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NCUA Proposes Controversial Voluntary Merger Regulation "Credit News 24"

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.




Title : NCUA Proposes Controversial Voluntary Merger Regulation "Credit News 24"
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