GAO Report on AI Calls into Question NCUA Oversight and CU’s Ability to Compete

By W.B. King

In late May, the U.S. Government Accountability Office (GAO) released a report, Artificial Intelligence (AI) Use and Oversight in Financial Services to congressional committees.

“Financial institutions’ use of AI presents both benefits and risks. AI is being applied in areas such as automated trading, credit decisions, and customer service. Benefits can include improved efficiency, reduced costs, and enhanced customer experience—such as more affordable personalized investment advice,” the report noted. “However, AI also poses risks, including potentially biased lending decisions, data quality issues, privacy concerns, and new cybersecurity threats.”

While the report also stated that federal financial regulators primarily oversee AI using existing laws, regulations, guidance, and risk-based examinations, certain regulators have issued AI-specific guidance, such as on AI use in lending, or conducted AI-focused examinations.

“Regulators told GAO they continue to assess AI risks and may refine guidance and update regulations to address emerging vulnerabilities. Unlike the other banking regulators, the National Credit Union Administration (NCUA) does not have two key tools that could aid its oversight of credit unions’ AI use,” the report continued. “First, its model risk management guidance is limited in scope and detail and does not provide its staff or credit unions with sufficient detail on how credit unions should manage model risks, including AI models. Developing guidance that is more detailed and covers more models would strengthen NCUA’s ability to address credit unions’ AI-related risks.”

The GAO’s second point is that the NCUA lacks the authority to examine technology service providers, despite credit unions’ increasing reliance on them for AI-driven services. “GAO previously recommended that Congress consider granting NCUA this authority (GAO-15-509), but as of February 2025, Congress had not yet done so. Such authority would enhance NCUA’s ability to monitor and mitigate third-party risks, including those associated with AI-service providers.”

AI Ethics Inform Competition

In response to the GAO report, Dr. David Hatami, managing director and founder of EduPolicy.ai, authored the report, The Credit Union AI Paradox: Innovation Without Navigation—There’s a peculiar Irony Playing Out in Credit Union Board Rooms across America.

Dr. David Hatami

GAO’s report reveals more than regulatory shortcomings, Hatami contends. “It exposes a fundamental mismatch between the pace of technological change and the speed of institutional adaptation,” he wrote. “While the NCUA operates with guidance from 2016, credit union members are living in 2025, expecting instant loan decisions, personalized financial advice, and fraud protection that works faster than human reaction time.”

Based in Clearwater, Fla., EduPolicy.ai is comprised of educators, policymakers, and AI experts that provide tailored solutions for research, policy development, ethics consultation, and technology integration.

“Credit unions have always succeeded on trust—trust that comes from knowing your member’s name, understanding their struggles, and making decisions based on character rather than just credit scores. But artificial intelligence challenges this model in ways that go beyond regulatory compliance,” stated Hatami who worked with seasoned credit union industry consultant Katherin Benedict on the report. She has held leadership posts at MX and Financial Health Network, among other positions.

“It's increasingly clear, especially with the GAO's recent report, that we are at a critical moment. I've consulted many clients, with significant concerns about technology transformation risks to know it's not so much the AI as it is filling knowledge gaps with credible agnostic education and resources about responsible adoption,” Benedict told Finopotamus. “So, I teamed up with an industry agnostic expert, Dr. David Hatami, a recognized AI ethicist who also has deep knowledge of the unique member-first macro and micro complexities facing credit unions.”

Among topics covered in Hatami’s report is the “AI dilemma” for smaller credit unions. To this end, he offered what he called a “sobering reality”: Nearly two-thirds of credit unions have assets under $100 million and average just seven employees.

Katherin Benedict

“These aren’t tech companies with armies of data scientists. They’re community institutions where the CEO might also handle member complaints and the compliance officer probably wears multiple hats. When these credit unions look at AI, they see both salvation and impossibility,” he noted.

“AI could help them compete with mega-banks on efficiency while maintaining their community focus. But implementing it responsibly requires expertise they don’t have and oversight frameworks that don’t exist,” he continued. “They’re caught between members who expect digital sophistication and regulatory uncertainty that makes innovation feel reckless.”

Innovating With Purpose

Stating that the credit union industry has survived and thrived by collective action, he suggested credit union leaders should not wait for regulatory guidance on AI issues. “Credit unions could be building a shared AI governance infrastructure—pooled ethics expertise, common algorithmic auditing standards, collaborative vendor accountability frameworks,” he noted. “The same cooperative spirit that started shared branching and formed Americas credit unions could create responsible AI adoption with built-in ethical safeguards.”

If credit unions aren’t proactive in navigating the new AI landscape, he said they could become “footnotes” in their own history.

“While they [regulators] debate AI governance, fintech startups are building the member relationships that credit unions pioneered. While they wait for perfect oversight, traditional banks are using AI to provide the personalized service that was once credit unions’ signature strength,” he continued. “The credit union difference was never about avoiding innovation—it was about innovating with purpose. The AI revolution offers credit unions a chance to recommit to that mission, but only if they can navigate the space between reckless adoption and paralytic caution.”