to identify and resolve problems in the management component and the overall composite CAMELS ratings, and will add language to the DOR stating the plans were not approved by the officials, with the officials agreeing to notify the Regional Director by a set date of the actions to be taken. Where the examiner considers the problem particularly severe, the examiner-in-charge will notify their supervisor and consider drafting a Regional Director Letter (RDL). Where agreement cannot be reached and the overall risk warrants it, escalated administrative action may be recommended (p. 232).

That is the cost of standing on principle over something small. The same provision cuts the other way: the not-approved language puts your position into the administrative record, and NCUA has to build a record before it can escalate to an RDL, a Letter of Understanding and Agreement (LUA), or anything beyond.

The cheapest win comes before the report is final

NSPM 26.0 requires examiners to include management in DOR development, and provides that where management develops sustainable, lawful, and prudent corrective action that will effectively solve the problem, the examiner should use that action and note that management developed it (p. 228). The manual still frames a DOR as a set of agreements, and expects faithful performance from management on all agreements reached and documented in one (p. 223). Language, dates, and approach are negotiable whether or not the examiner presents them that way.

Expect resistance on due dates. Examiners want completion dates that line up with the next contact so they can measure progress in MERIT, the examination platform. The manual is permissive here rather than directive: examiners may consider using the next scheduled contact date to determine the timeframe for completion (p. 234). An examiner who tells you a two-year build has to be finished in 180 days is stating a scheduling preference and has room to move.

Define victory before you file

Victory is often partial. A Regional Director might eliminate one of five DORs and leave the CAMELS codes untouched. Push further and the Supervisory Review Committee might rewrite the language of a DOR while still declining to change the codes. Todd’s experience as a supervisor, and from comparing notes with other supervisors, is that written appeals at the Regional Director level are not uncommonly successful in part, with CAMELS changes or corrective actions softened or removed. Some credit unions define victory as being heard at all.

In 31 years at NCUA, Todd saw no instances of examiners retaliating against a credit union for appealing. Personality conflicts do happen, and a request for a different examiner is something a Regional Director can act on without any formal appeal. If the item is material and you believe the examiner got it wrong, file.

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