As Prepared for Delivery on April 18, 2024
Thank you, Kelly and Matt for your presentation, and Gira for being available for questions. Thanks also to Kelly Lay for taking the time to learn more about the impact of NCUA’s regulations on records preservation, as they are currently written. And thank you to the leaders from small credit unions who brought the issue to our attention.
The crush of regulatory burden weighs heavily on all credit unions but is especially difficult for smaller institutions. We can’t talk about financial inclusion or talk about helping small credit unions unless we’re doing exactly what we’re doing here today: providing clarity that frees up scarce resources to focus on credit union members.
In the extreme, regulatory burden is often cited as a reason for otherwise healthy credit unions to merge out of existence. But what’s worse than the regulatory burden? Finding out credit unions are wasting time doing things that their regulator didn’t even intend them to do.
The reason we’re here is we found out credit unions were storing boxes of records – from decades ago – all because they thought we at NCUA expected them to do so. Some were even paying for storage facilities. And unfortunately, it made sense to do all this hoarder-like records retention. Because as long as you get in trouble for not having a document, but never get in trouble for having too many documents, excessive storage is not illogical.
Yesterday afternoon, we had the idea to email a couple people to ask about their specific credit union’s records preservation practices. We received back some photos of one credit union’s storage unit.
Decades of boxes, thousands of dollars a year. The credit union said that in order to prevent renting a second storage unit, they’ve paid high school students to scan some of the documents. And while scanning is a useful practice to reduce storage costs, it’s not a panacea, since without clarity from NCUA the credit union will be scanning boxes of documents they could’ve just thrown out. Plus, anyone who says “they can just scan that stuff” hasn’t had to manually scan thousands of old documents. You usually can’t just feed whole stacks of old, frayed documents through a printer. It often has to be done one at a time, especially when the edges are frayed, the paper sizes are different, or they were printed on the old dot-matrix printers with the perforated edges that have to be peeled off.
I’d like to mention how pleased I am that all three Board members not only support today’s item, but also that we feel strongly NCUA shouldn’t be inadvertently harming small credit unions. We shouldn’t inadvertently make it less appealing to run a credit union.
In the case of our Records Preservation Program, the valid reason for the rules is to ensure credit unions maintain a records preservation program for vital records in the event records are destroyed. Nobody can argue the need for this. But after fifteen years, it is time to re-evaluate the unforeseen effects of Part 749 as it is currently written. For example, are credit unions maintaining physical documents in expensive storage facilities that could be kept digitally or may not be needed at all? Even if a credit union has the wherewithal to digitize old documents, do they actually NEED to digitize papers from 1985 solely because they think NCUA wants them to do this?
If the unintended consequences of a regulation run counter to what was intended, a responsible regulator will re-evaluate and adjust. Many of you know that NCUA annually reviews one third of its regulations for updates. Over three years, all NCUA regulations are addressed. On many occasions, the Agency has taken what it has learned to clarify and re-evaluate the impact of its rules and regulations. Today’s ANPR is another demonstration of this.
Records retention provides the perfect example of the straw that can break the camel’s back. It’s just one of the many important, yet tedious requirements that can make running a small credit union a less attractive job than it could otherwise be. Thus right-sizing the regulatory burden is one way that NCUA can actually make it easier for credit union to survive once a longtime CEO retires. The job shouldn’t have to be a ‘labor of love.’
NCUA cannot control what records a credit union is required to retain for their state or for other agencies. But we can reduce unnecessary burden by ensuring our rules are clear and do not require more than what is needed. I urge stakeholders to comment on this ANPR.