Credit Union Regulator Cuts $2m from Budget, Hires Suze Orman

Last week, the credit union industry’s federal regulator warned executives to be prepared to pay supplemental assessments for deposit insurance. This week, the National Credit Union Administration (NCUA) said it’s tightening its own belts, cutting its operating budget by 8% and providing some relief to the fees the industry pays to fund the agency. The news comes as the NCUA continues its three-day-long monthly board meetings this week. The agency also announced television personality and finance advisor Suze Orman will serve as a spokesperson for the NCUA, promoting consumer confidence in credit unions and proposed a rule preventing executives at failing credit unions to receive so-called “golden parachute” compensation plans. During a scheduled meeting of the NCUA board, the agency announced it was operating 8% below its originally budgeted levels during the first half of 2010, and as a result, NCUA chairman Debbie Matz said the 2010 budget will be reduced by $2m. As a result, the federal credit unions that pay operating fees to support the NCUA will see their annual fees decrease in 2011. The $2m is a drop in the bucket compared to the $132m the credit union industry already paid this year in supplemental assessments to keep the National Credit Union Share Insurance Fund (NCUSIF) capitalized. Nor will it make up for the additional assessments that will come later this year if the fund dips below the Congressionally mandated operating equity ratio of 1.2%, as Matz projected will happen by summer’s end. But the chairman said the agency she runs is trying to provide any relief it can to members, while promoting the credit union industry. In warning of the future assessments, Matz told members of the National Association of Federal Credit Unions (NAFCU) — whom she previously served as a board member — that the level of assessments on credit unions is a direct result of the decisions executives and board members make in conducting their businesses. “We are well aware that credit unions are under enormous pressure to generate positive earnings this year,” Matz said in a press statement released in conjunction with Friday’s closed board meeting. “This is particularly difficult at a time when credit unions are paying assessments, which are required to cover other credit unions’ losses. So we have done our due diligence to ensure that any new item in the budget will be a prudent use of agency resources and credit union funds.” Combined spending by the NCUA’s central and regional offices through the first half of 2010 was about $91.6m. The agency is now projected to spend nearly $199m for all of 2010. The agency employs just more than 1,100 full time, or equivalent employees, and vacant positions accounted for most of the cost savings. In addition, the agency cut costs on some programs and reallocated funds to other initiatives. The advertising campaign featuring Orman is one such program. The campaign will focus on the federal share insurance program to promote consumer confidence in the credit union industry. Orman will be featured in television, radio, print and companion advertisements. It is projected to cost $1.7m and begin in September. “All of you who have seen ‘The Suze Orman Show’ on CNBC know that Suze really lights up the screen. She comes on the air with amazing energy and tremendous passion,” Matz said. “When she speaks directly to consumers, she serves as their trusted financial advisor. She makes complex financial issues sound perfectly clear.” The board also released a proposed rule preventing golden parachute payments to executives at troubled credit unions chartered by the federal government. The NCUA defines these payments as those made to an executive “that are contingent on the termination of that person’s employment and received when the credit union making the payment is troubled, undercapitalized, or insolvent.” The rule also prohibits credit unions from paying legal fees or other costs associated with an individual employee’s participation in an administrative hearing that results in fines or other punitive actions. The proposed policy is virtually identical to one enacted in 2009 that applies for corporate, or central, credit unions — the so-called “credit unions for credit unions” that provide loan liquidity, check and ATM processing and other administrative services to state- and federally-chartered institutions. The proposed rule comes as the number of troubled credit unions is on the rise, up 31% to 2,100 in 2010, compared to 1,600 three years ago. Write to Austin Kilgore.