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The people of Colorado created the Division of Financial Services (“Division”) to impartially enforce federal and state laws, rules, and regulations. Consumer Protection is our mission. The Division seeks to promote public confidence by proactively executing vigorous regulatory programs. A number of laws, rules, and regulations bind industry and regulators to strict standards for performance. They also provide the boundaries that help define industry standards and regulatory authority. When a difference of opinion emerges between a credit union and the Division, it is important for credit union officials to understand their rights; that an appeal process exists, and it is available to them. To meet this need, the Division has created this article to educate credit union officials and other interested parties concerning the appeal process. This easy-to-read overview provides a basic explanation about how an appeal can be initiated and elevated. By following the links provided to specific instructions and technical reference material, the overview serves as a framework for an in-depth study and guide for someone seeking to navigate the appeal process.
Examinations are conducted to determine the level of risk a credit union poses to its members and to the federal National Credit Union Share Insurance Fund (“NCUSIF”). Examinations are designed to be risk-focused in nature and focus on seven standard areas of risk that include credit, interest rate, liquidity, transaction, compliance, strategic, and reputation risk. The principles of risk-focused examinations are carefully considered and incorporated in an analysis to form a CAMEL rating. The CAMEL rating is a temporary assessment of the credit union’s financial condition and its operations in the areas of Capital Adequacy, Asset Quality, effectiveness of Management, Earnings, and Asset and Liability Management. The rating is an internal tool reserved for regulators whereby field examiners can communicate the perception of risk posed by a credit union. It is based on the examiners’ interpretation of risk-focused results and also incorporates subjective perspectives contributed by examiners concerning perceived risk. Economic factors also contribute to the thought process that determines a CAMEL rating. The CAMEL rating is documented in a Report of Examination that is written and submitted to the Colorado Commissioner of Financial Services (“the Commissioner”) and to the federal regulatory agencies. The final CAMEL rating issued by the Division is not eligible for an appeal because it is an internal regulatory tool to measure perceived risk, and to determine what additional supervisory measures should be considered. The rating is commonly shared with senior managers at the credit union and the Board of Directors (“BOD”) so that officials responsible for making critical decisions may better understand the examiners’ regulatory concerns. A CAMEL rating cannot be appealed, and in certain cases may be withheld from credit union officials.
At times, differences of opinion between officials and regulators arise following a full-scope examination or an interim supervisory contact conducted by the Division concerning the content or remedies stated in the draft Report of Examination issued to the Commissioner and shared with the subject credit union’s officials. To proactively avoid a misunderstanding, it is helpful if officials understand that the examination process conducted by Division is a unilateral one, existing for the regulators.
In other words, an examination is performed first, the examination report written, and CAMEL rating assigned by an examiner in order for regulators to meet their responsibilities. The examination report in its entirety is not written for the purposes of the credit union’s leadership, nor is a CAMEL rating intended to be a measurement tool for use by Management or the BOD. Instead, the CAMEL rating is meant for the Commissioner and federal regulators to determine existing or potential risks to safety and soundness, and to be a guide for developing corrective actions. There is a strong possibility that subjective perspectives and observations provided by examiners will be incorporated in a Report of Examination. The subjective aspects of a Report of Examination make it a valuable tool for regulators, but an inadequate resource for Management and BOD to use as a performance scoring tool. While there may be a small section dedicated to demonstrated success, the substantial purpose of the examination report is to document existing and potential risks and operational weaknesses.
One exception within the Report of Examination that is written for the edification of the Management and BOD is the section entitled, Required Board Actions (“RBA”). While the different sections in a Report of Examination are expected to be factually based and written in a professional manner, they are also allowed to be subjective. The specific and intended goal that makes the RBA section different however, is to separate issues that absolutely must be addressed by the credit union from those subjective issues that might not have to be addressed because they are not specifically identified in statutes, rules or regulations; nor do they present imminent safety and soundness danger. Issues that Management and the BOD are prompted to address in the RBA section should focus primarily on the issues that can be tied to statutes, rules, regulations, and safety and soundness matters.
In cases where credit union officials strongly disagree with the examination findings and/or RBA, an appeal process may be followed. Colorado law provides an appeal process that may result in an overturned order or action of the Commissioner. Depending on how serious an issue may be officials may initiate an appeal at the highest level. The Division suggests that it is beneficial to follow the following successive steps in the appeal process because it allows for multiple opportunities for a favorable review prior to a final appeal:
The Examiner in Charge (“EIC”) – First Contact in the Appeal Process:
Field examiners are responsible for conducting on-site examinations of state-chartered credit unions. They are the primary eyes and ears of the Division as they fulfill duties to gather, document, investigate, verify, and analyze information. Conclusions drawn by examiners are expected to be accurate, and fully supportable by documentation or by memory; and by sound analysis. Ratings and concerns should likewise be supportable and clearly communicated to the credit union’s leadership. Remedial plans of action should be discussed with officials with the goal of achieving voluntary cooperation and consensus solutions. Whether an examination is conducted by a single examiner or a team of examiners, each examination will be supervised by the Examiner in Charge (“EIC”). Any efforts to appeal a difference in opinion concerning findings or regulatory remedies should be initiated with the EIC. The EIC should be intimately aware of the financial condition, relevant issues, and ongoing monitoring activities. While on-site, the EIC is available to meet with officials for face-to-face discussions.
Supervisory Examiner (“SE”), Division – Internal Appeal Review:
The Supervisory Examiner (“SE”) is responsible for facilitating the Division examination program. The SE reviews each draft Report of Examination along with the work papers completed during the on-site contact and challenges the EIC to support the findings and recommendations. After making necessary edits, a final Report of Examination is issued with a goal of meeting high standards for accuracy and completeness. The SE submits results to the Commissioner and recommends appropriate and timely supervisory actions in varying degrees based on the level of risk identified. If a credit union official is not satisfied with the results of an appeal made to the EIC, then the SE may be contacted at the Division to elevate the appeal process to the Division’s supervisory level.
Commissioner, Division – Senior Appeal Review:
The Commissioner is the head of the Division. The Commissioner will hear appeals from credit union officials after communications with the EIC and SE result in an outcome deemed unsatisfactory by credit union officials, or in cases deemed so serious in nature that an appeal submitted directly to the Commissioner is required. Typically, an appeal reaches the Commissioner because the regulatory actions of the Division have escalated beyond the Required Board Actions, and a formal or final order of the Commissioner has been issued. Credit union officials may hire legal council to represent their interests before the Commissioner. If a solution cannot be negotiated with the Commissioner, credit union officials may wish to appeal to the Colorado court of appeals or to the Financial Services Board.
Financial Services Board (“FSB”) – Final Agency Action:
The FSB is the policy-making and rule-making authority of the Division and has broad administration and enforcement powers. Among them is the authority to affirm, modify, reverse, vacate, or stay the enforcement of any order, ruling or determination made by the Commissioner. Officials may file an appeal pursuant to state statutes and the FSB will notify the provider of the appeal with the date, time, and place for hearing the appeal. The appeal hearing will be conducted publicly unless the FSB is concerned about prompt withdrawals of money from the credit union providing the appeal. Per statute, the findings, order, decision, ruling, or other action of the FSB is deemed final agency action.