Minutes after Rick Metsger took the oath of office to become the newest overseer of the nation’s credit union industry, he walked a few blocks up the street to break bread with executives and lobbyists for the firms he now regulates.
The luncheon in his honor was held at an elegant, $4 million Capitol Hill party and meeting space called Credit Union House. It drew a tightknit group of business leaders, advocates, and regulators — the most powerful people in a financial industry that holds more than $1 trillion but that most Americans know little about.
Metsger, whose ascent they had gathered to toast, was one of their own, a fellow-true believer in credit unions who would now police the industry full-time as one of three board members of the National Credit Union Administration.
Metsger, in his coziness with his fellow-revelers, is typical of the regulators, lawyers and lobbyists who make comfortable livings shuttling between overseeing and promoting the credit union industry. Together, they guard its wholesome reputation, forged during the Great Depression, when credit unions were set up to help poor people whom banks refused to serve.
Ethics watchdogs question whether someone with such deep roots in an industry can cut through the wholesome, folksy rhetoric that its lobbyists use to push for weaker rules and less enforcement. As the NCUA board tries to fix the failures that led to a little-publicized, industry-wide bailout in 2009, the concern is especially pressing.
If the industry can persuade regulators to allow more risk in the system, the board’s decisions could plant the seeds of the next big taxpayer bailout.
“This is a person who is an advocate for the credit union industry, and he is now in charge of monitoring the credit union industry,” says Craig Holman, a lobbyist for Public Citizen, which advocates for transparency in elections and government. “It will be difficult for Metsger to question the industry’s perspective because he appears to share it in most respects.”
Metsger says he obtained approval from the agency’s ethics lawyers before attending the luncheon and paid out-of-pocket the $40-per-plate cost of food for him and his family.
After inquiries from the Center for Public Integrity, the NCUA’s inspector general is reviewing the lawyers’ advice to Metsger and revisiting the agency’s earlier analysis of any potential financial conflicts, according to Sharon Separ, who oversees investigations for the independent, internal watchdog office. A formal investigation would follow if the facts warrant it, she said.
Credit union advocates work hard to cultivate the industry’s image as quaint and community oriented. In reality it’s a massive and growing business. In 2012, the nation’s 6,800-odd credit unions — with 94 million depositors — earned $8.5 billion in net income and held more than $1 trillion in assets. The biggest credit union, Navy Federal, holds $55.4 billion in assets and earned $792.3 million last year. It recently became the nation’s 20th-biggest mortgage originator.
Like banks, credit unions provide financial services such as deposit accounts and loans to consumers. Unlike banks, they are barred from risky activities that would not serve customers, like investing in most derivatives, and are exempt from paying most taxes. They are required to return excess earnings to their member-customers, for example by offering lower rates on loans or higher interest on deposits. The tax exemption is expected to cost the government $1.66 billion next year, according to the White House’s budget office.
“This isn’t a charity, it’s big business,” says Marvin Umholtz, a former credit union executive who now consults for both credit unions and banks.
The National Credit Union Administration board is charged with supervising the industry and overseeing the $11.7 billion fund that insures credit union deposits, so that customers are protected if their lender fails. To prevent costly failures, the board monitors the industry and imposes sanctions on weak credit unions. In effect, the board controls how much risk the institutions can take on, and how quickly they can expand.
The board’s expansionist policies have helped credit unions add more than 11 million members in the past 10 years and boost lending more quickly than banks. Their assets have doubled since 2001.
”You can think of them as providing regulatory oversight, but you can also think of them as cheerleaders and enablers,” says Kathleen Clark, an expert in government ethics and professor at Washington University School of Law. It’s a common problem when regulators are “ideologically in line” with the companies they oversee, she says.