That's All Folks!

After writing almost 3,000 blog columns for slightly more than 11 years, this will be my last blog entry. 

I have followed credit unions for approximately 25 years over my career. This blog was just one part of my career. 

I am an outsider. I never belonged to a credit union.  For some true believers in the credit union industry, my views may have been heresy. 

My first entry was on June 16, 2009 and it looked at the NCUA Board allowing corporate credit unions to retroactively backdate their capital levels. 

Over the years, I have written about the corporate credit union crisis, the credit union taxi medallion lending debacle, the merger of banks into credit unions, and other issues. 

I have decided that this is the right time to stop writing this blog. 

However, that does not mean that I will quit following credit unions and the National Credit Union Administration. I may even opine on arbitrary actions by NCUA. 

In conclusion, I wish to express my gratitude to the people who have read this blog.

NCUA Overstates the Interest Rate Differentials Between Credit Unions and Banks

The National Credit Union Administration (NCUA) is overstating the interest rate differential between banks and credit unions for various loan and deposit products.

NCUA uses data from S&P Global Market Intelligence, which compares the national average rates for 23 common loan and deposit products at banks and credit unions, as well as the average rates for these same products at banks that converted from credit unions.

However, a 2020 paper by a Credit Union National Association economist -- Jordan van Rijn -- and others are critical of previous studies that used naive estimates from institution- and branch-level interest rate data.

The authors write that studies relying on this data are subject to selection bias. The authors note that studies using institution- and branch-level data do not reflect the actual rates paid by households, but the best advertised rate.

In other words, advertised or average rates do not control for household and loan characteristics. Therefore, the authors write that this best advertised rate may significantly differ from the actual rates paid by consumers.

The study, which examines new and used car loan rates, found that credit unions offer lower rates than banks on auto loans, but found that the interest rate differential is smaller than the interest differentials implied by institution- and branch-level data.

The paper compared its results with the data reported by NCUA. It concluded that this selection bias can explain about half of interest rate differential on new auto loans and approximately a quarter of the interest rate differential on used car loans.

Given this selection bias associated with institution- and branch-level data, which leads to an overstating of the interest rate differential between banks and credit unions, NCUA should remove this information from its website.

However, if the agency continues to publish this information, it needs to include a disclaimer that its interest rate differential data do not reflect the actual interest rates paid or received by consumers and the differences are overstated. This disclaimer should be in bold, large type at the very top of the website.

The paper, Financial Institution Objectives & Auto Loan Pricing: Evidence from the Survey of Consumer Finances, can be found on the Social Science Research Network (www.ssrn.com).

NCUA Should Publish Stress Test Results

The National Credit Union Administration (NCUA) should publish a summary of the annual supervisory stress test results for covered credit unions.

The stress test estimates losses, pre-provision net revenues, loan and lease loss provisions, and net income; and the potential impact on the credit union's capital ratio under different scenarios.

Credit unions with at least $15 billion in assets are required to perform the stress test.

However, NCUA does not publish the results from the stress test.

But NCUA should follow the Federal Reserve's example.

On June 25, the Federal Reserve disclosed aggregate results for covered banks.

NCUA should publish information on aggregate losses, pre-provision net revenue, loan and lease loss provisions, and net income for covered credit unions under the different scenarios, as well as the impact on the net worth ratio for covered credit unions.

NCUA should also publish losses by loan types.

Credit union members, as well as the industry, have a right to know the ability of these covered credit unions to absorb losses under these different stress scenarios.

Commentary: CUs Should Temporarily Suspend Cross-Collateralization During Economic Downturn

Many credit unions have cross-collateralization clauses in their membership agreements and account opening documents.

This means a credit union member's debt and savings are connected. So if a credit union member defaults on a loan at a credit union, a credit union can seize funds in the member's checking or savings account to cover the loss.

WILX News 10 recently reported that a credit union member had funds taken from his account by the credit union and applied to his past due loan. Once News 10 contacted the credit union, the credit union stated it made a mistake and refunded the money to the account.

As the United States addresses the coronavirus, a large portion of our economy has been shut down.

In the last 3 weeks, almost 17 million people have filed claims for unemployment benefits. The unemployment rate for April is expected to exceed the peak reached during the financial crisis at 10 percent.

Loan defaults are only going to increase.

While the practice of cross-collateralization benefits credit unions, it harms financially struggling credit union members, especially those of modest means.

Given the economic dislocation due to the coronavirus, credit unions should temporarily suspend the practice of cross-collateralization, if they have not already done so.

If credit unions do not voluntarily suspend this practice, credit union regulators and the Consumer Financial Protection Bureau should require credit unions to temporarily suspend the implementation of these clauses.

Aspiring Low-Income or Complex CUs

The National Credit Union Administration (NCUA) Board is proposing to allow aspiring low-income credit unions (LICU) and non-LICU complex credit unions to issue subordinated debt.

Currently, the Federal Credit Union Act only allows LICUs to issue secondary capital.

An aspiring LICU or non-LICU complex credit union is defined as a credit union that anticipates being designated as a LICU or Nnn-LICU Complex Credit Union within 24 months following their planned issuance of the subordinated debt.

For example, there are 40 credit unions with total assets between $450 and $500 million of which 21 are non-LICUs. NCUA expects this number of credit unions may increase over time. This means more non-LICUs could be designated as aspiring complex credit unions.

However, these aspiring LICUs and non-LICU complex credit unions would not be allowed to count this subordinated debt as regulatory capital for prompt corrective action purposes until they become either an LICU or non-LICU complex credit union.

But allowing these aspiring credit unions to issue subordinated debt will fuel rapid growth. This will allow these credit unions to achieve the complex credit union threshold -- permitting these credit unions to count this subordinated debt as regulatory capital.

This proposal would subvert the purpose of prompt corrective action, which is meant to curb aggressive growth.

Moreover, this proposal regarding aspiring credit unions is troubling. The Federal Credit Union Act only discusses low-income credit unions and complex credit unions. It does not mention aspiring LICUs or non-LICU complex credit unions.

This is another case of this agency engaging in regulatory fiat.

Truliant Is Not the Only "TRU" Financial Brand

Truliant Federal Credit Union (Winston Salem, NC) is suing SunTrust Banks and BB&T Corp. for trademark-infringement.

BB&T and SunTrust announced that when the merger is completed the combined entity would be called Truist Financial Corporation.

Truliant claims that the proposed name will create digital marketplace confusion, especially in the Charlotte and Triad markets.

But Truliant never protected its trademark from other financial institutions with TRU in their name.

Here is a list of active credit unions with TRU at the start of their names -- Trumark Financial (Fort Washington, PA), TruNorth (Ishpeming, MI), TruService Community (Little Rock, AR), TruStar (International Falls, MN), TruStone Financial (Plymouth, MN), TruWest (Tempe, AZ), TruChoice (South Portland, ME), TruGrocer (Boise, ID), and Truity (Bartlesville, OK).

This list does not include other financial services firms with TRU at the start of their names.

For example, TruWest says on its website that it makes the TruDifference. TruChoice on its website advertises TruAccounts, TruLoans, and TruRates.

It appears that Truliant is not the only TRU financial brand.

NCUA Should Propose the Equivalent of the Community Bank Leverage Ratio

On June 20, 2019, the National Credit Union Administration (NCUA) Board delayed the effective date of the agency’s risk-based capital rule to January 1, 2022.

The delay was meant to provide the NCUA Board time to consider additional improvements to credit union capital standards, including the equivalent of a community bank leverage ratio for credit unions.

On September 17, the Federal Deposit Insurance Corporation finalized the community bank leverage ratio rule.

The final rule implements a section of the S. 2155 regulatory reform law that directed the agencies to set a community bank leverage ratio between 8 percent and 10 percent.

Under the final rule, banks with less than $10 billion in assets may elect the community bank leverage ratio framework if they meet the 9 percent ratio and if they hold 25 percent or less of assets in off-balance sheet exposures, and 5 percent or less of assets in trading assets and liabilities.

Community banks with a leverage capital ratio of at least 9 percent will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital.

The final rule has a two-quarter grace period for a qualifying community bank that fails to meet any of the qualifying criteria. For example, if the leverage ratio slips under 9 percent, but remains above 8 percent, the community bank will be deemed to be well-capitalized during the grace period. However, there is no grace period for a community bank if its leverage ratio falls below 8 percent.

The final rule goes into effect on January 1, 2020.

Section 1790d(c)2 of the Federal Credit Union Act states that if Federal banking agencies increase or decrease the required minimum level for the leverage limit, the NCUA Board may correspondingly adjust one or more of its Prompt Corrective Action net worth ratios in consultation with the Federal banking agencies.

The NCUA Board should use its authority to issue a proposed rule this year that is equivalent to the community bank leverage ratio.

By doing so, strongly capitalized, complex credit unions could elect to receive regulatory relief from the agency's risk-based capital rule.

Read more.

Sanders, AOC Propose Postal Banking

Some bad ideas seem to never die.

Last week, Senator Sanders (I - VT) and Representative Ocasio-Cortez (D - NY) advocated for allowing the U.S. Postal Service to engage in basic banking services.

Sanders and Ocasio-Cortez wrote that the Postal Service should use its existing authority to implement a pilot program offering basic and affordable financial services.

They called on Congress to enact the Postal Service Protection Act that Senator Sanders introduced in 2013

Basic financial services would include basic checking and savings accounts, low interest loans, debit cards, automatic teller machines, check cashing, money wiring services, and online banking services.

But does the post office have the expertise to engage in banking?

This idea should be stamped: Return to Sender.

CUNA Claims MBL Victory, Then Seeks More Holes in MBL Cap

After declaring victory with respect to the member business loan (MBL) fight, the Credit Union National Association (CUNA) appears to have reversed course.

CUNA is claiming that the enactment of S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act, and the National Credit Union Administration's amended member business loan rule have given credit unions ample opportunity to make business loans. In fact, CUNA stated that these two events gave credit unions greater business lending authority than they would have received by just raising the MBL cap from 12.25 percent of assets to 27.5 percent of assets.

Here is what CUNA wrote on January 6, 2019:

"Importantly, this legislation ... carried a major charter enhancement provision, exempting one- to four-family non-owner occupied loans from the member business lending cap. Taken together with our success on the NCUA’s MBL rule, which exempts from the cap loan participations purchased from other credit unions, we can officially declare final victory on the system’s 20-year battle to restore credit union business authority. Indeed, these two changes will provide more cap space than we had been seeking in the old Royce-Udall legislation that aimed to raise the cap to 27.5%."

Now, CUNA is supporting a bill that would exclude business loans to veterans from the aggregate MBL cap.

If that was victory, what's next on CUNA's wish list?

PenFed's CEO Admits Anyone Can Join

In a January 25, 2019 opinion piece in Credit Union Times, James Schenck, President and CEO of Pentagon Federal Credit Union (McLean, VA), acknowledged that the credit union already had nationwide membership eligibility prior to its emergency merger with Progressive Credit Union (New York, NY).

The opinion piece was in response to banking trade associations criticisms of the acquisition of Progressive CU, which had an open charter, by Pentagon FCU (PenFed).

Schenck wrote:

Despite the criticism from bankers, PenFed already had nationwide membership eligibility through our existing field of membership, as well as a presence in all 50 states as a multiple-common-bond credit union.

In other words, PenFed's CEO is admitting that anyone can join.

This admission that anyone throughout the United States can join shows that the concept of common bond has become a joke.

This is just another example as to why policymakers should end the preferential tax treatment of large credit unions like PenFed.

Read the opinion piece.

Interdependency Risk and An Emergency Merger

The current narrative from the credit union industry is that the emergency merger of Progressive Credit Union (New York, NY) into Pentagon Federal Credit Union (McLean, VA) saved the National Credit Union Share Insurance Fund (NCUSIF) from the loss that would have arisen from the failure of Progressive.

However, an untold story is about the interdependency risk associated with credit unions trying to prop up Progressive CU.

As I previously pointed out, Progressive Credit Union received an exemption from the nonmember deposit cap in 2015.

A document From the National Credit Union Administration (NCUA) noted that Progressive CU in recent years primarily funded itself through nonmember deposits, which were all from credit unions.

As of December 2018, the number of nonmember accounts at Progressive were 246. These dollar value of these nonmember deposits were slightly more than $76.8 million. Nonmember deposits comprised almost 32 percent of total deposits and shares at Progressive.

In addition, Progressive CU had $52 million in uninsured shares and deposits, of which $36.25 million were nonmember deposits.

Under the scenario where Progressive CU was liquidated in an insured depositor payoff, these uninsured deposits would absorb losses before the NCUSIF.

It is possible that some credit unions that funded Progressive CU could have become impaired. But only NCUA would know if this is the case.

This emergency merger seems to have more to do with keeping losses at Progressive from cascading to other credit unions.

The NCUA needs to seriously examine this issue of interdependency risk within the credit union industry.

SchoolsFirst FCU's TIP Charter Will Allow It to Prey on Smaller CUs Serving the Education Community

Credit unions in California primarily serving the educational community should be nervously looking over their shoulders at $15.2 billion SchoolsFirst Federal Credit Union (Santa Ana, CA).

The National Credit Union Administration in the third quarter granted SchoolsFirst FCU a trade-,industry-,and profession-wide (TIP) charter serving the educational community throughout the whole state of California.

Last week, SchoolsFirst announced a merger with $1.9 billion Schools Financial Credit Union (Sacramento, CA). It is likely that this merger was facilitated by the expansion of SchoolsFirst's TIP charter to the whole state.

SchoolsFirst will likely use its TIP charter to prey on the membership of other California-based educational credit unions.

In 2016, SchoolsFirst was accused of trying to poach members from Schools Federal Credit Union (Rancho Dominguez, CA) and thereby threatening the viability of the credit union.

These smaller credit unions serving the educational community are going to have a difficult time competing against SchoolsFirst and will have a hard time remaining independent.

NCUA Denies Request on Bids for Two Failed Taxi Medallion Lending CUs

The National Credit Union Administration (NCUA) denied my request for information on bids for failed taxi medallion lenders LOMTO Federal Credit Union and Melrose Credit Union.

Teachers Federal Credit Union assumed the members and most shares as well as some loans and other assets of LOMTO FCU and Melrose CU.

In early October, I contacted NCUA seeking information on the bids for the two failed credit unions.

An NCUA spokesperson replied:

Q: Was Teachers FCU the only bidder for LOMTO? If not, how many bidders were there? If there were multiple bidders, how did Teachers bid compare to others?

A: Decline comment.

Q: Was Teachers FCU the only bidder for Melrose? If not, how many bidders were there? If there were multiple bidders, how did Teachers bid compare to others?

A: Decline comment.

Subsequently, I filed a Freedom of Information Act (FOIA) request seeking written documents, such as a bid summary of winning and losing bids shared with the NCUA Board .

On November 23, NCUA denied my FOIA request citing exemptions at 5 U.S.C. 552(b)(4), (5), (6), and (8).

But why this lack of transparency?

Unlike NCUA, the Federal Deposit Insurance Corporation discloses a bid summary regarding all bids to purchase a failed bank.

It appears that NCUA is abusing FOIA exemptions to deny access to information that another federal agency openly discloses.

Is NCUA AWOL in Examining CUs for SCRA Compliance?

Is the National Credit Union Administration (NCUA) absent without leave (AWOL) with regard to ensuring credit unions are complying with the Servicemembers Civil Relief Act (SCRA)?

On November 2, Hudson Valley Federal Credit Union (Poughkeepsie, NY) settled allegations that it violated the SCRA by repossessing vehicles owned by SCRA-protected service members without first obtaining the required court orders.

But what I found of interest in the press release was that prior to August 2014 Hudson Valley FCU did not have any written policies and procedures that address SCRA's protections against non-judicial auto repossessions.

You would have expected that one of the largest credit unions in the country would have had in place policies and procedures prior to August 2014 to ensure that the credit union was complying with the law.

Also, it is notable that NCUA was not part of this settlement. According to the press release, the Department of Justice launched its investigation after learning about two private SCRA lawsuits filed against the credit union.

This begs the question as to why there was not a referral from NCUA to the Department of Justice regarding these SCRA violations.

The evidence suggests that NCUA has not historically examine federal credit unions for compliance with SCRA. A July 2012 Government Accountability Office (GAO) report found that between 2007 and 2011 NCUA only examined 0.02 percent of federal credit unions for SCRA compliance.

But a NCUA official told GAO that the agency would start to review credit union lending practices to ensure compliance with SCRA.

It is possible NCUA examined Hudson Valley FCU and recommended remedial actions to address the credit union's SCRA issues.

To determine if NCUA has followed through on its pledge to GAO, the NCUA Inspector General should launch an audit reviewing NCUA's examination of credit unions for SCRA compliance.

Turning the Table

Over the last six years, there have been almost two dozen announced or completed deals involving credit unions acquiring banks.

It is time for banks to consider acquiring credit unions as a potential growth strategy.

The board of a credit union, as part of their fiduciary duty, must consider any merger proposal.

Members would benefit from a credit union merger into a bank. Members would receive a one-time payment for their interest in the credit union's net worth.

For example, when Nationwide Federal Credit Union merged with Nationwide Bank, the members of Nationwide FCU received almost $150 for every $1,000 in an account.

However, such a transaction is not without challenges.

A bank will need to find a credit union that would be willing to entertain a merger offer. This could take time, as key decision makers at a credit union are likely to lose roles and responsibilities after the merger.

Also, the National Credit Union Administration's regulation governing a credit union merger into a bank creates obstacles to such deals. Read 12 CFR 708a Subpart C.

To ensure that the transaction is successful, a bank and credit union should have similar cultures and the merger makes sense as a strategic fit.

Raining on the H.R. 1151 Parade

The credit union industry has been celebrating the 20th anniversary of the enactment of H.R. 1151, the Credit Union Membership Access Act of 1998.

H.R. 1151 was signed into law on August 7, 1998.

While H.R. 1151 overturned the Supreme Court decision, a careful review of the law suggests that there are a number of provisions that have been a sore point for credit unions and their trade associations.

H.R. 1151 capped business lending for credit unions at 12.25 percent of assets. Before the bill was enactment, there was not a statutory cap. Over the last twenty years, credit unions and their trade associations have failed in their attempts to raise the cap.

The bill defined net worth and subjected credit unions to statutory net worth requirement and prompt corrective action. It also required complex credit unions to be subject to risk-based net worth requirements.

The bill also imposed the requirement that a well-defined community must be local. Prior to the bill, there was not a local requirement.

The bill gave credit unions the authority to convert to a mutual savings bank charter. Unfortunately, the National Credit Union Administration has erected numerous obstacles to deny credit unions the ability to exercise this authority.

Substituting a Higher Net Worth Ratio for Risk-Based Capital Requirement

The National Credit Union Administration's risk-based capital rule is very controversial for credit unions and their trade associations.

However, recent legislation may allow the National Credit Union Administration (NCUA) to substitute a higher net worth ratio for the risk-based capital requirement for complex credit unions with less than $10 billion in assets.

A complex credit union has assets of $100 million or more.

This would require combining Section 1790d(c)2 of the Federal Credit Union Act with Section 201 of the newly enacted S. 2155 (Economic Growth, Regulatory Relief, and Consumer Protection Act).

First, Section 201 of S. 2155 requires that the Federal banking agencies establish a community bank leverage ratio of tangible equity to average consolidated assets of not less than eight percent and not more than ten percent. Banks with less than $10 billion in total consolidated assets who maintain tangible equity in an amount that exceeds the community bank leverage ratio will be deemed to be in compliance with capital and leverage requirements. In other words, banks that adopt the heightened leverage ratio would opt out of the risk-based capital requirements.

Second, Section 1790d(c)2 of the Federal Credit Union Act states that if Federal banking agencies increase or decrease the required minimum level for the leverage limit, the NCUA Board may correspondingly adjust one or more of its Prompt Corrective Action net worth ratios in consultation with the Federal banking agencies by an amount equal to, not more than, the difference between the new minimum requirement established by bank regulators and 4 percent of total assets.

If NCUA Board decides to pursue this approach, complex credit unions would be allowed to opt for a higher minimum leverage ratio, which could be 300 to 500 basis points higher depending on the final decision by federal banking regulators, in return they would not longer be subject to NCUA's risk-based capital requirements. Complex credit unions that do not meet the higher net worth requirement would be subject to the current and future net worth regulatory regime.

For example, as of the end of 2017, 917 complex credit unions with less than $10 billion in assets had a net worth ratio of at least 10 percent and 425 complex credit unions had a net worth ratio of at least 12 percent.

This substitution of a higher leverage ratio for a risk-based capital rule would provide regulatory relief to many complex credit unions by simplifying their capital calculations.

Some CU Groups Burning through Cash

Several credit union trade organizations in recent years are burning through cash like there is no tomorrow.

The lack of fiscal discipline at some credit union organizations has caused some readers of this blog to express concerns.

For example, the Credit Union Executive Society (CUES) posted four consecutive years of losses, according to its most recent Form 990s. Losses were $660,027 in 2016, $699,019 in 2015, $493,721 in 2014, and $555,721 in 2013.

The World Council of Credit Unions (WOCCU) reported losses for 2015 and 2016 of $729,955 and $1,045,977, respectively. WOCCU"s Form 990s showed a more than 50 percent cut in grants, gifts and contributions from almost $11.8 million in 2014 to less than $5.5 million in 2016. The organization's net assets fell from over $2 million in 2015 to $411 thousand at the end of calendar year 2016.

The Credit Union National Association (CUNA) reported in its minutes from the December Board meeting that the association would post a loss of $4.9 million for 2018. The loss was primarily due to the vacating its current office space at the cost of $4 million for new offices in Washington, D.C. However, CUNA expects almost $1 million in annual savings over the next 10 years on its new lease.

Unlike CUES and WOCCU, I believe CUNA's loss is a one-off event; but credit unions that belong to CUNA should carefully monitor CUNA's finances.

ROTTEN PLUMS

As a general rule, I do not publish guest columns. However, today I am making an exception, as I was not planning to opine on the following topic.

Below is a guest column by Jim Blaine, former CEO of State Employees' Credit Union (Raleigh, NC).

The recent little hatchet chop on Mark McWatters, Chairman of the NCUA, by the Washington Post ("This man runs a federal agency...", May 11th [link]) has rightfully received little notice or comment - even in Credit Union Watch! Guess most folks, including bankers, can still spot faux news and "potted plants" (i.e. planted potshots), especially when sourced out of Washington, D.C. The impression the WaPo reporter attempts to create of Mr. McWatters is mostly just foolishness, a somewhat silly fabrication - basically pure rubbish.

McWatters is in truth a breath of fresh air (and intelligence) in an agency long noted for rear-view mirror regulation and for attempting to create and solve problems which usually do not exist. The agency bureaucracy is in-bred, self-perpetuating and generally limited in vision to what they already know. NCUA's all-time low point in credibility came in a 2015 appearance before the House Financial Services Committee [ here's the link - see particularly 0:26.30; 0:32.00; and 1:21.54] in which the agency leadership aggressively dissed both Democratic and Republican representatives alike, culminating in the infamous avowal: "I don't believe that credit unions necessarily represent their members." [0:34.54] Which Representative Mick Mulvaney accurately and hilariously described as: "Self-serving crazy talk!" [1:24.00]

Which brings us to the rotten plum dilemma! As most folks know, many high level policy positions in the federal government are considered "plum jobs" filled by political insiders, party loyalists, and bureaucrats seeking to top-off lucrative 30-year pension payouts. Particularly in less important "backwaters" of government; knowledge of, experience with, and competence in the task at hand are often not foremost appointment criteria, rather political expedience and who you know are key. For the NCUA, this system of spoils has rarely assured appointment of the sharpest or brightest crayons in the Crayola box.

Credit unions, the NCUA, the American taxpayer simply got lucky with the appointment of McWatters to the Board and hit a one-in-a-million jackpot with his appointment as Chair. Clearly, the NCUA Board no longer qualifies as a political backwater. Credit unions can no longer afford the luck of the political draw for leadership at the NCUA. The financial marketplace is now far too dangerous a place - volatile and complex - and too much is at stake to risk leadership by amateurs, political or otherwise. McWatters' experience and credentials - of Federal Reserve appointee quality - should become the new standard for future NCUA Board member candidates.

Certainly the future safety of $1+ trillion in savings from 100+ million American credit union members deserve only the best and brightest? Why should we accept less?

Dr. Leggett, hoping you and the ABA will help us with this new campaign: "PLUM IS DUMB"! Can we count on your support?

CUNA Letter Fails to Address Non-Disclosure of Executive Pay at FCUs

A letter by the Credit Union National Association (CUNA) to Senator Hatch (R - UT) fails to address why federal credit unions should not be required to disclose senior executive compensation. The letter also discusssd how credit unions have evolved over time.

CUNA wrote Senator Hatch on February 6 in response to Senator Hatch's January 31 letter to National Credit Union Administration (NCUA). See my January 31 blog post on Senator Hatch's letter.

Senator Hatch noted that federal credit unions, unlike most tax-exempt organizations, do not file an informational return with the Internal Revenue Service, which includes information on senior management compensation. Senator Hatch wrote that in 2006, the Government Accountability Office (GAO) recommended that the NCUA require federal credit unions to disclose senior executive compensation; but NCUA failed to implement this recommendation. Hatch pointed out that such disclosures would ensure that federal credit unions were a good steward of their tax benefit. In other words, the taxpayer subsidy is not being diverted to excessive pay but rather towards the public policy mission of credit unions.

But CUNA's letter does not directly address the topic of disclosure of executive pay (see page 2 of the letter -- link below).

Instead CUNA states that credit unions need to be able to attract and retain quality talent. Further, credit unions, unlike publicly-traded banks, cannot issue stock or stock options as part of their executive compensation packages. Therefore, when evaluating executive compensations packages, these factors should be taken into consideration.

Additionally, CUNA states that executive pay is determined by credit union boards, who are accountable to the members, and that credit unions are closely supervised and examined by federal and state regulators.

However, if credit union boards were accountable to their members, then NCUA would not have proposed a rule requiring merger-related compensation to be disclosed to members.

CUNA's letter failed to provide a cogent argument as to why federal credit unions should not be required to disclose executive compensation.

Read the letter.