PRESIDENT BIDEN ANNOUNCES HIS INTENTION TO NOMINATE NCUA CHAIRMAN TODD HARPER TO ANOTHER TERM ON THE NCUA BOARD AND ITS INTERESTING POLITICAL DYNAMIC  

A quite interesting development on the political front at NCUA came about late Friday afternoon of last week.

President Biden announced his intent to nominate current sitting NCUA Board Chairman Todd Harper to a second successive term on the NCUA Board, something that has never been done without an expired term being involved in the almost fifty-year history of the NCUA Board and an action about which some question may find cause to question the legality.

Let’s set aside whether you agree or disagree with Chairman Harper and his regulatory agenda, one that is considerably more activist than his predecessors Rodney Hood and Mark McWatters.

The interesting part of this action is the politics behind it and what the law allows as it relates to renominating a sitting NCUA Board Member or Chairman to another term at what is supposed to be an independent federal financial regulatory agency.

WHAT DOES THE LAW SAY?

The language of the Federal Credit Union Act as it relates to the NCUA Board and appointments to serve there can be construed to make either the case that an incumbent NCUA Board member cannot be immediately nominated to succeed himself/herself or that a NCUA Board member can be nominated to serve again if he or she served an unexpired term.

The Act reads as follows:

“The term of office of each member of the Board shall be six years, except that the terms of the two members, other than the Chairman, initially appointed shall expire one upon the expiration of two years after the date of appointment, and the other upon the expiration of four years after the date of appointment. Board members shall not be appointed to succeed themselves except the initial members appointed for less than a six-year term may be reappointed for a full six-year term and future members appointed to fill unexpired terms may be reappointed for a full six-year term.”

The early language about appointees being able to succeed themselves obviously deals with those initial three NCUA Board Members nominated and confirmed to serve on the first NCUA Board in the 1970s.  In order to set up staggered six-year terms, the initial NCUA Board Members were appointed to two-year, four-year and six-year terms to establish the rotation that still exists today.

Those initial board members were obviously and clearly eligible for renomination and confirmation to serve a second successive term after their initial one.

From there the language is a bit murky.  The language does seem to indicate that a Board Member who was appointed to fill an unexpired term could be reappointed to a full term to succeed himself or herself from an unexpired term.

The issue comes about when the question is what does the law mean by “unexpired.”

When Todd Harper was initially nominated to the NCUA Board by President Trump and before he became Chairman through designation by President Biden, he was taking the seat previously held by Debbie Matz.  It was not an unexpired term in that Ms. Matz had served her full term and was in a holdover status following the completion of her term until a successor was nominated and confirmed as provided in the statute.

Ms. Matz used about a year of the next board member’s term.  So, when Mr. Harper got to the NCUA Board, there was a little less than five years left on the official term he was appointed to.  The previous term was not “unexpired” but the term he was appointed to was certainly not a full six years.

Does this mean he was appointed to an “unexpired” term?  Or was he appointed to the remainder of a term that had already been used in part by the predecessor as a holdover?

This will be the crux of the issue when Chairman Harper comes up for confirmation by the Senate.

Is immediate succession to the NCUA Board legal or not?  And, if it is in the case of an “unexpired” term, was the term Mr. Harper was originally appointed to truly unexpired or just shortened by a board member that stayed beyond the expiration of her term?

WHAT IS THE PRECEDENT?

The precedent is very clear on the question of a board member filling a true “unexpired” term where the previous board member left before the end of his or her term.

In the 1980s, Board Members Elizabeth Burkhart and Roger Jepsen were originally appointed by President Reagan to fill truly unexpired terms when their predecessors resigned before the end of their official terms.  They were both renominated and confirmed to full six-year terms on the NCUA Board.  Burkhart served as a NCUA Board Member and Jepsen served as NCUA Chairman.

And, in more recent years two NCUA Board Members – Debbie Matz and Rodney Hood – were nominated and confirmed to serve on the NCUA Board twice.  But those were not successive terms.  Both Ms. Matz and Mr. Hood left the NCUA Board after their official terms had expired, stayed out for a number of years and then were reappointed.

Therefore, it is certainly well documented that the precedent is that board members have been reappointed when they took over during a term that had not yet expired – but no immediate succession has taken place to date when the term of the predecessor had officially expired.

Is that because it is illegal?  Or is it just because it has never been done.

That will be the crux of the discussion about the Harper renomination over the next weeks and months.

There will be those, particularly in the Biden administration and among Harper supporters, that say reappointment is legal in this case because Mr. Harper did not originally get a full term when he was nominated and confirmed to succeed Ms. Matz who had used all of her term and part of his.

There will be others, probably among Republicans in the Senate and perhaps among some credit union industry leaders concerned about Chairman Harper’s activist tendencies as a regulator and particularly his overt push for a NCUSIF premium to bring the equity level in the share insurance fund to 1.5% – thirty basis points above the 1.2% level currently required by law to avoid a premium, who maintain that the independence of the agency is in jeopardy if an administration can reappoint board members to successive terms.

Some credit union leaders that we have heard from are concerned that sitting NCUA Board Members may campaign for reappointment to their board positions by carrying political water for the current administration rather than doing what those Board Members might otherwise feel is in the best interests of credit unions or the agency.

IS THE ‘INDEPENDENT’ AGENCY CONCERN LEGITIMATE?

The whole question over this renomination of Chairman Harper is certain to be fought, if there is a fight, over the question of agency independence.

The NCUA Board was created – as was the FDIC Board, the Federal Reserve Board and many other federal regulatory agency boards from the Federal Energy Regulatory Commission to the Farm Home Credit Board – to be above politics and independent from control by any single administration, Congress or political party.

That is why there must be at least one member of the NCUA Board at any time from the other political party as the party of the administration in the White House.  This legal requirement is designed to assure more than one viewpoint or philosophy in the rulemaking process.

The hope is that a bipartisan board is not only independent from control by any party, administration or congressional majority, but that a board with divergent viewpoints will produce better policy through compromise and consensus building among board members from different backgrounds and philosophy.

The concern that the Harper renomination will bring for those who want to see the NCUA Board maintain its independence and not become an arm of any administration, congressional majority or party is that the ability to renominate a sitting board member from the President’s own party can (1) make a board member lean toward policy decisions that would be popular within the administration that could reappoint them regardless of their appropriateness to the industry he or she regulates, (2) enable a single administration to have greater influence over a board member by holding his or her reappointment over their head in return for support of the administration’s agenda and/or (3)  Presidents may manipulate the “unexpired” term loophole by failing to nominate successors for a few months so that the next NCUA Board member will come in with a term that is less than six years and therefore make that Board Member eligible for reappointment.

I know of no NCUA Board Member that was ever nominated and confirmed before the official six-year term had begun running.  Administrations and Senates are just not that efficient to fill positions before the terms expire.  That is why so many board members serve as holdovers for a number of months or perhaps over a year until a successor is nominated and confirmed.

With this history and if those holdover situations result every time in a NCUA Board Member being eligible for reappointment utilizing the “unexpired” term loophole, every NCUA Board Member will be eligible for reappointment from the day they arrive at NCUA.

They can immediately begin campaigning for reappointment, thus eliminating new faces and new voices joining the NCUA Board because the same incumbent board members continue to be renominated and reconfirmed time and again.

WILL THE HARPER RENOMINATION BECOME A BIG DEAL OR NOT?

Yet to be determined.  Political decisions are either finalized or not by how viable and influential either the support or the opposition to the decision is based.

Without question, Todd Harper has solid political chops to be able to persuade the Biden administration to renominate him even though it has never been done before and the legal footing is subject to interpretation as to whether it can even be done within the law.

He will have the support of the Biden administration and likely the vast majority of the Democrats in the Senate.

That is a strong political head start.  If no opposition emerges from either Republicans in the Senate or from influential industry leaders concerned about the independence of the agency under what will result in ultimately a ten-plus year tenure from Mr. Harper (with the potential of at least seven of those years as NCUA Chairman provided President Biden is re-elected in 2024), the path of least resistance will be for the Senate to go along and confirm the Harper renomination.

NCUA is not considered a major agency.  Even though all nominations are looked at through a partisan political prism these days and many Republican senators may not like such an action at an agency that is designed to be independent, the question will present itself to them as to whether they are willing to man the battalions over the chairmanship at a small agency like NCUA.

That said, if there is industry opposition that gets legs with the Republicans in the Senate and perhaps with a handful of credit union supporting Senate Democrats, this could become a major fight.

The legal footing for the appointment can be either solid or shaky depending upon one’s reading of the law.  A strong case could be made both ways.

Then, if you add the precedent setting nature of the renomination to concerns about losing some of the independence of a federal financial regulatory agency, the emergence of strong opposition to the Harper renomination could thrust NCUA into the front lines of a major confirmation battle

In this case, the current 2-1 Republican majority makeup of the NCUA Board, the actions of Chairman Harper as holding the gavel while being the minority Democrat board member, the decisions the NCUA Board has made over the last few months and the decisions the NCUA Board is scheduled to make going forward will all become high focus on Capitol Hill – particularly in the Senate where the confirmation vote will take place.

If that were to happen, it could be a bloody battle.  And who knows the winner.

If Harper gets confirmed, he has the board position and probably the chairmanship for the next six years (four certainly depending upon who wins the presidency in 2024).  He is a huge winner in the case of Biden sticking with the nomination and the Senate going along with confirmation.

However, if the confirmation battle gets too controversial and the legal footing becomes shaky, Chairman Harper has some risk as well.

If the administration ultimately loses the confirmation battle or is forced to pull back on the nomination because of either the precedence issue, the legal justification or the concern about the independence of the agency, Chairman Harper will soon be replaced by another Democrat nominee by the Biden administration in order to get the issue behind them.

So, it’s an interesting development stemming from a late Friday afternoon White House announcement.

We will follow it for you and keep you updated as to whether the renomination remains low key, below the radar screen and sails to confirmation with no industry or Republican opposition.  Or whether it becomes a heated confirmation battle that becomes partisan with industry opposition over concerns about agency independence and future direction.

It could go either way and will be fascinating to watch.  Stay tuned.

Until next time.

Dennis Dollar