PRESIDENT TRUMP NOMINATES A NEW NCUA BOARD MEMBER TO FILL THE SPOT CURRENTLY HELD BY MARK MCWATTERS WHOSE TERM EXPIRED IN 2019

There’s about the be a new name being discussed in credit union land. Kyle Hauptman from the State of Maine.

 Mr. Hauptman was announced with a notice of Intent to Nominate to the NCUA Board today by President Donald Trump. If confirmed, he will fill the remaining five years on the NCUA Board term presently held by Board Member Mark McWatters. Mr. McWatters term actually expired last August, and he has been serving in a holdover status since that time.

 From our sources within the Trump administration, we had heard Mr. Hauptman’s name referenced as one of three finalists for the position for several months. While we as always protected the name and our sources about Mr. Hauptman, it did give us the opportunity to do some checking on him.

 By all accounts, he is a very well qualified candidate with extremely strong political credentials which – let’s face it – has a lot to do with whether a candidate can pull off a presidential nomination to a Senate confirmed position such as the NCUA Board.

 Mr. Hauptman has a background in finance with a MBA from Columbia University and a BA from UCLA. He has been involved in Republican political circles for a number of years, having served as a financial services policy advisor to 2012 GOP presidential nominee Mitt Romney and also on the presidential transition team for President Trump following his 2016 election.

 He also served on the Securities and Exchange Commission’s (SEC) Advisory Committee for small and emerging companies before joining the staff of US Senator Tom Cotton (R-AR) as a key economic policy advisor and as Staff Director of the Senate Banking Economic Policy Subcommittee that Senator Cotton chairs.

From all accounts, he is a strong free market supporter with a regulatory philosophy that is more oriented toward effective than excessive regulation. All who know Mr. Hauptman indicate that he should be an advocate for a less activist approach to regulation – much along the lines of NCUA Chairman Hood.

 Interestingly, the Hauptman name has sat in the rumor mill for several months to those of us who follow NCUA politics. Many had come to believe that he might never actually get the nomination with the 2020 election getting so close and the prospects for Senate confirmation becoming more challenging as the clock winds down to the election which will determine both who will be making such nominations over the next four years (the President) and who will be in charge of confirming them (the majority party in control of the US Senate).

 In fact, many observers had come to expect that nomination would almost certainly not be forthcoming before the election. The feeling among those observers was that Mr. McWatters would likely serve as a holdover NCUA Board member at least through the end of 2020 and perhaps into 2021.

 What none of those observers saw brewing was something that we have presented to you in several recent Client Updates – the emerging partnership of Mr. McWatters, a Republican, with NCUA Board Member Todd Harper, a Democrat, in direct opposition to Republican Chairman Rodney Hood on a number of key issues.

 As we discussed following the May NCUA Board meeting, McWatters and Harper joined together to defeat a proposal by Chairman Hood for some flexibility in overdraft fee charge-offs as a consumer protection from undue collection burden during the COVID crisis.

 In that same month’s meeting at the closed board meeting, McWatters and Harper again outvoted Chairman Hood on a field of membership appeal that many inside and outside the agency felt was a strong case justifying reversal from a very tight interpretation on associational SEGs.

 When these two recent policy actions are considered, coupled with McWatters verbal support of Mr. Harper’s December 2020 NCUA budget proposal for a new consumer protection division within the agency, it is not difficult to see how Chairman Hood could conclude that this lack of support from his fellow Republican board member (McWatters) was something that might need to be addressed in some way politically.

 After all, for the first year of the Hood chairmanship after he replaced McWatters as chairman, the two voted in lock step and seemed to share a common regulatory philosophy. 

 There were quite a few 2-1 votes with Hood and McWatters out-voting Mr. Harper.  The two Republicans seemed to be in sync.  Then something changed.

 While I don’t know if Chairman Hood actually elected to personally address this matter through political circles at the White House because no one can and would confirm it, I know for a fact from my own experience that a NCUA Chairman can choose to go to the White House and plead the case for a more supportive board member – particularly one from the same party as the President and the Chairman.

 It has happened before with chairmen of both parties.

 No chairman would do so if the other board member from his or her own party was supportive of the direction the chairman was leading the agency; however, with only a six-year term to work with and a pending election that could conceivably result in a new chairman after a new president in sworn in next January, it is not out of the range of reason to assume that a chairman might at least reach out to the White House with a request for consideration of a new board member – particularly when the non-supportive board member’s term has expired almost a year ago and he is now in political cahoots with his Democrat board colleague to undermine the President’s chosen NCUA Chairman.

 Again, I have no inside information that validates whether Chairman Hood contacted the White House about the NCUA Board dynamic.  Mr. Hood is much too smart of a political operative to allow that word to get out if he did.  And he may well have elected to let the reports of the board’s recent actions to speak for themselves with the White House – which actually follows the activity at regulatory agencies as a part of the President’s regulatory relief initiatives.

 But let’s remember that Mr. Hood replaced Mr. McWatters as President Trump’s chosen NCUA Chairman only after a year or so of Trump’s bestowing of the gavel to Mr. McWatters. So Hood obviously has some stick at the Trump White House.  You don’t bump a sitting chairman of the same party by accident.

 It would appear that Mr. McWatters forgot that basic lesson of politics when he began teaming up with Board Member Harper – or else, as some observers inside and outside the agency feel, he ignored that lesson in order to try to stick it to the guy who replaced him as chairman.

 I don’t know which is the case.  Or if either is the case.  This may have just happened without any political considerations.  But this is Washington.  Normally things like nominations and the timing of them carry some type of political component.

 I’ve always personally liked and respected Mr. McWatters.  I largely agreed with his regulatory philosophy as both chairman and a board member. However, something has obviously turned him on Chairman Hood as reflected in his obvious partnership with Mr. Harper in recent months when contrasted with his earlier down-the-line support of the Chairman’s positions during their first months together.

 It is almost certain that – in some way – this unusual board dynamic with a division among the two Republican board members, which played out so dramatically at the May 2020 NCUA Board meeting and was widely reported in the press, was one of the factors in bringing about an apparent nomination of a new Republican NCUA Board Member in June 2020. 

 After all, the possibility of a nomination had languished for months and seemed unlikely to happen until the board political realignment left Chairman Hood without a majority he could count on when a vote comes before his own board.  Someone at the White House in the Personnel Office, or higher, decided to do something about it.  

 So, the inside baseball continues at NCUA. And a new NCUA Board Member appears to be well on the way to nomination and presentation by the Trump administration to the Senate Banking Committee for hearings and possibly (and, I emphasize, possibly) a vote before the end of the year.

 The reason that I caveat the possibility of a vote and confirmation of Mr. Hauptman before the end of 2020 is that election politics is going to make any and all nominations controversial for the remainder of this year.

 It is not at all certain that a hearing and a vote will come in 2020. With Republican control of the Senate up for grabs in this year’s election, there will be a strong move by Democrats to block any Republican nominee that will (as would be the case with Hauptman) give the GOP a majority on a regulatory board regardless of what happens in the presidential election this November.

 The other side of the coin of the aforementioned Democrat opposition will be the desire of Republicans to get as many nominees confirmed before the November election in which both the White House and their Senate majority are up for grabs.

 With only a majority vote being required to confirm a nominee unlike the 60 votes previously required before former Senate Majority Leader Harry Reid (D-NV) imposed what is known as the “nuclear option” during the days of Senate Democrat control, it is possible that the Republicans may push through as many nominees as possible before election day. In that case, Hauptman may well get confirmed and be serving on the NCUA Board by fall.

 If not and the Democrats are able to stymie the Republican confirmation efforts in some way, then it is possible that Mr. Hauptman may join the list of NCUA nominees that never made it to the board. (See Gonzales, Gilbert; Herrera, John; and Decker, Carla)

 This will be interesting to watch. And we will keep you up to date through the process.

 In the meantime, be prepared to hear a lot about Kyle Hauptman. Again, all accounts are that he would be a good NCUA Board Member from a regulatory philosophy point of view.

 The question is whether he makes it through the nomination and confirmation process. That will be the subject, we are sure, of future Client Updates.

 Until next time. Stay safe.