Hello, this is Samantha Shares. This episode covers The American Bankers Association Trade group’s letter to N C U A Board Chairman Todd Harper on N C U A’s on the agencies improved transparency. This letter demonstrates the challenges of N C U A’s recent public comments that are negative towards credit unions. The letter uses these references to attack N C U A and credit unions.
The following is an audio version of that letter. This podcast is educational and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated, whose team has over two hundred and Forty years of National Credit Union Administration experience. We assist our clients with N C U A so they save time and money. If you are worried about a recent, upcoming or in process N C U A examination, reach out to learn how they can assist at Mark Treichel DOT COM. Also check out our other podcast called With Flying Colors where we provide tips on how to achieve success with N C U A.
And now the letter.
October 15, 2024
The Honorable Todd. Harper Chairman
National Credit Union Administration
Dear Chairman Harper:
The American Bankers Association (A B A) commends the National Credit Union Administration (N C U A) for its renewed focus on credit union transparency. As credit unions grow and become more complex, proper disclosure of pertinent information to credit union member-owners and the public gains importance. In addition to recent reporting changes for credit unions with more than $1 billion in assets regarding fee practices,1 a new proposal on executive compensation transparency for federal credit unions will provide greater accountability within the credit union system. With the White House Office of Management and Budget indicating that the N C U A may issue a Notice of Proposed Rulemaking as soon as this month,2 we urge the N C U A to implement additional transparency requirements relating to the increasingly complex and
concerning activities of some credit unions, namely merger transactions involving banks. Specifically, we urge the N C U A to require such credit unions to receive membership approval, disclose financial terms, and
demonstrate how combinations with banks might impact consumers, communities, and taxpayers.
In 2007, the N C U A organized an Outreach Task Force in response to inquiries from Congress3 – and a subsequent report by the Government Accountability Office4 – on credit unions. Among other topics, the Task Force examined N C U A policies and procedures on senior executive compensation. Although state-chartered
credit unions disclose compensation data for key employees through IRS Form 990 like most other nonprofit organizations, federal credit unions are exempt from doing so given their status as federal instrumentalities. In its 2008 report to the N C U A Board, the Task Force concluded that disclosure of senior executive compensation would be “consistent with prevalent public policy and should enhance accountability to the [credit union]
members,” and align with “federal credit unions’ member-owned, demoC R Atically-controlled status.”5
Due to their cooperative structure, credit unions afford their members “the right to vote on strategic federal credit union decisions including the directors, mergers, and conversions.”6 Because the results of such votes can directly affect senior executive compensation, the “Task Force concluded members should know or have access to senior executive officer compensation information when deliberating on how to cast their vote.”7
| | |
Given the importance of merger transactions in the life of an organization, transparency about the possible personal incentives of management related to the transaction is especially important.
While mergers between credit unions and the acquisitions of credit unions by banks require membership votes, the acquisitions of banks by credit unions do not.8 In December 2023, the N C U A’s Director of the Office of Examination and Insurance stated in a memorandum to you that “a credit union's purchase of a bank is typically a strategic action to expand its geographic footprint or to grow a loan program.”9 The
memorandum noted that the N C U A approved 64 bank transactions with credit unions between 2011 and September 30, 2023, “a small portion of the overall consolidation occurring in the financial services
marketplace.”10
However, credit union acquisitions of banks now represent a much larger share of total transactions.
According to an October 3, 2024 report from the American Banker, “about 90 bank sales were announced
through September,” and “credit union buyers were involved in nearly a fifth of the deals to date this year.”11 The 18 deals announced so far in 2024 have already eclipsed the record 16 set in 2022, and total bank assets targeted by credit unions so far this year – more than $9 billion – have surpassed 2022’s record $5.15
billion.12 C N B C also reported that you are aware of “12 more potential deals that are in the works.”13
Credit unions have a statutory mission to serve those of modest means connected through a common bond in a local area. That mission of service, and their not-for-profit structure, has justified their exemption from most taxes and the Community Reinvestment Act (C R A) for decades. As growth-oriented credit unions pursue new markets and commercial lending via bank acquisitions, legislators, regulators, and even some within the credit union movement have raised objections.
To the detriment of credit union member-owners whose capital is used to finance these transactions, terms are rarely disclosed. For the few credit unions that have publicized such information, cash offers to bank shareholders ranged from $26.2 million14 to $231.2 million15 this year.
In its newly released bank merger policy statement, the Federal Deposit Insurance Corporation (FDIC) acknowledged that acquisitions of banks by credit unions “may have a negative impact on state and local government budgets and communities, which could necessitate an increase in taxes.”16 The FDIC specified that it may require credit unions to “provide additional information to enable the FDIC to evaluate the convenience and needs statutory factor, as credit unions are not subject to the C R A.”17
Several states have also determined that credit unions are unable to acquire banks under state law.
Mississippi and Tennessee have enacted legislation on this issue whereas other states have made regulatory determinations.
Although the N C U A issued a proposed rule on combination transactions with non-credit unions in January 2020 due to “a desire to add even more transparency,”18 it neglected to address the need for membership approval, disclosure of financial terms, or the possible ramifications for states and local communities given the eradication of certain tax and C R A obligations. Consumer protection disparities exist as well, which you have recognized.19
As you asserted earlier this year, “the people who manage the credit union, their interest doesn't always align with that of the members.”20 Credit union member-owners and the public deserve transparency. By building on the Outreach Task Force’s work, you have an opportunity to better align the interests of credit union leaders, credit union members, and the public.
Indeed, we urge the N C U A to go beyond the Task Force’s recommendations on executive compensation transparency for federal credit unions and incorporate additional transparency requirements for credit unions acquiring banks. Such measures will help prevent conflicts of interest and help restore some
accountability across the credit union industry.
Thank you for considering our recommendations and for your efforts to improve transparency within our financial system.
This concludes the A B A’s letter.
If your Credit union could use assistance with your exam, reach out to Mark Treichel on LinkedIn, or at mark Treichel dot com. This is Samantha Shares and we Thank you for listening.
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What is Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC?
This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello, this is Samantha Shares.
This episode covers The American Bankers
Association Trade groupâs letter to N C
U A Board Chairman Todd Harper on N C U
Aâs on the agencies improved transparency.
This letter demonstrates the challenges
of N C U Aâs recent public comments
that are negative towards credit unions.
The letter uses these references to
attack N C U A and credit unions.
The following is an audio
version of that letter.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
Forty years of National Credit
Union Administration experience.
We assist our clients with N C
U A so they save time and money.
If you are worried about a recent,
upcoming or in process N C U A
examination, reach out to learn how they
can assist at Mark Treichel DOT COM.
Also check out our other podcast called
With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the letter.
October 15, 2024
The Honorable Todd.
Harper Chairman
National Credit Union Administration
Dear Chairman Harper:
The American Bankers Association (A B
A) commends the National Credit Union
Administration (N C U A) for its renewed
focus on credit union transparency.
As credit unions grow and become more
complex, proper disclosure of pertinent
information to credit union member-owners
and the public gains importance.
In addition to recent reporting
changes for credit unions with more
than $1 billion in assets regarding
fee practices,1 a new proposal on
executive compensation transparency
for federal credit unions will
provide greater accountability
within the credit union system.
With the White House Office of Management
and Budget indicating that the N C
U A may issue a Notice of Proposed
Rulemaking as soon as this month,2
we urge the N C U A to implement
additional transparency requirements
relating to the increasingly complex and
concerning activities of some
credit unions, namely merger
transactions involving banks.
Specifically, we urge the N C U
A to require such credit unions
to receive membership approval,
disclose financial terms, and
demonstrate how combinations with
banks might impact consumers,
communities, and taxpayers.
In 2007, the N C U A organized an
Outreach Task Force in response to
inquiries from Congress3 â and a
subsequent report by the Government
Accountability Office4 â on credit unions.
Among other topics, the Task Force
examined N C U A policies and procedures
on senior executive compensation.
Although state-chartered
credit unions disclose compensation
data for key employees through IRS
Form 990 like most other nonprofit
organizations, federal credit unions
are exempt from doing so given their
status as federal instrumentalities.
In its 2008 report to the N C U A Board,
the Task Force concluded that disclosure
of senior executive compensation
would be âconsistent with prevalent
public policy and should enhance
accountability to the [credit union]
members,â and align with âfederal
credit unionsâ member-owned, demoC
R Atically-controlled status.â5
Due to their cooperative structure,
credit unions afford their members âthe
right to vote on strategic federal credit
union decisions including the directors,
mergers, and conversions.â6 Because
the results of such votes can directly
affect senior executive compensation,
the âTask Force concluded members should
know or have access to senior executive
officer compensation information when
deliberating on how to cast their vote.â7
Given the importance of merger
transactions in the life of an
organization, transparency about
the possible personal incentives
of management related to the
transaction is especially important.
While mergers between credit unions
and the acquisitions of credit unions
by banks require membership votes, the
acquisitions of banks by credit unions
do not.8 In December 2023, the N C U Aâs
Director of the Office of Examination
and Insurance stated in a memorandum to
you that âa credit union's purchase of
a bank is typically a strategic action
to expand its geographic footprint
or to grow a loan program.â9 The
memorandum noted that the N C U A approved
64 bank transactions with credit unions
between 2011 and September 30, 2023, âa
small portion of the overall consolidation
occurring in the financial services
marketplace.â10
However, credit union acquisitions
of banks now represent a much
larger share of total transactions.
According to an October 3, 2024
report from the American Banker,
âabout 90 bank sales were announced
through September,â and âcredit
union buyers were involved in nearly
a fifth of the deals to date this
year.â11 The 18 deals announced so
far in 2024 have already eclipsed the
record 16 set in 2022, and total bank
assets targeted by credit unions so
far this year â more than $9 billion
â have surpassed 2022âs record $5.15
billion.12 C N B C also reported that
you are aware of â12 more potential
deals that are in the works.â13
Credit unions have a statutory mission
to serve those of modest means connected
through a common bond in a local area.
That mission of service, and
their not-for-profit structure,
has justified their exemption
from most taxes and the Community
Reinvestment Act (C R A) for decades.
As growth-oriented credit unions
pursue new markets and commercial
lending via bank acquisitions,
legislators, regulators, and
even some within the credit union
movement have raised objections.
To the detriment of credit union
member-owners whose capital is
used to finance these transactions,
terms are rarely disclosed.
For the few credit unions that have
publicized such information, cash offers
to bank shareholders ranged from $26.2
million14 to $231.2 million15 this year.
In its newly released bank merger
policy statement, the Federal Deposit
Insurance Corporation (FDIC) acknowledged
that acquisitions of banks by credit
unions âmay have a negative impact on
state and local government budgets and
communities, which could necessitate an
increase in taxes.â16 The FDIC specified
that it may require credit unions to
âprovide additional information to enable
the FDIC to evaluate the convenience
and needs statutory factor, as credit
unions are not subject to the C R A.â17
Several states have also determined
that credit unions are unable to
acquire banks under state law.
Mississippi and Tennessee have
enacted legislation on this
issue whereas other states have
made regulatory determinations.
Although the N C U A issued a proposed
rule on combination transactions with
non-credit unions in January 2020
due to âa desire to add even more
transparency,â18 it neglected to address
the need for membership approval,
disclosure of financial terms, or the
possible ramifications for states and
local communities given the eradication
of certain tax and C R A obligations.
Consumer protection disparities exist
as well, which you have recognized.19
As you asserted earlier this year, âthe
people who manage the credit union, their
interest doesn't always align with that of
the members.â20 Credit union member-owners
and the public deserve transparency.
By building on the Outreach Task
Forceâs work, you have an opportunity
to better align the interests
of credit union leaders, credit
union members, and the public.
Indeed, we urge the N C U A to go beyond
the Task Forceâs recommendations on
executive compensation transparency for
federal credit unions and incorporate
additional transparency requirements
for credit unions acquiring banks.
Such measures will help prevent conflicts
of interest and help restore some
accountability across the
credit union industry.
Thank you for considering our
recommendations and for your
efforts to improve transparency
within our financial system.
This concludes the A B Aâs letter.
If your Credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and
we Thank you for listening.
