Wednesday, July 12, 2017

NCUA Proposes Controversial Voluntary Merger Regulation

The National Credit Union Administration (NCUA) is in the process of amending its regulations that govern a voluntary merger of a federal credit union (FCU). The comment period runs through August 7.

The proposed rule would make several significant changes to NCUA's voluntary merger regulations.

In justifying the changes to its voluntary merger regulation, NCUA Board Member Metsger stated that "[t]he net worth of the credit union belongs to the members, and they deserve a full and transparent accounting of how it is going to be used."

However, this proposal is controversial and not without its critics.

The proposal would require the merging FCU to disclose to its members all merger-related financial arrangements in whatever form they may take that are paid to its CEO, the next four highest paid employees after the CEO, the board of directors, and the supervisory committee. NCUA believes that some prospective merger partners may be seeking to influence the merging credit union by offering financial incentives to management and certain highly compensated employees to support the merger. According to NCUA staff, between 75 percent to 80 percent of all voluntary mergers reviewed had significant merger-related compensation. The transcript from the May NCUA Board meeting noted that one credit union merger had a total payout in the low seven figures to about 18 different people with four people getting the bulk of the payout.

The proposal increases the minimum time period before the member vote that the merging FCU must give to its members. The proposed timeframe is no less than 45 days and no greater than 90 days. This should give the members of the merging FCU adequate time to consider the information.

This proposal would add procedures to enable members to communicate with each other on a large scale regarding the merger. Under this proposed rule, the agency borrowed member-to-member communication provisions from its rule regarding conversion to mutual savings banks. This will allow members to share information and have discussions prior to the membership vote. This will also provide dissenting members with an opportunity to make their views known to the general membership, in hope of torpedoing the merger.

This proposal also revises and clarifies the content and format of the member notice that credit unions must send, and it makes conforming amendments to other provisions in various parts of our regulations to accommodate for these changes.

If adopted, the proposal could make voluntary mergers of FCUs less attractive.

In addition, the NCUA Board is seeking input on whether the proposed voluntary merger rule should be extended to all federally-insured credit unions, just not FCUs. The agency worries that its proposed rule, when finalized, could shift merger targets from FCUs to state chartered credit unions.


  1. what do you make of the member communication idea?
    how does that work, how does a member "communicate" with all other members?

    1. FCUs would be required to inform members that if they wish to provide their opinions about the proposed merger to other members, they can submit their opinions in writing to the merging FCU within 30 calendar days of receipt of the notice, and the FCU will forward those opinions to other members. This means that this communication can be distributed as close as 15 days before the vote, which could cause a delay in the vote.

      The member must agree to reimburse the merging credit union for the cost of transmitting the communication.

      But if a merging FCU believes the member-to-member communications is misleading, it should submit the communications to the appropriate regional director or director of ONES within seven days of receipt of the communication if it believes that the communication is false or misleading with respect to any material fact, omits material facts necessary to make the statements in the communication true or accurate, relates to a personal claim or grievance, or otherwise is not proper. An FCU, however, may not add any additional information to the member communication without prior approval.

      While NCUA acknowledges this may increase administrative burdens for the merging FCU, NCUA believes that these new rules will facilitate healthy member debate on the proposed merger.

    2. Mr. Legget, don't be so naive as to think NCUA has pure motives here.
      The member communication as it did with charter change will add tons of cost and complexity. And it's for the same reason, not member rights but NCUA jobs. That's what they and chip have in common, they need a bunch CUs to not merge.

  2. are you thinking about your answer?
    agree with the question, how does this work?
    is it necessary? if so, why?

    1. Only The NCUA or State CU regulators, not members (depositors), should be reviewing and ruling on mergers. CU Reputation risk with depositors is recklessly ignored here. Maybe the NCUSIF needs a separate agency.

      This "member communication" does not work. Members do not understand the complex, industry level topics of reorganization or compensation. They elect Directors to attend to these, and then vote with their feet if the cu's mission of member service fails. CU Democracy, then accountability are achieved.

      This "member communication" is necessary only, it seems, for The NCUA's need to preserve a # of cus required to justify it as a separate Regulatory Agency. Using members as innocents and therefore obstacles to actions like cu mergers that reduce # cus. CU Democracy and accountability are only disabled by NCUA's forcing the elected Directors to discredit themselves by disrupting member (depositor) confidence with highly complex questions on crucial decisions.

      Determining the means toward the ends for cu members are only the Board's and The Regulator's business. Only after change is disclosed and realized are the members fully qualified to hold them accountable for the outcome, and truly communicate.

    2. You are correct.
      People with nothing better to do but complain and protest are who will submit their opinions. And if the cu has a legitimate reason why the opinion shouldn't be sent, NCUA will force the cu to send it anyway or they will veiled threat that they would overturn the vote in favor of merger and force another vote.
      No member who gave their email address to the cu, did so in order to receive an opinion. They did it to conduct banking business. It's simply self preservation that NCUA is doing this. Other regulators would never do this.
      The member communication is meant to discourage merger and it's possible that cu vendors and service providers who are on a subscription model are not only behind this idea but are also behind the obstruction that will occur with it.
      Credit unions that want to do mergers are alone. That's how we feel at our cu.



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