WASHINGTON — Credit unions are bracing for expanded rulemaking on compliance — and perhaps examinations — as the National Credit Union Administration board now has a Democratic majority.

Speaking at America’s Credit Unions’ Governmental Affairs Conference last week, some credit union CEOs said the focus of the agency will likely be altered, and increased consumer protection issues might be on tap.

“I would suspect that you’ll see a much greater focus on compliance and consumer protection in the coming years as I know that those topics are near and dear to [NCUA] Chairman [Todd] Harper’s heart,” said CEO Kendall Garrison of Austin, Texas-based Amplify Credit Union.

The Senate in December confirmed Tanya Otsuka as the newest member of the NCUA’s board, giving Democrats a majority of the three-person panel for the first time in seven years.

In a letter to credit unions that outlines the 2024 supervisory priorities for the NCUA, the agency said its examiners will continue an expanded review of credit unions’ overdraft programs, including website advertising, balance calculation methods and settlement processes. 

The NCUA said it will also continue to evaluate adjustments credit unions made to their overdraft programs to address consumer compliance risk and potential consumer harm from unexpected overdraft fees.

Mark Treichel, a former executive director of the NCUA who now runs Credit Union Exam Solutions, speculated on his podcast ahead of the conference that Harper might soon roll out separate consumer compliance exams and scores for credit unions. 

Harper told the Brookings Institution recently that “problematic overdraft programs and nonsufficient funds alerts include fees that aren’t reasonable and proportional.” 

Some CEOs at the conference said they now expect to see the NCUA line up more closely on many issues with the Consumer Financial Protection Bureau.

Examiners are warning credit unions to start thinking about other alternatives to NSF fees, a couple of CEOs at the conference told Banking Dive.

CEO John Holt of Rocky Hill, Connecticut-based Nutmeg State Financial Credit Union said he believes the NCUA board may lean toward eliminating or modifying “junk fees” including NSF fees and overdraft fees.  

“While I understand that some fees may appear to be junk, if this happens, my concern is that members may not like it and financial institutions will need to find creative ways to make up for those fees,” Holt said.

The $585 million-asset Nutmeg State in took in $7.3 million in fees last year, compared with $11 million the year before. 

Holt said that while compliance and regulation can be burdensome and take resources away from credit unions, the risks, including cyberattacks, are real.  

“We must continue to do everything we can to protect our members while finding efficient and easy ways to address compliance and regulation,” Holt said. 

Speaking at the conference, Otsuka did not address consumer protection but said she will focus on making sure that credit unions — especially small, low-income and minority depository institutions — can continue to stay competitive and provide affordable financial services to their members in a constantly evolving financial system.

President Joe Biden announced Otsuka's nomination in September. Her term on the NCUA board, alongside Harper and Vice Chair Kyle Hauptman, will run through Aug. 2, 2029. 

But consumer protection was not the only regulatory issue discussed at the conference. 

The $1.4 billion-asset Amplify recently completed its regulatory exam, and Garrison said liquidity and interest rate risk remain “very high priorities” for the regulatory agencies.

Otsuka said the increasing number of large credit unions with CAMELS 3 scores is a “concerning trend,” and added that she is watching it closely. 

“Broader economic challenges come on top of external pressures to adopt cutting-edge technology to compete with banks and fintech while ensuring you can prevent the next cybersecurity breach,” she said. 

In addition, she said America’s Credit Unions’ small credit union committee spoke with her about cybersecurity challenges and the potential for increased delinquencies. 

“I’ve also heard about the increasing cost of funds and a slowdown in lending growth, which has put pressure on earnings,” she said. 

Geoff Bacino, a credit union consultant and former NCUA board member, said it is critical for credit unions to keep lines of communication open with the regulator’s exam staff and its regional director.

But Carrie Hunt, America’s Credit Unions’ chief advocacy officer, did not pull any punches during her presentation. She said both the NCUA and CFPB need better oversight.

“We support efficient regulation, not unchecked authority,” she said.