All federally-chartered credit unions are currently examined annually, a vital element in our efforts to maintain safety and soundness. Large scale employee furloughs would necessarily result in an immediate severe lengthening of the examination cycle.

Our experience with lengthening the examination cycle beyond one year has shown that the entire examination system soon begins to deteriorate.

For the period from 1977 through 1982, the examination cycle averaged as high as 24 months, and some Federal credit unions were not examined for 36 months or longer. The longer examination cycle resulted in a dramatic increase in insurance losses. We found that in many cases when an examiner returned to a credit union after 24 to 36 months the situation was terminal and many credit unions were liquidated or merged. Also, as a result of the longer examination cycle, credit union problems generally became more critical, and the number of classified problem-case credit unions peaked at 1,192 in 1982.

Mr. Chairman, under Gramm-Rudman sequestration the examination program would become a defensive process, with greater and greater amounts of effort devoted to dealing with a growing number of problem cases.

The laudable purpose of the Gramm-Rudman-Hollings Act is to reduce our national deficit. Reducing NCUA's expenditures will not reduce the national deficit. Therefore, it is illogical and unreasonable for the Gramm-Rudman-Hollings Act to apply to the National Credit Union Administration. We believe Congress ought

to act now on this matter and not wait until the last moment when, or after, sequestration might take place.

In summary, economic change, substantial deregulation, and increased financial sophistication make it essential that agencies like NCUA have more, not less, independence if we are to recruit capable individuals for examiner positions, and, through training and compensation, develop and retain a highly skilled examiner work force.

We believe the Carper-Lundine Bill would enable NCUA to fully meet its statutory responsibilities while remaining fully accountable to the Congress, and to the credit unions we supervise and their members. Clearly, NCUA is a Federal agency and our employees are public employees subject to Congressional mandate, oversight, and legislation.

With regard to the "Truth in Savings Act", NCUA has indicated support for this measure in the past. We remain in support of this effort to ensure that consumers are as informed as possible about savings rates and fees of depository institutions.

I do not believe there is a serious problem of misinformation or confusion on fees and rates in credit unions. In preparation for this hearing, we surveyed each of our six Regional Offices on this subject. During 1985, the Regional Offices received 17 complaints from credit union members alleging misleading or deceptive advertising of rates or fees, non disclosure of fees, confusing information, and so forth. Thus far in 1986, 10 complaints have been received. Given the 46 million members of federally-insured credit unions, we regard these complaint numbers as extremely low. Since credit unions are member-owned and operated, most of the complaints were resolved internally to the members' satisfaction.

I am

While we believe the standardization called for in HR 2282 would be of great value to consumers, there is a particular problem for credit unions that we must bring to your attention. referring to a basic distinction between interest bearing accounts at banks and savings and loans and the dividends paid by credit unions. NCUA's rule on credit union share accounts requires accurate representation in all advertising, disclosure, and agreements. However, since credit union dividends are based on available current and prior earnings, they may not, as a matter of law, be guaranteed in advance.

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I am not certain how this credit union anomaly can best be

addressed. However, NCUA's staff will certainly be available to the Subcommittee to help resolve the problem.

Thank you for the opportunity to present NCUA's views on these important bills.

I will be pleased to answer any questions you may have.