NCUA's Disclosures for Credit Unions Switching to a Mutual Bank Charter (Part I)

NCUA has had a history of prescribing how credit unions should communicate to their members regarding the issue of charter choice. However, these disclosures are speculative and misleading.

One example of a speculative and misleading disclosure is where NCUA requires a credit union that seeks a mutual savings bank charter to disclose that if a credit union switches to a mutual savings bank charter, some types of consumer loans would be less available. The goal is to frighten credit union members to oppose the change in charter.

According to NCUA’s regulations (Section 708a.1040), the agency requires “a clear and conspicuous disclosure of how the conversion from a credit union to a mutual savings bank will affect the institution’s ability to make non-housing-related consumer loans because of a mutual savings bank’s obligations to satisfy certain lending requirements as a mutual savings bank. This disclosure should specify possible reductions in some kinds of loans to members.”

First, let me set the record straight on the consumer lending authority for federal savings associations. Federal savings associations have no statutory limitations with respect to credit card loans and can make non-credit card consumer loans up to 35 percent of their assets.

Second, looking at the year-end financials for all federally-insured credit unions, I found that non-housing-related consumer loans, excluding credit cards, were only about 26 percent of all assets for federally-insured credit unions. This would suggest that a number of credit unions have already self selected not to make non-housing-related consumer loans. So, the member would not necessarily experience a reduction in non-housing-related consumer loans.

Unfortunately, NCUA’s one-size-fits-all required disclosures cause confusion, so who is misleading whom?